A technological capabilities perspective on catching up: the case of the Chinese information and communications technology industry

Vicky Long

KTH Industrial Engineering and Management

Doctoral Thesis in Industrial Economics and Management Stockholm, Sweden, 2014

This dissertation for the degree of Doctor of Philosophy is to be presented with due permission for public examination at the Royal Institute of Technology, Stockholm, Sweden, in Room F3 of Lindstedsvägen 26, on the 3rd of February 2015 at 10:00 am.

© Vicky Long Industrial Economics and Management Royal Institute of Technology, KTH S- 100 44 Stockholm, Sweden

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TRITA IEO-R 2014:09 ISSN 1100-7982 ISRN KTH/IEO/R-14:09-SE ISBN 978-91-628-9272-2

ii Acknowledgements

Along this long and sometimes even lonely journey, which has sailed through many bright and dark seasons in the northern part of the Baltic Sea, there are some lights that signal warmth and provide inspiration. I would like to take this opportunity to express my gratitude…

To my fellow doctoral students from the Department of Industrial Economics and Management (INDEK) - Linda Gustavsson, David Bauner, Klara Regnö, Sven Bergvall, Mikolaj Dymek, Charlotta Mankert, Stefan Görling - many of them are tackling the problems of the real industry world now; to my new and old “corridor” friends – Qi Wang, Pranpreya Sriwannawit, Michael Novotny, Pär Blomkvist, Ulf Sandström, Thomas Sandberg, Cali Nuur, Niklas Arvidsson,Vivian Sergi, Matti Kaulio, and Christoffer Rydland – for their support and encouragement.

To the Swedish International Development Cooperation Agency (SIDA) who made it possible to sail this project, to the Research Institute of the Finnish Economy (ETLA), the institute for Prospective Technological Studies (IPTS) of the European Union (EU), and INDEK, who further fuelled this project.

To all the informants in China, Vietnam, Finland, and Sweden: this thesis would be a “mission impossible” without your inputs.

To Jon Sigurdson, who has believed in China’s technological resurgence since its early, embryonic phase; who has believed in my ability to deliver a thesis on that topic; who further guided me into the intriguing world of empirical work, even before this journey; and who, perhaps, was disappointed by my later-displayed interests in more abstract phenomena. For you, the world of ontological industry is a labyrinth that is sufficiently intriguing that one may be embedded in it (and remain “native”). Any attempt at abstraction tends to drive one to become alien to the real dynamics.

To Staffan Jacobsson, Christopher Palmberg, Per Högselius, Nick Von Tunzelmann, Cristina Chaminade, Ari Kokko, Annika Rickne and anonymous reviewers who have

iii commented on (parts of) the earlier drafts and influenced my thinking in different ways.

To my supervisor Staffan Laestadius, who has guided me all the way and who, particularly in the early phases, while skilfully complimenting my passionate “journalist style of writing”, also managed to point out and make me understand the “it may be argued…” dimensions. Even more appreciated is your humbleness, often claiming to be merely an older research colleague rather than a superman with a taller hierarchical hat, and your willingness to discuss as well as to argue with me about the “ridges and peaks”1 of the empirical mountains. If I have managed to see farther away at the end of this journey, it is because I stand on your shoulders.

To my father: if equilibrium ever exists, you are the one, standing in the thunder and in the storm, tolerating and embracing all the odd paths I have chosen.

To Anders Peterson: though primarily a partner in private life, you often surprise me with the breadth of your knowledge. The best part has been our discussions. Quite often, your traditional KTH-er’ mathematic exactness of formulation collides with my poetical jumpiness of reasoning. Luckily, they managed to proceed, hand in hand, to the end.

And to my boys, Julius and Nemo: It may seem to you, at least through your daily recitations of Sanzi Jing2 (a poem), that a proper Confucian child should be grateful for the upbringing and devotion that the parents have made. However, I want to say that deep in a mother’s heart, the debt is actually on my side, because you have enriched my life in so many wonderful ways. Even for this thesis, in a concrete sense, it is you who give me balance. Stockholm, November 2014 Vicky Long

1 From a poem by Su Dongpo (A.D.1037-1101) describing Mount Lushan (often shrouded in mist): “Looks like ridges or peaks, assuming different appearances. Don't know the true faces of Lushan, Only because being in the midst (of the mountain)”. Translation: China CCTV English Channel. 2 Sanzi Jing (三字经), usually translated as “three-character classic”, is a Confucian poem consisting of a series of three-character couplets. Written in the thirteenth century, it enumerates all of the salient features of the Confucian tradition, and since then has been a required text for children to memorize and to recite – even before school age.

iv Abstract

This dissertation provides a capability creation perspective on the story of China’s technological catching up, or resurgence, if viewed from a broader historical perspective.

Since the first Asian tigers caught up to modern technological standards (e.g., South Korea, Singapore), two schools of thought have dominated causal explanations (Nelson and Pack, 1999). The first perspective is the conventional accumulation approach, which attributes the major share of growth to the accumulation of physical and human capital, and views learning as a more-or-less automatic byproduct of those investments. The second perspective is the assimilation approach, which emphasizes the arduous learning, risk-taking entrepreneurship, and innovation that is involved in the process and argues that the former proposition neglects this aspect of the endeavour and may therefore lead to erroneous estimates. This dissertation focuses on the second school of thought.

Compared to the first-tier Asian tigers, the second-tier tigers, of which China is representative, pose many challenges to the assimilation approach. First, the sheer size of the country results in an unusual scale and scope of activities and interactions in any field. Second, the long history of civilization in China suggests that many modern phenomena have historical roots that are unknown to outsiders and invisible and complex to insiders. The present study aims to contribute a small piece of the puzzle to our understanding of the big picture.

By providing an in-depth study of the Chinese information and communication technologies (ICT) sector, this study explores changes that have occurred in the three key building blocks of capability creation; specifically, the sourcing, generation, and appropriation of technological knowledge. A qualitative case study approach was employed for the main, empirical part of the study, which consists of extensive firm- level interviews. Complementary statistical data, including patent data and historical archives, were used to provide context and a deeper look into the study topic.

v The results are described in five articles. The first article presents establishing overseas research and development (R&D) laboratories as one of the major learning methods for overcoming disadvantages related to dislocation from technology sources and advanced markets. This approach allows China to search for industry-relevant scientific knowledge rather than adopting ready-made technologies introduced by western multinational enterprises in China. The second article describes the modularity-in-design approach, which opens new windows of opportunity for technological advancement. The lack of essential intellectual property rights (IPRs) acts as a key inducement and a factor-saving bias that influences the direction of innovation. When both (international) competitiveness and learning are involved in the catching-up process, the development of industry-wide capability becomes a particularly vital aspect of indigenous innovation. The third article describes the geographic consequences of historically planted industrial capabilities in China’s inland regions, which impact the absorption of different types of industrial knowledge.

Fields of industry that are densely populated with patents- IPR thickets- represent a novel situation that was not experienced to the same extent by nations whose technological development occurred earlier. This thesis dedicates two articles to this dimension of knowledge appropriation. The fourth article describes the duality of Chinese ICT patenting, and the fifth article identifies an ambidextrous strategy that depends on where the major competition emerges. In general, the decision to patent and the extent of patenting are determined by four factors: a) the distance to the frontier (Aghion et al., 1997) particularly for technology; b) the nature of the technology (Teece, 1986), but with a rural extension in the case of China; c) the specificities of information (Arrow, 1962) that are embodied in a firm’s origins in China; and d) the supporting institutions that co-evolve in that process.

Learning proceeds at different levels: that of individuals, firms, industries, and nations. This dissertation provides an industry-level perspective on learning and innovation- based technological advancement.

KEYWORDS: catching up, learning, capabilities, modularity in design, upgrading, appropriate technology, knowledge base, patent thicket, appropriability, China, ICT

vi

Contents

1. Why this study? ...... 1

1.1. The Central Question and the Structure ...... 6 1.2. Units of Analysis and Limitations ...... 13 1.3. Historical Development of the Chinese ICT Industry – An Introduction ...... 15

2. Approaches in Theory and Method ...... 22

2.1. Theories ...... 22 2.1.1. Assimilation Theories ...... 22 2.1.2. Pathways for Technological Catching Up ...... 26 2.1.3. An Association with Grandness ...... 29 2.1.4. The Building Blocks ...... 34 2.2. Methods...... 36 2.2.1. Epistemology ...... 36 2.2.2. Methodological Approach ...... 38 2.2.3. Difficulties ...... 43

3. Findings and Contributions ...... 46

3.1 Major Findings ...... 46 3.2 Contributions ...... 51 3.3. Further Research Suggestions ...... 55

References (for the Abstract and Cover Essay Parts Only) ...... 57

Article 1 New patterns in knowledge transfer and catching up – Chinese R&D in ICT……………………………………………………....73 Article 2 An Indigenous Innovation………………………………………………... 95 Article 3 Knowledge Bases and the Geography of Industrial Upgrading ………....135 Article 4 Navigating IPR Thickets from a Latecomer’s Perspective – the Case of the Emerging Chinese ICT Industry………………………....183 Article 5 IPR, Appropriability, and Catching up – Evidences from Chinese ICT... 217

vii

viii 1. Why this study?

Although catching-up phenomena have occurred throughout history as countries and regions have developed ahead of others (Abramovitz, 1986), doubts and hesitations among western observers have persisted in regard to the immediate prospects of China’s breakthrough to a knowledge-based economy (Gilboy, 2004; Nolan, 2001; Zakaria, 2008). This attitude may date back to Krugman’s 1994 article, “The myth of Asia’s miracle”. Krugman used the expression China syndrome in relation to a paper tiger1discussion, wherein he acknowledged that “the case of China poses much greater difficulties about Asian destiny than that of Japan” (p.75. Krugman argued, “It is hardly surprising that a major recovery in economic efficiency occurred as the country emerged from the chaos of Mao Zedong’s later years” (p. 75).

Following in the footprints of Japan and other Asian tigers, such as South Korea, Taiwan, and Singapore, China is climbing the technology sophistication ladder and moving from a low-cost manufacturing base to high-tech sectors (Altenburg et al., 2008). Evidently, China is catching up. However, if viewed from a broader historical perspective, China is merely rejuvenating or restoring its position as a technological leader, which it held prior to the 14th century (Mokyr, 1990).2 The great divergence between Europe and China occurred after ca. 1750 (Pomeranz, 2000) and probably even after 1870, if based on GDP data alone (Maddison, 2007). Before that time, China and India were, in many respects, the two cores of the world economy.

China’s rejuvenation today is arguably one part of a grand story of global “convergence” (Baumol, 1986), of which history may have only witnessed the beginning. This convergence process is commonly understood to be nonlinear, and it had arguably already begun in the 1960s and 1970s. The first Asian tigers—the so called newly industrialized countries—such as Korea and Singapore (Hobday, 1995;

1 Paper tiger is a literal English translation of the Chinese phrase zhilaohu (紙老虎 , a tiger made of paper). It refers to something that appears to be threatening but is unable to withstand “the wind and the rain”, i.e. the challenges. 2 This argument is supported by historians such as Mokyr (1990). Two decades ago, he (implicitly) envisioned China’s technological catching up by analysing the importance of China’s historical intellectual assets, using examples of ten technologies that originated in China and were later developed in the West.

1 Nelson and Pack, 1999) led the first wave of the convergence after two centuries of grand divergence (using 1750 as the starting line; Pomeranz, 2000) that were marked by stagnation in the East and industrialization in the West.

Today, China is leading the second wave, together with India, Brazil, and Russia—the so-called BRIC economies. This wave has spread to a new group of catching-up nations in Africa (Rodrik, 2014). One of the novel aspects of this wave is that it takes place against a background of economic slowdowns in wealthy, debt-ridden countries such as the US and some western European nations.

While China’s technological advancements, particularly in high-tech industries, may be embryonic at present, the speed of general growth – two-digit GDP growth since the reform policy was implemented more than three decades ago – seems to have also impacted the sciences. This growth is illustrated by the rapid increase in international scientific publications across nearly all knowledge domains (Leydesdorff and Zhou, 2005). According to the Directorate for Science, Technology, and Innovation, which is operated by the Organisation for Economic Co-operation and Development (OECD), the publication of scientific articles in China grew by 23.4% per year from 1998 to 2008, which was the fastest rate in the world over that period (OECD STI, 2010). This rapid development in science undoubtedly contributed to the further extension of industrial knowledge in China.

China’s historical awakening has triggered many studies in an attempt to map the scale and scope of these changes, which, in this globalized era, are destined to become a global issue. In other words, the subject goes beyond China to have a general impact on other developing countries and the rest of the world. Several issues are currently being debated in the literature, such as the nature of the pathway to industrialization (e.g., is manufacturing still the main engine of growth in developing countries? Szirmai et al., 2013) or the terms of trade as China’s growth (potentially) “leads to a sustained reversal of the long-term relationship between the prices of manufactures and commodities…[that] challenges the basic premise of industrialisation which underlies much of development strategy” (Kaplinsky, 2008, p.1). The latter topic is related to debates around commodities for industry development (UNIDO, 2011) and natural, resource-based growth (Sachs and Warner, 1995), which have important

2 implications for resource-abundant nations such as those in Africa (e.g., “Is China buying the world?”, Nolan, 2013) and Latin America (Katz, 2013).

