Innovation Capability Building and Learning Mechanisms in Latecomer Firms: Recent Empirical Contributions and Implications For Research

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Innovation capability building and

learning mechanisms in latecomer
firms: recent empirical contributions
and implications for research
a b
Martin Bell & Paulo N. Figueiredo
a
University of Sussex, Brighton, UK
b
Brazilian School of Public and Business Administration at the
Getulio Vargas Foundation, Rio de Janeiro, Brazil
Version of record first published: 20 Apr 2012.
To cite this article: Martin Bell & Paulo N. Figueiredo (2012): Innovation capability building and
learning mechanisms in latecomer firms: recent empirical contributions and implications for
research, Canadian Journal of Development Studies/Revue canadienne d'tudes du dveloppement,
33:1, 14-40
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Canadian Journal of Development Studies
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Vol. 33, No. 1, March 2012, 14 40
Innovation capability building and learning mechanisms in latecomer

rms: recent empirical contributions and implications for research
Martin Bella and Paulo N. Figueiredob
a
University of Sussex, Brighton, UK; bBrazilian School of Public and Business Administration at the
Getulio Vargas Foundation, Rio de Janeiro, Brazil
ABSTRACT This article reviews research in the past 25 years on learning processes as a source
Downloaded by [Dalhousie University] at 22:39 12 January 2013
of innovation capability building in rms from developing/emerging economies, which are

known as latecomers. We nd that if latecomer rms make limited efforts to acquire and
create the resources required to innovate, they will (1) deepen their innovative capabilities
only slowly, if at all; (2) have difculties crossing discontinuities between different levels of
capability; (3) tend to remain locked into forms of follower innovation rather than
innovating as leaders. This article contributes to expanding our understanding of learning
mechanisms in innovation capability building beyond the context of rms from advanced
economies, and recommends areas for new research into latecomer learning and innovation
capability building.
RE SUME Cette etude examine la recherche menee dans les 25 dernie`res annees sur les
processus dapprentissage comme une source dinnovation au sein des societes des
economies emergentes, ou bien, les entrants tardifs. Nous observons que si ces societes
investissent peu dans linnovation, elles vont : (1) limiter leur capacite dinnover, (2)
rencontrer des difcultes quant a` la gestion des differents niveaux de capacite et (3) vont
devenir des acteurs passifs et non des leaders dinnovation dans leur domaine. Ce travail
contribue a` notre comprehension des mecanismes dapprentissage entranant la capacite
dinnovation au dela` du domaine deconomies avancees an de recommender que plus de
recherche soit menee pour traiter des les entrants tardifs et leurs capacites dinnovation.
Keywords: technological learning; innovation capability building; latecomer rms;
development
Introduction
Until the 1960s, technological capabilities in rms in developing economies known as lateco-
mers were presumed to involve the mere passive use or minor adaptations of equipment and
production systems. To undertake such almost non-creative activities, rms and industries
learned, according to notions of learning curves, how to use and operate available technologies
that had been designed and developed in advanced economies. Such negative notions of techno-
logical change in developing countries and their rms were fuelled by the orthodox economic
growth theory that viewed technology as embodied in machinery and considered technological
change to be the development of new kinds of machinery (innovation), which occurred in
advanced economies. These innovations were later adopted (diffused) in developing countries
according to standard blueprints. The view that the technological role of rms and industries in

Corresponding author. Email: pnf@fgv.br
ISSN 0225-5189 print/ISSN 2158-9100 online

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http://dx.doi.org/10.1080/02255189.2012.677168
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Innovation capability building and learning mechanisms in latecomer rms 15
developing countries was passive and involved the mere operation of externally supplied technol-
ogies was endorsed, so to speak, by the dependency school of thought. By claiming the perpe-
tual technological dependence of the peripheral developing countries on capital goods imported
from central economies, the representatives of this school of thought implied the absence of
creative technological activities in rms and industries in developing countries. Given the
strength and pervasiveness of such views in the academic and policy debates at the time, it
was not surprising that there was little research interest in searching for and unearthing creative
aspects of technological change in developing countries (see Lall 1987, 1992, Bell and Pavitt
1993, Bell and Albu 1999, Bell 2006).
However, not all researchers accepted these views of non-creative industrial technological
activity in developing countries. In the early 1970s, Charles Cooper (1980) in the UK sought
to understand how the mechanisms of international technology transfer inuenced the long-
term accumulation of change-generating capabilities in technology-importing rms and indus-
tries. In line with this view, Stewart and James (1982) adopted a dynamic perspective on technol-
ogy in rms based in developing countries. However, it was a Latin American group led by Jorge
Katz that initiated the rst substantial and systematic research program on these issues in the mid-
1970s. Drawing on a wealth of detailed plant-level studies, they demonstrated that signicant
innovative activities did take place in a wide range of industries. They also scrutinised the
nature and dynamics of the various learning mechanisms by which rms built up or failed
to build up their innovative technological capabilities over time initially across Latin
America (Katz 1976, 1987) and in Asia (Bell et al. 1982, Lall 1987).1
By doing so, they unveiled several aspects of technological dynamism and technological crea-
tivity in rms in developing economies. In particular, they explored the important role of learning
mechanisms in inuencing the manner and speed at which latecomer rms built up and accumu-
lated their innovation capabilities and therefore whether they were able to catch up with global
innovators. However, during the 1980s the issues of learning and capability building disappeared
from the research agenda of latecomer rms and industries.
During the mid-1990s a new generation of studies emerged that sought to explore the role of
learning mechanisms in the capability accumulation of rms in emerging economies, especially in
the fast-growing and fast-industrialising East Asian countries and later in Latin America.
However, researchers interests in examining the issues of learning and capabilities in latecomer
rms were inuenced by a great emphasis and profusion of studies on learning and capabilities as
sources of competitive advantage in the context of highly innovative rms in advanced econom-
ies. Several empirical studies addressed several types of learning and knowledge management
strategies as sources of innovation capabilities and superior performance in world-leading
rms (Senge 1990, Cohen and Levinthal 1990, Kogut and Zander 1992, Iansiti and Clark
1994, Leonard-Barton 1995, Nonaka and Takeuchi 1995, Boisot 1998, Iansiti 1998). During
the 2000s, a new wave of studies on organisational learning as a source of rms innovative per-
formance appeared in the literature of innovation, strategic management, organisational theory,
and international business. These studies not only generated new frameworks to tackle learning
and capabilities, but also rened their empirical analysis (Zollo and Winter 2002, von Zedtwitz
2002, Dekker and van Abbeele 2010).
However, despite the richness of the studies of learning in the context of world-leading rms
in advanced economies, their analytical frameworks cannot be readily applied to the study of late-
comer rms. One of the problems with these studies is that they focus on rms that operate at or
near the international frontier of innovation in highly industrialised economies. In such rms,
sophisticated innovation capabilities, generally already exist. Researchers examining such
rms focus on how these rms exploit and augment innovation-related resources to push the inter-
national technological frontier forwards. It is thus understandable that they tend to track
16 M. Bell and P.N. Figueiredo
innovation performance on the basis of patent citations and/or research and development (R&D)
expenditure. As a result, these studies have overlooked the role of learning mechanisms in creat-
ing innovation capabilities in latecomer rms. These studies tend to examine what rms know
today in terms of technological activities and how they will help to push the technological frontier
further forwards. They rarely tell us how these rms have accumulated their current knowledge in
the rst place, which is a critical issue for latecomer rms.
In contrast to the situation in highly industrialised economies, latecomer rms may be nor-
mally characterised as having a low level or even an absence of innovation capabilities and
being initially imitative, regardless of how dislocated they are from markets and sources of tech-
nology. They must rst familiarise themselves with various ways of acquiring knowledge to learn
how to undertake production and to engage in innovation activities at a basic level (Bell and Pavitt
1993, Kim 1997).
Nevertheless, studies centred on learning and knowledge management in world-leading rms
from advanced economies have provided several insights and frameworks for researchers inter-
ested in tackling these issues in latecomer rms. Consequently, during the mid-1990s, a new gen-
eration of empirical studies on innovation capability building in latecomer rms began to emerge,
including those of Hobday (1995), Kim (1997), Dutrenit (2000), and many others. By building on
the insights from existing studies in the available literature on learning and capabilities in
advanced economies, these researchers began to design studies based on imaginative analytical
frameworks and rich empirical evidence to tackle the issues of learning as a key input for inno-
vation capability building in latecomer rms.
Indeed, over the past years 25 years there have been several empirical contributions related to
learning processes as sources for innovation capability building, which permits rms from devel-
oping/emerging economies to catch up with, and/or even overtake their counterparts in industri-
alised economies. In light of the considerable expansion of empirical studies over the past several
years, and considering the increasing innovative and competitive role played by several rms in
emerging economies in the global market place, there is a need to review the nature and extent of
the knowledge that has accumulated in this research area. This assessment will provide the devel-
opment research community with a clear notion of what has been achieved so far. Additionally,
this article contributes by identifying important nuances and themes in this body of literature,
which can serve as a basis for the design of future research.
The remainder of this article is structured as follows. In the next section we clarify some of the
central ideas to the rest of the article: the notion of the latecomer rm and linked ideas of catching-
up and the meaning of learning. In the third section we focus on the paths of capability accumu-
lation taken by latecomer rms. Subsequently we address the role of learning mechanisms in
inuencing the paths of innovation capability building in latecomer rms. Finally, the articles
conclusion makes some recommendations for future research.
Some framing perspectives

