Evolution of the “ Academy-run Enterprises ” in China: An Organizational Approach

1. Globelics Academy 2004 Evolution of the “Academy-run Enterprises” in China:An Organizational Approach Jong-hak Eun Ph.D. Candidate Tsinghua University, Beijing, PRC

2. Brief Illustration on Start-up Firms in China • Many firms originated from academic institutions • The top three PC makers are all AREs – Lenovo (CAS), Founder (Peking Univ), Tongfang (Tsinghua Univ). • The 1st software company listed on the stock market is also an ARE – Dongruan (Dongbei Univ)

3. (Cont.) • There are more than 5000 university-run enterprises (a subset of AREs) across the country. • Among them, 1993 are categorized as S&T-based firms • There are more than a thousand of academic research institute-run enterprises. • About 40 university-run enterprises are listed on the stock markets in mainland China and Hong Kong.

4. University-run Enterprises (UREs, a subset of AREs) listed on the Stock Markets

5. Existing Studies • Those firms have been depicted in terms of… • Private/Privately-run/Non-Governmental firms • Stress different incentive mechanism from that in traditional State-owned Enterprises • Spin-offs • At the same vein, Zhongguancun (Beijing), where many of those firms are located, has often been called China’s Sillicon Valley • In fact… • They are not purely private • They are “spin-arounds” rater than spin-offs

6. A New Concept • “Academy-run Enterprise” which is different from “Spin-off” • Differences • Owned by the “academic institutions” rather than by some entrepreneurial individuals (faculties and graduates of academic institutions) • Managerially controlled by the academic institutions • Personnel, Profit sharing, Wages… • Much stronger connection through a kind of “Umbilical cord” • Almost exclusive rights to exploit tangible and intangible assets of mother institutions • Def. of the Academy-run Enterprises (AREs) • Firms that owned or managerially controlled by academic institutions (universities or public research institutes)

7. Historical Development of the AREs Great Leap Forward Cultural Revolution Nanxun Jianghua S&T Reform 1953 1958 1960 1966 1977 1985 1989 1992 2000 Tian’anmen URE reform Reform 1st Five Year Plan Restoration

8. Research Questions • Why…? • Emergence (mid-1980s) • Growth (1990s) • Reform (since late 1990s)

9. Methodology • Exploring publicized statistics on AREs • Very few • Semi-structured Interviews • Top managers and staff members of AREs, University professors engaged in ARE formation, Directors of public research institutes, etc. • Questionnaire Survey • Identified 477 AREs which are affiliated to 67 major academic institutions, and sent out questionnaires for the CEOs of the firms. • 102 sample

10. Theoretical Framework

11. Organizational (new institutional) Approach • I suggest to view AREs as a “Governance Form” of “Knowledge Industrialization”. • There exist various alternative forms of Knowledge Industrialization (e.g. joint research center, short or long-term joint research contract, technology exchange market, technology licensing, science park, incubating center, and education, etc.)

12. A Needed Modification • Theories of the Firm (i.e. Firm boundary theories) can not be automatically applied to the issue of Knowledge Industrialization • Extra Consideration: “Historically-formed Social Contract” on the division of labor among university, public research inst., and industrial firms

13. Governance Forms of Knowledge Industrialization Historically formed Social Contract Boundary Selection (TCE & RBV) Entrepreneurial ARE Incubator Spin - off Tech Patent Firm Sales License Market-like Science Park Joint Hierarchical Joint Research Research Center More applied Education Purely Academic Non-Entrepreneurial

14. Micro-level framework to explain the Origin and Evolution of the AREs

15. TCE Low (Market Tr. Cost) High RBV ( i) ( ii) Strong ( O O ( , X) ( , O) Strong (Willingness) Rs ( iii) ( iv) .) X X ( , X) ( , O) Weak Threshold ( v) ( vi) X X Weak ( , X) ( , O) Micro-level framework:Whether establish AREs or not? Basis of Actual Decision - making

16. Hypothetical Arguments

17. ARE: Why Emerged and Grew? • Willingness to establish AREs • Sociopolitical encouragement • pecuniary incentive • High Market Transaction Cost • Weak Absorptive Capacity of firms • Underdeveloped Intermediary Institution • Strong Resource • Application-oriented research tradition • Umbilical Cord between academic institution and ARE (brand, technology, human resource) • Underdevelopment of alternative forms of knowledge industrialization

18. I III II ARE: Why Reform? • Lowered Market Transaction Cost (with variations across sectors) • Enhanced Absorptive Capacity • Improved Intermediary Institutions • Weakened Resources • Changing Social Contract on the Role of Academic Institutions • More Focus on Academic Research (Retreat from economic activities) O O X X X X

19. More jobs planned to be done • Up to now, we have focused on so to speak Forward Engineering (Lu, 2000). • But there is other possible way of technological development, which is Reverse Engineering (Kim, 1997) • Synthesize the discussions on forward and reverse engineering. • Develop more extended framework to compare different countries’ experiences (esp. developing countries)

20. Conceptual Framework

21. Feasible Zones for Forward and Reverse Engineering

22. International Comparison & Policy Implications

23. Thank you!