Building global products and competing in innovation: the role of ...

180

Int. J. Technology Management, Vol. 64, Nos. 2/3/4, 2014

Building global products and competing in innovation: the role of Chinese university spin-outs and required innovation capabilities Yuan Zhou* School of Public Policy and Management, Tsinghua University, Haidian District, Beijing 100084, China E-mail: [email protected] *Corresponding author

Tim Minshall Centre for Technology Management, Institute for Manufacturing, University of Cambridge, Alan Reece Building, 17 Charles Babbage Road, Cambridge CB3 0FS, UK E-mail: [email protected] Abstract: Usually, firms that produce innovative global products are discussed within the context of developed countries. New ventures in developing countries are typically viewed as low-cost product providers that generate technologically similar products to those produced by developed economies. However, this paper argues that some Chinese university spin-outs (USOs), although rare, have adopted a novel ‘catch-up’ strategy to build global products on the basis of indigenous platform technologies. This paper attempts to develop a conceptual framework to address the question: how do these specific Chinese USOs develop their innovation capabilities to build global products? In order to explore the idiosyncrasies of the specific USOs, this paper uses the multiple case studies method. The primary data sources are accessed through semi-structured interviews. In addition, archival data and other materials are used as secondary sources. The study analyses the configuration of capabilities that are needed for idiosyncratic growth, and maps them to the globalisation processes. This paper provides a strategic ‘roadmap’ as an explanatory guide to entrepreneurs, policy makers and investors to better understand the phenomena. Keywords: innovation capabilities; university spin-outs; USOs; global products; China. Reference to this paper should be made as follows: Zhou, Y. and Minshall, T. (2014) ‘Building global products and competing in innovation: the role of Chinese university spin-outs and required innovation capabilities’, Int. J. Technology Management, Vol. 64, Nos. 2/3/4, pp.180–209. Biographical notes: Yuan Zhou is an Assistant Professor at the School of Public Policy and Management, Tsinghua University, China. His recent research interests include public policy, innovation policy and technology innovation management.

Copyright © 2014 Inderscience Enterprises Ltd.

Building global products and competing in innovation

181

Tim Minshall is a Senior Lecturer at the Centre for Technology Management, Institute for Manufacturing, University of Cambridge, UK. His recent research interests include technology enterprise, technology transfer, open innovation, etc.

1

Introduction

Traditionally, China has an image of having a strong manufacturing capacity rather than being famous for innovation (Watkins-Mathys and Foster, 2006). In recent years, China has been endeavouring to increase its R&D capacity, and is catching up very quickly in terms of patent filing. For example, China was ranked sixth in the world in terms of the number of Patent Cooperation Treaty (PCT) filings in 2008, with an annual growth rate of 56.1% (WIPO, 2009). However, China is facing an innovation gap in terms of technology transfer and commercialisation from original research, as only less than 10% of the filed patents can been actually commercialised (Dai and Xue, 2011). Many Chinese new technology-based firms (NTBFs)1 failed to benefit from this original research, and most of them have adopted a traditional catch-up strategy that begins with ‘reverse engineering’,2 and upgrades their R&D capacity as they grow (Viotti, 2002). However this strategy faces great challenges including international intellectual property (IP) conflicts, a lack of commitment to cutting-edge R&D, and an absence of confidence about being innovation leaders (Chen 2010). It prevents many Chinese NTBFs from competing in terms of innovation and becoming global market leaders. In recent years, there are signs that a small number of Chinese university spin-outs (USOs), as a sub-category of NTBFs, have attempted to close this innovation gap. These USOs have a novel catch-up strategy (Sun et al., 2009) that involves developing architectural/platform technologies based on ‘indigenous innovation’,3 that originate from university labs. Some of these USOs have even achieved remarkable performance in competing in terms of innovation against global leaders. However, there is limited research on these USOs that seeks to understand why they can compete in terms of global innovation and what the required capabilities are. The authors argue tentatively that these USOs may leverage unique strengths, including China’s high-growth domestic markets, access to original research in the parent universities, and their multi-disciplinary networks, but this requires in-depth research, and is of great value for further unveiling the process underlying global reach. This study, therefore, will attempt to address the research question: Why can these specific Chinese USOs build innovative products for the global markets, and what are the required capabilities for growth? This study will investigate the specifics of these USOs, and attempt to explore if there are any patterns for others to learn, in terms of: 1

the configurations of innovation capabilities for building global products

2

the development process of the capabilities along their globalisation path.

Tentatively, this study will attempt to build a conceptual framework to explain these concerns.

182

Y. Zhou and T. Minshall

As an exploratory study, this paper will use the multiple case-study method to explore the idiosyncrasies of the selected specific USOs. This paper consists of the following major steps: First, we provide a brief literature review, based on which we develop the preliminary (a priori) framework. Then, we use case evidence to identify the specific capabilities related to the USOs’ growth process. Next, through cross-case analysis, we seek to identify the key patterns of capabilities along the globalisation path, and refine the framework. The research design is discussed in Section 3. This paper concludes with a short summary that depicts the research output, theoretical contributions, and relevant implications.

2

Literature review and preliminary framework

2.1 The role of Chinese USOs and further challenges China is playing an increasingly important role in global trading. At the same time, it has built up its production capacity for the international markets substantially since the 1990s (OECD, 2010), experiencing the transformation from mainly exporting labour-intensive products (e.g., textiles) to high-tech4 products and electronic/mechanical goods. This is reflected in the significant rise in the export volume of high-tech industrial products, as its weight in Chinese overall exports has increased significantly, from 11% in 1998 to 29.1% in 2008.5 However, there are emerging challenges to sustaining the growth of China’s exports. First of all, China needs to find a new engine that can help to boost exports, especially in the high-tech sectors.6 China expects that this transition will change the competitive edge of ‘Made in China’ products: from a labour-intensive, low-price strategy into a higher-value added ‘differentiation’ strategy. However, it remains unclear what the specific ‘differentiation’ edge of Chinese high-tech products will be. Second, IP disputes have become more common as China exports more high-tech products to developed countries, especially when these products are based on a reverse engineering strategy. For instance, in 2006, Huawei Technology Co. Ltd, one of the leading high-tech companies in China, became involved in a major lawsuit with the US-based CISCO Corporation.7 China has made tremendous progress in developing its R&D capacity; in 2009, its annual R&D funding overtook Japan to become the second highest in the world.8 Some local NTBFs have attempted to implement a new catch-up strategy by competing on innovation rather than low-cost, drawing upon the outputs of this growing R&D expenditure (Chen, 2010). Specifically, as mentioned earlier, some USOs (although still rare) have made significant achievements in building global products based on original university research. However, little research has analysed such firms and their strategies. Existing research has focused on internationalisation strategies for established firms or the so-called multi-national companies (MNCs) to enter developing areas (Hoskisson et al., 2000; Meyer, 2004; Ramamurti, 2004). In recent years, some of the literature has begun to pay attention to new ventures in international business, but mainly for those from developed countries and in emerging markets (McDougall and Oviatt, 2000; Oviatt and McDougall, 2004). Little research has investigated the internationalisation of firms in emerging industries (Wright et al., 2006). As one of these few attempts, Yamakawa et al. (2008) studied these firms, although they focused solely on new firms that internalise


183

their overseas technology sources (e.g., those founded by returnees, such as Spreadtrum, Capitalbio or Syntronix),9 and little research has explored the new ventures based on indigenous innovations, such as those shown in Figure 1. Figure 1

Internalisation of firms in emerging economies (see online version for colours)

Source: The authors

Based on the literature, we attempt to categorise the internationalisation of such firms using two major dimensions: 1

firm maturity: established vs. new venture

2

the originality of the initial technology base: indigenous vs. absorbed.

This paper will focus on those firms that fall into the categories of ‘new venture’ and ‘indigenous innovations’ (see Category 1 in Figure 1), specifically the USOs. Only a small percentage of Chinese USOs are able to become internationally competitive (Kroll and Liefner, 2008) in the current circumstances, as few of them (approximately 10%) have their products built on differentiated platform technologies (Su et al., 2009; Zhou et al., 2010). However, some research indicates that there has been an increase in the creation of competitive USOs in China (Kroll and Liefner, 2008). Selling high-tech products (via a differentiation strategy) from emerging economies to developed economies is extremely challenging (Sapienza et al., 2006). According to the extant literature (Peng, 2001, 2005; Peng et al., 2008), the challenges of building differentiated products in emerging countries involve three major domains: 1

building a resource base and capabilities

2

institutional problems

3

industrial competition with the established players in the global markets.

