How do firms upgrade capabilities for systemic catch-up in the open innovation context? A multiple-case study of three leading home appliance companies in China

Abstract

The technological catch-up behaviour of latecomer firms has been a topic of interest for the past three decades, especially in emerging economies, such as China and India. However, little research has systematically discussed the capability-upgrading issue that firms face in the context of open innovation, and the previous work lacks an explanation for why some Chinese firms can win competitive advantages in the global market within a short time. This study develops a PDSE (Position-Depth-Scope-Efficiency) framework of systemic catch-up to explain the process and mechanism of capability upgrading by using the literature on technological catch-up, open innovation, and the capability reconfiguration view. We conduct a multiple-case study based on three top home appliance manufacturers in China– Haier Group, Midea Group, and Gree Electronics. The results show that firms can achieve better positions, depth, and scope of catch-up with higher efficiency in the open innovation era. The process of systemic catch-up moves from component capability to architectural capability and then to systemic capability, while four mechanisms based on market and technology reconfigurations are effective in promoting capability upgrading. Overall, a key contribution of this paper is the offering of a new conceptual framework of systemic catch-up to outline the changes in the capability-upgrading process over time. This framework adds to the previous research that is mainly limited to the entry and gradual catch-up stages of capability development and deepens the understanding of the competitiveness of emerging economy firms beyond cost and scale advantages.