INB 311
Asian Business Environment: India and China
ICT
11/4/14
Dr. Lairson
Andrew Kennedy, "India in the Global ICT Game." 2/25/13
indiaictgame.docx
Is India emerging as an ICT power? Not yet. In 1990, the U.S. and Japan accounted for
51 percent of global value added in ICT, according to figures published by the U.S.
National Science Foundation last year. By 2010, that figure had fallen to 38 percent. Yet,
India wasn’t the reason for this fall; China was. Whereas China’s share increased from
1.7 percent to 12 percent, India’s share barely budged, rising from 0.6 percent to 1.5
percent. Even in computer programming – India’s strong suit – the country’s share
remained just 1.7 percent.
In 2011, total MNC spending on R&D units in India – across all industries – was about $7.0-7.5 billion
USD, according to the Indian consulting firm Zinnov. Yet, the gap between China and India’s value added
in ICT alone was about $300 billion USD in 2010.
Over the past decade, the wage gap between skilled software programmers in India and those in less
expensive American locales has fallen significantly. In the meantime, companies are discovering that
outsourcing information technology work can carry unanticipated costs as they lose touch with key parts of
their business. To attract ICT investment in the future, India will have to offer more than cheap labor.
Relate to restructuring – can India rely on markets to provide this kind of
change?
China excels in the “hardware” of technological innovation – money, technicians, and equipment – but it
still needs much better “software” – legal protections, risk-tolerance, and connections between enterprises
and universities. Moreover, China’s Internet controls not only limit information, but also competition from
foreign firms.
Still, the question remains: why is India’s ICT industry lagging behind? For some, China’s autocratic
system holds the key. After all, China can compel its companies to invest in new technologies as few other
governments can. Yet it is far from clear that Beijing’s attempts to move ahead through bureaucratic fiat
are effective.
More important, perhaps, is the fact that China’s strong foundation in manufacturing is now overlaid with a
vast market for ICT products. China has become the world’s largest market for mobile phones, including
smart phones, and for PCs as well. MNCs are no longer coming to China just to export, but more and more
to compete for local customers. That means more local R&D to adapt products to local tastes, more
retailing, and more after-sales service.
China’s gigantic market has also created incentives for Chinese firms to upgrade, as Loren Brandt at the
University of Toronto and Eric Thun of Oxford University have shown. It is no easy task for Chinese
companies to compete in developed economies; their understanding of the market is poor, and
technological demands are higher. On their home turf, however, the barriers to entry are lower. Chinese
firms can compete for Chinese consumers, and the ones that succeed also have incentives to upgrade to
escape the vicious price competition at the bottom of the market.
Can India follow in China’s footsteps? To a limited degree, it may be doing so already. Chasing the
country’s vast population of mobile phone users, foreign handset maker Nokia has developed an extensive
presence – including manufacturing – in India. Meanwhile, according to Business Monitor International,
Indian handset makers raised their domestic market share from 1 percent in 2007 to 15 percent in 2010.
More generally, however, India is struggling to keep up in the ICT business. In fact, India’s imports of
electronics products are surging, as Indian businesses and consumers are hungry for everything from new
telecom equipment to tablet PCs. The result is growing concern about depending on imports for potentially
sensitive technologies, as well as worries about the growing trade deficit.
In January, the Indian government responded to these concerns by floating new rules that would require
tech firms to manufacture their products domestically. This is the wrong approach. India should position
itself to add value to the global production networks through which ICT products are made, rather than
simply finding ways to decrease imports.
The Economist, "Indian Technology Firms," 3/16/2013
indiatechfirms.docx
India has played the outsourcing game to a big success
Today that outsourcing industry is a capitalist marvel. It has annual sales of $100 billion, mostly from
abroad, and these export earnings have been vital in a country with a weak balance of payments. Millions
of good jobs in India have been created. Young Indians have seen that globalisation creates winners.
India’s reputation in the world has changed, too: Bangalore’s shining IT campuses have become as famous
as the Ganges and the Gandhis.
Yet India has been a comparative failure in terms of innovation over the past decade. You might have
expected India’s many advantages (the English language, abundant engineers and a thriving diaspora in
Silicon Valley) to pay off spectacularly on the internet. But only a few start-ups have made clever technical
innovations that have been sold abroad. And at home e-commerce is in its infancy, with sales only 6% of
China’s. Thanks to lousy infrastructure, useless regulation and a famously corrupt telecoms sector, the web
is available to only 10% of Indians, many of them squinting at screens in cafés.
India boasts no big internet firms to compare with Chinese giants such as Alibaba, Baidu and Tencent, nor
start-up stars like Facebook’s Mark Zuckerberg. Instead, it has seen a succession of false dawns, from its
version of the dotcom bubble in 1998-2002 to more recent hype over deal-of-the-day websites and textbased cricket updates. In 2010-11 lots of start-ups raised cash, but they have struggled since. Venture
capitalists grumble that their returns have been poor. The original emerging-market tech pioneer has fallen
behind in the internet era.
The good news is that India now has a chance to lead again; the bad news is that this opportunity relies in
part on Delhi’s bureaucrats not messing it up.
Optimism springs, first, from a healthy stock of young entrepreneurs
The second change is the mobile internet. India’s fixed-line system may be abysmal, but cheap
smartphones and fast wireless networks are rapidly spreading. India is poised to leapfrog the era of the
personal computer and go straight to the mobile-internet age. Already a quarter of internet traffic is from
phones, compared with a seventh worldwide. E-commerce sites are getting a surge in activity from phoneusers.
