Description
As global competition grows, building and maintaining of long-term customer relations are major concerns of companies, such that relationship marketing becomes a new marketing paradigm. Customer service in addition to manufacturing capability is an important way to keep the customer commitment.
International Journal of Information Management 22 (2002) 109–126
Virtual factory and relationship marketingFa case study
of a Taiwan semiconductor manufacturing company
Yi-Ching Hsieh
a,
*, Neng-Pai Lin
b
, Hung-Chang Chiu
c
a
Department of Business Administration, Soochow University, 56, Sec.1, Kwei-Yang Street, Taipei, Taiwan, ROC
b
Department of Business Administration, National Taiwan University, 50, Lane 144, Sec. 4, Keelung Road,
Taipei, Taiwan, ROC
c
Department of International Business, Ming Chuan University, 250, Sec.5, Chung-Shan North Road, Taipei,
Taiwan, ROC
Abstract
As global competition grows, building and maintaining of long-term customer relations are major
concerns of companies, such that relationship marketing becomes a new marketing paradigm. Customer
service in addition to manufacturing capability is an important way to keep the customer commitment. The
Internet is a powerful information technology used to provide value-added service to customers and to
communicate with each other. As such, the Internet-based virtual factory has been proposed to facilitate
connections among partners. Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s
largest dedicated integrated circuit foundries, constructed its virtual fabrication to strengthen bonds with
customers. Customers are able to access directly to TSMC’s and its strategic alliance partners’ information
system and thereby receive immediate status reports of their orders or some other feedback. In this paper,
the framework of TSMC’s virtual fabrication is introduced, and the competitive advantages resulted from
virtual fabrication are investigated. Implications of TSMC’s experience are then discussed. r 2002
Published by Elsevier Science Ltd.
Keywords: Virtual factory; Internet; Electronic commerce; Relationship marketing
1. Introduction
In today’s business-to-business markets, many companies face intense pressure caused by fast
changes in technology, short product life cycle, and ?erce global competition. It is increasingly
important for companies to help customer’s business be able to change production plans as
*Corresponding author. Tel.: +886-2-2311-1531; fax: +886-2-2507-1311.
E-mail addresses: [email protected] (Y.-C. Hsieh), [email protected] (N.-P. Lin),
[email protected] (H.-C. Chiu).
0268-4012/02/$ - see front matter r 2002 Published by Elsevier Science Ltd.
PII: S 0 2 6 8 - 4 0 1 2 ( 0 1 ) 0 0 0 4 9 - 4
market demands dictate. In this situation, much attention has been paid to timely and customized
services, which provide customers easy access to and control of the elements throughout the
manufacturing process. In the past decade, new thinking about the buyer–seller relationships is so
evident that experts have suggested that relationship marketing (RM) is a new marketing
paradigm (Webster, 1992; Gr. onroos, 1994). It focuses on approaches to build, develop and
maintain all successful relational exchanges (Berry, 1983; Morgan & Hunt, 1994; Gr. onroos,
1994). By building and maintaining customer relationships, the selling partner can achieve higher
?nancial performance (Kalwani & Narayandas, 1995; Holm, Eriksson, & Johanson, 1999),
customer trust, commitment (Morgan & Hunt, 1994) and satisfaction (Cannon & Perreault,
1999). According to resource-based view, Morgan and Hunt (1999) also argued that long-term
relationships are one of the sources of sustainable competitive advantage.
To lure new customers and to hold onto existing ones, businesses are investing heavily in
information technologies. The Internet plays an ever-increasing role in understanding customer
needs, serving customers better, responding faster to customer inquiries, communicating more
ef?ciently with customers and developing new opportunities (Murphy, 1996). It is ultimately
appropriate for heightening the dependence of buyer and seller, and managing customer
relationship (Angelides, 1997; Armstrong & Hagel, 1996; Evans & Wurster, 1997).
The Internet has many potential uses, such as being a source of information, communication
tool and distribution channel, depending on the objectives and capabilities of the user (Ranchhod
& Gur* au, 1999). The traditional face-to-face interchange of business marketing gives way to this
emerging new transaction tool that helps to standardize and centralize the conversations
(Deighton, 1997). According to a survey from Advanced Manufacturing Research, 71% of
manufacturers already use the Internet to communicate with customers, and 11% plan to do so in
the near future (Allnoch, 1997). Despite the perceived importance of the Internet, there are still
only limited empirical studies about Internet-enabled relationships (Davis, Buchanan-Oliver, &
Brodie, 1999).
During the past decades, foundries have become one of the fastest growing businesses in the
world and the importance and competition in this industry will keep growing in the near future.
Foundries have invested in process technology and manufacturing capabilities; however, customer
service is the new strategy for foundry companies to differentiate from competitors. The service-
oriented new concept of ‘‘virtual fabrication (VF)’’, which is proposed by the industry, has
become one of the critical aspects for achieving competitiveness (Korczynski, 1997). In order to
achieve higher levels of customer service, the world’s largest integrated circuit (IC) manufacturer,
Taiwan Semiconductor Manufacturing Company (TSMC), is constructing its VF. The
implementation of VF helps in improving the customer relationships and operational ef?ciency,
and, as a result, brings competitive advantages.
The intention of this paper is, therefore, to contribute to the understanding of the Internet
as an enabler that strengthens the relationships between buyers and sellers. More speci?cally,
the purposes of this study are to: (1) introduce the framework of TSMC’s VF; (2) explore the
in?uence of important Internet capabilities on customer relationships; and (3) investigate the
relationship between the services provided through Internet and operational ef?ciency
improvement.
In the following sections, ?rst we review the past research about the important capabilities of
Internet communication and the literature on RM. Next, we describe the case study methodology
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 110
and the VF framework of TSMC. Then, we propose a model of the Internet-enabled VF and the
resulting competitive advantages. Finally, we provide some implications and directions for future
research.
2. Literature review
2.1. Capabilities of Internet technology
Cunningham and Tynan (1993) argued that there are two major incentives for developing
interorganizational information systems. The more predictable and measurable incentive, or the
?rst-order effect, is ef?ciency improvement. The less obvious but more important incentive, or the
second-order effect, is the impact on buyer–seller relationships and industry structure. In
accordance with their classi?cation, the ?rst-order effect of the Internet is to provide opportunities
for an organization to become more ef?cient in managing operations between partners. Beyond
these activities, the second-order effect of the Internet is its suitability for communicating and
developing customer relationships.
Several empirical studies have been conducted in the past years to explore the in?uence of
Internet capabilities on the ways of doing business. High speed information transfer, high level
interactions, elimination of the limitations of time and location, and high levels of ?exibility and
ubiquity are some important characteristics of the Internet (Berthon et al., 1997). Dutta and Segev
(1999) proposed a ‘‘Marketspace model’’, built on two characteristics of Internet communication:
interactivity and connectivity, and a business strategy dimension: customer relationships. Sullivan
(1999) focused on the functions of corporate home pages, and described two important
characteristics of the Internet: information depth and interactivity.
2.1.1. Interactivity
The real-time on-line nature of the Internet makes interactions between business and customers
more effective and ef?cient (Dutta & Segev, 1999). Deighton (1996, 1997) interpreted
interactivities as two coexisting abilities. First is addressability. This ability is to address directly
an individual but not to broadcast to all who receive the message. Second is responsiveness. When
responsiveness exists, the medium can gather and document the response of that individual. These
two abilities make possible a third: the ability to take into account each individual’s unique
response. Interactivity helps in achieving effective communication with customers. Similarly,
Sullivan (1999) de?ned interactivity as the degree to which a dialogue can be generated between
the site’s owner and their visitors. When customers interact with sellers, they are able to in?uence
the form and content of information exchanged and accelerate economic negotiation (Sullivan,
1999; Peterson, Balasubramanian, & Bronnerberg, 1997).
A high-interactivity Web site is helpful for collecting customer opinions and complaints. It is
also a convenient device for delivering customized products/services based on the understandings
coming from long-term interactions (Peppers, Rogers, & Dorf, 1999; Prakash, 1996). A highly
interactive Web site creates a higher termination cost for customers. The more con?dential data
customers disclose on an interactive Web site and the more they are acquainted with this
environment the higher the termination costs. If they change to another service provider, personal
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 111
data and mutual understanding have to be rebuilt, which could decrease their willingness to
transfer to another service provider (Ghosh, 1998).
Moreover, a highly interactive Web site helps customers to develop trust toward the service
provider. Customers’ trust relies on the formation of their expectations about the motives and
behaviors of the service provider (Donney & Cannon, 1997), and repeated interaction enables
customers to interpret prior outcomes better, providing a basis for assessing predictability (Doyle
& Roth, 1992; Swan & Nolan, 1985).
2.1.2. Connectivity
Connectivity came from the open and global nature of the Internet. Because of connectivity,
corporations are able to provide information to a large size audience. The Internet has become a
new mechanism for communication and coordination between corporations and customers or
within groups of customers (Dutta & Segev, 1999). Moreover, Web sites can be connected to one
another through hypertext links. A hypertext environment allows for deep and nonlinear searches
initiated and controlled by Web users (Hoffman, Novak, & Chatterjee, 1995). A good design for
hypertext links builds content that is intelligible and interesting to users at different levels of
understanding (Huizingh, 2000; Maroney, 1997).
Because of the connectivity, the corporation is not constrained by either time or location
when providing products or services through the Internet. Given the lack of distance
and time constraints, buyers can access information or place orders in much less cost than
before.