Latecomer rms: key technology-related characteristics
This article is centrally concerned with innovation and catching up at the level of individual rms.
Thus, rms paths of innovation capability building and the underlying learning mechanisms (as
sources of capabilities) are placed at the centre of those interests. Among other things, this article
is about the eld of study concerned with what has been called latecomer rms. Such rms have
been dened as those that meet four conditions (Mathews and Cho 1999): not only (1) the dis-
advantages about dislocation from technology sources and advanced markets stressed by
Hobday (1995) but also (2) the existence of initial competitive advantages such as low costs,
(3) the historically determined, rather than strategically chosen, position of late entrant, and (4)
the strategic intent of catching up. The approach taken herein requires at least two kinds of qua-
lication of that perspective on latecomer rms.
First, being dislocated from technology sources may once have been a characteristic of indus-
trial rms in developing and emerging economies. However, over recent years such rms have
become embedded in increasingly pervasive international networks that at least provide potential
access to numerous sources of technology. Consequently, their key technological disadvantage is
much less an intrinsic dislocation from technology sources than their initially limited capabilities
for pursuing innovative activities. Therefore, we use the latecomer rm idea only in a very general
sense of an initially imitative rm, regardless of how dislocated it may be from markets and tech-
nology sources and regardless of any particular rate at which it may in practice catch up by
moving toward more innovative patterns of behavior.
Second, the latecomer rm concept has typically been applied only to rms that are domes-
tically owned. However, we do not restrict the denition of latecomer rms to a particular form of
ownership and, hence, we specically include the subsidiaries of multinational corporations
(MNCs). This is consistent with perspectives of the MNC subsidiary that have been developed
in the international business literature over the last decade. These approaches have identied sub-
sidiaries not simply as strategically passive components of hierarchical corporate structures, but
as potentially active enterprises in their own right that may signicantly shape their own paths of
development at the interface between local economies and global corporate networks (Birkinshaw
1997, Birkinshaw and Hood 1998, Cantwell and Janne 1999, Birkinshaw et al. 2005).
Like locally owned rms, they do not start out being intrinsically dislocated from technology
sources, but typically have limited internal capabilities for exploiting available sources of technol-
ogy to implement innovation in their own activities. However, like locally owned rms, they may
move from such initially imitative positions to others where they pursue signicantly more inno-
vative patterns of behavior. There is also considerable heterogeneity among these rms in terms of
the extent to which they pursue these other patterns and the rate at which this occurs (Cantwell and
Mudambi 2005, Marin and Bell 2006, Boehe 2007). Our central interest is on that trajectory of
change, specically, how rms of all kinds move along this trajectory and why.
Catching up two loosely linked processes

Our interest in rms technology-related catch up trajectories is closely linked to broader ideas
about economic catch-up or its absence (Abramovitz 1986, Baumol 1986, Verspagen
1991). But a further distinction is important. The idea of technological catch up has been com-
monly discussed in terms of the narrowing (or widening) of gaps between the technological
capabilities of rms and economies. However, the notion of a gap in technological capabilities
has often been used in a way that combines two different kinds of gaps. These correspond to the
distinction made by some scholars between rms production capabilities and their innovation
capabilities (Bell and Pavitt 1993, 1995).
On the one hand, rms may catch up in terms of capabilities with global industry leaders with
respect to the technologies they use in production. Their products may come to incorporate tech-
nical and design specications and performance features that are progressively closer to those of
the most advanced products in the global market, perhaps eventually matching products that are
on, or close to, the international product technology frontier. Similarly, the production processes
they use may embody increasingly advanced technological features, reected in rising pro-
ductivity and other aspects of competitive performance, and these products may come to
match those that are on or close to the international technology frontier. Such narrowing of tech-
nological gaps between current practice and the international frontier constitutes one form of
catch-up: catching up in production capabilities, as is often represented by trends in the ratio
between productivity in follower rms, industries or economies and the productivity of inter-
national leaders such as the USA.
On the other hand, rms may catch up in terms of capabilities to generate and manage change
in their technologies, moving from positions of technology imitation on the basis of very limited
innovative capability to deeper levels of capability that enable them to undertake modest forms of
innovation, perhaps proceeding further to engage directly and creatively in innovation activities at
the international frontier. In other words, this second kind of technology-related catch-up refers to
progressive stages of technological innovations based, for instance, on the sequence of assembly
to original equipment manufacture (OEM), own design manufacture (ODM), and own brand
manufacture (OBM), as examined in studies based on East Asian rms such as those of
Hobday (1995, 2003), Geref (1999), and Hobday et al. (2004). This technology-related catch
up also appears in the rich and extensive research into catch-up experiences in East Asia reported
in Mathews (1997, 1999, 2002), Mathews and Cho (1999) and is reected in Kims (1997) studies
of innovation capability development in South Korea.
These two kinds of capability are commonly thought of as closely linked, with their accumu-
lation proceeding hand-in-hand as latecomer rms both (1) narrow the gap between the techno-
logical characteristics of their production activities and those of technologically advanced rms
at the international technological frontier, and (2) increase the level of their innovative capability.
What do we mean by learning?

For the purposes of this article, it is important to clarify the meaning of learning and unpack and
operationalise this concept. There are several interpretations in the available literature. As
Dodgson (1993) noted, learning has become a ubiquitous term. Thus, we begin by clarifying
what learning is not in this article. First, learning here is not understood as specic kinds of inno-
vation, in the sense used to refer to incremental changes in the technical and organisational aspects
of production and product design (see Scott-Kemmis and Bell 2010). Second, this article does not
view learning in relation to a particular kind of knowledge. This view refers to learning as a mech-
anism to acquire knowledge from external sources usually meaning external to the local
economy as well as to the technology-using rm, rather than knowledge acquired via internal
knowledge-creation activities (Amsden 1989, Viotti 2002). Third, numerous studies about inno-
vation in advanced economies have also used the term learning to refer specically to the acqui-
sition of knowledge from extra-rm sources. One of the most inuential examples is in Cohen and
Levinthal (1990), where the authors identify two faces of R&D: one concerned with generating
new knowledge for innovation inside the rm; and the other with acquiring existing knowledge
from outside the rm. These authors identify the latter as learning.
In contrast, in this article we dene learning as the various costly and deliberate processes by
which additional technical skills and knowledge are acquired by individuals and by the organisation
(Bell 1984). Silimarly, we draw on Malerba (1992) by considering that learning is cumulative and
increases the rms stock of knowledge (or capabilities), which, in turn, permits rms to undertake
innovation activities. Specically, in connection with Cohen and Levinthal (1990) and Malerba
(1992), learning herein refers to different sources of knowledge that are internal and external to
the rm. This article adopts a comprehensive approach to learning that encompasses all ways in
which rms may acquire knowledge, skills and other cognitive resources needed to engage in inno-
vative activity. In other words, it covers both external sourcing and internal knowledge creation by
several mechanisms, including R&D. This approach is largely consistent with what is used in the
technological learning literature of developing and emerging economies (Bell 1984, Scott-Kemmis
1988, Lall 1992, Bell and Pavitt 1993, 1995, Kim 1997, 1998, Mathews and Cho 1999, Dutrenit
2000, Figueiredo 2003, Marcelle 2004, Mytelka 2006, Dantas and Bell 2009).
Figure 1. The articles analytical framework.
More specically, the factors that are most appropriate for explaining the variation in the depth
and continuity of the accumulation of innovative capability are those related to the specic efforts
that rms make to create those capabilities i.e. they relate to the intensity, persistence and effec-
tiveness with which rms manage and invest in the process of acquiring and creating the human
resources and knowledge bases that they need to conceive and implement the necessary innovative
strategies. We refer to that investment as learning, and to reiterate, we use that term to mean the
process of creating capabilities to innovate not particular kinds of innovative activities them-
selves. This is operationalised in the form of a wide range of mechanisms for acquiring knowledge
from external and internal sources as inputs to the accumulation of innovative capabilities in rms.
This approach leads to the well-trodden assertion that learning in the sense of building and
deepening capabilities to innovate is conscious, purposive and costly, rather than automatic
and passive (Lall 1992, Malerba 1992). We explore here what the efforts related to learning
may actually consist of and try to illustrate some of the concrete activities that may be involved.
We do this in two steps. First, we focus on learning in individual rms. Then we turn to ways in
which the development of innovative capabilities in individual rms may be inuenced by the
development of such capabilities in other rms. The perspectives outlined form the analytical
frame of this article, which is also represented in Figure 1.
The framework in Figure 1 recognises that rms paths of capability accumulation are affected
by a number of factors. We are interested in the role of learning processes as the most proximate
variable inuencing such paths. We acknowledge that rms paths of innovation capability build-
ing are affected by various other factors and that they also generate different outcomes. However,
in this article, we focus on the nature of latecomer rms paths of capability accumulation and the
underlying learning mechanisms.
Paths of innovation capability building in latecomer rms

