Alliance network and innovation: evidence from China's third generation mobile communications industry

Date20 July 2012
Pages197-222
Published date20 July 2012
DOIhttps://doi.org/10.1108/15587891211254407
AuthorRunhui Lin,Hongjuan Zhang,Jianhong Fan,Rujing Hou
Subject MatterStrategy
Alliance network and innovation:
evidence from China’s third generation
mobile communications industry
Runhui Lin, Hongjuan Zhang, Jianhong Fan and Rujing Hou
Abstract
Purpose – This paper seeks to explore the evolution of a third generation mobile communications (3G)
industry based on TD-SCDMA technical standard in China through the lens of network analysis.
Design/methodology/approach – The authors argue that inter-firm alliances help companies gain and
integrate internal and external resources and foster technical innovation. The paper analyzes alliance
governance structures and governance mechanisms in particular, and shows how they protect and
improve network-based innovation capabilities and competitive advantages during a ten-year period
with the method of social network analysis and case studies.
Findings – The authors offer a theoretical model that incorporates cooperation among organizations,
the maturity of the industrial chain, and the accumulation of organizational knowledge and social capital.
Originality/value – The paper offers a theoretical model of factors that contributes greatly to the
development of technical innovation.
Keywords Alliance network, TD-SCDMA, Governance structure, Governance mechanism,
Collaborative innovation, Innovation, China
Paper type Research paper
Introduction
China’s wireless telecom industry has experienced incredible growth since the first
deployment of cellular services in 1987. The teledensity (the number of main lines per 100
persons) in China has risen from 0.38 percent in 1978 to more than 26 percent in 2008 (Yan
and Pitt, 2002). By the end of October, 2010, the numberof cell phone subscriptions in China
has exceeded 830 million. At the same time, the wireless industry in China has been in the
early phase of the diffusion of 3G technology, especially the Time Division-Synchronous
Code Division Multiple Access (TD-SCDMA) technical standard, which was proposed and
developed by Datang Telecom, a Chinese telecom company. It is of great importance to
investigate the evolution of the 3G industry based on the TD-SCDMA technical standard in
China, for wireless telecom services are critically dependent upon the creation and
implementation of technical standards (Haug, 2002).
The TD-SCDMA standard was submitted to International Telecommunication Union (ITU)[1]
by Datang Telecom in 1998. On January 20, 2006, it was enacted as the 3G standard of
China by the Ministry of Industry and Information Technology (MIIT)[2]. And the whole
process from laboratory-based technology to commercialization took less than ten years. At
the time, there were three technical standards, TD-SCDMA, Code Division Multiple Access
2000 (CDMA2000), Wideband Code Division Multiple Access (WCDMA), in the mobile
communication industry in China. The innovation and commercialization of the TD-SCDMA
technical standard into 3G services required coordination among the heterogeneous actors
holding specialized knowledge and resources (Yoo et al., 2005). Mobile phone
manufacturers, telecom operators, telecom system equipment suppliers, service
providers and other stakeholders in China, all invested huge amounts of human capital
DOI 10.1108/15587891211254407 VOL. 6 NO. 2 2012, pp. 197-222, QEmerald Group Publishing Limited, ISSN 1558-7894
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JOURNAL OF ASIA BUSINESS STUDIES
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PAGE 197
Runhui Lin is Professor at
the Corporate Governance
Research Center, Business
School, Nankai University,
Tianjin, China.
Hongjuan Zhang is based
at the College of
Management and
Economics, Tianjin
University, Tianjin, China.
Jianhong Fan and
Rujing Hou are based at the
Business School, Nankai
University, Tianjin, China.
This work was supported by the
National Natural Science
Foundation of China (NSFC)
(No. 71132001, 70972085), the
Program for New Century
Excellent Talents in University
(MOE) (No. NCET-07-0452)and
the Key Research Institute of
Humanities and Social
Sciences at Universities (MOE)
(No. 07JJD630001).
The authors would like to thank
the members of the research
group on ‘‘3G industry network
innovation and evolution’’
headed by Prof. Justin Tan.
They are Yingke Yu, Chuanfeng
Huang, Xiaobo Song, Yanxia
Shuai and Mingda Wang. Also
many thanks go to Prof. Mark
Fruin for his insightful
suggestion and professional
revision and all his endeavors
for the publication of the paper.
and financial resources into TD-SCDMA, especially cooperating on R&D and manufacturing,
and establishing TD-SCDMA Industry Alliance (TDIA).
Given the initial weak market position of the TD-SCDMA standard, key actors were required
to align their interests and collaborate effectively. Relying on organizations’specific assets
and technical advantages, actors cooperated and promoted R&D and commercialization
processes related to the TD-SCDMA standard and systems. The rapid commercialization of
the TD-SCDMA technical standard well illustrates the behavior and interactions of
organizations in the mobile communication industrial space in China, and offers a theoretical
model for the promotion of technical development and industrial innovation.
The specific research questions we ask are: how did the 3G industry based on
TD-SCDMA standard in China evolve? How do network structures and governance
mechanisms promote technical innovation and the industrialization of technical
standards? In what follows, first we provide: a literature review of the past research on
the evolution of mobile industry in China, paying attention to strategic alliances, the
emergence of an alliance network, and how they contributed to technological innovation,
including a discussion of research methodology and data collection; followed by an
overview of the evolution of 3G industry based on the TD-SCDMA technical standard in
China, from a network evolution perspective; leading to a description of the evolutionary
process of the TD-SCDMA industry, paying attention to how network structure and
governance mechanisms played their roles; and, finally we build a theoretical model of
alliance networks and collaborative innovation. At the end of the paper, we summarize our
findings and make suggestions for future research.
Theoretical background
3G mobile services require integration of diverse technological and organizational resources
that cannot typically be found within a single firm. Van De Ven (2005) argued that the
innovation in complex technology systems, such as mobile telecom services, required
collective achievements. Strategic alliances or ‘‘voluntary arrangements between firms
involving exchange, sharing, or co-development of products, technologies or services’’
(Gulati, 1995; Gulati and Westphal, 1999) can effectively mobilize and motivate the
resources needed for collective innovation. Alliances can be far more than simple, one-off
deals; for alliances with strong firms in an industry or with numerous firms to fulfill a variety of
tasks in an industrial chain can send out positive signals to all the firms that populate an
industry.
Of course, alliance formation also raises some risks because members of an alliance may
violate agreements, embezzle technology,bring more competitors and increase the quantity
of suppliers in a market. To counter these risks and others, governance mechanisms to
protect alliances and promote innovations are needed (Jones et al., 1997), including
regulations that aim to maintain long-term network relationships, promote equitable
allocation of resources and incentives, and constraint the behavior of network members in
appropriate ways. Network governance mechanisms work to sustain cooperation among
network members and promote innovation of the alliance and every member.
Alliance structure and governance mechanisms shape economic behavior by creating
opportunities and making them accessible to member firms (Uzzi, 1996). Network
membership confers opportunities to work on the design, development, manufacture and
sale of innovative products and services. Thus, alliance networks build direct and
indirect, reciprocal, and flexible ties among science, technology and the marketplace,
through the interaction of actors in various fields of activity (Imai and Baba, 1989;
Freeman, 1991; Arndt and Sternberg, 2000). Whittaker and Bower (1994) found out that
firms in the American pharmaceutical industry shared knowledge and other kinds of
resources and developed new products by making effective use of inter-organizational
alliance ties. Social capital, based on the cooperation with other organizations, can also
greatly contribute to firms’ technical innovation capacity (Cullen et al., 2000). Rodan and
Galunic (2004) proposed that heterogeneous knowledge, gained from network
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