Technological Catching-up of Latecomer Firms through External Technology
Acquisition: Evidence from GEELY Auto Company in China
Abstract
External technology acquisition has been viewed as an important method to realize
technological catching-up. However, only a few studies have been on technology
acquisition strategy of auto firms. This study develops theories related technological
catching-up through external technology acquisition of a Chinese auto firm to reveal
that: first, integrating different streams of technological knowledge is crucial to
innovation; second, external technology acquisition apparently in terms of
technological performance is based on accumulation of internal R&D inputs. These
results provide important suggestions for late starting companies to catch up with
leaders, formulate technology acquisition strategy and strengthen technological
capabilities.
Keywords: External technology acquisition; Catching-up; Innovation performance;
Chinese auto firms
1. Introduction
How the newly industrialized economies (NIEs) take-off since their independence
after the Second World War? What is the difference of technology development
process between latecomer firms and the firms in technologically advanced countries?
These are questions highly debated by literature regarding technological catching-up
process of latecomers (Hobday, 1995; Kim, 1997; Lee and Lim, 2001; OECD, 1992;
Westphal, et al., 1985). Most technology-oriented views focus on explaining how
NIEs have tried to catch up with advanced countries by acquiring matured technology
from them and increasing absorptive capacity (Gil and Lee, 2003; Katz, 1984; Kim,
1980; Lall, 1980; Lee et al., 1988, 1994; Stewart, 1979). However, others argue that
latecomers can catch up by leapfrogging or direct innovation at the technological
frontier (Fan, 2006; Lee and Lim, 2001; Perez, 1985).
Latecomer firms have viewed external technology acquisition as an important
technological catching-up method over the last two decades (Duysters and Hagedoorn,
2000; Zahra et al., 2005). This practice can expand a firm’s technological capability to
better cope with increasing speed, cost, and complexity of technological development
(Cohen and Levinthal, 1989; Hagedoorn and Duysters, 2002; Henderson and
Cockburn, 1996; Lambe and Spekman, 1997; Montoya et al., 2007). Most existing
literature on external technology sourcing concentrate on influential aspects of
acquisition (Hemmert, 2004; Jones et al., 2001; Yoshikawa, 2003; Zahra et al., 2005),
choice between internal and external sourcing (Narula, 2001; Veugelers, 1997;
Veugelers and Cassiman, 1999), as well as external technology acquisition and
performance relationships (Ahuja and Katila, 2001; Jones et al., 2001; Tsai and Wang,
2007, 2008; Vanhaverbeke et al., 2002). The strategies of acquiring technology
externally investigated in literature include mergers and acquisitions (M&A),
technology purchase through license contracts (inward licensing), technologies
embodied in equipment, and some (formal or informal) cooperative modes of R&D
(Chiesa et al., 2000; Cho and Yu, 2000; Hung and Tang, 2008; Tsai and Wang, 2009;
Venanzi, 1996). Firms should choose appropriate technology strategy for acquiring
needed technology (Chesbrough, 2006; Chesbrough and Crowther, 2006).
Comparing with technology condition of advanced countries, NIEs like China are a
follower rather than a leader (Tsai and Wang, 2008). Over the past two decades,
China’s auto companies have played a key role in the rapid growth of Chinese
economy. China central government has been consistently emphasizing the
importance of technological innovation in auto sector and viewing it as an engine for
catching-up with advanced countries. Increasingly complex technologies prompt more
and more auto firms to acquire external technology that matches their internal
development activities.
Although many studies explain how firms in NIEs have gone through technological
catching-up their own way, which are so-called hi-technology firms (semiconductor
or biochemical) mostly, they have yet to suggest specific themes such as microcosmic
mechanisms on the absorption of acquired technology and the implementation of
proper technology acquisition strategy of auto firms. This study intends to fill this gap
in literature by studying technological catching-up process through technology
acquisition of a certain late starting company in China, GEELY Auto Company, which
is one of the fastest growing and innovative auto companies in China and acquired
Volvo Cars in 2010 (see Table 1), investigate how latecomer auto firms manage their
technology acquisition activities to help generating innovation and examine the
impacts of external technology acquisition on firms’ innovation performance.
