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Telecommunications Policy

Telecommunications Policy 36 (2012) 531–545

0308-59

doi:10.1

n Corr

E-m

URL: www.elsevier.com/locate/telpol

Catching up through the development of technology standard:The case of TD-SCDMA in China

Xudong Gao a,n, Jianxin Liu b

a Tsinghua University Research Center for Technological Innovation, School of Economics and Management, Tsinghua University, Beijing 100084, Chinab School of Economics and Management, Tsinghua University, Beijing 100084, China

a r t i c l e i n f o

Available online 17 February 2012

Keywords:

Catching up

Technology standard

TD-SCDMA

Co-evolution

Informal social network

61/$ - see front matter & 2012 Elsevier Ltd. A

016/j.telpol.2012.01.006

esponding author. Tel.: þ86 10 62789958; f

ail addresses: gaoxudong@sem.tsinghua.edu.c

a b s t r a c t

This paper explored the key factors affecting catching up through technology standard

development by studying the evolution of TD-SCDMA, one of the three international

standards of 3G mobile communications, in China. It was found that this was a complex

co-evolution process between firm strategy and government policy aimed mainly at

solving the challenges of late-comer disadvantages. The paper also examined the

unique features of this co-evolution process, including the importance of the informal

social network of non-customer stakeholders, and discussed the theoretical and

practical implications of the key findings.

& 2012 Elsevier Ltd. All rights reserved.

1. Introduction

The existing literature on catching up focuses mainly on the transfer and imitation of mature technologies frommultinational enterprises (MNEs) (Amsden, 2001; Kim, 1997; Lall, 1982; Lee & Lim, 2001; Liu, 2001; Liu & White, 2001;Pavitt, 1985; Westphal, Kim, & Dahlman, 1985), or the internal development of new technologies when these technologiesare emerging (Abernathy & Utterback, 1988; Christensen & Rosenbloom, 1995; Clark, 1985; Foster, 1986; Henderson &Clark, 1990; Hobday, 1990, 1995; Perez & Soete, 1988; Rosenbloom & Cusumano, 1987; Tushman & Rosenkopf, 1992;Utterback, 1994). Few studies have examined the role of developing technology standard in catching up (Ernst, 2009; Jho,2007; Suttmeier & Yao, 2004; Suttmeier, Yao, & Tan, 2006). This paper examined TD-SCDMA (time division synchronouscode division multiple access), one of the three international standards of 3G mobile communications, to illustrate the keyfactors and mechanisms affecting catching up through technology standard development in China.

TD-SCDMA was based mainly on technologies from Datang Telecom Technology & Industry Group (Datang). It wasproposed in 1998 to the International Telecommunications Union (ITU) by the China Wireless TelecommunicationStandard Group (CWTS) as a candidate for 3G mobile communications standards, and accepted as one of the threeinternational standards by ITU in May 2000 and 3GPP in March 2001. In January 2009 China Mobile officially adopted TD-SCDMA, and today TD-SCDMA is leading 3G development in China. According to the data from the Ministry of Industry andInformation Technology of the People’s Republic (MIIT), by the end of January 2011, China Mobile’s TD-SCDMA usersreached 22.6 million, China Unicom’s WCDMA users reached 15.5 million, and China Telecom’s CDMA2000 users reached13.6 million. China Mobile had about 43.7% of the 3G market in China.

However, the development of the TD-SCDMA standard in China has been extremely complex. For example, althoughDatang has all the incentives to promote TD-SCDMA, it took more than 10 years for China Mobile to officially adopt

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n (X. Gao), liujx@sem.tsinghua.edu.cn (J. Liu).

X. Gao, J. Liu / Telecommunications Policy 36 (2012) 531–545532

TD-SCDMA in 2009. More surprisingly, although many people argue that the Chinese government has been active insupporting TD-SCDMA (Chen, Fan, & Lu, 2002; Kshetri, Palvia, & Dai, 2011; Lee & Oh, 2006; Xia, 2011; Zhan & Tan, 2010),the reality is that the policies of the Chinese government toward TD-SCDMA seemed to be very strange: were verysupportive in making TD-SCDMA one of the 3 international standards for 3G mobile communications, but became veryambiguous and uncertain after TD-SCDMA was accepted as an international standard. TD-SCDMA could have died becauseof the ambiguity and uncertainty (Li, 2010; Yang & Lu, 2010).

A case study method (Eisenhardt, 1989; Glaser & Strauss, 1967; Strauss & Corbin 2008; Yin, 1989) was used to studythis complex process, focusing on identifying the key factors and underlying mechanisms affecting this process.Specifically, the study tried to answer the following questions: why the TD-SCDMA development process was so complex,and why TD-SCDMA did not die although the development process was very complex?

The study drew on several streams of literature, especially the literature on co-evolution between a technology and itsenvironment (Barley, 1986; Garud & Rappa, 1994; Rodrigues & Child, 2003; Van de Ven, Polley, Garud, & Venkataraman,1999; Weick, 1995), to guide the analysis. It was found that catching up through the development of TD-SCDMA in Chinacould be described as a co-evolution process with unique features between the focal firm and the government. Forexample, this was a process driven by the focal firm with the help of an informal social network of non-customerstakeholders, rather than the government.

This paper has three contributions to the existing literature. First, it offers a new and more complete perspective to theunderstanding of the TD-SCDMA adoption process in China. Past studies have mainly emphasized the strong supportiverole of institutional factors, especially government policies, in China (Kshetri et al., 2011; Xia, 2011; Zhan & Tan, 2010). Itwas true that the Chinese government offered important support. However, as will be analyzed in the following, whatreally happened in the development of TD-SCDMA in China was that government support was not persistent and involveda lot of ambiguities and uncertainties, which created huge negative impact on TD-SCDMA. Furthermore, nationalism wasnot a common phenomenon as described in the literature, and it was hard to argue that the overall institutionalenvironment in China was favorable to TD-SCDMA. This also indicates that the study of institutions, at least in China,should pay enough attention to what was said and what was done.

Second, this paper further articulated the key factors and mechanisms affecting catching up through technologystandard development, especially the big negative impact of late-comer disadvantage (Gao, 2007; Liberman &Montgomery, 1988, 1998). The findings of this paper suggest that the development and adoption of TD-SCDMA in Chinacould be described as a co-evolution process between firm strategy and government policy. This process was aimed atsolving the challenges of late-comer disadvantages in promoting TD-SCDMA, and was a complex, slow, and gradualprocess caused by the unique features of firm–government interactions.

The co-evolution perspective means that in the era of globalization, late-comer firms are highly unlikely to be able todevelop strong enough capabilities and unique resources (Barney, 1991; Prahalad & Hamel, 1990; Wernerfelt, 1984), andgaining government support is necessary. The co-evolution perspective also suggests the combination of the resourcesbased perspective and the developmental state perspective is more appropriate in explaining technological catching upand technology standard adoption (Amsden, 1989; Evans, 1995).

Third, the findings of this paper have important practical implications. For example, from a strategy perspective, MNEsneed to develop new capabilities and collaborate actively with local firms with advanced technologies in order to benefitfrom the opportunities offered by these locally developed technologies. For example, they need to have a goodunderstanding about the impact of late-comer disadvantage, and co-create the whole TD-SCDMA value chain with localfirms. However, few MNEs developed this kind of understanding, and as a result their market share in the TD-SCDMAmarket has been very small (for example, in the equipment market it is less than 20%, compared with more than 80% in the2G era).

