Innovation and Learning Experiences in Rapidly Developing East Asia

Rajah Rasiah, Thiruchelvam Kanagasundram, Keun Lee

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415594509
• eBook ISBN: 9781317983118
• Topic: Business
• Subtopic: Business General
• Index: Business

Technology and technical change is sector- and industry-specific, embedded by locational institutions and organizations, and integrated in global networks. It is non-linear in its emergence and movement, and subsumed in the nature of micro, meso and macro interactions. Using evolutionary theory and its methodological complement of inductive research, this collection showcases selected examples of innovation and learning experience in the rapidly evolving developing economies of East Asia.

Consistent with evolutionary postulations of technology and technical change, this volume provides a range of empirically rich articles that elucidate innovation and learning experiences in East Asia. The case studies range from the dramatic movement of button manufacturing in China, to the globe's technology frontier, to the rapidly expanding but without tangible technological catch-up of garment manufacturing in the least developed country of Laos. The rich selection of industry-based national case studies provides a comprehensive account of technological catch-up experiences that will be very useful for both scholars and policy makers.

This book was originally published as a special issue of Asia Pacific Business Review.

Introduction: Governance and coordination modes in driving innovation and learning

Rajah Rasiah^a, Thiruchelvam Kanagasundram^b and Keun Lee^c

^aCentre of Regulatory Studies, University of Malaya, Kuala Lumpur, Malaysia; ^bFaculty of Science, University of Malaya, Kuala Lumpur, Malaysia; ^cCenter for Economic Catch-up, Seoul National University, Seoul, Korea

This work presents a theoretical assessment of technological and economic catch up theories. Consistent with evolutionary postulations of technology and technical change, which are sector- and industry-specific, embedded by locational institutions and organizations, and integrated in global networks, non-linear in its emergence and movement, and subsumed in the nature of micro, meso and macro interactions, it provides the anchor for the elucidation of the East Asian experiences discussed in this volume.

1. Introduction

For a number of decades after the end of the Second World War the focus of economic growth in developing economies involved predicting which one would industrialize and develop rapidly. The relatively high per capita incomes of the Latin American economies of Argentina, Brazil and Mexico led many to believe that these countries would industrialize and develop first. By the 1970s, however, the optimism with Latin America turned into pessimism as the neo-Marxists (Baran 1957) and dependentistas (Frank 1973, Furtado 1964, Sunkel 1989) argued that capitalist integration would only bring the subordination of the developing economies as the periphery. Adam (1975) argued that the introduction of manufacturing within capitalist integration only converted banana republics into pyjama republics. Wallerstein (1979), Frobel et al. (1980) and Henderson (1989) extended the logic to say that only some economies would become the semi-periphery. These arguments came under serious pressure when the Four Asian Tigers of Korea, Hong Kong, Taiwan and Singapore managed to achieve sustained rapid industrialization, economic growth and improvements in living standards (see Hamilton 1983, Deyo 1987, Amsden 1989, Chang 1994, Wade 1990). To counter the growing evidence supporting selective interventions as the road to rapid growth, the commissioned a substantial study to explain the drivers of growth and equity in East Asia. The study conceded that interventions were behind the success of North East Asian economies but claimed that the experiences of the South East second-tier newly industrializing economies were not only largely liberal but also desirable for imitation. While there has been a plethora of work subsequently defending both schools of thoughts, little work has actually examined the learning and innovation experiences of these countries over a broader range of countries.

What has been missing from both the neoclassical school advocating deregulation and the heterodox school promoting selective interventions, is a profound focus on and assessment of technology. Whereas the neoclassical school has largely relied on the black box approach of total factor productivity (Solow 1956, Young 1994),¹ the heterodox school’s incisive critique has not been followed up with practical alternatives (see Kaldor 1960, 1967). Yet, the emphasis on technology started much earlier and has evolved since to grasp some of the finest processes that explain technical change. Whereas Marx (1967) and later Schumpeter (1934) focused on identifying technology as well as its differentiation into Department I and Department II (in the case of Marx) and Mark I and Mark II (in the case of Schumpeter) as the driver of growth and structural change, Nelson and Winter (1982) focused on the institutions that drive technical change (including incremental engineering and upgrading) and catch up. The Mark I system refers to creative destruction where firms or actors devise new organizations or ways of producing existing, as well as new goods, that rely on existing stocks of knowledge. The Mark II system refers to creative accumulation where agents (individuals, firms and other organizations of people) create new paths of knowledge that in a path-dependent stream drive the creation of further new paths. While the evolutionary school takes in its stride these two elements, its essence is that the evolutionary processes of technical change and the critical institutions that effect it are not only non-linear in nature but also vary with each different industry (see Nelson 2008). Lundvall (1988, 1992) explained how user-producer relationships shape innovation. Edquist (2005) argued that only with horizontal buyer-supplier interrelationships can innovation synergies be maximized.

