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The State in Science, Technology andInnovation Districts: Conceptual Modelsfor China

CARLA C. J. M. MILLAR, CHONG JU CHOI & ROBERT T. J. CHU

University of Twente, The Netherlands, Australian National University, Canberra, Australia,Cambridge University, UK

ABSTRACT Throughout the world the creation of successful technology districts has become amajor issue for public policy makers. This paper analyses the potential role of the state inentrepreneurship and the creation of technology districts, and outlines implications for Chinassocial market economy. We identify three types of technology districts: (1) market-driventechnology districts such as Silicon Valley in the USA and Cambridge in the UK; (2) state-driventechnology districts targeting foreign multinational companies, such as Sophia Antipolisin France and Singapore; (3) state-driven technology districts which nurture local companies,such as the Hsinchu Science and Industrial Park in Taiwan. We believe that these three

typologies provide the foundation for better understanding the potential role of the state inscience and technology for China in the early 21st century.

1. Introduction

The creation of technology districts and their positive impact on entrepreneurship and

capitalism has become a major issue of public policy and the role of the state in

the 21st century. The best-known example of technology districts, Silicon Valley in

California, USA has been analysed as being driven by market forces, without the interven-

tion of the state. However, more recent successful technology districts, such as Sophia

Antipolis in France and Singapore, and Hsinchu Science and Industrial Park in Taiwan,

have all relied on a close partnership between the state and the market.

One of the greatest changes in the global economy of the 21st century is the emergence

of China. By 2006 China is predicted to be the third largest economy in the world after the

USA and Japan, and in 2003 it was the worlds largest recipient of foreign direct invest-

ment, US $65 billion. In October 2003, Chinas new president, President Hu Jintao, in

Australia on his first official visit abroad, pledged that China would continue its 20

years of phenomenal economic growth and transition through a social market economy.

Technology Analysis & Strategic Management

Vol. 17, No. 3, 367373, September 2005

Correspondence Address: Carla C. J. M. Millar, University of Twente, School of Business, Public Administration

and Technology, Capitool 15; PO Box 217, 7500 AE Enschede, The Netherlands; Tel: 31-53-489-4618;Fax: 33-53-489-2159; E-mail: [email protected]

0953 325 i =1465 3990 O li =05=0300036 # 2005 l & i

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Chinas role as a major economy in todays global business environment with its

catalysts for structural economic change and the blurring of national boundariesand

their impact on firms activities and performancehas led to an urgent need to reassess

the traditional neoclassical, competition-driven frameworks of international management

research.1

We should also consider incorporating other social science based systems ofexchange including sociology, anthropology and cultural studies.2 These other social

science based disciplines are better able to analyse the nature of a social market

economy, in turn providing a better understanding of social entrepreneurship in China.3

The role of the state has been fundamental to the rapid economic growth of various Asian

countries since the Second World War. The role of the state in economic and business devel-

opment in Japan has been analysed in works such as Fruin,4 in Korea in works such as

Amsden5 and in Taiwan in Wade.6 Most countries place importance on entrepreneurship

and the creation of technology districts. The potential role of the state and public policy in

this process of interaction between entrepreneurship and technology has many implications

for Chinas management of science, technology and innovation in the early 21st century.

The purpose of this paper is to provide a typology of models for analysing the potential

role of the state in entrepreneurship and the creation of technology districts. Successful

global examples and comparisons between France, Singapore, the USA and Taiwan

show that there is a potential role for the state in entrepreneurship and technology district

creation. However, the scale of China is such that different regions may apply one or a

combination of these three generic models of technology districts. The contribution of

our paper is to provide this typology of models and their relevance for Chinas potential

management of science, technology and innovation.

2. China vs the USA: Business Systems

There are some key differences in the nature of Chinas business system as compared to

the well-researched US system,7 in terms of organisations and institutions. We distinguish

two major ways in which the interaction between institutions and organisations and the

proportion of formal or informal institutions can influence a national business system.

A system could have very strong linkages between institutions and organisations, as in

many collective societies in Asia and in continental Europe. Or where there are strong

legal systems, the relative proportion and thus importance of formal vs informal insti-

tutions is the determinant of performance, and hence we observe a separation between

institutions and organisations.8

In the international business strategy, innovation and development literature the role ofpublic policy and the state in Asia has been well researched.9 This allows us to contrast the

US system, with its emphasis on formal institutions with that of China, with its emphasis

on informal institutions. It is shown in the figure below and represented by the larger part

of the inner circle taken up by the informal institutions.

