1.1. Research Background
Taiwanese IC design industry has experienced dramatic growth over the past two decades.
The compound annual growth rate (CAGR) of IC design industry in Taiwan is about 15% for the past 10 year (2000-2009). The rapid growth made Taiwanese IC design industry, behind the US, the second largest IC design industry in the world (Huang and Yang, 2003).
Compared to manufacturing, packaging and testing sectors in Taiwanese IC industry, the IC design sector is more suitable for Taiwan. Compared to other sectors in IC industry, the IC design sector generates higher gross margin and revenue per employee while consumes less capital expenditure at the same time. Furthermore, the high-quality yet relatively low-cost engineers have been the competitive edge for Taiwan. Developing IC design industry can fully utilize the valuable human resources thus strengthen Taiwan’s competitive ability.
To analyze the prosperity of Taiwanese IC industry in the past two decades, Hung and Yang (2003) applied the national system of innovation (NSI) concept to explore the successful factors of Taiwanese IC design industry. Among the elements of an NSI, four factors are selected from the literature (Chen and Sewell, 1996; Mathews, 1997; Chang and Hsu, 1998). There are four major factors- “government policy”, “human capital”, “industry clusters”, and “bridging institutions”- contributed to the success of Taiwanese IC design industry. To achieve the goal of
“Green Silicon Island”, Taiwan government used lots of policies - including tax benefits, low-interest loans, Industry-University Cooperation Program, and sponsoring R&D institution focusing on applied technology - to attract investment in IC industry. Besides, the high-quality human capital in Taiwan is the most valuable asset for high-tech development. Higher salaries and stock rewards in Taiwan IC industry help recruit skillful and dedicated engineers to boost the
industrial growth. Furthermore, the Shin-Chu Science-Based Industrial Park, Taiwan’s “Silicon Valley”, has provided a superb infrastructure to attract the first-tier high-tech firms to start their business. After years of development, an IC industry cluster has formed. The network structure facilitates personnel, technological, and informational interactions within the cluster. Therefore, technological diffusion, cooperation, and mutual support are easy to take place between firms.
Finally, the most famous bridging institution, Industrial Technology Research Institute (ITRI), have made a great contribution to the development and diffusion of technology for Taiwan’s high-tech industries. ITRI is responsible for scanning new technology globally, absorbing them and transferring theses new technology to Taiwanese firms for commercial development. For example, the Taiwan’s computer industry benefited a lot from the successful interaction with ITRI. (Chang et al., 1999) Furthermore, ITRI integrates government, academic, industrial and foreign resources to make the most of industrial innovation (Hsu, 2005). Since many Taiwanese firms are small-to-median enterprises and lack of R&D capability. ITRI have become the source of innovation for Taiwan IC industry. All these factors interact with each other and create synergy to enhance the growth of Taiwanese IC design industry.
The characteristics of IC design industry are fast-changing, asset-light and knowledge-intensive. The emergence of new technologies may bring about uncertainty and impact. The rise of System-on-a-Chip (SoC) design methodology has brought new challenges to Taiwan IC design industry. Since IC design industry is asset-light yet knowledge-intensive, the managerial capabilities and intellectual capital management are the critical issues for the industry.
All the important issues mentioned above are summarized and defined in detail in section 1.2.
1.2. Scope and Objectives
1.2.1. The “Temporary Champion Curse” of IC design industry in Taiwan
IC design industry has been an increasingly important sector in Taiwan. Under a modular industrial structure, IC design houses in Taiwan can build their competitive advantages on speed, quality, flexibility and cost. However, modular structure of the industry also imposes restriction on the firms’ long-term growth and profitability. The “temporary champion curse” phenomenon, describing the growth ceiling and short-term competitiveness of specialized firms in a modular production system, was observed in IC design industry in Taiwan. The research depicts the“temporary champion curse” phenomenon in IC design industry and attempts to explore the reasoning through the lens of theory. The main finding is that knowledge scope is critical for firms to maintain long-term competitiveness. A firm should not only focus on their present products but expand their knowledge scope in the long run.
1.2.2. Managerial Capabilities of IC Design Industry
The IC design houses in US and Taiwan comprise 90% of market share around the world.
The IC design firms, belonging to the fabless sector of semiconductor industry, rely little on physical capital investment. Capability, the central concept suggested by resource-based view (RBV), is the key factor to succeed in IC design industry. To measure relative capability, firms should be compared across similar external conditions and evaluated with multiple performance indicators. This research employed three-stage DEA to isolate environmental influence and included 30 dominant players of IC design industry to evaluate their managerial capabilities. The results showed that IC design houses in US outperform their counterparts in Taiwan. It is a warning signal that many IC design houses in Taiwan are inefficient and less profitable. The
results of this research provide practical information for managers of IC design houses to understand their relatively competitive positions and thus to frame their future strategies by benchmarking their counterparts.
1.2.3. Intellectual Capital Management of IC Design Firms in Taiwan
Management of intellectual capital has been the source of competitive advantages in the new economy. The study employed data envelopment analysis (DEA) and principal component analysis (PCA) to analyzed 62 publicly listed IC design firms in Taiwan. The DEA models using different performance indices were analyzed and their relationships were further explored with PCA. The empirical results revealed that 30 out of 62 firms are efficient in market value added (MVA) or calculated intangible value (CIV) performance dimension. About a quarter of the IC design firms still have much room to improve their intellectual capital management. The purpose of the study aims to provide a benchmark tool for firms to understand their relative strength and weakness in intellectual capital management. The empirical results may help managers frame their future strategy more correctly and enrich the empirical research on intellectual capital management.
1.3. Organization of the Dissertation
The dissertation is organized as the following order. Chapter 2 explores the “temporary champion curse” phenomenon of IC design industry in Taiwan, describing the growth ceiling and short-term competitiveness of specialized firms in a modular production system. Two empirical studies on managerial capabilities and intellectual capital management were conducted. Chapter 3 employed 3-stage DEA to investigate the competitive landscape of dominate players in US and Taiwan IC design industry. Chapter 4 compares the managerial efficiency of intellectual capital
for Taiwan IC design houses. The implication and recommendation are provided at the end of each chapter.