Innovation in an Uncertain Institutional Environment
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B&T29127-Erim Omslag Greeven_24feb09 INNOVATION IN AN UNCERTAIN INSTITUTIONAL ENVIRONMENT 164 MARK GREEVEN PRIVATE SOFTWARE ENTREPRENEURS IN HANGZHOU, CHINA The thesis deals with innovation and entrepreneurship in China. Despite an institutional environment characterized by high levels of uncertainty, innovation thrives even in the technology-based sectors. The research asks for explanations how innovative Innovation in an Uncertain capabilities are developed in such an adverse institutional environment. The thesis is MARK GREEVEN - Innovation in an Uncertain Institutional Environment based on a synthesis of capability, institutional and sectoral approaches to innovation and Institutional Environment 2 years of extensive field research in cooperation with 45 Chinese entrepreneurs and Zhejiang University in Hangzhou. One of the key insights is that innovation, in a broad understanding, can take place in an environment with institutional uncertainty and limited Private Software Entrepreneurs in Hangzhou, China formal protection of intellectual property rights. On the one hand, institutional uncertainty creates both restrictions and incentives for innovation, and, on the other hand, firms are able to develop specific innovative capabilities that manage sectoral constraints while fighting off institutional constraints. More specifically, this thesis has four sets of findings. First, the findings show that Hangzhou has a business environment within the one-party state of China that is closely resembling a capitalist business environment and provides ERIM incentives for innovative behaviour and entrepreneurship. Second, the Chinese entrepreneurs remind us that innovation is not necessarily technical innovation but also organizational innovation and that successful innovation is not restricted to environments with a strong formal protection of intellectual property rights. Third, sectoral and institutional constraints Design & layout: B&T Ontwerp en advies (www.b-en-t.nl) Print: Haveka (www.haveka.nl) Design & layout: B&T Ontwerp en advies (www.b-en-t.nl) on innovation can also set incentives for entrepreneurs to innovate. Fourth, the successful development of innovation requires a configuration of capabilities that support and reinforce each other in the integration, building and transformation of critical resources. The thesis provides insights that can be used by international firms, Chinese entrepreneurs and policy makers inside and outside of China. International firms should not only consider China as a factory of the world but as a potential partner in joint innovative activities. Chinese entrepreneurs should consider the value added of developing and commercializing non-technical innovations to exploit the opportunities of an emerging market while at the same time developing a sustainable and coherent set of innovative capabilities. Policy makers should consider that incentives for innovation can be created in a variety of ways. ERIM The Erasmus Research Institute of Management (ERIM) is the Research School (Onder - zoek school) in the field of management of the Erasmus University Rotterdam. The founding participants of ERIM are Rotterdam School of Management (RSM), and the Erasmus School of Econo mics (ESE). ERIM was founded in1999 and is officially accredited by the Royal Netherlands Academy of Arts and Sciences (KNAW). The research under taken by ERIM is focussed on the management of the firm in its environment, its intra- and interfirm relations, and its business processes in their interdependent connections. The objective of ERIM is to carry out first rate research in management, and to offer an ad vanced doctoral pro gramme inResearch in Management. Within ERIM, over three hundred senior researchers and PhD candidates are active in the different research pro- grammes. From a variety of academic backgrounds and expertises, the ERIM community is united in striving for excellence and working at the forefront of creating new business Erasmus Research Institute of ManagementErasmus Research - knowledge. ERIM PhD Series Research in Management Erasmus Research Institute of Management - ERIM Tel. +31 10 408 11 82 ERIM Rotterdam School of Management (RSM) Fax +31 10 408 96 40 Erasmus School of Economics (ESE) E-mail [email protected] P.O. Box 1738, 3000 DR Rotterdam Internet www.erim.eur.nl The Netherlands Innovation in an uncertain institutional environment: Private software entrepreneurs in Hangzhou, China 1 2 Innovation in an Uncertain Institutional Environment: Private software entrepreneurs in Hangzhou, China Innovatie in een onzekere institutionele omgeving: Private software ondernemers in Hangzhou, China Proefschrift ter verkrijging van de graad van doctor aan de Erasmus Universiteit Rotterdam op gezag van de rector magnificus Prof.dr. S.W.J. Lamberts en volgens besluit van het College voor Promoties. De openbare verdediging zal plaatsvinden op donderdag 2 april 2009 om 16.00 uur door Mark Joannes Greeven geboren te Schiedam 23 Promotiecommissie: Promotor: Prof.dr. B. Krug Overige leden: Prof.dr. R.D. Whitley Prof.dr. P.P.M.A.R. Heugens Prof.dr.ir. H.W.G.M. van Heck Erasmus Research Institute of Management ± ERIM Rotterdam School of Management (RSM) Erasmus School of Economics (ESE) Erasmus University Rotterdam Internet: http://www.erim.eur.nl ERIM Electronic Series Portal: http://hdl.handle.net/1765/1 ERIM PhD Series in Research in Management, 164 Reference number ERIM: EPS-2009-164-ORG ISBN 978-90-5892-202-1 © 2009, Mark Joannes Greeven Design: B&T Ontwerp en advies www.b-en-t.nl Print: Haveka www.haveka.nl All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the author. 34 For my family 45 Acknowledgements A PhD thesis about China cannot be written without the support of a vast and diverse network of colleagues and friends. First, I would like to thank my supervisor, Barbara Krug, for her continuous support, creative ideas, open mind, challenging discussions and for giving me the academic freedom that allowed me to do a most interesting and challenging piece of research. At times I felt like one of the explorers of old times that is discovering new lands in exotic and faraway places; not only referring to China but also to unexplored conceptual and empirical territories of research. Second, I would like to thank Richard Whitley for his sharp analytical mind that lead me more than once back to the drawing board. Many thanks to Steven Casper who has helped me positioning the reVHDUFK DQG GHYHORSLQJ WKH HPSLULFDO VWXG\ )XUWKHUPRUH ,¶P honoured to have Eric van Heck, Pursey Heugens and Wim Hulsink in my committee. Many professors inspired me with ideas, insights and critical feedback: Hans Hendrischke, Bart Nooteboom, John Child, Patrick Reinmoeller, Andrew Tylecote, Li Mingfang, Wu Xiaobo and others during conferences in Europe and China. Special thanks go to Wu Xiaobo, Fan Jun and Zhao Xiaodong who have facilitated my 1,5 years of fieldwork in Hangzhou and became good friends in the process. Moreover, ,¶GOLNHWRWKDQN=KX=HIRUQRWRQO\SURYLGLQJDQGIDFLOLWDWLQJORFDOFRQQHFWLRQVEXW DOVRIRULQWURGXFLQJPHLQWRWKHµUHDO¶OLIHLQ&KLQD)XUWKHUPRUHWKHUHVHDUFKZRXOG not have been possible without my great research team of Zhejiang University graduate students, the entrepreneurs and the support from all my friends in Hangzhou. Even though the impression may be otherwise, I did also spend time in Rotterdam. The generous support from ERIM and the Department of Organization and Personnel Management should not go unnoticed. Furthermore, my colleagues at the Department and the China Business Research Centre (Johannes, Nathan, Xueyuan, Ze, Jeroen) in Rotterdam and my old friends in µSchiedam¶ (Maaike, Coen, Ingmar, Floris, Jef, Willem, Martijn, Matt and many more) provided the right conditions for thinking over the experiences and data gathered in China. Special thanks to Floris who has kindly proofread my thesis and came with 15 (!) pages of corrections. Then, moving from one place to the other (5 different apartments in 4 cities), flying in and out and many jetlags, hurries and worries could never become such a special and manageable experience without the continuous support of my parents Harry and Irene, sister Karen and close family. Last but not least, special thanks to my dear Li Wenya whose care and support especially during the last phase of my PhD project is invaluable. «DQGHa Jin for inspiration Shanghai, 2009 - Mark Greeven 56 Contents Chapter 1: Introduction 4 Chapter 2: &KLQD¶VVRIWZDUHVHFWRUVRSSRUWXQLWLHVDQGFRQVWUDLQWV 20 Chapter 3: Innovative capabilities and institutional regimes in China: 45 Towards an analytical guide Chapter 4: Economic prosperity, private business and three software 64 sectors in Hangzhou Chapter 5: Empirical method and techniques 74 Chapter 6: Skill development and education, the financial system and 88 the role of the state in Hangzhou Chapter 7: Software innovation patterns and three empirical cases 114 Chapter 8: Technical, market and institutional constraints on innovation 142 Chapter 9: Developing innovative capabilities 163 Chapter 10: Summary of findings and discussion 182 References 204 Appendix 221 Summary in Dutch 232 Summary in Chinese 233 About the author 234 67 List of Figures Figure 2.1 ± Private investments as percentage of GDP (1980-1999) in China Figure 2.2 ± Foreign direct investment per