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Policy design and intervention in the innovation diffusion process: The case of China's communication sector
Jiang Yu
Scientist, CASIPM, Beijing, China
Xin Fang
Professor, CAS, Beijing, China
Abstract
The innovation diffusion process in China has varied impacts on different players in the industrial system, which can in turn either facilitate or impede the effects of innovation diffusion. Bringing not only growth possibilities to the newcomers but also high risks to the established players, the diffusion process might encounter with huge resistance in a highly regulated system, which is also called market failure.
Based on intensive case studies in China's communication sector, the paper argues that the structures of the innovation supply system will greatly influence the innovation diffusion process. Policy-makers must leverage policy design and intervention to achieve expected strategic objectives. Therefore, proper policy intervention could become the trigger to launch and facilitate diffusion of emerging innovations in such a large developing country as China.
Keywords
innovation, diffusion, telecommunication, policy design, policy intervention
Article Text
Invention, innovation and diffusion is a sequential trilogy in the whole technological change process (Schumpeter 1947; Stoneman 1995). The concept of 'diffusion' here refers to the spreading of new technologies across potential markets. Until now, most studies on diffusion process have focused on the firm level and provided alternative explanations to the dominant consensus that adoption of new technologies over time typically followed an S-curve, such as the epidemic model or probit model (Bass 1980; Oster 1982; Baptista 1999, Geroski 2000). Such diffusion models assumed that the innovation diffusion process was a market process of achieving long-run equilibrium by adjusting short-run equilibrium points, with demand and supply forces affecting the diffusion process from time to time (Griliches 1980; Dixon 1980; Chatterjee & Eliashberg 1990). Furthermore, innovation transfer often occurs within a network in which different actors interact (Caputo et al 2002; Rogers 1995).
However, existing academic research on diffusion policies remains limited and fragmented. Few have explored how diffusion proceeded within a fast-changing system or the role of policy-makers. The policy issue deserves more concern in a regulated context, where the boundary between regulators and players is sometimes blurred. We noticed that some argued that government could barely facilitate the process, and that SOEs (state-owned enterprises) are slow movers compared with private firms (Hannan & McDowell 1984; Rose & Joskow 1990). However, the amount of empirical studies on the impact of policy-makers is quite thin (Stoneman 2002).
Based on detailed case studies of innovation diffusion in the Chinese telecommunication industry, the authors aimed to:
- explore the dynamics of the innovation diffusion process under a transformational context, especially in large developing countries like China; and to
- understand the changing role of policy-makers in such a diffusion process.
An analytical model of policy-oriented diffusion is presented following the case studies.
This article is based on an empirical study of China's telecommunication industry, undoubtedly one of the most dynamic industries in developing countries, with an annual growth rate of 36.7% from 1996 to 2001 (MII 2001). A semi-structured interview was conducted with senior managers in leading telecommunication firms as well as officials from the regulation ministries in China. Secondary data was collected from open publications including statistics, industry reports and corporate reports. This research tries to explore, from a policy perspective, how the innovation diffusion process interacts with the systematic transforming process of the industrial system.
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