Organizational Dynamics (2011) 40, 214—221
a v a i l a b l e a t w w w. s c i e n c e d i r e c t . c o m
journal homepage: www.elsevier.com/locate/orgdyn
Organizational learning of emerging economy firms:
The case of China’s TCL Group
Jiatao Li, Rajiv Krishnan Kozhikode
INTRODUCTION
Traditionally, technology intensive industries such as electronics, information technology and pharmaceuticals have been
dominated by firms from the U.S., Europe and Japan. Of late,
there has been a shift in this triad dominance — firms from
emerging economies, such as TATA of India, BYD of China, and
Samsung Electronics of Korea, have become prominent players
in some of these industries, with substantial market shares. In
fact, emerging economy firms represented 35 percent of the
world’s top 100 best performing technology companies according to Bloomberg-Business Week’s 2009 ranking. Of these, BYD
and Tencent Holdings of China and TATA and Infosys Technologies of India were in the top 10.
Most of these firms were late to enter their target industries, and began far behind the incumbents in terms of their
technological capabilities. The emergence of these firms
challenges conventional wisdom on entry timing and
resource-based competence. Given their lack of rare, imperfectly imitable, valuable and sustainable resources, how did
these technology-deficient emerging economy firms gain a
foothold in technology intensive industries already dominated by resource-rich multinational incumbents?
Studies that have addressed firm competence have tended
to focus on already resource-rich firms. We know relatively
less about how firms attain rare, hard to imitate, hard to
transfer and highly valuable resources in the first place. This
is even worse in the case of resource-poor emerging economy
firms, such as China’s TCL and India’s Cadila Healthcare,
attempting to catch up with resource-rich multinational
incumbents such as Nokia and Johnson & Johnson. What
are the sources of competence of such resource-poor firms
from emerging economies, and how do some of these firms
sustain this competence long enough to achieve global legitimacy?
In this article, we integrate the disparate insights on such
catching up to formulate a coherent model that extends the
learning process by which recourses are attained in the first
place. We illustrate this model with a vignette of TCL Group,
a Chinese consumer electronics firm’s foray into mobile
phone manufacturing.
TOWARDS A SUSTAINABLE MODEL OF
CATCHING UP
Institutional Support
Until recently, catching up has mostly been viewed as an
institutional level phenomenon. It has been understood that
regulatory and network level factors are the prime facilitators in the catching up process. Primarily, studies in this area
explored in detail the catching up process among firms from
the late industrializing East Asian countries of Hong Kong,
Korea, Singapore, and Taiwan. The core observation of these
studies was that the governments and business networks of
these economies played a pivotal role in the catching up
process.
Government
Evidence suggests that during the initial years of trade
liberalization, most governments of emerging economies
designed industrial policies that protected domestic firms.
These policies facilitated catching up with the dominant
international players. Prominent policies include encouraging multinationals from developed economies to form strategic alliances and joint ventures with local firms, subsidizing
knowledge-sharing investments of these multinationals.
Many times, governments only weakly enforced intellectual
property laws, so as to enable domestic firms to imitate the
multinationals without legal consequences. For example,
during the initial stages of industrialization, the Korean
government’s Intellectual Property (IP) regime supported
the development of local firms (e.g., Samsung, Hyundai
0090-2616/$ — see front matter # 2011 Elsevier Inc. All rights reserved.
doi:10.1016/j.orgdyn.2011.04.009
Organizational learning of emerging economy firms
and LG) by providing them some freedom to imitate the
technologies of international players (e.g., IBM and NEC)
during the early catching up period.
As these economies progressed and with some intervention from international organizations such as the World Trade
Organization (WTO) and the World Intellectual Property
Organization (WIPO), the enforcement of intellectual property (IP) laws in many countries has been strengthening. As a
result, emerging economy firms could no longer survive
through imitation alone. They had to begin innovating.
Although government was hand-holding the initial entrants
from emerging economies, the later entrants did not enjoy as
much protection from their government. It is here that the
role of social networks comes into play.
