Epilogue: Implications from industrializing East Asia's innovation and learning experiences

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This article was downloaded by: [Queensland University of Technology]On: 21 October 2014, At: 15:49Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UKAsia Pacific Business ReviewPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/fapb20Epilogue: Implications fromindustrializing East Asia's innovationand learning experiencesRajah Rasiah aa Centre of Regulatory Studies, University of Malaya , KualaLumpur, MalaysiaPublished online: 19 Apr 2011.To cite this article: Rajah Rasiah (2011) Epilogue: Implications from industrializing EastAsia's innovation and learning experiences, Asia Pacific Business Review, 17:02, 257-262, DOI:10.1080/13602381.2011.533500To link to this article: http://dx.doi.org/10.1080/13602381.2011.533500PLEASE SCROLL DOWN FOR ARTICLETaylor & Francis makes every effort to ensure the accuracy of all the information (theContent) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. Taylor and Francis shall not be liable for any losses, actions, claims,proceedings, demands, costs, expenses, damages, and other liabilities whatsoever orhowsoever caused arising directly or indirectly in connection with, in relation to or arisingout of the use of the Content.This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditionshttp://www.tandfonline.com/loi/fapb20http://www.tandfonline.com/action/showCitFormats?doi=10.1080/13602381.2011.533500http://dx.doi.org/10.1080/13602381.2011.533500http://www.tandfonline.com/page/terms-and-conditionshttp://www.tandfonline.com/page/terms-and-conditionsEpilogue: Implications from industrializing East Asias innovation andlearning experiencesRajah Rasiah*Centre of Regulatory Studies, University of Malaya, Kuala Lumpur, MalaysiaThis conclusion provides a summary of the learning and innovation experiences ofselected East Asian economies, as well as using the evidence to draw implications fortheory and policy. The cross-country East Asian study of automotive parts provided thestarting block that underscored the importance of the embedding institutions andorganizations in driving innovation and learning in firms. Although local firms showedhigher R&D intensity levels than foreign firms thus reflecting the significance of homecountry advantages, intensity levels were higher in countries with a stronger high-techinfrastructure regardless of ownership differences. The subsequent cases address broadmacro innovation policies, for example in Thailand and Korea, and micro economicand technological catch up successes such as those in the button city of Qiaotou.Contrary to the neoclassical logic of leaving it to the markets, the evidence amassedshows that a combination of markets, government and cooperation has beeninstrumental in successful innovation and learning outcomes in East Asia.Keywords: catch up; East Asia; innovation; learning1. IntroductionThe examples discussed in this volume provide a wide range of experiences that stand outas technological learning and innovation achievements in their respective countries inEast Asia. The research experiences presented in this collection examined technology andinnovation in both the richer (e.g. Korea) as well as the poorer economies (e.g. Laos), aswell as the larger (China) and smaller countries (e.g. Malaysia and Laos). In thisconclusion we examine the implications of the findings for both theory and policy.To recap, the examples were chosen because of the significance of the sectors to either thenational economy or their contributions in world production. In the conclusion we discussthe implications of the experiences for theory and policy.2. Key findingsUsing evolutionary methodologies, the research provided a novel analytical explication ofinnovation and learning in selected experiences from East Asia. This section summarizesthe important innovation and learning experience findings in the volume.Rasiah showed that statistically the embedding institutional and organizationalenvironment is critical to automotive parts firms participation in higher technologyactivities in China, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.Although there were mixed results with the particular technologies involved, only theISSN 1360-2381 print/ISSN 1743-792X onlineq 2011 Taylor & FrancisDOI: 10.1080/13602381.2011.533500http://www.informaworld.com*Email: rajah@um.edu.myAsia Pacific Business ReviewVol. 17, No. 2, April 2011, 257262Downloaded by [Queensland University of Technology] at 15:49 21 October 2014 degree mattered with ownership in the dependence of firms on the supporting institutionsand meso-organizations. The dependence of firms on the supporting environment ishighest when involving R&D intensities. However, foreign firms clearly enjoyed farhigher export intensities than local firms which could also be a consequence of thepredominantly open trade regimes that faced East Asian economies from 2000.Rasiah, Kong and Vinanchiarachi provided a lucid account of the remarkableprogression of Qiaotou as a button using and distributing town in the late 1970s into abutton manufacturing town in the 1980s and into a composite cluster of mature buttonfirms engaged in both manufacturing, and designing and materials development from thelate 1990s. The initial incorporation of the town in button sales was the evolvement fromentrepreneurs buying imported buttons from Hubei