Global Manufacturing and Secondary Innovation in China. Xiaobo Wu
of technology advancements was about “introducing, digesting, and absorbing”, and Western technical innovation theory was based on the environments of developed countries. However, both of these extreme perspectives ignore that developing countries can choose their own path from imitation to innovation in this open and global environment. Based on effective practices taken by Chinese enterprises in “secondary innovation” when introducing technologies, this book begins with the laws of development of technological systems among Chinese manufacturers. Later, it puts forward a “secondary innovation” dynamic nonlinear model with learning and understanding as the basic characteristics, to reveal a critical path through which developing countries could make use of “latecomer’s advantages” to realize technological catch-up. This theory provides an excellent path for governmental decision making and strategy development for enterprises, as well as a new method for this research field. The theoretical research, which is both realistic and progressive, shows the spirit of “seeking truth, pursuing innovation” advocated and upheld by Zhejiang University, and a pragmatic style which is vital in China’s construction of modernization.
Nowadays, according to the significant strategic decision of “building an innovation-oriented country”, Zhejiang University is comprehensively accelerating the construction of the second phase of the “985 Project”, whose core is a scientific and technological innovation platform and a research base for innovation in philosophy and social science. Professor Wu works in the research base for innovation management and sustained competitiveness, which is one of the five important national bases for philosophy and social science at Zhejiang University. The mission of this base is to grasp the frontiers of international research while combining them with China’s reality, to actively participate in the construction of a national innovation system while exploring innovative management theory based on the stances of developing countries, to provide important decision-making support for the sustainable development of China’s economy and society. As for Zhejiang University, it should give full play to the academic advantages in engineering technology and promote the independent innovation of China’s manufacturing industry (especially the equipment manufacturing industry). Besides, promoting the intersection, penetration, and integration of humanities and social sciences, natural sciences and engineering technology is also significant for providing valuable suggestions for “the science and technology development strategy of manufacturing”, a major theoretical and practical matter related to the development of our country.
I sincerely hope that all other national bases for philosophy and social science at Zhejiang University could publish more such achievements to contribute to the construction of our innovative country.
Pan Yunhe
Academician of Chinese Academy of Engineering,
Former President of Zhejiang University
Preface
Ever since the Reform and Opening-up, China has been giving astonishing performances in the world’s economic arena. Its manufacturing industry has played a very critical role in this process. Since the 1990s, China’s manufacturing industry has been maintaining an value added which safely accounts over 30% of GDP, higher than the world average. It serves as the most important engine driving China’s high speed economic growth. After China joined the WTO at the end of 2001, China’s manufacturing industry has more aggressively embraced the wave of globalization to usher in ultra-fast growth. In 2010, the annual output value of China’s manufacturing industry surpassed that of the US. As a result, China truly becomes the world’s greatest manufacturing power. At the same time, many “tide-riders” mushroom in China’s manufacturing industry. High-tech companies such as Huawei, Geely and Hikvision start to stand out conspicuously in both domestic and international markets, registering themselves as industrial leaders in market performance and technology competence. To some extent, they have gone through the transition from merely “following” the leading companies, to “surpassing” and “leading” the pack, scoring the achievements that excite all Chinese people.
Nevertheless, after achieving the world’s largest manufacturing size, China’s manufacturing industry also met with lots of difficulties and challenges: the number of IPR (intellectual property rights) disputes and anti-dumping lawsuits involving Chinese companies keeps climbing over the years, cross-border M&As limp on and the threat of international financial crisis lingers. On the one hand, the costs of production factors (land, labor, etc.) are constantly rising in China, continuously squeezing the product’s profit margin and price advantages. On the other hand, the production efficiency and technological innovation capabilities of China’s manufacturing industry still lag behind those of developed countries. In terms of high value added products’ competitiveness, China is still disadvantaged. Besieged by the confluence of these two trends, China’s manufacturing industry is “sandwich pressed” by the impact from both low-end and high-end sectors. There is a danger of cliff-falling of its competitiveness.
In such a situation, we increasingly realize that the fundamental reason restraining the international competitiveness of China’s manufacturing industry lies in its insufficient independent innovation capabilities. Companies, which are weak in independent innovation, cannot create differential products with high value added, nor can they secure the advantaged position in global value chain. They can only make slim profits by taking the factor cost advantages. To emerging economies, manufacturing industry has significant contribution to the economic development. Accelerating the competence improvement is key to China in gearing up its international competitiveness. Having said that, how do China’s elite manufacturing companies resort to technological innovation to strengthen their competitiveness in the world’s economic arena? Is there any originality in technological innovation of China’s manufacturing industry? How will it evolve in the future?
In the late 1980s, I was a PhD student to Prof. Xu Qingrui, the founding father of China’s innovation management studies. Despite the heated topics of institutional reforms and commercialization mechanism back then, I started researching into technological innovation management approaches at the company’s level. Noticing the prevailing Matthew Effect of “introducing—digesting—innovating—lagging—reintroducing”, I started the empirical studies on “technology catch-up mechanism and model adapted to China’s conditions”. Back in those years, the majority of China’s technological innovation was reinnovating on the basis of introduced technologies. In 1991, based on empirical studies, I proposed the “Secondary Innovation” theoretical model which mirrored the technological innovation practices of companies from China and other developing countries. This theoretical model was published by PICMET (Portland International Center for Management of Engineering and Technology). In 1992, I completed my PhD dissertation “Theory and Model of Secondary Innovation”, creating the basic theoretical framework for the studies on secondary innovation. Later, this research was granted the funding from Youth Science Foundation, Natural Science Foundation of China. I was then able to deepen the studies on the interrelations between the secondary innovation dynamic model, company-dominated technology lifecycle and dynamic mode of organizational learning. During the Spring Festival of the year 1997, when I was a visiting scholar at the Cambridge Judge Business School and Institute for Manufacturing, I made a thematic report named “Secondary innovation and latecomer’s advantages”. The report was concurred by Prof. Mike Gregory, the Dean of Cambridge Judge Business School, the guru in international manufacturing management studies. He suggested taking my research findings up to the level of globalized manufacturing trend and strategy for further studies. This gave me the idea of focusing my research on the mechanism and mode of Chinese companies obtaining “latecomer’s advantages” in the globalization context, elevating the studies to the strategic level. Then, funded by Ministry of Education of the P.R.C and US Fulbright Visiting Scholar Program, I became a senior visiting scholar at MIT Sloan School of Management. During this time, my counterpart Prof. James Utterback and I had an in-depth discussion about the dynamic model for secondary innovation. Professor James Utterback is one of the well-known advocators of U/A Industrial Innovation Model and the guru expert in world technological innovation management studies (He is also the mentor of the famous scholar from the Republic of Korea, Mr. Linsu Kim). Prof. James spoke highly of the secondary innovation model, which was different from the U/A model. He proposed to relate it to the companies’ competition