Acprof 9780198729167 Chapter 15

Innovation Systems, Strategies, and Corporate Performance in China and South
Korea
Changing Asian Business Systems: Globalization,

Socio-Political Change, and Economic
Organization
Richard Whitley and Xiaoke Zhang
Print publication date: 2016

Print ISBN-13: 9780198729167
Published to Oxford Scholarship Online: April 2016
DOI: 10.1093/acprof:oso/9780198729167.001.0001
Innovation Systems, Strategies, and Corporate

Performance in China and South Korea
Dennis McNamara
DOI:10.1093/acprof:oso/9780198729167.003.0015
Abstract and Keywords

Both China and South Korea have excelled with trade and manufacture in the
Information and Communications Technology (ICT) Sector. Yet their ICT firms
face intense global competition to advance up the value chain with more
innovative products. States in both nations have long advocated ‘indigenous
innovation’ to press local firms beyond testing and application to knowledge
creation with R&D closer to the technological frontier. Yet data indicate only a
few leading firms, some smaller start-ups, and public research institutes invest
in basic research. I look to innovation hubs at leading high-tech districts and find
the regional innovation systems play a major role in shaping corporate research
priorities on testing and applications. Ultimately, I highlight the difficulty of
consistent research directions in regional innovation systems, the importance of
access to global knowledge flows, and the development of stronger linkages
among state, research institutions, and firms.
Keywords: innovation systems, high-tech districts, ICT, industrial agglomeration, global value chain,
China, South Korea
Introduction
Korea and China have created major production centers for ICT. State and
business have joined forces to improve the technological base, devoting
extensive public and private resources for research and development (R&D).
Indeed technology policy in both nations draws the interest and envy of many
nations. Industry leaders such as ZTE and Huawei, Samsung and LG provide
employment, corporate profits, and patents. Equally significant, exports help
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Korea
sustain trade surpluses. However, some question whether, apart from these lead
firms, the sector itself can move up the value chain without more innovative
products.
Research to date on the question remains limited mainly to the leading firms,
whether China’s state-owned enterprises and foreign firms, or Korea’s vaunted
conglomerates, the jaebeol. Secure in capital and technology, these tech giants
dominate the impressive national profiles of corporate innovation, whether
patents, research funding or number of researchers. Yet data on corporate R&D
across the economy would indicate that Chinese firms focus more on
development then research, while only a few Korean firms beyond the industry
leaders have edged closer to the technological frontier (OECD-C, 2014; OECD-K,
2014b). States in both nations have sounded the alarm with ambitious policies
for indigenous innovation, but with mixed results at the corporate level. Why do
research practices fail to align with state priorities even in these two dirigiste
regimes?
Multiple factors affect the shift from technology assimilation to the generation of
new technology at the level of firms. Among these factors, I suggest that
innovation systems and associated strategies play a particularly critical role in
defining the context or landscape for corporate research priorities. The answer
can be found then in the practice rather than in policy alone, in the system,
embedded strategies that bridge government policy and market demand, state
and firm. Regional innovation systems mediate priorities and coordinate
resources for technological development at designated innovation centers or
‘high-tech districts.’
Departing from the conventional focus on the tech giants, I offer a more nuanced
picture of corporate practice and performance at the high-tech districts. (p.
360) These clusters play a dominant role in high-tech manufacture, foreign
investment and trade in China. Clusters in Korea have helped shape the
evolution of research priorities and technology resources at innovating firms
since the 1970s. Leading high-tech districts offer a prism on corporate
innovation in ICT firms struggling to succeed in global markets. What might
explain the focus on applications among ICT firms in China, and also in Korea,
though with R&D closer to the technological frontier? The landscape or
institutional context for corporate innovation evident in strategies of learning
and knowledge diffusion provides one answer. A profile of system and strategy
emerges from statistical data, government reports, and various academic
reviews.
Looking beyond dichotomies of state or market, I argue that institutional

practice in regional innovation systems and their embedded strategies play a
major role in shaping corporate R&D priorities. Mid-range theories of industrial
agglomeration and innovation system offer analytic direction and comparative
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insight. I begin with innovation systems, before turning to strategies and

performance at the target parks. The study makes two contributions. First, it
sheds light on how the technological imperative evident in changing institutional
patterns of economic organization and governance affects the capability and
strategy for innovation at the level of firms. Secondly, it advances our
understanding of both state-led and co-governed modes of governance with a
profile of innovation systems and research strategies in the ICT sector.
Innovation Systems: Co-operation and Clusters

A study of innovation in China and South Korea might well begin and end with
ICT. Both economies have long been oriented more to manufacturing than
services, and to exports rather than import-substitution. Both have prospered
with trade surpluses due to export of manufactured goods. Policies have been
designed to both spur this priority and sustain it.
Secondly, R&D worldwide is skewed towards manufacturing, and in Korea and

China to ICT manufacture. ICT commands almost half of all Korean business
expenditure in R&D (OECD-K, 2014b: 364), and remains the leading sector for
patents in both nations. What makes the ICT concentration all the more
remarkable is the scale of research expenditure in these nations. China raised
R&D expenditure in 2012 to nearly 2 per cent of the world’s second largest GDP.
Korea stands along as the world’s most research-intensive nation, achieving a
research expenditure rate of 4.36 per cent of GDP in 2012. Sector firms in both
nations devote extensive resources to research units within, and to contracting
with public research institutes (PRIs) beyond the firm.
Thirdly, the sector offers a window on international collaboration and flows of

expertise in a knowledge-intensive industry. Institutional profile and practice at
innovation systems in the two nations reveals critical features of innovation
strategy in two major ICT producers but at very different stages of development.
While significant for the two nations, the comparative analysis identifies factors
important for study of innovation systems in other nations. Globalization and
trade liberalization has permitted new flows of technology and knowledge (p.
361) in cross-border production networks, and may spur new competition in
ICT manufacturing. China has recently emerged as the world’s largest trader
and the second largest economy. Korea was ranked fifth among all nations in
trade value in 2012, despite being only the twelfth largest economy. Trade in
manufactured goods plays a critical role in the economies of both nations, and
the ICT sector provides a major share of the trade. China ranked first worldwide
in the ICT trade, importing $355.5 billion work of goods, and exporting $554.3
billion or 30 per cent of the total global value of ICT exports. Korea ranked sixth
worldwide with $94 billion of ICT exports, but only $50.8 billion worth of imports
(UNCTAD-N, 2014).
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Trade trajectories in the ICT industry pose challenges for technological

upgrading in both economies. China’s ICT trade more than doubled between
2004 and 2008, and then grew a further 30 per cent by 2012. The latter
generated 27 per cent of the total value of China’s foreign trade in 2012. Greater
diversity in the export sector to balance ICT would permit greater stability, but
perhaps more disturbing is the extensive role of foreign firms. If indigenous
innovation is the issue, the question in China remains, how indigenous is the
innovation (Lemoine and Ǜnal-Kesenci, 2004)?
South Korean industries confront a different challenge. International trade in

goods and services amounted to 53 per cent of Korea’s GDP in 2012, but only 24
per cent of China’s GDP. Although Korea must manage with a dangerous
dependency on trade and export markets overall, it is less dependent on the ICT
trade than their counterparts in China. Imports and exports of ICT products
represented only 17 per cent of Korean trade (OECD-F, 2014; UNCTAD-S,
2014a). Korea’s ICT exports have grown, but growth in other sectors reduced
the ICT share of total trade from 33 per cent to 17 per cent since 2004. The
contrast with China is clear. China’s ICT trade has grown, and that growth is
critical for the nation since the industry provides better than a quarter of their
exports. But can China capture more of the value-added in the trade and avoid
the middle income trap? Korea’s ICT exports have lost ground comparatively to
export growth in other sectors, but the industry continues to be a major source
of exports. Korean firms have carved out their own niche in the Asian production
chain, below Japan’s higher value-added segment, and above China’s lower
value-added production. But as China’s technological ascent erodes Korea’s
share, can peninsula firms ascend the ladder with higher value-added
components? In contrast to China, the innovation in Korea is decidedly
indigenous, but is it close enough to the technological frontier to sustain
competitiveness (Jeong, 2012; Bok, 2013; Ahn, 2014)?
Co-operation
The term knowledge networks refers to interactive linkages around nodes of
tacit and codified knowledge embedded in global value chains (McNamara,
2009). Global knowledge networks connecting clusters and their actors are
locally situated but globally positioned. A flow of specifications, management
and production expertise supports manufacture across national borders, and
among suppliers domestically as well. Local knowledge systems including PRIs
and universities help mediate the flow with basic and applied research.
Industrial districts (p.362) represent not simply hubs for production and
development of related products, but also critical nodes in national and global
knowledge flows. Co-operation with other firms and institutions permits access
to stocks of knowledge, which in combination with specialized expertise, can
lead to process improvement or product development. Collaboration succeeds
when all three partners, i.e., state, institutes, and firms have established
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common networks and interests in pursuit of new, economically useful