We now elaborate on three issues about the paths of innovation capability building pursued by
latecomer rms. First, we focus on the technologically creative human resources, skills and
knowledge bases needed to undertake different levels of innovation. We refer to this as the tech-
nological dimension of innovative capability. Second, we outline what we refer to as the
organisational dimension, a less well-developed perspective in the context of late industrialising

economies. We then illustrate how these two perspectives might be integrated. Finally, we
comment briey on the way that rms seem to move through these levels of capability as
they make their transition from imitation to innovation.
It is noteworthy, at this stage, that the boundary we have emphasised between production and
innovation capabilities is often blurred in practice. Nevertheless, this boundary has been useful in
several studies, albeit with differences in terminology. This boundary was emphasised some time
ago in a broad analytical overview by Bell and Pavitt (1995),2 and has subsequently been used
in various empirical studies, for example by Cimoli (2000) with reference to rms in the
Mexican innovation system3 and by Choung et al. (2006) with reference to Korean semiconductor
rms.4
It has become common practice to differentiate further levels within the category of
innovation capabilities. In some cases this involves relatively simple distinctions, such as
minor vs. major change capabilities or improvement vs. generation capabilities. Other
studies have developed more detailed typologies of different levels of capability corresponding
roughly to different levels of novelty in innovation. We elaborate on this kind of typology herein.
The technological dimension of innovation capability

Various methods of classifying levels of innovative capability have been used since the earliest
studies by Jorge Katz and colleagues in Latin America, and by Sanjaya Lall in India and then
more generally for developing countries (Katz 1987, Lall 1987, 1992, Bell et al. 1982). Others
have subsequently followed similar approaches. Although these studies have used varying
terms and concepts, they usually involve sequences that start with levels of production capability,
which then lead to levels of innovative capability. Some have distinguished four levels (Hobday
et al. 2004, Tsekouras 2006). Others have developed more detailed schema consisting of six or
seven levels (Figueiredo 2003, Arifn and Figueiredo 2004, Arifn 2010).
In most cases, the typologies have been based on what one might call a revealed capability
approach. Rather than specically identifying levels of capability in terms of particular quantities
and qualities of human resources, skills, knowledge bases and so forth, the typologies have ident-
ied levels of increasing novelty and signicance in innovative activity, along the lines discussed
earlier in the article, and then inferred that different levels of capability lie behind the different
types of innovative activity.
As a basis for later discussion, we link these approaches in an illustrative framework in
Figure 2. The left-hand column shows the four levels of innovation activity as discussed
earlier in terms of different levels of novelty (from basic to world leading), and these are
associated with different kinds of capability identied in terms of human resources and knowl-
edge bases. Clearly, though, the precise kinds of human resources needed for particular levels
of innovative activity will vary across different situations, and the suggested association should
be observed as involving considerable exibility.
In line with previous studies, this framework highlights capabilities that are internal to the
rm, but it also recognises that a substantial part of a rms capability to innovate lies in other
organisations outside the rm itself (e.g. suppliers, lead users, specialised consulting rms,
research institutes, competitors, and universities). Consequently, signicant parts of a rms
internal capabilities for developing and implementing innovation consist of human resources
and knowledge bases needed to interface with external capabilities. These are not simply capabili-
ties to acquire external knowledge, but also capabilities to integrate it into the rms internal
knowledge bases and to co-ordinate different stakeholders in the timing and nature of knowledge
generation. Although identied by Cohen and Levinthal (1990) specically as R&D resources,
Figure 2. Levels of innovative capability: the technological dimension.
the nature of these interfacing, absorptive capabilities naturally varies with different levels of
innovative activity an issue we will return to later.
The organisational dimension of innovation capability

There is an important organisational dimension to a rms innovative activities and therefore an
organisational dimension to its innovation capabilities. Two largely disconnected areas of
research have discussed this dimension. One has been about latecomer rms in developing econ-
omies, and the other has been about highly innovative and world-leading rms in technologically
advanced economies.
The rst research area was already evident in the early studies of innovative capability in late-
comer rms. Both Katz and Lall recognised the importance of the organisational dimension of
that capability though they gave it less emphasis than the kinds of capability we have described
above as technological.5 These studies focused primarily on the emergence of innovative capa-
bilities at the lower end of the range in Figure 2, and the important organisational issues were
usually identied as being about organisational specialisation and differentiation. These issues
were about developing distinct components within the organisational structure of the rm for
undertaking emerging activities and capabilities concerned with innovation rather than with
ongoing production operations (e.g. the establishment of process engineering sections that go
beyond routine maintenance and engage in adapting and improving process technologies).
The second body of research about the organisational dimension of rms innovative capabili-
ties has focused on rms in advanced economies that have already accumulated substantial capa-
bilities to innovate specically, world-leading rms that are already located at the top of Figure 2,
not somewhere lower down trying to deepen their innovative capabilities and move upwards.
Consequently, the discussion has largely been about how rms use their existing innovative capa-
bilities to rebuild and recreate new distinctive positions of strategic competitive advantage,
perhaps even by changing, or at least adding to, the areas of technology within which they inno-
vate. These ideas about the importance of integration became a key element in the concept of
dynamic capabilities with its emphasis on co-ordinating and combining as the core process
in developing new, innovation-centered competitive advantages (Teece et al. 1997). In
summary, different studies have shed light on different aspects of the organisational dimension
of rms innovative capabilities, suggesting that different kinds of organisational capability are
important in different levels of innovative activity and capability.
Integrating the technological and organisational dimensions of innovation capability

Dutrenit (2000) was perhaps the rst to connect the two dimensions of innovative capability out-
lined in the preceding sections (1) the technological, centred on human resources, skills, and
knowledge bases (as in Figure 2), and (2) the organisational, centred on forms of organisational
specialisation/differentiation, integration/co-ordination and meta-level orchestration. The basic
idea is that the relative importance of different kinds of organisational issues seems to vary with
different levels of innovative activity. This is illustrated in Figure 3, which has been adapted from
Dutrenits original.
Initially, as rms move through the lower levels of capability building to support more sys-
tematic forms of incremental innovation, the main emphasis is on creating the key technological
elements of capability i.e. moving vertically upwards in Figure 3 (equivalent to Figure 2). At
this initial stage, the associated organisational issues are about organisational specialisation and
differentiation. However, as rms reach more advanced levels of innovative activity, Dutrenit
Figure 3. Innovation capability accumulation: changing emphasis on technological and organisational

dimensions.
Source: Adapted from Dutrenit (2000).
suggested that rms move through a transition phase in which they not only continue moving
upwards to achieve more advanced and then globally leading levels of capability in technologi-
cal terms, but also have to move horizontally to address increasingly important issues about
building organisational capabilities for integration and co-ordination. Then, if rms successfully
negotiate that transition, they would enter the domain discussed by Teece and colleagues (1997)
where a meta- competence for orchestrating diverse activities and knowledge resources
becomes the core of dynamic capabilities needed to create and recreate areas of strategic com-
petitive advantage at the global innovation frontier.
Learning mechanisms in innovation capability building in latecomer rms

As noted earlier, the intensity, persistence and effectiveness with which rms specically manage
and invest in acquiring and creating the human resources, knowledge bases and organisational
capabilities are the factors that best explain variation in innovation capability accumulation.
We refer to that investment as learning, and, to reiterate, we use that term to refer specically
to the creation of capabilities to innovate not the particular kinds of innovative activities
themselves.
This section therefore puts forth a very simple argument: if rms make limited efforts to invest
in acquiring and creating the resources required to innovate, they will deepen their innovative
capabilities only slowly, if at all; they will have difculties crossing whatever discontinuities
exist between different levels of capability; and in particular, they are likely to remain locked
into forms of follower innovation rather than innovating as leaders either by overtaking at
existing points on the international frontier or by opening up new segments. The discussion
below focuses on learning mechanisms in individual rms, and then turns to ways in which
the development of innovative capabilities in individual rms may be inuenced by the develop-
ment of such capabilities in other rms.
Learning in individual rms

