Linking institutional environment with technological change: The rise of China's flat panel display industry

Technological Forecasting & Social Change 151 (2020) 119852

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Linking institutional environment with technological change: The rise of China's flat panel display industry

T

Jiang Yua,c, Rui Liua,b, , Feng Chena,b ⁎

a

Institutes of Science and Development, Chinese Academy of Sciences, No. 15 Beiyitiao zhongguancun Haidian, Beijing 100190, China University of Chinese Academy of Sciences, No. 15 Beiyitiao zhongguancun Haidian, Beijing 100190, China c School of Public Policy and Management, University of Chinese Academy of Science, No.19 Yuquan Road Shijingshan District, Beijing 100049, China b

ARTICLE INFO

ABSTRACT

Keywords: Institutional environment Technological change Business strategy Technological capability-building China's FPD industry

In view of the complex dynamic environment from technological change and uncertain government regulation, this study examines how business strategies improve technological capabilities under the dynamic interaction between technological change and institutional environment. Drawing on detailed evidence gathered from firsthand and second-hand data, we develop a framework and combine the framework with the rising process of China's flat panel display (FPD) industry to identify levels of technological capabilities in distinctive phases. The findings show that three phases of technological capability-building in China's FPD industry consist of basic operational and innovative capability-building, intermediate innovative capability-building, and advanced innovative capability-building. The findings also show that three levels of technological capability are determined by the distinctive portfolios of business strategies under the dynamic interaction of technology change and institutional environment. Specifically, we find that with the guidance of distinct intended strategies, firms adopt different actual strategies to enhance their technological capabilities. Firms employ strategies of the joint venture, and merger and acquisitions (M&As) to build basic operational and innovative capability under a mutually reinforcing local and central institutional environment, and industrial environment of technological substitution. Whereas strategies of the contractual arrangement and talent introduction result in building intermediate innovative capability, according to mutually offsetting local and central institutional environment, and industrial environment of technological upgrading. The strategies of the contractual arrangement and strategic alliance lead to building advanced innovative capability based on mutually reinforcing local and central institutional environment, and industrial environment of technological leapfrogging. Finally, the limitation of this study and the direction for further research are provided.

1. Introduction The rapid economic development, the enhanced technological capabilities and the fast industrial catch-up in the large, emerging countries have gained wide attention from the academic and industrial fields. It is widely recognized that technological innovation is a key element of industrial development, capability-building and catch-up in developing countries (Fu et al., 2011). Technological innovation is carried out in a complex dynamic which is characterized by technological change (Utterback, 1994) and an uncertain external environment. Technological change, especially the period of rapid and discontinuous technological change (Brittain and Freeman, 1980), not only introduces an era of ferment of intense technical variation and selection, but also leads to the dynamic interorganizational competition, and the nation-wide and even global-level ⁎

reconfiguration of industrial structure (Anderson and Tushman, 1990; Volkoff et al., 2007; Lai and Weng, 2016). Additionally, institutional forces, as one of the core factors on industrial development, have been widely suggested to have a critical impact on technology transfer and industrial catch-up (Carrillo et al., 2006; Chatterji, 1990; Gaur et al., 2014; Henisz, 2010; Li and Zhang, 2007). Institutional arrangement can change the existing technological trajectory and the technological change may call for new institutional design. It is common practice for those late-industrialized countries (e.g. Korea and China) to strategically utilize institutional arrangements and technological choices not only to follow the paths of forerunners but to achieve path-creating, path-skipping, and path-following catchup, particularly in high-tech industries (Lee and Lim, 2001; Mu and Lee, 2005). Technological capability-building in a catch-up context cannot be

Corresponding author at: Institutes of Science and Development, Chinese Academy of Sciences, NO.15 Beiyitiao zhongguancun Haidian, Beijing 100190, China. E-mail address: [email protected] (R. Liu).

https://doi.org/10.1016/j.techfore.2019.119852 Received 5 July 2018; Received in revised form 7 November 2019; Accepted 20 November 2019 0040-1625/ © 2019 Elsevier Inc. All rights reserved.

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achieved without the participation of firms (Yu et al., 2017; Guo and Zheng, 2019). Their strategic choices to instruct the capability-building are the sources with which to realize the acquisition of industrial capabilities. In order to cultivate indigenous technological capabilities and enhance competitive advantages, firms leverage diversified strategies to acquire external technology and generate new knowledge (Kim, 1993; Hobday, 2015; Mathews, 2002) under dynamic changing the interaction of technological and institutional conditions. To survive and thrive under the dynamic technology market and institutional environment, both emerging and incumbent firms are faced with a set of recurring challenges (Li and Wang, 2019). These challenges include achieving a balance between supporting new and established technological innovations, the development of diverse competencies both to shape and deal with technological changes, and recognizing, shaping an emerging standard and so on. Building on these insights, our research purpose is to explore whether distinctive portfolios among business strategies, technological change, and institutional environment have an impact on technological capability-building. In accordance with the research purpose, our research question is: How do business strategies improve technological capabilities via the interaction between technological change and institutional environment? To address the research question, our first research objective is to examine how institutional environment and technological change affect a firm's business strategies. We also explore how business strategies improve firms’ technological capabilities in industrial development. To answer the foregoing research question and achieve our research objective, the remainder of the paper is organized as follows. In the second section, we examine the aforementioned literature to outline our theoretical framework for guiding the research. The third section explains the research methodology and dataset used in this study. The research setting is described in the fourth section. The fifth section describes an in-depth case study, which we use to explore strategic choices and dynamics evolution in China's FPD industry. The last two sections discuss findings and implications respectively and set out our conclusions.

the lowest (Romijn, 1998). Various studies in the literature provide the analytical frameworks of technological capability. Kim's model of acquisition, assimilation, and improvement is widely accepted to explain technological capability development in developing economies (Jin and Von Zedtwitz, 2008). Kim (1999) also presents five analytical perspectives–technology trajectories, absorptive capacity, technology transfer, crisis construction, and dynamic learning process–that may be used to examine the process of technological learning at the firm level. 2.2. Technological change and institutional environment in industrial development 2.2.1. Technological change Technology is seen as a means by which firms can strive to adapt to the requirements of intensive competition and an uncertain environment (Rothwell, 1994). Technological change, propelled by a range of issue-solving activities, is often explained from the evolutionary perspective of changes, selection, and retention (Nelson and Winter, 1982). The technological change can be driven by institutions, market demand, standards, industrial competition and so on. Due to the irreversible, cumulative of technological change, technological advances always along a technological trajectory (Kim et al., 2017). The existing literatures on technological change try to attempt to identify technological trajectory via the whole technological evolution of industries or firms. According to Lee and Lim (2001), path-following, path skipping, and path-creating are three patterns of industrial technological change. In terms of industrial or firms, technological substitution, technological upgrading and technological leapfrogging are the general patterns of technological change (Nakicenovic, 1986; Lee et al., 2005; Fu and Gong, 2011). Based on the work of Norton and Bass (1987), Dey et al. (2019) and Davison et al. (2000), we identify three different technological change in catching up. Technological substitution is the replacement of an existing technology with another technology regime that doesn't rely on existing innovation assets. Technological upgrading means a shift to incremental improvement of design and user of technology which still relies on existing innovation assets and follows the current technological regime. Technological leapfrogging represents the substantial improvement of technology which still relies on existing innovation assets and follows the current technological regime. Scholars have attempted to examine the general process of technological change at firm-level or industrial-level (Lall, 1992; Antonelli and Colombelli, 2011). In many industries, firms' ability to sustain their competitive advantage depends on their ability to manage technological change (Kapoor and Adner, 2012), while the process of the commercialization of technological change is the industrial innovation process and industrial technology is also changing. In addition, the growing complexity and pace of industrial technological change are forcing firms to forge new vertical and horizontal inter-organization and to seek greater flexibility and efficiency in responding to market changes (Rothwell, 1994).

