Catching Up of Latecomer Firms in the Emerging Market: A Coevolutionary Approach
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Transcript of Catching Up of Latecomer Firms in the Emerging Market: A Coevolutionary Approach
Catching Up of Latecomer Firms in the Emerging
Market: A Coevolutionary Approach
DER CHAO CHEN
Japan Advanced Institute of Science and Technology
Catching Up of Latecomer Firms in the Emerging
Market: A Coevolutionary Approach
By
DER CHAO CHEN
Submitted to
Japan Advanced Institute of Science and Technology
In partial fulfillment of the requirements
For the degree of
Doctor of Philosophy
Supervisor: Dr. Ryoko Toyama
School of Knowledge Science
Japan Advanced Institute of Science and Technology
December 2007
I
Catching Up of Latecomer Firms in the Emerging
Market: A Coevolutionary Approach
Abstract
How latecomer firms in new emerging markets catch up with their competitors is
an interesting inquiry both for academic and practitioners. We argue catching up of
latecomer firms in the emerging market should not be simply explained by the single
lens, such as institutional perspective or technological upgrading approach, but need
to be considered the processing of interactions among different actors in the dynamic
environment. It means latecomer firms in the emerging market has to response and
selects its strategies in accordance with the contexts it embedded both at macro and
micro levels for catching up over time.
In this work, we used a multi-level perspective, the coevolutionary theory
approach∞ to develop the conceptual model and corresponding propositions for further
examining how latecomer firms in the emerging market catch up with leading
incumbents. Based on the conceptual model we developed, we used the cross case
analysis to analyze catching up of three semiconductor foundry firms-CSMC,
HHNEC, and SMIC- in China, through longitudinal data from industry associations,
companies, public media, and information from few informants. Our cross case
analysis evidenced our propositions and found some new interesting insights, even
that those may not be generalized to latecomer firms in other industries or countries
due to our research limits.
Copyright 介 2007 by Der Chao Chen
II
Coevolutionary perspective allows us to consider the evolution of organization
and environment simultaneously rather than the single lens. It also emphasizes the
interactions between organizations and environments that are more close to the reality
of current business life. We believe this work could use as the initial framework for
latecomer firms in different industries in the same emerging market or those from
different emerging countries to consider how their catching up coevolve with today’s
complex and dynamic environment.
Keywords: Catching up, latecomer firms, emerging market, coevolutionary
perspective, Semiconductor foundry industry, China.
Copyright 介 2007 by Der Chao Chen
III
ACKNOWLEDGEMENT
First, I regret that Professor Akio Kameoka, my supervisor in the minor theme
research, has passed away before I have this degree in hands.
Thanks for the support and supervision from Dr Ryoko Toyama in my doctoral
studying in JAIST and congratulated to her promotion to be a professor in Graduate
School of Strategic Management, Chuo University, Tokyo, after April 2008.
Comments and suggestions from Professor David T. Methe (Kwansei Gakuin
University), and Professor Shuji Kondou, Professor Yasuo Ikawa, and Professor
Katsuhiro Umemoto, all from JAIST, made this work better.
I also sincerely appreciate of Ms. Mary Ann Mooradian’s (Lecturer at English
Technical Communication in JAIST) encouragement and her effort on proofreading
my dissertation manuscripts. Financial support from the JAIST Foundation made my
doctoral studying come true. As a foreign student, I also thank efforts from staff at
International Student Section in JAIST.
Teachers in different stages of my studying are the role models during my
journey toward the academic career. My sincerely thank goes to Professor Dong
Shang. Chang, Dr. D. J. Hong, Professor Ming Tung (Mike), Lee (supervisor of my
master thesis), Professor, James M. J. Lee during the studying of my MBA degree;
Encouragement from Ms. Shirley Kao and Dr. T. Y Wu at Fu Jen Catholic University,
and Ms. Dean S. K. Shiu., Mr. T. S. Hu, Ms. I. L. Kung at SJSMIT (renamed as St.
John’s University) are also appreciated.
Encourage and support from Dr. Daisy H. I. Chou (Lecturer in Finance, La Trobe
University, Australia, PhD in Finance, Queen's University of Belfast, U.K.), Ms.
Claire P. H. Lin (PhD student in Safety Science Group, Delft University of
Technology, Netherland) and Dr. Shu-Jung Sunny Yang (Lecturer in University of
Melbourne, PhD in Management, UNSW, Australia), Ms Annotia Yao (PhD student in
Marketing, Nottingham, UK) are also acknowledged. Beyond those in quasi academic
community, I expect to thank to my classmates both in undergraduate and master
programs-Jin Ya Shiu, Alex T. Z. Lin, T. L Yeh, Dr. S. C. Yu, and others.
Friends and colleagues I met during my industry career, Angela Chen, Stella
Chen, Carol Liao, Lisa Lu, and Jane Ma, Rae Hung at Look Publication; B. W.
Hwang, H. P. Wang, Lilian Lee, Michelle Lo, Piayo Yen at Topology; Jesse Huang, Dr.
C. J. Kuo, Amber Lin, Cathy Liu, David W. Pen, T. S. Tseng, Vivian Wang at IQChina,
and Y. C. Mao, Hazel M. Y. Cheng at The World Economic Society. Except those
wonderful colleagues, my sincerely appreciation also goes to Cherry Yu, Shirley Chen,
Mike Pen, Judith Cheng, Helen Liu, Chen Chen, Isa Sung, Caroline Hsu, Maureen
Chiu, Kay Liu, Wanning Liao, Miao Cao, Wen Ho Shen and others, for their generous
help in my media career.
IV
Generous help from Dr. Takashi Yoshinaga, Sokato Ida, and other members in Dr.
Toyma’s Laboratory made my life in JAIST more easily. On the hands, I like to
express my gratitude to my friends from mainland China, Mr. Yi. Sun and her wife, Dr.
A. C. Chou, also Dr. Meng Li, Mr. .K. J. Wang, , Dr Hui Zhang, Dr, Xuefeng Liang,
Dr. Hai Gang Song, and Mr. Jia Shang Sun. The warm help and encourage from Dr.
Tunc Medeni and Dr. Andre Saito are also appreciated as well.
Besides, I also like to thank comments and advices from Professor Klaus Meyer,
Dr. Steven S Lui, Dr. Hyungoh Lee, Dr. Liliana Erakovic, Mr. Scott Hipsher, and Dr
Jianfeng Wu and other participants during the NSC workshop, Taiwan, 2004, APROS
11, Melbourne Australia, 2005, AIB 2006 Chinese Doctoral Consortium, and AIB
2006 Paper Development Workshop, respectively.
I am so luck to live in such a warm family, my parent; young sister, and old
brother, also my family in law are always behind me to support my decision to pursue
the academic career. Last but not the least, without the constantly encourage from K.
T. Chuang, my intelligent and lovely wife, I would not believe I can have my doctoral
degree and swim in the academic world without her. I will give all the best to her and
my family.
Thank the God and those who help and encourage me over years.
杯幎多@
Der Chao ChenDer Chao ChenDer Chao ChenDer Chao Chen
V
TABLE OF CONTENTS
ABSTRACT …………………………………………………………………………..I
ACKNOWLEDGEMENT…………………………………………………………..II
TABLE OF CONTENTS…........................................................................................V
LIST OF TABLES …………………………………………………………....….... VI
LIST OF FIGURES ……………………………………………………………...VIII
1. INTRODUCTION ……………………………………………………………….. 1
2. LITERATURE REVIEW……………………..…………………………………. 4
3. RESEARCH FRAMEWORK………………………………………………….. 37
4. RESEARCH METHOD ...……………………………………………………... 55
5. THE CASE STUDIES ………………………………………….......................... 66
6. CONCLUSIONS …………………………………………………………..……100
REFERENCES ………………………………………………………………........112
APPENDIX…………………………………………………………………..…….135
PROFILE………………….……………………………………………………….138
VI
LIST OF TABLES
2.1 The Characteristics of Leader, Follower, and Latecomer ………………….……..6
2.2 Advantages and Disadvantages of First Movers …….…………………..………..8
2.3 Early Mover Advantages versus Latecomer Advantages ………………………..10
2.4 Three Ls for the Catch Up of Latecomer Firms …………………………………16
2.5 Debate of Selection and Adaptation in the Single Lens………………………….27
2.6 Properties of Coevolution ………………………………………………………..32
2.7 Empirical Works Using the Coevolutionary Theory Approach ………….………35
4.1 Events for Analysis …………………………………………………….………...59
4.2 China Semiconductor Market in 2004, by Sector………………………………..61
4.3 Major Firms in China Semiconductor Industry Value Chain…………………….62
4.4 Top 10 Pure-Play Foundries Forecast for 2006…………………. .......………….64
4.5 Profiles of Case Companies …..............................................................................65
5.1 Six Backbone Semiconductor Firms in China …………………………………. 69
5.2 Target for Semiconductor Manufacturing in the Tenth Five-Year Plan …………74
5.3 New Wafer Manufacturing Capacity Established during the Tenth Five-Year
Plan ……………………..………………………………………………………. 74
5.4 Evolution of Management Logics in China….…………………………..............80
5.5 Microcoevolution of Three Cases…..……………………………………………88
VII
LIST OF TABLES
5.6 Technology Profiles of Three Cases……………………………………………..91
5.7 Catching up of Three Cases……………………………………………………...92
5.8 Research Results…………………………………………………………………94
5.9 Macro- and Micro-coevolutions between CSMC and the Environment…………95
5.10 Macro- and Micro-coevolutions between HHNEC and the Environment……...97
5.11 Macro- and Micro-coevolutions between SMIC and the Environment…….…..98
VIII
LIST OF FIGURES
2.1 Dynamics of Absorptive Capacity ….……………………………………………11
2.2 Dynamics of Organizational Learning in Catching Up ……….…………….…...17
2.3. Effect of Management Logics in Coevolution ……………………………….....30
2.4 Coevolution of Firm, Industry, and Environment ……………………………… 34
3.1 The Conceptual Framework……………………………………………………...52
4.1 The Triangulation of This Study ………..………………………………………. 58
4.2 China’s Market Share in the Worldwide Semiconductor Market ………………. 63
5.1 Technological Development in China and the World…………………………… 74
5.2 Structures of Ownership of Major Chinese Semiconductor Foundry Firms.…….84
6.1 Research Contributions………………………..……………………………..…104
1
1. INTRODUCTION
1.1 Research Background
Development of newly industrializing countries (NICs) in the 1990s provide
significant evidences that latecomer countries and firms are capable of following,
catching up, and even leading the pace of worldwide economic development (Amsden &
Chu, 2003; Chang & Yu, 2001; Hobday, 1995; Kim, 1997; Kwong, Chau, Lui, & Qiu,
2001; Mahmood & Singh, 2003; Mathews, 2002b, 2002c; Mathews & Cho, 1999, 2000).
Their success stories inspire other transiting economies1, such as India, China, and East
Europe, to write their own catch up stories and stimulate economic development, both in
their own countries and in the worldwide market (Cavusgil, 1997; Wilson &
Purushothaman, 2003). However, there are not many discussions concerning how
latecomer firms in these emerging markets catch up with other leading competitors in
from NICs and other developed countries (Chen & Toyama, 2006; Lazonick, 2004;
Zhang, 2004).
Current explanations about the catch up of latecomers, whether their level of
analysis is at the country-, industry-, or firm-level, are mainly from a single lens, such as
using institutional approach to discuss how government policies may intervene or
motivate the economic development at different levels, (Amsden & Chu, 2003; Fuller,
Akinwande, & Sodini, 2003; Li, 1999; Lo, 2001; Yu, 1999) or how those latecomers
upgrade their technological capabilities in terms of technological learning perspective
(Kim, 1997, 2000; Dutrenit, 2000, 2004; Figueiredo, 1999, 2003; Mathews & Cho, 1999,
1 Transition economies and emerging markets are mentioned interchangeably in this dissertation, though
we prefer to use “emerging market” in most cases. While different studies and organizations have their own
definitions, here we define emerging market as a country that has deregulating from a planned and
pre-communist economies toward a market liberalization and free market system, such as China, India, and
countries in East Europe and Latin America (Hoskisson, Eden, Lau, & Wright, 2000; Wright, Filatotchev,
Hoskisson, & Peng,, 2005).
2
2000).
Compared with the market systems and institutional mechanisms in developed
countries and NICs, those in the transition economies are quite unstable. Such a dynamic
context means that latecomer firms born in the emerging market need to configure
internal selection and environment adaptation concurrently. To observe catching up of a
latecomer firm in the emerging market, a multi-level lens perspective is well
recommended by various researches (Hoskisson, et al., 2000; Peng, 2003; Wright, et al.,
2005). In this research, we adopt a multi-level approach-the coevolutionary theory
perspective-to find out the detail of how catching up of a latecomer firm in an emerging
market.2
1.2 Research Questions
In this study, we apply the coevolutionary theory approach to analyze the catch up of
a latecomer firm in the emerging market, and expect this new perspective can deliver new
insights and findings either for other counterparts in the same or different transition
economies, or expanding the application of coevolutionary perspective in the fields of
management and organization studies. In this dissertation, our main research question is
how do latecomer firms in the emerging market catch up in terms of a coevolutionary
perspective? Following this, our sub-research questions are, how do we construct our
conceptual model in terms of coevolutionary perspective? What could we learn through
using the coevolutionary perspective to examine catching up of latecomer firms in the
emerging market?
Firms are not stand-alone entities, but co-evolve with the environment where they are
2 In this dissertation, we used the term “coevolutionary theory perspective”, “coevolutionary theory approach”, “coevolutionary approach”, and “coevolutionary perspective” interchangeably. They all refer to the coevolutionary theory perspective proposed by Lewin & Volberda (1999, 2003) that is the major theoretical basis of our research.
3
embedded, regardless of their relative positions in the competitive markets (Kauffman,
1993; McKelvey, 1997, 2002). While ideas of the coevolutionary theory perspective have
increasingly been applied in management and organization studies recently, they are not
only used to examine the debates between selection and adaptation of an organization,
but also to consider the joint outcome of interdependent actors within the organization
and the environment it embedded (Lewin & Volbreda, 1999; 2003; Lewin, Long, &
Carroll, 1999). In this dissertation, we chose the coevolutionary theory perspective as our
theoretical basis, which allows us to observe catching up of a latecomer firm in the
emerging market with a more dynamical and multiple level approach, to avoid the
traditional static, single lens perspective.
1.3 Outline of the Dissertation
Except this introduction, the outline of this dissertation is organized as follows. In
the second chapter, we will review discussions and arguments about the latecomer firm,
its catch up activities first, followed by the idea of coevolutionary theory, especially its
application in management and organization studies. The third chapter presents our
framework and corresponding propositions based on the coevolutionary theory approach.
The fourth and fifth chapters describe the research methods we used and the result of our
cross case analysis, respectively. The final chapter presents our conclusions.
4
2. LITERATURE REVIEW
2. 1 Latecomer Firms
The original idea of “latecomer” mainly focuses on economic development at the
country level that Gerschenkron (1962) used to describe the late industrialized European
countries in the nineteenth century. Nevertheless, it has been used to describe the
leapfrogging growth of firms in newly industrialized countries (NICs), as in “the
latecomer firms” (Hobday, 1995; Mathews, 2002a; Mathews & Cho, 1999).
In Gerschenkron’s (1962) seminal work, absences of some preconditions make
economic development in latecomer countries different from that in other developed ones,
latecomer countries need to seek substitutions for compensating their absences in
institutions, level of technology development, and market size, respectively. His work
was cited frequently in subsequent studies related to economic development or
technological innovations, both at the country and at the firm level (e.g. Amsden & Chu,
2003; Hobday, 1995, 2003; Mathews, 2002a). However, because the unit of analysis in
our research focus is on the indigenous latecomer firm in the emerging market, our
discussions and arguments mainly concentrate at the firm level, but may cover the
discussions at the industry or country level when necessary (Hobday, 1995, Mathews &
Cho, 1999). We argue the meaning of latecomer firm is unlike leaders or followers; it
generally represents firms without advanced technology and facing entry barriers to the
market.
In a study of how firms in NICs catch up with the leading firms in Japan, Hobday
(1995) defined latecomer firms as the manufacturing companies facing disadvantages due
to lower levels in technology, incapable of accessing international market. A latecomer is
also unlike technological followers that have their own research and development (R&D)
capabilities to imitate or learn from leaders and connect to the market. Latecomer firms
have difficulties not only in investing in R&D activities and securing necessary
5
technological capabilities, but also in getting close to customers, especially those in
export markets. Hobday (1995) examined the catch up of latecomer firms in NICs mainly
though the ‘simple model” that described how marketing knowledge and technology are
assimilated within the firms. Without covering the service industry, his work does not
explain how catch up may happen in the context of value co-creation between customers
and suppliers, or in manufacturing industries that support with increasingly
service-oriented practices (Prahalad & Ramaswamy, 2004).
Mathews & Cho (1999) claimed the latecomer firm is a firm that is late to enter the
market, with no advanced technologies or market access, but which aims to accelerate
upgrading both in technology and market share. It is just late due to the timing of entry,
but tries very hard to become the leader. Unlike other start-up firms that are born with
particular advantages to compete with incumbents, some latecomer firms come from the
diversification of an existing firm in a different industry, or the spin off from a public
research institution, such as the entry of Samsung into the semiconductor industry, or
UMC which was spun off from a research project from Industrial Technology Research
Institute (ITRI) (Mathews & Cho, 1999, 2000). Here we propose different characteristics
of leaders, followers, and latecomers in Table 2.1. In this study, we define the latecomer
firm as the company that intends to compete with leading incumbents without sufficient
technological capabilities and market access in the first place.
Acquiring technologies from external sources, innovating by imitation, building the
infrastructure for industrial development are major success factors for economic
development of NICs, especially in the consumer electronic and semiconductor industries
(Amsden & Chu, 2003; Hobday, 1995; Kim, 1997; Kim & Nelson, 2000; Mathews &
Cho, 2000). However, all these studies developed from analysis at the country or industry
levels, rather than at the firm level. They do not consider how a single firm responds to
those external changes in order to for catch up, which leaves a gap we expect to fill in
6
this research.
Table 2.1 The Characteristics of the Leader, Follower, and Latecomer
Leader Follower Latecomer
Timing of Entry first entry behind the leader late entry
Technology
capability in-house R&D imitation acquisition and imitation
Market access creator connected isolated
2.2 Catching up of Latecomer Firms
Developing countries and latecomer firms all need to catch up to their competitors to
survive and develop economically. Their catch up activities require different sets of
supportive conditions that not only come from external and institutional environments,
such as technology transfer from multinational corporations (MNCs), and incentive
policies of the government, but also from absorptive capacities within the firms (Kim,
1997, 1999; Kim & Nelson, 2000; Mathews & Cho, 1999, 2000). In this section, we
briefly discuss the catch up of latecomers at the country level first, and then move down
to the firm level in detail.
Based on the theory of product life cycle in international trade and investment,
scholars first developed the flying-geese model to explain the recovery of the Japanese
economy after the World War II (WWII), and further expanded its application to the catch
up of NICs (Akamatsu, 1962; Kojima, 2002; Ozawa, 2003; Vernon, 1966). In that model,
one dominant country led the development path for other following developing countries
to upgrade their industry development. Ozawa (2003) called the catch up growth
embedded within the flying geese model “hegemon-led macro clustering” that the lead
country lead the industry upgrading of those followers. For example, the U.S.A. was the
first leading goose to guide the recovery of Japan after WWII, while Japan was the
7
second leader to help the industrialization of the NICs.
In the flying geese model, local firms in the developing countries catch up by
receiving transfers of operations from leading firms in the developed country. That also
opened those developing countries to the worldwide market and let them participate in
international division of labor (Kojima, 2002; Ozawa, 2003). Once those latecomer firms
participate in international markets through that division of labor, they can upgrade
themselves through expanding capacity and learning technology capabilities from those
foreign leaders (Ozawa, 2003).
While the flying geese model informed emerging economies how the evolutionary
track of economic development they may follow and analyzed the transfer of production
and enterprise systems across countries3, other researches concerned industrialization
and catching up of latecomer countries mainly through perspectives of
government/institution oriented or neoclassical economics (Amdsen & Chu, 2003; Aoki,
2001; Kim, 1997; Kim & Nelson, 2000).
For catching up to leading firms, latecomer firms need to consider first-mover
advantage (FMA) and disadvantages those leading firms have, and try their best to offset
disadvantages they have to compete with those leading incumbents correspondingly (Cho,
Kim, & Rhee, 1998; Lieberman & Montgomery, 1988, 1998; Mathews, 2002c). In their
works on advantages and disadvantages of the first movers, Lieberman & Montgomery
(1988, 1998) outlined sources of advantages and disadvantages of first movers, and
expanded these ideas into a discussion of the timing of entry in terms of the
resource-based view. Table 2.2 summarizes their arguments. As they mentioned, early
entry into the market and possession of advanced technology let those first movers (i.e.
leading firms) gain economies of scale through effects of learning and experience curves
3 Because the unit of analysis of this research is at the firm level, we stop our review about the flying geese model here, because it that mainly concerns industry development at the country or industry levels (Kojima, 2000).
8
and protection by using patents (Lieberman & Montgomery, 1988). However, existence
of those advantages cannot be sustained eternally, but mainly depends on the asymmetry
due to the timing of entry. Because the effect of organizational inertia, boundaries of
existing market and technologies on the leading firms, latecomer firms can breakthrough
or find new window of opportunist from boundaries in the first movers. Then, first mover
advantages may gradually become disadvantages of leading firms in a long run.
(Christensen, 1997; Lieberman & Montgomery, 1988, 1998).
Table 2.2 Advantages and Disadvantages of First Movers
Advantages Disadvantages
Technology leadership Free-rider effect
Preemption of scarce assets Incumbent inertia
Lock in effect of the switching cost Changes in technology and customer needs
Learning by doing Lack of qualified information and resources
Source: Revised from Lieberman & Montgomery (1988, 1998)
In fact, latecomer firms enjoy more stabilized market and technology conditions that
reduce the effect needed to educate customers or create new demand; they may follow
what those incumbents already created and penetrate the growing market (Lieberman &
Montgomery, 1988; Mathews, 2002c). While asymmetry of those characteristics can be
used to discern whether the firms are leaders or latecomers, the resource-based view of
the firm further helps firms to identify indigenous resources they can use to establish or
sustain their leading positions (Barney, 1991; Lieberman & Montgomery, 1998). As
Lieberman & Montgomery (1998) admitted, their discussions about first mover
advantages do not consider the influence of the external environment. Apparently, firms
cannot simply ignore the impacts from external environments, whether they are from the
9
industrial or institutional levels. Suarez & Lanzolla (2005) emphasized the contextual
dependence of the first mover advantages, and companies need to consider external
conditions, such as different evolutionary paces of market and technology, to
accommodate their FMAs.
