INTRODUCTION

 

The subject of business strategy has evolved over the last fifteen to twenty years to incorporate two views. The views are not mutually exclusive but they do represent somewhat opposing perceptions of the dominant components of successful strategies. The environmental opportunity view received a major definition and emphasis with the emergence of Porter’s popular book, Competitive Strategy [1980]. Porter’s emphasis is upon defining the characteristics of the environment and adjusting the firms strategy to the opportunities that appear in the environment. Then, Prahalad and Hammel [1990] published an article in Harvard Business Review indicating that strategy should be designed to take advantage of a firms internal strengths, i.e., core competencies.

Both of these views are conceptually persuasive and backed by extensive case analyses and examples drawn for various industries. However, the concepts are so broad that few rigorous industry wide, longitudinal studies have been attempted to provide rigorous empirical evidence to support one or the other view. One of the interesting characteristics of longitudinal studies is that industry membership is not stagnant; new firm entry is a common phenomena that, to many researchers, compounds the problems of measuring industry success. But, to entrepreneurship researchers, such new entries are the essence of industry behavior. The questions of importance are why and how did the entrepreneurial entries occur and what strategic advantages did the survivors have to achieve their success. While evidence exists that founders’ experience is correlated with entrepreneurial success, it is not known whether founder "environmental" or "core competence" experience is the most significant in determining success. Clearly, such knowledge would enhance understanding of appropriate directions for entrepreneurial entry strategy.

The purpose of this paper is to use data taken from a 47 year longitudinal study of the world wide, semiconductor silicon crystal industry to analyze the successful and not successful entrepreneurial entry firms. These firms are classified by founder experience before entry to derive a definition of entry core competence and relate this to survival. In this way, we show that founder core competence in silicon production is strongly related to survival. Other competencies are not strongly related.

 

APPROACH

 

The semiconductor silicon industry is the first step in materials that eventually become components in nearly all electronic equipment. This industry is large today but was minuscule until the invention of the transistor in the late 1940s and subsequently the integrated circuit in the 1960s. Silicon has been used as the base material (substrate) on over 90% of all semiconductor devices (i.e., integrated circuits, transistors, diodes) manufactured since 1953 (O'Mara, 1992). As such, it is one of the most important materials of the 20th century -- what Japan's Ministry of International Trade and Industry, (MITI), has called the "crude oil" of the semiconductor industry (M. Berger 1985). But, like most materials industries, silicon has been characterized by rapid long term growth punctuated by periods of over capacity followed by shortages. During the industry's forty five year history, silicon producers have simultaneously proceeded along the cost, quality and performance curves, which has allowed silicon to remain the primary substrate for most semiconductor applications. By 1994, silicon was being produced in over 15 countries on 5 continents and was approaching $4 billion in annual sales. Altogether, 156 firms have been or are in this industry, a number sufficiently large to suggest that this is a highly competitive industry.

Our analysis was based on an extensive review of the semiconductor silicon industry. Data sources included: industry associations; consultants; consulting companies; US government data; Japanese government data; EEC member data; corporate archival data; industry specific journals and magazines; case studies of the industry; interviews with founders, presidents, and key corporate personnel of the firms in the industry; interviews with former industry leaders; and interviews with suppliers to the industry. In total, we identified one hundred and fifty-six companies that compete, or have competed in the forty five year history of the semiconductor silicon industry. We believe this list is exhaustive [Walsh, 1995].

Extensive interviews were carried out with 310 founders, presidents, key corporate personnel, former industry leaders, and suppliers. These interviews constituted a critical part of our data collection. Representatives from 146 of the 156 firms in the industry were contacted during the three and a half year interview process. We designed the interviewing process to include not only the current key upper level managers, owners and technologists of the firms, but also key individuals throughout the life of each firm. We attempted to interview a sufficiently large number of individuals at each firm who were knowledgeable about the entire life of the firm (Walsh, 1995).

From this mass of data, this paper focuses upon the 35 independent firms that entered the industry with the intent of establishing a viable market share. Interview data was derived from the founders, and/or individuals with extensive knowledge of the firm in 33 of the 35 firms during the two and a half year interview process. For two firms, no data nor interviews were conducted because these firms were very small and did not survive for more than two or three years [Walsh, 1995].

