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Strategy of a Company - Why Umc Repositioned It as Pure Play?

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Strategy of a company is largely depended on who is the leader and the success of that strategy depends upon how effective the implementation process is. This statement is totally true for the case of United Microelectronics Corporation (UMC) in its road to a pure-play foundry. After one year starting working in UMC, in 1982, Robert Tsao was elected to become president of the company and right from the start, he changed the company vision to the direction of a specialized foundry which dedicated to manufacture chips for semiconductor firms. Previously, UMC's operations were concentrated in relatively integrated circuit (IC) testing and assembly activities for multinational customers, as well as some design work. In spite of various contradict arguments about the low probable vitality of a contract manufacturing company; Robert Tsao still decided to go ahead with his vision by spinning-off several UMC divisions and formatting three joint ventures dedicated to producing ICs for fabless companies. This essay will provide analyses on the keys factors attributing to his vertical de-integration decision, evaluations on pure play strategy, the potential risks facing by UMC's business model as well as some suggestions for the company to mitigate those risks.

Why UMC repositioned it as pure play? (500) 1.5

Semiconductor companies that designed ICs have two options which are to manufacture the actual chips themselves or subcontract outsourcing companies to produce the chips fit to their design. The first option comprises the whole process of value chain including product conceptualization, design, manufacturing, assembly to branding, marketing and sales. The second choice merely involves the manufacturing step in the value chain, which does not require a company to be good at every step to ensure the success of business. With the vision of making UMC the world's leading "pure-play" semiconductor foundry, Tsao decided to choose second option which means to focus every effort into the manufacturing process, to become a superb specialized player.

The main reason driving Tsao's thought is his perspective on two main forces shaping the future of semiconductor industry which are technological and competitive forces. In terms of technological force, UMC's president foresaw the increasing complexity and high technical demand characteristic of IC manufacturing process which may require more knowledge as well as capital investment on operation activities. As proved in the last 20 years of 19th century, the cost of building a state-of-the-art fab had risen steadily over the years with both technological complexity and scale of the production process. Additionally, customer's demand was becoming more and more complicated that required designing step to be more specific to meet their needs. The competition landscape had also been an important element attributing to high product differentiation requirement between semiconductor firms. Both designing and manufacturing process required the quality excellence to maintain the company's



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