Alliance Capitalism, Innovation and the Chinese State

The Global Wireless Sector

Victoria Higgins

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137529657
• Topic: Politics & International Relations
• Subtopic: Trade & Tariffs
• Index: Politics & International Relations

This book analyses how key 'systems integration' technical pressures, and the increasing use of collaborative alliances for market and product development are impacting on the socio technical policy directives of Chinese State leaders and the strategic behaviour of key Chinese high technology firms operating in the global wireless sector.

1

China’s New Alliance Capitalism and the Case of the Wireless Communication Sector

Hailed as an economic miracle, the People’s Republic of China (PRC) has become a key example of state-led, market-oriented global economic reform (Enright, Scott and Chang, 2005:1). The virtues and shortcomings of China’s economic rise are touted by economists and policymakers worldwide. For some, the economic re-emergence of the Chinese nation is one of the most significant events to occur in modern history (OECD, 2006). For others: “China is an object lesson in the threat that centralised, authoritarian states pose to revolutionary technological development” (Freeland, 2010).

It is certainly undeniable that since the inauguration of economic reforms in 1978, with Deng Xiaoping’s “Open Door Policy”, China’s economic performance has been unprecedented in “speed, scale and scope” (Pei, 2006:143). This policy has been a pragmatic economic reform program, revolving around the need to generate capital resources to finance the modernisation of the Chinese economy. It encouraged the formulation of rural enterprises and private businesses, liberalised foreign trade and investment, relaxed state controls over some prices, and invested in industrial production and the education of its workforce (Pei, 2006:2).

Three principal factors have influenced the process of post-Mao economic reform in China. These are its focus on path dependency, developmental style state-led industrialisation, and the reinvention of the Chinese Communist Party (CCP) and its monopolistic hold on power. Piecemeal social engineering in the formative stages of market transition led the central state inexorably to oversee institutional changes to establish a modern legal-rational bureaucracy. Although the state remains structurally vulnerable to rent seeking, it gained the organisational capacity to institute and enforce rules critical to the emergence of a hybrid market economy (Enright, Scott and Chang, 2005:1).

The growth of the Chinese economy since the onset of reform has averaged 9.1% per annum income and GDP has quadrupled in the last 15 years (Enright, Scott and Chang, 2005:1). China’s economic development has lifted more people out of poverty than in any other nation in a comparable time frame (Enright, Scott and Chang, 2005:1). This impressive growth is a direct product of a flourishing labour-intensive domestic manufacturing industry, which has made China “a world factory of low cost goods” (Bell and Feng, 2006:53).

However, it is not the objective of Chinese state leaders to build just another workshop to fulfil the consumption aspirations of the developed world. To the contrary, China’s leaders are intent on flying aeroplanes made in Shanghai, using computers designed and built in Beijing and driving automobiles that have been manufactured in Guangzhou (Thun, 2006:3). Indeed, an elite consensus, it seems, has crystallised around the full-scale mobilisation of resources for technological catch-up and for architectural platform leadership in the next generation of high technologies. Hence, “Innovation with Chinese Characteristics” has become a new mantra that serves to frame the science and technology policymaking directives of government authorities in the twenty-first century.

It is important to note here that the exact tenants of this “grand innovation” and “high-technological development strategy”, specifically, its “go-it-alone” technological development strands, have been the subject of significant revision since its initiation in 2006 as the government of China adapts to both socio-technological systems change and geopolitical bargaining processes. For instance, early versions of the Chinese government’s innovation development plan were issued in 2006 and primarily operated from the assertion that the ability of the Chinese nation to transcend its position as a low-cost producer of modular, undifferentiated manufactured goods in the global economy and become a high-tech, innovative knowledge economy required the construction of a sophisticated indigenous technology base, capable of challenging the economic and technological supremacy of foreign multinational companies (MNCs). This policy direction can be seen exemplified by the launch of the January 2006 “National Medium and Long Term Program (MLP) for Scientific and Technological Development” (S&T) (2006–20). The MLP (2006–20) called for China to become an “innovation-oriented society” by the year 2020 and a world leader in S&T by 2050. It committed China to developing capabilities for “indigenous innovation” (zizhu chuangxin) and to leapfrog into leading positions in new science-based industries by the end of the plan period.

