Evolution of the “Academy-run Enterprises” in China: An Organizational Approach Jong-hak Eun Ph.D. Candidate Tsinghua University, Beijing, PRC Globelics Academy 2004

Brief Illustration on Start-up Firms in China Many firms originated from academic institutions The top three PC makers are all AREs – Lenovo (CAS), Founder (Peking Univ), Tongfang (Tsinghua Univ). The 1 st software company listed on the stock market is also an ARE – Dongruan (Dongbei Univ)

(Cont.) There are more than 5000 university-run enterprises (a subset of AREs) across the country. –Among them, 1993 are categorized as S&T-based firms There are more than a thousand of academic research institute-run enterprises. About 40 university-run enterprises are listed on the stock markets in mainland China and Hong Kong.

University-run Enterprises (UREs, a subset of AREs) listed on the Stock Markets

Those firms have been depicted in terms of… –Private/Privately-run/Non-Governmental firms Stress different incentive mechanism from that in traditional State- owned Enterprises –Spin-offs At the same vein, Zhongguancun (Beijing), where many of those fi rms are located, has often been called China’s Sillicon Valley In fact… –They are not purely private –They are “spin-arounds” rater than spin-offs Existing Studies

A New Concept “Academy-run Enterprise” which is different from “Spin-off” Differences –Owned by the “academic institutions” rather than by some entrepreneuri al individuals (faculties and graduates of academic institutions) –Managerially controlled by the academic institutions Personnel, Profit sharing, Wages… –Much stronger connection through a kind of “Umbilical cord” Almost exclusive rights to exploit tangible and intangible assets of mother i nstitutions Def. of the Academy-run Enterprises (AREs) –Firms that owned or managerially controlled by academic institutions (universities or public research institutes)

Cultural Revolution Great Leap Forward st Five Year Plan Restoration Reform S&T Reform Tian’anmen Nanxun Jianghua URE reform Historical Development of the AREs

Research Questions Why…? –Emergence (mid-1980s) –Growth (1990s) –Reform (since late 1990s)

Methodology Exploring publicized statistics on AREs –Very few Semi-structured Interviews –Top managers and staff members of AREs, University professors eng aged in ARE formation, Directors of public research institutes, etc. Questionnaire Survey –Identified 477 AREs which are affiliated to 67 major academic instit utions, and sent out questionnaires for the CEOs of the firms. –102 sample

Theoretical Framework

Organizational (new institutional) Approach I suggest to view AREs as a “Governance Form” of “Knowledge Industrialization”. There exist various alternative forms of Knowle dge Industrialization (e.g. joint research center, short or long-term joint research contract, technology exchange market, technology licensing, science park, incubating center, and education, etc.)

A Needed Modification Theories of the Firm (i.e. Firm boundary theorie s) can not be automatically applied to the issue of Knowledge Industrialization Extra Consideration: “Historically-formed Social Contract” on the division of labor among university, public research inst., and industrial fi rms

Historically formed Social Contract Boundary Selection (TCE & RBV) Entrepreneurial Hierarchical Spin-off Firm ARE Tech Sales Patent License Incubator Joint Research Joint Research Center Education Purely Academic More applied Science Park Non-Entrepreneurial Market-like Governance Forms of Knowledge Industrialization

Micro-level framework to explain the Origin and Evolution of the AREs

Micro-level framework: Whether establish AREs or not? Basis of Actual Decision - making

Hypothetical Arguments

ARE: Why Emerged and Grew? I.Willingness to establish AREs –Sociopolitical encouragement –pecuniary incentive II.High Market Transaction Cost –Weak Absorptive Capacity of firms –Underdeveloped Intermediary Institution III.Strong Resource –Application-oriented research tradition –Umbilical Cord between academic institution and ARE (brand, technology, human resource) –Underdevelopment of alternative forms of knowledge industrialization

ARE: Why Reform? I.Lowered Market Transaction Cost (with variations across sectors) –Enhanced Absorptive Capacity –Improved Intermediary Institutions II.Weakened Resources III.Changing Social Contract on the Role of Academic Institutions –More Focus on Academic Research (Retreat from economic activities) I IIIII XX XX OO

More jobs planned to be done Up to now, we have focused on so to speak Forwar d Engineering (Lu, 2000). –But there is other possible way of technological develop ment, which is Reverse Engineering (Kim, 1997) Synthesize the discussions on forward and reverse e ngineering. Develop more extended framework to compare diff erent countries’ experiences (esp. developing count ries)

Conceptual Framework

Feasible Zones for Forward and Reverse Engineering

International Comparison & Policy Implications

Thank you!