Reshaping global technology development: innovation and entrepreneurship in China and India
| DOI | https://doi.org/10.1108/15587891211254371 |
| Date | 20 July 2012 |
| Pages | 143-159 |
| Published date | 20 July 2012 |
| Author | Leonard Lynn,Pamela Meil,Hal Salzman |
| Subject Matter | Strategy |
Reshaping global technology
development: innovation and
entrepreneurship in China and India
Leonard Lynn, Pamela Meil and Hal Salzman
Abstract
Purpose – This paper seeks to explore the processes by which the offshoring of technology
development to India and China by Western and Japanese multinationals has evolved from the
localization/simplification of technology for local markets to the development of advanced technology in
India and China for global markets.
Design/methodology/approach – Case studies were developed based on 190 interviews conducted
in China, India and several other countries. Respondents included multinational home country and
offshore managers, as well as local entrepreneurs.
Findings – Rather than following carefully thought out corporate strategies, the offshoring of technology
development by multinationals is more often incremental and driven by theambitions and expectations
of Chinese and Indian entrepreneurs and managers. Meanwhile ‘‘technology competition’’ policies
proposed in the USA and elsewhere are not taking sufficient account of the processes by which
technology development is being offshored.
Originality/value – Techno-nationalistic policies designed to allow one country to win a race with others
in developing and monopolizing new technologies are increasingly dysfunctional. The identification of
multinationals with ‘‘home countries’’ continues to weaken. At the same time, technologies and
technology workers are more mobile than ever before.Better policies would allow nations to seek mutual
benefit through today’s more globally dispersed technology development capabilities. Multinational
managers in our study were not sufficiently accounting for the costs of offshoring and outsourcing
technology, nor were they giving much thought to the longer term implications of their diminishing
capabilities to develop or even control the development technology. More thought should be given to
what aspects of technology constitute ‘‘core competencies’’ and which provide sustainable competitive
advantage in the emerging global environment.
Keywords Offshoring, Outsourcing, Technologydevelopment, Globalization, Multinational companies,
Developing economies, India, China
Paper type Case study
Multinational enterprises (MNEs) have made systemic changes in their approach to
the development of new technology in recent decades. Until the late twentieth
century technology was widely regarded as a ‘‘core competency’’ to be kept under
tight control. Many leading MNEs went so far as to avoid innovations that were ‘‘NIH’’ (‘ ‘not
invented here’’) (see, for example, Katz and Allen, 1982). Nor was there a sense that US,
European and Japanese (triad) MNEs need look beyond their boundaries to get the
technology needed to serve their markets. Some MNEs did locate R&D facilities near
leading foreign universities, but these universities were always in the Triad. While the
emerging economies produced many talented scientists and engineers, the most ambitious
and talented of them went to US or other triad universities. Most hoped to find jobs after
graduating at MNEs, or to become techno-entrepreneurs in technology ‘‘hot spots’’ in the
Triad. Comparable opportunities did not exist in their home countries.
Offshore development work by the MNEs in the emerging economies amounted to little more
than the localization of products and production technologies, with no expectation that the
DOI 10.1108/15587891211254371 VOL. 6 NO. 2 2012, pp. 143-159, QEmerald Group Publishing Limited, ISSN 1558-7894
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Leonard Lynn is Professor
Emeritus of Management
Policy at the Case Western
Reserve University,
Cleveland, Ohio, USA.
Pamela Meil is Director of
International Studies at the
Institute for Social Science
Research, Munich,
Germany. Hal Salzman is
Professor of Public Policy at
the E.J. Bloustein School
and the J.J. Heldrich Center
for Workforce
Development, Rutgers
University, New Brunswick,
New Jersey, USA.
The research for this paper was
supported through grants from
the National Science
Foundation, (Human and Social
Dynamics Program,
No. SES-0527584; Social
Dimensions of Engineering,
Science and Technology
No. 0431755) and the Ewing
Marion Kauffman Foundation.
adaptations would be applicable in the Triad. A Whirlpool facility in India, for example,
redesigned washing machines so the machines could keep out rats, survive shipment on
bad roads, and cope with sharp fluctuations in the power supply (WSJ, June 12, 2004). At a
triad automobile plant in another emerging economy, we were told that until recently
‘‘engineering’’ had consisted mostly of such things as developing oil pans able to survive
severely potholed roads and the scaling down of production systems (Lynn and Salzman,
2007). Even as offshoring increased, products and processes were modularized to facilitate
the lengthening of value chains (Flecker and Meil, 2010). While more engineering was
relegated to emerging market suppliers, it was generally process engineering and minor,
incremental development work on component products. Offshore engineering work was
generally constrained to conform to OEM specifications or specifications and product
design done by onshore suppliers.
Engineering managers at a US electronics firm told us that 15 years ago they did not even
consider doing work on their more advanced technologies at a site in India,. There was no
market in India for products based on newer technologies, and India did not provide a viable
export platform. Furthermore, the firm was discouraged by laws that until recently had
prohibited foreign firms from owning a controlling interest in Indian subsidiaries. Triad MNEs
were also reluctant to locate advanced engineering activities in most emerging economies
because of fears that intellectual property (IP) would be lost. As a consequence, engineering
teams that were active in the emerging economies worked in relative isolation from their
counterparts at triad facilities and provided little that was attractive to triad markets. Nor was
the work they did challenging enough to attract and retain the most talented scientists and
engineers in those countries.
That world was transformed by a confluence of disparate developments: many MNEs moved
from regarding technology as a core competency to regarding it as just another link in the
value chain and, like other links, subject to aggressive cost cutting; trade barriers were
reduced with the advent of the World TradeOrganization in 1995; Eastern European markets
were opened to Western firms; as were product and labor markets in the emerging and
transitional economies. Other relevant developments included the introduction of the
internet and other technological changes, dramatically increased international movements
of science and technology workers (often to new destinations), and markedly improved
education systems in some of the emerging economies.
One result of these and related changes has been a heightened sense of anxiety in the Triad.
Are the US and other Triad countries losing the technological lead they have so long
enjoyed? What consequence would such a loss have for jobs, general economic well-being,
and national security? Can, or should, the Triad seek to reverse these trends by investing
more heavily in education, and perhaps by discouraging offshoring by triad MNEs? Some
advocate higher government spending on R&D to counter increased spending in China. Yet
others complain that often the Chinese, like the Japanese and South Koreans before them,
have outperformed US firms in the market with products based on technology developed in
the US, creating jobs and wealth that ‘‘rightfully’’ belong to Americans. Some Americans
would restrict access by foreign scholars and students to government funded university
research. Such techno-nationalist policies do not recognize that R&D now routinely flows
across borders through modern communications technologies, the increased global
mobility of people, and internal processes of MNEs. It would likely be impossible to stop
these flows without causing catastrophic ‘‘collateral damage.’’ A more practical approach
might be less technonationalistic, focusing on policies that leverage the increase in the
human stock of technology through the new globalization of technology development to
contribute to a global commons, while also providing high level, high-wage jobs for the Triad
as well as for the emerging economies.
This paper seeks to provide perspectives on the new processes of globalization, particularly
on how these processes are leading to the tighter incorporation of China and India into a
global system of technology development. The next section of the paper describes some of
the specific changes in the environment for Foreign Direct Investment (FDI) related to
technology development in India and China. The paper next reviews four cases that
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