The remainder of the paper unfolds as follows. First, the related streams of literature were reviewed. Second, theresearch methodology, the data collection process, and the data analysis process were explained. Third, a conceptualframework was developed and reported. Finally, the theoretical and practical implications of the key findings werediscussed.

2. Theoretical background

The study of catching up, especially catching up through the development of technology standard, is a highlychallenging task (Choung, Hameed, & Ji, 2011; Pavitt, 1985; Steen, 2011). For example, it is hard to define and measurecatching up (Steen, 2011). Developing a standard is one thing while breaking technology independence is another, andthere are a lot of differences between standard-setting, adoption, technology catch-up, and commercial success. Differentstakeholders might have different views about the impacts of different kinds of standards (formal, informal or proprietary)on cost or market shaping aspects (Blind, Gauch, & Hawkins, 2010). In the telecom industry, catching up in equipment andsystems could also be affected, positively or negatively, by progress in handsets (Ono & Tang, 2010; Weber, Haas, & Scuka,2011; West & Mace, 2010).

Given the challenges of studying catching up through the development of technology standard, this paper focused onthe development and adoption of TD-SCDMA in China. This is only part of a whole catching up process, but a clearunderstanding of this part could contribute to the knowledge about catching up process as indicated by the Korean’s

X. Gao, J. Liu / Telecommunications Policy 36 (2012) 531–545 533

experience, which suggests that a nation should not be discouraged by slow progress in standard setting during earlystages (Choung et al., 2011).

Technology standard development could be examined from multiple perspectives (Gandal, 2002). One perspectiverelates to firm capabilities and the resources based view of the firm (Barney, 1986, 1991; Prahalad & Hamel, 1990;Wernerfelt, 1984). According to this perspective, the essence of catching up should be the development of corecompetencies and unique resources such as a strong brand name, superior technology, learning capabilities, etc. Consistentwith this perspective, some studies find that technology standards could be sponsored by dominant buyers or sellers(Greenstain, 1992). Microsoft, Intel, and Cisco are some examples (Gawer & Cusumano, 2002). Qualcomm is also a well-known example in the telecom industry (Mock, 2005).

Following this perspective and considering the specific context of catching up through TD-SCDMA, the literature on theadvantages and disadvantages of late-comers is of particular relevance for this study (Amsden, 2001; Liberman &Montgomery, 1988, 1998). Some argue that late-comers could enjoy advantages in developing new technologies, becauseincumbent firms might be reluctant to develop and use emerging technologies, which could cannibalize their existingbusinesses (Foster, 1986; Henderson, 1993). Incumbent firms may also have disadvantages in perceiving and developingemerging technologies because they tend to develop the NIH (not invented here) syndrome, believing that they have amonopoly on knowledge in their fields and fail to consider seriously the possibility that other organizations might produceimportant new ideas (Cohen & Levinthal, 1990; Hamel, Doz, & Prahalad, 1989; Katz & Allen, 1982).

Even if incumbent firms are willing to develop and apply new technologies, they face a lot of difficulties in makingnecessary organizational changes and allocating necessary resources to support the development and utilization ofemerging technologies. This is the case especially when the emerging technologies are competence-destroying(Christensen & Rosenbloom, 1995; Clark, 1985; Henderson & Clark, 1990; Tushman & Rosenkopf, 1992), when thetechnologies are not well aligned with the current corporate strategies (Burgelman, 2002), or when the technologies fallout of the existing value network (Christensen & Bower, 1996).

However, the disadvantages of late-comers are also obvious, making it difficult for them to take the opportunities fromemerging technologies. For example, the process of developing new technologies and new products is complex, iterative,time-consuming, and expensive (Mowery & Rosenberg, 1989; Pavitt, 1985). Even if late-comers have equal non-financialresources as large firms, they are more likely to fail because of their lower initial (financial) resources (Bruderl & Schussler,1990).

Late-comers face the challenge of liabilities of newness or liabilities of being small for reasons such as lack of legitimacyand stable links to customers and supporters (Eisenhardt & Schoonhoven, 1990; Stinchcombe, 1965). Carpenter andNakamoto (1994) also argue that pioneering advantage persists despite entry. The basic mechanism is that the first moverenters the market, defines the ideal, and protects its position near the ideal point through its prototypicality. Carpenter andNakamoto also point out, if a later entrant wants to challenge the first mover, it has to restart the customers’ learningprocess and shift buyer ideal points to its position.

Of course, if a late-comer has enough financial resources, human resources, and organizational resources, it is morelikely for it to overcome these disadvantages. Choi, Kim, and Rhee (1998, p.503) find that ‘‘cross-subsidization was perhapsthe most crucial factor in Korean companies’ success, along with the entrepreneurial push by chairmen (founders/owners/CEOs). The consistently high level of investment by Korean manufacturers in semiconductor business was made possiblelargely through cross-subsidization’’.

The second perspective is to treat technology standards development as a social process (Fuentelsaz, Maicas, & Polo,2008; Jho, 2007; Tushman & Rosenkopf, 1992; Utterback, 1994). The more complex the technology, the more importantthe influence of social factors. For example, Tushman and Rosenkopf (1992) point out that dominant designs (standards)for simple products mainly emerge based on technical factors, while dominant designs of complex products and systemsemerge based on not only technical factors but also social, political, and cultural factors.

Following this perspective, some scholars used the institutional theory to study the evolution of TD-SCDMA in China(Chen et al., 2002; Kshetri et al., 2011; Lee & Oh, 2006; Xia, 2011; Zhan & Tan, 2010). For example, Kshetri et al. (2011)argued that the regulatory, normative, and cognitive institutions, which were based on factors such as promoting nationalsecurity, reducing royalty outflows to MNEs, and nationalisms and protectionism, in China favored the adoption of TD-SCDMA.

Following the perspective of treating technology standards development as a social process, the literature on the role ofthe government in catching up is of particular relevance for this study, because governments in catching up countriescould play critical roles (Amsden, 2001; Amsden & Chu, 2003; Evans, 1995; Kim, 1997; Lall, 1982). For example, accordingto Cusumano (1985) and Kim (1997), market protection played a critical role in the development of the Japaneseautomobile industry and the Korean automobile industry, respectively.

Although standards development organizations (SDOs) such as ITU set most of the telecommunication technologystandards (David & Shurmer, 1996), SDOs do not have legal authority to enforce a technology standard. Accordingly, animportant complementary role could be played by the government. The strong competitiveness of EU firms in GSMillustrates the importance of government support, and the relative weak position of CDMA indicates the negative impact offree market based standard setting approach (Funk, 1998; Funk & Methe, 2001).

The third perspective is co-evolution between a technology and its environment (Barley, 1986; Garud & Rappa, 1994;Rodrigues & Child, 2003; Van de Ven et al., 1999; Weick, 1995). For example, Van de Ven et al. (1999, p.149–180) develop

X. Gao, J. Liu / Telecommunications Policy 36 (2012) 531–545534

a social system framework (p.161) to explain innovation development and industry emergence, and argue that theemergence of a new industry is the result of interaction between firm proprietary activities (product development,business functions, and resource channels), institutional arrangements, resources endowments, and market consumption(p.154).

Barley (1986) builds a theory of technology as an occasion for structuring and argues that technology might occasiondifferent organizational structures by altering institutionalized roles and patterns of interaction, because technology couldbe treated as a social rather than a physical object, and structure a process rather than an entity.

