Innovation pathways in the Chinese economy
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This study investigates emerging innovation pathways in the Chinese economy. An innovation pathway is defined as the historical and evolutionary process through which business firms establish and accumulate capabilities in technology development and market access that enables them to compete with international technology and market leaders. The study proposes a framework for understanding the development of innovation capabilities through the interactions of institutional forces of state, market, and globalization. The main proposition is that innovation pathways in China emerge when the government policy synchronizes with domestic market development and global industry evolution in providing opportunities, resources, and a broad set of complementary capabilities necessary for technology development. Conversely, where public policy is out of step or asynchronous with global industry and domestic market institutions, this delays or inhibits the emergence of innovation pathways. Searching for synchronization requires the co-evolution of government policy and business strategy. The framework and theory is used to explore case studies of leading Chinese firms in two critical information technology industries: the telecom equipment industry and the semiconductor industry. In the semiconductor industry, leading Chinese firms struggled to close technological gaps with international leaders. This was because state-led development was out of step with global industry evolution while business-led development was decoupled from domestic markets. In comparison, in the telecom equipment industry, innovative indigenous companies emerged from a synchronization of public research, government investment in infrastructure, multi-layer domestic markets, and accessible global suppliers in the 1990s. The exceptional case of Huawei Technologies Co., the Chinese telecom equipment maker that has become an international innovation leader, shows how innovative Chinese firms capitalize on and complement government policies by strengthening internal R&D and aggressive internationalization. This study contributes to economic theories on how firms from emerging economies can learn to innovate. Traditional views emphasize transferring technologies from advanced economies, following a learning sequence of reverse product cycles, and more recently, specializing in manufacturing in the global value chains. This study offers an alternative view that in today’s advanced industrial and globalized world, emerging economy firms can succeed in innovation by exceling in new technology development and market access capabilities, provided that government policy synchronizes with domestic market and global industry conditions to offer a broad range of complementary capabilities.