2. Theoretical background and conceptual framework 2.1. Industrial development and technological capability-building There is a substantial body of literature that points to the importance of technological capability-building for industrial development (Romijn, 1997; Kim and Nelson, 2000; Hsieh and Tsai, 2007) and competitive advantage enhancement (Tsai, 2004). Technological capability-building is critical, especially in high-tech industries such as the manufacturing industry (Madanmohan et al., 2004), information and communication technology (ICT) sector (Mohannak, 2007; Jin and Von Zedtwitz, 2008) and so on. Technological capability, as the general ability to undertake this broad range of tasks (Bell and Pavitt, 1992), refers to a set of knowledge sources and skills that generate and manage technological changes, including production capability and innovation capability (as shown in Table 1) (Figueiredo, 2017; Figueiredo and Piana, 2018). According to Desai (1984), there are four types of technological capability: the purchase of technology, plant operation, duplication and expansion, and innovation. Critical elements that affect the ability of firms in developing countries to cultivate and enhance their technological capability include internal factors, such as technology planning and control, market orientation, training and number of technical manpower imported technology (Madanmohan et al., 2004; Kumar et al., 1999) and foreign direct investment (Kokko et al., 1996); and external factors, such as government support and national technology (Kumar et al., 1999). It is argued that the acquisition of technological capability is most needed in small firms in developing countries where productivity and incomes are

2.2.2. Institutional environment Recently, a growing amount of research on institutions and industrial development demonstrate a general consensus among management scholars, economists, and policymakers that a set of institutions must be in place to promote and achieve industrial catch-up (Xu, 2011; Chen and Ku, 2014; Lee et al., 2016). In the catch-up context of latecomer countries, scholars are increasingly focusing on the role of government, the effect of institutional environment on industrial development. According to the classification of North (1990) and Scott (2005), we define the institutional environment as the external environment of industrial development that is shaped by a series of formal institution at government-level such as policies or rules. 2

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Governments, as the entity of shaping the institutional environment, create the institutional environment of industrial development via issuing a series of policies. Previous studies have shown that industrial policy is issued by public entities at the international, national, and regional levels (Evenson and Westphal, 1995). In view of our research aims at exploring a certain industrial development in latecomer countries, the public entities who issued industrial policies are at the national and regional levels. According to Xu (2011), the trajectory of China's industrial reform, reform strategies, outcomes, achievements, and problems are mainly determined by China's political and economic institutions. In terms of policies issuing entities in China, the national level is the central government, while the regional level is the local government. However, the decentralized political structure of China often leads to the conflict of roles between the central and local governments (Xu, 2011; Lee et al., 2016). For example, the study of Chen and Ku (2014) has shown that the central government aiming at creating locally owned technologies, while some local governments focused on restructuring local industries. That is, the divergent catch-up dynamics in China may be attributed to the inconsistency and discoordination among the different levels of governments. The existing literatures on the relationship between local and central government mainly focus on conflicts (Chen and Ku, 2014), inconsistency and discoordination (Xu, 2011). Yet the relationship between local and central governments in the process of industrial development needs further exploration. Following the theoretical literature of institutional analysis, we will further explore how does the interaction between local and central governments shape the rise of industry from an institution-based view.

strategic orientation (Walker and Ruekert, 1987; Varadarajan and Clark, 1994). Business strategy represents the general direction of firms, and different types of business strategies affect the ways in which firms incorporate and articulate information from the environment (Matsuno and Mentzer, 2000). The intended strategy goal is achieved by the effective execution of different business strategies. Strategical typologies are useful tools to describe and categorize distinct business strategies. The strategy literature offers several business strategies typologies such as corporate-level and business-level strategies (Hofer, 1975; Porter, 1989), intended and realized strategies (Mintzberg, 1978), and a hybrid typology of business strategies (Walker and Ruekert, 1987). Specifically, Hofer (1975) divided interlevel strategies into corporate-level and business-level according to the view of contingency theory. From the process of strategic formation, Mintzberg (1978) identified intended strategies and realized strategies that firms can use to gain competitive advantage. Following the study of Mintzberg (1978), some literatures consider actual strategies are synonymous with realized strategies (Hambrick, 1981). To acquire competitive advantage under the context of global economic integration, new types of business strategies are emerging such as innovative business strategy (Fu, 1998), international business strategy (Peng et al., 2008), manufacturing strategy (Raymond and Croteau, 2008; Jiménez et al., 2011), and latecomer firm strategies (Soh and Yu, 2010; Coad, 2011; Kiamehr et al., 2015). It is generally understood by academics and practitioners that the types of strategies adopted by a firm play a key role in determining innovation level and firm performance (Manley and McFallan, 2005, Talke et al., 2010; Kumar et al., 2018). Thus, companies are driven to develop strategic configurations for improving competitive advantage and acquiring benefits, especially in catch-up countries (Kwak et al., 2018). However, the existing literatures indicate that strategic combination mainly focus on the portfolios of the same types (Walker and Ruekert, 1987; Anwar and Hasnu, 2016), while the study of distinct types of business strategic combinations is limited to the theoreticallevel (Chrisman et al., 1988; Meskendahl, 2010). To make for the deficiency of the literatures on strategies, this study will use the typology of Mintzberg (1978), following the specific strategies types of Fu (1998) and Soh and Yu (2010) to explore the change of firm's technological capabilities via the interaction of multidimension strategic combination. On one hand, the reason for selecting those typologies is that it is not only mainly focused on the external environment of organizations (e.g. institutions, technology) but also concerns internal situations of organizations. On the other hand, this research design may help to capture the complex dynamics of a multidimension strategic portfolio. In the typology of Mintzberg (1978), intended strategies refer to plans, missions or visions concerning the desired future of the firm (Bowman and Ambrosini, 1997), while actual strategies refer to the actual, current strategic situations on the firm (Mintzberg, 1978; Bowman and Ambrosini, 1997). Some scholars have elaborated on the core content of these two strategies from different perspectives. According to the situation of China in the primary stage of catch-up, Fu (1998), one of the pioneers of China's innovation research, put forward the intended innovative business strategies, and further divided them into imitative innovation, cooperative innovation and indigenous innovation. However, other scholars believe that the leapfrogging of innovative modes is both challenging and difficult (West and Gallagher, 2006). Owing to the formation of business strategies is affected by the interplay between dynamic environment and political factors (Mintzberg, 1978), firms will formulate actual business strategies based on economic, market demand, technology change and competitiveness factors (Smith, 2013) to improve technological capability and acquire competitive advantage. For example, according to the change of institutional environment and complementary assets in industrial development, Soh and Yu (2010) put forward specific business strategies which are comprised of joint venture, licensing, strategic

