Pressure from foreign rivals were firstly displaced 3

pressure from foreign rivals were firstly displaced
3
. On the other hand, the survival indigenous companies which can
survive were forced to improve absorptive capacity via inter-firm cooperation (such as forward and backward
linkage in FDI). Many local multinational enterprises such as Changhong, Huawei, Haier, Lenovo, and Galanz et al.
surviving at that time had significantly benefited from cooperating with foreign enterprises. Therefore, we argue that
the effect of FDI is inter-dependent on the corresponding inter-firm collaborations.
As indicated in table 1, catching up country has a variety of choices to enhance absorptive capacity. At
different stages, absorptive capacity could be developed through an integrative mechanism where national actors
complement each other. In other words by taking China as an example, numerous strategies are implemented at the
same time by national actors. Firms that have already been relatively technological advanced are preferable to
implementing less committed governance modes such as R&D agreement and strategic alliances. Firms that sit
behind are on the contrary feel security to rely on stronger ties forming a valid and high committed governance
mode, i.e. merger and acquisitions, or joint ventures. At a firm level, each Chinese enterprise has its own learning
network with a number of learning partners and learning modes. Firms that can manage its network well and
actively play as a network hub or cover network structure hole are able to preemptively grasp technical knowledge
and market.
Table 1 Strategies used in different stages of catching up
Economic
Growth Stage
Absorptive
Capacity
Economies’
characteristic
Strategies to accumulate
knowledge
Level of
knowledge
accumulation
Pre-catching
up
Very low
but might
be
increasing
Resource-based;
Unskilled labor;
Low level of inward
technology transfer
Low level of Inward FDI and no
outward FDI
Low but might
be increasing
Catching up Increasing
to
reach peak
Knowledge
infrastructure and
domestic industrial
capacity; high rate of
knowledge
accumulation and
absorption of external
knowledge
Assimilation of spillovers from
trade or inward FDI;
Technology licensing; reverse
engineering (early stage) and
R&D (late stage);acquisition of
technology by M&A
Rapidly
increasing
Pre-frontier declining Assimilation becomes
difficult; marginal
return of absorptive
capacity declining.
Strategic alliances; in-house R&D;
outward FDI; joint venture
Increasing rate
decline and
reaching the flat
range
Network leader in Chinese catching up networks are identified having a number of common traits. For
instance, they either posit the important interfaces across different sub-network as a broker or connect with almost
all the other actors as a center. The involved actors in network include profit-oriented firms, universities & institutes,
and western companies doing business in China. Based on the observation on Chinese context, we therefore have
Proposition 1