While discussions have progressed, the general mechanisms underlying this round of technological catching up (with China as a representative case) remain underdeveloped. Mechanisms are “frequently occurring and easily recognizable causal patterns that are triggered under generally unknown conditions or with indeterminate consequences” (Elster, 1998, p. 45). “A causal mechanism has a finite number of links. Each link will have to be described by a general law, and in that sense by a “black box” about whose internal gears and wheels we remain ignorant” (Elster, 1989, p. 7)

It is not a deep philosophical disagreement that “by concentrating on mechanisms, one captures the dynamic aspect of scientific explanation: the urge to produce explanations of ever finer grain” (ibid). Attempts on this include the Columbia Earth Institute’s Catching-up Project reports on institutional changes related to IPR (Odagiri et al., 2010), sector-level performance (Malerba and Nelson, 2012), and emerging multinational firms (Amann and Cantwell, 2012). However, the scope of general learning mechanisms that have been investigated far remains insufficient.

In the era of newly industrialized countries, studies of the Asian miracle were numerous, ranging from assimilation theories of growth that emphasized entrepreneurship, innovation, and learning (Nelson and Pack, 1999; Amsden, 1989; Pack and Westphal, 1986; Stigliz, 1996) to accumulation theories that claimed the Asian miracle was a product of a massive investment in physical and human capital (Krugman, 1994; Kim and Lau, 1994; Rodrik, 1995; World Bank, 1993). In this second round of technological catching up, with China leading the way, some researchers have acknowledged the likelihood that different mechanisms and means exist for catching up, such as the (natural) resources with which a country is endowed, the national policies, and the state of technological development. Novel circumstances that were not present during the first wave of technological catching up warrant an in- depth investigation into the relevant mechanisms, which is the focus of this research.

3 The first novel circumstance we discuss is the actors. The BRIC economies are different to those of South Korea, Singapore, and Taiwan in the first wave of technological advancement. For example, Abramovitz’s catching-up hypothesis states that home market size favours large countries: “If advanced technology at any time is heavily scale-dependent and if obstacles to trade across national frontiers, political or otherwise, are important, large countries will have a stronger potential for growth than smaller ones” (Abramovitz, 1986, p. 393). However, the concept of home market size mainly addresses demand for innovation (Griliches, 1957; Schmookler, 1966), which makes it a conditional factor in relation to the stage of technological development. In this round of catching up, other factors may be equally important, such as the scale and scope of the Chinese and Indian domestic knowledge pool (i.e., the human capital argument) or the size of overseas returnees (students from China and India who receive their education in wealthier countries and then return home)—the so-called Argonaut effect (Saxenian, 2006). These factors lend support to challenge e.g. the Asian fate argument, i.e. Asian countries are stuck in the role of follower and limited to the medium-to-low ends of technological activities (Krugman, 1994; World Bank, 1993; Young, 1995).

The second novel circumstance we discuss is the context. Several factors related to context were not relevant to the same extent, to the first wave of the Asian “tigers”’ technological catching up: The globalization of technology and innovation is at a breadth and depth not experienced to the same extent by earlier catching-up countries3; Climate change calls for new ways of industrial transformation and growth that must be considered (Stern, 2006/2009); Brands and trademarks have become essential assets; IPR thickets, present barriers to new entries on behalf of existing patent-based IPRs by cross licensing and pooling patent activities in development consortiums (Shapiro, 2003). These barriers are particularly prevalent in industries where latecomers typically obtain knowledge and innovation from earlier adopters.

The third novel circumstance we discuss is new technological tools. After the mid- 1990s, the Internet and mobile technologies became widely available to ordinary people. Such general-purpose technologies have penetrated all areas of industry and

3 See Henderson et al., 2002: the Global Production Network framework, and Gereffi et al., 2005: the Global Value Chains framework

4 have affected not only the entire economy but also social structure to a great extent. For example, modularity-in-design systems are particularly pronounced in chip design and systems architectural design processes (Baldwin and Clark, 2000). This process allows learning to start at the modular level, without requiring knowledge of the whole system a priori, which reduces the size of the learning gap and simplifies the task of catching up to a great extent. Another trend is the great technological convergence (Esping-Andersen, 2004), which has been observed in at least two major families of technology: life science technologies, which include biotechnology and chemical, pharmaceutical, agriculture, and food processing industries, and the information and communication technologies (ICT) industry, where telecommunications, computing, and entertainment have naturally converged. As with modularity in design, these convergences allow catching up to begin from higher levels of technological organisation, without requiring knowledge of the entire system from the ground up. Thus, new technological tools provide new opportunities for growth among catching-up countries, and this situation calls for new assessments and evaluations.

The impact of new actors, contexts, and technological tools is far from obvious. How latecomers interact with these new opportunities and challenges, both technological and economical, remains unexplained. During the catching-up process, classic obstacles may be faced, such as lack of sufficient absorptive capacity (Cohen and Levinthal, 1990) and social capability (Abramovitz, 1986), and (geographical) stickiness of certain types of knowledge (Laestadius 1998; Asheim and Gertler, 2005) that inhibits knowledge transfer. The situation has generated much excitement among policymakers, industry practitioners, and academics and has introduced many new questions for researchers. This thesis focuses on the development of technological capabilities that underlie the catching-up process in an effort to better understand the mechanisms by which countries bring themselves in line with modern technological advancements.

We begin with a brief discussion of the term catching up. This term is often used in the field of economic development to refer to the phenomenon whereby a country with lower per-capita income, and often lower productivity, than those at the frontiers of technological development manages to reduce those gaps and even surpass the

5 productivity levels of frontier countries by striving for higher productivity growth rates. Abramovitz’s (1986) classic piece on catching up, forging ahead, or falling behind is often referred to in this context. The term convergence is sometimes used interchangeably with catching up.

This study is set in the context of enhancement of technological capabilities. In other words, we explore catching up from the perspective of technological capability, despite the inherent difficulties with measurement. Here, catching up mainly refers to actors based in emerging economies that manage to approach the technological capabilities possessed by global frontier industry incumbents. The nature of the technologies employed in the process of catching up differs significantly across various economic sectors. Other important sector-al-differences include the nature of the customers, the kind of competition faced by indigenous firms, and (hence) the needed skills and appropriate forms of management and organisation (Malerba and Nelson, 2012).

We therefore choose to investigate the subject at the sector level. The concept of technological regimes, which relates to the conditions of opportunity, appropriability, accumulation, and the knowledge base (Malerba and Orsenigo, 1996), lend further support to this sector-level focus. Moreover, differences across industry sectors include the institutional response to the birth and development of an industry, which is much more sophisticated than the dichotomy suggested by the concept of regulated versus deregulated sectors. Such differences affect the structural evolvement of industries as well as the technologies that are embedded in that process (Nelson, 1995).

1.1. The Central Question and the Structure

The Chinese ICT industry, particularly the equipment and system supply sector, was chosen as a case for in-depth study. With the aim of conducting a mechanism study, the central research question of this thesis is as follows:

6 What changes have occurred in technological knowledge sourcing, generation, and appropriation in the Chinese ICT equipment supply sector as part of the catching-up process, and how has it taken place?

A knowledge development process that includes knowledge sourcing, creation, and appropriation is introduced and used as a framework that unites the five articles in this thesis. The term knowledge relates to industry and firm knowledge, rather than individual and societal dimensions of knowledge, and is mostly confined to technological knowledge. Sourcing refers to the intention to conduct a search and to insource knowledge that is initially external to the firm or the industry. Terms such as knowledge transfer and learning are sometimes used interchangeably with sourcing, but here the latter term refers in particular to a departure from learning. The terms creation and generation are closely related to the concept of innovation and represent a process of acquiring knowledge through a clear addition to the previous knowledge base. Appropriability refers to investment return, or profiting from innovation (Teece, 1986), and involves an exploitation of knowledge that depends largely on its technological nature, market conditions, and the industry structure in which rival firms are embedded.

Tech. knowledge

sourcing

Tech.knowledge Tech.knowledge appropriation generation

Figure 1 The Structure of the Thesis

7 Catching up is essentially about learning, that of a nation, industry, firm, or individual, within and beyond the boundaries of a region or organisation. Understanding the catching-up phenomenon is essentially about understanding the learning mechanisms involved. Many studies have explored learning processes in the context of industry and technology (c.f. Ernst and Lundvall, 2004; Lundvall and Johnsson, 1994; Nonaka and Takeuchi, 1995). Each learning situation is however unique, occurring in a particular context and involving interactions among various parties, and it is not always possible to apply the same learning method from one situation to another.

In the initial phase, learning is very much about knowledge sourcing. For latecomers, catching up largely involves bringing in knowledge that is external to the firm and often possessed by the forerunners in the field. Two common phenomena discussed in the literature in regard to catching up are technology transfer (Radosevic, 1999) and reverse engineering (Kim, 1997). Globalization and technology development create new windows of opportunity that call for a new assessment of knowledge sourcing. The first article in this dissertation summarizes the empirical data on sourcing mechanisms for Chinese ICT firms (Art. 1 “overseas R&D” (abbreviation): New patterns in knowledge transfer and catching up: Chinese R&D in ICT; a co-authored book chapter with Laestadius in Robertson and Jacobson (Eds) “Knowledge Transfer and Technology Diffusion” by Edward Elgar, 2011). In Art. 1, we focus on a specific method for knowledge sourcing—conducting overseas R&D and being close to centres of excellence—to probe learning in depth.

8

Art.1 ”Overseas R&D”

Tech. knowledge sourcing

Tech.knowledge Tech.knowledge appropriation generation

Art.4 ”IPR Thickets” Art.2 “TD-SCDMA” Art.5”Appropriability” Art 3 “Regional”

Figure 2 The Structure and the Components of the Thesis

An even more important phase of learning is knowledge creation, which is a process for internalizing knowledge that has been sourced or learned and for integrating it into the catching-up process. Two articles in this thesis are organized around different dimensions of knowledge generation (Art. 2 “TD-SCDMA” (abbreviation): An Indigenous Innovation—the TD-SCDMA Mobile Technology Standard case; co- authored with Laestadius; The research design of this article was presented at the International Telecommunication Society conference (Beijing, 2006); Art. 3 “regional” (abbreviation): Knowledge Bases and the Geography of Industrial Upgrading. The research design was presented at a conference on China in the World Economy (Stockholm, 2007). This article may be viewed as an extension of an earlier co- authored book chapter “high-tech innovation in catching-up countries: conditions and

9 perspectives”, by Laestadius, Gustavsson, and Long in Hirsch-Kreinsen and Jacobson (Eds) “Innovation in Low-tech Firms and Industries” by Edward Elgar, 2008).

Technological learning and knowledge generation involve an in-depth understanding of technological modules, a process that typically embraces the concepts of learning by doing (Arrow, 1962a), learning by using, and learning by creation (in reference to a new technology). Art. 2 focuses on the case of Chinese TD-SCDMA mobile communications technology – an architectural innovation through modules recombination (and addition) - to understand what aspects of this indigenous innovation, have spurred the technological catch- up. This allows us to explore key issues in the diffusion and (incremental) innovation in advanced technologies in the catching up.

Art. 3 places a regional focus on our sector-level analysis of the catching-up process, in part because learning occurs across subsectors and subregions. Social capabilities and new technological opportunities are often bounded within certain geographic regions; thus, the process involves the capture of knowledge that spills over from regions in close geographic proximity and provides input for new knowledge generation. Moreover, China embraces the concept of “many Chinas” (Heilig, 2006), which affects a firm’s knowledge base, strategy, supply and demand conditions, and most importantly, geographic proximity to foreign knowledge. Although we probe patterns of learning and innovation at the sector level, failing to consider regional dimensions in the China case would be an oversight.

While many catching-up studies focus on knowledge sourcing, acquisition, accumulation, and generation, knowledge appropriability is largely neglected. Successful learning generates knowledge capital; thus, any investigation into learning mechanisms is incomplete without addressing the topic of knowledge capital and its appropriability, or as Teece (1986) put it, “profiting from innovation”. A particularly interesting factor is the growing technological threshold established by IPR thickets (Shapiro, 2003), which is addressed from a catching-up perspective in two articles in this thesis (Art. 4 “IPR thicket” (abbreviation): Navigating IPR Thickets from a Latecomer’s Perspective – the Case of the Emerging Chinese ICT Industry; co- authored book chapter with Palmberg in Ali-Yrkkö and Palmberg (Eds) “Finland and

10 the Globalization of Innovation”, Taloustieto Oy, Helsinki, 2006; Art. 5 “appropriability” (abbreviation): IPR, Appropriability, and Catching up – Evidences from Chinese ICT; co-authored with Laestadius; based on a working paper “Toward a New Appropriability Regime – the Case of Chinese ICT Industry”, the Royal Institute of Technology, Stockholm, Sweden 2012, ISBN 978-91-7501-281-0)

Art. 4 focuses on how Chinese ICT firms deal with IPR thickets, a new and arguably formidable threshold that is particularly pronounced in this round of technological, by mapping its IPR position, mainly using patent data. Art. 5 updates the patent data and adds specific interview data to focus on appropriability logic (Winter, 2006), which is the logic behind the patenting propensity of Chinese firms.