Table 1
GEELY milestone events
Year
Events
1984 Founding refrigerator factory
1994 Entering motorcycle industry
1996 Setting up GEELY Group Co., Ltd and beginning large scale development
1997 Entering automotive industry
1998 The first GEELY car “ Pride” off the assembly line
2001 Becoming first qualified private enterprises of car production in China
2002 Renamed GEELY Holding Group Co., Ltd
2003 The first GEELY car exported overseas
2005 On the public market in Hong Kong
2007 Announcing strategic transformation
2010 Acquisition of Volvo Car, with 100% of the shares and related assets
(including intellectual property)
The rapid growth of GEELY raises several issues to be studied. First, how does
GEELY accumulate technological capability in such a short time span? Second, which
technology acquisition strategies does GEELY adopt during different technological
catching-up stages? Third, what implications do GEELY offer to other latecomer auto
firms? To answer these questions, a quick review of relevant theories, as well as the
process of accumulating technological capabilities, the external technology
acquisition strategies and the impact of external technology acquisition on
technological performance with internal R&D efforts observed in GEELY Auto are
detailed in the following sections. Some conclusions and implications from GEELY’s
practice in technological catching-up through external technology acquisition are
presented in the closing section.
2. Literature review
2.1. Technological catching-up of latecomer firms
In terms of technological catching-up process, evidence shows that substantial
innovation occurs based on minor improvements to existing processes and product
designs via the absorption of foreign technology from abroad (Hobday, 2005). Some
scholars argue that technology development in Korea seems to follow reverse order of
A-U model (Utterback and Abernathy, 1975), a model of acquisition, assimilation and
improvement (Kim, 1997; Lee et al., 1988), starting from obtaining mature
technology from developed countries. Through cases of electronics in the four
dragons: Korea, Singapore, Hong Kong and Taiwan, Hobday (1994, 1995) confirms
this general reversal process in firm-level as follows: assembly skills, incremental
process changes for quality and speed, full production skills, R&D for products and
processes, and competitive R&D capabilities. This process is analyzed in terms of
interacting technology and market transition from OEM, to ODM and OBM. By
analyzing the case of Samsung Semiconductor, Kim and Seong (2010) point out that
catching-up innovation focus on quick imitation and the innovation model is normally
reverse engineering.
Lee and Lim (2001) identify three different patterns by analyzing six industries in
Korea (see Table 2). In the first pattern, latecomer firms follow the same path taken
by the forerunners. The second pattern is stage-skipping catching-up. The third
pattern is path-creating catching-up, where latecomer firms explore individual paths
of technological development. Among these, stage-skipping catching-up and pathcreating catching-up are considered technological leapfrogging, which suggests that
latecomers do not simply follow the path of technological development of advanced
countries in catching-up process, but skip some stages or even create their own
individual paths (Hobday, 1995; Lee and Lim, 2001; Perez, 1988).
Table 2
Three patterns of technological catching-up
Path
Stages
Path of the Forerunner
stage A→stage B→stage C→stage D
Path-following Catch-up stage A→stage B→stage C→stage D
Stage-skipping Catch-up stage A→----------→stage C→stage D
Path-creating Catch-up
stage A→stage B→stage C’ →stage D’
Source: Lee, K., and Lim, C. 2001. Technological regimes, catching-up and
leapfrogging: findings from the Korean industries. Research Policy, 30(1): 459-483.
Technological catching-up evolves through the accumulation of technological
capability. The concept of technological capability has been the focus of research in
NIEs for years, and researchers have developed diverse definitions of technological
capability (Dutrénit, 2000). During the early 1980s, technological capability was
defined as the ability to utilize technological knowledge and classified into production
capability, investment capability, and innovation capability (Westphal et al., 1985).
Recently, the concept of technological capability has expanded to include the ability
to utilize existing knowledge effectively in addition to create new knowledge
(Dutrénit, 2000; Kim 1997). In advanced countries, technological capability is
accumulated through learning by research, whereas in NIEs, it is done through
imitative learning by doing (Kim, 2001). Only a small number of NIEs (i.e., Korea,
Taiwan, and Singapore) have succeeded in making a quick shift from learning by
doing to learning by research (Hobday, 1995).
2.2. External technology acquisition and performance
Technology acquisition can be defined as a process of planned, selective, focalized
importation of advanced technology which enterprise has not master, and new
application of imported technology which can bring expectant economic benefits to
new users (Lambe and Spekman, 1997; Lowe and Taylor, 1998).
Recent research contributing to external technology acquisition can be categorized
into three main domains. The first perspective is discovering different kinds of
technological acquisition modes. These modes include M&A, cooperative R&D,
importation of equipment and international joint ventures (JV) (Atuahene-Gima, 1993;
Chaudhuri, 2004; Cho and Yu, 2000; Hung and Tang, 2008; Park, 2011; Tsai and
Wang, 2009; Venanzi, 1996). Table 3 shows some mostly used technology acquisition
channels and corresponding literature summarized by Daim and Kocaoglu (2008).
