Interrupted Innovation Emerging economies in the structure of the global aerospace industry Dániel Vértesy © Dániel Vértesy, 2011 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic,mechanical, photocopying, recording or otherwise, without the prior permission in writing from the author. Interrutpted Innovation: Emerging economies in the structure of the global aerospace industry/ by Dániel Vértesy. – Maastricht: University of Maastricht, 2011. – Proefschrift. – Keywords: aerospace industry; sectoral innovation system dynamics; latecomer industrialization; Brazil; China; Singapore; Indonesia; Argentina; ISBN 978 94 6159 086 2 Cover design: Dániel Vértesy Publisher: Datawyse bv | Universitaire Pers Maastricht Interrupted Innovation Emerging economies in the structure of the global aerospace industry DISSERTATION to obtain the degree of Doctor at Maastricht University, on the authority of the Rector Magnificus Prof. dr. G.P.M.F. Mols, in accordance with the decision of the Board of Deans, to be defended in public on Friday 30 September 2011, at 10:00 hours. by Dániel Vértesy UMP UNIVERSITAIRE PERS MAASTRICHT Supervisor: Prof. dr. Adam Szirmai Assessment Committee: Prof. dr. Robin Cowan (chairman) Prof. dr. Gerlach J. N. Cerfontaine Prof. dr. Ernst Homburg Prof. dr. Franco Malerba (Bocconi University, Italy) This research has been conducted with financial support by UNU-MERIT. Table of Contents Acknowledgements .......................................................................................................................ix Acronyms ..................................................................................................................................... xii List of Tables ................................................................................................................................ xiv List of Figures ............................................................................................................................... xv CHAPTER 1 Introduction ...................................................................................................... 1 1.1 The purpose of the study ................................................................................................................. 2 1.2 Research methods............................................................................................................................. 3 1.3 Selection of the cases ........................................................................................................................ 4 1.4 Some conceptual issues ................................................................................................................... 4 1.5 The structure of the book ................................................................................................................ 6 CHAPTER 2 Literature review ............................................................................................... 9 2.1 Introduction ...................................................................................................................................... 9 2.2 Latecomer advantages and how to benefit from them ............................................................... 9 2.2.1 The timing of latecomer entry .................................................................................................. 13 2.3 Technological capabilities ............................................................................................................. 14 2.3.1 Technological capabilities, stage models, and their relevance for the aerospace industry .. 16 2.4 Systems of innovation .................................................................................................................... 19 2.4.1 On the origins of the concept .................................................................................................... 19 2.4.2 Level of analysis ........................................................................................................................... 21 2.4.3 Applying a sectoral systems of innovation approach for latecomer aerospace industries ... 22 2.4.4 Incremental and radical changes in innovation systems ...................................................... 23 2.4.5 The punctuated equilibrium model of innovation dynamics .............................................. 25 2.5 Previous studies on innovation and growth in latecomer aerospace industries ................... 26 2.5.1 On the evolution of the aerospace industry at the frontier .................................................. 26 2.5.2 On the aerospace industry in latecomer economies .............................................................. 28 2.6 Technological change and industrial dynamics in the jet age ................................................. 29 2.6.1 Major driving force of innovation ............................................................................................ 29 2.6.2 The diffusion of the jet engine .................................................................................................. 33 2.6.3 Internationalization .................................................................................................................... 37 2.6.4 The diffusion of technologies to emerging economies ......................................................... 40 2.7 Summary of the literature review................................................................................................. 41 PART I ........................................................................................................................................ 43 CHAPTER 3 The evolution of the global aerospace manufacturing industry .................... 45 3.1 Statistical sources on aerospace manufacturing ........................................................................ 45 3.2 Methodological considerations for projecting and aggregating time series data ................. 47 3.3 The growth of the global aerospace industry in a historical perspective ............................... 50 3.4 The main incumbents and emerging aerospace producers ..................................................... 54 3.5 Dynamics in the rankings ............................................................................................................. 59 3.6 Employment and labor productivity ........................................................................................... 68 3.7 Specialization in aerospace production ...................................................................................... 75 3.8 Aerospace exports .......................................................................................................................... 77 v TABLE OF CONTENTS 3.9 The growing demand for air transport ....................................................................................... 83 3.10 Countries or Companies?.............................................................................................................. 88 3.11 Conclusion: newly emerging competitors .................................................................................. 90 CHAPTER 4 A Brazil/USA comparison of output and productivity ................................. 93 4.1 An industry of origin approach to output and productivity comparisons ............................ 93 4.2 Official data, supplementary data and calculations .................................................................. 96 4.2.1 Adjustments and calculation of unit value ratios for Brazilian aircraft production ......... 97 4.2.1.1 Supplementary data sources .................................................................................................. 97 4.2.1.2 Unit value ratios ...................................................................................................................... 99 4.2.2 Adjustments and calculation of unit value ratios for production in the United States . 100 4.2.2.1 Supplementary data sources ............................................................................................... 100 4.2.2.2 Calculating unit values of Boeings ..................................................................................... 100 4.2.3 Product matching and calculating UVRs ............................................................................. 102 4.2.4 Comparing small apples with big apples: adjustments for product size differences ..... 104 4.2.4.1 Standardization ..................................................................................................................... 104 4.2.4.2 The unit value for narrow-bodies ...................................................................................... 106 4.2.5 Comparisons with other UVR estimates .............................................................................. 107 4.3 Productivity comparisons .......................................................................................................... 108 4.3.1 Dramatic miscalculations by the firms ................................................................................. 111 4.4 Conclusion ................................................................................................................................... 115 PART II ..................................................................................................................................... 117