Abstract: Indigenous Innovation, Capability Development, and Competitive Advantage: The Origins and Development of the Competitiveness of Chinese VCD/DVD Industry

Lu Feng and Mu Ling

Abstract

Can firms in catching-up countries gain competitive advantage through innovation while they are still more or less dependent on foreign technology? If they can, is there a pattern? In a study of the history of the Chinese VCD/DVD industry, we found that, although Chinese firms have to rely on foreign basic and core component technologies, they have initiated VCD product innovation, and remained competitive by delivering superior products. The experience of this industry shows that it is still possible for firms in catching-up countries to innovate, to learn, and to gain competitive advantage over the more powerful, even though they have to start their technological learning based on technologies developed by advanced countries. A critical factor influencing such possibilities is the national value network in which firms have developed their perceptions of economic value in new technology. As new products or technologies developed in advanced countries spread across the national value network, local firms may generate novel ideas and different definitions about product performance, which mainly involve architectural knowledge, if they can participate in technological change early enough. And there is no insurmountable barrier for them to apply these ideas to the product through architectural technology. Therefore, there is a broad sequence in which firms in catching-up countries may achieve breakthroughs first in architectural innovation. What is critical is the effort in technological learning and capability development.