Rodrigues and Child (2003) find that co-evolution could take place in a highly institutionalized environment instudying a major Brazilian telecommunications company. This is helpful for examining the co-evolution process byincorporating a political dimension of how organizations are transformed into new forms.

None of the above streams of studies could provide direct and complete answers to this research. For example, Kshetriet al. (2011) identified the supportive nature of the formal and informal institutions in China. However, the institutions inChina actually created huge obstacles for the development of TD-SCDMA. In particular, government agencies in many caseswere just paying lip service. They said a lot but little was done. Of course, all three streams of study suggest factors toinvestigate. In fact, this study did find that, consistent with the third perspective, the development of TD-SCDMA was a co-evolution process, although it had unique features that are different from what the existing literature suggests.

3. Research methods and data

This study is mainly about developing new insights into catching up through technology standard rather than testingexisting theory, so the authors use a case study method and follow the grounded theory development principles in thestudy of the TD-SCDMA development process in China (Eisenhardt, 1989; Glaser & Strauss, 1967; Strauss & Corbin, 2008;Yin, 1989).

3.1. Research setting

This paper is based on examining the development process of TD-SCDMA in China. As reported earlier, this is a long andcomplex process. It started from 1997 when ITU called for proposals of 3G wireless communications standards, and led tothe official adoption of TD-SCDMA by China Mobile, the strongest telecom service provider in China, in January 2009. Achronology reflecting key events of this evolution process is reported in Table 1.

This research reports on 4 major events in this process, which were indentified after many interviews. These eventsinclude (1) the Xiangshan Mountain Meeting in January 1998, which was dedicated to the discussion on whether or notTD-SCDMA should be proposed to the ITU as a candidate for 3G standards; (2) the establishing of the TD-SCDMA

Table 1Chronology of TD-SCDMA development.

Source: Composed by authors.

Timing Key events

April 1997 ITU called for 3G proposals

January 1998 Xiangshan Mountain Meeting to discuss on how to respond to ITU’s call for proposals

June 1998 TD-SCDMA submitted to ITU

May 2000 TD-SCDMA approved by ITU as one of the 3G mobile communications standards

December

2000

TD-SCDMA Technology Forum established

March 2001 TD-SCDMA accepted by the 3rd Generation Partnership Project (3GPP)

November

2001

Agreement signed between Datang and Siemens to collaborate on TD-SCDMA

February

2002

Datang Mobile established by Datang to speed up TD-SCDMA development and commercialization

October 2002 155 MHz spectrum allocated to TD-SCDMA by the former MII

October 2002 TD-SCDMA Industry Alliance established

April 2004 Chinese government organized MTNet test to verify the capability of TD-SCDMA system to be deployed as a standalone network

March 2005 Chinese government organized TD-SCDMA Industrialization Special Test to verify the commercial readiness of TD-SCDMA equipment.

January 2006 Chinese government announced TD-SCDMA as the national technology standard for the telecom industry

February

2006

Large-scale TD-SCDMA Network Application Trial project rolled out in five Chinese cities, and extended to ten Chinese cities including

Beijing, Shanghai, and Guangzhou in 2007.

April 2008 TD-SCDMA pre-commercialization test project initiated in 10 cities such as Beijing, Shanghai, Tianjin, Shenzhen, and Qingdao.

May 2008 MIIT organized a small scale meeting to ask China Mobile to take active actions to promote TD-SCDMA, based on a letter from three

noted scientists criticizing that this firm was taking a highly passive attitude toward TD-SCDMA in pre-commercialization test

project.

August 2008 3G services offered to Olympic Games through TD-SCDMA

January 2009 TD-SCDMA license awarded to China Mobile

October 2010 TD-LTE ADVANCED accepted as candidate for 4G standards

January 2011 TD-SCDMA users reached more than 22.6 million

X. Gao, J. Liu / Telecommunications Policy 36 (2012) 531–545 535

Technology Alliance in 2002 to attract firms to build up the TD-SCDMA value Chain; (3) the initiation of large-scale TD-SCDMA Network Application Trial project in 5 Chinese cities in February 2006, based on a letter in September 2005 fromthree noted scientists (the president of the Chinese Academy of Sciences, the president of the Chinese Academy ofEngineering, and the Chairman of the Chinese Association of Science and Technology) to the top leaders of the Chinesegovernment (people above the Minister level), requesting that the government support TD-SCDMA; and (4) the meeting inMay 2008, which was organized by the MIIT to ask China Mobile to take more effective actions in the commercialization ofTD-SCDMA, and was based on a letter in April 2008 from three noted scientists (different from the three scientists whowrote the letter in September 2005) to the top leaders of the Chinese government criticizing China Mobile’s passiveattitude toward TD-SCDMA.

These events were selected for their theoretical relevance for the development of theoretical concepts and theoreticalinsights (Glaser & Strauss, 1967), and had the following characteristics: they represented different stages of the evolutionprocess, were turning points of the evolution process, and involved different participants (for example, in the first twoevents, top leaders and service providers had little involvement, but played crucial role in the other two events). Inaddition, information on many other events was also collected to make sure that the 4 events were representative of otherevents in the TD-SCDMA evolution process.

3.2. Data collection

Data were collected for case analysis mainly through interviewing people familiar with the development of the TD-SCDMA standard, although secondary data are also used. These interviews occurred between 2000 and 2010. Peopleinterviewed are from many organizations and government agencies, including key equipment firms such as Datang, ZTE,Huawei, and Potevio; Handset makers such as Lenovo, Hisense, TCL, and ZTE; IC suppliers such as T3G, SpreadtrumCommunications, CYIT; service providers such as China Mobile, China Telecom, and China Unicom; multinational firmssuch as SKT, Ericsson, Qualcomm, LG, and Samsung; TD-SCDMA Industry Alliance, TD-SCDMA Technology Forum;government agencies such as MIIT, the former Ministry of Information Industry (MII), the Ministry of Science andTechnology (MOST), and the National Development and Reform Commission (NDRC).

Among the many interviewees, the following people have played major roles in the TD-SCDMA development process,and have been extremely supportive and helpful in this study by accepting interviews and connecting the authors to otherinterviewees: Dr. Shihe Li, the father of TD-SCDMA; Mr. Xinsheng Zhang, vice director general of the Division of Scienceand Technology, MIIT; Ms. Shumin Cao, vice president of the China Academy of Telecommunication Research (CATR), aresearch organization directly affiliated with the former MII; Professors Jinliang Li, Shouqian Ding, and Mr. Luzhong Jin,who wrote many letters to the top leaders of the Chinese Central Government to explain the importance of developing TD-SCDMA; Mr. Ruan Tang, former CEO of Datang Mobile, a subsidiary set up by Datang to speed up the development andcommercialization of TD-SCDMA; Mr. Jianzhou Wang, CEO of China Mobile; Mr. Hua Yang, general secretary of TD-SCDMAIndustry Alliance and former executive president of Datang Mobile; and Dr. Jing Wang, the former general secretary of TD-SCDMA Technology Forum.

The interviews are semi-structured, and a set of broad questions about the key factors and mechanisms affecting thedevelopment process of TD-SCDMA were asked. During the interviews, the authors took intensive notes, because most ofthe interviewees preferred not to have the interviews taped. Interviews typically lasted 90 to 120 min.

