Kent Academic Repository Full text document (pdf) Citation for published version Schönenberger, Diana (2017) Radical innovation in a coordinated market economy: Institutional capabilities within Germany and beyond. Doctor of Philosophy (PhD) thesis, University of Kent,. DOI Link to record in KAR http://kar.kent.ac.uk/64388/ Document Version UNSPECIFIED Copyright & reuse Content in the Kent Academic Repository is made available for research purposes. Unless otherwise stated all content is protected by copyright and in the absence of an open licence (eg Creative Commons), permissions for further reuse of content should be sought from the publisher, author or other copyright holder. Versions of research The version in the Kent Academic Repository may differ from the final published version. Users are advised to check http://kar.kent.ac.uk for the status of the paper. Users should always cite the published version of record. Enquiries For any further enquiries regarding the licence status of this document, please contact: [email protected] If you believe this document infringes copyright then please contact the KAR admin team with the take-down information provided at http://kar.kent.ac.uk/contact.html RADICAL INNOVATION IN A COORDINATED MARKET ECONOMY: INSTITUTIONAL CAPABILITIES WITHIN GERMANY AND BEYOND A Thesis Submitted for the Degree of Doctor of Philosophy in Management by Diana Schönenberger 3rd of October, 2017 Research and Development Centre Kent Business School University of Kent Word Count: 71,831 i Supervisor Prof. Soo Hee Lee Professor in Organisation Studies Head of the People, Management, and Organisation Research Group Research and Development Centre Kent Business School The University of Kent, Canterbury, Kent, CT2 7PE Second Supervisor Prof. Dr. Alex Mohr Professor of Export Management and Internationalization Processes Institute for Export Management Department of Global Business and Trade Vienna University of Economics and Business Welthandelsplatz 1A-1020 Vienna/Austria Building D1 ii DECLARATION The work presented in this thesis is Diana Schönenberger`s own. Date: 3rd of October, 2017 Signed: iii ACKNOWLEDGEMENTS My deep gratitude goes to my supervisor Prof. Soo Hee Lee. Professor Lee's patience with me, as well as his steady support, gave me the strength to continue an incredible project at the most difficult time of my life. I am deeply thankful for Professor Lee’s knowledge, experience and also for his trust in me and my abilities. My special thanks go to Prof. Alex Mohr, my second supervisor, for being a member of my Ph.D. thesis committee and for providing valuable input to me over the years. Secondly, I want to thank Astrid and Angelika Stemler. I could not have continued this thesis as a single mother of two without both of you. Since my undergraduate studies, the scholarship provided by The Foundation of German Business gave me financial support and more. I was able to visit many corporations, political consultancies, universities, and business associations throughout the past ten years, not only when I was alone, but even in the time alone with my kids. In addition to my scholarship, Landkreis Celle not only paid for a large part of my scholarship for a private boarding school as a teenager, but decided to pay all of my childcare costs as a young mother – which was an essential help in the process of writing this thesis. Since there is always someone behind any decision, I want to thank Ms Barbara Laschinski-Rufert and Mr Manfred Dageförde especially. I want to thank my good friends Basel Mame, Michael Flato, Christian and Regina Koch, Barbara and Chris Claasen, Georg and Ai Lin Werner, Anna and Georg Bender, as well as Nadine Naujock for their support. Special thanks go to Mr Ralf Klingenberg and Ms Spieß. iv DEDICATION This work is dedicated to Aleksandar Frederick and Felice Isabell. v ABSTRACT This doctoral dissertation illustrates how the typically coordinated market economy of Germany fosters the creation of radical innovation. The findings of this thesis are in sharp contrast with theoretical expectations for the crucial case of Germany. The changes in the German institutional framework, including the labour market, corporate governance, financial institutions and skill creation since re-unification are illustrated. The influence of government policy on institutional change is analysed. Propositions of different approaches to the political and economic theory are discussed in the light of the findings. An enhanced theoretical framework for the support of new and emerging technologies in the coordinated institutional framework of Germany is established. vi TABLE OF CONTENTS DECLARATION ii ACKNOWLEDGEMENTS iii DEDICATION v ABSTRACT vi TABLE OF CONTENTS vii TABLE OF TABLES xi