A New Geography of Knowledge in the Electronics Industry? Asia's Role in Global Innovation Networks

East-West Center Policy Studies series #54, 2009

84 Pages Posted: 7 Mar 2016 Last revised: 16 Mar 2016

See all articles by Dieter Ernst

Dieter Ernst

East-West Center; Centre for International Governance Innovation (CIGI)

Date Written: March 6, 2009

Abstract

Political debates about globalization are focused on offshore outsourcing of manufacturing and services. But these debates neglect an important change in the geography of knowledge -- the emergence of global innovation networks (GINs) that integrate dispersed engineering, product development, and research activities across geographic borders.

This new form of global corporate networking poses new challenges and opportunities for policy-relevant research on globalization. The challenge is to trace and decipher the increasingly complex forms of these networks, which have expanded well beyond the traditional centers of the global economy in the United States, the EU, and Japan.

An equally important challenge is to identify the drivers and impacts of these global networks, which are pushing interdependence among national economies and their innovation systems to historically unprecedented levels. Global corporations construct GINs as they seek to increase their return on investment and penetrate high-growth emerging markets. Although governments until recently have been only marginal players, the global economic recession has forced them to redefine and increase their involvement.

At the same time, the study of GINs provides a powerful tool for sharpening the research agenda of international economics, economic geography, and international relations (and its most recent offspring, global studies) and for developing new policy responses.

The spread of GINs has intensified technology-based global competition, brutally exposing structural deficiencies of current learning and innovation strategies at the firm level and technology policy at the industry level. However, many of these debates are focused on the leading large economies, and the main concern is how to foster breakthrough innovations that can support technology leadership.

This monograph draws on a unique database of GINs in the electronics industry to explore the GINs’ drivers and impacts. It specifically highlights Asia’s role and discusses how integration of Asian firms into these networks affects learning, capability formation, and innovation.

The argument of this study can be summarized as follows:

First, the emergence of GINs is currently taking place, and is not merely something that can be expected to occur in the future. In fact, we are now in the middle of a rapid expansion of these networks. The main driver of these networks is outsourcing, which draws on the relentless slicing and dicing (“modularization”) of engineering, development, and research. This process is complex, involving multiple actors and firms of different size, and has resulted in a diversity of networking strategies and network architectures. This study highlights the systemic nature of the forces that are driving and enabling the geographical dispersion of innovation networks.

Second, GINs have expanded well beyond the traditional high-tech regions in the United States, the EU, and Japan. There are now multiple locations for innovation, and even lower-order or less developed centers can still be sources of innovation. Asia’s role in these networks, formerly quite minor, is increasing. The resurgence of China and India as important markets and production sites plays an important role in that increase. The speed of learning in some of the new Asian innovation offshoring hubs is impressive, giving rise to increasingly broad-based portfolios of innovative capabilities.

However, the new geography of knowledge is not a flatter world. Instead, the offshoring of research and development (R&D) through GINs has created a handful of new -- yet very diverse and intensely competing -- innovation offshoring hubs in Asia. There is clear evidence that the United States, Europe, and Japan retain their dominance in science and in high-impact intellectual property, enabling them to control the emerging new geography of knowledge.

At the same time, a substantial increase in the mobility of knowledge has led to a concentrated dispersion of innovation hubs. To the degree that the diversity of network players, locations, business models, and network arrangements is increasing, this creates new opportunities for knowledge diffusion, enabling Asian network participants to enhance learning, absorptive capacity, and innovative capabilities.

This results in a new global hierarchy of innovation hubs:

• Global centers of excellence in the United States, Japan, and the EU

• Advanced locations (e.g., Israel, Ireland, Taiwan, and Korea)

• Catching-up locations (e.g., Beijing, the Yangtze River delta, and the Pearl River delta in China, and Bangalore, Chennai, Hyderabad, and Delhi in India)

• “New frontier” locations (e.g., lower-tier cities in China and India, plus Romania, Armenia, Bulgaria, and Vietnam).

The third argument of this monograph is that the new geography of knowledge cannot be left to market forces alone. The study provides new insights into a critical question that is at the center of Asia’s industrial policy debates: Is network integration a poisoned chalice for Asian firms, or will it reduce entrenched barriers to innovation? The answer is that there is nothing automatic about these processes. Although integration into global networks of production and innovation has facilitated the catching up of Asian firms as fast followers, that integration may become a mixed blessing unless Asian governments establish appropriate policies for developing absorptive capacity and innovative capabilities both at the firm level and across the industry.

Specifically, this monograph provides evidence for three propositions: 1) “Absorptive capacity” is critical for attempts to develop and upgrade innovative capabilities; 2) Asian firms now must increase R&D to avoid diminishing returns of network integration; and 3) integration into diverse networks of production and innovation provide new opportunities for “technology diversification” as a complementary alternative to “technology leadership” strategies that is within the reach of Asian emerging economies.

Future research needs to address the potentially game-changing impact of the current breakdown of the financial system and the resultant collapse of international trade and investment. There are now clear signs that Asia’s prospects for investment and employment are grim and that demand and GDP growth will slow down significantly. It is unclear at this stage, however, how this will affect Asia’s innovative capacity and its response to the emerging new geography of knowledge.

Future research thus needs to explore whether the crisis will facilitate or disrupt Asia’s integration into global networks of production and innovation.

Keywords: Geography of Knowledge, Knowledge Economy, Globalization, Global Innovation Networks, Electronics Industry, Asia

JEL Classification: F23, F68, O3, O32, O38, O53

Suggested Citation

Ernst, Dieter, A New Geography of Knowledge in the Electronics Industry? Asia's Role in Global Innovation Networks (March 6, 2009). East-West Center Policy Studies series #54, 2009. Available at SSRN: https://ssrn.com/abstract=2742923 or http://dx.doi.org/10.2139/ssrn.2742923

Dieter Ernst (Contact Author)

East-West Center ( email )

1601 East-West Road
Honolulu, HI 96848-1601
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

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