The Transition from Manufacturing Catch-Up to Competitiveness at the Global Business Frontier, As Pursued in China’S Energy Equipment Sector
Total Page：16
File Type：pdf, Size：1020Kb
From learning to earning: the transition from manufacturing catch-up to competitiveness at the global business frontier, as pursued in China’s energy equipment sector RF Joe Studwell Darwin College This dissertation is submitted for the degree of Doctor of Philosophy. Judge Business School University of Cambridge 8 October 2018 1 Declaration This dissertation is the result of my own work and includes nothing which is the outcome of work done in collaboration except as declared in the Preface and specified in the text. It is not substantially the same as any that I have submitted, or, is being concurrently submitted for a degree or diploma or other qualification at the University of Cambridge or any other University or similar institution except as declared in the Preface and specified in the text. I further state that no substantial part of my dissertation has already been submitted, or, is being concurrently submitted for any such degree, diploma or other qualification at the University of Cambridge or any other University or similar institution except as declared in the Preface and specified in the text. It does not exceed the prescribed word limit for the relevant Degree Committee. 2 Summary From learning to earning: the transition from manufacturing catch-up to competitiveness at the global business frontier, as pursued in China’s energy equipment sector RF Joe Studwell Most studies of industrial policy in Japan, South Korea, Taiwan and China have been concerned with the state’s role in framing industrial policy, and have taken a cross- sectional approach, limited in time. This thesis explores industrial policy longitudinally, as a dynamic, evolving relationship between the state and firms, one in which the positive contribution of the state tends to diminish as capabilities in the wider economy increase. It does so through an examination of the development of firms in China’s electricity-generating equipment industry since 1978, based on more than 70 case study interviews. Three sub-sectors – thermal power equipment, wind turbines, and photovoltaics – are examined in order to track state industrial policy development and the evolution of firm-level capabilities and strategies over four decades. A multi-disciplinary theoretical foundation is constructed from development economics studies and economic and strategic management theory. The findings point to inevitable tension between the early-stage, centralising support for technological learning by a strong developmental state and the more fluid, dynamic and disruptive capabilities that define successful firms’ strategies once basic manufacturing skills are acquired. While the developmental state’s strengths are reflected in the steady, conservative nurturing of manufacturing capabilities, successful firm strategy increasingly requires dynamic capabilities reflected in systems integration, and strategic risk taking in the choice of activities in the business chain and technology sourcing, in turn favouring private ownership. The thesis findings recommend policies that explicitly recognise the need for transitions from state-led development to decentralised, entrepreneurial and market-led growth. It is concluded that strategic management research could contribute significantly to our understanding of economic development if researchers focused attention on political economy transitions in developmental-state-led economies. 3 Acknowledgements For Franck Potelune and Cosette Hass-Plinth. I would like to thank Eric Thun, Charles Gore, Barry Naughton, Douglas Fuller, Andrea Mina, Olaf Corry and Stephanie Blankenburg for generously reading drafts of my thesis and providing valuable comments. I also wish to thank the staff of the University Library, the Economics Library, the Judge Business School Library, the Faculty of Asian and Middle Eastern Studies Library, in Cambridge, and the staff and Fellows of Darwin College, all of whom were unfailingly professional, generous and kind while I was completing this thesis. 4 Table of contents Declaration 2 Summary 3 Acknowledgements 4 Table of contents 5 List of Figures and Tables 8 Company names and abbreviations 12 Other abbreviations 13 INTRODUCTION 16 CHAPTER 1. 26 THEORETICAL AND EMPIRICAL CONTEXT 1.1. Motivation 1.2. Developments in theories of economic growth 1.3. Assumptions in a changing world 1.4. Micro insights: the pure firm level 1.5. Limitations of the current literature, the case for theory building; and measuring firm-level success CHAPTER 2. 83 METHODOLOGY AND RESEARCH DESIGN; AND THE RESEARCH CHALLENGE POSED BY CHINA’S DECENTRALISED POLITY 2.1. Methodology and research design 2.2. The research challenge posed by China’s decentralised polity CHAPTER 3. 