and distributing them to garmentmanufacturers, to the development of hundreds of stores using market-based armslengthtransactions. Increased demand for buttons attracted button manufacturing in Qiaotou butits transformation into a composite cluster was very much driven by strong support fromthe Yongjia County government, which assisted with both financial support as well asattracting R&D support from the universities of Huanen and Lanzhou in new design andmaterials development. A strong history of cooperation among the entrepreneurs inZhejiang province made collaboration initiatives both easy and productive. Hence, stronginteraction markets, government and cooperation has helped Qiaotou not only to produce65% of the worlds buttons but also become a composite button cluster with strongtechnological deepening.Unlike previously where the Government Research Institutes (GRIs) came under thepurview of their respective ministries, Lee argued that the reformed research councilsystem has allowed for greater autonomy in the operations of GRIs in Korea. There ismuch less bureaucratic intervention in the operations of the GRIs under the new systemand this changed situation has led to positive outcomes in terms of research performancewithin a relatively short period of time. The changes in the governance system of theresearch councils also involved changes in the way funding was provided to the GRIs.Under the reformed system, GRIs will be allocated funding by the central governmentbased on evaluation by the respective research councils which rank each GRI according toa defined criteria of performance. Such an evaluation system has contributed towardsintense competition amongst the GRIs as well as the researchers. Despite the impressiveachievements following the introduction of the new research system, there remainconcerns over excessive rounds of evaluation which may exert unnecessary anadministrative burden on GRIs. In short, given committed and sustained support by thegovernment, pragmatic approaches to reforming the public research system can yieldpositive outcomes within a short period of time.Rasiah, Nolintha and Songvilay showed how small windows of opportunity can set offmanufacturing synergies even in the most underdeveloped of locations. Taking advantageof preferential access to the European Unions everything but arms clause, Laos hasmanaged to experience growth in garment manufacturing since the late 1990s. Whereasthe economic synergies have evolved, the evidence shows that not much technologicaldeepening has taken place to suggest that garment manufacturing will be long lived oncethe export access privileges in major markets expire. Although silk manufacturing enjoysnatural resource endowments, Laos distance from sea outlets make the country naturallyless attractive for garment manufacturing than Cambodia and Vietnam.Among all obstacles, Ee Shiang and Nagaraj show that funding related obstacles are offoremost importance to firms. The results also show that it is the innovators that are morelikely to report shortcomings in innovation activity than the non-innovators. Furthermore,258 R. RasiahDownloaded by [Queensland University of Technology] at 15:49 21 October 2014 innovators face more obstacles than non-innovators. The level of importance of obstaclesand the way the obstacles combine to hamper innovation are also different for innovatorsand non-innovators. The results suggest that policies to encourage innovation need toconsider the different needs of innovators and non-innovators.Edralins findings reveal that the most frequently cited importance of training isthat it helps to improve job performance in the Philippines. Companies in the Philippinesconduct slightly more technical training than behavioral training sessions. The most oftenused training method is the lecture, combined with the usage of new technologies suchas the CD-ROM, the Internet, and the company intranet/portal. Most firms reportedthat adequate resources like budget and expertise are provided for the delivery of thetraining and development programs. The survey findings reveal that the leading bestpractice that stimulates innovation is the implementation of extensive continuous trainingand development programs which not only focus on the improvement of technicalcompetence, but also aim to foster the development of cultural behavior and valuescongruent with that of the companys core values and philosophy. The infusion of suchbehavior and values is indispensable for the innovation process to flourish at the firm level.Intarakumnerd and Chaminade argue while contributing towards a broadening in thescope of existing science and technology policy as well as engendering selectiveintervention policies for particular clusters in Thailand they also argue that it has alsocaused problems. There are greater systemic problems to be solved arising from thedeep-rooted weakness and fragmentation of the innovation system, including a lack ofsupporting institutions, a clear and shared vision of policies, policy path dependency andinertia in policy formulation owing to obsolete paradigms. To address these deep-seatedproblems, the authors propose educating officials and people from the relevant sectorsabout the limits of the old paradigms so as to effect a mindset change as well as toundertake some small projects in order to demonstrate the positive attributes of adoptingthe innovation system approach.The heterogeneity of the