RESEARCH ARTICLE


The Cost Efficiency of Construction Industry in Taiwan



Ren-Jye Dzeng, Jih-Shong Wu*
Department of Civil Engineering, National Chiao-Tung University, Taiwan (R.O.C.). 13F., No.28, Ln. 167, Zhongzheng Rd., Zhonghe Dist., New Taipei City 235, Taiwan (R.O.C.).


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© Dzeng and Wu; Licensee Bentham Open

open-access license: This is an open access article distributed under the terms of the Creative Commons Attribution 4.0 International Public License (CC-BY 4.0), a copy of which is available at: https://creativecommons.org/licenses/by/4.0/legalcode. This license permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Correspondence: * Address correspondence to this author at the Department of Civil Engineering, National Chiao-Tung University, Taiwan (R.O.C.). 13F., No.28, Ln. 167, Zhongzheng Rd., Zhonghe Dist., New Taipei City 235, Taiwan (R.O.C.).Tel: 886-937429090; Fax: 886-2-22422588; E-mail: bill.wu26@msa.hinet.net


Abstract

The construction industry is high amount of cash flow which creates high financial leverage. To thrive in this industry under the pressure of global market competitions and the impact of profit margin compression, determining a higher cost efficiency module becomes essential for construction operations. In this study, 27 Taiwan OTC construction companies are examined using the Stochastic Frontier Analysis during 2002-2009. By using the regression model and the translog cost function to evaluate the cost inefficiency, equipment cost, and firm scale. The results of this study suggested that: (i) the cost efficiency showed that there was still a room for improvement, (ii) reduce higher labor capacity can use subcontracting, (iii) larger firms may be more cost efficiency, and (iv) increase the cost efficiency by reducing equipment costs. It is hoped that through the findings of this study, we could attract the attention of government departments to improve their development strategies for the construction industry; at the same time, these study findings could also suggest construction companies to improve their management strategy and improve their cost efficiency by reducing their operating expenses and risks.

Keywords: Cost efficiency, construction, stochastic frontier analysis (SFA).