3.3. Data analysis

Following the grounded theory development principles, data analysis was conducted simultaneously with datacollection (Glaser & Strauss, 1967; Strauss & Corbin, 2008). Commentaries were written on each interview and whenevera new theoretical concept emerged. The research iterated between raw data, emerging theoretical concepts, relatedliterature, and inter-relationships among the theoretical concepts. After a preliminary model was developed, moreinterviews were conducted with informants to validate and revise the concepts and the model. To assure validity, thetheoretical sampling principle and data saturation principle were followed. Patterns were also searched for by comparingacross events to look for different interpretations of those events by the key players.

3.4. Dealing with challenges in data collection and data analysis

Because the adoption of TD-SCDMA took more than 10 years and was a very dynamic process, there existed a lot ofchallenges in data collection and data analysis. For example, in data collection, a lot of people had to be interviewed,including the identification of the right people to interview. The interviewees might change their ideas. It was alsonecessary to ask different questions, because the context was constantly evolving. In addition, because data analysis wasconducted simultaneously with data collection by following the grounded theory development principles (Glaser &Strauss, 1967; Strauss & Corbin, 2008), it raised the concern that this might lead to the interviewing of a specific group ofpeople who did not necessarily fulfill the theoretical sampling requirement.

Although the grounded theory development methodology used in this research could appropriately address thesechallenges in principle, the authors were fully aware of the difficulties involved. Accordingly, all actions were taken to deal

Table 2Pattern emerged from four representative events.

Source: Composed by authors.

Event Initial condition Co-evolution Decision Impact on TD

Xiangshan

meeting (1998)

Most people against proposing TD to ITU Datang lobbied MII Propose TD to ITU as an

experiment

TD proposed to ITU

MII supported

Set up TD Alliance

(2002)

Only Datang and Siemens working on TD Datang lobbied NDRC Set up TD Alliance TD value chain began

to developNDRC supported

TD network trial

(2006)

TD needed network level test but MII was not

arranging the test

Datang asked three

scientists to help

Conduct Trial in 5 cities TD got tested at

network level

Top leaders intervened

MIIT meeting

(2008)

China Mobile not active in adopting TD Datang asked three

scholars to help

Order China Mobile to be

more active

China Mobile felt the

pressure

Top leaders intervened

Globalization, latecomerdisadvantages, and market

uncertainty

Lower latecomerdisadvantage

lower market uncertainty

Policy and strategy co-evolution, andthe role of informal social network

Technologystandard

Development andadoption

Fig. 1. Globalization and technology standard adoption in China.

X. Gao, J. Liu / Telecommunications Policy 36 (2012) 531–545536

with these challenges, and the key was to make sure that the rule of theoretical sampling be strictly followed during thewhole process of the study. For example, the research intentionally paid careful attention to include people andorganization that had different perspectives at various stages of the TD-SCDMA development. Put differently, themethodology validity was kept through strictly following the theoretical sampling rule combined with comprehensivedata collection during the whole period of this study.

A clear pattern emerged from the data analysis (Table 2): the development of TD-SCDMA in China encountered hugelatecomer disadvantages, and the promotion of TD-SCDMA was centered on addressing these disadvantages. Based on thispattern, a model of catching up through technology standard development was developed as illustrated in Fig. 1. Accordingto this model, the development and adoption of TD-SCDMA in China could be described as a co-evolution process betweenfirm strategy and government policy. This process was aimed at solving the challenges of late-comer disadvantages inpromoting TD-SCDMA, and was a complex, slow, and gradual process caused by the unique features of firm–governmentinteractions.

4. Key findings of the study

This part reports the three key elements of the model in detail: latecomer disadvantage, contents of the co-evolutionprocess, and the characteristics of the co-evolution process.

4.1. Late-comer disadvantage

Although the literature suggests that late-comers could have advantages in developing new technologies, this studyfound that the major challenge in catching up through the development of the TD-SCDMA standard came from huge late-comer disadvantages (Table 3), and the catching up process was centered on addressing these disadvantages (Liberman &Montgomery, 1998, 1988). From Table 3 it is clear that various groups of people, organizations and interest groups hadbeen having strong negative perceptions and views on TD-SCDMA since the discussion of proposing this technology to theITU in 1998.

Table 3The impact of late-comer disadvantage.

Source: Composed by authors.

People and organizations Perceptions and views

Government officialsSong, Zhiyuan, Vice Minister of the former MII January 1998: when the majority of the participants of the Fragrant Hill Meeting did not

support the idea of proposing TD-SCDMA to ITU, Song, Zhiyuan said: ‘‘I suggest we agree.

Even if it failed, it could be regarded as a success, because it could help us accumulate

experience’’.a

Minister level government official of the former MII December 2002: When visiting Datang, the government official asked: ‘‘Why Datang

insists that we develop TD-SCDMA when MNEs have developed WCDMA and

CDMA2000?’’b

Minister level government official of the former

Informationization Office of the State Council

October 2005: ‘‘Why we do not give clear support to TD-SCDMA? No support is the biggest

support. We are waiting to see if TD-SCDMA would become mature’’.c

People from firmsZhou, Huan, Former COE of Datang March 2002: ‘‘I am not expecting that the government would make TD-SCDMA the only 3G

national standard. What I am expecting is that the government could say that TD would be

used even with 10 preconditions: TD is mature, is reliable, is low cost, is of high quality,

ynow the government is not giving enough support to TD’’.d

Yang, Zhiqiang, Former Vice Director, Technology

Department, China Mobile

August 2003: ‘‘WCDMA is the best choice for China Mobile to move to 3G, and TD-SCDMA

could be a complement’’.e

Wang, Xiaochu, former Chairman of China Telecom March 2006: ‘‘The customers are the underlying forces for choosing which 3G standard’’,

indicating that China Telecom favor WCDMA.f

Li, Shihe, Datang Mobile, Father of TD-SCDMA April 2008: ‘‘TD-SCDMA will die soon, because government agencies have not developed a

clear plan. No one has made it clear whether TD-SCDMA will be used in China. No one

knows which service provider will use TD-SCDMA’’.g

Former VP of Strategic Planning, Huawei July 2011: ‘‘Why Huawei was not active in investing in TD-SCDMA for a long time? The

government policy was not clear. It was not clear whether or not TD-SCDMA would be

used in China. Huawei is a company, so we have to listen to the market’’.h

Other peopleLiu, Chunhui, Telecom Reporter February 2005: ‘‘Professor Hu, Angang from the TsinghuaUniversity made unfair

comments on TD-SCDMA in his 3G report. He did not mention problems occurred in

testing other 3G technologies but highly exaggerated that in TD-SCDMA’’.i

Li, Jinliang, Former Chief engineer, 7th Research Institute

of the China Electronics

February 2010: In commenting on the argument that TD-SCDMA is a failed patriotic

experimentation, Li, Jinliang said: ‘‘In the future when we reflect on TD, we’ll realize that

it’s not a dead 3G standard but a classic textbook on indigenous innovation from 3G to

4G’’.j

a Yang and Lu (2010).b Interview at Datang (January 7, 2011).c Interview at former Informationization Office of the State Council (June 8, 2007).d Interview with Zhou, Huan (2002, March 25). Retrieved from http://www.yesky.com/NetCom/218424581927469056/20020325/1603507.

shtml.e Yang, Zhiqiang’s speech at TD-SCDMA Summit. Retrieved from http://tech.sina.com.cn/it/t/2003-08-28/1632226667.shtml.f Wang, Xiaochu: China Telecom has developed a complete 3G plan. Retrieved from http://www.21cbh.com/HTML/2006-3-27/29065.html.g Li, Shihe, Father of TD: TD is suffering an euthanasia. Retrieved from http://tech.sina.com.cn/t/2008-04-21/11532151035.shtml.h Interview with former VP of Strategic Planning, Huawei (July 8, 2011).i Liu, Chunhui: Hu, Angang’s comments on TD-SCDMA are unfair. Retrieved from http://biz.163.com/05/0224/10/1DBM3PTF00020QED.html.j Li, Jinliang refute the claim that TD-SCDMA is a failure. Retrieved from http://www.dvbcn.com/2010-02/03-44888_3.html.

