How Much Does Industry Matter in Taiwan?

By Lieu, Pang-Tien; Chi, Ching-Wen | International Journal of Business, Fall 2006 | Go to article overview

How Much Does Industry Matter in Taiwan?


Lieu, Pang-Tien, Chi, Ching-Wen, International Journal of Business


ABSTRACT

This study examines the relative importance of year, industry, corporate, business unit, and transient industry effects on Taiwan business unit profitability between the years 1994 and 2000. Consistent with previous studies, our results indicate that in Taiwan business unit effects are considerably more important to profitability than other effects. When compared to the United States, we find that transient industry effects are more important to profitability in Taiwan, inasmuch as Taiwan manufacturing faced changes in its management environment when industrial investment transferred to Mainland China during the 1990s. This transfer resulted in a rapid change in Taiwan's industry structure that affected profitability. Our findings suggest that Taiwanese firms cannot control the structural factors of industry within the rapidly changing management environment. This may indicate that the competitive advantages of the business unit have a relatively larger influence on firm profitability in Taiwan than in the U.S.

JEL Classification: L10

Keywords: Profitability; Industry effects; Corporate effects; Variance components analysis

I. INTRODUCTION

Thus far, there has been over twenty years of research into the relative importance of industry and corporate effects on firm profitability. Schmalensee's (1985) study was the first published work addressing this issue. Schmalensee used the variance decomposition method to decompose the total variance of business unit profits in the 1975 Federal Trade Commission (FTC) database. He found industry structure to be the most important influence on firm profitability. Subsequent studies by Rumelt (1991), Roquebert et al. (1996), and McGahan and Porter (1997a, 2002) also explored profit variance by decomposing the variance of business-unit profits into components associated with year, industry, corporate, and business-specific effects. Although the databases and statistical techniques used by the aforementioned researchers were not exactly identical, their results appeared to indicate that both industry and business unit effects had a large influence on business unit profitability, and that business effects were more important than industry effects. On the other hand, the influence of the corporate effects on business unit profitability varied subject to the different statistical and sample screening methods adopted.

Prior relevant studies into this top focused on the advanced countries, especially the United States, whereas those empirical studies that incorporated data of developing countries have been scarce. (1) McGahan and Porter (2002: 849) suggested that "the most direct opportunities for further research reside in exploring new data on the accounting profits of firms in other parts of the world apart from the U.S. in order to yield insight on questions about the relationships between the national economic environment and industrial performance." Taiwan is still considered a developing country at present. In recent years, labor-intensive manufacturing such as the textile and plastic products industries continue to be transferred westward to Mainland China in order to reignite and sustain development in stagnant industrial sectors. As these industries mature with gradual decreases in technological advantages and global competitiveness, they are replaced by new high technology industries such as the semi-conductor industries and other such information and electronics industries. This indicates that the management environment of Taiwan's manufacturing has recently experienced significant changes. Based on the figures published by the Directorate-General of Budget, Accounting and Statistics of Executive Yuan, R.O.C., Taiwanese manufacturing as a proportion of the Gross Domestic Product (GDP) declined from approximately 33.3 percent in 1991 to approximately 25.6 percent in 2001. (2) In the rapidly changing industrial environment, Taiwanese firms cannot control the structural factors of industry. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

How Much Does Industry Matter in Taiwan?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.