The Market Shares of Small and Medium Scale Enterprises in Taiwan Manufacturing*

Abstract

Small and medium‐sized enterprises (SEM s) have played an important role in many countries’industrial development. Among these countries, Taiwan is well known for the outstanding performance of its SME s. Limited knowledge about the causes of such performance has been revealed gradually. The main purpose of this study is to explore the determinants of SME s’market shares in Taiwan's manufacturing sector. According to economics literature, economies of scale determine the market share of SME s. The usual explanation given is that economies of scale create barriers against SME s entering the market and competing efficiently with larger firms. It is also said that the strong entrepreneurial drive to have a self‐owned business is a crucial explanation for the creation of new businesses, usually as offshoots from a small one. Finally, such factors such as an even‐handed policy scheme, the availability of technology in relation to R&D, transaction costs, and so forth, are also important for creating a favourable environment for SME s.Applying cross‐industry pooling data from 1976 to 1986, the market shares of SME s in Taiwan's manufacturing sector were found to be affected by the following factors: (1) SME s’performance related to labour productivity and their willingness to set up new enterprises; (2) institutional factors including low entry barriers, suitable technology, the adoption of a subcontract system, and prosperous export markets. The empirical findings are compared with those from studies of the US and Germany.