examples as well as the different issues examined from theEast Asian innovation and learning experiences demonstrate that the evolutionary theoryand methodology of using empirical evidence is critical to capture the specificity andchanges in technology in particular settings. Indeed, not only are countries different butalso the different industries and the location structures are instrumental in producingdifferent outcomes.3. Theory and policyThe findings provide significant implications for theory and policy. The analytical workby Rajah Rasiah reinforced the importance of the institutional and organizationalenvironment for firms to raise their degree of participation in innovation and learning usingdata from sampled automotive parts firms from China, Indonesia, Korea, Malaysia, thePhilippines, Taiwan and Thailand. Although local firms show far higher R&D effort andlower export-intensities than foreign firms, R&D intensities are higher in automotive firmsembedded in stronger high-tech infrastructure than in those embedded in weaker high-techinfrastructure. Each of the subsequent cases provided unique findings. The statisticalevidence is conclusive that in an industry where scale, scope and flexibility are criticalinnovation and learning requires strong support from institutions and organizations toboost R&D activities. Perhaps the most remarkable is the progression of the case regardingbutton manufacturing in Qiaotou as well as specific learning experience as with theimportance of training in job performance and continuous improvement in the Philippines.Asia Pacific Business Review 259Downloaded by [Queensland University of Technology] at 15:49 21 October 2014 Searching for solutions within government control by reforming coordination mechanismswas instrumental in driving up the performance of GRIs in Korea. Ee Shiang and Nagarajprovide convincing empirical evidence to distinguish the conduct of innovators andnon-innovators in Malaysian manufacturing when framing policies to stimulateinnovation. Although Intarakumnerd and Chaminade argue the case for selective policyinterventions to stimulate innovations, they also emphasize that there is a need to shed oldparadigms for more novel and effective frameworks.What is obvious from the above experiences are diverse examples where the criticalinstitutions and organizations effecting learning and innovation are somewhat different.Contrary to neoliberal policies of leaving economic agents to market forces or simplyaugmenting market signals, each of the experiences posit specific interventions at thevarious different levels to drive innovation and learning. The button manufacturingexperience started as a market initiative but only managed to achieve technologicaldeepening into new design and materials development with strong support from theYongjia county government and collaboration from the universities of Lanzhou andHuanen. A combination of markets, government and cooperation eventually playedcritical roles in the transformation of Qiaotou town into a mature and composite buttoncluster. This development obviously supports the industrial district arguments onclustering (see Brusco 1982, Piore and Sabel 1984, Becatini 1990, Rasiah 1994, Rasiah andLin 2005).While selective interventions were important in Thailand, Intarakumnerd andChaminade note that policy errors need serious correction, which helps address the need tomove away from the market-state dichotomy. As the evidence shows while markets canfail, governments too can fail. Meso-organizations have played critical roles in solvingcollective actions problems in many of the East Asian examples. For example, thecollaborative relationship between firms, the Yongjia county government and theuniversities of Huanen and Lanzhou was instrumental in the progression of buttonproduction from manufacturing to new design, machinery and equipment and materialsdevelopment. Government failure in the operations of GRIs in Korea was overcomethrough reforms to smooth connections and coordination between the institutes andgovernment and researchers as well as subjecting them directly to performance standards.Meso-organizations were still in their infancy in Laos but unless they evolve throughstrong connectivity and coordination with firms it is difficult to see how garmentmanufacturing can be sustained in the long run (see Rasiah 2009).The examples of the use of specific instruments at the firm level in the works of Edralinand Ee Shiang and Nagaraj demonstrate that firm strategies can be improved through aprofound understanding of firms conduct. Productive firms actively invest to raisetechnological intensity and in the large Philippines corporations the leading best practicein human capital development is the use of extensive continuous improvement practices.Ee Shiang and Nagaraj provided empirical evidence to show that the conduct of innovatingfirms is different from non-innovating firms in Malaysian manufacturing. Edralin showedthat large corporations in the Philippines invest considerably in training and often seekbest practices to stay competitive.Clearly, all the accounts offer a strong foundation for a strategic policy formulationthat entails effective coordination between markets, government and cooperation (seeBrusco 1982, Wilkinson and You 1994, Rasiah 1994, Rasiah and Lin 2005). In the KoreanGRIs, the evidence from Qiaotous button manufacturing experience, the socialembeddedness of knowledge