One of the facets about the Chinese system which emerges is the closer relationship

between economic, political, social and educational organisations,10 represented by the

thicker, continuous lines in Figure 1. A key strength of this closer partnership across

the organisations is that major developments in Chinas science, technology and inno-

vation could happen at a much more accelerated pace than in a system which has

greater separation among the economic, political, social and educational spheres, suchas represented by the dotted lines for the US system.

368 C. C. J. M. Millar et al.

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3. Chinas Business System

To enable us to better judge these implications for China, we need to analyse further the

countrys business and financial system. Economic integration and progress requires

Chinese financial institutions (securities, markets, banks) to focus on long-term perform-

ance and avoid the problems of short-termism that are very common in the Anglo-Saxon

market-based system. This active role of debt has been developed in the Anglo-Saxon

countries through the evolution of the market-based system.11 None-the-less, major criti-

cism has been levied against the relatively heavy reliance on short-term stock market

financing, which has led Anglo-Saxon firms to plan their financing and investmentdecisions to satisfy the short-term interests of their myopic shareholders.12 For Chinas

business system to focus on the long-term performance, it is necessary to strengthen the

legal infrastructure to enable a more active role for finance banks. Failing this, Chinas

banks cannot play the promised active role in corporate governance. In fact, low equity

holdings in bank institutions goes against the foundations of the relationship-based

business system, which is particular to the region.

For the reasons that follow, strategic progress requires structural changes to the Chinese

corporate governance system if it is to become more transparent. Economic integration

will gradually lead the Chinese market to be more liberalised, which requires more dis-

closure to outside investors. The stage of economic transition in China requires low-cost long-term financing which cannot be guaranteed unless financiers are sure about

the near and distant future of Chinese firms. In this regard, China is in a good position

to reach a reduced transaction cost level by utilising its technological information advan-

tage, and to become more transparent to existing and potential investors and stake-

holders.13 Evidence in the field supports the positive relationship between firm

disclosure, reducing cost of equity, cost of debt and performance in the product market. 14

Market liberalisation in China has required firms to follow the IAS and the disclosure

regulations of the leading international financial centres in the Anglo-Saxon (US/UK)business system. Nevertheless, due to the weak legal infrastructure China has not suc-

ceeded in forcing adequate disclosure as many cases of fraudulent accounting and viola-tions of disclosure rules have been detected. The main areas of low or absent disclosure

Figure 1. Business systems: US vs China (adapted from North, Ref. 7; Choi et al., Ref. 24).

Conceptual Models for China 369

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were asset valuation, disclosure of off-balance sheet items and transactions with parties

related to controlling shareholders.

Transparency will lead to better financing and investment decisions as market-based

mechanisms use price signals to efficiently allocate resources and monitor market

returns. In this regard, we suggest a measure of the progress of Chinas corporate govern-

ance system reform that relies, inter alia, on the percentage of long-term and short-term

financing to total financing. We posit that the higher the percentage of long-term financing,

the more we can infer the extent of outside investors confidence in the future of Chinas

firms. A long-term perspective is crucial to a sustained competitive corporate governance

system in China, as the economics-driven business system, and the Anglo-Saxon corporate

governance systems associated therewith, have resulted in short-termism in both financing

and investment decisions. In addition, attention has been drawn to the importance ofincluding the logic and analysis of other social sciences disciplines such as sociology

and anthropology next to traditional neoclassical economics in the analysis of national

business systems.15

In line with other researchers we posit that Chinas business system will be a hybrid

mixture of the two major systems, the Anglo-Saxon shareholder and the Communitarian

stakeholder systems.16 The different modes of corporate governance and information

disclosure can have an important influence on the strategic behaviour of firms and organ-

isations, e.g. in deciding to undertake social entrepreneurship.17 The table 1 shows the

differences between the three business systems and their implications for entrepreneurship

in Chinas social market economy.

4. Three Models of Entrepreneurship in Relation to Technology Districts

The role of public policy and of the state in entrepreneurship and technology districts is a

growing area of research and increasingly a subject of debate among economic policy-

makers throughout the world. A key research and policy question is What is the best

way to develop entrepreneurship and technology districts? We believe there are three

major frameworks and models for entrepreneurship in technology districts.

The first one concerns market driven technology districts such as Silicon Valley in the

USA and Cambridge in the UK.