In addition, Yamakawa et al. (2008) have studied the internationalisation of NTBFs (Category 2), and their findings (see Table 1) provide some references for the

184


development of the preliminary framework in this study. However, they failed to investigate the cases that are built on indigenous innovation. This indicates the existence of a research gap on how new Chinese firms (USOs here) compete on indigenous innovation and the required capabilities. Table 1

Key factors for the internationalisation of Chinese NTBFs

Theoretical views Major drivers for Chinese companies Resource-based view

1 Organisational learning 2 Leveraging alliances to access financial resources 3 Entrepreneurial leadership and other orientation (e.g., autonomy, innovativeness, risk-taking, aggressiveness, and pro-activeness), and then hiring professional surrogates to access the overseas markets

Industry-based view

1 The fierce competition and highly intensive industry are positive factors with regard to internationalisation 2 Competing with MNCs in domestic market 3 The pull effect from the overseas markets (with customised products)

Institution-based view

1 Good regulations and legitimacy are positive 2 Cognition is important; entrepreneurs need to internalise the value of the international expansion (of developed countries) through learning or life experience 3 Accessing culturally close countries first 4 Engaging in market-centred strategies when better globalisation regulations appear in the home countries 5 Innovating products that suit the specific needs of the overseas markets

Source: Adapted from Peng (2001, 2005), Yamakawa et al. (2008) and Yang et al. (2009)

Importantly, this paper stresses that specific Chinese USOs have been embedded in the same institutional settings and industrial competition with other categories of Chinese technology-based firms. We admit that the institutional settings and industry competition also have a significant impact; however, we argue that the innovation capabilities of these firms are the unique factors that enable them to build global products. In particular, the unique growth process of these USOs is of great interest, as the path-dependency innovation may provide us with some patterns of capabilities construction, especially when these capabilities are stage-specific.

2.2 Developing the preliminary framework It is argued that innovation capabilities for global reach develop through growth in a path-dependent way, rather than being acquired as and when needed. In order to understand the capability gaps for USOs, it is better to map them onto the growth path. This section, therefore, will develop the preliminary framework for analysing Chinese USOs that go international, based on the existing understanding of the growth path of USOs and the relevant capability configurations along that growth, as well as pilot interviews.10 First, there is no consensus on the growth models (Davidsson et al., 2005). Our review of the literature shows that the evolutionary and life cycle (Van de Ven and Poole,


185

1995) model can form the basis of our study which involves change and path-dependency growth. In addition, some recent growth paradigms have been shifted from the traditional linear models (R&D to market) to non-sequential models (Phelps et al., 2007), as the innovation process has been recognised as being non-linear; further, some argue that innovation-driven growth can be viewed as a value stream process, from value creation to capturing, and from re-investing the captured value to re-creation (Stam and Garnsey, 2006). This study, will mainly adopt this value-based concept, classifying the growth processes to: idea (P1, see Figure 1) → value base (P2) → value creation (P3) → value delivery and capturing → re-investing (P6), with opportunities (F1) and relevant resources (F2, F3) as the necessary resources. On top of that, the authors adapt some insights from the internationalisation literature (Peng, 2005; Peng et al., 2008; Yamakawa et al., 2009) by dividing the value delivery process into two parts: delivering value to local customers (P4), and to overseas customers (P5). Based on the above discussion, this paper develops a process-model (Figure 2) as a capabilities roadmap and a skeleton for the preliminary framework. Figure 2

The USOs’ growth process for building global products (see online version for colours)

Source: The authors and partially adapted from Stam and Garnsey (2006)

Drawing on the existing USO and innovation literature, we collated and coded a list of capabilities for Chinese USOs (see Table 2). For example, the core technological platform (IC1) is viewed as a key capability for USOs (Zhou et al., 2010). In addition, alliance capabilities are deemed significant in helping USOs to integrate their external resources (Minshall, 2003), and these can be divided into two parts: for the local network (IC2) and for the global one (IC3) (Peng, 2001; Yamakawa et al., 2008). Furthermore, the managerial routines (IC4) are always important (Barney, 1986) for USOs, especially when founded by inexperienced academics (Colombo and Piva, 2008). Other key dynamic capabilities (IC5 to IC9) may include learning (Teece et al., 1997), international

186


learning (Peng, 2005), entrepreneurial leadership and decision, and agile response (Zhou et al., 2010). The external factors (see Table 2) are also drawn from the existing literature (Eun et al., 2006; Xue, 2007; Kroll and Liefner, 2008; Yamakawa et al., 2008; Yang et al., 2009). The capabilities configuration for the internationalisation of Chinese USOs

Table 2 Categories

Innovation capabilities

Internal capabilities

Ordinary capabilities: IC1

Core technological platform (indigenous) for path-dependency growth (e.g. technology trajectory)

IC2

Integrative capabilities: network and alliance capabilities (domestic), venture finance, corporate governance

IC3 Alliance and network capabilities in global markets IC4 Functional managerial routines: complementary assets, sales and marketing capabilities, manufacturing capacities Dynamic capabilities:

External factors (positive impetus or barriers)

IC5

Learning (by doing, by interaction, by using) and integration capabilities (e.g., absorptive capacity) to overcome the knowledge gaps

IC6

Learning the discrepancies between the home institutional settings and the overseas markets, in terms of the market demands, cultural gap, regulations, etc.

IC7

Entrepreneurial leadership and team building (e.g., bringing in surrogate entrepreneurs)

IC8

Entrepreneurial decision making and asset orchestration (e.g., asset economising, asset mobilisation, managerial investment in ‘make or buy’ decision, etc.)

IC9

Agile response to path-independency disturbance (managing changes)

Industry-based activities (capabilities are needed): E1 E2

Industrial head-to-head competition (in the local highly intensive industry) Project demonstration (technology) and proof of market (business model), when competing with MNCs’ products in the domestic market

E3

Sensitive and agile to international customers’ needs – customised products

E4

Building (market, industrial or technological) standards, competing with MNCs

E5

IP strategy and protection in both the home country and international markets

Institutional: E6

Need supportive regulations and legitimacy in the home country (China)

E7

Need a better ecosystem, including venture finance, infrastructures, credit, etc.

E8

Lack of strategic vision and focus → need to engage in innovative (and specific) strategies when better globalisation regulations appear in the home countries

E9

Accessing culturally close countries first

Source: The authors

Building global products and competing in innovation Table 3

187

The preliminary framework: mapping the innovation capabilities to growth

Globalisation steps Growth processes

Key capabilities and external factors

1 Building products based on platform technology

Context (and milestones)

Opportunities (F1), initial resources (F2), and external impacts (F3)

P1 business ideas P2 building a value base

Core platform technologies (IC1) Alliance for domestic resources (IC2), and ordinary managerial routines (IC4)

2 Competing in the domestic markets against MNCs, and building an asset commercial base


Required resources and external factors are unclear

P3 value creation

Alliance for domestic resources (IC2), learning (IC5), IP (E5) and other supportive regulations (E6)

P4 value delivery to local customers

Routines (IC4), leadership (IC7), ‘make or buy’ asset orchestration (IC8)

3 Competing in the global markets and setting up channels


The required resources and external factors are unclear

P3 value creation

Alliance for global markets (IC3), adaptation to international demands (E3), standards (E4), ecosystem supports (E7)

P5 value delivery to overseas customers

Managerial routines (IC4), leadership (IC7), agile response to environmental changes (IC9)

P6 value capturing and re-invest

Learning for international gaps (IC6), asset orchestration (IC8), market readiness (E2), accessing culturally close countries (E9)

4 Building global Context asset bases (and milestones) (service, manufacturing, P6 value capturing and R&D) re-investment P1 new ideas

New opportunities (F1), core platform tech, alliances for global reach, and external impacts (F3) Core platform technologies (IC1), alliance for global (IC3), leadership (IC7), IP (E5), vision (E8) Core platform technologies (IC1), standards (E4), IP (E5)

Source: The authors

Based on the existing literature and pilot interviews, the author developed the preliminary framework that maps the required capabilities onto growth for Chinese USOs going international (Table 3). First, the authors tentatively match the USOs’ growth to their globalisation path (Table 3), based on the literature and pilot interviews. The growth processes have been described in Figure 2, and the globalisation of Chinese USOs can be divided into four steps: 1

building platform technology (pilot interviews, 2009)

2

competing in the local market (Yamakawa et al., 2008)

3

competing in the global market

4

building international asset bases (Yang et al., 2009).

