Catching up from above -the development of Chinese R&D based
competitiveness
Six countries programme, Helsinki 17-18/6 2004
Vicky Long & Staffan Laestadius
Our message in short
• Chinese firms rapidly develop competitiveness in the high (R&D intensive) end of ICT industry in general and within telecommunication in particular
• It challenges the dominant view on how international firms localize knowledge intensive activitites within a globalized economy.
• This is a preliminary report from the beginning of a research project on Chinese telecom strategies. In addition to the literature and statistics studied it is based on interviews with Chinese ICT actors.
The context: globalization!
• Castells (1996) and the network economy
• A reminder:
– Product cycle discussion - 60s (Vernon)
– The international firm discussion - 70s (Hymer)
– The international sourcing discussion - 70s (Fröbel)
– The Asian Tigers - 60-70s
• Globalized communication systems
The catching up phenomenon
• Europe on China - 15th century
• America on Europe - 19th century
• Japan on America/Europe - 20th century
• First tier Asian Tigers
• Second tier Asian Tigers
• Who´s next?
The catching up process
• Gerschenkron (1962)
• Flying geese or leapfrogging
• “Soft” leapfrogging - “real” leapfrogging!
• Strategies by gvts. - and by intl. firms!!
• Krugman (1994) and the “China syndrom”: quantitative or qualitative growth!
China - the figures!
• Trade: 92/02 growth with 380% to global rank 4• Manufacturing content in export: higher than most
industrialized countries• ICT export: same as Japan and EU• ICT import: world top group• Telecom market: biggest size & growth in the
world!• FDI: highest in the world (almost)!• Chinese firms are now going abroad
The consolidation of global business - the big business revolution
• The merger boom (M&A)
• The importance of the logo
• The importance of the strategic knowledge
• The competition along the value chain
• The global sourcing of activities
• Producing high-tech with no profit?
• Will Chinese firms break through?
The challenge
• Competition from Chinese actors directly in the high end and in industrialized countries
• Telecommunication - a chance for real leapfrogging for China?
• Competition on systems and technologies - in addition to design and interface - i.e. the high end of the R&D chain.
• Next follows the preliminary results from a massive set of interviews with Chinese actors.
Pearl River Delta (Jun, 2003)8 firms, 2 government bureaus 1 high-tech park and 1 university
Yangze River Delta (Jul, 2003)5 firms
Bohai Rim region Frist trip (Aug,2003)10 firms, 2 government authorities1 high-tech park, 1 university
Second trip(Jan,2004)4 firms and 1 development zone
27 ICT firms 4 Government authorities 2 high-tech parks 1 EDZs 2 Universities
Interviewed organizations
Interviews in China
China tour map
Interviews in China
Tranditional Division of Labour
• “Asset-exploiting R&D” or “home-based exploiting (HBE)”
• “Home-based augmenting (HBA)” remains concentrated in the developed economies
( c. f. Dunning, 2000; Criscuolo & Narula & Verspagen, 2001)
Identified two directions of international R&D flows
(conjectures) Many Western incumbent ICT firms move
HBA/advanced R&D activities to China and/or in China based firms
Chinese firms, after having successfully encroached market shares from foreign vendors at home and/or using the home market as an important “cash cow”, aggressively build up R&D labs in the advanced economies like USA and Sweden.
Western firm’s R&D labs in China
• Exploratory and strategic partnership stage (early - mid of 1990s): JV-based; “Show”
• Expansion of R&D investment stage (mid - late 1990s): intensive cooperation; exploring the “West”
• Consolidation of R&D stage (late 1990s - present):
China’s accession to WTO; Domestic development; consolidated, strategic FDI approach
Source: Henry L. Stimson center (Walsh K, 2003)
Three stages of high-tech MNC’ R&D investment:
MNCs’ R&D labs
• Developed regions (USA, Europe)
• NIEs (e.g. Acer, Kinpo Electronics, Viatech, Samsung, LG)
Two mechanisms favor this ICT R&D movement (conjectures):
• Development of local conditions
• The mobility of ICT technologies and industries
Rivalry, Matured Partners, Market Size (c.f.Walsh, 2003, Chen 2004)
Different structure and focus on R&D
• Spillovers (both ways)
• China - a sophisticated market?
• Social embeddedness
• Implication - Learning
Chinese establishment of overseas research labs
• “Walks on two legs”• Chinese firms/enterprises (e.g. TD-SCDMA )• Leading indigenous Telecom & Datacom vendors • Overseas labs
A Emerging Innovation Forces & Drives of Setting up Overseas Labs
Among 23 interviewed Chinese ICT firms, there are 18 firms who own 35 overseas labs
Geographic distribution of Chinese ICT firms' overseas R&D labs
Others ; 9%Japan; 6%
Korea; 11%
Europé; 26%
USA; 48%
Others
Japan
Korea
Europé
USA
Drivers
• Technology spillovers
• Semantic and contextual limitations of Absorptive capacity
• Center of excellence
• Global sourcing
The Activities of Overseas Labs - Four Steps and Onwards (observations)
• BI unit
• Cautious (budgeted) expansion & investigation
• A clear technological element/focus formed
• Convergence with local market needs (Contrary to its guerilla strategy---
”besieging and encircling from village to city”??? )
Scenario?
• Hurdles and Limitations
Country, industry, corporate-specific hurdles
• The leapfrogging possibility?
Implications
• Challenge to conventional wisdom on globalization processes?
High-tech & low tech concentration; Input-driven growth; Inward-orientation vs. outward-orientation;
• A global convergence of knowledge formation ?