2.2.3. Interaction between technological change and institutional environment Institution and technology are the key factors in driving the development of industries. The endogenous growth theory emphasizes that endogenous technological progress is the decisive factor of economic growth (Solow, 1956), while institutional economics elaborate that institution plays a key role in industrial development (North, 1993). Nelson (1994, 1995) put forward the concept of co-evolution of technology, industrial structure and institutions, and further highlighted that institutions may change as industry and technology change (Nelson, 1998). Since Nelson (1994) proposed the theory of co-evolution of institution and technology, a number of studies try to apply this theory to the analysis of industrial dynamic (Freeman and Soete, 1997; Murmann, 2003) Relevant studies on the interaction between institution and technology highlighted that the desirable scope and the effectiveness of government activism can depend on the technological regimes of specific industries (Lee and Lim, 2001). Accordingly, with the improvement of domestic industry technology capability, the government also adjusts its policies, rules, laws, and so on (Lee et al., 2016). Meanwhile, the complex interplay between the internal institution of enterprises and technology change is the power for promoting industrial development (Brouthers, 2013; Vanacker, 2017). Technological change from the central government level and firm's internal institutions have received considerable attention, yet there is relatively little on-going research on the dynamic interaction among local government, central government and technology change. This study will combine the institution of local and central governments and technology change to explore the change of technological capabilities. 2.3. Business strategies The term strategy is a deliberate, conscious set of guidelines that determines decisions into the future, and always with a common theme (Mintzberg, 1978). Firms normally select and enact a particular approach to compete in a marketplace, called their business strategy or 3

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Fig. 1. The theoretical framework: business strategic choices and technological capabilities building.

alliances, contractual arrangement and so on.

3. Methods 3.1. Case selection

2.4. Conceptual framework

In this study, we employed a qualitative research method to lead to the development of the theoretical framework proposed in Fig. 1. An indepth and longitudinal case study of the flat panel display (FPD) industry was carried out to elaborate the rising and catching-up of the high-tech industry through the interaction between institutional environment and technological change in emerging countries. The case study approach provides an effective method to seek the elaboration of “how” and “why” for the existing social phenomenon (Eisenhardt, 1989; Yin, 2003). The rationale for selecting FPD for this study involved a purposeful choice and theoretical sampling which provides rich information and evidence to the research question (Patton, 2002), provides suitable instances of the studied phenomenon (Siggelkow, 2007), and strengthens the case's analytical generalization (Yin, 2009). Specially, we selected China's FPD industry to illuminate and extend the logical relationship among constructs for several reasons. Firstly, the nature of this industry is a typical example of latecomer catch-up. As one of the major latecomers, China's FPD industry represents an emerging techintensive complex system involving a variety of plants-building and products-providing related to entry barriers, technological sources, business strategies, consumer's demand and so on. This industry selected raised a complex level of technology, business strategies but also the issues of institutional regulation and protection in line with our framework. Secondly, the catch-up of this industry is significantly affected by institutional context at the government level. For the FPD industry in China, the local and central government devote to cultivate local industries (Chen and Ku, 2014). At the time of the case study, the central government aimed at creating locally own technologies, while the local governments focused on restructuring local industries. Moreover, the innovative demand of China's FPD industry in terms of enhanced capability calling for firms to adopt the hybrid of complex business strategies. In addition, we deliberately selected information-rich firms to substantiate the change of China's FPD industry. We selected six firms (BOE, SVA-NEC, IVO, CSOT, Visionox and Tianma, detailed information lists in Appendix Table A1) for this study, all have their own production line, comprising nearly 80% of China's FPD industry output in 20131 (Table 2). The selection criteria were that they: (i)played a significant role in developing China's FPD industry, (ii) provided rich evidence to answer the research question, (iii) represented relevant experiences of

According to the analysis of the literature above, we develop a theoretical framework Figure 1 that illustrates which business strategies are adopted to enhance technological innovation capabilities and how these strategies are affected by the technological change and institutional environment. The “institutional environment” dimension can be divided into local-oriented and central-oriented at the government level based on the decentralized political structure of China (Xu, 2011). The “business strategies” dimension can be divided into intended strategies and actual strategies according to industrial environment change such as government policies and industrial technological change (Mintzberg, 1978). Due to firm's business strategies can not be examined independently of industrial technological change (Teece et al., 1997), we summarize the technological change at the industry-level according to the definition coined by Evenson and Westphal (1995). The dimension of technological change at industry-level may be divided into technological substitution, technological upgrading, and technological leapfrogging. Central to business strategies is overcoming challenges to enter into the market, enlarge market share and build technological capabilities that are required for catch-up (Kiamehr et al., 2015). Thus, we attempt to explore which business strategies are adopted to enhance technological innovation capabilities, and divide the process of technological capability-building into operation capabilities, basic innovation, intermediate innovation, advanced innovation, and world-leading innovation based on the study of Lall (1992), Bell and Pavitt (1995), Figueiredo (2010) and Figueiredo and Piana (2018). Due to the institutional environment, industrial technologies and business strategies are changing dynamically in a complex environment, our research design attempts to capture those complex dynamic changes. In contrast to prior studies in this area, this article, therefore, aims to investigate technological capability-building through the adoption of business strategies under the interaction of government intervention and technological change in catch-up countries. Specially, we attempt to explore how these strategies are affected by the technological changes and institutional environment and which business strategies are adopted to enhance technological innovation capabilities via leveraging the framework in Fig. 1.

1

4

Source: the yearbook of China's flat panel display

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capabilities-building, and (v) influenced by the government's support such as land and project funding.

performance of the sector's trade balance. For instance, the balance of trade deficit has declined from USD 40 billion in 2007 to approximately USD 20 billion in 2010 and USD 4 billion in 2017.5 With the exponential growth of China's FPD industry, China has broken through the monopoly of Japan, Korea, and Taiwan in the global display industry, with its capacity value having overtaken Japan in 2012 and Taiwan in 2016 (as shown in Fig. 2). In addition, the production activities of China's FPD industry are highly concentrated in a small group of firms, but firms taking productive lines as units present a multi-regional distribution. For instance, BOE represented 32.9% of sales in China's FPD industry in 2016. The company has built 11 product fabs in 6 provinces in China including Beijing, Chongqing, Sichuan, Fujian, Anhui, Inner Mongolia.6 Other companies in China's FPD industry (as shown in Appendix Table A2), however, show significant imbalances in regional distribution. They are mainly concentrated in Guangdong, Jiangsu, Shanghai, and Sichuan under the finance or land support of local governments. Their objectives involve integrating into the global supply chain to obtain the biggest profit, bringing them closer to large companies’ buyers.