knowledge.
For instance, PRIs located within industrial or high-tech districts, serve as major
hubs in the knowledge networks of China and Korea. Both have found success
with a late developer strategy of catch-up, relying initially on imported inputs for
assimilation (Lee and Lim, 2001; Fan, 2006; Wang, 2006; Kim and Lee, 2008).
Universities and PRIs supported by the state would generate or adapt the
technology needed by the firms. Chinese universities in the Revolutionary period
prior to 1978 were devoted to teaching, leaving research to a centralized system
of PRIs with the Chinese Academy of Sciences at its core. Korean universities
followed a Western model of both research and teaching, but with little
relevance to industry. The government established the Korean Advanced
Institute of Science and Technology (KAIST) and an array of specialized research
institutes (termed ‘government research institutes’) specifically to support and
advance industrialization. PRIs served as a critical channel of technology
transfer from the 1970s, often with contract funding from the private sector. For
instance, the Electronics and Telecommunications Institute (ETRI) was pivotal in
the development of the ICT sector.
PRIs played a dual role of identifying and adapting relevant manufacturing

technologies, and also training personnel and developing internal research units
at firms. But with the decline of full-set industries in global production networks,
technology transfer has proved difficult in higher value-added subsectors of ICT.
Innovation begins with technological capability, often acquired through hands-on
trial and error, but accelerated through access to advanced technology, know-
how, and widely recognized standards. The immediate goal is acquisition of
specialized knowledge. While ICT competition forces firms to move up the
technological ladder, PRIs long accustomed to simply adaptation and
assimilation of technology from abroad face a new challenge of local knowledge
generation.
Industrial Clusters
Regional innovation systems can provide a meso-level entrée to the operation of
national innovation systems. Major techno parks often serve as the locus of
innovation efforts in regional systems, particularly in developing economies. The
leading districts in China and South Korea provide the ideal empirical lens for
assessing the ‘indigenous’ and ‘innovative’ features of corporate R&D. Co-
locating major ICT firms and their research institutes together with foreign firms
and smaller local start-ups, and joining these to public research institutions in
districts managed and supported by the state provides a bounded field for
assessing the interactions among policy, knowledge and business sectors.
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(p.363) Issues of technology transfer and absorptive capacity have long

dominated the literature on socio-economic development. A reorientation
recently to knowledge creation and access within and beyond national borders
reflects changes in production networks as well as in knowledge ecosystems. For
instance, Ebner identified ‘the combination of global production networks and
local agglomeration of knowledge-intensive activities’ as the policy rationale for
the ‘entrepreneurial state (Ebner, 2009: 379).’ His thesis links spatial and
institutional patterns of globalization to local industrial clusters supported by
innovation systems. Clusters often appear as a major element of innovation
systems, but have been particularly prominent in China and Korea. Moreover,
the two neighbors as well as Japan have set themselves apart with specialization
in ICT clusters. In theory, they share a common goal of increasing ‘knowledge
spillovers among actors in clusters and thus the generation of a collective pool of
knowledge (OECD-O, 2014: 221).’
Advantages of agglomeration in industrial districts have brought a spatial

dimension to technology policy (Porter, 1990, 1998b; McNamara, 2008). Clusters
can be distinguished by grouping, co-location, and interdependencies in the
production of related commodities or services. Grouping of institutions includes
organizations of government, whether administrative units or PRIs, universities,
and private firms. State planning and construction of clusters has distinguished
development strategies in Korea from the 1960s, and a decade later in China. By
2013, the Party-State had licensed one hundred and thirty-two districts as
‘Economic and Technological Zones.’ Within these sites, they have recognized
one hundred and five areas as high-tech zones, hosting about half of the total
number of national technology incubators.
Clusters evolve much like their products, or risk losing their position within
global production networks. A few of China’s state-owned enterprises (SOEs)
followed the example of leading Korean jaebeol with their own production
chains. But advancing from manufacture dependent on specifications and
designs of leading multinationals, or Original Equipment Manufacture (OEM), to
Own Brand Manufacture (OBM) is a formidable task today in the fragmented
value chains of the global ICT industry. As fluid chains dis-integrate across
borders and disperse only to re-integrate elsewhere, firms co-located in local
nodes hasten to upgrade and specialize to anchor just a segment of the chain.
Stages of institutional consolidation reminiscent of late-developers appear now
to overlap in ‘compressed development’ (Whittaker et al., 2010). An uneven and
sometimes simultaneous evolution of financial systems, training systems, and
indeed, inter-firm linkages within development zones often distinguishes local
innovation practice from the grand design of national innovation systems.
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High-tech Districts: Zhongguancun and Daedeok

Leading high-tech districts in China and Korea offer a window on innovation
systems and patterns of learning and knowledge diffusion that provide
constraints and opportunities for corporate R&D. If flows and transfers of
knowledge among firms locally appear less constrained by distance than in the
recent past, the mediation of global flows by local systems appears more
intensive and extensive (Huggins, 2008). Zhongguancun and Daedeok stand at
the very pinnacle of the (p.364)
Table 14.1. Regional innovation systems at Zhongguancun and

Daedeok
Features/High- Zhongguancun Science Park Daedeok Innopolis

Tech Zones
Authority Local: Beijing Metropolitan National: Ministry of

Government Knowledge Economy
Location Central—epistemic & Regional—greenfield

commercial network in the research hub in Daejeon
Capital City
Initial Priority Local development from National technological

‘electronics street,’ demand development, supply
pushing supply pushing demand
Recent National model for indigenous Global Innovation Hub

Priority innovation (2006) (2005)
Role of FDI in Extensive: foreign firms Limited: few foreign

ICT dominant in high-tech trade manufacturing firms
innovation systems in both nations. Given continuing leadership in national innovation

investment and achievement, they remain the critical nodes in the regional innovation
system for moving the ICT industry up the value chain.
High-tech districts or ‘parks’ link space to place, the space of global knowledge
flows, and the place or sites of innovation. Parks figure prominently in industrial
planning as states design and group research, trade, and investment resources
together within clusters (White, 2011).
States attract industry to special districts with favorable zoning laws, low-cost
land acquisition, and energy and transport infrastructure. China took advantage
of established epistemic networks in Beijing to join industry with academic
expertise. Only a decade after Deng Xiaoping initiated reforms in 1978, the State
Council established their first national level high-tech industrial cluster,
Zhongguancun Science Park in Beijing. The precedent spawned similar clusters
across the nation in the next two decades, where local and larger foreign-
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invested firms from Taiwan, Japan, Korea, and the US, churn out the nation’s ICT
exports.
Across the Yellow Sea in neighboring Korea, the predecessor of today’s Korea
Industrial Complex Corporation (KICOX) was established in 1964 to manage and
supervise development zones. Six zones were organized in that decade alone,
and more would follow in the next two decades. The state corporation operated
33 complexes by 2004 (Kameyama, 2008; KICOX, 2014). Many served as export
processing zones to attract and contain foreign investment. In addition to
conventional industrial or export zones, the Korean Government also made an
early investment in innovation. The strong state under Park Chunghee opted in
1974 to migrate the major national science institute to a new hub outside of
Seoul, the predecessor of today’s Daedeok Innopolis in Daejeon City. Over time
the Daedeok precedent spawned similar projects in other regions under the
Innopolis Foundation.
(p.365) China: System, Sites, and Strategies

