Virtual integration and profitability: Some evidence from Taiwans IC industry

Po-Young Chu, Mei Jane Teng*, Chi Hung Huang, Hung Shu Lin

*Corresponding author for this work

Research output: Contribution to journalReview article

10 Scopus citations

Abstract

Taiwans Integrated Circuit (IC) industry is of particular interest due to its increasing global importance and its unique, virtually integrated infrastructure. This study was conducted to examine the strategy-performance consequences of strategic group membership and attempted empirically to investigate the relationship between the profitability of Taiwans IC firms (dependent variables) and both firms business strategies (virtual integration versus IDM) and industrial business cycles (contingent variable). Data was taken from the Taiwans Integrated Circuit industry for the period 1994-2001. Significant and interesting results were obtained. First, the main factor of business models significantly affects a firms profitability and the variation over time. Secondly, the significance of the effect of the business models was still found when the variable of business cycle was included. It implied' that the effectiveness of virtual integration to increase a firms return on assets and return on equity existed at any stage of business cycles. An increasing number of independent IC design firms worldwide seem to support the findings of this study. However, the IDM firms may still exist due to their strategic commitment though the virtually integrated firms have higher profitability.

Original languageEnglish
Pages (from-to)152-172
Number of pages21
JournalInternational Journal of Technology Management
Volume29
Issue number1-2
DOIs
StatePublished - 7 Mar 2005

Keywords

  • IC industry
  • Profitability
  • Vertical integration
  • Virtual integration

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