Indigenous Innovation and Economic Development - China's Great Leap Forward into the IT Age

Are emerging nations obligated to follow the types of developmental trajectories of developed countries? Or can they instead engage in "indigenous innovation", transferring technology from abroad to generate superior technology at home? Using the comprehensive studies undertaken by his late colleague, Qiwen Lu, who drew on the previous work of former INSEAD Professor Mary O'Sullivan, Distinguished Research Professor William Lazonick details the phenomenal success stories of four of China's now most globally prominent IT firms.

by , William Lazonick
Last Updated: 23 Jul 2013

Given the massive lead in technological knowledge enjoyed by the developed world, how can emerging states hope to acquire the innovative capacities that are crucial for joining the ranks of prosperous nations? Do they have to follow the technological trajectories that have succeeded in the developed world? Or can they instead engage in "indigenous innovation", transferring technology from abroad to generate superior technology at home? In the modern context, this would generally involve exploiting technologies transferred from the advanced economies in support of home-grown, often very high-tech areas.

Distinguished Research Professor William Lazonick details the phenomenal success stories of four of China's now most globally prominent IT firms. Using the comprehensive studies undertaken by his late colleague, Assistant Professor of Asian Business Qiwen Lu, Lazonick expands the research of both scholars on the comparative historical experiences of both developing and advanced economies. He seeks to distil the insights provided by Lu's four business histories, using them to inform theories of innovative enterprise, indigenous innovation, and economic development.

The four Chinese firms studied - Stone, Legend (since renamed Lenovo), Great Wall and Founder - are all now publicly listed and are world players in their various IT sectors. Lazonick and Lu analysed the conditions, created by the Chinese government in the 1980s and early 90s, crucial for providing the technological capacities needed for indigenous innovation.

Drawing on the work of Lazonick and former INSEAD Professor Mary O'Sullivan, Lu argued that the innovation process itself needed to be analysed as "a set of social institutions that influences the strategic allocation of resources and returns in ... enterprises". Making specific use of the work of O'Sullivan, Lu focused his case study research on the four Chinese IT companies on three key questions: "who makes investment decisions; what types of investments they make, and how are investment returns distributed?"

Lazonick summarizes how Lu answered these three questions in Lu's book, published in 2000:

· In all four firms, scientists and engineers displayed profound understanding of the key technological disciplines involved. Moreover, they were willing to assume core leadership positions in order to transform that knowledge into marketable products.

· While these professionals invariably began their careers as salaried employees within the state science and technology structure, they were more than willing to become entrepreneurs when the opportunities arose.

· Various state "ownership" structures safeguarded managerial and financial autonomy in the early stages of the firms' innovative ventures.

· Investments in marketing were essential to firm growth, allowing the firms to transform their technological capacities into revenue streams, thus (quickly) gaining a remarkable degree of financial independence.

· Apart from relatively minor initial financial grants from various government bodies, none of the four firms needed more state injections of equity. Rather, all quickly secured markets for their initial products, which could be made cheaply and had mass global appeal.

In Lazonick's view, this "combination of managerial autonomy and financial independence ... gave these enterprises the time to develop innovative capabilities that could give them a sustainable economic advantage". The four firms that Lu studied succeeded by acquiring capabilities from abroad that enabled them to capture major market shares in China's computer industry and subsequently become significant players in global competition.

Industry and Innovation, Vol. 11, No. 4, 2004

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