Unit 7

1
Unit 7

• Innovation and technological competitiveness

2
objectives

• Distinguish between invention and innovation and
  understand the meaning of product and process
  innovation
• Discuss the key issues in innovation management
  and explain why these are important for effective
  technological upgrading
• Analyze the principal influences on selection of
  a technology or innovation strategy
• Explain how innovation is used as a source of
  competitive advantage for Japanese forms and SMEs
• Differentiate the technological trajectories
  taken by the NIEs
• Link the roles played by government and MNEs to
  technological change in the region

3
Innovation (I)

• Concept of innovation
• Technological innovation or the development of
  technical and commercial products and/ or
  services
• Technology refers to the theoretical and
  practical knowledge, skills and artifacts that
  can be used to develop products and services
• In many different forms
• Human capital
• Physical capital such as machinery, processes and
  materials
• In a physical or tangible form
• New products, or an embedded
• Intangible form, such as knowledge of a team of
  researchers

4
Innovation (II)

• Invention involves the creation or discovery of
  something new and unique
• Such as an idea, a concept or a certain
  technology
• Invention such as the steam engine
• Transistor and the microprocessor have provided a
  platform for the development of associated
  technologies and products
• Technological innovation
• Thought of as transforming a technical invention
  into a commercial product
• A service based on a technology
• Or a technological production or administrative
  process within the firm
• Actual invention process
• Develop and adapt an on-going stream of new
  products and product modifications

5
Innovation (III)

• Provided the firm with unique internal processes
  in production
• Provide an edge over those of competing companies
• Distinguish invention from innovation
• Invention is concerned with the creation and
  discovery of new ideas or things
• Innovation is the process of putting these ideas
  into practical and, form the firms perspective,
  profitable use
• Innovation involves the development and
  exploitation of new ideas
• Such as Thomas Edison used electricity and lit
  the worlds first light bulb
• Commercial innovation until wires were put down,
  power plugs installed and electricity generation
  plants constructed

6
Innovation (IV)

• The process of innovation can be a more time-and
  resource-consuming activity but makes an
  invention profitable
• Not common for larger corporations to
  commercialize the inventions of small, black-yard
  inventors
• Or companies without the resources to fully
  develop, product and market a product
• Technological entrepreneurship combined with the
  administrative capabilities within the firm
• Inventions, discoveries and technologies are the
  result of 3 types of activity
• Tinkering and experimenting
• Research activities
• Development activities performed within the firm
• Innovation is the outcome of RD as well as
  product and process development and market
  development activities

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Innovation (V)
The relationships between key concepts concerning
technological innovation
Technological entrepreneurship
Technical world
Commercial world

Administrative capabilities

Inventions/ discoveries/ technologies
Technological innovations
Results
Product/ process development activities
Market development activities
Activities
Research activities
Development activities
Tinkering, experimenting
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Innovation (VI)

• Product versus process innovation
• Product innovation
• Changes to a product (s) and/ or service (s)
  offered by the company while process innovation
• Involves changes to the way the products are
  created or the services are delivered,
  distributed, market and sold
• Focus on new product development as well as
  modification and refinement of existing products
  for survival
• Rapid rate of innovation driven by competitive
  pressure and changing consumer demands
• Obsolete as new generations of innovations are
  introduced
• Computers, televisions, cars, stereos and
  photographic
• Short life-cycles and may be superseded by newer
  models in as little as three or four months

9
Innovation (VII)

• Process innovation
• Allows the firm to make its product or deliver
  its service in a way that no other competitor can
• Japanese vehicles manufacturers
• Production techniques, just-in-time and quality
  circles
• Allowed for cost reductions and improved quality
• Improvements and new requirement, production
  procedures and materials all constitute types of
  process innovation
• Being able to deliver a better, faster, cheaper
  or higher quality service offering through the
  use of technology
• Computers and telephone transacting in the
  banking industry
• Book purchases, book flights, pay our bills and
  communicate with others