Table 3
Overview of the technology acquisition channels and related literature
Technology
Representative literature
acquisition
channels
Industry-university
Alp et al. (1997a,b), Chiesa et al. (2000), Dill (1990), Kamala
consortia
and Swamy (1985), Lichtenthaler and Lichtenthaler (2004),
Lopez-Martinez et al. (1994), Nakamura and Odagiri (2005)
External R&D
Hemmert (2004), Jones et al. (2001)
centers
Licensing
Chiesa et al. (2000), Granstrand (2004), Hemmert (2004),
agreements
Killing (1980), Lichtenthaler and Lichtenthaler (2004),
Nakamura and Odagiri (2005), Pack (2001), Toshikawa (2003)
Purchasing
Akarakiri (1998), Alp et al. (1997a,b), Awny (2005), Granstrand
technology
(2004), Hemmert (2004), Jones et al. (2001), Narayanan (1998),
Pack (2001), Swan and Allred (2003), Tsai and Wang (2008)
Vendors/suppliers
Gagnon and Sheu (2003), Koc and Ceylan (2007), Rothwell
(1992)
Source: Daim, T. U., and Kocaoglu, D. F. 2008. Exploring technology acquisition in
Oregon, Turkey and in the U.S. electronics manufacturing companies. The Journal of
High Technology Management Research, 19(1): 45-58.
The second domain is factors affecting the decision-making of external technology
acquisition. Jones et al. (2001) investigate the impact of three variables (technological
change life cycle stage, intellectual protection and internally available resources) on
the propensity of multinational firm subsidiaries to acquire technology externally.
Vanhaverbeke et al. (2002) find that previous direct and indirect ties between partner
firms in the application-specific integrated circuit (ASIC) industry have varying
impacts on the choice of M&A. By examining a sampling of electronic industries in
Japan, Korea and Taiwan, Hung and Tang (2008) indicate that among the factors
analyzed in this study, which is a firm’s technological capability, size, previous
experience and relevance of its core technology, technological capability
(technological level, technological innovation and R&D activities) is the most
significant factor influencing the determination of technology acquisition mode.
The third domain highlights technology acquisition and performance relationship.
Jones et al. (2001) investigate 188 subsidiaries of multinational firms, and show that
internally available resources enhance the effect of external technology acquisition on
product performance. Based on an analytical sample of 341 Taiwanese electronicsmanufacturing firms, Tsai and Wang (2008) reveal that the positive impact of external
technology acquisition on firm performance increases with the level of internal R&D
efforts. Additionally, Vanhaverbeke et al.’s (2004) survey on firms in chemical,
automotive and pharmaceutical industries indicate that a company's direct ties,
indirect ties with other firms in technology alliance network have different impacts on
its learning performance (patent). Through a detailed analysis of German and
Japanese pharmaceutical and semiconductor business units, Hemmert (2004) points
that technology acquisition performance is influenced by a variety of institutional
factors which include access to R&D personnel, access to external sources of
knowledge (firms and research institutions), the political, legal and administrative
environment and the organization of knowledge transfer.
Although several studies have contributed empirical evidence to factors affecting
decision-making of technology acquisition and technology acquisition–performance
relationship, there still remain some questions needed to be studied: first, these studies
focus on advanced countries mostly, which may be different from NIEs; second,
literature on firm-level technological catching-up through external technology
acquisition in traditional manufacturing industry is scarcely found, especially for
automotive firms; furthermore, most previous research about impact of external
technology acquisition on technological performance has not got agreement on those
investigated firms or industries, which may cause an unclear cognition on the
application of technology acquisition. This study here focuses on technological
catching-up process through external technology acquisition of latecomer auto firm in
China, which not only combines technological catching-up related theories with
technology acquisition perspective, but also expands the research on firm-level
technology acquisition strategies and performance in NIEs.
3. Methodology
Since this study is driven by theoretical research questions based on a patchwork of
empirical observations, we adopted case study method, which includes data on
innovation activities of GEELY Auto to maximize the validity and reliability
according to the theory stipulated by Yin (2009).
A semi-structured form was conducted during the interview process. We
interviewed several persons of GEELY respectively, who are executives, technical
officers, R&D personnel, senior managers and engineers. The form of those
interviews contains formal face to face interviews, interviews in informal occasion,
and a certain number of questionnaires. Each interview was typically 90-120 minutes
in length, which not only enriches research information, but also helps researchers to
identify direction and dimension of relevant research questions by the respondents.
