Structured Uncertainty: A Pilot Study on Innovation in China's Mobile Phone Handset Industry

Abstract

This paper explains why many small and medium-sized private high-technology Chinese manufacturing firms survive and thrive within an institutional and political system arrayed against them. We use the mobile phone handset industry as an illustrative case of the vitality and capabilities of Chinese SMEs. We argue that in capitalizing on the advantages offered by the global fragmentation of production, while also being constrained by an institutional climate of structured uncertainty, Chinese non-state firms have chosen a pattern of incremental innovation in their search for competitive advantage. Despite falling outside central government innovation plans and engaging in practices inimical to nurturing novel product innovation capabilities, these firms have a sustainable business model based on niche tailoring, rapid product introduction and utilization of standardized components.

Keywords: structured uncertainty, fragmentation of production, innovation, mobile phone handset industry, emerging economies

JEL Classification: L52, L63, O14, O25, O31, R58