 

Linking Core Capabilities with Entrepreneurship

Prahalad and Hamel (1990), define core capabilities as the "corporate wide technologies and production skills ... that empower individual businesses to adapt quickly to changing opportunities." Similarly, Pisano and Shuen (1990), define core capabilities as "a set of differentiable skills, complementary assets and routines that provide the basis for a firm's competitive capacities and sustainable advantages." The contention of resource based theorists is that for any given industry or competitive environment, the firms more richly endowed in the relevant "differentiable skills, complimentary assets and routines" will have a higher probability of success.

Entrepreneurial firms rely on the ability and background of the founders for their endowment in the necessary core capabilities at the time of entry and early stage growth. This is apparent from research that shows founder experience is related to success of subsequent ventures [Chandler and Hanks, 1991; Dunkelberg, Cooper, Woo, and Dennis, 1987; Stuart and Abetti, 1990]. Little effort, however, has been made in strategic entrepreneurial literature to integrate founder experience typologies with the emerging resource based or core competence strategy concepts [Walsh et al 1994]. If the normative claims of the resource-based school are valid, then firms whose founders have a stronger background in the relevant core capabilities will be more likely to succeed. This simple proposition serves as the basis of this analysis.

Determining the capabilities necessary for success in the semiconductor silicon industry was a difficult task. We outlined the primary production processes involved in the manufacture of silicon. We then identified the types of technological capabilities demanded by each process and used these to determine if founders had a background in technical core capabilities.

Next we identified the background of the founders with respect to two additional important criteria. We identified whether the founder had previous experience in any aspect of the semiconductor silicon industry other than technical aspects mentioned above. This includes experience such as marketing or sales. Then, we determined if the founders had previous experience with a start up firm. It was not necessary that the start up experience be in the semiconductor silicon area.

 

Defining the Relevant Capabilities in the Semiconductor Silicon Industry

Firms in the semiconductor silicon industry produce three different final products: polycrystalline silicon, single crystalline silicon, and silicon wafers. Polycrystalline silicon is an intermediate product used to produce single crystalline silicon. Single crystalline silicon is the material that is sliced into silicon waters. Several firms are totally integrated and produce all three products. Each step in this process requires somewhat different capabilities, although all can generally be categorized as materials processing capabilities.

Analysis of specific skills, combined with our extensive interviews with industry experts, identified seven technologies critical to the production of semiconductor silicon. They are: inorganic chemistry, controlled environment materials processing, batch processing, scale intensive processing capabilities, silane chemistries, crystalline material, and wafering.

 

Defining the Capabilities of the Founders

At the generic level, we attempted to determine whether each founder had materials processing capabilities or fabrication and assembly capabilities. If the production process requires the transformation of materials from one state to another, materials capabilities are required. If the production process requires the fabrication or assembly of components into subsystems and systems, fabrication capabilities are required.

The founders and their firms were separated into the following three groups: founders with a technical background in materials procession or fabrication and assembly; founders with experience starting a previous firm; and founders with non-technical experience in the silicon industry. The groups are not mutually exclusive. For instance, it is possible for a founder to have a background in materials and also have start up experience. A background in materials was determined to hold if the founder had education in materials (e.g., a materials engineering degree), or had industry experience in an industry specializing in materials. Firms were then classified by their founders experience using one or more of these criteria in combination so that each firm is in a mutually exclusive category. These mutually exclusive categories are used in the tables presented in the following section.

 

Measuring Success

We selected two measures as indicators of success, longevity and sales growth. As experienced entrepreneurship researchers know, reliable data about profitability was impossible to collect. Since the industry is highly competitive, and we examined the industry over a forty year period, longevity becomes a good proxy for profitability. Obviously, firms that survived over the long haul had to have adequate profitability.

To measure longevity, we used the following criteria:

  1. The firm is currently competing in the market.
  2. The firm survived for a period greater than 10 years before going out of business but is not currently competing in the market. Our feeling is that a firm had to be fairly successful to have a life span of 10 years or more. This is obviously a weaker measure of success "currently competing."
  3. The firm was acquired by another firm. This measure is included because many firms have been acquired during the history of the industry. We felt that if a firm was sufficiently valuable to be purchased, then that firm experienced some degree of success.

We also used sales, in dollars, as another indicator of success. Sales for each of the three groups is presented in the tables as well. Entrepreneurial firms are a small portion of the total silicon market. In order to better compare across entrepreneurial firms, we calculated the sales of each group as a percent of total entrepreneurial sales. This information is also presented in the following section.

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Last Updated 4/27/97 by Germaine Wong

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