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Late-comer disadvantages were reflected in people’s unbelief that TD-SCDMA is as advanced as WCDMA andCDMA2000, and could be able to survive in competing with WCDMA and CDMA2000 (Li, 2006, 2010), although manyof these beliefs were not based on scientific analysis. In fact, theoretically the TD-SCDMA standard is as advanced asWCDMA and CDMA2000, and in some areas it is more advanced than the other two standards. For example, TD-SCDMAhas intelligent antenna, which makes it possible for service providers to optimize their TD-SCDMA network throughsoftware. TD-SCDMA also has much higher spectrum usage efficiency (Li, 2009: pp.110–111). During the collaborationbetween Datang and Siemens, the simulation results of TD-SCDMA also suggests that it was better than WCDMA (Xu,2007).

Latecomer disadvantages made it extremely hard for Datang to attract partners to build up the TD-SCDMA value chain(Zhang & Liang, 2011). For example, among the 6 telecom service providers before the restructuring of the telecom serviceindustry in China in 2008, only two smaller firms, China Tietong and China Netcom, once showed interest in adopting theTD-SCDMA standard.

One reason for the relatively active support of TD-SCDMA by China Tietong and China Netcom was that the two firmswere not in the mobile communications business and they were trying to enter this business. In fact, China Mobile, whichofficially adopted the TD-SCDMA standard in January 2009, had been very reluctant to choose this standard. The company

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believed that it would be a better choice to adopt WCDMA because it would be easier to evolve from its GSM/GPRS systemto WCDMA, and the WCDMA value chain is more mature internationally (Li, 2006).

Huge late-comer disadvantages were resulted mainly from the Chinese government’s policy of opening the telecomequipment market in China to international competition since the early 1980s (Editing Committee, 2008). Specifically, theChinese telecom equipment market, especially the wireless equipment market, was dominated by MNEs when TD-SCDMAwas accepted as an international standard of 3G mobile communications. MNEs’ market dominance made it hard forpeople to develop an objective understanding about local telecom equipment firms’ capabilities, and few people believedthat local firms had the capability to develop the key technologies for an international standard at the early stage of thedevelopment of TD-SCDMA.

MNEs’ market dominance also means that choosing TD-SCDMA was not the only choice. Because the service providershave been using GSM and CDMA for the 2G network, it is understandable that they preferred to adopt WCDMA andCDMA2000, believing that choosing WCDMA and CDMA2000 was a natural upgrading of existing technology.

The situation was similar for the equipment makers and handset makers, although they have been more active insupporting the TD-SCDMA standard. For example, according to a senior manager at ZTE: ‘‘we were not very active injoining the TD-SCDMA Industry Alliance. At that time, few people believed that TD-SCDMA would be successful, and it washard for us to invest heavily at the beginning’’. A senior manager at Hisense commented: ‘‘we believed that TD-SCDMAcould become a good opportunity for local firms. However, the government was not offering much support. There were alot of market uncertainties. Our industry was not a high profitability industry, and we could not take big risks to investheavily in TD-SCDMA’’.

The huge impact of late-comer disadvantages also came from the following factor: Datang did not have much internalresources to promote TD-SCDMA. This was different from innovation in giant Japanese companies or Korean firms asdiscussed in the literature review section. This was also different from innovation in giant Chinese firms such as ChinaNational Petroleum Corporation (CNPC), one of the world’s biggest integrated energy companies. In fact, similar to Koreanfirms and Japanese firms in developing new technologies and new product, CNPC has also used its internal market tosupport new technology development, and has made impressive achievements (Liu, Sun, Gao, & Hu, 2006). Had Datanghave the resources, the development of TD-SCDMA would have encountered fewer challenges.

4.2. Contents of the co-evolution process of strategy and policy

Huge late-comer disadvantages in the development of the TD-SCDMA standard were solved through a co-evolutionprocess between firm strategy and government policy: Datang, the focal company, was very active in lobbying thegovernment to support TD-SCDMA, and the government offered four types of support in the interaction with Datang (andits partners along the TD-SCDMA value chain).

Datang’s strategies fell into three categories. The first strategy was to establish alignment between TD-SCDMA andnational development goals. Technology transfer has been the most important policy guiding local Chinese firms to sourcetechnology since the economic reform in 1978. Technology transfer contributed to the rapid development of the Chineseeconomy and the telecom industry (Editing Committee, 2008). However, this policy also faced a lot of challenges. Forexample, many local equipment manufacturing firms went bankrupt because they could not compete with MNEs after thedomestic market was open. This created a lot of dissenting voices against this policy and many people argued that thegovernment should promote locally developed technologies and give at least some protection to local industries (Zhang,2000).

China’s joining the WTO in 2001 led to bigger challenges. For example, MNEs became very reluctant to transfertechnology, worrying that local firms might become their strong competitors, or finding it more attractive to use theirtechnology by themselves in an open market in China. Local firms relying mainly on transferring technology began to losecompetitiveness because of increased competition from MNEs (Gao, 2007).

It is under the above situation that the Chinese government, especially MOST and NDRC, began to rethink about thetechnology policy from the late 1990s, and finally made the decision in 2006 to make indigenous innovation a nationalstrategy and build an innovative country (Chen & Liu, 2008).

Datang believed that TD-SCDMA could play an important role in supporting the Chinese government’s decision to moveaway from the policy of relying mainly on buying foreign technology to the policy of encouraging indigenous technologicalinnovation. For example, according to Mr. Hua Yang, the key reason that NDRC, along with MOST and the former MII,decided to support the establishment of the TD-SCDMA Industry Alliance in 2002 was that this most powerful governmentagency was convinced that TD-SCDMA could help with its promotion of the indigenous innovation policy.

Datang’s second strategy was to offer decision support. Given the intense debates about TD-SCDMA, Datang realizedthat it had to provide effective decision supports such as adequate information and policy alternatives in order for thegovernment to offer support to TD-SCDMA. Datang effectively fulfilled these tasks by building an informal social networkof non-customer stakeholders such as noted scholars, government officials (including retired ones), and people inthe media.

For example, there existed deep doubts about the merits of TD-SCDMA, and the government would not support aninferior technology. To address this challenge, Datang requested noted scholars to help. Professor Jinliang Li, the formerChief engineer at the 7th Research Institute of the China Electronics Technology Group Corporation is a typical example.

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Professor Li did a lot of research and wrote many articles to compare the relative advantages and disadvantages of TD-SCDMA, CDMA2000, and WCDMA.

One of Professor Li’s key conclusions is that TD-SCDMA enjoys big, not small, technology advantages over WCDMA andCDMA2000: TD-SCDMA is suitable for providing asymmetrical data services, because it is able to dynamically adjust datatransmission rates; TD-SCDMA is also better positioned than the other two standards to evolve into more advanced stagesand support new applications. Professor Li also argues that TD-SCDMA’s obvious technology advantage will lead to lowcost advantage (Li, 2006).

