1. Catching up from above - the development of Chinese R&D based competitiveness Six countries programme, Helsinki 17-18/6 2004 Vicky Long & Staffan Laestadius

2. Our message in short Chinese firms rapidly develop competitiveness in the high (R&D intensive) end of ICT industry in general and within telecommunication in particular It challenges the dominant view on how international firms localize knowledge intensive activitites within a globalized economy. This is a preliminary report from the beginning of a research project on Chinese telecom strategies. In addition to the literature and statistics studied it is based on interviews with Chinese ICT actors.

3. The context: globalization! Castells (1996) and the network economy A reminder: –Product cycle discussion - 60s (Vernon) –The international firm discussion - 70s (Hymer) –The international sourcing discussion - 70s (Fröbel) –The Asian Tigers - 60-70s Globalized communication systems

4. The catching up phenomenon Europe on China - 15th century America on Europe - 19th century Japan on America/Europe - 20th century First tier Asian Tigers Second tier Asian Tigers Who´s next?

5. The catching up process Gerschenkron (1962) Flying geese or leapfrogging Soft leapfrogging - real leapfrogging! Strategies by gvts. - and by intl. firms!! Krugman (1994) and the China syndrom: quantitative or qualitative growth!

6. China - the figures! Trade: 92/02 growth with 380% to global rank 4 Manufacturing content in export: higher than most industrialized countries ICT export: same as Japan and EU ICT import: world top group Telecom market: biggest size & growth in the world! FDI: highest in the world (almost)! Chinese firms are now going abroad

7. The consolidation of global business - the big business revolution The merger boom (M&A) The importance of the logo The importance of the strategic knowledge The competition along the value chain The global sourcing of activities Producing high-tech with no profit? Will Chinese firms break through?

8. The challenge Competition from Chinese actors directly in the high end and in industrialized countries Telecommunication - a chance for real leapfrogging for China? Competition on systems and technologies - in addition to design and interface - i.e. the high end of the R&D chain. Next follows the preliminary results from a massive set of interviews with Chinese actors.

9. Pearl River Delta (Jun, 2003) 8 firms, 2 government bureaus 1 high-tech park and 1 university Yangze River Delta (Jul, 2003) 5 firms Bohai Rim region Frist trip (Aug,2003) 10 firms, 2 government authorities 1 high-tech park, 1 university Second trip(Jan,2004) 4 firms and 1 development zone 27 ICT firms 4 Government authorities 2 high-tech parks 1 EDZs 2 Universities Interviewed organizations

10. Interviews in China China tour map Interviews in China

11. Tranditional Division of Labour Asset-exploiting R&D or home-based exploiting (HBE) Home-based augmenting (HBA) remains concentrated in the developed economies ( c. f. Dunning, 2000; Criscuolo & Narula & Verspagen, 2001)

12. Identified two directions of international R&D flows (conjectures) Many Western incumbent ICT firms move HBA/advanced R&D activities to China and/or in China based firms Chinese firms, after having successfully encroached market shares from foreign vendors at home and/or using the home market as an important cash cow, aggressively build up R&D labs in the advanced economies like USA and Sweden.

13. Western firms R&D labs in China Exploratory and strategic partnership stage (early - mid of 1990s): JV-based; Show Expansion of R&D investment stage (mid - late 1990s): intensive cooperation; exploring the West Consolidation of R&D stage (late 1990s - present): Chinas accession to WTO; Domestic development; consolidated, strategic FDI approach Source: Henry L. Stimson center (Walsh K, 2003) Three stages of high-tech MNC R&D investment:

14. MNCs R&D labs Developed regions (USA, Europe) NIEs (e.g. Acer, Kinpo Electronics, Viatech, Samsung, LG)

15. Two mechanisms favor this ICT R&D movement (conjectures) : Development of local conditions The mobility of ICT technologies and industries Rivalry, Matured Partners, Market Size (c.f.Walsh, 2003, Chen 2004)

16. Different structure and focus on R&D Spillovers (both ways) China - a sophisticated market? Social embeddedness Implication - Learning

17. Chinese establishment of overseas research labs Walks on two legs Chinese firms/enterprises (e.g. TD-SCDMA ) Leading indigenous Telecom & Datacom vendors Overseas labs A Emerging Innovation Forces & Drives of Setting up Overseas Labs

18. Among 23 interviewed Chinese ICT firms, there are 18 firms who own 35 overseas labs

19. Drivers Technology spillovers Semantic and contextual limitations of Absorptive capacity Center of excellence Global sourcing

20. The Activities of Overseas Labs - Four Steps and Onwards (observations) BI unit Cautious (budgeted) expansion & investigation A clear technological element/focus formed Convergence with local market needs (Contrary to its guerilla strategy--- besieging and encircling from village to city??? )

21. Scenario? Hurdles and Limitations Country, industry, corporate-specific hurdles The leapfrogging possibility?

22. Implications Challenge to conventional wisdom on globalization processes? High-tech & low tech concentration; Input-driven growth; Inward-orientation vs. outward-orientation; A global convergence of knowledge formation ?