3.2. Data collection This study derives from a handful of first-hand and second-hand data including the semi-structured interviews with government agencies and relative stakeholders in the FPD industry, along with a large amount of archival data and industrial reports. The aim of the study is to explain the industrial development of the FPD industry, which emerged during China's transitions after 2003. This is the period when China intended to establish the indigenous display panel industry. This provides us with a specific opportunity to examine the strategic choices of domestic FPD firms in different institutional environments during a period of technological change. First, we selected potential companies by referring to the industrial report for the FPD industry and consulted industry experts as well. Based on the firm list, we then conducted semi-structured interviews at China Star Optoelectronics Technology (CSOT), BOE, Visionox, LG (Guangzhou), among others, in China, which helped in selecting relevant FPD companies, and comprehending the nature of technological capability-building in China's FPD industry (the interview list shows in Table 2). These interviews provided valuable insights into the business strategies adopted by domestic firms and further information about potential organizations for our study. We also visited China's main FPD companies and the subsidiaries of Korean and Japanese FPD multinational corporations in China in Shenzhen, Huizhou, and Nanjing. By attending several top technical conferences, such as the International Conference on Display Technology, a better understanding of the technology was gained as well as access to industrial data sources. Second, the related institutional elements are identified as regulations, policies, laws and other events related to the overall FPD industry from various secondary sources, including corporate websites, press releases, and articles found in online databases (e.g. Lexis-Nexis, Business Source Complete) and other national, professional publications in China. Third, in order to articulate the technological changes and explain the knowledge sharing and transferring process between indigenous and foreign players, data including the trade deficit and the FPD market patents were collected to depict the technological upgrading as well as the change of the market landscape during the industrial development process. Finally, we compiled patent data, market share data, and international market data from different databases (e.g. SIPO, CEIC).

5. The dynamic evolution of China's FPD industry This section elaborates on the findings related to technological capability-building through the interaction of technological changes and the institutional environment in China's FPD industry. The FPD industry in China has experienced low generations for liquid crystal display (LCD) technology, high generations for LCD technology, and organic light emitting display (OLED) technology. According to the establishment time of production lines relying on these technological changes and government regulation in China (as shown in Table 3), three development phases of China's FPD industry are identified. In order to outline technological capability-building in different development phases, Fig. 3 elaborates on technological changes and technological capability-building in China's FPD industry from 2003 to 2016. Next, we will provide further evidence of how China's FPD industry developed its technological capabilities. 5.1. Phase I: Building basic operational capabilities and innovation capabilities (2003-2008) With the technological evolution process of the colour TV industry, China's FPD industry had achieved the technological substitution from cathode ray tube (CRT) and plasma display panel (PDP) to LCD during this phase (Li and Pu, 2009). However, the world's flat panel market was dominated by firms in Japan, Korea, and Taiwan. In order to meet the flat panel demand of domestic TV industry, FPD industry in China became to improve production capabilities by seeking collaboration with foreign firms since 2003. According to the president of BOE (BOE Technology Group Co. Ltd), ‘BOE acquired the TFT-LCD production facilities from Korea's Hynix. For the first time, Chinese mainland enterprises have mastered the core technology of LCD. This is the beginning of a 100 billion-scale industry.’ In the early 2000s, the advanced regions (Japan, Korea, and Taiwan) of FPD technologies began to transfer technologies and capacity to China in order to reduce the impact of the Asian financial crisis. As a result, the FPD companies in China access to the opportunity to step into the FPD industry in the global value chain. The domestic firms proceeded with the accumulation of production capabilities along the dominant LCD technological trajectory, but with difficulty. To alleviate the predicament of industrial development, the central government and local government have adopted measures to restrict or

4. Research setting China's FPD industry contributed 34% to the global FPD capacity in 2017 and became the second supplier in the global FPD industry.2 The bulk of the industry is dominated by large, local FPD firms (e.g. BOE, CSOT, TIANMA), which also have strong international cooperation. In the early 2000 s, this industry became active in China, following the Shanghai SVA-NEC Liquid Crystal Display founded in 2003.3 The industry has made significant contributions to the downstream market (e.g. TVs, phones) of China's FPD industry and solved the major issues of ‘lack of screens’ in China. For example, the global share of China's TV exports has evolved from 9.25% in 2003 to 29.45% in 2016.4 The importance of the FPD industry in China's economy is not only reflected in the downstream sectors, but is critical to the 2

Source: Display research and Author complied based on public data. Shanghai SVA-NEC Liquid Crystal Display was founded by Shanghai Radio and Television Industry Group and Japanese NEC in 2003. 4 Source: CEIC Database. 3

5

Source: China General Administration of Customs statistics. Yearbook of China information industry and the annual report of BOE in 2016 6

5

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panel TV receivers were increased from 13% to 17%. In 2008, to deal with the global financial crisis, the Chinese authorities launched a ‘Consumer Electronics Going to the Villages’ (Jia-Dian-Xia-Xiang) program as part of the stimulus package to trigger domestic demand amid the global recession. The program offered a certain amount of subsidy to rural consumers for the purchase of consumer electronics, including TV receivers. Meanwhile, the local government provided land and financial support to the development of FPD companies, or cooperated with the local firms. For example, IVO was also a joint venture established in Kunshan, and the local government is its main investor. Under the guidance of the central government and the finical support of local governments, FPD firms China formulated intended strategies of imitative innovation based on the context of industrial technology substitution. To acquire technologies and build infrastructure equipment, these firms also adopted a series of actual strategies such as joint venture, M&A, and talent introduction and so on. Specially, some domestic FPD firms were established with several multinationals by equity joint ventures and acquisition. For example, Shanghai Radio and

Fig. 2. The capacity distribution of global display industry. Source:CEIC, Display research. Table 1 A summary of the technological capabilities framework Technological capability levels

Examples of activities that express these capability levels

Production capabilities

Capability to implement operational activities based on the use of existing technologies and production systems in line with local efficiency and quality standards. Capability to implement operational activities based on the use of advanced technologies and production systems in line with global efficiency and quality standards. Capability to implement minor adaptations in existing technologies and production.

Innovative capabilities

Level 1 Basic operations Level 2 Advanced operations Level 3 Basic innovation Level 4 Intermediate innovation Level 5 Advanced innovation Level 6 World-leading innovation

Capability to implement relatively complex innovative activities of an incremental nature (innovation new to the firm). Undertakes process design and engineering, and the medium-term development of processes and prototypes. Capable of undertaking innovation activities close to the technological frontier or based on a fast-follower type of strategy with the implementation of innovations that are new to the economy. Capable of undertaking innovative activities based on world-class R&D or experimentation that advances the technological frontier with the implementation of innovation that is new to the world.

