Int. J. Business and Emerging Markets, Vol. 3, No.

1, 2011

A strategic framework for determining technological

learning performance in Chinese firms
Wei Xie*
Department of Strategy and Business Policy,
School of Economics and Management,
Tsinghua University, Beijing 100084, China
E-mail: xiew@sem.tsinghua.edu.cn
*Corresponding author

Steven White
Department of Innovation and Entrepreneurship,
School of Economics and Management,
Tsinghua University, Beijing 100084, China
E-mail: white@sem.tsinghua.edu.cn
Abstract: With technological leadership in most industries still held by firms
in developed countries, most firms in developing countries must import
technology as part of upgrading their technological capabilities. In China, some
firms have achieved significant competitiveness and performance even in
global markets, based on rapid technological catch-up, whereas others have
failed in the face of even domestic competition. How can such differences in
learning performance outcomes be explained? This paper proposes a
framework as part of addressing this gap in the literature and also suggests
factors that should be of interest to managers, policymakers and scholars
concerned with the role of imported technologies on national development.
Keywords: business; emerging markets; technological capabilities;
technological development; learning; resource-based view of the firm;
performance variation; China.
Reference to this paper should be made as follows: Xie, W. and White, S.
(2011) A strategic framework for determining technological learning
performance in Chinese firms, Int. J. Business and Emerging Markets, Vol. 3,
No. 1, pp.2135.
Biographical notes: Wei Xie is a Professor in the Department of Strategy and
Business Policy of Tsinghua University in Beijing, China. He received his BS
in Automotive Engineering and PhD in the Management of Technology. He has
held Visiting Scholar positions at MIT/Sloan and United Nations University
(INTECH). His research focuses on technological learning and competitive
dynamics, with two projects currently underway in the auto and electronics
industries. Prior work includes his contribution to Chinas Innovation and
Learning Capabilities Before It Joins the WTO, a background paper for
UNIDOs the annual World Industrial Development Report, and papers in
Research Policy, R&D Management, International Journal of Technology
Management, Technovation, Industry & Innovation and Journal of Technology
Management in China.

Copyright 2011 Inderscience Enterprises Ltd.

21

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W. Xie and S. White

Steven White is an Associate Professor at School of Economics and
Management of Tsinghua University, in Beijing, China. He holds a PhD in
Management from MIT/Sloan, an MA in Japanese Studies from the
International University of Japan, and a BS in Zoology from Duke University.
His research focuses on strategic and relational fit, with specific empirical
studies of organisational learning, cooperative strategies in alliances, and
institutional change in the Chinese context. His work has been published
in the Academy of Management Journal, Organization Studies, Journal of
Management Studies, Asia Pacific Journal of Management, Research Policy,
International Journal of Technology Management, and Technovation, and his
books include Biotechnology Japan and a co-edited volume, the Handbook of
Asian Management.

Introduction

Since opening the door to the outside world at the end of 1970s, many Chinese firms
have attempted to import foreign technology to develop their technological capabilities
and thereby build their own competitive advantages in the marketplace (Xie and White,
2006). However, some firms have achieved great performance through rapid
technological catch-up, whereas others have failed in competition even in the domestic
market (Kang and Yang, 1991; Hiraoka, 2001; Zhao, 1999). In many cases, the high and
low performers have both imported technology from the same foreign technology
supplier. How can the difference in their learning performance be explained? This
question is left unanswered, although there have been several in-depth studies of learning
in Chinese firms, such as Haier (Wang, 1999; Zhao, 2001), Shanghai Volkswagen
(Mu, 1997; Xie and Wu, 1997), Huawei, Datang and Eastcom (Shen, 1999; Zhao, 2001),
Konka (Zhao, 2001; Xie and Wu, 2003), and Chery (Liang and Lin, 2007).
This paper intends to help fill this gap by developing a framework that incorporates
factors determining technological learning performance in Chinese firms which, in turn,
contributes to differences in firms competitive outcomes. It may provide a conceptual
basis for further quantitative analysis.
This paper first reviews the relevant work in the resource-based view of the firm and
organisation learning in developing country and firm contexts. We then draw on a broad
range of prior research on this topic in China to develop propositions linking specific
industry, firm and project-level factors affecting technological learning performance.
We then conclude with a discussion of empirical work that could investigate these
propositions further.