We interviewed again 11 persons by telephone and emails to expend on questions in
details. After analysis and filtering, nearly 90 percent of interview data were
transformed into case study database. It is difficult for researchers to obtain sufficient
interview time due to executives are very busy using other open information for
enriching data sources and ensure a multi-dimensional research is necessary. Gallager
and Parker (2002) and Lynn (1998) have used this method to carry out academic
research. Therefore, we searched a number of interviews in related websites,
newspapers and magazine as supplement data.
In addition, we collected 10 internal archival documents from GEELY official site.
These documents include year reports, corporate developing strategies, R&D plan,
internal memo, CEO’s reports, and historical sales volume and avenue materials. We
also collected more than 20 public documents pertaining to GEELY, including press
releases, statistical yearbooks, industrial research reports, and journal articles. The
public data mainly come from China Financial Database (China INFOBANK), State
Intellectual Property Office of China (SIPO), and SOHU Auto Database. These
documents are very useful and helpful for us to examine and retrospect the interviews
to remove some bias.
Because GEELY is a latecomer auto firm with a faster growth than traditional auto
companies in China, it is necessary to compare differences of external technology
acquisition strategies adopted by traditional auto firms, which can partially explain
GEELY’s success in technological catching-up more specifically. We choose
Shanghai Auto Industry Corporation (SAIC) to make comparative study on their
external technology acquisition strategies, as well as a supplement evidence of
technological catching-up process in China’s auto firms.
4. Case analysis and research findings
4.1. Three stages of accumulating technological capability in GEELY
GEELY is one of top ten auto manufacturers in China, which was a refrigerators
and motorcycles manufacture originally. Over the past ten years, GEELY has grown
faster than any other company in Chinese auto industry (see Table 4). Although
entering low-end market of economy cars, it has increased the level of production and
R&D gradually with continuous technology acquisition and learning.
Table 4
Sales data of GEELY from 1999 to 2011
Sales Volume
Sales Income
( units: thousand sets)
( units: thousand yuan)
1999
2
5,746
2000
8
63,603
2001
21
112,572
2002
48
71,820
2003
76
39,872
2004
97
41,123
2005
133
101,411
2006
164
127,006
2007
182
137,209
2008
204
4,863,460
2009
327
15,978,419
2010
416
20,099,388
2011
422
20,964,931
Year
Source: GEELY’s yearbook 2011; not include Volvo.
Stage one: capturing modern production capability (1997-2004)
In 1997, GEELY first car was assembled with parts of Mercedes-Benz and Red
Flag cars. Following this, GEELY bought Xiali model to imitate its interior and
chassis, which was introduced from Daihatsu-a Japanese car company. Depending on
accumulated knowledge from reverse engineering, GEELY successfully finished the
development of Pride (in 1998), Meiri (in 2000) and Ulio (in 2001) cars. Later,
GEELY began Beauty Leopard project, the first realization of full data graphic
guidance design.
As for key components, GEELY started the first engine (JL479Q) project in 1999
using Toyota 8A engine as a prototype. After hunting experts from other companies,
GEELY carried out the variable valve timing (VVT) engine development in 2003. It
also utilized knowledge learned from patents and communication with suppliers to
develop automatic transmission (AT) and production equipment.
Stage two: building basic product development capability (2003-2007)
Through cooperation with Daewoo in 2004, CK-1 became the first fully forward
project of GEELY in accordance with international development pattern. King Kong
was another cooperative result with Beijing CH Auto Technology Company and
Taiwan Fu Zhen. The partners designed product appearance, leaving all the chassis,
powertrain, and electrical design completed by GEELY. From 2005 to 2006, GEELY
launched new models of Huapu, Vision, and made an excellent entry into mid-end
field. “The construction of three systems makes GEELY transfer into platform mode,
which refer to product development system, technology management system and
product validation system, and the product development cycle is shortened greatly
through simultaneous engineering” said by Fuquan Zhao, the leader of GEELY
Automobile Research Institute, who worked at Chrysler before. This make GEELY
not only emphasize basic models development but also variants on these platforms,
such as sedan, hatchback, and different engine configurations.
GEELY also got breakthroughs on key components through cooperative R&D with
auto parts companies. By integration of supplier's expertise, and guiding them to
establish R&D centers, GEELY built “unified planning and management,
complementary advantages, cooperative development”, a new R&D organization, to
realize key components innovation, which greatly reduces development cost and
shortens development cycle at the same time.