Suarez & Lanzolla (2005) combined different development paces of technology and
market in various scenarios, which that show those variations in industrial dynamics may
jeopardize the durability of firms’ FMAs, and open the window of opportunity for other
late entrants (Christensen, 1997; Makadok, 1998). From the perspective of latecomer
firms, previous works show there are no eternally sustainable FMAs, and latecomers
should try their best to catch up with those leading rivals. Next, we are going to discuss
the catch up of latecomer firms in detail, to establish some essential constructs for our
further arguments.
Most catching up experiences of latecomer firms in NICs and other developing
countries appeared in information technology and semiconductor industries.4 Cho, et al.
(1998) compared the development of the semiconductor industries in Japan and Korea
and summarized their latecomer strategies. Their study examined how latecomer
semiconductor firms in Japan and Korea conquer inherent disadvantages of late entrants
to compete with other leaders. They claimed advantages of latecomers are disadvantages
of those early movers and vise versa, so latecomer firms can leapfrog those early movers
through turning upside down their disadvantages (Table 2.2). Different contexts in Japan
and Korea made the semiconductor industry in these two different countries follow
different approaches to catch up. In Japan, sequential upgrading for building
competencies that enabled them to surmount the leadership of the U.S.A., while Korea
initially manipulated Japan’s experience with more support of entrepreneurship (Cho, et
4 Studies about catching up of latecomer firms mainly discussed experiences in computer, electronic device, and semiconductor industries in NICs and other developing countries (Amsden & Chu, 2003; Hobday, 1995; Kim, 1997; Mathews, 2002a; Mathews & Cho, 1999, 2000).
10
al., 1998). Regardless of their differences, government support plays an important role in
both countries that provide institutional mechanisms for the leapfrogging of those
latecomer firms in semiconductor industry (Chang & Yu, 2001; Kim, 1997; Lall, 2000).
Table 2.3 Early Mover Advantages versus Latecomer Advantages
Sources Early Mover Advantages Latecomer Advantages
Market Switching cost
Changes in technology and
customer tastes
Free rider effects
Competition Preemption Incumbent inertia
Firm Learning by doing, learning/experience
curve effects
Enhanced transparency and
symmetry of information
Source: Revised from Cho, et al (1998: 493).
Using the experience of Korea’s semiconductor industry with the resource-based
view of the firm, Mathews & Cho (1999) argued lack of resources and capabilities means
latecomer firms cannot have isolating mechanisms to sustain their competitive
advantages, that first movers have (Mahoney & Pandian, 1993; Makadok, 1998; Rumelt,
1984). Therefore, latecomers need to secure external sources to compensate for their gaps,
and must learn from others to upgrade their resource bases. Adopting the idea of
“combinative capabilities” from Kogut & Zander (1992)5, Mathews & Cho (1999: 144)
defined combinative capabilities as “the receptivitives of the firm to external sources of
knowledge and technique” that enable the firm to initiate its double loop learning process
to combine external and internal resources to increase technological capabilities for
catching up. We can summarize combinative capabilities of the firm as the capabilities to
integrate pieces of functional capabilities within the firm and to leverage knowledge and
5 Kogut & Zander (1992) defined the concept of combinative capabilities as the intersection of capabilities of the capability of the firm to exploit its knowledge and the unexplored potential of the technology.
11
experience learned from external sources to upgrade the firm’s resource base to compete
with leaders.6
Figure 2.1 Dynamics of Absorptive Capacity
Source: Kim (1995: 508).
In his works on learning and economic development in Korea’s industries, Kim
(1995, 1997, 1998) used absorptive capacity proposed by Cohen & Levinthal (1990) to
consider intensity of effort and prior knowledge in the latecomer firms, and to formulate
the dynamics of absorptive capacity (Figure 2.1). The importance of learning has been
emphasized in the technological capability perspective and used to examine how
technologies are transferred, learned, and accumulated within latecomer firms for their
catching up (Dutrénit, 2000; Figueiredo, 2002, 2003; Kim, 1997, 1998).
Westphal, Kim, & Dahlman (1985: 171) defined technological capability as the
ability to make effective use of technical knowledge. They divided it into three elements:
production, investment, and innovation, and explored how Korea developed its
6 Definition of combinative capabilities in this work also include the meaning of absorptive capacity proposed by Cohen & Levinthal (1990), that emphasized the firm’s capability to learn from external sources and its internal accumulations.
12
technological capabilities, and how the importance of institutional change remains critical
for enhancing the technological capabilities of South Korea. Kim (1997) used the same
ideas and expanded them for different industries in South Korea, then concluded that
imitation is the first step for future innovation leadership of those latecomer firms and
countries. In his work, the concept of technological capabilities is mainly treated as
interchangeable with “absorptive capacity” mentioned by Cohen & Levinthal (1990).
Because building, learning and assimilation of technological capabilities are so
critical for the catching up of the latecomer firm, many studies use that perspective to
examine catch up of latecomer firms in different industries and countries. According to
the experience of Korea industries, Kim (1997) proposed an analytical model covering
the technology trajectory (external environment), institutional environment (meso
environment), and dynamic learning of the firm. In the case of the Brazilian steel industry,
Figueiredo (2002, 2003) outlined the framework of technological capability accumulation
by classifying different technological functions, and identifying whether the technologies
were routine or innovative. His framework also considered learning process of the
latecomer based on the knowledge creating theory developed by Nonaka & Takeuchi
(1995), and featured four different stages of the learning process: variety, intensity,
functioning, and interaction.7
Studies emphasized the importance of organizational learning within the firm, and
implied the importance of knowledge creation and conversion for their technological
capability building and accumulation. 8 When latecomers gradually change from
technology users to technology generators, studies using the technological capabilities or
7 Figueiredo (2002, 2003) proved the relationship between knowledge acquisition and knowledge conversion for rapid technology capability accumulation within the firm, and showed accumulations and sustainabilities in different technological functions also influenced by different approaches and rates of other complementary technological capabilities. 8 Technological capability approach is mainly used in explaining the catching up of industries and latecomer firms in Korea. (Choung, Hwang, Choi, & Rim, 2000; Hobday, Rush, & Bessant, 2004; Kim, 1998).
13
capability building approaches have also moved to other non-technological or
non-institutional elements, such as alternative changes in organizational structure of the
firm, or network capabilities among firms that were seldom mentioned in previous works
(Cho & Lee, 2003; Dutrénit, 2000; Kim, 1997; Mathews, 2002a, 2002c).
Dutrénit (2000, 2004) classified studies about the technological capabilities building
of firms into two categories. One category considered the firms in industrial latecomer
countries (ILC), and emphasized not only building of technological capabilities at the
minimum level, but also the support of institutional policies and the national innovation
systems (Hobday, 1995; Kim, 1997). The other category was essentially based on the
core competence perspective of Hamel & Prahalad (1994) in the strategic management
literature (SML) that studied learning, integrating, and building of technological
capabilities within the firm.9 Figueiredo (2002, 2003) compared differences between
intra-firm learning of latecomer steel firms in Brazil. His study separated technological
capabilities at the firm level into corresponding functions, then compared different levels
of difficulty, and studied learning processes and technological capability accumulation of
the latecomer firms. The importance of technological capability in the latecomer firm and
how to access, learn, and accumulate technologies were examined elaborately in Dutrénit
(2000) and Figueiredo (2002, 2003).
However, the gap in technological capabilities is only one of the latecomer
disadvantages; and there are different kinds of resources a firm needs to compete with
others (Cho, et al., 1998; Mathews, 2002b; Mathews & Cho, 1999). If we treat the firm as
a bundle of productive resources directed by administrative decisions of top executives
(Mahoney & Pandian, 1993; Penrose, 1995; Peteraf, 1993), people can analyze the
catching up of latecomer firms in terms of a resource-based view of the firm.
9 Dutrénit (2000, 2004) compared these two categories in terms of complexity of knowledge base of the firm and content of technological learning, and used them to explain the transition process of knowledge accumulation in one business unit of a Mexican company.
14
Mathews (2002c, 2003b, 2006a) and Mathews & Cho (1999, 2000) have examined
the catch up of semiconductor industry in East Asia and the internalization process of
latecomer Asian multinational corporations, and further developed the resource-based
view of the latecomer firm.10 Their works based on latecomer countries and firms
provide extended explanations, and rewrite traditional understanding about the
resource-based view of the firm.
The Resource-based view of the firm presumes firms should use resources they
possess to secure sustainable competitive advantages, that ignore the fact that not all
resources the firm has can be sustained, and not all resources the firm needs can be
possessed in the first place, especially for those latecomer firms (Barney, 1986; Dierickx
& Cool, 1989; Mathews, 2003b). Mathews (2002a, 2002c, 2003b) made a series of
arguments to emphasize that latecomer firms can catch up based on their innate
disadvantages with a reversed thinking as Cho, et al. (1998) also said. Even with poor
resource at their beginning, latecomer firms could reverse their disadvantages as their
fundamentals for future leapfrogging. His arguments described how those latecomer
firms located in peripheral regions, such as South Asia, successfully catch up with their
competitors in developed countries and rapidly internationalize their operations in a short
time (Mathews, 2002a, 2006a). In fact, Teece (2000) also used dynamic capability
perspective to link firm capabilities and economic development of NICs, then made
similar conclusions that latecomer firms could choose more attractively evolutionary
paths and position themselves to produce intermediate products with open standards to
maximize the cost advantages of being in the developing countries.
Mathews (2002a, 2002c, 2006a) argued latecomer firms can identify the role and
position they expect to play in the industry value chain first (linkage), then secure
10 Mathews has done lots of research about catching up of latecomer firms in NICs, especially those peripheral multinationals born in Taiwan (2002a, 2006a).
15
partnerships or support from their leading competitors, mainly foreign firms in developed
countries that play as vendors of technological capabilities and market access, to
compensate for the their poor resource bases (leverage). Once the latecomers position
themselves well and establish relationship with those capable vendors, they not only can
imitate those external sources, but also learn and integrate both external and internal
knowledge and experience for catching and further leapfrogging (learning).
While the resource-based view of the firm emphasized that the firm needs to seek
resources that are not imitable, substitutable and transferable, resources with these
vulnerable characteristics are what latecomer firms prefer (Barney, 2001b, Dierickx &
Cool, 1989; Mathews, 2002c). Being latecomers, even with those innate disadvantages,
that gives them other advantages through accumulating external resources, such as
compressing their time to track technological trajectories, being a free rider, and having
clearer understanding about technological and market trends (Lieberman & Montgomery,
1988, 1998; Mathews, 2003b). All these “advantages” make imitation, learning and
accumulating resources from external sources become major engines for the catch up of
latecomer firms. Based on the resource based view of the firm, Mathews (2002a; 2003a,
2006a) claimed catching up of latecomer firms is the search for competitive
complementarities that include three Ls- linkages, leverage and learning (See Table 2.4).
Latecomer firms can implement these strategies through having outsourcing
contracts and technological licensing from leading incumbents, or playing as the second
source for those leading firms, to satisfy the demand of those leaders (clients).11 Without
so-called FMAs, latecomers can use their late timing of entry as the slack to learn and
practices new technical and market knowledge, rather than confronting in those leaders
directly in head-to-head competition. Also, latecomer firms can leverage resources they
11 We argue catching up of latecomer firms could be seen as showing how those latecomer firms complement the existing industry value chain to earn growth opportunities and learn advanced technologies from the market (Mathews, 2002a, 2002c, 2003a).
16
have, such as low labor costs, to deepen their participation in the industry value chain that
fulfill with the demand from leading rivals, and upgrade their own hands-on knowledge
and experiences in particular products and markets, such as the development experience
of DRAM industry in Japan and Korea (Kim, 1997; Cho, et al., 1998; Mathews, 2002c;
Mathews & Cho, 2000).
Apparently, without proper organizational learning within the latecomer firms,
having good linkage and leverage cannot assure successful catch up (Figueiredo, 1999;
Kim, 1997, 1998; Kim & Nelson, 2000; Mathews & Cho, 1999). Here, we also recognize
that institutional support also has a critical role in enhancing the effects of organizational
learning of the firm.
Table 2.4 Three Ls for the Catch Up of Latecomer Firms
Strategies Characteristics
Linkage Secure the connection to participate in the global value chain
Leverage Leverage the position in the global value chain and offer the products and
services that incumbents’ need
Learning Learn from the consolidating linkages and repeated leverage to increase the
resource bases of the firm
Source: Summarized from Mathews (2002a, 2002c, 2003, 2006a).
Regardless of being described differently in different studies, such as combinative
capabilities, absorptive capacity, and technological learning, learning needs to be
executed within the latecomer firms for their catching up. Because it is necessary not
only to learn from external sources, but also to recombine new knowledge with existing
resources and experiences to upgrade the resource base of latecomer firms, this
dissertation uses “combinative capabilities” to describe capabilities used to learn and
recombine resources within and beyond the boundary of the latecomer firm regarding
17
their catching up activities. This argues that latecomer firms need to combine and
integrate existing and newly learned knowledge to create their competitive advantages
(Amsden & Chiu, 2003; Dutrénit, 2000; Figueiredo, 2003; Mathews & Cho, 1999; Teece,
2000).
Apparently, combinative capabilities of latecomer firms cannot stand alone, but need
to cope with dynamic environment both outside and inside the organizations. For
example, Kim (1998) treated the firm as an organizational learning system, and the catch
up of the latecomer firm into the dynamic interaction between external and internal
environment (Figure 2.2). That reminds us that catching up of latecomer firms is not a
single event or one-time phenomena, but an evolving series of learning activities between
firms themselves and corresponding contexts they confronted.
Figure 2.2 Dynamics of Organizational Learning in Catching-up
Source: Kim (1998: 509).
Hobday (2003) used Gerashchenko’s (1962) arguments to show Asia’s
industrialization through not only the catch up of technological progress, but also
innovations in strategies and institutions from the firm and government. We argue the
18
catching up of latecomer firms also evolves along with changes and innovations
happening both within and outside the firm. While previous studies mainly used a single
lens to explain catching up of latecomer firms, whether they focus on technological
capabilities or institutional arrangements, we argue a multiple lens approach would be
interesting and could bring some new insights to analyze catching up of the latecomer
firm in the emerging market against leading incumbents. In this dissertation, the idea of
coevolutionary theory approach is adapted to the context of catching up of latecomer
firms in the emerging market, for further developing our conceptual model (Baum &
Singh, 1994a; Charlesworth & Charlesworth, 200; Lewin & Koza, 2002; Lewin &
Volberda, 1999, 2003; Mayr, 2001). In the following sections, we discuss the idea of the
coevolutionary theory approach and its application in organization and management
studies in detail.
2.3 The Coevolutionary Theory Approach
We divide this section into two sub-sections for describing the idea of coevolution
and explaining how organizational studies use that coevolutionary approach, respectively.
2.3.1 The idea of coevolution
In the biological world, coevolution represents synchronized evolutions between
species and their living environments (Charlesworth & Charlesworth, 2003;; Kauffman,
1993; Mayr, 2001; Zimmer, 2001).12 Kauffman (1993) emphasized that any evolution is
coevolution, in that organisms cannot evolve without responding to the changes of the
environment they live in. Therefore, whether the discussions concern evolution of one
12 The idea of coevolution in organization studies is borrowed from biology (Durand, 2006; Lewin & Volberda, 1999; McKelvey, 1994, 2002). Natural selection proposed by Darwin (1895) is also used to describe as the selection / competition between firms and their competitive environment (i.e. environmental niches in biology)(e.g. McKelvey, 1997). Population ecology has even become the basis for the development of organizational population used in managerial and organizational studies intensively (Hannan & Freeman, 1989; Roughgarden, 1996).
19
particular species or interaction between species, they are just different forms of
coevolution existing in a specific context.
Mayr (2001) claimed while two organisms interact with each other they will
coevolve, and all evolutions mainly occur through such coevolution. He defined
coevolution as “the parallel evolutions of two kinds of organisms that are
interdependent… or where at least one depends on [an]other…, and where any change
will result in an adaptive response” (2001: 312). Even without an explicit statement,
coevolution that Mayr (2001) defined does not ignore the importance of natural selection
that forces mutation and symbiosis to happen to organisms. Mutation emphasizes the
change of phenotype, while symbiosis focuses on the collaborative reciprocity between
organisms.
Various instances of coevolution surround us in our daily life, for example, the
interactions between pollinators and flowering plants, and those between host and
parasite and predators and prey, or between species and the environment in which they
are embedded (Mayr, 2001; Zimmer, 2001). Coevolution happens not only between
species (animals and plants), but also with the environment they live in, which establishes
symbiosis between those species, and forces possible mutation toward the environmental
changes and brings up the crisis of extinctions due to the pressure of natural selection
(Charlesworth & Charlesworth, 2003).
In terms of the theory of population biology, coevolution is the simultaneous
evolution of interacting populations through the influence of natural selection on
populations within an ecological community (Roughgarden, 1996: 451). Roughgarden
(1996) identified some critical questions in coevolution, such as how coevolution
happens, the effect of coevolution on the whole ecological community, and possible
dynamic results of coevolution, like symbiosis, parasitism, and mutualism. Population
ecology mainly concerns the equilibrium of an ecological community under the pressure
20
of natural selection.13
Knowledge of population ecology applies in the field of organization studies already
used to research competition interactions between organizations, population ecology of
organizations, evolutionary dynamics of organizations, and topics related to
organizational diversity (Baum & McKelvey, 1999; Baum & Singh, 1994a; Hannan &
Freeman, 1989; Kauffman, 1995). In addition, some works have used the ecological
perspective to describe industry structure as an industry ecosystem (Iansiti & Levien,
2004; Moore, 1997). All these arguments explicitly or implicitly conceive of coevolution
not only as a simple analog, but as physically present in our economic life.14
While the concept of coevolution has been applied in various fields, most derivate
studies use species or organizations (depends on the unit of analysis) as the threshold to
divide coevolution into two different levels; the evolutionary events and processes
happening below the threshold are called micro-coevolution, while those happening
above the threshold are called macro-coevolution (Lewin & Koza, 2002; Lewin &
Volberda, 1999; Madhok & Phene, 2001; Madhok & Liu, 2006; McKelvey, 1997, 2000;
Volberda & Lewin, 2003). Because different composites shape different patterns of
coevolutionary processes, interactions between micro-coevolution and macro-coevolution
also evolve with the complexity and dynamics among those composites and the
corresponding ecosystems (Kauffman, 1995).
13 Roughgarden (1996) used mathematical models to describe different possibilities of coevolution, and showed coevolution of the community changes and restructures the whole ecology, and the fitness of those species in the community depends on the ecological network they are embedded in. Studies of population show the stable community is only temporary and hard to maintain, and the evolution of every species has to consider the impact of not only natural selection, but also the interaction between counterparts for sustaining population growth and reducing the risk of extinction. 14 For example, Rothschild (1990) described interactive changes across political, economic, and technological fields as “global coevolution” and admitted such a coevolution is also a long-term evolutionary process for the economic system where its own history matters. Based on such an analog, he argued that the economic system is an evolving ecosystem, and the source of economic life is technical information, while market competition and technical innovation of an economic system work like natural selection and variation in nature.
21
In this dissertation, we not only identify actors and synthesize interactions between
them and the environment they are embedded in, but also identify macro- and
micro-coevolutions for observing catching up of latecomer firms in emerging market.
2.3.2 The Coevolutionary Theory Approach in Organization and Management
Studies
Different schools of thought in organization studies have presented diversified
explanations on how organizations interact with environments and other external factors
for survival, what makes organizations different, and how organizations evolve; however,
classical approaches such as resource dependence, population ecology, and institutional
theory, whether the unit of analysis is at the micro- or macro- levels, do not explicitly
explain how coevolution happened between organizations and their context (Baum, 2002;
Hannan & Freeman, 1989; McKinley & Mone, 2003; McKelvey, 1997; Miles & Snow,
2003; Scott, 1998).
To study organizations in terms of coevolutionary insight, one can assume the
complexity and diversity of organizations and environment as quasi natural phenomena
that represent the intersection of intentionally and naturally caused behavior (McKelvey,
1997: 353). Under this premise, we argue the phenomena that connect the organization
and external elements (e.g. environment, institution, and technology) can be organized
and examined through the coevolutionary perspective.
While Nelson & Winter (1982) showed economic growth can be understood by the
evolutionary process of firms and industries, Nelson (1994a, 1994b) further argued that
evolving development of the technology trajectory not only initiates new business and
markets, but also intensifies competition between incumbents and new participants
(including latecomers); concurrently, the institutional intervention may be formulated
under the pressure of collective interests of different stakeholders, to make institutional
22
support of particular technologies (i.e. dominant design). Consequently, the emergence of
dominant design eliminates market space for other competing alternatives and forces
economic growth along with growth opportunity for firms and industries based on that
dominant design (Nelson, 1994b; Rosonkopf & Tushman, 1994; Utterback, 1994).15
Even without giving an accurate definition of coevolution, Nelson (1994a, 1994b)
informed us about the importance of coevolution in economic growth. Similar arguments
can be found in the industrial development of NICs, for example, Huang (2002) used the
coevolution of technologies and institutions to compare the development of the hard disk
drive (HDD) and liquid crystal display (LCD) industries in Taiwan. However, there is no
similar work concerning how coevolution may happen in the emerging market yet.16
Therefore, our intention to use the coevolutionary theory to explain catching up of
latecomers in the emerging market remains an interesting inquiry, especially since
catching up is also another kind of pattern for the economic growth both for latecomers
and emerging markets (Kim & Nelson, 2000; Rogers, 2004).
Technological change not only coevolves with institutions, but also with relevant
organizations (Rosenkopf & Tushman, 1994; Murmann, 2003). Rosenkopf & Tushman
(1994) discussed the coevolution of technology and organizations in terms of the analysis
of how dominant technology/design emerges with the view of technological community
organization. They argued the emergence of dominant technology (e.g. the case of
QWERTY) can not be simplified as technological determinism or the result of social
construction and power differentials between interdependent organizations. Organizations
evolve by responding to the continuity and discontinuity of technology; through the
15 While Nelson (1994a, 1994b) discussed coevolution between organizations, institutions, and technology, we argue his arguments are more than the result of changing technology life cycle in different fields, but show the coevolution between different actors makes economic growth happen. 16 Suhomlinova (2006) only proposed a conceptual model for organizational co-evolution in transition economies, but did not have any empirical study. However, this dissertation may be one of few studies that consider both theoretical and empirical works at the same time, even the empirical part remains preliminary in nature.
