Sectoral innovation through competing logics: The case of antidepressants in traditional Chinese medicine

Technological Forecasting & Social Change 107 (2016) 80–89

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Technological Forecasting & Social Change

Sectoral innovation through competing logics: The case of antidepressants in traditional Chinese medicine Taïeb Hafsi a, Hao Hu b,⁎ a b

Department of Management, HEC Montréal, Montréal, Canada State Key Laboratory of Quality Research in Chinese Medicine, Institute of Chinese Medical Sciences, University of Macau, Macau

a r t i c l e

i n f o

Article history: Received 24 November 2014 Received in revised form 18 March 2016 Accepted 23 March 2016 Available online 9 April 2016 Keywords: Sectoral system of innovation Institutional logic Traditional Chinese medicine Western medicine Antidepressant

a b s t r a c t This paper studies the sectoral innovation of antidepressants in traditional Chinese medicine (TCM) within the framework of logic competition between TCM and Western Medicine (WM). We find that with the entry of WM antidepressants the whole sector of TCM antidepressant is restructured. We argue that the coexistence of plural logics can stimulate sectoral innovation by injecting a new logic into each component of the innovation system. Existing sectoral actors innovate by referring to the competing logic to reinterpret their own logic and practice. In so doing they reshape sectoral practices and competitiveness. © 2016 Elsevier Inc. All rights reserved.

1. Introduction Sectoral innovation has become more and more important for practitioners and researchers seeking industrial competitiveness (Malerba, 2002). They pay great attention to how a sectoral system of innovation is shaped and also emphasize exploring how to initiate sectoral innovation (Malerba and Nelson, 2011). In particular, attention is drawn to factors and situations affecting sectoral innovation. Considering that industry dynamics also reflect the impact of underlying institutional logics at the industrial field level (Styhre, 2011), it is surprising to find that little work on sectoral innovation is conducted from an institutional perspective. The institutional logic idea is drawn from the neo-institutional branch of organization theory. An institutional logic is defined by Thornton and Ocasio (1999, p.804) “as the socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and provide meaning to their social reality.” We shall argue as did these authors that they would shape beliefs and behavior of organizational actors in a field. Organizations have often to deal with conflicting logics, both in their environment and within their own operations. This institutional complexity due to competing logics and its effects on organizational responses are attracting much attention from

⁎ Corresponding author at: Room 2057, Building N22, Institute of Chinese Medical Sciences, University of Macau, Avenida da Universidade, Taipa, Macau. E-mail address: [email protected] (H. Hu).

http://dx.doi.org/10.1016/j.techfore.2016.03.027 0040-1625/© 2016 Elsevier Inc. All rights reserved.

institutional theorists (Greenwood et al., 2011; Reay and Hinings, 2009; Smets et al., 2012), but very little in sectoral innovation research (Smink et al., 2015). In particular, the impact of institutional complexity on sectoral systems of innovation remains unaddressed except recently when Smink et al. (2015) examined the role of boundary-spanners in crossing the frontiers of conflicting logics. The question of how competing logics interact to influence sectoral innovation is not only significant in traditional but also in modern sectors. Every sector could face a situation of change in the relationship among two or more institutional logics, which inevitably results in turbulence affecting the whole sectoral system (Sabatier et al., 2012). How that would affect innovation in the sector is unclear and not addressed in the literature. It is an important gap that we intend to address in this article to contribute insights and theory to the sectoral innovation literature. By applying an institutional logic view to sectoral innovation, this paper responds to the call for new theoretical perspectives to integrate factors and dimensions in promoting sectoral innovation work (Pitt and Nelle, 2008). Researchers have proposed that an institutional perspective would be meaningful in studying sectoral innovation (Cusmano et al., 2010). According to their theory of innovation, institutional effects shape sectors in multiple ways. For example public policies could not only increase market turbulence, they also provide new opportunities for firms to expand and build new knowledge and market capabilities (Chaturvedi et al., 2007). At the same time actors could respond to institutional change differently. This would result in more interactions within a sector, which could stimulate more innovation (Chittoor et al., 2008).

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The institutional effect on sectoral innovation is driven not only by government policy but also by social and cultural sources (Smink et al., 2015). The institutional drivers for sectoral innovation can come as well from actors and factors located beyond national and sectoral boundaries. For example, the global value chain has been described as a powerful institutional pressure on developing countries' innovation systems (Pietrobelli and Rabellotti, 2011). Thus, external institutions can act as motivators for sectoral systems of innovation. All of these indicate that an institutional perspective is meaningful for understanding the change of a sectoral system of innovation, and should be considered. This is particularly the case when considering changes in deep-rooted institutions with a long history, as in the traditional Chinese medicine (TCM). The TCM antidepressant sector is a relatively new segment, interacting with deep-seated beliefs and practices. It is a fast growing segment, and the domain of much innovation. Although people generally believe that such a situation is largely related to the entry of Western Medicine (WM)1 philosophy of depression medical treatment, there is no systematic analysis of how the TCM antidepressant sector is being shaped by the mutual influence of TCM and WM logics. Yet, these interactions are driving a large industrial renewal. TCM is lightly studied, probably because it is deeply embedded into the Chinese culture and social dynamics. Our unique access to the industry and its development would provide insights into an important industry, which is another important contribution of this research. This paper studies how TCM is changing, by looking at transformations related to one of its new and important segments. More specifically, we examine how the dynamic interactions of very different logics, related to TCM and WM, are affecting sectoral innovation in the pharmaceutical antidepressant segment. We find that with the successful entry of WM antidepressants, the whole sector of antidepressants in China is undergoing major change. We argue that the coexistence of plural institutional logics can stimulate innovation in an industrial sector, by transforming each component of the sectoral system of innovation. Threatened sectoral actors pull selectively on competing logics to reinterpret and distinguish their own strategy and reshape sectoral competitiveness. The rest of this paper is structured as follows: Section 2 reviews the relevant literatures about sectoral systems of innovation and competing logics; Section 3 describes the industrial background of the Chinese antidepressant sector and the research methods applied in this study; Section 4 reports the research findings; and the last two sections conduct a related discussion of the findings, and present our final conclusions.