flows in Malaysia and innovation policies in Thailand showsthat the focus should be on improvements rather than on a reduction in the role of260 R. RasiahDownloaded by [Queensland University of Technology] at 15:49 21 October 2014 government. The empirical evidence from the large corporations in the Philippinesand manufacturing firms in Malaysia show that government policy can be better organizedthrough a profound understanding of the firms on human capital development andinnovative activities respectively. Although rapid growth has provided employment andimprovements in wages, the lack of pro-active government support in the development ofhigh-tech meso-organizations threatens to restrict the capacity of garment firms to upgradetheir technologies.4. ConclusionsThe evidence shows that the evolutionary explication of innovation and learningexperiences are deeply rooted in the way micro agents (firms) connect with meso-organizations, and how governments can actually stimulate their progression up thetechnological ladder. Although foreign firms have been more export-oriented and lessR&D intensive than local firms, the embedding institutions and organizations have beenimportant in driving technological intensities (particularly, R&D intensities) inautomotive parts manufacturing in East Asia regardless of ownership differences.Markets have been important but as one of the key influences rather than as thedominant institution in the technological catch up experiences examined as pointed out byNelson (2008). Each of the case experiences has been different with different structures,interventions and level of complexity and sophistication involved. In addition, wheretechnological upgrading and improved performance were recorded, the progression hasbeen both uneven and non-linear. In the most dramatic of the successes, i.e. thetransformation of the GRIs in Korea and button firms catch up to the technology frontierin Qioatou, China, the governments have played critical roles in synergizingimprovements. Firms, meso-organizations and governments have consciously strategizedcatch up activities, resolved collective action problems and used appraisal mechanisms tocontinuously raise performance levels.The examples provide significant policy implications for countries in East Asia as wellas in other parts of the world, and for catch up in sophisticated government R&Dmachinery, as well as, simple button and garment manufacturing. Policy lessons can alsobe drawn from training and understanding the conduct of innovators and non-innovators tofocus on the systemic synergies that can be appropriated from the stimulation ofproductive social relationships.Notes on contributorRajah Rasiah currently holds the Khazanah Nasional Chair of Regulatory Studies and is alsoProfessor of Technology and Innovation Policy at University of Malaya. He is also a ProfessorialFellow at the Maastricht Economic and social Research and training centre on Innovation andTechnology (MERIT), United Nations University. He obtained his doctorate in Economics fromCambridge University in 1992 and his research specialization includes science and technologypolicy, firm-level learning and innovation, healthcare services, foreign investment, cluster mappingand designing technology roadmaps with fieldwork research experience in over 35 countries. Amonghis recent books include The New Political Economy of Southeast Asia, Cheltenham: Edward Elgar,2010 (Edited with Johannes Dragbaek Schmidt) and Innovation and Learning in IndustrializingEast Asia, London: Routledge, 2011 (Edited with Thiruchelvam Kanagasundram and Keun Lee),and The Malaysian Economy: Unfolding Growth and Social Change, Kuala Lumpur: OxfordUniversity Press, 2011 (edited). He has also undertaken consultancies for UNCTAD, World Bank,UNIDO, UNDP, Harvard Institute of International Development (HIID), ILO, Asian DevelopmentBank (ADB), UNESCAP, JETRO, FES and Stanford Research International (SRI).Asia Pacific Business Review 261Downloaded by [Queensland University of Technology] at 15:49 21 October 2014 ReferencesBecattini, G., 1990. The Marshallian industrial district as a socioeconomic notion. In: F. Pyke,G. Becattini and W. Sengenberger, eds. Industrial districts and interfirm cooperation in Italy.Geneva: International Labour Organization, 3751.Brusco, S., 1982. The Emilian Model: productive decentralization and social integration.Cambridge journal of economics, 6 (2), 167184.Nelson, R., 2008. Economic development from the perspective of evolutionary theory.Oxford Development Studies, 36 (1), 921.Piore, M. and Sabel, C., 1984. The second industrial divide: possibilities for prosperity. New York:Basic Books.Rasiah, R., 1994. Flexible production systems and local machine tool subcontracting: electronicscomponent transnationals. Cambridge journal of economics, 18 (3), 279298.Rasiah, R., 2009. Garment manufacturing in Cambodia and Laos. Journal of Asia Pacific economy,14 (2), 150161.Rasiah, R. and Lin, Y., 2005. Learning and innovation: the role of market, government and trustin the information hardware industry in Taiwan. International journal of technology andglobalization, 1 (3/4), 400432.Wilkinson, F. and You, J.I., 1994. Competition and cooperation: towards understanding industrialdistricts. Review of political economy, 6, 259278.262 R. RasiahDownloaded by [Queensland University of Technology] at 15:49 21 October 2014

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