The Determinants of Organizational Innovation and Performance: An Examination of Taiwanese Electronics Industry

Abstract

According to the World Economic Forum, Taiwan ranked fourth and fifth in global growth competitiveness in 2004 and 2005, respectively. These achievements have attracted worldwide attention, and even Time magazine has recognized Taiwan as a strong innovator. Taiwanese Electronics industry has invested a lot of resources in innovation and has become one of the biggest electronic design and production centers in the world. Taiwan is the only country in East Asia that has closed the gap in innovative activities with the leading G7 countries (Breznitz, 2005). For example, from 2003 to 2006, Taiwan ranked second in the rate of international patents per capita, which is one of the most reliable proxies for industrial innovation. Through an increase in patents issued both in the United States and internationally, Taiwan is now a sophisticated player in innovation consortia. It is important to examine the determinants of organizational innovation. There are many differences in ownership structure and foreign capital between Taiwan and Western countries. Due to Taiwan's unique situation, the two important determinants in Taiwan are ownership structure and foreign capital. For example, most public firms in Taiwan are owned by families. In recent years, the government has put much effort into attracting foreign capital to Taiwan. In Taiwan's unique situation, it is relevant to understand whether ownership structure and foreign capital influence organizational innovation and by extension, performance. We focus on a sample from Taiwanese Electronics industry between 2002 and 2004. The empirical results show that family ownership structure has a negative impact on organizational innovation. By contrast, foreign capital has a positive impact on a firm's innovation. These two most important components of innovation need to be analyzed together. We find that domestic ownership structure is more important than foreign capital to explain the effect of innovation on organizational performance.