Chapter 1 Introduction

1.1 The definition of the concepts related to independent innovation

1.1.1 The basic concept of independent innovation

Lei Jiasu et al. put forward the concept of “Lead Innovation” in 1993, and classified it as the Lead Innovation of internal technology and external technology. This concept actually implies the concept of independent innovation. Professor Chen Jin used the concept of “Independent Innovation” clearly in 1994. He thinks learning in the process of research and development is the dominant learning model of independent innovation, and the only way to grasp the essence of technology is research and development. In 1995, Professor Xie Xiezheng from Northeastern University (in China) proposed that independent innovation is technical innovation based on the transformation of scientific and technological achievements. In 1997, Yang Delin & Chen Chunbao pointed out that independent innovation means that enterprises rely on their own forces to do the activities of research, development, and technological innovation.

Independent innovation has 3 notable features: the first one is the independent breakthrough in core technology; the second one is the lead development in key technology; the last one is the lead development in the new market. In 1998, Professor Fu Jiaji pointed out that independent innovation is an innovative activity through which enterprises explore technological breakthrough singly or together, promote follow-up innovative links based on the above-mentioned technological breakthroughs, and then complete the commercialization of the technology and obtain commercial profit, so as to achieve the expected goal. Xu Guangyu (2005) holds similar opinions. In 2005, Zhou Jizhong et al. indicated that independent innovation is an innovative activity which means improving the ability of original innovation, integrated innovation and introduction, implementation, and adoption to obtain a number of independent intellectual properties and improve the competitiveness of a nation. In 2005, Liu Fengzhao et al. put forward that independent innovation is an innovative activity in which the subjects rely on their own (or rely mainly on their own) forces to achieve the breakthrough in science and technology (S&T), and then support and guide the development of economy and society and provide protection for the national security.

Independent innovation is a comprehensive concept. As to different subjects, independent innovation has different connotations. There are at least 3 aspects, namely country, industry, and enterprise. The independent innovation of a country mainly means the endogenous supply of key technologies which have common cross-industry characteristics, research and development of some cutting-edge technology as well as the lead in, or an influence on the fundamental direction in the field of basic science and applied science. The independent innovation of an industry mainly means the development and control of common-core technology that has a significant impact on industrial development, the participation of industrial organizations and/or enterprises in the establishment of international standards, and the right of industrial organizations to the independent pricing of products and services as well as the right to speak and have a dominant voice in value distribution on the market. The independent innovation of an enterprise means innovative activity that takes the independent intellectual property rights (IPR) and technology of an enterprise as the main symbol, and it takes integrated innovation and re-innovation on the basis of introduction as the main form of realization, in order to enhance the core competitiveness of an enterprise and shape an independent brand.

Wen Ruijun & Gong Jianli (2005) state that independent innovation can be divided into two categories according to the depth of innovation. The first is progressive independent innovation, namely establishing a new technological platform through the integration and introduction of a variety of existing technologies, so as to achieve innovation; the second is fundamental independent innovation, namely inventing a new technology through one's own research and thus developing a new product or a new generation of product. What they have in common is that innovators have technologies with an independent intellectual property and develop new products or technologies based on this.

Considering the above-mentioned knowledge and the reality of China, the book defines independent innovation as follows: Independent innovation is an innovation initiative in which innovators possess the core technology, independent intellectual property, and the participating right to establish international standards through independent research and development, imitation and innovation, integration and cooperation, and finally realize their business value.

1.1.2 The subjects of independent innovation

At present, the domestic debate on independent innovation focuses on the subjects of independent innovation. What/Who are the “subjects”? Considering its origin, the ancient Greek philosopher, Aristotle, used the term in the sense of logic. He thought that the subject of proposition, relative to a predicate, is a bearer of some characteristics, status, and effects. It indicates the existing entities in the world. The subject has consciousness, creativity, and initiative. In this sense, we can understand that an enterprise must be an “undertaker” and an “agent” of independent innovation. Therefore, independent innovation must emphasize the nature of a “subject,” not the process of research and development. But the fact that the nature of an enterprise is complex is a big problem. Which enterprise can be regarded as a subject of independent innovation? It is still a question to be discussed. Domestic awareness of the question goes through the following stages.

In the first stage, the subject of independent innovation was equivalent to the subject of technological innovation. In 1994, when Professor Chen Jin from Zhejiang University used the concept of “Independent Innovation,” he mainly emphasized the learning model of introducing technology to independent innovation. He thinks that learning in development is the dominant learning model of independent innovation. But he did not make it clear who the subject of independent innovation is. In 1995, Professor Xie Xiezheng from Northeastern University pointed out that with respect to the introduction of technology as “technological innovation of others,” the “others” is the foreign technology. Professor Xie thinks that independent innovation means that independent innovation is “the technological innovation that is based on the transformation of scientific and technological achievements.” He stresses the “ownership” of technology, but the subject of independent innovation is not clear. Subsequently, Dr. Yang Delin from the Graduate School of the Chinese Academy of Sciences, is the first one to have come up with a clear exposition of independent innovation. In 1997, he stated that independent innovation means that enterprises rely on their own forces and abilities to do the activities of research, development, and technological innovation. Its features are independent breakthroughs in core technology, leading the development of key technologies and being a leader in the development of the new market. It is easy to see that Dr. Yang Delin implies that the subject of independent innovation is the “enterprise.”

