Measuring the relative efficiency of IC design firms using the directional distance function and a meta-frontier approach

This paper presents an alternative approach for evaluating the efficiency of integrated circuit (IC) design firms. In doing so, it accounts for differences between technology groups containing one or more design firms, and input and output factors to prevent influences of scale (e.g., firm size). Specifically, we employed a directional distance function approach to data envelopment analysis in order to evaluate inefficiency scores and differences among groups based on input and output factors. We found the efficiency of Taiwan's IC design firms to be dependent not only on firm size but also on R&D expenditure and patent revenue. Our findings suggest that these factors significantly influence the technical efficiency of Taiwan IC design. Furthermore, by focusing on technology gaps, we offer some suggestions for the different groups based on group-frontier and meta-frontier analyses. Finally, using the results of these analyses, we extend the global results of this study, presenting ways to further improve efficiency.

► Scale and scope are considered group factors in the IC design firm evaluations.
► A four-phase approach was proposed and applied to the Taiwan IC design industry.
► Different groups of IC design firms should use different management policies.
► Technology gaps are best resolved through spillover or mutual learning among groups.