Table. 2 Details of interviewees and of data collected from FPD enterprises. Number of interviews

Number of interviewees

CSOT

2

5

LG

2

4

BOE

2

4

Samsung (Huizhou) Visionox IVO Everdisplayoptronics Konka TCL Hisense Flat Panel Display Association in Nanjing

1 2 1 1 2 1 1 1

2 3 1 1 3 2 2 1

Types of interviews Semi-structured interviews, visiting production lines Semi-structured interviews, visiting production lines Semi-structured interview, visiting production lines Semi-structured interview Semi-structured interview Semi-structured interview Semi-structured interview Semi-structured interview Semi-structured interview Semi-structured interview Semi-structured interview

Titles of interviewees

Hours of interviews

Vice President, Product manager, staff Product manager, technological staff Department manager, staff

4

5

General manager, staff Vice President, Director, staff Product manager Product manager Vice Chairman, staff Product manager, staff General manager Chairman

2 2.5 1.5 1.5 2.5 2 1.5 2

3

Television Industry Group and Japanese NEC joint venture to establish Shanghai SVA-NEC Liquid Crystal Display (SVA-NEC) in 2003. BOE acquired the TFT-LCD production facilities from Korea's Hynix in 2003 and made it as a technological learning platform. In addition, other firms recruit talents from Korea and Taiwan FPD firms, and talent mobility from the advanced FPD firms also benefited the knowledge base for basic process and managerial techniques. For instance, the Infovision Optoelectronics (IVO) was established in 2005 by local government (Kunshan), the technical staff from Taiwan (e.g. Chi Mei Optoelectronics and Pou Chen Group) and Japan. With the implementation of a series of business strategies, the domestic firms improved their basic operational capability. Specially, the

stimulate the development direction of the FPD industry, but they have different aims. The central government has initiated a series of policies to stimulate or guide domestic firms to build independent industry. Specially, according to the target of establishing independent industry in ‘11th Five-year Plan (2006-2010)’, one sub-plan titled ‘The Outline for The Long-term Development of the Information Industry’ was released. The sub-plan focuses on the promotion of the digital TV industry, aiming at ‘enhancing capabilities of technology and production leveraging indigenous intellectual property rights to meet the basic product demand of the domestic market’ (Chen and Ku, 2014). In line with this plan, in September 2006, export tax rebates on value-added tax (VAT) paid on the intermediate goods for the production of flat 6

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Table 3 Changes of technology, institutional environment, and business strategies in the development of China's FPD industry Evolutionary phases

Technological changes

Institutional environment

Business strategy

Phase 1: building basic operational and innovative capabilities (2003–2008)

• China's FPD industry had achieved the technological substitution from CRT (cathode ray tube) and PDP to LCD display)

• Intended strategies: imitative innovation • Actual strategies: joint venture, M&As, talent introduction

Phase 2: building intermediate innovative capabilities (2009–2011)

• The technology development in this stage is the incremental technological upgrading of TFT-LCD from low generation production lines to high generation ones

Phase 3: building advanced innovative capabilities (2012–2016)

• China's FPD industry continues to build higher generation fabs of TFT-LCD compared with the second phase • China's FPD industry leverages the capability achieved in previous to cut into the cutting-edge development, research and production of OLED

• Central institutional environment: stimulating consumption, encouraging indigenous innovation • Local institutional environment: market for technology, encouraging multiple entries the FPD market, providing land or financial support • Central institutional environment: encouraging indigenous innovation, market entry restrictions, trade protection • Local institutional environment: exportpromotion, technology import, providing land or financial support • Central institutional environment: encouraging indigenous innovation, initiating specific development plans for the FPD industry • Local institutional environment: exportpromotion, providing land or financial support

• Intended strategies: indigenous innovation • Actual strategies: contractual arrangement, talent introduction • Intended strategies: indigenous innovation • Actual strategies: contractual arrangement, strategic alliance

Fig. 3. The process of technological capabilities building in China's FPD industry.

domestic firms (SVA-NEC, BOE, and IVO) accumulate basic operation capabilities by supplying small-screen panels for monitors and notebooks, and increased the production capacity from 258 million tablets in 2005 to 3.1 billion tablets in 2008.7 Table 4 depicts the product fabs and its productivity of China's FPD industry by the end of 2008. It can be seen, under the stimulating policies of tax preference and market demand, Chinese FPD companies constructed low-generation fabs and mastered the basic production activities leveraging complementary assets. However, the core technology of the FPD industry were still mainly controlled by foreign firms from Japan and Korean, and only a few domestic firms had acquired basic R&D capabilities. Meanwhile, smallscreen panels provided by these companies could hardly meet the domestic market demand. The increasing demand for large screens from

7

these domestic TV manufacturers still forced them to seek imports of flat panels from Korea, Taiwan, or Japan. Such constraints sparked the ambitions of China's government and local firms to reduce China's heavy dependence on foreign FPD panels. These ambitions paved the way for the improvement of technological innovation capabilities. Another point we notice is that no matter the institution environment or the strategic choices adopted by these domestic firms, the emphasis of technological capabilities at this phase was laid on building production capabilities. Thus, technological learning and technological accumulation mainly focused on mature process-related experiences. Generally, firms adopted various business strategies of technological development to enhance the basic technological capabilities under the interaction of China's institutional context and technological changes. 5.2. Phase II: Building intermediate innovative capabilities (2009–2011) Unlike the technology substitution from CRT and PDP to LCD in the

Data sources: Display search. 7

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Table. 4 Production fabs and productivity of China's FPD industry 2003–2008. Source: Compiled by the authors. Technology (Gen)

Total number of product fabs

Productivity/ (thousand pieces/month)

Main application market

5 5.5

3 1

27.5 11

Monitor/notebook Monitor/notebook

first phase, the technology development in this stage is the incremental technological upgrading of TFT-LCD from low-generation production lines to high-generation ones. In 2008, the financial crisis hampered the development of the FPD industry as well. To relieve the impact of the financial crisis on industrial development, the FPD companies in China adopted the adversity investment strategy and leveraged the flow of resources and knowledge to enhance technological capabilities. In 2009, the FPD industry in China initially completed the construction of the high-generation production lines, and accumulated new knowledge base for innovative capability-building. With the improvement of technological upgrading in China's FPD display, many foreign enterprises seek to cooperate with China's local government to seize a market share, which brings learning opportunities to local enterprises and may suppress their capability improvement. In order to cultivate and protect indigenous innovation of domestic firms, the Chinese government issued a series of policies and created a favourable institutional environment for improving domestic innovative capabilities. In February 2009, the State Council issued an overall layout entitled ‘Plan to Adjust and Promote the ElectronicsInformation Industry’ to overcome the bottlenecks of the flat panel industry, to improve manufacturing and innovation capability and to achieve technological breakthroughs. In line with the plan, the tariffs, and VAT concessions on imported inputs for the flat panel industry were extended for another three years. The above-mentioned policies triggered the explosive growth of China's FPD industry (Chen and Ku, 2014), attracting many multinational investors collaborating with domestic firms, especially after the foundation of domestic TFT-LCD Gen8.5. To protect the development of domestic firms from potential overcapacity, in January 2010, the NDRC, together with the Ministry of Industry and Information (MII) issued ‘The Development Planning for Flat Panel Industry (2010-2012)’. According to the plan, all the investment projects related to the FPD industry should be authorized by MII and NDRC from then on. Meanwhile, the central government prioritized the domestic FPD industry when it came to licensing. Although many foreign firms desperately wanted to construct high-generation production lines in China with close collaboration with local governments, which provided superior policies, services, and infrastructure to attract foreign investment. However, due to the market access constraints set by the central government, only three LCD manufacturing projects8, respectively supported by the Beijing, Shenzhen, and Kunshan governments, were licensed for plant construction. One year later, another two plants including Guangzhou LG (Korea) and Suzhou Samsung (Korea) were authorized (Lu, 2016). Taking advantage of this opportunity window, the domestic FPD firm became more viable and realized the fast enhancement of both production capacity and basic technology accumulation. Given the broader access to complementary assets including land, tariff, and downstream application market, licensing firms became more viable for building innovation capabilities and enhancing