23
convergence and divergence between technology and organization that shape the
coevolution of technology and organizations in their respective evolving paths (Tushman
& Romanelli, 1985; Tushman & Rosenkopf, 1992). Rosenkopf & Tushman (1994)
described how such a coevolution can be explained in terms of variation, selection, and
retention of technology and organizations.17
Many studies have considered the idea of coevolution into different topics, such as
the coevolution between technology, organizations, and institutions, that between
technology and markets, and how technology coevolves with governance in industrial
evolution (Jeong, 2001; Nelson, 1994a, 1994b; Santos, 2003; Van de Van & Garud, 1994;
Volberda & Lewin, 2003; von Tunzelmann, 2003). These works mainly concern how
coevolution happens at the group/community level, and imply that coevolution could be
constructed through any interdependent components that evolve within the same context,
thus people may use different constituents to create their own coevolutionary framework.
The idea of coevolution is also applied in managerial studies, such as strategic
management, product development, and decision making (e.g. Burgleman, 2002;
Eisenhardt & Galunic, 2000; Jacobides & Nelson, 2005; Van den Ende, Wijinberg,
Vogels, & Kerstens, 2003). Burgleman (1991, 2002) presented an ecological model of
strategy making of the firm through an evolutionary perspective, where the framework
describes the induced strategy process of the firm as the genotype of the species in nature,
and the autonomous strategy process as the mutation in nature.18 Whether that strategy
process is mainly induced or autonomous, the firm needs to consider variations deriving
from its strategy process and their possible influence on their stakeholders. Once
17 Here, we also can claim that coevolution is the synthesizing evolutions of different actors/building blocks, whether they are institutions, environment, technology, or other actors. Different actors are in different stages of their own evolutions, but interact with other actors concurrently. 18 Genotype and phenotype were originally used to describe characteristic of species, but they are also used to describe the features of strategy making and organizational evolution recently (Burgelman, 2002; Durand, 2006; Mayr, 2001).
24
strategies of complementary vendors are highly influenced by the lead firm and vice
versa, such as the coevolution of Intel and PC makers, coevolution between two firms’
strategy making appears (Burgelman, 2002). In other cases, the notion of coevolution has
also been used to connect two complementary schools of thoughts in strategic
management- transaction cost theory and capability based views, to analyze how industry
evolves to define its vertical scope (Jacobides & Winter, 2005).19
Since the firm is not an island, but plays different roles in various industry
ecosystems, it needs to interact with others for survival, whether the connection is
temporary or permanent (Iansiti & Levien, 2004; Moore, 1997); in that sense, Eisenhardt
& Gulanic (2000) claimed managers need to master such a coevolving process to develop
or allow synergies through connecting and linking from different contexts with different
business units across boundaries. Mathews (2002b:42) defined coevolution as
co-specialization with respect to each other in their environment, and expressed
co-specialization of resources across firms as coevolutionary dynamics. In fact,
coevolutionary dynamics includes recombination of resources that may also create new
variations for making new growth opportunities, and for challenging related firms
(Schumpeter, 1934; Penrose, 1995).
As mentioned in the earlier section, latecomer firms in the emerging market need to
not only select external sources and internalize them with their initial resources, but also
to adapt the changing institutional environment. Because only a few works studied the
coevolution of latecomer firms, in this dissertation we intend to use the idea of
coevolution to construct our conceptual model to examine this unanswered question in
the context of emerging market.
19 These previous works seldom mentioned differences of firms in their market positions. That reminds us that studying catching up of latecomers in the emerging market, which also refers to firms in relatively inferior market positions, could make some potential contributions, in terms of the coevolutionary perspective.
25
Decision making within the firm can also be recognized in terms of the concept of
coevolution. In studies of decision making, an economic perspective considers pay off in
different alternatives and rationality behind them, and a behavior perspective concerned
cognitive limitations and the mental model; Johnson & Russo (1997) also compensated
for these biases and proposed a coevolution framework for managers’ decision making.20
Except for the bounded rationality of managers, amateur institutional environment
and societal context in the emerging market make managers difficult to make more stable
and relatively rational decisions, thus forcing selection and adaptation of the firm to
become more interdependent with the environment (Hoskisson, et al., 2000; Peng, 2003;
Peng & Luo, 2000; Tang & Tan, 2005). Consequently, how internal mechanisms of the
latecomer firm would coevolve with the external environment in the emerging market is
also another interesting question, and our intention to apply the coevolutionary
perspective to analyze catching up of the latecomer firm in the emerging market could
contribute to the field.
Most recent works that applied the idea of coevolutionary theory approach borrowed
from the study of Lewin & Volberda (1990), which proposed an integrative research
framework for research on strategy and new organizational forms.21 Lewin & Volbeda
(1999, 2003) reviewed the debate of selection and adaptation between organizations and
environment for exploring how firms coevolve with their environment. While selection,
variation, and intention processes are three major parts of the evolutionary change of
organizations, relevant studies are mainly the environment oriented and focus on change
at the organization population level (Baum & Singh, 1994a; Hanna & Freeman, 1989;
McKelvey & Baum, 1999). On other hand, the strategic choice perspective emphasized
20 Johnson & Russo (1997) defined coevolution as “any system where the outcomes of behavior are interdependent”, and argued managers need to think of the effects of interdependent actions in their decision-making. 21 Please refer to the special issues of Organization Studies, 2001, 22(6); Journal of Management Studies, 2003, 40(8); and Organization Science, 1999, 10(5) for details.
26
the role of managers to select, adapt, and shape their environment changes (Child, 1972,
1997; Miles & Snow, 2003). Mile & Snow (2003) were concerned the selection of the
organizations corresponding to the environmental change. Table 2.5 shows different
theoretical perspectives in the debate regarding selection and adaptation; all these
arguments are mainly single-lens, and seldom consider the idea of evolution and
interaction between different components and their environment concurrently.
From the standpoint of the organizations, one may attribute the coevolution between
organization and environment to how organizational learning is used to explore new
opportunities or exploit existing resources/advantages in the changing environment
(March, 1991). To coevolve with environment, we argue exploration and exploitation in
organizational learning also need to predict or prepare for any possible change or impact
from the evolving environment to make a proper adaptation, whether it is a change of
organizational form or managerial intentionality (March, 1991; Lewin & Volberda, 1999;
Lewin, et al., 1999). As McKelvey (1997) considered coevolution as a quasi natural
phenomenon, the intentional activities of the organization need to be considered; he also
called for integrating internal and external organization analysis in terms of the
multi-level perspective. While the multiple-level interactions could be treated as the joint
outcomes of various constituents, Lewin & Volberda (1999: 536) defined coevolution as
“the joint outcomes of managerial intentionality, environment, and institutional effect”,
which also reflects the meaning of quasi natural phenomena described by McKelvey
(1997).
27
Table 2.5 Debate of Selection and Adaptation by the Single Lens
Source: Lewin and Volberda (1999: 524)
In fact, many scholars have cited the definition proposed by Lewin & Volberda
(1998) as their reference for using different building blocks to construct the frameworks
of coevolution in various studies. For example, the emergence of new organizational
forms has been treated as a mutation of the firm due to external environmental changes at
the institutional and societal levels (Lewin, et al., 1999), they also described how
institutional mechanisms matter to environment the firm functioned in and how the firm
simultaneously changes it organizational structure/form and managerial practices to
28
survive. Coevolution also happens between absorptive capabilities of the firm and
different natures of knowledge environment (Van den Bosch, Volberda, & de Boer, 1999;
Volberda, 1998). In addition, this definition had been mentioned at the industry level in
different knowledge environments (Santos, 2003) or in the context of strategic alliances
(Koza & Lewin, 1998).
Van de Bosch, Volberda, & de Boer (1999) showed that combinative capabilities
and the organizational forms coevolve to adapt to changes of the nature of the knowledge
environment. These changes imply the interaction between combinative capabilities and
organization forms within the firm. Using their argument in the context of latecomer
firms, we argue such interactions could be thought of as internal mechanisms of the
latecomer firms to respond to a changing external environment, such as deregulation,
market opening, or other changes to appear in the emerging market.
While applying niche driven coevolution at the firm level, McKelvey (1997:
359-360) labeled the coevolution within multiple levels of the firm as micro-coevolution,
and coevolution with external environment (the niche) as macro-coevolution, respectively.
Based on this classification, we can call the coevolution between the emerging market
(external environment) and latecomer firms as macro-coevolution, while internal
coevolution within the firm can be treated as micro-coevolution. One also needs to keep
in mind that the evolutionary processes, such as selection, variation, and retention,
happen within these coevolutions and reflect the complexity between organization and
environment.22.
In a multi-business organization, such as diversified corporations, coevolutionary
dynamics may be even more complicated (Volberda, Baden-Fuller, & Van den Bosch,
22 People may also wonder if coevolution could be explained in terms of Gidden’s (1994)’s duality of structure, in that structures are more than outlines or rules toward actions, but are also the outcomes of action themselves. However, duality of structure can explain the interaction between the firm and the institutional environment, but it does not discuss the idea of evolution, while coevolution means two or more evolutionary systems link with each other and determine the trajectory of evolutionary together (Winder, McIntosh, & Jeffery, 2005: 353).
29
2001; Volberda & Lewin, 2003). In such a multi-level context, managerial intentionality
has to moderate selection and adaptation within and between the firm and environments
rather than letting the firm simply be a recipient, in response to external pressure
(Volberda & Lewin, 2003). In terms of the strategic choice perspective, Child (1972,
1997) showed the organization itself can also change consciously, such as movement due
to managers’ intention. Except for those instances in multiple business units, people
cannot underestimate the influence of managerial intentionality in the single business
firm, especially while we considering the effect of strategic intent or entrepreneurship
within the firm. For example, different managerial intentionality may be create new rules
of the game or disruptive innovation regarding the existing context, and then we also can
claim these intended behaviors may be created as mutations or new variations in the
corresponding market and industry (Burgelman, 2002; Christensen, 1997; Hamel, 2002;
Prahalad & Hamel, 1990; Schumpeter, 1934).
Dijksterhuis, Van Den Bosch, & Volberda (1999) referred to the idea of
management logics as macro-beliefs and values that influence managerial practices and
thinking,23 and Figure 2.3 shows variations of management logics at different levels,
that shape the shared mindsets of managers and further influence their strategic actions
and the organizational form. Thus, we can build up the linkage between management
logics in the external environment, managerial intentionality, and organizational form to
represent the change on any of these elements may rewrite the content of the others. For
example, preference toward customization rather than mass production may make a top
management team change practices in manufacturing and quality control along with the
change of organizational form to better adapt to that new mindset. We argue the
reciprocal interaction between management logics and managerial intentionality of the
23 We argue management logic is more like a managerial ideology in one society, such as Fordism or Taylor’s principles of scientific management, (Scott, 1998). That reflects a school of management thoughts that dominate managerial thinking and practices and actions in one society/country in a particular period.
30
firm exists to bridge the evolution of the firm and external environment.
Figure 2.3 Effect of Management Logics in Coevolution
Source: Dijksterhuis, Van Den Bosch, & Volberda (1999: 571)
How organizational form interacts with the environment is a major agenda for
organization studies using the coevolutionary theory approach (Lewin & Volberda, 1999;
2003). Different types of organizational forms reflect not only the different kinds of
competitive environments they faced, but also different selection and adaptation by their
management teams (Burns & Stalk, 1961; Lawrence & Lorsch, 1967; Lewin, et al., 1999;
Scott, 1998). In this dissertation, we will apply the notion of the coevolutionary
approach to construct a conceptual framework for describing catching up of latecomer
firms in the emerging market in the next chapter. Before that, we will discuss how people
can claim a research as an application of the coevolutionary theory approach in the next
section.
31
2.3.3 Justification of the Coevolutionary Theory Approach
This section intends to elaborate the properties that people use to claim a research is
using the coevolutionary theory approach. Here, we characterize the properties of
coevolution first, and discuss the minimum considerations one needs to consider in
applying that perspective.
Lewin & Volberda (1999, 2003) summarized the properties of coevolution as shown
in Table 2.6, and they also developed minimum conditions for justifying the application
of coevolutionary theory perspective in managerial and organizational studies based on
these properties. Even without explicit descriptions, we argue these properties and
relevant conditions do emphasize the nature of coevolutionary perspective, especially in
the context of managerial and organizational studies, and they can also be used as a good
reference for any research that intends to adopt the coevolutionary approach.24
The Research paradigm in organization studies mainly concentrates on establishing
and examining causal relationships between variables, however, it is difficult to examine
scope and intensity for those interactions among variables based on coevolutionary
theory approach (Baum, 2002; McKelvey, 1997; Scott, 1998; Shoemaker, Tankard, &
Lasorsa, 2004). Apparently, longitudinal data and methods are necessary for doing
research work using the coevolutionary perspective, but features of coevolution, such as
multidirectional causalities, path dependence, positive feedback across agents, and effects
of mutual, lagged, and simultaneous, also mean that research tools like computational
simulation, agent modeling, and event history analysis, are inadequate to satisfy all
conditions of the coevolutionary perspective, even though these methods still provided
24 For example, researches applied the concept of coevolution need observation over a long period to grasp
changes and differences arising from multiple evolutions, and the issue of path dependence needs to be
taken into account for establishing multidirectional relationships among constituents (Lewin & Volberda,
1999, 2003).
32
some insightful explanations to the field (Baum, 2002; Baum & McKelvey, 1999; Baum
& Singh, 1994a; Greve, 2002; Jenkins & Floyd, 2001; McKelvey, 2002).
Table 2.6 Properties of Coevolution
Properties Description
Multilevelness/Embeddedness
Coevolution takes place at multiple levels, while
macrocoevolution exists at the population level; microcoevolution
appeared in the intrafirm context.
Multidirectional Causalities
Because coevolution occurs at macro- and micro level between
and across various systems, the causal relationship among them is
not single direction but rather multiple; the establishment of causal
relationships among variables is relatively meaningless.
Nonlinearity
Due to multidirectional and uncertain feedback loops among
variables, there are nonlinear relationships between participating
actors within the coevolution.
Positive Feedback Organization and environment are interdependent with each other,
and recursive feedback replaces single causal relationship.
Path and History Dependence
Like evolution of single species, path and historical dependence
also happen in coevolution, especially in the stage of adaptation.
They create innate-limits or advantages for actors within the
coevolutionary relationship.
Source: Summarized from Lewin & Volberda (1999: 526-527; 2003: 582-584)
McKelvey (1997) claimed the rate of change in variables and measures of interests
can be used as the measurement in doing coevolution studies. Lewin & Volberda (2003)
also suggested one should consider performance in time series and founding conditions of
the organization and environment with microadaptation sequences and event histories,
such as technological innovation, and regulatory change, to describe the presence of
coevolution. Difficulties in doing empirical research through the coevolutionary
perspective informs people not to expect to secure the total solution based on the
33
coevolutionary perspective to cover different inquiries.25
Another approach to measure coevolution is to consider pairs of effects it may cause,
such as variation and retention, exploration and exploitation, Red Queens effect and
Frozen Equilibria (Greve, 2002; Kauffman, 1993; March, 1991; McKelvey, 2002). For
example, the Red Queens effect is used to describe organization evolution at the
population level; when Red Queens effect happens, all competing organizations change
their organizational fitness toward the same direction through learning by doing and
mutual competitive response at the population level, which increases adaptability among
the population for a certain period of time, until that effect turns into maladaptive for
those organizations (Amburgey & Singh, 2002; Barnett & Hansen, 1996; Barnett &
Sorenson, 2002; Gerve, 2002). With the introduction of quantitative analysis from the
science of complexity, it can be expected that organization studies using coevolutionary
theory approach will have more quantitative-based results and arguments (Baum & Singh,
1994a; Baum & McKelvey, 2002).
As Lewin, et al. (1999) mentioned, because coevolutions of firm, industry, and
environment cover different disciplines and relationships, we can not take these
constituents into account all at once (Figure. 2.4). Regardless of the limits in previous
studies, most of them established interactive or causal relationships among variables
based on the features of path dependence and multi-level interactions, or the effects of
organizational learning and absorptive capacity. In past studies, case study was used as a
major research approach for studies using the coevolutionary perspective, and most of
them were based on longitudinal archives and historical documents to categorize and
compare data over time (Table 2.7).
25 Lewin & Volberda’s (2003) idea of microadapation sequences is borrowed from the description of microstate in McKelvey (1997). However, because of the idiosyncratic and unpredictable natures of coevolution and difficulty of data access, even Lewin & Volberda’s (2003) defined microstate as discrete random behavioral process events, and the most studies still cannot reflect the whole coevolutionary phenomena organizations confront (Lewin, et al., 1999).
34
Unlike genes and fossils from biology and archeology, which can be scrutinized out
of context, coevolution between organizations and relevant actors evolves in real time
and we can not examine events and processes among actors embedded within the target
context, unless using action research or other participatory approach (Easterby-Smith,
Thrope, & Lowe, 2002) Therefore, even though we may outline a proper conceptual
model, this does not guarantee corresponding empirical work could be measured
completely without any bias .
Figure 2.4 Coevolution of Firm, Industry, and Environment
Source: Lewin, et al. (1999:537)
35
Table 2.7 Empirical Works Using the Coevolutionary Theory Approach
Studies
(by Year)
Coevolution between… Research Target
Research
Method
Jacobides and Nelson
(2005)
capabilities and transaction cost
mortgage banking in US,
1981-1989; Swiss watch
manufacturing, 1980-1992
case study
Flier, Van den Bosch, and
Volberda (2003)
environmental selection, institutional
effects, and managerial intentionality
British, Dutch, and French financial
incumbents case study
Lampel and Shamsie
(2003) capabilities and organizational forms
Hollywood movie industry in US;
1941-1948, 1981-1988
regression
analysis
Rodrigues and Child
(2003)
organizational forms and
institutionalized environment
one telecommunication firm in
Brazil, 1973-2000 case study
Salvato (2003) role of managerial leadership and
strategic evolution
two medium sized Italian
designer’s household articles and
mail-order based business
comparative
case study
Santos (2003) learning strategies of firms and their
knowledge environment pharmaceutical industry case study
Van den Ende, et al (2003) the way firms organize their
innovation and external autonomy software product projects case study
von Tunzelmann (2003) governance and technology industrial evolution case study
Carney and Gedajlovic
(2002)
institutional environment and
organization strategies
family business groups in ASEAN
member states case study
Hyugens, Baden-Fuller,
Van den Bosch, and
Volberda (2001)
firm capabilities and industry
competition music industry across 120 years case study
Jenkis and Floyds (2001) technological trajectories across
different levels Formula 1 racing, 1967-1982
multi-level
case study
Jones (2001) entrepreneurial career, institutional
rules, and competitive dynamics American film industry, 1895-1920
case study
Volberda, Baden-Fuller,
and den Boer (2001)
strategic renewal; managerial
adaptation and environment selection
European financial services
industry case study
Helfat and Raubitschek
(2000)
product sequencing; knowledge,
capabilities, and products
Three Japanese electronic firms;
Canon, NEC, Sony case study
Van den Bosch, Volberda,
and de Boer (1999)
organizational forms and combinative
capabilities
traditional publishing firms move
into emerging multimedia complex case study
Source: Summarized by the author.
36
The review in this section shows not only potential impediments we may confront in
our theoretical development and empirical work, but also possible directions for future
research. To construct a conceptual model based on the coevolutionary approach and to
uses it to observe and explain catching up of latecomer firms in the emerging market, we
mainly focus on evolutionary processes between different actors as coevolutionary
processes, rather than discussing individual selection and variation between actors. Also,
we use the case study approach to examine the phenomena we intend to explore. In the
next chapter, we will discuss how the conceptual model was developed, and how we used
it to observe and explain the catch up of one latecomer firm in the emerging market.
37
3. RESEARCH FRAMEWORK26
3.1 Prologue
In the field of organization studies, Coevolution is a simultaneous evolution between
organizations and their environment that requires mutual or circular feedback, and that
means the coevolutionary framework covers multiple level and mutual causalities
between agents and their corresponding environments (Baum & Singh, 2004; Lewin &
Volberda, 2003).
In this research, we define coevolution as the joint outcomes of managerial
intentionality, environment, and institutional effects as Lewin & Volberda (1999) did.
This definition also coves multi-level, cross causal relationships in this research, and one
should not expect single causal relationships exist among agents and their embedded
environments from this work, as we can easily find in traditional organization studies,
(McKelvey, 1997). We divide our coevolutionary model into macro- and micro-
coevolutions, then elaborate individual building blocks in these two coevolutions and
corresponding propositions in the context of catching up of latecomer firms in the
emerging market.
Apparently, the context of an emerging market is different from that of developed
countries and NICs; here we will explain generic characteristics of an emerging market to
outline the boundary of our research first, followed by discussions of individual building
blocks in terms of different levels of coevolution.
3. 2 Characteristics of Emerging Markets
Economic transitions in China, East Europe, India, and Latin America bring up new
26 The early versions of this chapter were presented at APROS 11, December 4-7, 2005, Melbourne, Australia, AIB 2006 Chinese Doctoral Consortium and the Third Annual JIBS/AIB Paper Development Workshop, June 22-23, 2006, Beijing, China, respectively. I particularly appreciate comments from Dr. Liliana Erakovic, Mr. Scott Hipsher and Dr. Steven S Lui (all at APROS 11) and Dr. Jianfeng Wu (AIB 2006 Chinese Doctoral Consortium).
38
opportunities both for local and foreign firms. Though heterogeneities exist among them,
some common characteristics are shared among these countries (Hitt, Li, & Worthington,
2005; Hoskisson, et al., 2000; Lukas, Tan, & Hult, 2001; Wright, et al., 2005).27
In this study, we follow the statements of Hoskisson, et al (2000) to define the
emerging markets as countries with fast economic development pace, which pursue a free
market system and economic liberalization in their government policies. In this
dissertation, we may also describe them as transition economies or transition countries
interchangeably.
In the early stages, economic development of transition economies mainly used
centralized economic plans to direct local economic development and domestic
production capacities; for example, knowing who is in charge of individual plans and
whom you should connect with are more important than having sufficient know-how or
capital to run business in China (Peng & Heath, 1996; Peng & Luo, 2000). During the
transition processes, a series of institutional changes implemented both at political and
societal levels made the competitive environment of firms and industries in those
transition economics change from personal contact-based transactions and central,
bureaucratic planning into contract-based transactions and free market system.
