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Strategy for Developing China’sElectronic Information Enterprises


By Ma Jun

Research Report No 140, 2006

China’s electronic information industry has scored tremendous achievements in its development since reform and opening up. While the output value of this industry was only 10 billion yuan in 1980, its sales revenue in 2005 was as high as 3.84 trillion yuan. Its industrial added value was 900.4 billion yuan, profit tax 174.2 billion yuan and export 268.17 billion U.S. dollars, all ranking first among various industries. Meanwhile, we must realize that the growth of China’s electronic information industry was mainly attributed to the push by foreign-invested enterprises. The data of the Ministry of Information Industry indicate that in recent years foreign-invested enterprises accounted for more than 70 percent of the total sales revenue, industrial added value and profit. In the future, the development of this industry shalladhere to the opening policy while emphasizing the growth of the country’s electronic information enterprises so that China can turn itself from a major power to a strong power in terms of electronic information.

Against the background of accelerated globalization, the growth of China’s electronic information is facing a stern environmental constraint. The developed countries in the West have taken full advantage of the network characteristic of the electronic information industry and their own early-start strength had dominated the development of the information industry around the world. They are the leaders in industrial development and the makers of game rules. In technologies, they are the forerunners and main owners of intellectual property rights. In products, they are the makers of standards. In industrial chains, they are the main forces in resource allocation and occupy the most valuable links. In market, they have the controlling power. As late-comers, China’s electronic information enterprises can only passively follow the set rules and develop along the preset routes, on a limited market and in a narrow value space. They must break up all sorts of barriers if they want to grow.

The developed countries have clearly-defined strategic guidelines for the development of the leading industries and both the enterprises and the governments play important roles. The Chinese enterprises and governments should fully realize the network characteristic of the electronic information industry and the enormous pressure arising from global industrial competition and achieve a strategic consensus on how to promote the development of the domestic enterprises.

I. The Developed Countries’ Mechanisms for Leading the Development of the Electronic Information Industry around the Globe

The strategic principle of the developed countries to lead the development of the electronic information industry is to maintain innovation superiority in their countries and promote open industrial competition worldwide and establish the game rules in favor of their leading enterprises. In addition, they allow the leading enterprises to lead the development of the electronic information industry around the globe through the strategies on intellectual property rights and technological standards and constantly reinforce their leading position in the world. The governments and enterprises have clearly-defined division of labor and support each other.

1. Government strategy

The strategic goal of the governments of the developed countries is to help their domestic enterprises to establish global advantages. The basic principles are as follows:

Encourage domestic enterprises to make innovations and to maintain their leading position in the world. As the developed countries have sound market mechanisms, their governments rarely use preferential policies to promote the development of the electronic information industry as the governments of the developing countries do. The governments mainly create favorable conditions for corporate innovation. They strengthen education and attract elites from around the world. They emphasize basic research and invest in the pre-competition research and development of technology. They establish system environment to stimulate innovation and encourage enterprises and various types of capital to invest in innovation. An excellent environment for national innovation is an important condition to ensure the leading positions of enterprises in innovation.

Promote the opening of the global market. Pushed by the developed countries, the leading producing places and markets of information technology products around the world have signed the Agreement on Information Technology, under which the tariffs for more than 200 products in six major categories of computers, telecom products, semiconductors, semiconductor-making equipment, software and scientific instruments have been reduced to zero. China committed that it would join this agreement after it joined the World Trade Organization and would reduce the tariffs of the relevant products to zero before 2005. In addition, the developed countries have also worked hard to eliminate the non-tariff barriers in various countries to electronic information products.

Constantly strengthen the protection of intellectual property rights across the world. The developed countries have worked hard in establishing the rules for the protection of intellectual property rights around the globe. Objectively, the protection of intellectual property rights worldwide has played an important role in promoting the development of the electronic information industry. As intellectual property rights are unevenly distributed, the developed and developing countries differ widely from each other as regards the way and degree of protecting the intellectual property rights. The developed countries have never eased their pressure on the developing countries in order to strengthen their protection of intellectual property rights.

2. Corporate strategy

The basic principles of the competition strategy of the leading enterprises in the developed countries are "corporate innovation, patented innovation, standardized patent and globalized standards".

(1) Maintain the leading position in technological innovation

As technological innovations involve high risks and high returns, they are mainly undertaken by large multinational companies and enterprises specializing in risk capital investment. This is because large enterprises and risk capital enjoy the advantage of scale and they can use innovation combination to reduce and eliminate risks.

The multinational companies in the developed countries enjoy tremendous advantages in technological innovation. They are large in scale and can allocate high proportion of investments in research and development. For example, the research and development investment made in 2004 by Microsoft, IBM and Intel of the United States, Sony of Japan, Nokia of Finland and Ericsson of Sweden was respectively 4.55 billion euro, 4.167 billion euro, 3.515 billion euro, 3.605 billion euro, 3.834 billion euro and 2.436 billion euro and accounted for 15.5 percent, 5.9 percent, 14 percent, 7.5 percent, 13.1 percent and 16.7 percent of their sales revenue respectively. As the research and development of information technology requires huge investments, the research and development of the key next-generation technology often becomes the exclusive "luxury" of a few multinational companies. The multinational companies usually focus their research and development on the next-generation products and spend only a small part on the research and development of current products. When the enterprises in the developing countries are still trying to acquire the technology for current products, the multinational companies have long shifted the emphasis of their research and development to the next-generation and subsequent technologies and thus formed a sound mechanism for development in advance.

The risk capital in the developed countries and in particular the United States plays an important role in technological innovation. The risk capital in the United States once peaked at nearly 100 billion dollars, accounting for about 1 percent of its GDP. While the large multinational companies mainly invest in "predictable" technological innovation, the risk capital mainly invests in the technological innovation the multinational companies fail to predict or in the innovation of "subversive technologies" these companies are unwilling to support. The technological innovations by risk capital and the technological innovation by multinational companies are highly complementary, and the competition between the two is conducive to the developed countries to maintain their leading position in technological innovation.

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