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Epilogue: Implications fromindustrializing East Asia's innovationand learning experiencesRajah Rasiah aa Centre of Regulatory Studies, University of Malaya , KualaLumpur, MalaysiaPublished online: 19 Apr 2011.

To cite this article: Rajah Rasiah (2011) Epilogue: Implications from industrializing EastAsia's innovation and learning experiences, Asia Pacific Business Review, 17:02, 257-262, DOI:10.1080/13602381.2011.533500

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Epilogue: Implications from industrializing East Asia’s innovation andlearning experiences

Rajah Rasiah*

Centre of Regulatory Studies, University of Malaya, Kuala Lumpur, Malaysia

This conclusion provides a summary of the learning and innovation experiences ofselected East Asian economies, as well as using the evidence to draw implications fortheory and policy. The cross-country East Asian study of automotive parts provided thestarting block that underscored the importance of the embedding institutions andorganizations in driving innovation and learning in firms. Although local firms showedhigher R&D intensity levels than foreign firms thus reflecting the significance of homecountry advantages, intensity levels were higher in countries with a stronger high-techinfrastructure regardless of ownership differences. The subsequent cases address broadmacro innovation policies, for example in Thailand and Korea, and micro economicand technological catch up successes such as those in the button city of Qiaotou.Contrary to the neoclassical logic of leaving it to the markets, the evidence amassedshows that a combination of markets, government and cooperation has beeninstrumental in successful innovation and learning outcomes in East Asia.

Keywords: catch up; East Asia; innovation; learning

1. Introduction

The examples discussed in this volume provide a wide range of experiences that stand out

as technological learning and innovation achievements in their respective countries in

East Asia. The research experiences presented in this collection examined technology and

innovation in both the richer (e.g. Korea) as well as the poorer economies (e.g. Laos), as

well as the larger (China) and smaller countries (e.g. Malaysia and Laos). In this

conclusion we examine the implications of the findings for both theory and policy.

To recap, the examples were chosen because of the significance of the sectors to either the

national economy or their contributions in world production. In the conclusion we discuss

the implications of the experiences for theory and policy.

2. Key findings

Using evolutionary methodologies, the research provided a novel analytical explication of

innovation and learning in selected experiences from East Asia. This section summarizes

the important innovation and learning experience findings in the volume.

Rasiah showed that statistically the embedding institutional and organizational

environment is critical to automotive parts firms’ participation in higher technology

activities in China, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

Although there were mixed results with the particular technologies involved, only the

ISSN 1360-2381 print/ISSN 1743-792X online

q 2011 Taylor & Francis

DOI: 10.1080/13602381.2011.533500

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*Email: rajah@um.edu.my

Asia Pacific Business Review

Vol. 17, No. 2, April 2011, 257–262

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degree mattered with ownership in the dependence of firms on the supporting institutions

and meso-organizations. The dependence of firms on the supporting environment is

highest when involving R&D intensities. However, foreign firms clearly enjoyed far

higher export intensities than local firms – which could also be a consequence of the

predominantly open trade regimes that faced East Asian economies from 2000.

Rasiah, Kong and Vinanchiarachi provided a lucid account of the remarkable

progression of Qiaotou as a button using and distributing town in the late 1970s into a

button manufacturing town in the 1980s and into a composite cluster of mature button

firms engaged in both manufacturing, and designing and materials development from the

late 1990s. The initial incorporation of the town in button sales was the evolvement from

entrepreneurs buying imported buttons from Hubei and distributing them to garment

manufacturers, to the development of hundreds of stores using market-based armslength

transactions. Increased demand for buttons attracted button manufacturing in Qiaotou but

its transformation into a composite cluster was very much driven by strong support from

the Yongjia County government, which assisted with both financial support as well as

attracting R&D support from the universities of Huanen and Lanzhou in new design and

materials development. A strong history of cooperation among the entrepreneurs in

Zhejiang province made collaboration initiatives both easy and productive. Hence, strong

interaction markets, government and cooperation has helped Qiaotou not only to produce

65% of the world’s buttons but also become a composite button cluster with strong

technological deepening.

Unlike previously where the Government Research Institutes (GRIs) came under the

purview of their respective ministries, Lee argued that the reformed research council

system has allowed for greater autonomy in the operations of GRIs in Korea. There is

much less bureaucratic intervention in the operations of the GRIs under the new system

and this changed situation has led to positive outcomes in terms of research performance

within a relatively short period of time. The changes in the governance system of the

research councils also involved changes in the way funding was provided to the GRIs.

Under the reformed system, GRIs will be allocated funding by the central government

based on evaluation by the respective research councils which rank each GRI according to

a defined criteria of performance. Such an evaluation system has contributed towards

intense competition amongst the GRIs as well as the researchers. Despite the impressive

achievements following the introduction of the new research system, there remain

concerns over excessive rounds of evaluation which may exert unnecessary an

administrative burden on GRIs. In short, given committed and sustained support by the

government, pragmatic approaches to reforming the public research system can yield

positive outcomes within a short period of time.