10
Innovation (VIII)

• Use of the Internet, credit cards, online booking
  systems and email to cite
• Incremental innovation
• The gradual and often piecemeal refinement
• Improvement of existing products
• Such as, upgrading of the capabilities of the
  personal computer with each new version
• Through continuous improvement in both products
  and processes
• Extend the life cycle of a product, to improve
  its quality or to lower the costs of its
  production
• SMEs of Taiwan as example
• Radical innovation
• Involves the creation of totally new products or
  services
• Responsible for the obsolescence of a whole range
  of products or even an entire industry

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Innovation (IX)

• Stems from invention and is then developed
  further to make many different new products and/
  or processes
• Change the nature of the competitive game and
  developed and marketed successfully
• For example of motorcar and airplane
• Architectural innovation
• Re-configuration of the components that makes up
  the product
• Made up of a number of different components
• Innovation could center on one of these
  components
• Or any combination of components within an
  integrated system
• For example, the miniaturization of key radio
  components
• Computing, telecommunications and robotics in
  production systems and high-technology products

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Managing the innovation process (I)

• Technological development and the pressure from
  competitors
• Coming up something new become the strategy for
  survival
• Competitive advantage for many firms
• On-going technological innovation
• Involve incremental or radical changes to
  products, services or processes
• That to create sustainable competitive advantage
• Innovation management
• Learning to find the most appropriate solution to
  the problem of consistently managing this process
• Best suited to the particular circumstances in
  which the organization finds itself
• Depending on the type of industry

13
Managing the innovation process (II)

• The level of technological capability, size or
  the extent of resources
• Influence of national systems of innovation
• Environment scan
• The initial step in identifying potential
  opportunities for innovation
• Continuous
• Constantly be on the look-out for new ideas,
  future trends and ways of improving existing
  products and processes
• Including
• The actions of competitors or potential partners
• Consumer behavior including their changing needs
  and desires
• Changes to the technological environment such as
  the development of new areas of research
• Government initiated changes such as those in
  legislation, funding or industry policy

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Managing the innovation process (III)

• Able to process the signals given by these
  various stimuli into information
• Respond to the signals that are relevant to its
  business and tune-out those that are not
• Selection and strategy
• To select single areas for development from
  multiple areas of potential innovation
• Given the external and internal stimuli
  identified in the environmental scan and fit best
  with corporate strategy
• Integrated with existing corporate culture and
  capabilities
• Innovation follows the latest fad or competitor
  is unlikely to bring any sustainable form of
  advantage to the firm
• Reduce labour costs and improve quality and
  output
• Full automation was the way of the future and
  initial investment would pay off
• Take Fujifilm, for exapmle

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Managing the innovation process (IV)

• Concerned about types of innovative activity that
  contribute to competitive advantage
• Build upon existing areas of competence
• Employ knowledge and skills that into a system of
  competencies that existing product offerings
• Costs and benefits of each option can be assessed
  at this stage and priority innovation chosen
• Resourcing
• Existing capabilities to the task of developing
  specific innovations
• Accomplished through RD, or by drawing on the
  knowledge of skilled staff in the engineering,
  production or administrative departments
• Performed solely using existing or augmented
  internal resources or seek additional resources
  externally

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Managing the innovation process (V)

• Make 2 important decisions at this stage
• Connect with external sources to provide the
  required inputs
• Successfully transferred to and incorporated into
  the firms existing system
• Including
• Buying ready-made solutions where these are
  available
• RD contracts
• Licensing technology
• Collaboration with other firms or research
  institutions
• Links with customers and suppliers
• Implementation
• Transforming ideas into commercial products for
  the marketplace
• Or new processes and techniques for internal use
  in the area of production or service delivery

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Managing the innovation process (VI)

