Handbook of East Asian Entrepreneurship

Tony Fu-Lai Yu, Ho-Don Yan, Tony Fu-Lai Yu, Ho-Don Yan

• Publisher: Routledge
• Year: 2014
• eBook ISBN: 9781317658207
• Topic: Commerce
• Subtopic: Commerce Général

With the shift of the global economic gravity toward emerging economies and the roaring economic growth of the past three decades in China, East Asian catching-up growth strategies have profound implications for latecomer economies. While there are many handbooks on entrepreneurship in general, there is no reference on East Asian entrepreneurship. This is the first of its kinds in the market.

The volume provides a useful reference for those who want to know East Asian entrepreneurship and business systems. It also provides many excellent cases and illustrations on the growth of entrepreneurial firms and the rise of branded products in East Asia. Policy makers or scholars who are interested in entrepreneurship, small and medium sized enterprises, Asian business systems, international business, innovation and technology management, economic development, strategic management and East Asian studies would benefit from this volume.

The volume contains two parts. The first part is the key concepts associate with entrepreneurship and East Asian firm growth and transformation. The second part presents cases of entrepreneurial firms and their founders in East Asia, including Japan, South Korea, Taiwan, Hong Kong and China. With the handbook, scholars, students and policy makers can grab some basic ideas how entrepreneurs and firms in East Asia compete and survive in the world market and understand why and how East Asia economies can emerge as one of the most dynamic regions in the world.

Part I concepts: relating to Entrepreneurship:

• Guanxi
• Catching-up strategies
• Types of entrepreneurship
• Business System
• Strategic Management
• Leadership

Part II cases cover variedly from manufacturing to services industries, and specifically including traditional and newly corporations ranging from toys, convenient stores, fast fashion, high-tech, to catering and service.

Written by experts in their respective areas, Handbook of East Asia entrepreneurship is an excellent review of theories, policies and empirical evidences on important topics in Entrepreneurship in East Asian economic development. The book is both a superb teaching tool and a valuable handbook in development economics.

Part I
Key concepts

Entrepreneurship, innovation and growth strategies in East Asia

Catching-up and growth strategies

1
The “flying-geese” theory of catch-up growth and international business¹

Terutomo Ozawa

Akamatsu’s original theory

The “flying-geese” (FG) theory of economic development is now well known the world over, having gained respectability in academia and popularity in the news media—especially against the backdrop of a string of successful economic catch-ups that have occurred across East Asia since the end of World War II. In particular, the speech delivered by Saburo Okita, former Japanese Foreign Minister, referring to the theory at the fourth Pacific Economic Cooperation Conference in Seoul in 1985, further made policy-makers and the mass media aware of it. It is the only theory of Japanese origin that has so far been well recognized outside Japan. It is, for example, considered a major doctrine of development strategy, along with the “big-push” theory and the “import substitution” approach (Radelet and Sachs, 1997).

The FG theory was originally set out by Professor Kaname Akamatsu (1897–1974) of Hitotsubashi University, Tokyo, in the mid-1930s. He studied in Germany for two years (1924–1926) and was strongly influenced by the German Historical School and Hegelian dialectic. Akamatsu’s theory of trade-driven structural change and growth in catching-up economies explains how emerging economies emulate and learn from more advanced ones in their attempts to industrialize. It is basically built on the stages-of-growth theories advanced by German historical School economists, especially Friedrich List (1789–1846) who conceptualized a catch-up sequence from import dependence to import substitution to export expansion. Akamatsu also drew on the ideas of Alexander Hamilton (1757–1804) and Henry Carey (1793–1879), both Americans, who along with List, advocated infant-industry protection in order to promote national industrial development. In Akamatsu’s original theory, therefore, nationalism plays a key role in motivating and managing national industrial development.

Three patterns of FG formation

When the FG theory is mentioned, this usually conjures up the image of a regionally clustered group of economies advancing together in leader–follower relations. This image has been popularized by the media in particular. Yet, this is not the pattern that Akamatsu considered “basic.” In fact, it is just one of three patterns that he identified:

The wild-geese-flying pattern … includes three subpatterns. The first basic pattern is the sequence of import–domestic production–export. The second pattern is the sequence from consumer goods to capital goods and from crude and simple articles to complex and refined articles. The third pattern is the alignment from advanced nations to backward nations according to their stages of growth.

