Friday, November 25, 2011

China: Threat or Not?

During class we discussed that not only companies make strategies; countries also make strategies to achieve goals in a lot of different areas. This blog focuses on China’s strategies in technological innovation. A lot of articles have been written by scholars on whether China will or will not be a threat for the US in the future in the technological innovation market.

Firstly, in 2006, Steinfeld states we do not have to worry about China because it is still trying to catch up, and that despite extensive integration in the global economy, it remains concentrated in low-end commodity manufacturing.

In 2007 Naughton describes how China is following an aggressive, sustained and multifaceted policy of promoting domestic technology, but in a context of economic openness; it is open to foreign direct investment. At first, China tried to copy policies Japan and South Korea used, but China understood just copying these systems didn’t work because of very different institutional and cultural background. This is also one of the reasons why businesses fail mentioned in “Seven Ways to Fail Big” by Carroll and Mui.

Naughton shows that China has attempted many strategies in the past to try to align incentives in favor of high-technology development; as one didn't work out the way China planned, they switched to a new strategy:
1. Do it yourself: set a few key tasks, planners then coordinated flexible multidisciplinary and multi-skilled research groups to pursue those key goals.
2. Buy it: massive purchase of industrial machinery from technology leaders.
3. Bargain for it: 1980s. Negotiations with a number of large multinational corporations. Partners would be rewarded with privileged access to china’s market in return for sharing technology.
4. Seed it: institutes prepare applications for funding.
5. Encourage spin-offs. To diffuse technologies into the civilian economy. Institutes and universities allowed to contract with enterprises to provide technical services and to establish their own commercial subsidiaries.
6. Open up to foreign direct investment: 1990s. More competitive technology suppliers allowed in the market.
7. Support domestic entrepreneurship: 1999. Support all technologically advanced enterprises.

Naughton concludes that the US should see China as a threat because the pace of technological change in China is likely to accelerate through diverse channels:
- Policy makers have been flexible and adaptive.
- The human resource base is growing rapidly.
- Institutions and incentives have changed very dramatically and now provide rewards for technology pioneers and for those who implemented improved technologies effectively.
- Increasingly close cooperation and fine divisions of the value chain leading to relocation of technology-intensive services.

In 2011 Breznitz and Murphree wrote another article on China’s strategies based on two statements:
1. Excelling in innovation, defined as the creation of new technologies, services, and products, is the holy grail of economic growth.
2. Scholars presume that China should follow in the footsteps of other industrial powers and develop a novel-product innovation-based industry resembling Silicon Valley.

Breznitz and Murphree think these two statements are myths, and show that China follows a completely different innovation strategy, which does not involve creating novel-products, and still China is a critical part of the world innovation system. China has institutionalized an economic system that excels in utilizing and perfecting their particular innovational capabilities in the production and adaptation of products and technologies developed elsewhere. Breznitz and Murphree state that innovating through adopting a new technology and/or using it to create new industries is as important to economic growth as inventing it.

These three articles show different views on China’s strategies and how they pose a threat, or not, to the US. Will China become a big threat in the US in technological innovation? I think China will indeed become a threat for the US. Especially since the US is focusing more and more on a closed national innovation system (see President Obama’s statement in “President Obama launches Advanced Manufacturing Partnership), and China is focusing more and more on an open national innovation system. I think if both countries will continue in their current paths, in the end China will end up with a much stronger position since it has set up some clear strategies for its future and it will have set up a strong global network, while the US is trying to figure everything out internally.

Sources:
Naughton, B. (2007). The Chinese Economy (MIT Press, 2007), pp. 349-374, pp. 377-424.
Steinfeld, E. (2006). China’s Shallow Integration: Networked Production and the New Challenges for Late Industrialization, World Development, v. 32, n. 11, 2004, pp. 1971-1987.
Breznitz, D. (2011). The White Knight Avoided – Economic Reforms and Innovation for Growth in China. The Rise of the Red Queen. Yale University Press.
Carroll, P. & Mui, C. (2008). Seven Ways to Fail Big. Harvard Business Review. September 2008.
White House Press Release (2011). President Obama Launches Advanced Manufacturing Partnership. June 24, 2011.

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