188


Next, based on the literature and pilot interviews, the authors map the capabilities for specific Chinese USOs onto the four-globalisation steps (see Table 3). For instance, Step 1 may need core platform technologies to start a business idea (pilot interviews, 2009), and it may also need alliance capabilities to integrate domestic resources (Peng, 2001) and other managerial routines to build a resource base (Stam and Garnsey, 2006). Step 2 may need new capabilities like learning (pilot interviews, 2009) and regulatory support (Su et al., 2009), and similar ones like alliances for domestic resources and managerial routines. Step 3 calls for internationalisation capabilities like global alliances (Eun et al., 2006; Yamakawa et al., 2008), the ability to adapt to the overseas market (Peng, 2001) and others (Peng et al., 2008; Yang et al., 2009). Step 4 may require a platform technology as a technology trajectory (pilot interviews, 2009) to identify and capture new opportunities (Stam and Garnsey, 2006). Some of them may need an IP strategy and standards (pilot interviews, 2009) to compete on innovation in the global markets. The framework is shown in Table 3. This preliminary framework will be refined through empirical study in Section 4.

3

Research design and methodology

3.1 Research design As an exploratory study, this paper explores the emerging but rare Chinese USOs as unique cases, in order to establish their idiosyncrasies and specifics. In addition, we believe that there might be some patterns in the capabilities of these USOs along growth across these cases. Therefore, this paper adoptss a multiple longitudinal case study methodology consisting of four steps (see Figure 3), following Yin (2003) and Eisenhardt (1989, in order to probe into the four selected cases, and conduct elicitation, iteration and contrasting across the cases for pattern matching. Figure 3

Design of the multiple longitudinal case studies method (four-step) (see online version for colours)

Source: The authors

189


3.2 Data collection After the pilot interviews, the selection of critical cases is crucial for the subsequent cross-case analysis. In this part, the authors argue that the selection tends to be purposive rather than random, via a theoretical sampling procedure. Following Miles and Huberman (1994), the case selection involves two actions that sometimes pull in different directions: 1

to set boundaries – Chinese USOs in or beyond the growth phase of building innovation capacities for global competition

2

to create a heterogeneity logic to uncover, confirm, or qualify the specific innovation edge of these firms that match the framework.

Table 4

Sample Chinese USOs

Employment size Age (years) Sectors Founding technology Initial resources Universities Region External financing

Nuctech

HUST NC

HG Laser

SUPCON

1,500+

350+

700+

1,200+

11

15

16

11

X-ray

NC

Laser

Control

Particle accelerator

Discrete control unit

Laser generator

Control algorithm and system

Tech

Tech

Tech

Tech

Tsinghua

HUST

HUST

Zhejiang

Beijing

Wuhan

Wuhan

Hangzhou

CV

CV

CV

VC

Notes: CV: corporate venture, the investment of corporate funds directly in external start-ups. VC: venture capital.

Three case selection criteria were highlighted: 1

firms’ products have access to the overseas markets or global competition

2

their products are competing on innovation, not solely on a low-price strategy

3

their products are mainly based on indigenous innovation from research labs rather than reverse-engineering.

It also remains necessary for the selected cases to have sufficient heterogeneity in terms of their firm-specific characteristics (see Table 4). This contrast between cases ensures the internal validity of this research.11 In this study, the data collection was a two-fold process: documentary data and in-depth interviews. In total, the authors conducted semi-structured interviews with 22 individuals (including founders) with case protocol12 in four Chinese USOs, and some interviewees were interviewed four or five times (for one to two hours each time). Most of the interviewees still held managerial posts in the USOs when interviewed, with two exceptions:

190


1

HUST NC, President of the Chinese Academy of Engineering

2

Nuctech, Vice Chancellor of Tsinghua University.

The construct validity and reliability were reinforced by the use of consistent case study protocols, and by interviewing different founders and comparing the interview data to the documents.

3.3 Data analysis As aforementioned, this research uses cross-case analysis to refine the framework. During this process, the evidence has been cross-checked in order to identify the common patterns and idiosyncrasies. The framework was refined during the iterative process as the case-studies proceeded. In order to avoid the problem of being lost in case data, the authors used safeguards to ensure the reliability of the research, including the aforementioned case study protocol, a case study database, and the following of a chain of evidence for the data collection. As aforementioned, this paper aims to build an explanatory model. The authors will not attempt to build a predictive model that can predict a trend using theoretical or rival patterns based on time-series data [Yin, (2003), p.125].

4

Multiple case studies

This section attempts to describe four critical cases in order to refine the preliminary framework: 1

Nuctech

2

HUST NC

3

HUST Laser

4

Supcon. Major cargo inspection system suppliers in the international market

Table 5 Suppliers

Core tech of the cargo inspection systems

Firm size (2008)

Sci. App. Int. Corp. (SAIC)

1 Medium energy x-ray imaging

1 USD 942m (GBP 589 m) annual turnover

Smiths Heimann GmbH Nuctech

2 Radiation scanning

2 2,100 employees

1 Ion mobility spectrometry

1 GBP 509m

2 Fourier-transform infrared spectroscopy (FT-IR)

2 2300 employees

1 High-energy radiation (γ-ray and x-ray) imaging (accelerated by 2)

1 RMB 2.3b (GBP 206 m)

2 Linear particle accelerator

2 1,370 employees

Source: The authors, data from Interviews with Nuctech (2009)


191

4.1 Case A: Nuctech Nuctech is a USO that was spun off from Tsinghua University (Beijing) in 1997, based upon the platform innovation stemming from the original research carried out in the Engineering Physics Department – linear particle accelerator and radiation resonance detection and imaging. It is now one of the major worldwide suppliers (No. 1 in China) of large shipping container inspection systems (X-ray scanners) for combating smuggling and trafficking.13 In 2008, this USO benefited from the RMB 1.72 billion turnover from the overseas market, with a sales volume of 63 large cargo inspection systems and 142 compact security x-ray systems to more than 20 countries, including the USA and UK. Using the preliminary framework, this paper analyses the Nuctech case in Table 6. Table 6

Nuctech case analysis: key required capabilities at the globalisation steps

Globalisation steps

Growth processes

1 Developing products (1993~1997)

Milestone Noting that there was a demand for cargo inspection systems by Chinese customs officers (F1), Nuctech decided to develop a product based on their indigenous research (radiation and lineac technologies, F2).

2 Domestic competition with MNCs (1997~2001)

Major progress (external factors as barriers) and key capabilities (ICs) that are required

P1

IC1

Building a competitive product (effective and lower cost), based on the core technological platform – lineac and radiation imaging system.

P2

IC2

Leveraging the government’s network and research grant (F3) to acquire finance and an industrial base (Shenzhen custom, 1996) for prototyping and technology demonstration (E2).

