Catching up

Catching up is herein understood as closing the gap in market share and/or technological capabilities between incumbent and latecomer firms. The roots of the catch-up debate date back to the 1800s and were originally linked to broader, macro-level ideas of economic catch-up.

Stunned by the UK’s technological and economic leadership during the first industrial revolution, Friedrich List (1841) advised a national catch-up plan for Germany, based on long-term industrial and education policy.³⁵ This triggered a first, yet initially inter-European catch-up debate.³⁶

Albeit using a different terminology, Veblen (1915) initiated a discussion on how technological change altered the conditions for catching up. He argued that the shift from tacit knowledge embodied in workers to codified technology in machines should facilitate industrialization of latecomer economies (Fagerberg and Godinho, 2004). In contrast, Gerschenkron (1962) stressed the growing difficulty of the catch-up process, arguing that the mounting technological complexity required new institutional instruments to overcome the

‘economic backwardness’ of some European countries. He criticized the Marxian hypothesis of industrial development for being too linear, and suggested that country-level catch-up was not only marked by significant differences in terms of speed but also character.³⁷

In the 1980s, perspectives on catching up were extended in important ways. Based on a new compilation of historical data, Abramovitz (1986) explained catch-up differences among countries based on the concepts of ‘technological congruence’, i.e., (dis)similarity in market size and factor supply, and ‘social capability’, i.e., different capabilities to absorb and exploit foreign technologies for improving productivity levels.³⁸ At that time, Eurocentric views were gradually

35 See Freeman (1989) for a detailed discussion.

36 Early catch-up literature mainly conducted macro-historical and macro-economic analyses underlying a convergence theory, which were later increasingly complemented by comparative studies on a sectoral and firm level.

37 In Das Kapital, Karl Marx (1867: Preface IX) wrote ‘[t]he industrially more developed country presents to the less developed country a picture of the latter’s future’ [orig. ‘Das industriell entwickeltere Land zeigt dem minder entwickelten nur das Bild der eigenen Zukunft!’].

38 Social capability describes catch-up efforts such as improving education, infrastructure, and other innovation-related capabilities (e.g., reflected in R&D expenditure or patents) (Fagerberg and Godinho, 2004). Previous ‘simple catch-up hypotheses’ did not

Chapter III: Theoretical and Conceptual Framework

24

replaced by a growing focus on the rapid industrialization of Asian countries, spearheaded by Japan and a little later followed by Singapore, Hong Kong, South Korea, and Taiwan. In this context, based on the Japanese model of catching up, Freeman (1989) highlighted the beneficial role of new technologies for latecomers over established industrial powers.

Following this line of reasoning, Perez and Soete (1988) introduced the concept of ‘windows of opportunity’ (WOO) to describe favorable catch-up conditions for late industrializers. While latecomer firms typically face significant entry barriers,³⁹ WOO constitute radical transitions in technology or techno-economic paradigms that temporarily minimize entry thresholds for late industrializers equipped with sufficient pre-existing capabilities and factor conditions to compete in the new technologies. Perez and Soete (1988) further emphasized that effective catch-up was not a unidirectional race along fixed tracks and therefore a question of relative speed, as assumed in product life cycle theory, but also concerned running in new technological directions, a concept that was further developed by Lee (2019).⁴⁰

On this basis, Lee and Lim (2001) studied differences in technological catch-up patterns across South Korean industries and identified three catch-up strategies: path following (following incumbents’ technological paths), path skipping (skipping to the technological frontier) and path creating (creating new technological directions).⁴¹ This was an important landmark in understanding the relationship between sector-specific features and catch-up trajectories. Malerba and Nelson (2011) placed more explicit attention on the sectoral learning processes underlying catching up. Based on the evidence of six industries, they found that the key factors of sectoral systems vary considerably, calling for different conditions and policies to support catching up effectively.