• Concepts and ideas are translated into exact
  specifications through applied development
  efforts and focused problem-solving
• Cooperation between contributing departments
  within the organization
• The technical research team and the designers
• Work closely with the production team and the
  marketing/sales department
• Carry the venture through to the launching stage
• Required between the designers, producers and
  users of the new system, technology or technique
• Gain advantage at this stage through speed and
  flexibility
• Less complex and close interaction between fewer
  employees and management
• Speed up the process of implementation

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Managing the innovation process (VII)

• The product require an assessment of both current
  and future trends in demand, consumer tastes and
  external environment
• Product design, its marketing and its
  profitability
• The consumer require education about the
  features and benefits
• New product or a specific technology embodied in
  the product
• Manage the introduction of change in the
  organization to ensure acceptance and effective
  use of the new innovation
• Review and re-innovation
• Provides opportunities for a firm to learn from
  its mistakes
• Re-apply the aspects of the management process
• Re-innovation as a natural progression of the
  innovation management process

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Managing the innovation process (VIII)

• Develop certain products and processes for
  re-release in the market
• Or to raise quality levels, function or
  performance, or to lower costs
• Used strategy in the majority of consumer goods
  markets
• Take Internet access
• Embodied in computer and telecommunications
  technologies
• Continuously on line without the inconvenience of
  having to carry and plug in a portable computer

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Managing the innovation process (IX)
The innovation management process
Influences on the process -Type of
firm -Industry -Technological capability -Size
and resources -National system of innovation
Environmental Scan External -Opportunities -Compet
itors activities -Consumer behavior -Technology
changes -Technology partners -Government Internal
-Core competencies -Emerging competencies -Skill
s and experience -Human resources
Selection Strategy Proposed area of innovation
should fit -Internal external stimuli -Company
objectives -Corporate strategy
Resourcing Matach resources to proposed area of
innovation -Funds -Existing technology -Technolo
gy that needs to be developed or acquired
Implementation Commercialization specification
of abstract ideas and proposed innovation -Applied
RD -Problem solving -Intra- and inter-
organizational co-operation -Co-ordination and
learning
Review Re-innovation -Review of innovation
management process -Re-innovation of current
products/processes
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Managing the innovation process (X)

• The innovation process is specific to each
  individual firm which involve
• Continuous environmental scan for opportunities
  and changes
• Selection of potential areas for innovation in
  conjunction with existing
• Future corporate strategy, resourcing,
  implementation and review
• Re-innovation is important function for companies
  that wish to extend the life of their products
• The potential income stream from specific
  technologies

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Innovation and competitive advantage (I)

• Concept of core competencies
• Growing number of academics involved in the area
  of strategic management
• Explain the sources of a firms competitive
  advantage and the competitive interplay between
  firms
• Represent the dynamic capabilities of the firms
• Changing and are subject to renewal, improvement
  and refinement as the firm tries to remain
  competitive
• Defined as an ability to sustain the coordinated
  deployment of assets in a way that helps a firm
  achieve its goals
• Through intentional use and organization of its
  own assets, or able to gain access to

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Innovation and competitive advantage (II)

• Core competences are characterized by 4 key
  elements
• Broad scope
• Spread across different businesses and products
  within a company, creating synergy and supporting
  product and business development
• Focusing on a portfolio of product or businesses
  and allocating resources to each
• Applied new market or product opportunities, new
  production processes or new businesses
• Achieves greater mileage or use fro its
  existing knowledge
• Temporal dominance
• Created over time and evolve more slowly than the
  products or processes they support or form an
  integral part of
• Become more sophisticated as the concepts are
  fully developed
• Collective learning
• Through coordination of skills and multiple
  streams of technology
• Embodies knowledge within the people who work for
  the firm

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Innovation and competitive advantage (III)

• Difficult to imitate or to copy because it is
  within a team of skilled people who work together
• Knowledge contained within the firm can be
  supplemented by knowledge from other sources
• Competitive locus
• Merely a reflection of competition between firms
  for competencies
• Provide a leading edge the firm both presently
  and in the future
• Compete on the basis of their own specific
  competencies rather than on products, prices etc
• Collaborate on the basis of unique
• Strengthening their own ability to compete
• Innovative company needs to
• Be continually researching
• Developing and launching new products to stay
  competitive in a dynamic environment
• Maintaining core competencies requires continual
  adaptation to the deployment and organization of
  assets

