Industrial Networks and Foreign Direct Investment: The Study of Taiwan¡¦s Steel Industry Abstract Facing the changing environment, many Taiwan businesses try to achieve economy of scale and develop their markets by taking foreign direct investment (FDI), especially under poor macroeconomic conditions in Taiwan and the driving force of cheap costs from developing countries. Conventionally, it is considered that big firms take FDI to bring their specific advantages into foreign markets. From the view of industrial networks, FDI is a method for firms to set up a linkage with foreign networks. They need not establish foreign networks by themselves. They can establish and utilize foreign networks through FDI. The steel industry is capital and technology intensive, and with high entry barriers in nature. The industrial networks are very important to a steel firm because it is very difficult to attain all the production resources. The key success factor is the competence to grasp the production resources so as to obtain cost advantages and synergy. In the past decade, facing lack of labor, increasing land cost, and market pull, the down-stream firms took FDI dramatically. The middle- and up-stream firms are also eager to do so. Because of the huge investment scale and other limitations, it is not easy for upstream firms to take FDI. Even China Steel Corporation (CSC) has overcome a lot of obstacles in the past decade and finally acquired ORNA Steel in Malaysia to establish a bridgehead in Southeastern Asia. From the view of industrial networks, this study tries, first, to investigate the network change of the firms of Taiwan¡¦s steel industry after taking FDI, and next examine the change of competitiveness and ways of attaining profit. We construct a model which divides them into four types of firms and their ways of attaining profits. They are: flagship type industry/profit sharing, clan type industry/profit shifting, lone knight type industry/profit capturing, stragglers type industry/profit disappearing. Then, we use this model to examine cases of Taiwan¡¦s up, middle, and down stream steel industry in a dynamic way. Finally, we propose some recommendations for the government and steel industry to improve the competitiveness of the steel industry.