Literature review

The resource-based view of the firm (Wernerfelt, 1984; Barney, 1991) posits that a firms
superior performance results from its pursuing a strategy that best exploits its unique
resource positions. The increasingly recognised importance of knowledge to economic
development has led to the emergence of the knowledge-based view of the firm
(Grant, 1996), which is an extension of the resource-base school. Knowledge is seen as a
strategic asset that is a potential source of competitive advantage for an organisation.

A strategic framework for determining technological learning performance

23

Based on an analysis of strategic resources and capabilities, Teece et al. (1997) explored
the possibility of building a theory of dynamic capabilities. Central to this analysis is
the role of learning in upgrading capabilities.
In developing countries, where many firms started from a relatively inferior position,
learning from firms in the developed world plays an important role (Hobday, 1995).
In the field of technology, most firms in developing countries are still followers
rather than innovators. Firms taking the lead in technology are still mostly in developed
countries. It is, therefore, necessary for most firms in developing countries to
upgrade their technological capabilities through importing foreign ones (Kim, 1997;
Kim and Lee, 2003; Lee et al., 1988; Mathews, 2007). As a result, technological
capability development represents an important competition among firms for knowledge
resources.
Over the past two decades, a significant volume of literature focused on different
levels of analysis (project, firm, industry and national levels) has been devoted to the
issue of technological learning and technology development processes in developing
countries (Amsden, 1989; Bell, 1984; Bell and Pavitt, 1993; Choung et al., 2000;
Figueiredo, 2002, 2003; Hobday, 1995; Kim, 1997; Kim et al., 1987; Kim and Dahlman,
1992; Kim and Nelson, 2000; Lall, 1987, 1992; Mathews, 1996; Mathews and Cho, 2000;
Sung and Hong, 1999).
Significant progress in research in the field of technological learning has been
achieved, and three general conclusions are particularly relevant for our analysis. The
first concerns how the learning process evolves over time and what stages constitute the
technology development process in developing countries, as summarised by Lee et al.
(1988) and later by Hobday (1995), Kim (1997) and Figueiredo (2002, 2003). Learning is
a cumulative process with successive stages, usually shifting from basic production skills
to competitive R&D capabilities (Kim and Dahlman, 1992). The second concerns the
factors that contribute to technological learning being undertaken in developing countries
and what principles can be used by managers in latecomer firms to guide technological
learning. This is addressed in work such as Bell and Pavitt (1993), Amsden (1989) and
Kim and Nelson (2000). A number of factors contributing learning have been identified,
including a cheap and well-trained labour base (Amsden, 1989); market protection
(Amsden, 1989; Lall and Teubal, 1998); export promotion policies (Bloom, 1992);
a substantial inward flow of foreign technology (Kim, 1997; Kim and Nelson, 2000);
favourable product market conditions (Bell and Pavitt, 1993); intensive indigenous firms
technological development effort (Hobday, 1995; Kim, 1997); vision and ability of
CEOs; and strategic networks with external technology suppliers (Kim and Lee, 2003).
The third concerns the characteristics of the technological learning process in developing
countries. Firms are seen as the locus of technological learning (Bell and Pavitt, 1993;
Lall, 1987, 1992), and the upgrading of technological capability can be considered as the
result of intentional investment of resources, rather than a by-product of production (Bell
and Pavitt, 1993; Hobday, 1995; Lall, 1992). Lall (1992,2000) and UNIDO (2002/2003)
propose nine common features: conscious and purposive, risky and costly, not obvious,
path-dependent, highly specific, many complex inter-linkages, many levels of effort,
many depths of development, and foreign plus domestic interactions.
However, despite the significant progress in research achieved in this field, we still
need to explore technological learning and capability building in the specific context of
China for two reasons. First, most of prior studies of technological learning by Chinese
firms are case studies and do not provide a general framework for understanding

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W. Xie and S. White

technological learning performance. Second, Chinas macro-economic and political

context transitioning from a centrally planned economy to a decentralised market
economy, large population with a rapidly growing income base and domestic
market makes it different from countries such as Korea, which have been the focus of
much of the research in this area. We expect to find differences in learning strategies and
performance in this different macro environment.