But this budding revolution needs clever regulation. Outsourcing boomed in part because it avoided
government: the product was exported through global networks. The mobile internet needs capital, payment
systems and wireless capacity. In all three areas the government is in the way.
The e-commerce industry appears stymied by the same restrictive rules on foreign investment that have
bedevilled bricks-and-mortar retailing. Only a fifth of Indians have credit or debit cards—and using them
online is a nightmare, again thanks to regulations (India could learn a lot from Africa’s use of mobile
money). And India needs more and better wireless networks; some big players such as Mukesh Ambani,
India’s richest man, have been tempted in, but the telecoms regime is a tangle of overcomplicated rules and
graft.
India’s New Internet Entrepreneurs
Yet if you walk to the exit of that hotel and reject the option of an expensive
limousine, or of hailing a bashed-up street taxi, and instead press “Book now” on
your phone screen, another Indian tech scene appears. The application links a
network of taxis using satellite positioning, cheap Chinese-made smartphones,
souped-up Google maps and credit cards. A 6km (4-mile) drive north in a modern
car will deliver you to a snack shop, above which is the firm that runs the system.
Olacabs was set up in 2010. Its co-founder, Bhavish Aggarwal, is a 26-year-old
engineer who has worked for Microsoft in Seattle. He has raised a slug of venture
capital, some of it American, and says business is growing at 30% a month
India needs a million Olacabs: start-ups that use technology to overcome everyday
problems. The economic benefits would be huge. And in a country with a stuffy business
culture, in which commercial and political dynasties are all too common, a technology
revolution would be a colossal breath of fresh air. It would help unleash the energy of a
generation of young people. But will it happen?
India has already had one technology revolution. In the 1980s middle-class engineers
from a dirt-poor socialist India somehow persuaded Western firms to outsource their
back-office functions and bits of their IT operations to the subcontinent. Thus began a
three-decade-long boom.
The revolution fed its children well. Thanks to IT, some 3m Indians now work in wellpaid formal jobs of the kind that India needs so badly. Perhaps another 10m knock-on
jobs have been created for maids, drivers and the like. Technology services have saved
India from bankruptcy—exports were 4% of GDP in 2012, keeping the balance of
payments in passable shape. As well as local champions such as Infosys, TCS and Wipro,
750 multinational firms have outsourcing and technology hubs in India. Many perform
research and development.
Their country has so many advantages: the English language, engineers with global
experience, a conspicuously successful diaspora in Silicon Valley. Why, then, has it
failed to produce a new generation of big tech firms? In contrast to America’s constant
regeneration, India’s champions have spare tyres and grey hair.
The gulf between Indian hype and reality over the past decade is best shown in numbers. One veteran
venture capitalist reckons the investments made in “new-generation” (ie, excluding IT services) technology
firms are worth $5 billion-6 billion today. The largest listed firm has a market capitalisation of $700m. By
way of comparison, China’s listed internet firms have a combined value of over $100 billion and its ecommerce sales are about 18 times India’s. Other emerging economies, such as Russia, Argentina and
South Africa, have produced multi-billion-dollar internet champions. During the past decade India has
fallen behind.
Fortunately things are changing. First, the internet is becoming popular. Penetration is just 3-4% of the
population, if judged by the number of moderately fast fixed internet lines and smartphones that use 2.5G
and 3G services. About two-thirds of these connections are mobile. If you include people who access the
web through cafés, at work, on friends’ computers or through basic phones with small screens, penetration
is 10%. Most surfers are young. Many live in provincial towns that the IT revolution has hitherto bypassed.
That 10% is a big figure in absolute terms—122m people—and it will rise as smartphones get cheaper.
The second change for the better is that the start-up scene now has depth, partly as a result of all those
mini-booms and busts. The venture-capital industry, with a mix of local and American firms, is now well
developed and capable of writing big cheques. And a new generation of entrepreneurs has emerged, most
of whom combine technical skills with global experience. Of the 15 technology-firm founders interviewed
by The Economist for this article, 12 have worked in America or for multinationals in India.
What kind of companies are these new entrepreneurs creating? Sandeep Singhal of Nexus, a venture-capital
firm, describes India’s new tech scene as a mixture of Israel and China. The “Israeli” bit involves selling
clever innovations to foreigners. It is still fairly small. InMobi, which sells technology and services for
advertising on the mobile internet, is unusual in that it broke into other emerging markets, such as
Indonesia and South Africa, before cracking America. “A lot of firms struggle to innovate because the
[Indian] market is too small,” says its founder, Naveen Tewari. They need to look farther afield, adds Mr
Tewari, a Harvard and McKinsey alumnus who has become something of a hero for budding entrepreneurs.
Only a brave few follow this advice. Cloudbyte, for example, makes storage software for use in data
centres. It has just moved one of its co-founders to America. “The market is largely in the US. We want to
be a global company with our engineering talent in India,” says the co-founder still in India
The “Chinese” part of the industry is much bigger. The label refers to local firms that sell to locals, as
China’s internet giants do. Such firms account for about three-quarters of activity by next-generation Indian
tech firms (see table). Some sniff that Indian e-commerce firms are mere copies of Western ones, or that
they largely serve the rich. Such gripes miss the mark. The real achievement of India’s digital merchants
has been to create reliable supply chains and systems in a country where few things work smoothly.