Why study the ICT sector? First, the ICT sector represents a few Chinese industries that have managed to climb up the technology sophistication ladder and is therefore good for analysing learning process. While catching up is often associated with the emergence and rapid growth of certain sectors, the ICT-led catching-up model has been widely discussed, particularly in regard to the first-tier Asian tigers—Singapore, Korea, Taiwan, and Hong Kong. The ICT industry has been a major contributor to international trade, employment, and productivity growth, as described by Freeman (1994) and Hobday (1995) in regard to the role of ICTs in Japan and other Asian newly industrialized countries that caught up during the 1970s and 1980s. As noted by Freeman (1994), “ICT has the capability to act as the basis of a technological revolution in countries aiming to catch up to the world’s industrial leaders” (p. 218).

In regard to China, branch statistics4 show that, in 2012, exports accounted for 65% of total ICT sales revenues in China, which constitutes 34% of China’s total exports by value (36% in 2008 and 38% in 2009). At a minimum, this indicates that ICT is one of the few sectors that have lived up to international standards for technology sophistication.

Second, the Chinese ICT sector provides an ideal case for a study of a high-tech R&D based catching up. While different types of innovation play different roles at various

4 Published by the Ministry of Industry and Information Technology (MIIT)

11 stages of development and catching up (OECD, 2012), high-tech R&D-based innovation is more justifiable at later stages of development, when “climbing up the value ladder” (ibid, p. 118) and competitiveness come into focus, rather than just the learning and adoption of foreign knowledge. This is where China stands now. The ratio of R&D to GDP reached 1.76% in 2010 (from 0.73% in 1991 and 1.5% in 2008; China S&T Statistical Year Book, 2012), approaching that of the UK (1.87% in 2009), indicating that the Chinese economy has reached the stage where both global competitiveness and learning are embraced. Nevertheless, why does the Chinese ICT industry serve as a viable indicator to assess high-tech catching up?

Using the OECD four-tier model for classifying industries (high-tech, medium-high- tech, medium-low-tech, and low-tech),5 the global ICT industry generally falls into the first two categories. A large diversity in R&D efforts exists among Chinese ICT firms, ranging from a substantial portion of in-house R&D to production-only activities with little to no R&D. Chinese ICT firms may, in general, be positioned somewhat lower on the OECD low- to high-tech spectrum; however, this does not preclude its usefulness as a study case for high-tech catching up and upgrading of medium-to-low technological capabilities and productivity levels.

The ICT industry embraces many subsectors, among which the nature of the technologies differs to a great extent. In this study, we use the OECD definition of ICT6 (OECD, 2002; Schmoch, 2004) in combination with the Chinese definition (specifically, the MIIT definition; see Art. 3) to imply the existence of world-class industrial practices that are new to China and of Chinese knowledge that is new to the world.

Taking dynamic changes into consideration, the ICT sector embraces emerging trends such as the technological convergence of data and telecommunication or microelectronics and network access technologies (e.g., optical fibres, which were previously the domain of materials science), and extends to services such as software

5 This distinction is mainly based on R&D intensity, which is the ratio of R&D expenditure to total turnover (Smith, 2006). 6 OECD definition (and concordance with patent classes) divides ICT into four categories: telecommunications, consumer electronics, computer and office machinery, and other ICTs. It notes two additional categories–software and semiconductors–as relevant.

12 development and chip design. To summarize, the ICT sector is a highly dynamic and globalised industry with broad coverage of different types of knowledge7. It provides a rich substrate for examining themes on technological trajectories and paradigms or choices in technology that are highly relevant for studies of catching-up phenomena.

The third reason for examining the ICT sector is that the state remains modest in control of the industry (the role of the state dimension), therefore no big risks threaten to overshadow any dynamics that may have occurred. This industry is rife with private firms, or Minying,8 and firms with large private shares. The state has an indirect role in this sector, and regulation is increasingly performed through policies and instruments other than ownership. 9 This observation is consistent with information provided by Ernst and Naughton (2008) in their three-tier model for categorizing state control (through ownership) in Chinese firms. Most Chinese ICT equipment supply firms fall into the Tier 2 category, in which a hybrid ownership structure is the norm and firms have strong links with overseas actors. “In this context, we should not overestimate the state’s role in Chinese industry” (ibid, p. 56). Accordingly, the ICT industry provides a good case with which to illustrate the market-force-led industrial learning and upgrading process, which is, presumably, the most dynamic mechanism for technological catching up in China.

1.2. Units of Analysis and Limitations

While technology, innovation, and development are key concepts in this study, the main focus is on learning and technological capabilities at the industry level. To elaborate, we focus mainly on the ICT equipment supply sector. On the one hand, fundamental differences exist between service and product offerings; on the other hand, an increasing proportion of service is in the supply of capital goods (e.g.,

7 As an example, see Laestadius 1998 and Asheim and Gertler, 2005 on analytical versus synthetic knowledge typology. 8 Private in origin. 9 For example, the top ten firms listed by the MIIT are Huawei, Lenovo, Haier, ZTE, Great Wall, Hisense, Changhong, TCL, Founder, and BYD, with a rank order in turnover (combining profit and R&D expenditure) in 2012. The top three, along with four additional firms, are considered to be Minying firms, a Chinese word for private origin (they are: Huawei, Haier, Lenovo, Hisense, TCL, Founder, and BYD). Two of them – Huawei and Lenovo – were already on the list of Fortune Global 500 in 2011, ranked 352 and 450, respectively.

13 embedded software, integrated services), and the boundaries between service and supply are sometimes difficult to define. Nevertheless, equipment supply contains a significant manufacturing aspect that is not found in service-only sectors. The supply of telecommunications equipment, rather than the provision of mobile services, is the major focus of our analysis.

This thesis is about technological knowledge, rather than abstract conceptions of knowledge as “justified true belief” (Plato and his dialogues; Fine, 2003). Nelson and Winter (1982) discussed technological knowledge using the blueprint metaphor, which refers to engineering knowledge that can be “unitized, organized in packages” and embodied in the “production set” (p. 60). 10 The concept of technological knowledge is close to that of applied knowledge (David, 1975; Rosenberg, 1976; Schmookler, 1957; Schumpeter, 1934/1992), rather than the pure knowledge discussed by Galileo and Darwin.

Technological knowledge can be embodied in blueprints, documents, artefacts, human beings, organisations, and working processes. It can be a concept, a tool, or a method and is explicit as well as tacit (Polanyi, 1967). Technological knowledge relates to system knowledge (e.g., large technical systems; Hughes, 1987) and to module knowledge (e.g., modularity in design; Baldwin and Clark, 2000). In the context of this dissertation, technological knowledge is the kind of knowledge that supports catching up; in other words, knowledge that can be sourced and further developed.

Many technological and economic gaps take decades or even centuries to open or close (Freeman, 2002). The development of the Chinese ICT industry, which is the focus of this study, is confined to the last three decades, from the departure of China’s macro reform around 1978/79 to the present day. We have intentionally excluded the self-sufficient period11 between 1949 and 1978/79, when a rather strict communist regime allowed for no significant international trade or other forms of economic communication with the outside world. During that time, the Chinese ICT industry

10 The idea that technological knowledge could exist endogenously differs from the orthodox view. 11 A policy word frequently used then.

14 more or less served as a military branch. The real civil Chinese ICT industry took off after 1978.

While catching up is a process of qualitative change driven by learning and innovation, it is undoubtedly a historical phenomenon - no catching-up period lasts forever. Outcomes entail “catching up, forging ahead, or falling behind” (Abramovitz, 1986). Similarly, no torch of innovation can be held by a single nation forever (Cardwell, 1972; Mokyr, 1990). The catching up of Chinese ICT, assuming the trend continues, is an ongoing process.

The Chinese ICT industry is catching up to that of western countries in terms of productivity and technological capabilities; however, there are forerunners and latecomers within the Chinese ICT industry, including several subsectors. In other words, catching-up phenomena exist within the Chinese ICT industry. This process is dynamic and continuous. In many technological areas, Chinese actors are competitive with western actors, while other Chinese actors have just begun their international catching-up journey. “And as soon as one Chinese actor catches up, the distinction between foreign and domestic may lose its meaning” (Kokko, personal communication)12.

1.3. Historical Development of the Chinese ICT Industry – An Introduction

The history of the Chinese ICT industry is spread across the five articles of this dissertation, which were written at different points in time and address different research questions. A coherent account of this history is important, particularly for audiences outside the field of ICT. This study covers the development of the ICT industry from the period of China’s general reform policy (1978/79) until the present day, when Chinese ICT actors experienced a fundamental transformation and an industry departure from the original path. While the speed and process of upgrading differs between individual firms, two stages of general Chinese ICT development may be observed: the reform/upgrading phase (ca. 1978/79 - 2000) and the going international phase (ca. 2000 to present)

12 thanks to Ari Kokko, who pointed this out in the final seminar of this thesis.

15 The two-decade reform/upgrading phase was dominated by technological upgrades. Before 1978/79, the Chinese ICT industry was more or less a military industry. While private firms were almost nonexistant in the old economy, the state-owned actors in ICT—the factories and research institutes—mainly served military demands. The industry “walked on two legs”: the branch research institutes performed industry- related R&D and the factories manufactured goods based on orders from the so-called “national plan”. Outside the industry, the China Academy of Science and its regional branches were the major conductors of basic science and research. Universities and colleges focused only on education. This socialist innovation system (Hanson and Pavitt, 1987) differed from the situation in the West in many ways. In general, R&D was not automatically connected to markets or firms and was more related to long- term government plans than to actual market demands (Högselius and Long, 2006). After its establishment in 1963 as a separate sector covering electronics-related technologies, the entire ICT industry was under the control of the Fourth Machinery Ministry until 1981/82 (Lou, 2003).

The introduction of ICT for civilian usage13 began in the early 1970s, but production for civilian markets lingered at around 20% of total output for nearly a decade. The 1978/79 reform policy was an important trigger for this military-to-civilian production shift. The Fourth Machinery Ministry changed its name to the Ministry of Electronics Science in 1981 and began a series of reforms, including the following:

1) Technology and product development for civilian markets was encouraged. Civilian demands were given the same importance as military demands. This reform entailed developing a better understanding of civilian demands while importing foreign technologies and trying to develop or produce domestically goods that were previously only imported.

This description of reform appears similar to the well-known import-substitution policy, a subset of the infant industry protection argument championed by Alexander Hamilton (1791/1965) in the US, Friedrich List (1841) in Germany, and Gerschenkron (1962) in continental Europe. However, in the Chinese case, the policy

13 a policy term: Yu Jun Yu Min 寓军于民

16 mainly involved market orientation—namely, moving away from the socialist model—rather than domestic industry protection, as the scale of imports from the West at that time was very small due to the closed economy.

Among state-owned factories, the focus on civilian demands was most pronounced in the consumer electronics sector. Together with simple assembly projects for foreign suppliers—mostly by private actors in coastal regions—consumer electronics production became a natural starting point for growth, as the technologies needed were not very sophisticated. This pathway of development is a theoretical match to Akamatsu’s (1935/1962) flying geese model, which holds that industry upgrades proceed from consumer goods to capital goods and/or from simple to more sophisticated products. The consumer electronics sector was later proved to be a strategic choice for development, as it answered the calls of a gradually improved standard of living and improved economic conditions in China. Domestic products such as Chonghong TVs, Changling-Alisidun refrigerators, and Changfeng laundry machines rapidly spread to households. In this sector, the import curve clearly fell in proportion to the rise of the domestic production curve.

2) The reforms supported the urban relocation of firms and research institutes that previously answered the call of Mao’s third front program (1964-1980) to relocate to caves and mountains to avoid possible military attacks by imperialist countries (see Art. 3). The new reforms prompted movement into the cities and liberated ICT actors from physical isolation, which enabled them to develop a chain of ICT industry actors in close geographical proximity to one another. This infrastructure was necessary for the market economy and brought the industry closer to civilian consumer markets, most of which were urban, and placed them in a better position to source human capital. Approximately 124 national and 533 regional and provincial ICT firms were affected by this relocation wave, 14 a scale that embraced the majority of ICT resources and skills that were available at the time.

