China, India and Brazil: Tiger technologies, dragon multinationals and the building of national systems of economic learning

Lecture: Globalisation (Lecture 2)

Article:China, India and Brazil: Tiger technologies, dragon multinationals and the building of national systems of economic learning

Author: John Mathews (2009)

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A very brief summary (my own interpretation), followed by some background information which may help you to understand the article better.

The main focus of this article and why it is a selected reading for this lecture is the existence of linkages amongst networks, that gives the opportunity for countries such as China, Brazil and India to build upon their capabilities and national competitiveness in the global market.

As they are developing countries, they could only rely on low cost production to attract established companies from developed countries to produce their goods. Through the 3 Ls (learning, leveraging and linking) of technologies, these countries were able to produce their own products and eventually become a competitor.

BIC were also able to gain power in the political world map after they gained their own area of expertise. E.g China- major manufacture exporter, India in IT services and Brazil in exporting and resources platform. They were also powerful enough to make their own stand and withdraw from the CAFTA and signed pacts amongst each other to conduct trade without the reliance the political power of the US and Europe. (an example of linkages and building industries themselves as highlighted by the author)

Subsequently, BICs were able to build on their capabilities that they have learnt and innovate, slowly moving away from the low cost production systems when they first started (page 21, “these activties are already mirgrating to the next low-cost platforms, such as Vietnam”). 

This is what we have seen from the factual examples demonstrated by Taiwan and Korea. “Taiwan, for example, showed how it is done in its creation of one electronics industry after another. The Taiwanese create a new industry, such as CD-ROMs, by securing the core technology, in this case pick-up heads and data storage media technology. They then identify the key imports of components and materials from Japan, and seek to innovate around these components, reproducing them or licensing them in order to remove import-dependence. The same process was in evidence as Taiwan built a flat-panel display industry, where again dense interconnecting value chains were constructed. (Page 20)” Korea’s examples: auto-mobiles (Kia, Hyundai), mobile phones (Samsung), screens/displays (LG).

This is why the author compares BIC to the East Asian Model because of the similarities in strategies and success.

To read more about East Asian Model, http://en.wikipedia.org/wiki/Four_Asian_Tigers

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Background

China is a manufacturing export platform linked across hundreds of global value chains with the consumer markets of North America, Europe and Japan in a way that cannot be matched by any country.

Brazil are also building their export bases at a rapid rate, turning itself into resources platform for China and India and for the rest of the world. It is also expanding basic resource outputs like iron ores and processing these into steel, as well as becoming a world leader in agribusiness and most recently in biofuels.

India is focusing on exporting software and IT services, as well as other areas on high value-adding business process outsourcing, manufacturing products like automotive components and pharmaceuticals.

BICs are also gaining its own grounds, rather than trying to break into US markets to utilize their size. Brazil led cases against US and UN on commodities like sugar and cotton and also opens world trade in agri-products, blocked for decades by the countries in the North. These issues point to a new kind of multipolar globalization that is coming to prominence in the twenty first century.

Latecomer Developmental Strategies

Disadvantages:

  • Dislocation from advanced sources of technology
  • Knowledge and market dynamics

However, they do have potential advantages, such as not being burdened with past technological and organizational commitments, and being able to devise institutions that make up the deficits found in under-developed countries as they are able to capitalize on temporary lower costs.

Countries also compensated for late arrivals by the use of well-designed government interventions/protective regimes in the economy.

The energy issue – challenges bring opportunities

Because of their rapid development, the BICs have to confront the realities of impending oil shortages, as well as the increasing consumption. Out of this crisis there emerges opportunity: they can construct their development plans around renewable energy pathways. Latecomers will seek to compensate for their shortcomings in technology and market sophistication through institutional innovation that covered the ‘gaps’ of existing markets.

Examples:

ü  Brazil’s advanced R&D institution for agricultural research and biofuels.

ü  India’s creation of Ministry of Non-Conventional Energy (needed to get around the constraint of fossil fuels).

ü  The creation of new Indian Institutes of Technology, which proved to be an important factor in the rise India as a IT industry.

Strategizing at Firm Level: Tiger Technology Leavage

Examples:

Changhong acquired and imported an assembly line from a Japanese firm, and the Japanese company provided engineers to build the line, training Chinese engineers at the process. Changhong also co-operated with domestic R&D institutions and universities. It has actively internationalizing, exporting widely and setting up production facilities in Russia and Indonesia.

Lenovo, founded with 200,000 yuan was able to acquire IBM, a US computer maker in 2005. As of 2011, it has 21.5 of revenues, and is the second largest computer maker.

Huawei, the largest China-based networking and telecommunications equipment supplier, has over 110,00 workers have 46% employees engaged in R&D activites, with 20 R&D institutes in countries including US, China, Russia, Sweden and India. In 2010, Huawei has US$28billion in revenue.

Building National Competitive and Innovative Capabilities (Moving up the chain)

Creating a manufacturing platform has allow China to extend their reach further up the value chain. This is why Chinese industries are becoming such formidable competitors across the world field of manufacturing, and not just as low-end, low-cost, simple production systems, where China started. These activities are already migrating to the low-cost platforms, such as Vietnam.

In India, we see a different kind of platform being established in the form of IT-enabled services, which now range from simple operations such as operating call centres and customer response centres to more complex operations such as disaster recovery centres, legal, accounting, design and so on up to and including the very highest skill and professionally  trained operations, that have lead to the preserves of professions in advanced countries.

In Brazil we see the flowering of multiply-linked value chains in biofuels-ethanol, biodisels and bioplastics. These all derive from sophisticated initiatives in agriculture, in order to kick-start an industry.

As such it provides an attractive model for other countries after the BICs, such as Vietnam, Indonesia or Nigeria.