At the same time, GEELY began technical output of Freeship and Vision cars
assembled in Malaysia through CKD and CBU cooperation with Malaysia IGC. By
the end of 2006, GEELY has 26 agents and 128 sales and service outlets overseas,
with total exports of nearly 40,000 sets, accounting for 63.7 percent of Chinese cars
exports.
Stage three: upgrading technological innovation capability (2007-till date)
Since international financial crisis, global auto market has undergone major
changes. GEELY seized this opportunity and acquired DSI, the second large AT
company in the world. Two years later, the six-speed AT has been successfully put
into production in GEELY Xiangtan base, filling the gap in high-grade AT field of
self-brand vehicles in China. In 2010, GEELY got 100% equity of Volvo Car
Corporation, including global ownership, trademark, sustainable platforms, vehicle
plants, auto parts companies, R&D team, more than 2,000 sales and service outlets in
over 100 countries, and 10,000 patents.
GEELY captured a large number of key technologies by means of M&A. Such as
the breakthrough of blow-out monitoring and brake system (BMBS), and the first
five-star car of China-New Car Assessment Program(C-NCAP) in self-brand market,
which mark its products have shrunk distance with multinational enterprises (MNEs)
in similar type. Recently, GEELY is developing full collision mitigation system
similar as Volvo city anti-collision system. GEELY’s technology system was also
integrated: Technology Division of GEELY Group, responsible for unified planning
and management of entire technology system; GEELY Automobile Research Institute,
responsible for R&D projects; Zhejiang Automobile Engineering College, responsible
for cultivation of automotive talents.
Meanwhile, CKD assembly products in Russia and Indonesian accumulated
experience for GEELY overseas strategic objectives. At present, GEELY has more
than 400 sales and service outlets overseas.
In summary, GEELY’s technological capability accumulating process shows these
characteristics in Table 5 and a double development path of vehicle and key
component in Figure 1.
Table 5
Characteristics of the technological capability accumulation
Stage
Capturing modern
Building basic
Upgrading
production capability
product
technological
development
innovation
capability
capability
Period
1997-2004
2004-2007
2007-till date
Innovation
Duplicative imitation
Creative imitation
Innovation
Production capability
Development
Technological
capability
capability on
innovation
focus
vehicles and
capability on
components
platforms and key
characteristics
Technological
components
Technology
Reverse Engineering
Cooperative R&D
M&A and JV
Technology
FAW-Red Flag
Daewoo
DSI
source
Tianjin-Xiali
acquisition
strategies
Volvo
Key products
Pride
Freeship
Gleagle- Panda
Meiri
King Kong
Emgrand- EC7
Ulio
Vision
Englon
Technological
Capability
Vehicle
Upgrading
technologyEC7 Panda
Key
component
Forward
developingFreeship
BMBS
Improving ArtMeiri Ulio
BenchmarkPride
AT & EPS
JL479Q Engine
Deconstruction
1997
7DCT
2003
JL4G24
D-CVVT Engine
JL4G18
CVVT Engine
2007
2011 Time
Figure 1 Technological catching-up process of GEELY
4.2. External technology acquisition strategies of GEELY
Cooperative R&D
In 2002, GEELY cooperated with Italian Auto Group to learn complete vehicle
development process from design drawings to prototype with all IP rights. In 2003,
GEELY reached another cooperation agreement with Germany Luc to absorb creative
shaping and engineering feasibility analysis. Following this, Daewoo helped GEELY
to complete design and develop stamping molds, weld lines, and practice concurrent
engineering, Wooshin helped to improve manufacturing process, and Ta Metal
transformed appearance of GEELY car more attractive. When introducing London
Taxi TX4 to Hong Kong, GEELY developed LPG engine and supply system with
Hong Kong Productivity Promotion Bureau (HKPPB), which reduced R&D cost by
large-scale utilizing personnel, equipment and experience of HKPPB. GEELY
accessed to cutting-edge technology through communication with research institutes,
such as GEELY-Tongji Automotive Engineering Research Institute was established in
2007 to help GEELY in personnel training, product design, key components and
vehicles development and test.
As Conghui An, CEO of GEELY, said, “We want to make all-round cooperation in
various forms with MNEs on basis of cultivating self-brand." GEELY learned
standardized R&D process and completed design, development and manufacturing
work of Beauty Leopard and Freeship, chassis optimization of Ulio.
M&A
On the backdrop of international financial crisis, value of many companies are
seriously underestimated, consequently M&A strategy can access to brand, core
technology and marketing channels at a lower cost.