However, whilst it is unarguable that the plan contained a distinctive techno-nationalistic thrust, it was also defined by concern about the ability of the Chinese nation to accomplish its key technological development goals on its own. For example, the plan acknowledged that the Chinese S&T system was defined by a number of shortcomings. Specifically, it was asserted that the innovative capability of Chinese enterprises was “weak”, the S&T sector too compartmentalised, and management of the S&T system was “terribly uncoordinated”. It also conjectured that the system failed to award high achievers or encourage innovation more generally. Hence, the plan concluded that China’s indigenous innovation and technological development process would need to be supplemented with international cooperation (Kennedy, 2013). Indeed, as this book will highlight, due to domestic and international political lobbying, the complexity and cost of technological innovation and the increasingly networked and relational nature of contemporary global innovation and production networks, technological development programs in the global wireless communication sector launched by the Chinese government that were overtly “go-it-alone” and “techno-nationalistic” have essentially failed.

Indeed, it is becoming increasingly clear that in this next round of technological development the existence of critical ecosystem dependencies in many high-technology sectors is facilitating a shift towards a more collaborative, alliance-based socio-technological development paradigm. As a direct consequence, the strategic behaviour of high-technology actors, including firms and governmental policy actors, is currently being reframed from “go-it-alone, techno-nationalistic” policy agendas to more “open globalised co-development models”. This is because in the contemporary socio-technological environment “go-it-alone” and “indigenous development agendas” with a techno-nationalistic orientation are unable to develop the necessary relational ties and ecosystem embeddedness necessary for the development and commercialisation of high-technology assets.

Certainly, as this book will highlight, the rapid pace of technological change and the increasing organisational and relational complexity of doing business in these high-technology sectors make it impossible for a single company – or even a single nation – to compete without technological, financial and organisational collaboration. What I want to emphasise here is that the ways in which contemporary high-technology sectors are both nested within and are highly dependent on complex crisscrossing infrastructures, combined with the rapidly accelerating pace of technological change at multiple levels, indicates that “technology” itself is a “major agent” of both “system change” and “structuring” in the contemporary socio-technical system. Specifically, the concepts of “convergence” and “interoperability” are “key structural change drivers” that facilitate the development of these critical ecosystem dependencies and play a fundamental role in shaping the behaviour of system actors and hence need to be accounted for in theoretical and empirical modelling. This is because in order to participate in the global networks and sectoral systems that comprise the contemporary socio-technical system, actors need to develop technological innovations that possess the ability to converge or interact with other firms’ products. Furthermore, the ability to ensure “convergence” and “interoperability” is highly dependent on the capacity of firms to access globally dispersed scientific and technical knowledge sources and to generate long-term networked relational ties with other system actors.

However, this does not mean that actors are unable to shape their environment in order to develop or appropriate high-technology assets. To the contrary, the need for technical infrastructure and products that are designed to ensure system “convergence” and “interoperability” means that innovative technological development is defined not just by spontaneous evolution and organisation but also by directed and coordinated organisation by goal-oriented system actors. That is, technological sectors, their supportive structures, technology-specific institutions and corresponding ecosystems are primarily the result of deliberate actions and policy choices made by innovating system actors. Moreover, because the contemporary socio-technological environment is defined by the need for “interoperability” and “ecosystem embeddedness”, the sets of policy choices open to innovating system actors are framed by the need to ensure the development of both relational assets and collaborative technological development at multiple levels and with multiple actors.

As a consequence, the outline of a policy shift towards a more collaborative, innovation-based, high-technology development plan is emerging in China. Whilst the exact parameters of this policy framework are in its early stages, its overarching thrust is structured around the need to develop the necessary institutional, organisational, relational and research and development (R&D) capabilities in order to facilitate the access of Chinese firms to the contemporary global economies horizontally networked, geographically dispersed and increasingly partnered innovation networks and processes.