Growth of trade and manufacture provide one measure of successful industrial
and export zones in both nations, but not necessarily of innovation. If state-led
efforts in clustering manufacturing, or integrating manufacture with foreign
trade networks have prospered, what can be said of efforts to organize and
promote innovation at bounded geographical sites? Interactions among networks
of business, science and policy distinguish system of innovation, whether
regional or national. Looking to interactions, I examine strategies of learning
and knowledge diffusion, and correlate with business performance. A review of
innovation system, and then of the R&D context at Zhongguancun Park bring to
light interactions supporting or constraining innovation.
China’s Innovation System

Recent science policies in China give clear priority to innovation. Three features
of innovation policy at the national level provide the setting for the regional
innovation system in Beijing: a prominent state role, regional diversity, and the
priority on indigenous innovation. The Party-State has publicly embraced the
shift from direct intervention and control towards coordination, but remains
largely in control of the NIS (Liu and Lundin, 2009; Zhang and World Bank,
2009).
State controls have faded somewhat at some major ICT firms, although the
industry remains a pillar industry of strategic national interest (Brødsgaard,
2012). Ning estimated state-owned or state-controlled enterprises accounted for
about 72 per cent of domestic assets in the ICT industry through 2005 (Ning,
2008). Beyond the corporate sector, significant reforms of the innovation system
are apparent at the research institutes as well. The privatization or at least semi-
private status of the former PRIs has expanded the number of research and
information service firms in the private sector (Mu and Remøe, 2008; Sun and
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Liu, 2010; McNamara, 2011). Moreover, the state has diversified channels for
obtaining public research funds beyond the PRIs.
Regional diversity also distinguishes China’s innovation system. Although state

offices for coordinating S&T development remain highly centralized, the
innovation system has evolved with space for experimentation at the local level.
Activist local states play a major role in implementing directives from the center,
and gain leverage by registering positive economic results from the reforms.
Located in the capital, Zhongguancun Science Park reflects the tension between
national priorities for innovation and Beijing City priorities on urban
development and a broader tax base.
Thirdly, the Party-State established indigenous innovation as the goal of the NIS
in their Medium and Long-term Plan for Science and Technology (2006–20). The
term refers specifically to local technological development. Equally significant
given the contribution of foreign-invested firms in industrial development, the
term includes the ability to absorb and learn from knowledge streams embedded
in technology and investment from abroad. Leaders hoped to drive a transition
from simply industrialization and exports to technology transfer.
(p.366) The practice of clustering industrialization into zones has evolved in

tandem with both economic growth and state management of the
industrialization process. Initially organized for production of commodity goods
for export, efforts to move into more profitable segments of global production
chains have spurred organization of high-tech parks within development zones
(Wang, 2007). In addition to attracting foreign firms for production, high-tech
zones anchor their corporate R&D facilities.
What has the system produced? An impressive national profile emerges of

growth and structural reform. Expenditure on R&D increased from 1.47 per cent
in 2008 to 1.98 per cent in 2012, or a total of $213 billion. Annual patent grants
registered in China’s Patent Office rose from 13,000 in 2000, to 96,000 in 2008,
and finally to 226,000 in 2012. China ranks second among all nations in both
research expenditure and annual patent grants (WIPO-C, 2014; WIPO-K, 2014;
OECD-ST, 2014). Nonethless, critics argue the system remains largely occupied
with applied research and testing for market adaptation, rather than with
cutting-edge basic research. Firms generally concentrate resources on imitation
and adapting products, rather than on assuming the risks necessary for
investments in leading technologies.
Zhongguancun Science Park

A bustling local market for computers and programs emerged in Beijing in the
1980s, without extensive government planning. Earlier government efforts to
access and emulate foreign military technology in the 1950s resulted in a
concentration of major national research institutes in Northwest Beijing, near
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‘electronics street’ (Liang, 2011). Research institutes converged in the area in

part to tap resources at the large number of prominent national universities. The
central government gave legal recognition and formal title to the original zone in
Haidian District only in 1988. A decade later, they approved expansion into five
parks and renamed the project, the ‘Zhongguancun Science & Technology Zone’.
Growth continued within and beyond the original Haidian Development Area,
which alone now spans some three hundred square kilometers. Originally a
street, later China’s first national high-tech zone, then a science park, and now
titled ‘Zhongguancun National Indigenous Innovation Demonstration
Zone’ (BJGov, 2014; ZAC-13, 2013a). Unlike development areas in other major
Chinese cities, ZSP remains the sole high-tech zone in Beijing, precluding
competition and permitting a remarkable concentration of resources.
The scale of ZSP dwarfs similar science park projects elsewhere in Asia. The
Park registered nearly 15,000 firms in 2012. The total included sixteen hundred
foreign firms, and over two hundred state-owned enterprises. Among registered
enterprises, the majority were listed as ICT firms in services rather than
manufacturing, in addition to some five hundred computer firms. Land prices
and zoning constraints have forced many manufacturers out of Beijing. What
remains are headquarters, R&D, and services. ZSP reported a total R&D
expenditure of $14.6 billion for 2012, with foreign firms investing $5.7 billion or
better than (p.367) one-third of the total. Microsoft, IBM, Motorola and twenty
other multinational firms operate research institutes on site.
ZSP: Achievements
State, knowledge providers, and firms represent the three major players in the
local innovation system. Guowen Zhou is Party Secretary of the ZSP
Administrative Committee and a deputy Mayor of Beijing Metropolitan
Government. The most prominent knowledge providers in the Haidian Zone of
the Park are directly under the central government, such as Peking or Tsinghua
Universities, or the Chinese Academy of Science, but the Committee operates
under the city government. Other city government offices oversee commercial
development and real estate planning (Yang, 2011; Liang, 2011). The city
government reports ZSP leads all national high-tech zones in ‘tech trade, value-
added, and tax payments to the State.’ It also annually contributes some 60 per
cent of industrial economic growth for the city (BJGov, 2014). Receipts from
foreign trade at the Park reached $12 billion in 2012, with foreign firms alone
accounting for three-quarters or $8 billion of total imports and exports.
Firms remain the central players in the innovation system of a market economy.
Business enterprise accounted for 73 per cent of funding for R&D in 2011 in
both nations (UIS-C, 2014; UIS-K, 2014). Apart from wholly owned foreign firms
and returnee firms, the vast majority of firms at Zhongguancun are local.
Beyond China’s giants in ICT, the data indicate relatively little investment in
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basic research, whether with public or private funding. Firms directed only $709
million to basic research in 2012, despite a total R&D outlay of $784 trillion.
PRIs invested $21 trillion in basic research, but the sum represented only 12 per
cent of their total research expenditure (EC-JRC, 2013; WIPO-C, 2014). More
specifically, we can measure R&D investment for ICT as percentage of GDP.
When compared to OECD nations, China ICT investment compared to GDP
ranked towards the bottom at number 20 in 2011, despite leadership in ICT
trade (OECD-SB, 2013: 162).
A pattern of testing and applied research to tap growing market demand

distinguishes local enterprise. A shift from second-generation innovation to
frontier-leading breakthrough discoveries continues to elude China’s NIS,
despite ambitions for technological leadership in ICT industries. A closer look at
learning and strategies of knowledge diffusion shed light on how the
opportunities and constraints of the regional system channel R&D at the firms as
summarized in Table 14.2.
Strategies: Learning
One might well expect co-location with leading foreign firms in ICT would lead
to spillovers of technology and market information in the high-tech district.
Similarly, proximity to leading universities and PRIs would stimulate extensive
local exchange of knowledge and expertise. Yet the patterns of knowledge flows,
and indeed of collaboration among firms offer a different picture.
(p.368)
Table 14.2. Innovation strategies
Strategy/High-tech Zhongguancun Science Park Daedeok Innopolis

Zones
Learning Process
Global knowledge Foreign corporate research Education, training

flows institutes; tech transfer abroad
Collaboration with Institutional Rigidity Insularity; research

Domestic Firms company
Collaboration with Supplier Relationship Limited number of

Foreign Firms foreign firms
Knowledge
Diffusion
PRIs Wide role, Chinese Academy Specialized role,

of Science (CAS) KAIST and ETRI
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Strategy/High-tech Zhongguancun Science Park Daedeok Innopolis