(Akamatsu, 1961: 208, emphasis added)

Thus, what Akamatsu considered “basic” is: a three-step progression of import (M) → domestic production (P) → export (X) (hereafter MPX). And this is exactly the sequence conceived by List ([1841] 1956). On the other hand, the second pattern describes a process of industrial upgrading, and the third a hierarchy of economies operating at different stages of growth that facilitates knowledge transfer from the more advanced to the less developed countries.

Although there is no clear explanation of why he called the Listian MPX pattern basic, we can surmise that it is the very pattern he empirically discovered in the development histories of many Japanese manufacturing industries over the period of 1870–1939 (such as woolen goods, cotton yarn, cotton cloth, spinning and weaving machines, general machinery, bicycles, and industrial tools), for which he made inter-temporal statistical analyses. His discovery confirmed List’s original idea. Akamatsu plotted the time-series trend lines of imports, domestic production, and exports for each industry. These lines showed a consistent wave-like pattern of three orderly steps of industrial development, in which imports first rise and then decline, while domestic production begins to take over, gradually substituting for imports, and finally exports emerge successfully (Akamatsu, 1935). He then dubbed this pattern the “flying-geese formation” because “wild geese fly in orderly ranks forming an inverse V, just as airplanes fly in formation” (Akamatsu, 1962: 9). In other words, the MPX mechanism served as the powerful engine of development for each Japanese manufacturing industry, kick-starting and enabling initially protected industries eventually to produce domestic substitutes for imports and then to develop into export-competitive industries. And such progress in each manufacturing industry, one after another, gave a strong and continual impetus to Japan’s entire economy to move up the ladder of growth, tracing out the sequence of industrial upgrading. And Japan’s catch-up, in turn, impacted and altered the “alignment of countries” along the way. In other words, the second pattern was the outcome of trade-driven industrial development, while the third one was the parametric conditions under which Japan initiated industrialization and which its catch-up itself altered in the end. Thus, the MPX progression was the main driver, though the three patterns functionally interacted with each other in propelling catch-up growth. (For other important features of Akamatsu’s FG theory, see Ozawa, 2009).

Updating and reformulations needed

Given the fact that Akamatsu constructed the FG theory on the basis of his statistical studies of the development experiences of Japanese industries in the late nineteenth century through the early twentieth century, some of his core concepts are naturally outdated in the light of rapid changes in technology, commercial knowledge, and economic structures, institutions, and international relations in the global economy. Hence his original theory definitely calls for an update and restatement.

First of all, in Akamatsu’s conceptualization, trade was the only driver of catch-up industrialization (as envisaged in the MPX progression). Most importantly, therefore, the role of today’s ubiquitous multinational enterprises (MNEs) as a catalyst to structural change and growth was not taken into consideration. MNEs are the innovators, knowledge disseminators, and prompters of structural change. Prior to his death in 1974, however, Akamatsu had only begun to see the beginning of the MNEs’ meteoric rise, and was unable to fully comprehend and take account of their role in his analysis. As a consequence, in his model, the MPX progression is driven solely by the conventional strategy of infant-industry protection that builds nationally owned/managed industries at home, fending off any incursion of foreign interests as business investors/owners in home industries. Nowadays, however, the three-step sequence of MPX can be time-compressed and carried out simultaneously by foreign MNEs which can set up both import-substituting and export-oriented local production in emerging markets—practically overnight.

Indeed, this is the new strategy of foreign direct investment (FDI)-fueled industrial take-off which is a more expedient alternative to the conventional strategy of infant-industry protection. And such an open-economy, inclusive approach has increasingly been adopted by emerging economies in kick-starting industrial take-off (Ozawa, 2011). In other words, the conventional closed-economy strategy is giving way to the FDI-fueled strategy as an initiator of catch-up industrialization. From the MNEs’ point of view, this means that their initial exports (X) are quickly replaced by outward FDI (OFDI) in their formerly export markets (i.e., export-substituting FDI in overseas markets). And simultaneously, these MNEs often end up importing their own offshore-produced goods back home, thereby creating new exports (M*) from their host economies. As a consequence, international production (overseas output by MNEs) is becoming larger and larger in value and ever more important as an engine of industrialization in the host economies than the conventional type of international trade.

