Catching up through developing innovation capability: evidence from China's telecom-equipment industry

The significance of the innovation capability of domestic firms in late-industrialized countries is highly debated in the literature. This research studies the history of China's telecom-equipment industry from the middle of 1980s to 2002, with a focus on the innovation capability development of four domestic firms: Huawei, ZTE, DTT, and GDT.The research finds that innovation capability and self-developed technologies have been the key to leading domestic firms' catching up with the multinational corporations. This finding is substantiated by both regression analysis between ‘leadership of the telecom-equipment industry’ and ‘innovation capability’ and development experience at the company level.This research emphasizes that domestic firms should prioritize building innovation capability from the very beginning to build up their competitiveness and to survive the competition with the multinational companies as well as other domestic companies. It also suggests that domestic firms should focus on in-house R&D development to build their innovation capability, supplemented with external alliances.