2. Theoretical background 2.1. Sectoral innovation system with competing logics A sectoral innovation system is defined as “a set of new and established products for specific uses and the set of agents carrying out market and non-market interactions for the creation, production and sale of those products” (Malerba, 2002, p.251). A sectoral system is composed of three main building blocks: (1) knowledge and technology; (2) actors and networks; and (3) “institutions”2 (Malerba, 2005). Distinguished from national, regional, or technological innovation systems, a sectoral innovation system focuses on the development of a specific industry and provides a more direct impact on a single sector (Chaturvedi, 2007). A well designed and dynamic sectoral innovation

1

Western Medicine is usually called modern medicine in China. In Malerba terms institutions refers to organizations, generally public sector organizations, related to policy-makers, which are in charge of implementing policies. In this paper, we use institution in the organizational theory sense, and put Malerba's meaning between quotation marks. 2

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system could accelerate growth and innovation within an industry, and its related business parts. With wide recognition about the positive effects of sectoral innovation systems, scholars' focus has been on how to build or change an innovation system for specific sectors (Niosi, 2011). The dominant perspective was generally functionalist and top-down. Meso-level state-mandated actors manage organizational and network behavior to generate innovation and market dynamism (Furtado, 1997; Quéré, 2008). Little attention has been given to the institutional work at the organizational level (Smink et al., 2015). In particular, emphasizing the factors that drive sectoral innovation systems (Malerba and Nelson, 2011), scholars had typically explored the impact of sectoral components on the sectoral innovation system. For example, Kim and Lee (2008) have studied the role of technological factors in the Korean capital goods innovation system; Athreye et al. (2009) described the strategies and interactions of Indian pharmas in their country's pharmaceutical industry innovation system; Adams et al. (2012) looked at the role of demand in the semiconductor sectoral innovation; and Lee et al. (2009) looked at government policy in the ability of Chinese cell phone and automobile sectors to catch up with international competitors. While research made progress in the understanding of these single sectoral factor influences, there are two challenges ahead. First, for sectoral innovations, there are exogenous influences. For example, the entry of pharmaceutical companies into the food industry has changed the food sectoral innovation system (Weenen et al., 2013). A new entry could bring a completely new industrial logic and generate systemic complexity for the whole industry (Styhre, 2011). To respond, actors cannot rely on changing a single sectoral component but may need to change the whole innovation system. Second, facing the entry of threatening new industrial logic and complexity, actors cannot solely change themselves but may have to extend their influence from the organizational to the meso level. Such agency has rarely been documented. Thus, there is a need for an integrative perspective to explain sectoral innovation. We propose to call on an institutional logic perspective to fill these specific gaps. We now turn to clarifying further the proposed theoretical lens. 2.2. The institutional logics theory The institutional logics framework is leading to a relatively new debate within institutional theory (Thornton et al., 2012). Despite a long theoretical history (Friedland and Alford, 1991), the perspective is still very influential and has attracted more and more attention in the past decade (Hinings, 2012; Smink et al., 2015; Thornton et al., 2012; van Gestel and Hillebrand, 2011), because it helps deal with two basic problems of the neo-institutional analysis: (1) its inability to deal with multiple levels of analysis, and (2) its inability to take into account agency. Friedland and Alford (1991) were the first to introduce the concept of institutional logics in a seminal argument published as a book chapter. They then talked of central logics as “a set of material practices and symbolic constructions … available to organizations and individuals to elaborate” (p.232). The institutional logics theory explains changes in organizational focus and innovation, by affecting executives' power in organizations. This, according to Thornton and Ocasio (1999), is done (1) by defining or shaping how sources of power are understood, seen as appropriate or legitimate; (2) by making some issues more salient and more relevant than others; (3) by determining the solutions more effective in changing power relationships. As a set of history-based signals and practices, an institutional logic reflects the essential assumptions, values, and beliefs of actors (Thornton, 2002). Thus it can be appropriately applied to study sectoral innovation systems for three reasons. First, as said earlier, it facilitates the consideration of multiple level influences. The institutional logics perspective is based on the premise that there are several institutional orders of worth or justification, which guide and affect individual practices at different

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levels. Conceptualizing further in their book, Thornton et al. (2012) proposed that actual logics can be classified using seven “ideal-type” institutional orders. They proposed that some orders have relevance at some levels, while others are more significant at other levels. Yet, there has to be some consistency among them to be able to talk about an institutional logic. When consistency is affected at one level, because one institutional order is modified, it stimulates change to rebuild the consistency of all the orders. Second, the institutional logics perspective emphasizes agency, especially the actions of executive actors and their power to do things, in particular mend or rebuild the institutional logics. Because actors, under the same dominant logic, nibble at different orders of worth they generate the need to align them, which leads to institutional logic repair or change (Thornton et al., 2012). Third, through the mediation of actors, the institutional logics perspective can be applied to study phenomena at different levels. In particular the ideas of institutional logic can help to explain the linkages and relationships between the organizational and meso levels. Thus, the institutional logics theory provides a complete analysis framework to understand the set of forces that initiates and implements changes for an innovation system (Cai, 2014, 2015). Using it to explain sectoral innovation is the main purpose of this paper. It is widely documented that institutional effects on actors in a field lead to sectoral change and innovation. However the opposite can also be true. As a sector changes under innovative activities of individual agents, it affects the underlying institutional logics and could change them (Smets et al., 2012). According to these authors, institutional change has been seen first as coming from momentous outside events, a shock which could be a shift in social values (Rao et al., 2003), regulatory policies (Edelman, 1992) and technological regimes (Garud et al., 2002). These changes are generally initiated from the periphery of a field, under the action of organizations eager to change the status quo (Hoffman, 1999; Holm, 1995; Leblebici et al., 1991). Second, internal tensions because of contradictory logics may intensify as fields mature, opening the door to organizations at the interface of these tensions to consider new responses (Djelic and Quack, 2003; Greenwood et al., 2011; Reay and Hinings, 2009). Finally, intra-organizational dynamics could lead to differentiated responses in relation to differing interests and values (Pache and Santos, 2010). A more recent drive to give attention to the micro-processes of institutionalization suggests that institutions “are sustained, altered and extinguished as they are enacted by individuals in concrete social situations” (Powell and Colyvas, 2008: 510). When looking at the work-level actions of individuals, and at their interactions, one can recognize that the institutional practice perspective is useful for a better understanding of institutional logic change (Smets et al., 2012). The interaction between institutional change and individual actor practices has been widely studied, in particular by practice-oriented scholars (Heaphy, 2013; Tracey et al., 2011). But the literature has generally remained schizophrenic, with either a macro perspective, or focused on practice micro-processes, suggesting the need for an integrative framework. The study of sectoral innovation poses a special challenge because it requires integration. It involves actors at different levels (macro to micro), and individual agents enacting change, which explains our emphasis on the institutional logics perspective.