25
Innovation and competitive advantage (IV)

• Japanese system of innovation
• Japan is very much driven by the gradual
  development
• Evolution of firm-specific competencies in
  conjunction with the direction
• Aid form government agencies
• 3 main players in the Japanese innovation system
• The Japanese firms themselves
• The state, in the form of government ministries
• The universities and research institutes
• Each player has the important role in the purist
  of technological upgrading and competitiveness
• Understand by these high RD figures are not much
  of the incremental innovation that takes place

26
Innovation and competitive advantage (V)

• Innovation in Japanese companies
• Need to catch up to and surpass established
  companies in the West
• Become a way of life and entrenched in corporate
  culture
• Taken place in the internationally competitive
  sectors
• Consumer electronics
• Automobiles
• Semiconductors
• Machine tools
• Chemicals and pharmaceuticals
• Compete on this ability to upgrade processes
• Improve on technology and existing products
• Lower costs without compromising quality
• Ability to adapt to changes and trends in the
  business environment and the marketplace

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Innovation and competitive advantage (VI)

• Japanese management techniques
• Kaizan and zero-defects quality control foster a
  system of innovation and continuous improvement
  within the firm
• Enables employees to see how various functional
  areas are integrated
• Contribute to the operation of the whole business
• Make suggestion for improvement and change with
  that in mind
• Makes employee more skilled and more flexible,
  and able to be deployed in any area where his or
  her skills are required
• Lifetime employment
• Commitment between employer and employee
• High levels of investment in the training of
  workers
• Skilled employees are expected to remain with the
  firm all their working lives and typically very
  devoted to their company
• Employees can be trusted with company secrets and
  given increasingly greater responsibility
• Freedom to pursue ideas for development

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Innovation and competitive advantage (VII)

• The low level of merger and acquisition (MA)
  activity
• Efforts on exploiting existing strengths and
  developing new areas of competence
• Shifted their resources to new areas of business,
  where they have little or on previous experience
• Improvement and new products attributed to
  several features of the business environment
• Competitive pressure
• Remain competitive encourages further
  improvements
• Innovation both at the small supplier/sub-contract
  or level and for MNE
• Sophisticated domestic consumers
• Demanded high levels of quality and
  innovativeness
• Leading edge technology
• Sophisticated product features
• Variety in the range of products available
• Multiple suppliers ensured the consumer remains
  king and products meet their standards

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Innovation and competitive advantage (VIII)

• Long-term commitment by shareholders
• Maintain their investment in the company
• More scope to pursue these longer-term projects
• Without risks and expected to generate regular
  dividends for shareholders
• RD spending in Japan focus on innovation and the
  development
• Towards applied research
• Product innovation
• Process innovations intended to fulfill
  commercial objectives
• Government-funded research
• Towards improving the competitiveness of industry
• Rather than advancing science and technology in a
  more pure of fundamental form

30
Innovation and competitive advantage (IX)

• Japanese Government concentrate on establishing
  the foundations for innovation, through as
  follows
• Education and training
• Depending on the students strengths and aptitude
• Providing the commercial world with a capable,
  skilled workforce
• Government ministries
• Responsible for directing and supporting certain
  targeted industries
• Allocation of resources to industry through its
  control over foreign exchange and credit
• Criss-crossing network spans other government
  ministries, academic institutions, individual
  companies and industry associations in Japan
• Ministry of International Trade and Industry as
  example
• Manage this costly process of data collection,
  analysis and dissemination, along with its very
  close connections with Japanese businesses

