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Keun Lee

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Keun Lee

Chapter 8 examines the experiences of selected industries in Korea to identify the stylized facts in the process of technological capability building and thereby to sort out the conditions for the catching-up to occur. To explain the process, we have built a model of technological and market catching-up. Special attention has been given to the question of whether there has been a case of leapfrogging in any industry in Korea and, if so, what are the conditions for its occurrence. In our framework, we first measure the degree of catching-up in terms of market shares in the world. Then we focus on catching-up in technological capabilities in explaining the different records and prospects of Korean industries in market share catch-up. Using this model, we explain the different technological evolutions of selected industries in Korea in the 1980s and 1990s, including the memory chips (D-RAM), automobile, mobile phone, consumer electronics, personal computer, and machine tool industries. We find three different patterns of catching-up: path-creating catching-up (CDMA mobile phone), stage-skipping catching-up (D-RAM and automobile), and path-following catching-up (consumer electronics, personal computers, and machine tools). We interpret the first two cases of catching-up as “leapfrogging.” We find that important R & D projects involved both private and public capacities (except automobiles where only private R & D was involved), and that entry was not driven by endogenous generation of knowledge and skills but by collaboration with foreign companies.
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Keun Lee

Chapter 13 investigates how through the transformation of latecomer small- and medium-sized enterprises (SMEs) in emerging economies from dependent or subcontracting original equipment manufacturing (OEM) firms into independent or original brand manufacturing (OBM) firms it is possible to achieve a significant catch-up in terms of share of regional or global markets. Given that SMEs are rarely able to make such a transition, we elaborate this dynamic process by performing case studies on eight Korean SMEs. These SMEs created their own paths instead of following their forerunners. These paths are neither entirely new nor take the form of leapfrogging, but are characterized by new combinations of existing paths. We identify several risk factors, such as counterattacks and intellectual property lawsuits, that latecomer SMEs face from incumbent SMEs. In addition, we emphasize the importance of cultivating firm-specific knowledge by engaging in a continuing process of trial-and-error-type in-house experiments.
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Keun Lee

Chapter 9 examines the leapfrogging thesis using the case of catch-up in digital TV by Korean firms. Despite the disadvantages implied by the technological regime of digital TV and the risks facing early entrants in trajectory choice and initial market formation, Korean firms had achieved a “path-creating catch-up” in the sense they chose a different path from the Japanese forerunning firms. As they had been closely watching the technological trends and the standard-setting process, there was less risk of choosing the wrong technological trajectory. Also, despite the lack of sufficient capability and core knowledge base, Korean firms had some complementary assets, such as the experience of producing analogue TV, and were able to develop the prototype digital TV and the ASIC chips, given the access to the foreign knowledge via overseas R & D posts and the acquisition of a foreign company. To secure the initial market size, the Korean firms targeted the US market from the beginning, and their source for competitive advantages was the speedy setting up of the production system for mass production of products at the initial stage. The initial failure of the Japanese firms and the success of the Korean firms do suggest that the period of paradigm shift, like this toward digital technology, can serve as a window of opportunity for latecomers while penalizing the forerunner.
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Economic Catch-up and Technological Leapfrogging

The Path to Development and Macroeconomic Stability in Korea

Keun Lee

This book elaborates upon the dynamic changes to Korean firms and the economy from the perspective of catch-up theory. The central premise of the book is that a latecomer’s sustained catch-up is not possible by simply following the path of the forerunners but by creating a new path or ‘leapfrogging’. In this sense, the idea of catch-up distinguishes itself from traditional views that focus on the role of the market or the state in development.
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Keun Lee

Chapter 5 discussed the unfolding of the financial crisis in 1997–98 and the post-crisis reforms and their impacts. The crisis prompted the Korean government to undertake a number of reforms in finance, corporate governance, and the labor market. This chapter analyzes the dynamics of the reform process and assesses the outcomes of the reforms, which aimed at introducing the Anglo-Saxon economic model. It argues that the reform outcomes were conditioned on the interplay of local-specific conditions and interest politics and that the reforms were intent more on establishing a market-oriented economy than promoting the long-term growth potential and the competitiveness of the economy.
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Keun Lee