Suddaby, 2006), or to the co-existence of several logics (Purdy and Gray, 2009), and even to fluctuating changes (Royston and Hinings, 1996; van Gestel and Hillebrand, 2011). Smets and Jarzabkowski (2013) argue that this leads to institutional complexity, with hard to assess effects. All these suggest that there is still unexplored space in studying competing institutional logics, especially when trying to understand how the shaping of sectoral innovation takes place. But also as argued earlier, sectoral innovations and institutional logics co-evolve. As actors in the industry work to adapt, they innovate and change their practices, but at the same time they change the premises, in particular the underlying logic of their practices. As argued by Thornton et al. (2012:129), “practices are not merely determined reflections of institutional logics; they are also tangible focal points for shifts or alterations in institutional logics.” The work on practices, which leads to logic change is also a work on identity. So practices, identity and institutional logics are all related. Shifts in practices are basically shifts in identity, and these could lead to changes in logics (Mohr, 1994; Mohr and Duquenne, 1997). In fact, an institutional logic is tangibly manifested through practices and identities. For example, as sectoral innovation takes place, through changes in practices and identities, institutional logics are also changed. The specific interplay between two logics for example could lead to a third hybridized one in a process where individual agents' practice, in search of meaning and solutions to the situation, transforms traditions. The institutional logic has a dual nature: symbolic and material (Thornton et al., 2012). Practice affects mostly the material, but leads to changes of symbolic meaning. For example, sectoral innovation in health care could provide specific material answers to patients' related pains, and at the same time change the perception of what is a disease, thus modify its symbolic status. For sectoral innovation analysis, researchers have emphasized the effect of a dominant logic change on organizational practices within an industry (Smink et al., 2015; Styhre, 2011). Some also suggest to pay attention to actors' practices that challenge dominant industry logic (Sabatier et al., 2012). But how competing logics reshape the whole sectoral system and its ability to innovate has not been satisfactorily addressed, especially in such sectors as the medical and pharmaceutical, which are tightly knit with social and cultural institutions (Dunn and Jones, 2010; Styhre, 2011). The medical and pharmaceutical sectors have been in constant institutional flux. Different and new institutional logics penetrate the field regularly, because of changing social, economic, and technological environments. For example, the biotechnology incursion into pharmaceuticals is a type of logic change that has led to some exploratory investigations (Quéré, 2003). Rarely have national cultures and different civilizational beliefs been challenged as much as in China. Our study provides a rare glimpse on how major institutional logics compete and transform fields, and competitive dynamics. It explores how the entry of WM logic into the traditional logic of TCM field reshapes the antidepressant innovation system. In what follows, we shall give attention to practices and identity changes, and decode how these transform the interplay among competing logics, thereby leading to new identities and innovative practices. In so doing, we highlight how the TCM antidepressant sector has been led to innovate in order to survive and thrive.

2.3. Competing institutional logics and organizations

3. Research design

The dialectic interactions and competition among institutional logics are key drivers of institutional logic effects (Thornton and Ocasio, 2008). Through competition, institutional logics affect actors and reshape their ideas about specific issues. This leads to changes in their signals and practices, resulting in turbulent, fluctuating fields. Competing logics can also generate new professional renewal to resist change (Marquis and Lounsbury, 2007). This may result in a variety of responses. Competition among logics could lead to one dominant logic (Greenwood and

3.1. TCM and WM in antidepressants: a competition of institutional logics In his massive historical–anthropological study of medicine and society in China, Unschuld (2010) shows that there are major differences between WM and TCM beliefs. They represent distinct institutional logics about disease and its treatment. In particular in the field of depression, how to define the phenomenon and by which mechanisms it affects people, remains controversial and subject to beliefs and values.

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In today's Western medical field, depression is regarded as a body disease that needs medical intervention and drug treatment, based on biology and medical science. According to the definition of the World Health Organization, there are three levels of depression: mild, moderate and severe. According to the modern WM theory, depression can be caused by: (1) affective disorder; (2) organic brain lesions; (3) psychoactive substances, drugs and food/beverage-related constituents (such as alcohol); (4) physical disease; (5) psychological depression. Responding to these causes, WM antidepressants are developed by using modern pharmaceutical technologies and tested by rigorous clinical trial guidelines. In contrast, TCM theory does not recognize depression as a body disease but rather sees it as an affection disease, which is mainly about gloomy emotions and moods. Generally, depression is regarded as the result of imbalances among liver, spleen and heart, which may be caused by six types of external pressures and seven types of internal disorders (Wai Gan Liu Yin, Nei Shang Qi Qing). TCM emphasizes diagnosis and treatment based on an overall analysis of the illness and the patient's condition. It proposes that depression should be categorized as Shi Zheng and Xu Zheng (categories of health conditions in TCM theory), which could be further categorized into 10 sub-types according to whether symptoms happen mainly on liver, spleen, or heart. Traditionally, TCM antidepressants were prescribed by TCM doctors following a TCM theory-based diagnosis. Traditional antidepressants are usually combinations of raw herbs, which are based on historical experiences and produced manually. However, facing the entry of WM antidepressants in the early 1990s, the sector of TCM antidepressants had to change to survive, as we show later. 3.2. Method and data collection Our study is based on a case study design (Yin, 2003). To understand the sectoral change in a situation of competing logics, the case method allows to study the sector as a whole (Smink et al., 2015). The study is based on information and data collected using several resources. First, archival data was collected using multiple sources. These include materials from the State Food and Drug Administration (SFDA), Southern Medicine Economic Research Institute, IMS Health, Wangfang Database, China National Knowledge Internet (CNKI), China Doctor Dissertations Full-text Database (CDMD), China Master Theses Full-text Database (CMTD). These materials provided us with information about the Chinese antidepressant market and the technology evolution landscape. In addition, we collected material from newspapers, magazines and news reports to understand the competitive dynamics among multinational pharmas, local imitation drug producers, and TCM firms. Documents regarding Chinese government policy towards depression and antidepressant industry were collected from websites of the Health Ministry of China and SFDA. Second, detailed field interviews with different pharmaceutical company officials were conducted. We targeted the six leading antidepressant producers in China, including Huahai Pharma, Zuoli Pharma, Huashen Pharma, Kanghong Pharma, Lilly, and Glaxo Smith Klein (GSK). In this group are the top 2 firms in each of TCM antidepressant, imitation drug, and innovative drug areas. Interviews were centered mainly on (1) their understanding of competition dynamics between