In 2006, GEELY purchased Manganese Bronze Holdings, a company with hundred
year’s history in taxi and production of body for Rolls-Royce, which helped GEELY
accumulate experience in global operations of subsequent acquisitions. In 2009,
GEELY made a wholly-owned acquisition of DSI, to fill the blank of high-end AT in
China. GEELY restored supply to Ford firstly, and then introduced DSI products to
provide Chinese auto companies, also provided financial support in new product
development to further enrich product line. After acquiring Volvo Cars in 2010,
GEELY and Volvo Cars announced that GEELY will use advanced technology
authorized by Volvo to raise quality of GEELY cars and build high-end self-brand.
The two sides actively promoted collaborative development of small-displacement,
high-performance and green engine, environment-friendly small car platform, as well
as electric, hybrid, plug-in hybrid and other new energy technology. This technology
transfer from Volvo to GEELY is the first time for MNEs transferring advanced
technology to Chinese local firms.
JV
GEELY implemented "1+1+1" operation platform creatively, which uses local
suppliers advantages, combined with technology and quality advantages of
international suppliers, plus GEELY’s support.
At this point, GEELY has established almost 20 auto parts JVs with Faurecia,
Mando, Yazaki, Tachi, Shun Cheong, and Yanfeng Visteon in interior, exterior, chassis,
electrical areas. GEELY Emgrand, which can meet up with European standards,
couldn’t make a great success without important support of outstanding parts supply
system. For example, mature technology of Faurecia could achieve rapid matching
with GEELY through Zhejiang Limin, one of the JV partners, who have supplied
GEELY for several years and is familiar with GEELY’s products and culture.
“GEELY occupies a certain proportion of shares”, said Shufu Li, the president of
GEELY Auto, which means GEELY is a go-between to express cooperation sincerity.
On one hand, this combination of advanced technology and management advantages
of foreign parts manufacturers with cost and labor advantages of local parts
manufacturers, make GEELY access to better performance and quality of non-key
components at lower price; on the other hand GEELY concentrates on core
competitiveness of key components as engine and transmission.
Talents hunting
GEELY not only hunted a large number of experienced talents, also invested in
training professionals itself, such as GEELY Technician College, GEELY Automobile
Industry School, Beijing GEELY University, and Hainan Sanya Collage, which have
cultivated 25% of technical staff for GEELY. Table 6 shows experts GEELY hunted
from other companies or institutions in the past few years.
Table 6
Several experts hunted from outside
Experts
Before or Now
Now
Niche
Time
Guo,
Academician of
Technology Consultant
Automotive
2005
Konghui
Chinese Academy of
of GEELY Group,
Technology
Engineering
Project Leader of
GEELY hybrid cars
Hua, Fulin Deputy Chief Engineer
of FAW Automobile
Chief Engineer of
Chassis
GEELY Automobile
R&D
2004
Research Institute
Jiang,
Vice Deputy of FAW
General Manager of
Production
Shubin
Technology Center
GEELY Ningbo Co.,
Management
2002
Ltd.,
Pan,
Chief Engineer and
Chief Engineer and
R&D System 2002
Yanlong
Director of
Dean of GEELY Auto
Building
Engineering Center of
Research Institute
Nanjing Fiat
Shen,
Chairman of Korean
Vice President of
Vehicle
Fengxie
Automotive Engineers
GEELY Group
R&D
2004
Society, Director of
Korean Daewoo R&D
Center, Vice President
of Daewoo
International
Wen,
Academician of
President of Beijing
Mechanical
Bandchun
Chinese Academy of
GEELY University
Technology
Science
Xu,
Chief Engineer of
General Manager of
Transmission 2002
Binkuan
Tianjin Gear Factory
GEELY Transmission
Development
Co., Ltd., Director of
GEELY Transmission
Institute
Xu, Gang
Chief Accountant of
CEO
Corporate
2002
Zhejiang Province Tax
Governance,
Bureau
Financial
Management
Yang,
Deputy Chief Engineer
Jianzhong
of FAW Technology
Chief Engineer
Engine
2002
Design
Center
Yin,
Financial executives of
Daqing
DuPont, JAIC and
Vice President and CFO Group
2004
Management
Huachen Auto Group
Zhao,
Director of Chrysler
Fuquan
Technology Center and Director of GEELY
Vice President of
Vice President and
Vehicle
2006
R&D
Auto Research Institute
Huachen Auto Group
Zhao,
Engineer of Shenyang
Chief Engineer of
Engine
2003
Tieliang
Jinbei Automotive
GEELY Engine
Development
Industry Co., Ltd.