Chapter 2 discusses the historical origins of the catch-up regime in East Asia, in particular Korea. Thus, this chapter first identifies the common initial condition to be the tradition of the hard Confucian state in East Asia. The East Asian states were Confucian hard medium states filled by respected elite who were autonomous from partisan interests both from the inside and outside of the country. Aside from the existence of a growth-committed hard political leadership and national consensus on the goals, our investigation has identified three important constituents of the catch-up regime. First, state activism was not only based on purely the political authority of the state, but more importantly on their real economic power, which was derived from the state ownership of banks or loanable funds, where the state’s financial control over big business worked as a highly discretionary and qualitatively different control instrument that was not available in minimal states. Second, their businesses were subjected to a double discipline mechanism—namely, market discipline, especially to exogenous world markets in the cases of the more outward-oriented Taiwan and Korea, and market-conforming network discipline based on the intimate long-term relationship between the well-informed state agencies and business. Third, state activism played a part, not in the small-business-oriented private sector, but only in targeted strategic sectors and big businesses where the private–public boundary was ambiguous or did not exist (as in the case of Taiwanese state-owned businesses). The above three elements can be the main building blocks of the regimes for economic catch-up. The regime would be based on market operation and private ownership of all businesses (except state ownership of banks, a few natural monopolies, or strategic industries) and run by a network of efficient bureaucrats and ambitious entrepreneurs with a strong outward orientation.
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Keun Lee

Chapter 4 investigates the role of the intellectual property rights (IPR) system in Korea’s technological catch-up. The detailed overview of the evolution of the Korean system of IPR shows Korea’s dynamic perspective on IPR policy. During the early stages, IPR were granted even to minor inventions or adaptations by local residents while there would be less need for domestic recognition of foreign IPR. However, during the later stages, with the growth of technological capacity, the need for international technology transfer and the local market for technology increased. Thus, protection of both domestic and foreign IPR needed to be provided. From the late 1980s, Korea increased substantially the level of the IPR protection and expanded the scope of patentable subjects. Korea has now attained the most developed level in terms of the scope of subject matters, including the most recent IPR like biotechnological inventions and business method inventions. Since then, as big business reached the technological frontier, the focus of government policies has turned to the following issues: encouragement of more IPR attainment by SMEs, commercialization/utilization rather than production of IPR, and utilization of R & D capabilities and the role of universities. We have also found some interesting facts in the trend of several IPR variables over the course of catch-up in Korea. First, in the early days of catch-up, Koreans filed mostly petit (utility) patents and few regular (invention) patents. Only at the later stages did the share of invention patents grow to exceed that of petit patents. Second, in the early days of catch-up, individual inventors filed patents. Corporations accounted for a small share. Later, the share of corporate assignees grew to exceed that of petit patents. Third, the relative shares between domestic and foreign patents in Korea show more dynamic patterns. In the early days, foreigners had no interest in Korean IPR and thus filed no patents, which led to the dominance of the domestic patents. This was reversed at a certain point in time when foreigners were filing the most number of patents. With the growth of the capabilities of domestic inventors (usually firms), the share of domestic inventors increased and eventually they registered a bigger number of patents than those filed by foreigners. The three facts suggest that the importance of patents and IPR had not been seriously recognized by Korean firms until the mid-1980s. Before then, Korea had been accumulating its absorptive technological capacity with focus on utility model patents. Then, only beginning in the mid-1980s, they began to aggressively invest in their own in-house R & D which led to the rapid building up of indigenous R & D capabilities.
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Keun Lee

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Keun Lee

Chapter 7 argues that North Korea can achieve an economic catch-up after decades of economic isolation and stagnation if it tries a specific type of economic opening (leapfrogging) focused on foreign trade and investment in a sustained manner. An analogy is been made with the case of Fujian Province in China, which has accomplished economic catch-up, mainly due to Taiwanese investments. To realize its potential, it is argued that North Korea should treat its foreign direct investment from South Korea as intra-Korean investment. The chapter also discusses the diverse modes of engagement with foreign capital that are available for North Korea considering its own capability (absorption or management capabilities), rivalry among possible foreign investors, implications for market structure (monopoly or more competition), the nature of target technologies or facilities, opportunity for learning and transfer, and so forth. Finally, the chapter discusses the economic and political preconditions for such economic catch-up.