2.1.3. Information quality
High quality information can be provided on the Internet because it is an inexpensive means to
search, organize, disseminate and store vast amounts of information (Donthu & Garcia, 1999;
Peterson et al., 1997). It is the basic goal of a Web site to provide information to users (Angehrn,
1997; Huizingh, 2000).
Customer perception of the degree to which a Web site is considered high quality could
determine its value to customers (Huizingh, 2000) and affect customers’ acceptance of the Web
site (Lin & Lu, 2000). The more the valuable and detailed information provided on the Web site,
the higher the breadth of audience categories and user-orientation of the site (Sullivan, 1999), and
thus the more likely to gain and retain customers (Honeycutt, Flaherty, & Benassi, 1998). For the
superior capabilities of the Internet, it should be considered an enabler of mutually bene?cial
relationships with customers that were characterized by interdependence, resources sharing, and
cooperation (Angelides, 1997; Richard, 1994; Nath, Akmanligil, Hjelm, Sakaguchi, & Schultz,
1998).
2.2. Virtual factory
There have been some de?nitions in the literature about virtual enterprise in general and virtual
manufacturing or virtual factory in particular. In order to respond quickly to changing market
needs, the virtual factory was supposed to be a better and more ?exible organization than a
traditional monolithic one. Upton and McAfee (1996) de?ned the virtual factory, ‘‘a community
of dozens, if not hundreds, of factories, each focused on what it does best, all linked by an
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 112
electronic network that would enable them to operate as oneF?exibly and inexpensively
regardless their locations’’. Virtual manufacturing environments can assist a company to rapidly
and effectively react to changes in market conditions and technology (McGehee, Hebley, &
Mahaffey, 1994). As one member in the industry network, TSMC de?nes the VF as the customers’
fab. To satisfy many customers, the physical fabrication must provide customized service and
mixed products by dynamically changing operation and capacity con?guration (Korczynski,
1997). The development or electronic interconnection has dramatically reduced the time and cost
of information exchange, effectively linked the processes and allowed the close integration of
parties in the value chain (Tang, Shee, & Tang, 2001).
Previously, the three main interorganizational information technologies that companies
have employed are electronic data interchange (EDI), proprietary groupware and dedicated
wide-area networks. However, the Internet’s open standards and the function of infor-
mation broker have made it become the most powerful media to integrate partners’ operations.
Through the Internet, businesses can accommodate a pool of network members whose IT
sophistication and relationships vary enormously. Moreover, they can give network members
different functionality, including the capability to transfer ?les, to access data in a central
database, and to access and utilize the programs located in distant computers (Upton & McAfee,
1996). Also, cost consideration is another reason that the traditional IT is being replaced by
the Internet.
2.3. Relationship marketing (RM)
Transaction cost analysis (TCA), an early work of a Nobel prize winner in Economics,
Ronald Coase, is one of the frameworks for analyzing the governance structure between
buyers and sellers. It views the governance structure falling on either end of a bipolar continuum:
vertical integration or discrete market transactions. Transaction costs are all the costs running
the exchange system including developing and maintaining an exchange relationship, moni-
toring transactional behavior, and guarding against opportunism in a transaction (Pilling,
Crosby, & Jackson, 1994). The basic premise is that when transaction cost is low or absent,
economic actors will favor market governance. Otherwise, ?rms will favor vertical inte-
gration (Heide & Rind?eisch, 1997). RM, however, offers the third option: achieving lower
transaction cost through a closer relationship with external suppliers (Heide, 1994; Gummesson,
1996). Researchers discussed the paradigm shift, moving from the traditional adversarial
transaction model toward collaborative long-term relationships between sellers and buyers.
Upon abandoning the discrete transactional mode, long-term relationship is crafted by
formation of mutual trust and expectation of continuity (Heide, 1994). The collaborative
approaches seek to lower acquisition and operating costs through joint efforts of the buyer and
supplier (Cannon & Homburg, 2001; Kalwani & Narayandas, 1995; Noordewier, John, & Nevin,
1990).
In addition to great product quality, effective and ef?cient communications are also necessary
when building and maintaining long-term customer relationships (Cannon & Homburg, 2001).
For example, Cannon and Perreault (1999) developed taxonomies of six key buyer–seller
relationship connectors. Direct linkages between buyer and seller operation systems and mutual
information exchange are two key factors for maintaining customer relationships. Evans and
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 113
Wurster (1997) opined that every business is an information business and information de?nes
buyer–seller relationships. When there is a certain communication channel built between
organizations and proprietary information owned by each other, there exist customer relation-
ships. Improving the ef?ciency of communications has become a major concern of companies
under the new RM paradigm (Cunningham & Tynan, 1993).
3. Case methodology
The central activity in doing research is to develop and test theory. However, VF is quite a new
concept, and more observations are needed before a theory can be developed. Allport (1961)
argues that the case study method permits the detailed observations that can reveal various
nuances and subtleties of behavior that other empirical methods might miss. Similarly, Eisenhardt
(1989) argues that case study research leads researchers to ?nd new theoretical relationships and
question old ones.
Case studies are typically used to: (1) describe a heretofore unstudied situation; (2) explore
current theory more thoroughly; and (3) support, expand or raise questions about existing
theories (McCutcheon & Meredith, 1993). The purpose of our case study is to explore situations
and problems when the VF concept is implemented.
In this study, data was collected by the following steps. First, we gathered information about
the background of the ?rm and how it got started on VF from its homepage (http://
www.tsmc.com.tw/) and other publications. Then, we conducted several in-depth interviews with
senior system engineers of TSMC. Each interview lasted about an hour. During the ?rst meeting,
the engineers were asked to describe the framework of VF. Questions focused on the pro and cons
they have faced thus far and the changes that have occurred since TSMC adopted the VF model
were asked in the meetings which followed.
4. Study pro?le
TSMC is one of the world’s largest and fastest growing dedicated IC foundry companies. Since
founded in 1987, this company has been dedicated to providing manufacturing services for
advanced ICs and had a reputation for excellent product quality. It offers a comprehensive set of
fabrication processes, including CMOS logic, mixed-mode, volatile and nonvolatile memory and
BiCMOS. In 2000, TSMC held a 41% share of the global foundry market.
Before the 1990s, the vertically integrated companies led the IC industry. In the high
capital investment and dynamic environment, however, the risk of running a vertically
integrated company has increased dramatically. The industry, therefore, responded to the high
risk by disintegration and each company dedicated itself to one or more parts of the processes.
Since TSMC was founded, the company has always focused on its core IC foundry business,
and has not distracted itself with other pursuits. It, therefore, has been committed to developing
advanced manufacturing technology and expanding capacity to keep operating on the
leading edge.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 114
The value chain model proposed by Porter (1985) considered the primary activities that exist in
the link from suppliers to customers. The practice of disintegration of IC industry and ?erce
global competition of foundry fabs have motivated parties in the value chain to emphasize close
relationships in addition to process technology and manufacturing excellence. In the value chain
of IC industry, customers want to be informed of updated data about their order status, so that
they can decide the promise date to their customers and make adjustments when market demand
changes. As such, VF was proposed by this industry. In order to differentiate its service quality
with competitors, TSMC announced its VF concept and organized a dedicated team to ful?ll this
concept in 1996. Its strategy was to develop long-term competitive advantages by building and
strengthening bonds between TSMC and customers.
5. The framework of TSMC’s VF
TSMC de?nes itself as customers’ VF. It means that, through interactions with TSMC,
customers can have all the bene?ts of in-house fabrication but without the risks of capital
investments. TSMC wants to provide customers real-time information access, increased
production ?exibility and control of their product requirements. To construct customers’ VF,
the ?rst step of TSMC was to reengineer itself to become a customer-oriented organization. Then,
it chose the appropriate information technology infrastructure for VF. TSMC’s VF is composed
of three major parts: they are shop ?oor system, business operations (such as accounting and
purchasing processes) and the transmission of real-time information and services to all customers.
All these efforts lead to the ultimate goal of customer service.
Before July 1999, customers were able to get access to their order status and technical
information through total customer service system (TCS) on the Web. TCS was a Web-based
information-sharing tool, which included three parts: total order management (TOM), on-line
technical information system (OTIS), and customer service (CS). TOM was the ?rst step toward
the realization of VF. With this system, customers were able to make inquiries through WWW
directly to TSMC’s information system and receive immediate reports about the WIP status and
the production and shipping schedules of their orders. In addition, the early warning systems
tracked orders and ensured expeditious and accurate deliveries. This system enhanced not
only customer control over orders but also TSMC’s ability to allocate its capacity ef?ciently.
OTIS was an on-line information system providing customers direct access to technical
information that they needed. The two major groups of data content in this system were General
Data and Customized Data. General Data included general descriptions about TSMC, technical
document of different manufacturing stages, and design manuals and process quality data.
Customized Data was the technical reports of each customer’s products, including WIP report,
test report, and delivery schedule report. The data that customers outside TSMC fabs viewed
through the Internet was the same as what employees inside TSMC obtained through their
Intranet. CS was a Web-based channel designed for all TSMC’s customers to express their
experiences and requirements.
In July 1999, TSMC rearranged the subsystems and replaced TCS by a new Web site, TSMC-
Online. Together with another two sub-systems, TSMC-Direct and TSMC-Yield Enhancement
System (YES), all aspects of communications and procedures are automated and easily accessible,
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 115
thus allowing customers constantly maintaining informed reports on shipments, technology, and
inventory.
