Clustering under the spotlight in Taiwan

Industrial development theory argues that clustering helps small and medium enterprises to compete in global markets. But does it also help them to climb the value chain? Is globalisation increasing the importance of location or diminishing it?

A paper from the Institute of Development Studies puts the cluster theory to the test using as a test case the concentration of computer and related activities in Taiwan. Arguing the need to distinguish between production and knowledge systems and to analyse local clusters alongside global value chains, the paper shows that in the Taiwanese personal computer (PC) industry the importance of clustering has decreased in the production system but remains high in the knowledge system.

Taiwan entered the IT industry in the 1980s by producing monitors and terminals and assembling fake Apple II computers and IBM-compatible machines. By 2000 the industry’s total output (including offshore production) had reached US $47bn. Taiwan now plays an indispensable role in the global PC supply system. In a wide range of PC sub-products it leads the world – making more than half of all monitors, motherboards, scanners and notebook PCs.

Taiwan’s PC cluster lies in the small area between Taipei and Hsinchu. A large number of subcontractors are engaged in separate production stages of PCs and peripherals. While some high-value components and electronic parts are imported, the bulk is supplied by highly specialised, small, local enterprises. The industry has been able to grow quickly by securing contracts for original equipment manufacture (OEM) – a form of subcontracting under which the supplying firms make a whole product to a design specified by the buyer who then sells the product under the buyer’s brand name.

The paper shows that:

Wider implications of the study of the Taiwanese PC cluster are that:


‘Upgrading in the Taiwanese computer cluster: transformation of its production and knowledge systems’, Working Paper 186, Institute of Development Studies, by Chikashi Kishimoto, April 2003 Full document.

Funded by: FASID, Japan

id21 Research Highlight: 13 November 2003

Further Information:
Hubert Schmitz
Institute of Development Studies
University of Sussex
Brighton BN1 9RE

Tel: +44 (0)1273 606261   
Fax: +44 (0)1273 621202 / 691647
Contact the contributor: H.Schmitz@ids.ac.uk

Institute of Development Studies (IDS), UK

Other related links:
'Comparing clustered and dispersed firms in the small-scale clothing industry of Lima'

'Forever the ugly duckling? Small and medium-sized enterprises'

'Devaluation bonanza or collective efficiency? Recovery of a Mexican cluster'

'Joint action: can clustering build industrial capacity in Africa?'

'Seedbeds for development? Nurturing industrial clusters in Indonesia'

Views expressed on these pages are not necessarily those of DfID, IDS, id21 or other contributing institutions. Articles featured on the id21 site may be copied or quoted without restriction provided id21 and originating author(s) and institution(s) are acknowledged. Copyright © 2009 IDS. All rights reserved.

id21 is funded by the UK Department for International Development. id21 is one of a family of knowledge services at the Institute of Development Studies at the University of Sussex. id21 is a www.oneworld.net partner and an affiliate of www.mediachannel.org. IDS is a charitable company, No. 877338.