Is China's Indigenous Innovation Strategy Compatible with Globalization?

National innovation policies currently attract intense interest throughout the international community, particularly so in the aftermath of the global financial crisis. China is among those countries now relying heavily on government resources to drive innovation-a policy that directly challenges the prevalent theory that government powers have limited effects on a nation's innovation systems. Since 2006 China's indigenous innovation strategy has transformed the nation's innovation systems. First, through establishing government-led research consortia (collaborations involving leading companies and universities and government-led research institutes) and key government-procurementpolicy tools, China's government was able to increase its control over the resources available for innovation. While, even after 2006, the government has continued to favor "State-Owned Enterprises" (SOEs) as the main elements for indigenous innovation, during this time private enterprises have become significantly more important relative to these government entities. Regional governments have also simultaneously played important roles in developing China's innovation systems. Second, in recent years mega-projects developed by governmentled research consortia have become increasingly important. Rather than just formulating government policies supporting technological advances, China has used market demand to drive technological innovation. This paper examines the results of the mega-projects developed by government-led and other research consortia. Chinese research consortia have been structured in many different forms, some controlled by SOEs, some by universities and government- led research institutes, and some by private enterprises. Research consortia have spread from high-tech to traditional industries. Some enjoy local advantages while others do not. For the case of the recent development of the Time Division- Synchronous Code Division Multiple Access (TD-SCDMA) telecommunications standard, both as a beneficiary of the efforts of a large research consortia and as an example of attempting to define a new industrial standard, it is too early to make a final judgment. Recent developments show that, in terms of industrial success, this effort continues to be a high-risk project. New innovation systems are emerging in China in response to the nation's indigenous innovation strategy. The old national innovation system used the central government, SOEs, and universities and government- led research institutes as the major elements. The new systems maintain the central government, SOEs, and universities and government-led research institutes as significant elements but now also are developing innovation from private enterprises, multinational enterprises, and regional governments-with private enterprises significantly becoming the key players. Private enterprises are now generally the final consumer of most of the research and development done in universities and governmentled research institutes and/or supported by government funding. Private enterprises are also now the primary consumers of knowledge spill-over from the various multinational enterprises active in China. However, Chinese efforts in indigenous innovation still face the challenge of building an innovation network with global impact. China's first challenge is determining whether an exceptionally large domestic market alone is adequate to ensure that indigenous innovation will succeed. In some industries, such as telecommunications efforts involving TD-SCDMA technology, the market driving the adoption of new technology and hardware is global. Given this reality, whether a new Chinese-developed standard succeeds in the market depends on whether multinational enterprises choose to adopt the technology. The international value of TD-SCDMA is not yet obvious. Companies with large multinational sales, such as Nokia, have been conser vative concerning the possible use of this technology. With limited multinational adoptions, TD-SCDMA telecommunications handsets remain very expensive. However, the current innovation strategy works more effectively in infrastructure-related industries where domestic markets provide the primary demand. In the high-speed-rail sector, for example, the demand is clear. Budgets available for these projects have been massive and government-led consortia have proven successful in addressing the market. Unfortunately, in most internationally competitive major industries, a strategy that relies primarily on the domestic Chinese market, as exceptionally large as that is, is still limited in its potential. The recent project attempting to market large airplanes provides an example of such a difficulty. China's second challenge to its developing indigenous innovation strategy involves policy conflicts with western countries. Some western countries argue that current Chinese policy is in conflict with commonly used World Trade Organization (WTO) agreements-especially China's public-procurement policies requiring supplier companies to have a Chinese brand, use Chinese intellectual property, and have at least 51 percent Chinese ownership. However, since China is not yet a signatory to the WTO Agreement on Government Procurement, current Chinese policy on public procurement is legally defensible. In conclusion, China's current indigenous innovation strategy is both constructive and efficient for an economy with clear targets for industrial innovation working to catch-up to international standards. For China to succeed as an innovative country, it needs to provide more opportunity for market competition to incubate and generate radical innovations. For the indigenous innovation strategy to succeed, China also needs more open innovation policies than those used in the past. A domestic market that is completely inward-facing will not provide domestic enterprises the space needed to become globally innovative companies. Chinese enterprises cannot succeed if they close themselves off from global technologies. Only open innovation policies will provide Chinese enterprises with the opportunity to succeed in the competition for the next wave of international technological innovation and establish China as a truly innovative nation. [ABSTRACT FROM AUTHOR]