Industrial organisation in China : theory building and analysis of new dimensions

Interim Report

Edited by Mai Fujita

Published in March 2017
chapter 1

This document provides an overview of the literature review of approaches to industrial organisation, including an analysis of the global value chain approach. It was conducted by John Humphrey while visiting the Institute of Developing Economies (IDE-JETRO).

chapter 2

Technology platform vendors have played a crucial role in the development of global high-tech value chains. Compared with global buyers, platform vendors are more willing to share information on technology and markets with their customers, something that has enabled firms in developing countries to learn, upgrade, and innovate. Whether a technology platform can facilitate learning and innovation, however, depends on the technological capabilities of the platform’s vendor and its user. China’s mobile phone industry serves as a case study for this paper’s analysis of the above characteristics of technology platform-driven global value chains.

chapter 3

Industrial clusters (ICs) and global value chains (GVCs) are important analytical concepts for the industrial upgrading of economically developing countries. Regarding earlier debate on the issue, some studies have emphasized that knowledge spillovers inside clusters are critical for industrial upgrade strategies, whereas other studies have emphasized the knowledge flows from outside clusters play a crucially important role. Further need exists to elucidate the complementary roles of GVCs and ICs in facilitating knowledge and information diffusion, which are indispensable for local manufacturers’ learning and capability formation. For this purpose, we used a unique firm-level dataset of China’s mobile phone-set industry to analyze the division of roles between GVCs and ICs in gathering knowledge and information necessary for local manufacturers. Our empirical analysis reveals the following: (1) Personal connections embedded inside ICs play important roles when local manufacturers gather widely diverse information. (2) Actually, GVCs, especially those with platform leaders, play important roles when local manufacturers gather core technical know-how or information. (3) Knowledge and information of both types are evaluated as highly important by local manufacturers. Results show that GVCs and ICs work complementarily to gather different but important knowledge and information that is necessary for local mobile phone-set manufacturers.

chapter 4

Many indigenous Chinese firms have become outward looking for further growth. It is known that the productivities of internationalizing firms are higher on average than those of their non-internationalizing counterparts. As predicted, Chinese firms with increasing technological capabilities also have been accelerating overseas operations. The formation of technological capabilities is, however, different among firms. In this case study, we analyse the formation of technological capabilities in China’s home appliance and electronics industry, focusing on the technological gaps between foreign and Chinese firms. We show that when technological gaps are smaller, firms have possibilities to increase technological capabilities by acquiring businesses of firms in developed countries. However, in the telecommunication equipment industry, wherein bigger gaps exist, it is still difficult to buy major competitors because they retain competitiveness. Moreover, since business opportunities in new markets are increasing and the hurdles for starting businesses are decreasing, even startups from developing countries have opportunities to seize first-mover advantages.

chapter 5

This study examines the implications of market-seeking internationalisation of Chinese firms for industrial development in developing countries. It combines the global value chain approach with the theories of firm-level capabilities and product platforms to analyse the Vietnamese motorcycle industry in which exports and foreign direct investment (FDI) by Chinese firms gave rise to new value chains serving the low-end motorcycle market in Vietnam. While a new space was created for local firms to enter into vehicle assembly and distribution, the dominant positions achieved by Chinese component suppliers imposed structural constraints on the upgrading of firms in the chain. The analysis suggests that research on the internationalisation of firms needs to consider the distinctive characteristics of industrial organisation at home and the possibility that they could be adapted to meet the specific settings in the host country.