Discussions

In this empirical study, we try to discover the major driving forces for the growth of industrial clusters and to find out the relationships among these driving forces. We take HSIP as our case for study. According to the empirical results, this research concludes with some managerial implications, as follows.

We can find out the relationships among these driving forces based on Table 11 and Figure 5. From the results, we understand that most of the driving forces form a system and also are self-reinforcing. Founded on the 5^th step described in section 3.3, self-reinforcing implies that within the system the impact levels of any factor can not

be lower than the benchmark value and that activating the factor not only improves other driving forces’ effectiveness but also affects itself. That said, these driving forces influence each other and have a self-relation, except for D6 (culture dimension), as only the value of D6-D6 is 0.7514 (see Table 11), which is smaller than the benchmark value “1”, decided by the experts in this research. Using the DEMATEL, we decided to neglect D6 and exclude it from the set of driving forces of the industrial clusters for this case, HSIP (See Table 12 and Figure 5).

The main reason why culture is a weak driving force behind Taiwan’s industrial clustering is that Taiwan’s industry is mainly export-oriented and more and more globalized due to its Original Design Manufacturing (ODM) mode. A weaker culture may therefore result from the gradual spread of higher internationalization within the science park. However, according to our observation there is little blending of diverse cultures, which tends to be a challenging obstacle to successful collaboration within the cluster. This research outcome also accords with previous studies. For instance, Porter (1998) believed that the clustering of industry would lead towards vigorous competition and would result in the rapid development of skilled workers, the creation of related technological industries, and specialized infrastructure that would give each firm within the cluster a competitive advantage. The rivalry for final goods stimulates the emergence of an industry that provides specialized intermediate goods. Keen domestic competition leads to more sophisticated consumers, who come to expect upgrading and innovation. Also, as mentioned before, each industrial cluster driver should not only interact with the others but also affect the industrial cluster. The industrial clusters affect each driver correspondingly (Ketels, 2003).

3.4.3.1 Causal Group Forces

In addition, our research results from using the DEMATEL method point out that the major causal dimensions are D1 (Factor Conditions) and D2 (Local Demand Conditions). See Table 12 for their positive (D-R) values and relatively higher (D+R) values. The D1 and D2 are strong direct influencers on all other dimensions with Taiwan’s cluster formation/growth, including affecting themselves. Furthermore, the D1 (factor conditions) is the main cause factor for the growth of industrial cluster.

Because the D+R value of D1 is higher than that of D2 based on Figure 5, the D1 is more important cause factor than D2 for the growth of industrial cluster. Therefore, the government should invest more resources in D1 factor to cause more efficient clustering growth. We will interpret why these two drivers are causal and how Taiwan should advance its industrial clustering performance through stimulating them.

First, the committee observes that “factor conditions” are also a causal driving force for the growth of industrial clusters. The factor conditions refer to the specific factors. These are more difficult than other conditions to duplicate. This can lead to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable. Based on our definition of factor conditions, specialized factors of production are skilled labor, capital, and information infrastructure. The main factor conditions include entrepreneurship, venture capital, science parks, and incubators for the growth of the industrial cluster.

Taiwan is an island country with shortage of many natural resources. Therefore, the economic development relies heavily on the international trade and specialization.

In order to complement such factor lacks in fostering stronger industrial clusters and achieving country competitiveness, Taiwan industries should accumulate unique expertise and capabilities in doing business worldwide. Accordingly, Taiwan’s business sectors, distinguished by its manufacturing technology and management know-how, are now trying to be an integral part of the supply chain of many global

products and are also beginning to serve as an integrator of global resources by expanding their operations worldwide, especially in most Asian countries, including mainland China (Wong, 2007). Also, Taiwan has been faced with a relative shortage of the capital resource (Huang, 2008). This is not positive at all in terms of developing its industrial clusters. The suggestion is that Taiwan’s government should be opening up the domestic monetary market. This shall help to cultivate an investment environment for foreign businesses to pull together multi-national capital resources.

Furthermore, to make transmission of funding more convenient, the government should also allow international financial firms to set up bases in Taiwan, therefore enabling transnational inward investments more active in Taiwan (Huang, 2008).