Consequently, local firms and foreign entrants who wanted to penetrate and survive in
these dynamic contexts needed to select and adjust their organizational forms and
strategies correspondingly (Hitt, et al., 2005; Hoskisson, et al., 2000; North, 1990; Peng
& Heath, 1996; Rodrigues & Child, 2003). Proximity to the local context gives local
firms some pre-emptive advantages over foreign competitors in the domestic markets, but
does not guarantee their success in catching up or sustaining their positions in both
27 Characteristics in emerging markets have been discussed in terms of various perspectives, such as institutional theory, resource-based view, and transaction cost economics (Hoskisson, et al., 2000; Wright, et al., 2005).
39
domestic and worldwide markets (Hoskisson, et al., 2000; Mathews, 2002a, 2002c; Peng,
Lee, & Wang, 2005).
In the emerging markets, knowledge and experience for establishing a free market
system and regulations are relatively amateur and unstable. These emerging markets also
face dynamic challenges from external stakeholders, such as international organizations
like WTO, and EU, which those ex-latecomer countries do not have (Berger & The MIT
Industrial Performance Center, 2005; Chen & Toyama, 2006; Child & Tse, 2001; Huang,
2003). Because of the size of their population, potential growth of domestic markets in
these transition countries is huge; therefore, catching up of domestic latecomer firms not
only can advance indigenous technological development and economic development, but
also may replace foreign vendors in those emerging markets (Wilson & Purushothaman,
2003; Keller & Samuel, 2002; Kim & Nelson, 2000).
From the point of view of latecomer firms, characteristics of an emerging market
can be also described as follows. First, institutional mechanisms related to the free market
system remain unstable, such as rules and regulations about establishing structures of
property rights and ownership of the firm, and any unexpected change could affect firms’
decision-making and strategic movement. Second, shortage of knowledge and experience
in developing technologies and industries urges those transition economies to grasp
opportunities through different approaches, whether in the forms of joint ventures,
strategic alliances or foreign direct investment, which gives intervention of government a
critical role in developing their target industries and market. In fact, the examples of
Japan, Korea, and NICs have shown the extent to which government dominated the
trajectories of industrial and technological development (Chang & Yu, 2001; Hung, 2002;
Keller & Pauly, 2002; Kim, 1997). On the other hand, resources and organizational forms
bounded by their legacy and administrative heritages mean organizational change of
latecomer firms is a necessary evolutionary step to catch up during the transition process
40
of the emerging market (Bartlett & Ghoshal, 1989; Berger & The MIT Industrial
Performance Center, 2005; Lewin, Long, & Carroll, 1999; Tsui, Schoonhoven, Meyer,
Lau, & Milkovich, 2004).
As Peng & Heath (1996: 504) have shown, uncertainty regarding property rights,
political structure, and strategic factor markets are characteristic features of the emerging
market. All those features reflect challenges latecomer firms in the transition economies
may confront if a capitalist market system and economic growth are terminal targets for
those transition economies. Since the external environment in emerging markets is so
dynamic, the evolution of domestic latecomer firms in catching up must respond these
unforeseen changes properly, along with finding any possible opportunity for their own
development and competitive advantage embedded in that particular context (Cho, et al.,
1998; Van De Van, 2004; Mathews, 2002a, 2002c).
3.3 Macrocoevolution
Macrocoevolution is the coevolutionary process between the firm and its
competitive niche (McKelvey, 1997). For catching up with their rivals, latecomer firms
need to interact with other actors at different levels. Critical actors at the macro-level
include institutional changes directed by the government and the interactive influence
between industrial-related technological development (here named “technology
development”) and management logics due to the changing of institutional arrangements
(Dijksterhuis, et al., 1999; Rodrigues & Child, 1997; North, 1990, 2005; Rosenkopf &
Tushman, 1994). We describe those interactions in the following paragraphs.
Institutional Change
Institutions are the rules of the game for any society, regardless of whether it is
capitalist or communist (North, 1990). Formal institutions shaped by the government
41
establish the infrastructures and rules of the game for doing business and for industry
development. The collapse of the communist economic system in Soviet countries, and
market opening of China and Latin America forced these countries to restructure their
economic institutions, market systems, and changed their economic plans to
accommodate a more competitive worldwide market and capitalist system. Apparently,
these changes also break out of the original competitive dynamics and structure of
ownership in those transition economies, and open up new business opportunities for
both local and foreign firms. (Hoskisson, et al., 2000; Park, Li, & Tse, 2006; Zweig,
2002).
In spite of their economic development moves for connecting with a more
competitive global market, governments in transition economies seldom push their
domestic firms, mainly state-owned enterprise; to confront direct competition with
foreign leading firms, in spite of strong pressures from other developed countries and
international organizations.28 They usually work through institutional mechanisms, such
as tariffs, regulations and policy incentives, to protect and incubate development of
domestic latecomer firms in particular target industries and technologies (Chang & Yu,
2001; Kwong, et al., 2001; Mathews & Cho, 2000; Yu, 1999). Because not all industries
in the transition economies received the same institutional incentives from the
government, some industries collapsed rapidly after the beginning of the opening, for
example the home appliance industry in China during the 1980s (Lo, 2001; Wu, 2006).
Only firms affiliated with industries and technologies that governments expect to focus
on received institutional supports from government.
Institutional change in the emerging market is the major trigger for its industry
28 In this study, developed countries and international organizations mainly refer U.S.A., E.U., WTO, or worldwide industrial associations and international standard associations in different industries and technologies.
42
development. Those changes not only decide which industries are identified as target
industries for further development, but also provide necessary support for local firms in
those specified industries have the opportunities to catch up with other leading rivals.
Discussions of the economic growth of NICs may unintentionally imply that all
institutional change from the government favors catching up of local firms, but does not
explicitly describe that those institutional supports remain selective and only available for
those chosen industries (e.g. Amsden & Chu, 2003; Hobday, 1995, 2003; Kwong, et al.,
2001). Here we can rephrase the role of institutional change in the emerging market
toward the catching up of latecomer firms as follows.
Proposition 1. In the emerging market, firms that belonged to the industries selected
by the government could have institutional support that may help them to catch up with
other leading rivals.
In this research, our research targets (semiconductor foundry players) also belonged
to one of the target industries that China government expects to develop for its economic
development (Yu, 2005; Zhu, 2006). The selection of research targets ensured our
analysis could reflect effects of institutional change on catching up of latecomer firms in
the emerging market, which is also one of the building blocks proposed in our
coevolutionary framework.
Technology development
Latecomer firms need to upgrade their technological capabilities in order to compete
with leading firms, especially those in foreign countries (Cho, et al., 1998; Kim & Nelson,
2000; Mathew & Cho, 1999). Government in transition countries provides different
institutional support, such as financial subsidies for doing in-house research and
43
development (R&D) and importing production equipment, or helping latecomer firms to
transfer technologies from abroad or develop their own technological capabilities.
However, those latecomer firms or countries cannot solely determine trajectories and
choice of technologies, since these technologies have their own life cycle initiated by
other innovating firms, mainly the leading incumbents. Therefore, interactions between
technology development, institutional change, and firms would also appear in the context
of emerging market (Nelson, 1994a, 1994b; Rosnekopf & Tushman, 1994; Van Den Van
& Garud, 1994).
Due to their late entry to the market and lack of necessary technological capabilities,
technological development of latecomers is usually bounded by current market trends and
dominant designs that they cannot easily change or dominate (Anderson & Tushman,
1990; Mathews & Cho, 1999). While those existing conditions are a coercive influence
for latecomers to compress their time and effort to select and search for technologies and
markets, dominant designs and current market trends may also limit the development of
latecomers’ innovative capacities (Rosenkopf & Tushman, 1994; Van De Van & Garud,
1994). Government in the emerging market often helps their local latecomers to secure
technological support from leading foreign firms, and provides various supportive
mechanisms, such as establishing public R&D institutions, and developing educational
and vocational training in universities and professional schools, to build up absorptive
capacities for local firms and industries (Chang & Yu, 2002; Mathews, 2002c; Mathews
& Cho, 2000).29
Leading foreign firms primarily control technologies that latecomer firms expect to
learn. Nevertheless, governments in the emerging market may leverage the potential
growth of the local market as their bargaining power to force those foreign firms to share
29 All these instrumental supports enable latecomer firms to access the latest technologies according to the extent that their combinative capabilities can absorb and assimilate in such a dynamic environment (Dutrénit, 2004; Kogut & Zander, 1992; Mathews & Cho, 1999; Van den Bosch, et al., 1999).
44
current technologies and comply with some particular industrial and technical standards
only applied to local markets, to earn extra time and opportunities for those latecomers
firms to learn from those leading incumbents. Consequently, those latecomer firms in
technological and market development may follow those with institutional support
provided by government (Kim, 1997; Li, 1999; Mathews, 1997, 1999; Mathews & Cho,
2000; Yu, 1999; Zhu, 2006). Technological development of local latecomers in the
emerging market may favor those with support from the government, while technology
development in the local context may change according to institutional changes from the
government, rather than simply following the technological trajectory. Accordingly, we
could describe interactions between technology development and institutional change and
the latecomer firm as follows.
Proposition 2. Technology development in the emerging market moves according to the
institutional changes of the government, which influence technology development of the
local latecomer firms.
Management logics
In the transition economies, institutional changes not only transform the economic
system from communism and planned economies toward capitalist economies, but also
bring new ways of thinking about doing business and developing managerial skills to
local latecomer firms (Dijksterhuis, et al., 1999; Lewin, et al., 1999; Rodrigues & Child,
2003; Lin, et al., 1995; Lewin, et. al., 1999; North, 1990). Such macro level changes in
the emerging market also change mindsets of managers and managerial practices to
improve their economic efficiencies and performances.30
30 For example, a transaction system can move from personal and network-based toward more regulated
and contract- based, and deregulation may open up more market opportunities (Peng, 2003; Peng & Heath,
45
Dijksterhuis, et al. (1999: 570) defined management logics as macro level mindsets
including values and beliefs that influence local managerial practices in a society. They
argued that these macro level characteristics affect mindsets and decision making of
managers at the firm level, along with changing conditions in time and place. While
classical management emphasized technical efficiency, modern management concerned
organizational rationality, and post modern management focuses on reflective and
self-organizing humans and organizations. These three management logics mentioned by
Dijksterhuis, et al. (1999: 572-575) have been used to describe reflect different
managerial practices and contexts in our study. Apparently, management logics may also
change with the context they are embedded in, followed by the corresponding
institutional changes (Lewin, Long, & Carroll, 1999; Miles & Snow, 2003).
For example, while foreign firms outsource their manufacturing operations to those
emerging markets to secure a low cost labor force, that may require local branches and
partners to apply more flexible management logics for coordinating with the global
production network. That calls for the local government to implement some institutional
changes, such as improving the education system and providing more vocational training;
and upgrading managerial expertise and quality of human resources for better matching
managerial knowledge and practices in the mainstream market. Following by these
institutional changes, managerial logics in the local context may change gradually. Once
managerial logics in the emerging market assimilate with those in leading markets,
institutional isomorphism may make emerging managerial logics in the emerging market
influence corresponding institutional changes in return (DiMaggio & Powell, 1983). As a
result, a possible interactive connection between institutional changes and management
logics in the emerging market could be described as follows.
1996; Peng & Luo, 2000).
46
Proposition 3. Management logics in the emerging market change along with institutional
change initially, once they become assimilate with those in the developed markets, that
emerging management logics may further influence institutional change in the local
context.
3.4 Microcoevolution
For catching up of the latecomer firm in the emerging market, the importance of
institutional support and upgrading technological capabilities have been emphasized, but
there are not many discussions about what happens inside those latecomer firms during
their catching up process (e.g. Dutrénit, 2000, 2004; Lanzonik, 2004; Mathews & Cho,
2000; Yuan, 2000).31
Managers, especially those at the top level, need to make strategic choices to select
and adapt to the dynamic environment for the firms’ survival (Child, 19972, 1997; Miles
& Snow, 2003; Miner, 1994). While the decision-making of those top executives reflects
as the managerial intentionality of the firm, we argue that changes of decision making
and top managers can be treated as the evolution of managerial intentionality within the
firm (Lewin & Volberda, 2003). Because organizational form reflects how one
organization allocates its resources and routines, and is also the most-mentioned
component in the discussions of coevolution between organizations and environments,
and we would also include it in our model (Baum & Singh, 1994a; Lewin & Volberda,
1999; Volberda & Lewin, 2003).
As we discussed in the earlier chapter, latecomer firms use their combinative
capabilities to absorb, learn advanced technologies and knowledge from external sources,
31 Lewin & Volberda (1999) did not specify what kind of elements should be classified as microcoevolution, in their study about the coevolution between the change of organizational form and its environment; they only mentioned managerial intentionality as one element in defining coevolution. In this research, we consider actors exist inside the firm and they are related with catching up as the building blocks of the microcoevolution in our conceptual model.
47
then internalize those external knowledge with their initial experience and knowledge,
and assimilate what they learned to upgrade themselves for competing with leading
competitors (Mathews & Cho, 1999; Van den Bosch, et al., 1999). Van den Bosch, et al
(1999) examined coevolution between combinative capabilities and organizational forms
that showed coevolutionary effects between absorptive capacity of the firm and different
knowledge environments. In the microcoevolution of our framework, we propose that
combinative capabilities interact with organization form and managerial intentionality in
the latecomer firms to implement their catch up strategies, in terms of linking, learning,
and leverage as Mathews emphasized (2002a, 2002c, 2006a).
In the next sub-sections, we will describe the constructs of microcoevolution for
catching up of the latecomer firm in our framework.
Managerial intentionality
In our framework, we follow the seminal work of Lewin and Volberda (1999) that
argues managerial intentionality is the purposeful or intentional behaviors of the leader or
management team of the organization, to show the visions and goals the organization
expects to achieve. We consider managerial intentionality as the proximity to reflect
actions and decisions of the top executive teams within the firm, such as business
directions they pursue or any possible organizational change they implement.32
In the transition economies, deregulating industries, opening the market and
institutionalizing the structure of ownership for enterprises create at least two challenges
for top executives of latecomer firms. First, changing the structure of ownership could
bring change of the management team whether an overall or partial change, for example,
32 The strategy- making of Intel in 1980-1990 is one significant example of how managerial intentionality
works in the coevolution of strategy and environment (Burgelman, 2002).
48
from state-owned enterprises into public-listed firms that may bring new managerial
intentionality, or implement strategies far different from what the firm has done before.
As we discussed earlier, changes of the management logics could influence
consciousness of those managers and imply possible changes of managerial intentionality
of the firm (Lewin, et al., 1999; Lewin & Volberda, 1999). In fact, changes of
management logics have also proved to be a major source of coevolution for emerging
new organization forms and shaped the managerial schema of the firm for taking strategic
design actions to respond to dynamic environment changes (Dijksterhuis, et al., 1999).
All these evolutions happening at the macrocoevolution level do affect decisions and
strategic choices made by top executives (Baum, 1999; Peng, 2000; Shapira, 1999), and
we consider the following proposition;
Proposition 4. Managerial intentionality of the latecomer firm in the emerging market
evolves along with the changing of managerial logics at the macro- level environment.
Organizational form and combinative capabilities
North (2005) claimed human intentionality, the consciousness of human beings, is
one of the major drivers for economic change. Therefore, it is also reasonable for us to
consider that the intentionality of managers (i.e. managerial intentionality) plays a key
role for catching up of latecomer firms. Through conscious intentions, managers would
decide how the firm would select, adapt, and learn to compete with leading competitors
in such a dynamic transition context; similar ideas are found in studies of dominant logics,
strategic intent and willpower (Bruch & Ghoshal, 2004; Hamel & Prahalad, 1994;
Prahalad & Bettis, 1986). Furthermore, managerial actions can affect the internal
evolution of one organization and its response external environment change, that
convince us to emphasize the dominant role of managerial intentionality play in the
49
micro-level evolution of the latecomer firm in our model (Burgelman, 2002; Miles &
Snow, 2003; Miner, 1994).
Managers in latecomer firms need to decide their external vendors or partners to
secure resources and technologies they need, to learn to increase their technological
capabilities, and to learn how to compete, using existing latecomer advantages, in the
dynamic competitive environment (Cho, et al., 1998; Mathews, 2002a, 2002c; Mathews
& Cho, 1999, Miles & Snow, 2003). Because these decisions are highly relevant to how
the organizational form and combinative capabilities of latecomer firms are organized
and maintained, we consider the interactive evolutions among managerial intentionality,
organizational form, and combinative capabilities as microcoevolution within the
latecomer firm.
Organizational form earns extensive discussion both in the debate between selection
and adaptation of organizations, and studies of exploitation and exploration in
organizational learning; in fact, it is also a major component of most coevolutionary
theory perspective works in organization studies (Cyert & March, 1963; Lawrence &
Lorsch, 1967; Lewin, et al., 1999; Lewin & Volbderda, 2003; March, 1991). Domestic
latecomers in the emerging market may change their divisions of labor within the firms,
such as changing their organizational form from a single business function into a
diversified matrix form, to respond to different internal developments and environment
changes to catch up other leading rivals (Chandler & Hikino, 1990; Lawrence, & Lorsch,
1967; Miles & Snow, 2003; Van den Bosch, et al., 1999)33. Managerial intentionality, in
terms of the mindset and decision making of the top executive team, plays a critical role
in making a proper link between organization and environment for its survival (Miner,
33 Organizational forms in latecomer firms include pure start up, joint ventures and strategic alliances between local and leading foreign firms, or latecomer firms with earned contracts or licensing arrangements from foreign firms. Different organizational forms represent the different division of labor within the firm, and different responses toward external environment changes.
50
1994; Philippidou, Söderquist, & Prastacos, 2002; Peng & Luo, 2000; Tan & Tan, 2005).
On the other hand, change of the organizational form also reflects the interaction between
absorptive capacities and organizational learning within the latecomers (Chandler, 1962;
Kim, 1998; Lewin & Volberda, 1999; Scott, 1998; Van den Bosch, et al., 1999). For
example, Van den Bosch, et al. (1999) showed the emergence of organizational forms
coevolves with the firm’s combinative capabilities. In this research, we argue that there is
joint evolution between the organizational forms and combinative capabilities of the
latecomer firms, along with evolving change in the managerial intentionality in the
latecomer firm (Amsden & Chiu, 2003; Mathews, 2002a; Mathews & Cho, 1999). This
argument emphasizes the role of managerial intentionality, which was seldom discussed
in previous works related to catching up of latecomer firms.
Based on these arguments and reasoning, we could construct the microcoevolution
part of our conceptual model as the interactive evolution between combinative
capabilities, and organizational form under the dominance of managerial intentionality of
the firm, and we propose this statement as follows.
Proposition 5. In the emerging market, managerial intentionality of the latecomer firm
dominates joint evolutions between the organizational form and combinative capabilities.
While some of our propositions may look similar with those in the context of
developed markets, however, there is no similar discussion in the context of the latecomer
firm. Here our propositions are identified separately to acknowledge possible contextual
variations in the emerging market, and expect to find out how those arguments may shed
some light on in the field of catching up of the latecomer firm (Hitt, et al., 2005;
Suhomlinova, 2006; Van de Ven, 2004).
Through combining this micro level argument with the macrocoevolution that we
51
discussed earlier, the coevolutionary framework we intend to use to analyze catching up
of latecomer firm in the emerging market is finalized.
3.5 Summary
As we reviewed in early chapter, the three Ls-linkage, learning, and leverage,
proposed in a series of works by Mathews (2002a, 2002c, 2006a), have well described
strategies latecomer firms used for catching up. In this study, we also adopted these
strategies to describe catching up of latecomer firms in the emerging market, because
these arguments well cover external connection (linkage), internal learning (learning),
and self positioning in the market (leverage) that are all critical for latecomer firms to
compete with leading competitors (Mathews, 2002a, 2002c). In this study, we treat these
strategies as the approaches that latecomer firms in the emerging market use to catch up ,
but do not elaborate how they may interact with macro- and micro- coevolutions between
the latecomer firms and their environment, to avoid increasing the complexity of our
research and dividing our research focus.
The idea of coevolutionary perspective which we used not only represents a multiple
level perspective, its novelty may give us opportunities to find some new insights
regarding catching up of the latecomer firm in the emerging market. There is no doubt
that our conceptual model is not a definitive solution that can fit all kinds of contexts, nor
can it deliver the most comprehensive explanation about the catching up of the latecomer
firm in the emerging market. Because of the complexity of coevolution between
organizations and their environment, one cannot simply use one conceptual model to
represent comprehensive casual mechanisms across all possible building blocks
(McKelvey, 1997). Figure 3.1 presents our conceptual framework, based on our
theoretical arguments, we need to note that these causal connections are only explanatory
for the purpose of this research rather than the determined causal statements among
52
different actors.
Figure 3.1 The Conceptual Framework
In fact, all constituents we proposed in our conceptual model have been studied
under different circumstances and contexts separately (Baum & McKelvey, 1999; Baum
& Singh, 1994; Lewin & Volberda, 2003; Volbderda & Lewin, 2003). Our framework
connects those ideas to spotlights possible coevolutionary descriptions related with
catching up of the latecomer firm in transition economies.
Nelson (1994) first emphasized the coevolution between technology and institutions,
and showed that a technological trajectory is not a linear process, but mutually interactive
with institutions, organizations and the external environment in which it is embedded.34
Consequently, changes in institutions or organizations also lead to variations that force
them to select the proper fit for survival in the field (McKelvey, 1997, 2002; Lewin &
34 This argument also becomes the basis for following the works that applied the coevolutionary perspective to different research topics, such as Geels (2005) and Murmann (2003).
Organizational
Form
Combinative
Capabilities
Managerial
Intentionality
Catching
UP
Macrocoevolution
Microcoevolution
Emerging
Market
Institutional
Changes
Technology
Development
Managerial
Logics
Latecomer Firm
53
Volberda, 1999). We believe such selection and search behaviors are also true for
latecomer firms in the emerging marketing (Barney, 1986; Hoskisson, et al., 1996; Peng
& Heath, 1996).35 On the other hand, we also found challenges and opportunities of
latecomers in the emerging market not only evolving with opening of domestic markets,
but also with pressures outside the industry and beyond the national level, especially
pressures from international organizations and industrial alliances. One significant
example is the participation of those emerging markets in different international
organizations, such as the European Union, and the World Trade Organization (WTO).
Those external collective pressures could interrupt the original plans that those
governments had, and could cause variations beyond both the government’s and firms’
expectations.
In this research, we argue that those external selection pressures from actors we
identified in the macrocoevolution do collectively interact with microcoevolution among
managerial intentionality, organizational form, and combinative capabilities within the
latecomer firms and further affect their catching up activities.