These firms are exciting but still small. All e-commerce sites in India between them had sales of $10 billion
in 2012, about four-fifths from travel products such as plane tickets, according to McKinsey. It forecasts
that sales will approach $100 billion in the next five years, roughly the same size as the conventional Indian
IT industry is today. Most of that growth is expected to come from a surge in the number of people
accessing the web on their phones. In this scenario India will bypass the PC era and leapfrog straight to the
mobile internet.
It is at this point that veterans of the telecoms industry chortle. India’s 700m mobile subscribers are stingy.
Only 5% pay for mobile broadband and only a fifth of those engage in e-commerce, says one network boss.
Handsets using Google’s Android operating system are available at $100 or less, but their quality is poor.
About a fifth of smartphone buyers use them only for voice calls and as a fashion accessory.
Yet the mobile internet is spreading. About a quarter of internet traffic in India is now from mobile phones,
reckons Rajan Anandan, the head of Google in India. The global figure is 14%, according to StatCounter.
E-commerce sites are seeing a shift towards mobile. Flipkart says phones account for 6-7% of sales, most
of it from new users. This should reach 20-25% in a year. Hrush Bhatt of Cleartrip, a travel site, reckons
8% of his sales are now from mobile and this will reach 25-30% in a year. “People underestimate how
quickly India will adopt the mobile internet,” he says.
Robosoft Technologies. It is a big developer of mobile apps globally (mainly for the iPhone) and builds
sites for third parties as well. Thus far only a small part of Mr Bhat’s business is in India, but he expects
that to change. “In 2013 you’ll see some success stories. By 2014 it will be huge.”
The hope is that as mobile e-commerce booms, it will boost software and hardware start-ups. Vani Kola, a
venture capitalist, says that “India will never build the next Oracle. We don’t have pure science
innovation—we’re not winning Nobel prizes. But India will develop technologies that could take off
around the world, from cheap internet-access systems to payments processes.” If that happens, the boom
would change India and create a new generation of exporters.
To lead a mobile-internet revolution, India’s entrepreneurs must overcome three problems. The first is
payments systems. Only about a fifth of Indians have debit or credit cards and those who do are scared of
using them online. When they try the process is clunky—a quarter of attempts to pay on the Indian
Railways site, probably India’s most frequently used, fail. The good news is that regulators are easing the
rules for small transactions. Anish Williams quit HSBC to co-found Transerv, a firm that has just launched
a pre-paid mobile wallet that can be bought from street vendors and downloaded onto phones. It
piggybacks on the credit-card payments system and should make buying online easier. Firms like this could
make a big difference.
The second bottleneck is capital. India’s e-commerce industry will need billions of dollars to grow. But
local venture-capital firms struggle to write cheques of over $100m. Some fear that foreign investment in ecommerce may fall under the same rules as apply to bricks-and-mortar retailers such as Walmart. These let
individual states ban activity.
The third impediment is India’s telecoms sector. Once celebrated, it is indebted, loss-making and
fragmented. To blame are a price war, graft and licensing rules that prevent consolidation and roaming. The
industry is cutting investment in networks at exactly the wrong time. There are multiple different spectrum
and licence charges; big operators pay up to a third of their sales on such levies and on taxes. Telecoms
firms are so fed up they refuse to participate in new spectrum auctions.
Manu Joseph, "India's Future Rests with Markets, NYT, March 27, 2013.
Aakash.docx
Relate the concept of industrial ecology to the story of the Aakash:
In fact, on Oct. 5, 2011, and in the weeks that followed, the Ministry of Human Resource
Development appeared to have reason to be confident and proud, and it received
somewhat congratulatory world attention for its tablet, called Aakash. At just over 2,000
rupees, or about $35, it would be the lowest-priced tablet in the world, and it would be
distributed to millions of Indian students at an even lower price.
That was the plan.
But, less than 18 months after its introduction, the future of the tablet looks uncertain,
even though the government is trying to rescue it. Aakash has been hit by production
delays and quality concerns, and its very relevance has been put to question by the
sudden rise of competing low-cost tablets from private companies.
Aakash is yet another reminder from India that to achieve good deeds in a developing
nation, noble intentions are usually not as efficient as the natural forces of materialism,
corporate self-interest and the market.
The actual device sourced 35% of hardware components from South Korea, 25%
from China, 16% from the USA, 16% from India and 8% from other countries
What does this tell us about the ability of government to solve problems by acting as
an entrepreneur?
Sean McLain, "India, Long the Home of Outsourcing, Now Wants to Make Its Own Chips,"
NYT, April 15, 2013
indiasemicon.docx
The government of India, home to many of the world’s leading software outsourcing
companies, wants to replicate that success by creating a homegrown industry for
computer hardware. But unlike software, which requires little infrastructure, building
electronics is a far more demanding business. Chip makers need vast quantities of clean
water and reliable electricity. Computer and tablet assemblers depend on economies of
scale and easy access to cheap parts, which China has spent many years building up.
In October, it quietly began mandating that at least half of all laptops, computers, tablets
and dot-matrix printers procured by government agencies come from domestic sources,
according to Dr. Ajay Kumar, joint secretary of the Department of Electronics and
Information Technology, which devised the policy.
At the same time, it is dangling as much as $2.75 billion in incentives in front of chip
makers to entice them to build India’s first semiconductor manufacturing plant, an
important step in building a domestic hardware industry.