18

The second is state-driven technology districts targetingforeign multinational companies, such as Sophia Antipolis in France and Singapore.19

Table 1. Entrepreneurship in three types of business system

Types of business systems Context of entrepreneurship

Anglo-Saxon System Shareholders and the dynamics of financial markets

Dominated by private entrepreneurship and the profit motiveCommunitarian System Stakeholders: employees, suppliers, government and the

community Closer mix among social institutions, businesses and the

communit

Chinas Business System Privatisation of government ministries, state-owned enterprises Social market economy Mix of both shareholder and stakeholder systems


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The third is state-driven technology districts which nurture local companies, such as theHsinchu Science and Industrial Park in Taiwan.20 We believe that these three typologies

provide a generic framework for entrepreneurship and technology districts throughout the

world and this paper provides a preliminary analysis thereof.

These three frameworks are consistent with research on the role of government and gov-

ernment intervention in the market, which has been widely studied, certainly in an Asian

context.21 This research showed the importance of government regulation in driving the

response of businesses, especially with regard to encouraging exports. Fruin and

Amsden in particular showed the importance of the role of governments in Asian countries

such as Japan and Korea.22 The ability of government intervention to be effective in such

contexts is not, therefore, in doubt. It is important, however, to distinguish betweendevelopments that are market led and those that are driven by the state, and also

between the different types of state driven entrepreneurial technology district, i.e.

foreign multinational focused, or local industry focused.

The key characteristics of these three frameworks of global entrepreneurship and tech-

nology districts are shown in Table 2.

At national level there can be a mix and the reality tends to be a combination of all three

extreme frameworks occurring somewhere in any one country. This makes it difficult to

classify or prescribe the best framework for any given country, and particularly not a

large rapidly transforming country such as China. However, we believe that our typology

of frameworks provides a preliminary conceptual analysis for understanding the choiceand potential of models and frameworks in entrepreneurship and the successful creation

of technology districts.

5. Conclusions and Further Research

In the early 21st century the creation of successful science, technology and innovation dis-

tricts has become a major issue for public policy makers throughout the world. This paper

focussed on the potential role of the state in entrepreneurship and the creation of science

and technology districts and the possible implications for Chinas social market economy.

First, we positioned Chinas economy in terms of the context for the development of entre-preneurial activity and discussed Chinas business system options against the two major

Table 2. Three models for science, technology and innovation districts

Model Examples Key characteristics

Market Silicon Valley, US and

Cambridge, UK

Developed over time, with close

interaction between universities,technology companies andentrepreneurs

State I Sophia Antipolis (France),and Singapore

Close involvement of the state inencouraging foreign multinationalcompanies in technology industries

State II Taiwan Close involvement of the state inencouraging local technologycompanies and local entrepreneurs


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onesthe Anglo-Saxon and Communitarian business systems. Comparative capitalism

and comparative business systems became a major topic of research in the 1990s. Com-

parisons between the well known Anglo-Saxon business system of countries such as the

USA and the contrasting Communitarian23 business system of continental European

countries such as Germany and France as well as developed Asian economies such asJapan, Korea, Taiwan and Singapore have shown the global diversity of successful

business systems and capitalisms.24 Chinas system has been related to these, at least in

terms of the context for entrepreneurship.

Then we distinguished three systems of technology districts: first, the market driven

technology districts such as Silicon Valley in the USA and Cambridge in the UK; 25

second, the state-driven technology districts targeting foreign multinational companies,

such as in Sophia Antipolis in France and Singapore in Asia;26 third, state-driven technol-

ogy districts, which nurture local companies, such as the Hsinchu Science and Industrial

Park in Taiwan.27 We believe that these three typologies provide a generic framework for

entrepreneurship and technology districts.

This paper has thus introduced frameworks for comparative and global analysis in

relation to entrepreneurship and science, and technology and innovation district creation.

Here we have advocated analysis in terms of a typology of three types of entrepreneurship

as either driven by the market or one of two types of state and public policy involvement in

such entrepreneurship and technology district creation.

Two areas warrant further research: (1) an analysis of the implications of the role of the

state in entrepreneurship and the creation of technology districts for other emerging

economies such as Brazil, Eastern Europe and India; (2) an empirical analysis globally

comparing science, technology and innovation-driven industrial districts where the state

has played a substantial role in their creation. We believe that the role of the state in

the management of science, technology and innovation will be a major and continuingresearch topic for China in the 21st century.

Notes and References

1. For example, M. Porter, The Competitive Advantage of Nations (New York, Free Press, 1990).

2. N. W. Biggart & R. Delbridge, Systems of exchange, Academy of Management Review, 29(1), 2004,

pp. 2849.

3. B. Honig & M. Christie, Strategic issues of social entrepreneurship: international perspectives: call for

papers, Journal of World Business, 38(2), 2003, pp. iii.

4. W. M. Fruin, The Japanese Enterprise SystemCompetitive Strategies and Cooperative Structures(Oxford, Oxford University Press, 1992).