Individual scientific works explaining the catch up experiences of particular indigenous firms have begun to fill the Asian literary map since the 1990s. Hobday (1995) discussed the unique firm-level innovation experiences in Asia. Mathews (1996, 2002) and Mathews and Cho (2000) discussed the technological catch up experiences of electronics firms and industries in East Asia. Rasiah (1994, 1995, 1996, 2002, 2004a, 2004b, 2004c; 2007) discussed both the successful and failed learning and innovation experiences in Burma, Cambodia, China, Korea, India, Indonesia, Laos, Malaysia, the Philippines, Taiwan and Thailand. Lee et al. (2009), Lee and Mathews (2009), Lee (2005), and Mu and Lee (2005) published detailed firm-level catch up experiences in China, Korea and Taiwan. Mani (2004), and Malerba and Mani (2009) used a sectoral innovation systems framework to examine catch up experiences, inter alia, in Asian economies. Oyeyinka and Rasiah (2009) used a similar approach to examine the institutional factors behind the uneven catch up experiences in the information hardware industry, inter alia, in China, Indonesia, Malaysia and Taiwan. Ernst (2002, 2005, 2009) discussed innovation off-shoring in India and Taiwan. This volume seeks to add to this literature by bringing together a collection of works that discuss the unique drivers of innovation from the fast growing East Asian economies.

Contrary to mainstream accounts, heterodox economists advocating industrial policy and catch up argue that all latecomers have achieved rapid growth and improvements in living standards only through focusing on the increasing returns activities characterized by manufacturing. These accounts go back to Smith (1776), Hamilton (1791), List (1885), Young (1928), Abramovtiz (1956), Gerschenkron (1962), Kaldor (1967), Johnson (1982), Amsden’s (1989), Wade (1990), Chang (2003) and Reinert (2007). Selective government intervention to support firm-level technical change and competitiveness has been the critical explanation in these accounts.

Taken together, this collection seeks to discuss important policy relevant innovation experiences from the rapidly growing East Asian economies. Captured through Nelson’s (2008) evolutionary lenses, these experiences have been driven by both a combination of, on the one hand, policy instruments by governments (see also Buckley 2009), flows of knowledge from multinationals directly (through foreign direct investment) and indirectly (through technology licensing and experiential knowledge gained by human capital), and on the other hand, technological catch up by industrial firms. Some of the firms from these economies have even become shapers of global technology – e.g. Samsung in Dynamic Random Access Memories (DRAM) and Taiwan Semiconductor Manufacturing Corporation (TSMC) in logic circuits (see Mathews and Cho 2000, Rasiah et al. 2010, Lee and Mathews 2009). In some cases, firms such as Toyota have evolved their own unique structures of linkages in coordination with local institutions and firms (see Hatani 2009). In Malaysia, the structure of the embedding environment has played a critical role in the performance of electronics foreign and local firms (see Rasiah and Asokkumar 2009). To provide a sufficiently broad coverage of the processes of catch up and technological change, the collection addresses firm level catch up and leapfrogging issues as well as at a more aggregate level the interface between policy instruments and technological capability development.

2. Main message

Consistent with evolutionary postulations of technology and technical change – which is sector- and industry-specific, embedded by locational institutions and organizations and integrated in global networks, non-linear in its emergence and movement, and subsumed in the nature of micro, meso and macro interactions – the East Asian experiences discussed in this collection are unique and elucidating.