But like so much of India’s economic policy, it’s doubtful that either initiative will have
the impact the government is intending.
“Nobody disputes India’s need to build up manufacturing. Not doing so would be fiscally
irresponsible,” said Gaurav Verma, who heads the New York office of the U.S.-India
Business Council. But Mr. Verma said that India’s efforts to force international
companies to manufacture in the country are futile. “The government needs to not
mandate this, but create an ecosystem.”
the “preferential market access” policy, seeks to address a real problem: imports of
electronics are growing so fast that by 2020, they are projected to eclipse oil as the
developing country’s largest import expense.
India’s import bill for semiconductors alone was $8.2 billion in 2012, according to
Gartner, a research firm. And demand is growing at around 20 percent a year, according
to the Department of Electronics and Information Technology.
For all electronics, India’s foreign currency bill is projected to grow from around $70
billion in 2012 to $300 billion by 2020, according to a government task force.
Dot-matrix printers, outdated in most of the world, are one of the few electronic
products that India manufactures. Around 400,000 dot-matrix printers were sold in India
in the year ended March 31, an increase of 2 percent from the year before, according to
the Manufacturers’ Association for Information Technology, a computer industry trade
group in India.
The big fish the government would like to land is a factory to produce microprocessors
for computers.
A computer processor typically accounts for 25 to 35 percent of the total cost of a PC or
laptop. India hopes that such a plant, which could cost as much as $5 billion to build,
would help spur a bigger high-tech manufacturing industry, said Dr. Kumar.
According to Indian media reports, two consortiums have been in talks with the
government to build microprocessor foundries.
The first is led by the Jaypee Group, one of India’s largest construction companies, which
built the country’s Formula One track in Uttar Pradesh. It has partnered with I.B.M.,
which will provide the technology.
The second bid is from the Hindustan Semiconductor Manufacturing Corporation, an
American company that, despite its name, does not manufacture any chips. It has
partnered with the Geneva-based chip maker
STMicroelectronics.
But Ron Somers, president of the U.S.-India Business Council, said he doubted that India
could provide a new chip-making facility with the basic infrastructure it needed to even
keep the lights on. There have been several failed attempts to set up chip plants in the
past. The most recent was in 2008 by SemIndia, a United
States company run by Indian-American entrepreneurs. It ended acrimoniously when a
dispute arose over the terms of the agreement between the company and the state of
Andhra Pradesh where the plant was to be housed.
In the case of some electronics, the import duty on a finished product is cheaper than on
the component parts, said Mr. Menon. Costs are also higher because of a lack of reliable
power and the extra time it takes to move goods on the country’s poor roads.
Spurred by the new “Buy India” requirements, Dell, the largest PC retailer in India,
explored the possibility of setting up manufacturing facilities there. Dell assembles
computers in India, but does not manufacture any components.
“They flew in their suppliers from China and Taiwan to see if they could set up facilities.
They said no,” said an industry official, who requested anonymity since he was not
authorized to speak on behalf of the Texas-based company. “The market is too small, and
logistically it is a nightmare.”
The discussion of China helps to clarify both the sources of its successes and some of
the problems India faces
The articles introduce some ideas and concepts drawn from research on the process
of knowledge-intensive production
Important concepts:
Innovation
Knowledge-intensive production
Industrial Cluster
Global and local knowledge networks
Important relationships:
Why are clusters associated with higher levels of innovation?
How do local knowledge networks and global knowledge linkages contribute to
innovation?
Chao Zhao, "Global Knowledge Linkages and the Innovativeness of Local
Clusters: Evidence from the Guangzhou Software Cluster in China"
Chiguangsoft.pdf
Rugman and Verbeke, 2002) from the international business theory field have shown that
Multinational Enterprises(MNEs) induce externalities in local clusters and improve
innovativeness by providing access to assets, technologies, and management skills to the
domestic components of the cluster.
evidence that the global knowledge linkages are regarded in some aspects as more
important than local knowledge networks within clusters in raising the innovativeness of
local clusters using data from developed economies.
The importance of global knowledge linkages to the innovativeness of clusters has been
increasingly highlighted by these researchers. Linkages with these external actors are
indispensable in the development of clusters not only as an outlet for production but also
as a conduit for advanced knowledge, especially for clusters in the developing countries,
which have less local knowledge sources. In fact many clusters in developing countries,
such as technology intensive clusters and trade oriented clusters, have more and more
international linkages. However, little empirical research has focused on relationships
between global knowledge linkages and the innovativeness of local clusters in developing
countries.
This paper investigates the relationships among the local knowledge networks, global
knowledge linkages and innovativeness of firms in clusters in a rapidly transitioning
economy. This paper tries to provide a better understanding of the importance of the
spatial dimension of knowledge interactions. More specifically, we will examine the
following research questions by using the qualitative approach and firm survey data from
the software cluster in Guangzhou, China. The research questions this study attempts to
answer are:
 Do the global knowledge linkages have a significant impact on the innovation of local
firms in the software cluster? 
 What kinds of global knowledge linkages are the important knowledge sources for
local clusters in developing countries? 
 How do the interactions of local knowledge networks and global knowledge linkages
impact on the innovativeness of local clusters? 
(1) The nature and the spatial dimension of knowledge sources in regional innovation
system There is now considerable interest in the workings of regional innovation
systems, that is, the linkages and interactions between enterprises, universities,
specialist research institutes and other actors involved in the production,
distribution and application of economically useful knowledge (Freeman, 1995;
Lundvall, 1992; Nelson, 1993). They believe that innovations are carried out
through a network of various actors underpinned by an institutional framework.