Research Institute
(JAIC)
Zhi,
Chief Engineer and
Executive Vice-
Automotive
Bainian
Vice Factory Director
President of GEELY
Electronics
of FAW Car, Senior
Auto Research Institute
2002
Manager of FAW- VW
Product Engineering
department
GEELY has accumulated technological capability step by step through different
source of technology acquisition (showed in Table 7), and these strategies make
GEELY more experienced in acquiring technology from an open environment and
utilizing them appropriately.
Table 7
Technology Acquisition Strategy of GEELY
Strategy
Partners
Time
Acquired
acquired
Related
technology
Cooperative
Italian Auto Group
2002
R&D
Vehicle body design and mold
development
Germany Luc
2003
Vehicle body design and engineering
feasibility analysis
Korean Daewoo
2005
Design of the stamping molds and
gauges parts, weld lines, concurrent
engineering activities
Korean Wooshin
2005
Manufacturing process
Korean Ta Metal
2005
Mold development
HKPPB
2005
LPG engine and fuel supply system
Tongji University
2007
Product design, key components and
Company
vehicle test and development
M&A
JV
Manganese Bronze
2006
London taxi, diesel engine for cars
DSI
2009
Transmission（6AT、7DCT）
Volvo Cars
2010
Vehicle technology
French Faurecia
2010
Interior, seat, exhaust system
Group
2011
Korean Wando
2011
Chassis module: brake, steering,
shock absorber
Yanfeng Visteon
2011
Interior
Talents
Experts from other
2002-
Tacit knowledge on vehicle, engine,
hunting
related organization
2006
transmission, manufacture, and
management
By contrast, traditional SOEs in China have been on the road of technology
acquisition for more than twenty years, most of which are still struggling with lack of
development technology and self-brand competitiveness. One of them is SAIC, the
biggest auto group in China, who has set up JVs with VW and GM, acquired
SsangYong, and directly purchased technology licenses from Rover.
SAIC got familiar with modern management of production during products
localization process through establishing JVs with MNEs, and R&D centers of JVs
helped train a number of experienced engineers by offering design, engineering and
test for SAIC and other Chinese auto companies, still SAIC didn’t grasp development
capability completely without corresponding absorptive internal R&D efforts. The
original intention of purchasing SsangYong is to acquire related technology to build
product development capability for SAIC, meanwhile expanding global market
channels. But this attempt also ended up in failure due to lack of overseas M&A
experience in transnational management and cultural diversity.
After this, SAIC purchased platforms and engine technology directly from Rover to
develop vehicle platforms and powertrain. In 2006, SAIC formally launched its first
self-brand car Roewe 750 based on inheritance of Rover platform. Later with Roewe
550 launched, SAIC began to emerge from the shadow of Rover, and embarked on the
road of independent innovation.
From comparative analysis above, we can draw a different technology acquisition
patterns between these two auto companies in China (see Table 8).
Table 8
Differences of technology acquisition between GEELY and SAIC
Pattern
Features
GEELY
SAIC
Cooperative R&D→ M&A→
JV→ M&A→ Technology
JV
Purchase
Accumulating production
Accumulating production
capability and improving
capability and cultivating
development capability through
talents through JV
cooperative R&D
M&A from parts company to
M&A from vehicle corporation
vehicle corporation and
but encountering failure
achieving success
Building platform with
Purchasing vehicle platform and
international and local
engine technology directly
suppliers through JV
Technological
Capturing vehicle and key
Transforming acquired platform
catching-up
components R&D capability,
to independent development,
status
most in low- and mid-end
most in mid-end auto segment
market
4.3. Impact of external technology acquisition on technological innovation
performance of GEELY
Previous studies suggest that using external technology has strategic benefits, such
as avoiding high cost of internal development (Noori, 1990), achieving fast growth
(Capon and Glazer, 1987; Granstrand et al., 1992). The extent to which external
technology acquisition affects innovation performance may also depend on internal
R&D efforts (Cohen and Levinthal, 1990; Girma, 2005; Newey and Shulman, 2004;
Sen and Rubenstein, 1990). Furthermore, empirical evidence suggests that a higher
level of R&D effort improves ability to convert external technological knowledge into
innovation (Mowery et al., 1996; Song et al., 2005; Tsai and Wang, 2008).