31
Innovation and competitive advantage (X)

• Also fostered the development of innovation in
  strategic technology areas
• Computing
• Encouraged companies to actively develop these
  technologies and innovations
• Biotechnology and new materials
• Funding for areas of more basic or fundamental
  research
• Less financially profitable in the short-term
• Reduces the uncertainly and risk faced by the
  firms themselves
• Japanese universities
• Through the education of their graduates and
  through undertaking basic and applied research
• Complementary to the specific, vocational
  training
• Using personal connections with the business
  world to get students positions in Japanese
  companies
• However, more directly contributes to the
  innovativeness and competitiveness of the economy

32
Innovation and competitive advantage (XI)

• Tend to be directed to areas that potentially
  commercial or have some application in industry
• Become most important sources of new knowledge
  for Japanese companies
• Innovation in SMEs
• Use innovation as a source of competitive
  advantage
• Japans complex networks of supplier and small
  manufacturers
• Foundation of the development of the Keiretsu
• The SMEs in Korea
• Help to balance out a concentrated domestic
  market
• Remained competitive on the basis of their
  ability to learn and absorb technology
• Make incremental innovations to both product and
  process technology

33
Innovation and competitive advantage (XII)

• Their speed and flexibility on bringing these
  products to the market
• Allowed them to become competent suppliers of OEM
  goods
• Subcontractors for components and services
• Innovators in product design themselves
• Small to medium-sized firms are characterized by
• Ability to integrate certain technologies with
  firm competencies in order to meet the needs of
  specific customer segments
• Efficient communication channels, speed of
  decision-making and employee commitment
• A specialized and limited, range of competencies
• Limited financial resources and inability to fund
  overly risky or complex projects
• SMEs rely on external sources of technology,
  basic licensing or OEM arrangements

34
Innovation and competitive advantage (XIII)

• Small firm tend to engage in innovation through
  less formal channels
• Ability to integrate technology into their own
  systems and produce a low-cost, reliable product
  or service
• Firms are able to compete on the basis of
• High degree of adaptability, flexible production
  facilities and rapid technology absorption and
  application
• Strong teamwork spirit
• Ability to effectively reduce risks and respond
  rapidly to market opportunities
• SMEs in Japan act as specialized suppliers to
  larger firms
• Overcome some limitations of their size
• Drawing on technological expertise of the larger,
  more experienced firms
• Government support and qualified personnel
• Adept at design, development and construction of
  specialized inputs into the production process

35
Innovation and competitive advantage (XIV)

• Firms are niche players
• Cater to specialized consumer segments that small
  but generate high margins
• Goldtron Ltd of Singapore, produces specialized
  telecommunications equipment
• Papers are able to communicate in Thai
• SME innovators are usually involved in
• Product, rather than process innovation
• The production of specialized products rather
  than mass-produced ones
• External linkages with other firms, larger
  buyers, government and educational institutes
• Government support for SME development
• Shift to innovation as a source of competitive
  advantage
• Producing low-end consumer goods under license
  for large corporations are rapidly being eroded

36
Innovation and competitive advantage (XV)

• Some firms are operating independently of foreign
  MNEs
• Launching independent brand names internationally
  but all are involved in incremental innovation
  activity
• Below is a brief description of the specific
  objectives pursed through industrial and
  technological polices in each economy
• Key Government agencies
• Chinas industrial policy promotes growth in all
  industries and area of commerce
• Facilitate both the internationalization of local
  firms and cooperation with foreign partners
• HK retained neutral policies that endeavor to
  create a level playing field for all firms
• Maximum support and minimum intervention in
  specific industries or the market as a whole
• In Japan, small and Medium Enterprise Basic Law
  has 2 objectives
• Promote the growth and development of SMEs
• Enhance the economic and social well-being of
  entrepreneurs and employees of SMEs

37
Innovation and competitive advantage (XVI)

• Emphasis on the improvement of technology and
  equipment
• Structural upgrading of SMEs
• Prevention of excessive competition
• Stimulation of demand
• Encouraging equitable and beneficial relations
  between suppliers and buyers
• Employees and management
• SMEs in the Republic of Korea
• Emphasis self-reliance through developing
  resources
• Access to finance and access to domestic
• International markets
• Singapore are the flow of information and support
  to SMEs
• Financing and help with development in key
  industries
• Taiwan
• Through guidance systems and service networks
• Help in finance, management, production
  technology and RD, quality control, marketing
  and regulations affecting business