5.1. TSMC-Online
TSMC-Online is a Web-based, browser-accessed information services. It provides customers
the real-time visibility of orders, WIP and shipping status during the foundry service cycle. Also, it
facilitates customers to place orders, review technical documentation, and place a general query
without time or space constraints. The capabilities provided by this system are as follows:
*
Review technical documents, brochures, and manuals during foundry selection and chip design
stages.
*
Submit mask tooling information, enter foundry service request forms, and place orders.
*
Check WIP status, weekly schedule reports, lot reports, and daily reports on wafer shipments,
backlog, and delivery schedules through the production cycle.
*
Review the quality and reliability data, and news or information; such as product yield forecast,
R&D project status, and technical marketing information.
Each TSMC’s customer has its own password, and is able to access to these services anytime.
For example, a customer planning to use TSMC’s 0.18-micron process can download the 0.18-
micron technical speci?cation to assist with the chip design. After the product design is complete,
the customer can submit mask-tooling information through an online electronic form, can place a
production order, and can track the WIP status and shipping schedule (Electronic Buyers’ News,
1999). This system makes TSMC’s fabs more transparent to customers because they can get all the
information in different stages, which lowers the entry barrier for customers. More importantly,
TSMC-Online allows customers to change production plans as market demands dictate and to
respond to the shortened product life cycles.
5.2. TSMC-Direct
Using the Extricity software Inc.’s Alliance as the backbone, TSMC-Direct is a system-to-
system integration service via the Internet and allows customers to participate in off-site
manufacturing and achieves business process integration. This software acts as a translator, which
receives information from TSMC’s engineering systems, product data management systems,
manufacturing execution systems, and Enterprise Resource Planning (ERP) applications, and
then transforms and stores the information into customers’ systems (Electronic Buyers’ News,
1998). Thus, the system enables customers to place orders and receive con?rmation in real time;
track WIP directly; enact collaborative planning and engineering data sharing with TSMC.
This mechanism helps customers to reduce cycle time and production costs. For example,
Adeptec Inc., one of TSMC’s customers, realized a 50% improvement in cycle time, and resulted
in inventory cost savings by millions of dollars. Also, customers of Adaptec are more satis?ed
because they can receive products faster than before (Electronic Buyers’ News, 1998).
TSMC-Direct also connects TSMC and other supply chain members. For example, TSMC
formalized strategic alliance with Advanced Semiconductor Engineering Group (ASE) which is
one of the world’s largest independent IC packaging companies. With this strategic alliance,
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 116
TSMC can provide customers a faster process ?ow from wafer fabrication, IC assembly and test
services, to direct delivery of packaged parts. In addition, customers are able to ‘‘see through’’
TSMC’s VF into the whole virtual processes. (Electronic Buyers’ News, 1998). Due to the
electronic connection, the business strategy and processes were reengineered and the overall
inventory level in the supply chain was reduced.
5.3. TSMC-YES
TSMC-YES helps customers to perform engineering analysis in their own sites. This system
uses the Internet to establish a direct real-time connection between customers and TSMC’s fabs
during process development and enables customers’ designers and TSMC’s engineers to share a
common yield-analyzing tool and to obtain a set of real-time test data. The designers can view or
analyze test data simultaneously with TSMC’s engineers. This shortens process development cycle
time, simulates a customer-owned fab, and improves product yields. TSMC-YES also maintains
complete histories that correlate the yield of every lot with its process history. Using this system,
customers can work with TSMC to quickly identify major yield limitations while ramping up a
new product introduction.
Before the implementation of TSMC-YES, customers had to download raw data into
spreadsheets when performing in-depth engineering analysis. It delayed the feedback to TSMC.
With TSMC-YES, data travels from the TSMC foundry over the Internet directly to the customer
site. The customer then gains access to the data and responses promptly, resulting in more
accurate and ef?cient analysis and troubleshooting.
The hierarchy of TSMC’s VF is illustrated in Fig. 1. The information transmission between
TSMC and customers is primarily through the Internet, and all the data will be collected in a
centralized data warehouse.
FAX
Server
Mail
Server
FTP
Server
TSMC
-Online
TSMC
-Direct
TSMC
-YES
EDI
Internet
VAN
Customers
Interface
(Extranet)
Centralized data warehouse
Fig. 1. The hierarchy of TSMC’s VF.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 117
TSMC’s VF provides solutions to meet customers’ various needs at each value chain stage.
Different IT infrastructure is employed to share data with customers (see Table 1).
6. The competitive advantages from the implementation of VF
From the experiences of TSMC, we can see some competitive advantages from the
implementation of VF (Fig. 2). Competitive advantage can be seen as a result from the
implementation of a strategy which is not implemented currently by competitors or from better
implementation of the same strategy as competitors, and can be expected to lead to superior
marketplace performance and ?nancial performance (Bharadwaj, Varadarajan, & Fahy, 1993).
The following paragraphs are some propositions and analyses from the viewpoint of TCA and
RM.
6.1. Virtual factory and customer relationships
Berry (1995) suggested three types of bonds that companies can use to foster customer
relationships: ?nancial bond, social bond and structural bond. Financial and social bonds focus
Table 1
Business processes of TSMC
Value chain
activities
Design Production Engineering
analysis
Customer service
Business processes Design rule Order placement,
WIP, shipping
notice
Engineering data Customer
feedback
Process control
monitor
speci?cation
Shipping reports,
backlog reports
Analysis tool Problem solving
Process ?ow Testing program
and quality
inspection data
Solutions Provide on-line
documents to
facilitate
customers’
product design.
Reduce product
cycle time, and
provide customers
full visibility of
product status.
Customers can
perform on-line
yield analysis at
their own sites,
using the same
data, tool and
model with
TSMC’s
engineers.
On-line system-to-
track post-sale
events and
problem solving
status.
Communication
technologies
WWW FTP, EDI,
WWW, system-to-
system integration
software (alliance)
WWW, system-to-
system integration
software (alliance)
WWW
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 118
on pricing incentives and on personalization of relationships, respectively; and the structural bond
builds customers’ requirements into the value-delivery system. With VF, TSMC’s customers
receive value-added services directly through the Internet. Because of the connectivity of the
Internet, customers can keep in touch with TSMC or its strategic alliance partners at any time and
any place, which is a structural bond between customers and suppliers. It provides customers
value-adding bene?ts that is dif?cult for competitors to imitate, and helps to maintain long-term
relationships with customers (Berry, 1995).
Similarly, Cannon and Perreault (1999) specify six highly independent connectors that
characterize the relationships between buyers and sellers. Operational linkage is one of the
connectors which is de?ned as the degree to which the systems, procedures and routines of buyers
and sellers have been linked to facilitate the ?ow of goods, services and information. The IMP
group considers a similar concept ‘‘technical bonds’’, which emphasizes the interconnected
technical or production processes (Johanson & Mattson, 1987). TSMC builds the operational
connections with customers by its VF. All aspects of communications and procedures are
automated and easily accessible to the customers, keeping them constantly informed and up-to-
date on shipments, technology, inventory, etc. By facilitating exchange and reducing transaction
costs, it may create dependence and switching cost for customers (Stern & Reve, 1980), and
strengthen the relationships.
Besides, RM techniques have placed a great emphasis on information and communication. In
service selling, mutual disclosure has been positively linked to customer trust and satisfaction
(Crosby, Evans, & Cowles, 1990). Communication frequency (Mohr, Fisher, & Nevin, 1996) and
open information sharing (Heide & John, 1992) are essential in buyer–seller relationships. The
communication ef?ciency of the Internet is important especially for companies whose value-added
contribution is concentrated in the information side of their products, such as high-tech
companies (Benjamin & Wigand, 1995; Watson & Zinkhan, 1997; Ranchhod & Gur* au, 1999).
From transaction cost considerations, buyers might prefer the suppliers who provide VF
arrangements. Through VF, customers are able to track order status and shipping schedules
without time and distance constraints, and their acquisition costs are minimized because the
connectivity enhances the ef?ciency of client booking procedures and monitoring efforts (Cannon
& Homburg, 2001). In addition, VF provides customers the manuals and documents for
fabrication selection and product design, and engineers transmit CAD drawings among customers
VF
Environment
uncertainty
Customer
relationships
Operational
flexibility
Competitive advantage
Market share
Financial performance
Fig. 2. Conceptual model of the competitive advantage of VF.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 119
via the Internet instead of sending them by fax. These real-time interactions and rich information
transmission reduced customers’ operation costs, including research and development and
manufacturing (Cannon & Homburg, 2001; O’Neal, 1993). Based on the above discussion, we
propose:
Proposition 1. The implementation of VF helps strengthen the relationships between customer
and suppliers.
6.2. Sustainable competitive advantage
Barney (1991) listed four requirements to qualify a skill for a source of sustainable competitive
advantage, it should be valuable, rare, imperfect imitable with no strategically equivalent
substitutes. Coyne (1985) pointed out that even the competitors own the same resource as yours, it
can still be a source of sustainable competitive advantage if there is a capability gap making
difference to customers. The sustainable competitive advantage will lead to superior market and
?nancial performance (Bharadwaj et al., 1993).