Second, the experts identify local demand conditions as the most contributory and determinative driving force for the growth of industrial clusters. From the perspective of national competitiveness, in Taiwan, a large market enables suppliers to provide specialized products and services. Suppliers gain from a nearby market for their output, while the client firms in the cluster gain from easy access to a range of services. This interaction can get the most immediate and the newest responses regarding technical problems or market demand. Proximity to a local market also plays a key role in potentially increasing a firm’s competitive advantage. Timeframes tend to be shorter for responding to local demand pressures, and the firms tend to be more confident in understanding and satisfying local demand requests. Porter indicated that local market size is most important for enhancing competitive advantage in industries with substantial research and development requirements, major economies of scale in production, or significant generational leaps in technology (Porter, 1998). A rapidly growing local demand provides firms with the incentive to incorporate new technologies faster and to upgrade or expand their

innovations from the demand side has its complementary pushing force located among related and supporting industries (Rojas, 2007). That is why the pressure for Taiwan’s local industry markets is high.

Krugman (1981) argues that scale economies provide a foundation for backward and forward linkages and for horizontal differentiation of products as well. Since Taiwan is a small economy, the domestic market cannot provide the kind of scale economies. As a result, it has to link to some major external markets to realize such scale economies. Also the technological depth for Taiwan’s clusters was perhaps not enough to produce such a kind of positive cumulative effect (Saxenian, 2001). In the Silicon Valley, in contrast, it is mainly innovation driving successful scale economies, contributing to the agglomeration of industrial clusters (Saxenian, 2006). Therefore, what needs to be mentioned particularly is that Taiwan’s local demand factor should more and more involve the condition of cooperation and global networking. In Taiwan, hundreds of other relatively unknown firms are partners in the success of high-profile companies like the Taiwan Semiconductor Manufacturing Corporation (TSMC), Acer, and Quanta, who have direct links to major multinational markets. These companies have developed their own capabilities by collaborating with customers and suppliers to develop new products or improve existing products (Saxenian, 2006). So the adaptive capacity of Taiwan’s technology base derives from collaborations among local producers as well as from their long-distance partnerships. In particular, the fragmentation and localization of production in the Hsinchu region are key to the flexibility, speed, and innovative learning-by-doing of its IC firms (Saxenian, 2006).

3.4.3.2 Effect Group Forces

On the other hand, as shown in Table 12 and Figure 5, dimensions 4, 3, and 5

denote the effect dimensions in the order of negative (D-R) values. These effect dimensions can also be regarded as indirect factors for the growth of industrial clusters in Taiwan. Thus, the factors of Cure, Firm Structure, Strategy, and Rivalry, Related and Supporting Industries, and Government Support will be affected by the two causal factors as noted. However, these dimensions have relatively higher (D+R) values and this says that the existence of such factors involves more perfection and sufficiency.

The HSIP, established by the government of Taiwan in 1980, straddles Hsinchu City and Hsinchu County on the island of Taiwan. Industries in the HSIP cover primarily six industries (Chen, 2007). Firms in the science park bring in high-tech industries and, in addition, help transform Taiwan’s labor-intensive industries into technology-intensive industries (Williams, 2005; Chen, 2007). In Taiwan, innovation alliances have been organized as a means of spreading the R&D risk between firms and securing first mover advantages (Tsai and Wang, 2005; Wonglimpiyarat, 2008).

The scope of the government-sponsored Industrial Technology Research Institute (ITRI) has been expanded to serve as a channel for technology transfer within the private sector; the majority of the budget for National Science and Technology Projects (NSTPs) has also been allocated to ITRI in an effort to boost the institute’s innovative capacity. In addition, tax incentives have been made available to absorb some of the R&D costs of firms and to encourage them to engage in R&D activities (Tasi and Wang, 2005).

Concerning government support, the Taiwanese government undertook a more direct role in the direction of the economy, taking steps to ensure that private entrepreneurs would invest in certain areas. The government helped establish industries, including plastics, textiles, fibers, steel, and electronics (Wade, 1990).

3.4.3.3 Summary

When policy makers are considering how to drive or improve their industrial clusters as a whole, they must take into account the key influential factors and their affects upon the other indirect dimensions. Generally speaking, activating influential factors can more easily result in expected improvement results, but indirect factors can only have limited contributions to stimulating the continual growth of these industrial clusters, from the viewpoint of country comparative advantages.