Editorial paper: transition: from catch-up to post catch-up

1. Introduction

The analysis of the determinants of a successful economic catch-up has been the key focus of many studies on innovation. The emergence of East Asian and Latin American economies, after the Second World War, increased the interest for theoretical explanations of the catch-up growth of latecomers. Most studies focusing on East Asia are based on models that emphasise the role of the state and its relationship with the market (Amsden 1989; Wade 1990; World Bank 1993; Evans 1995).

As the capabilities of late-industrialised countries improved, the research on technological catch-up evolved along three directions: one focused on innovation capabilities (Lall 1992; Dutrénit 2004; Bell 2009; Bell and Figueiredo 2012). The product life-cycle approach suggests that the development path of latecomer firms proceeds in reverse cycle (Kim 1980, 1997; Hobday 1995). Their technological capabilities move from the mature to fluid stage, as they assimilate mature technologies from advanced firms, and, afterwards, they innovate their products and technologies. The fast follower strategy and leverage effects are also considered key factors for the technological catch-up of latecomer firms (Mathews and Cho 2002; Mathews 2004; Wong and Mathews 2005).

A second strand of research focused on the catch-up growth of latecomer countries at the industry level. These studies emphasise the importance of timing for late-industrialised countries entering the industry cycle. Most successful cases of industrial catching-up are characterised by a strategic entry, during a depression of the industrial cycle (Lee and Park 2014). In addition, Malerba and Mani (2009) showed that fast growth in developing countries may depend on specific characteristics of the sectorial innovation system.

Finally, innovation system approaches have been adopted to analyse the catch-up growth of latecomer countries, highlighting the institutional dimension, framework conditions, interactions, and linkages among innovation activities (Freeman 1987; Nelson 1993; Edquist and Hommen 2009). Recently, the transition of innovation systems in Asia has been addressed in the literature (Nelson 2004; Lundvall, Intarakumnerd, and Vang 2006; Lundvall 2009; Lundvall, Joseph, Chaminade, and Vang 2011).

Despite the increasing interests on the catching-up of late industrial countries, these research streams do not seem to fully reflect the recent changes in innovation capabilities and institutional rearrangements of latecomer countries. In recent years, several environmental changes occurred, in newly industrialised economies, which motivated us to review the key issues of the research on economic catch-up. The rationale for this study relates to the emergence of latecomer global firms that produce frontier products. For example, Samsung (Korea), Embraer (Brazil), Huawei (China), and Tata Steel (India) are progressing fast on global markets, relying on their technological capabilities.

In addition, the relative decrease in the growth potential of first-tier East Asian economies, such as Korea, Taiwan, and Singapore, and the rapid growth of second-tier catching-up countries, such as China and India, require a deeper understanding. The financial crises faced by newly industrialised economies since the 1990s and their difficult path to industrial upgrading largely depend on the general crisis of export-driven catch-up economies that rely on the investment and markets of advanced countries (Lee, Jou, and Lee 2013). By contrast, second-tier catching-up countries, such as China and India, are experiencing a new type of innovation: a reverse innovation, in their captive markets.

These environmental changes raise challenging research questions. Further research is needed to better understand transition paths, institutional arrangements that enable countries to transit from catch-up to forging ahead, the effects of path dependencies during the transition period, and the effect of core rigidities in organisational routines. This special issue on transition considers both the innovation path and strategies of firms, and the science and technology policies of newly industrialised economies.

We are particularly interested in the following aspects: first, this special issue focuses on the difference between imitative learning and post catch-up innovation. Second, we believe that institutional capabilities change significantly from the stage when firms imitate existing technology to the phase when they create and diffuse new knowledge. Therefore, we consider institutional arrangements and knowledge production patterns that are related to new knowledge creation and diffusion, from a newly industrialised economy perspective.

The introduction to the special issue on transition (from catch-up to post catch-up) is organised as follows: Section 2 introduces the emerging policy issues, such as changing innovation environments and the transitional process of innovation systems, in developing countries. Section 3 provides a review of the literature on the special issue, addressing policy- and firm strategy-level implications. Section 4 discusses future directions for research.

2. Post catch-up research agenda

2.1. Research on transition of innovation systems in developing countries

Many studies have focused on the transition of latecomers, addressing the sequential process involved in attaining and enhancing innovation capabilities (Dutrenit 2007; Bell and Figueiredo 2012), the empirical determinants of different catch-up patterns (Lee and Lim 2001), and the strategic approach of firms moving from the transition phase to a leadership position (Hobday, Rush, and Bessant 2004). The concept of transition has been introduced to explain emerging innovation activities in developing countries. Further research is needed on the process of transition of innovation systems. The following research questions and issues should be considered, to develop new streams of innovation studies, and to enhance the understanding of the transition from catch-up to forging ahead economies.

