The Art of Economic Catch-Up by Lee Keun

Author:Lee, Keun [Lee, Keun]
Language: eng
Format: epub
Publisher: Cambridge University Press
Published: 2019-05-15T16:00:00+00:00

5.2 Catch-Up Cycle Framework 4

The product life cycle theory of Vernon (1966 ) is mostly concerned with factory location changes at the product level. Alternately, the catch-up cycle framework considers diverse factors at the firm, industry, and even national institution levels and the interactions among them. Thus, this framework relies on the Schumpeterian concept of the sectoral innovation system, in which a sector is defined as a set of activities that share common knowledge and that are unified by certain linked product groups for a given or emerging demand. We match each component of the SSI (sectoral systems of innovation) to diverse windows of opportunity to explain the successive changes in industrial leadership.

Several window types can be opened for late entrants. One is the rise of a new techno-economic paradigm that tends to threaten the advantage of existing first movers or incumbents involved in investment in the existing capital vantage. When a new paradigm arrives, latecomers and incumbents stand at the same starting line with the new technology. However, incumbents may fall behind by grasping onto old technology, the use of which has placed them in a dominant position. The propensity for incumbents to remain with the old paradigm for a prolonged time can be considered rational as they have considerable investment in it. 5 In this study, instead of dealing with the techno-economic paradigm shift, we deal with a mini-paradigm, a new generation of technologies.

The second window of opportunity type is derived from the secondary components of SSI, namely demand conditions or market regimes; that is, a business cycle and/or abrupt change in market demand, including the rise of new consumers. Mathews (2005 ) indicated that business cycles create opportunities for challengers to rouse the industry as downturns play a cleansing role. Thus, during downturns, weak players are forced into bankruptcy, and resources are released at low prices to be acquired by challenger firms aiming to enter the industry. These demand changes can be exogenous or intrinsic to the sector but exogenous to firms (e.g., the short-term cyclical behavior of prices of IT sector memory chips and panels). 6

The third window of opportunity can be opened by the government. This opportunity usually generates an asymmetric environment for incumbents and entrants through a range of regulations and supportive actions for entrants. Latecomers can utilize such asymmetries to offset initial cost differences associated with late entry.

Although the three types of windows of opportunity are assumed to be events that are exogenous to latecomer firms, the firms should recognize and take advantage of these open windows to realize their potential. Firm strategies interact with the windows of opportunity and the technological and market environments affecting their performance. Although our model is not deterministic, it emphasizes the role of actors, particularly firms and governments.

Latecomers have several strategy options available to them for possible entry or catch-up, such as path-following, stage-skipping, and path-creating, in which “ path” is the trajectory of technologies and “ stage” pertains to phases in trajectories. 7 These three strategies

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