Network support
Another theme on catching up has dealt with ‘‘business
groups’’ — informal social network of organizations seen in
many emerging economies. Business groups have had profound
influences over the rate of catching up of emerging economy
firms. Specifically, business groups have been successful by
providing quick and easy access to valuable resources to their
affiliates. Belonging to a business group (e.g., Korean Chaebols
and Japanese Keiretsus) gave firms access to some very idiosyncratic resources, like technological and marketing expertise, of other firms in the group. Access to these resources
came in handy to member firms that competed with technologically advanced multinationals. However, the support of
business groups was not available to all firms in emerging
economies. There are scores of instances where the emerging
economy firms have caught up in the international competitive
arena without network support.
Though governmental support and network support are
vital to catching up, there are many examples of new
entrants catching up without belonging to any business group
and without much governmental support. These firms have
mostly emerged after their economy has moved beyond the
handholding stage and when the business groups in their
country have consolidated. It appears that there is more
to catching up than mere support from governments and
social networks.
Organizational Learning — Initial Stage
In the last several years, scholars have begun to focus on firm
level processes of catching up that enable technology deficient, emerging economy firms to transform into global
competitors on the merits of their own capabilities. These
scholars emphasize that technologically backward firms
(e.g., China’s Haier and TCL) will have to engage in continuous learning from diverse sources in order to adjust their
resource configuration to remain competitive in their chosen
industry. Towards this, internationalization has been identified as a key step, as it facilitates linking with incumbents to
access key resources, leveraging existing complementarities
to gain a foothold in the target industry, and learning through
continuous application of the links and leverage. Studies
suggest, however, that firms vary considerably in their ability
to learn from internationalization.
During the initial stages of catching up, emerging economy
firms are inherently hampered in their access to the dominant technology. One of their primary preoccupations is
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acquiring the right technology to gain a foothold in their
respective industries. Broadly there are two modes of acquiring technological capability — developing it in-house and
acquiring it from others. The resource-based view of the
firm emphasizes that to gain competitive advantage in a
highly competitive environment, firms need to focus on
building proprietary and inimitable resource base by emphasizing internal learning and consistent improvement. Acquiring resources through internal learning is time consuming and
slow to show any returns, compared with external learning.
On the other hand, external learning could leave the ‘‘student’’ firm dependent on its ‘‘teacher.’’ A challenge for firms
is to decide on the appropriate levels of internal and external
learning.
It has been long observed that when firms face an unfamiliar and uncertain environment, they tend to imitate
others to decrease risk; when firms face a more stable and
familiar environment, they tend to rely on their own experience and learn through trial and error, expecting that their
experience might provide solutions better tailored to their
particular problems. Given the unfamiliarity of emerging
economy firms with high-end technology, it is appropriate
then that they learn from the technology leaders in their
respective industries during the initial stage. However, a
problem is that the technology leaders from whom the
emerging economy firms acquire the required know-how
would not be willing to transfer their high-end technological
capabilities to the emerging economy firms. In fact, the
technology leaders will try to make their internal resources
as rare as possible, in order to prevent them being imitated
by potential competitors. In the pharmaceutical industry, for
example, research and development (R&D) expenditure is
enormous, yet the risk of imitation is very high. Affymetrix, a
pioneer in the biopharmaceutical industry, has been able to
successfully keep potential imitators at bay by introducing
complexity into its research process. Specifically, it actively
participates, directly and through its collaborators, in all
stages of the pharmaceutical research value chain, from drug
discovery to drug development, to manufacturing and distribution, making the process of imitation difficult and the
cost prohibitive.
Important learning techniques that emerging economy
firms use include licensing, non-equity alliances, and joint
ventures. Among the three, non-equity alliances and joint
ventures provide the student firm much closer contact with
the teacher firm. Licensing is the closest to a market or arm—
length relationship. It requires the least commitment from
the two firms. As a result of the noncommittal relationship,
licensing might not allow for enough inter-organizational
transfer of tacit knowledge. On the bright side, one of the
key advantages of licensing is that it gives the technologydeficient firm quick access to the experienced firm’s technology. Technology deficient late-comers may have to compromise on the ‘‘rareness’’ of the technology they acquire,
because rare resources are more likely to be closely held by
the incumbents, and hence inaccessible to late-comers.
Knowledge in the public domain is likely to be highly codified,
and thus easy to use, in contrast to the tacit nature of most
proprietary resources.