This dynamic and complex interaction constitutes what is commonly labeled
systems of innovation, i.e. systems understood as interaction networks
In the research on knowledge flows and innovation of firms, a special emphasis is
given to innovative clusters, which suggests that knowledge flows from other
firms and organisations, such as vertical and horizontal linkages, influence the
accumulation and diffusion of knowledge required for firm innovation.
(2) Local knowledge networks and innovation of local firms in a cluster
A key
implication that could be derived from the cluster literature is that local
knowledge transfer and exchange are of vital importance for the innovation of
firms in a cluster. Localised flows of know-how and expertise are regarded to be
of key significance for the innovation capacity and competitive strength of
clusters and regions (Porter, 2000; Malmberg and Maskell, 2002). Most research
links the knowledge spillovers with locality, and takes it as tacit knowledge flow
pervasive within a spatially- bounded cluster Local knowledge networks provide
the platform for collective learning and the social trust relationships which are
conducive to innovation in local clusters. As Capello(1999) put it: “the
mechanisms for the spatial transfer of knowledge are social because new
knowledge is transferred to other agents, whatever the will of the original
inventor, thanks to common technological, organisational and institutional
routines and behaviours which facilitates the sharing of information and knowhow. Local knowledge networks also provide the platform for a mobile local
labour pool, which is a very important mechanism for knowledge transfer in
technology- based industrial clusters.
(3) Global Knowledge Linkages and innovation of local firms in a cluster
There seems to be a growing consensus among many scholars that it is not only local
knowledge circulation that fuels innovations, but knowledge from outside local clusters is
also important to the innovation of firms in the local cluster. considered the interface of
local and global and found that in the United Kingdom, innovative firms are concentrated
in a few locations, but at the same time, innovative regions have more linkages with
international actors than less innovative regions. In his interpretation, global knowledge
linkages (with customers and clients) are more important for obtaining leading edge
knowledge concerning market trends than for obtaining technological information. In
other words, Simmie raises the important issue of understanding the drivers of innovation
and stresses the significance of global knowledge linkages for local firms in a cluster in
advanced economies. To tap into international knowledge sources obtaining access to
expertise and skills that are not available within the limited context of the region is
considered to be of crucial importance (Camagni, 1991; Bunnel and Coe, 2001). In order
to avoid becoming locked-in to the low end of production, knowledge flows from
external sources are crucial to developing countries because of limits of resources in the
local milieu of developing countries. Global knowledge linkages can be taken as an open
gate for regional innovation systems
(4) The type of global knowledge linkages and FDI activities Global knowledge
linkages can be generally considered a source of knowledge, in a broad sense, including
product, process and distribution expertise, as well as management and marketing skills
for developing countries. Knowledge flows can globally transfer through several
channels, such as global value chain, multinational enterprise activities, global personnel
movement. Multinational enterprise activities have important effects on national
competitiveness which are not adequately covered by the facet “firm strategy, structure,
and rivalry”
knowledge interactions between international R&D centres in a local cluster and local
firms are more and more important for innovativeness. Y un-Chung Chen took Shanghai
as a sample of regional innovation system and illustrated how MNEs’ R&D plays an
important role
Research methods
we identify market type of knowledge flows as knowledge derived from customers,
suppliers, competitors, service firms, new personnel, consultants, and identify scientific
type of knowledge flows as knowledge derived from R&D centres, universities, public
research institutes, and identify open type of knowledge sources as knowledge derived
from fair and exhibitions, professional and industry associations, scientific journals and
publications, electronic information. So we can examine the effect of different types of
knowledge flows on the innovativeness of local firms in a cluster.
We divide the spatial dimensions of .knowledge sources into four geographic levels,
regional, national, local FDI and international. So we can examine the impact of global
knowledge linkages versus local knowledge networks on the innovativeness of local
firms in a cluster. In order to answer our research questions, third, we conducted the
innovative firm survey and some phone interviews on Guangzhou software cluster. In
addition to basic firm information and self-assessed innovativeness of firms, firms were
asked in the survey to assess the importance of various knowledge sources of assistance
for their upgrading.
(3)Characteristics of the Guangzhou software cluster
Guangzhou is a national software industry centre and a national software export and
innovation centre. The overall strength of the software industry is leading in China. By
the end of 2006, there were 1,284 software enterprises, the technology and trade income
was RMB 34.1 billion, of which software income amounted to RMB 22 billion. At
present, there are five software firms in Guangzhou with a staff over 1,000, i.e., Netease,
Huifeng software, Jiesai Technology, Guangzhou Shukong and Haige Telecom there and
12 enterprises with 500-1,000 employees. In 2006, there were two enterprises with
annual sales income over RMB 1 billion in Guangzhou and 33 enterprises with annual
sales income between RMB 100 million and RMB 1 billion. There are two companies
obtained CMMI-5 certificates, Guangzhou Benbu Computer Software Co., Ltd. and
Guangzhou Huawei Mingtian Company. Over 20 enterprises have obtained certificates
over CMM-2, 193 enterprises have passed ISO9000 quality system certification, 684
enterprises have passed “Double Soft” certification, and 11 firms are listed as key
software base enterprises by the national torch plan.
