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

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

An Organizational Approach

Jong-hak Eun

Ph.D. Candidate

Tsinghua University, Beijing, PRC

Globelics Academy 2004

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)

(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.

Stock No.* Firm Title The Major Stockholder

600076 Qingdao Huaguang Beida Qingdao

600100 Tsinghua Tongfang Tsinghua Univ.

600136 Daobo Gufen Saier Wangluo

600181 Yunda Keji Yunnan Univ.

600255 Xinke Cailiao Hefei Polytechnic Univ.

600530 Jiaoda Angli Shanghai Jiaotong Univ.

600601 Fangzheng Keji Peking Univ.

600624 Fudan Fuhua Fudan Univ.

600657 Qingdao Tianqiao Peking Univ.

600661 Jiaoda Nanyang Shanghai Jiaotong Univ.

600701 Gongda Gaoxin Haerbin Polytechnic Univ.

600718 Dongruan Gufen Dongbei Univ.

600730 Zhongguo Gaoke 36 Universities**

600750 Jiangzhong Yaoye Jiangxi Chinese Medical Univ.

600797 Zheda Wangxin Zhejiang Univ.

600806 Jiaoda Keji Xian Jiaotong Univ.

600846 Tongji Keji Tongji Univ.

600857 Gongda Shouchuang Haerbin Polytechnic Univ.

600892 Huda Keji Hunan Univ.

4 Beida Gaoke Peking Univ.

150 ST Maikete Peking Univ.

532 Aohuadian Shenzhen Tsinghua Univ.

537 Nankai Gede Nankai Univ.

551 Keda Chuangxin Chinese S&T Univ.

590 Ziguang Shengwu Tsinghua Ziguang

790 Huashen Jituan Chengdu Chinese Medical Univ.

836 Tianda Tiancai Tianjin Univ.

915 Shanda Huate Shandong Univ.

925 Zheda Haina Zhejiang Univ.

938 Tsinghua Ziguang Tsinghua Univ.

988 Huagong Keji Huazhong S&T Univ.

990 Chengzhi Gufen Tsinghua Tongfang

H-418 Fangzheng Konggu Peking Univ.

H-618 Fangzheng Shuma Peking Univ.

H-8045 Nanda Soft Nanjing Univ.

H-8095 Beida Qingdao Peking Univ.

H-8102 Fudan Weidianzi Fudan Univ.

H-8106 Zheda Lande Zhejiang Univ.

H-8205 Jiaoda Huigu Shanghai Jiaotong Univ.

H-8231 Fudan Zhangjiang Fudan Univ.

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

• 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

Existing Studies

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 i

nstitutions (universities or public research institutes)

1966 1977 1985 1992 2000196019581953

Cultural Revolution

Great Leap Forward

1989

1st Five Year Plan

RestorationReform

S&T Reform

Tian’anmen

Nanxun Jianghua

URE reform

Historical Development of the AREs

Research Questions

• Why…?– Emergence (mid-1980s)– Growth (1990s)– Reform (since late 1990s)

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

Theoretical Framework

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.)

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

Historically form

ed S

ocial Con

tract

Boundary Selection (TCE & RBV)

EntrepreneurialH

ierarchical

Spin-off Firm

ARE

Tech Sales

Patent License

Incubator

Joint Research

Joint Research Center

Education

Purely Academic

More applied

Science Park

Non-Entrepreneurial

Mark

et-like

Governance Forms of Knowledge Industrialization

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

Micro-level framework:Whether establish AREs or not?

(vi)(v)

(iv)(iii)

(ii)(i)

TCE

RBVLow (Market Tr. Cost) High

Strong (

Rs .) W

eak

Strong (W

illingness) W

eak

(O , X)

(X , X)

(O , O)

(X , O)

(X , X) (X , O)

Threshold

Basis of A

ctual D

ecision-m

akin

g

Hypothetical Arguments

ARE: Why Emerged and Grew?

I. Willingness to establish AREs – Sociopolitical encouragement

– pecuniary incentive

II. High Market Transaction Cost– Weak Absorptive Capacity of firms

– Underdeveloped Intermediary Institution

III. Strong Resource– Application-oriented research tradition

– Umbilical Cord between academic institution and ARE (brand, technology, human resource)

– Underdevelopment of alternative forms of knowledge industrialization

ARE: Why Reform?

TCE

RBVLow (Market Tr. Cost) High

Strong (Rs

.) Weak

Strong (Willingness) W

eak

Threshold

I. Lowered Market Transaction Cost (with variations across sectors)

– Enhanced Absorptive Capacity

– Improved Intermediary Institutions

II. Weakened Resources

III. Changing Social Contract on the Role of Academic Institutions

– More Focus on Academic Research (Retreat from economic activities)

I

IIIII

X X

X X

O O

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)

Conceptual Framework

Threshold 2

(X, O)(X, X)n.a.

(X, O)(X, X)

(O, O)(O, X)Strg.

(Rs.)

Weak

Strg.

(Will)

Weak

High (Absorptive Capacity) LowLow (Market Tr. Cost) High

TCE

RBV

Rate of RVS Eng. & Parallel Learning

RVS Eng. &

Parallel Learning

FWD Eng.

Threshold 1

Feasible Zones for Forward and Reverse Engineering

(iv)(v)

(iv)(iii)

(ii)(i)

(iv)(v)

(iv)(iii)

(ii)(i)

Forward Engineering through the AREs

Reverse Engineering or Parallel Learning

International Comparison & Policy Implications

(vi)(v)

(iv)(iii)

(ii)(i)

Korea, Japan

China**

China

Origin

Present Stage

Recent Policy Orientation

China*

?

Thank you!