98 THERMAL POWER: THE STATE SETS OFF 3.1. Historical background 5 3.2. Stage 1: Search and bargaining 3.3. Stage 2: Manufacturing of mature technology 3.4. Stage 3: Manufacturing of current technology; and incremental modification of current technology 3.5. Gas turbine technology 3.6. Thermal power firms and wind turbines 3.7. Trends in profitability, scale and global reach 3.8. Discussion CHAPTER 4. 157 WIND POWER: STATE AND PRIVATE FIRMS COMPETE 4.1. Background 4.2. Stage 1: Search and bargaining 4.3. Stage 2: Manufacturing of mature technology 4.4. Stage 3: Manufacturing of current technology; and incremental modification of current technology 4.5. Case study: Goldwind 4.6. Case study: Mingyang 4.7. Case study: Envision 4.8. Discussion CHAPTER 5. 227 SOLAR POWER: THE PRIVATE SECTOR SETS OFF WITHOUT NATIONAL GOVERNMENT 5.1. Background 5.2. Stage 1: Search without central government consensus 5.3. Stage 2: Manufacturing of mature technology without central government support 6 5.4. Stage 3: Manufacturing of current technology, and incremental modification of current technology, with government support 5.5. Case study: Suntech 5.6. Case study: Canadian Solar 5.7. Case Study: GCL Poly 5.8. Discussion CHAPTER 6. 288 FINDINGS, LIMITATIONS AND SCOPE FOR FURTHER RESEARCH 6.1. The nurturing of manufacturing capabilities 6.2. Competitive limits of manufacturing capabilities and the transition to competition through dynamic capabilities 6.3. Firm ownership as a variable in the acquisition of manufacturing versus dynamic capabilities 6.4. Centralised versus firm-level technology bargaining as a variable in the acquisition of dynamic capabilities 6.5. Infant industry policies and industrial overcapacity 6.6. Limitations and scope for further research Appendix 1: interviewees 323 Appendix 2: standard semi-structured interview questions 326 BIBLIOGRAPHY 330 7 List of Figures and Tables Introduction Chapter 1 Figure 1. Stages of development in the Chinese auto sector Figure 2. The developmental state economising on transaction costs Figure 3. Developmental state versus entrepreneurial firm: an analytical framework Chapter 2 Table 1. Technological resets by scale of technical challenge and firm ownership Table 2. The seven case study firms and their industry sectors Table 3. Interviewees by category Table 4. Firm-level interviewees by category Chapter 3 Table 5. China’s installed power generating capacity and domestic output of power generating equipment, 1980-1997. Table 6. Output of thermal power equipment, 1990-95. Table 7. Sources of super-critical and USC technologies for the big three Chinese power equipment firms. Table 8. Real annual change in GDP, year-end installed thermal generating capacity, and annual change in installed capacity. Table 9. Revenues from thermal power generating equipment, 2003-7. Table 10. Estimated capital costs of new electricity generating capacity in China. Table 11. World Bank estimates of capital costs of new electricity generating capacity outside China, 2009. Table 12. Sales of thermal power equipment and gross margins; Shanghai, Dongfang, Harbin, 2000-2015. Table 13. Operational power plants (>250MW) of the big three equipment suppliers as of end-2013. Table 14. Big three revenues and net income, 2013-15 and peak year. Table 15. Expenditure on R&D and expenditure on patents, licences, software and other technology rights. 8 Table 16. The world’s 15 leading suppliers of wind turbines by volume, 2015. Table 17. ‘New energy’ segment sales at Shanghai and Dongfang, 2010-15. Table 18. Gross margins: China big three power equipment firms versus leading multinationals. Table 19. Net margin: China big three power equipment firms versus leading multinationals. Table 20. Overall revenues, thermal power equipment revenues, renewables revenues, Siemens and GE versus China big three. Table 21. Exports and export share in total revenues, China big three, 2007-15. Table 22. Return on assets: China big three power equipment firms versus leading multinationals. Chapter 4 Figure 4. Government, research and lobbying relationships in renewable energy. Table 23. Industry associations, government sponsors, start dates. Figure 5. Possible central government investment choices in selected green energy technologies 2000-2010, and outcomes. Table 24. Levelised cost of electricity generated from wind, solar and coal inputs in China. 2008 actual and contemporary forecasts for 2020. Table 25. Annual installed and cumulative wind generating capacity in China, 2001- 13. Figure 6. Chinese and foreign average wind turbine prices in the Chinese market, 2004-2011. Table 26. Market leading Chinese wind turbine manufacturers, 2008-13. Table 27. Market leading Chinese wind turbine manufacturers since 2014. Table 28. Return on assets, Goldwind and Vestas, 2007-2015. Table 29. Goldwind