INTRODUCTION

Chapter Overview

This introductory chapter gives the audience an insight of the study which includes the background of the study, the purposes of the research, the research questions, the delimitations and limitations, the significance of the study, and the definition of the terms, in order to introduce a comprehensive logic by the researcher.

Background of the Study

In the era of knowledge economy, intangible assets of a company has taken the place of tangible assets and have become the most important resources that create value for enterprises nowadays. “Intellectual capital”, namely the knowledge assets, has become one of the most-discussed business management topics; it also determines success or failure of modern enterprises (Thomas, 2003). Additionally, many researchers regard intellectual capital as an asset that generate a company’s competitive advantage and value (Edvinsson & Malone, 1997; Roos & Roos, 1997;

Stewart, 1997; Bontis, 1999, 2001).

It is especially so for design industries, as its intangible assets are far more important than its tangible assets. This year Taiwan has so far obtained at least 165 international design awards, which is an improvement from the 133 awards in 2007, and 148 in 2006 (Yang, 2008). This is the evidence that Taiwanese design industry has the potential to contribute to the nation’s economy. It was the first time for design industry to be officially considered in “Challenge 2008 – National Development Plan”, in which design industry development is included as a sub-plan. Also, Taiwan Design Center (TDC), a national design center, was founded to foster the development of Taiwanese design industry.

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Theoretically, many researchers have emphasized the influence of intellectual capital on business performance. However, empirical studies are still developing. And even though some researchers has contributed to intellectual capital studies in the scope of Taiwanese high-tech and financial industry (Wang & Chang, 2005; Chen, Cheng, & Huang, 2006; Lin & Huang, 2006; Huang & Liu, 2006; Tsan & Chang, 2006), none of them have conducted empirical researches in design-related industries.

As a result, the researcher is interested in investigating the impact of intellectual capital on the performance of Taiwanese design industries. The study thus examines the interrelationships among intellectual capital components and their influence on business performance respectively. Also, recommendations are provided to assist design company managers in managing the intellectual capital of their company.

Questions of the Study

Based on the intentions to enrich Taiwan’s intellectual capital studies, specifically in the design industry, as defined in the study, this research aims to answer the following questions:

1. What are the characteristics of Taiwanese design industry’s intellectual capital?

2. How does intellectual capital influence Taiwanese design companies’

performance?

3. What can the government and the managers of Taiwanese design companies do to build up the intellectual capital?

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Purposes of the Study

The design industry in Taiwan has not been seen as important until recent years.

It is hoped to bring Taiwan to a brand new knowledge economy phase. Behind the high value-added industry performance of design industry, it is the intellectual capital of these companies that plays a major role in creating values. Despite the fact that the importance of intellectual capital has been noticed, it is just beginning to be unveiled by Taiwan’s academic and practitioners’ fields. To understand more about intellectual capital of design industry in Taiwan, the following purposes were devised.

The purposes of this study are:

1. To understand the characteristics of Taiwanese design industry intellectual capital.

2. To investigate and analyze how the components (i.e., the variables of this study) for intellectual capital (Human Capital, Structural Capital, and Relational Capital as defined in the study) may influence the performance of design industry in Taiwan.

3. To provide recommendations to the Taiwanese government and managers of design industry on how to utilize and manage the intellectual capital of their companies.

Significance of the Study

The cultural and creative industry features its variety, dispersion and its small-scale staff, but the number of employment and the industry value of it have kept on growing, which enriches the life of quality. It is also an industry that all developed countries, such as north European countries, the UK, and Japan, have been progressively promoting (Council for Economic Planning and Development [CEPD], 2005). With the development of cultural and creative industry, Taiwan could be saved from the dilemma of micro-profit competition, increase the employment, as well as

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improve its life quality.

Within all the cultural and creative industries, the design sector is one of the industries that rely mostly on its knowledge to create value. Nonetheless, little is known about the intellectual capital of the design industry in Taiwan.

The quantitative survey provided statistical data that is significant to the government and the executives of Taiwanese design companies. Accordingly, the findings of the research may: pinpoint problems Taiwanese design companies are facing and provide directions for future improvement; assist the government with meaningful literature to make future design industry development policies; and provide the managers with valuable recommendations on what measures could be taken to enhance the firm’s intellectual capital and performance.

Moreover, of great significance is the fact that this research is the first empirical intellectual capital study conducted in the scope of design industry in Taiwan and hopefully this study becomes a pioneer that will encourage more empirical studies on this topic.

Delimitations and Limitations

The researcher placed several delimitations on this study. For the research participants, it is delimited to Taiwan and not generalized to other regions. It is also delimited to the design companies included in the industry catalog of Taiwan Design Center (TDC). Also, the study is delimited to the definition, classification, and questionnaire items used in the research, which is adopted from the study of Cabrita and Bontis (2008), because the researcher is interested in using their questionnaire to conduct the empirical study in Taiwan. Moreover, the research is delimited to the managers of the companies; researchers recommend the collection of data from

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respondents who are at least managers or directors within the organization (Bontis, 1998; Bukh, Larsen, & Mouritsen, 1999).

Limitations

This study reviewed the related literature, construct the research framework and research hypotheses based on the research purpose. However, there are still some inevitable limitations: first, due to the constraints of difficulty to reach desired respondents, the researcher used only ten people to conduct the pilot test. Second, according to the latest statistics available, there are 2,239 design companies in 2006 (2003-2006 Taiwan Cultural and Creative Industry Relevant Statistics, n.d.). However, only 500 companies are included in TDC’s industry catalog, which could produce sample bias. Third, the responses of variables in the questionnaires were based on the subjective recognition of respondents and might be influenced by their age, seniority, personality, and educational background.

Definition of Terms

The following is the definitions of variables in this study:

¾ Human capital

Human capital represents the individual knowledge stock of an organization as represented by its employees. (Bontis, Crossan, & Hulland, 2002)

¾ Structural capital

Structural capital is a valuable strategic asset, which is comprised of non-human assets such as information systems, routines, procedures and databases. (Cabrita &

Bontis, 2008)

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¾ Relational capital

Relational capital is the knowledge embedded in relationships with customers, suppliers, industry associations or any other stakeholder that influence the

organization’s life. (Cabrita & Bontis, 2008)

¾ Business performance

In this study, Cabrita and Bontis (2008) used the following ten indicators to measure business performance: Industry Leadership, Future Outlook, Profit, Profit Growth, Sales Growth, After-tax Return on Assets, After-tax Return on Sales, Overall Response to Competition, and Success Rate in New Product Launches, Overall Business Performance and Success.

We adopted the above ten performance indicators to assess business performance. In this study, we categorize them into two major indicators, including market leadership indicators and financial performance indicators, in order to evaluate a company’s competence in the market. Market leadership indicators include industry leadership, future outlook, overall response to competition, success rate in new product launches, and overall business performance and success. Financial indicators include profit, profit growth, sales growth, after-tax return on assets, and after-tax return on sales.

¾ Taiwanese Design Industry

Taiwan Design Center (TDC) is the national design organization of Taiwan (CEPD, 2005). This study adopted the design industry classification of TDC, which includes following four major categories: product design, service design, activity design, and space design.

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