What Is Different About Innovation in Asia?

Abstract

East Asia, a group of countries including the ASEAN group as well as Taiwan, South Korea and China² have witnessed a high economic growth during the 1980s and the first half of the 1990s. It has been convincingly argued that this economic growth was fuelled by adding foreign direct investment to a large pool of local, often highly skilled labour. But it has become clear that this formula has reached its limits (Lingle, 1997; Krugman, 1994), particularly after the financial crisis of 1997–9. Moreover, the emergence of China as a manufacturing base for the world and the recent developments in India in particular in the service industries have rendered it improbable for most companies operating from East and South East Asia to pursue a competitive strategy exclusively based on low prices and thus low production factor costs. One can expect that China, and in a later stage India, will be the major sources of low-cost production for the rest of the world (Clarke, 1999). Even if the labour costs rise in the coastal provinces of China or the main cities of India, there will always be a pool of cheap labour a little bit further into the inner provinces and the countryside. China and India will remain exporters of price deflation for many years to come. Most economic commentators argue thus that a macroeconomic strategy based on capital injection to leverage the available workforce will not be sufficient any more and that East and South East Asian countries and their companies will have to invest in the development of new products, services and processes (APO, 2003; Wolff and Yoshida, 2001).