Zones
Human resource Abundant, well-trained Availability of

researchers with
advanced training
IPR Weak Strong
Patents provide one measure of global knowledge flows. Growth in patent grants at
local firms highlights greater investment and success in various stages of the
innovation process. The number of patent grants at both resident and non-resident
firms has grown, but the rate of growth at local or ‘resident’ firms has outpaced
growth at non-resident firms. Non-resident grants represented 32 per cent of China’s
patent grants in 2012, down from a share of 49 per cent in 2008. Foreign-owned firms
nearly doubled their number of patent grants in the same period, but their share of
total grants declined due to the jump in grants to local firms. Foreign firms in China
were awarded some 73,000 grants in 2012, the second highest total for foreign firms
in any country worldwide (WIPO-C, 2014).
The contribution of foreign firms to corporate innovation strategies in China has
gained wide attention. Foreign firms at the districts enjoy access to global flows
of technology and expertise, particularly in the higher value-added segments of
high-tech industries. A number of studies highlight their interest in recruiting
technical personnel at Zhongguancun, and on keeping current on policy changes
in the capital. What we do not find is an interest in networking with local firms.
We noted above patenting activity of foreign-invested firms in China and their
dominant share in trade at ZSP. Effective spillovers to local firms would be
evident in a growing share of local firms in the trade. It has been more than a
decade since Steinfeld and others questioned the roots of local firms in China’s
ICT trade (Steinfeld, 2004a, 2004b; Lemoine and Ǜnal-Kesenci, 2004). Would the
local firms remain solely assemblers, assimilating rather than generating
technology? A recent study of the high-tech trade indicated local firms remained
largely assemblers of high value-added components from the multinationals
(Xing, 2012; Chen, 2014).
Supplier ties with foreign firms link local firms to global knowledge flows on
product specifications at ZSP. Less common but equally important are global
links which Chinese returnees enjoy from their work experience abroad. ZSP has
(p.369) developed multiple programs providing incentives for overseas
Chinese with technological expertise to return for research and/or investment.
The Beijing Government cited twelve hundred enterprises in ZSP established by
three thousand returnees (Chen, 2008a; BJGov, 2014). A study of high-tech small
and medium-sized enterprises (SMEs) in the district from 2000 to 2003 came to
focus on absorptive capacity. Returnees improved innovation intensity at local
firms only if local firms already employed personnel with innovation expertise
(Filatotcheva et al., 2011). Inter-firm collaboration among local enterprises
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critical for knowledge spillovers appears weak in ZSP. One study concluded:
‘most firms engage in low-end software development, system integration, and
mutual cutthroat competition’ (Chen, 2008b). What collaboration Chen did find
was rather between multi-national corporations (MNCs) with technology and
local firms with distribution channels.
One might expect improved information flows through increasingly globalized

universities and research institutes. Leng and Wang compared co-operation
among industry and academies in Shanghai and ZSP in Beijing. What they found
in the latter was a mentality favoring insulation within either ‘big and complete
systems,’ or even ‘small and complete systems.’ Intense horizontal competition
for market share discouraged collaboration among firms, while universities and
PRIs were scrambling for a share in the state science budget (Guan, Yam, and
Mok, 2005; Chen and Kenney, 2007; Leng and Wang, 2013). Even if not private
research institutes and PRIs provide market and technical information, as well
as critical knowledge on government policy. But beyond information, labor is
probably the single most important advantage of ZSP. The academies and
institutes provide a trained pool of knowledge workers.
Seeking to explain the difficulty of collaboration among local firms, Cao turned
to China’s recent history. He argued that the danwei or ‘work-unit’ structure of
institutions in Mao’s China (1949–78) contributed to an organizational insulation
or ‘rigidity’ discouraging co-operation (Cao, 2008). Advantages included
communal facilities such as housing, food and medical services, access to the
public sector, and independent budgets and accounts. Eun and colleagues cited
persisting danwei features in the university system as an advantage in spinning
off enterprise from their research achievements. What drove them into the
market was a lack of intermediate institutions to facilitate university-industry
collaboration (Eun, Lee, and Wu, 2006). Co-operation even in applied research
and testing appears limited.
Strategies: Knowledge Diffusion

Local state priorities on growth certainly encourage commercialization and
applied research at both institute and firms, but not necessarily innovation at
the technological frontier. Applications for patent recognition in multiple foreign
patent offices under the Patent Co-operation Treaty (PCT) provide a useful
measure of competitiveness in global innovation. One might expect PCT
applications from national PRIs nearby, including the various units in the
Chinese Academy of Science. For instance the Institute of Microelectronics at
the Academy ranked just outside the top one hundred of PCT applicants in 2012
worldwide. Peking University achieved a ranking in the top two hundred PCT
(p.370) applicants (WIPO-C, 2014). Collaboration might result in an extensive
interchange of knowledge and expertise within the regional innovation system in
support of more innovative R&D.
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Korea
Although PRIs play a particularly prominent role at ZSP in knowledge

production, they are less effective with knowledge diffusion. Despite success in
the patent competition, some question the broader impact of the PRIs on
corporate innovation. One problem is the direction of research, a second the
connections with industry. A recent report on China’s institutes puts it
succinctly: ‘PRIs still dominate China’s public research and are strongly oriented
towards applied and experimental R&D’ (Kwon, 2010; OECD-C, 2014: 292). Still
others looked to collaboration. They cited exclusivity in high-tech projects
among the top PRIs, or ‘islands of innovation’ without connections to the wider
economy (OECD/MOST, 2007; Kroll and Schiller, 2010).
If we find little previous evidence of integration between the large number of

local SMEs and the leading PRIs in the District, what of reforms at the PRIs? Hu
and Matthews compared public research institutes in Korea and China through
2007. With privatization or semi-privatization, many of China’s earlier PRIs
turned to useful intermediate services. They concluded: ‘Through these
technology service and licensing activities, the PRIs were able to emerge as a
critical driver of (but not as a direct contributor to) China’s national innovative
capacity (Hu and Mathews, 2008: 1477).’ Their insight shifted attention from
patents as an indicator of public research, to PRI services in support of
corporate R&D. While such reforms may improve opportunities for testing and
applications, other scholars do not find evidence of institute support for more
innovative activities at the firms.
Education and training at the institutes and universities remains one of the
major advantages for foreign and local firms at ZSP. The Park reported some
four hundred thousand research personnel at work in the firms. Home to 68
universities and various PRIs offering advanced degrees, the pool of knowledge
workers is one advantage of the Park. State-owned firms (SOEs) employed an
average of 86 researchers per firm, the foreign firms 63 researchers per firm,
both well above the average for all firms in the Park of 26 researchers. The
number of workers with technical training comprise 25 per cent of the of the
1.58 million employees at ZSP, and 30 per cent of the seven hundred and 76
thousand employees within Haidian Park segment of ZSP (ZAC-15, 2015).
On a national level, Simon and Cao have cited China’s advantage of talent, at
least in the number if not quality of engineering and science graduates pouring
out of the university system (Simon and Cao, 2009). At a regional level,
Motohashi reported on the extensive educational resources in Beijing, compared
to Shanghai and Guangzhou. He suggested a distinctive type of R&D by foreign
firms in China titled, ‘human resource driven R&D’ (Motohashi, 2006). Beijing
remains the dominant university center for science education. Graduate
programs and training opportunities at the various institutes within the Chinese
Academy of Science system complement the more academic knowledge
resources. State funding for education continues to rise, together with annual
Page 14 of 36
Korea
funding to promote talent (rencai). But as recent studies suggest, the

competition to attract and retain the best talent can leave the smaller firms at a
disadvantage (Leng and Wang, 2013).
Protection of proprietary information is a further factor affecting diffusion of

