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Competing with MNEs: developing manufacturing capabilities or innovation capabilities

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Abstract

A challenge facing local firms in China is the selection of effective technology strategies to compete against MNEs in the era of globalization. The existing literature suggests two alternatives, developing strong manufacturing capabilities or developing innovation capabilities, but provides no clear answer to the question of how to select one strategy or the other. This paper explores this issue by introducing two concepts: “barriers to appropriability” and “opportunities for improvement.” We develop four propositions to specify the boundary conditions for local firms to choose their technology strategies and analyze two local firms’ technology strategies to illustrate two of the propositions. We find that development of strong manufacturing capabilities will not necessarily be an effective strategy for local firms competing against MNEs. If there are opportunities for improvement, it might be possible for local firms to compete against MNEs by developing innovation capabilities and core technologies.

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Acknowledgments

The authors want to thank the MIT Sloan School of Management and the MIT Industrial Performance Center for providing financial support for this study, and thank Dawning and Hisense for providing the opportunity for us to do the case studies. We also want to thank George Farris, Richard Lester, Yadong Lou and all other reviewers for their insightful comments and suggestions. Special thanks go to Mingfang Li for his excellent leadership and professional commitment in organizing this special issue.

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Authors and Affiliations

  1. School of Economics and Management, Tsinghua University, Beijing, 100084, China

    Xudong Gao

  2. Hisense Group, 17 Donghai Xilu, Qingdao, 266071, China

    Ping Zhang

  3. National Research Center for Science, Technology, and Development, Ministry of Science and Technology, Beijing, 100038, China

    Xielin Liu

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  1. Xudong Gao
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  2. Ping Zhang
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Correspondence to Xudong Gao.

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Gao, X., Zhang, P. & Liu, X. Competing with MNEs: developing manufacturing capabilities or innovation capabilities. J Technol Transfer 32, 87–107 (2007). https://doi.org/10.1007/s10961-006-9002-2

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