In 1998, Professor Fu Jiaji also implied that the subject of independent innovation is “enterprises.” Liu Fengzhao et al. (2005) viewed “independence” as a pattern of behavior distinct from the traditional way of introducing technology. They only mentioned “innovation subject,” but did not make it clear who it is.

In fact, from a national perspective, the subject of independent innovation is the nation. While from the perspective of enterprises, the subject of independent innovation is the enterprise.

In particular, the discussion about the subject of innovation by Liu Wei, a professor of Peking University, should be mentioned. Liu Wei (2006) thinks that, under the system of planned economy, the subject of innovation is the country and its specialized agencies, because the main source of research funding comes from financial allocations. The main research teams are specialized scientific research institutes and universities who receive the financial support. But in the system of market economy, enterprises are the main market subject, so they should not only be the micro subject of resource allocation, but also the subject of technological innovation. From this point of view, the so-called independent innovation mainly refers to the independent innovation of enterprises, instead of the independent innovation of the nation. Of course, this does not mean that every enterprise needs to research and develop technology. Part of, even all of the required technology could be obtained through the market mechanism. But on the whole, innovation must be organized and executed by enterprises. It is not difficult to see that Professor Liu holds that the enterprise is the subject of technological innovation.

In the second stage, the subject of independent innovation was clarified further. In the previous stage, the scholars of the field agreed that the subject of independent innovation is the “enterprise.” It is basically clear that the subject of independent innovation should be Chinese enterprises at the present stage. But a further question is how to define “Chinese enterprise.” Is it confirmed by “capital controls” “place of incorporation,” “possession of patent,”or “ownership structure”? Obviously, it is not appropriate to identify a Chinese enterprise by “place of incorporation.” At this stage, some Chinese companies are registered in foreign countries in order to obtain more commercial profit, but are controlled by Chinese capital. These enterprises certainly cannot be ruled out of the group of the Chinese subject of independent innovation. On the contrary, some companies are registered in China, but are not controlled by Chinese capital. These enterprises should not be regarded as the Chinese subject of independent innovation. Furthermore, making “possession of patent” the standard is not restrictive enough. Some Chinese companies apply for a patent in a foreign country in order to open its market abroad; an example is the “Laser Phototypesetting” invented by Wang Xuan which was first registered in France. So, identifying the Chinese subject of independent innovation by “possession of patent” is not appropriate.

In view of the discussion above, the authors of this book agree to take “capital control” and “ownership structure” as the criteria to identify whether an enterprise is the Chinese subject of independent innovation or not. Ownership (control) not only represents the decision-making power, but also represents usufruct. Some scholars have similar views. For example, Hu Jin (2006) believed that the Chinese subject of independent innovation refers to local enterprises under the control of Chinese capital. Similarly, 21st Century Business Herald gave out a “China software innovation list”on June 22, 2006. The candidate had to be a domestic enterprise that was a leader in industrial growth, having originality in a particular field and being full of significance in the field of Chinese software innovation. Visibly, only enterprises funded by local capital were believed to be subjects of independent innovation. Accordingly, as for joint ventures, enterprises controlled by foreign capital should not be regarded as the Chinese subject of independent innovation, since majority ownership is the right of an enterprise as a legal person to share property and interests. As for Sino-foreign joint ventures, it means majority shareholding when the foreign capital has more than 50% of the equity. In these enterprises, the Chinese shareholders don't have the decision-making power and the initiative of innovation. The innovation of enterprises is even strictly limited by the foreign shareholders. Shanghai Volkswagen is a typical example: it has been a joint venture for 20 years, and because the Chinese side does not have control power, it is very difficult for the enterprise to carry out independent innovation. Shanghai Volkswagen had attempted to improve its products by using the latest technology of the Volkswagen company, but the idea was soon rejected by Volkswagen, which has strict rules that Volkswagen technology cannot be used for any Chinese brand.

