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Restoring America’s Global Competitiveness through Innovation

Restoring America’s Global Competitiveness through Innovation

New Horizons in International Business series

Edited by Ben L. Kedia and Subhash C. Jain

Though we live in an era of rapid innovation, the United States has introduced comparatively few commercial innovations within the past decade. Innovation shortfall contributes to weaker trade performance, decreased productivity growth, lower wages and many other economic woes. This study provides insightful recommendations for developing enhanced innovation efforts that could help foster substantial, long-term economic growth.

Chapter 14: Innovation policies and industry subsidies: China and the global solar energy industry

Ravi Sarathy

Subjects: business and management, international business, organisational innovation, innovation and technology, organisational innovation


Chinese solar energy firms currently dominate the global solar energy industry, comprising producers of solar cells, panels and installations. In 2001 China produced 1 percent of the world’s solar cells and modules. By 2010 it produced nearly 50 percent. As measured by revenues, four of the top five solar cell producers are Chinese. China accounts for over half of all world exports of solar energy products, and the major Chinese firms export between 75 and 90 percent of their output, primarily to Europe and the USA. The dominant global market share of Chinese producers has been facilitated by consumption subsidies enhancing demand for solar panels in key markets, in Germany, across Europe, and in the USA, while the domestic Chinese market plays an insignificant role in the revenues of Chinese producers. Further, Chinese global competitiveness, enabling these producers to gain significant market share in the European and US markets, has been aided by Chinese government production subsidies and low-cost loans. These policy measures enabled Chinese firms to increase accumulated production volume well ahead of their competitors. In consequence, Chinese firms have been able to obtain considerable cost advantages from technology improvements and from superior scale economies. However, recent declines in international demand, due to withdrawal of subsidies and a global recession, have led to widespread industry losses and excess capacity across the industry, leading the solar industry to the verge of significant consolidation and shakeout.

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