Measuring the Relative Efficiency of IC Design Firms: A Directional Distance Functions and Meta-Frontier Approach

An alternative approach for evaluating the efficiency of integrated circuit (IC) design firms is presented in this paper. We took into account the 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 influenced 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 extended the global results of this study, presenting ways to further improve their efficiency.