Insight 1: During the initial stage, emerging economy
firms’ preferred catching up strategy might be to obtain
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the most readily available technology from incumbent
multinationals, rather than obtaining the most advanced
technology.
Path Dependencies — Initial Stage
Some emerging economy firms might be able to gain inroads
by acquiring readily available resources. The ability to utilize
even the basic technology depends on two path dependent
factors — (a) absorptive capacity and (b) complementary
assets. We discuss how these two path dependences help
organizations to continuously acquire or create new capabilities that enable them to appropriate rents and respond to
new opportunities next.
Firms require the requisite ‘‘absorptive capacity,’’ the
ability to recognize, assimilate, and apply the external
knowledge, in order to learn external knowledge and to
put it to good use. Absorptive capacity depends greatly on
a firm’s prior related knowledge and diversity of background.
Therefore, it is critical for the firm to invest in its R&D for its
development of absorptive capacity. Consider an example
from the global semi-conductor industry. In 1997, IBM introduced a copper-based technology to manufacture integrated
chips. This was seen as a remarkable breakthrough in integrated chip design that was attributed to decades of concentrated research and development. Surprisingly, within a
short span of two years, two Taiwanese companies, Taiwan
Semiconductor Manufacturing Company Limited and United
Microelectronics Corporation rolled out their own integrated
chips that used the new copper- based design. This dramatic
catching up in a cutting-edge technology demonstrated by
these two emerging economy firms was attributable their
absorptive capacity; it enabled each firm’s R&D team to
thoroughly understand the new technology and efficiently
recombine their internal knowledge repertoire with those
available through external partners.
Like absorptive capacity, another factor that enables firm
learning is its complementary assets. Complementary assets
include manufacturing efficiency, distribution reach, service
capabilities, complementary technologies, marketing clout
and financial capital. Unlike absorptive capacity, complementary assets do not provide direct resources for learning.
Instead, complementary assets allows firms to develop innovative technology by linking to the right knowledge sources,
as having right complementary assets makes an emerging
economy firm attractive to potential external knowledge
sources. For example, in 1984, Honda Motor Co. decided
to manufacture and sell two-wheelers in India through a joint
venture. Two important considerations that Honda had in
choosing its joint venture partner were the strength of the
local partner’s distribution network and its brand image
among Indian consumers — two vital complementary assets.
The Hero Group of India was identified as the right partner. It
was a popular bicycle brand in Indian and also had a strong
distribution network. Today, Hero Honda is one of the world’s
largest two-wheeler manufacturers, selling over 3 million
bikes annually.
Absorptive capacity evolves from the firm’s stock of prior
related knowledge. Firms have to choose their arena of
learning based on what they already know. Or in other words,
moving into territories where a firm does not have any
related knowledge could be very harmful. Research suggests
J. Li, R.K. Kozhikode
that many emerging economy firms that enter into high
technology industries have had experiences as original equipment manufacturers or resellers for leading multinationals in
the same domain. Such exposure allows them to gain the
needed absorptive capacity to use the high-end knowledge
needed to move up the value chain.
Similarly, complementary assets develop through years of
concentrated experience in other supporting domains. For
example, an emerging economy firm (e.g., Haier based in
China) with a strong distribution network at home might be
able to leverage it to sell products produced with newly
acquired technologies. Similarly, a wider reach in the domestic market will allow a firm to understand local needs better
and adapt the newly acquired technology to meet those
needs.
While firms might have path-dependent resources, they
might be able to use these resources only in certain industries
and activities. Although choosing to acquire readily available
technology may allow a firm to start operating, it would be
able to make significant inroads into the focal market only if
it has the absorptive capacity to identify and assimilate the
right resources and the complementary assets to acquire and
recombine these resources.
Insight 2: During the initial stage of catching up, quickly
acquiring readily available technology will be more effective in protecting a firm’s domestic market position to
the extent that the firm has relevant complementary
assets and absorptive capacity.
Organizational Learning — Later Stage
Putting their newly acquired technologies to good use, emerging economy firms may gain a foothold in the domestic
market. But they might find it difficult to sustain themselves
in their home markets for long with their acquired repositories of knowledge, as they might face stiff competition
from both domestic and foreign competitors. Such competitive environments in their home markets would push emerging economies to think of internationalization in search of
both efficiency and markets. Internationalization helps
emerging economy firms to sustain competitive pressure
and manage deregulation in domestic markets. For internationalization to be feasible, firms need to differentiate
themselves in terms of products and service features rather
than costs. This means that emerging economy firms will have
to increase their learning activities and build their own
repositories of proprietary technology.