While the third front program was unprecedented in scale, encompassing up to 64% of national ICT resources, it also had important geographic consequences, particularly

14 This was a gradual and government-subsidized relocation process. Up until the 1990s, 53 research institutes (firms) were moved to the cities (Lv, 1998)

17 in regard to the knowledge infrastructure needed for a modern technological upgrading (see Art. 3). This is the human capital argument put forward by Lall (1992), and represents a vital element for national technological capabilities. The post-1980s institutional adjustment has, to certain extent, ensured a continuation of knowledge, rather than the stagnation that appeared in many post-Soviet countries.

3) Organizational reforms (e.g., ownership restructuring) placed industry actors in a better position to react to market changes. For example, in the 1980s, there were over 50 research institutes under the supervision of the Ministry of Electronics Science, and the average size was around 2000 staff per institute. In response to rapid market changes, many of these institutes spun off small- and medium-sized firms, or daughter companies, for the specific task of developing products suitable for civilian use. Some of these spinoffs were located in coastal regions to allow study of advanced consumers (from a domestic perspective), to absorb the spillovers from foreign direct investments, and to explore externalities in those areas (e.g., many initial western setups are located in coastal regions in China). Spinoff companies are typically observed in the early phases of organizational reform. ICT firms such as Lenovo (PC producer), Founder (data communication products), Tsinghua Tongfang (computer network products), Tsinghua Ziguang (PC and system integration), and China Kejian (mobile handset producer) are typical products of this wave of spinoffs.

These reforms speeded up in the 1990s. While the dual-focus approach dominated the 1980s, in the 1990s the focus shifted to the civilian market, and the scale and scope of opening up to foreign technologies was qualitatively different. By the end of the 1990s, civilian ICT products developed by firms and research institutes under the direction of the Ministry of Electronics Science reached more than 90% of total production (from 20% in the 1970s; Lv, 1998).

In the 1990s, the Chinese ICT industry began to be compatible and comparable to world standards in terms of serving a mass market rather than military orders only. Several subsectors of the industry became relatively well established in China, including computers, stimulated by increasing domestic demand; integrated circuit design and production, which was highly supported and subsidized by policy; telecom switching systems, following breakthroughs in development among firms such as

18 Huawei, ZTE, Great Dragon, and Datang that led to a series of indigenously developed switch systems; mobile handsets; CRT and LCD monitors; and colour TVs. These developments were accompanied by a series of reforms that improved quality, developed consumer electronics, attracted foreign investments, encouraged indigenous innovations (e.g., the establishment of national labs), promoted alliances between national research institutes and enterprises, and introduced private shares into state-owned firms to stimulate market-oriented management styles.

Military orders, although having largely decreased over the years, have played an important role in the survival and reform of state-owned ICT firms and research institutes. Military contracts provided a steady income for many research institutes before they could identify and develop products for mass civilian markets. The importance of orders and contracts from defence spending is similar to the development of the American electronics industry along Route 128 (Saxenian, 1994/1996). Having boasted a long history of innovation and a high concentration of capital, skills and technologies in ICT, many of these research institutes shifted to corporate forms after 1997 while maintaining their technological niches.

Parallel to reforms in the state-owned sector is the emergence and growth of privately initiated ICT firms. In the Chinese language, such companies are widely referred to as Minying, ‘of private origin’. Huawei, a firm frequently appearing in this thesis, is a typical example of this track, which we may call the private initiative track. This track entailed, on the one hand, an abstract reform policy that supported freedom in management and trade and, on the other hand, many practical difficulties typical for a transition economy. For example, large bureaucracies interfere in the daily operation of Chinese firms and give unclear and inconsistent interpretations of policy frameworks. Nevertheless, the ICT sector underwent significant liberalization and deregulation, (except in the mobile service sector). Many private actors were established after the reforms of 1978/79. They were heavily influenced by foreign direct investment, largely located in coastal regions, and largely based on private capital (e.g., Haier, Skyworth, TCL). These private actors, full of initiative and riding on the tide of macro reforms, mobilized private funds and organized engineers who

19 were willing to “jump into the market economy sea”.15 In the 1980s and 1990s, many of these firms became attractive to foreign equipment and design manufacturers because they had a rather adjustable and open management style compared to their state-owned counterparts. The transfer of foreign technology, particularly in relation to the production process, was typical among those actors and their joint ventures, through for example, Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) arrangements. Some equipment manufacturers upgraded to Own-Brand Manufacturers (OBM; e.g., TCL) or gradually ensured a long-term supply position.

Other actors were less dependent on foreign contracts and alliances. Huawei, with its technologically competent founders, was a trading start-up in the mid-1980s. Trading was used as a means to accumulate product and market knowledge. In the 1990s, Huawei formulated a business focus and started to develop simpler products that were less sophisticated than those of their western counterparts but suitable for domestic customers, such as its C&C08 switch system. The 1990s were referred to as the capital accumulation stage, a period of booming domestic demand when firms like Huawei gradually upgraded to more technologically sophisticated niches. Re- engineering in combination with elements of modification (e.g., adding features demanded by locals), or integrated innovation in Chinese policy terms, was a common means of native innovation.

Difficult battles to outcompete foreign rivals followed the opening of Chinese markets. “From countryside to cities” was an articulated strategy largely used at the time. The full name of the strategy was “besieging and encircling from village to city”, a guerrilla strategy much used by Mao prior to 1949 and adopted by Chinese mobile system vendors such as Huawei and ZTE as their preferred strategy, particularly in the 1990s. The term countryside refers to rural customers, less sophisticated customers, and niches that were neglected by their western counterparts (and that also had low-to-zero profit margins). This strategy was later expanded and applied on a global scale in reference to the world market.

15 A policy phrase commonly used in the 1980s that encouraged individuals to cut the cord with state employers and release their initiatives into a market economy.

20 The history of China’s open market reform includes an increase in private initiatives among state-owned actors through the introduction of public shares (i.e., using the stock exchange market to attract private funds) and changes in management style. In today’s China, few firms are 100% state owned, at least in the ICT capital goods supply sector. Hybrid structures are common, and private participation is the norm. Here the term private refers to individuals or groups that are independent of state ownership or influence. The increase in hybrid firm ownership in China calls for reform of government roles in state-owned sectors. In 1988, the establishment of the state-owned assets supervision and administration commission of the state council16 marked the start of the separation of government functions into macro economic guide and micro state-share administration.

The internationalization phase began around the year 2000. After the millennium shift, many Chinese ICT firms became capable of functioning in international markets. While it may be argued that some ICT companies (e.g., Haier) had established an overseas presence (a type of listening post) as early as the 1980s, a full-scale commitment did not occur until much later. Some firms with established competitive product portfolios targeted foreign markets, while others with a strong orientation toward learning sought integration of broad technological knowledge. This latter strategy involved obtaining externalities directly from foreign centres of excellence by positioning themselves in domain frontiers; some for the purposes of alliances (i.e., mergers and acquisitions). This topic is further discussed in Arts. 1 and 2 and a longer version working paper, Long and Laestadius (2006).

The two stages described above do not represent a linear catching-up model. For individual actors and firms, the boundaries between stages are not always clear. At present, the majority of Chinese ICT actors are conducting two processes, upgrading and internationalization, in parallel. The nature of technology evolution offers a broader context for upgrading and development toward greater sophistication rather than a mere catching up to the level of competitiveness of incumbent actors. It also suggests a dynamic change or shift in actors’ positions in terms of technological sophistication and the forging ahead or falling behind that may occur.

16 国务院国有资产监督管理委员会

21

2. Approaches in Theory and Method

For any research, a triangular link between the research topic, the choice of theory, and the choice of methods (figure 3) needs to be established. This section discusses the theory and methods used in this thesis to address the research topic.

The learning mechanism in Chinese ICT catching up

Theories on “technology, Mixed Methods

innovation and development” (Qualitative+quantitative data)

Figure 3 A triangle link on how to find the answers

2.1. Theories

While the five articles included in this thesis deal with individual building blocks of learning, the cover essay (kappan in Swedish) mainly elaborates the theoretical background, that is: a) an assimilation rather than an accumulation perspective on catching up (Nelson and Pack, 1999), b) the modes for industrial upgrading and catching up; c) the association of this small thesis with the grandness of Nobel laureates; and d) the building blocks included in the individual articles.

2.1.1. Assimilation Theories

22 Throughout the literature, the term catching up is often used interchangeably with convergence17 and divergence and as synonymous with industrialization and growth when comparing countries. While the direction of causality is not always clear, a common argument is that growth rates, along with the pace of industrialization, differ significantly in countries and regions. This, in turn, creates convergence clubs (Baumol, 1986; UNIDO, 2005), or groups of nations with similar growth patterns, wherein some clubs forge ahead and others fall behind (Abramovitz, 1986).

A substantial number of studies have sought to explain the success or failure of catching-up endeavours, weaving their theories into a wide span of historical empirical data. These schools of thought on growth and catching up are generally categorized as either input driven or capability driven. While the former relies largely on growth accounting (i.e., capital, labour, and in some cases land), the latter addresses “a painstaking and cumulative process of technological learning” (Hobday, 1995, p. 1188). In the context of the Asian miracle, Nelson and Pack (1999) made a similar categorization, referring to accumulation and assimilation. Accumulation theories emphasize physical and human capital investment, and assimilation theories stress entrepreneurship, innovation, and learning. “The two broad theories differ both in their causal structures, and in the implications they contain about ‘how to do it’” (ibid, p. 434). Accumulation theories view learning and innovation as automatic byproducts of investment and attribute growth to the natural progression of a production function with a well-defined set of choices. Assimilation theories addresses the uncertainty (Knight, 1921) involved in learning and innovation and view the accumulation of human and physical capital as a necessary, but far from sufficient, aspect of catching up. This thesis takes on the assimilation perspective.

The evolution of the two schools may be traced back to a long history of debate on the role of technology; here we discuss it in relation to catching-up studies. Solow (1956), a contemporary of Abramowitz (1956), was the first one to bring the concept of technological progress to growth theory. Solow argued that most economic growth came from exogenous technological progress, and he supported that assertion with

17 Fagerberg and Godinho (2005) distinguished between these two concepts (chapter 19), pointing out that catching up relates to the ability of a single country to narrow the gaps, while convergence represents a trend toward a reduction in the differences.

23 long-term historical evidence on the “residuals” (e.g., data on the U.S. economy from the period 1909-1949). Solow’s residuals reflect the overall efficiency with which labour and capital are used.

This notion of an “exogenously existing and freely available technology” has significant implications for catching up: it suggests that all countries, regions, and firms can make use of free modern technology to catch up. All other conditions being equal, growth rates should converge.

The exogenous technological progress approach therefore offered a much more positive view on catching up and convergence than other theories. For example, the Product Life Cycle (PLC) theory (Vernon, 1966), which was developed at the same time as the circular and cumulative causation theories of the 1960s, describes a clear hierarchy for new product development, with the US in first place, followed by Europe and ending with underdeveloped economies such as Asia and Africa. Vernon suggested that less-developed regions such as Asia are not sufficiently sophisticated in terms of demand to pull in innovation (the demand-pull perspective), and are therefore doomed to be receivers of new products, rather than developers.

This PLC perspective is aligned with the new trade theories of the 1970s (Krugman, 1979), which provided a north-south model whereby new products are invented and first commercialized in the North and then introduced to the South. In this model, the South strives to imitate the North, which contributes to more intense innovation among actors in the North, with an aim to develop even more complex technologies While this race also applies to the South, there it relates to imitation rather than innovation. Because of labour cost advantages, the South may sometimes approach the North in terms of competitiveness, but only in regard to mature products; it will remain dependent on the North for any new technologies.

This pessimistic model continues to be influential (e.g., the Asian fate debate; World Bank, 1993; Wood, 1994; Krugman, 1994), as does the more positive exogenous technological progress perspective on catching up, although the convergence clubs of today have very different requirements for membership.

24 Returning to the history of perspectives on technology, the slowdown of the US economy in the 1980s led to a re-evaluation of growth theories. Romer (1986; or even earlier, Lucas, 1967), argued that technological change can occur endogenously through R&D, with increasing returns from spillovers. This endogenous growth theory marked a clear shift in perspective on the role of technology in growth and development. Consequently, catching-up theories such as the catching-up hypothesis (Abramovitz, 1986) and the convergence hypothesis (Baumol, 1986) have incorporated the notion of technology spillovers (Baumol, 1986, p. 1077) and are qualified with the concept of social capabilities (Abramovitz, 1986), which in turn are measured by indicators such as education levels. Social capability, or lack of it, was used to explain why some countries were able to capture the spillovers from R&D and catch up while others were not. Spillovers could be limited by lack of technology congruence (Abramovitz, 1994) and social capabilities needed to interact with technological opportunities.

This doctoral thesis presents a clear departure from the view that technological progress is an endogenous progress. In our view, the spillover of technological knowledge, originally described by Marshall (1920) as “something in the air”, becomes embodied only when it is actively captured.

