The effects of innovative capabilities and R&D clustering on firm performance: the evidence of Taiwan's semiconductor industry

This research investigates the impact of various aspects of innovative capability on firm performance. A resource-based view of strategic management is adopted to highlight the importance of resources and capabilities. The study here also addresses the recent interest in the effect of R&D clustering on innovation and thus on firm competitiveness. The present study explores the influence of innovative capabilities and clustering effects along the value chain of the Taiwanese integrated circuit (IC) industry. The empirical results indicate that innovative capabilities are mostly positively related to performance as measured by returns on assets (ROA). Specifically, higher R&D intensity and higher R&D manpower are found to be predictors of improved firm performance. Additionally, firms at various stages of the value delivering process are seen to have differentiated innovative capability characteristics. A noteworthy result is that low and moderate levels of R&D clustering demonstrate positively moderating power to the relationship between innovative capability and performance. However, the hypothesis that further R&D clustering would eventually reduce the impact of innovative capability on firm performance was not confirmed.