Factors influencing learning performance

We have reviewed recent literature to identify a set of factors that have been associated
with learning performance in the particular case of Chinese firms and imported
technology. We find that these factors map onto explanations at three different levels:
industry, firm and project (Figure 1).
Figure 1

Individual factors, learning performance and performance

Table 1 summarises the factors determining learning performance, and shows the
expected direction of their correlation with learning performance, as developed in the
propositions discussed in the following section. The list of these factors in Table 1 is not
exhaustive, but they are identified from a review of relevant literature on learning by
Chinese firms.
Industry-level factors
At industry level, four major factors affecting learning performance in firms are:

the extent of competition among firms in an industry

divisibility of the value chain

the existence of independent technology suppliers

a fast-growing domestic market with multi-level and multi-market

demand structure.

A strategic framework for determining technological learning performance

25

Vibrant competition among firms is vital for motivating firms to engage in learning to
upgrade technological capabilities in order to survive in the marketplace (White and
Linden, 2002; Zhao, 2001; Zhou et al., 1992). The unsuccessful learning experience of
Chinas video recorder industry provides an interesting case to illustrate how the degree
of rivalry affects capability building. In 1986, Chinas Ministry of Machinery and
Electronics (MME) attempted to develop Chinas video recorder industry. After a long
investigation process, the MME decided to select several winners and gave them rights
to produce video recorders in China. As of early 1992, nine firms had been selected to
manufacture video recorders in China. To achieve economies of scale and avoid wasting
capital importing the core technology, these firms became partners in a joint venture with
China Hualu Electronics Co., Ltd. Given this structure, none of the nine firms had any
incentive to invest in their own learning and capability-building. At the same time, an
import tariff of 120% protected their domestic market from imported products, and there
were no other domestic rivals. This comfortable situation for the nine winners resulted
in an uncompetitive domestic industry producing low-quality products at high prices. Not
surprisingly, this market peaked at 1,400,000 units in 1994. With the emergence of video
disc players and DVD players in China, the original video manufacturers were left far
behind and the industry disappeared (Xie, 2001).
Table 1
Level

Factors and their impact on learning performance

Factor

Industry Degree of competition

Divisibility of value chain

Firm

Project

Learning performance
+
+

Existence of independent technology suppliers

Fast-growing domestic market with a multi-level demand

structure

Organisational confidence

Technological capability base

Forward-looking culture

Velocity of technical change

Degree of product complexity

Mutually beneficial arrangements between transferors and

receivers of technology

Subsequent technology adaptation in response to local market

The successful experience of Chinas telecom equipment manufacturing firms provides a

contrasting example, showing the impact that vibrant competition among domestic firms
can have on capability-building by local firms. In this industry, the government
introduced competition by allowing foreign imports and multi-nationals to enter the
domestic market. Local firms were exposed to this competitive pressure, and they have
responded by becoming more efficient users of technologies and are aggressively
investing in learning to upgrade their technological capabilities (Shen, 1999; Tang, 2004).
Huawei is one such domestic firm, starting as a domestic network equipment distributor
and growing into a multi-national, second in the industry only to Cisco, with revenues of
US $12.7B, of which international sales are a major component. To survive in the

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W. Xie and S. White

increasingly competitive environment, Huawei took a proactive role in technological

