A comparison of the effects of traditional production factors and sources of innovation on KIBS' performance: an empirical study of Taiwanese IC design firms

Abstract

Knowledge-Intensive Business Services (KIBS) are important carriers, sources and facilitators of innovation. This study aims to analyse the factors that contribute to firms' performance in a KIBS subsector in Taiwanese Integrated Circuit (IC) design industry by proposing an integrative evolutionary production function, which includes traditional production factors such as physical capital and labour, as well as sources of innovation like internal Research and Development (R&D) and external technology acquisition. Based upon data from 68 Taiwanese IC design firms during 1993?2005, this study was primarily concerned with modelling the factors that influence firm performance. Empirical results show that internal R&D is the most important factor that contributes to firm performance, followed by labour, external technology acquisition and physical capital. But the last two latter factors do not significantly influence firm performance. This study concludes that internal R&D and labour have the greatest explanatory power to enhance firm performance, especially in KIBS. If IC design firms want to raise their performance level, they have to invest more on internal R&D and labour than on physical capital and external technology acquisition.