External and internal and learning mechanisms
Building innovative capabilities in rms involves learning processes and activities of two broad
types: those that involve acquiring knowledge skills and other elements of capability from exter-
nal sources and those that are internal to the rm (see Tables 1 and 2, for the activities involved in
external and internal learning, respectively).
Frameworks for discussing such learning mechanisms are provided in several sources e.g.
Bell (1984), Malerba (1992), Kim (1997), Figueiredo (2003). Additionally, numerous fragments
of information about specic mechanisms are scattered throughout the literature on learning in late-
comer rms. Usually, these merely indicate the presence of a particular mechanism that contributed
to capability building in specic situations for example, the use of outward foreign direct invest-
ments as a knowledge acquisition mechanism by South Korean rms (Sachwald 2001). Conse-
quently, there are numerous limitations in our understanding of learning in latecomer rms. We
will touch briey on two limitations one about the relative importance of different learning mech-
anisms and the other about effectiveness in their implementation. Both of these are centrally impor-
tant issues for developing meaningful insights about the management of learning.
The relative importance of learning mechanisms

We know little about the relative importance of different learning mechanisms and even less about
whether and how this varies as rms deepen their innovative capabilities. Without this under-
standing, the eld lacks even a rudimentary basis for offering insights about the practicalities
24
Table 1. External learning mechanisms: some examples of activities involved.
M. Bell and P.N. Figueiredo

Some example of
External learning mechanisms Some illustrative examples related literature
Various kinds of training Training in the design and development department of supplier or Hobday (1995)
customer rms; Kim (1997)

Short training courses in overseas organisations to build up core Geref (1999)
competence in engineering routines and their underlying Arifn and
knowledge bases; Bell(1999)
Undergraduate and post-graduate programs; Arifn (2000)
Active participation in scientic meetings (e.g. elaboration and Marcelle Bell
presentation of technical papers). (2004)
Experience acquisition that require the practice of innovative The simulated design of not-for-construction chemical process Dutrenit (2000)
plants under supervision of contracted engineering companies. Figueiredo (2003)
Acquisition of codied knowledge as a basis for developing new The search of patent documentation to identify specications as a Arifn and
products or processes basis for innovation (e.e.g. data about impending out-of-patent Figueiredo (2004)
pharmaceutical products as a basis for engineering the necessary Dantas and Bell
process); (2009)
The acquisition of design algorithms for undertaking process design Bell and Albu
and development; (1999)
Access to diverse sources of knowledge (articles, theses, books, Bazan and Navas-
standards, research reports). Aleman (2004)
Acquisition of ready-made specications for new products that The acquisition of full design details of products from customers, Pietrobelli and
can be brought into production with very limited original perhaps with process data as well, or the licensing of product Rabellotti (2011)
design, development and engineering designs from third parties;
Acquiring knowledge from highly specialised consultants on how
to undertake specic technical and organisational innovations.
Hiring of ready-made innovative human capital The poaching of experienced development engineers from other
rms, perhaps from leaders in advanced economies;
Hiring of experienced professionals from competitors;
Hiring new graduates from local universities.
Establishment via FDI of R&D facilities in knowledge-rich Acquisition of existing advanced country rms, in order to tap into
locations in other countries state of the art know-how and techniques;
Partnerships with research-advanced universities or institutes.
Organisational arrangements for external knowledge acquisition Organisational arrangements such as policies, procedures, teams,
specic technologies that can support the learning processes;
Table 2. Internal learning mechanisms: some examples of activities involved.
Some examples of related

Internal learning mechanisms Some illustrative examples literature
Innovation capability building and learning mechanisms in latecomer rms

Various kinds of training to Training in product design routines and know-how; Iansiti and Clark (1994)
acquire innovation-related Internal training focused on quality systems improvement; Hobday (1995)
skills Advanced tailored technical training to upgrade technical skills of specialised groups technicians, Leonard-Barton (1995)
engineers, researchers, and managers (including on-the-job training, supervised training); Kim (1997)
Advanced management training (cutting edge techniques for project management, research management, Geref (1999)
process improvement, product innovation); Arifn and Bell (1999)
Systematic training related to R&D activities. Arifn (2000)
Various kinds of intra-rm The socialisation of what may have been tacit or located only in isolated parts of the organisation; Marcelle (2004)
communication of Learning by doing activities with increasing levels of difculties; Dutrenit (2000)
knowledge Reporting from external training; Zollo and Winter (2002)
Communication through formal and informal meetings, workshops, seminars, conversations, and social von Zedtwitz (2002)
interactions. Figueiredo (2003)
Knowledge articulation and Internal technical and management seminars; Arifn and Figueiredo
assimilation Reporting from external training; (2004)
Collective learning through sessions of discussions, de-brieng of ongoing projects, performance reviews; Dantas and Bell (2009)
Learning by experimenting and testing in shop-oors, laboratories, forestry sites. Bell and Albu (1999)
Various forms of experience Some may be passive, in the sense that skill or knowledge is acquired as a by-product of simply Bazan and Navas-
acquisition undertaking particular activities; Aleman (2004)
But others, usually more important, depend heavily on formally managed processes of exposure to Dekker and van den
experience-rich opportunities, as well as explicit measures to capture and embed what is only potentially Abbeele (2010)
available in such opportunities. Pietrobelli and Rabellotti
Knowledge creation by R&D Provision of a knowledge base for acquiring existing, but relatively inaccessible, knowledge from external (2011)
sources;
Creation of specic research units within the company;
Establish the role of managers or mediators of relationships and partnerships between companies and
R&D institutions.
Knowledge codication Documentation of activities developed during the production process;
Documentation of internal innovations developed within the area;
Standardisation of the projects engineering practices;
Documentation of procedures and basic instructions of the administrative area.
Organisational arrangements for Arrangements related to organisational specialisation in specic kinds of innovative activity, arrangements
knowledge creation for integrating knowledge across different functional areas in the organisation, and across different elds
assimilation, and codication of specialisation and also across the boundaries of the rm.
25
of managing learning in latecomer rms, which is important because there is the risk that the
development of such insights may be shaped more by fortuitous developments in the types of
data that become available than by more open exploration of what is involved. The growing
attraction and availability of data from innovation surveys may increase this risk, for example,
in connection with the relative importance of augmenting capabilities in latecomer rms by
acquiring disembodied information and by investing in people.
As innovation surveys were developed for use in advanced economies, their questions are
much more heavily focused on aspects of how innovation occurs rather than on the prior
process of creating and accumulating capabilities to undertake such innovation. Thus, even
when surveys are adapted for application in developing countries, questions about the knowledge
sources used by rms are usually questions about the sources of knowledge for implementing
innovations and not about sources of knowledge and skill for building the rms capabilities to
innovate. This orients attention toward the role and sources of disembodied information inputs
to innovation. Subsequent academic analysis of such survey data is inevitably much more
about how such information is used by rms existing capabilities in undertaking specic
instances of innovation rather than about how new and deeper capabilities to innovate are
created by rms in the rst place.
In contrast to studies that focus on learning as information acquisition, studies of learning as
an input to building innovation capabilities in latecomer rms have highlighted the importance of
people and human capital. For example, studies of innovative capability development at relatively
low levels in Figure 2 have frequently emphasised the importance of various kinds of training, e.g.
the development of design and engineering capabilities in a Korean chemical rm (Enos and Park
1988); the development of similar capabilities (project execution capabilities) in several other
kinds of Korean rms (Amsden 1989, 2001, Amsden and Hikino 1994); and the development
of initial levels of design capability in the Brazilian oil company, Petrobras (Dantas and Bell
2009). However, this people-centred perspective also seems important at higher levels of capa-
bility development, as shown in Chuang (2008) about Taiwanese rms deepening and re-orient-
ing their already considerable innovative capabilities to enter the large-size thin lm transistor
liquid crystal display (TFT-LCD) industry during the 1990s. In this case, though, the emphasis
was more on learning by hiring than learning by training. This emphasis on creating capabilities
by hiring is one illustration of how the relative importance of different mechanisms changes as
rms deepen their innovative capabilities.
Effective implementation the importance of integrating internal and external learning