Endogenous growth theory is now widely accepted in both accumulation and assimilation schools. The difference lies in: the accumulation view of catching up typically emphasizes “marshaling of inputs” (Nelson and Pack, 1999, p. 434), while assimilation theories argue that true catching up involves arduous learning and capability creation. Learning is far from an automatic process18; rather, it involves risk taking because it aims to master technologies that are “new to the country” (latecomers), if not “new to the world” (OECD Oslo Manual, 1992/2005). Arguably, the assimilation school of thought arose when endogenous technological change began to be incorporated into a growing tradition of evolutionary economics in the 1980s (e.g., organizational routines; Nelson and Winter, 1982).

18 Even the original concept of “learning by doing” (Arrow, 1962a) was somewhat ambiguous on this point. On the one hand, it addresses “learning is a product of experience” (p. 155) and on the other hand it claims that “learning can only take place through the attempt to solve a problem” (p. 155) and solving a problem involves dealing with uncertainties.

25 In the mid-1980s a drift of theorization extended the technological capabilities argument. Technological knowledge can be embodied in artefacts (e.g. capital goods), in human brains (Nightingale, 1998), in organizational arrangements and procedural routines (Bell and Albu, 1999) and most importantly, in dynamically evolving manufacturing and production processes (Katz, 1987). Process technology was added to the various categories of technology to provide a wider view on the subject, compared to the conventional association with R&D (Arrow, 1962b; Nelson, 1959).

Dosi (1984; et al., 2006) made an additional distinction between information and knowledge, namely that the former is freely available but the latter is proprietary. To some extent, this perspective invalidates the Arrow paradox, which refers to the situation where nobody pays for information that is already known, but for information that is not disclosed, the value cannot be known and it cannot be paid for (Arrow, 1962b). Dosi’s (1984) distinction between information and knowledge further implies that even if learning is defined as the absorption of techniques that exist elsewhere (as in the national learning system concept; Viotti, 2002), it requires the active buildup of learning routines and dynamic modifications to absorb and capture inputs.

True catching up involves far more than the mere imitation of advanced actors (Kim, 1997). Innovation, as a method of learning, is vital at all the stages of catching up. (OECD STI, 2012). Based on evidence from Japan, South Korea, and other Asian tigers, the process of catching up involves successive stages of learning to operate (in world market), invest, and innovate (Pack and Westphal, 1986; Bell and Pavitt, 1993). The need for development of indigenous (technological) capabilities is a central argument of this thesis. In addition, this thesis argues that imitation becomes more difficult as intellectual property rights are tightened. While information is still largely free and probably more available than ever due to the wide spread of Internet technologies, technological knowledge has become increasingly protected.

2.1.2. Pathways for Technological Catching Up

Despite the consensus on general conditions for technological catching up, such as the existence of social capabilities (Abramovitz, 1986), which were loosely summarized

26 as prerequisites for modern industrialization (Gershenkron, 1962), the mechanisms and pathways involved in catching up remain unclear. At least two catching-up discourses can be identified in the literature: flying geese versus leapfrogging and ready-made versus Gerschenkron’s (1962) admonition to “go to the technological frontiers”.

The flying geese model was originally developed in the 1930s by a group of Japanese scholars, but gained wide recognition after Akamatsu (1935/1962) published the model in English in the journal The Developing Economies. The model employs the hierarchical, V-shaped flying pattern of wild geese to illustrate how the industrialization process spread, in a structured way, from the lead goose (developed countries such as Japan) to the followers (developing countries such as the second-tier Asian newly industrialised economies). Akamatsu described a sequence of import, consumer goods production, capital goods production, and export, in combination with technological sophistication, to describe how latecomers gradually caught up to the lead goose. The model offers a generic view of industrial upgrading that can be measured in various ways.

In contrast to the flying geese model, the leapfrogging approach posits that latecomers can skip certain stages of development and jump directly to a more advanced stage of development. The possibility of leapfrogging was widely discussed in the 1990s, and many scholars concluded that learning is cumulative in nature and no leapfrogging exists in practice (Hobday, 1995). However, around the turn of the century, booming ICT technologies, particularly those related to the Internet, re-ignited the discussion on whether leapfrogging was possible, given the support of new enabling technologies. Steinmueller (2000, 2001) argued that ICT revolutionized the world in three fundamental ways—popularization, virtualization, and intermediation—with convergence from the user side. He further argued that possibilities exist for latecomers to ride on the tide of ICT development, to develop downstream production and marketing capabilities, and to potentially leapfrog to the end. However, the mechanism for leapfrogging remains unclear. Evidence abounds for leapfrogging in terms of technology adoption. For example, the mobile-payment service M-Pesa spread from Kenya and Tanzania in 2007 to other African countries, illustrating that

27 conditions for leapfrogging in technology adoption exist. However, no single case proof exists for leapfrogging in regard to technology production.

In Art. 2 included in this thesis, we examine a leapfrogging endeavour, namely China’s sudden appearance in third-generation mobile systems technologies. The results showed a positive learning outcome but did not serve as evidence for leapfrogging. Nevertheless, in our case, leapfrogging became a non-issue, as the accumulation of technological capabilities was shown to be more important. The technology developed using the accumulation process can evolve to a higher stage, which is more important than a single technological leapfrogging across generations of technology.

The distinction between Gerschenkron’s (1962) go directly to the technological frontiers model and Veblen’s (1915) ready-made technology model appears, at least superficially, to be similar to the differences between the flying geese and leapfrogging models. However, a more in-depth look at Gerschenkron finds that his model applies only to buying technology equipment and using it for production. Thus, we argue that the frontiers model can be classified as technology adoption, and thereby represents a subset of the ready-made model rather than an opposite case. A modern example is purchasing a 300 mm (12 inch) wafer production line to facilitate more effective production. As described in Arts. 1 and 2, this does not represent true leapfrogging, as it is normally defined.

The potentials derived from economies of scale are worth noting. If British industrialization can be considered small scale (Gerschenkron, 1962) and associated with Adam Smith’s pin factory type of specialization (Smith, 1776/1937), China should be in an advantageous position to deploy economies of scale at the industry level. This argument suggests that China is closer to the American system of manufacturing (Hounshell, 1984), which addresses standardized parts and mass production, than to the English system. While the Japanese system (e.g. Toyota) suggests that just-in-time and zero-defect quality differentiation are added technologies, the implication is that plenty of ready-made technologies may also be sourced and learned on the processing end rather than just on the product end. Moreover, the advantages of economies of scale can be substantial; for example, in

28 negotiating license fees for technology transfers (i.e., market scale). In short: the economies-of-scale argument supports our assertion that a (technology) frontier position could be reached through the ready-made model.

In our view, the ready-made model differs from the follower strategy. The latter was argued and demonstrated empirically using the case of some Chinese industries (and firms) by Ernst (2007) and Nolan (2001). The ready-made model mainly refers to a technology trajectory that is followed, while the follower model refers a strategic position that is specifically chosen, rather than following an existing technological trajectory only. If Korea, Taiwan, and Singapore can be considered examples of Veblen’s model of catching up for imitating ready-made technologies, then China, at least theoretically, has the potential to follow the ready-made path and to develop substantial indigenous innovations. The latter can be facilitated with institutional instruments, as per Gerschenkron’s frontiers model. The dimension associated with social capabilities, namely the intellectual inheritance or knowledge pool from the former communist regime, suggests a rather fast absorption of ready-made technologies and those from the technology frontier. This is more fully explored in Art. 2.

2.1.3. An Association with Grandness

How is this small thesis associated with grandness? We discuss the works of several Nobel laureates, including Amartya Sen, Gunnar Myrdal, Arthur W. Lewis, and Kenneth J. Arrow.

2.1.3.1. Amartya Sen

Two contributions to the field by Amartya Sen relate to the arguments put forward in this thesis. First, Sen’s position on capabilities (1985), although discussed in a rather abstract manner, emphasized the importance of capabilities in allowing the poor to capture various opportunities, and these arguments still apply today. Without capabilities, opportunity has no meaning for the poor, or in the context of this thesis, the latecomers to technology. In a way, notions of social capabilities (Abramovitz, 1986), excess capability (Kokko, 2005), inherited competences (Högselius, 2005), the

29 knowledge-centred development policy agenda (Cimoli, Dosi, and Stiglitz, 2009), and our approach to technological capabilities for this thesis, may all be considered extensions of Sen’s approach to capabilities. Considering the fact that Sen’s capability approach has emerged as leading alternative to standard economic frameworks for thinking about development over the last decade (Clark, 2006), this study contributes a technology perspective on that (particularly in Art. 3).

Second, Sen’s choice of technology, or choice of techniques (1960), is an aspect of the theory of planned economic development. While somewhat out-dated given that the conditions for catching up are very different today, the choice-of-technology model remains relevant to the issue of the latecomers’ dilemma, which refers to the limited resources and skills for technology purchasing, introduction, and adaptation that also exist today. Art. 2 of this thesis addresses the topic of choice of technology, but also discusses a new threshold, the IPR thicket, that was not experienced in Sen’s time. Back then, society was open mostly for commodity importation rather than for indigenous technology production. Commodity, which today usually connotes a low barrier of entry, is not often associated with this new hindrance, i.e. the tightening of IPRs. In this way, this thesis can be considered as an extension of that subject.

2.3.1.2. Gunnar Myrdal

Besides Myrdal’s contribution to development studies in general and to methods in particular, his advancement of circular and cumulative causation theories, not the least through his Asian Drama: An Inquiry into the Poverty of Nations (1968), has raised much attention. He emphasized the polarisation between advanced industrialised countries and less-developed countries because of a vicious cycle led by overpopulation in the latter. The basic argument that population growth often outstrips that of production in developing countries, thereby jeopardizing the accumulation of capital, presents a rather pessimistic view of catching up, similar to Malthus’ (1798/1989) population theory in development studies.

Looking at the history of industrialization, it is not always the case that rapid population growth consumes any surplus. Simon Kuznets (1964), a near contemporary of Myrdal, stressed that in the case of America, “the much higher rate

30 of growth of population in the United States, combined with the same or roughly the same rate of growth of per capita product, means that there was a correspondingly higher rate of growth in aggregate product here than in the European countries” (p. 17). While the “American accomplishment was to maintain a high rate of per-capita output and income while enjoying the largest rate of population growth of any major economy” (Chandler, 1990/2004, p. 52), the successful industrialization of Japan, the four first-tier Asian tigers, and today’s India may prove that capital accumulation and technology assimilation can happen in parallel with population growth.

This argument has relevance to the case of China, as it touches on population scale. For the purposes of this thesis, the concept extends to (a) the market for ICT products and its inherit pull effect on innovation and production and (b) the labour pool for ICT manufacturing and innovation. The first point is discussed in Art. 3 on the dominance of export pull on ICT production and innovation, which contributed to the pattern of the current coastal ICT agglomeration. It also implies that in an open economy, which is the case in many countries today, there are wider sources (and resources) to be drawn into domestic surplus (e.g., by exporting) than in Myrdal’s (1968) time. In regard to the second point, a large population of labour of a productive age (i.e., 20 – 55 years), which is the demographic pattern in many developing countries, could, at least in theory, act as an important precondition for industrial growth. In the case of Chinese ICT development, a scale of young labour is found on manufacturing assembly lines and in software firms (the average age of Chinese software firms’ employees is 27-years-old). In other words, Myrdal’s overpopulation argument, at a minimum, needs to take into account the proportion of knowledge workers (skilled and semi-skilled) in the whole population in relation to the technological opportunities that arise.

While the demographic pattern of China is often on the agenda when discussing China’s prospects for full industrialization (i.e., a complete catching up), the country represents a unique situation. The one child policy has been in place since the 1980s and has contributed to a much slower growth in population. In this respect, Myrdal’s

31 concerns that population growth may outstrip production may apply to China19. Within a slowly growing population, the Chinese ICT economy has expanded, incorporating new groups into the labour force and the market. Art. 2 touches on the path-dependence aspect of this connection using the example of the TD-SCDMA market.

2.3.1.3. Arthur W. Lewis

Lewis’ classic piece on the unlimited supply of labour (1954) was an important inspiration for this thesis. The role of Chinese labour, at least in terms of its scale, deserves close attention in any study of its industry. Labour is not only one of three critical factors (land, labour, and capital) that affect productivity, growth, and catching up in many classic analyses, but also an important form in which technological knowledge is embodied. Labour—particularly skilled labour—is the carrier of knowledge, and this concept relates to a theoretical shift among analysts in regard to endogenous technology, technological progress, and the capability argument of assimilation theory (on e.g. arduous learning).

Today, the supply of labour needs to be assessed in an open economy, together with the migration of skilled and unskilled labour. The openness of today is not the same as in 1954 when Lewis wrote his essay. Compared to capital, labour is still an immobile force, but globalisation has changed its mobility, and its immobility, to a significant extent. In Art. 3 of this thesis, we touch on this mobility of labour dimension through a discussion of the peacock phenomenon, whereby a growing amount of peacocks (emigrants) are beginning to fly back from the southeast coast of China toward inland regions, which has facilitated knowledge transfers, particularly of the synthetic kind (i.e., the geographically “sticky” type of industry knowledge).

