Comparison of the Technical Efficiency of Construction Industries—A Case Study of Taiwan and Mainland China

Abstract

A strong construction industry is critical to any country’s economic and infrastructural development. Facing declining business prospects in the domestic market, Taiwanese construction firms have sought new opportunities overseas, particularly in the mainland Chinese market. Without an adequate understanding of the market, making such investments involves significant risks. To better understand the differences in the markets, this study investigates the technical efficiency (TE) of the Taiwanese construction industry compared to mainland China. The focus was on TE values of construction companies across the two markets as well as the strengths and weaknesses to help inform the decision-making process. The TE evaluation was completed using the stochastic frontier approach (SFA) with a subinput efficiency model to evaluate three inputs (assets, costs, and labor) of 123 construction companies with 59 companies in mainland China and 64 companies in Taiwan. Results show that for the key asset investment factors in Taiwan’s construction industry, TE is lower than that in mainland China. However, Taiwan’s construction industry was found to have higher labor efficiency than mainland China. Relative to mainland Chinese companies, Taiwanese companies have advantages in both labor inputs and revenue outputs but are disadvantaged in terms of the firm and market size. This study shows that Taiwanese construction firms are positioned to pursue expansion into mainland China, ideally by establishing cooperative alliances. Results also show that government policy needs to ensure construction companies are supported by increased economic freedom and reduced restrictions, as these positively correlate with the revenue of local construction companies.