There are, of course, innumerable studies of the management of innovation, mainly in innovative
rms in advanced economies, but also in latecomer rms. However, these are almost entirely
about managing innovation in rms where most or all capabilities for innovation already exist
and not about how rms manage the process of building up those capabilities in the rst place
though in some cases insights can be gleaned from them to illuminate the management of capa-
bility building (Nonaka and Takeuchi 1995). In contrast, there have been hardly any systematic
analyses that focus specically on how latecomer rms manage more and less effectively the
kinds of learning mechanisms reviewed here, or about how differences in the effectiveness of
that management may affect the capability accumulation process. Three exceptions are: an
exploration by Figueiredo (2003) of how differences in the comprehensiveness, intensity and
functioning of a wide array of learning mechanisms contributed to differences in the paths of
capability accumulation in two Brazilian steel rms; a study by Dutrenit (2000) of a single
rm in Mexico; and Marcelles (2004) study of technological learning in 26 telecommunications
operating rms in four African countries.
Such studies highlight one aspect of management in this area that seems generally important
the integration of different forms of knowledge and capability: people-embodied and disembo-
died capabilities (Marcelle 2004); knowledge in different parts of the organisation (Dutrenit
2000); or capabilities created by different kinds of learning mechanisms (Figueiredo 2003). We
focus here on the importance of managing the integration of external and internal learning mech-
anisms. The importance of integrating external and internal learning has been widely discussed
with respect to rms in advanced economies that have already accumulated signicantly deep
innovative capabilities.
Key contributions in the 1990s were those by Cohen and Levinthal (1990), Iansiti and Clark
(1994), Nonaka and Takeuchi (1995) and Leonard-Barton (1995). The subject of integrating
external and learning mechanisms has attracted much less attention in the context of latecomer
rms. Indeed, especially in studies that asymmetrically emphasised the importance of such
rms being open to external knowledge, internal learning processes are glossed over with a
cursory reference to the importance of absorbing such knowledge.
An exception is the work of Linsu Kim, particularly his analysis of the learning path followed
by Hyundai in automobile production over three decades from the 1960s to the 1970s (Kim 1998).
Kim showed how Hyundai organised major steps of learning in a circular sequence of four activi-
ties (Figure 4): (1) internal preparation for the acquisition of external knowledge; (2) the acqui-
sition of that knowledge; (3) its effective assimilation; and (4) its subsequent improvement,
creating a higher knowledge base for the preparatory phase of another cycle of learning.
This four-step cycle played the key role in taking Hyundai through a succession of qualitative
discontinuities in the cumulative development of its design, engineering and innovative capabili-
ties. Starting from its position as an assembler of Ford automobiles on a completely knock-down
Figure 4. Integrating internal and external learning: Hyundai 19601990s.

Source: Adapted from Kim (1998).
(CKD) basis, the rst discontinuity was the transition in the mid-1970s to the development and
launching of a locally designed Korean model of a simple vehicle drawing on a wide range
of licensed technologies from multiple sources. The second in the early 1980s involved the dee-
pening and extension of capabilities to develop a more advanced vehicle with the licensing of
technology for selected key components but without any external engineering assistance. The
third in the early 1990s involved the transition to the fully independent development, design
and introduction of a sub-compact car for the international market.
Access to external knowledge and skills was a key issue at each of these discontinuities.
However, three of the four steps in each cycle were concerned with internal learning efforts
that complemented external knowledge acquisition in two key ways: creating ex ante the necess-
ary knowledge base for acquiring external technology, in addition to ensuring ex post the effective
absorption of whatever had been acquired externally.
This appears to have been a success story in deepening innovative capabilities at a rapid rate
in a developing country rm. Moreover, the process seems to have been based on a clear recog-
nition that deepening the rms innovative capabilities did not proceed smoothly along a linear
path. Rather, it involved a series of qualitative discontinuities in the types of capabilities
needed to successfully undertake more complex kinds of innovative activity. The transition
through these discontinuities called for the mobilisation of resources on a large scale to launch
new cycles of preparation, acquisition, assimilation and improvement. Behind each of these
cycles, senior management set the challenges for capability building at a high level deliberately
constructing what Linsu Kim described as a succession of crises for the organisation.
A much more mixed picture emerges from the few other studies of this and other kinds of
integration in developing/emerging economies. For example, in his study of the development
of innovative capabilities in the food-processing industry in a European industrialising country
(Greece), Tsekouras (2006) showed considerable differences between rms in the effectiveness
of their integration of knowledge across the borders of the rm (as well as in other forms of
knowledge integration), and he demonstrated how these differences were associated with differ-
ences in the rms success as emerging innovators. Similarly, Marcelle (2004) highlighted wide
variation in the integration of different learning processes in African telecommunications rms,
which contributed to differences in the systemic character of the rms capability building.
This variability in the effectiveness of rms knowledge integration activities adds to the varia-
bility of their investment in specic internal and external learning efforts on their own, and
sets up a dual source of variability in the rate at which rms accumulate innovation capabilities.
Our emphasis on the potentially wide variation of explicit investment in, and management of,
efforts to accumulate capabilities contrasts with conceptions of learning that view it as arising
more or less automatically as a by-product from undertaking other activities in the economy.
Such conceptions fall into two groups. The rst is about learning as a consequence of undertaking
production the learning-by-doing idea that underpinned arguments about the need for (tem-
porary) trade protection for infant rms and industries to enable them to catch up with established
rms in other economies. Despite arguments that this is an unhelpful perspective, it continues to
attract adherents, such as those who argue for renewed attention to infant industry protection as a
basis for learning.
A brief comment to this may be appropriate. First, catching up is not just a matter of achieving
static levels of higher efciency in established rms; it is about catching up in a technologically
dynamic world and creating capabilities to innovate in latecomer rms. Second, simply doing
routine production provides little basis for learning to do the qualitatively different activities
involved in innovation (Bell 1984), and the gap between the rst kind of doing and the second
kind of learning has widened in historically successive phases of late industrialisation (Bell
and Pavitt 1993). Third, consequently, explicit and active investment, not just passive doing,
is required to create the particular kinds of capability needed for innovation. The last point has
been argued in almost every detailed study by close observers of innovation capability building
in developing countries since the early work in the 1970s such as Dahlman et al. (1987). Perhaps
just as frequently it has been ignored in discussions about trade and industry policies for latecomer
rms and industries.
The second conception of learning has emerged more recently. This conception argues that
additions to capabilities for absorbing and improving technologies arise more or less automati-
cally from doing other kinds of economic activity such as foreign direct investment (FDI) or
importing knowledge-intensive goods and services. However, our emphasis here on the impor-
tance of variability in the investments rms make in learning to innovate suggests, for
example, that innovation-related spillovers from imports (in particular from importing capital
goods) depends not only on the volume of imports but also on the intensity of efforts to
reverse engineering knowledge out of those goods and to integrate it with other knowledge in
the accumulating capabilities of rms. Similarly, innovation-related spillovers from inward FDI
will depend not simply on its volume but also on two related sets of investment in creating, acquir-
ing and accumulating knowledge assets: (1) efforts in subsidiaries themselves to accumulate a
potential base of knowledge that may spill over to local rms (Marin and Bell 2006, Marin
and Sasidharan 2008); and (2) efforts in local rms to acquire and absorb elements from that
potential knowledge resource.
Innovation and learning relationships between rms and other organisations

It is now well known that a rms own inputs into its innovation activities are typically comple-
mented by innovation inputs from other rms and organisations. However, it is important to dis-
tinguish between two kinds of relationships here. One is about interdependence in undertaking
innovation among rms and other organisations that have already developed signicant levels
of capability to innovate, and hence to collaborate effectively in doing so. The second is about
the role of inter-rm and rm university links in contributing to the prior development of inno-
vation capabilities in those rms and other organisations. These relationships raise different
issues and we discuss them separately.6
Interdependence of organisations in undertaking innovation

