Chapter 14: Institutionalized Construal of Chinese versus American Firms in the Semiconductor Industry: Path-Dependence and Business Narrative Fits

China has emerged as a leader in cost-efficient manufacturing in the semiconductor sector, and the USA has excelled in value-added modular systems and marketing. The existing explanation relies on within countries and between firms. This article links macro institutional paths to micro construal levels narratives to understand differences between Chinese and American manufacturing (fabs) and marketing (fabless) business functions and concrete and abstract narratives in the path-dependent systems in the semiconductor industry. Based on a large data set on semiconductor firms, the result reveals that Chinese firms engage in manufacturing and integrated structures, and American firms engage in fabless R&D/marketing activity. Chinese firms use concrete narratives aligned with manufacturing business functions, and American firms use abstract narratives aligned with marketing business functions. This chapter contributes to the institutionalized construal level (ICL) framework, in which economies are governed by their institutional path-dependencies – from science to legitimization of the product. Following this logic, the author argues that Chinese and American firms need to be tested for their alignment with concrete versus abstract narratives, respectively. For policy, the findings highlight the divergent approaches of China and the USA in the semiconductor industry, with China focusing on concrete manufacturing and the USA emphasizing abstract marketing strategies. To transition from one to the other, Chinese firms need to develop an abstract mindset, and American firms need to develop a concrete mindset.