Milestone Due to fierce local competition with MNCs (E1), Nuctech gained the dominant position in the domestic market, with nearly 80% of the market share. By 2001, Nuctech has sold more than 40 cargo inspectors to Chinese customs. Nuctech’s product established local industrial standards for cargo inspection (E4). Nuctech has also filed 18 patents to protect their IP in China (E5). P3

IC1, It was particularly difficult to find competent engineers to IC2 assimilate transform and exploit their original research (IC1) due to the weak absorptive capacity, so Nuctech recruited nine professors and some PhD students to participate in the product development (IC2) IC8

P4

Leveraging Tsinghua’s reputation and network, as well as government support (E6), in 2000, Nuctech secured the corporate venture investment (E7), which helped them to establish a production base and sales channels

IC5, The team learnt fast to cross the knowledge gaps, and IC9 customised their products according to domestic needs – lower cost and intensive usage (fast-scanning) (IC5). In addition, some specific market needs have been grasped by their agile product development capacity (IC9)

192 Table 6

Y. Zhou and T. Minshall Nuctech case analysis: key required capabilities at the globalisation steps (continued)

Globalisation steps

Growth processes


3 Accessing the global markets (2001~2003)

Milestone

In 2001, Nuctech sold a product to their first overseas customer (Dubai customs). In 2002, Nuctech secured a deal with Australian customs for two customised products (a mobile platform). By 2003, Nuctech had sold more than ten systems to four overseas customers

P3

IC1, Based on indigenous research (IC1), Nuctech has IC6, accumulated several leading-edge technologies, which IC9 helped them to react quickly to the emerging market opportunities (IC9) and cultural disparity (IC6, E3).

P5

IC4

Nuctech also provided a customised service to suit specific needs, e.g., high-energy solutions for Dubai, and fast-scanning for Australia

IC6, Learning about the cross-border gaps (culture, IC7 institutional, etc.), Nuctech added some returnees to their senior management team, and recruited local people in order better to understand the market P6

IC3, Quick international learning (IC6) and leveraging the IC6 government’s international network (IC3) gave Nuctech the capacity to expand their global customers E5

International IP filing (PCT) is significant to Nuctech’s strategy

4 Building an Milestone In 2003, Nuctech established their global service headquarters to international coordinate their international and customised services. By 2009, asset base Nuctech had sold 244 cargo inspection systems to more than (2003~present) 60 countries, including the UK, Finland, etc. P5

IC3

Leveraging their close link with the government, and Tsinghua’s global network (IC3), Nuctech has established many global service centres. However, they have not established global production and R&D centres

IC6, Global learning is critical in every single set-up of a E5 service centre. In addition, Nuctech filed 318 international patents, and secured international standards in 2010. P1

IC1, New opportunities (E1) have been identified and pursued E3 based on the indigenous platform (IC1), which has been upgraded by joint research with Tsinghua EP research labs (IC2 – open innovation), with a fast development capacity (E3), e.g., scanning for the new demands posed by terrorism (radioactive weapons), compacting with drug-traffic, the security of the Olympics 2008, etc.

4.2 Case B: HUST NC HUST NC is a USO from the Huazhong University of Science and Technology (Wuhan), founded in 1995. It was established as an innovative combination of the indigenous numerical control (NC)14 algorithm and industrial PC platform (as opposed to traditional platforms using embedded micro-chips). It launched its first product – NC-I system – in

193


1997, and sold its first batch of products (200 NC-VI systems) to an overseas market (Venezuela) in 2008. In 2010, it was listed on the Shenzhen Stock Market, and was viewed as being of great potential although it only accounts for 1.2% of the China market15, which is significant and accounts for 17.3% of the global one. Figure 4

Firm growth of HUST NC (a) revenue growth (in million RMB) (b) employment size growth (see online version for colours)

(a)

(b)

Source: The authors, data from Interviews with HUST NC (2009) Table 7

HUST NC case analysis: key required capabilities at the globalisation steps

Globalisation steps

Growth processes



Milestone

There was a huge demand for NC systems in China (F1). HUST NC developed their first product NC-1 system based on the architectural innovation – integrating a PC unit with an indigenous control algorithm

P1

IC1

Building a competitive product (effective and lower cost), based on the core technological platform and long-term research competence

P2

IC2

Leveraging a government research grant (F3) to acquire finance, and developing a technology demonstration base through a customised service to suit unique local needs, upgrading and maintaining old NC machineries (E2).

Milestone

HUST NC has survived through the fierce competition against MNCs (E1). During the seven years, HUST NC continued to invest in their R&D and advanced the platform to an NC-6 system. NC-6 was the only high-end Chinese platform which can compete with Siemens and Fanuc. In 2007, HUST NC was elected General Secretary of the Chinese NC standards committee (E4). In addition, HUST NC has filed more than 100 patents in China (E5)

P3

IC1, Due to the weak absorptive capacity of the local IC2 engineers, HUST NC transferred some academics from the original research (IC1) to product development (IC2)


IC8

The government research grant was critical to HUST NC (E6), especially as NC R&D is capital-intensive, Siemens invests more than 2 billion euro per year. However, due to the weak financial ecosystem in Wuhan, HUST NC failed to raise any venture investment. They grew on their own, it was a tough journey

194 Table 7

Y. Zhou and T. Minshall HUST NC case analysis: key required capabilities at the globalisation steps (continued)

Globalisation steps

Growth processes



P4

IC5, The team learnt fast to cross the knowledge gaps, and IC9 customised their products according to the domestic needs – service-oriented, lower-cost, quick application development (IC5). For example, HUST NC secured the professional education market (the NC system for teaching) through their sensitiveness to specific demands and customised product development capacity (IC9)

3 Accessing the Milestone By 2007, HUST NC had built a reputation in the professional global markets education market through the annual national NC contest. Leveraging the government network, HUST NC secured their (2007~present) first international order for an educational NC system from Venezuela during its president’s visit to China. By 2010, HUST NC had sold more than 800 NC systems to overseas customers in four Latin American countries and the Middle East P3

IC1, Based on indigenous research (IC1), HUST NC has the IC6, reputation and fast development capacity to react quickly IC9 to emerging market opportunities (IC9) and cultural disparity (IC6, E3)

P5

IC4

HUST NC also provided a customised service to suit specific needs, e.g., educational needs in Venezuela

P6

IC3

Leveraging the government’s and parent university’s international network (IC3), HUST NC was able to expand their global networks

E5

International IP filing (PCT) is significant to the HUST NC strategy

Milestone In 2003, HUST NC established their global service 4 Building an international headquarters, to coordinate their international and customised asset base services. However, they have yet to set up other asset bases (2009~present) P5 IC3 HUST NC has established a few global service centres. However, they have not established global production and R&D centres P1

IC1, New opportunities (E1) have been identified and pursued E3 based on the indigenous platform (IC1), which has been upgraded by a joint research lab (the national NC research centre) with HUST (IC2 – open innovation), and fast development capacity (E3), e.g., a high-end NC-8 system can be used to upgrade much of the equipment in developing countries

Siemens and Fanuc, as two dominant players, base their full spectrum NC technologies around the core embedded systems, including the real-time operating system, motion control algorithms, servo control systems and signal-transmission networks. Two other local players, Guangdong NC and Dalian CNC, followed the traditional catch-up strategy by reserve engineering the micro-chip-based system, based on which they developed new control algorithms. Dalian CNC, however, was convinced by HUST NC and formed an alliance using its OEM service. Table 7 analyses this case using the preliminary framework.

195


4.3 Case C: HG Laser HG Laser is a USO that spun off from HUST in 1997, based on the IP of a high-energy CO2 laser generator that stemmed from catching-up lab research carried out in 1981. It is currently among the five major suppliers in the laser-machine market in China.16 HG Laser has established its international recognition through the acquisition of Farley Pte. Ltd in Australia, and has built up research alliances with well-known research institutes and companies in the US and Germany. In 2008, HG Laser generated revenue of 330 million RMB (32 mil BGP), and employed 320 staff. Figure 5

Firm growth of HG Laser (see online version for colours) (a) revenue growth (in million RMB) (b) employment size growth (see online version for colours)

(a)

(b)

Source: The authors, data from Interviews with HG Laser (2010)

The laser industry is viewed as a high-growth sector that offers lucrative opportunities. In the past ten years, the proportion of industrial laser installations in Asia has expanded from 32% to 37% of the total units, at a 180% growth rate,17 and the China market was 7.2 billion RMB in 2007, with a rate of 52%.18 SPI (UK) and IPG Photonics (USA) are the two dominant players, which have core technologies such as high-power fibre lasers (solid-state lasers before 2005). HG Laser, like Shenzhen Hans Laser, uses high-power CO2 lasers as the core technology, but HG Laser has already deployed high-power fibre lasers as its next generation core technology (interview with HG laser 2011). Table 8