Of additional interest here is Lewis’s standpoint on skilled labour, which is often studied in innovation research. Lewis pointed out that skilled labour may serve as a bottleneck for expansion, as can capital or land. However, he also uses Marshall’s

19 It implies that Chinese population growth has been slow (therefore the capital accumulation has been possible). .

32 (1920) term quasi-bottleneck in relation to skilled labour, assuming that the real bottleneck is capital and natural resources and that skilled labour can be trained provided capital is available, which therefore creates only a modest time lag (Lewis, 1954, p. 4). However, the situation is probably more complex and may involve a chicken-and-egg problem. Since technological knowledge is an endogenous factor that is embodied in capital (e.g., machines) and labour, it requires skills and knowledge to be absorbed. Even if capital (e.g., foreign direct investment) is available, a skilled labour group cannot be formulated without an element of technological capability. Without this capability, intellectual capital, even when available, cannot be absorbed, and technological opportunities cannot be captured, which brings us back to Sen’s argument about the importance of capabilities. This thesis focuses on technological capabilities; therefore, skilled labour is an important factor, and Lewis’ argument can serve as an important foundation for such analyses.

2.3.1.4. Kenneth J. Arrow

Arrow’s (1962b) influential analysis of appropriability is one of the core foundations of this thesis (see Art. 5). Defining knowledge as information, Arrow shows how the fundamental properties of information can be problematic when striving for efficient resource allocation to achieve competitiveness in the market. Ironically, he (and even earlier, Nelson, 1959) concluded that public funds, rather than private ones, would be the first and best solution to achieve welfare (by making information freely available to all), which is exactly the system that one may attribute to the Soviets or China before its 1978 transformation. Arrow’s argument suggests that western capitalism is actually second best, because its incentives demand temporary monopoly profits (Schumpeter, 1934/1992), which in turn reduce efficiency in resource allocation.

While China has experienced, and is still experiencing, a transformation that has brought it closer to western capitalism, the specificities of information and knowledge find a home in its Socialist heritage (e.g., the origin of firms as state- or privately owned) which, in turn, affects appropriability strategies in essential ways. The article on appropriabilty included in this thesis (Art. 5) addresses this dimension in an empirical way. A closer look into the innovation systems and their transitions is merited. Future studies should investigate the extent to which earlier socialist systems

33 of innovation (Hanson and Pavitt, 1987) have influenced the appropriability strategies of today’s firms.

2.1.4. The Building Blocks

The mechanisms behind China’s technological learning and catching up are full of complexity, due to a number of important considerations. The earlier institutional system was fundamentally different to that of the West, which has impact on e.g. the ability to enable learning. The size of the market and the huge gaps within it affect the demand-pull dimension of learning and innovation. The long history of civilization and its possible heritage as a former technological leader is largely invisible in many dimensions of modern transformation (e.g., conditioning learning). China’s geographic diversity and the diversity of its the regional institutions complicates, if not aggregates, the above-mentioned variations, which affect, at a minimum, the implementation of learning. In today’s China, both learning and competitiveness are interconnected as the country strives to complete the catching-up process. The final consideration, and an important factor for this thesis, is the huge pool of human skills that has been released from earlier institutional constraints and is acting in various entrepreneurial ways today (i.e., learning capability). The role of the state in the Chinese economy, is complex and undergoing change. In other words, important dimensions that affect any sectoral system of learning and catching up – the knowledge bases, the actors, and the institutions (Malerba and Nelson, 2012) – are, in China’s case, subject to many different combinations that are also dynamically changing.

Studies in this thesis are explorative. The five articles that comprise this thesis represent an attempt to test different theoretical tracks in terms of their ability to explain the empirical data that we observed and collected.

34

Category Article Empirical Aim Theoretical Empirical foci concerns peculiarity 1 a)“Assets a) Go to the Know- “Over- The The new augmenting technological ledge seas (overseas) knowledge R&D” frontiers directly; sourcing R&D” R&D sourcing vesus process pattern, “assets b) Learning the process, exploitation” scientific and drivers R&D; knowledge (the basis and b) Drivers: origins of both “escape modular and competition” architectural versus “rent innovation); dissipation”

2 Appropriate a) Modularity-in Know- “TD- The The link Technology design opens new ledge SCD mobile between (AT) windows of creation MA” standard technology concept; opportunity; TD- trajectory SCDMA and The induced b) The lack of innovation national technical essential IPRs acts process capabilities change; as a key (and inducement; factor The national endowment) technological c) The factor- capabilities saving bias concept; influences the direction of Association (also incremental) with Porter’s innovation. three stages’ classification of the world’s economies 3 The a) The geographic “Region- Knowledg Whether geographical consequence of al” e bases there is an “slippery- the “third front + inland sticky” program” on inland diffusion or traits of industrial regions not, and if different capabilities; so, why and types of how does industry b) A sequence that process knowledge (or bias) look like of different types of knowledge in diffusion

35 Know- 4 Patenting a) A rapid ledge “IPR Patenting trends and Appropriabili increase in appropr- thickets” the ty patenting and a iation appropriate strategies movement to the means “cores”;

b) A durality approach in appropriability strategies.

5 Four factors are “Approp The Patenting The logics into play: a) riability” determi- trend of The technological nants and means Appropriabili distance; b) the and of ty rural extension of logics appropria- the nature of the of Chinese tion technology; c)the patenting firms’ origin; d) the institutions that is co-evolving in the process

Table 1: A summary of the five articles

2.2. Methods

For any research that is associated with a particular ontology, it is important to clarify the epistemology, the methodological approach and reasons for choosing it, and the limitations.

2.2.1. Epistemology

The general epistemological position of this study is that we believe, on the one hand, in the existence of stylized facts, independent of whether we know those facts or not. For example, the Nano car, priced at only $2000 USD, is produced and used in India irrespective of whether people in the West know about the vehicle or not. On the other hand, our knowledge of this world is theory-laden, fallible, and largely derived from our personal sociocultural experiences. Thus, for example, our descriptions of

36 the experience of driving the Nano car might range from “it is safe and comfortable” to “it was very unpleasant”. Whether we view something as innovative or not depends on our definition of innovation, which may range from “new to India” to “new to the lower segment of the market” or “new to the world” (Oslo Manual, OECD, 1992/2005). Accordingly, this thesis takes a position somewhere between the two well-known extremes of positivism (objectivism) and relativism (subjectivism; Chalmers, 1972/1999).

It may be argued that an inclusion of critical realism (Sayer, 1984/1992; 2000) into our epistomology is necessary. While critical realism categorizes the world as the intransitive dimension and our experience of the world as the transitive dimension, we question the extent of (in)transitiveness. For example, in an extreme dynamics scenario, the Nano car could be developed into a very sophisticated system that is produced and used worldwide on a totally different scale. This would fundamentally change the character and the general outlook of the Nano car, which would not only target the “bottom billion” (Collier, 2007) but also be integrated into the global production network (Ernst, 2002) like Toyota or any other West-branded car. It could even become a world leader in, for example, battery solutions. In that case, the car is no longer an Indian Nano car; its structure and the causal powers that regulate and govern it are totally changed. This example illustrates how a dynamic extension of the transitiveness of the world may be underemphasized in the critical realism perspective. Nevertheless, a detailed examination and elaboration on the differences between each established category must be left to future studies.

In regard to development, this study subscribes to the conventional wisdom on development as a process of historical change (i.e., the “structural transformation” argument; Gore, 2000). Moreover, we advocate that the capability creation dimension of assimilation theory (Nelson and Pack, 1999) ought to be incorporated into the discussion on general structural change as a subset of a discussion on Sen’s (1999) concept of development as freedom.

The problem of how to assess performance is faced by technocrats and practitioners alike. Agencies such as the OECD and United Nations Development Program (UNDP) need some indictors of performance with which to set short-, medium-, and

37 long-term goals. We therefore advocate for Thomas’ (2000) vision of a measure of progressive change, albeit with some reservations. Indicators must be developed, but in the context of an important awareness that a broad range of issues remain immeasurable and can be clarified with narration.

To summarize, we consider the historical process of development to be of primary importance to our investigation, but we also desire a means by which the outcome of development can be measured in order to offer policy guidance.

2.2.2. Methodological Approach

Containing elements of economics, management studies, innovation theory, and history, this study employed a mixed-methods approach—a qualitative study complemented by quantitative data (Johnson and Onwuegbuzie, 2004). In addition, we used different investigators for different subthemes and included different theoretical and disciplinary perspectives. These aspects represent the four types of triangulation—methodological (qualitative versus quantitative), data, investigator, and theoretical—described by Denzin (1970) and Jick (1979). This study uses mainly qualitative data, including interviews and historical documents, complemented by descriptive statistical data (e.g., patent data). The reasons for relying primarily on qualitative data are presented in the following sections.

First, this study may be categorized as a development study because while China may not be considered as a developing nation today, its transitional nature still carries many characteristics of a developing country. Well-known problems associated with development studies include the weakness of official statistic data, which is inadequate and unreliable in most cases. More profoundly, in our view, the definitions of terms are very different between the West and the East.

Myrdal’s (1968) institutional approach pointed out the same problem using the definition of unemployment as an example. In the West, unemployment is typically defined as not receiving a regular wage or salary from an employer, and a majority of earners in developing countries fall into that category. These workers may be occupied with various chores in the household, petty trade, or work on their own

38 behalf, normally on an irregular basis. Although they are unlikely to ever be employed in the western sense of the word, their daily life is full of some kind of productive activity. As noted by Myrdal (1968), unemployment is a luxury that few can afford. Terms such as disguised unemployment have been coined, but only partly explain this phenomenon.

Differences in the definition of terms are present in many areas related to technology and economic conditions. In two of the articles included in this study (Arts. 3 and 5), we discuss this problem in relation to the statistical data. While service has gained increasing weight as a measure of value in ICT products (e.g., embedded systems), it was not even visible in the Chinese statistics on ICT until very recently (2011). The heritage of Soviet-style material product systems in Chinese national accounting has its drawbacks, including double accounting on gross output and exclusion of the service sector (Maddison and Wu, 2008). This situation differs from the western standardised system of national accounts in many ways. Accordingly, econometric techniques operating on that database only (e.g., on the firm-level data needed for this study) may produce unreliable results. This problematic is not the same with the issue of response bias (Furnham, 1986), a problem commonly appearing in surveys in the West, because the respondents have different motivations and interpretations. Thus, a qualitative methodology offers a more useful approach for the purposes of this study.

Another fundamental problem with official Chinese statistical data is that it remains an integral part of the central governing system and is strongly regulated by the authorities. The approval of hierarchical authorities is sometimes more important than crosschecking the data,20 and this also affects what kinds of data may be collected by statisticians. A well-known problem in the plan economy is the temptation to collect more positive data, rather than negative data, to ultimately serve as propaganda.

To summarize, the validity of the statistical data may - at least sometimes - be questionable, and independent statistical sources are virtually non-existent in China. There remains a lack of appreciation of the scientific view of objectivity among

20 Whether this is a political product derived from a hierarchical one-party system, or the product of a hierarchical historical tradition, or a combination of both, is an issue that falls outside the scope of this thesis.

39 political leaders and civil servants. Chinese statistics, while experiencing reforms, deserve a critical eye and ought not to be solely relied upon in research.

Another methodological consideration for relying largely on qualitative data relates to the nature of the process under investigation. This study is about the ongoing process of technological catch-up, a process that embraces radical changes, smooth upgrading, and occasional backward movements due to interruptions and disturbances. No linear development model is assumed. Employing a qualitative approach offers a deep understanding on the actual problems - hinders and opportunities - of each stage.

This study is about a transformation that occurs at high speed. While China began from a rather low base, it has shown a rapid upswing in many fields, as revealed by the patent data, to use just one example. It is doubtful whether annual statistics can capture the real dynamics of such progress. Incumbents and latecomers come and go within the ICT industry; no leader remains so forever and no follower is doomed to remain in a follower position indefinitely. Quantitative data, even with a short time lag, cannot address the question of how such changes occur.

Another methodological consideration is that this study focuses on learning mechanisms to investigate how knowledge is formulated and strategically exploited in the context of technological catching up. As learning, in general, is difficult to quantify, this strategy favours a qualitative approach.

The field of study for this thesis—China and the Chinese ICT industry—has a rather heterogeneous nature. China is heterogeneous in a demographic sense, with many metaphorical mountains, both historical and cultural, between central government and remote regions. 21 This heterogeneity affects economic and technological developments across regions and sectors.22 The coastal regions, for example, differ from inland regions in many ways. Depending on the topic of study, one can often identify contexts that shift across regions. This favours a qualitative approach for developing an in-depth understanding of the subject matter.

21 There are many differences in policies, resource allocation, FDI attractiveness, natural resources, and endowments, to name a few. 22 Particularly at the level of sectors, which are strongly influenced by regional endowments and access to resources (more detailed dimensions may be found in Art. 3 of this thesis).