learning. On the one hand, it forged a large number of strategic alliances with
multinationals, such as 3Com, with the objective of learning and acquiring competitively
valuable resources and capabilities. On the other, from its founding Huawei recognised
the role of internal R&D, and over the years has consistently invested at least 10% of
sales in R&D (Tang, 2004). Organisationally, it has established leading R&D centres in
global centres in the telecom industry to continue to learn and maintain its capabilities at
the technology frontier.
Proposition 1: The degree of rivalry is positively associated with learning performance.
A second industry-related factor which affects learning performance is the divisibility
of the value chain. With escalating R&D costs and ever shorter product life cycles,
even a large, global technology leader will struggle to control the entire value chain of
an industry (Lu, 2000; Shen, 1999; Xie, 2001). The response by leading firms has been to
focus on high value-added or critical segments of the value chain and move towards
modularity in order to reduce costs by outsourcing lower-value added segments.
This enables them to satisfy customers changing demands more quickly and at lower
cost. This becomes a self-reinforcing dynamic pushing an industry towards even greater
dis-integration and gives rise to global production networks. The resulting availability
of components lowers entry barriers and allows latecomer firms such as those from
developing countries to enter an industry and compete (Liu and Wang, 2007; Liang and
Lin, 2007). This process allowed Chinese firms to enter and eventually dominate the
VCD player industry. They initially imported key components, such as decoding
chips from Ess and C-Cube in the USA, and laser readers from Philips and Sony.
They were able to produce competitive products by focusing resources and learning on
assembly-related skills and technology to produce at a lower cost structure and offer
comparable products at a lower price (Xie, 2004).
Proposition 2: The divisibility of the value chain is positively associated with learning
performance.
A third industry-related factor is the existence of independent technology suppliers
(Shi, 1996, 1998; Tang, 2004). Independent technology suppliers makes it possible for
Chinese companies to catch up with the leading companies by reducing their risk because
of higher variable costs being offset by lower fixed costs (Xie and White, 2006). This has
been a key factor supporting the development of Chinese auto manufacturers. Many of
them have made extensive use of auto design companies such as I.DE.A, Zagato,
Bertone, Pininfarina, Giugia-ro, Stola and Pininfarina from Italy (Liang and Lin, 2007).
Similarly, the rise of independent technology suppliers, whether integrated solution
providers or component suppliers, provided the entry opportunity for Chinese mobile
handset companies to compete with multi-nationals in the domestic market. For example,
Wavecom, a Nasdaq-listed company, introduced the first commercially available version
of the WISMO module in 1997. This module was a complete solution, containing all the
core functions of a handset, including software and all digital, base-band and radio
frequency hardware. TCL Mobile Communication Company Ltd., now one of leading
local players in China, completely relied on imported WISMO modules. This allowed
TCL to focus its resources on marketing, distribution and external design and eventually
take a large share of the domestic market from the earlier dominant multi-nationals

A strategic framework for determining technological learning performance

27

(Xie and White, 2004; Wan, 2004). While such opportunities initially arise because
multi-nationals want to outsource some activities to reduce costs, latecomer firms
in China have used it as a valuable learning opportunity for latecomers (Li, 1998;
Shi, 1996).
Proposition 3: The existence of independent technology suppliers is positively associated
with learning performance.
In a range of industries, the successful local Chinese entrants have benefited not only
from growing markets, but by addressing divergent demands across markets
(multi-market demand structure) and across segments (multi-level demand structure).
Large and growing markets help Chinese firms to raise capital to finance technology
imports and learning investments (Lu, 2000; Shi, 1996, 1998; Shen, 1999). For instance,
the successful rise of Chinas Lenovo, Haier, Huawei, Bird and Chery is partly explained
by an ever growing domestic market (Xie, 2004). Their market share gains came largely
from their exploration of new domestic markets, not by taking share from imports
or multi-nationals in China. In other words, at the initial stage, they avoided direct,
head-to-head competition with multi-nationals.
These Chinese firms were also able to take advantage of multi-market and multi-level
demand structure (Xie, 2001; Wan, 2004). These characteristics provide the chance for
new local firms to gain a foothold and generate cash without initiating a reaction from
incumbents and, if they are successful at technological learning, eventually emerge as
major competitors. Multi-market demand structure helps local firms find niche
geographic markets as entry points that are unaddressed by stronger incumbents. Ningbo
Bird, for example, achieved rapid growth in the mobile handset business by exploring
and dominating Chinas western and rural markets rather than the eastern coastal
markets. A multi-level demand structure also enables local firms to gain an entre by
addressing a low-end market that is unattractive to incumbents. Huawei, for example,
initially entered the low-end segment of the network equipment market. In the beginning
of the 1990s, multi-nationals did not consider the countryside and small city markets
as worth the effort of developing. This opportunity enabled Huawei to establish
a beach-head in the marketplace and build up experience and scale. Strong cash flow
from the low-end market then funded Huaweis development so that it could eventually
compete directly with multi-nationals such as Ericsson and Alcatel in large cities,
their core markets. After capturing up to 14% of Chinas telecommunication
equipment market, it began to attack multi-nationals in other emerging markets
like Brazil and Russia, coming into head-to-head competition with Cisco and Lucent in
Europe (Tang, 2004).
Proposition 4: Learning performance is positively associated with a fast-growing
domestic market with multi-market and multi-level demand structure.
Firm-level factors
Our review identifies three firm-level factors as having a significant impact on learning
performance: organisational confidence, absorptive capacity, and a forward-looking
culture. Organisational confidence refers to the belief and self-confidence of a firms
managers in achieving their strategic vision. Most managers of Chinese firms are facing
multinationals that enjoy tremendous advantages in terms of brand names, technology

