Productivity and efficiency analysis of Taiwan's integrated circuit industry

Purpose - The purpose of this paper is to evaluate the productivity and efficiency of Taiwan's integrated circuit (IC) industry using DEA analysis and the Malmquist index (MI). Design/methodology/approach - The Malmquist index, as a total factor productivity index based on distance functions, is estimated using DEA in this study. Findings - Results indicate that as the asset size class becomes larger and larger, the associated companies become more and more inefficient. Also, results indicate a possible scale inefficiency in the IC industry investigated. Research limitations/implications - This paper presents a DEA study to investigate the productivity and efficiency in IC industry. This performance analysis is important because Taiwan's IC industry stands in a critical global position as indicated by analysis of market share across various sub‐components of the industry. The resulting analysis might provide valuable managerial insights. Originality/value - The originality of this paper is its application of specific analytical techniques to the productivity and efficiency if IC companies in Taiwan's companies. The MI is appropriate for measuring the productivity change because it does not require the assumption of a possibly unwarranted functional form on the structure of production technology, as required by the econometric method.