Value creation in regional innovation systems: The case of Taiwan's machine tool enterprises

Taiwan's machine tool industry is one of the few industries that do not depend on the support of foreign technologies. Nevertheless, it relies on the development of supplier networks among individual enterprises. This study clarifies the customer value creation mode of Taiwan's machine tool enterprises in a regional innovation system (RIS) by understanding the meaning of the value offered by suppliers to their customers and the dynamic development of value creation models across the boundaries of RIS. In this study, we use as dimensions the customer's perspective of value, the supplier–customer interaction, and particularly the customer involvement to derive the value creation theory. We propose four models of value creation, including a high degree of product standardization with standard recommendations to the customer; product customization with the customer entering into the supplier's process of achieving the customers' preferences; customers and suppliers co-working in a mutual business process to co-create solutions; and the supplier developing a better understanding of customer needs to provide optional solutions. This study demonstrates that four types of value creation have been evidenced in Taiwan's machine tool industry from the viewpoint of the customer, and each type of value creation has its respective environmental and workable conditions. When accompanied by various RIS factors such as customer value creation, this not only develops dynamic growth but also, to a certain degree, affects the growth in competitiveness of the region and its companies. In a highly customizing, flexible, and demanding environment, enhancing customers' value creation beyond their functional requirements while reducing the interaction costs associated with customization may be a challenge for a single enterprise; however, it may prove to present an opportunity to shift Taiwan's machine tools industry toward global competitiveness.