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TCM and WM and (2) TCM firms' strategies and competitive reactions. A summary of interviews conducted is listed in Table 1. Third, we interviewed 4 hospital doctors who prescribe antidepressant drugs and 6 pharmacists at community pharmacies (see Table 1). For doctors, we interviewed depression specialists, and collected their professional views and thinking about depression as a disease and their opinions about different types of antidepressant products. For community pharmacists we mainly collected their observations about antidepressant choices by consumers. We also conducted informal interviews with patients at hospitals and at community pharmacies about their perceptions of antidepressants in general and the differences between WM and TCM products. 3.3. Data analysis For data analysis, we took several steps. First, we scanned all the data and identified the key sectoral events in their historical sequence. In so doing, we divided the whole sectoral history into three phases: (1) entry of WM antidepressants; (2) response of TCM antidepressants; and (3) final changes of TCM logic at the industrial level. Second, for each phase, we divided the material collected into two groups: WM antidepressants and TCM antidepressants. The purpose was to identify the influence of WM logic and TCM logic separately, and then compare the two logics and their effects. In particular, we were intent on identifying the impact of WM logic on TCM logic change. Third, we analyzed the data by using Malerba's framework (2002) to specify each element of the sectoral innovation system: knowledge base; actors and networks; and “institutions”. For each element, we specifically identified the main activities and related objective. Data covering several elements were used as complementary and used to crosscheck our findings. Fourth, we studied the interactions among competing logic changes, and related them in historical sequence to each of the sectoral innovation system elements, which led us to first write the case presented later in the findings and then conceptualize the relationships. The results are presented in the following section, followed by theoretical exploration and discussion. 4. Findings In this section we describe how the TCM antidepressant innovation system and logic have changed under pressure from the competing WM logic. The description is illustrated in Fig. 1. 4.1. Phase 1: multinational pharmas introduce a new logic Given its size, it is inevitable that we find in China a large number of depression patients. But Chinese are very sensitive to the treatment of depression, because of social and cultural inhibitions and stigma. In the traditional Chinese culture, depression is regarded as a psychological weakness and is discriminated against. Thus patients are scared to publically acknowledge their depression, which influences their attitudes towards medical treatment and hinders their ability to take antidepressant drugs. As a result, the antidepressant market was marginal until the entry of multinational pharmas into China.

Table 1 Summary of interviews conducted. Organization

Interviewees

Main questions

TCM firms: Huahai Pharma & Zuoli Pharma

2 senior managers

Imitation WM firms: Huashen Pharma Kanghong Pharma Innovative WM firms: Lilly and Glaxo Smith Klein (GSK) General hosptial (Zhejiang & Guangdong)

2 sales managers 2 sales managers 4 general hospital doctors

Community pharmacies (Zhejiang & Guangdong)

6 community pharmacists

• Their understanding of competition dynamics between TCM and WM • TCM firms' strategies and competitive reactions • Their understanding of competition dynamics between TCM and WM • Their understanding of competition dynamics between TCM and WM • Their opinions about depression as a disease • Their opinions about different types of antidepressant products • Their observations about antidepressant choices by consumers

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Fig. 1. Competing logics and sectoral innovation system.

As core carriers of WM logic, multinational pharmas brought their innovative chemical antidepressant drugs to China in the middle of 1990s. In 1995 Lilly Pharma created its most famous antidepressant Prozac, and in 1996 decided to sell it in China. Facing an apparent void in terms of market, Lilly decided to build it anew. It realized that a crucial step was to introduce WM logic into the sector, as described by an interviewee at Lilly Pharma: “We think the most important thing is to make the Chinese people realize that depression is a disease, like cold, which can be diagnosed and treated with modern medical science. Moreover, we need to make them understand and accept the logic of WM for depression. This is the most challenging work, because we need to recreate the whole field.” Realizing the challenges of introducing a completely new logic to a sector, multinational pharmas undertook to construct all the three elements of a sectoral system by following WM logic. Multinational pharmas' work on knowledge base, actors and networks, and “institutions” can be summarized as Table 2 below.

4.1.1. Multinational pharmas' work on knowledge base Thinking that it is impossible to start introducing WM antidepressant knowledge from the grassroots, multinational pharmas designed a top-down strategy. Representatives at Lilly Pharma, first persuaded the central Health Ministry to accept its sponsorship to carry out an antidepressant project named as “Rising Sun. Project (Xuri Gongcheng)”, to educate senior health officials and influential hospital doctors. In its public statement, the purposes of the project included the following: (1) sensitize doctors to the existence and importance of the depression disease; (2) train them about how to correctly diagnose depression; (3) teach them how to communicate with patients and persuade them to accept medical treatment; and (4) encourage them to recommend Prozac to depressive patients. In fact, its main objective was to make senior health officials and influential hospital doctors get access and accept WM antidepressant knowledge. The successful implementation of this project contributed to building the antidepressant sector in China as a completely new and modern knowledge base.

