From Imitation to Creation - The Worldwide Impact of China's "Phase Five"

INSEAD Professor of Asian Business and Comparative Management Steven White and Professor Wei Xie of Beijing's Tsinghua University provide expert analysis of what they see as the five key stages in China's "technological learning process" . This includes the current, still maturing fifth phase, whose outcome will inevitably have profound implications for China and the world. The fundamental change at present is from corporate and national strategies based on "imitating technology developed elsewhere, to strategies based on creating proprietary and competitively valuable resources and capabilities."

by Steven White, Wei Xie
Last Updated: 23 Jul 2013

Since the founding of the People's Republic in 1949, increasing technological and production capacities has been a consistent overall objective for the Chinese government. INSEAD Professor of Asian Business and Comparative Management Steven White and Professor Wei Xie of Beijing's Tsinghua University provide expert analysis of what they see as the five key stages in China's "technological learning process," including the current, still maturing phase, whose outcome will inevitably have profound implications for China and the world.

The authors draw on both Chinese and foreign studies of Beijing's oversight of innovation systems, technology acquisition and development, and related organisational capabilities since the birth of the PRC. Each of the five stages represents a unique configuration of the government's strategic priorities, nature of technology emphasised, mode of learning and geopolitical source of learning.

In the more contemporary context, White and Xie see a critical policy change as having occurred in the fourth stage (1992-2001), when the government shifted its emphasis from nurturing economic modernisation per se, to localisation of value-added activities as an integral means of ensuring both sustainable and robust long-term growth. Two main realisations were behind the changes in priority assessment. First, Chinese industries were, in general, only benefiting minimally from the presence of the MNCs they have been working with as partners or exposed to as competitors in China. . Second, the lack of competitiveness amongst local suppliers - due to lack of technological expertise and various political impediments - flew in the face of the new global economic realities, wherein both quality and price were increasingly becoming the mainstays of economic competitiveness.

The authors posit that a fifth stage in China's technological learning has begun - one that represents a discontinuous change, with markedly different imperatives and challenges, than any of the preceding four: "The fundamental change is from firm and national strategies based on imitating technology developed elsewhere, to strategies based on creating proprietary and competitively valuable resources and capabilities."

Citing China's recent joining of the World Trade Organization as a major catalyst in this transformation, the working paper proposes that this entry coincides with an increasing number of Chinese firms - so far, at least, in only a handful of select industries - setting for themselves the target of competing with the world's largest or well-established players. In the authors' view, "their competitiveness … is based not just on their ability to successfully adopt or imitate technologies and processes developed elsewhere, but on their ability to develop firm-specific capabilities that lead to competitively important resources, including product and process technology, brands and distribution networks".

After discussing other practical reasons and providing examples of other motivators for Chinese firms to develop proprietary resources and capabilities, Xie and White briefly discuss how such companies are increasingly establishing R&D labs abroad, and at the same time forming far different types of alliances with foreign multinationals than in even the very recent past. The opposite flow is also becoming more and more common, with MNCs establishing major research facilities in China not as outposts serving local needs, but [as] nodes integrated into their corporate R&D networks, with results incorporated into products and services offered globally.

The essay concludes with a thorough discussion of the current impediments to this paradigm shift from imitation to self-sustaining innovation. The authors also provide insight into the policy and managerial implications inherent in this transition to worldwide standards of competitiveness, centred around creative ability, rather than the imitative talents whose competitive limitations are becoming increasingly clear.

INSEAD 2004

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