The importance of interactions among rms in undertaking innovation is well recognised, but the
importance of interactions with other organisations like universities and public research organis-
ations is much less clear. One type of evidence suggests that, relative to inter-rm linkages, the
role of universities and public research organisations is quite minor. Across a wide range of devel-
oping and advanced economies, information from innovation surveys shows that, on average,
rms draw primarily on other rms for knowledge inputs into their innovative activity and that
only small proportions of them (approximately 3 8%) draw on universities and public research
organisations (see Brundenius et al. [2009] for a cross section of data about links specically with
universities).
However, one might expect that the relative importance of these different kinds of relation-
ships would change as rms build up progressively deeper levels of innovative capability. As
they undertake increasingly novel forms of innovation (moving toward the top of Figure 2),
they are likely to generate greater demands for new, research-based knowledge and this may trans-
late into demands for such knowledge from universities and public research organisations.
Additionally, as Mazzoleni and Nelson (2007) have argued, this appears to have become more
important in the contemporary catching up process and is likely to become increasingly so
primarily for two reasons. First, because of the growing scientic basis for many technologies,
advanced training in those elds provided primarily by universities and sometimes by public
research organisations has become a prerequisite for ability to understand and control those
technologies (p.1515). Second, and possibly more important, under prevailing international
agreements (particularly under the World Trade Organisation [WTO] and the Trade-Related
Aspects of Intellectual Property Rights [TRIPS]), supporting policies for latecomer industries
and rms will have to be subtler, and focus on supporting the development of sectoral infrastruc-
tures, training and research systems (p.1515). As interesting, related examples, one could
mention the international collaborative relationships undertaken by Canadian universities (see
Angeles and Boothroyd 2003) and the partnership between Canada and Brazil for industrial edu-
cation and training projects (see Rocha and Abreu 2003).
It seems likely that both these arguments carry greater signicance for individual rms as their
capability building mechanisms deepen over time, becoming increasingly centred on capabilities
beyond those needed for incremental-type innovations. We are not aware of longitudinal evidence
for this, but various types of cross-sectional data are highly suggestive. In particular, although data
from innovation surveys show that, on average, only small proportions of rms draw on univer-
sities and public research organisations for inputs into their own innovation, this generalisation
hides at least one important type of variation: the greater importance of such links for rms
with deeper levels of innovation capability and more intensive innovative activity. For
example, Arundel and Geuna (2004) show that, compared with European rms in general,
these sources of inputs into innovation are much more important for relatively large, R&D-inten-
sive rms that already have deep innovative capabilities. Similarly, Giuliani and Arza (2009)
show that among wine rms in both Italy and Chile, the strength of innovation-centered links
with universities and public research organisations were greatest for rms with the strongest
internal knowledge bases for supporting their own change and innovation.
Thus, perhaps universities and public research organisations come to play an increasingly
important complementary role in rms innovation as rms move into deeper levels of innovation
capability toward the top of Figure 2. However, care is needed in drawing conclusions from the
types of data. This is partly because the data are cross-sectional and our basic interest is in change
over time in latecomer rms. Additionally, this caution is also needed because such data tell us
only about one kind of complementary relationship interactions that contribute to undertaking
innovation on the basis of capabilities that already exist. Much less seems to be known about
inter-organisational complementarities in building new capabilities for innovation.
Interdependence of organisations in creating capabilities for innovation