knowledge between foreign and local firms, and especially among local firms.
(p.371) Debates over the advantages and protections in ‘open innovation’
continue to rage among academics and policy-makers. But at the corporate level,
particularly in the intense competition of start-ups in ZSP with limited funds and
often very similar software and hardware, knowledge or expertise is their only
lifeline. Sharing their precious expertise even with a research institute involves
considerable risk. The US Trade Representative offered a dire assessment of the
situation in 2011: ‘China has continued to demonstrate little success in actually
enforcing its laws and regulations in the face of the challenges created by
widespread counterfeiting, piracy and other forms of infringement’ (USTR, 2011:
86). Such fears may well constrain more basic research at foreign-invested
firms, focusing their R&D more on testing and application. The US Embassy
Attaché for Intellectual Property Rights (IPR) pressed the issue in a different
direction a few years earlier. He was convinced of China’s commitment to IPR
for their own economic development, but faulted the weak institutional structure
of enforcement. More pertinent to our study, he noted the vast majority of the
extensive IPR litigation in China even then was between Chinese firms rather
than with foreign firms (Cohen, 2007).
Corporate Performance
Profiles of science parks often provide at best a static picture of business
performance. A more dynamic profile was presented in a recent OECD report,
assessing corporate results before and during the financial crisis of 2007. Yama
Temouri examined the 40 leading ‘Knowledge-Intensive Service Clusters (KISA)’
across the world, including ZSP and Daedeok Innopolis (Temouri, 2012).
Variables included entrepreneurship, employment, economic growth and
financial viability, summarized in Table 14.3. Similar statistics in each country
were compiled to create an index of each of these dimensions for comparative
purposes. This permitted a ranking of the 40 clusters at two points in time,
before and during the crisis.
To measure entrepreneurship, the author tracked the formation and survival of

firms with a history of less than five years. The high proportion of younger firms
or start-ups among all firms at ZSP before the recession gained a high ranking of
number 5 among the 40 clusters. But the recession took a remarkable toll
resulting in a dramatic decline in the proportion of start-ups at ZSP. The
cluster’s ranking on entrepreneurship fell to number 24 among their peer
clusters by 2009. The statistic tells still more of firm size when correlated with
employment growth rates in the two periods. ZSP ranked quite low in hiring in
the earlier period, but then jumped from a rank of number 28 to number 3 in the
Page 15 of 36
Korea
second period, 2007–9. In other words, entrepreneurs established a large

number SMEs in the earlier period with relatively few employees. Many of the
smaller firms with lower employee growth rates failed during the recession. The
data then include larger firms with more employment opportunities, and
possibly some flow from the failed SMEs. In sum, the larger firms at ZSP
weathered the crisis better than smaller firms.
Indicators of economic growth help set ZSP apart from its peer districts in other
nations. Not only does the cluster capture the 2nd place overall in turnover in
the first period, but it largely maintains its position through the crisis. This
appears quite contrary to the trend among districts elsewhere with higher ranks
in turnover (p.372)
Page 16 of 36
Innovation Systems, Strategies, and Corporate Performance in China and South Korea
Table 14.3. Business performance rankings
Categories/Zones ZSP 2005–2007 ZSP 2007–2009 DI 2005–2007 DI 2007–2009
Share of Start-ups 5 24 10 19
Employment Growth 28 3 15 6
Rate
Turnover Growth 2 3 12 5
Return on Assets 9 13 13 8
Liquidity = Assets/ 31 28 6 3
Liabilities
Solvency = Shareholder 31 29 23 5
Equity/Total Assets
Composite Indicator 22 14 6 1
Source: Temouri (2012).
Temouri, Yama. 2012. The Cluster Scoreboard: Measuring the Performance of Local Business Clusters in the Knowledge Economy. In
OECD Local Economic and Employment Development (LEED) Working Papers 13. Paris: Organization for Economic Co-operation and
Development (OECD).
Page 17 of 36
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Korea
before the crisis uniformly dropping well down the rankings. A cluster that grew from
‘Electronics Street’ into a high-tech cluster enjoys a pedigree of commercial activity
that probably sustains such performance. Location in the capital, and administration
under a Beijing Government committed to growth through exports, real estate
development, and tax revenues gives priority and support for commercial activity.
Temouri then compared return on total assets to measure profitability at cluster firms
before and during the recession. Firms at ZSP ranked in or near the top quartile in
both periods, with some decline during the recession. What do we learn then of growth
at ZSP compared to their peers? First, growth depends in part on the firm and in part
on the sector. A concentration in ICT generally proved more resilient during the crisis.
Secondly, firms in the Beijing cluster maintained turnover despite some decline in
profitability during the recession. This may be an indication of scale, with larger firms
better positioned to survive a drop in profits if they can maintain market share, an
option not available to smaller firms.
Financial viability for start-ups in high-tech clusters depends in large part on
dedicated credit facilities for cluster firms. An earlier study of ZSP by the World
Bank identified credit channels, but faulted the cluster for favoring larger firms
(WB-ID, 2009). Comparisons of liquidity and solvency offer some insight into the
availability of credit at the clusters. A simple ratio of assets to liabilities provided
the measure of liquidity. Firms at ZSP ranked about number 30 among 40
districts prior to and during the recession, with little variation. Two possible
explanations appear relevant. SMEs generally survive at the financial edge, and
without extensive credit support at ZSP, the start-ups simply fail. Regards the
larger local firms, many would be state-owned enterprises or firms with state
investment and oversight, and thus with extensive support from the state-owned
banking sector. Banks would tolerate lower liquidity rates at ZSP than at
clusters with solely private firms.
Temouri supplemented the liquidity measure with data on solvency, measuring

growth in the ratio of shareholder equity versus total assets. The Beijing cluster
again ranked about number 30 in both periods, in the bottom quartile of the 40
clusters. Given the prominent state role in both ICT sector firms and banking, it
is difficult to interpret what data on shareholder assets might mean for financial
(p.373) growth across all firms at ZSP. What may be most significant in the
measures of liquidity and solvency at ZSP is their comparability and stability
prior to and during the recession.
Finally, Temouri provided a composite indicator to offer a very general ranking

among all 40 KISA. Firms at ZSP were ranked at number 22 before the crisis,
and rose to number 14 during the recession period, 2007–9. The measure
indicates overall improvement in comparison with peer districts, particularly
with crisis management. Indicators remained at the level of simple ratios among
firms, with no filter for scale. The fact that ZSP with its complexity and huge
scale fares as well as it does in comparison with many more manageable,
smaller and more focused districts is quite an achievement.
Page 18 of 36
Korea
China Conclusion
Beijing’s Zhongguancun Park is not a technopolis, nor is it a networked
‘innovation cluster,’ but this high-tech district already generates trade volumes
and employment opportunities contributing to local and national economic
growth. Problems of collaboration at the Park appear to reinforce Zhang’s
finding that the refashioning or reconstruction of socio-economic networks
within the Park is a key to further development (Zhang, this volume). But can
local Chinese ICT firms move up the technological ladder in the increasingly
competitive global industry? The data indicate even ZSP firms remain largely
focused on application. What would explain this orientation in China’s model
tech center, nearly a decade after the Party-State public commitment to
indigenous innovation? Among multiple possible factors, I cite the regional
innovation system under the Beijing Metropolitan Government (Table 14.1), and
specifically the embedded patterns of knowledge creation and collaboration
(Table 14.2).
In one sense, the district may be a victim of its own commercial success. The
system appears hard pressed to give greater weight to research than
development, to technological advance rather than local economic growth.
Where Daedeok Innopolis long remained a research enclave, ZSP prospered as
an engine of urban growth commercializing rather than generating technology. A
further problem is the insulation of the partners in the triple helix, and
particularly the uneven exchange of knowledge between the marvelous array of
academic resources, and the corporate sector. A third issue is the role of foreign
firms and a few SOEs with advanced technology leading the production and
export of the ICT industry, relegating the majority of local firms to support tasks.
South Korea: System, Sites, and Strategies

Differences of development trajectory, geographical location, scale, purpose and
resources might discourage any comparison of the massive Zhongguancun Park
with the smaller Daedeok. Yet continuities and differences offer valuable
comparative insight. Given their status among the leading and most successful
parks in developing nations, their significance extends beyond national borders
to larger questions of innovation policy whether for firms or nations. Thirdly, the
comparison (p.374) brings the contrast of state-led versus coordinated
capitalisms into a focus on innovation, permitting a meso-level analysis refining
broader concepts of the developmental or entrepreneurial state.
What gives continuity to the two clusters clearly lies more in system and
innovation strategy than in scale. Indeed, juxtaposing the profiles of
Zhongguancun (ZSP) with Daedeok Innopolis offers some surprises. The former
is more an engine of development than a research enclave, despite surrounding
academic resources. The latter began as a research enclave despite its distance
from the nation’s academic centers. The location of ZSP in the nation’s capital of
Beijing has not diluted regional or local priorities of the Beijing Metropolitan
Page 19 of 36
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Government. The location of Daedeok Innopolis well outside the capital has not
diluted central government control.
Korea’s Innovation System