HG laser case analysis: key required capabilities at the globalisation steps

Globalisation steps

Growth processes


Milestone Base on the long-term indigenous research on lasers (F2), HG Laser launched their first platform product – the CO2 laser generator – in 1994. At that time, there was a huge market gap in the Chinese market (F1) P1 IC1 Building a competitive product (effective and lower cost), based on the core technological platform P2 IC2 Leveraging a government research grant (F3) to acquire finance (E2) Milestone Through fierce local competition with MNCs (E1), HG laser has gained a major position in the domestic market, with nearly 12% of the market share. By 2007, HG Laser filed the local industrial standards for laser products (E4). In addition, they have filed 34 patents to protect their IP in China (E5)



196 Table 8

Y. Zhou and T. Minshall HG laser case analysis: key required capabilities at the globalisation steps (continued)

Globalisation steps

Growth processes



P3

IC1, To exploit their original research (IC1) more effectively, IC2 HG Laser transferred academics to the product development department (IC2) IC8

P4

Leveraging the parent university’s reputation and network, as well as government support (E6), in 2000, HG Laser was listed on the Shenzhen Stock market (E7), which helped them to accumulate resources for international acquisition in 2001

IC5, The team learnt fast to cross the knowledge gaps, and IC9 customised their products according to their domestic needs – lower cost and high-power lasers (IC5). In addition, some specific market needs have been grasped by its agile product development capacity (IC9)

3 Accessing the Milestone In 2001, given the cash raised from the Shenzhen Stock market, global markets HG Laser acquired Farley Laser (Australia) (E10). Through this acquisition, HG Laser established their channels for selling their (2001~present) products when integrating Farley’s technologies. By 2010, the international markets accounts for more than 60% of their total revenue P3

IC1, based on indigenous research (IC1), HG Laser has IC6, accumulated several leading-edge technologies. In IC9 addition, by integrating the acquired technologies, HG Laser became globally competitive (IC9)

P5

IC4

HG Laser also provided a customised service to suit specific needs, e.g., high-power solutions by China

IC3, Learning the cross-border gaps (culture, institutional, IC6, etc.), HG Laser successfully integrated Farley’s IC7 technologies and team into their existing platform P6

IC3, Quick international learning (IC6) and leveraging of the IC6 government’s international network (IC3) E5

International IP filing (PCT) is significant to the HG laser strategy

4 Building Milestone Since 2001, HG Laser has tapped into Farley’s base in Australia, international and established an overseas R&D centre, global sales and asset bases service network. By 2009, HG Laser had expanded their (2001~present) presence into more than ten countries P5

IC3

Leveraging Chinese financial resources, HG Laser successfully acquired an overseas resource base (IC3).

IC6, Global learning is critical for HG Laser, as they spent a E5 lot of effort on integrating the cross-border technologies and teams. In addition, HG Laser has filed 78 international patents P1

IC1, New opportunities (E1) have been identified and pursued E3 based on the second generation indigenous platform (IC1) – fibre laser generator – by the joint research lab (the state key lab in laser tech) with HUST (IC2 – open innovation)


197

Supcon case analysis: key required capabilities at the globalisation steps

Globalisation steps

Growth processes

Major progress (external factors as barriers) and key capabilities (ICs) required


Milestone

Recognising that there was a market gap for a digital control system (DCS) in China (F1) – MNCs were expensive and reluctant to cater to the local needs, Supcon decided to develop a customised product (a motion recorder system), based on their indigenous research: DCS (F2). By 1998, Supcon launched their DCS platform applications in the oil refinery industry

P1

IC1

Building a competitive product (effective, customised), based on the indigenous core technological platform (from Zhejiang University)

P2

IC2

Leveraging the government network and research grant (F3) to acquire a finance and demonstration base (Sinopec, 1994) for prototyping and proving the technology (E2)

Milestone

Through competing with MNCs like Honeywell, ABB, and Siemens (E1), Supcon gained 20% of the domestic market in a hard-fight. By 2003, they had expanded their platform technologies to many applications, e.g. high-way control, manufacturing process control, etc. In 2003, Supcon had built up the national industrial standard (E4) of DCS. In addition, by 2004, they had filed 62 patents to protect their IP in China (E5)

P3

IC1, Based on the indigenous technology platform (IC1), E3 Supcon has built a team to develop customised products fast, in response to specific market demands (E3)


IC8

P4

Leveraging Zhengjiang University’s reputation and network (E6), in 1999, Supcon secured corporate venture investment (E7) in a weak financial environment, and then set up their production base and sales channels

IC5, The team learnt fast to cross the knowledge gaps, and IC9 customised their products according to the domestic needs – lower cost and intensive usage (fast-scanning) (IC5). In addition, some specific market needs have been grasped by their agile product development capacity (IC9)

3 Access global Milestone In 2006, Supcon has successfully secured their international markets industrial standards with IEC (2004~present) P3 IC1 based on indigenous research (IC1), Supcon has accumulated several leading-edge technologies, which helped them to build standards based on the existing platform innovation P6

IC3, Quick international learning (IC6) and leveraging the IC6 government’s international network (IC3) gave Supcon the capacity to expand their global recognition in industry E5

International IP filing (PCT) is significant in Supcon’s strategy

198


4.4 Case D: Supcon Supcon was spun off from Zhejiang University in 1993, based on the indigenous platform technology of distributed control system (DCS)19 – JX100. From the very beginning, Supcon was competing in the domestic market with MNCs like Honeywell, Rosemount, etc. Supcon built its competitive product (the motion recorder) through responding to the niche domestic demand based on the DCS platform innovation. In 2009, Supcon generated an annual turnover of 1.05 billion RMB (£100 million) with a workforce of 1,823. Supcon adopted a non-traditional globalisation path. To date, Supcon has yet to sell any product to the global market. However, it has been recognised by International Electronic Committee (IEC) and was awarded the IEC/TC65 Bus standard in 2006. This is the only international technical standard for the Chinese control industry, which represents the international competitiveness.

5

Discussion: cross-case analysis

This section will then compare and contrast the evidence from each case study in order to validate the identified patterns of capabilities along growth.

5.1 Globalisation strategies According to the case studies, the core competitiveness of these Chinese products consists of the following attributes in combination: 1

effective technology

2

lower cost

3

a better and customised design and service

4

agile product development in response to market changes and emerging opportunities, based on an indigenous technological platform.

Given these attributes, selected Chinese USOs have adopted a variety of globalisation paths (see Table 10): 1

accessing the overseas market by leveraging the existing network, supported by a dominant market share of the local market

2

breaking in with a specialised product

3

international acquisition first

4

international standards first.

This study argues that there is no unified globalisation strategy for Chinese USOs to build global products; however, there are common patterns of the required capabilities along growth to realise these different strategies. For example, Dr. Chen (CEO of Nuctech) mentioned, “We are very lucky that we can use the existing network of Tsinghua University. When we attempt to access a specific overseas market, we will contact Tsinghua alumni and other relevant contacts there. In addition, Tsinghua’s academic network helps a lot with on-site product demonstration, especially through our contacts with the domain experts there” (Interviews with Nuctech, 2009).

199


Cross-case analysis: the globalisation processes and key capabilities required Nuctech

Globalisation Selling competitive products to the strategy: overseas market on top of the 80% share of the domestic market, leveraging the government and parent university’s network. In addition, their fast product development capacity helped Nuctech to grasp several unexpected opportunities. Globalisation F1 process 1: recognising IC1 the opportunity and building a productive resource base IC2, E7

Globalisation process 2: building a domestic commercial base, creating and delivering unique value to domestic customers, and then building a domestic asset base

E1

A significant market gap

HUST NC

HG laser

Supcon

Focusing on niche/specialised overseas markets, catering for specific demands (e.g., a professional education system) to provide a customised design and service.

International acquisition, and integrating the overseas technologies and team into the existing indigenous platform, leveraging the domestic financial market.

Building a technological edge firstly – filing international standards (IEC) to acquire international recognition and reputation.