To rationalize the empirical research used the coevolutionary approach in
organization studies, it is better to satisfy the criteria McKelvey (1997) proposed, and the
essential considerations highlighted by Lewin & Volberda (2003), such as multilevel
structure, longitudinal data, multidirectional causalities, consideration of institutional
changes in different levels, and actors. Even through our conceptual model satisfies some
of those criteria, there are not many trustworthy data sources in the emerging market, and
some statistics may have unclear definitions, or be incompatible with international or
industry-wide standards (Holz, 2004; PricewaterhouseCoopers, 2004). These original
35 In fact, Wright, et al (2005) called for applying the coevolutionary perspective to issues related to the
emerging market, and our research work properly responds to this call, to shed some light on this field.
54
constraints prohibit us from considering statistical analysis or simulations, like those that
have been done in the fields of organizational evolution and organizational ecology
(Baum & McKelvey, 1999; Baum & Singh, 1994a; Hannan & Freeman, 1989; Singh,
1990).
Based on the conceptual model we proposed here, the research methods and
research setting we used to examine catching up of a latecomer firm in the emerging
market are going to be discussed in the next chapter.
55
4. RESEARCH METHOD
4.1 Research design
This dissertation applies the coevolutionary perspective to discover how latecomer
firms in the emerging market catch up with other leading rivals. To answer this “how to”
question, we chose case study as our main research method (Yin, 2002). This method is
used intensively in studies related with catching up of latecomer firms in NICs, and those
which applied the coevolutionary perspective in organization studies (e.g. Cho, et al.,
1998; Kim & Nelson, 2000; and Table 2.7).
In addition to answering this “how to” question, the case study method is also an
investigation method used to explore real life phenomena under a particular context
(George & Bennett, 2005; Hartley, 2005; Yin, 2002). Because coevolutionary theory
perspective emphasizes dynamic interactions, rather than considering a single causal
relationship among constituents, our case study is better to take the phenomenological
approach for documenting and examining such a diversified phenomena properly
(Remenyi, Williams, Money, & Swartz, 1998). While organizational evolution brings
change in organizational structure, top executive team, or business strategies, coevolution
for catching up of the latecomer firm in the emerging market would be more
sophisticated, and may cover various changes in different actors and across different
levels both within the organization and within the environment simultaneously (Lewin &
Volberda, 1999, 2003; McKelvey, 1997; Volberda & Lewin, 2003). That diversity
requires us to collect and interpret longitudinal and process data (Langley, 1999; Menard,
1991; Saldaña, 2003). Because our conceptual model constructed coevolutionary
relationships as a series of interactive building blocks toward the catching up of
latecomer firms, such a reasoning process is like that which process theory intends to
56
address (Langley, 1999; Mohr, 1992; Monege, 1990).36 Therefore, case study with
longitudinal and process data is proper for our research inquiry.
Process research itself is more complicated than just collecting data over time, it
requires people to collect data across different levels and actors and integrate different
types of data for analysis; this complexity also reflects how complicated organizational
phenomena are (Langley, 1999). Because of the nature of coevolution, which includes
positive feedback among actors and multidirectional causality, we use temporal
bracketing strategy to describe different events by different actors; these “brackets” group
events and actors across different times into one particular period, and changes which
happen in one bracket may influence change in subsequent brackets over time (Langley,
1999: 703-704). Once we collect a number of brackets that cover different interactive
evolutions among those constituents and changing contexts in different periods of time,
we can identify changes between different constituents and use these changes to represent
the persistence of coevolution in our conceptual model.
Semantically, our coevolutionary model can also be seen as an agent-based model
about coevolution of the organization and environment, where constituents interact with
each other, and prior actions influence sequential movement over time, although we
mainly adopt qualitative data and inductive reasoning in our empirical work. In this work,
brackets we established temporarily were based on one period of time and relevant actors.
Apparently, the classifications of some elements in different periods are based on the my
subjective judgment, such as the evolution of management logics, which lacks a single
definitive description. Even case study is different from the historical approach; we still
collect historical data to grasp the evolving constituents and the context in terms of the
comparative historical analysis perspective (Yin, 2002; Mahoney & Rueschemeyer,
36 We consider the empirical examination of our propositions through a process based case study, through identifying relevant events which happened in different actors, and actors’ changes over time, based on process data and the archives we collected (Langley, 1999; Van de Van & Huber, 1990).
57
2003a). 37 One may argue that this perspective cannot properly represent the
multicausality that appeared in most empirical works using the coevolutionary
perspective in organization studies (Lewin & Volberda, 2003; McKelvey, 1997).
However, since it is not possible to satisfy all those conditions in one single research
work, we admit that potential drawback but still apply the comparative historical
approach to analyze our data.
To observe that phenomena about catching up of latecomer firms in the emerging
markets, our conceptual model links different actors across different levels, which
shows causal mechanisms and enables us to do process-tracing and identify possible
changes among those actors across levels (George & Bennett, 2005; Stinchcombe, 2005).
Next, we explain how we use material we collected to identify those changes, in order to
show the existence of coevolution among constituents. In this dissertation, we chose
semiconductor foundry firms in China as our research samples, and analyzed their
catching up processes through our coevolutionary model. According to our conceptual
model (Figure 3.1), we observe changes of institutions, technology development, and
management logics mainly from government publications, trade journals, research reports
and other public documents.38 For the analysis at the microcoevolution level, our unit of
analysis is at the firm level. 39 To analyze these cases and further examine our
37 Three characteristics of the comparative historical approach convince us to apply it to analyze our data; it is a method used to identify and explain causal configurations among events and actors, it considers sequence of temporal processes over time, and it engages in systematic and contextual comparison (Mahoney & Rueschemeyer, 2003b). 38 For the macrocoevolution analysis, we collected and reviewed data and documents from the Ministry of Information Industry (MII), China Semiconductor Industry Association (CSIA), Shanghai Integrated Circuit Industry Association (SICA), Semiconductor Industry Association (SIA), SEMI, and Fabless Semiconductor Association (FSA). We also refereed to market analysis reports from industrial analysis firms, like IC Insights, IDC, and PricewaterhouseCoopers. Industry media, such as EE Times and China Electronics New, were also used. 39 Material about the microcoevolution of our cases is mainly based on public documents and presentation materials collected from company websites and various web sources. We also triangulate those collected material with materials from other sources, and previous reviews to develop our arguments.
58
propositions, the cross case analysis based on our conceptual model was used, to further
consolidate our arguments and compensate for the limits of accessing informants and
high quality statistical data (Yin, 2002; Remenyi, et al., 1998).40 The triangulation of
data was also applied to consider linkage, leverage, and learning of latecomer firms,
which we use to represent catching up activities based on the ideas of Mathews (2002a,
2002c, 2006a) (Figure 4.1). We also identify evolving changes from those building
blocks in our conceptual model as the presence of coevolution, through analyzing
longitudinal and process data we had on hand (Saldaña, 2003; McKelvey, 1997). Table
4.1 shows events we used to discern changes of the respective components in our
conceptual model.
Figure 4.1 The Triangulation of This Study
40 This study adopted suggestions by Professor Yasuo Ikawa, to use multiple cases to compensate for the disadvantages of lacking sufficient first hand interviewees from the field. These advices also led us to apply the cross case analysis for further analysis.
Data
Government statistics, industry yearbooks,
trade journals, company documents
Field
Interviews with officials
and informants
Theory
Literature review,
Conceptual framework
59
Table 4.1 Events for Analysis
Constituents Events
Macrocoevolution
Institutional change
Change of industry policies and regulation, establishment
of government agencies, national level projects,
participation in international markets/organizations.
Technology
Development
Compare with current leaders, both in manufacturing
process and service technologies.
Management logics Introduction and development of management education
and professional managers, change of managerial ideology.
Microcoevolution
Managerial
intentionality
Profile of top executive team and change of top executives.
Organizational form Changes of organizational structure, entry or exit of
specific business.
Combinative capabilities Comparison between initial conditions and imported
technologies/resources, benchmarking with leading firms
Catch Up
Linkage Firm to firm contractual connection, whether through joint
venture, strategic alliance, etc.
Leverage Leverage from external source, transfer of complementary
products/service from leading firms
Learning Progress of technological capacity and market knowledge,
compared with the initial conditions
We consider the evidence of coevolution that can be seen as, while X changes that Y
changes correspondingly, whether that change happens simultaneously or lagged
(McKelvey, 1997; Saldaña, 2003). One may argue that the criteria we adopted for the
corresponding building blocks are quite simple and intuitive, for example, the ideas of
combinative capabilities are far more complicated and need to consider multiple
perspectives all at once, especially when we analyze it based on the concept of absorptive
60
capacity41 . However, due to the research being mainly exploratory in nature, and
difficulties in accessing data and informants, we admit those shortcomings, and say that
the improvement of data collection should be one critical direction for future research.
Like any other case study, our analysis and research findings were derived from
triangulation through the multiple sources of evidence to satisfy the concerns of validity
and reliability (Yin, 2002; Remenyi, et al., 1998). Limited informants and our
archive-based reasoning weaken the generalizability of our arguments; however, this
work is the first trial to study catching up of latecomer firms in the emerging market in
terms of the coevolutionary perspective, and we believe it still can shed light on the field
and compensate for these limitations.42 In the following section, we explain how we
chose our research target (China) and research sample (the latecomer firms) to examine
and develop our propositions and arguments.
4. 2 Research Setting
The rising awareness of Hair, Lenovo, TCL, and other brand names from China
shows that latecomer firms in the emerging market can also catch up. Economic
transition in China has dramatically improved the economic condition of China itself, and
changed the pace of world economic development. Nevertheless, how indigenous
41 Since the idea of absorptive capacity proposed by Chon & Levinthal (1990), many following works have adopted this concept in different inquiries both for further theoretical development and for empirical examination, such as Jansen, Van Den Bosch, & Volberda (2005), Lane, Koka, & Pathak (2006), and Zahra & George (2002). However, the difficulties of having those firms to participate this research, we cannot have quantitative analysis about combinative capabilities in this work. Therefore, a qualitative analysis was used as an eclectic approach in our work. 42 Before this research, there was no one single monograph which discussed the catching up of the Chinese semiconductor industry, except some may focused on different aspects of it, such as Mathews & Cho (2000) and Yuan (2000, 2001). In fact, even including the book edited by the author of this dissertation, there are only two Chinese books particular which mentioned about the development of the Chinese semiconductor industry, (Chen, 2003; Zhu, 2006). The difficulties in accessing knowledgeable informants led to our empirical work mainly becoming an archive-based research, and limited the generalizability of this study. However, that also underlies the novelty of our research, and the nature of this research as an explorative work.
61
latecomer firms in China compete with foreign leaders attracts our attention (Lin, et al.
1995; Lo, 2001; Khanna & Palepu, 2006).
Because the semiconductor industry has become the major research topic in the
studies of industrial development in latecomer countries, it is reasonable to choose the
semiconductor industry in China as our research target. That also allows us to compare
our result with previous studies from NICs (Amsden & Chiu, 2003; Chang & Yu, 2001;
Kim & Nelson, 2000; Marukawa, 2000; Mathews & Cho, 2000; Zhu, 2006). Low labor
costs and the continuing expansion in market demand put China in the spotlight in the
worldwide semiconductor market, and China’s indigenous players also attract lots of
attention from leading competitors and academic communities (Mathews & Cho, 2000;
IC Insights, 2005, 2006a; Klaus, 2003; PricewaterhouseCoopers, 2004, 2005; Wu & Loy,
2004).
In fact, semiconductor sales in China have already increased significantly, into
two-digit growth figures, and have become the largest share in the worldwide market in
the past few years (IC Insights, 2006a). Also, semiconductor manufacturing is the fastest
growing sector in the whole Chinese semiconductor industry, which also explains our
particular interest in catching up of firms in this sector (Table 4.2).
Table 4.2 China Semiconductor Market in 2004, by Sector
IC Design IC Manufacturing Packaging and Testing
Sales
(100 millions RMB) 81.5 181.24 282.56
Growth rate (%) 81.5 190 15.8
Source: Yu (2005).
Even though, they are in different developmental stages, individual firms in different
sectors of the Chinese semiconductor industry have attracted attention in the worldwide
62
market. For example, multimedia processors developed by Vimicro Corp. are already
used in many brand name products in the worldwide market, and SMIC already pursues
the latest manufacturing technologies, in spite of the fact that packaging and testing
sector in the Chinese semiconductor industry is mainly dominated by subsidiaries of
foreign firms. (Table 4.3)
Table 4.3 Major Firms in China Semiconductor Industry Value Chain
Sector Companies Major business
Design
CEC Huada Electronic Design
Datang Microelectronics
Vimicro Corp
Sigma Chips
Silan
Silicore
The first domestic EDA software
vendor and supplier for the second
generation ID cards
IC cards and SIM cards
Multimedia ICs for PCs
MCUs and video controllers
The first fabless firm listed in
China stock market and with
diversified product lines
Consumer ICs
Manufacturing/foundry
ASMC
BCD Semiconductor
CSMC
GSMC
HHNEC
HJ
Nanker Group
SGNEC
SMIC
6” wafer
6”wafer; focus on bipolar process
6” wafer
8” wafer
8” wafer
6”wafer
6” wafer
6” wafer
8”and 12” wafer
Packaging and Testing
ASE
STATSChipPAC
Amkor Shanghai
All major players in China are
subsidiaries of foreign packaging
and testing firms
Source: Chao & Sussman (2003), PricewaterhouseCoopers (2005); Zhu (2006).
Unlike previous studies which mostly considered the development of the whole
semiconductor industry, this research targets the semiconductor foundry firms in China,
63
because the sale of semiconductor foundry firms (also known as pure foundry players) in
China already have reached the top rank in the worldwide market (IC Insights, 2004,
2006c; PricewaterhouseCoopers, 2004, 2005). Table 4.4 reflects the growing potential of
Chinese pure foundry firms as latecomers in the emerging market. In fact, two Chinese
semiconductor foundry firms, SMIC (Shanghai Manufacturing International Company)
and Hua Hung NEC (HHNEC) have remained among the top ten semiconductor foundry
firms since 2004 (IC Insights, 2004, 2006b).
Figure 4.2 China’s Market Share in the Worldwide Semiconductor Market
28.3
29.6
9 .99 .99 .99 .9
14 .314 .314 .314 .3
20202020
33
31.9
29
36.3
34
24.3
26.7
33.1
31313131
34 .334 .334 .334 .3
0
5
10
15
20
25
30
35
40
2001 2002 2003 2004 2005
Year
Billions of Dollars
(US)
USA
Japan
China
Source: IC Insights (2005).
In this study, we chose three Chinese semiconductor foundry firms as our cases.
They are HHNEC (Hua Hong NEC), SMIC (Semiconductor Manufacturing International
Corporation), and CSMC (CSMC Technologies Corporation). All these companies are
major semiconductor foundry players with different levels of technological capabilities
and market positions in China and the worldwide market (Zhu, 2006) (Table 4.5).
HHNEC and SMIC are already ranked into the top ten pure foundry firms in the world,
that show their role as the latecomers in the worldwide semiconductor foundry industry.
CSMC is the first pure foundry firm and the biggest 6” wafer manufacturer in China, and
64
we believed it could be another interesting case, to study how different kind of domestic
latecomers to catch up with each other, and to further verify whether our propositions
will be confirmed in different latecomers in the same emerging market.
As we mentioned earlier, difficulties of accessing interviewees to participate in this
research allow us only to triangulate different secondary data sources, previous works,
and few informants (George & Bennett, 2005; Yin, 2002). We expect findings from
analyzing multiple cases could shed some light on our understanding about catching up
of latecomer firms in the emerging market, in terms of the coevolutionary perspective.
Table 4.4 Top 10 Pure-Play Foundries Forecast for 2006
Source: IC Insights (2006c)
65
Table 4.5 Profiles of Case Companies
Company CSMC HHNEC SMIC
Establishment 1997 in Wuxi; originally owned by the
Hua Ji Electronics Group, but leased to
CSMC founded by Dr. Peter Chen in
1998
1997 in Shanghai; joint
venture with Hua Hong
Group, China and NEC,
Japan.
2000 in Shanghai;
establishment by foreign
venture capital and Chinese
government initially.
Business
Pure foundry service mainly in 6” wafer,
will expand into 8” wafer in the future
Began as the IDM in 8”
wafer fabrication, but
became pure foundry after
2002
Pure foundry, but includes
packaging and testing facilities
recently.
Major Process 3.0 -0.35 µm 0.35-0.18µm 0.35µm- 90nm
Facilities
Fab 1 (6”),
Fab 2 (8”; under development),
Fab 3 (6” in Beijing)
Fab 1(8”)
Fab 2(8”)
12 Fabs owned or joint
ventured by SMIC, located in
Beijing Chendu Shanghai,
Tianjin, and Wuhan.
Products
CMOS logic, mixed-signal, high voltage,
non-volatile memory, electrically
erasable programmable read-only
memory ICs, and DMOS.
memory, logic, and mixed
signal
Logic, mixed signal/RF CMOS,
high voltage, SoCs, DRAM,
flash, EEPROM, CIS, and
LCoS micro-display technology
Source: Summarized from company documents and websites.
66
5. THE CASE STUDIES
In the following pages, we are going to report on the catching up of these three cases
in terms of the coevolutionary perspective we proposed. We use cross case analysis to
analyze every case regarding each building block of our conceptual model collectively,
rather than describing each case separately (Yin, 2002). This writing approach makes us
consider coevolutions happening across all these cases, and let us compare their
similarities and differences. Except we have described their profiles in Table 4.5,
milestones of these three companies are listed in the APPENDIX of this dissertation for
further reference.
5.1 Macrcoevolution
Institutional Change in China
Before 1978, the economic system of China followed communism, which
centralized economic planning and controlled resource allocation by party-government
authorities. Economic development was mainly driven by the yearly economic plan
organized and coordinated by the specific planning agencies (Li, et al., 1995). Economic
activities and production capacities were planned and controlled by centralized
government agencies, and state-owned enterprises (SOEs) dominated nation-wide
economic activities, while the ideology of communism pervasively influenced people’s
daily lives.
Because of the intensive competition in the Cold War, institutional mechanisms for
industrial development in China mainly served military uses rather than domestic market
demand in that period of time (Yu, 1999). That was also the main driving force for China
to develop its semiconductor industry. Based on technologies transferred from Russia,
China first developed its own transistor in 1958. Only from 1978, did industrial
development in China alter its direction into domestic markets rather than military
67
usages.
The first Five-Year plan began from 1953 in China, and semiconductor,
telecommunication, and electronic industries were listed as critical national industries
from that period of time (Yuan, 2000). China government also established the Twelve
Year development plan for the semiconductor industry in 1953; this was also China’s first
industrial policy focused on the semiconductor industry. Even the original reason for
having a semiconductor industry may be due to military concerns, in the later period of
this plan, the whole direction had moved toward the domestic market, which made public
research institutions and newborn SOEs target entering semiconductor market. Because
of impediments from Western countries and its own closed policies, China could only
access technologies and experience from Russia at that time. Players in the China
semiconductor market in this period were mainly those national research and state-owned
enterprises, such as different branch factories of the national level laboratories. In the
Sixth Five Year Plan (1981-1995), there were aggressive movements in China’s
semiconductor industry (Zhu, 2006). During that period, the State Council set up a task
force to develop computers and very large system integrated circuits (VLSI) in 1982; its
functions were not only for making economic plans, but for also conquering the waste of
duplicated investment at that time. Consequently, China government decided to develop
semiconductor industry mainly in the North (Beijing and Tianjin) and South (Shanghai,
Jiangsu, Zhejiang) regions. This decision may be one major reason that the Delta area of
Yang Tze River in East China has become the hub of China’s information technology
industry in recent years.
Through the Seventh Five-Year Plan and the Eighth Five-Year Plan, China
established five backbone enterprises in the semiconductor industry from 1988 to 1997,
whether they were SOEs or joint ventures with foreign partners, including the
predecessor of CSMC- Hua Jing (Yuan, 2000; Zhu, 2006). While Hua Jing was the first
68
6” wafer fabrication manufacturer under the support of the Code project 908, and one of
the backbone enterprises, HHNEC had the first 8” wafer fabrication line, and also the
output of Code Project 909 from the Ninth Five-Year Plan (Klaus, 2003; Yuan, 2000; Zhu,
2006), therefore, we also include HHNEC as one of the backbone enterprises which
appear in Table 5.1. These backbone enterprises initially expected to run integrated
device manufacturers (IDM) to cover integrated circuit (IC) design, wafer fabrication,
testing and packaging all under the roof of one firm. However, competitive dynamics in
the worldwide semiconductor market and the success of TSMC forced those China
semiconductor firms to move toward the foundry model in recent years, and also to bring
some new foreign investment in developing semiconductor foundry firms in China, such
as SMIC (Shanghai Manufacturing International Corporation) and Grace (Grace
Semiconductor Manufacturing Corporation) (Ito, 2005; Yu & Chang, 2002; Zhu, 2006).
While the specified government agency, the Ministry of Information Industry, was
first established on 1998, it has cooperated with the Ministry of Science and Technology
and other government agencies to organize and promote industrial development in the
electronic, telecommunication, and semiconductor sectors in the domestic market
(Marukawa, 2000; Shy & Shang, 2000; Yu, 1999). We believe the Tenth Five-Year Plan
(2001-2005) and the “No. 18 Document” issued by the State Council in June 2000 were
two major institutional mechanisms to boost development of the semiconductor industry
in China. In the No. 18 Document, the China government established various incentives
to stimulate investment in the semiconductor and software industries.
To encourage the development of the semiconductor industry in China, investment
projects focusing on advanced technologies can earn great tax incentive. For example,
China government offers those investing in the latest technologies (wafer size equal to or
larger than 8”; <0.25 µm) full tax exemption from income tax for five years, along with
50 % reduction in the following five years, and their production equipment can also
69
received accelerated depreciation to three years. In fact, establishment of SMIC, Grace,
and recent developments of CSMC and HHNEC were all beneficiaries from the support
of No. 18 Document and the Tenth Five Year Plan, because their manufacturing
technologies were all concentrated on 8” wafer fabrication, to push technological
capabilities of China foundry firms closer to the mainstream technologies in the world
foundry business.
In the Tenth Five-Year Plan, China intended to build up the complete semiconductor
value chain at the same time. Except for financial incentives for attracting investment in
the manufacturing sector, non-tax institutional instruments were used to encourage the
development of non-manufacturing sectors in the semiconductor industry. For example,
nine National IC Design Industrialization Camps were assigned to different cities to train
design engineers, along with different joint labs established with the support of local
prestigious universities and foreign design solution vendors, and investments in testing
and packaging were increased based on those institutional incentives from the
government.
