Catching up from above - the development of Chinese R

1
Catching up from above -the development of
Chinese RD based competitiveness

• Six countries programme, Helsinki 17-18/6 2004
• Vicky Long Staffan Laestadius

2
Our message in short

• Chinese firms rapidly develop competitiveness in
  the high (RD 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.

3
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

4
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
• Whos next?

5
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!

6
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

7
The consolidation of global business - the big
business revolution

• The merger boom (MA)
• 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?

8
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 RD chain.
• Next follows the preliminary results from a
  massive set of interviews with Chinese actors.

9
Interviewed organizations
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 authorities 1
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
10
Interviews in China
Interviews in China
China tour map
11
Tranditional Division of Labour

• Asset-exploiting RD or home-based exploiting
  (HBE)
• Home-based augmenting (HBA) remains
  concentrated in the developed economies
• ( c. f. Dunning, 2000 Criscuolo Narula
  Verspagen, 2001)

12
Identified two directions of international RD
flows (conjectures)

• Many Western incumbent ICT firms move
  HBA/advanced RD 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 RD labs in the
  advanced economies like USA and Sweden.

13
Western firms RD labs in China
Three stages of high-tech MNC RD investment

• Exploratory and strategic partnership stage
  (early - mid of 1990s) JV-based Show
• Expansion of RD investment stage (mid - late
  1990s) intensive cooperation exploring the
  West
• Consolidation of RD stage (late 1990s -
  present)
• Chinas accession to WTO Domestic
  development consolidated, strategic FDI approach

Source Henry L. Stimson center (Walsh K, 2003)
14
MNCs RD labs

• Developed regions (USA, Europe)
• NIEs (e.g. Acer, Kinpo Electronics, Viatech,
  Samsung, LG)

15
Two mechanisms favor this ICT RD movement
(conjectures)

• Development of local conditions
• The mobility of ICT technologies and industries

Rivalry, Matured Partners, Market Size
(c.f.Walsh, 2003, Chen 2004)
16
Different structure and focus on RD

• Spillovers (both ways)
• China - a sophisticated market?
• Social embeddedness
• Implication - Learning

17
Chinese establishment of overseas research labs
A Emerging Innovation Forces Drives of
Setting up Overseas Labs

• Walks on two legs
• Chinese firms/enterprises (e.g. TD-SCDMA )
• Leading indigenous Telecom Datacom vendors
• Overseas labs

18
Among 23 interviewed Chinese ICT firms, there
are 18 firms who own 35 overseas labs
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Drivers

• Technology spillovers
• Semantic and contextual limitations of Absorptive
  capacity
• Center of excellence
• Global sourcing

20
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??? )

21
Scenario?

• Hurdles and Limitations
• Country, industry, corporate-specific hurdles
• The leapfrogging possibility?

22
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 ?