Because of Professor Li’s reputation as a highly respected expert in wireless telecommunications, his study andpublications had directly helped the government to build up its confidence in supporting TD-SCDMA. In fact, Professor Liand his friends wrote many letters to the top leaders of the central government to share their understandings about TD-SCDMA and requested support of this standard.

Decision supports were also provided by the informal social network of non-customer stakeholders built up by Datangthrough the offering of policy alternatives. For example, in early 2005, Professor Angang Hu, a very famous economist atthe Tsinghua University, one of the most prestigious universities in China, published a report, arguing that China waslagging behind in the development of 3G business and the government should issue 3G licenses as soon as possible. Healso criticized that the government refused to issue 3G licenses because the government was captured by special interestgroups.

Although Professor Hu’s report got a lot of attention, several very famous telecommunications technology experts,including Professor Jinliang Li, pointed out that the data he used were highly biased, his calculation was inaccurate, and histechnological knowledge in making technical judgment was highly limited. These experts also suggested that the centralgovernment further delay the issuing of 3G licenses.

The third strategy Datang used was to facilitate the development of the TD-SCDMA value chain. Datang believed thatthe above discussed strategies were necessary but not sufficient. It was critical to show continuous progress in thedevelopment of the TD-SCDMA technology and the TD-SCDMA value chain. A specific action was to attract other firms tocooperate by sharing its proprietary technology. For example, within the TD-SCDMA Industry Alliance, member firms suchas ZTE, who are also Datang’s direct competitors, were able to access to Datang’s patented technologies by paying very lowfees, and were able to get technical support from Datang.

Datang not only collaborated with local firms but also MNEs. For example, Siemens began to collaborate with Datangclosely on TD-SCDMA in 1997 because Datang is the leader in several important technology areas such as smart antenna,software radio, and joint detection. Although the collaboration stopped after a few years because of differences in the twocompanies’ strategies, the willingness of Siemens to collaborate with Datang indicated that TD-SCDMA is an important andadvanced technology.

Influenced by the lobbying strategies of Datang, the Chinese government offered four types of support. First, supportthrough signaling. For example, the strong support to TD-SCDMA Industry Alliance from NDRC, the most powerfulgovernment agency in China, indicated that the Chinese government wanted to support TD-SCDMA. This policy signal wasvery helpful in attracting other firms such as ZTE and Huawei, who are competitors of Datang, to join this alliance andincreasing the credibility of TD-SCDMA and Datang.

Second, providing financial support. For example, government agencies such as NDRC, MII, and MOST provided 700million RMB Yuan to facilitate collaboration between member firms of the TD-SCDMA Industry Alliance. Specifically, partof this money was allocated to member firms to pay Datang for sharing its TD-SCDMA related technologies. This not onlylowered the barriers for member firms to develop TD-SCDMA based technology and products but also increased memberfirms’ confidence on government support and the future of TD-SCDMA.

Third, providing technical service. One example was that the former MII organized the MTNet test to verify thecapability of TD-SCDMA system to be deployed as a standalone network in 2004, rather than as a complement to WCDMAonly as many experts suggested. This was implemented through CATR.

Fourth, support through administrative order. For example, in 2006 the government, including NDRC, initiated theLarge-scale TD-SCDMA Network Application Trial project and asked the telecom service providers to support TD-SCDMAtrials in 5 Chinese cities. In 2007 the telecom service providers were asked again to support TD-SCDMA pre-commercialization trials in 10 cities, including Beijing and Shanghai. In April 2008 China Mobile was asked to offer TD-SCDMA service based on its pre-commercialization network in Beijing during the Olympic Games.

A direct result of the co-evolution process between Datang and the government was the gradual development of theTD-SCDMA value Chen et al., 2002, it only had 8 members. Alliance members increased gradually to 25 by the end of 2005.In July 2008, China Mobile became the first and the only service provider member, and total members reached 58. InFebruary, SK, an overseas service provider from Korea, became an alliance member. By January 2011, 84 organizations hadbecome members of the TD-SCDMA Industry Alliance (Table 4).

4.3. Characteristics of the co-evolution process

The co-evolution process of firm strategy and government policy in the development of TD-SCDMA had three importantcharacteristics: (1) government policy support was passive and intermittent rather than proactive and continuous; (2) the

Table 4Development of the TD-SCDMA value chain: TD Industry Alliance.

Source: Composed by authors.

Timing Number of member firms

October 2002 8 (These are the founding members and are mainly equipment makers)

December 2003 14 (Several IC and intelligent antenna makers joined)

April 2005 21 (More handset makers joined; measurement device firm joined)

November 2005 25 (More handset makers joined)

May 2006 29 (More measurement device firms joined)

June 2007 48 (Various kinds of firms joined; a preliminary TD-SCDMA value chain developed)

July 2008 58 (China Mobile joined the alliance, and was the only service provider)

June 2009 66 (TD application software firms joined)

February 2010 78 (First time overseas service provide such as SK was accepted as members)

January 2011 84 (First time research institutes and universities were accepted as members)

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focal firm, Datang, rather than the government, had to take initiatives to drive and coordinate the co-evolution process; (3)most firms along the TD-SCDMA value took a highly opportunistic attitude and were very cautious to invest in TD-SCDMA.

An example to illustrate the passive and intermittent nature of government policy was the setting up of the TD-SCDMAIndustry Alliance in 2002. This was not an initiative of the government. At that time, except for Siemens, no company waswilling to make strong commitment to TD-SCDMA. According to Mr. Hua Yang, 2002 was the dimmest year for TD-SCDMA,which was at the edge of death. Under this situation, Datang did all it could to lobby the government to help to set up theTD-SCDMA Industry Alliance, and the government was forced to rethink about the policy toward TD-SCDMA andindigenous innovation. In fact, the basic pattern of firm–government interaction in the development of TD-SCDMA was thefollowing: after Datang and other firms along the TD-SCDMA value chain encountered big challenges they could notaddress by themselves, these firms, mainly Datang, would lobby the government to support TD-SCDMA, and thegovernment responded to these requests.

Another example to illustrate the passive and intermittent nature of government policy was that the Chinesegovernment never made it clear which service provider(s) would be the key adopter(s) of TD-SCDMA before ChinaMobile’s official adoption of the TD-SCDMA standard in January 2009. It was true that the Minister of the former MII, Mr.Xudong Wang, did point out several times at the end of 2005 and early 2006 that it was time to make a decision on TD-SCDMA’s commercialization, and the commercialization would be led by a strong enough service provider. However, bothChina Mobile and China Telecom, the two leading service providers in China, declared many times that they preferred notto adopt TD-SCDMA, and the government never made public comments on these declarations.

The passive and intermittent nature of government policy created huge negative impact and delayed the developmentof TD-SCDMA: firms along the TD-SCDMA value chain were reluctant to allocate resources to the development of TD-SCDMA. This situation did not change significantly until China Mobile’s official adoption of the TD-SCDMA standard inJanuary 2009.

In fact, in December 2008 the TD-SCDMA Industry Alliance and the Tsinghua University Research Center forTechnological Innovation (RCTI) invited the key handset makers and the key IC makers along the TD-SCDMA value chainto have a workshop. The majority of these firms felt that they would have to cut their investment in TD-SCDMA. Thesefirms did not feel that the Chinese government was really supporting TD-SCDMA: although China Mobile was asked tobuild up the pre-commercialization TD-SCDMA network, it was fulfilling the task half-heartedly, and the government wasnot taking effective actions to change the situation. This was one month before China Mobile’s official adoption of the TD-SCDMA standard in January 2009.