40 Chinese ICT firms are positioned in a wide range of ICT subsectors, and firms are affected to a different extent by technological convergence, which is most pronounced for data and voice communication. This situation affects learning in many ways, as exemplified by the concept of the technologically appropriate regime (Malerba and Orsenigo, 1996). In addition, firm management styles differ greatly. A transition economy embraces firms with a variety of origins (e.g., ownership structure), locations (e.g., subregional culture), and foreign influences (e.g., foreign alliances). As our study object is Chinese ICT firms and the aggregation of these firms at the industry level, a qualitative-dominated methodology is best suited for an in-depth understanding of this heterogeneity.

The final consideration for a qualitative approach is that this study focuses on technological capabilities, and the majority of capability studies are case based (partly because of the difficulties in finding proxies). Thus, a methodological strategy that focuses on qualitative data will be best suited to analysing the information obtained from reviews of the literature.

While the arguments above demonstrate the need for a qualitative aspect to the study methodology, quantitative data provides an important complement to this research. China’s catching up (or rejuvenation) is an ongoing process, and new scientific studies are being added to the literature every day in a variety of fields. Throughout the research process it is easy to get lost in the legs or the nose of the elephant, to use a popular metaphorical tale, rather than see the big picture. The pace of change and the reasons for it are difficult to understand. Quantitative data regarding trade, R&D (at the industry level as well as the national level), patents, and other indicators of innovation and growth at all levels (national, regional, industry, and firm) are helpful for painting a general picture of the current state of development, and to set the stage for future growth.

Latecomers like China and India, with their large populations, present information on a massive scale. Statistical data, particularly descriptive statistics, provide a general picture of the situation and a comparative perspective from which to understand the heterogeneity that may help or hinder the catching-up process.

41 In addition, this meso-level study of China’s ICT industry calls for coverage of select firms. To appreciate the context, some quantitative data about the national situation is needed, given that not all firms can be surveyed. Quantitative data provides a solution to this issue and provides a convenient means for describing the aggregation of firms in the industry.

Having outlined the need for a heavy reliance on qualitative data, complemented by quantitative data where applicable, we now discuss the rationale behind using a mixed-methods approach.

Studying a phenomenon in an emerging economy such as China or India requires a certain degree of pragmatism and openness in terms of access to data. Many development studies contain a richness of data, but a lack of reach. Bearing in mind the goal of searching for data with “relevance, significance, and feasibility” (Myrdal, 1967/1969, p. 65), ideals must often be compromised due to issues with feasibility. For example, many firms such as Huawei, with more than 20,000 employees and more than half of revenues coming from overseas sales, are not even publicly listed. It is possible to collect annual reports from firms, but one must be aware that such reports are not subject to any of the accounting rules that are commonly applied to publically listed companies. Many Minying-like firms are financed by small groups of private investors and have aggressive R&D and marketing policies that do not appear in official statistical data. Massive diversification into daughter and granddaughter firms makes the picture even more complex.

Cultural differences are important considerations when conducting interviews. For example, while Swedes are often happy to be interviewed and to present their views about a phenomenon, Chinese informants often hold back on providing their true opinions, particularly to strangers. To conduct a study in a network society like China, an ethnic and language advantage is helpful to induce openness among informants. The interpretation of the messages is rather contextual and requires a deep, qualitative understanding of the subjects and the culture.

This study is an investigation of China’s catching up in general and Chinese ICT technological catching up in particular. It is explorative in nature and arguably closer

42 to theory addition and theory building than to theory testing. Research typically consists of a back-and-forth process of theory building and testing, whereby empirical data provide a basis for theory generation and previously developed theories help in finding patterns and interpreting empirical data (Alvesson and Sköldberg, 1994). It may be argued that there are no clear boundaries between theory building and testing; however, the back-and-forth process helps us to grasp the dynamics of change, develop thoughts and viewpoints, and conquer the limitations of our research.

To conclude this section on the methodological approach employed in this study, the contributions of each kind of data to this study are summarized in table 2.

Data Contribution to this thesis Interviews (semi-structured) Provide formal answers to the research questions, directly as well as indirectly Observations Help to sense the messages beyond verbal articulation, on e.g. whether it is coherent with the interview data (or not) Documents Offer a historical background (for the firm’ development) Statistical data Provide trend, and context Patent data Indicators of the output on learning and innovation

Table 2 A summary of the data

2.2.3. Difficulties

In this study, we encountered many problems in data interpretation that are worth discussing to highlight the limits of this study and to signal awareness to future researchers in this area. First, despite the restriction of this study to the meso level, there were many aspects that were not easily categorized within this boundary. In concrete terms, this included subindustrial sectors, subtechnological areas, and subregional dynamics, while in an abstract sense, the connections between various

43 parts and the whole picture was sometimes challenging. In this study, while believing that the big picture has a logical and coherent structure, how can we ensure that the various parts—the legs and nose of the elephant that we have felt and sensed—belong to the same whole? Which part is unique and which part is repeated and becomes a pattern? Which parts are more representative of the whole—in this case, to the general characteristics of Chinese ICT learning patterns—and which are trivial and nonrepresentative? Given the general complexities involved in the transition process, many China-related studies likely experience the same challenges. In a pessimistic moment, one can easily conclude that no one in China knows the whole picture, and thus neither can anyone outside China.

This study is confined to the meso level; however, it is not always easy to distinguish context from content (i.e., exogenous from endogenous) in terms of the data. For example, what is the macro context of a transition economy in which actors are embedded? And what are the contents—the learning mechanisms and the causal links - that are specifically related to catching up phenomena? Is industrial policy a static, regulatory context or do the rules of the game change along the way? Historical views on the function of technology have changed, with a shift toward an endogenous role for technology (Nelson and Winter, 1982). Could such a shift occur in regard to the role of institutions and policies (Nelson, 2003; 2007; 2008)?23 Often, the dimensions of context and content are inseparable and have a combined effect, which makes it difficult to determine the direction of causality.

The metaphorical distance of the researcher from the subject under investigation is another important consideration. This distance may be viewed as a spectrum that lies between the two extremes of native and alien. Many researchers find themselves walking a fine line between these two extremes in an attempt to embrace both an in- depth understanding of the subject (i.e., that of a native) while retaining a sense of objectivity (i.e., that of an outsider, or alien). In regard to the present study, the main author is of Chinese origin and has previously worked in ICT companies. On the one

23 This discussion may have already begun: http://www.globelics.org/wp- content/uploads/2013/02/wpg07031.pdf

44 hand, a Chinese background and language skills allow for a better understanding of the social situations and cultural patterns in China. On the other hand, this kind of close proximity to the culture may endanger objectivity.

This philosophical dilemma was well described by a famous Chinese poet, Su Dongpo (A.D. 1037-1101), in his views on Lushan, a foggy mountain. Su wrote:

(The mist in Mount Lushan is highly volatile):

Look like either ridges or peaks 橫看成嶺側成峰

Assuming different appearances (either high or low) 遠近高低各不同

Don't know the true faces of Lushan (Mountain) 不識廬山真面目

Only because being in the midst 只緣身在此山中

- Su Dongpo (A.D.1037-1101)

The above translation by China Central Television may not be sufficient to convey the original beauty of the poem (poems are notorious for being impossible to translate). It is true, however, that researchers often feel in danger of “being in the midst” of their research and need to jump off the mountain and examine it from different angles to see whether they are looking at a ridge or a peak.

Another potential danger related to the closeness of the researcher to the subject matter is the subconscious desire for particular outcomes. There is a tendency among researchers to consciously and unconsciously search for data that confirms or rejects assumptions. For example, could the Chinese origins of the main author create an unconscious desire to observe global convergence of productivity and technological capabilities and an intentional search for data supporting that trend while ignoring data denying that trend? By intentionally striving for objectivity through a reliance on factual data, we may reduce these biases but cannot deny their existence.

45

“As social scientists we are deceiving ourselves if we naively believe that we are not as human as the people around us and that we do not tend to aim opportunistically for conclusions that fit prejudices markedly similar to those of other people in our society. By keeping to higher valuations and by assigning prime importance to observed facts, we only partly purge these biases from our mind.” (Myrdal, 1967/1969, p. 41)

Interpretation is a kind of abstraction and generalization related to certain theories, and it involves clashes of angles and perspectives, as well as the identification of connections. The present study touches on multiple theories related to catching up. The process of selecting those theories that offer the best explanation of the data and determining how the data contributes to the gaps and connections between related theories is difficult. While triangulation of theories can generally help to validate empirical data (Denzin, 1970), distinguishing between the essential and the incidental is no simple task.

3. Findings and Contributions

3.1 Major Findings

3.1.1. Technological Knowledge Sourcing

The available channels for acquisition of technological knowledge for latecomers have been largely summarized in previous studies that have focused on knowledge transfer (e.g., learning through foreign contracting; Hobday, 1995; 2000) and imitation-to-innovation paths (e.g., reverse engineering; Kim, 1997). However, in these studies knowledge sourcing is usually confined to home base and the prototypes available there. Art. 1 of this thesis identifies a wave of overseas R&D laboratories established by Chinese ICT actors throughout the last two decades, although its history can be traced back to the early 1980s. We argue that in this round of catching up, the sourcing method, priorities, and learning processes have a more open and innovative character that is reminiscent of Gerschenkron’s (1962) going directly to the technology frontier model. In this case, China goes beyond geographic boundaries in search of original scientific excellence rather than taking the (technological) path

46 already introduced by western multinational enterprises in China. As a result, the disadvantage of being dislocated from technology sources and advanced markets (Hobday, 1995) is overcome.

The in-depth case studies of two Chinese telecommunication firm R&D labs in Kista, Sweden illustrate how this knowledge sourcing has taken place and what technological priorities are different from those at home. The choice to set up overseas labs is largely attributed to the depth and breadth of today’s globalization, and to new technological tools that facilitate knowledge transfer. While sending learning teams abroad and establishing overseas learning organizations are not unique strategies in the history of industrialization and catching up (Bruland, 1991), the novel aspect identified in this study is the function of the laboratory—a dedicated search for industry-relevant scientific knowledge. Moreover, this approach accommodates the nature of modular and architectural knowledge by expanding the modules and repacking them before transferring them home to China (i.e., modern tools and the ability to rapidly transfer knowledge have had an effect).

This sourcing method can be explained by looking at the history of Chinese ICT upgrades. In the early years, a large proportion of Chinese ICT firms survived on ready-made technologies introduced by western multinational enterprises. Some were initially engaged in trade or supply, but gradually evolved to produce less- sophisticated products, such as consumer electronics. A tremendous price squeeze followed that wave of indigenous production, as many of these products were rapidly moving toward the commodity category. Chinese actors were competing intensely with their Chinese peers, rather than western actors, because of the similarities and overlaps in technological profiles. In addition, as a result of the limitations of learning at home, such as lack of access to theoretical knowledge, the already shortened product life cycle of ready-made prototypes, and IPR thickets, going abroad became a natural step for Chinese actors to source new knowledge.

Another finding relates to the structure of technological sophistication in the Chinese ICT industry, as measured by R&D intensity. Prior to 2008, the ICT sector was, on average, a medium-low-tech industry by OECD standards, largely because of its significant in-house manufacturing content (rather than being outsourced).

47 Nevertheless, in 2008, 29% of the top 100 firms were categorized as high-tech. Having been updated to a medium-high-tech industry in 2008, this sector is now engaged in innovation at an even faster pace, as revealed by patent data in Art. 5 of this thesis, which demonstrates that industry activities are getting closer and closer to a high-tech categorization.

Questions – for further researches – remain: is this sourcing method also used by firms in other industries? Is this method likely to change with a growing science base in China? how might the general upgrading of the Chinese capabilities (discussed in Art. 3 and 5) influence this sourcing method?

3.1.2. Technological Knowledge Creation

Art. 2 of this thesis focuses on a single case study of a system technology (the TD- SCDMA mobile communication standard) that originated in the global South in a “Schumacher meets Schumpeter” sense (Kaplinsky, 2011). Our examination of what aspects of the processes of this high-tech innovation have spurred the technological catch- up, points to capability creation in association with technology standard development. The findings point to the key dimensions affecting the ability of Chinese actors to successfully move into the field of high-tech innovation.

Three findings generated by this study are: a) modularity in design opens new windows of opportunity for technological catching up; b) the lack of essential IPR acts as a key inducement, a factor-saving bias, that influences the rate and the direction of an indigenous innovation (in the South) and c) the long tail of an old technology conditions a new indigenous innovation to take off (by essentially shortening the technological distance). The findings further suggest that the technological knowledge generated as part of the development process has a more fundamental impact than the technological paths or trajectories chosen, and that learning by firms and industries lies at the root of incremental technological change.

The results also imply that the characteristic approach to the concept of appropriate technology should have an industry-wide capability enhancement function added (i.e., innovation capacity), particularly when both competitiveness and learning become

48 important factors in the catching-up process. The connection between technology, standards, and learning (capability creation) is another interesting area to explore in future research.