Morgan and Hunt (1999) clari?ed the kinds of resources that might be gained through
relationships. In TSMC’s case, it might obtain ‘‘relational resources’’ and ‘‘informational
resources’’ according to Morgan and Hunt’s discussion. TSMC’s customer-oriented philosophy
and VF’s customer service capability help to develop customer trust and commitment, which are
intangible and advantage-sustaining relational resources for TSMC (Dierickx & Cool, 1989; Day
& Wensley, 1988). Besides, the VF is a system to gather, disseminate and apply information and is
able to perpetuate the possession, the valuable customer information. It helps to accumulate the
inventory of informational resources and build its ability to learn (Morgan & Hunt, 1999).
Provided mutual communications and production ?exibility, customers’ acquisition costs and
operations costs shall be reduced and their intention to expand future purchases shall increase
(Cannon & Homburg, 2001). As a result, supplier’s market and ?nancial performance could
improve. Based on the above discussion, we propose:
Proposition 2. Building customer relationships through VF is a source of sustainable competitive
advantage, and it results in higher market and ?nancial performance.
6.3. Environmental uncertainty
In TCA, environmental uncertainty, re?ecting in the rate of technological change, the
complexity of the environment and the number of factors to be projected into the future, is one of
the major antecedents of transaction cost (Pilling et al., 1994). The unpredictable environment
coupled with the bounded rationality further increase the dif?culty to write a complete contingent
contract (Rind?eisch & Heide, 1997). As a result, unanticipated circumstances in a dynamic
environment give ?rms an incentive to create negotiated environments. If unforeseeable changes
did happen, deliberately designed-in incompleteness permits coordination and bene?cial revisions
within such an environment (Buvik & John, 2000). Relational ties or vertical coordination, the
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 120
purposive organization of activities and information ?ows between independent ?rms, is an effort
to reduce the problems of product design changes, production planning, and so on (Buvik & John,
2000, Dowst, 1988; Drozdowski, 1986; Frazier, Spekman, & O’Neal 1988; Spekman, 1988).
Noordewier et al. (1990) showed that relational ties improve purchasing performance when
uncertainty is high. Pilling et al. (1994) also concluded that information ?ows were more valuable
when environmental uncertainty increased transaction costs.
In the IC industry, the ability to monitor and manage shop?oor processes in real time often
determines a company’s pro?tability. For TSMC’s customers, it is important to make production
decisions to respond to changing market demand. During wafer manufacturing, however, there
are a number of processes that determines what the wafer will become and how it eventually will
be used. Once the wafer passes the point of no return, then it is impossible to ?ll a different order.
It is helpful to provide these customers a Web site to monitor production status, and they have the
chances to hold or change orders (Fulcher, 1999).
VF collects customer requirements from Web pages and responds them as quickly as
possible. The real-time interactions in designing, producing and testing stages have shortened
the time to market and have improved product quality. Furthermore, the primary goal of
TSMC’s VF is to offer the control and ?exibility bene?ts of vertical integration to those fabless
customers. The connections by the Internet among TSMC, its strategic alliance partners and
customers facilitate the recon?guration of the organizations to respond quickly to changing
market needs. The interactivity and information-rich characteristics of the Internet permits better
coordination and management of business operations between partners who take on
responsibility for one or more functions of the value-adding processes. (Poon & Jevons, 1997)
and helps lessen the in?uence of environmental uncertainty and lower transaction costs (Pant &
Hsu, 1996).
According to its ability, VF is more helpful to customers who face a dynamic market. In other
words, it is more bene?cial in an uncertain environment for the efforts on transaction costs are
more pronounced under high environmental uncertainty (Buvik & John, 2000). Compared to a
static environment, customers can perceive the higher levels of service improvement and
transaction costs reduction provided by VF in a dynamic environment. Based on the above
discussion, we propose:
Proposition 3. The greater the uncertainty of the environment facing the industry, the greater the
relationship between VF and customer relationships.
6.4. Operational ?exibility
In a relatively stable world, the traditional practice in manufacturing rely more on
standardized, long-life and low information-content products (Gunasekaran, 1998). To avoid
the production cost and quality being harmed, manufacturers often drew a boundary between the
internal system and external environment to protect their ‘‘technical core’’ (Bowen & Jones, 1986).
Without customers’ intervention, producers can make production plans according to forecasts.
However, the increasing global competition demands the companies now not only be able to
predict variations but also be able to change with these uncertain environments (Sharp, Irani, &
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 121
Desai, 1999). Current focus of manufacturing lies on customized, short market-life, ad high
information-content products (Gunasekaran, 1998). The open-system viewpoint has led to the
management philosophy of adaptation. Lawrence and Dyer (1983) de?ned the concept of
adaptation as the ‘‘process by which organization and its environment reach and maintain an
equilibrium ensuring the survival of the system as a whole’’.
In operations management research, operational ?exibility is a solution for adaptation
problems (Gerwin, 1993; Mandelbaum, 1978; Slack, 1983, 1987; Swamidass & Newell, 1987;
Upton, 1995; Zelenovic, 1982). Operational ?exibility is a multidimensional construct, and many
different types of ?exibility have been proposed by the past research. For example, product
customization ?exibility and volume ?exibility are two types of ?exibility. Product customization
?exibility is the ability to accommodate each customer’s unique requirements. Volume ?exibility is
the ability to quickly increase or decrease the quantity of output to handle ?uctuations in market
demand (Krajewski & Ritzman, 1992). VF is an environment open to customers to make
requirements and order adjustments. Operational ?exibility is therefore very important for
suppliers to ful?ll the VF concept. An organization without the operational ?exibility to deal with
uncertainties caused by customer intervention will be harmed by higher costs and lower product
quality. Moreover, lacking of operational ?exibility to ful?ll the promises, suppliers could hardly
be able to build and maintain customer relationships (Gr. onroos, 1994). Based on the above
discussion, we propose:
Proposition 4. The greater the operational ?exibility, the greater the relationship between VF and
customer relationships.
7. Conclusions
Over the past few years, TSMC has become one of the world’s largest and fastest growing
dedicated IC foundry companies. This article, has attempted to describe the contents of TSMC’s
VF, which is one of the important factors that leads to success. After the implementation of the
VF of TSMC, customers can have all the bene?ts of in-house fabrication without the risks of
capital investments. For example, customers can track their orders and make requirements
through the Internet on real time to meet their speci?c needs. Moreover, customers can get all
information in different stages such as product design, order placement, wafer production, yield
analysis, and test and assembly, which lowers the entry barrier and transaction cost for its
customers.
Virtual fabrication is quite a new concept. It could be helpful to understand the different
aspects of implementation of virtual fabrication by viewing a particular case in depth. While this
methodology has its limitation in generalization ?ndings across business settings, the insights
gained could be of value to some different business situations. Much more knowledge may
hopefully be added to this subject through accumulating study of case examples.
From the experience of TSMC, VF tends to increase the possibility of building exchange
relationships and helps strengthen the bonds with customers. Under the uncertain environment,
VF is more likely to be a source of competitive advantages, and at the same time, leads to long-
term customer relationships. Operational ?exibility, however, could moderate the relationship
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 122
between VF implementation and customer relationships. Furthermore, stable customer relation-
ships could result in higher market and ?nancial performance. Future research could examine the
above propositions through empirical data.
Some managerial factors may lead to successful VF. In the case of TSMC, knowledge
management practice and customer orientation philosophy may be two key successful factors.
Knowledge management is the process of capturing a company’s collective expertise (Hibbard,
1997) and an attempt to contain the massive amount of information, organize it logically, and
make it accessible to the right people, on time (Ginhereau, 1997). The company which invests in
knowledge management projects records, sorts, and stores its experience effectively and forms a
historical database. From this database its employees draw and analyze information on customer
preferences and activities. In TSMC, knowledge management is an important focus in addition to
the traditional managerial concerns. Employees in TSMC always learn the newest knowledge
from books or from discussions with colleagues. Therefore, the speed of knowledge creation and
diffusion is very high. Also, all the knowledge is well sorted, standardized and ?led, which allows
the knowledge to be diffused widely and preserved for long time. Although the construction of VF
is not an easy task, TSMC ful?lled this goal gradually by applying all the knowledge accumulated
through time. The relationship between knowledge management and customer relationship
building could be another research topic.
Another important business philosophy of TSMC is treating customers as partners. It never
designs or manufactures its own brandname IC end products to compete against customers but,
on the contrary, values customer successes and abilities as its own. As such, constructing a system
that is helpful to customer success and to achieve customer satisfaction is the most important goal
in TSMC. Moreover, TSMC’s Web site offers an ef?cient communication tool for customers to
express their complaints or requirements. All feedbacks are reviewed by customer engineers and
are stored in their database. Therefore, TSMC is able to revise VF according to customer
opinions. How the management philosophy in?uences the success of VF implementation and
customer relations is also worth researching in the future.
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Yi-Ching Hsieh is an Assistant Professor of Business Administration at Soochow University, Taiwan. Her research
interests include relationship marketing and Internet marketing.
Neng-Pai Lin is a Professor of Management at National Taiwan University, Taiwan. He is also a minister of state and
chairman of Public Construction Commission, Executive Yuan of Republic of China. He received his Ph.D. in
Management from Ohio State University (1989). His research interests include technology management, strategy,
quality and operations management.
Hung-Chang Chiu is an Assistant Professor of International Business at Ming Chuan University, Taiwan. His research
interests are services marketing and Internet marketing.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 126
doc_505379565.pdf
As global competition grows, building and maintaining of long-term customer relations are major concerns of companies, such that relationship marketing becomes a new marketing paradigm. Customer service in addition to manufacturing capability is an important way to keep the customer commitment.