The second important characteristic of the co-evolution process between firm strategy and government policy wasclosely related to the first one: this co-evolution process was driven by the focal firm, Datang, not the Chinese government.Whenever Datang and other participating companies encountered big challenges beyond their capabilities, Datang had totake initiatives to solicit government support and coordinate the co-evolution process. In fact, it was Datang thatpersuaded the three noted scientists to write the letter to top leaders in September 2005 when the former MII was nottaking active action to involve the service providers in promoting TD-SCDMA.

The third characteristic was a result of the first two characteristics. When there were huge late-comer disadvantages, ifthe government did not make it clear that TD-SCDMA would be surely adopted, the best choice was to keep engaged butinvest cautiously. As a senior manager at a handset maker commented: ‘‘we joined the TD-SCDMA Alliance because thegovernment suggested that we join. Of course, we also saw a big opportunity here. We have been one of the best consumerelectronics firms in China and could make as high quality handsets as Samsung. However, we have had to charge muchlowers price. What is the reason? Our brand recognition is low, and this is because we are a technology follower in CDMA.TD-SCDMA is a local technology, and we have much higher probability to be a leader in TD-SCDMA. The problem has beengovernment policy. The government had not made it clear enough that TD-SCDMA would be adopted in China’’. Policyambiguity was also the key reason that most of the handset makers and IC makers attending the TRCTI meeting at the endof 2008 felt that they had to stop investing in TD-SCDMA.

Table 5Patterns of key players’ behavior towards TD-SCDMA.

Source: Composed by authors.

Organizations Patterns of behavior

Government

agencies

1. Strange behavior: very supportive in making TD an international standard; support became passive and intermittent, not

proactive and continuous after TD became an international standard; and support became more active at end of 2005 when top

leaders intervened

2. Did not involve service provider in TD Alliance before July 2008; Did not specify which service provider will adopt TD; and

openly said many times that service providers choose to adopt which standard.

3. Never made it clear enough that TD would be used in China before issuing licensing in January 2009

4. Did offer financial support and support through signaling, technical service, and administrative order

Datang 1. The focal firm to promote TD

2. Actively lobbied the government to support TD

3. Established TD Alliance with government support to build up TD value chain

4. Shared proprietary technology with members of TD Alliance to speed up TD value chain development

5. Developed informal networks of scholars, retired government officials, and other people to promote TD

Local suppliers 1. Many of them recognized that TD was a rare opportunity to improve competitive positions and develop new business

2. Perceived huge uncertainties because of government’s ambiguous policy signal

3. Showed opportunistic behavior: kept engaged but highly cautious in investing in TD

4. Except for Datang, ZTE was most active

MNEs 1. Basically highly passive; engaged very late and with little investment in TD

2. Siemens contributed a lot in early days of TD development

3. Alcatel collaborated with Datang in manufacturing

4. Samsung very active in handset

Service providers 1. Leading firms not interested in adopting TD

2. China Tietong and China Netcom, two smaller firms, interested in adopting TD, mainly in order to enter the wireless business

3. China Mobile became more active after being issued the license to operate TD in 2009 and has been more active

4. China Mobile very active in promoting TD-LTE

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Of course, there were variations among the behavior of different firms along the TD-SCDMA. For example, comparedwith Huawei, ZTE was much more active in promoting TD-SCDMA, although it was also cautious in its investment in thistechnology. One reason was that ZTE was behind Huawei in WCDMA and believed that TD-SCDMA could be a strategicopportunity. Table 5 summarized the patterns of key players’ behavior towards TD-SCDMA.

A key factor leading to the three characteristics of the co-evolution process was the transitional nature of the Chinesegovernment’s technology policy of moving away from technology transfer to encouraging indigenous innovation (Table 6).

First, the Chinese government felt the necessity of making this transition but did not have a clear understanding abouthow to make this transition. For example, according to Mr. Xinsheng Zhang, vice director general of the Division of Scienceand Technology, MIIT: ‘‘at the early days we did not know how to support TD-SCDMA and indigenous innovation. We wereused to technology transfer, which had been very successful in the telecom industry. We gradually recognized that therewere big differences between technology transfer from MNEs and indigenous innovation’’.

Second, the transitional nature of the policy of moving away from technology transfer to encouraging indigenousinnovation also made it difficult for different government agencies to develop consensus on how to make this transition.

For example, how fast this transition should be? NDRC and MOST wanted to make this transition faster, while theformer MII believed this should be a gradual process as indicated by its behavior in the co-evolution process.

The former MII did agree to support indigenous innovation and TD-SCDMA. In fact, it was very supportive in makingTD-SCDMA one of the 3 international standards for 3G mobile communications. When some MNEs tried to block TD-SCDMA’s being accepted as an international standard, the former MII invited top managers of MNEs in China to come tothe Ministry, and made it clear: the Chinese government wanted to see that TD-SCDMA be treated fairly as othercandidates in the process of selecting the 3G mobile communications standards. This played a critical role in helping TD-SCDMA accepted as an international standard.

However, the former MII did not feel the urgency to support TD-SCDMA. As mentioned earlier, the telecom sectorrealized rapid development based on transferring technology from MNEs rather than developing technology internally(Editing Committee, 2008; Zhang, 2000). Accordingly, many people at the former MII did not feel strong urgency to changefrom buying technology to internal development of technology. This was a major reason that government support from theformer MII become much more ambiguous and uncertain after TD-SCDMA was accepted as an international standard.

Put differently, when the former MII decided to support TD-SCDMA’s becoming an international standard in 1998, itsexpectation was not very high: even if the effort was not successful, experience would be accumulated. In addition, there

Table 6Understanding government behavior.

Source: Composed by authors.

Timing Decision context and decision characteristics

1997–2000 1. MII as key decision maker

2. Indigenous innovation not yet became national strategy

3. Most people against proposing TD to ITU as 3G international standard during Xiangshan Mountain Meeting

4. Strong support to make TD a 3G international standard after deciding to propose to ITU

2001–2005 1. More ministries get involved, with NDRC, MII, MOST as key decision maker, and NDRC played a leading role

2. Big debate about the necessity of making indigenous innovation a national strategy

3. Different government agencies had different perspectives; NDRC very supportive.

4. Did not have systematic plan for TD development

5. Had little experience and limited knowledge about how to support TD

2006–2009 1. Top leaders intervened, and thus various government agencies had to take it more seriously

2. Indigenous innovation became a national strategy, although the implementation of this strategy had a

lot of problems such as lack of effective coordination among government agencies

3. Policy focused more on commercialization rather than technology testing

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was nothing to lose: if TD-SCDMA failed to become an international standard, it was believed that the traditional policy ofrelying on buying technology could continue to be a feasible choice. Accordingly, it was not difficult for the former MII togive strong support to TD-SCDMA and made it accepted as an international standard.

However, compared with making TD-SCDMA an international standard of 3G mobile communications, to make TD-SCDMA commercially successful was perceived to be much more difficult by many people and many organizations,including the former MII, making it hard for the former MII to give clear signals of supporting TD-SCDMA withoutreservation.

It was under the above situation that Datang, the focal firm, rather than the government, had to take initiatives to driveand coordinate the co-evolution process. This required that Datang develop new capabilities such as building an informalsocial network of non-customer stakeholders as discussed earlier, and lobbying the government, especially when differentgovernment agencies had different priorities.