Insight 3: The greater the success of catching up in the
domestic market, the greater the shift in the strategy of
emerging economy firms from obtaining the most readily
available technology to developing innovative technology
systematically.
Path Dependencies — Later Stage
Developing innovative technology poses a new challenge for
emerging economy firms —choosing the best way to obtain
the most appropriate technology. They may have a number of
options. For example, they can source the technologies they
need by means of alliances and joint ventures with the
Organizational learning of emerging economy firms
technologically superior firms like TCL did, or to develop the
technologies in-house like Huawei did. Choosing external
learning sources is not a unilateral decision; the source must
find the acquiring firm attractive on other counts. As we
argued earlier, firms need to have complementary assets that
make them attractive to the source firm. However, the mere
availability of the source would not be sufficient to ensure
that knowledge is transferred from the teacher to the student. Managers must be able to recognize, assimilate, and
apply external knowledge.
Emerging economy firms vary with regard to the diversity of
their learning sources and the intensity of their learning.
Diversity denotes the variety of sources that a firm exploits;
intensity denotes their sheer number. Some firms may prefer
more intensity and less diversity, while others opt for more
diversity and less intensity. The balance of diversity and
intensity selected may depend upon the firm’s complementary
assets and absorptive capacity. Firms that have superior complementary assets (e.g., TATA group of companies in India,
Haier group of companies in China, and Samsung Group of
Korea) may have the option of choosing from among a wide
variety of learning sources, and hence they could be highly
diverse in their sources of learning. Firms with superior absorptive capacity, such as Lenovo of China and Infosys Technologies
of India, on the other hand, should be more capable of learning
in depth from fewer sources. Certain firms may have both
superior absorptive capacity and outstanding complementary
assets, giving them the luxury of choosing from a variety of
sources and at the same time deepening their relationship with
each of the sources selected.
Insight 4: During the later stages of catching up, the
greater the absorptive capacity of an emerging economy
firm in a given domain, the greater will be the intensity of
learning in that domain.
Insight 5: During the later stages of catching up, the
greater the variety of complementary assets of an emerging economy firm, the greater will be the diversity of
learning sources.
Through learning intensely from diverse sources, technology-deficient firms not only catch up with the dominant
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technology of the industry, but they also gain legitimacy.
Legitimacy in this context denotes acceptance by the members of the industry’s value chain of the firm as a long-term
player. Primarily, this means legitimacy among the industry’s
customers and suppliers. From the point of view of the
customers, if a firm is to be taken seriously and not just as
a ‘‘me too’’ player, then quality offerings become important.
Only those that offer quality products consistently will be
seen as serious about staying in the market. From the point of
view of the suppliers, when a supplier of a key component is
faced with heavy demand, it will cater first for the needs of
those firms likely to be around over a longer period.
To gain acceptance among customers and suppliers, late
moving firms need to enhance the quality of their offerings
and not just compete on price. This requires the firm to be
continuously innovative. To be innovative, a firm needs to
rely on a variety of learning sources and to intensify its
learning activity. For example, Samsung Electronics is widely
considered a leader in mobile technology, thanks to its wide
array of learning sources and the intensity with which it
participates in each. Samsung collaborated with several of
its competitors, such as Nokia and NEC, to develop new
mobile technology. It has established a joint venture with
Limo to develop mobile phones based on different platforms
such as Linux. Samsung also collaborates with Intel and
Microsoft to develop ultra-portable computers, ahead of
its mobile business competitors (Fig. 1).
Insight 6: During the later stages of catching up, firms
learning intensely from diverse sources will be more
successful in catching up on a global scale.
A VIGNETTE — TCL MOBILE COMMUNICATION
CO., LTD
A vignette will illustrate the practical difficulty faced by
emerging economy firms in their catching up, and the practical relevance of the insights presented. The focus of this
vignette is the foray of a major Chinese electronic goods firm
— TCL — into the mobile phone industry.