Key objectives

The primary goal of this book is to highlight how technological change and global systems integration via the development and proliferation of scientific and organisational innovation networks, the occurrence of critical ecosystem dependencies and the emergence of new forms of collaborative architecture are generating a fundamental shift towards a more alliance-based model of capitalist organisation.

In this book the strategic response of the Chinese government and its key domestic firms to the emergence of this more collaborative, alliance-based, socio-technological economic system will be examined. The empirical focus here will be on the 3G and 4G wireless technology sector. It is important to note here that whilst it can be argued that this more alliance-based form of capitalism is also evident in a number of other sectors such as aerospace, biotechnology, nanotechnology, the automobile sector, and the information and computer technology sector (ICT), the focus of this book is confined to the global wireless communication sector. Specifically, this book will highlight how, in order to participate in the development of the 3G and 4G wireless ecosystem and gain core technology and market share, the Chinese government has undergone a shift in its political agenda, technological focus and R&D expenditure allocations. I will highlight how the government of China has changed its technological development approach and moved away from its earlier techno-nationalistic, indigenous, innovation development agenda in the sector and sought to forge and reinforce far-reaching global alliances with foreign and domestic multinationals.

Beyond the earlier foreign direct investment (FDI) and techno-nationalist strategies, this new development strategy can be conceptualised as the “third major attempt” by the Chinese government to employ an effective technology development strategy in China. The new strategy’s key strength is the way in which it endeavours to reconcile the prominent Chinese New Left faction’s techno-nationalistic ambitions with the liberal desire to utilise the contemporary globalisation process as a mechanism to facilitate growth and technological innovation-oriented upscaling. It is essentially a “third way” whereby the state’s strategic control over the globalisation process is modified in a way that utilises socio-technological systems change to ensure that the interests of global firms are actually integrated and embedded into the Chinese high-technology developmental strategy. In this book, I will term this third strategic attempt to achieve high-technology-based development “globalised adaptive ecology”. By this, I mean that Chinese policymakers have adopted a globalised adaptive approach to high-technology upscaling that is both responsive to the fact that contemporary technological knowledge is located in multiple knowledge zones and technical ecosystems, and the fact that these are highly changeable and can be shaped and structured by goal-directed system actors. By seeking to exploit the way in which globalised technological ecosystems adapt and change over time, with their continuous shedding and need for new participants, Chinese policymakers for the first time have been able to create a platform for the nation to achieve high-technology upscaling and innovative product development on a global scale.

In this new model of Chinese technological development, a dynamic model of market competition and cooperation directs firms towards more flexible quasi-market cooperation models that are designed to enable them to experiment with new ideas, pre-competitive market construction and product markets in a lower risk regime. The parameters of this new technological policy program are its emphasis on a hybrid mixture of ownership and corporate governance patterns as well as a set of aggressive policies designed to foster alliances and co-development platforms with global leaders in industry and R&D (Ernst and Naughton, 2008:40).

The overarching result has been the increasing internationalisation of the Chinese state and its domestic firms into trans-territorial technological ecosystems and knowledge zones. The success of this strategy has been highly dependent on the ability of state leaders to move beyond contentious bargaining frameworks where the overarching goal was to secure respective sectoral and industry concessions for Chinese domestic firms and its replacement with a more collaboratively oriented model of co-development that focuses on achieving win-win scenarios for both foreign MNCs operating in China and domestic firms wishing to embed themselves in global production and innovation networks.

From a policy perspective, this third strategic developmental attempt in the sector has been highly successful. Key collaborative capability has been built up in the sector nationally and globally by both Chinese state firms and domestic firms operating in the sector and new policy tools for the interlinking of domestic and foreign actors together in a way that facilitates the co-production, and appropriation of technological assets are beginning to evolve. The overarching result I will argue is a fundamental shift in Chinese governmental policy directives from one that was primarily focused on commanding specific outcomes to an approach that is designed to engage in the creation and maintenance of new markets, and a move away from top-down policy development to one that is focused around steering and negotiating alliances with partners in both the domestic private sector and the international sphere.