38
Innovation and competitive advantage (XVII)

• APEC introduced initiatives to help SMEs through
  an integrated plan of action for SME development
  (SPAN)
• Constrained by their lack of financial resources
  and skills
• Information about the availability of
  technologies
• Overcome these restraints to technology
  absorption
• SPAN proposes to make a package of assistance
  available
• Facilitating the flow of information
• Emphasis on human resource development
• Key objectives of plan are
• Create awareness of technological developments
  through a database of technologies
• Encourage exchange and sharing of information via
  interaction between firms and industry/government
  linkages
• Support innovation and encourage an RD culture
  in SMEs

39
Technological capability building (NIEs) (I)

• Imitation to innovation
• Taken a path of technological imitation to
  innovation
• Overcome this handicap through the adoption and
  adaptation of existing technology
• Worked extremely well for these economics,
  enabling them to fuel economic growth through
  low-cost exports
• Chaebol for example
• Heavily into capital equipment to produce large
  quantities of consumer
• Industrial goods for international markets
• Tangible technology
• Embodied in production machinery, products and
  components
• Intangible technology
• The form of organizational knowledge, learning
  and capability has been vital to continuous
  innovation

40
Technological capability building (NIEs) (II)

• Those technology is present in sophisticated
  processes technology, organizational practices
  and skilled workers
• Technological capability building in electronics
• Explore the process of technological capability
  building in the NIE in ore details
• Evolving competitive advantages of Four dragon
• From technological imitation
• Mass production and low-cost to original
  innovation
• Design and marketing in their own right
• Standard mass-manufacturing techniques were used
  to product numbers of products for export
• Computer disk drives
• Televisions
• Videos
• Semiconductors

41
Technological capability building (NIEs) (III)

• 3 principal types of firm involved in this
  process
• Local subsidiaries set up by Japanese, US or
  European MNEs as a local production arm of a
  larger company
• Singapores export-led development
• Local firms that acted as suppliers,
  sub-contractors, licensees or joint venture
  partners to the foreign buyer or MNE
• Specifications of the buyer
• Later designed and developed products more
  independently
• Local, more independent firm that developed its
  own products for export or sale to foreign buyers
• Chinese-owned businesses, Acer
• Korean chaebol, Samsung and Goldstar
• Division of the value chain of production
• Separated from the original development and
  design of the product
• Undertaken where the resources are available at
  the right price

42
Technological capability building (NIEs) (IV)

• Engineers and design specialists combine their
  talents with expatriate marketers
• Match customer needs to product specifications in
  Singapore
• Skilled workers can assemble the product
  components at very low cost in China
• Foreign firms
• Had capital, technological and human resources
• Local firm
• Had educated workers and business acumen
• Support by government were the prerequisites for
  technological learning and development in the
  region
• Technological capability building was
  accumulation of skills and competences over time
  and continues in region today
• Uses a diagram to represent the sequence of
  technological learning taking place in the
  electronics industries of the NIEs

43
Technological capability building (NIEs) (V)
Technological learning process
44
Technological capability building (NIEs) (VI)

• The progression of the NIEs from simple OEM and
  assembly activities to applied research and
  development
• Left axis
• The growth in exports over the period
• Rising from virtually nothing initially
• Rapid expansion in the 1980s and nearing peak in
  the 1990s
• In product technology, selection and assessment
  of existing technologies
• 1950s led to reverse engineering by in the 1970s
• Product modification and improvement through
  prototype development and design
• 1990s firm were designing new types of products
  and starting to develop research and development
  functions
• In process technology, the pattern is similar
• Process adaptation and improvement follow
  assembly
• The development of marketing skills
• Extended through ODM and OBM