Based on these studies, we collected GEELY’s data of internal R&D activities and
technological innovation achievement during catching-up process. Internal R&D
efforts are evaluated with R&D investment, while patent granted data is used to
measure technological innovation performance. Table 9 shows during recent five
years, GEELY has reached 6.7% on R&D intensity above average level of Chinese
auto firms. In addition, R&D human capital occupies 7.8% of total employees in
GEELY. By the end of 2011, total patents obtained by GEELY are 4,079, more than
75% of which are concentrated in utility category (see Table 10).
Table 9
R&D investment of GEELY from 2006 to 2010
Year
R&D input (billion RMB)
R&D intensity (%)
2006
0.6
6.6
2007
1.0
8.3
2008
1.0
7.7
2009
1.0
6.2
2010
3.2
4.7
average
1.4
6.7
Source: China INFOBANK
Table 10
Obtained patents of GEELY by the end of 2011
Year
Invention patent
Appearance design
Utility patent
Total
patent
1997
0
0
0
0
1998
2
5
6
13
1999
2
1
1
4
2000
0
0
0
0
2001
0
0
0
0
2002
0
0
0
0
2003
0
1
0
1
2004
0
0
0
0
2005
5
28
46
79
2006
8
32
50
90
2007
6
51
124
181
2008
19
50
209
278
2009
75
77
694
846
2010
156
167
1382
1705
2011
108
135
639
882
Total
—
—
—
4079
Source: SIPO
GEELY’s technological catching-up practice shows that external technology
acquisition does not necessarily lead to technological innovation. If firms don’t
translate acquired technology into technology assets through its own R&D activities,
then technology acquisition is meaningless. Technology acquisition is no substitutes
for R&D activities correspondingly, and actual development process (design,
experimenting, and testing) also must be conducted completely, which needs financial
investment and talents input. By accumulating internal R&D investment over time,
firms can expand technological capability (Cohen and Levinthal, 1990; Duysters and
Hagedoorn, 2000) and enhance effectiveness of external technology utilization.
GEELY spends fewer years to implement technological innovation, and proves that
positive impact of external technology acquisition on technological innovation
performance increases with the level of internal R&D efforts.
5. Conclusions
Technological catching-up process in NIEs is different from technology
development in advanced countries, which requires synthetic views (Kim, 1980; Lee
et al., 1988). Technology development in NIEs normally comes from external
technology acquisition rather than internal R&D. This study also highlights these
implications: first, latecomer firms should acquire certain technology from outside to
accumulate technological capability fast and effectively due to product lifecycle
shortening and continuous changing technology environment. Evidence from
GEELY’s technological capability growth shows that although lack of capital,
technology and policy support, adopting proper strategies of external technology
acquisition to integrate with sustaining internal R&D efforts, still make a latecomer
auto firm obtain a certain extent of technological capability in a short time.
Second, in a broader perspective, integrating different streams of technological
knowledge is becoming crucial to innovation in an era of technology rapidly changing
for a firm (even a large company). The need for increased differentiation in
technology acquisition and its increased application integration make technology
markets more important (Ahuja and Katila, 2001; Grant, 1996). GEELY’s practice
demonstrates that choosing appropriate technology acquisition strategies at different
development stages according to different international circumstances is also crucial
for latecomer firms to catch up with leaders, such as utilizing cooperative R&D at the
moment of improving production capability, starting M&A from small and medium
companies to large corporations after possessing basic absorptive capacity of
technology and experience of international management.
Moreover, in accordance with studies on technology acquisition and technological
performance relationships, this research also proves that matching technologies
acquired externally with internally developed capability improves technological
performance of latecomer auto firms significantly. Instead of excluding its
commitment on in-house R&D activities, GEELY sees external technology
acquisition as a means of complementing and leveraging its development capability.
Firms should not rely on external technology acquisition completely to substitute
internal input accumulation over time. Otherwise, as latecomer firms, technological
innovation will never be realized, as well as competitiveness on market.
With some enormous environmental changes from that of Korean and Japanese
latecomer firms’ catching-up era, namely technology leaders’ growing reluctance
technology
transfer,
emergence
of
various
standardization,
shortening
of
technology/product life cycles and phenomena of technology fusion, this paper seeks
to provide useful insights and lessons to companies of other NIEs by illuminating how
a Chinese auto firm is able to accumulate technological capability in a short time.
Incidentally, the advantage of single case studies is to track development process to
prove or build a theory. But there still exists generalizability limitations too, as the
experiences in a single company may not fully cover those could have happened in
other companies. Further empirical research is necessary to examine related findings
in different industries and companies.
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