PROFESSOR XUDONG GAO
Tsinghua University School of Economics and Management
Tsinghua University Research Center for Technological Innovation
Peoples Republic of China
*email address protected*
In this exploratory paper, we report our preliminary understanding about how to overcome latecomer disadvantage in technological catching up through user sponsored triple helix collaborations. The extant literature of Triple Helix emphasizes the importance of overlapping the functions of the major players. Our study suggests that users need to play a central role because of the high risks and uncertainties in the process of technological innovation, and necessity to coordinate the complicated interactions among the many players. Other players, although important, are not well positioned to play this role.
A major challenge in latecomer’s technological catching up is the negative impact of “latecomer disadvantages” (Carpenter and Nakamoto, 1989, 1994; Gao, 2007; Liberman and Montgomery, 1998, 1988). In addition to the constraint of limited resources for innovation, latecomers have a lot of difficulties in making users believe that they are able to produce high quality products.
For example, Dawning is now a leading high performance computer (HPC) maker in China. However, for a long time, even local Chinese firms did not believe that Dawning would be able to make high quality products and refused to give opportunities to it. Many big companies and government agencies chose not to include Dawning on their procurement lists. In fact, one financial firm argued that it would buy Dawning’s super server only if Dawning agreed to pay any losses incurred when the server had problems, although they never required this of multinational enterprises (Gao, Liu, Cai, Li, 2007; Gao, Zhang, Liu, 2007).
In our studies of technological catching up we found that user sponsored collaboration is very effective in helping overcome the negative impact of “latecomer disadvantages”. This finding is helpful for us to understand the factors affecting Triple Helix collaboration in particular (Etzkowitz and Klofsten, 2005), and technological catching up in general (Amsden, 1989, 2001).
2. THE LITERATURE
In this paper, we draw on three streams of literature to help with our thinking about latecomers’ technological catching up: (a) the challenges in technological catching up, (b) national innovation systems and sectoral innovation systems, and (c) the Triple Helix. In the literature about the challenges in technological catching up, we pay special attention to the challenge of liabilities of newness or liabilities for reasons such as lack of legitimacy and stable links to customers and supporters (Kim, 1997; Lee and Lim, 2001; Stinchcombe, 1965 : Utterback 1994).
For example, according to Carpenter and Nakamoto (1989, 1994), pioneering advantage persists despite entry. The basic mechanism is that the first mover enters the market, define the ideal, and protect its position near the ideal point through its prototypicality. If a later entrant wants to challenge the first mover, it has to “restart” the customers’ learning process and shift buyer ideal points to its position. In the context of developing countries, latecomers usually face even bigger challenges (Gao, 2014; Gao and Liu, 2012).
In the literature of national innovation systems and sectoral innovation systems (Malerba, 2002, 2004; Porter, 1990), we pay special attention to the relationship between users and producers (Lundvall, 1992), because the process of innovation is full of uncertainties and needs a lot of interactions between the producers (the innovators) and the users (for example, specifying the needs of the users, developing mutual understandings about the capabilities of the users and producers, exchanging information, etc.).
In the Triple Helix literature we pay special attention to the relationships among the government, industry, and universities and research institutes. For example, among the different forms of Triple Helix interactions (Triple Helix I, Triple Helix II, and Triple Helix III), it seems that Triple Helix III, which emphasizes overlapping the functions of the major players, is a more effective arrangement (Etzkowitz and Klofsten, 2005).
In reviewing the literature and our own studies, we propose that user sponsored Triple Helix collaboration would be more effective in helping with latecomers’ technological catching up by solving a major challenge, that is, the negative impact of “latecomer disadvantages” (Carpenter and Nakamoto, 1989, 1994; Liberman and Montgomery, 1998, 1988).
3. RESEARCH METHOD AND DATA
Recently, we have studied collaborations among government agencies, universities and research institutes, and firms in China in several industries, mainly using a case study method (Eisenhardt,
1989; Glaser, 1978; Glaser and Strauss, 1967; Yin, 1989). The research is sponsored by the Chinese Academy of Engineering, and we have collected a lot of data through two approaches, namely conducting interviews and utilizing secondary sources. We have also developed some preliminary understandings about the key factors affecting the effectiveness of these collaborations.
In the past fifteen years, we have studied technological catching up in various industries (the telecom equipment industry, the new energy industry, the HPC industry, and the TV set manufacturing industry), and we are hoping that we can offer some insights into Triple Helix collaborations by combining the preliminary understandings developed in recent studies of collaborations among government agencies, universities and research institutes, and firms, with our previous studies about catching up in technological innovation.
4. KEY FINDINGS
Here we report our preliminary findings (Table 1): different effectiveness in collaborations among government agencies, universities and research institutes, and firms, and different roles played by users in these collaborations.