Art. 3 of this thesis implies of the heterogeneity of China across many dimensions. Despite the well-documented accumulation of ICT firms in coastal regions, the statistical data – if processed by innovation indicators – demonstrates the existence of smaller-scale ICT hot spots in inland regions. Interviews and archive data indicate that these regions coincide with those influenced by the earlier third front program during the Maoist period (1964-1978). Drawing on the industry knowledge bases literature, the study further shows that a bias towards and/or a sequence of different types of industry knowledge has occurred in the knowledge absorption processes of these inland firms.

This typical case shows that the history of the institution has geographic consequences and affects catching up patterns at the sector level. Capabilities that were planted in remote regions during the era of socialist innovation systems (Hanson and Pavitt, 1987) can be activated later to work against a hinterland fate for those regions, as determined by the classic forces of trade and transportation advantage in central regions.

Another finding, not all that new for knowledge-based literature,24 but new for understanding development practices, is the sequence of different types of knowledge that are absorbed. That in turn, has important policy implications, namely that policies can vary in supporting the types of knowledge that are absorbed in different development stages for each region. Moreover, the identified analytical knowledge leading and synthetic (engineering) knowledge following pattern, may be interpreted as another kind of “flying geese” upgrading pattern. That (potentially) turns the conventional wisdom on upgrading upside-down (as analytical knowledge is often science and R&D based).

24 It may be considered as a marginal addition because a within-industry (rather than a cross-industry) variation on modes of knowledge domination is suggested.

49

3.1.3. Technological Knowledge Appropriation

Art. 4 of this thesis begins by contextualizing IPR management from a latecomer perspective, then goes on to map the IPR positions of Chinese ICT firms, largely through examination of patent data at the US patent office. The article ends with small-scale firm interview data in search of an interpretation. A rapid catching up in Chinese patenting in terms of numbers of applications and applications granted has proceeded with an accelerating rate of growth, despite of a low starting point in absolute numbers. Although the patents examined were mostly related to the more peripheral fields of ICT, the emerging Chinese patent-based IPR stakes were relatively indigenous. While the motives for patenting vary, such as the search for alliances, international markets, and to learn the rules of the game, the Chinese patent- based IPR stakes are further complicated by the large proportion of firms that resort to other means to appropriate returns.

Art. 5 of this thesis is written in the context of a sharp increase in Chinese patenting with deeper movement toward the core areas of technology (based on a count of technological fields involved). This is a period when Chinese actors have increasingly become international stakeholders in technologically advanced domains. The article therefore aims to identify the determinants of patenting propensity and the logic behind it.

Based on extensive firm-level interview data, four key determinants of Chinese ICT patenting are identified: a) distance to the technology frontier, b) the nature of the technology (with a latecomer’s focus on application knowledge, low-cost extension, and the role of standards in facilitating entry), c) the specifics of information embodied in a firm’s origins that determine to what extent the knowledge is proprietary and to whom that applies, and d) the supporting institutions that co-evolve in that process. While the first two determinants reflect a latecomer’s position, the latter two are typical outcomes of the socialist system of innovation (Hanson and Pavitt, 1987).

50

3.1.4. Summary

In this round of technological catching up, the actors, the contexts, and the technological tools are new. In addition, the mechanisms for catching up, particularly the forms and characteristics of learning in regard to knowledge sourcing, generation, and appropriation, appear to be different as well.

The case of Chinese ICT has elements of new product innovation, mostly in the sense of being new to China, but also new to the world (Oslo Manual, OECD, 1992/2005). More importantly, many innovations are of the organizational and methodological kind. New knowledge modules are innovatively sourced through new channels, using new processes, and with new priorities regarding the types of knowledge (see Arts. 1 and 3). These knowledge modules become endogenous through a process of architectural re-structuring, not only being improved upon with new features and functions, but also capable of delivering new benefits that respond to local populations and the poor (see Art. 2). New opportunities are communicated and captured by activating existing social capabilities. Outcomes of this architectural restructuring – the new knowledge - get appropriated through existing means but with new and pragmatic combinations (see Art. 4). New supporting institutions have been created experimentally and function in a co-evolutionary way, evolving together with industrial upgrading (see Art. 5). In this way, new thresholds are tackled through new combinations of existing capabilities and resources. This learning process is interactive and dynamic in nature.

3.2 Contributions

What difference has this thesis made to our intellectual understanding of the world? What are the implications for industry practice and policy making?

First, this study may be considered as an empirical addition to assimilation theories of catching up. Based on their analysis of first-tier Asian tiger experiences, Nelson and Pack (1999) distinguished between accumulation and assimilation. Accumulation theories address inputs of physical and human capital, while assimilation theories

51 address learning, capability creation, entrepreneurship, and innovation. This thesis is clearly engaged with the assimilation perspective.

China is arguably the largest representative of the second-tier tigers and, as a case study, poses many challenges to this research. The sheer size of the country results in an unusual scale and scope of activities and interactions in any field. In addition, the long history of civilization in China suggests that many modern phenomena have historical roots that are unknown to outsiders and invisible and complex to insiders. Many theorists have been reluctant to draw conclusions (Krugman, 1994, 2011; see Art. 3).

In the eyes of an ordinary person (e.g., a tourist in China or a reader of daily newspapers in the West), China’s growth, though impressive, is still largely attributed to huge investments in physical and human capital. There are new roads, new airports, new offices, new cars, and even new crowds of people in new places. In the past three decades, China has become not only a world factory, but also a 24-hour construction site. Regardless of the source of these inputs – domestic accumulation or foreign direct investment – few can deny the growth, catching up, and rejuvenation of China.

These input-driven growth stories are essentially documented in accumulation theories, with daily additions of new, macro-level data from sources such as the World Bank and scientific publications. Conceding the central importance of these inputs to China’s growth, this thesis chooses to focus on the other side of the coin: the assimilation of technological knowledge and capability creation. In short, a greater number of increasingly sophisticated products that are labelled “made in China” are joining our daily life, thanks to an arduous learning journey and risk-taking entrepreneurship in China that does not sleep at night.

Abramovitz (1986) pointed out that backwardness itself carries the potential for modernization. Thus, it may come as no surprise that China began to catch up after the radical institutional changes during Mao’s time (which lasted until the end of 1970s). The year 1978/79 marked a historical moment, the start of an institutional revolution in China. It was a revolution in the sense that China decided to open its

52 doors (again) after nearly three hundreds years of looking inward, and in the sense that it has had a massive impact on reduction of world poverty.

Chinese development in the 1980s and 1990s may be described as a reformation, a releasing of initiatives constrained in its socialist past. From the 1990s and onwards, the process more closely resembled classic industrialization, a process subject to industry transformation and upgrading, together with other fundamental social changes like large-scale urbanization. The stages of Chinese development, essentially conditioned (and constrained) by its historical origins, are therefore unique too.

Along this learning and upgrading path, a few more peculiarities are observed:

1) China had, or perhaps still has, many social capabilities (Abramovitz, 1986) inherited from the time of its plan economy and embedded in human capital waiting to be activated. This availability of skilled labour, in the context of increasingly new technological opportunities introduced by such initiatives as pro-foreign direct investment reform, fits exactly into the technological congruence argument of Abramovitz and David (1996). This is a pro-learning factor that is different to that of the first-tier tigers (see Arts. 2 and 3). 2) China has a home market size that differs significantly from those of the first- tier Asian tigers. That extends also to the size of suppliers; for example, the ICT equipment suppliers studied in this thesis. The scale of domestic actors further affects the aggregation of real activities and the intensity of competition. Because a bigger scale of manufacturing activities in China rapidly drives down the cost of any products going into the commodity phase, the Chinese ICT sector displays a different industry structure, in terms of both the scale and scope of technological sophistication, compared to the Korean and Taiwanese forerunners. Art. 1 of this thesis elaborates on the motivation to escape from commodity competition and move towards R&D. This intensity of competition further affects the ways that firms appropriate returns (see Arts. 4 and 5). 3) The Chinese ICT learning pattern differs from that of the first-tier Asian tigers in dimensions related to geographic heterogeneity, which is discussed in Art. 3 of this thesis. The learning pattern also differs in terms of different technological opportunities and obstacles. Consequently, the ways of dealing with these new

53 situations are not through imitation. In Art. 2 we discuss modularity in design, in Art. 4 we discuss the new IPR threshold—the IPR thicket, and in Art. 5 we discuss appropriability.

To summarize, this thesis confirms and extends assimilation theory by adding new empirical problems and solutions encountered and applied by second-tier tigers such as China. Assimilation theories deserve to stand at least in parallel with accumulation theories.

The second contribution of this thesis is the bridging of technology and development with innovation. Innovation, as a method of learning to create something that is new to the market and to the firm, has appeared throughout the history of development and technological catching up (e.g., in the 19th century, America tried to catch up to Europe). Those catching-up cases, being largely documented in the industrialization literature, have acted as important sources of inspiration for innovation studies. For example, Kim (1997) passionately argued about what constitutes reverse engineering in his model of imitation to innovation.

To development audiences, particularly those studying low-income countries, innovation is implicitly understood as the creation of something “new to the world” (OECD, 1992/2005) and as a high-tech only phenomenon (e.g., high-tech myopia; Von Tunzelmann and Acha, 2005). The concept is therefore largely alien to primary development issues (e.g., health conditions). Technology and development study appears often in e.g. appropriate technology movement, and in e.g. African countries, in which the factor prices (for technology adoption) are of primary concern, or in technology transfers in north-to-south studies.

Nevertheless, we may not forget a very important and dynamic dimension: technology distance. Various latecomers have reached the stage of approaching the world frontier, such as China in some of the technological fields. For these players, innovation can embrace both “new to China” and “new to the world” dimensions, which bring learning and competitiveness into play. Art. 2 illustrates an innovation in the sense of architectural recombination of existing modules that creates something new to the world. Art. 5 illustrates the impact of this dynamic changing of

54 technological distance on the means of appropriability deployed by latecomer Chinese firms.

Innovation is important for assimilation, adaptation, modification, and more generally, for building up innovation capacities that enable a complete catching up. In this way, this study may be considered as a confirmation and an empirical addition to an existing field—technology, innovation, and development—that addresses an even closer relationship between innovation and development studies. In innovation studies of first-tier tigers (e.g., Hobday, 1995) many argued the importance of the pull effect on the export market (developed for advanced users abroad), which is not necessarily an equally important factor in China today.

Our findings imply that notions such as dynamic capabilities, appropriability regimes, and regional innovation systems are relatively new and largely western-centric. In addition, this study lends great support to an understanding of the catching-up players that are close to the world frontier.

3.3. Further Research Suggestions

While much further research is suggested in the five individual articles included in this thesis, here we discuss a more general agenda:

Following our study of the Chinese ICT sector, we see similar patterns of industrial dynamics and catching up in other sectors in China. China is now the largest operator and manufacturer of wind power systems in the world, and this sector is growing faster than that of other countries. The situation with photovoltaics is similar. What types of learning and capability creating processes are related to these industries where China is presently assumed to be positioned at the low end? Can the catching- up experience of Chinese ICTs be generalized to and shed light on other sectors such as renewable energy?

Environmental technologies and sectors are of particular interest, not only because we are all facing climate change challenges but also because the record high industry wastes and exhausts and other types of environmental damages that are the side

55 products of China’s rapid industrialization will eventually set strong limits on China’s future growth. Generally, China is being forced to redirect its resources toward sustainability rather than growth, and this in turn will put the brakes on the convergence that has just begun, largely because of the boom in Chinese industry.

In this Chinese ICT-focused study, although an industry structure was identified (see Art. 1), a more comprehensive taxonomy on ICT firms that is vital for understanding this catching-up process in depth is missing. This situation is largely due to data constraints. More extensive data - historical as well as technological - is needed to construct a useful taxonomy. Chinese ICT firms are carrying different historical inheritances, channelling a variety of technological sources, possessing vastly different learning skills, and proceeding along different technological paths. This combination of factors creates categories of leaders, followers, and latecomers within the Chinese ICT sector. A taxonomy that includes these traits would not only contribute to an in-depth understanding of the catching up process, but would also, presumably, mirror the catching-up processes in other sectors to a great extent. By studying other Chinese sectors (e.g., environmental technologies), taxonomies can be constructed that help illuminate the learning process and the technological trajectories that are chosen.

This study was intended to be a high-tech catching-up study. The results, however, reveal that the Chinese ICT industry was, on average, a low-medium-tech sector prior to 2008 and became a medium-high-tech sector after that time. Even the top 100 Chinese ICT firms in 2008 had a triplicate structure that followed this OECD nomenclature, despite a general upgrade. This broad heterogeneity in technology sophistication is assumed to apply to many other Chinese industry sectors.

So what does a real high-tech catching up look like? Are there any high-tech industries in developing countries, considering the high proportion of in-house manufacturing content throughout the economy? Is aerospace or perhaps nanotech a high-tech industry? Admittedly, there are cases in the Chinese ICT industry that show elements of high-tech catching up (see Art. 2). Presumably, the learning patterns are much the same in many ways, even in different industries. Still, could it be very different in a real high-tech industry?

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