The Chinese mobile phone market has experienced astonishing growth over the past decade. By 2010, the number of
Absorptive
capacity
Institutional support
1) Government
2) Business groups
Readily
available
technology
Domestic
catch up
Renewed
learning
1) Diversity
2) Intensity
Complementary
assets
Figure 1
Catching Up of Latecomer Firms: A Conceptual Model
Global
catch up
218
J. Li, R.K. Kozhikode
mobile phone users in China had passed 800 million, making
China the largest mobile phone market in the world. Chinese
handset production has followed a similar pattern — surpassing 700 million handsets in 2010, accounting for 60 percent of
world production. However, until the late 1990s, multinationals like Motorola and Nokia dominated the mobile phone
market, with over 95 percent of the market share.
Starting from a market share of zero in 1998, when local
brands first entered the market, the collective market share
of local brands in China’s mobile phone market reached 55
percent in 2003. More recently, however, the market share of
local players has been decreasing. By 2009, the share of local
brands had dropped to 35 percent.
Data Source and Company Profile
TCL is today China’s second-largest TV and mobile phone
manufacturer. A majority stake in TCL was held by the
government of its headquarters city of Huizhou as recently
as 1996. Since then, the Huizhou government’s stake has
since decreased from 80 to 25 percent in progressive restructurings. Strategic investors, such as Japan’s Toshiba and
Sumitomo, as well as the company’s managers, own shares
too. TCL built its first mobile phone in 1999, and has since
grown to produce over 10 million units in recent years. Its real
competitive strengths are low labor cost manufacturing and a
large and aggressive sales force. Table 1 provides some
historical background about TCL.
Domestic Learning
Initially a technology deficient firm, TCL had to seek out
technologically advanced firms to obtain the core technology
for mobile phone manufacturing. At first, TCL attempted to
cooperate with Wavecom, an Italian firm, to acquire the
necessary core technology licenses, but the cooperation
was not successful. In 2000, it began to cooperate with
another foreign firm, Qualcomm, which provided TCL with
the necessary technology licenses. This cooperation was
Table 1
fruitful: in 2002, TCL was ranked (by Deloitte) as the number
one technology company in Asia in terms of growth. In
addition to the licensing arrangements with Wavecom and
Qualcomm, TCL also collaborated with a number of other
technology vendors for other peripheral technology. Moreover, TCL did a small amount of in-house R&D, primarily
development rather than research. Their objective was to
develop models that suited the tastes of local consumers.
Global Learning
TCL’s competitive edge in China — its sales and service network — has ensured its market share at home. However, these
networks could not help the company’s expansion overseas.
TCL realized that it lacked the distribution, service and
marketing power necessary to penetrate the North American
and European markets. Moreover, its mobile phones lacked
GSM wireless technology, the global standard in mobile communication. To overcome these obstacles, in April 2004, TCL
set up a mobile phone production joint venture with Alcatel
SA, a leading global supplier of high-tech telecommunications equipment.
TCL’s strategic intent
For TCL, the intent of this joint venture was four-fold. TCL
sought to gain legitimacy in the U.S. and European markets by
capitalizing on Alcatel’s global reputation. Doing so, TCL
expected this to mitigate its oversupply position in the
Chinese market. The joint venture was also intended to give
TCL access to international customers such as Vodafone,
France Telecom and T-Mobile. TCL also hoped to gain entry
to the European market by capitalizing on Alcatel’s sales and
distribution network.
Second, TCL sought technology and research and product
development capability from Alcatel, a pioneer in the mobile
phone manufacturing industry. TCL could reduce the royalties it paid to build phones based on GSM technology, because
Alcatel owns some of the patents used in that transmission
standard. By working with Alcatel, TCL need not sacrifice its
Path Dependencies and Learning of TCL, 1999—2008.