Third, top leaders’ intervention from late 2005 changed the dynamics dramatically. Although government policysupport was passive and intermittent rather than proactive and continuous, by late 2005 top leaders had developedconsensus on the importance of making indigenous innovation a national strategy. As a result, when top leaders receivedthe letter from three noted scientists in September 2005 requesting that the government support TD-SCDMA, they orderedthat the letter be carefully treated because of the potential contributions of TD-SCDMA to the indigenous innovationpolicy. Accordingly, various government agencies knew that they had to take appropriate actions. Even if they decided notto support TD-SCDMA, they were expected to provide convincing explanations. This also showed the importance of theinformal social network of non-customer stakeholders developed by Datang: a major function of this network was to keeptop leaders informed about how to support indigenous innovation.

The characteristics of the co-evolution process also suggest that taking a bargaining perspective (Fu & Mou, 2010) inexamining this process is helpful, because there existed a lot of bargaining between firms, government agencies, and otherstakeholders. However, this is not a process based only on existing powers and resources but involves new activities suchas new capability development. In fact, Datang did not have much power and resources to bargain.

4.4. The role of Datang

Why was Datang willing and able to drive the co-evolution process? This is not the focus of this paper and moreresearch is needed to answer this question. However, anecdotal evidence suggests that Datang’s unique history andcharacteristics of its top management team might have played important roles (Mourkogiannis, 2006; Schein, 1992).

For example, Datang was transformed from the China Academy of telecommunications Technology (CATT), which wasset up in 1957 by the former Ministry of Posts and Telecommunications, with the mission of developing advancedtechnologies for the Chinese telecom industry. In fact, even when Datang was clear that it did not have the requiredresources to support the development of TD-SCDMA, it did not choose to give up but take huge risks to continue theexploration work. For example, it once put its headquarters building in pledge in order to obtain bank loans to support thedevelopment of TD-SCDMA.

Datang’s top management team has strong beliefs about the importance of indigenous innovation, and is committed tomake contributions to indigenous innovation. For example, Mr. Huan Zhou, the former Chairman of the Board and CEO ofDatang, was once the Director General of the Department of Science and Technology of the former Ministry of Posts and

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Telecommunications. It was he who supported the development of SCDMA, one of the most important bases of TD-SCDMA,using government money.

Huan Zhou created a favorable environment within Datang to support the development of TD-SCDMA. He was clearthat his performance evaluation by the State Owned Assets Supervision and Administration Commission (SASAC) of theState Council could not be high with this kind of decision, because the return of promoting TD-SCDMA must be risky, slow,and uncertain when few people believed in the success of TD-SCDMA. However, he was willing to take the risks. This iswhy many people argue that Huan Zhou is not managing Datang as a company but as a state research institute.

Mr. Ruan Tang, the former CEO of Datang Mobile, is similar. He was once the Vice President of CATT, and became theCEO of Datang Mobile in 2002. At that time, he was very healthy. However, when he stepped down from the CEO positionin 2008, he had a lot of health problems because of the hard work of promoting TD-SCDMA. Put differently, Datang is not atypical firm and does not take survival and making money as the key objectives.

This also suggests that Datang’s core competence in lobbying and eventually persuading the government in providingsupport and sponsorship might lie in the unique characteristics of Datang’s history and its top management teams: theculture of developing leading technologies, the beliefs about the importance of indigenous innovation, the capabilities tomake connections between TD-SCDMA and the central government’s intention to promote indigenous innovation, and thecapabilities to connect to the government and other stakeholders. This also means that it is hard for other companies tocopy Datang’s practices.

Of course, there is another possibility: Datang was behind ZTE and Huawei at the turn of the century. In order toimprove its position in the industry, Datang chose to take huge risks in developing radically new technologies. However,this explanation is not very convincing. Datang is clear that promoting TD-SCDMA involves extremely high risks, and it ishard to gain government support only because this is helpful for Datang to improve its position in the industry.

5. Discussion and conclusion

This paper tried to explore a specific grounded theoretical question: what are the key factors and underlyingmechanisms affecting catching up through technology standard development by studying the evolution of TD-SCDMA inChina, which was an extremely complex process. The findings of this study suggest that this question could be answeredby looking at the catching up process as a co-evolution process between firm strategy and government policy. This processwas centered in solving the challenges of late-comer disadvantages, and driven mainly by the focal firm with the help of aninformal social network of non-customer stakeholders, rather than the government, although government policy was ofcritical importance and could not be substituted for.

The findings have both theoretical implications and practical implications. Theoretically, the model developed based onthe findings suggests important extension of the current literature on catching up. For example, following the resourcesbased perspective (Barney, 1991; Prahalad & Hamel, 1990; Wernerfelt, 1984), the essence of catching up should be thedevelopment of core competencies and unique resources. This study suggests that in the era of globalization, there arehuge late-comer disadvantages, and it is hard for late-comer firms to develop strong enough capabilities and uniqueresources, especially in the case of technology standard development. Accordingly, gaining government support isnecessary.

The co-evolution perspective also suggests that proactive actions and new capabilities are required in order to becomea developmental state (Amsden, 1989; Evans, 1995) and provide effective government support in catching up throughtechnology standard development. This is especially crucial in the process of big policy transition such as moving awayfrom technology transfer to internal development of technology. If the government chooses to play a passive role, or doesnot have the capabilities to coordinate policies that might have conflicting goals, the process of catching up throughtechnology standard would be very difficult. Accordingly, the combination of the resources based perspective and thedevelopmental state perspective is more appropriate in explaining technological catching up and technology standardadoption.

The findings also have practical implications. For example, government policies of technology catching up andtechnology standard development based solely on free market competition in the era of globalization seems unlikely to besuccessful. For example, no leading service providers were interested in adopting TD-SCDMA if they were allowed to makethe decision by themselves.

Local firms playing catching up also need to develop strong internal capabilities. However, this is not sufficient. Theyshould be active in lobbying the government to help with technology standard development. In this process, informalsocial networks of non-customer stakeholders could play important roles (Baron, 1995, 1997; Blind et al., 2010; Clarkson,1995).

The study also has implications for MNEs. These firms might need to understand competition from a co-evolutionperspective as indicated by the TD-SCDMA case. Local firms usually have weaker capabilities but this is not the reason thatthey be ignored. They could become very competitive with the help of the government if they are helping to achievedevelopmental goals of the nation. If fact, Nokia, the leading firm in the 2G handset market, seems to have made a bigmistake in China by choosing not to participate very actively in TD-SCDMA.

This study also has its limitations. First, in some cases, there is not enough information about how a decision was made,especially when the decision was made by very high level government officials. The second limitation also relates to lack of

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information. For example, as the study by Steen (2011) suggests, there are big debates and it is hard to know exactly howmuch patents local firms hold in TD-SCDMA. This makes it hard to measure that to what extent the local firms have gainedtechnology independence through the development and adoption of TD-SCDMA. The third limitation is that this paperfocused on equipment and the impact of handset is not analyzed in detail, although handset could play a crucial role in theprogress of the telecom industry (Ono & Tang, 2010; Weber et al., 2011; West & Mace, 2010). This paper also did notdirectly look at the adoption of WCDMA and CDMA2000 but treated them as part of the environment and background.Future research will try to address these limitations and new directions such as how the three different standards evolvewith different initial conditions.

Acknowledgement

The authors would like to thank Dr. Erik Bohlin, Professor Jun Xia, and three anonymous reviewers for their constructivecomments and suggestions, and the support from the National Natural Science Foundation of China (70831003;71121001), and the Key Research Institutes of the Ministry of Education of China (07JJD630004).

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