Abstract

After the completion of human genome project (HGP) in 2003, biology went into “postgenome era.” Many countries have marked different approaches in craving out a niche in the biotech arena. Taiwan also proposed the “Two Trillions, Twin Stars plan” to advance biotech industry. Taiwan’s biotech firms not only expanded in the domestic market, but also engage in foreign direct investment (FDI) in order to enhance their competitiveness and efficiency. This study applies the slack-based measure (SBM) to analyze how FDI affects the operating efficiency of Taiwan’s biotech firms. We further decompose the technical efficiency into three components: mixed efficiency, pure technical efficiency, and scale efficiency. The data set, obtained from Taiwan Economic Journal, consists of 63 Taiwan’s biotech firms for 2003-2005. The empirical results indicate that FDI can effectively increase the mix efficiency and scale efficiency. In addition, the appropriate R&D strategies of Taiwan’s biotech firms should either invest massively in R&D in order to enhance the likelihood of development of new products, or focus on production with a little investment in R&D. Other findings include: (1) On average, Taiwan’s biotech firms could increase their efficiencies by 73.75 percent if all firms operated on the efficiency frontier; (2) If we omit the mix efficiency, we may overestimate technical efficiency about 37.91 percent; (3) The primary source of inefficiency results from the raw material inefficiency.  

Keywords

Biotech firm FDI R&D