F1

A significant F1 market gap

A significant F1 market gap

A significant market gap

An indigenous IC1, Architectural IC1, Architectural IC1, Architectural platform tech IC2, innovation of IC2, innovation of IC2, innovation of based on E7 a DCS system E7 CO2 laser E7 an NC based on generator system based research; indigenous based on on Prototyping platform indigenous indigenous and research, research, research, demonstration using using using using government government government government resources, resources, resources, resources, need an need an need an need an ecosystem. ecosystem. ecosystem. ecosystem. Fierce local competition with MNCs;

IC1, Customised IC2 design to suit the local needs based on platform tech, mobilising resources (IC8)

E1

Fierce local competition with MNCs;

E1

Fierce local E1 competition with MNCs;

Local competition with MNCs;

IC1, Customised IC1, Customised IC1, Based on IC2 design to suit IC2 design to suit IC2 platform tech, developing the local the local applications needs based needs based on platform in various on platform domains, and tech, and tech, being listed securing resources venture for financial (IC8) resources investment (IC8) (IC8)

IC5, Learning, IC5, Learning, fast IC5, Learning, IC9 customised IC9 developing in IC9 fast service to response to developing to suit specific unique market access specialised demands needs. market demands

IC5, Learning, IC9, local E4 standards customised service to suit specific demands

200


Table 10

Cross-case analysis: the globalisation processes and key capabilities required (continued) Nuctech

Globalisation process 3: building a globalisation commercial base, creating and delivering specific value to global customers

IC1, IC3, IC6, IC9

Based on an indigenous platform, quickly learning and developing customised products in response to opportunities

HUST NC IC1, IC3, IC6, IC9

Based on indigenous speciality, quickly developing customised products in response to opportunities

HG laser IC1, IC3, IC4, IC6, IC9

E4, The IP E5, IP strategy is E5, strategy is E9 important, accessing E9 important, as well as developing international country first. standards, accessing developing countries first

Learning the cross-border gaps, HG Laser integrates Farley’s technologies and teams into the indigenous platform, customised to suit specific needs with services

Supcon IC1, IC3, IC6, IC9

Based on indigenous speciality, quickly developing applications in many areas;

E4, E5

IP strategy and international standards are important

Globalisation IC3, Using the IC3, Using the IC3, Global N/A process 4: IC6, learning and IC6 Tsinghua and IC6 HUST and building a government government E5 integration globalisation network to network to capacity, an asset base, expand their expand their international service, international international asset base production, including business business R&D, R&D centres service, production, etc. IC1, Identifying IC2, new E3 opportunities

IC1, Identifying IC1, New IC2, new IC2, opportunities E3 opportunities. E3

5.2 Globalisation process 1: required capabilities In Table 10, this paper shows that a high-growth industry and a clear market gap are the prerequisites for Chinese USOs to engage in competitive innovation. Moreover, the government and parent universities tend to encourage the growth of USOs by subsidising the initial R&D, liaising with industrial bases for prototyping and demonstration, and other support. This support is critical to the selected cases. There are two key capabilities in this process: 1

an indigenous technological platform based on long-term research (IC1)

3

the alliance ability to tap into networks, and integrate resources/technologies into the existing platform (IC2).

There is a consensus from the interviewees that an indigenous technological platform is the most important capability for further competition. For example, Dr Chen (Chairman


201

of HUST NC) mentioned, “If we didn’t have this indigenous platform, we would have been beaten by established MNCs, like Fanuc, long ago. This is the most precious capability for us, and that is why many established firms, like Foxconn and Dalian NC, want to set up alliances with us – and these alliances bring us a lot of resources for our R&D and product development” (Interviews with HUST NC, 2009).

5.3 Globalisation process 2: required capabilities These four cases all experienced intensive competition with MNCs in the domestic market before they stepped into the global market. This competition strengthened the USOs’ capabilities, so that they were able to build high-tech products with international standards. In addition, this competition helped to solidify their platform technologies on which Chinese USOs could have fast product development in response to unique or niche market needs. There are five key capabilities within this process: 1

customised design/development capabilities (IC2) to suit the local needs based on platform technology (IC1), and the alliance capability to mobilise resources (IC8)

2

learning (IC5) and fast responses (IC9) to unique or specialised market needs.

In addition, ‘customisation to specific needs’ and ‘building local standards’, as two key capabilities, should be included in the refined framework.

5.4 Globalisation process 3: required capabilities Many Chinese firms attempt to go global to pursue higher margins and larger markets. In fact, only a small percentage of Chinese USOs (or even NTBFs) can access the international markets. As a result of the intensive domestic competition with MNCs, the Chinese USOs realised that they had acquired the innovation edge and resource base to win global recognition. Surprisingly, these Chinese USOs did not follow the traditional strategy of ‘accessing cultural close countries first’. Their major customers were in developing countries, but not necessarily in culturally similar ones. This might be because these USOs compete on innovation which is comparably independent of the cultural dimension, unlike those who compete in a culture-affected design/business model/ value network. Within this process, more key capabilities are required: 1

based on an indigenous platform (IC1), quickly learning (IC6) and developing a customised product (new) in response to opportunities (IC9), levering an international networks/alliance (IC3)

2

international IP (E4) and industrial standards (E5).

Surprisingly, an indigenous platform is still viewed as the main key capability in this stage. Dr Chen (Nuctech) mentioned, “In order to go international, the most important thing is your own platform; otherwise you have no edge to compete against MNCs on innovation” (Interviews with Nuctech, 2009). In addition, Mr Ma (HG Laser) also mentioned, “Our platform technology is our key capability, which helps a lot to absorb and internalize Farley’s (in Australia) technology when we acquire them” (Interviews with HG Laser, 2010).

202


5.5 Globalisation process 4: required capabilities In order to develop their international business, Chinese firms have to establish an overseas assets base. Unlike those established firms, these Chinese USOs are yet to reach the stage of setting up large overseas regional subsidiaries: 1

using parent universities (the academic network) or government network (they are all stars in the domestic market, and have a good relationship with the Chinese government agencies) (IC3) to expand their international business through learning (IC6)

2

on top of that, they sense new opportunities when exploring and competing in the global markets (E3), building new products based on their indigenous platform (IC1).

Interestingly, these four USOs have all continued to modify their indigenous platform technology (through joint research efforts with their parent universities), which they apparently view as their core-competence for global competition. Nuctech is the most advanced in this regard, but they still adopt the strategy of developing their core technologies and products in China, and set up only their service centres overseas. As Dr Chen mentioned, “We have made great progress in the international market; however, we still lack the resources to set up R&D centres overseas. Most importantly, we still have no capability to overcome the inter-national gaps, including the market differences, cultural gaps, discrepancies in legislature and IP systems, etc. This requires a high-level learning capability which involves talent with an international backgrounds who can work within Nuctech’s corporate culture. This will take time” (Interviews with Nuctech, 2009). Figure 6

Refined processes for Chinese USOs’ global reach (see online version for colours)


203

5.6 Refined framework Based on the cross-case analysis, this section identified the patterns and then refined the framework in three aspects (see italic codes/words for the changes to the preliminary framework): 1

capabilities list: some unnecessary capabilities have been deleted, and the required capabilities have been re-coded (Table 12)

2

a new definition of the processes for global reach (Figure 6): the four globalisation steps have been redefined as: build product (2), domestic competition (2), international competition (3), build international asset base (4)

3

mapping the capabilities to growth (Table 11).