With a total population of some 50 million compared to China’s 1.4 billion,
neither demographics nor geography offers much parallel. Korea’s GDP in 2012
of $1.1 trillion paled in comparison with China’s $8.3 trillion, a major difference
in scale between the economies. We do find parallels however in the broader
knowledge economy, and specifically in the ICT sector. China ranked second only
to the US with an R&D expenditure of $162.2 billion in 2012. South Korea
reported a sum of $42.4 billion, amounting to one-quarter of China’s
expenditure. Despite a smaller amount, the Korean investment represented a
greater commitment of national resources. China’s R&D investment amounted to
less than 2 per cent of GDP, but Korea’s investment represented nearly 4.5 per
cent of GDP, the highest proportion of any nation (OECD-P, 2014; UNCTAD-G,
2014). The commitment highlights the significance of the NIS in Korea, certainly
as foil and perhaps as the future for China’s innovation system.
If coordination, scale, and indigenous priorities distinguish innovation policy in

China, coordination and localization offer the most fertile contrasts with Korea.
A prominent state role in Korea’s coordinated market economy remains a
decisive feature of the nation’s NIS, in tandem with massive R&D spending by
the major conglomerates. Michael Witt singled out process and power to
describe the government’s role. Coordination remains a process in the transition
of a ‘reconfiguring developmental state.’ Even the top-down exercise of power
by the state in the innovation system, moderated only by the leverage of larger
jaebeol, has faded. For instance, Uttam characterized the transition with a shift
after the financial crisis of 1998 from the techno-industrial policies of catch-up,
to the techno-scientific policies of innovation (Dodgson, 2009; Uttam, 2012; Kim,
2012; Witt, 2014).
A second major feature of innovation policy in Korea has been the emphasis on
indirect rather than direct foreign investment. The Party-State in China
welcomed manufacturing multinationals to ensure integration of local firms into
global production chains. Access to a growing market of over a billion
consumers provided abundant incentives to MNCs, in contrast to the limited
attraction of (p.375) Korea’s much smaller market. But it was policy rather
than relative attraction for the local market that discouraged inward foreign
direct investment (FDI) in Korea.
Given the policy, what are the results? We again find growth and structural
reform. Unlike China’s rapid rise in patent grant awards since 1998, incremental
growth in Korean awards has sustained the nation’s ranking behind the US,
Japan, and now China.
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Korea
Daedeok Innopolis
The Korean state followed a more insulated, nationalistic model at DI, than did
the Chinese Party-State at Zhongguancun. Innopolis was geared towards
research rather than production, and focused on local talent and institutions
rather than resources from abroad. Location is also significant. Beijing was the
political capital and the cultural center of China, home to major research
institutes and the best universities. Located 170 kilometers from the capital,
Daejeon was neither. ZSP in Beijing initially modeled itself on the Silicon Valley.
The initial project in Daejeon emulated rather Tsukuba Science Park where the
Japanese government had earlier relocated R&D facilities outside crowded
Tokyo. Daejeon today has evolved as the second ‘Administrative City,’ hosting
headquarters for four branches of the military, and housing a number of major
central government offices in the National Government Complex.
Foreign investment also sets the two parks apart. Major global ICT firms as well
as China’s own ICT leaders serve as anchor firms in ZSP. But at Daejeon, it was
LG, Daelim, and then Dacom and Korea Telecom, and now Samsung and other
major jaebeol that provide the anchors, with only a small number of
multinational firms. A final difference is the trajectory of sectoral industrial
development in the two nations, and position in global value chains. Although
the ICT sector drew the major share of research attention in Korea earlier, DI
has now diversified into multiple high-tech areas, even while the nation
maintains leadership in critical ICT niches such as semi-conductors.
Over the first three decades the zone attracted more private research
companies, and expanded collaboration of the PRIs with universities. The zone
was reoriented in 2000 from basic R&D to industrial ‘innovation,’ in tandem with
Korea’s growing technological strength in the ICT and auto industries. State
promotion of the ‘knowledge economy’ brought a major reform of the Science
Town in 2005. Officials reorganized the project into Daedeok Innopolis as a
state-centered venture capital ecosystem, hoping to bring to market the
research achievements of the PRIs through venture capital firms. Administration
was restructured under the Innopolis Foundation with the mandate of extending
the model to other sites in the country.
Daedeok Innopolis: Achievements

It is difficult to overstate the role of Innopolis in the nation’s innovation system.
The R&D expenses of government-sponsored institutions at DI in 2009 amounted
to nearly one-third of the total government R&D budget, and 10 per cent of
gross expenditure in research and development (GERD) (Seo, 2013). The state
operates (p.376) DI as a central government operation, though the local
government has joined the administration more recently. Daedeok Innopolis has
prospered even as its goals continue to evolve. Between 2005 and 2012, the
cumulative number of patents registered in Korea’s Patent Office grew from
28,000 to 57,000. The number of enterprises better than doubled from 687 to
Page 21 of 36
Korea
1,312. One finds familiar continuities in the explosive growth. The state invested
in still more government offices and institutes, expanding the number of
government-funded agencies from 21 to 30, including at least eighteen PRIs (IF,
2014).
How well have Beijing and Daejeon fared with commercialization and
collaboration to promote corporate innovation? If stages of ‘science park,’
‘science city’, and ‘innovation cluster’ suggest a linear, temporal progression,
Daejeon fits and Beijing does not. Indeed, Beijing appears to have reversed the
progression. Beijing was initially a knowledge-intensive science city with PRIs
and universities. Later, the state established a science park at Zhongguancun to
bridge knowledge resources with commercial and ICT industrial development.
Daejeon however, opened as a science park, and evolved into a science city
sensitive to regional development priorities more recently. But do either of the
parks qualify as ‘innovation clusters’ in support of firm-level research and
commercialization? Such clusters would be distinguished not only with the
tripartite institutions, but also with effective strategies for learning and
knowledge diffusion.
Strategies: Learning
Extensive engagement with global knowledge networks is a priority in Korea,
given the relatively small scale of Korea’s research base. Yet the nation ranks at
the bottom of peer OECD economies in measures of international collaboration
such as co-patenting with foreign partners, or co-authoring of academic papers
(OECD-K, 2014b, 2012). The reports cite two possible causes: first, the insularity
of jaebeol R&D units which tend to collaborate only within the group, and
second, the relatively closed nature of R&D in the nation, evident in the small
number of foreign firms with research units, and low number of foreign
knowledge workers in Korea’s R&D units. The nation appears to be addressing
the insularity with extensive efforts to draw foreign investment, but still recruits
and retains relatively few foreign knowledge workers.
Korea’s policy-makers encouraged technology transfer from the 1960s through

licensing and royalties. But with Korean firms progressing up the ladder of
value-added production two decades later, foreign firms grew reluctant to
license relevant technologies. As the state finally eased controls on foreign
investment, the share of FDI stock jumped from about 2 per cent in 1990 to
nearly 14 per cent of total GDP in 2013, worth $167 billion. In comparison,
China’s inward FDI stock of nearly one trillion dollars amounts to only 10 per
cent of GDP. In another measure of links to global knowledge flows, Korea’s
28,000 patent grants abroad in 2012 ranked fourth among all nations, compared
to only 8,300 grants abroad awarded to Chinese firms (OECD-I, 2014; WIPO-K,
2014). Indirect foreign investment, OEM contracts, as well as overseas training
and education brought (p.377) the nation into global knowledge sources
despite low levels of direct foreign investment (Keenan, 2012). Nonetheless,
Page 22 of 36
Korea
concerns raised about insularity in the OECD Reports may well leave Korea’s
knowledge economy at a disadvantage if China’s research enterprise continues
to draw foreign firms in the ICT sector.
Beyond knowledge flows, collaboration within the high-tech districts is a further