4.1 Different Effectiveness
We examined collaborations among government agencies, universities and research institutes, and firms in four industries: the subway equipment industry, the IC design industry, the telecom equipment industry (Gao and Liu, 2012), and the automobile industry. In all four industries, government policies have tried to support technological catching up. However, users’ roles, participation of universities and research institutes, and thus the effectiveness of collaborations, were different.
For example, in the subway equipment industry, because of the extremely high cost of building subways by importing equipment, the Chinese government set up the policy of localization at the end of the 1990s. Although most users (subway companies) were reluctant to use domestically made subway equipment, Company S, pushed strongly by one of its top managers, was very active in collaborating with local partners to realize a high rate of localization. In fact, the rate of localization realized in Company S was higher than that required by the central government.
Table 1: Effectiveness of collaboration
In fact, the success of collaboration in the subway equipment industry laid a solid foundation for the fast development of China’s high speed railway industry. Specifically, this model of collaboration has been copied in the high speed railway industry. For example, in order to absorb the transferred advanced high speed railway technology from MNEs, the Beijing Jiaotong University, which is very strong in control systems, the Xinan Jiaotong University, which is very strong in traction power, and the Central South University, which is very strong in aerodynamics, have been invited to take active roles in the absorption process.
In the IC design industry, although government support is not as high as in the subway equipment industry, and the participation of local universities and research institutes is not as high, because of strong support from some users (including both industry users such as utility firms and special users such as developers of military systems), after many years’ exploration, Company L is able to make collaborations with government agencies, and universities and research institutes more and more effective.
In the telecom equipment industry, for many years, China relied heavily on transferring technology from MNEs. The development of TD-SCDMA (time division synchronous code division multiple access), was a turning point. TD-SCDMA is one of the international standards of 3G mobile communications, and is based mainly on technologies from Datang Telecom Technology and Industry Group (Datang), a local Chinese firm. In May 2000 and March 2001, TD-SCDMA was accepted as one of the three international standards by ITU and 3GPP, respectively.
Although some local firms (telecom equipment, handset, services, etc) had some understanding about the potential benefits that this technology could bring to them, and the Chinese government provided relatively strong support, the users were not interested in adopting this technology. In fact, the government finally had to force China Mobile to adopt it. The result was expected: the adoption was a process that is not only slow, but also highly complicated (Gao and Liu, 2012).
The automobile industry is the least effective in the four cases. Although China has a huge market, and the Chinese government has always been active in trying to encourage “indigenous innovation” in this industry, the result is disappointing. In 2013, local brand cars’ market share dropped to less than twenty percent. Meanwhile, the car makers were not really interested in collaborating with local universities and research institutes in technological catching up. They are more interested in technology transfer from MNEs.
4.2 The Central Role of Users
How could we interpret the differences in collaboration among government agencies, universities and research institutes, and firms in four industries? Many factors could affect the results. For example, industry specific factors might be important: the car industry is a consumer industry, while the other three are making industrial products. However, within the car industry, it’s also the case that collaboration on making industrial products, such as advanced machine tools used in car assembling, are also limited. Car makers are more willing to buy foreign made machine tools.
Our preliminary understanding is that the key factor is the role played by the users: if the users are willing to take the pains in dealing with the many risks and uncertainties in technological catching up, collaboration among government agencies, universities and research institutes would be more effective; otherwise, even if the technology has a lot of potential, collaboration are unlikely to be effective, and the potentials are unlikely to be realized.
For example, in collaborations in the subway equipment industry, the top manager at Company S said that his firm was taking a lot of risks including the following: (1) fail to develop good enough equipment, because local firms might not have the required capabilities; (2) fail to meet the deadline of building up the subway system, because new technology and new product development involves a lot of uncertainties; (3) fail to coordinate interactions among the partners, because this kind of collaboration is new to him and his colleagues; and (4) lose his job, if he could not keep his promise to his boss that locally developed equipment would be effective because of the above mentioned risks and uncertainties.
Similarly, in the IC industry, Company L is lucky to have two types of user. Specifically, the utility companies have strong pressure to lower their cost and are willing to trying Company L’s products. More importantly, the developers of military systems have little choice if they want to develop more advanced products, because it is difficult to buy advanced ICs for military use from the international market. In this situation, the users have to tolerate the risks, uncertainties, and complicated interactions with Company L in collaborating with Company L.
The situation is very different in the case of the telecom equipment industry and the automobile industry. In both cases, although the potential benefits are big given the huge domestic market, the users are not willing to take the lead in managing the risks and uncertainties. The local telecom service providers were more willing to do what they were familiar with: following international technology standards developed by MNEs, and using equipment based on these standards. Similarly, the major car makers are very comfortable collaborating with MNEs rather than local partners (Lu and Feng, 2005).
The extant literature on the Triple Helix emphasizes the importance of overlapping the functions of the major players (Etzkowitz and Klofsten, 2005). In this exploratory paper we reported our preliminary understanding about how to overcome latecomer disadvantage in technological catching up through user sponsored Triple Helix collaborations. We argue that users need to play a central role in these collaborations because of the high risks and uncertainties in the process of technological innovation, and necessity to coordinate the complicated interactions among the many players (Lundvall, 1992). Other players, although important, are not well positioned to play this role.