A. Local training centres as knowledge sources in the cluster
In our empirical results,
we can see new personnel from local training centres (including universities) have been
the important knowledge sources for many local firms. In last 6 years, there are more
than 27,000 people having received software-related training and education in
Guangzhou
B. Local public technology service platforms as knowledge sources in the cluster
In
improving the innovativeness of software industry, Guangzhou has built Software
Product Exhibition and Trade Centre, the Software Project Bidding Centre, China Cyber
Software Test Centre, Guangzhou IC Design and Training Centre and the Guangzhou IC
Test Centres as a software test platform, a prototype development platform and a
software exhibition and trade platform for the software industry. These Local public
technology service platforms provide a good technology development condition for
software and IC design firms. Based on universities, research institutes and large software
firms, the close cooperation among the firms, academic organizations and research
institutes is encouraged. Large public software R&D organizations are introduced in the
region to enhance technology and product R&D and to improve competitiveness of
products. It is suggested from observation that local public technology service platforms
may have been the important knowledge sources for many local firms.
C. Local leading innovative firms as knowledge sources in the cluster
Some local firms
in Guangzhou software cluster are very innovative in terms of technology and market in
the fields of telecom, finance and insurance, fiscal and tax, E-commerce, office
automation, education and computer and network security.
(2)Global presences and global knowledge linkages A. Knowledge interactions between
local foreign R&D facilities and local firms
The famous software outsourcing enterprises such as IBM software innovation centre,
Microsoft (China) industrial base, Intel international security data solution centre and so
on, have established software R&D, outsourcing programs in Guangzhou. Among them,
Microsoft (China) established the South China technology support centre of Microsoft in
Guangzhou, as the advanced software training centre and the software outsourcing base
for international markets. It is noted that receiving services and knowledge from these
foreign R&D facilities may have become the very important knowledge sources for many
local firms.
B. Knowledge interactions between FDI affiliates and local firms
Through the
cooperation with multinational firms or introduction of world famous software
enterprises in Guangzhou software cluster, many local innovative software firms have
explored the international markets and improved the absorptive capabilities of leading
technology. In receiving internal outsourcing from international firms, many domestic
firms have formed software outsourcing development teams with international firms. In
fact, our observation has shown that this is very important way to get knowledge from
external environment for some local innovative firms.
C. Knowledge interactions between local foreign training programs and local
firms
With the government subsidies, joint training of software service outsourcing
personnel home and abroad has been promoted to provide general and senior
professionals, marketing and management professionals. Local foreign training program
have been a very important way to improve knowledge sharing in Guangzhou software
cluster.
In our research we can find that the key knowledge sources in local knowledge networks
for local firms result from local customers, local consultants, local universities, local new
personnel and local competitors. The local firms in the Guangzhou software cluster,
however, also use global customers and global competitors as knowledge sources.
Customers are the most important partners of all knowledge links both from local
knowledge networks and global knowledge linkages. Relations to the knowledge
infrastructure
firms in the Guangzhou software cluster, however,
or global. It has provided a knowledge interaction
Professional
and
industry associations
3.084**
also use global customers
and global
competitors
as
channel to1.80
discuss 1.23
problems with
other software
Scientific
journals
and
publications
1.90
1.87
0.372world, to keep
knowledge sources. Customers are the most
developers dispersed around the
Electronic
information
-0.571and to monitor
important partners of all
knowledge
links both from
ahead with2.07
the latest2.10
technologies,
Source: Survey data of Guangzhou Tianhe Software Park
local knowledge networks and global knowledge
markets
and
competitors
for
local firms in
Note: *** p<0.01, **p<0.05,*p<0.1(Mean T-test)
linkages. Relations to the knowledge infrastructure
Guangzhou software cluster (See Table 2).
Second step, if we divide sample into local basic
Guangzhou software cluster comparing to the
Table 2: Importance
sources with global counterparts. Other types of
firms and local innovative
firms inof different
terms ofknowledge
relationship
(Mean Response)
Local
Global
innovation
capability, the result becomes different
knowledgeT-value
flows such as the participation in local
Customers
(1) one. (Note: to make a distinction
3.40
2.50
4.642*** are also relevant. Knowledge
with
the above
fairs and exhibitions
Suppliers
2.23
1.76
5.037***
between
local basic firms and local innovative firms,
sources from
global knowledge linkages are less
weCompetitors(2)
compare firms according to their innovative
important
for
local basic firms.
2.96
2.30
5.525***
activities
and their
innovative
abilities
using
our
Aof different
picture can be found for the group of
Service Global
Firms
2.10
1.63
2.728***
knowledge
linkages
and the
innovativeness
local clusters:
28
survey
results. Evidence
We get 8from
firms
as
local
innovative
local
innovative
firms. Firms belonging to this group
New personnel(3)
2.93
2.20
5.430**
the Guangzhou software cluster in China
firms
and 22 firms as local basic firms in 2.63
our
have developed
own software solutions in the past,
Consultants(5)
2.03
4.871***
sample.) The firms which have been classified as
which are now improved continuously in an
R&D centres
2.50
1.43
7.059***
“local basic firms” are mainly specialised in
incremental way. Three firms have strong export
IBIMA BUSINESS
REVIEW
Universities
(4)
2.67
1.30
adaptations and development of existing software
activities8.068***
(Note: more than 60% of turnover). In
Volume 1,these
2009 1.40contrast 6.289***
Public
researchOur
institutes
and services.
analyses have shown that2.40
to the patterns found for local basic firms,
Fair
1.63many knowledge
3.739*** sources through global knowledge
firmsand
areexhibitions
overwhelmingly concentrated on the2.26
local
Professional
and
industry
associations
1.80
1.23
and national market. This research shows that the
linkages3.084**
can be easily found in local innovative
Scientific
journals
and
publications
1.90
1.87
0.372
relationships to local competitors, local new
firms. International
customers and competitors, who
Electronic
2.07for
2.10are monitored
-0.571 via internet and global trading, turned
personnel information
and local customers play a vital role
of Guangzhou Tianhe
innovativeness of Source:
local Survey
firms. data
Additionally,
the Software
outPark
to be important (See table 3).