International Journal of Information Management 22 (2002) 109–126
Virtual factory and relationship marketingFa case study
of a Taiwan semiconductor manufacturing company
Yi-Ching Hsieh
a,
*, Neng-Pai Lin
b
, Hung-Chang Chiu
c
a
Department of Business Administration, Soochow University, 56, Sec.1, Kwei-Yang Street, Taipei, Taiwan, ROC
b
Department of Business Administration, National Taiwan University, 50, Lane 144, Sec. 4, Keelung Road,
Taipei, Taiwan, ROC
c
Department of International Business, Ming Chuan University, 250, Sec.5, Chung-Shan North Road, Taipei,
Taiwan, ROC
Abstract
As global competition grows, building and maintaining of long-term customer relations are major
concerns of companies, such that relationship marketing becomes a new marketing paradigm. Customer
service in addition to manufacturing capability is an important way to keep the customer commitment. The
Internet is a powerful information technology used to provide value-added service to customers and to
communicate with each other. As such, the Internet-based virtual factory has been proposed to facilitate
connections among partners. Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s
largest dedicated integrated circuit foundries, constructed its virtual fabrication to strengthen bonds with
customers. Customers are able to access directly to TSMC’s and its strategic alliance partners’ information
system and thereby receive immediate status reports of their orders or some other feedback. In this paper,
the framework of TSMC’s virtual fabrication is introduced, and the competitive advantages resulted from
virtual fabrication are investigated. Implications of TSMC’s experience are then discussed. r 2002
Published by Elsevier Science Ltd.
Keywords: Virtual factory; Internet; Electronic commerce; Relationship marketing
1. Introduction
In today’s business-to-business markets, many companies face intense pressure caused by fast
changes in technology, short product life cycle, and ?erce global competition. It is increasingly
important for companies to help customer’s business be able to change production plans as
*Corresponding author. Tel.: +886-2-2311-1531; fax: +886-2-2507-1311.
E-mail addresses: [email protected] (Y.-C. Hsieh), [email protected] (N.-P. Lin),
[email protected] (H.-C. Chiu).
0268-4012/02/$ - see front matter r 2002 Published by Elsevier Science Ltd.
PII: S 0 2 6 8 - 4 0 1 2 ( 0 1 ) 0 0 0 4 9 - 4
market demands dictate. In this situation, much attention has been paid to timely and customized
services, which provide customers easy access to and control of the elements throughout the
manufacturing process. In the past decade, new thinking about the buyer–seller relationships is so
evident that experts have suggested that relationship marketing (RM) is a new marketing
paradigm (Webster, 1992; Gr. onroos, 1994). It focuses on approaches to build, develop and
maintain all successful relational exchanges (Berry, 1983; Morgan & Hunt, 1994; Gr. onroos,
1994). By building and maintaining customer relationships, the selling partner can achieve higher
?nancial performance (Kalwani & Narayandas, 1995; Holm, Eriksson, & Johanson, 1999),
customer trust, commitment (Morgan & Hunt, 1994) and satisfaction (Cannon & Perreault,
1999). According to resource-based view, Morgan and Hunt (1999) also argued that long-term
relationships are one of the sources of sustainable competitive advantage.
To lure new customers and to hold onto existing ones, businesses are investing heavily in
information technologies. The Internet plays an ever-increasing role in understanding customer
needs, serving customers better, responding faster to customer inquiries, communicating more
ef?ciently with customers and developing new opportunities (Murphy, 1996). It is ultimately
appropriate for heightening the dependence of buyer and seller, and managing customer
relationship (Angelides, 1997; Armstrong & Hagel, 1996; Evans & Wurster, 1997).
The Internet has many potential uses, such as being a source of information, communication
tool and distribution channel, depending on the objectives and capabilities of the user (Ranchhod
& Gur* au, 1999). The traditional face-to-face interchange of business marketing gives way to this
emerging new transaction tool that helps to standardize and centralize the conversations
(Deighton, 1997). According to a survey from Advanced Manufacturing Research, 71% of
manufacturers already use the Internet to communicate with customers, and 11% plan to do so in
the near future (Allnoch, 1997). Despite the perceived importance of the Internet, there are still
only limited empirical studies about Internet-enabled relationships (Davis, Buchanan-Oliver, &
Brodie, 1999).
During the past decades, foundries have become one of the fastest growing businesses in the
world and the importance and competition in this industry will keep growing in the near future.
Foundries have invested in process technology and manufacturing capabilities; however, customer
service is the new strategy for foundry companies to differentiate from competitors. The service-
oriented new concept of ‘‘virtual fabrication (VF)’’, which is proposed by the industry, has
become one of the critical aspects for achieving competitiveness (Korczynski, 1997). In order to
achieve higher levels of customer service, the world’s largest integrated circuit (IC) manufacturer,
Taiwan Semiconductor Manufacturing Company (TSMC), is constructing its VF. The
implementation of VF helps in improving the customer relationships and operational ef?ciency,
and, as a result, brings competitive advantages.
The intention of this paper is, therefore, to contribute to the understanding of the Internet
as an enabler that strengthens the relationships between buyers and sellers. More speci?cally,
the purposes of this study are to: (1) introduce the framework of TSMC’s VF; (2) explore the
in?uence of important Internet capabilities on customer relationships; and (3) investigate the
relationship between the services provided through Internet and operational ef?ciency
improvement.
In the following sections, ?rst we review the past research about the important capabilities of
Internet communication and the literature on RM. Next, we describe the case study methodology
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 110
and the VF framework of TSMC. Then, we propose a model of the Internet-enabled VF and the
resulting competitive advantages. Finally, we provide some implications and directions for future
research.
2. Literature review
2.1. Capabilities of Internet technology
Cunningham and Tynan (1993) argued that there are two major incentives for developing
interorganizational information systems. The more predictable and measurable incentive, or the
?rst-order effect, is ef?ciency improvement. The less obvious but more important incentive, or the
second-order effect, is the impact on buyer–seller relationships and industry structure. In
accordance with their classi?cation, the ?rst-order effect of the Internet is to provide opportunities
for an organization to become more ef?cient in managing operations between partners. Beyond
these activities, the second-order effect of the Internet is its suitability for communicating and
developing customer relationships.
Several empirical studies have been conducted in the past years to explore the in?uence of
Internet capabilities on the ways of doing business. High speed information transfer, high level
interactions, elimination of the limitations of time and location, and high levels of ?exibility and
ubiquity are some important characteristics of the Internet (Berthon et al., 1997). Dutta and Segev
(1999) proposed a ‘‘Marketspace model’’, built on two characteristics of Internet communication:
interactivity and connectivity, and a business strategy dimension: customer relationships. Sullivan
(1999) focused on the functions of corporate home pages, and described two important
characteristics of the Internet: information depth and interactivity.
2.1.1. Interactivity
The real-time on-line nature of the Internet makes interactions between business and customers
more effective and ef?cient (Dutta & Segev, 1999). Deighton (1996, 1997) interpreted
interactivities as two coexisting abilities. First is addressability. This ability is to address directly
an individual but not to broadcast to all who receive the message. Second is responsiveness. When
responsiveness exists, the medium can gather and document the response of that individual. These
two abilities make possible a third: the ability to take into account each individual’s unique
response. Interactivity helps in achieving effective communication with customers. Similarly,
Sullivan (1999) de?ned interactivity as the degree to which a dialogue can be generated between
the site’s owner and their visitors. When customers interact with sellers, they are able to in?uence
the form and content of information exchanged and accelerate economic negotiation (Sullivan,
1999; Peterson, Balasubramanian, & Bronnerberg, 1997).
A high-interactivity Web site is helpful for collecting customer opinions and complaints. It is
also a convenient device for delivering customized products/services based on the understandings
coming from long-term interactions (Peppers, Rogers, & Dorf, 1999; Prakash, 1996). A highly
interactive Web site creates a higher termination cost for customers. The more con?dential data
customers disclose on an interactive Web site and the more they are acquainted with this
environment the higher the termination costs. If they change to another service provider, personal
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 111
data and mutual understanding have to be rebuilt, which could decrease their willingness to
transfer to another service provider (Ghosh, 1998).
Moreover, a highly interactive Web site helps customers to develop trust toward the service
provider. Customers’ trust relies on the formation of their expectations about the motives and
behaviors of the service provider (Donney & Cannon, 1997), and repeated interaction enables
customers to interpret prior outcomes better, providing a basis for assessing predictability (Doyle
& Roth, 1992; Swan & Nolan, 1985).
2.1.2. Connectivity
Connectivity came from the open and global nature of the Internet. Because of connectivity,
corporations are able to provide information to a large size audience. The Internet has become a
new mechanism for communication and coordination between corporations and customers or
within groups of customers (Dutta & Segev, 1999). Moreover, Web sites can be connected to one
another through hypertext links. A hypertext environment allows for deep and nonlinear searches
initiated and controlled by Web users (Hoffman, Novak, & Chatterjee, 1995). A good design for
hypertext links builds content that is intelligible and interesting to users at different levels of
understanding (Huizingh, 2000; Maroney, 1997).
Because of the connectivity, the corporation is not constrained by either time or location
when providing products or services through the Internet. Given the lack of distance
and time constraints, buyers can access information or place orders in much less cost than
before.