Complementary Assets
Learning — External
Learning — Internal
1. Well known brand in China
2. Understanding of local customers’ tastes
3. Extensive distribution channel and wide reach of end users
1. Licensing agreement with Wavecom on chips, software platform, and hardware design in 1999
2. Licensing agreement with Siemens on chips in 1999
3. Licensing agreement with Qualcomm on CDMA mobile phone solutions in 2000
4. Licensing agreement with Microsoft on voice and data processing technology in 2002
5. Licensing agreement with TTPCom on GPRS platform in 2002
6. Licensing agreement with Wavecom on software platform in 2002
7. Licensing agreement with Ericsson on GPRS platform in 2003
8. Licensing agreement with Intel on PXA800F Manitoba chips in 2003
9. Licensing agreement with ADI on chips in 2003
10. Intel-TCL 3C Joint Laboratory established in 2003
11. JV with Alcatel to operate mobile phone business globally in 2004
12. Further investment to buy-out Alcatel in the JV in 2005
1. Shenzhen TCL Research Institute
2. 18 R&D Labs worldwide
Organizational learning of emerging economy firms
margins by buying the technology. Alcatel, for its part, sought
to transfer its mobile handset business and assets to TCL,
including its factories and research and development operations both in Paris and Shanghai. This allowed TCL to develop
cutting-edge technology to compete globally with high quality and high technology products.
Third, the venture was designed to help TCL maximize its
economies of scale. The transfer pf Alcatel’s production
would help TCL spread its fixed costs and realize economies
of scale. This should help TCL to sustain its low-cost competitive edge. Last, its enhanced reputation as a result of the
joint venture should help TCL attract financing. If the joint
efforts worked out, the confidence of investors would be
strengthened, making it easier to attract financing crucial for
TCL’s continued expansion.
Alcatel’s strategic intent
Alcatel on the other hand, had other plans. Alcatel’s handset
operation represented about five percent of the company’s
revenue in 2003. The company had been trying for months to
reduce its exposure to the mobile phone business. It was
losing money and market share to fast-growing Asian competitors. The joint venture with TCL allowed Paris-based
Alcatel to shed its mobile phone business and concentrate
on building telecommunications equipment for carriers and
commercial businesses. Alcatel would have put itself at risk
by inviting TCL, a potential competitor, into its markets,
were it not planning to exit the mobile phone business. From
Alcatel’s perspective, the joint venture with TCL was more
like a phased divestiture than a resurgent venture.
The result
On the cost front, TCL made a significant breakthrough. The
average selling price of TCL handsets dropped significantly in
just a few months. Soon after that, the JV started destabilizing. The venture experienced severe staff turnover in Europe. Alcatel moved its R&D operations to China, but without
the European personnel. Financially too, TCL suffered significant losses. Eventually, TCL had to buy out Alcatel’s stake
in the venture in 2005. TCL also reported a loss for 2005 of
about $200 million, the biggest loss among its peers. To makes
things more painful, the buyout of Alcatel’s stake in the
venture stripped TCL of its right to use Alcatel’s patent
portfolio, which was one of TCL’s major intentions when
the JV was formed.
Key Observations
The key findings from the vignette are summarized in Table 1,
which presents the different learning modes such as licensing
agreements, alliances, joint ventures and their associations
with firm performance. The data suggest that TCL primarily
used licensing to gain its initial market share quickly. The
main explanation seems to be the speed of knowledge transfer: compared with other learning modes such as JVs or
internal R&D, licensing allowed the emerging economy firm
immediate access to the core technologies, thereby shortening the catching up process.
The mobile phone industry in China has been fast growing,
requiring emerging economy firms to develop internal technological competence very quickly. Most needed to acquire
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(mostly by means of licensing arrangements) the technology
that technologically superior global firms were already using.
Arguably, what was acquired was not the innovative technology that the global firms were just introducing, but rather the
incumbents licensed out to the emerging economy firms
technologies that were on the verge of being phased out.
Another important thing to note here is the use of internal
R&D. It appears that during the early stages of the catching up
process, ‘‘learning efficiency’’ was more important to the
emerging economy firm than ‘‘learning effectiveness.’’ Normally, internal R&D is one of the most viable learning strategies
because it can help firms overcome the technology transfer
difficulties involved in other modes of learning. Developing an
R&D capability requires a long lead-time and thus may not be a
safe bet for late entrants in their process of catching up.
After building a sizable market share through fast acquisition of technology licenses, TCL started losing its cost advantages. Their current resources were not sufficient to take
them to the next level of competence. Legitimacy concerns
in domestic and overseas markets also forced them to look at
broad based linkages with other international incumbents.
