Virtual integration and profitability: some evidence from Taiwan’s IC industry

Authors: Mei-Jane Teng; Chi-Hung Huang;

Journal: Chia Da Management Review. Jun. 2005, 25(1): 1-27.

Keywords: Virtual integration; Vertical integration; Profitability; IC industry

Abstract:
Taiwan's Integrated Circuit (IC) industry is of particular interest due to its increasing global importance and its unique, virtually integrated industrial infrastructure. This study attempts empirically to investigate the relationship between the profitability of Taiw an's IC firms (dependent variables) and both firms' business strategies (virtual integration versus IDM) and industrial business cycles (contingent variable). Significant and interesting results were obtained. First, the main factor, business strategies, significantly affects a firm's profitability and the variation over time. Secondly, the significance of the effect of the interaction between business cycles and business strategies implies that business cycles impact the two strategic groups to different extents. Finally, the effectiveness of virtual integration to increase a firm's return on sales is demonstrated. The increasing numbers of independent IC design firms worldwide seem to support the findings of this work.