Catch-up in the IT Service Sector and the Role of the Government in China

Chapter 7 analyzes the market and technological catch-up of indigenous Chinese firms in two information technology service sectors, namely, games and business software (enterprise resource planning (ERP) and security software) and focuses on two aspects. The first aspect is about how latecomer firms have been able to access and learn from foreign knowledge bases and acquire their innovation capabilities. The second aspect is the role of the government and regulation in the catch-up process. Indigenous firms in China have selected different learning and catch-up strategies in different technological regimes. For the online game sector, where imitation is easier and incremental innovation is more important than radical innovation, Chinese firms started with handling the publishing (or distribution) of games developed by foreign incumbents and later secured in-house game development capabilities by imitating the products of global leaders. In the business software sector, where imitation and creative innovation are difficult, Chinese firms acquired third-party technologies through mergers and acquisitions and then differentiated their products by taking advantage of local specificities. In general, intellectual property rights (IPRs) are critical in the business of these two segments. Despite the entry barrier effect of IPR protection by the foreign incumbents, the latecomer firms discussed in this chapter seem to have circumvented the barrier to entry and learning and to acquire their innovation capabilities. However, such learning and acquisition would not have led to commercial success without government regulation against foreign companies, such as business restrictions in online gaming and exclusive procurement of indigenous products in applied software (ERP and security software). Such restrictions against foreign companies were a critical constraining factor against their market share expansion in the Chinese market.

Role of Science and Technology Institutions in Limited Catch-up

Chapter 4 analyzes China’s semiconductor industry from the sectoral systems of innovation perspective. The industry remained limited in terms of catch-up in market shares and technology. The chapter explains the reasons for the limited catch-up in terms of the characteristics of the technology regime of the industry. In the semiconductor industry, innovations are frequent and technologies are highly cumulative, which places the latecomer in a disadvantageous position in terms of entry possibility. Furthermore, the market for standard integrated circuit chips is not segmented but highly integrated, which implies no low-end niche market for latecomers to enter first. Therefore, latecomer firms encounter difficulty in seizing a market opportunity through differentiated marketing. The situation worsens with the continued increase of the required investment and shortening of life cycles. Furthermore, the existing practice of Western countries restricting the transfer of core technologies to Communist countries, such as China, amplifies the difficulties faced by Chinese firms.

Upgrading Big Brother: Local Strategic Adaptation in China’s Security Industry

What are the circumstances under which latecomer firms can develop indigenous innovative capacity and compete globally? China’s construction of a vast domestic security apparatus has contributed to it becoming the world’s largest supplier and consumer of video surveillance products and services. It has also produced several globally competitive companies, including those engaged in digital surveillance. Although security equipment producers initially emerged in Guangdong province, China’s leading technology companies are concentrated in Zhejiang province. This comparative study is motivated by the puzzle of why Guangdong, which has a larger security equipment industry with more local investment and earlier introduction of foreign technology, has lagged behind Zhejiang in technological upgrading. We trace this provincial variation to the policy choices of local state bureaucracies and the business strategies of local enterprises. While macro-level variables such as market demand and establishing national industry standards are important for industrial development, this study demonstrates the critical role of local technocrats and entrepreneurs in facilitating technological innovation in a rapidly evolving surveillance regime. Our analysis also reveals how latecomers to a technology-intensive industry were able to adapt their products strategically to meet the technical demands of a major segment of the domestic market, China’s public security sector.

Technological Catch-Up and Innovative Entrepreneurship in Vietnamese Firms

The article analyses the dynamics of technological catch-up through entrepreneurship in latecomer firms to emerging markets. With this aim, the article introduces Vietnam’s experience and illustrates the result of three case studies of Vietnamese technology firms at different stages of their evolution. Insights from the cases reveal all follow an incremental innovation model based on business model ‘soft’ innovations, mainly in customer-facing activities and partnering, as well as limited products and technology adaptation to local market needs. Consistently with latecomer firms’ theory, the market drives these firm’s innovation efforts, which are concentrated on developing new services and comprehensive solutions rather than new technologies. Comparisons of the findings with recent and similar experiences of Chinese firms highlight that different stages of catch-up lead to different innovation practices in nature and degree, and the need to strengthen institutions to face competition, rather than use the former to shelter from the latter. The Vietnamese firms’ innovation practices and catch-up patterns found are then discussed under the perspective of reaping the benefits of international knowledge and technology flows and the specific challenges faced by Vietnam. The paper concludes with several reflections, lessons learned and perspectives for other newly industrializing emerging countries.

From Catching Up to Convergence of the Latecomer Firms: Comparing Behavior and Innovation Systems of Firms in Korea and the US

This paper addresses the issue of catching and convergence at the level of firms, and investigates whether Korean firms tend to converge toward mature firms represented by the US firms in terms of their behavior and performance as well as firm-level innovations systems. It conducts regression analyses of several behavior and performance variables, using the data of the Korean and US firms during the 1990s, the 2000s, and 2010s. It finds some evidence of convergence, such that Korean firms become more profitability- rather than growth-oriented, borrowing and investing less, and thus being less indebted. However, they have not changed much in terms of their behavior toward firm values and dividend tendencies. Further analyses, using the patent-derived, innovation system variables, also confirm some aspects of convergence, compared with the early results, for which self-citations become significant and positive for firm values; furthermore, the variable of cycle time of technology is no longer significant for profitability, which is consistent with the results from the US firms. Meanwhile, changes in corporate governance associated with the rise of foreign shareholder are also shown to have resulted in higher profitability but insignificant change in firm values. An emerging conclusion is an ongoing but partially completed process of convergence.

History-Friendly Modeling: An Evolutionary Tool for Strategy Research

History-friendly models have been increasingly adopted to study innovation and industry evolution, the catch-up of latecomer firms and countries, and public policies. However, they have been used less in the field of strategic management. In this article, we first provide a review of the history-friendly literature, identifying its intellectual roots in evolutionary economics. Then, we discuss three possible motivations that could explain the history-friendly paradox. Finally, we propose history-friendly models as a promising tool to study current research questions in strategy.

Technological Learning Strategies and Technology Upgrading Intensity in the Mining Industry

Despite extensive research on technology upgrading in firms from emerging economies, we know little about micro-level learning strategies underlying technological capability accumulation or technology upgrading intensity, particularly in natural resource-intensive industries. Through a study of Brazil’s mining industry we found that: (1) leading firms implemented technological learning strategies as responses to changing windows of opportunity; (2) these technological learning strategies manifested from imitative and defensive to the offensive, with elements overlapping during the technology upgrading process, involving two forms of knowledge: “doing, using and interacting” (DUI) and “science, technology and innovation” (STI), which were operationalized through various learning mechanisms; (3) the use of learning mechanisms changed qualitatively over time affecting firms’ technology upgrading intensity positively. We contribute to furthering the understanding of latecomer firms’ technology upgrading by providing in-depth empirical insights through a comprehensive approach to innovation capabilities and learning strategies in an under-researched natural resource-intensive industry in a middle-income resource-rich country.