2.1.3. Information quality
High quality information can be provided on the Internet because it is an inexpensive means to
search, organize, disseminate and store vast amounts of information (Donthu & Garcia, 1999;
Peterson et al., 1997). It is the basic goal of a Web site to provide information to users (Angehrn,
1997; Huizingh, 2000).
Customer perception of the degree to which a Web site is considered high quality could
determine its value to customers (Huizingh, 2000) and affect customers’ acceptance of the Web
site (Lin & Lu, 2000). The more the valuable and detailed information provided on the Web site,
the higher the breadth of audience categories and user-orientation of the site (Sullivan, 1999), and
thus the more likely to gain and retain customers (Honeycutt, Flaherty, & Benassi, 1998). For the
superior capabilities of the Internet, it should be considered an enabler of mutually bene?cial
relationships with customers that were characterized by interdependence, resources sharing, and
cooperation (Angelides, 1997; Richard, 1994; Nath, Akmanligil, Hjelm, Sakaguchi, & Schultz,
1998).
2.2. Virtual factory
There have been some de?nitions in the literature about virtual enterprise in general and virtual
manufacturing or virtual factory in particular. In order to respond quickly to changing market
needs, the virtual factory was supposed to be a better and more ?exible organization than a
traditional monolithic one. Upton and McAfee (1996) de?ned the virtual factory, ‘‘a community
of dozens, if not hundreds, of factories, each focused on what it does best, all linked by an
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 112
electronic network that would enable them to operate as oneF?exibly and inexpensively
regardless their locations’’. Virtual manufacturing environments can assist a company to rapidly
and effectively react to changes in market conditions and technology (McGehee, Hebley, &
Mahaffey, 1994). As one member in the industry network, TSMC de?nes the VF as the customers’
fab. To satisfy many customers, the physical fabrication must provide customized service and
mixed products by dynamically changing operation and capacity con?guration (Korczynski,
1997). The development or electronic interconnection has dramatically reduced the time and cost
of information exchange, effectively linked the processes and allowed the close integration of
parties in the value chain (Tang, Shee, & Tang, 2001).
Previously, the three main interorganizational information technologies that companies
have employed are electronic data interchange (EDI), proprietary groupware and dedicated
wide-area networks. However, the Internet’s open standards and the function of infor-
mation broker have made it become the most powerful media to integrate partners’ operations.
Through the Internet, businesses can accommodate a pool of network members whose IT
sophistication and relationships vary enormously. Moreover, they can give network members
different functionality, including the capability to transfer ?les, to access data in a central
database, and to access and utilize the programs located in distant computers (Upton & McAfee,
1996). Also, cost consideration is another reason that the traditional IT is being replaced by
the Internet.
2.3. Relationship marketing (RM)
Transaction cost analysis (TCA), an early work of a Nobel prize winner in Economics,
Ronald Coase, is one of the frameworks for analyzing the governance structure between
buyers and sellers. It views the governance structure falling on either end of a bipolar continuum:
vertical integration or discrete market transactions. Transaction costs are all the costs running
the exchange system including developing and maintaining an exchange relationship, moni-
toring transactional behavior, and guarding against opportunism in a transaction (Pilling,
Crosby, & Jackson, 1994). The basic premise is that when transaction cost is low or absent,
economic actors will favor market governance. Otherwise, ?rms will favor vertical inte-
gration (Heide & Rind?eisch, 1997). RM, however, offers the third option: achieving lower
transaction cost through a closer relationship with external suppliers (Heide, 1994; Gummesson,
1996). Researchers discussed the paradigm shift, moving from the traditional adversarial
transaction model toward collaborative long-term relationships between sellers and buyers.
Upon abandoning the discrete transactional mode, long-term relationship is crafted by
formation of mutual trust and expectation of continuity (Heide, 1994). The collaborative
approaches seek to lower acquisition and operating costs through joint efforts of the buyer and
supplier (Cannon & Homburg, 2001; Kalwani & Narayandas, 1995; Noordewier, John, & Nevin,
1990).
In addition to great product quality, effective and ef?cient communications are also necessary
when building and maintaining long-term customer relationships (Cannon & Homburg, 2001).
For example, Cannon and Perreault (1999) developed taxonomies of six key buyer–seller
relationship connectors. Direct linkages between buyer and seller operation systems and mutual
information exchange are two key factors for maintaining customer relationships. Evans and
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 113
Wurster (1997) opined that every business is an information business and information de?nes
buyer–seller relationships. When there is a certain communication channel built between
organizations and proprietary information owned by each other, there exist customer relation-
ships. Improving the ef?ciency of communications has become a major concern of companies
under the new RM paradigm (Cunningham & Tynan, 1993).
3. Case methodology
The central activity in doing research is to develop and test theory. However, VF is quite a new
concept, and more observations are needed before a theory can be developed. Allport (1961)
argues that the case study method permits the detailed observations that can reveal various
nuances and subtleties of behavior that other empirical methods might miss. Similarly, Eisenhardt
(1989) argues that case study research leads researchers to ?nd new theoretical relationships and
question old ones.
Case studies are typically used to: (1) describe a heretofore unstudied situation; (2) explore
current theory more thoroughly; and (3) support, expand or raise questions about existing
theories (McCutcheon & Meredith, 1993). The purpose of our case study is to explore situations
and problems when the VF concept is implemented.
In this study, data was collected by the following steps. First, we gathered information about
the background of the ?rm and how it got started on VF from its homepage (http://
www.tsmc.com.tw/) and other publications. Then, we conducted several in-depth interviews with
senior system engineers of TSMC. Each interview lasted about an hour. During the ?rst meeting,
the engineers were asked to describe the framework of VF. Questions focused on the pro and cons
they have faced thus far and the changes that have occurred since TSMC adopted the VF model
were asked in the meetings which followed.
4. Study pro?le
TSMC is one of the world’s largest and fastest growing dedicated IC foundry companies. Since
founded in 1987, this company has been dedicated to providing manufacturing services for
advanced ICs and had a reputation for excellent product quality. It offers a comprehensive set of
fabrication processes, including CMOS logic, mixed-mode, volatile and nonvolatile memory and
BiCMOS. In 2000, TSMC held a 41% share of the global foundry market.
Before the 1990s, the vertically integrated companies led the IC industry. In the high
capital investment and dynamic environment, however, the risk of running a vertically
integrated company has increased dramatically. The industry, therefore, responded to the high
risk by disintegration and each company dedicated itself to one or more parts of the processes.
Since TSMC was founded, the company has always focused on its core IC foundry business,
and has not distracted itself with other pursuits. It, therefore, has been committed to developing
advanced manufacturing technology and expanding capacity to keep operating on the
leading edge.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 114
The value chain model proposed by Porter (1985) considered the primary activities that exist in
the link from suppliers to customers. The practice of disintegration of IC industry and ?erce
global competition of foundry fabs have motivated parties in the value chain to emphasize close
relationships in addition to process technology and manufacturing excellence. In the value chain
of IC industry, customers want to be informed of updated data about their order status, so that
they can decide the promise date to their customers and make adjustments when market demand
changes. As such, VF was proposed by this industry. In order to differentiate its service quality
with competitors, TSMC announced its VF concept and organized a dedicated team to ful?ll this
concept in 1996. Its strategy was to develop long-term competitive advantages by building and
strengthening bonds between TSMC and customers.
5. The framework of TSMC’s VF
TSMC de?nes itself as customers’ VF. It means that, through interactions with TSMC,
customers can have all the bene?ts of in-house fabrication but without the risks of capital
investments. TSMC wants to provide customers real-time information access, increased
production ?exibility and control of their product requirements. To construct customers’ VF,
the ?rst step of TSMC was to reengineer itself to become a customer-oriented organization. Then,
it chose the appropriate information technology infrastructure for VF. TSMC’s VF is composed
of three major parts: they are shop ?oor system, business operations (such as accounting and
purchasing processes) and the transmission of real-time information and services to all customers.
All these efforts lead to the ultimate goal of customer service.
Before July 1999, customers were able to get access to their order status and technical
information through total customer service system (TCS) on the Web. TCS was a Web-based
information-sharing tool, which included three parts: total order management (TOM), on-line
technical information system (OTIS), and customer service (CS). TOM was the ?rst step toward
the realization of VF. With this system, customers were able to make inquiries through WWW
directly to TSMC’s information system and receive immediate reports about the WIP status and
the production and shipping schedules of their orders. In addition, the early warning systems
tracked orders and ensured expeditious and accurate deliveries. This system enhanced not
only customer control over orders but also TSMC’s ability to allocate its capacity ef?ciently.
OTIS was an on-line information system providing customers direct access to technical
information that they needed. The two major groups of data content in this system were General
Data and Customized Data. General Data included general descriptions about TSMC, technical
document of different manufacturing stages, and design manuals and process quality data.
Customized Data was the technical reports of each customer’s products, including WIP report,
test report, and delivery schedule report. The data that customers outside TSMC fabs viewed
through the Internet was the same as what employees inside TSMC obtained through their
Intranet. CS was a Web-based channel designed for all TSMC’s customers to express their
experiences and requirements.
In July 1999, TSMC rearranged the subsystems and replaced TCS by a new Web site, TSMC-
Online. Together with another two sub-systems, TSMC-Direct and TSMC-Yield Enhancement
System (YES), all aspects of communications and procedures are automated and easily accessible,
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 115
thus allowing customers constantly maintaining informed reports on shipments, technology, and
inventory.