Since foreign holdings will make Chinese shareholders lose the right to independent innovation, it often leads to equity battles in Sino-foreign joint ventures. Taking Hangzhou Advanced Gearbox Group, formerly known as Hangzhou Gearbox Works, as an example. After the establishment of the Sino-foreign joint venture, an equity battle occurred immediately. The Chinese side proposed that the company should be controlled by themselves, but the foreign side insisted on their control of the company. Negotiations came to a deadlock, until the foreign side claimed that if the company were not controlled by them, they would not have invested in Hangzhou. Finally, Hangzhou Gearbox Works compromised under pressure and agreed that the foreign side should hold 70% of the shares. They signed a joint venture agreement in 2005. The agreement stipulated that the vehicle gearbox project and related products and technology equipment with market competitiveness should be combined in the joint venture company. Thus, Hangzhou Gearbox Works would not develop, produce, or sell marine gearboxes, engineering machinery gear boxes, truck gearboxes, and other related products. Neither could it use these trademarks. Thus, the most advantageous products and the strength of research and development of the factory were owned by the joint venture, and the weak projects were completely replaced by foreign products. Thus, the foreign side generally had a negative attitude toward independent innovation. Since the Chinese side lost control power, they could only be at the foreigners' service. The survival, innovation, and development of the company are controlled by others. In view of this, Chinese subjects of independent innovation can only be those enterprises that are registered in China under absolute control or with holding rights by local capital.

1.1.3 The dispute over the definition of independent innovation

In defining independent innovation, domestic debate mainly concerns the following aspects:

First, the dispute over the definition of “independent.” Some scholars think, from a literal understanding of the word, that “independent” implies who advocates to innovate, how to achieve it, and who the result belongs to. The “who” of “who advocates” is the subject of independent innovation; “how to do about it” is the way to innovate, “who the result belongs to” is the resulting ownership of the innovation. That the enterprise is the subject of independent innovation is basically accepted, because the enterprise is the subject of investment, research and development, and the application of achievements. But some scholars believe that both enterprises and scientific research institutions are the subjects of independent innovation, and that enterprises occupy the leading position. Also some scholars hold that “Independent Innovation” is relative to others. In the case of the entire interests of China, independent innovation means innovation activities of local enterprises, and the subject of independent innovation should be the local enterprises controlled by local capital.

Second, the dispute over the contents of independent innovation. Chen Jin (1994) believed that independent innovation is “independent technological innovation,” which is a specific developmental stage of an enterprise in the progress of the introduction, implementation, and improvement of foreign technology. Yang Delin & Chen Chunbao (1997) believe that when independent innovation is used for enterprise technological innovation, it refers to the fact that enterprises rely on their own forces to carry out independent research and development, and carry out activities of technological innovation. But some scholars oppose this idea claiming that independent innovation is limited to technological innovation. For example, Xie Xiezheng (1995) does not agree that independent innovation is “written” as independent technological innovation. He holds that independent innovation includes innovation of organizational management, the choice of invention, and technological achievements that are gradually suitable for production applications, so as to obtain success on the market, and it also includes the efforts of developing technology according to the market and production needs. Wang Yuan (2005), President of the Chinese Academy of Science and Technology for Development, starts out from the relationship between independent innovation and the market. He sees independent innovation as a process of economic development. He thinks that it is not only a pure technological invention, but also a process of economic and market realization. The essential characteristics of independent innovation are transformation of scientific technological achievements and the process of industrialization.

Third, the dispute over the results of independent innovation. The dispute over the results of independent innovation concentrates mainly on whether independent innovation can form independent intellectual property. Intellectual property is a stage in the achievement of innovation. It is created through creative human activity, and then it can be put onto the market through production and sale. In enterprise innovation, intellectual property plays a very important role. If there is no intellectual property, the enterprise can only function at the bottom of the world's “food chain.” Real core technologies cannot be bought; only the strong ability of scientific and technological innovation can result in the formation of independent intellectual property and improve the international competitiveness of our country. Based on these considerations, independent innovation means owning core technology and intellectual property, and even breaking the technological monopoly of developed countries. However, some scholars think, from another point of view, that independent innovation should not be equated with independent intellectual property. Imitative innovation is namely “second innovation.” Though the breakthrough of core technology relies on our own forces and abilities, it does not mean independent intellectual property. For example, technological improvement in Japan was achieved through imitative innovation, which also produced independent intellectual property.

Fourth, the disputes over the criteria used to identify the success of independent innovation. As Tsinghua University Professor Fu Jiaji pointed out in 1998, independent innovation is an innovative activity that enterprises explore within technological breakthroughs on their own or together through research, and then promote a follow-up link to complete the commercialization of technology, so as to obtain commercial profit. He believes that the criterion for the success of independent innovation is the creation of business value. Similarly, the British scholar Freeman (1987) holds that the failure of innovation is the failure to establish an effective market or to gain profit. Accordingly, successful innovation means that an enterprise obtains significant market penetration or profit. Thus, Freeman (1987) does not regard commercial profit as the only sign of successful innovation. At the same time, he thinks that the highest level of independent innovation is achieving independence of the local enterprises' capability for innovation. The enterprise and the nation have continuous learning ability and organizational capability.

Fifth, the dispute over the key factors regarding the success or failure of independent innovation. What are the key factors for the success of independent innovation? Some scholars think that innovation requires courage and wisdom. Talent is the key to independent innovation. Also some scholars hold that a strong innovation awareness and cultural depth form the foundation for innovation. Other scholars believe that independent innovation is the endogenous variables of learning abilities and organizational capabilities which are closely linked to multilevel economic opening up. Basic research is the source of independent innovation.