4.1.2. Multinational pharmas' work on actors and networks Our informants highlighted that, with recognition from senior levels, multinational pharmas conducted a series of related activities to establish and extend its linkages with local health systems, targeting mass hospital doctors and their patients. Firstly, the pharmas cultivated local key opinion leaders. They identified some leading doctors and built them into key opinion leaders for antidepressants. This was done through research funding and sponsoring attendance to international antidepressant conferences. Specifically, multinational pharmas supported the chosen key opinion leaders to conduct clinical trials in China to test the medical efficacy of their WM antidepressant drugs, using WM logic and practices. The medical evidence from clinical trials on Chinese patients significantly strengthened the appeal of WM antidepressant drugs and increased these key opinion leaders' authority. Secondly, transferring their academic marketing experience and skills into China, multinational pharmas developed a series of major promotion campaigns. They got the local key opinion leaders deeply involved into their activities to influence more Chinese doctors who were unaware or not cognizant about depression. As a result, many enlisted doctors became active prescribers, working to persuade patients to acknowledge their depression and accept treatment of WM antidepressant drugs. Through these activities, Lilly, GSK, and other multinational pharmas effectively established new sectoral linkages, with them at the center. 4.1.3. Multinational pharmas' work on “institutions” With a rising public acceptance of WM antidepressant philosophy, multinational pharmas moved to organize an “institutional” lobby to include their WM innovative antidepressant drugs into reimbursement drug lists of the public health system. Multinational pharmas applied for patents covering their new chemical entities and registered WM antidepressants as new innovative drugs, to be able to charge high prices. Because their patented WM antidepressant drugs were generally expensive, whether the public health system would cover the drug expense was a crucial decision for Multinational pharmas. They initiated a series of “policy suggestion” activities. Local key opinion leaders played an important role in lobbying government agencies. Consequently, the lobby led government officially to recognize depression as a disease

Table 2 Main activities of multinational pharmas. Main activities

Objective

• Work on knowledge base

• Organized “Rising Sun. Project”

• Work on actors and networks

• Cultivated local key opinion leaders • Initiated academic promotion • Carried out institutional lobby for reimbursement

• Introduce the WM antidepressant knowledge to senior health officials and influential hospital doctors • Transfer the WM antidepressant logic to ordinary hospital doctors and their patients

• Work on “institutions”

• Include WM antidepressants into the reimbursement drug list of public health system

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needing medical treatment and included WM antidepressants into the health system reimbursement list. In summary, multinational pharmas' investment led to significant success. It stimulated doctors' and patients' awareness, leading to a rapid growth of the antidepressant market. The logic of WM dominated the diagnosis and prescription of depression. In hospitals, doctors used mostly WM techniques and protocols, such as psychological questionnaires and tests, to decide whether a patient had depression. WM antidepressant drugs from multinational pharmas became the first recommendation of doctors to patients. Multinational pharmas became the dominant force in the Chinese antidepressant market. As a result, WM logic dominated completely the antidepressant sector in China. 4.2. Phase 2: local TCM firms as logic re-shapers While multinational pharmas were very active, investing large resources to initiate and develop the antidepressant market, local TCM firms seemed unconcerned, or unaware at the beginning. They did not react much, and at that stage took little competitive moves to counter multinational pharmas' penetration. Two main reasons were given in interviews to explain such a behavior: First, they didn't have enough resources to emulate multinational pharmas and educate doctors and patients to create a new market; second they were unsure about their ability to compete. In particular, they felt that “the TCM philosophy didn't provide convincing theories to resist WM antidepressants' penetration.” In addition, multinational pharmas' products were strongly supported by powerful research evidence and rationale. One TCM firm manager said: “WM is too powerful. It has strong basis of modern science and technology. Today's doctors believe it. Our TCM logic can't confront it directly.” As a result, local TCM firms chose a follower strategy, waiting for multinational pharmas to create the new antidepressant market. They waited until it was significantly developed, and patient demand for antidepressant had significantly increased. Four years after Lilly's first actions, in 2000, local TCM firms began timidly to be involved into antidepressant markets. Facing the dominance of multinational pharmas, local TCM firms had however to find a distinctive path to be able to compete. This was also necessary, according to TCM firms themselves, because, as WM had become popular in the field of depression treatment, local imitators of chemical drugs were many, with low quality products, but forcing price competition. TCM firms saw that it was impossible to survive while giving up their own logic. They had to innovate into an appropriate response, while remaining consistent with traditional treatment philosophy. They finally found a “refer and reinterpret” solution, as stated by one interviewee: “If we gave up our own TCM thinking and logic, we would have committed suicide. The only choice was to use WM but build distinguished TCM products. We learned from WM, and their good aspects, then we used their logic to reinterpret our TCM. We needed to make use of their ideas to build TCM in the antidepressant market.” Following these ideas, they carried out a series of activities to redesign the sectoral innovation system. Their work on the knowledge base, actors and networks, and “institutions” are summarized as Table 3. 4.2.1. TCM firms' work on knowledge base As a fundamental step, TCM firms began to rebuild the knowledge base of TCM antidepressant by combining WM technology, evidencebased principles and TCM knowledge. Indeed, they decided to integrate modern technology and terminology into TCM to develop new TCM

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antidepressant products and gain competitive legitimacy. An interviewee described the process as follows: “We couldn't just say that our TCM antidepressant had a long history and had been documented in the ancient TCM academics. We had to tell our patients that our products not only had a TCM foundation but also were developed using modern science and technology. We insisted that our products were developed and tested through rigorous processes like WM's.” Firstly, local TCM firms decided to integrate some elements of WM technology into its own knowledge base. This was tricky, because it had to be seen as being a real contribution instead of simply developing unsophisticated WM antidepressants. They truly had to remain traditional, while moving the traditional into modern. Therefore, they turned to the idea of “secondary development”, which means using modern technologies to recreate the traditional TCM products that are documented in TCM scholarship. For example, Zuoli Pharma used biotechnology to redevelop the traditional TCM prescription into a new antidepressant product (Wuling Capsule). Through integrating biotechnology techniques and standards, widely regarded as representative of WM, Wuling Capsule got great recognition by doctors who have been widely educated in WM. It has become the leading TCM antidepressant in the Chinese market. Following the idea of “secondary development”, local TCM firms in the past decade have developed several successful TCM antidepressants of “National Type I New Medicine.” Secondly, TCM firms applied evidence-based guidelines of WM in the R&D of TCM antidepressants. Considering the popularity of the WM logic, especially that along a knowledge order of worth it was evidence-based, local TCM firms realized that if they didn't show the same features they would not be able to gain trust from critical stakeholders, in particular doctors and patients. Showing similar evidencebased processes and practices, but not necessarily similar products, was seen as necessary for a trusting relationship. In particular, efficacy and safety, two important concepts in WM, had to be reflected in the development of new TCM antidepressant products. In interviews, informants stated that their local TCM firms learned the principles of evidence-based. They referred to the R&D guidelines of WM, to conduct a series of development processes, from early experiments to late clinical trials, to prove the efficacy and safety of their products, which made their final products consistent with evidence-based Science. Overall, modern technology and scientific methods have been integrated as essential components of TCM antidepressants knowledge base. 4.2.2. TCM firms' work on actors and networks Accepting to integrate WM knowledge into TCM, TCM firms also understood that they needed more actions to rebuild practical firm strategies and sectoral networking. They recognized that the Chinese consumer was in the middle of an important cognitive dissonance. It identified with traditional philosophy, yet it embraced modernity. Distinctiveness had to build on both, and resolve the dissonance. They undertook four types of actions to do that: First, TCM firms designed new value propositions emphasizing TCM's concept of coordinating (Tiao Li). While using the concept of depression in WM, TCM firms found a way to re-conceptualize depression and its treatment and make them consistent with traditional values and beliefs. As one interviewee said: “Our TCM antidepressants couldn't just follow the WM logic. We had to advocate our own TCM logic. On the surface, we could use the concept of depression in WM, but in the core, we had to go back to our own TCM philosophy and theory. We developed TCM antidepressants that are consistent with the mindset of our Chinese people.” Instead of emphasizing treatment as is done by multinational pharmas, they emphasized the concept of coordinating (Tiao Li), a key principle in TCM theory. This concept suggests that depression is

