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Copenhagen Business School Center for Business and Development Studies MSc. Business and Development Studies (cand.merc.int) THE AGILE INNOVATION ECOSYSTEM OF THE CHINESE MOBILE PHONE INDUSTRY AN EMPIRICAL STUDY OF A NEW EMERGING MARKET DYNAMIC Master Thesis by Authors: Hannah Nowicki and Susanne Fischer Supervisor: Sudhanshu Rai STU: 225.827 Pages: 96 Copenhagen, September 15, 2017 Abstract Purpose: Much research has been done on what factors impact the Chinese telecommunication industry development. However, this research mostly focuses on export or import of technology and therefore largely neglects the holistic innovation ecosystem and its advancement in China in recent years, let alone the assessment of how the ecosystem dynamics interplay to help Chinese firms to overtake global technology incumbents. This study aims at closing this research gap by exploring the innovation ecosystem of the Chinese mobile phone industry and exploring how these firms make use of it to expand to new markets in such context. Design/methodology/approach: The authors employ a multiple case study approach and use qualitative methods to capture the innovation ecosystem dynamics within the mobile phone industry in China. To do this, the authors adopt a pragmatist approach and use the principles of the Grounded Theory based on Corbin & Strauss (1998). Findings: This thesis indicates that to navigate successfully in an agile innovation ecosystem at the example of the mobile phone industry in China, firms follow three steps to expand their business and gradually push foreign brands out of the market: the upgrade of firm-internal processes towards an engineering process, the progression of the idea creation process, and the refinement of business model innovation. The novelty of this study lies in highlighting these dynamics to explain how firms make use of an agile innovation ecosystem to advance their capabilities and access new markets. Whereas most contemporary studies portray a static description of an industry ecosystem, this study found that domestic firms will eventually overtake international brands in an agile process by initially sourcing technology innovation from global technology leaders. This study finds that the firms’ capability to improve their innovation performance, however, depends on their net of relationships and fluid firm behavior in their environment. Key factors affecting this ecosystem are incremental business model innovation and a customer-centric focus which both outweigh the disadvantage of Chinese firms having only restricted access to superior technology. Another identified key factor is the growing need for patents when firms internationalize, however this need is reduced when firms operate exclusively in the domestic market. II Originality/value: The lack of recent literature and empiricism on the innovation ecosystem of fast-moving Chinese mobile phone industry highlights the need for new grounds to assess the dynamics at play in such a context. Based on the case of the mobile phone industry, this study provides a unique insight into the dynamics of the current Chinese innovation ecosystem. The study identifies that Chinese firms embedded in this unique environment expand into new markets through steps of engineering, idea creation process and business model innovation. It is suggested that Chinese mobile phone firms successfully grow their business through the gradual expansion of these three steps within the agile ecosystem and thereby overtake the incumbent position of the current global technology leaders. These dynamics can lend themselves towards a deeper understanding of the agile innovation ecosystem and therefore lead to an improved insight for firms to advance in the status quo of the industry. III Acknowledgements The authors would like to express his gratitude to all those individuals that were instrumental in the realization of this thesis. First of all, we thank all our research participants for participating in our study through providing us with valuable information and insights into the Chinese mobile phone industry. In particular, we would like to thank Meizu, OnePlus, Hao Nian Hua, Sintave Technology, Artop Inno and the Shenzhen Open Innovation Lab. Without their contribution, this study could not have been done. Second, we would like to thank our supervisor Sudhanshu Rai who over the past months has provided us with unrelenting support and invaluable guidance on both an academic and a personal level throughout the thesis process. Last but not least we are grateful for the support we have received from our family and friends. IV Table of Content ABSTRACT ........................................................................................................................................... II ACKNOWLEDGEMENTS ................................................................................................................ IV LIST OF FIGURES .......................................................................................................................... VIII LIST OF TABLES ............................................................................................................................ VIII CONTENT OF DIGITAL DATA ................................................................................................... VIII LIST OF ABBREVIATIONS AND ACRONYMS ........................................................................... IX 1 THESIS FOUNDATION .............................................................................................................. 1 1.1 INTRODUCTION ....................................................................................................................... 1 1.2 RESEARCH QUESTION ............................................................................................................. 2 1.3 PURPOSE OF THE DISSERTATION ............................................................................................ 2 1.4 DELIMITATION AND RELEVANCE OF THE TOPIC .................................................................... 3 1.5 OUTLINE OF THE DISSERTATION ............................................................................................ 4 2 LITERATURE REVIEW ............................................................................................................. 6 2.1 MARKET RESTRUCTURING ..................................................................................................... 6 2.1.1 Implications of Layered Modular Architecture ................................................................. 6 2.1.2 The Shanzhai Phenomenon ................................................................................................ 8 2.2 GOVERNMENT INFLUENCE ................................................................................................... 10 2.2.1 Targeted Policy Intervention ........................................................................................... 10 2.2.2 Increasing Necessity of Government Intervention ........................................................... 11 2.2.3 Implications of IPR on Chinese Innovation Ecosystem ................................................... 13 2.3 FORM AND DEGREE OF FIRM RELATIONS ............................................................................ 15 2.3.1 Balancing Coopetition and Openness within the Market ................................................ 15 2.4 INTERNAL DYNAMIC CAPABILITIES ..................................................................................... 16 2.4.1 Dynamic Capabilities of Firms ........................................................................................ 16 2.4.2 Learning Strategies of Chinese ICT Firms ...................................................................... 18 2.5 INNOVATION PERFORMANCE ................................................................................................ 20 2.5.1 Sources of Innovation Pace .............................................................................................. 20 2.5.2 The Emergence of Business Model Innovation ................................................................ 21 2.6 CAPABILITIES FOR MARKET EXPANSION ............................................................................. 23 2.6.1 Chinese GVC Drivers in the Future ................................................................................. 23 2.6.2 Learning in Domestic Market to Advance Globally ........................................................ 25 V 3 THEORETICAL FRAMEWORK ............................................................................................ 27 3.1 MARKET RESTRUCTURING ................................................................................................... 27 3.2 GOVERNMENT INFLUENCE ................................................................................................... 27 3.3 FORM AND DEGREE OF FIRM RELATIONS ............................................................................ 28 3.4 INTERNAL DYNAMIC CAPABILITIES ..................................................................................... 28 3.5 INNOVATION PERFORMANCE ................................................................................................ 29 3.6 CAPABILITIES FOR MARKET EXPANSION ............................................................................. 29 3.7 THEORETICAL MODEL .......................................................................................................... 30 4 METHODOLOGY .....................................................................................................................

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