Open AccessThe Effect of Business Strategy on R&D Expenditure and Firm Performance – Evidence from Taiwan
Author(s) -
Tran Thị Thanh Nga,
The Hoang Vy,
Duy Khanh Pham
Publication year - 2022
Publication title -
management systems in production engineering
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.251
H-Index - 6
eISSN - 2450-5781
pISSN - 2299-0461
DOI - 10.2478/mspe-2022-0011
Subject(s) - cost leadership , industrial organization , business , investment (military) , competitive advantage , position (finance) , strategic management , marketing , economics , microeconomics , finance , politics , political science , law
This paper aims to investigate the effect of generic strategy on R&D spending and the impact of R&D spending on firms’ performance conditional on their strategic position. This empirical study uses accounting data of 597 listed Taiwanese firms in the manufacturing industry from 2013 to 2017. The data was obtained from Taiwan Economic Journal (TEJ) database. The results indicate that firms that adopt a differentiation strategy have more R&D spending than companies with a cost leadership strategy. Furthermore, the authors find that R&D spending positively affects firms’ performance if they pursue a differentiation strategy. Meanwhile, the relationship between R&D spending and firm performance forms an inverted U-shape for those who adopt a cost leadership strategy. First, for firms adopting the differentiation strategy, the investment in R&D is critical because the more investment on R&D these firms spend, the better performance they will gain. Second, for firms with a cost-leadership strategy, R&D spending is also essential to improve efficiency. However, they should allocate the budgets wisely and reasonably, as controlling cost is the main focus of this strategy to keep their competitive advantages. This study examines the relationship between R&D spending, business strategy, and firm performance in Taiwan. Further, the study suggests that manufacturing firms in Taiwan allocate their resources wisely and efficiently according to their system.