Production Forecasting of Taiwan's Technology Industrial Cluster: A Bayesian Autoregression Approach

Canadian Journal of Administrative Sciences, Jun 2005 by Lee, Jack C, Wang, Chi-Hsiu, Hsu, Po-Hsuan, Lai, Hsien-Che

A Brief History of Taiwan's Computer Manufacturing Industry

In 1978, the Taiwanese government launched the First National Science and Technology Research Conference. At that conference, the government was advised to determine several industrial policies. One critical policy among them was to develop small computer manufacturing and assembly industries as the foundation of higher technologies for the future. The Taiwan government then started a series of plans including tax deductions, subsidizing industry R&D expenses, recruiting staff from abroad, introducing venture capital, and so on. At the same time, ITRI, the leading government-supported institute, initiated many research projects and supported sentrepreneurs. After several years, many international companies, such as IBM and HP, began to set up branches in Taiwan and release OEM orders to Taiwan's computer manufacturers. In this way, Taiwan's computer manufacturing industry gained a foothold in the global market in the mid-80s. The production values of Taiwan's computer manufacturing industry from 1994 to 2003 are shown in Figure 2.

From 1984 to 1990, Taiwan's computer industry increased its growth by maintaining low prices and improving quality. Since the '90s, Taiwan's computer manufacturing industry has used three strategies to cope with fierce competition in the global market: vertically upgrading, expanding/diversifying product lines, and branding. In the first strategy, manufacturers conducted joint research and strategic alliances to enter workstation and industrial computer markets. In the second strategy, Taiwan's manufacturers expanded product lines to multimedia computers, laptop computers, and communication technology products (personal digital assistants, cellular phones). The third strategy involved global marketing to seize the value of brand names. Acer and ASUS are two successful cases. It was also in this period that Taiwan's computer manufacturing achieved a critical position in the global personal computer (PC) market. In recent years, because of the lower cost employees available in China, most manufacturers set up factories in China and transferred most of their product lines there. This is why we observed a continual decrease since 2000 in Figure 2. By 2003, Taiwan's laptop computer sector produced US$16.2 billion, taking 61.5% of the global market. The desktop computer sector produced US$8.2 billion, taking 30.0% of the global market. If the production values of Taiwan's manufacturers in China were included, the market portion would become even bigger (III, 2004).

Empirical Studies

In this study, we consider two real cases: Taiwan's semiconductor and computer manufacturing industries. Our empirical study aims to examine the predictive performance of our proposed method using two benchmarks. The first is the predictability of other time series models (AR, VAR, and LBVAR) used in Hsu et al. (2003). The second is the forecast reports from two leading market information providers, the ITRI and III, in Taiwan.