Strategy, Structure , and Performance Issues of Precompetitive R&D Consortia:

Insights and Lessons Learned From Sematech

The main argument of this paper is to bring to the reader the way Sematech, a non
profit consortium, which main task was to support the competitiveness of U.S
semiconductor industry, an industry valued 41.6 billion dollars in 1996 (probably
more, nowadays) between the 80s and90s . The role played by the semiconductor
industry in the American economy is huge. So huge, that most people consider it one
of the most important industries for the future of the USA, and this for two main
reasons:

Microchips are integrated in an incredible variety of products, the sector

growth is incredibly high (almost 16% per year) despite the already huge size

of its market
This knowledge intensive industry, due to its nature can be seen as model for
the development of a new form of economy, characterized by rapid changes
and high level of know-how, the so-called new economy.

It is believed that semiconductor industry would be used as a general model of

industrial competition and growth applicable to other high-technology sectors.
Actually, the semiconductor sector is reshaping itself (ex.: more product-driven
R&D) in order to compete with other market, like the Japanese one. This resulted in
the USA regaining the leadership of the sector for the first time since years in 1992.
This trend can be ascribed to many factors.
1. The US firms tried to explore new market. Why stay stocked in high
competitive low added value market, if you can shift to new, design-intensive
high added value ones?
2. Development of a new horizontally-specialized industry structure which
integrates fabless design firms and with the manufacturing capabilities of
dedicated semiconductor foundries.
3. Enthusiastic venture capitalist ready to invest in this high growth industry
4. Collaborations between firms, but also between firms and equipment suppliers
5. Establishing of clusters where governments, industries and universities had
the chance to collaborate, in order to be more competitive.

In order to foment this high growing market and to continue on this positive trend,
the government and some semi-conductor firms started in 1987 the SEMATECH
consortium.
The SEMATECH facility were situated in Austin. The budget of SEMATECH was quite
narrow (100 million $ from the members of the consortium, 100 million $ from the
government), so they had to organize workshop in order to understand on which
manufacturing areas SEMATECH had to focus. A point of break occurred when
Perkin Elmer, the leading US manufacturer for lithography equipment was sold to a
Japanese firm. It appeared clear that Japanese firms wanted to create a cartel. MR
B. Noyce, SEMATECHs CEO strengthened the collaboration between all the semiconductor firms in order to create a more solid production ecosystem.
The building of this consortium has been, of course, no easy thing: deciding its
structure was the most difficult part, because the members did not want to share with
competitors their expertise.
The main urgent reason for the creation of a consortium was, in any case, the fact
that that despite the fact the US semiconductor market was open, the same wasnt
true for the Japanese one: Japanese firms established an intern network of suppliers
(really close to a cartel) that cut off all the American firms from the Japanese market.
This kind of market was not competitive, but precompetitive.
What SEMATECH did not considered was the fact the in a fast growing and evolving
market like the semiconductor market, geographic lines and state boundaries lose
significance. In 1997, SEMATECH created SEMATECH international, which included
five Asian and European firms.
In 1999, SEMATECH international was dissolved, and international partners were
allowed to join SEMATECH. In this particular moment a small Copernican revolution
happened. While international partner were joining SEMATECH, American ones, due
to cost problems, were leaving.
The lessons SEMATECH gave, not only to the Hi-tech industries, but to all the global
industries was huge. Establishing a consortium can be difficult to establish, even
more difficult to sustain, but can give an incredible boost to an industry.
I think that was SEMATECH did was in just one word huge.
Let us just think briefly at the meaning of the word consortium. A consortiums main
goal is to create a unitary organization between its member, which can be in some

way forced to follow some rules (ex.: produce microprocessor by respecting some
standards).
The CEO had to deal with some of the most important firms in the USA. These firms
needed each other, but they did not wanted to give away know-how to competitors.
On the other side, the Japanese market was close, and, in some ways, nationalist. It
was difficult impossible, for the USA firms to penetrate it.
The imperative, for the USA firms was one: CHANGE OR DIE.
SEMATECH succeed in his purpose only because it was able to understand the
needs of its members and to develop crescent forms of collaboration, until, with the
advent of a globalized market and the switching from a precompetitive to a
competitive market, they werent needed anymore.
The lesson that SEMATECH gave to the entire industry panorama in the world is
incredible and can be summarized in just one sentence. Sometimes collaborating is
sometimes the only key to success.