Rasiah, Nolintha and Songvilay showed how small windows of opportunity can set off

manufacturing synergies even in the most underdeveloped of locations. Taking advantage

of preferential access to the European Union’s ‘everything but arms’ clause, Laos has

managed to experience growth in garment manufacturing since the late 1990s. Whereas

the economic synergies have evolved, the evidence shows that not much technological

deepening has taken place to suggest that garment manufacturing will be long lived once

the export access privileges in major markets expire. Although silk manufacturing enjoys

natural resource endowments, Laos’ distance from sea outlets make the country naturally

less attractive for garment manufacturing than Cambodia and Vietnam.

Among all obstacles, Ee Shiang and Nagaraj show that funding related obstacles are of

foremost importance to firms. The results also show that it is the innovators that are more

likely to report shortcomings in innovation activity than the non-innovators. Furthermore,

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innovators face more obstacles than non-innovators. The level of importance of obstacles

and the way the obstacles combine to hamper innovation are also different for innovators

and non-innovators. The results suggest that policies to encourage innovation need to

consider the different needs of innovators and non-innovators.

Edralin’s findings reveal that the most frequently cited importance of training is

that it helps to improve job performance in the Philippines. Companies in the Philippines

conduct slightly more technical training than behavioral training sessions. The most often

used training method is the lecture, combined with the usage of new technologies such

as the CD-ROM, the Internet, and the company intranet/portal. Most firms reported

that adequate resources like budget and expertise are provided for the delivery of the

training and development programs. The survey findings reveal that the leading best

practice that stimulates innovation is the implementation of extensive continuous training

and development programs which not only focus on the improvement of technical

competence, but also aim to foster the development of cultural behavior and values

congruent with that of the company’s core values and philosophy. The infusion of such

behavior and values is indispensable for the innovation process to flourish at the firm level.

Intarakumnerd and Chaminade argue while contributing towards a broadening in the

scope of existing science and technology policy as well as engendering selective

intervention policies for particular clusters in Thailand they also argue that it has also

caused problems. There are greater systemic problems to be solved arising from the

deep-rooted weakness and fragmentation of the innovation system, including a lack of

supporting institutions, a clear and shared vision of policies, policy path dependency and

inertia in policy formulation owing to obsolete paradigms. To address these deep-seated

problems, the authors propose educating officials and people from the relevant sectors

about the limits of the old paradigms so as to effect a mindset change as well as to

undertake some small projects in order to demonstrate the positive attributes of adopting

the innovation system approach.

The heterogeneity of the examples as well as the different issues examined from the

East Asian innovation and learning experiences demonstrate that the evolutionary theory

and methodology of using empirical evidence is critical to capture the specificity and

changes in technology in particular settings. Indeed, not only are countries different but

also the different industries and the location structures are instrumental in producing

different outcomes.

3. Theory and policy

The findings provide significant implications for theory and policy. The analytical work

by Rajah Rasiah reinforced the importance of the institutional and organizational

environment for firms to raise their degree of participation in innovation and learning using

data from sampled automotive parts firms from China, Indonesia, Korea, Malaysia, the

Philippines, Taiwan and Thailand. Although local firms show far higher R&D effort and

lower export-intensities than foreign firms, R&D intensities are higher in automotive firms

embedded in stronger high-tech infrastructure than in those embedded in weaker high-tech

infrastructure. Each of the subsequent cases provided unique findings. The statistical

evidence is conclusive that in an industry where scale, scope and flexibility are critical

innovation and learning requires strong support from institutions and organizations to

boost R&D activities. Perhaps the most remarkable is the progression of the case regarding

button manufacturing in Qiaotou as well as specific learning experience as with the

importance of training in job performance and continuous improvement in the Philippines.

Asia Pacific Business Review 259

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Searching for solutions within government control by reforming coordination mechanisms

was instrumental in driving up the performance of GRIs in Korea. Ee Shiang and Nagaraj

provide convincing empirical evidence to distinguish the conduct of innovators and

non-innovators in Malaysian manufacturing when framing policies to stimulate

innovation. Although Intarakumnerd and Chaminade argue the case for selective policy

interventions to stimulate innovations, they also emphasize that there is a need to shed old

paradigms for more novel and effective frameworks.

What is obvious from the above experiences are diverse examples where the critical

institutions and organizations effecting learning and innovation are somewhat different.

Contrary to neoliberal policies of leaving economic agents to market forces or simply

augmenting market signals, each of the experiences posit specific interventions – at the

various different levels – to drive innovation and learning. The button manufacturing

experience started as a market initiative but only managed to achieve technological

deepening into new design and materials development with strong support from the

Yongjia county government and collaboration from the universities of Lanzhou and

Huanen. A combination of markets, government and cooperation eventually played

critical roles in the transformation of Qiaotou town into a mature and composite button

cluster. This development obviously supports the industrial district arguments on

clustering (see Brusco 1982, Piore and Sabel 1984, Becatini 1990, Rasiah 1994, Rasiah and

Lin 2005).

