Written by Sin Lee and Chan-Yuan Wong.
Image credit: 02.13 總統視察「中鋼公司再生水系統及節能措施」 by 總統府/ Flickr, license: CC BY 2.0.
Artificial intelligence (AI) is becoming an unavoidable force in industrial transformation. As a global leader in semiconductor manufacturing, Taiwan must consider not only how to maintain its advantage in advanced manufacturing and expand its role in the global AI supply chain, but also whether the benefits created by this transformation can be shared among firms of different sizes. Given the substantial disparities in access to capital, technology, talent, and energy, the AI and net-zero transitions may further widen the development gap between large leading firms and local small and medium-sized enterprises (SMEs), causing Taiwan’s industrial structure to exhibit a K-shaped pattern of divergence.
A K-shaped economy describes a pattern in which some firms or economic groups advance while others stagnate or decline, resulting in widening inequality. Previous studies have documented a widening productivity gap between global leading firms and latecomers, while a small number of highly productive and technologically advanced “superstar firms” have increasingly gained greater market dominance. Meanwhile, SMEs generally face more severe financial, technological, human-resource, and managerial constraints when adopting digital technologies and environmental management practices (OECD, 2021; Johnson & Schaltegger, 2016; Purwandani & Michaud, 2021).
Consequently, within Taiwan’s industrial ecosystem, the AI and net-zero transitions may reinforce a K-shaped pattern of divergence among firms. On the upward trajectory, leading firms can leverage their advantages in capital, technology, talent, and access to renewable energy to move continuously into higher-value-added activities, including research and development, design, systems integration, and supply-chain governance. By contrast, resource-constrained SMEs on the downward or stagnant trajectory may be unable to bear the costs of digital upgrading, carbon accounting, environmental certification, and renewable-energy procurement. As a result, they risk remaining confined to lower-value-added production and service activities or even being excluded from the upgrading process within global supply chains.
As environmental awareness rises globally, industrial upgrading within global value chains can no longer be discussed separately from renewable energy. An increasing number of global brand firms now require their suppliers to reduce carbon emissions and increase their use of renewable energy. Access to renewable energy is therefore becoming an important condition for firms seeking to remain in higher value-added segments of global supply chains. For example, Apple has called on its supply chain to use 100% renewable electricity for Apple production by 2030. However, under Taiwan’s current renewable-energy procurement environment, large firms are clearly better positioned than SMEs to meet such requirements. Purwandani & Michaud (2021) argue that capital-intensive actions, such as renewable-energy adoption, generally require greater financial resources and institutional support, thereby creating higher entry barriers for resource-constrained SMEs.
Based on the publicly available direct-supply transaction records of Taiwan’s Renewable Energy Certificate Centre, the three largest purchasers of renewable-energy certificates in 2024 were TSMC (49.4%), UMC (4.8%), and AUO (3.1%). This distribution suggests that renewable-energy procurement remains highly concentrated among a small number of large firms. Although Taiwan’s SMEs continue to grow and play an important role in the semiconductor industry, unequal access to renewable energy and high procurement costs may create new barriers to their further development.
As global brand firms such as Apple increasingly incorporate climate governance into supply chain management, they are requiring suppliers to use renewable energy, disclose carbon-emissions data, and implement emissions-reduction measures. As a result, access to affordable and reliable renewable energy is becoming an important condition for entering and maintaining participation in global supply chains.
Apple’s Supplier Code of Conduct and Supplier Responsibility Standards apply to suppliers that directly or indirectly provide goods or services to Apple, or goods or services for use in or with Apple products and services, including contractors and sub-tier suppliers. For manufacturing suppliers involved in the production of Apple products, Apple requires them to establish Scope 1 and Scope 2 greenhouse gas inventories, regularly report their emissions, emissions-reduction targets, and progress, and progressively achieve Apple’s targets.
For resource-constrained SMEs that participate indirectly in global brand supply chains through large firms such as TSMC and ASE, these environmental requirements may not take the form of direct contractual obligations with Apple. Instead, they may be transmitted through their direct customers’ supplier codes of conduct, carbon-emissions data collection, audits, and corrective-action plans. Accordingly, direct suppliers such as TSMC may serve as intermediaries that transmit and implement Apple’s environmental requirements throughout the supply chain. However, the specific standards and audit procedures applicable to each SME depend on its position in the supply chain, contractual arrangements, and whether it is involved in manufacturing activities related to Apple products.
If resource-constrained SMEs are unable to meet these environmental compliance requirements, the direct risks they face are often being asked to take corrective action by their direct customers, being excluded from new projects, or experiencing a reduction in orders. If they continue to fall short of the requirements, their contracts or orders may be reduced or transferred to other qualified suppliers. As supply-chain requirements cascade through successive tiers, their opportunities to participate in Apple-related global supply chains may consequently be diminished.