The emergence of a more collaborative, alliance-based global economy and its impact on Chinese high-technology developmental policy has yet to be addressed in a comprehensive fashion by the international development and globalisation literature. This book will attempt to address this gap and highlight how this shift towards a more collaborative socio-technological environment has fundamental implications, not just for the Chinese state and its domestic firms but also for the global high-technology system itself, its system of intellectual property rights, its relational networks and modes of value appropriation.

The remainder of this introductory chapter is comprised of nine sections. In the first and second sections, I will provide a brief overview of the idea of critical ecosystem dependencies and how they relate to the emergence of alliance capitalism as an emerging development strategy. In the third section, I will introduce the idea of complex adaptive systems and highlight how recent socio-technological change impacts upon the ability of systems actors to shape their technological developmental processes. I will highlight how key system actors are addressing the existence of these emergent critical ecosystem dependencies by adopting collaborative alliance structures, and I will argue that a defining feature of the emerging socio-technological system is the purposeful construction and coordination of high-technology ecosystems via strategic agency. I will introduce the concepts of ecosystem shaping, co-development and system embeddedness as new strategic models of behaviour that are being increasingly employed by system actors to facilitate successful, globalised, high-technological development at both the national and global level. In section four, I will explore the way in which these socio-technological system changes impact on the state and its role in the contemporary technological development processes. In sections five and six, I will introduce the global network state (GNS) developmental model as a theoretical framework from which to examine China’s state capacity at the sectoral level and highlight how a key role of the Chinese government as a developmental state in the contemporary wireless technology sector is not just confined to fixing market failures, but also involves the active creation of markets for new technologies. In sections seven and eight, I will outline the analytical framework’s key concepts and methodology, and in the final section I will provide a brief chapter outline of the book.

Critical ecosystem dependencies and the global knowledge economy

The concept of the knowledge-based economy began to emerge in the early 1970s, and has since evolved into both an explanatory and normative framework for examining the emergence of innovative technologies and intangible assets (Schilirò, 2010). Intangible assets are assets that do not have a physical embodiment. Termed “intellectual assets” by the Organisation for Economic Co-operation and Development (OECD, 2011), intangible assets have also been referred to as knowledge assets or intellectual capital. Much of the focus on intangibles has been on R&D, key personnel and software. But the range of intangible assets is significantly broader. For instance, one classification groups intangibles into three primary types: computerised information (such as software and databases); innovative property (such as scientific and non-scientific R&D, copyrights, designs, trademarks); and economic competencies (including brand equity, firm-specific human capital, networks joining people and institutions, organisational know-how, adaptability, organisation capital that increases enterprise efficiency, and aspects of advertising and marketing) (OECD, 2011).

It is pertinent to note that the proportion of economic value that was attributable to the innovative capacity of intangible assets has grown significantly since the 1980s. For example, in 2005, intangible assets represented 80% of market value on the Dow Jones Industrial Average (DIJA). In stark contrast, in 1980, the DIJA reflected market values due to intangible assets at zero. Furthermore, it is interesting to note that the value of a number of leading multinational companies, such as Microsoft and Apple, is now almost entirely accounted for by their intangible assets alone (K...

Table of contents

• Cover
• Title
• 1 Chinas New Alliance Capitalism and the Case of theWireless Communication Sector
• 2 The Perils of Strategic Technological Development Policy: Two Failed Chinese Attempts, FDI and Techno-Nationalism
• 3 Complex Global Technological Systems and theChinese State: From National Indigenous Innovation to Globalised Adaptive Ecology
• 4 Technological Development, Alliance Capitalism and Chinese State Capacity
• 5 Beyond Neo-Techno-Nationalism: An Introduction to Chinas Emergent Third Way: Globalised Adaptive Ecology, Emergent Capabilities and Policy Instruments
• 6 Global Wireless Communication Sector
• 7 Conclusion
• Appendices
• Bibliography
• Index