While selective interventions were important in Thailand, Intarakumnerd and

Chaminade note that policy errors need serious correction, which helps address the need to

move away from the market-state dichotomy. As the evidence shows while markets can

fail, governments too can fail. Meso-organizations have played critical roles in solving

collective actions problems in many of the East Asian examples. For example, the

collaborative relationship between firms, the Yongjia county government and the

universities of Huanen and Lanzhou was instrumental in the progression of button

production from manufacturing to new design, machinery and equipment and materials

development. Government failure in the operations of GRIs in Korea was overcome

through reforms to smooth connections and coordination between the institutes and

government and researchers as well as subjecting them directly to performance standards.

Meso-organizations were still in their infancy in Laos but unless they evolve through

strong connectivity and coordination with firms it is difficult to see how garment

manufacturing can be sustained in the long run (see Rasiah 2009).

The examples of the use of specific instruments at the firm level in the works of Edralin

and Ee Shiang and Nagaraj demonstrate that firm strategies can be improved through a

profound understanding of firms’ conduct. Productive firms actively invest to raise

technological intensity and in the large Philippines corporations the leading best practice

in human capital development is the use of extensive continuous improvement practices.

Ee Shiang and Nagaraj provided empirical evidence to show that the conduct of innovating

firms is different from non-innovating firms in Malaysian manufacturing. Edralin showed

that large corporations in the Philippines invest considerably in training and often seek

best practices to stay competitive.

Clearly, all the accounts offer a strong foundation for a strategic policy formulation

that entails effective coordination between markets, government and cooperation (see

Brusco 1982, Wilkinson and You 1994, Rasiah 1994, Rasiah and Lin 2005). In the Korean

GRIs, the evidence from Qiaotou’s button manufacturing experience, the social

embeddedness of knowledge flows in Malaysia and innovation policies in Thailand shows

that the focus should be on improvements rather than on a reduction in the role of

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government. The empirical evidence from the large corporations in the Philippines

and manufacturing firms in Malaysia show that government policy can be better organized

through a profound understanding of the firms on human capital development and

innovative activities respectively. Although rapid growth has provided employment and

improvements in wages, the lack of pro-active government support in the development of

high-tech meso-organizations threatens to restrict the capacity of garment firms to upgrade

their technologies.

4. Conclusions

The evidence shows that the evolutionary explication of innovation and learning

experiences are deeply rooted in the way micro agents (firms) connect with meso-

organizations, and how governments can actually stimulate their progression up the

technological ladder. Although foreign firms have been more export-oriented and less

R&D intensive than local firms, the embedding institutions and organizations have been

important in driving technological intensities (particularly, R&D intensities) in

automotive parts manufacturing in East Asia regardless of ownership differences.

Markets have been important but as one of the key influences rather than as the

dominant institution in the technological catch up experiences examined as pointed out by

Nelson (2008). Each of the case experiences has been different with different structures,

interventions and level of complexity and sophistication involved. In addition, where

technological upgrading and improved performance were recorded, the progression has

been both uneven and non-linear. In the most dramatic of the successes, i.e. the

transformation of the GRIs in Korea and button firms’ catch up to the technology frontier

in Qioatou, China, the governments have played critical roles in synergizing

improvements. Firms, meso-organizations and governments have consciously strategized

catch up activities, resolved collective action problems and used appraisal mechanisms to

continuously raise performance levels.

The examples provide significant policy implications for countries in East Asia as well

as in other parts of the world, and for catch up in sophisticated government R&D

machinery, as well as, simple button and garment manufacturing. Policy lessons can also

be drawn from training and understanding the conduct of innovators and non-innovators to

focus on the systemic synergies that can be appropriated from the stimulation of

productive social relationships.

Notes on contributor

Rajah Rasiah currently holds the Khazanah Nasional Chair of Regulatory Studies and is alsoProfessor of Technology and Innovation Policy at University of Malaya. He is also a ProfessorialFellow at the Maastricht Economic and social Research and training centre on Innovation andTechnology (MERIT), United Nations University. He obtained his doctorate in Economics fromCambridge University in 1992 and his research specialization includes science and technologypolicy, firm-level learning and innovation, healthcare services, foreign investment, cluster mappingand designing technology roadmaps with fieldwork research experience in over 35 countries. Amonghis recent books include The New Political Economy of Southeast Asia, Cheltenham: Edward Elgar,2010 (Edited with Johannes Dragbaek Schmidt) and Innovation and Learning in IndustrializingEast Asia, London: Routledge, 2011 (Edited with Thiruchelvam Kanagasundram and Keun Lee),and The Malaysian Economy: Unfolding Growth and Social Change, Kuala Lumpur: OxfordUniversity Press, 2011 (edited). He has also undertaken consultancies for UNCTAD, World Bank,UNIDO, UNDP, Harvard Institute of International Development (HIID), ILO, Asian DevelopmentBank (ADB), UNESCAP, JETRO, FES and Stanford Research International (SRI).

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