Note: *** p<0.01, **p<0.05,*p<0.1(Mean T-test)
relationships with local universities, local R&D
centres and local consultants are still of importance
Second step, if we divide sample into local basic
Guangzhou software cluster comparing to the
for local basic firms on innovativeness of firms in
firms and local innovative firms in terms of
relationship with global counterparts. Other types of
innovation capability, the result becomes
flows
suchand
as types
the participation
in local
Tabledifferent
3: Importanceknowledge
of knowledge
sources
of firms
with the above one. (Note: to make a distinction
fairs and exhibitions are also relevant. Knowledge
between local basic firms and local innovative firms, local sources
from global knowledge
are firms
less
basic firms
Locallinkages
innovative
we compare (Mean
firms Response)
according to their innovative Localimportant
basic firms.
Globalfor local
T-value
Local Global
T-value
activities andCustomers
their innovative abilities using our 3.50 A different
picture
can be 3.25
found for3.08
the group0.616
of
2.11
6.934***
survey results.
We get 8 firms as local innovative 2.00 local1.56
innovative3.688**
firms. Firms2.58
belonging
to this group
Suppliers
2.08
3.317***
firms and 22Competitors
firms as local basic firms in our 2.88 have2.06
developed5.000***
own software
solutions
3.08
2.66in the past,
2.803**
sample.) TheService
firms which
continuously
in 2.244***
an
Firms have been classified as 1.89 which
1.50are now
1.686improved2.42
1.83
“local basic New
firms”
are mainly specialised in 3.00 incremental
way.
Three firms
strong export
personnel
2.05
4.994***
2.83 have2.41
2.803***
adaptations and
development of existing software 2.44 activities
more than2.91
60% of2.58
turnover).2.345***
In
Consultants
1.66 (Note:
4.507***
and services.R&D
Our centres
analyses have shown that these 2.16 contrast
to
the
patterns
found
for
local
basic
firms,
1.28
4.189***
3.00
1.66
7.091***
firms are overwhelmingly
knowledge
sources through
Universities concentrated on the local 2.50 many
1.17
5.497***
2.91 global
1.50 knowledge
6.189***
and national Public
market.
This research
easily found
research
institutesshows that the 2.11 linkages
1.22 can be
4.973***
2.84in local
1.66 innovative
3.924***
relationships Fair
to and
local
competitors, local new 2.11 firms.
International
customers
and competitors,
who
exhibitions
1.39
3.708**
2.50
2.00
1.593
personnel and local customers play a vital role for
are monitored via internet and global trading, turned
Professional and industry associations
1.94
1.11
3.828***
1.58
1.41
0.561
innovativeness of local firms. Additionally, the
out to be important (See table 3).
Scientific journals and publications
1.77
1.67
1.000
2.08
2.17
-0.561
relationships with local universities, local R&D
Electronic information
2.03
2.06
0.000
2.08
2.12
-1.000
centres and local consultants are still of importance
Source: Survey data of Guangzhou Tianhe Software Park
for local basic firms on innovativeness of firmsNote:
in *** p<0.01, **p<0.05,*p<0.1(Mean T-test)
3: Importance
of knowledge
sources andglobal
types of
Third step, ifTable
we divide
the sample
into local basic
(F)firms
service firms even more important than
firms and local innovative firms again, meanwhile
with local counterparts. So we can see from our
local basic firms
Local innovative firms
put FDI into the equation, the results more support
sample that global knowledge linkages are to some
(Mean Response)
Local
Global
T-value
Local
Conclusions
the view that firms with more innovation get
extent moreGlobal
importantT-value
to the innovative-ness of loca
Customers knowledge more through global
3.50 knowledge
2.11 linkages.
6.934*** innovative
3.25
3.08
firms than 0.616
local knowledge networks. In
Suppliers we
2.00in the
1.56Guangzhou
3.688** some
2.08
3.317***based
Fordraw
localtheinnovative
our2.58
sample,
forimplications
local innovative
firms in
followingfirms
conclusions
and present
policy
onGuangzhou
the
Competitors software cluster, the knowledge
2.88 interactions
2.06
5.000***
3.08
2.66
2.803**
with
software
cluster,
both
local
knowledge
networks
and
research results:
Service Firms
1.89 (F) 1.50
2.42 knowledge
1.83
2.244***are suggested high
global (F) consultants, global
personnel 1.686
and
global
linkage
New personnel
3.00
2.05
4.994***
2.83
2.41
2.803***
evidence
suggests 2.91
that local
networks do
ConsultantsFirst, this study provides2.44
1.66 which4.507***
2.58knowledge
2.345***
R&D centres
1.28within
3.00
1.66 countries,
7.091*** which is in line
IBIMA4.189***
BUSINESS
matter for the innovation2.16
of firms
clusters inREVIEW
developing
1, 2009
Universitieswith the main hypothesis2.50
5.497***
2.91
1.50 networks
6.189***
in the1.17
literatureVolume
that local
knowledge
are the main
Public research institutes
2.11
1.22
4.973***
2.84
1.66
3.924***
reason for the increased 2.11
innovative
and economic
performance
of the
firms within
Fair and exhibitions
1.39
3.708**
2.50
2.00
1.593
clusters
(Saxenian,
1994;
porter,
2000).