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W. Xie and S. White

and economies of scale. Believing that not even those industry leaders are
unchallengeable is critical for the motivation of the less-competitive Chinese firms.
Indeed, firms in developing countries with adequate strategies still have opportunities to
compete with multi-nationals (Lu, 2000; Shen, 1999). Lenovo, for example, started as a
barely funded spin-off with 12 employees in 1984, and 20 years later acquired IBMs PC
division and is the third largest PC manufacturer in the world.
That belief in a strategic vision, however, must be coupled with an awareness and
willingness to invest in learning that creates value in the long-term, rather than actions
prioritising short-term expedience and returns (Lu, 2000; Xie, 2001). After capturing a
critical mass from the domestic market, firms with a strategic vision will use their
relatively strong cash flows to invest in learning with the objective of closing
the technology gap with multi-nationals. ZTE, for example, began as an OEM
of consumer electronics and later diversified into the development and manufacture of
telecommunication equipment. After it established a position in the low-end market,
it began to invest scarce resources into R&D. After its sustained investment and
effort, it has now grown into one of Chinas leading domestic telecom equipment
manufacturers, second only to Huawei (Mi and Yin, 2005).
Proposition 5: Learning performance is positively associated with organisational
confidence.
A second firm-level factor is absorptive capacity. In the past, few Chinese firms had
sufficient technological capability to actively assimilate imported technology (Bai and
Xu, 1987; Ding, 1989), and this was an impediment to their subsequently upgrading their
capabilities. Some firms even lack the skills and knowledge necessary to evaluate and
select which technology should be imported (Conroy, 1990, 1992b, 1992c). Many also
lack skilled operators and shop-floor engineers to maintain imported equipment
(Mu, 1997). On the other hand, other firms have developed the technological capabilities
that benefit them by increasing their ability to absorb outside technology effectively
and continuously improve on imported technology (Li and Atuahene-Gima, 2001).
Changhong Electronics Group, for example, was originally established by the central
government in 1956 to manufacture radar for the military. It was able to leverage its
strong technological capabilities in military equipment research and development to
absorb imported technology and transition to a leading consumer electronics
manufacturer. Changhongs first and second assembly lines for manufacturing colour TV
sets were imported from Japans Matsushita. Changhongs engineers took part in the
installation and adjustment process of these assembly lines. They cooperated closely with
Japanese engineers from the beginning to the end. As a result, Changhongs engineers
learned much about the design, deployment and manufacture of TV assembly lines.
Moreover, from 19851990 Changhong invested more than RMB 20,000,000 to develop
new process technology in the fields of testing equipment, precision machine processing
and welding to further improve its process engineering skills. Two years later,
Changhong was able to establish its third TV assembly line alone, partially replicating the
second imported line but significantly modifying it based on its own engineering
expertise. After that, Changhong never imported any complete TV assembly lines, and
from 1987 to 2000, it designed and manufactured 13 state-of-the-art assembly lines alone
(Xie, 2001).