45
Technological capability building (NIEs) (VII)

• Initial phases of development
• Undertook simple assembly activities to produce
  goods for export
• Typically labour-intensive and required only
  basic technology
• Joint ventures or sub-contracting agreements to
  exploit the low-cost labour available in East
  Asia
• As the foreign firms are expected by demanding
  customers in developed countries
• Brought investment capital from abroad
• The production technologies
• Training for operators
• Advice on manufacturing processes
• Product styling
• Reach and maintain the quality level
• Knowledge and experience of managers and
  engineers passed in through training and
  demonstration effects to local employees

46
Technological capability building (NIEs) (VIII)

• By the 1960s and into 1970s
• Firms progressed that manufacture simple consumer
  electronics
• New and existing firms entered the industry
• Set up by local which had been former employees
  of multinational enterprises (MNEs)
• Able to use their newly acquired skills to act as
  suppliers
• taken example of Taiwan and Korea
• In the electronics industry, OEM (Original
  equipment manufacture) arrangement
• Central to the transfer and understanding of
  product and process technology
• Products were manufactured by the latecomer firms
  using standardized production techniques and
  equipment form the MNEs
• The supplier firms benefits from access to
  foreign technology, capital and markets for their
  manufactures goods

47
Technological capability building (NIEs) (IX)

• Did not need to invest in marketing and
  distribution infrastructure
• Use of established market channels and marketing
  infrastructure and expertise of the foreign firm
• These areas were left underdeveloped by local
  firms in the dragon economies
• During 1980s
• Making shift from assembly and simple
  manufacturing to more complex activities
• Upgrade their existing technology, skills and
  knowledge to provide higher quality output
• Oversea buyers were far more demanding than any
  buyers in home that match international standards
• Provided the impetus for learning and building
  technological capability
• More complex activities were being transferred
  from parent to subsidiary company
• Couple with rising labour and exchange rates in
  the investing countries meant high-value-added
  production

48
Technological capability building (NIEs) (X)

• Throughout the 1980s and even into the 1990s
• Supply under OEM arrangement and rely on MNEs for
  market access, capital and key components
• First visible signs of a shift from merely
  imitation to innovation became apparent
• Design products independently of or in
  collaboration with foreign buyers
• Latecomer firms tentatively faced their larger,
  foreign rivals
• Compete on the basis of their ability to respond
  quickly to the requirements of larger foreign
  firms
• Flexibility in production and their skill in
  design
• Government policies and the technological
  upgrading that had already occurred
• Local firms and foreign subsidiaries continued to
  make incremental improvement
• Industrial electronic goods
• Computers, semiconductors, disk drives and
  peripherals

49
Technological capability building (NIEs) (XI)

• East Asian firms eased the transition form
  low-level consumer goods to higher-value-added
  goods
• From East Asia and foreign investors from Japan
  and the US moved the simpler activities
• Assembly of consumer goods and other labour
  intensive processes to the ASEAN countries and to
  China
• East Asian economies to focus on the higher-order
  activities
• Key component manufacture, product design, local
  and regional modification through RD and
  service-related functions
• Early 1990s
• OEM system had matured after years of refinement
  and incremental improvements to both product and
  process technology by local firms
• Involved local East Asian firms in product design
  and specification
• Supplier add value to the products they
  manufactured
• Receive a greater share of the returns

50
Technological capability building (NIEs) (XII)

• ODM system encouraged the firms
• Apply their knowledge about what consumers were
  buying or looking for in international markets to
  produce
• Using existing and emerging technological
  innovations
• MNEs took responsibility for branding and selling
  the products
• Suppliers avoid the heavy investment costs needed
  to establish making infrastructure
• Singapore in example
• Firms from smaller economies
• Trying to make the transition to
  higher-value-added products to supplement their
  service industries
• Compensate for the volumes of production being
  re-directed to lower-cost economies
• Develop their own brands and market channels in
  international markets in future
• Need to focus on product design
• Innovation through their own research and
  development activities