TABLE OF FIGURES xii 1. CHAPTER ONE: INTRODUCTION 1 1.1. Motivation and Purpose 1 1.2. Research Questions 5 1.3. Methodology 12 1.4. The Structure of the Thesis 15 1.5. Research Contributions 18 2. CHAPTER TWO: REVIEW OF INNOVATION LITERATURE 23 2.1. From the Study of Production and Innovation to Comparative Economic Advantage 23 2.1.1. Schumpeterian Innovation 28 2.1.2. Five Generations of the Process of Innovation 32 2.1.3. Disruptive Innovation 34 2.2. Institutional Approaches to the Study of Innovation 35 2.2.1. National Innovation Systems and Tripe Helix 37 2.2.2. Business Systems 38 2.2.3. Varieties of Capitalism 39 2.2.4. Varieties of Capitalism and Comparative Economic Advantage 43 2.3. Institutional Change Theory and Innovation 51 3. CHAPTER THREE: THEORETICAL FRAMEWORK – NATIONAL TRAJECTORIES OF INNOVAION 58 vii 3.1. Definitions 59 3.2. Background of Theoretical Framework: Perspectives on the Institutional Framework of CMEs and Innovation 67 3.2.1. The Political Economy of Skill Formation and Innovation 68 3.2.2. Labour Market Flexibility and Innovation 73 3.2.3. Social Policy Making, WPRs and Innovation 76 3.2.4. Coordination and Innovation 77 3.2.5. Corporate Governance and Innovation 80 4. CHAPTER FOUR: METHODOLOGY 87 4.1. Epistemology and Research Strategy 89 4.2. Case Selection Strategy 94 4.3. Variables and Propositions 97 4.4. Methods 100 4.4.1. VoC Analysis 101 4.4.2. Other Descriptive Measures 102 4.5. Data 103 4.5.1. Patent Data 103 4.5.2. R&D Investments and Sales 107 4.6. Validity, Reliability, and Generalisabiliy 108 5. CHAPTER FIVE: INSTITUTIONAL CHANGE, GOVERNMENT POLICY AND PERFORMANCE OF THE GERMAN BIOTECH SECTOR 110 5.1. Defining Biotechnology and Biotech Policies 111 5.2. VoC Calculation for the Biotech Sector’s Performance 115 5.2.1. VoC Calculation for the Biotech Sector’s Performance – Patents 116 5.2.2. VoC Calculation for the Biotech Sector’s Performance – Research and Development Investments 122 5.2.3. VoC Calculation for the Biotech Sector’s Performance – Publications and Sales 130 5.3. Summary of the Biotech Sector’s Performance 139 6. CHAPTER SIX: INSTITUTIONAL CHANGE, GOVERNMENT POLICY AND PERFORMANCE OF THE GERMAN SOFTWARE SECTOR142 6.1. Defining Software and Software Policies 142 viii 6.2. VoC Calculation for the Software Sector's Performance 145 6.2.1. VoC Calculation for the Biotech Sector’s Performance – Patents 145 6.2.2. VoC Calculation for the Software Sector's Performance – Research and Development Investments 149 6.2.3. VoC Calculation for the Software Sector's Performance – Publications and Sales 152 6.3. Summary of the Software Sector's Key Measures 158 7. CHAPTER SEVEN: INSTITUTIONAL CHANGE IN GERMANY: CAPABILITIES FOR RADICAL TRAJECTORIES OF INNOVATION 161 7.1. Skill Formation, Labour Market Changes, Job Market and the German Welfare State 164 7.1.1. Changes in German Labour Market Institutions since 1990 165 7.1.2. Changes in German Skill Formation 173 7.1.3. Changes in the German Job Market: Where does the work force end up in industry? 180 7.1.4. Changes in German Social Policy and the Welfare State 183 7.2. Corporate Governance, Industrial Relations, and Financial Globalisation in Germany 185 7.2.1. Change in German Corporate Governance and Industrial Relations – Deutschland AG 187 7.2.2. German Corporate Governance Regulation: Mannesmann Prozess 191 7.2.3. German Corporate Governance and Innovation 193 7.3. Résumé: Directions of Change in Germany’s Political Economy of Skill Formation, CG and its Trajectories of Innovation 201 8. CHAPTER EIGHT: ANALYSIS AND THEORETICAL IMPLICATIONS 203 8.1. A Comparative Analysis of German NISs 205 8.1.1. A Comparative Analysis of German and Japanese NISs 206 8.1.2. A Comparative Analysis of German and French NISs 215 8.1.3. A Comparative Analysis of German and Nordic NISs 219 8.2. German High-Tech Performance: A Comparative Perspective in Times of Crisis 222 8.2.1. German NIS in Times of Economic Crisis – Changes 223 8.2.2. Implications for the German NIS 227 8.3. Implications for the Theoretical Framework - 242 - 8.4. Theoretical Implications for the Study of Radical Innovation 251 9. CHAPTER NINE: CONTRIBUTIONS AND LIMITATIONS 256 ix 9.1. Key Findings 256 9.2. Theoretical and Practical Contributions 262 9.3. Limitations and Research Implications 269 9.4. Concluding Remarks 273 BIBLIOGRAPHY 275 x LIST OF TABLES TABLE 1: THREE RECENT INSTITUTIONAL APPROACHES ON NATIONAL TRAJECTORIES OF INNOVATION 36 TABLE 2: CHARACTERISTICS OF CMES AND LMES 43 TABLE 3: DATA BASED ON FIGURE 5: WORLD SHARE AND COUNTRIES‘ SHARES OF BIOTECH PATENTS IN 1986/87, 1996/97, 2006/07 121 TABLE 4: DATA BASED ON FIGURE 6: WORLD SHARE AND COUNTRIES‘ SHARES OF BIOTECH R&D INVESTMENTS IN 2005 AND 2008 127 TABLE 5: DATA BASED ON FIGURE 7: WORLD SHARE