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Table 3 Main activities of local TCM firms. Innovation system

Main activities

Objective

• Work on knowledge base • Integrated WM technology into TCM knowledge • Applied evidence-based guidelines of WM for R&D of TCM antidepressants • Work on actors and • Designed new value proposition emphasizing the concept of coordinating networks (Tiao Li) in TCM theory • Targeted patients with low and moderate depression to segment market • Founded linkages with community pharmacies to open “blue ocean” • Persuaded hospital doctors to prescribe TCM antidepressants as complementary to WM antidepressants • Work on “institutions” • Applied for certification of the National TCM Protection Types • Applied for patents of processing • Got registered from the National New Medicine of China

not a problem that can be clearly delimited and treated at once, but its deep effects require a long term care. This means that a depression cannot be solved by simply stimulating the nervous system, which is the basic mechanism in WM, but requires a more comprehensive health approach. They argued that depression must be dealt with through the patient's own adjustment and coordination. For example, Wuling Capsule impacts patient by improving their sleep quality to decrease depression. In marketing activities, local TCM firms also framed the issue differently to account for cultural sensitivities. They avoided using the concept of depression directly to promote the use of Jieyu (resolving depression). This was appealing to Chinese, because it reduced cultural resistance and increased patients' perceptions of psychological similarity to others. Moreover, TCM firms emphasized that the coordinating (Tiao Li) effect of TCM antidepressants brought less side effect, which was one of the main concerns for WM antidepressants. Second, with new distinct value propositions, TCM firms segmented the market to target patients with low and moderate depression, but having cultural preferences towards TCM. Both multinational pharmas and local imitator firms promoted chemical antidepressants without distinguishing among levels of depression. Chemical antidepressants are described to be appropriate for all patients, regardless of how serious depression was. Local TCM firms promoted the idea that some patients with low and moderate depression may not need strong chemical drug interventions. On the contrary, such patients need long term mental care and soft medicine without a strong chemical impact. Such a medical description of TCM antidepressants was warmly welcomed by ordinary Chinese patients. Third, TCM firms invested a lot of resources to establish business linkages with community pharmacies where depression patients could choose the medicine by themselves, without the prescription of doctors. Purposely, TCM firms made use of the logic of a soft medicine to register their antidepressant products as over-the-counter medicine, which can be easily and conveniently accessed by patients at community pharmacies. This also had the added advantage of reducing the feeling of shame when asking for antidepressant drugs from hospital doctors. The closer linkages with community pharmacies gave TCM firms the opportunity to open their own “blue ocean”. Fourth, they persuaded some doctors at hospitals, themselves ambivalent about WM drugs, to prescribe TCM antidepressants as complements to hard WM drugs. They also sponsored some hospital doctors to carry out clinical researches on mixed uses of WM and TCM antidepressants. By doing so, they did not fight multinational pharmas' product head on. Rather they could reduce professional and competitive resistance by encouraging doctors to prescribe their products to patients as complements to chemical antidepressants. With these, TCM firms effectively established linkages with hospital doctors to penetrate into WM antidepressant area. With all these activities, TCM firms restructured the TCM antidepressant sector, and the ability of actors to innovate. During this process, by promoting the traditional soft treatment logic, local TCM firms generated more recognition and market opportunities.

• Rebuild the knowledge base of TCM antidepressant by combining WM technology and evidence-based principles with TCM knowledge • Rebuild new firm strategies and sectoral networking of TCM antidepressant

• Establish new institutions that favor TCM antidepressants

4.2.3. TCM firms' work on “institutions” Observing multinational pharmas' special emphasis and efforts on constructing institutional environment for their WM antidepressants, local TCM firms tried to enlist the support of key organizations, resources, and actors, as described by an interviewee: “Emphasizing the protection of intellectual property rights is one of the advantages of WM. For our TCM, we should learn from this. Of course, we can't do the same as WM, like patents of new chemical entity. But we need to found our own system to protect and promote TCM.” First, the most important action of local TCM firms was to get the institutional protection of the National TCM Protection Types. This policy is specifically designed to support the development of TCM prescriptions in modern society. Under the policy, once a product was certified as National TCM Protection Type, it could enjoy exclusive registry rights. This means that certification of the National TCM Protection Type bars other firms from doing the same or similar prescriptions. In particular, this policy forbids foreign companies from developing TCM products listed in the National TCM Protection Types. Moreover, certification of the National TCM Protection Types can also provide extra pricing advantages in public bidding of government health departments. Second, local TCM firms tried to get institutionally distinctive patents. One of the most significant features of WM logic is for multinational pharmas to apply for patents covering new chemical entities, to protect their intellectual property rights. Multinational pharmas use patents to ensure attractive pricing and prevent competitors from reverse engineering imitation. Referring to this, local TCM firms worked to apply for patents to protect their antidepressants. But different from the patents for WM antidepressants, the patents for TCM antidepressants are mostly processing patents, which deal with Chinese herbal material preparations and manufacturing processes. Through such patent certifications, to some extent, TCM firms got distinguished institutional benefits similar in their effects to WM antidepressant patents. Third, referring to multinational pharmas' experiences of registering WM antidepressants as new innovative drugs to obtain institutional support of pricing and reimbursement, TCM firms sought governmental recognition and policy of TCM antidepressants as new innovative rather than generic drugs. Local TCM firms did apply for certification from the National New Medicine of China (NNMC). With the approval as NNMC, TCM antidepressants could enjoy the best pricing policy that government issues. Moreover, they could be included into the National Essential Medicine List to get wider reimbursement coverage by the public health system. These pricing and reimbursement support brought TCM antidepressants competitive advantages over WM antidepressant drugs. As a result, 60 types of TCM antidepressants have been introduced to the Chinese market. According to the SFDA Southern Medicine Economic Research Institute of China statistics, sales of TCM antidepressants reached 121 million Yuan in 2011, with a 37% annual growth rate since 2006 (see Fig. 2).