Firm-level issues in the transition process: Hobday et al. (2004) emphasises the management issues of latecomers in responding to high-tech market and technological uncertainty, while transitioning to a leadership phase. Building technological and organisational capabilities is key to latecomer firms (Bell and Figueiredo 2012). Skill formation and learning mechanisms are the key drivers of technological capability accumulation. The quality of labour and the elasticity of employment of latecomer economies also seem to play a fundamental role in catching-up. Further research is needed to understand the role of changes in the relationships between firms, during the transition period. As a latecomer firm accumulates the necessary capabilities for transition, such as new product development and new knowledge, new relationships emerge among firms, for instance, establishing relationships between large domestic firms and small and medium-sized enterprises. The relationships among multinational firms, within a global production network, would affect the responsiveness of latecomer firms to the global market. Finally, another issue relates to organisational rigidities, as, in the transition phase, firms may enter a different industry, governed by a different technology regime and market environment.

Institutional rearrangement in the transition process: The link between innovation and institutional capabilities appears to play a key role in both the catch-up and transition periods. Neo-Schumpeterians have long discussed the importance of institutions. The role of the government needs to change, in the transition periods. For example, in the catching-up of the East Asian region, the government of these countries was directly supporting innovating agents, financing promising industrial sectors (Amsden 1989; Chang 1994; Evans 1995). Both the internal and external competition have changed, from the transition phase to the post catch-up period. Furthermore, as the initiative to catch-up diminishes, industry promotion faces higher risks. Therefore, new policies need to emphasisze the role of transitional leadership, and a new vision for the post catch-up phase is needed. In this regard, Rodrik (2007) and Breznitz (2005) highlight the importance of network-based governance to reduce the uncertainties linked to establishing an infrastructure for generic technology commercialisation, and to setting standards, revitalising the knowledge network, enhancing learning capabilities, and retraining workers.

The type of coordination implemented by the government is also important. Overcoming organisational and institutional rigidities during the transition period is a key challenge for developing countries. Recent empirical studies in advanced countries emphasise the role of policy experiments for transition, to create a new policy routine (Geels 2004), and facilitate integrated policymaking, policy coordination, and cooperation (Stead 2007).

2.2. Research questions for transition from catch-up to post catch-up phase

Further research is needed on the innovation dynamics in developing countries, particularly first-tier developing countries, facing the challenge to upgrade their innovation systems from imitative innovation to the global frontier. What are the available innovation patterns for latecomer firms, in the transition period? What factors influence the post catch-up transition, at the firm level? What are the similarities and differences in the industrial upgrading, among latecomers? How are technological characteristics (modular and integral) and post catch-up innovation activities related? What are the characteristics of the learning mechanism related to upgrading from imitation to innovation?

We also address the following questions concerning the institutional arrangement: What are the most important elements of institutional arrangements, for post catch-up innovation? How are scientific knowledge and industrial technology development related, in the transition phase? How do path dependencies and lock-in effects relate to each other, in the transition process? In the remainder of this paper, we tried to answer the above-mentioned set of key questions, concerning the transition from catch-up to post catch-up growth.

3. Contribution of the special issue

The special issue brings together seven papers that attempt to address the above-mentioned issues and to strengthen the post catch-up model.

3.1. Theory and metrics of technology upgrading

Radosevic and Yoruk critically review the existing approaches to technology upgrading, proposing a theoretically relevant and empirically grounded framework to illustrate the challenges faced by economies with different levels of income. The paper conceptualises technology upgrading as a three dimensional process: it describes the intensity and type of technology upgrades based on different types of innovation and technology activities; it discusses the broadening of technology upgrading through the exploitation of technology and knowledge diversification; it analyses firm interactions with the global economy through import, adoption, and exchange of knowledge.

3.2. Post catch-up with market cultivation and product servicing

Chen and Wen address the issues on how a latecomer, such as Taiwan, may develop its industrial sector in the post catch-up phase. Using bicycle and electric vehicle industries as case studies, with fuzzy front-end at the industry level, market development, and innovative business metrics, they model the innovation path for the post catch-up phase. Chen and Wen argue that: (1) technological catch-up is not necessarily a prelude to post catch-up, as it depends on the innovation trajectory and entry mode of the emerging industry; (2) product servicing is key in the post catch-up phase.

3.3. Innovation strategy of fast followers

Jo, Jeong, and Kim present a case study on the engineer-led production system of Hyundai Motor. They show that the skill-formation process is closely related to Hyundai’s production system, which is different from foreign automakers. Its automation uses a flexible production technology, and this seems to be a key determinant of Hyundai’s considerable growth since the 2000s. They treat the systematisation and codification of problem-solving capabilities as an engineering skill, achieving a more systematic, performance-based, personnel management strategy.

3.4. Transitional failure

Choung, Hwang, and Choi examine organisational and institutional rigidities, discussing the case of the ICT industry in Korea. They show that: (1) institutional aspects are more important for transition than development strategies based on technological aspects; (2) institutional rigidities are related to supply-oriented innovation regimes that prevent a successful transition. Despite the development of the private sector, the Korean government is still weak in mutual agreement and conflict control, and maintains the same national development policy as in the catch-up period.

3.5. Post catch-up policy experiment for transition

Seong, Cho, and Song use socio-economic transition theories to analyse how a local-level experiment can be conducted in Korea. They refer to three case studies: The Low-Carbon Green Village Project, the solar power project of the Seoul Metropolitan City Government, and the Food Waste Pre-treatment Project. They assess the achievements of these local experiments to identify the conditions for a sustainable transition, in Korea. In addition, they look at these experiments from the perspective of post catch-up innovation and socio-technical system transition.