Table. 5 Production fabs and productivity of China's FPD industry from 2009 to 2011. Source: Compiled by the authors. Technology (Gen)

Total number of product fabs

Productivity/ (thousand pieces/ month)

Main application market

4.5 5 5.5 6 8.5

3 1 2 2 2

108 132 156 216 252

Monitor, Notebook, Tablet, Mobile phone, TV

production capacity. For example, BOE built the first Gen 8.5 plant (suitable for 55-inch panels) based on the accumulation of experience, expanded production supply and a breakthrough in the complete reliance on the importation of large-screen panels from foreign firms. Unlike BOE, CSOT realized the leapfrog from small-screen panels to large-screen panels by the turnkey plants and ex-engineers from Korea and Taiwan. Under the guidance of the central government and the finical support of local governments, FPD firms China formulated intended strategies of imitative innovation based on the context of industrial technology substitution. In order to further enhance the technological capabilities of the domestic FPD industry, firms adopted the intended strategies of indigenous innovation according to government-oriented and the context of technological upgrading. To achieve this intended strategy, various actual business strategies (e.g. contractual arrangement) have been adopted in this stage. Some domestic firms construct labs, R&D centres or comprehensive technological innovation systems to promote the R&D of new technologies. For example, with the approval of the National Development and Reform Commission (NDRC), the first TFT-LCD National Engineering Laboratory in China was established at BOE in 2009. BOE's chief executive took this opportunity forcing the integration of innovation organizations within the company and set up a centre for technology research and development. Similarly, some firms leverage talent strategy to recruit talents from foreign FPD firms. For instance, the CSOT mainly depends on recruiting talents to build high-generation production lines. In addition, the FPD industry in China gradually established their own brands with the improvement of technological capabilities and supply production for foreign firms by the business strategy of contractual arrangement. For instance, BOE first began to supply handset panels for Samsung in 2009, and it soon became one of Samsung's largest IT panel suppliers. Then BOE has established the repeated partnerships with Samsung in its handset, tablet, and TV markets (Lu, 2016). In 2011, the newly founded CSOT also became the strategic partner for supplying TV panels for Samsung. Moreover, CSOT and Samsung adopted the cross-sharing holding to build LCD fabs as well. In addition, according to the department manager of CSOT, “Although the market demandfor domestic flat panels display is huge, it also faces the context of rapid technological replacement, imperfect industrial chain and fierce global competition. However, governments strongly support the development of the FPD industry, such as provide land support and project funding. Thus, many firms have formulated a series of long-term and short-term strategies according to external technological trend, government-oriented and their own situation. "

8 One was built by BOE (Gen8.5 fabs) mainly producing larger screen panels for monitors and TV, a company closely tied to the local government of Beijing. Another Gen8.5 fabs licensed to CSOT founded by TCL as part of a consortium with the Shenzhen government in Guangdong Province. The third Gen8.5 fabs of Infovision Optelectronics Kunshan built by local government and AU Optronics Corp. (Taiwan) was also licensed by the central government.

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Table. 6 Production capacity and market share of China's FPD industry. Sources: The share of global production from IHS. Import and export values are compiled from the China General Administration of Customs statistics. Data covers all sizes of LCD panels. Year

The share of global production capacity (%)

Export value (billion dollars)

Import value (billion dollars)

Balance of Trade Deficit (billion dollars)

2009 2010 2011

3.2 3.9 6.1

19.215 26.465 29.513

34.948 46.697 47.161

15.733 20.232 17.647

equipment, materials, components, and other FPD manufacturing research supported by the government, especially realizing technological innovation in high-performance TFT-LCD technology, forward-looking display technology, and Active Matrix Organic Light Emitting Diodes (AMOLED) fabrication techniques. Under central government guidance and local government funding, BOE, Tianma, CSOT, Everdisplay Optronics, and Truly (Huizhou) still adopted indigenous innovation ad intended strategies, and then founded the new flexible AMOLED fabs in the mainland of China, leveraging the inherent capacities and providing medium-small screen OLED for the smartphone market. To cope with the technological change and sustainability of industrial development, a diversity of actual business strategies, such as contractual arrangement and strategic alliance, have adopted in this stage. For example, BOE cooperates with Huawei to co-design for the new smartphone display with flexible sizes and resolutions by contractual arrangement. China's leading FPD firms including BOE and CSOT have cooperated with TV brands at home and abroad. In 2017, BOE supplied LCD for many liquid crystal television brands including Samsung (20%), LG (22%), Sony (15%), TCL (18%), Hisense (11%), Skyworth (11%), Changhong (18%), and Konka (33%). As for CSOT, apart from the majority supply for TCL, it also provides panels for Samsung, LG, Hisense, Skyworth, and Changhong.9 By serving multiple downstream supply vendors, domestic FPD firms prominently improve their supply capacity for diversified downstream products. In addition, independent innovation is still the main business strategy for the development of the FPD industry in China. For instance, domestic firms closely follow new market trends and invest in both the R&D and construction of OLED fabs. According to the Director of SmallSize OLED R&D Center of BOE Technology Center, ‘There is no possibility of ‘introducing’ oxide semiconductors, low-temperature polycrystalline silicon TFT, and OLED. The principles of these technologies have been around for more than a decade or even decades, but the challenge for all enterprises is to develop technologies that can be industrialized and competitive in the market. The R&D of these technologies in China starts with documentation and relies on its own technological capabilities.’ Under the dual influences of the institutional environment and technological leapfrogging, the innovative capabilities of China's FPD firms had a significant performance boost via the combination of intended and actual strategies. With the enhanced technological capability, the number of filed patents of main China's manufacturing firms has grown quickly (Hu, 2012). Table 7 indicates that the patent application of BOE and CSOT exceeds 20000 in the years to 2015. They have successfully built the competencies around their patented technologies in backlight, array, and low-temperature polysilicon technology. In this period, domestic FPD firms have gradually established innovation capacities, some core technologies, and final product distribution. Some domestic firms have also developed their own independent brand and marketing channel.