5. A. Amsden, Asias Next Giant: South Korea and Late Industrialization (New York, Oxford University

Press, 1989).

6. R. Wade, Governing the Market (Cambridge, MA. Harvard University Press, 1990).

7. D. C. North, Institutions, Institutional Change and Economic Performance (Cambridge, Cambridge

University Press, 1990).

8. M. Roe, Strong Managers, Weak Owners: The Political Roots of American Corporate Finance

(Princeton, NJ, Princeton University Press, 1994.); Fruin, op. cit., Ref. 4.

9. A. Amsden & W. Chu, Beyond Late Development: Taiwans Upgrading Policies (Cambridge, MA, MIT

Press, 2003); and Wade, op. cit., Ref. 6.

10. North, op. cit., Ref. 7.

11. G. Triantis & R. Daniels, The role of debt in interactive corporate governance, California Law Review,83, 1995, pp. 10731113.


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12. K. J. Laverty, Economic short-termism: the debate, the unresolved issues, and the implications for

management practice and research, Academy of Management Review, 21, 1996, pp. 825860.

13. D. Reed, Corporate governance reforms in developing countries, Journal of Business Ethics, 37, 2002,

pp. 223247; O. K. Tam, Ethical issues in the evolution of corporate governance in China, Journal of

Business Ethics, 37, 2002, pp. 303320; A. Gonzalez, Ethics in global business and in a plural society,

Journal of Business Ethics, 44, 2003, pp. 23 36; P. H. Phan, Corporate governance in the newly emer-ging economies, Asia Pacific Journal of Management, 18, 2001, pp. 131136.

14. C. Botosan, Disclosure level and the cost of equity capital, The Accounting Review, July1997,

pp. 323 349; C. A. Botosan & M. A. Plumlee, Disclosure Level and Expected Cost of Equity

Capital: an Examination of Analysts Ramblings of Corporate Disclosure and Alternative Methods of

Estimating Expected Cost of Equity Capital, Working Paper, University of Utah, April 2000;

P. Sengupta, Corporate disclosure quality and the cost of debt, The Accounting Review, 73, 1998, pp.

459474.

15. T. Donaldson, Editors comments: taking ethics seriouslya mission now more possible, Academy of

Management Review, 28, 2003, pp. 363366; Biggart & Delbridge, op. cit., Ref. 2.

16. Ibid.; R. E. Freeman & R. A. Phillips, Libertarian stakeholder theory, Business Ethics Quarterly, 12(3),

2002, pp. 331349; R. E. Freeman, Strategic management: A Stakeholder Approach (Boston, MA:

Pitman/

Ballinger, 1984).

17. Honig & Christie, op. cit., Ref. 3.

18. A. Saxenian, Contrasting patterns of business organization in Silicon Valley, Environment and Planing

D:Society and Space, 10, 1992, pp. 377391; L. Miller & E. Garnsey, Industrial districts: comparing

Cambridge and Sophia-Antipolis, Mimeo, Cambridge University, 2000.

19. M. Albert, Capitalism Against Capitalism (Paris, Centre for Economic Research, 1991); R. Dore,

W. Lazonick & M. OSullivan, Varieties of capitalism in the twentieth century, Oxford Review of

Economic Policy, 15(4), 1999, pp. 102120.

20. A. Amsden, The Rise of the Rest: Challenges to the West from the Late-Industrializing Economies

(Oxford, Oxford University Press, 2001); R. T. J. Chu, Entrepreneurship and Institutional Business:

an Application to Taiwan, PhD Thesis, University of Cambridge, 2000.

21. See works such as Wade, op. cit., Ref. 6; Amsden, op. cit., Ref. 5; and Amsden and Chu, op. cit., Ref. 9.

22. Fruin, op. cit., Ref. 4; Amsden, op. cit., Ref. 5.

23. A. Etzioni, The responsive community: a communitarian perspective, American Sociological Review,61, 1996, pp. 111.

24. C. Choi, S. H. Lee & J. B. Kim, Contractual uncertainty and transactional governance in emerging econ-

omies, Journal of International Business Studies, 31, 1999, pp. 189202; R. Whitley, Eastern Asian

enterprise structures and the comparative analysis of forms of business organisations, Organisation

Studies, 11, 1990, pp. 47 74.

25. Saxenian, op. cit., Ref. 18; Miller & Garnsey, op. cit., Ref. 18.

26. Albert, op. cit., Ref. 19; Dore et al., op. cit., Ref. 19.

27. Amsden, op. cit., Ref. 20; Chu, op. cit., Ref. 20.


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