52 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 43 | 2025 Taiwan’s transition from silicon to AI island Nicole M. Pasterczyk Taiwan is renowned for semiconductor innovation. With semiconductors pivotal to digital advancement, the island is essential in geopolitical trade. However, overreliance on semiconductors puts its economy and sovereignty-preserving silicon shield at high risk, given geopolitical tensions with China. Diversification is critical to securing a strong economic future. Investing in digital technology would utilize strengths while avoiding threats. This article analyzes Taiwan’s current situation and proposes discovery-based AI as a serious contender for alternative investment. Introduction Semiconductor manufacturing immediately comes to mind when reflecting on Taiwan. By 2030, the global semiconductor industry is expected to become a trillion-dollar industry, and Taiwan has secured its position within it as an essential manufacturer (Burkacky et al., 2022)—accounting for 22% of global semiconductor manufacturing capacity (Shattuck, 2021), including ~92% of the world’s most advanced chip manufacturing capacity (Jones & Krulikowski, 2024). Taiwan Semiconductor Manufacturing Company (TSMC), the most prominent semiconductor company, became the eighth most valuable company in the world in terms of market capitalization in October 2024, surpassing American conglomerate Berkshire Hathaway Inc.’s market value (TSMC becomes global no. 8, 2024). This valuation can be credited to growth in market dominance over recent years. In the first eight months of 2020, Taiwan’s entire integrated circuit sector's export increased by 21% to US$76B (Shattuck, 2021). Between Q2 and Q3 of 2024, TSMC accounted for more than 93% of the increase in global semiconductor foundry revenue, setting its overall new market share record at 64.9% of the total US$34.9B revenue (Tung, 2024). Consequently, the semiconductor industry has dominated the economic landscape and made it a favorable trade partner for economies across the world. Taiwan’s semiconductor industry evolved as a result of intentional public policy aimed at the development of advanced technologies. In the 1970s, the dominating economic viewpoint was that advanced technology belonged to the private sector, whereas utilities and lower-profit products and services were better served in the public sector (Mathews, 1997). Taiwan, viewed at the time as an affordable manufacturing hub for basic technology, flipped this script, with the public sector investing in advanced technology, forming institutions to support these endeavors, including creating the Industrial Technology Research Institute (ITRI) in 1973 (Mathews, 1997). By reimagining the capabilities of the public sector as a powerhouse driving high-tech development over the following decades, Taiwan emerged as a new leader in semiconductor manufacturing. However, major economic and political concerns have surfaced alongside the island’s success. Therefore, Taiwan must transform its venture capital ecosystem. The next sections discuss how coordinated governmental reform, enhanced domestic investment infrastructure, and strategic internationalization initiatives will enable diversifying beyond semiconductor dependency and securing sustainable economic growth in an increasingly polarized geopolitical landscape Issues with semiconductor industry dependence Though the semiconductor industry is incredibly profitable and has amassed great wealth for Taiwan, this strength could prove a great weakness, posing growing economic and political challenges for the island. Economic issues The semiconductor industry contributes ~15% to the small island’s GDP (Jones & Krulikowski, 2024) and is heavily dependent on one company: TSMC, which comprises approximately one third of Taiwan’s stock exchange market, TAIEX (Shattuck, 2021). To put this in perspective, while TAIEX was up 5% overall for the year 2020, if TSMC were removed from the index, it would have been down 2% (Share surge puts Taiwan…, 2020). Though there is no universal doi:10.18275/pbe-v043-008
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