Linking institutional environment with technological change: The rise of China's flat panel display industry

Abstract

In view of the complex dynamic environment from technological change and uncertain government regulation, this study examines how business strategies improve technological capabilities under the dynamic interaction between technological change and institutional environment. Drawing on detailed evidence gathered from first-hand and second-hand data, we develop a framework and combine the framework with the rising process of China's flat panel display (FPD) industry to identify levels of technological capabilities in distinctive phases. The findings show that three phases of technological capability-building in China's FPD industry consist of basic operational and innovative capability-building, intermediate innovative capability-building, and advanced innovative capability-building. The findings also show that three levels of technological capability are determined by the distinctive portfolios of business strategies under the dynamic interaction of technology change and institutional environment. Specifically, we find that with the guidance of distinct intended strategies, firms adopt different actual strategies to enhance their technological capabilities. Firms employ strategies of the joint venture, and merger and acquisitions (M&As) to build basic operational and innovative capability under a mutually reinforcing local and central institutional environment, and industrial environment of technological substitution. Whereas strategies of the contractual arrangement and talent introduction result in building intermediate innovative capability, according to mutually offsetting local and central institutional environment, and industrial environment of technological upgrading. The strategies of the contractual arrangement and strategic alliance lead to building advanced innovative capability based on mutually reinforcing local and central institutional environment, and industrial environment of technological leapfrogging. Finally, the limitation of this study and the direction for further research are provided.