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orders has been modified to change the rules of the game and reposition favorably TCM firms, which were at first completely out of the game. We argued that this changed the sectoral innovation system and brought new understandings, new products and new image framing, thus a new logic into each part of the antidepressant health system. Using the illustration as Fig. 1, we now discuss this further and offer a new conceptualization of logics competitive dynamics. 5.1. Competing logics as a stimulating factor of sectoral innovation

Fig. 2. Market change of TCM antidepressants Data sources: SFDA Southern Medicine Economic Research Institute of China.

4.3. Phase 3: changing logic The logic of TCM antidepressants has been changed with the establishment and operation of a new sectoral innovation system (see Table 4). The innovation system has been re-conceptualized through cognitive transformation including: (1) innovative redefinition of the depression pathology, and its treatment; (2) creative positioning of tradition and natural treatment, beside hard drugs; (3) training of key players and education of consumers. It has continued through normative changes including: (1) approval of key professional bodies and authorities; (2) changing the status of soft antidepressants in the pharmaceutical market, and its reimbursement by health. Finally, it was consolidated with strong support from health authority to a “traditional treasure”, which has redeemed itself with the use of science. These changes have deeply transformed the field and encouraged TCM firms to embark into the domain and join in with innovative products and behavior. Institutional logic changes have led to significant changes in the sectoral innovation system.

5. Discussion Responding to the call for studying sectoral systems of innovation from diversified conceptual perspectives, with still an industry-specific view (Malerba and Nelson, 2011), we used an institutional logics perspective to investigate the evolution of TCM antidepressant sector since the middle of the 1990s. Our analysis finds that the entry of chemical antidepressant medicines was an institutional challenge to the field of TCM. It questioned the ability and legitimacy of TCM to deal with psychological problems. Competition between WM and TCM logics took place around five key orders of worth (Thornton et al., 2012): (1) disease treatment beliefs and philosophy; (2) product development and production techniques; (3) marketing, in particular consumer relations; (4) state and community; (5) competitive rivalry. Each of these contributed to the transformation of how TCM viewed, treated, and competed in the field of antidepressants. We have described how each of these

The entry of new logics stimulates innovation in the existing sector. The stimulation affects the three components of the sectoral innovation system. First, the entry of a competing logic not only challenges but also provides new sources of knowledge to the existing sector. Different sectors rooted into different knowledge bases generate a variety of sectoral structures and outputs and result in different industrial competitive landscapes (Coenen et al., 2006). As a knowledge base is related to individual perceptions of what is the underlying logic, competing logics can challenge each other's grips on individual perceptions. And the integration of different knowledge bases could generate new sectoral opportunities (Dibiaggio and Nasiriyar, 2009). Competition among logics leads to conflicts and combinations of knowledge bases, which are important drivers of sectoral innovation. As shown earlier, the entry of WM logic has given TCM firms a chance to make use of modern technology, such as biotechnology, a new knowledge base for developing new TCM antidepressant products, and the framing to justify their use in what Unschuld (2010) describes as a culturally-intense society. Second, the entry of competing logics can push sectoral actors to redefine sectoral boundaries and structure. Especially, consumers constitute one of the most influential actors of a sectoral innovation system (Malerba, 2002). The rise and change of consumer demand could significantly shape sectoral innovation and decide the evolution path for the whole sector (Adams et al., 2011; Adams et al., 2012). In most cases demand alone can be a source of innovation for a sector (Fontana and Malerba, 2010). However demand in a society could be restrained by institutions since they define the norms and concepts of social value that will eventually influence demand (Scott, 2008). When a new institutional logic enters into a field and competes with the existing institutional logic, it can restructure individual and societal ideas about consumption of specific goods and services, which in turn creates new consumer demand and sets new sectoral boundaries, as shown in this study. Third, the entry of competing logics is an opportunity for institutional change in a sector. As shown by our study, WM logic as introduced by multinational pharmas in the treatment of depression, induced government to design new medical regulations to position depression as a formal disease, which could be prescribed and reimbursed in the government insurance system. Moreover, the new logic drove societal cognitive and normative recognition of depression as a normal disease, which influenced some of the oldest social institutions in Chinese society. As institutions are rooted in the value judgments and choices of most players in a sector (Smink et al., 2015), the entry of competing logics will naturally change institutions in a sector.

Table 4 Comparison of old and new logics of TCM antidepressants.

Knowledge basis Knowledge source Efficacy evaluation Composition Safety evaluation Dosage Usage Recognition

Old logic

New logic

TCM philosophy Historical accumulation of TCM experience Historical medical experience Combination of raw herbs Historical experience No standard packaging Personalized prescription by TCM doctors Socio-cultural recognition

TCM academics and modern sciences Results of pharmaceutical discovery and development Clinical trial Specific of herbal components Clinical trial Pill, capsule, spray and other modern dosage forms Standardized product for self-medication or prescription by WM and TCM doctors Patent and new drug certification