The above-mentioned literature touches upon several themes related to the post catch-up phase, both at the policy and firm level. First, it is important to identify a correct strategy for the post catch-up transition. The existing literature suggests either a resource-based transition, or a niche-driven transition. The former helps overcome the rigidities of the structural context and suggests that transition is only possible in the context of a new organisational model. Both resource-based and niche-driven transitions require institutions and companies to evolve together. Second, innovation is closely related to institutional arrangements. Some case studies related to successful products suggest different patterns of post catch-up, such as architectural innovation, deepening existing technologies, and first-mover technology development (Choung, Hwang, and Song et al. 2014). Furthermore, disruptive innovation and architectural innovation frequently occur among latecomer firms.

The relationship among firms seems to have an important role for the capability accumulation of institutions, such as universities. The Hyundai Motor case study suggests that universities act as suppliers of engineers to the industry, and that Hyundai’s growth depends on its engineers’ development. Several empirical policy case studies suggest that the learning curve of a firm can be seen as the link between new market creation and policy experiments for transition. Coordination and collaboration among innovating agents is needed, to prevent transitional failure. A policy design that considers social capital and social agreement, and their implementation, is needed in the post catch-up phase, while the catch-up regime seems to follow a top-down approach. Moreover, the benefits of innovation cannot be achieved without an institutional innovation, to allow the diffusion of innovation, after the successful development of new technologies. Finally, even if a successful routine of technology development is sustained, after catching-up and achieving the frontier of technology creation, failure in the transition phase is still possible.

4. Future research directions in post catch-up

The special issue on transition made a valuable contribution in examining the post catch-up phase of latecomer firms. However, a number of theoretical issues are open to future research. The organisational and institutional capabilities seem to have a key role during the system transition, for latecomers. In particular, both standard setting in the early stage of frontier product development and new market creation require institutional capabilities. Institutional rigidities act as an impediment for the post catch-up innovation of latecomer firms. In addition, a new policy orientation is required to overcome institutional rigidities and to build new organisational capabilities, in the transition phase.

The special issue highlights several challenges in the transition phase that may require further research:

1. Innovation activities at the firm level: To develop a robust understanding of post catch-up theories, more research on firms that have experienced a successful or unsuccessful transition must be conducted, from a neo-Schumpeterian point of view. In particular, there is no clarity regarding the different capabilities and transition processes that supply-driven and demand-driven innovation may require. The existing literature has been mainly focusing on fuzzy-end product development planning and skill formation of engineers. Further research is needed to illustrate how latecomer firms manage transition, in terms of technology and product planning, organisational design, and learning processes.

2. Corporate innovation strategy: Most catch-up literature focuses on how efficiently and how rapidly latecomer firms managed their transition phase. However, most studies do not focus on how firms design their transitional strategy in the post catch-up period. Which strategies have been effective in acquiring generic technology? How do such strategies help latecomer firms overcome market and technological uncertainties? Most papers only discuss latecomer firms in Brazil and Korea, and more research is needed to examine latecomer firm dynamics, and consider the case of transitional failure, caused by corporate rigidities.

3. Industrial ecosystem for transition: As the case of Taiwan seems to suggest, in contrast to catch-up, a new conceptual framework is needed to describe the post catch-up industrial development. Furthermore, industrial upgrading should be considered from the perspective of its industry ecosystem, rather than on a single dimension. In particular, future research should focus on changes in business model, product industry co-evolution, institutional relationships, and relationships among firms, to enhance our understanding of the transition and policy design.

4. Government policy design for transition: To transit to a post catch-up innovation system, various policy designs and policy experiments are needed. The current special issue deals with a policy experiment for transition and sustainable development, assessing the key factors of post catch-up transition, in Korea. However, further research is needed to shape policy recommendations, and improve the effectiveness of system transitions. In addition, further research on the negative (positive) effects of path dependencies, and on the new agenda set for national innovation systems, would be beneficial.

5. Comparative studies on transition from a historical perspective, under a techno-economic paradigm: as suggested by Freeman and Perez (1988), several countries have experienced a rise and fall, during the series of techno-economic paradigm. Eminent scholars start from this consideration to discuss economic transition. For instance, Polanyi focuses on transition from the downfall of the market economy to socialism, whereas Lundvall et al. (2006) and Malerba and Mani (2009) analyse the transition of latecomers. However, studies focussing on the transitional dynamics of latecomer countries are rare. Further research based on the comparison between the transition in advanced countries and East Asian economies is needed, to enhance the understanding of the post catch-up phase in developing countries.

Acknowledgements

We wish to thank especially Professor Martin Bell for his contribution to an early version of the special issue editorial paper and for valuable inputs in an early stage of the special issue of each paper. Special issue would not have been possible without his constructive suggestions. We are also grateful to our referees for useful comments and suggestions for the special issue papers.

Additional information

Funding

This work was supported by the National Research Foundation of Korea Grant, funded by the Korean Government [NRF-2014S1A5B6A02048960].