A strategic framework for determining technological learning performance

29

Proposition 6: Learning performance is positively associated with technological

capability and absorptive capacity.
The third firm-level factors is a forward looking culture that supports a sustained
commitment to learning investments that are often time-consuming, costly and risky
(Hobday, 1995; Shi, 1996, 1998). As already discussed, learning sometimes requires
organisations to sacrifice short-term expedience in exchange for long-term interests.
Some features that are associated with Chinese organisational culture are not appropriate
for such trade-offs. For example, the top managers in state-owned enterprises are
appointed by the Organisation Bureau of Chinas Central Communist Party. Their terms
usually last for 34 years, after which they are rotated either to the firms board of
directors or to positions in other firms or related government bureaus (OCallaghan and
Qian, 1999; Xie and White, 2006). These managers have a stronger incentive to prioritise
short-term expedience rather than longer-term interests. Learning is difficult to sustain in
such a context.
By contrast, a forward-looking organisational culture that encourages cooperation and
tolerates risk supports learning efforts. For example, Shanghai Automobile Industrial
Corporation (SAIC) has accumulated enough technological capabilities to innovate.
Over the past two decades, through joint venture-based cooperation with Volkswagen,
SAIC launched the Santana in Chinas domestic market (Xie and Wu, 1997; Mu, 1997).
Meanwhile, SAIC has invested significant financial and managerial resources into
learning and has finally accumulated the necessary skills in R&D, manufacturing,
procurement and materials handling to successfully launch its own brand car in China in
2006 (Liang and Lin, 2007).
Proposition 7: Learning performance is positively associated with a forward-looking
culture.
Project-level factors
Finally, we have identified four factors at the project level that affect learning
performance: velocity of technological change, product complexity, benefits of involved
parties, and subsequent technological adaptation. The relevant projects are various forms
of technology import projects, which include not only the Chinese firm as the importer,
but also the foreign firm as the supplier or source of the technology.
A number of studies have examined how the rate of technological change affects
learning (e.g., Liu and Wang, 2007; Lu, 2000). In the microprocessor manufacturing
industry, where product generations are measured in months, Chinese firms found it very
hard to catch up because products and technology that became obsolete so quickly.
As a result, 80% of the chips used in China are imported from international markets,
with an aggregate value greater than that of steel. Although Chinas central government
has initiated many projects to catch up in technology, Chinas semiconductor industry
is still essentially a foreign industry (Kang and Yang, 1991; MII, 2001). Indeed, in all
industries characterised by rapid technological change, even Chinas larger firms have
experienced difficulties in catching up (Conroy, 1990; Geraedts, 1983).

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Proposition 8: Learning performance is negatively associated with the velocity of

change of the technology central to the focal project.
The second factor, product complexity, is related to interdependencies and resulting cost
and risk involved in a focal project, and Chinese firms seem to have significant
difficulties in mastering highly complex product technologies (Liang and Lin, 2007).
One reason cited by some studies is that assimilation of the necessary imported
technology is generally beyond the capacity of the receiver (Shi, 1996, 1998).
Researchers have found that unsuitable raw materials and less-developed parts and
component suppliers may be the main entry barrier for domestic firms to assimilate
imported technology (Bai and Xu, 1987; Ball et al., 1993; Xie and White, 2006).
For example, the localisation of imported car models is interdependent with related
industries such as steel and electronics (Xie and Wu, 1997; Liang and Lin, 2007).
Because of the less-developed steel industry, domestic car manufacturers are limited in
their ability to procure locally and, thus, do not have the opportunity to further their
learning of the entire process through increasing localisation.
Proposition 9: Learning performance is negatively associated with product complexity.
The second major project-level factor involves the willingness of technology suppliers
to transfer technology to Chinese firms (Ball et al., 1993). No technology is completely
codifiable, so tacit knowledge can be important to varying degrees. Successful transfer
may depend critically on effectively transferring this tacit portion, in addition to the
codified portion of a technology (Chen and Sun, 2000), especially when the receiver has
underdeveloped capabilities to search, evaluate and assimilate foreign technology. This
can be hindered by different degrees of incentives or conflicting objectives between
transferors and receivers of technology (Bennett et al., 1997), and the imported
technology will not reach its potential. Technology imports through equipment purchase
cannot guarantee effective transfer if operation efficiency criteria are not stated clearly in
the contract. To address this, some projects are designed to align interests to elicit
commitment from foreign technology suppliers (Bruun, 1995). In some cases, firms have
used joint ventures to structure technology transfer projects involving the operation of
imported equipment or assembly lines (Xie and Wu, 1997) so that foreign partners have
the incentive to help local firms improve technological capabilities (Mu, 1997).
Proposition 10: Learning performance is positively associated with aligned incentives
between suppliers and receivers of technology.
The fourth project-level factor that empirical studies in China have related to learning
performance is ability to subsequently adapt imported technology in response to the
changing domestic environment. Some have related this to the transition from
assimilating technology involving simple tasks through increasingly extensive and
larger-scale R&D to firms climbing the technology ladder (Chen, 1994; Yang, 1987).
Indeed, as competition evolves, firms must continue to adapt and improve upon their
technologies in response. If not, they will fail in the market (Liu, 2000). Technological
learning, therefore, must extend beyond assimilating foreign technology into this
continuous process of improvement and incorporation into new products and processes
(Zhao, 1999, 2001). Many Chinese firms have achieved only temporary success based
on imported technology, later losing market share or even dropping out of the industry