In addition, intra-company trade has increasingly been replacing arm’s-length trade. In this connection, cross-border supply chains have become ubiquitous, combining overseas production and intra-company trade under the management and governance of MNEs. This is the latest global business model adopted by MNEs, a phenomenon that was hardly discernible in Akamatsu’s day. Given these recent developments in globally connected production, moreover, there is no longer much room left for economic nationalism as a motivational tool for catch-up (i.e., the nationalism-colored approach stressed by Akamatsu) in the emerging world. Emerging markets have increasingly been opening up and joining the global community of freer trade and investment that can help trigger and boost their growth.

Moreover, Akamatsu also left the key notion of structural change rather vague. He merely stated, in a rough manner, that production structure evolves “from consumer goods to capital goods, and from crude and simple articles to refined and complex articles.” After all, the essence of economic development is nothing but structural upgrading. Therefore, structural change needs to be carefully described and defined in detail. For that matter, the notion of the “ladder of economic development” is often casually used without concrete specifications in the discipline of economics. In what follows, all these issues will be addressed, as we update and restate the original FG theory.

MNEs as a creature of structural transformation

MNEs from any market (advanced and emerging alike) are basically creatures of structural transformation at different growth stages in their home economies. Historically, structural upgrading (a result of establishing brand-new goods/industries and shedding existing old ones through the Schumpeterian process of creative destruction) has been driven by major breakthrough innovations (each of which entailed a cluster of incremental technological supplements and refinements, resulting in a paradigmatic shift of industrial structure). And innovation is spurred by entrepreneurs and R&D-focused enterprises, many of which eventually are destined to expand abroad as MNEs in pursuit of business opportunities to exploit their firm-specific advantages.

Ever since the Industrial Revolution and Britain’s unilateral adoption of economic liberalism (free trade and capital flows), overseas business operations have become more industrially-oriented, more market-driven, and more private-profit-focused than ever before. Above all, in the wake of the Industrial Revolution a series of rapid technological and structural changes began to occur in a number of countries—first across Europe, then the United States, and later Japan and Russia. And each stage of industrial transformation entailed a different set of needs and opportunities for overseas business expansion. The overseas commercial activities of those early industrializers were initially aligned with the national interests of their home economies. But more recently, there has been a growing chasm between national and private interests, notably in advanced countries, concerning domestic employment and technology transfer among others.

A “leading-sector” stages model à la Schumpeter: an overall analytics

Given the causal links between structural change and the emergence of MNEs, we must understand the historical process and patterns of industrial structural transformation. Here, a comprehensive perspective can be obtained by the “leading-sector” stages model à la Schumpeter (Schumpeter, 1934; Ozawa, 2005, 2009). This model is built on a historical sequence of growth that is punctuated by stages (that can be captured as “structural breaks” in econometrics), and in each stage a certain industrial sector and technological thrust can be identified as the main driver of structural transformation. This perspective is in line with what Schumpeter (1942) stressed in terms of “the perennial gale of creative destruction” that drives the process of industrial upgrading under capitalism. Also, the same idea was re-emphasized by Rostow (1960) in his view of “economic history as a sequence of stages rather than merely as a continuum, within which nature never makes a jump” (ibid.: 16, emphasis added).

So far, the world economy has witnessed five tiers of leading-sector industry emerge in wave-like progression since the Industrial Revolution—and currently a new tier is in the making (see Figure 1.1). The five tiers have been: (I) endowment-driven industries (represented by textiles and other light industry goods in labor-abundant countries and by extraction of minerals and fossil fuels in resource-rich countries); (II) resource-processing industries (represented by steel and basic chemicals); (III) assembly-based industries (exemplified by mass-produced automobiles); (IV) R&D-...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Notes on contributors
• Introduction
• Part I Key concepts: entrepreneurship, innovation and growth strategies in East Asia
• Part II East Asia cases: entrepreneurial firms and their founders
• Index