China's production capacity and technology innovation capabilities have significantly boosted performance in the FPD industry in the dual influences of the institutional environment and technological upgrading. The product fabs and its productivity of China's FPD industry from 2009 to 2011 have shown in Table 5. Compared with the first phase, Chinese FPD companies have improved the production activities and enhanced technological innovation capability, achieving technological upgrading from low-generation fabs to high-generation fabs under the support of the government. Moreover, the market share of China's FPD production grew quickly from a negligible one to 6.1% in 2011(as shown in Table 6). The Table 6 shows that the balance of trade deficit was gradually reduced, yet the value of export and import were fast growing. All the data indicates that China had a huge market demand and the construction of high-generation lines enhanced China's production capacity in the FPD industry. In anticipation of the impending intense global competition, the Chinese government was eager to build up indigenous technological capabilities. This paved the way for the third transition period. 5.3. Phase III: Building advanced innovative capabilities (2012–2016) The FPD industry in China established a high level of innovation capabilities, marked by making full use of the newly built and existing LCD fabs and cutting into OLED development. In this stage, China's FPD industry continues to build higher generation fabs of TFT-LCD compared with the second phase. According to BOE's CEO in 2013, ‘Ten years ago, BOE opened up the situation of the FPD industry by acquiring the TFT-LCD production facilities from foreign firms. At present, China's LCD industry has complete technology. It has surpassed Japan to catch up with Korea and Taiwan regardless of production capacity or innovation capabilities.’ According to industrial knowledge accumulation in the first two stages of development, China's FPD firms implement innovation activities close to the technological frontier that are new to the economy. With the fast development and penetration of new information and telecommunication technologies, China's FPD industry had achieved technological leapfrogging from LCD to OLED. According to the President of Visionox Institute of Innovation, ‘Although the technological capabilities of China's FPD industry have achieved rapid development, there is still a gap between China's FPD firms and foreign enterprises. The improvement of China's technological capabilities has laid the foundation for the development of the FPD industry and gives China's enterprises a chance to lead in OLED.’ Compared with the above two stages, a series of specific policies are issued by the government to cultivate innovation capabilities for the new display technologies. In 2012, the Ministry of Science and Technology (MOST) initiated the 12th Five-year Special Plan for the Development of New Display Technologies focusing on the innovation development of the FPD industry. At the same time, the Chinese government raised the import tariff on large-screen LCD panels from 3% to 5% to better protect domestic products from import competition. In 2014, to cultivate the independent innovation capability and achieve technological leapfrogging, MII and NDRC issued Action Plan of New Display Industry Innovation and Development from 2014-2016.This project targeting the upgraded TFT-LCD and OLED process technology,

6. Discussion This study advances the relevant research of firms’ business strategy 9

9

Data from IHS.

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Table. 7 The filed patents growth of main China's FPD firms. Sources: MIITIPR center, SIPO Companies

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

BOE CSOT Tianma CEC-PANAN Visionox

119

55

70

136

412

647

639

3

15

70

50

53

51

238 12 59

589 161 208 26 88

1515 1113 237 124 101

3365 1754 476 166 155

5208 1513 684 197 160

6599 2446 971 215 158

6978 3370 923 132 41

9

11

23

Fig. 4. Revised theoretical model: business strategic choices and technological capabilities building.

accordance with industrial technological change. According to the established primary production capabilities, firms tend to adopt a diversified strategic combination to upgrade introduced technologies in the transformation stage. In the process of technological upgrading, intended strategies of indigenous innovation, and the actual strategies of contractual arrangement and strategies alliance provide essential R&D and sales support. Firms accumulated extensive technological experience through the phase of technological substitution and technological upgrading. They try to enter a new technological trajectory based on the accumulation of related technological capabilities. In order to achieve technological leapfrogging in the process of technological transformation, enterprises focus on the indigenous innovative strategy to build innovative capabilities and adopt actual strategies of the contractual arrangement and strategical alliances to enlarge sales.

combination and technological capacity-building in the catch-up context. The core theoretical contribution of this paper is providing a framework to understand how the technological capability of an enterprise improves by the adaptive business strategies portfolios under the dynamic interaction of technological change and institutional environment. This paper also sheds light on the relationship between the local and central governments. Based on the empirical case study of China's FPD industry, a revised theoretical model is presented in Fig. 4. Based on the revised theoretical model, our discussion highlights the strategic choices during the technological transformation phases, and shows how these strategies improve the levels of technological capabilities. 6.1. Business strategy changes with the technology and institution Our study focuses on how industrial technological change and institutional environment impact the choice of business strategies. Compared with prior literatures on business strategies from institutionbased view (Peng, 2003; Peng et al., 2009), we introduce technological changes of industrial-level as one of the core factors that impact the combination of business strategies. In addition, our study draws on strategic literatures of Mintzberg (1978), Fu (1998) and Soh and Yu (2010) and combines their study to capture the complex dynamics of business strategies. Our findings identify that the latecomers on the tech-intensive industry tend to take imitative innovation as the intended strategies under the institutional environment of “market for technology” when a new technology replaces old technology, especially in an emerging industry. To capture the opportunities of emerging industrial development, firms formulated actual strategies of joint venture or M&As in

6.2. Link business strategies with technological capabilities The study extends the literatures of business strategies and technological capabilities by examining how the multidimensional combination of business strategies improves the levels of technological capabilities in the tech-intensive industry. While some strategical literatures mainly discussed the effect of manufacturing strategy and product strategy on technological capabilities (Bessant, 1997; Shi, 2001; Hsieh and Tsai, 2007), our findings reaffirms and extends the hybrid typology of business strategies (Walker and Ruekert, 1987), and provides empirical evidence for the theorized effect of technological capability-building (Lall, 1992; Bell and Pavitt, 1995; Figueiredo, 2010) The findings suggest that tech-intensive industries leverage imitative innovative strategy to build basic operational capabilities and 10

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innovative capabilities in its initial stage. With M&As and the import of technology, the emerging countries gradually build basic production capabilities by leveraging the existing technologies and production systems. This gives the entrant a foothold in the industry that it subsequently expanded production capacity and implemented minor adoptions in existing technology and production. In order to build intermediate innovative capabilities, firms in techintensive industries adopt the strategic combination of indigenous innovative, talents introduction, and contractual arrangement to implement relatively complex innovative activities of an incremental nature. Specifically, the intended strategy of indigenous innovative aim to enhance technology innovative capabilities. The target of the contractual arrangement strategy and talents introductive strategy is to integrate into the national market and further improve production capabilities. At the stage of building advanced innovative capabilities, indigenous innovative, strategic alliance and contractual arrangement are the main strategic combination. These strategies further advance R&D capabilities and strengthen cooperation with international enterprises.

government in different development stages of the industry. The comprehensive result of policies leads to the more innovation capability-orientated institutional environment which further stimulates technological upgrading and technological leapfrogging among domestic tech-intensive industries. 6.4. Theoretical contributions and practical implication First, our study contributes to the theory related to the institutionalbased view of industrial development and business strategies in the tech-intensive industry (Soh and Yu, 2010; Yu et al., 2017; Meyer et al., 2009). By exploring the interrelation between institutional arrangements and the technological change, their strong impact on the corresponding strategic choices of domestic firms to meet technological development needs is dissected. Second, in the context of large emerging countries like China, the institutional impact is divided into the central-government driven part and the local-government driven part, which further decouples the topdown level institutions and the bottom-up level policies. In the development of the FPD industry, the interaction mechanism between local and central government policy instruments provides a new perspective to understand the institutional environment dynamics in large emerging countries. Third, this research adopts an evolutionary perspective and develops a new analytical framework to examine the process of industrial catching-up in large emerging economies. We also revised the theoretical framework (as shown in Figure 4) based on an in-depth case study of China's FPD industry. Therefore, our research enhances the relevant knowledge of how technological change and institution environment affect firm's business strategies, and what business strategies have been adopted to enhance technological capabilities in industrial development. Moreover, our study presents managerial implications and its findings would provide practical guidance to industrial practitioners and policymakers. The results highlight tech-intensive enterprises should consider a suitable strategic combination to improve technological capabilities rather than focus on the usual business goals. In addition, our research also provides specific practical guidance for tech-intensive enterprises to conduct strategic choices based on certain institutional environment and technological change. According to industrial technological change and institutional environment shaped by governments, industrial practitioners will improve the accuracy of strategy formulation, which helps to narrow the gap between the intended strategy and the actual strategy.

