Taiwan is a global leader in the semiconductor industry, largely due to companies like Taiwan Semiconductor Manufacturing Company (TSMC). By 2022, Taiwan controlled over 60% of the global foundry market, with TSMC alone producing nearly 54% of the world’s chips. This success has turned Taiwan into one of the richest economies, with the semiconductor industry contributing more than $184 billion to the island’s exports—equivalent to the GDP of some countries. TSMC itself is valued at $892 billion, making it the 9th most valuable company in the world. The prominence of semiconductors in global politics has kept Taiwan’s success in the spotlight, yet few people know how this industry began. Let’s take a look at how Taiwan became a global semiconductor hub.
Before Taiwan became a high-tech powerhouse, its economy relied on agriculture and low-cost manufacturing. In the late 1960s and early 1970s, the government, led by the Ministry of Economic Affairs, shifted toward developing more advanced industries. In 1973, the Industrial Technology Research Institute (ITRI) was founded to support industrial innovation, especially in technology fields like semiconductors. ITRI played a key role in researching new technologies and transferring this knowledge to local firms. For example, they secured partnerships with foreign companies, allowing Taiwan to access critical semiconductor manufacturing technologies.
At the same time, the government encouraged foreign investment by creating science parks, offering tax incentives, and training engineers. Hsinchu Science Park, established in 1980 and modeled after California’s Silicon Valley, became a hub where local and foreign tech companies thrived. The establishment of TSMC in 1987 was a turning point for Taiwan’s semiconductor industry. Led by Morris Chang, a former Texas Instruments executive, TSMC pioneered the pure-play foundry model. This model focused solely on manufacturing chips for other companies, rather than designing and manufacturing its own. This allowed fabless companies, which design chips but don’t manufacture them, to thrive without the cost of building semiconductor plants.
While TSMC became the most well-known, other companies like United Microelectronics Corporation (UMC) and MediaTek also played key roles. UMC, founded in 1980, was Taiwan’s first semiconductor company and eventually followed TSMC’s foundry model. MediaTek, established in 1997, focuses on chip design and has become a major player in mobile communications. ASE Technology, founded in 1984, specializes in semiconductor packaging and testing, further strengthening Taiwan’s role in the global supply chain.
American companies like RCA, Texas Instruments, and General Instruments had already set up factories in Taiwan in the 1960s and 1970s, attracted by cheap labor. Many Taiwanese engineers trained in the U.S. returned to Taiwan, bringing with them technical expertise and business models that fueled the country’s growth in high-tech industries. By the late 1980s, Taiwan’s semiconductor industry had gained global recognition, with TSMC becoming the go-to foundry for companies around the world. TSMC’s investment in advanced technology, like lithography and process nodes, helped it stay ahead of competitors.
By the early 2000s, Taiwan had established itself as a global leader in semiconductors. The industry contributed significantly to Taiwan’s GDP and provided thousands of high-paying jobs. TSMC’s ability to produce increasingly smaller and more efficient chips, such as 7nm and 5nm chips, gave it an edge over competitors like Samsung and Intel. The company’s investment in extreme ultraviolet (EUV) lithography allowed it to produce cutting-edge semiconductors.
Today, Taiwan accounts for more than 60% of the global foundry market, with TSMC producing over 90% of the world’s most advanced chips. These chips are critical for 5G networks, artificial intelligence, and high-performance computing. TSMC remains at the forefront of innovation, investing billions annually in research and development to maintain its leadership. In 2022 alone, TSMC invested over $10 billion in R&D. The company is already planning 2nm chip production for 2025, ensuring it stays ahead of competitors.
Taiwan’s dominance in semiconductors has made countries like the U.S. heavily reliant on its chip production, especially for technology and defense. A conflict between China and Taiwan could cause massive disruptions in the global supply chain, leading to shortages in industries like automotive and consumer electronics. To mitigate this risk, TSMC is expanding its operations outside of Taiwan. It is building a $12 billion plant in Arizona and a new fab in Japan in collaboration with Sony.
In summary, Taiwan became the world’s semiconductor hub through strategic government support, foreign investment, and a focus on innovation. TSMC’s pure-play foundry model, along with contributions from companies like UMC, MediaTek, and ASE, has positioned Taiwan at the center of the global tech supply chain.