However, this seemed easier in prospect than it proved to be
in practice. Broad linkages in the form of joint ventures and
acquisitions mean greater commitment. Unless there is congruence between the interests of the emerging economy firm
and its partner, the emerging economy firm may not realize
its learning objective.
CONCLUSION
Managing in emerging economies has been a key focus of top
managers globally over the past couple of decades. This focus
has been fueled not just by the fact that these economies
have been a sort of virgin pampas over which the multinationals have been able to graze, but also because these
regions have continually produced new multinationals which,
though late to enter the global herd, have been fast making
their presence felt. These latecomers have eventually begun
even to challenge the authority of the lead stallions.
This study has looked at an initial stage of this development, where emerging market firms have just broken a
historical barrier and have acquired licenses for their domestic market. The problem such firms face at this point is twofold. First, they lack needed technology and second, they
feel they are racing against time — if they do not find the
necessary technology in time, they fear they will miss opportunities. Current theories of the firm are insufficient to
explain the strategies of such firms. In this research, we used
an example from the Chinese mobile phone industry to
explain how late-moving, technology-deficient firms attempt
to catch up in technology intensive industries. The TCL case
suggests that catching up can be considered as a two-stage
process. The initial stage requires these firms to strike
linkages with the dominant technology and leverage these
linkages using existing complementary assets. Once they
have found a foothold in the target industry through such
linkage and leverage, the next stage is to learn, to gain selfsufficiency and to develop sustainable, idiosyncratic
resources for the long run.
This analysis has emphasized the phased nature of catching up. During the initial stages, the resource-poor emerging
220
economy firms merely intend to make inroads into the market
by accessing readily available technology. This stage does not
last long, and the emerging economy firms seek to acquire
the innovative technology that would make them competitive with the market leaders. Efficiency is emphasized in the
early stage, and effectiveness is emphasized later. This
amplifies the resource-based view of the process by arguing
that idiosyncratic resources are not always important to firm
competitiveness, but their importance increases when firms
attempt to compete head on with firms that have rentgenerating, proprietary, and innovative technologies.
This article also contributes to the dynamic capability
perspective on the process by emphasizing the distinctive
importance of path-dependent resources to the learning
efficiency of latecomer firms. The results emphasize the
importance of complementary assets in learning source
selection and the importance of absorptive capacity in learning source utilization.
Further, we suggest that the firms most adept at linkage in
the initial stages gain a larger market share, and firms that
learn with higher intensity and from diverse sources can best
respond to any retaliatory pressure from incumbents. This
gives a clear message to aspiring late entrants that it would
J. Li, R.K. Kozhikode
be in their best interest to gain access to the most readily
available technology to get the business rolling, rather than
to look for the most advanced technology to compete head on
with the incumbents. It also suggests that once a foothold has
been attained, it is no longer sufficient to just stick with
readily available technology. The need then arises to enhance
internal technological competence, both by diversifying the
sources of learning and by intensifying the learning from each
source.
Much research has looked at the timing of market entry and
the advantages that are conferred upon early movers from
developed economies, but little has been done to explain how
technology-deficient emerging economy firms catch up and
survive in technology intensive industries. Using a multi-theoretic perspective, this study has developed a model of this
catching up process. Future studies on latecomers could profitably use the conceptual model developed here to examine the
catching up phenomenon in diverse settings.
Organizational learning of emerging economy firms
221
SELECTED BIBLIOGRAPHY
The central arguments on resource based competence are
provided in the following articles: B. Wernerfelt, ‘‘A
Resource-Based View of the Firm,’’ Strategic Management
Journal, 1984, 5, 171—180; and J. B. Barney, ‘‘Firm Resources
and Sustained Competitive Advantage,’’ Journal of Management, 1991, 17, 99—120.
Key articles examining the role of institutions and business
groups are M. F. Guillen, ‘‘Business Groups in Emerging
Economies: A Resource-based view,’’ Academy of Management Journal, 2000, 43, 362—380; T. Khanna and K. G.
Palepu, ‘‘The Future of Business groups in Emerging Markets:
Long-Run Evidence from Chile,’’ Academy of Management
Journal, 2000, 43, 3, 268—285.
