Abstract
China is now the largest exporter of IT goods. But, as globalisation transforms markets for and knowledge workers, China's policy makers and corporate strategists are seeking for ways to move beyond the 'global factory' model. This paper explores what is necessary and feasible. I introduce a concept of 'industrial upgrading' that links specialisation with firm-level and industry-level upgrading and high integration into global networks. This concept is used to discuss specific innovative capabilities needed to upgrade China's IT industry. I argue that technology leadership strategies are not the only option. Technology diversification can serve as a complementary and arguably less costly option.
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