This may affect SMEs’ short-term revenues and weaken their opportunities to acquire technology, knowledge, market information, and other complementary resources through supply-chain relationships, thereby constraining their long-term functional upgrading. This may constrain their long-term functional upgrading and leave them in lower-tier positions within global value chains. Nevertheless, even if SMEs are unable to maintain Apple-related supply relationships because of insufficient environmental compliance capabilities, this does not necessarily mean that their products will lose all other market opportunities. They may turn to other customers or application markets, participate indirectly in supply chains through other large firms, deepen their original equipment manufacturing (OEM)/ original design manufacturing (ODM) manufacturing and technological capabilities, develop their own products or brands, or regain supplier qualification after improving their environmental performance.
However, these alternative pathways are often constrained by product specificity, recertification costs, financial and investment capacity, and similar environmental requirements imposed by other large buyers. Therefore, losing Apple-related orders may not immediately force SMEs to exit the market, but it may push them toward lower-value-added segments of the supply chain, where opportunities for technological learning are more limited.
By contrast, large firms possess stronger financial capacity to sign long-term power-purchase agreements, procure renewable-energy certificates, invest in energy-efficiency equipment, and maintain dedicated carbon-management teams. From this perspective, unequal access to renewable energy and the uneven distribution of environmental burdens do not merely create operational pressures; they may also reinforce the existing hierarchical structure of global value chains. This hierarchy refers to the unequal distribution of governance power, bargaining power, and value capture among global brand firms, large manufacturers, and smaller suppliers engaged in components, packaging and testing, and supporting services. Large manufacturers with greater financial resources and scale advantages, such as TSMC, are better able to respond to sustainability requirements and continue upgrading, thereby consolidating their core positions within global value chains. SMEs facing high energy-transition costs, in contrast, may become locked into lower value-added production activities and may even face the risk of exclusion from international supply chains.
That’s why reducing the barriers to renewable energy procurement for SMEs has become an increasingly important issue in Taiwan’s industrial policy. To help SMEs overcome the operational and supply-chain participation barriers arising from insufficient access to renewable energy, the Taiwanese government launched the Affordable Green Electricity Programme for SMEs in 2025. The programme aims to diversify the supply of renewable energy, promote market transactions, and address the difficulties SMEs face because of their limited purchasing scale, weaker bargaining power, and complex transaction procedures. Its continuation in 2026 indicates that the government has begun to respond to the challenges SMEs encounter in procuring renewable energy.
However, not all SMEs have the same level of demand for renewable energy. For example, firms primarily serving the domestic market may not yet need to purchase it, whereas those facing carbon-reduction requirements from international customers or seeking to enter global supply chains have more urgent needs. Therefore, the policy priority should not be to encourage every SME to purchase renewable energy, but to ensure that firms with genuine demand can obtain it reliably and at an affordable price.
These dynamics may suggest that Taiwan’s AI transition should be assessed not only by the growth of leading firms, but also by whether SMEs can participate in AI-driven productivity gains and remain connected to global supply chains. For SMEs facing emissions requirements from international customers, access to renewable energy and the capacity to measure and manage carbon emissions may become important to retaining or gaining supplier status. At the same time, adopting AI can require investment in skills and digital infrastructure. When these demands accumulate, resource-constrained firms may find it harder to keep pace.
Therefore, in addition to helping SMEs in jointly procuring renewable energy, the Taiwanese government should also provide practical assistance with greenhouse gas emissions, energy planning, AI training, and digital tools. These measures can help more SMEs meet supply-chain requirements and benefit from the AI and low-carbon transitions.
Sin Lee is a Doctoral Student at the Institute of Technology Management at National Tsing Hua University (Taiwan). Her research focuses on the semiconductor industry, particularly global value chains, geopolitics, firms’ strategies in technological upgrading, catching up, and technology cycle time. She also examines how the semiconductor industry sustains competitiveness and drives innovation amid sustainability and energy transition pressures. She can be reached at <alice02272000@gmail.com>.
Chan-Yuan Wong is Professor and Chair at the Institute of Technology Management at National Tsing Hua University (Taiwan) and Visiting Professor with the South African Research Chair in Industrial Development at the University of Johannesburg (South Africa). He has published extensively on technology catch-up in the semiconductor industry, regional innovation systems, high-tech industry analysis, and governance issues in middle-income economies. He can be reached at <wcy@mx.nthu.edu.tw>.
This article was published as part of the special issue on AI Shield and Energy.