strategy for success. Kim and Ahn recently cited collaboration as the critical
issue at Daedeok. They asserted the district would not evolve into an innovative
center without better mechanisms for interaction and mutual engagement (Kim
and Ahn, 2012). Subsequent studies have highlighted persisting problems of
collaboration, particularly between smaller firms and academic researchers
(OECD-K, 2014b: 364). Moreover, officials in Beijing and Daejeon recognize the
urgency of the task as evident in multiple efforts to improve collaboration
between PRIs and industry.
One intriguing measure to improve collaboration between start-ups and the PRIs
was a new legal form for enterprise. The central government revised legislation
for Daejeon Science Park with the ‘Special Act for Fostering Daedeok Innopolis’
in 2005. A new category of private ‘research company’ gained legal status,
specifically for the purpose of commercializing technologies owned by PRIs. An
enterprise would invest at least 20 per cent of its own capital for registration
and placement in the Park. This mechanism for technology transfer has been
coupled with expanding finance channels, including sources of venture capital.
Seo reported about 50 per cent of the eleven hundred firms at DI in 2012 were
supported by venture capital (DDI, 2010; Seo, 2013). This new mechanism
appears to have piqued interest at Zhongguancun. Their annual report includes
a comparative section on Daedeok, with the ‘research company’ concept
carefully explained (ZIDI, 2013). Daedeok may well draw interest in China as a
whole. A World Bank report jointly authored with the Chinese government
looked closely at innovation but warned of a ‘middle income trap.’ They
questioned the ‘dirigiste approach’ of picking high-tech winners, and
recommended China consider rather Korea’s blend of private and public
investment in innovation infrastructure (World Bank, 2013: 172).
Strategies: Knowledge Diffusion

Among the PRIs in Daedeok Innopolis, two have played a major role in the ICT
industry. The government established the KAIST in 1971, and three years later
relocated the fledgling project to serve as the centerpiece of the high-tech
district. KAIST soon gained prominence in Asia as both a research and a training
center. Among Korea’s patent leaders, the institute annually ranks high in the
patent competition, including 82 PCT patent applications in 2012. Equally
important, the graduate school at KAIST provides an abundant supply of
knowledge workers for the cluster. With Daejeon now only 50 minutes from
Seoul by rapid service trains, improved transportation has brought the cluster
closer to Korea’s concentration of leading universities in Seoul. KAIST and
nearby Chungnam University also have the advantage of proximity to local
Page 23 of 36
Korea
industry, whether for consulting, joint-research projects, or employment of

graduates.
(p.378) The broader mandate of research and education at KAIST stands in

contrast to the ICT mandate at the ETRI. Specialized institutes emerged in the
1970s to identify, access, and adapt technology from abroad to support targeted
Korean industries. A decade later, ETRI emerged from a reorganization of earlier
institutes for the electronics firms, and moved to Daedeok. Few similar industry
institutes in the nation can match their subsequent success. ETRI ranked among
Korea’s top PCT applicants again in 2012 with over one hundred applications
(WIPO-K, 2014).
Reforms at Korea’s PRIs have improved research resources for firms at the local
level, but four problems persist. The rapid evolution of R&D at Korean firms and
universities has forced continuing adjustment and reform at PRIs, often without
clear state direction. Secondly, one finds less co-operation between PRIs and the
universities than in advanced industrial societies. Thirdly, compared to PRIs in
the West or Japan, Korea’s institutes have a shorter history and they have a
lower relative status in the NIS. Perhaps most significant, there is little
consensus on the relative weight of basic versus applied research and
commercialization at PRIs particularly with the shift towards more contract
funding (Hemmert, 2005; Cho et al., 2007; Hershberg, Nabeshima, and Yusuf,
2007; Cho et al., 2008).
Keeping pace in innovation, despite a much smaller economy than neighboring

China or Japan, demands extensive investment in human resources. Korea
stands apart today in the number of researchers for every one thousand people
employed, and is ahead of all the larger nations in the OECD. The nation better
than doubled that percentage within one decade, rising from 5 per cent in 2000
to nearly 12 per cent by 2011. China also doubled its proportion over the same
years, but expanding only from 1 per cent to almost 2 per cent by 2011 (OECD-F,
2014).
Human resources provide a distinct advantage at Daedeok Innopolis. Although

some distance from the leading academic and training centers in Seoul, DI has
managed to attract a remarkable concentration of knowledge workers. Between
the years 2005 and 2012, the number of researchers and engineers with B.A.s
and more, jumped from 17,000 to 27,000. The high-tech district boasts of
employing 12 per cent of the pool of Ph.D. level researchers in the nation, and
commanding a similar proportion of the national expenditure on R&D (IF, 2014).
One incentive may be entrepreneurship. Personnel from the PRIs can initiate or
join the enterprises on a temporary or permanent basis. Start-up research firms
remain mostly smaller firms, with larger firms such as Samsung, LG, and other
jaebeol operating their own institutes to tap into discoveries at PRIs.
Page 24 of 36
Korea
A third feature of knowledge diffusion is the robust system of IPR in the nation.
As noted succinctly by the Trade Office of the European Commission: ‘South
Korea maintains that a high level of protection and enforcement of intellectual
property rights (IPRs) is a crucial factor for enhancing competitiveness in its
knowledge based economy’ (EU-Trade, 2013; Lee, 2013). Local efforts to
improve enforcement and legislation have recently gained the praise of its major
trade partners after decades of complaints. In this regard, the administration at
Daedeok won the praise of a World Bank review for efficient policy
implementation, including a patent court within the high-tech district (PWC,
2006). Yet insularity (p.379) within the jaebeol conglomerates, and the
relatively brief history of protections remain impediments to improving co-
operation.
Corporate Performance
Reviewing business performance at Zhongguancun, we cited rankings among
high-tech districts in the OECD study of pre- and post-recession corporate data.
How then did Daedeok Innopolis fare in the rating of 40 ‘knowledge-intensive
services clusters’ across the world? The study again provides scores for
entrepreneurship, employment and economic growth, and financial viability.
Initially we find a relatively high proportion of firms less than five years old or
‘start-ups,’ with DI ranking number 10 among its peers, or the in the top quartile
before the recession. Similar to the situation at Zhongguancun, quite a number
of the start-ups did not survive the crisis, dropping DI’s ranking during the
recession to number 19.
Firm-level data on number of employees added during the recession reflected

growth at both ZSP and Daejeon. But the Daedeok firms already ranked number
15 before the crisis, and rose to number 6 during the recession. As noted above,
this may reflect a flow of employees from the smaller firms to the surviving
larger firms, but it also indicates investment even during a recession when one
would expect retrenchment. Perhaps due to public infrastructure support within
both districts, and evidently more patient capital in the ICT sector, firms
reinvested.
Economic results offer one major difference between the two districts. China’s
rank in turnover declined marginally from number 2 to number 3, but their
return on assets faded from number 9 to number 13 among their peers. Korean
firms, in contrast, improved in both dimensions. Innopolis firms rose from
number 12 to number 5 in turnover, and from number 13 to number 8 in return
on assets. Rankings based on raw totals reflect differences among districts, but
the directions of changes between the two periods may tell more of firms within
the districts. Korean firms, in contrast to not only ZSP firms but also firms at
other peer districts, recorded higher rankings on almost all indicators between
the two periods.
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Korea
Finance highlights a second major contrast between ZSP and DI. But in contrast
to China, clearer borders in Korea between public and private enterprise give
greater credibility to data on the return on assets. Innopolis firms recorded
liquidity rates ranking number 6 prior to the crisis, and then rose to number 3
during the crisis. I find the parallel indicator on solvency still more remarkable.
In a measure of shareholder equity to total assets, Innopolis firms rose from
number 23 to number 5 among the 40 districts surveyed. Assuming relative
stability in total assets, we can assume shareholders increased investment as the
firms reinvested in employees during the recession. High rankings on both
indicators suggest stability and entrepreneurial continuity. We might conclude,
therfore, that the regional innovation system encouraged such firm behavior, as
evident with the development of venture capital a decade earlier (Baygan, 2003).
(p.380) Finally we come to the composite rankings, an index based on the four
dimensions above. Daedeok Innopolis already enjoyed the number 6 position
before the crisis, but rose to the top ranking during the recession, 2007–9. Both
position and direction of change between the periods is significant. It suggests
the continued commitment of the central government to the regional innovation
system, supporting the patient and entrepreneurial capital of district firms. What
bodes well for DI is not only growth evident in improved rankings, but equally
important for managing risk in R&D, relative stability compared to peer
districts, a critical feature of effective regional systems.
Korea Conclusion
Can Korean ICT firms move up the technological ladder in the increasingly
competitive global ICT industry? Although on a smaller scale than
Zhongguancun, the data indicate a limited number of research firms at DI
edging closer to the tech frontier. What would explain this orientation in South
Korea’s model tech center? Again I highlight the role of the regional innovation
system at the meso-level between the national innovation system and the
industry itself. Incubation of discoveries from KAIST and ETRI for instance,
moved into the market through research firms, often by KAIST researchers
themselves offers precedent and possibly positive prospect for development at
DI.
But others remain unconvinced of progress at DI towards the goal of an