A very large part of the research about creating and accumulating innovation capabilities in late-
comer rms has focused on learning activities within individual rms, as in Linsu Kims (1998)
studies of transitions from imitation to innovation in South Korean rms, which is highlighted in
Figure 4. Clearly, however, universities play at least a foundational role in providing the initial,
often research-based, training for skilled scientists, engineers and managers who later contribute
to internal capability accumulation processes in rms. In effect, universities provide much of the
raw material for creating innovative human capital, and rms themselves then transform that
base into effective capabilities for innovation. However, universities and also public research
organisations may play an important role in that subsequent transformation as well. For
example, at key steps in its cumulative deepening of innovation capabilities, the oil company Pet-
robras in Brazil drew very heavily on specialised engineering and research training provided for
the rms personnel by universities though these were located throughout the world and not
only in Brazil (Dantas and Bell 2009).
The case of Petrobras also demonstrates the importance of other rms as contributors to that
cumulative learning process: much of the know-how and detailed expertise needed to build its
innovative capabilities was acquired through interactions with other rms in the global oil indus-
try. However, we know surprisingly little about the relative roles of other rms and other external
organisations in the learning processes of latecomer rms. Nevertheless, a few glimpses of what is
involved hint that it may be much more substantial than often suggested. For example, the study
cited earlier about Taiwanese rms entering the liquid crystal display industry sheds light on one
experience of this type the development of the rms innovative capabilities during the 1990s as
a basis for their entry into this advanced area of electronics technology (Chuang 2008): ows of
people were centrally important in this process. However, it is striking that, although a public
R&D organisation (the Industrial Technology Research Institute [ITRI]) played a role as a
source of such people (mainly highly experienced R&D engineers), people ows from other
rms were at least as important in the capability building process.
Learning for innovation capability building can also be achieved through various inter-rm
relationships. We refer here to two other types of empirical settings, related to foreign direct
investments, on which there are some promising studies and that offer enormous opportunities
for investigation of learning and innovation capability building. The rst refers to the empirical
setting of subsidiaries of MNCs operating in latecomer contexts, while the second refers to the
eld of clusters and value chains.
As we mentioned earlier, our perspective on latecomer rms includes the subsidiaries of
MNCs. Subsidiaries can potentially embed themselves in different types of networks to leverage
the knowledge needed to accumulate capabilities to innovate in products, production processes
and services, thus strengthening their competitiveness (Arifn and Bell 1999, Cantwell and
Mudambi 2005, Boehe 2007). Far from being dependent on a parent companys directives,
MNC subsidiaries in developing countries have been proactive in engaging in innovative activi-
ties. In a study based on innovation survey data in Brazil (1996 2005), Marin and Costa (2010)
dismiss the 40-year-old centrally driven perspective on FDI-related spillovers. They found that
spillovers were associated with particular kinds of localised knowledge-creation activities by
subsidiaries.
Other types of studies focusing on learning and capability accumulation in subsidiaries of
MNCs operating in developing/emerging economies have moved beyond the simplistic perspec-
tive on learning based primarily on the two-way relationships that occur between individual tech-
nology suppliers and individual rms. Revealing studies have developed typologies and empirical
analyses that have permitted the identication of the manner and intensity by which MNC sub-
sidiaries in developing/emerging economies draw on a comprehensive variety of knowledge-sup-
plying partners. For instance, drawing on eldwork evidence from Malaysia, Arifn and Bell
(1999) and Arifn (2000) developed a typology that identies different types of intra-corporate
learning links and knowledge ows, i.e. between subsidiaries and their parent companies and
sister subsidiaries, and their implications for capability building: learning-for-production links;
learning-for-innovation links; and innovation links. Building on Arifns (2000) typology, Fig-
ueiredo (2011) developed and empirically applied a framework, derived from eldwork evidence
from Brazil and based on a dual embeddedness approach, that identies the role both intra-cor-
porate and local knowledge sources (e.g. links with universities and research institutes) play in
the innovation capability building of subsidiaries. Both studies suggest, in different ways, that
the quality of the learning linkages need to be deliberately changed over time for the rm to
attain progressively higher levels of innovation capability.
These studies further our understanding of the nature of the processes by which subsidiaries
accumulate progressively higher levels of capability and the role of the underlying external and
internal knowledge-intensive linkages. As a result, these types of studies add to our understanding
of the intensity and nature of the various linkages developed over time as well as the nature of
subsidiaries capabilities. Additionally, these studies contribute to furthering the debate relative
to the role of MNCs in contributing to industrial progress, especially in developing and emerging
economies. However, as there are still a small number of studies that explore innovation-related
activities in these types of latecomer rms, we still know little about the role of learning mech-
anisms affecting differences between MNC subsidiaries in terms of capability building and inno-
vation performance.
With respect to technological activities of industrial clusters and value chains, Bell and Albu
(1999) showed that, during the 1990s, the research eld on this phenomenon underwent a kind of
transition from a 1960s static perspective, as the one that we described in rst section in which
industrial technological change in developing economies was deemed as essentially minor and
passive to a perspective concerned with the changes and trajectories of the technological
dimension of clusters and their long-term competitiveness. This transition in interest in different
kinds of technological change in clusters was examined by Bell and Albu (1999) in a set of studies
that appeared during the 1990s (see Schmitz 1995; Rabellotti 1995 and Nadvi 1996, cited in Bell
and Albu 1999). Subsequently, and during the past two decades, there has been a substantial
expansion of FDI in developing/emerging economies, an accelerated ow of nancial and
human resources across developed and developing countries, and a move from vertically inte-
grated into geographically dispersed operations of MNCs (Sturgeon 2002).
Reecting a move toward globalisation, there has been an intensication of organisational
and geographical fragmentation of innovative activities of MNCs as well as value chains and
outsourcing (Schmitz and Strambach 2009). Such changes have opened up opportunities for
rms located in industrial clusters in developing economies, especially small and medium-
sized enterprises (SMEs), to engage in global value chains (GVCs); thus, they can learn
from global leaders of the chain, either buyers or producers (Geref and Kaplinsky 2001, Giu-
liani et al. 2005, Pietrobelli and Rabellotti 2011). Bell and Albu (1999) note this phenomenon
and refer to the importance of sources of knowledge beyond the clusters boundaries to accumu-
late innovative capabilities.
Indeed, engaging in such global chains and entering export markets involves the acquisition
and upgrading of capabilities through a dynamic, difcult and costly process of technological
learning, as well as changing relationships with buyers and markets (Hobday 1995, Geref
1999, Humphrey and Schmitz 2002). For rms to achieve a competitive position in these
global value chains, they have to engage in an industrial upgrading, which involves their
engagement in progressively higher levels of innovative activities with increased value
(Kaplinsky 2000, Humphrey and Schmitz 2002). One of the most remarkable observations
of successful upgrading in GVCs is the experience of East Asian rms during the 1990s,
especially those related to the electronics industry, which progressed along a trajectory involving
levels such as assembly, OEM, ODM and OBM (Hobday 1995, 2003, Geref 1999, Mathews
2002).
As rms pursue higher levels of technological activities from assembly to process engineer-
ing, product development and R&D, they also engage in the acquisition of increasingly sophis-
ticated types of knowledge from their different partners. Indeed, as rms progress through the
stages of OEM ODM OBM arrangements, they may be involved in a spiral process of increas-
ingly complex knowledge acquisition (Ali 2010). Underlying the development of such techno-
logical capabilities, several types of intra- and inter-rm learning mechanisms have been used,
such as subcontracting, joint ventures, licensing, overseas training, imitation, knowledge transfer
embodied in standards, mutual learning from face-to-face interactions, learning through pressures
to meet international standards, training by foreign leaders/owners, and knowledge spill-overs
(Hobday 1995, Geref et al. 2005, Pietrobelli and Rabellotti 2011).
The abovementioned studies, however, have generally had little to say about the manner in
which rms absorb the various types of externally acquired knowledge, through their interactions
with other organisations, and transform them into their innovative capability. Additionally, as
some of the studies indicate, in parallel to the development of innovation capabilities, rms
also build up marketing capabilities to guarantee their successful entry to export markets.
However, we know little about the accumulation of capabilities such as those for marketing,
nance and logistics activities, which would seem to be as important as technological capabilities
to the competitiveness of rms in clusters and GVCs.
Over the past two decades, typologies have been elaborated and rened to tackle the dynamics
of technological upgrading in clusters and CGVs. For instance, Humphrey and Schmitz (2002)
and Schmitz (2004) distinguish between four types of upgrading: process; product; inter-sectoral;
and functional upgrading. The latter seems to be more directly related to the accumulation of pro-
gressively higher levels of innovative capability, as in Figure 2. Bell and Albu (1999) distinguish
between production and knowledge systems and suggest a framework of sources of increased
capability for the latter. This framework makes a distinction between sources of increase in
knowledge-using capabilities and in knowledge-changing capabilities. Such sources involve
intra-rm and intra-cluster sources as well as those outside the cluster.
The application of these frameworks has permitted new interpretations of evidence about
changes in innovativeness in developing countries clusters and GVCs. For instance, after exam-
ining the footwear cluster in the Sinos Valley in Southern Brazil, Schmitz (1995) came to a nega-
tive assessment of this setting: although there had been considerable product and process
upgrading, the learning process in the cluster had been truncated before it entered a deeper
phase of functional upgrading centred on the accumulation of independent design and marketing
capabilities.
By revisiting that same setting later and using the same typology, Bazan and Navas-Aleman
(2004) found that this truncation of the learning process had been only a temporary phase,
peculiar to the 1980s and early 1990s; with heavy reliance on particular learning channels and
the balance of different interest groups and governance structures in the local industry. As com-
mented in Bell (2006), Bazan and Navas-Aleman (2004) showed that new channels for learning
had subsequently opened up and that the conguration of interest groups and power in the local
governance system had launched a new phase of learning that led directly to the accumulation of
much deeper design and other value-adding capabilities. However, they also suggested that the
differing judgments about the learning trajectory of the Sinos Valley were not only a consequence
of the changing contexts for learning. The observations in the later study were shaped by a more
diversied view of learning mechanisms, and this increased the probability of seeing more slow-
moving learning processes ones that had been present, but much less visible in the earlier
period.
Drawing on the frameworks developed in Schmitz (1995, 2004) and Bell and Albu (1999),
Kishimoto (2004) examined the upgrading trajectory of the personal computer (PC) cluster in
Taiwan. He found that the cluster experienced substantial product and functional upgrading
and that products requiring high-level skills continued to be made in Taiwan, whereas those invol-
ving lower skills were increasingly off-shored, indicating the importance of clustering diminished
in the production system and remained high in the knowledge system. Underlying such successful
upgrading were a local restructuring for more knowledge-intensive activities based on intra-rm
and inter-rm learning and the fostering of global and local knowledge-based linkages.
In sum, important features of this inter-rm dimension of the capability deepening process in
these studies matched three broad patterns that are prominent in our current understanding of the
accumulation of innovation capabilities in latecomer rms. As these patterns may be changing in
important ways, they merit some emphasis. First, a large part of our understanding about this
process is based on studies of the experience of latecomer rms that were, or rapidly became,
large multifunctional and often multiproduct Chandlerian-type organisations (Chandler 1977,
1980) Samsung, Hyundai, Posco, Acer, Usiminas, Petrobras, Embraer, Ranbaxy, and Wypro.
The four Taiwanese rms t this pattern all involved large multi-product rms that were dee-
pening their capabilities across a range of technology-intensive functions. Large parts of the learn-
ing process that built up innovative capabilities in liquid crystal display technology occurred in
departments and subsidiaries that drew on capabilities accumulated previously in other depart-
ments and subsidiaries of the parent companies.7
Second, a large part of our understanding about inter-rm learning relationships emphasises
the complementary importance of similar Chandlerian-type rms (Chandler 1977, 1980) on the
supply side of the relationships. Although latecomer rms have often drawn on multiple
sources of external inputs in building up their innovation capabilities, the heart of the process
has often been identied primarily in terms of dyadic relationships between the latecomers and
single, technologically advanced suppliers of know-how and learning opportunities e.g. part-
ners in joint-ventures, suppliers and their customers in global (or local) value chains, MNC
parent companies and their subsidiaries.
Third, these dyadic relationships have been observed in previous research as being fairly com-
prehensive in covering the necessary technological scope of a latecomers emerging innovation
capability. For example, global buyers in value chains have been observed to be actual or potential
sources of both product design knowledge and production and process technology. Alternatively,
attention has focused on parent companies as potential sources of, or at least mediating channels
for, a comprehensive array of technology to enhance innovation capabilities in subsidiaries. These
observations have shaped our view of the interactive capability building process. Thus, studies of
the accumulation of innovation capabilities in latecomer rms, albeit mostly in manufacturing,
which has been the focus for almost all research on the subject, has suggested that the dominant
processes and opportunities for inter-rm capability building involve these kinds of dyadic inter-
actions between Chandlerian-type rms (Chandler 1977, 1980) on both sides of the relationships.
However, these processes and opportunities for inter-rm learning may be fundamentally
shifting away from such relationships. In a wide range of ways (open innovation, distributed
innovation and so forth) the process of innovation is being substantially disintegrated or organi-
sationally decomposed,8 and as rms adopt a variety of different post-Chandlerian forms
(Lazonick 2010), integrated innovation activities that used to be undertaken in-house and on a
highly centralised basis are being increasingly subdivided into specialised segments and many
are decentralised in various ways. This organisational decomposition may be largely internal to
the rm as in the decentralisation of innovation activities to subsidiaries within large and
usually multinational corporations, with innovation shifting taking place on a corporate
network basis rather than centrally within hierarchical structures. Alternatively, the decompo-
sition may be inter-organisational the focus of a considerable body of research that preceded
and followed Chesbroughs (2003) popularisation of the Open Innovation concept.
Such decomposition of the innovation process can take many forms. For example, when rms
subcontract manufacturing of their products to specialised supplier rms within modular pro-
duction networks they often leave process and production innovation largely to the specialised
suppliers, concentrating their own attention on product innovation (Sturgeon 2002). Alternatively,
producers of relatively complex products may collaborate in various kinds of networks with other
rms that undertake innovation with respect to specialised components and subsystems of nal
products, or rms may engage independent suppliers of knowledge-intensive services to under-
take aspects of particular innovation projects. Schmitz and Strambach (2009) have raised ques-
tions about whether and how these changes in the organisation of innovation in the advanced
economies will affect the development of innovation capabilities in latecomer rms.
Conclusions and implications for future research