More recently, the catch-up debate was significantly advanced by a Special Issue in Research Policy, in which Lee and Malerba (2017) developed the ‘catch-up cycle’ framework to

incorporate the social capability dimension, assuming that the larger the technological and, therefore, the productivity gap between leader and follower, the stronger the follower’s potential for catching up in productivity (Abramovitz, 1986).

39 For example, (lack of) accumulated scientific and technological knowledge, as well as locational and infrastructural (dis)advantages.

40 See Nahm (2017) for a detailed discussion on diverging technological directions and complementary core competencies in the global wind energy sector.

41 While the latter is more likely to happen in Schumpeter Mark I industries with frequent changes in the innovative environment (Malerba and Orsenigo, 1995; Breschi et al., 2000), the first and second are more likely to occur in Schumpeter II industries with opposite features.

Chapter III: Theoretical and Conceptual Framework

25 analyze catching up and successive changes in industrial leadership. Their catch-up cycle framework expands Perez and Soete’s (1988) WOO concept by linking it to changes in institutions, market demand, and technology as well as to strategic firm and system responses.⁴² The Special Issue applied the catch-up cycle framework to a number of empirical studies, including the global camera industry (Kang and Song, 2017),⁴³ the memory industry (Shin, 2017), and the wine industry (Morrison and Rabelotti, 2017), and resulted in two key findings: (1) there is a general shift of industrial leadership towards Asian countries and (2) the relationship between the emergence of WOO and patterns of catching up is based on diverse combinations that are highly sector specific.⁴⁴

While the recent catch-up literature provides relevant insights into the sources and processes involved in catching up, its operationalization is founded on a country’s lead firm’s market or production shares (see Special Issue, Lee and Malerba, 2017). This carries three significant drawbacks: first, it decouples technological and commercial performance, assuming that the first leads automatically to the second and vice versa. However, this distorts the picture in favor of firms from countries with large domestic markets and monopolistic structures, and says little about the level of innovation capabilities. Second, firms within the same country show very different catch-up trajectories and develop different technological competencies over time.

Perez and Soete (1988) explicitly highlighted the possibility of multiple development pathways.

Hence, the representativeness of a country’s lead firm is highly limited. Third, there has been a strong focus on competition among same-sector industries, based on Malerba’s (2002, 2005) sectoral systems framework. However, this neglects two important aspects. On the one hand, firms in relatively new industries, such as wind, do not primarily compete against one another or other green technologies, but against conventional energy sectors based on fossil fuels. On the

42 However, the opening per se does not guarantee a successful leadership change among firms. For this to happen, several conditions must occur at the same time: First, latecomers have to identify the opportunity and respond effectively to it (including both firms and the institutional environment); second, incumbents have to respond ineffectively, e.g., due to lock-in routines or competence-destroying changes; third, latecomers need to accumulate sufficient technological capabilities to be able to advance on the technological frontier and move into technological trajectories that detour from previous paths (Bell and Figueiredo, 2012b; Lall, 1992; Dutrénit, 2000; Perez and Soete, 1988; Lee and Malerba, 2017; Lee, 2019; Chandy and Tellis, 2000).

43 For example, in the global camera industry, industrial leadership shifted in the mid-60s from Germany’s rangefinder to Japan’s single-lens reflex and then to South Korean’s mirrorless cameras in the late-2000s (Kang and Song, 2017).

44 The resulting policy recommendation is that ‘latecomer countries should be prepared to build sector-specific capabilities that support actors, networks, and institutions’ (Lee and Malerba, 2017: 350)

Chapter III: Theoretical and Conceptual Framework

26

other hand, in times of globalized R&D networks and the decomposition of innovation, firms do not only compete but increasingly collaborate across countries and sectors. This raises the question of whose innovation capabilities are ultimately reflected within territorial boundaries (Altenburg et al., 2008; Schmitz and Altenburg, 2016).

3.1.3.2. Technological learning and the upgrading of innovation capabilities