Following are some important articles on catching up of
emerging economy firms: K.G. Huang, ‘‘China’s Innovation
Landscape,’’ Science, 2010, 329(6 August), 632—633; M. Zeng
and P.J. Williamson, Dragons at Your Door (Harvard University
Press, 2007); P. S. Aulakh, M. Kotabe and H. Teegen, ‘‘Export
Strategies and Performance of Firms from Emerging Economies: Evidence from Brazil, Chile and Mexico,’’ Academy of
Management Journal, 2000, 43(3), 342—361; D. Ahlstrorn and
G. D. Bruton, ‘‘Learning from Successful Local Private Firms
in China: Establishing Legitimacy,’’ Academy of Management
Executive, 2001, 15(4), 72—83; D. S. Cho, D. J. Kim and D. K.
Rhee, ‘‘Latecomer Strategies: Evidence from the Semiconductor Industry in Japan and Korea,’’ Organization Science,
1998, 9(4), 489—506; M. Hobday, Innovation in East Asia: The
Challenge to Japan (Edward Elgar, 1995); L. Kim, Imitation to
Innovation: The Dynamics of Korea’s Technological Learning
(Harvard Business School Press, 1997); J. Mathews, Dragon
Multinational: Towards a New Model of Global Growth
(Oxford University Press, 2002); and J. Mathews, ‘‘Dragon
Multinationals: New Players in 21st Century Globalization,’’
Asia Pacific Journal of Management, 2006, 23, 139—141.
Some of the key articles on path-dependent capabilities
include, W. M. Cohen and D. A. Levinthal, ‘‘Absorptive
Capacity: A New Perspective on Learning and Innovation,’’
Administrative Science Quarterly, 1990, 35(1), 128—152; B.
Kogut & U. Zander, ‘‘Knowledge of the Firm, Combinative
Capabilities, and the Replication of Technology,’’ Organization Science, 1992, 3, 383—397; and D. J. Teece, The Competitive Challenge: Strategies for Industrial Innovation and
Renewal. (Ballinger Pub. Co., 1987).
Examples used to demonstrate path-dependent capabilities can be found from the following articles and books. G.
Duysters, J. Jacob, C. Lemmens, and J. Yu, ‘‘Internationalization and Technological Catching Up of Emerging Multinationals: A Comparative Case Study of China’s Haier
Group,’’ Industrial and Corporate Change, 2009, 18(2),
325—349; S. Shane, ‘‘Prior Knowledge and the Discovery of
Entrepreneurial Opportunities,’’ Organization Science, 2000,
11 (4), 448—496; and K. Lim, ‘‘The Many Faces of Absorptive
Capacity: Spillovers of Copper Interconnect Technology for
Semiconductor Chips,’’ Industrial and Corporate Change,
2009, 18(6), 1249—1284.
Examples of important articles examining competitiveness and organizational learning and include D. Lei and J.W.
Slocum, ‘‘The Tipping Points of Business Strategy: The Rise
and Decline of Competitiveness,’’ Organizational Dynamics,
2009, 38, 131—147; and B. Levitt and J. G. March, ‘‘Organizational Learning,’’ Annual Review of Sociology, 1988, 14,
319—340.
Jiatao (J.T.) Li is chair professor and head of the department of management, and associate dean (Faculty) of the
Business School, Hong Kong University of Science and Technology. He received his Ph.D. in strategy and international
management from the University of Texas, and was previously with McKinsey & Company in Hong Kong. His current
research interests are in the areas of strategic alliances, corporate governance, innovation, and entrepreneurship,
with a focus on issues related to global firms and those from emerging economies. He is serving as an associate editor
for the Strategic Management Journal (Department of Management, Hong Kong University of Science and Technology,
Clear Water Bay, Hong Kong. Tel.: +852 2358 7757; fax +852 2335 5325; e-mail: [email protected]).
Rajiv Krishnan Kozhikode is an assistant professor in the faculty of economics and business, University of
Groningen, The Netherlands. He recieved his Ph.D. in management from the Hong Kong University of Science and
Technology. During fall 2009, he was also a visiting scholar at Columbia University, New York. In his dissertation,
using longitudinal data from the Indian newspaper and banking Industries, he examined the influence of
institutional pluralism on organizational strategic choices. He is also interested in other areas of strategic
management and organizational theory such as social networks and organizational learning (Faculty of Economics
and Business, University of Groningen, The Netherlands. email: [email protected]).