The findings will be summarised in the conclusions. Table 11

Mapping the key innovation capabilities to the globalisation processes

Globalisation processes 1

2

3

4

Building products based on platform technology

Domestic competition

Accessing the global markets

Building an international asset base

Growth processes Context

Key capabilities and external factors A high-growth industry and a significant market gap (F1)

P1

Core platform technologies (IC1)

P2

Open innovation (IC2); ecosystem support (E3)

Context

Intensive competition with MNCs (E1) in the domestic market

P3

Core platform technologies (IC1), alliance for domestic resources (IC2), ‘make or buy’ asset orchestration (IC9)

P4

Learning (IC6), agile response to changes (IC10)

Context

Diversified globalisation strategy (no unified strategy) leveraging specific edges, but to access developing countries first (E4)

P3

Core platform technologies (IC1), customisation capabilities (IC4)

P5

Alliance for international resources (IC3), industrial and technological standards (IC5), learning for international gaps (IC7)

P6

Leadership (IC8), IP strategy (E2)

Context

Chinese USOs are yet to reach the stage of setting up large overseas regional subsidiaries

P6

Core platform technologies (IC1), alliance for international resources (IC3), industrial and technological standards (IC5), IP strategy (E2)

P1

Core platform technologies (IC1), open innovation (IC2), learning for international gaps (IC7)

204

Y. Zhou and T. Minshall Refined capabilities configuration for the internationalisation of Chinese USOs

Table 12 Categories

Innovation capabilities

Internal capabilities

Ordinary capabilities: IC1

Core technological platform (indigenous) for path-dependency growth, as well as complementary assets

IC2

Open innovation capabilities to build joint research with universities, and integrative capabilities to build sales and manufacturing, through other network and alliance capabilities (domestic), venture finance, corporate governance

IC3

Alliance and network capabilities in global markets to build managerial routines

IC4

Customisation capabilities (design, product development or service) in response to the specific needs of specific markets – sensitive and agile to differences

IC5

Industrial and technological standards

Dynamic capabilities:

External factors (positive impetus or barriers)

IC6

Learning (by doing, by interaction, by using) and integration capabilities (e.g., absorptive capacity) to overcome the knowledge gaps;

IC7

Learning the discrepancies between the home institutional settings and overseas markets, in terms of market demands, cultural gap, regulations, etc.

IC8

Entrepreneurial leadership and team building (e.g., bringing in surrogate entrepreneurs and overseas managers)

IC9

Entrepreneurial decision making and asset orchestration (e.g., asset economising, asset mobilisation, managerial investment in ‘make or buy’ decisions, etc.)

IC10

Agile response to path-independency disturbance (managing changes);

Industry-based activities (capabilities are needed): E1

Industrial head-to-head competition (in the local highly intensive industry)

E2

IP strategy and protection in both the home country and international markets

Institutional: E3

Ecosystem support, including financial sources, infrastructure, credit support, etc.

E4

Access developing countries (inferior in technology) first

Source: The authors

6

Conclusions and future research

Usually, firms that provide innovative global products are discussed within the context of developed countries. Those firms have core competences like disruptive or platform technologies, which form the basis for their leading-edge product/process innovations. In contrast, this study presents the view that some Chinese USOs can also adopt the ‘developed-country alike strategy’ to build global products based on an indigenous


205

platform (although not yet disruptive), unlike the old image of ‘reverse engineering’ or low-cost products. Of course, due to the institutional weakness, very few become successful through adopting this strategy, so it is of great interest to understand how this might be achieved, and what are the required innovation capabilities along their growth path. This paper answers this question in four ways. First, we realised that there was no homogenous globalisation path for Chinese USOs to go global, but some key processes seem mandatory: indigenous platforms, domestic competition, accessing the global markets, building an international asset base (Figure 6). For example, engaging in fierce competition in the domestic market against MNCs is viewed as a necessary step towards internationalising. These globalisation steps incorporate the usual growth processes of USOs. Second, these innovations will only happen in certain institutional settings, e.g., high-growth industry, intensive competition against MNCs in the domestic market, etc. (Table 11). Further, given the non-unified globalisation strategy, there are accordingly specific innovation capabilities that are required as competitive edges. For instance, Chinese high-tech products are competitive when combining technological effectiveness, low cost, customisation service and design, as well as agile response to specific demand or changes (Table 12). In addition, the required innovation capabilities for Chinese USOs are diverse at different growth stages. Some key patterns include (Table 11): 1

indigenous platform innovations in the embryonic stage

2

learning capacity and agile response to customised local demands in the early growth stage

3

learning and network capabilities when accessing the global markets, and customisation capacity in response to specific demands in the non-home environment

4

IP and other innovation strategies are necessary when expanding the global business.

In particular, this paper opposes the old concepts that Chinese firms only require the key capabilities of learning – learn and absorb technologies from MNCs. Specifically, this study shows that, when indigenous platform technology becomes the core-competence, Chinese USOs need to maintain close cooperation with innovation sources (e.g., the parent universities), government agencies, and venture financial institutes, in order to modify their innovation platform continually. On top of their learning and absorptive capacity, other significant capabilities are required, including alliance forming, customisation, agile product development, and industrial standards strategy. This paper contributes to the existing theory in three ways. Firstly, it reveals that some Chinese USOs can compete globally on the basis of indigenous research. Second, it develops a conceptual framework (see Section 5.6) for mapping the required capabilities or capability gaps to enable Chinese USOs to grow and compete on innovation globally. This framework can provide a strategic ‘roadmap’ for entrepreneurs, policy makers or investors. Further, this study contributes to the innovation-process literature by adding empirical evidence from China. This study focused on capabilities, but some institutional barriers have also been briefly discussed. These barriers should be investigated in future study, especially when China is no longer a ‘national learning system’. The selected cases are unique – the government agencies and parent universities have substantially supported them in terms

206


of their strategic importance. However, some institutional barriers still exist, such as the weak industry and ecosystem, lack of regulation support, etc. The IP protection system also remains a major concern. Limitations of this paper do exist. First, this is a pilot research. The study will contribute qualitative evidence as a basis for further quantitative studies, when inductive work can be furthered by employing deductive approaches. Second, this explanatory framework is not exhaustive. Further study on institutional, industry and comparative perspectives would be useful. This paper could provide the basis for further work on converting the analysis into guidance for practitioners who wish to address the ‘capability gaps’ and to support capabilities management.

Acknowledgements This research is supported by the National Natural Science Foundation of China (Grant 71203117), the Humanities and Social Science Project by the Ministry of Education of China (Grant 12YJC630324), and the Tsinghua University Initiative Scientific Research Program (Grants 20101081967 and 20111081076).

References Barney, J.B. (1986) ‘Strategic factor markets: expectations, luck, and business strategy’, Management Science, Vol. 32, No. 10, pp.1231–1241. Chen, Q.T. (2010) Indigenous Innovation and Industrial Upgrade (in Chinese), China CITIC press, Beijing. Colombo, M.G. and Piva, E. (2008) ‘Strengths and weaknesses of academic startups: a conceptual model’, IEEE Transactions on Engineering Management, Vol. 55, No. 1, pp.37–49. Dai, Y. and Xue, L. (2011) ‘University technology transfer and commercializaton in China: using Tsinghua University as a case’, in Wong, P.K. (Ed.): Academic Entrepreneurship in Asia: the Role and Impact of Universities in National Innovation System, pp.223–247, Edward Elgar Publishing Limited, Cheltenham. Davidsson, P. and Achtenhagen, L. et al. (2005) ‘Research on small firm growth: a review’, 35th EISB Conference, Barcelona, Spain. Eisenhardt, K.M. (1989) ‘Building theories from case study research’, Academy of Management Review, Vol. 14, No. 4, p.532. Eun, J-H. and Lee, K. et al. (2006) ‘Explaining the ‘University-run enterprises’ in China: a theoretical framework for university-industry relationship in developing countries and its application to China’, Research Policy, Vol. 35, No. 9, pp.1329–1346. Hoskisson, R.E. and Eden, L. et al. (2000) ‘Strategy in emerging economies’, Academy of Management, Vol. 43, No. 3, pp.249–267. Interviews with HG Laser (2010) ‘Interviews with key staff from Wuhan HG Laser Co. Ltd. and company presentation slides’, January to September 2010. Interviews with HUST NC (2009) ‘Interviews with key staff from Wuhan HUST NC Co. Ltd. and company presentation slides’, February to December 2009. Interviews with Nuctech (2009) ‘Interviews with key staff from Nuctech Co. Ltd. and company presentation slides’, April to December 2009. Kroll, H. and Liefner, I. (2008) ‘Spin-off enterprises as a means of technology commercialisation in a transforming economy – evidence from three universities in China’, Technovation, Vol. 28, No. 5, pp.298–313.