6.3. The relationship between central and local government This paper focuses on the impact of intergovernmental relations between the policies and institutions initiated by local and central governments on the local industrial development (Rhodes, 1982). Similar to Chen and Ku (2014), our results show that the role of central and local government exists conflicts in the development of China's flat panel display. This study extends the institutional literature (North, 1991; Scott, 2005) and reaffirms the importance of governments (Xu, 2011; Lee et al., 2016), and provides empirical evidence for the building of institutional theory. The finding shows that the offsetting and reinforcing relationship between the local and central government evolves along with the development of the technology and influences the choice of business strategies and the technological capability-building. It is demonstrated that the policies initiated by local governments play an important role in building basic operational capabilities and innovative capabilities. In the advanced stage of technological capabilities, the tech-intensive industries undertake innovation activities close to the technological frontier. Herein, the central government relaxes restrictions on industrial development, and the local government may provide more resources to support the local development of the tech-intensive industry. In other words, the roles of local and central governments tend to reinforce by each other in the process of building advanced innovative capabilities. However, in order to protect the development of local enterprises in the process of building intermediate innovative capabilities, institutional arrangements of the central government tend to restrict the entry of multinational enterprises. At the same time, the local government still adopts the strategy of ‘market for technology’ so that it was restricted by the central government. Specifically, the motivation from local government-driven and market demand-push is critical for industrial development in the stage of building basic operational capabilities and innovative capabilities. However, domestic firms remained quite weak in process technology and product capabilities. In order to quickly build operational capabilities for production, domestic firms mainly adopted the business strategies of joint venture and acquisition to import technologies. Then, the government introduced new policies to stimulate the supply and demand for domestic technological capability development, like indirect subsidies for indigenous firms or delay foreign firms building fabs to cultivate the technological and manufacturing capability of domestic companies. Those policies may offer domestic firms with a ‘window of opportunity’ to improve their capability, and changes in technological development, in turn, influence the strategic choices of enterprises. Meanwhile, the local government is always active to cooperate with MNEs to promote the development of the local economy, counteracting or reinforcing the implement effect of the central

7. Conclusion This study is dedicated to exploring how business strategies affect technological development and industrial development under the dynamic of technological change and institutional environment. With an in-depth case study of China's FPD industry and a new analytical framework is proposed to understand the strategic choices and technological capabilities building of the domestic firms from the tech-intensive industry in a large emerging country. The development and technological capability level of China's FPD industry is divided into three phases, including basic operational capabilities and innovative capabilities building phase (2003-2008), intermediate innovative capabilities building phase (2009-2011), and advanced innovative capabilities building phase (2012-2016). During the transformative periods, different business strategies including market strategies, technological strategies, and talent strategies are adopted under the interaction of local-central institutional environment and technological changes. Our research provides a path creation for the catch-up of the emerging countries from the perspective of strategic choices and capacity building. Recently, China is emerging from being a peripheral 11

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member of the global economy to a core contributor. It's a great challenge to remain afloat in the fierce international technological competition and speed up the building of indigenous innovation capability. The theoretical framework to incorporate the business strategic theory is possible for future research when we gather more evidence to develop a better understanding of how various strategic combinations interact and evolve with the technological development path of other high-tech industries in emerging countries.

Acknowledgments The authors would like to thank the support from the National Natural Science Foundation of China (No.71834006, No. 71704173, No. 71941031), Bureau of Development and Planning, CAS (GHJ-ZLZX2019-32-6), and National Academy of Innovation Strategy, CAST (2019ys1-1-2-2).

Appendix

Table A1 The selected firms in China's FPD industry Firms

Startup year

Details

BOE

1993

SVA-NEC IVO Tianma CSOT Visionox

2003 2005 1983 2009 2001

Created from an independent start-up: focusing on providing diversified FPD products for display market since 2003, and growing the China's largest FPD producer One of the earliest firms to establish the production lines of flat panel display in China. In 2009, it entrusted by Tianma. One of main producers in China's FPD industry. Larger FPD producer and it focuses on providing small-sized FPD products. China's second largest FPD producer. It is the first enterprise engaging OLED research and production in China, and becomes one of main producers in the FPD industry.

Table A2 the regional distribution of FPD companies in China in 2016 Provinces

Numbers

Companies

Guangdong Jiangsu Shanghai Sichuan Fujian Hubei Anhui

7 6 6 6 4 4 3

LG display (Gen 8.5); CSOT (Gen 8.5, Gen 8.5, Gen 11); Truly (Gen 4.5); ultra-deep Optoelectronics (Gen 5); Royole (Gen 6) Visionox (Gen 5.5); AUO (Gen 6); IVO (Gen 5); CEC-PANAN (Gen 6, Gen 8.5); Samsung (Gen 8.5) Everdisplay optronics (Gen 4.5, Gen 6); TIANMA (Gen 4.5, Gen 4.5, Gen 5, Gen 5.5) BOE (Gen 4.5, Gen 6, Gen 6); TIANMA (Gen 4.5); CEC-PANAN (Gen 8.6); Hon Hai Precision Industry (Gen 6); CPT (Gen 6); BOE (Gen 8.5); TIANMA (Gen 5.5, Gen 6) CSOT (Gen 6; Gen 6); TIANMA (Gen 4.5, Gen 6) BOE (Gen 6, Gen 8.5, Gen 10.5)

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Technological Forecasting & Social Change 151 (2020) 119852

J. Yu, et al. Sciences. His main research interests include information technology management, innovation policy and competitive strategy in emerging countries. He has worked as Royal Society International Fellow in the Department of Engineering of Cambridge University. He has published papers in the international journals like Communication of ACM, Telecommunications Policy, Technological Forecasting and Social Change, and Technology Analysis & Strategic Management. His book, China's Highway of Information and Communication Technology, was published by Palgrave Macmillan.

University of Chinese Academy of Sciences. Her research interests focus on industrial innovative management, business strategy, innovation policy and technological innovation capabilities. Feng Chen is a PhD candidate of University of Chinese Academy of Sciences and now studies at the Institutions of Science and Development, CAS. Her research interests lie at technological innovation management and open innovation, with a particular focus on industrial catch-up in large emerging evonomies like China.

Rui Liu is a PHD candidate in Institutions of Science and Development, CAS and

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