1. TECHNOLOGY UPGRADING AND THE DEVELOPMENT OF REGIONAL ECONOMIES John W. Medcof, Ph.D. The Michael G. DeGroote School of Business McMaster University Hamilton, Canada

2. technologyupgrading002 2 Technology Upgrading 1.0Introduction 2.0Manufacturing Context 3.0International Business Studies 4.0The Chinese Context 5.0Conclusions

3. technologyupgrading002 3 1.0Introduction Technology Upgrading Technology upgrading is the use of increasingly complex technologies in products and processes, and the development of the increasingly sophisticated managerial and organizational capabilities needed to leverage those technologies for competitive advantage.

4. technologyupgrading002 4 Technology Upgrading Customer Technical Support Manufacturing Product and Process Adaptation Product and Process Development Basic Research Product Mandate

5. technologyupgrading002 5 Clusters/Regions “Clusters are geographic concentrations of interconnected companies and institutions in a particular field” Porter (1998)

6. technologyupgrading002 6 Clusters/Regions Silicon Valley Automobile Cluster in Detroit Hsinchu Industrial Park, Taiwan IT Cluster, Bangalore, India Zhongguancun Zone, Beijing

7. technologyupgrading002 7 Clusters/Regions Governments foster the development of clusters/regions for their positive economic effects. They attract: Domestic Firms Subsidiaries of MNC’s New Start-ups

8. technologyupgrading002 8 Subsidiaries of MNC’s Usually enter as low value-added operations: Basic Manufacturing orSales

9. technologyupgrading002 9 Subsidiaries with Upgraded Technology 1.Contribute more economic value-added to their clusters 2.Provide greater value-added technological and managerial spillover to their clusters 3.Are less likely to be closed in difficult economic times 4.Have positive spillover effects on sister subsidiaries and their firms in general

10. technologyupgrading002 10 Technology Upgrading in MNC Subsidiaries What do we know? How do you do it? What are the policy implications? Implications in the Chinese context?

11. technologyupgrading002 11 Technology Upgrading 1.0Introduction 2.0Manufacturing Context 3.0International Business Studies 4.0The Chinese Context 5.0Conclusions

12. technologyupgrading002 12 2.0Manufacturing Context 2.1Taggart (1998) 2.2Coughlan and Brady (1996) 2.3Song (2002) 2.4Ferdows (1997) 2.5Noori (1998)

13. technologyupgrading002 13 3.0International Business Studies 1.Delaney (1998) 2.Birkinshaw and Hood (1998) 3.Birkinshaw (1998)

14. technologyupgrading002 14 4.0The Chinese Context 1.0Xie and Wu (2003) 2.0Xie and White (2004) 3.0Zhou and Xin (2003) 4.0Humphrey and Schmitz (2002)

15. technologyupgrading002 15 5.0Conclusions 1.Subsidiaries evolve: mandates & capabilities change 2.Headquarters, subsidiary, host country roles 3.Technology upgrading can drive subsidiary evolution 4.Organizational and managerial capabilities as important as the technology itself 5.Technology upgrades enhance the cluster 6.Manufacturing and other platforms for tech upgrade 7.Entrepreneurial subsidiary managers continued…… continued……

16. technologyupgrading002 16 5.0Conclusions ……continued 8.Lobbying at headquarters: credibility & support 9.Collaboration with suppliers: capabilities & support 10.Collaborating and lobbying sister subsidiaries 11.Domestic market important in China: subsidiary power 12.Subsidiary research in Europe and North America 13.Learning from subsidiaries important to Chinese

17. technologyupgrading002 17 5.0Conclusions Policy Implications 1.Policy should foster subsidiary technology upgrading 2.Initial agreements for location should foster upgrading 3.Clearly articulate support for upgrading 4.Facilitate communication and travel for subsidiary 5.Facilitate collaboration with local suppliers 6.Facilitate accomplishment of initial mission 7.Facilitate spillover of managerial &organizational skills

18. technologyupgrading002 18 5.0Conclusions Research Implications 1.Lack of research on subsidiary technology upgrading in China:Does it occur? Different from European/American? 2.Does current Chinese policy adequately foster technology upgrading 3.Role of relationship building with government 4.Power relationships between domestic firms and subsidiaries