Table 5.1 Six Backbone Semiconductor Firms in China before 2000
Name Founding
Year Ownership
Hua Yue (Shaoxing) 1988 SOEs
Shanghai Beling
(Shanghai) 1988 Joint venture with local firm
Hua Jing 1989 SOEs
ASMC (Shanghai) 1989 Joint venture with Philips (Netherlands)
SGNEC (Beijing) 1991 Joint venture with NEC (Japan)
HHNEC (Shanghai) 1997 Joint venture with NEC (Japan)
Source: Dewey Ballantine LLP (2003), Yuan (2000), Zhu (2006), and company websites.
70
Economic transition toward the market system inevitably forced China to follow the
rules of the game in the global competition. These institutional supports toward
semiconductor and other target industries apparently contradict general practices in the
worldwide market. Therefore, China faced enormous pressure from many external
stakeholders, such as World Trade Organization (WTO) and Semiconductor Industry
Association (SIA). For example, entrance into the WTO in 2001 meant China needed to
give up value added tax (VAT) on imported ICs, which had received lots of complaints
from foreign semiconductor firms (SIA, 2004). In addition, opening the market also
forced China to regulate its intellectual property system, against possible infringement by
local IC design houses or semiconductor manufacturing firms. Even though some
institutional changes still favor domestic firms, external changes have made the
government rearrange its policy instruments to maintain their support for those target
industries. For example, to maintain attractiveness after removing VAT levied on
imported ICs in the semiconductor industry, China government established a special fund
to support research and development (R&D) of those accredited semiconductor firms. We
can find that China still needs to respond to these external pressures to accommodate the
changing of global market, in spite of its centralized and single party led in politics.
Even through external pressures also appeared in previous latecomer firms and
countries, such as Japan under pressure by the U.S. to voluntarily limit their IC exports in
1980’s, the differences between China and these countries are the threat of China
semiconductor industry is not as intensive as Japan’s was, both in technological
capabilities and market shares on the world scale. Semiconductor firms in China have
different structure of the ownership and scale, rather than being dominated by particular
business groups or conglomerates as those of Japan and Korea (Cho, et al., 1998;
Tanimitsu, 2002).
In addition to the stimulus of policy instruments, huge capital demand for building
71
up wafer fabrication lines also called for changes of the financial market in China. To lure
investments from venture capital and financial institutions, the China government
restructured its capital market to allow those semiconductor manufacturers to be listed on
the stock market, although they mainly appear in the Hong Kong market. For example,
CSMC and SMIC have been listed on the main board of the Hong Kong Stock Exchange
and/or New York Stock Exchange in recent years. Moreover, all these listed firms
concentrate on foundry business, and most of their executives with background in this
field have working experiences in Taiwan, the U.S. or elsewhere.
Even through the Wassenaar Arrangement on Export Controls for Conventional
Arms and Dual-Use Technology prohibited import of advanced semiconductor
production equipment from U.S. to China, which limited the supply sources and
development pace of China semiconductor firms, it also brought the opportunities for
those non-U.S. equipment vendors in Europe and Japan to participate in growing
opportunities in China semiconductor firms (Klaus, 2003).43 A series of Five-Year Plans
and the No. 18 Document, such as funding for R&D and other incentives proposed by the
central government and local authorities, show the effort of the China government to
favor the development of those domestic latecomer firms in the semiconductor industry,
regardless of whether it still needed to change institutional mechanisms to respond to
external pressures. All these institutional changes stimulated investments in foundry
business and helped them to find external sources of funding for expansion and
upgrading their technological capabilities.
In Proposition 1 we argue, firms in the emerging market that belonged to the
industries specified by the government could have institutional support that may have
43 We argue that these export controls claimed by other developing countries or international organization dominated by incumbents in the market would be the most significant impediment that latecomer firms in the emerging market may confront in their catching up process. This kind of prohibition may stop the possible linkage between latecomer firms and foreign technology vendors, or postpone the pace of those latecomer firms in catching up.
72
helped them to catch up with other leading rivals. In our study, HHNEC, SMIC, and
CSMC all belong to target industries in China, and had generous institutional support
from the government that enabled some of them to compete with leading competitors in
the worldwide market, in spite of the slow response in the case of CSMC. While previous
studies on catching up of latecomer firms in NICs mostly assumed this without
identifying it in their arguments, our arguments warrants the statement of proposition 1
and shows not all institutional supports could make latecomer firms catch up, except
those in the specified industries,
Technology Development
In the early development stage of the China semiconductor industry, technologies
transferred from Russia could not make its technological capabilities keep pace with the
current development happening in U.S. and other Western countries (Yuan, 2000, 2001;
Zhu, 2006). Before the economic transition in China, national research institutes and
laboratories were major players in developing semiconductor technologies. Nevertheless,
the communist ideology and their closed policy toward the world market have caused
their technological capabilities to lag twenty years behind the latest ones. Until the
implementation of the Tenth Five-Year Plan, except for HHNEC, most semiconductor
backbone enterprises in semiconductor manufacturing were fabricating wafers less than
8” wafer in size (Dewey Ballantine LLP, 2003; Mathews & Cho, 2000; Yuan, 2000). The
technological gap between China and the world market has narrowed down to five years,
after HHNEC established the first 8” wafer fabrication line in China (see Figure 5.1).
According to the Tenth Five-Year Plan, China expects to expand its wafer
manufacturing capacity in the mainstream, and establish its own 12” wafer production
capacity. Table 5.2 presents the developmental target for semiconductor manufacturing
during the Tenth Five-Year Plan, and companies invested in at that period. That also
73
means technology development in China semiconductor industry gained rapidly and
upgrading according to institutional support.
On the other hand, even through the first 12” wafer production capacity in China
was established by SMIC in Beijing in June 2004, most major semiconductor foundry
players in China mainly concentrated on investing in 8” or smaller size wafer productions.
In the case of CSMC, even through it kept focus on 6” wafer fabrication since its
beginning, it also began to consider expanding into 8” wafer capacity in 2006. In fact,
most foundry players in China mainly focus on or intend to establish 8” or larger size
wafer fabrication, with the support of institutional incentives toward developing the latest
technological capabilities (Dewey Ballantine LLP, 2003; PricewaterhouseCoopers, 2004,
2005).
Table 5.3 shows new manufacturing capacity established during the period of the
Tenth Five-Year Plan (2001-2005). Tables 5.2 and 5.3 obviously confirm foundry players
were inspired by the development target specified by the government and enjoyed
institutional support in various aspects, whether they were incumbents or new investment
projects in China semiconductor industry (Dewey Ballantine LLP, 2003; Klaus, 2003;
Zhu, 2006).
Through these arguments, technology development in the emerging market moves
according to the preference of institutional changes of the government, and further
influences technology development of the local latecomer firms, that support our
argument in Proposition 2.
74
Figure 5.1 Technological Developments in China and the World
19781980
1988
1992
1995
1999
2004
1966
1972
19751982
1986
1988
1999
0
2
4
6
8
10
12
14
1966 1972 1975 1978 1980 1982 1986 1988 1992 1995 1999 2004
Year
Wafer Size
(diameter in inch)
China World
Source: Zhu (2006: 158)
Table 5.2 Target for Semiconductor Manufacturing in the Tenth Five -Year Plan
Wafer size/Manufacturing
technologies (µm)
Expected number of
production lines
Companies invested in that
period of time
6 / 3~4 ASMC, CSMC, SGNEC,
8 /0.35-0.18µm 4~5
HHNEC, SMIC, He Jian,
ASMC, Grace, TSMC
12 / 0.18-0.13 µm 1~2 SMIC
Source: Dewey Ballantine LLP (2003), Zhu (2006), and company websites.
Table 5.3 New Wafer Manufacturing Capacity Established During the Tenth
Five-Year Plan1
Company Established date Wafer size; line width / Estimated capacity (piece/month)
SMIC2 2002
2004
8”; 0.35µm-90nm
12”; < 0.13µm
Grace 2003 8”; 0.25-0.13µm / 27,000
He Jian 2003 8”; 0.5µm~0.15µm/max. 60,000
ASMC 2003 8”; 0.25µm / 12,000
Sinomos 2004 6” ; 0.5µm / 10,000
BCD 2001 6”; 1-4µm / 30,000-40,000
TSMC 2003 8”; 0.25µm / 40,000
Note: 1 The list is not a full list, some minor investment projects may have been omitted. 2 SMIC has more than one 8”wafer fabrication line with total production shipment over
160,000 wafers per month (Q2, 2006).
75
Management logics
Development of management thoughts shows management ideology and logics also
change along with the environment over time, which means management practices and
theories used in the emerging market could change along with deregulating institutions
and opening markets (Jackson, 1992; Mintzberg, Ahlstrand, & Lampel, 1998;
Dijksterhuis, et al., 1999). On the other hand, even though they used the term
“ management theory” to describe the different content of the managerial logics we used
here, in their classic work, Miles & Snows (2003) also showed how the evolution of
different managerial logics in the environment does affect strategy, structure, and process
of a firm, that imply the possible coevolution across these constituents. In this work, we
apply their arguments in the context of emerging market to support the reasoning of
Proposition 3. Our elaborated observations and analysis represent as follows.
Economic transition in the emerging market brings not only opening of the market
but also changing its social and technical contexts (e. g. Child & Tse, 2001; Lo, 2001;
Park, et al., 2005; Zweig, 2002; Yu, 1999). While the economic system moves toward a
capitalist market, that not only decreases dependence on personal network connections,
especially those with government officers, but also increases more regulated and
contract-based transitions (Boisot & Child, 1999; Peng, 2003; Peng & Heath, 1996).
Otherwise, a change of the structure of ownership in traditional SOEs also provides new
incentives for managers to organize and manage the firms more efficiently, and stimulates
the spirit of entrepreneurship, for a new vivid economic atmosphere (Li, et al., 1995; Lo,
200; Jackson, 1992).
In earlier times, China inherited traditional thoughts of communism from ex-Soviet
countries; therefore, the ruling communist party and its governmental structure control
led its industry development and the enterprise system. Those centralized economic plans
and state owned enterprises prohibited development of motivation for self-interest, and
76
bounded the creativities of managers and employees in doing business.
Before 1978, China economic development was mainly affiliated with communist
ideology, which lacks connecting on Western countries, and aimed to achieve
self-sufficiecy for most of production endorsement and market demand. China adapt the
closed system perspective to manage industrial development and SOEs, with central
planning and quantitative oriented analysis used intensively to forecast growth potentials
and guide development directions in domestic industries and markets (Scott, 1998; Alon
& McIntyre, 2005). In that period, pure professional managers did not exist, only those
trained from engineering or management science to work in SOEs or run the business,
they lacked of knowledge or experience for doing business in the capitalist context. The
Communist party-led dictatorship made no room for managers or employees to use their
creativity or autonomy in their jobs, each industry was monitored and dominated by
corresponding ministries or agencies. Management logics in that period of time were
rather conservative closed systems and more like the classical management school that
emphasized rational analysis in terms of centralized planning, under the bureaucracy of
the communist party system (Dijksterhuis, et al., 1999; Pugh, 1997).
Only at the beginning of economic transition, enterprises and industries in China
were gradually released from the centralized economic plans, and different patterns of
ownership that stimulated the economic development in the private sector (Boisot &
Child, 1999; Lin, et al., 1995; Lo, 2001, Huang, 2003). Apparently, this kind of
contextual variation made management logics, shared values and beliefs about
management theories and practices at the macro level change along with the evolving
transition process (Dijksterhuis, et al., 1999).
The decreasing connection between China and ex-Soviet countries and opening of
the market after 1978 let lots of business practices run in the capitalist context, and
deregulated control of ownership by the government and the party. Except for the
77
deregulation of foreign exchange and interest rates, we think the most significant changes
at this stage were the transformation of SOEs in their ownership and incentive structures
(Lin, et al., 1995; Huang, 2003). Although delegation of ownership from the
party/government to professional managers brought lots of institutional changes and
ideological debate between communism and capitalism, we argue it was also the
beginning for China to introduce current management knowledge and practices from
Western and other capitalist countries, not only through opening of the market, but also
through permitting different kinds of ownership for those firms.44 It was also an
incubating stage for the development of professional managers in China, regardless of
conflicts and concerns regarding who are the real owners of those SOEs, profit-sharing
mechanisms between managers and employees, and how to sustain a balance between the
government and privatizing SOEs (Lin, et al., 1995; Lo, 2001; Tsui, et al., 2004).
Decentralization of control of economic development and deregulation also allowed
the booming of town and village enterprises (TVEs) to appear locally. However, this kind
of ownership connecting both performance of local officials and managers, made
economic fragmentation across regions, although it also raised regional economic growth
(Huang, 2003; Park, et al., 2006; Zweig, 2002). It was inevitable that decentralization
would depend on the bargaining power between the rigid political structure and the
intention for improving economic development in the private sector (Naughton & Segal,
2002). At the same time, beginning with those special economic zones and coastal cities,
many experienced professionals living in advanced countries started moving back to
China. Their return not only provided professional advice to participating joint venture
partnerships, which had felt the talent gap resulting from the Cultural Revolution, but
44 In addition to transformations of SOEs and contracting and joint ventures with foreign firms, town and village enterprises and other collective enterprises in China also played critical roles before the private enterprises and start-ups increased their shares and influence until recent year (Huang, 2003; Park, et al., 2006)
78
also brought the latest information and know-how in industries that would never be
allowed to be run by the private sector, and further fulfilled the diversification of
industries across the country (Zweig, 2002).
From 1978 until entrance into WTO in 2001, the Chinese economy just went
through a series of drastic institutional changes that opened up new business
opportunities both for domestic and foreign players, and for the latest management
ideology was also imported through the participation of those foreign investment
enterprises and returned experts, including senior managers and engineers. After years of
transitions, China government worked using “technonationalism” that concentrated on
pushing their SOEs privatization and directed developmental directions for domestic
firms, just like bureaucracies in Japan, Korea, and Taiwan had done before (Naughton &
Segal, 2002).
We claim management logics in China at this period already considered the impact
from the external environment, along with internal selection, for moving toward a
so-called socialist market system, which was closer to modern management that adopted
an open system perspective to practice managerial activities and business (Dijksterhuis, et
al., 1999; Scott, 1998). While Master of Business Administration (MBA) has become a
symbol of the professional manager in capitalist society, the Chinese government began
approving the establishment of MBA programs in some target universities from 1991,
and then expanded the accredited schools to deliver this professional education program
around the country (Chen, Wheelwright, & Knoop, 2006). Those managerial training
programs have already bloomed, after development for a decade, and, for example, the
executive education of China European International Business School (CEIBS) remains
in the top position in many worldwide rankings. Also, the growth of domestic companies
in China, such as Haier, TCL, Lenovo, has informed the world market that emerging
multinational corporation from transition economies are on their way to compete with
79
leading incumbents (Harley, Tan, & Harley, 1998; 200; Khanna & Palepu, 2006;
Williamson, 2004).
When China entered into WTO in 2001, it was also a major truncation point in its
economic development. Management logics in China has moved toward post industrial
management, where emergence of the service industry and concerns about the
development of the knowledge economy and indigenous innovation have all become
alternative priorities for China’s future development (Dijksterhuis, et al., 1999; Ohame,
2002; Shy & Shang, 2000; Wang, 2003).
The Socialist market system in China could not work well only by changing
institutions and deregulating markets, but also needs to consider the invisible influence of
changing management logics over time. We argue that changes of managerial logics also
stimulate entrepreneurship in the general public, and establish a general consciousness
about doing business for profit and private ownership of properties. It can be expected
that future institutional changes will need to respond to that emerging public
consciousness, whether for economic motivations, such as changing financial
infrastructure to encourage privatization of SOEs and public listing on the stock market,
or non-economic motivations, like improving the quality of human capital though
upgrading vocational training. (Huang, 2003;Yasumuro, 2004; Zweig, 2002).
Our analysis shows managerial logics in the emerging market change along with
institutional change initially, and may influence institutional change in a reverse direction over time.
That supports our Proposition 3, but we also find that leaves an interesting question about
linkages between institutional change and management logics is worthwhile to consider
in future research.
In Table 5.4, we summarize changing management logics in China, according to
three different stages of time. As we have mentioned, the timeline we separated is not the
sole solution but convenience for us to describe events and observations on managerial
80
logics, corresponding to the evolutionary process of China’s economic transitions.
Table 5.4 Evolution of Management logics in China
Period Before 1978 1978-2000 After 2001
Management
Logics Classical Modern Postmodern
Descriptions
1.Centralized
economic control and
planning oriented.
2. Scientific
management and
quantitative analysis.
1.Technonationalism led
2.Decentralized control and
booming of local economic
development
3.Privatization of SOEs and
emerging of TVEs
4.Deregulating markets.
5. Professionalizing
managers; introduction and
expansion of MBA
programs.
6.Returned experts bring
know-how and hands on
experience
1.Entry to WTO in
2001.
2.Deregulating
markets to follow the
rules of game in
global markets
3.Emphasise on
indigenous
innovation.
4.Improving
intellectual property
system.
Source: Dijksterhuis, et al. (1999), Pugh (1997), Scott (1998).
5.2 Microcoevolution
Microcoevolution mainly refers to coevolution happening in different levels within
the firm (McKelvey, 1997), as we discussed in Chapter Two. Here we consider
interactions among managerial intentionality, organizational form, and combinative
capabilities of the firm as the building blocks of microcoevolution related to the catching
up of latecomer firms in the emerging market.45
Since only a few research works target the China semiconductor industry, and those
focus at the firm level, we believe our research could fill up a current gap and start more
45 Because we use cross case analysis to describe microcoevolution happening in these three companies, according to the corresponding building blocks in our conceptual model, therefore, there will not be an individual section dedicated to the individual firm for its microcoevolution.
81
debates and arguments about the catching up of latecomer firms in the emerging
market.46
The Microcoevolution of Latecomer firms
This study has two propositions related to the microcoevolution within the firm. In
this section, we use cross case analysis across three companies to examine whether these
propositions are sustained or not.
In Proposition 4, we argue that managerial intentionality of the latecomer firm in the
emerging market evolves along with the changing of managerial logics in the macro-
level environment. In our conceptual model, managerial intentionality of the latecomer
firm plays the key role to connect coevolution between macro- and micro- levels.
Because latecomer firms exist embedded in that external environment, changing of the
external constituents, such as managerial logics, influences managerial intentionality, in
terms of mindsets of top executives and decisions they make, for those firms to respond
or dominate the changing external environment (Child, 1972; 1997; Miner, 1994). Our
examinations that support Proposition 4 are described as follows.
In China, institutional changes, policy incentives, and changing management logics
at the societal level attract returnees and foreigners to this emerging marketplace. Those
returned experts secure various supports from government agencies and the emerging
private sector to build up their own start-ups or joint ventures to participate industry
development in China (Huang, 2003; Zweig, 2002). Such an opening and deregulating
market not only allowed local firms to recruit foreign experts and experienced overseas
Chinese to compose their top executive teams, but also inspired those overseas Chinese to
46 Studies about China semiconductor industry, such as Klaus (2003), Mathews & Cho (2000), Teece & Chesborugh (2005), Wu & Loy (2004), and Yu (2000) mainly concerned its development at the industry level. Even Yuan (2001) used one joint venture semiconductor firm, but the research was about transferring Japanese production system to China, but Chen & Toyama (2006) that may be the first academic work to mention the catching up of one Chinese semiconductor latecomer firm.
82
establish their own businesses to participate in emerging development in China.
In our study, those macro-level evolutions caused Dr. Peter Chen and his
management team to lease the foundry assembly line from China Huajing Electronics
Group Company to establish CSMC in 1997,47 and allowed Dr Richard Chang received
generous supports from the government to establish SMIC in 2000. Technology
developments in our cases also follow the direction of the institutional incentives offered
by the government, for example, technology development of SMIC and HHNEC both
focus on the 8” or larger wafer size fabrication capacity emphasized by the Tenth Five
Year Plan and Document 18, in spite of the fact that CSMC just expected to expand into
8” wafer manufacturing technology until 2006.
From the perspective of managerial intentionality, in spite of slight changes in
different firms, top executive teams in CSMC and SMIC are more stable than those in
HHNEC, and they all focused on the semiconductor foundry business at the time of their
founding. Until now, both founders of CSMC and SMIC have remained the figureheads
of their companies since their establishment, and their major business has focused on
foundry business since day one, while top executives of HHNEC had a significant change
during its transition from the IDM into a pure foundry player. Although it was a Code
Project 909 in China, the structure of ownership in HHNEC caused it to experience
significant transition in the top executive team to become a pure foundry player. Japanese
managers from NEC played the lead role in its initial stage, but returned experts took the
leading positions while major stakeholders, like those SOEs and government agencies,
expected HHNEC to become a foundry player, which apparently converted managerial
intentionality of HHNEC.
As we mentioned earlier, CSMC was managed and led by they Dr. Peter Chen, with
47 The production facilities China Huanjing Electronics Group owned were the result of the Code Project 908 that focused on establishing 6” wafer fabrication capacity in China semiconductor industry.
83
leased production facilities to focus on 5” and 6” wafer fabrication. It has successfully
made the break-even point in fifteen months after getting those facilities from China
Huajing Electronics Group Company. Even the managerial intentionality of CSMC to set
up 8” wafer manufacturing capacity in 2006 was a little late, behind the incentives first
proposed by the government in 2000, however, we consider it as a lagged effect of
coevolution as suggested by McKelvey (1997). On the other hand, SMIC was also well
evolved, with macrocoevolution over time; it established at the proper time, in 2000, a
focus on 8” and larger size wafer manufacturing, and accomplished all these targets in a
very short time. With support from the government, SMIC’s rapid development includes
some courageous investment and expansion behaviors outside the field of foundry
business, such as having the latest manufacturing facilities in Beijing (Zhu, 2006).
Regardless of their differences in establishment date and the lagged entry of
HHNEC into the foundry service business, these cases inform us that managerial
intentionality of latecomer firms mostly coevolves with corresponding
macro-environments as we mentioned in Proposition 4.
On the other hand, the example of HHNEC also reminds us, that differences of
managerial intentionality in these firms could be attributed to not only the composition of
top executive team and their decision-making, but also to differences of their structures of
ownership (sees Figure 5.2).48 Even through management teams in CSMC and SMIC are
relatively stable, because they already listed on the stock markets, we wonder whether
their future development and evolutionary path may endure pressures or influence from
institutional investors and public stockholders, that go beyond the scope of our
conceptual model. We think people should take external stakeholders into consideration
48 Because previous works seldom emphasized how the structure of ownership may affect the catching up of a latecomer firm, expect that companies they studied were SOEs or joint ventures between local and foreign firms (e.g. Amsden & Chu, 2003; Chang & Yu, 2001; Mathews & Cho, 2000). We do not consider the structure of ownership of a latecomer firm as one building block for our conceptual model, but we admit that it would be interesting to include this “missing” element in future research work.