5.1. TSMC-Online
TSMC-Online is a Web-based, browser-accessed information services. It provides customers
the real-time visibility of orders, WIP and shipping status during the foundry service cycle. Also, it
facilitates customers to place orders, review technical documentation, and place a general query
without time or space constraints. The capabilities provided by this system are as follows:
*
Review technical documents, brochures, and manuals during foundry selection and chip design
stages.
*
Submit mask tooling information, enter foundry service request forms, and place orders.
*
Check WIP status, weekly schedule reports, lot reports, and daily reports on wafer shipments,
backlog, and delivery schedules through the production cycle.
*
Review the quality and reliability data, and news or information; such as product yield forecast,
R&D project status, and technical marketing information.
Each TSMC’s customer has its own password, and is able to access to these services anytime.
For example, a customer planning to use TSMC’s 0.18-micron process can download the 0.18-
micron technical speci?cation to assist with the chip design. After the product design is complete,
the customer can submit mask-tooling information through an online electronic form, can place a
production order, and can track the WIP status and shipping schedule (Electronic Buyers’ News,
1999). This system makes TSMC’s fabs more transparent to customers because they can get all the
information in different stages, which lowers the entry barrier for customers. More importantly,
TSMC-Online allows customers to change production plans as market demands dictate and to
respond to the shortened product life cycles.
5.2. TSMC-Direct
Using the Extricity software Inc.’s Alliance as the backbone, TSMC-Direct is a system-to-
system integration service via the Internet and allows customers to participate in off-site
manufacturing and achieves business process integration. This software acts as a translator, which
receives information from TSMC’s engineering systems, product data management systems,
manufacturing execution systems, and Enterprise Resource Planning (ERP) applications, and
then transforms and stores the information into customers’ systems (Electronic Buyers’ News,
1998). Thus, the system enables customers to place orders and receive con?rmation in real time;
track WIP directly; enact collaborative planning and engineering data sharing with TSMC.
This mechanism helps customers to reduce cycle time and production costs. For example,
Adeptec Inc., one of TSMC’s customers, realized a 50% improvement in cycle time, and resulted
in inventory cost savings by millions of dollars. Also, customers of Adaptec are more satis?ed
because they can receive products faster than before (Electronic Buyers’ News, 1998).
TSMC-Direct also connects TSMC and other supply chain members. For example, TSMC
formalized strategic alliance with Advanced Semiconductor Engineering Group (ASE) which is
one of the world’s largest independent IC packaging companies. With this strategic alliance,
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 116
TSMC can provide customers a faster process ?ow from wafer fabrication, IC assembly and test
services, to direct delivery of packaged parts. In addition, customers are able to ‘‘see through’’
TSMC’s VF into the whole virtual processes. (Electronic Buyers’ News, 1998). Due to the
electronic connection, the business strategy and processes were reengineered and the overall
inventory level in the supply chain was reduced.
5.3. TSMC-YES
TSMC-YES helps customers to perform engineering analysis in their own sites. This system
uses the Internet to establish a direct real-time connection between customers and TSMC’s fabs
during process development and enables customers’ designers and TSMC’s engineers to share a
common yield-analyzing tool and to obtain a set of real-time test data. The designers can view or
analyze test data simultaneously with TSMC’s engineers. This shortens process development cycle
time, simulates a customer-owned fab, and improves product yields. TSMC-YES also maintains
complete histories that correlate the yield of every lot with its process history. Using this system,
customers can work with TSMC to quickly identify major yield limitations while ramping up a
new product introduction.
Before the implementation of TSMC-YES, customers had to download raw data into
spreadsheets when performing in-depth engineering analysis. It delayed the feedback to TSMC.
With TSMC-YES, data travels from the TSMC foundry over the Internet directly to the customer
site. The customer then gains access to the data and responses promptly, resulting in more
accurate and ef?cient analysis and troubleshooting.
The hierarchy of TSMC’s VF is illustrated in Fig. 1. The information transmission between
TSMC and customers is primarily through the Internet, and all the data will be collected in a
centralized data warehouse.
FAX
Server
Server
FTP
Server
TSMC
-Online
TSMC
-Direct
TSMC
-YES
EDI
Internet
VAN
Customers
Interface
(Extranet)
Centralized data warehouse
Fig. 1. The hierarchy of TSMC’s VF.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 117
TSMC’s VF provides solutions to meet customers’ various needs at each value chain stage.
Different IT infrastructure is employed to share data with customers (see Table 1).
6. The competitive advantages from the implementation of VF
From the experiences of TSMC, we can see some competitive advantages from the
implementation of VF (Fig. 2). Competitive advantage can be seen as a result from the
implementation of a strategy which is not implemented currently by competitors or from better
implementation of the same strategy as competitors, and can be expected to lead to superior
marketplace performance and ?nancial performance (Bharadwaj, Varadarajan, & Fahy, 1993).
The following paragraphs are some propositions and analyses from the viewpoint of TCA and
RM.
6.1. Virtual factory and customer relationships
Berry (1995) suggested three types of bonds that companies can use to foster customer
relationships: ?nancial bond, social bond and structural bond. Financial and social bonds focus
Table 1
Business processes of TSMC
Value chain
activities
Design Production Engineering
analysis
Customer service
Business processes Design rule Order placement,
WIP, shipping
notice
Engineering data Customer
feedback
Process control
monitor
speci?cation
Shipping reports,
backlog reports
Analysis tool Problem solving
Process ?ow Testing program
and quality
inspection data
Solutions Provide on-line
documents to
facilitate
customers’
product design.
Reduce product
cycle time, and
provide customers
full visibility of
product status.
Customers can
perform on-line
yield analysis at
their own sites,
using the same
data, tool and
model with
TSMC’s
engineers.
On-line system-to-
track post-sale
events and
problem solving
status.
Communication
technologies
WWW FTP, EDI,
WWW, system-to-
system integration
software (alliance)
WWW, system-to-
system integration
software (alliance)
WWW
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 118
on pricing incentives and on personalization of relationships, respectively; and the structural bond
builds customers’ requirements into the value-delivery system. With VF, TSMC’s customers
receive value-added services directly through the Internet. Because of the connectivity of the
Internet, customers can keep in touch with TSMC or its strategic alliance partners at any time and
any place, which is a structural bond between customers and suppliers. It provides customers
value-adding bene?ts that is dif?cult for competitors to imitate, and helps to maintain long-term
relationships with customers (Berry, 1995).
Similarly, Cannon and Perreault (1999) specify six highly independent connectors that
characterize the relationships between buyers and sellers. Operational linkage is one of the
connectors which is de?ned as the degree to which the systems, procedures and routines of buyers
and sellers have been linked to facilitate the ?ow of goods, services and information. The IMP
group considers a similar concept ‘‘technical bonds’’, which emphasizes the interconnected
technical or production processes (Johanson & Mattson, 1987). TSMC builds the operational
connections with customers by its VF. All aspects of communications and procedures are
automated and easily accessible to the customers, keeping them constantly informed and up-to-
date on shipments, technology, inventory, etc. By facilitating exchange and reducing transaction
costs, it may create dependence and switching cost for customers (Stern & Reve, 1980), and
strengthen the relationships.
Besides, RM techniques have placed a great emphasis on information and communication. In
service selling, mutual disclosure has been positively linked to customer trust and satisfaction
(Crosby, Evans, & Cowles, 1990). Communication frequency (Mohr, Fisher, & Nevin, 1996) and
open information sharing (Heide & John, 1992) are essential in buyer–seller relationships. The
communication ef?ciency of the Internet is important especially for companies whose value-added
contribution is concentrated in the information side of their products, such as high-tech
companies (Benjamin & Wigand, 1995; Watson & Zinkhan, 1997; Ranchhod & Gur* au, 1999).
From transaction cost considerations, buyers might prefer the suppliers who provide VF
arrangements. Through VF, customers are able to track order status and shipping schedules
without time and distance constraints, and their acquisition costs are minimized because the
connectivity enhances the ef?ciency of client booking procedures and monitoring efforts (Cannon
& Homburg, 2001). In addition, VF provides customers the manuals and documents for
fabrication selection and product design, and engineers transmit CAD drawings among customers
VF
Environment
uncertainty
Customer
relationships
Operational
flexibility
Competitive advantage
Market share
Financial performance
Fig. 2. Conceptual model of the competitive advantage of VF.
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 119
via the Internet instead of sending them by fax. These real-time interactions and rich information
transmission reduced customers’ operation costs, including research and development and
manufacturing (Cannon & Homburg, 2001; O’Neal, 1993). Based on the above discussion, we
propose:
Proposition 1. The implementation of VF helps strengthen the relationships between customer
and suppliers.
6.2. Sustainable competitive advantage
Barney (1991) listed four requirements to qualify a skill for a source of sustainable competitive
advantage, it should be valuable, rare, imperfect imitable with no strategically equivalent
substitutes. Coyne (1985) pointed out that even the competitors own the same resource as yours, it
can still be a source of sustainable competitive advantage if there is a capability gap making
difference to customers. The sustainable competitive advantage will lead to superior market and
?nancial performance (Bharadwaj et al., 1993).
