Vertical Integration versus Strategic Outsourcing in Semiconductor Supply Chains: An Empirical Analysis of Firm-Level Governance Decisions Among Fabless Chipmakers, 2015–2023

Abstract

This study examines governance mode selection—vertical integration versus strategic outsourcing—among fabless semiconductor firms navigating heightened geopolitical disruption and supply chain volatility between 2015 and 2023. Drawing on Transaction Cost Economics (TCE) and the Resource-Based View (RBV), we analyze a panel dataset of 114 publicly listed fabless chipmakers across the United States, Taiwan, South Korea, and the Netherlands. Using fixed-effects logistic regression and instrumental variable estimation, we identify asset specificity, technological uncertainty, and relational embeddedness as primary determinants of governance escalation toward vertical integration. Counterintuitively, firms with high relational embeddedness in foundry partnerships demonstrate a significantly lower propensity to internalize wafer fabrication capacity, even under severe supply constraint conditions. Our findings offer nuanced strategic prescriptions for executives navigating the make-or-buy boundary in capital-intensive, IP-sensitive industries.