Amsden, A. (1989) Asia’s next giant: South Korea and late industrialization. New York: Oxford University Press.
Amsden, A. (2001) The Rise of “the Rest”: Challenges to the West from Late-industrializing Economies. Oxford: Oxford University Press.
Carpenter, G S and Nakamoto, K. (1989) Consumer preference formation and pioneering advantage. Journal of Marketing Research, 26, 285-98.
Carpenter, G S and Nakamoto, K. (1994) Reflections on ‘consumer preference formation and pioneering advantage’. Journal of Marketing Research, 31: 570-573.
Eisenhardt, K M. (1989) Building theories from case study research. Academy of Management Review 14(4): 532-550.
Eisenhardt, K M and Schoonhoven, C B. (1990) Organizational growth: linking founding team, strategy, environment, and growth among US semiconductor ventures, 1978-1988”. Administrative Science Quarterly, 35: 504-529.
Etzkowitz, H and Klofsten, M. (2005) The innovating region: toward a theory of knowledge-based regional development. R&D Management, 35(3), 243-255.
Gao, X. (2007) Indigenous innovation at firms: strategy and methods (In Chinese). The Intellectual Property Right Press.
Gao, X. (2014) A latecomer’s strategy to promote a technology standard: the case of Datang and TD-SCDMA’. Research Policy, 43: 597-607.
Gao, X and Liu, J. (2012) Catching up through the development of technology standard: the case of TD-SCDMA in China”. Telecommunications Policy, 36(7): 531-545.
Gao, X, Liu, J, Cai, K and Li, J. (2007) Overcoming “latecomer disadvantages” in small and medium-sized firms: evidence from China. Int J Technology and Globalization, 3 (4), 364-383.
Gao, X, Zhang, P and Liu, X. (2007) Competing with MNEs: developing manufacturing capabilities or innovation capabilities”. Journal of Technology Transfer, 32：87-10（SSCI）
Glaser, B G. (1978) Theoretical Sensitivity. Mill Valley, CA: The Sociology Press.
Glaser, B G and Strauss, A L. (1967) The Discovery of Grounded Theory. NY: The Aldine Publishing Company.
Kim, L. (1997) Imitation to Innovation: The Dynamics of Korea’s Technological Learning. Boston, MA: Harvard Business School Press.
Lee, K and Lim, C. (2001) Technological regimes, catching-up and leapfrogging: findings from Korea Industries. Research Policy 30 (3), 459-483
Liberman, M B and Montgomery, D B. (1988) First-mover advantages. Strategic Management Journal, Summer Special Issue, 9, 41-58.
Liberman, M B and Montgomery, D B. (1988) First-mover (dis)advantages: retrospective and link with the resource-based view. Strategic Management Journal, 19, 1111-1125.
Lu, F and Feng, K. (2005) Policy Choices in Developing China’s Automobile Industry with Proprietary Technology (in Chinese). Beijing University Press.
Lundvall, B A. (1992) National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning. Pinter: London and New York.
Malerba, F. (2002) Sectoral systems of innovation and production. Research Policy, 31 (2), 247–264.
Malerba, F. (2004) Sectoral systems of innovation: how and why innovation differs across sectors. In: J Fagerberg, D Mowery and R Nelson (eds), Handbook of Innovation, New York: Oxford University Press, 380-407.
Porter, M E. (1990) The competitive advantage of nations’. Harvard Business Review, 68, (2), 73-91.
Stinchcombe, A L. (1965) Social structure and organizations.” In James G March (ed), Handbook of Organizations: 142–193. Chicago, Il: Rand McNally.
Utterback, J M. (1994) Mastering the Dynamics of Innovation. Boston, MA: Harvard Business School Press.
Yin, R K. (1989) Case Study Research: Design and Methods. Newbury Park, CA: Sage Publications.
Professor Xudong Gao is a member of Faculty at the School of Economics and Management (SEM), Tsinghua University, and Senior Research Fellow and Vice Director of the Tsinghua University Research Center for Technological Innovation. He serves on the Telecom Economy Expert Committee of the Ministry of Industry and Information Technology, People’s Republic of China. He offers courses such as technology strategy, managerial thinking, strategic management, and high tech entrepreneurship.
His major research interests are in technology strategy, management of technological innovation, and strategic management. He holds a PhD in Management from the MIT Sloan School of Management, a MA in Industrial Economics from the Renmin University of China, and a BE in Industrial Management Engineering from the Harbin Institute of Technology. Dr Gao is an expert in technology management in China.
His book, Indigenous Innovation at Firms: Strategy and Methods (In Chinese, 2007, the Intellectual Property Right Press), is among the first books published in managing indigenous innovation in China.