Innovation in China: harmonious transformation? by Shulin Gu, Mark Dodgson

By Shulin Gu, Mark Dodgson

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TNCs have always been a controversial source of capital, technology and knowledge (Lipsey 2002; Gorg and Strobl 2001; Smarzynska 2002; Guerrieri and Pietrobelli 2004; Lall and Narula 2004). They provide foreign direct investment (FDI) and outsource industrial activities, thus indirectly reduce the scarcity of financial capital in the host developing country; they also increase local competition, thus eliminating inefficient producers (Narula and Marin 2005) and occasionally promising local producers.

Progress in Human Geography 28: 31–56. INNOVATION: management, policy & practice 41 Bjorn Asheim and Jan Vang Becker G (1998) Human capital and poverty. id=258. Chen YC (2004) Restructuring the Shanghai Innovation Systems: The Localization of Multinational Corporation R&D Centers in Shanghai, presented at the First ASIALICS International Conference: Innovation Systems and Clusters in Asia – Challenges and Regional Integration, Bangkok Thailand, April 1–2 2004. Coe NM, Hess M, Yeung H, Dicken P and Henderson J (2004) ‘Globalizing’ regional development: a global production networks perspective.

The result is that they enter the ‘race to the bottom’ with other regions and countries not having more to offer than cheap labor, low taxes, poor environmental regulation and ‘flexible’ labor market laws (Schmitz 2004). In a RIS perspective it is not considered a law of nature that TNCs cannot provide valuable input into the economic development process in regions in developing countries. By emphasizing interactive learning, knowledge spillovers and the involvement of regional government bodies, the literature on RIS suggests that the role of the TNCs in the regional development depends on the following factors:7 (a) The bargaining power of the host country/ region (Coe et al.

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