Morgan and Hunt (1999) clari?ed the kinds of resources that might be gained through
relationships. In TSMC’s case, it might obtain ‘‘relational resources’’ and ‘‘informational
resources’’ according to Morgan and Hunt’s discussion. TSMC’s customer-oriented philosophy
and VF’s customer service capability help to develop customer trust and commitment, which are
intangible and advantage-sustaining relational resources for TSMC (Dierickx & Cool, 1989; Day
& Wensley, 1988). Besides, the VF is a system to gather, disseminate and apply information and is
able to perpetuate the possession, the valuable customer information. It helps to accumulate the
inventory of informational resources and build its ability to learn (Morgan & Hunt, 1999).
Provided mutual communications and production ?exibility, customers’ acquisition costs and
operations costs shall be reduced and their intention to expand future purchases shall increase
(Cannon & Homburg, 2001). As a result, supplier’s market and ?nancial performance could
improve. Based on the above discussion, we propose:
Proposition 2. Building customer relationships through VF is a source of sustainable competitive
advantage, and it results in higher market and ?nancial performance.
6.3. Environmental uncertainty
In TCA, environmental uncertainty, re?ecting in the rate of technological change, the
complexity of the environment and the number of factors to be projected into the future, is one of
the major antecedents of transaction cost (Pilling et al., 1994). The unpredictable environment
coupled with the bounded rationality further increase the dif?culty to write a complete contingent
contract (Rind?eisch & Heide, 1997). As a result, unanticipated circumstances in a dynamic
environment give ?rms an incentive to create negotiated environments. If unforeseeable changes
did happen, deliberately designed-in incompleteness permits coordination and bene?cial revisions
within such an environment (Buvik & John, 2000). Relational ties or vertical coordination, the
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 120
purposive organization of activities and information ?ows between independent ?rms, is an effort
to reduce the problems of product design changes, production planning, and so on (Buvik & John,
2000, Dowst, 1988; Drozdowski, 1986; Frazier, Spekman, & O’Neal 1988; Spekman, 1988).
Noordewier et al. (1990) showed that relational ties improve purchasing performance when
uncertainty is high. Pilling et al. (1994) also concluded that information ?ows were more valuable
when environmental uncertainty increased transaction costs.
In the IC industry, the ability to monitor and manage shop?oor processes in real time often
determines a company’s pro?tability. For TSMC’s customers, it is important to make production
decisions to respond to changing market demand. During wafer manufacturing, however, there
are a number of processes that determines what the wafer will become and how it eventually will
be used. Once the wafer passes the point of no return, then it is impossible to ?ll a different order.
It is helpful to provide these customers a Web site to monitor production status, and they have the
chances to hold or change orders (Fulcher, 1999).
VF collects customer requirements from Web pages and responds them as quickly as
possible. The real-time interactions in designing, producing and testing stages have shortened
the time to market and have improved product quality. Furthermore, the primary goal of
TSMC’s VF is to offer the control and ?exibility bene?ts of vertical integration to those fabless
customers. The connections by the Internet among TSMC, its strategic alliance partners and
customers facilitate the recon?guration of the organizations to respond quickly to changing
market needs. The interactivity and information-rich characteristics of the Internet permits better
coordination and management of business operations between partners who take on
responsibility for one or more functions of the value-adding processes. (Poon & Jevons, 1997)
and helps lessen the in?uence of environmental uncertainty and lower transaction costs (Pant &
Hsu, 1996).
According to its ability, VF is more helpful to customers who face a dynamic market. In other
words, it is more bene?cial in an uncertain environment for the efforts on transaction costs are
more pronounced under high environmental uncertainty (Buvik & John, 2000). Compared to a
static environment, customers can perceive the higher levels of service improvement and
transaction costs reduction provided by VF in a dynamic environment. Based on the above
discussion, we propose:
Proposition 3. The greater the uncertainty of the environment facing the industry, the greater the
relationship between VF and customer relationships.
6.4. Operational ?exibility
In a relatively stable world, the traditional practice in manufacturing rely more on
standardized, long-life and low information-content products (Gunasekaran, 1998). To avoid
the production cost and quality being harmed, manufacturers often drew a boundary between the
internal system and external environment to protect their ‘‘technical core’’ (Bowen & Jones, 1986).
Without customers’ intervention, producers can make production plans according to forecasts.
However, the increasing global competition demands the companies now not only be able to
predict variations but also be able to change with these uncertain environments (Sharp, Irani, &
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 121
Desai, 1999). Current focus of manufacturing lies on customized, short market-life, ad high
information-content products (Gunasekaran, 1998). The open-system viewpoint has led to the
management philosophy of adaptation. Lawrence and Dyer (1983) de?ned the concept of
adaptation as the ‘‘process by which organization and its environment reach and maintain an
equilibrium ensuring the survival of the system as a whole’’.
In operations management research, operational ?exibility is a solution for adaptation
problems (Gerwin, 1993; Mandelbaum, 1978; Slack, 1983, 1987; Swamidass & Newell, 1987;
Upton, 1995; Zelenovic, 1982). Operational ?exibility is a multidimensional construct, and many
different types of ?exibility have been proposed by the past research. For example, product
customization ?exibility and volume ?exibility are two types of ?exibility. Product customization
?exibility is the ability to accommodate each customer’s unique requirements. Volume ?exibility is
the ability to quickly increase or decrease the quantity of output to handle ?uctuations in market
demand (Krajewski & Ritzman, 1992). VF is an environment open to customers to make
requirements and order adjustments. Operational ?exibility is therefore very important for
suppliers to ful?ll the VF concept. An organization without the operational ?exibility to deal with
uncertainties caused by customer intervention will be harmed by higher costs and lower product
quality. Moreover, lacking of operational ?exibility to ful?ll the promises, suppliers could hardly
be able to build and maintain customer relationships (Gr. onroos, 1994). Based on the above
discussion, we propose:
Proposition 4. The greater the operational ?exibility, the greater the relationship between VF and
customer relationships.
7. Conclusions
Over the past few years, TSMC has become one of the world’s largest and fastest growing
dedicated IC foundry companies. This article, has attempted to describe the contents of TSMC’s
VF, which is one of the important factors that leads to success. After the implementation of the
VF of TSMC, customers can have all the bene?ts of in-house fabrication without the risks of
capital investments. For example, customers can track their orders and make requirements
through the Internet on real time to meet their speci?c needs. Moreover, customers can get all
information in different stages such as product design, order placement, wafer production, yield
analysis, and test and assembly, which lowers the entry barrier and transaction cost for its
customers.
Virtual fabrication is quite a new concept. It could be helpful to understand the different
aspects of implementation of virtual fabrication by viewing a particular case in depth. While this
methodology has its limitation in generalization ?ndings across business settings, the insights
gained could be of value to some different business situations. Much more knowledge may
hopefully be added to this subject through accumulating study of case examples.
From the experience of TSMC, VF tends to increase the possibility of building exchange
relationships and helps strengthen the bonds with customers. Under the uncertain environment,
VF is more likely to be a source of competitive advantages, and at the same time, leads to long-
term customer relationships. Operational ?exibility, however, could moderate the relationship
Y.-C. Hsieh et al. / International Journal of Information Management 22 (2002) 109–126 122
between VF implementation and customer relationships. Furthermore, stable customer relation-
ships could result in higher market and ?nancial performance. Future research could examine the
above propositions through empirical data.
Some managerial factors may lead to successful VF. In the case of TSMC, knowledge
management practice and customer orientation philosophy may be two key successful factors.
Knowledge management is the process of capturing a company’s collective expertise (Hibbard,
1997) and an attempt to contain the massive amount of information, organize it logically, and
make it accessible to the right people, on time (Ginhereau, 1997). The company which invests in
knowledge management projects records, sorts, and stores its experience effectively and forms a
historical database. From this database its employees draw and analyze information on customer
preferences and activities. In TSMC, knowledge management is an important focus in addition to
the traditional managerial concerns. Employees in TSMC always learn the newest knowledge
from books or from discussions with colleagues. Therefore, the speed of knowledge creation and
diffusion is very high. Also, all the knowledge is well sorted, standardized and ?led, which allows
the knowledge to be diffused widely and preserved for long time. Although the construction of VF
is not an easy task, TSMC ful?lled this goal gradually by applying all the knowledge accumulated
through time. The relationship between knowledge management and customer relationship
building could be another research topic.
Another important business philosophy of TSMC is treating customers as partners. It never
designs or manufactures its own brandname IC end products to compete against customers but,
on the contrary, values customer successes and abilities as its own. As such, constructing a system
that is helpful to customer success and to achieve customer satisfaction is the most important goal
in TSMC. Moreover, TSMC’s Web site offers an ef?cient communication tool for customers to
express their complaints or requirements. All feedbacks are reviewed by customer engineers and
are stored in their database. Therefore, TSMC is able to revise VF according to customer
opinions. How the management philosophy in?uences the success of VF implementation and
customer relations is also worth researching in the future.
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Yi-Ching Hsieh is an Assistant Professor of Business Administration at Soochow University, Taiwan. Her research
interests include relationship marketing and Internet marketing.
Neng-Pai Lin is a Professor of Management at National Taiwan University, Taiwan. He is also a minister of state and
chairman of Public Construction Commission, Executive Yuan of Republic of China. He received his Ph.D. in
Management from Ohio State University (1989). His research interests include technology management, strategy,
quality and operations management.
Hung-Chang Chiu is an Assistant Professor of International Business at Ming Chuan University, Taiwan. His research
interests are services marketing and Internet marketing.
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