A key finding across the works in this collection is that technological convergence and catch-up are ‘bounded’ by the ability of catching-up economies to make the transition into the frontier of knowledge creation and innovation; it is hard, uncertain and requires vital qualitative changes, which is different from the predictions of mainstream economics where technology is taken as given, costless and readily available for all, and where rivalry or conflict of interests are irrelevant concepts. It is unsurprising that neoclassical economists view convergence (either conditional or unconditional) as unproblematic, predictable and based on quantitative achievements.

3. Outline of the issue

The works in this collection deal with different issues in economic growth and technological development. It does not seek to provide an exhaustive assessment of learning and innovation experiences from East Asia. Instead it brings together two important issues on technology and technical change. Firstly, it examines the critical issues on technology using empirical evidence from rapidly developing East Asia to revisit some of the main debates on learning and innovation. Secondly, it provides a synthesis of key technological catch up experiences or the lack of them from selected cases in rapidly developing East Asia.

This introduction provided the theoretical anchor for the empirically drawn research-based works in the volume. It stakes the evolutionary argument that each experience is different with the critical institutions either working together or with varying degrees of significance in driving innovation and learning in firms. The same multi-level approach is assumed so that meso organizations and government policies are viewed as critically important in driving technological catch and economic performance.

The second study by Rajah Rasiah examines R&D and export intensities by ownership using a sample of auto-parts firms from China, Indonesia, Malaysia, the Philippines and Taiwan. The results show that firms rely much more on their own home country embedding environment to undertake R&D as the pooled regressions show higher R&D intensities in local than in foreign firms. However, the impact of national institutions and meso-organizations is evident from the higher firm-level R&D intensities in countries with a stronger high-tech infrastructure than those with a weaker infrastructure regardless of ownership differences. Export-orientation was highly correlated with R&D intensities in the local samples, which shows the influence both ways of efforts to raise technological intensity levels to compete in export markets and vice versa.

The third research work by Rasiah, Kong and Vinanchiarachi discusses the transformation of Qiaotou town from a button distribution centre to a composite and mature button cluster accounting for 65% of world button production in 2006. The authors argue that the button sales originated with entrepreneurial initiative that started with market-based operations as hundreds of stalls mushroomed in Qiaotou. The upgrading of Qiaotou from the late 1990s to a mature cluster incorporating designing and new material and product development took place when the local government took advantage of the rapid growth to support collaborative links between government, firms and universities. Markets, government and cooperation played critical coordinating roles in this transformation.

The fourth work by Kong-Rae Lee reveals how reforms to the governance system of government research institutes (GRIs) in the Republic of Korea have improved the research performance of these GRIs in terms of research publications, patent applications and royalty income. The reform measures undertaken by successive governments during the period of 1998–2007 involved, among others, the reconstitution of various research councils which now oversee the operations of the GRIs.

The fifth account by Rasiah, Nolintha and Songvilay examines the impact of four systemic pillars on technological capabilities in garment firms in Laos. The authors provide evidence to show that garment manufacturing employment rose steadily over the period 2000–2006 but growth has been limited to low-end added operations because of the weak systemic pillars facing firms. The meso organizations necessary to support training and technological upgrading are still either underdeveloped or non-existent. While acknowledging the importance of employment creation, the authors argue that the systemic pillars must be strengthened to sustain continued expansion of the industry in Laos.

The sixth study by Lim Ee Shiang and Shyamala Nagaraj describes the obstacles to innovation faced by Malaysian manufacturing firms during the process of innovation. The shortcomings, the relevance of each of the obstacles and complementarities between obstacles are evaluated by type of innovator firm. For this, each firm is categorized – based on its level of innovation activity – as an innovator or as a non-innovator.

The seventh research work by Divina Edralin underscor...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Notes on Contributors
• 1. Introduction: Governance and coordination modes in driving innovation and learning
• 2. Ownership, R&D and export intensities of automotive parts firms in East Asia
• 3. Moving up in the global value chain in button manufacturing in China
• 4. Public research system under the people’s participatory government of Korea
• 5. Garment manufacturing in Laos: clustering and technological capabilities
• 6. Impediments to innovation: evidence from Malaysian manufacturing firms
• 7. Training and development practices of large Philippines companies
• 8. Innovation policies in Thailand: towards a system of innovation approach?
• 9. Epilogue: Implications from industrializing East Asia’s innovation and learning experiences
• Index