84
in future research work.
Figure 5.2 Structures of Ownership of Major Chinese Semiconductor Foundry
Firms
Source: Dewey Ballantine, LLP (2003)
In the microcoevolution part of our conceptual model, we argue that managerial
intentionality of the latecomer firm in the emerging market dominates joint evolutions
between the organizational form and combinative capabilities. Based on the ideas
emphasized by coevolution and the strategic choice perspective, the mindset and
decisions of top executives lead to co-evolution between the organizational form and
combinative capabilities within the latecomer firm.
To address that proposition, the evolution of HHNEC could be the most explanatory
case in our research. HHNEC experienced a significant change, followed by the change
of the top executive team, to change itself from an IDM to a full foundry player.
Accordingly, HHNEC not only changed its organizational form to fit the requirements for
doing foundry service business, but also invited non-NEC partners, such as Jazz
semiconductor, to expand its technology profile for satisfying diversified demands from
85
different fables companies in manufacturing technologies. In addition to rearrange its
internal resource allocation in terms of the change of organizational form, its new
technological vendors not only upgraded the technology capabilities of HHNEC, but also
showed the progress in combinative capabilities of HHNEC.49 Even these different
changes did not happen concurrently, they essentially showed how collective evolutions
among different actors and how the change of managerial intentionality affected
constituents in the microcoevolution of the latecomer firm.
Because of their major business focus on foundry business service at the beginning,
the changes/evolutions of managerial intentionality of CSMC and SMIC are not as
significant those at HHNEC. Since CSMC and SMIC targeted different market segments
and different technology capabilities, different coevolutionary stories appear in these two
cases.
CSMC did not spend lots of capital investment in procuring production equipment in
the first place, rather the management team leased 5” and 6” wafer production facilities
from China Huajing Electronics Group Company to start up their operations. The reason
this SOE lent those facilities to CSMC was to borrow professional expertise from CSMC
management team to save the investment result of the Code Project 908.50 Because
CSMC successfully made break even very shortly, which surprised government agencies
and local semiconductor firms and proved that the business model of semiconductor
foundry service could earn real money in the emerging market, and showed its feasibility
in China. Even without having the latest production facilities and most advanced
49 Because the difficulty of data access, we cannot make a detailed analysis about the combinative capabilities of our cases. Therefore, we consider the upgrading of their technological capabilities as a latent description of their combinative capabilities. In general cases, that assumes technological vendors would not provide advanced technologies to latecomer firms, unless latecomer firms have compatible combinative capabilities and willing to upgrade and learn from those external vendors. 50 Those 6” wafer fabrication facilities in China Huajing Electronics Group were supported by the Code Project 908. However, those facilities did not break even, and CSMC decided to lease Dr Peter Chen and his executive team. After 15 months under the operation of CSMC, those facilities achieved break even.
86
manufacturing technologies at first, the initial managerial intentionality of CSMC was
simply focused on 5” and 6” wafers, which were the mainstream products in the Chinese
semiconductor market at that time. Because of its initial intention, its combinative
capabilities began from targeting at the local mainstream market, but gradually upgraded
toward the mainstream in the worldwide market-8”wafer fabrication-through the new
technological partnership.
Before CSMC was listed on the main board of the Hong Kong Stock Exchange in
2004, the structure of ownership had been restructured, while the internal organizational
form remained stable. This circumstance inspires us that the microcoevolution of the firm
for catching up may include more than those building blocks we developed from previous
works.
SMIC has the most advanced manufacturing facilities and technologies. The timing
of its founding let it enjoy lots of institutional support, both from central and local
government agencies. With these kinds of connections, SMIC could expand rapidly
across China. At the same time, SMIC also constantly increased its technology
capabilities through upgrading combinative capabilities, and securing technological
vendors from Japan and Europe as its technological partners.
Compared with CSMC and HHNEC, SMIC was a new start-up in 2000, without
partnership with any single foreign firms, but targeted the latest manufacturing
technologies for foundry service at the beginning. The proper timing of entry and its
initial conditions gave SMIC more freedom to attract foreign capital and expand its
operations, which made it quickly become one of two Chinese semiconductor foundry
firms listed in the top ten pure foundry players in the world market (IC Insights, 2006c).
Microcoevolution of SMIC essentially followed its expanding operations, and the
organizational form moved toward the M-form along with the expanding scope of
operations, such as joint ventures with other non-foundry service businesses in packaging
87
and testing, the backend of the IC manufacturing process.
Even through their coevolutions appear with some lag, these three cases show
microcoevolutions of latecomer firms do evolve collectively, along with the changes of
managerial intentionality over time. When the causal linkages among these building
blocks could not be easily identified, we also found other factors, such as the structure of
ownership of the firm, that may affect coevolution among building blocks, and which
suggest other new research directions.
Among these three cases, HHNEC had the most significant changes in business
direction, top executive team, and organizational structure. CSMC showed a unique
example of rather than pursuing the latest technologies, leasing production facilities from
SOEs to establish its own production capacity that saved lots of initial investment. Its
quick break even and initial focus on local mainstream markets not only showed the
competence of the top executive team, but also its managerial intentionality to be the first
foundry business firm in China. Finally, with generous support from government and has
the most advanced manufacturing technologies in China, SMIC was always the focus of
media and its rivals since the beginning. Managerial intentionality of SMIC concentrated
on upgrading technological capabilities and expanding business and geographic scope, to
diversify its organizational form and enhance combinative capabilities to integrate
different technologies for different functions and services.
We tabularized their individual microcoevolutions in Table 5.5. According to our
cross case analysis from these three cases, we consider that Proposition 5 is supported.
However, we cannot claim this proposition to be a generic statement applicable in all
industries in any emerging market.
88
Table 5.5 Microcoevolution of Three Cases
Company Managerial intentionality Organizational
form
Combinative
capabilities
CSMC
1. The first foundry service firm in
China.
2. Focus on local mainstream
market for 5’ and 6” wafer first, and
established the 8” wafer fabrication
capacity recently.
Function-based
structure and expansion
along with the
establishment of new
wafer assembly line.
Focus on 3.0 to
0.35µm with used
facilities, and
preparation to develop
0.18 µm process with a
technological partner.
HHNEC
The first IDM with 8” wafer
production capacity in China, and
transformed to become a foundry
player in 2002.
Function-based
structure; restructured
for becoming a pure
foundry player.
Technologies
transferred from NEC
initially, and expanded
the technology profile
through new
technology partners
and vendors.
SMIC
1. This firm targets at 8” and
larger wafer fabrication that
matches the world mainstream
market.
2. Expand to downstream
business- packaging and testing
business.
Functional-based
structure and new
business units were set
up through diversifying
investments.
Manufacturing
capacity ranges from
0.18µm to 90nm.
5.3. Catching up of latecomer firms
In the previous literature review, we use the extended resource-based view proposed
by Mathews (2002c, 2003a) to consider catching up strategies of latecomer firms. Those
3Ls-linkage, leverage, and learning- are the main strategies latecomer firms used to
upgrade their technological capabilities and competitiveness. In this research, we identify
catching up of these cases in terms of their linkage, leverage, and learning.
In our three cases, HHNEC and SMIC already ranked in the top ten pure foundry
players in the world market, and CSMC mainly focused on the China market, with a few
foreign clients. CSMC and SMIC were created to do foundry business and recognized
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their divisions of labor in the whole semiconductor value chain being to provide pure
manufacturing service to IC design houses in the beginning, while HHNEC moved from
IDM to become a foundry service player six years after its founding. All these three
companies are linked in the semiconductor industry value chain, and leverage their roles
as contract manufacturing partners for foreign and local IC design houses, or clients like
IDMs, in case of shortage capacity for the booming market demand. Regardless of
operating as an IDM or a foundry service players, all these cases maintain their positions
in the semiconductor value chain, and leverage their own roles for manufacturing wafers
for themselves and/or other fabless firms (Wu & Lo, 2004; Zhu, 2006).
These three cases also showed different levels of learning for catching up with the
mainstream technologies. While SMIC targets at the worldwide mainstream wafer
fabrication at 8” and larger sizes, and advanced manufacturing processes, such as copper
process, it also quickly expanded its technological partners around the world, in addition
to some non-foundry business related investments and joint ventures in packaging and
testing and devices used for the solar energy. Institutional and financial support from the
government and the capital markets ensure SMIC has sufficient backup to secure
different technology vendors and diversify business, even under limitation to import
product equipments from other countries and pressures from international organizations
and industry associations (Dewey Ballantine LLP, 2003; Klaus, 2003).
In the example of HHNEC, its technology level mainly focuses on 8” wafer
fabrication with technologies transferred from NEC. It also expanded its capacity through
acquired production facilities, and earned the order for the second generation ID card,
these also enabled HHNEC to fine tune its yield rate and capacity to sustain its position
as a leading foundry firm in China and the world market, except for lacking sufficient
capital investment to build its own production capacity for manufacturing 12” wafers. As
a comparison, the learning of CSMC occurred mainly through practicing 5” and 6” wafer
90
technologies based on leased reconditioned production equipment and serving domestic
clients, while slightly expanding its technological profile. Even though listing on the
main board of the Hong Kong Stock Exchange gave CSMC sufficient capital for
expanding, it only considered expansion into 8” wafer manufacturing recently. That could
be attributed to the market position it intended to sustain at the beginning, or we could
argue that CSMC has finally decided to confront competition with other local latecomers
and foreign rivals in the world mainstream market, along with the growing up of local
clients over time.
The learning of these latecomer firms worked through upgrading of their
manufacturing technologies and technological profiles both within and beyond
organizational boundaries (Kim, 1997, 1998; Mathews & Cho, 1999). Table 5.6
represents the technology profiles of our cases to reflect their learning over the years.
Apparently, SMIC is a quick learner that has the latest technologies in China, and it could
match foreign leaders in five years or less after its first operations. HHNEC maintains its
focus on 8”wafer and expanded technological vendors beyond the single support from
NEC to others, such as Jazz semiconductor, SST. However, CSMC’s lack of having
advanced manufacturing technologies and technological partners just reflects its position,
targeted at middle and lower level markets, rather than implying it does not learn to
upgrade technological capabilities.
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Table 5.6 Technology Profiles of Three Cases
Company CSMC HHNEC SMIC
Manufacturing
technologies (µm)
3, 1.5, 1.2, 0.8, 0.6,
0.5, 0.35,
0.35, 0.25, 0.18 0.35, 0.25, 0.13, 0.15,
0.18, and 90nm
Technological
partnership
Chartered
Semiconductor,
IMECAS(China)
NEC, IMEC, SST,
Jazz semiconductor
Toshiba, Fujitsu,
Elpida, Infineon,
IMEC, Chartered
Semiconductor,
Toppan, Saifun
Products
Logic, mask ROM,
embedded EEPROM,
CMOS, DMOS,
High/Low voltage,
BiCMOS, MOSFET
Logic, Mixed signal,
eFlash, eEEPROM,
RF COMS,
SRAM, DRAM,
Logic, Mixed
signal/RF, Flash,
EEPROM, High
voltage, LCoS, SoC,
Source: Summarized from company presentations and websites and these are not
comprehensive or exclusive lists.
We summarize their catching up in terms of three Ls in Table 5.7, and agree that
catching up of these three firms could be explained by the extended resource based view
Mathews proposed (2002c, 2003a), except for one interesting point we found in CSMC.
While Mathews (2002c) argued learning indicates repeated results of linkage and
leverage of the latecomer firm, the case of CSMC shows a latecomer firm may not
“learn” as quickly as their rivals, but maintains its technology capability along with the
development of the target market. We argue that this may be attributed to the moderate
effect from the managerial intentionality of latecomer firm toward catching up through
learning. If so, that may rewrite causal linkages among linkage, leverage, and learning
proposed by Mathews (2002a, 2002c) and lead to development of a new conceptual
model for catching up of the latecomer firm.
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Table 5.7 Catching up of Three Cases
CSMC HHNEC SMIC
Linkage Foundry service From IDM to Foundry
service Foundry service
Leverage
Used leased facilities from
SOE; focus on 5” and 6”
wafer fabrication to satisfy
the domestic mainstream
market
A single foreign
partner at first, and
expanded technology
vendors gradually.
Partners with
different foreign
vendors intensively.
Learning
Fine tune manufacturing
technologies to focus on 5”
and 6” wafer level.
Consider expansion of 8”
wafer fabrication through a
strategic partner.
Learning from the
single technology
vendor at first; then
expanding to other
sources.
Begins from 8”
wafer fabrication,
and catch up with
latest manufacturing
technologies, such
as 90nm and copper
processes.
5.4 Discussions
Although empirical examinations about exploration and exploitation in organization
learning have become one critical measurement for applying the coevolutionary theory
perspective in organization studies, this research mainly used a qualitative,
phenomenological approach to analyze catching up of the latecomer firms in the
emerging market in terms of the coevolutionary perspective (Gupta, Smith, & Shalley,
2006; March, 1991; Lewin & Volberda, 1999, 2003). The unstable quality of statistical
data also limits our intention to do more quantitative analysis or simulation work, as other
coevolutionary works have done (Baum & McKelvey, 1999; Baum & Singh, 1994a; Holz,
2004; Singh, 1990).
We used the coevolutionary perspective to outline a conceptual model and apply it to
examine catching up of three Chinese semiconductor foundry players. We found these
three cases do coevolve both at macro- and micro-levels over time, in spite of different
firms coevolution in different timelines.
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In this study, coevolutions between institutional change, technology development
and management logics have been established as the macrocoevolution of the firm for
catching up, and these external evolutions shape the context where latecomer firms are
embedded, that include inherited constraints and incentives for latecomer firms to
compete with leading competitors. We proposed interactive evolutions between
managerial intentionality, organizational form, and combinative capabilities as the
microcoevolution of the firm. Consequently, we found catching up of latecomer firms in
the emerging market could be analyzed through such a multi-level perspective to observe
that dynamic phenomena. Table 5.8 lists propositions we proposed and results based on
our cross case analysis. We organize the macro- and micro-coevolutions between three
cases and the environment, to show how interactions happened across different actors at
different levels in our study (please refer to Table 5.9, Table 5.10, and Table 5.11,
respectively). Except for differences in the timing of entry into the market,
macrocoevolution of these three cases is almost the same. Nevertheless, differences in the
microcoevolution of these cases are rather obvious.
As we mentioned in Chapter 4, CSMC was used as a comparative subject, for us to
compare differences between the other two leading local latecomer firms. In spite of
CSMC’s original focus on the low end, local mainstream technology, technology
development in such an institutionalizing environment responded to institutional changes
that nurtured the emergence of the semiconductor industry. Both technological
development of HHNEC and SMIC were apparently motivated by that macrocoevolution,
which led them to pursue mainstream technologies in the world market through foreign
technological partners (see Table 5.10 and Table 5.11).
On the other hand, corresponding changes of management logics made returned
overseas Chinese professionals and foreign experts capable of contributing their
knowledge and experience in the emerging market; otherwise, they could not have
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frontline operators and employees with the mindset and consciousness to follow their
leadership (Dijksterhuis, et al., 1999). That evolution in management logics enabled those
returnees to apply, transfer, and share what they learned to participate emerging
opportunities in China, that further inspired the authorities to open up markets and attract
more foreign investment and experienced experts (Huang 2003; Zweig, 2002).
Table 5.8 Research Results
Propositions Results
1. In the emerging market, firms that belonged
to the industries specified by the government
could have institutional support, to enable
them to catch up with other leading rivals.
2 Technology development in the emerging
market moves according to the institutional
changes of the government, which influence
technology development of the local latecomer
firms.
Macro-
coevolution
3. Management logics in the emerging market
change along with institutional change
initially, once they become assimilate with
those in the developed markets, that emerging
management logics may further influence
institutional change in the local context.
1. All cases belong to the target
industry with institutional support from
different aspects, but not all cases favor
technology development with
institutional supports immediately, such
as the case of CSMC.
2. Coevolutions exist among these
actors, but effects in these firms are
irregular because their different
founding times.
4. Managerial intentionality of the latecomer
firm in the emerging market evolves along
with the changing of managerial logics at the
macro- level environment. Micro-
coevolution 5. In the emerging market, managerial
intentionality of the latecomer firm dominates
joint evolutions between the organizational
form and combinative capabilities.
1. Coevolutions among actors do not
happen concurrently, but lag to respond
to changes of corresponding actors.
2. Managerial intentionality of the firm
dominates the microcoevolution in
three firms, while the case of CSMC
only showed slightly evolving changes.
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Compared with the development history of CSMC, those young established
latecomer firms, such as HHNEC and SMIC, enjoyed more solid institutional supports
and technological development directions in a more open context (Table 5.10 and Table
5.11). In terms of the coevolutionary perspective, without evolution at the macro-level,
development of latecomer firms and affiliated industries could not have grown through
windows of opportunities initiated by institutional changes, nor have found external
support from other developed rivals to introduce new technologies and service in the
emerging market.
Managerial intentionality of the latecomer firm is the main moderator between
macro- and micro- coevolutions of the firm in our conceptual model. It reflects the
strategic choice perspective, that decision making and mindsets of top executives in the
firm can select their responses to the changing external environment, especially in the
emerging market, as it transits from personal connection focus toward contract-based
environments (Child, 1972, 1997; Miner, 1994; Peng, 2003; Peng & Luo, 2000). In our
analysis, only HHNEC experienced significant change of managerial intentionality in the
period of conversion to become a foundry player (Table 5.10), while SMIC and CSMC
maintained stable top executive teams for years. The stable managerial intentionalities of
these two firms made their organizational forms more stable, allowing them upgrade their
combinative capabilities to satisfy their business directions and compete with other
leading rivals. (See also Table 5.9 and Table 5.11).
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Unlike the case of HHNEC that changed the structure of ownership also followed by
changing business directions and top executive team, business directions of CSMC and
SMIC does not change because of their new structures of ownership after public listed.
Both CSMC and SMIC become public listed companies in 2004 that not only help them
to secure financial and social capitals for expanding product capacities and upgrading
technologies, but also bring new stakeholders through such new structures of ownership.
Even the structure of ownership of the firm is a major concern during the economic
transition of these emerging markets (Huang, 2003; Park, et al., 2006), however,
discussions about catching up of latecomer firms seldom put it into consider. The case of
HHNEC inspired us that different structures of ownerships, especially those relevant with
changing top executives, may influence managerial intentionality of the firm and its
corresponding microcoevolutions. In terms of coevolutionary perspective, we argue the
effect of changing ownership structure should also be put into account for future research
and discussions.
In this study, we consider all propositions are supported but not as solid as one may
expect from the quantitative analysis with large sample sizes. Our conceptual model and
cross case analysis show catching up of latecomer firms in the emerging market could be
examined by the coevolutionary perspective that complement arguments based on the
institutional or technological capabilities approaches.
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6. CONCLUSIONS
6.1 Research Findings
Growing opportunities in emerging markets attracts attention, both from in their
domestic industries and from foreign firms. How those latecomer firms become
competitors with foreign rivals is also a major concern for firms in those transition
economies and other developed countries. While traditional arguments based on a single
lens attempted to explain catching up of latecomer firms in the developing countries, this
study used the coevolutionary perspective to develop a multiple lens approach to explore
catching up of latecomer firms in the emerging market. Corresponding to our research
questions, we can summarize our findings as follows.
1. How do latecomer firms in the emerging market catch up?
Through our analysis, we found latecomer firms in the emerging market catch up
along with the changing macro-environment, and adjust themselves through internal
evolution of the firm over time. Even coevolutions within and beyond these firms’
boundaries were not happen concurrently, these evolutions have made those latecomer
firms to enhance technological capabilities and to expand product profiles for catching up.
Similar macro-level environment led those latecomer firms to enjoy institutional support
to pursue guided technology development, with inflow of experienced talents to help
their operations, with evolving management logics more inclined to the capitalist market
system.
On the other hand, microcoevolutions of those latecomer firms also occurred in
organizational forms and combinative capabilities through the direction of managerial
intentionality of firms. Essentially, those firms are all close to the mainstream
technologies through upgrading technological capabilities and expanding their production
capacity over years. Alternatively, we found that the managerial intentionality dominated
development paces and track of those latecomer firms, which may cause lagged
101
coevolution, especially in the case of CSMC (see also Table 5.9).
2. How do we construct our conceptual model in terms of coevolutionary
perspective?
To synthesize arguments from the coevolutionary perspective and existing literature
about catching up of latecomer firms, we first reviewed literature, and found only a few
papers mentioned coevolution in the transition economies (Suhomlinova, 2006), which
shows our research could fill the existing gap between these two fields. Next, we
identified various actors from literature and consider the phenomena we observed about
catching up of latecomer firms in the emerging market, then selected building blocks and
classified them into macro- and micro- levels to develop our conceptual model and
corresponding propositions accordingly.
Concerning the nature of coevolutionary perspective, even though our proposition
may assume some causal mechanisms between building blocks of our conceptual model,
one needs to be aware that such causal linkages could not completely reflect the real
complexity across different constituents, because different perspectives and research
inquiries may deliver different causal mechanisms (George & Bennet, 2005; Lewin &
Volberda, 1999, 2003). In this study, we used cross case analysis through the triangulation
of company material, data from industry associations and previous literature to examine
our propositions, according to evolutions of different actors in our conceptual model.
3. What could we learn through using the coevolutionary perspective to examine
catching up of latecomer firms in the emerging market?
Coevolution of institutional change and technology development in the emerging
market has been proved through our analysis, which supports previous arguments about
coevolution between institutions and technology (Nelson, 1994a, 1994b). Our analysis
not only shows coevolution exists in the transition economies, but also confirms
institutional changes in the transition economy as the major trigger for its industrial
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coevolution and economic development. Deregulating market systems and changing
transaction approaches in the emerging market mean that we cannot expect those
latecomer firms to run as SOEs have done before.
Therefore, concern about evolution at the private firm level is necessary to better
identifying how they respond to the changing external environment for catching up. In
this study, we considered catching up of latecomer firms in developing countries and the
nature of the emerging market to construct building blocks for the microcoevolution of
our conceptual model.