Our purpose in this article was to review a wide range of empirical contributions generated over
the past two decades about learning for innovation capability building in latecomer rms. In con-
trast with the bulk of the literature, this article has addressed this subject from the perspective of
rms from developing/emerging economies, thus widening our view of learning by addressing
rms of a different technological nature and in a different context that of the latecomer. This
type of rm is rarely studied in the traditional elds of management and organisational studies,
despite the volume of empirical research on latecomers over the past decades and despite their
growing importance in global markets in terms of innovation and competitive performance. In
rms that already operate at the innovation frontier, which are mostly in advanced economies,
learning is understood as a source for sustaining, renewing and deepening innovation capabilities
that already exist. In contrast, in latecomer rms, the purpose of learning is rst to build up and
develop innovation capabilities that did not previously exist, allowing rms to approach, reach
and move around the technological frontier. This article also aims to generate new insights that
take into account similarities, differences and nuances across latecomer rms and those from
highly industrialised economies in terms of learning.
Our review shows that the process of innovation capability building in latecomer rms and,
consequently, the manner and extent to which they catch up with and/or overtake global leaders is
rooted in the manner in which they engage in deliberate efforts to build up, use and manage the
various learning mechanisms within their boundaries and in partnerships with external organis-
ations (e.g. buyers, producers, suppliers, users, universities, R&D institutes, and specialised
engineering and consulting rms). Specically, this review suggests that if rms make limited
efforts to invest in acquiring and creating the resources required to innovate, they will deepen
their innovative capabilities only slowly, if at all; they will have difculties crossing whatever dis-
continuities exist between different levels of capability; and in particular they are likely to remain
locked into forms of follower innovation rather than innovating as leaders either by over-
taking at existing points on the international frontier or by opening up new segments. Addition-
ally, our review has noted several gaps that need to be explored by future research, as we elaborate
briey below.
First, it would be fruitful for researchers of capability building in rms and industries in devel-
oping economies to deepen empirical analyses of the changing nature of learning mechanisms,
especially in terms of their organisational basis, in shaping innovation capability building
paths pursued by latecomer rms. Second, future research should investigate the extent to
which learning strategies in latecomer rms change over time, in association with rms paths
of innovation capability building, as a result of changes in inuencing rm-specic factors
such as leadership behaviour, rm strategy, and changes in industry-level and economy-level
factors (e.g. policy framework) and global-level factors affecting rms. Such kinds of analyses
would generate meaningful explanations to latecomer rms capability building processes.
Third, as shown in this article, most of the studies on latecomer rms are concerned with the
building of capabilities that are technological. Future studies should tackle the role of learning
mechanisms in explaining differences and similarities across latecomer rms in terms of the
accumulation of non-technological capabilities, such as those for marketing, administrative,
logistics, and nancial activities, in association with the accumulation of technological capabili-
ties for production and innovation activities. Such a kind of study would expand our perspectives
on the nature capabilities in latecomer rms.
Fourth, as shown in this article, the majority of studies on learning in latecomer rms are
based on qualitative designs that draw on evidence from eldwork, mainly involving manufactur-
ing rms. Future studies should draw on the typologies and frameworks available in the literature
and apply them to a broader set of rms beyond manufacturing (e.g. different types of service
rms), state-owned rms, and non-commercial organisations.
Fifth, although we have referred earlier to the limitations of innovation surveys, we recognise
that there have been a growing number of these surveys across developing countries. Some of
these surveys have been implemented continuously over several years and, in certain countries,
the quality of the surveys has constantly been improved. Therefore, future research should
combine, in the same study, aggregated analyses at the industry and country levels, derived
from innovation surveys related to different years, with analyses at the rm level, derived from
longitudinal and rst-hand evidence gathered through extensive eldwork. The combination of
these types of evidence and analyses as well as evidence and analyses derived from eldwork
in terms of the intra- and inter-rm capability building activities and the changing nature and
effectiveness of learning mechanisms would provide powerful explanations of the processes of
capability building, innovation performance and catching-up in latecomer rms.
Sixth, future research on rms in industrial clusters and GVCs should explore changes over
time in the inter-rm networked learning mechanisms for production and innovation, including
changes over time in the relative importance of learning mechanisms in rms and other cluster
organisations in association with their accumulation of innovation capabilities. This type of
study would be benecial to deepen our understanding of the basis for the innovation performance
and competitiveness of clusters under different policy and economic conditions.
Finally, there has been a scarcity of research on innovation capability building and the under-
lying learning mechanisms in rms and industries related to natural resource-processing indus-
tries in developing and emerging economies. The scarcity of these kinds of empirical studies
has given rise to negative and common generalisations related to innovation activities in lateco-
mer natural resource-related rms and industries. One of the most common generalisations refers
to the absence of knowledge generation activities and technological learning and, consequently,
the absence of innovative capabilities. Studies addressing these issues based on the frameworks
and typologies we have reviewed would improve understanding of learning and innovation capa-
bility building in these under-researched industries. Such studies also would provide important
information for policy makers and relevant decision makers on industrial innovation efforts in
natural resource-rich developing and emerging economies.
Acknowledgements
We thank the journals editors and two anonymous reviewers for their constructive comments and
suggestions.
Biographical notes
Martin Bell is a historian and economist and Emeritus Professor at SPRU Science and Technology Policy
Research, University of Sussex. His research and consultancy interests are concerned with policy and man-
agement issues relating to learning and innovation capabilities in industrial rms in Africa, Asia and Latin
America. His current interests centre on the dynamic roles of these capabilities in both the long-term evol-
ution of innovation systems in developing countries and the structural diversication of their economies. He
is editor of Research Policy. He has published numerous reports and book chapters and in academic journals
such as Industrial and Corporate Change, Research Policy, World Development, International Journal of
Technology Management, and the Journal of Development Studies.
Paulo N. Figueiredo is on the faculty of the Brazilian School of Public and Business Administration
(EBAPE), Getulio Vargas Foundation (FGV). He holds a PhD from SPRU Science and Technology
Policy Research, University of Sussex, and heads the Research Programme on Technological Learning
and Industrial Innovation at EBAPE/FGV. He is the founder and editor-in-chief of the International
Journal of Technological Learning, Innovation and Development and has published in academic journals,
including Research Policy, Oxford Development Studies, World Development, Asian Journal of Technology
and the Journal of Management Studies.
Notes
1. For a review of the evolution of this research eld, see Bell (2006).
2. Those authors used the more general term technological capability to refer to what we describe herein
as innovation capability.
3. He distinguishes production capacity from the . . . resources needed for the generation and management
of technological change . . . (p. 5).
4. They refer to technology using capabilities and technology generating capabilities as two components
of general technological capability.
5. For example, in setting up the taxonomic framework for his study of capability development in India,
Lall noted: The above classication has dealt with strictly technical aspects of an enterprise. However,
organisational capabilities have to accompany technological ones (Lall 1987, p. 17).
6. See Brundenius et al. (2009) for an excellent and well-balanced recent review of these dual roles of uni-
versities in developing country innovation systems, although they use somewhat different language.
7. This pattern was not unusual, but it was contrary to some perspectives that over-emphasise the role of
SMEs in Taiwans late-industrialisation. Amsden and Chu (2003) have highlighted more generally the
importance of large multiproduct rms with deep innovation capabilities though among the different
levels of these capabilities, they focus on what they call project execution capabilities (see also
Amsden and Hikino 1994).
8. We take this term from Schmitz and Strambach (2009).
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Innovation capability building and learning mechanisms in latecomer

of innovation capability building in rms from developing/emerging economies, which are

ISSN 0225-5189 print/ISSN 2158-9100 online

Some framing perspectives

Catching up two loosely linked processes

What do we mean by learning?

Figure 1. The articles analytical framework.

Paths of innovation capability building in latecomer rms

organisational dimension, a less well-developed perspective in the context of late industrialising

The technological dimension of innovation capability

Figure 2. Levels of innovative capability: the technological dimension.

The organisational dimension of innovation capability

Integrating the technological and organisational dimensions of innovation capability

Figure 3. Innovation capability accumulation: changing emphasis on technological and organisational

Learning mechanisms in innovation capability building in latecomer rms

Learning in individual rms

The relative importance of learning mechanisms

M. Bell and P.N. Figueiredo

customer rms; Kim (1997)

Some examples of related

Innovation capability building and learning mechanisms in latecomer rms

Effective implementation the importance of integrating internal and external learning

Figure 4. Integrating internal and external learning: Hyundai 19601990s.

Innovation and learning relationships between rms and other organisations

Interdependence of organisations in undertaking innovation

Interdependence of organisations in creating capabilities for innovation

Conclusions and implications for future research

Birkinshaw, J.M., 1997. Entrepreneurship in multinational corporations: the characteristics of subsidiary

American clusters. World development, 33 (4), 549573.

innovation. New York: Oxford University Press.

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