EUROPEAN BUSINESS SCHOOL
International University Schloß Reichartshausen
International Management & Consulting
Seminar Winter Term 2005

Analysis of Differences in Innovation Processes
(Europe vs. Asia)

by: Robert Prilmeier

Table of contents

1 Introduction 1

1.1 Motivation and Objective of the Paper 1
1.2 Methodology and Structure 2

2 Innovation in the Context of Increasing Complexity  2

2.1 Innovation and Innovation Processes 2
2.2 National Innovation Systems as the Defining Frameworks of Innovation Processes  3

3 Innovation Processes in Europe  4

3.1 The Process of Innovation – a European Definition  4
3.2 European Systems of Innovation: Increasing Coherence 5
3.3 Sources of Innovation among European Firms  6
3.4 The Impact of Firm Size on European Firms’ Innovation Behavior 7

4 Innovation by Imitation: the Asian Model 8

4.1 The East Asian Miracle: A Sequential Process of Catching Up  8
4.2 Asian Systems of Innovation: A Heterogeneous Picture  10
4.3 Innovation along a Reverse Product Life Cycle  11
4.4 Sources of Innovation in Asian Firms  13

5 Is there an “Asian” or “European” process of innovation?  14

6 Conclusion 16

Appendix  17

References 19

 

List of abbreviations

ASEAN = Association of South East Asian Nations
FDI = Foreign Direct Investment
NIE = Newly Industrializing Economy
NIS = National Innovation System
OBM = Own Brand Manufacture
ODM = Own-Design and Manufacture
OECD = Organisation for Economic Co-operation and Development
OEM = Original Equipment Manufacture
PLC = Product Life Cycle
SME = Small and Medium-sized Enterprise
TNC = Transnational Company
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1 Introduction

1.1 Motivation and Objective of the Paper

Innovation is often seen as one of the essential factors driving economic growth. A country that succeeds in developing, nurturing and exploiting innovative capabilities will be able to upgrade the strategic parameters it employs in creating economic value added. Likewise, the development of a firm relies to a large extent on the successful employment of the specific innovative potentials that are available at the firm level. Hence, as Schumpeter (1987, 1997) indicates, the differences between the capabilities of firms to exploit this potential give rise to a circular process of “creative destruction” in which innovative firms enjoy a process of growth and success to the detriment of firms that cannot match this innovativeness.¹ In this respect, Asian firms have been able to make significant progress. Starting from a low level of innovative and economic capacity and, thus, labeled “latecomer firms” by Hobday (1995), firms such as Samsung of Korea, Creative Technologies of Singapore or the Taiwan Semiconductor Manufacturing Company have, at least in part of their operations, arrived at the innovation frontier or even set industry standards. They have, therefore, become serious competitors for European firms.²

This study aims at providing a basis for understanding this phenomenon by examining in how far the European and Asian approaches to innovation differ. Such a comparison allows discerning the influences of cultural and economic factors on the patterns of innovative activity that can be observed in European and Asian firms. In order to establish the necessary comparability, both the firms defined as “European” and those defined as “Asian” should be as homogenous as possible internally in terms of the economic and cultural environment they share. Therefore, the study focuses on firms located in Western European countries for the European side, thus excluding firms from Eastern European economies which face circumstances of transition not known to Western European firms. For the Asian side, firms in East and Southeast Asia are considered since they share a common influence of Chinese Buddhism and Confucianism and a similar pattern of economic development. This focus mainly encompasses Japan, China, Korea, Taiwan, Hong Kong, Singapore, Malaysia, and Thailand.

1.2 Methodology and Structure

In order to prepare the ground for assessing the differences between innovation processes of European and Asian firms, chapter 2 provides an explanation of innovation and the constituents of innovation processes. Furthermore, the notion of a system of innovation is explained as the framework in which innovation processes are embedded. Chapter 3 is dedicated to describing the European approach to innovation. To achieve this, the process of innovation is defined in a European sense. Furthermore, the national systems of innovation are described with regard to their homogeneities and discrepancies. This provides the basis for an understanding of how European firms act and interact while engaged in innovative activities. A special focus is then allotted to the sources European firms utilize to generate innovation and the differences in innovation behavior between firms of different sizes. As the analysis will show, substantial differences can be found between European and Asian firms in these areas.

To explain the way in which Asian firms generate innovation, chapter 4 grants insight into the catching-up process of Asian economic development. As the different Asian countries have so far reached different technological levels, a description of their national innovation systems illustrates the differences across the Asian na tions, but also the similarities that, nonetheless, can be found. This framework serves as a basis to understand why Asian firms innovate along a reverse product life cycle. Fur thermore, the sources of innovation in Asian firms are analyzed. Based on these comparisons between the behavior of European and Asian firms, chapter 5 addresses the question of in how far Asian and European innovation processes are specifically “Asian” or “European” by providing a comparison of how Asian firms act at the innovation frontier and how European firms act in catching up. Chapter 6 concludes the paper.

2 Innovation in the Context of Increasing Complexity

2.1 Innovation and Innovation Processes

An innovation is, broadly speaking, a novelty. However, there is a wide range of possibilities to determine what novelties are innovations. As for the content of an innovation, there can be different types of innovation, such as product or process innovations and there can be different degrees of innovation, such as radical or incremental innovations. Innovations can be novelties in an economic sense as well as in a technological, social, political or cultural sense. Furthermore, innovations can be new to a certain individual, to a firm, a nation or the world. If only novelties that are new to the world are regarded as innovations, then a novelty is only an innovation when it first occurs on the market place. On the other hand, if all novelties that are new to a certain firm are considered innovations, then an imitation of another firm’s innovation would also be perceived as an innovation. Other questions that can be asked are whether a novelty really is an improvement and whether it is successful in the market or in the firm. These questions, however, are difficult to answer, especially when one tries to do so in advance.³ As this paper considers innovation in two very different contexts and imitation plays an important role in Asia, it is necessary to accept a broad definition of inno vation, i.e. imitations should also be regarded as innovations.⁴ Therefore, this paper defines innovations as products or processes that are new to a certain firm – regardless of whether they are new in a radical or in an incremental sense.

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1 See Angelino/Collier (2004), p. 53; Schumpeter (1987), pp. 137-138; Schumpeter (1997), p. 101.

2 See Hobday (1995), pp. 33-34, 79-89, 146; Lin (2004), p. 943.

3 See Hauschildt (2004), pp. 7-26; Neubauer (2002), pp. 94-96; Koschatzky/Zenker (1999a), pp. 1-2.

4 See Hobday (1995), p. 46.