Through elaborate triangulation of data from our cross case analysis, we found some
other factors for catching up of latecomer firms in the emerging market that have less
been discussed in previous works. For example, even though all three cases have
experienced different changes in the structure of ownership, that made the most
significant change in the microcoevolution of HHNEC. On the other hand, even through
HHNEC and CSMC come from national projects, they have different development tracks.
We consider these differences not only because of their differences in the structure of
ownership, but also in their managerial intentionalities. These cases inform us that the
structure of ownership, managerial intentionality, and their coevolution may play crucial
roles for catching up of latecomer firms in the emerging market. This extra finding
suggests that there may be some linkages between the structure of ownership and
managerial mindsets of the firm, and should be an interesting inquiry for future research.
In the study of population organization, organizational selection made organizational
forms move become isomorphism (DiMaggio & Powell, 1983; Hannan & Freeman,
1989). From our analysis, we also found organizational isomorphism in these Chinese
foundry firms; all three cases pursued the mainstream 8” and higher wafer size
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fabrication capacity to catch up with leading competitors.51 Otherwise, we also found
international organizations and foreign industry associations in other countries, such as
WTO and SIA, to be coercive forces to make China government to adjust incentive
mechanisms designed for the domestic semiconductor industry to respond to those
external changes, and follow the existing rules of the game in the worldwide
semiconductor market. These coercive forces made our cases, and other semiconductor
firms in China, encountered some difficulties in accessing new technological vendors,
and postponed their pace of catching up with foreign rivals, at least in the short run.
In our study, evolutions among different actors within the firm did not appear
concurrently, as in the macro-level environment. We found those lagged responses may
be attributed to managerial intentionality of the firm. Rather than considering the firm as
a passive actor in the catching up, we also emphasized that the mindsets and decision
making of the top executive team in the microevolution of the firm, which supports
arguments of strategic choice and coevolutionary perspectives that we reviewed. Our
findings show that managerial intentionality dominated the internal evolution within the
firm along with the changing external environment.
As Figure 6.1 shows, the major contributions of this study include the development
of a new conceptual model by synthesizing different knowledge and examining catching
up of semiconductor latecomer firms in China. This study is the first work that developed
a multiple-level perspective to explore phenomena happening in the transition economy.
We believe phenomena happen in the emerging market are more than new arenas for
validating theories and arguments developed in Western and NICs, but can develop some
new observations and insights from their contextual variations. This research is just a
beginning to stimulate more dialogues and discussions to consider catching up of
51 CSMC moved into 8” wafer fabrication capacity in 2006, before that it solely concentrated on the domestic mainstream market in 5” and 6” wafer fabrication.
104
latecomer firms in different markets, and bring new insights for refining the
coevolutionary perspective.
Figure 6.1 Research Summary
Note: The dotted lines show the theoretical background we used to develop our
conceptual model. The bidirectional arrows indicated interactions between our research
and previous works.
6.2 Theoretical Implications
Coevolution between institutions, technology, and organizations toward economic
change is the most significant example for applying the idea of coevolutionary
perspective at the macro level; however, interactive evolutions among those constituents
were examined without identifying differences of the contexts they were embedded in
(Nelson, 1994a, 1994b; Rosenkopf & Tushman, 1994). This dissertation is the first
research that synthesizes the ideas of coevolutionary perspective to examine catching up
Catching up of Latecomer firms
-Technological capabilities approach
-Institution driven approach
-Developed from experiences of
NICs, Japan, and Korea.
Coevolutionary perspective
-Environment vs. organization
-Macro- and micro- coevolutions
Catching up of latecomer firms in
the emerging market: a
coevolutionary perspective
1. Developing a new
multiple–level conceptual
model.
2. Applying that new model
to a new inquiry.
3. Analyzing the
phenomena through a
new perspective.
4. Finding some issues that
were less emphasized in
previous works.
This research:
105
of the latecomer firm in an emerging market.52
The macrocoevolution of our conceptual model based on the context of the
emerging market shows the extent to which effects of institutional changes on other
constituents may diminish along with the passing of time and the opening of the market.
This finding suggests firms are aware of contextual variations in the coevolution they are
embedded in (Dijksterhuis, et al., 1999; Van de Ven, 2004). Alternatively, while the role
of managers in the evolution of the firm has been examined intensively, only a few works
concern the interactions between management logics at the macro level and the firm’s
behaviors.53 In this research, we first considered the interactive coevolution between
management logics and managerial intentionality, and argued this kind of coevolution
could also be used to examine how different management theories and practices interplay
with the mindsets of managers in different contextual variations, for future research.
In the microcoevolution part of our conceptual model, catching up has been treated
as the collective result of managerial intentionality, organizational form, and combinative
capabilities, rather than just the result of organizational learning. That not only informs
the complexity at the micro level, but also shows a different conceptual connection,
which may stimulate new thinking about organizational learning in the latecomer firm.
While the idea of coevolution has been taken into account in various theoretical
arguments, we brought it into a new context, in which intensive interactions appear
between transition economies and their members (firms and managers) (Mathews, 2002;
Winder, et al., 2005; Wright, et al., 2005). Our explorative research based on the
coevolutionary perspective provides an integrative framework to analyze catching up of
domestic latecomers in the transition economies, beyond the traditional analyses used in
52 As we mentioned in the early part of this work, only Rodrigues & Child (2003) and Suhomlinova (2006) researched the emerging market in terms of the coevolutionary perspective, but without focusing on the catching up of latecomer firms. 53 Some representative works can be found in Boeker & Wiltbank (2005); Dijksterhuis, et al., (1999); Miner (1994); and Shapira (1994)
106
studying catching up of latecomer firms, which mainly used perspectives of institutional
change and upgrading of technological capabilities.
Because the coevolutionary perspective in organization and management studies is
the theoretical background upon which this research is based, theoretical implications of
this work also have close relevance in the field of management and organization studies
(Aldrich & Ruff, 2006; Durand, 2006; Lewin & Volberda, 1999; Nelson & Winter, 1982).
At the microcoevolution level of our conceptual model, combinative capabilities of
latecomer firms were used to integrate capabilities learned from various sources.
Borrowing the idea of Hodgson & Knudsen (2004), the latecomer firm could also be
treated as an integrator that works as a carrier for habits and routines to catch up with
preemptive incumbents, and it would be interesting to explore one latecomer firm
through that analog. While discussions of the coevolutionary perspective in management
studies have mentioned the interactions between capabilities and transaction costs or
between firm capabilities and industry competition, the future direction of this kind of
analysis could also consider latecomer firms in the emerging market. Especially, this new
example may represent a unique and context-specific context about how latecoming
integrators synthesize habits and routines that may be replicated or selected from leading
rivals (Huygens, et al., 2001; Jacobides & Winter, 2005; Nelson & Winter, 1982; Teece,
2000).
Studies of organizational evolution are about processes of variation, selection, and
retention within the organization, and different stages may reflect the competing results
between organizations in their respective lives (Baum & McKelvey, 1999; Baum & Singh,
1994a). In that perspective, catching up of the latecomer firm could also be examined as
to how a firm selects from among various rivals to imitate, obtains what it lacked in the
first place, then recombines new knowledge with its existing knowledge and resources
for survival in the market. While sources for compensating for their disadvantages are
107
mainly leading rivals, how latecomers cooperate and compete with those leading partners
concurrently remains an interesting concern for studies of both organizational population
and/or competitive dynamics in the niche environments they are embedded in. The entry
of latecomer firms brings disequilibrium to the industry ecosystem they are embedded in,
and may raise windows of opportunity both for incumbents and for latecomers
collectively.
Generic discussion about evolutionary theory in social science seldom differentiates
the nature of species (firms), but uses variation, selection, and retention to describe
changes in their development. In this research, we do not describe the coevolutionary
process by these kinds of events, but by using pair comparison to compare changes
between different building blocks in our conceptual model over time.We admit the
importance of these critical events, and note that these three stages appear concurrently in
different constituents of our conceptual model.
From the perspective of knowledge-creating theory, we could consider catching up
of the latecomer firms as the upgrading of latecomer firms’ knowledge through the
organizational learning both within (exploitation) and beyond the boundary of the firm
(exploration) (Kim, 2000; Lewin, et al., 1999; March 1991). That also reflects interactive
evolution between the knowledge spiral of the latecomer and its changing external
environment (Nonaka & Takeuchi, 1995). Because knowledge could not be isolated from
actors and context it embedded, that interdependence between the environment and
knowledge could also be recognized as a coevolution between knowledge spiral and the
Ba those actors embedded. Such an analog shows new directions to expand applications
and arguments of knowledge-creating theory in different fields, such as how do actors
with less knowledge assets in a bounded Ba upgrading their quality and capacity of
knowledge assets? And how coevolution between tacit and explicit knowledge happen
within and beyond the organizational boundary?
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6.2 Practical Implications
The source of economic change comes neither from technology development nor
institutional change, but from the integrated result of demography of humans, stock of
knowledge, and institutional change collectively (North, 2005). Therefore, catching up of
the latecomer firm in the emerging market could not simply be achieved by institutional
support, or just by efforts toward technological upgrading of the firm, especially in a
more connected and dynamic economic world (Baum, 1994a; Lewin & Volberda, 2003;
Mathews, 2002a, 2006a). Managers in latecomer firms should develop their catching up
opportunities, rather than depend on institutional changes or assume they can upgrade the
firm’s technological capabilities independently. They need to consider their catching up
from multiple perspectives interdependently.
Our analysis reminds policy makers in the emerging market to consider the
dynamics beyond their borders, and remember industry development in their domestic
market is not just their own business, but may be intensively related to other foreign
countries and relevant international organizations, especially while the market growth of
these transition economies plays a critical part in world economic development.
Similar to previous experiences in NICs, learning through imitation remains the
important approach for latecomers in the emerging market to compete with leading
incumbents, however, it is not a panacea, but a temporary solution for sustaining
latecomer firms’ positions in such a hypercompetitive environment (D’Aveni & Gunther,
1994; Lieberman & Asaba, 2006; Makadok, 1998; Volberda, 1996). Consequently,
latecomer firms also need to identify the proper position they want to have in the industry
ecosystem, and respond to the changing external environment correspondingly.
While potential market growth and cost advantages in labor force are the main
reasons for an emerging market to attract foreign capital and brain gain to help their
industrial development, government in the emerging markets should also remember not
109
to become overly dependent on those external sponsorships, but to establish
independence in technologies or managerial practices for domestic industries and firms.
For example, the China government has emphasized the indigenous innovation as one of
the major goals for its Eleventh Five Year Plan. We believe emergence of that
independence will be explained as one of the major criteria to judge whether latecomers
can really conquer those first movers and secure a more stable position in the worldwide
market.
6.3 Future research
As an initial step to discover the details of catching up of the latecomer firm in an
emerging market through the coevolutionary perspective, this dissertation opens many
possible directions worthy of further development.
The most obvious one is to overcome the difficulty of data access to expand the
number of cases and secure more informants, to further consolidate or weaken
propositions and arguments we proposed. Also, people may like to examine our argument
in different industries or in different emerging markets to examine the generalizability of
our conceptual model. For example, one may consider our conceptual model to examine
other firms in China’s information technology and energy industries, or those with high
potential to compete with leading firms in other countries (Lanzonik, 2004; Zhang,
2004).
Another interesting direction is to collect quantitative data for analyzing
organizational ecology and competitive dynamics in those latecomer firms, or between
latecomer firms and leading incumbents. We believe these analyses could provide more
empirical and quantitative results to represent competitive dynamics of those latecomer
firms in the emerging market, and compare them with leaders (e.g. Baum & McKelvey,
1999; Baum & Singh, 1994). For instance, Baum (1999) derived Kauffman (1993)’s NK
110
[C] model to see coevolution as the fitness landscape of different agents, to simulate
different strategies for whole-part coevolutionary competition. McKelvey (1999) also
used a similar model to address strategies in complex organizational interdependencies
that may expand our understanding about the competition between latecomers and
leaders. To do this kind of analysis, calls for more accurate data from the field and
requires people to collect first hand quantitative data about evolution of latecomer firms
and industries.
Nishiguchi (2001) considered symbiosis and exploitation mechanisms to describe
the coevolution of interorganizational relationships through outsourcing practices. In fact,
semiconductor foundry industry can also be recognized as an outsourcing partner for
fabless companies (Brown & Linden, 2005). Therefore, future research targeted at
semiconductor foundry firms may also consider how a semiconductor foundry firm
coevolves with its upward or downward players in the semiconductor industry value
chain, and vice versa (Brown & Linden, 2005; Chang & Yu, 2001). Similar research
directions may target other industries as well. We believe it would be exciting to expand
our understanding about industry dynamics in terms of the coevolutionary theory
perspective.
For entering emerging markets, foreign capital mainly uses indirect approaches,
such as joint ventures, licensing, or contracting (Huang, 2003; Zweig, 2002). These
indirect methods may raise arguments about whether and how the changing of the
structure of ownership between SOEs and foreign firms impacts catching up of their joint
venture in the emerging market. In our case, HHNEC was initially treated as one of the
overseas subsidiaries of NEC; people may wonder whether the intention to change into a
foundry business was a subsidiary initiative from HHNEC itself or followed the
instruction of NEC, Japan, and how that initiative worked (Birkinshaw, 2000). While this
dissertation uses essentially the coevolutionary perspective to examine catching up of the
111
domestic latecomer firm in an emerging market, our research treated that latecomer firm
from the standpoint of the domestic firm in the emerging market and analyzed it as an
individual agent, without taking the dynamic of ownership into consideration. However,
we believe the discussion about the evolving interaction between the foreign firm and the
SOE in the transition economy is worth further examination.
Our cross case analysis also showed different structures of ownership and
managerial intentionality of individual firms may further dominate the progress of their
catching up. Future research could focus on how these changes really work and how they
related to the performance of firms, or to the economic development of the transition
economies.
The idea of the coevolutionary perspective is pervasively used in various research
topics, and we expect that the next big question will not be a debate between adaptation
and selection or whether organization or environment determined one firm’s destiny, but
rather how organizations to coevolve with different actors to maintain their competitive
advantages and survive in such a dynamic environment.
112
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APPENDIX
I. Milestones of CSMC, 1997-2006
Time Event
2006
The first 8” wafer fab is going to be established through the strategic partnership with technology partners, target at
0.35-0.18µm process technologies.
2005
Cooperated with IMECAS to set up a new 6” wafer fab with a capacity of 20,000 pieces per month in Beijing.
Launched 0.35µm process and adopted DMOS technology for mass production.
2004 Listed on the main board of Hong Kong Exchange on August 13.
2003
Completed an US $ 52.2 million private placement.
Restructured to form wholly foreigner owns holding company-CSMC Technologies corporation.
Acquired 0.35µm, 6” production line equipment from Agere.
Established strategic partnership with Chartered Semiconductor Manufacturing Ltd., Singapore.
2002 Average monthly utilization achieved 96%; Fab 1 was ISO14001 and OHSAS 18001 certified.
2001 Transited of the mainstream target market from 5” into 6” wafer and achieved mass production level.
1999 Operating breakeven after 15 months
1998 Leased 5” and 6” wafer production facilities lines from China Huajing Electronics Group Company.
1997 Founded by Dr. Peter Chen, he is also the founders of Mosel-Vitelic Inc., Crosslink Technology Partners, and AboveNet.
Source: Company website (http://www.csmc.com.cn) and company presentations.
136
APPENDIX
II. Milestones of HHNEC, 1997-2005
Time Events
November, 2005 Monthly capacity in 8” wafer successfully achieved 50,000 pieces
October, 2005 0.18µm process technology into mass production
September, 2005 Dr. Wang Ningguo elected as the Chairman of the Board of Directors
August, 2005
0.35µm HV 14V CMOS process released to production; Successfully developed 0.25µm Embedded eFlash
Memory
July, 2005 0.18µm mixed signal process released to production
June, 2005 0.25µm eFlash, 0.18µm Logic & HV processes ready for mass production
May, 2005 Fab 2 started operations
March, 2005 0.35µm OTP process released for mass production
October, 2004 0.25µm RF CMOS process went into production
September, 2004
Establishment of Industrial Engineering Department and renaming the Planning & Purchasing Department into
Purchasing & Logistic Department.
July, 2004
Changed the registration of company; Shanghai Huahong (Group), NEC, NEC (China), Newport Fab LLC,
Shanghai Huahong International, Shanghai Belling,. and Shanghai Zhangjiang Group become the shareholders
June, 2004
Shanghai Belling and Shanghai Zhangjiang Group become the shareholders by exchanging the facilities of
Beiling-Zhangjiang 2nd factory (Fab 2); accredited the development projects for the second generation ID Card
and high-power MOS Process.
April, 2004 Restructuring internal organizational form into 19 departments
October, 2003 Established new strategic partnership with Jazz Semiconductor (U.S.A)
June, 2003 0.33µm eFlash process went into production
October, 2002 Power MOS manufacturing process into production
April-May, 2002 ISO 9001, ISO 14001 certified by BSI
March, 2002 Converted into the pure foundry player
November, 2001 The first full service, customized SPC exchange IC was successfully developed and into volume production
January, 2001
The first co-developed chip with its customer for the Social Security Card successfully went into mass production;
began foundry service to local clients
November, 2000 Monthly wafer capacity achieved 20,000 pieces
September, 2000 0.25µm Logic/Mixed Signal processes into mass production
July, 2000 0.18µm DRAM process began production ramp
January.-June, 2000 0.35µm Logic/Mixed Signal/EEPROM process went into mass production
May, 1999 0.35µm DRAM process began mass production
February, 1999 8” wafer fabrication line started its pilot run
June, 1997 Founding of HHNEC, a joint venture between NEC, Japan and Hua Hong Group, China
Source: Company website (http://www.hhnec.com.cn) and company presentations.
137
APPENDIX
III. Milestones of SMIC, 2000-2005
Time Event
2005
Groundbreaking of Chendu packaging and testing facilities on January.
Fab 4 (12” wafer) into mass production on March.
Equipment move in Fab 7, a joint venture with Toppan, Japan on September.
Chedu AT2 and Fab. 9 enter pilot production on December.
2004
Acquired Fab 7 (original owned by Motorola China) in Tianjin on January.
Awarded ISO/TSI 16949 certification on February.
Dual listed IPO on Hong Kong Stock Exchange and New York Stock Exchange on March
12” wafer production equipment move in for Fab 4 on June and enter into pilot production on July.
2003
Started 0.13µm cooper back-end pilot production on January.
Fab2 and Fab 3B awarded ISO 9001 certification on March.
Awarded OHSAS 10081 certification on September.
2002
Fab 1 moves into mass production on January.
Awarded ISO 9001 certification on August.
Fab 2 and Fab 3B move into mass production on September and awarded ISO 14001 on December.
Established Japan office and constructed for the fab in Beijing.
2001 0.18µm process qualified on December.
2000 Founded by Dr. Richard Ru Gin Chang
Source: Company website (http://www.smics.com.cn) and company presentations.
138
Profile
陳德釗 / Der Chao Chen
Research Interests
Industry evolution, strategic management, technology management, strategies and organizations of
multinational corporations, knowledge creating theory/ knowledge management, organization studies.
Education
2004-2007 PhD in Knowledge Science, Japan Advanced Institute of Science and Technology,
Japan.
1995-1998 MBA, National Central University, Taiwan.
1992-1995 BA in Library and Information Science, Fu Jen Catholic University, Taiwan.
1987-1992 Diploma in Industrial and Engineering Management, St. John’s and St. Mary’s
Institute of Technology (renamed as St. John’s University in 2005), Taiwan.
Working Experiences
2002-2004 Managing Editor of CompoTech (renamed as CompoTech Asia), Look Publication
Inc., Taiwan.
2001-2002 Industry Analyst for Center of Semiconductor Industry, Topology Technology Inc.,
Taiwan.
2000-2001 Project Manager/Knowledge Analyst, IQ China Technology Inc., Taiwan,
1999-2000 Associate Researcher, The World Economics Society, Taiwan.
1997-2001 Patent Interpreter, contract work, Lee & Li Attorney at Law, Taiwan.
Publications affiliated with JAIST
Refereed Journal Article
Chen, D. C. & Toyama, R. (2006). Catch up of semiconductor latecomers in China.
International Journal of Emerging Markets. 1(3), 247-261.
Book Chapter
Chen, D. C. (2009/2010). Catching up of semiconductor foundry players in China: A
coevolutionary perspective. In S. Singh (Ed.), Handbook of Business Practices and
Growth in Emerging Markets, Singapore: World Scientific Publisher. Working in
progress. (Invited by the Editor)
139
Conference Presentations
Yao, H.-I., Chen, D. C., & Khong, K. W. (2007). Effectiveness of customer relationship
management on consumer behavior and customer satisfaction on the internet banking: a
conceptual model. Paper presented at INFORMS Marketing Science Conference, 28-30
June, 2007, Singapore.
Chen, D. C. (2007). Knowledge creating theory: past, present, and beyond. Paper presented at
NTUT Business Management Conference, June 16, 2007, Taipei, Taiwan. (refereed;
CD-ROM)
Chen, D. C., & Toyama, R. (2006). The catch up of latecomer firms in the transition economy:
the coevolutionary perspective. Paper presented at Third Annual JIBS/AIB Paper
Development Workshop, June 23, 2006, Beijing, China. (In English; sponsored by the
JAIST Foundation Research Grant for Students).
Chen, D. C. (2006). Catch up of latecomer firms in the emerging market: The coevolutionary
theory approach. Paper presented at AIB 2006 Chinese Doctoral Consortium, June 22,
2006, Beijing, China. (In Chinese)
Chen, D. C., & Toyama, R. (2005). Coevolution of the Firm in the Transition Economy. Paper
presented at Asia-Pacific Researchers in Organization Studies 11th International
Colloquium, December 4-7, 2005, Victoria University, Melbourne, Australia. (Also appeared
at Proceeding of Asia-Pacific Researchers in Organization Studies 11th International
Colloquium, pp. 158-166) (In English; sponsored by the JAIST Foundation Research Grant
for Students)
Chen, D. C., & Toyama, R. (2005). Catch up of latecomer firms in the emerging economy. Paper
presented at The 2005 International Conference in Management Sciences and Decision
Making, June 18, 2005, Tamkang University, Taipei, Taiwan. (In English; CD-ROM)
Chen, D. C., Kameoka, A. & Toyama, R. (2005). How Taiwan fabless firms use technology
roadmap in product development: A preliminary study. Paper presented at PICMET 2005,
July 31- August 4, 2005, Portland, U.S.A. (CD-ROM)
Chen, D. C. (2004). Understanding the entrepreneur’s knowledge complex: A knowledge
management approach. Paper appeared at Proceeding of CIMOC Inaugural
Symposium, 2004, pp.433-447.