51
Technological capability building (NIEs) (XIII)
Technological capability building in electronics
52
Technological capability building (NIEs) (XIV)

• Technology acquisition
• Combination of technology transfer from an MNE or
  foreign partner/supplier
• Ability of the receiving firm to apply that
  technology effectively
• Technological trajectories of the NIEs are their
  approaches to technology acquisition
• Some firm relied heavily on external sources
  through OEM arrangements or suppliers
• Focused on developing in-house capabilities early
  in process industrialization
• Acquiring technology
• From license agreements, collaborative
  agreements, importation of foreign goods and
  equipment and less-direct methods

53
Technological capability building (NIEs) (XV)

• Foreign direct investment (FDI)
• MNEs also one of more common forms of technology
  acquisition in the NIEs
• Most significant contributor to export-led
  development
• Major source of technology
• Training in most high-technology export
  industries
• MNEs have been responsible for training local
  production workers, engineers, managers and local
  suppliers
• Introduced fairly labour-intensive processes and
  technology
• Additional training for production and
  engineering staff and more advanced technology in
  production
• Technological and human capability grew
• Used in the parent and the subsidiary
• Singapore as example
• MNEs firm played a dominant role in the
  manufacturing and export and sectors

54
Technological capability building (NIEs) (XVI)

• HK as example
• Local entrepreneurship combined with venture
  capital and support from larger trading companies
• Provided an ideal environment for MNEs
• In Taiwan
• Existing levels of education and business
  experience facilitated integration into MNE
  networks by semi-independent manufacturers
• Acted as suppliers and subsidiary-contractors for
  goods and services
• In Korea
• Largely in the form of joint ventures
• Important role of initial establishment of many
  industries
• Advantage the imports of technology and human
  capital
• Reverse engineering of foreign technology
• Learned how to assemble
• Mass-produce consumer goods to international
  standards
• More emphasis on licensing, importing and
  in-house development as a means of technology
  acquisition

55
Technological capability building (NIEs) (XVII)

• Licensing and importing
• Used in conjunction with other forms of
  technology acquisition
• Korea particular relied heavily on licensing
• From MNEs to produce patented products under
  established brand names
• Gained access to technology while Japanese firms
  gained capable, large-scale production capacity
  and markets for their products
• CFB in Taiwan acted as suppliers for large
  foreign firms
• Turned to external sources of capital and product
  technology
• The licensee expected to purchase the necessary
  capital equipment and components for production
• MNEs relied more heavily on imports from the
  parent firms
• OEM and subcontracting arrangement
• Effective and means of technology acquisition by
  local firms in the NIEs

56
Technological capability building (NIEs) (XIX)

• Involves the local firm producing a finished
  product to specifications of larger and foreign
  buyers, who market and distribution it to
  customers
• Important in both South Korea and Taiwan
• For small firm
• Avoided the costs of own-brand manufacture (OBM)
• Nurture their skills in product and process
  absorption and product design, development and
  innovation
• Singapore by local firm, for example
• Strict quality control measures were imposed
  suppliers
• Training in modern manufacturing techniques and
  business practices
• Improve the quality of their components or
  semi-finished products
• Enabled them to respond quickly to changes in
  demand
• Provide an avenue access foreign product
  technology and integrate it with their existing
  competencies

57
Technological capability building (NIEs) (XX)

• For the larger indigenous firms and chaebols
• Decreased their dependence on external sources of
  parts, components, semi-finished goods and
  developmental activities
• For MNE subsidiaries and local entrepreneurial
  firms
• In HK, apply in the electronics industry
• Responsible for supplying the necessary inputs
  for production
• Such as tools, plastic casings and metal parts
• Employment in this support network of local
  firms was estimated at one third of the total
  employment
• In Singapore
• Increased used as sub-contractors and suppliers
  of materials and components
• For larger firms assisted their sub-contractors
  and suppliers
• Providing technical assistance in prod