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As a result of all these changes, we can conclude that the entry of new competing logics carries challenges and opportunities to the existing sector for innovation, and stimulate its ability to change and thrive. 5.2. The effect of agency in changing sectoral innovation Sectoral actors, facing the entry of new and challenging logics, respond by taking actions to redesign the sector's innovation system. In particular, the competing logics provide institutional tools for existing sectoral actors to reshape their legitimacy and identity, by referring and reinterpreting mechanisms. As shown in our study, facing the entry of institutionally powerful competitors, leading TCM firms have not given up their philosophical bases, as did local producers of chemical imitation drugs. Instead, they referred to WM logic's strengths and appeal factors, then utilized them to reinterpret and rebuild their philosophical and competitive position. Kraatz and Block (2008) has proposed that organizations could choose to resist, balance, emerge as a new institution, or compartmentalize to meet the competing logic demands. Our findings indicate that referring and reinterpreting mechanisms are important agency for organizations in competing logics. Furthermore, on the one hand, the leading firms modified their own organizational values and beliefs (Spicer and Sewell, 2010); on the other hand, their value-chain activities changed the whole organizational field's logic and resulted in a hybridized TCM philosophy. In so doing, they used the competing logic to build a new logic and restructure the whole sectoral system. Such an institutional logic work led to a new identity and provided a new legitimacy for new TCM antidepressant products, able to compete with multinational firms' products. Smets et al. (2012) have argued that micro practice can lead to logic change at the field level. Our findings further indicate that sectoral actors could take actions to affect the components of a sectoral innovation system, which eventually leads to a new field logic. In general, competition among institutional logics affects all the components of the sectoral system of innovation. Functioning as a framework with related components, the sectoral system of innovation creates breakthroughs by systematic interaction among its components (Malerba, 2005; Tait, 2007). Therefore, competing logics stimulate sectoral innovation through their impacts on each component of the sectoral system of innovation, which leads to the emergence of a new sectoral logic. 6. Conclusion Applying the institutional logics theory to the sectoral system of innovation, we studied the TCM antidepressant sector, when facing competition from the WM logic. We argue that the coexistence of plural logics can stimulate sectoral innovation by injecting a new logic into each component of the innovation system. Existing sectoral actors can refer to the competing logic to reinterpret their own logic and reshape sectoral competitiveness. Combining institutional logic and sectoral system of innovation, our study makes contributions to both fields. For the field of sectoral system of innovation, our study contributes by highlighting the impact of competing institutional logics on sectoral innovation. While past research has emphasized technological impacts on sectoral change (Dolata, 2009) and policy drivers for sectoral innovation (Liang et al., 2009), we indicate that an institutional logic view can contribute to study sectoral systems of innovation by regarding sectoral change as a consequence of competitive dynamics among logics. Introducing the institutional logics perspective into the sectoral system of innovation gives us a chance to analyze the broad sectoral transformation, as was shown for the pharmaceutical sector with the incursion of the biopharmaceutical logic (Quéré, 2003; Styhre, 2011). For the institutional logic theory, our study first shows how institutional logics drive the interactions among different actors of a sector. An

institutional logic is shared assumptions, values and beliefs among individuals (Thornton and Ocasio, 2008). When competing logics are effective at a sector level, their impacts are reflected in the activities of key actors in the sector. In this study, our analysis documents the interactions, around WM and TCM logics, among multinational pharmas, local TCM firms, doctors, consumers, and governments, which helps to bridge institutional logics at a sectoral level with the agency of sectoral actors. Moreover our study shows the process by which an old institutional logic is transformed, to respond to the entry of a new competing institutional logic. The transformation of an industry dominant logic is now becoming an important research subject (Lok, 2010; Sabatier et al., 2012). Our analysis of TCM logic changes provides some evidence for this area by showing the “referring” and “reinterpreting” mechanisms through which TCM logic is incorporating WM logic to reconstruct its identity into a hybridized identity. It helps to enrich the knowledge about logic change at the field level. Our research also identifies some valuable subjects for further research. First, the continuous interactions of competing logics such as WM and TCM's require longitudinal observation. As shown in this paper the antidepressant market in China has been initiated in the middle of 1990s and the change of the whole sector is only at the beginning stage. While this study has showed how WM logic has generated change pressures for the TCM logic, there is also a reverse impact on the WM logic. It can be estimated that the two competing logics will continue to interact and influence each other. It could be a long evolution full of interesting insights into competing logics dynamics as indicated by van Gestel and Hillebrand (2011). Research on how their continuous dynamics could reshape each other and the whole sector could lead to meaningful theoretical contributions. Second, how competing institutional logics are understood and reinterpreted at the individual level is another subject demanding attention. Suddaby (2010) argues that institutional theory needs to meet the challenges of explaining institutional work. While this study has provided evidence about how competing logics generate impact at the sectoral level, it is worth to explore how TCM logic and WM logic are understood and interpreted at the individual level. Future research should explore the institutional work of key opinion leaders and organizations. As the institutional work perspective can help to study the relationship between agency and institutions (Lawrence et al., 2011), it could help in understanding how competition among logics interacts with agency to generate actions at the individual level, as is shown by Creed et al. (2010). Finally, related study in other parts of TCM, such as TCM hospitals, Chinese herb slices, etc., could extend this study to a wider ecosystem and investigate how different parts of the TCM ecosystem deal with competing logics and how these changes could interact to build new institutions and change the whole ecosystem. In particular, inconsistent dynamics and conflicts in different parts of the ecosystem could provide a better understanding of the process by which competing logics affect the whole ecosystem renewal. Such research could broaden our scope from a sector to a larger ecosystem field. Acknowledgments We thank Yunfeng Lai for his assistance in data collection. We also acknowledge funding from the University of Macau (MYRG201600055-ICMS-QRCM). References Adams, P., Brusoni, S., Malerba, F., 2011. Knowledge, supply and demand in industrial development: a sectoral systems perspective. Innov. Dev. 1 (2), 167–185. Adams, P., Fontana, R., Malerba, F., 2012. The magnitude of innovation by demand in a sectoral system: the role of industrial users in semiconductors. Res. Policy 42 (1), 1–14. Athreye, S., Kale, D., Ramani, S.V., 2009. Experimentation with strategy and the evolution of dynamic capability in the Indian pharmaceutical sector. Ind. Corp. Chang. 18 (4), 729–759.

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He has written numerous articles and books dealing with strategic management and change in situations of complexity. He received the Montreal business best book award in 1998 and in 2009. He holds a Master's of science degree in management, from the Sloan school of management, at the Massachusetts Institute of Technology, Boston, and a Doctorate in business administration, from the Harvard Business School. (Taieb.2. [email protected]). Hao Hu is an associate professor at Institute of Chinese Medical Sciences, University of Macau. His research work is mainly related to health industry management, pharmaceutical sector innovation, institutional change of traditional Chinese medicine, and pharmaceutical technology commercialisation. ([email protected])