A strategic framework for determining technological learning performance

31

because they were unwilling or unable to continually improve upon the original
technology. Ding (1989), for example, found that 80 percent of technology import
projects in his sample did not contribute significantly to the recipient firms production
competence. Most (78%) of the projects in his study involved purchases of equipment
and assembly lines. The recipient firms did not invest in developing their capabilities to
innovate or improve upon the imported technology, leading to the vicious cycle
expressed in the idiom in China policy and management circles, lag behind, import
technology, lag behind again.
The importance of subsequent product and technology adaptation is clearly related to
the degree of market competition, the factor discussed in Proposition 1. The more
dynamic and changing is the market competition, the more important is subsequent
adaptation. Engaging in this process, however, is also a learning opportunity. Production
knowledge, for example, assimilated but can also be improved by shopfloor engineers
and operators, and new product ideas emerge in response to needs arising from local
consumer tastes, cost reduction pressures, and substitution of materials, parts or
components (Luo and Tan, 1998). Such production and product adaptation is an
important step for firms to learn-by-doing and, as a result, reap benefits from the original
technology over a longer period (Chen, 1994; Yang, 1987).
Proposition 11: Learning performance is positively associated with subsequent
technology adaptation in response to the local market.

Implications and conclusions

Based on cheap labour costs, China-based firms have successfully plugged into global
production networks. Some of these subcontractors and mass producers now dream of
going further, bringing their own brands into the global marketplace. Such ambitions,
however, can be realised only if they are successful at building requisite technological
capabilities. To do this, they must invest in learning that moves them further up the
technology ladder that, in turn, enables them to capture more of the rewards to higher
value-added activities.
This paper has proposed a basic framework relating eleven factors that prior research
has found to have an impact on technological learning performance in Chinese firms.
At the industry level, there are four factors which define the competition among firms,
divisibility of the value chain, the structure of the domestic market, and the existence of
independent technology suppliers. At the firm level, the three factors affecting learning
performance are organisational confidence, and an absorptive and a forward-looking
culture. Finally, at the specific project level, the four factors define the velocity of
technological change, the degree of product complexity, incentive alignment between
technology suppliers and importers, and the ability to subsequently adapt technology.
One use of this framework is to guide future quantitative studies investigating the
variance in learning performance across Chinese firms. Such studies would have
important implications for managers as well as policymakers in China, and may also
inform those interested in other national contexts, especially developing countries, where
technology imports are significant.
This review also leads to a number of specific managerial implications. The first is
the critical role that effective use of external technology can have on competitiveness and

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W. Xie and S. White

development. With the rapid technological progress across an increasingly wide range of
fields, it is impossible even for industry leaders, much less latecomers, to master all
of the technologies involved in some products and services. Latecomers should take
advantages of this situation, identifying the opportunities that product modularisation and
the emergence of independent technology suppliers worldwide create for entering new
markets. The second implication is the imperative to sustain investment in continuous
learning and increasing absorptive capacity. Capability building is not the automatic
by-product of production processes. Latecomers must purposefully pursue learning and
technological capability building to move closer to an ever-expanding technological
frontier and capture more of the benefits accruing to higher value-added activities.
Finally, latecomers must couple technological learning with the identification of
customer needs and opportunities. A more intense and effective focus on a particular
customer segment could be the first step to eventually challenging multi-national
incumbents.
Given the scope and ambition of this paper, however, there are, inevitably, a number
of limitations. First, although we feel that the factors identified are important, there are
others that could be included. A more extensive review, or a deeper review of particular
contexts, would generate a more complete set. We have also not fully addressed the
various ways in which the government, through policies and actions, can affect learning
performance. This is still significant, even as the economy has made the general
transition from central planning to more market-based coordination.
The second limitation is that we have put these factors in a simple list, rather than
emphasising their interdependencies. They are clearly complementary and their
interaction determines learning performance.
Finally, we have focused on learning related to technological capability development.
This is only one of several objectives and development means competing for managerial
and other firm resources. While the capabilities we are addressing are important, they are
not the only type contributing to a firms competitive advantage. Marketing and human
resource capabilities, for example, are also critical. A full treatment of latecomer firms
competitive advantage would have to take an even broader view of capability
development than ours, which is focused on the technological capabilities manifest in
products and processes.

Acknowledgements
The research on which this paper is based was financially supported by the National
Natural Science Foundation of China (Research Project Reference: 70773067, 70573060
and 70890082). The authors would like to thank two anonymous referees for their
thoughtful and extensive comments on the draft, and Mr. Ding Zhuos help with the
literature review.

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