However,
global
knowledge
linkages
play a
Professional and industry associations
1.94
1.11
3.828***
1.58
1.41
0.561
crucialand
role
for the innovative
the Guangzhou
Scientific journals
publications
1.77 performance
1.67
1.000of the firms
2.08 in2.17
-0.561 software
Electronic information
2.03interactions
2.06
0.000 occur
2.08
2.12 local-1.000
cluster. Global knowledge
mostly
between
firms and FDI
Source: Survey data of Guangzhou Tianhe Software Park
Note: *** p<0.01, **p<0.05,*p<0.1(Mean T-test)
Third step, if we divide the sample into local basic
firms and local innovative firms again, meanwhile
put FDI into the equation, the results more support
the view that firms with more innovation get
knowledge more through global knowledge linkages.
global (F) service firms even more important than
with local counterparts. So we can see from our
sample that global knowledge linkages are to some
extent more important to the innovative-ness of loca
innovative firms than local knowledge networks. In
affiliates; between firms and global vertical and horizontal linkages. Conversely, local
knowledge networks in Guangzhou software cluster are based on geographically close
relationships between firms and universities and between local basic firms and local
innovative firms.
Second, we have observed that the knowledge flows from the local presence of global
components to local firms have been significant in Guangzhou software cluster. FDI
activities have brought about advanced technology, management skills and various
international knowledge linkages to local firms. At the same time, international firms as
customers and competitors are the very important role for global knowledge transfer. FDI
R&D activities, local foreign training programs and local foreign personnel movements
being knowledge sources for local firms can directly be observed to improve
innovativeness of local firms.
Third, global knowledge linkages are to some extent more important to innovativeness of
local firms in the market way than the scientific way in Guangzhou software cluster.
According to the observation of the foreign presences of the employees in local entities,
local foreign personnel movements to innovativeness of local innovative firms are high
relevant in Guangzhou software cluster. In addition, international movement of people
associated with nationals studying or working abroad for a limited period and applying
their new knowledge when they return or the inward movement of foreign nationals into
the country is also very important channel for international knowledge transfer.
Yu Zhou, "The Making of an Innovative Region from a Centrally Planned
Economy: Zhongguancun Science Park in Beijing"
Zhongguancun.pdf
Examines the institutional evolution of the ZGC science and technology park. How
can a globally competitive knowledge cluster be created in a developing country?
Can we relate “Institutional evolution” to industrial ecology?
IN developed nations, the institutional pieces to a knowledge-innovation cluster
include:






System of flexible production
Intense interfirm networks
High labor mobility
IP rights protection
Incentive structures for knowledge sharing and risk taking
Adaptive and entrepreneurially connected national and local
government
Beijing is the center of national government and national SOEs but is also the main
center for high tech innovative firms.
Institutional economics and market economics: institutions as source of long term
growth
Importance of social capital in the operation of markets and clusters
Examples of successful high tech clusters in developing nations:
Hsinchu High Tech Park in Taiwan
Kaosiung Software Park - Taiwan
Chaebol-based tech centers: Samsung in Korea
Bangalore
Changes in ZGC
Begins as an import substitution strategy with mostly state sponsored research
institutes with a command economy mentality
Post reform actions included building up the size and strength of universities and
the creation and location of the Chinese Academy of Sciences CAS
1980s saw spinouts from CAS and universities to create profit-oriented firms –
Lenovo
Universities and research institutes act as venture capitalists with funding and
support
state owned-people run firms operating outside the state budget
autonomy and the right to fail
In 1992 first wave of high tech FDI comes to China and is focused in ZGC. In
addition, rapid declines in tariffs on computers and rising incomes led to big
increases in computer sales in China, with ZGC firms acting as sales agents for
foreign firms.
Large declines in R&D funding and global competition damaged the innovation of
ZGC firms, with many eliminated and many others becoming private shareholding
firms. Many firms also remained as hybrid forms of state-private ownership.
The increasing actual and potential size of the Chinese market for ICT led many
TNCs to engage in localization of upper management, product sourcing, R&D, and
local firm cooperation.
Chinese firms begin production and distribution themselves, based on knowledge
accumulation through TNC relations.
Legend/Lenovo is best success story.
Chinese software firms in ZGC also increase along with the rise of the Internet.
Late 1990s the Chinese state moved to create a technology park in ZGC, with an
expansion of R&D funding for research institutes and universities and changed the
hukou rules for hiring of non-Beijing residents. Chinese state recognizes the role of
ICT and moves to develop national policy support system.
Strengths and Weaknesses
Large number of students in high quality universities, often connected to western
universities and experience who recycle back to China. Serves as a knowledge and
cultural exchange system with US universities and firms.
High labor mobility
High entrepreneurship
Weak venture capital system and capital sources from traditional Chinese banks
Good collaboration and networks with TNCs; poor networks and collaboration with
other Chinese firms – poor IP protection; cultural of IP theft, low trust
Guanxi networks have not adequately formed but may expand dramatically over
time.