innovation cluster. In a comparative study, Park first lauded scale and
commercialization at Zhongguancun. In contrast, he faulted Daedeok for weak
collaboration between industry and university, limited synergy effects, and the
small number of venture capital firms (Park, 2012). But the comparison of firms
above among a global selection of high-tech districts indicates considerable
achievement in entrepreneurship at Daedeok Innopolis, even given its small
scale. Data from the district indicate a growing, but as yet small number of
incubators working closely with KAIST in advanced technology, although
universities are admittedly not as prominent. We find less evidence of synergy
Page 26 of 36
Korea
among the firms themselves, and more between firms and PRIs such as ETRI
and KAIST at Daedeok (Kim, 2012; Kim and Ahn, 2012).
A commitment beyond application to discovery at KAIST especially, and effective

channels for incubating new products with research firms reflect continuing
adaptation of the regional innovation system. I noted above the continuity of
sectoral intervention by the state in ICT, and the pragmatic adaptation to
changing market conditions. An earlier study highlighted the role of ‘adaptive
technological regimes’ in the trajectory of Korea’s development (Lee and Lim,
2001). Adaptability at state and firm may well be the key to innovation
promotion at its high-tech districts today. Warwick, for instance, argued recently
that industrial policy should focus more on a broader vision, and on coordination
rather than sectoral intervention to advance target industries (Warwick, 2013).
Adaptability within a broad vision would characterize a ‘soft’ industrial policy
coordinating industry and knowledge networks.
(p.381) Conclusion
Regional innovation systems and strategies reflect the combined efforts of state,
public research institutions, and of firms foreign and local to capture an ever
higher place in the global production and marketing networks of the ICT trade.
Chinese and Korean firms alike excel in winning patent grants, particularly in
electronics, an important measure of innovation achievement. Both nations also
invest heavily in the process, evident in both gross expenditure on R&D (GERD),
and in number and proportion of researchers in the wider population.
Yet as noted in the beginning of our study, Chinese and Korean firms and
institutes remain more focused on application and testing, despite state
priorities on indigenous innovation. A comparison of systems and innovation
strategies defines the landscape of opportunities and constraints on more basic
R&D at firms in the high-tech districts of Beijing and Daejeon. The landscape,
especially the embedded strategies of leaning and knowledge diffusion help
explain the priority of commercialization in Beijing, and of the choice of some
firms at Daedeok Innopolis for incubating discoveries into marketable products.
The approach in both nations aligns well with their place in the global economy.
China is striving to escape the middle income trap, giving more priority to local
industrial development and employment. South Korea faces rather a technology
gap, pressured above by Japan’s technological edge, and below by technological
improvements in China’s exports. Both nations struggle with integration of small
and medium-sized firms into the regional innovation system. The latter demands
better financing opportunities, incubation efforts, and provision of supporting
administrative training.
One major difference between the nations is the role of leading firms. Jaebeol
conglomerates remain at the forefront of Korean innovation, whether in
Page 27 of 36
Korea
investment or achievement. The data at Zhongguancun Science Park do not

reflect a similar role for China’s massive state-owned enterprise.
What does this tell us of the institutional underpinnings of regional innovation

systems and high-tech development strategies across developing and emerging
market economies? If knowledge production and diffusion is the key to
technological development, the effective interaction of public and private
institutions in R&D appropriate to the stage of a nation’s economic trajectory
remains the primary challenge. The case studies highlight other significant
factors as well. One is the difficulty of institutional reform at the PRIs, and
indeed of consistent research directions. Charting the balance between applied
and basic research, then implementing a research program relevant to industry
needs is a major challenge for both nations. Investment in an educational system
is a necessary but not sufficient condition for fostering organizations adept in
technology and in crossing borders among state, academy, and industry.
Secondly, Chinese and Korean firms and academies have profited greatly from
global knowledge flows, whether through direct or indirect inward foreign
investment. Although both nations score lower on OECD measures of
international collaboration such as co-patents and co-authorship to date, firms
and academies have benefitted greatly from access to channels of information on
technological advances. Finally, collaboration, effective exchange of information,
and some level of interest sharing appear critical for the effective functioning of
regional innovation systems.
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Innovation Systems, Strategies, and Corporate Performance in China and South

Changing Asian Business Systems: Globalization,

Print publication date: 2016

Innovation Systems, Strategies, and Corporate

Abstract and Keywords

Looking beyond dichotomies of state or market, I argue that institutional

insight. I begin with innovation systems, before turning to strategies and

Innovation Systems: Co-operation and Clusters

Secondly, R&D worldwide is skewed towards manufacturing, and in Korea and

Thirdly, the sector offers a window on international collaboration and flows of

Trade trajectories in the ICT industry pose challenges for technological

South Korean industries confront a different challenge. International trade in

common networks and interests in pursuit of new, economically useful

PRIs played a dual role of identifying and adapting relevant manufacturing

(p.363) Issues of technology transfer and absorptive capacity have long

Advantages of agglomeration in industrial districts have brought a spatial

High-tech Districts: Zhongguancun and Daedeok

Table 14.1. Regional innovation systems at Zhongguancun and

Features/High- Zhongguancun Science Park Daedeok Innopolis

Authority Local: Beijing Metropolitan National: Ministry of

Location Central—epistemic & Regional—greenfield

Initial Priority Local development from National technological

Recent National model for indigenous Global Innovation Hub

Role of FDI in Extensive: foreign firms Limited: few foreign

innovation systems in both nations. Given continuing leadership in national innovation

(p.365) China: System, Sites, and Strategies

China’s Innovation System

Regional diversity also distinguishes China’s innovation system. Although state

(p.366) The practice of clustering industrialization into zones has evolved in

What has the system produced? An impressive national profile emerges of

Zhongguancun Science Park

‘electronics street’ (Liang, 2011). Research institutes converged in the area in

A pattern of testing and applied research to tap growing market demand

Table 14.2. Innovation strategies

Strategy/High-tech Zhongguancun Science Park Daedeok Innopolis

Global knowledge Foreign corporate research Education, training

Collaboration with Institutional Rigidity Insularity; research

Collaboration with Supplier Relationship Limited number of

PRIs Wide role, Chinese Academy Specialized role,

Strategy/High-tech Zhongguancun Science Park Daedeok Innopolis

Human resource Abundant, well-trained Availability of

IPR Weak Strong

One might expect improved information flows through increasingly globalized

Strategies: Knowledge Diffusion

Although PRIs play a particularly prominent role at ZSP in knowledge

If we find little previous evidence of integration between the large number of

funding to promote talent (rencai). But as recent studies suggest, the

Protection of proprietary information is a further factor affecting diffusion of

To measure entrepreneurship, the author tracked the formation and survival of

second period, 2007–9. In other words, entrepreneurs established a large

Table 14.3. Business performance rankings

Categories/Zones ZSP 2005–2007 ZSP 2007–2009 DI 2005–2007 DI 2007–2009

Temouri supplemented the liquidity measure with data on solvency, measuring

Finally, Temouri provided a composite indicator to offer a very general ranking

South Korea: System, Sites, and Strategies

Korea’s Innovation System

If coordination, scale, and indigenous priorities distinguish innovation policy in

Daedeok Innopolis: Achievements

Korea’s policy-makers encouraged technology transfer from the 1960s through