207

McDougall, P.P. and Oviatt, B.M. (2000) ‘International entrepreneurship: the intersection of two research paths’, Academy of Management Journal, Vol. 43, No. 5, pp.902–906. Meyer, K.E. (2004) ‘Perspectives on multinational enterprises in emerging economies’, Journal of International Business Studies, Vol. 35, No. 4, pp.259–276. Miles, M.B. and Huberman, A.M. (1994) Qualitative Data Analysis: An Expanded Sourcebook, London, Sage, Thousand Oaks, Calif. Minshall, T. (2003) ‘Alliance business models for university start-up technology ventures: a resource based perspective’, 11th Annual High Tech Small Firms Conference, Manchester Business School, Manchester. Oakey, R.P. (1994) New Technology-Based Firms in the 1990s, Chapman, London. OECD (2010) Economic Survey of China 2010, OECD Publishing, 2, rue André-Pascal, 75775 Paris Cedex 16, France, available at http://browse.oecdbookshop.org/oecd/pdfs/product/ 1010061e.pdf. Oviatt, B.M. and McDougall, P.P. (2004) ‘Toward a theory of international new ventures’, Journal of International Business Studies, Vol. 36, No. 1, pp.29–41. Peng, M.W. (2001) ‘The resource-based view and international business’, Journal of Management, Vol. 27, No. 6, pp.803–829. Peng, M.W. (2005) ‘Perspectives – from China strategy to global strategy’, Asia Pacific Journal of Management, Vol. 22, No. 2, pp.123–141. Peng, M.W. and Wang, D.Y.L. et al. (2008) ‘An institution-based view of international business strategy: a focus on emerging economies’, Journal of International Business Studies, Vol. 39, No. 5, pp.920–936. Phelps, R. and Adams, R. et al. (2007) ‘Life cycles of growing organizations: a review with implications for knowledge and learning’, International Journal of Management Reviews, Vol. 9, No. 1, pp.1–30. Ramamurti, R. (2004) ‘Developing countries and MNEs: extending and enriching the research agenda’, Journal of International Business Studies, Vol. 35, No. 4, pp.277–283. Sapienza, H.J. and Autio, E. et al. (2006) ‘A capabilities perspective on the effects of early internationalization on firm survival and growth’, The Academy of Management Review, Vol. 31, No. 4, pp.914–933. Stam, E. and Garnsey, E. (2006) ‘New firms evolving in the knowledge economy: problems and solutions around turning points’, in W. Dolfsma and L. Soete (Eds.): Understanding the Dynamics of a Knowledge Economy, Vol. 4, pp.102–126, Cheltenham, Edward Elgar Publishing Limited. Su, J. and He, J.Q. et al. (2009) A Study of Knowledge-based Innovation and Technology Spin-offs in Chinese University (in Chinese), Tsinghua University Press, Beijing. Sun, J. and Wu, L.P. et al. (2009) ‘The relationship between indigenous innovation and technology imports: substitution or complementarity’, Studies in Science of Science, Vol. 27, No. 1, pp.133–138 (in Chinese). Teece, D.J. and Pisano, G. et al. (1997) ‘Dynamic capabilities and strategic management’, Strategic Management Journal, Vol. 18, No. 7, pp.509–533. Van de Ven, A.H. and Poole, M.S. (1995) ‘Explaining development and change in organizations’, The Academy of Management Review, Vol. 20, No. 3, pp.510–540. Viotti, E.B. (2002) ‘National learning systems: a new approach on technological change in late industrializing economies and evidences from the cases of Brazil and South Korea’, Technological Forecasting and Social Change, Vol. 69, No. 7, pp.653–680. Watkins-Mathys, L. and Foster, M.J. (2006) ‘Entrepreneurship: the missing ingredient in China’s STIPs?’, Entrepreneurship & Regional Development, Vol. 18, No. 3, pp.249–274. WIPO (2009) PCT Yearly Review: The International Patent System in 2009, Economics and Statistics Division, WIPO, available at http://wipo.int/pct/en/activity/pct_2008.html.

208


Wright, M. and Lockett, A. et al. (2006) ‘University spin-out companies and venture capital’, Research Policy, Vol. 35, No. 4, pp.481–501. Xue, L. (2007) ‘The changing roles of universities in China’s national innovation system’, Biennial International Conference on University, Industry & Government Linkages, Paris. Yamakawa, Y. and Peng, M.W. et al. (2008) ‘What drives new ventures to internationalize from emerging to developed economies?’, Entrepreneurship Theory and Practice, Vol. 32, No. 1, pp.59–82. Yang, X., Jiang, Y. et al. (2009) ‘A comparative analysis of the internationalization of Chinese and Japanese firms’, Asia Pacific Journal of Management, Vol. 26, No. 1, pp.141–162. Yin, R.K. (2003) Case Study Research: Design and Methods, SAGE, Thousand Oaks, Calif., London. Zhou, Y. and Minshall, T. et al. (2010) ‘Building innovation capabilities: an inquiry into the dynamic growth process of university spin-outs in China’, Int. J. Innovation and Technology Management, Vol. 7, Nos. 3, pp.273–302.

Notes 1

NTBFs are new firms that are technology-oriented, including corporate spin-offs, USOs, and ordinary entrepreneurial firms (Oakey, 1994). The authors argue that NTBFs’ core technologies are based on either original research or absorbed technologies. 2 Viotti (2002) argued that developing countries tend to adapt knowledge from industrialised countries, through ‘reverse engineering’, that imitates, copies, or generates technologically similar products. Knowledge flows only appear in a single direction, from advanced MNCs to domestic firms. 3 The term ‘indigenous innovation’ has been used in developing countries to emphasise the independent, self-reliant, and indigenous technologies that may generate higher value-added products or services. This paper defines ‘indigenous innovation’ as the new platform technology (new architecture, or the combination of new elements) based upon long-term original research – it is not necessary to introduce radical or disruptive innovations. 4 In China, ‘high-tech’ is commonly used to depict products/firms from the tech-based industries that emerged after the 1980s, including information technology, the new energy sector, etc. 5 http://www.stats.gov.cn/tjfx/ztfx/qzxzgcl60zn/t20090916_402587600.htm. 6 Chinese State Council via People’s Daily: http://scitech.people.com.cn/GB/13413553.html. 7 http://www.usatoday.com/tech/techinvestor/2004-07-28-cisco-settlement_x.htm. 8 http://www.rdmag.com/News/2010/12/Worldwide-R-D-funding-up-3-6-percent/. 9 http://www.spreadtrum.com/eng/; http://www.capitalbio.com/; http://www.syntronix.com. 10 Sixteen pilot interviews were held mainly in 2009 with the key entrepreneurs, senior managers at MNCs, researchers and related policy makers in Beijing, including Tsinghua Venture Fund, Synopsis (China), Nuctech, Datang Telecom, China Mobile, Tsinghua University, MOST, etc. 11 The limitations of this case selection procedure include: a although sectorial diversity has been considered, the selected cases, unintentionally, all belong to high-growth, high-tech sectors. A contrast would be provided if low or mediumgrowth sectors were to be included. b this study uses the longitudinal method, so the amount of work involved limits the maximum possible number of cases.

Building global products and competing in innovation 12

13 14

15 16

17 18 19

209

The case study protocol includes the following key components: a company information b a questionnaire concerned with firm-specific characters (i.e., core tech), industry competition, innovation edges, key milestones, expectations of external support c the preliminary capabilities framework. See The Wall Street Journal: http://online.wsj.com/article/SB119324934731170078.html. NC refers to the automation of machine tools that are operated by programmed commands running on a microchip or computer, as opposed to being controlled manually via hand wheels or levers. China CNC association report (2009): http://www.jc81.com/new_view.asp?id=83. These are mainly applicable to the laser processing (marking, welding and trimming) of automobile parts, electric components, metal moulds, plastic and rubber, engineering, LEDs, metallurgy, semiconductors, wafers, jewellery, gifts and even the space industry. http://www.optoiq.com/index/display/article-display/281315/articles/industrial-lasersolutions/volume-22/issue-1/features/cover-story/markets-keep-getting-better.html. China Optics and Optoelectronics Manufacturers Association: http://www.coema.org.cn/E_laser.htm. A distributed control system consists of four major components: a data collectors: sensors and data transmission unit b process controller: valve and control algorithm c process monitoring interface: integrated platform for experts to oversee the process d process manager: decision (by managers) input signal and transmission. Supcon had indigenous IP in both the control algorithm of the process controller (PLC-based), and the novel architectural design of the data processing structure and system integration. JX-100 was based on long-term research carried out at the automation laboratory, Zhejiang University.