Technological Innovation, Productivity and Competitivenes Evidence from China's IT Manufacturing
The purpose of this article is to investigate the impact of technological innovation on the labour productivity and competitiveness of China's IT manufacturing, and compare with seven countries of advanced IT industry. Technological innovation is identified by six key indexes, uses Pearson relationship coefficient matrix, Granger causality test, and regression analysis to examine their relationships from 1995 to 2004. Conclusions show that total R&D expenditure increase 1% in IT manufacturing, output will increase 0.995% The R&D input for IT new product increase 1% its output can enhance 0.55% and earn benefit within one year, but the technological introduction and improvement will take more than there years. The effect of R&D expenditure on industrial competitiveness is 97.6% It shows the strong international competitiveness especially on basic and low end product of IT. Comparative to advanced countries, the shortage of R&D investment and the lower efficiency are the major sources of weak industrial competitiveness. the intensity of R&D is only one fifth of advanced countries in electronic and telecommunications equipment manufacturing, one seventh in computers and office equipments manufacturing. Their labour productivity has about 20 percent and 25 percent, correspondingly. These have the important policy implication for technological innovation and structural upgrade of China's IT manufacturing. If China devote to shift from 'global IT factory' to leaders of IT innovation, it must improve the environment for innovation and incentive mechanisms, enhance the efficiency of the innovation system, pursue independence innovation and international frontier research in this sector. Keyword R&D IT Manufacturing New product Productivity Competitiveness INTRODUCTION In the second half of the 20 th century, the revolution in information technology is the main driving force of economic growth, and it plays a key role in enhancing the international competitiveness for enterprises and industries. The competition among countries is focused on scientific and technological innovation and economic strength. According to development history of technology and economy, technological innovation only contributed to 5 percent of economic growth in the beginning of the 20 th century, and the quotient rose to about 15 percent in 1920 1930s, then up to 40 percent in 1940 1950s, 60 percent in 1970 1980s, and even to over 70% in 1990s (Xiyao Li, 1999, p24) In the United States, technological progress contributed to 40 percent of economic growth from 1929 to 1978, 20 percent of allocation of resources, 15 percent of per person capital, and 13 percent of economic scale, and 12 percent in improving the labor force quality. Technological innovation contributed to 63.9 percent of economic growth in British in 1950 1962, German is 81.9% Japan is 65 in 1952 1968, South Korea is 56.4% in 1955 1970s, Hong Kong is 46.5% in 1955 1970s. China is 19 percent in 1952 1982, increase to 30.3 percent in 1979 1990, and reaches 40 percent in 1991 1995 (The Institute of China Information Industry, 2006) All above suggests that technology innovation is an important source of modern economic growth, and also an important way of improving industrial international competitiveness and promoting industry sustained growth. The innovation and diffusion of information technology has spurred a number of new industries' rapid development. The information technology industry has made great progress as one of strong interrelatedness and leadership in recent 30 years. It takes the place of traditional sector as the biggest industry in economy, such as American, Japan, South Korea and Taiwan. The export of IT intensive products and services accounted for 40 percent of total exports in the United States. China's IT sector has an annual increase by 32% in recent 10 years, far faster than other ones, becoming an important sector of national economy. More importantly, the development of information industry is beneficial to the equipment's reconstruction of traditional industries and is useful for the adjustment and upgrading of the industrial structure, improving the overall economic competitiveness. Generally speaking, in the process of participation to international competition, China's industries have gone through the early labor intensive stage and entered the new industrial upgrading stage driven by the independent innovation and the technology introduction. According to innovation theory, technological innovation mainly relates to process innovation and product innovation, process innovation aims to improve productivity and reduce the input of unit output. while by contrast, the latter for which the goal of R&D input lies in making product newer, quality higher and function better is more of importance. For example, 75% 90% of total industrial expenditure for R&D in Swedish is for product innovation, so did 68% in American, and 36% in Japan. No matter what kind of innovation, its impact must be reflected in the final products or services, only in this way, can innovation be truly and accurately evaluated. In the study of this, the signification of technical innovation followed the basic idea of Schumpeterian approach, It is suggested that technological innovation is refers to effective combinations of existing technologies and the creation and introduction of various of new knowledge, and provide better products or services for market. This article focuses on the contribution of technological innovation to the growth and competitiveness of China's IT manufacturing. The second part of the paper defines the indexes of technological innovation and chooses the appropriate analysis method. In the third part, it shows the activities of technology innovation and the industrial growth speed in China's IT manufacturing sector for recent 10 years. The forth part tests the correlation between technological innovation and the growth of information technology industry, especially the impact of R&D on the growth of product and outputs. The fifth part analyses the effect of technology innovation to IT manufacturing industry's international competitiveness, evidence indicates that the R&D input intensity, that is share of the R&D input in the industrial the added value, is the key factor of industrial competitiveness. The sixth part is the international comparison between China and developed countries. The last is the conclusion and the policy suggestion. INDEXES SYSTEM AND ANALYSING FRAME China has referred to the catalogue about high and new technology industry in terms of method OECD's, it includes industries of Aircraft and Spacecraft, Medical and Pharmaceutical Appliance, Electronic and Telecommunications Equipment, Computers and Office Equipments. Therefore, information technology is regarded as Electronic and Telecommunications Equipment and the Computers and Office Equipments Manufacturing. Both input and output indexes are used to quantify the technology innovation. Input indexes include R&D input and human resource input. R&D input comprises of five indexes in detail in total R&D expenditure, internal R&D expenditure by enterprise, R&D in new products, technology transformation and acquisition. Output indexes are made up of five sub indexes too. The first is the new product value(NPV) representing the real output of technology innovation .NPV is the income of selling new products during the current period for the industries and represents the final output of total or relative input in technology innovation. The second is the export delivery value that represents the relative output of technology innovation. It weighs the level of industrial development and the industrial international competitiveness. The third is the amount of patent, it represents the potential commercializing opportunity of invention and creation. The fourth is the gross value added of industries, which weighs the industry productivity. The last is products sell profit, represents the capacity of payoff, Table 1 lists the indexes and their meanings. _________________ Table 1 about here. ______________ The empirical analysis applied Pearson relationship coefficient matrix to examine the relativity between the technology innovation and the output growth, Granger causality test and the principal components analytic method distinguishes the causes and effects between the factors, and establish the regression equation of industrial growth and competitiveness with technology innovation as dependent variable thus determined the influencing extent of innovation on new product value added, industrial output growth and competitiveness. INPUT OF TECHNOLOGY INNOVATION AND GROWTH PERFORMANCE OF IT MANUFACTURING 1, Technological Innovation of China's IT Manufacturing The total R&D input in China's IT manufacturing sector in 1995 is 30.2 billion Yuan RMB, of which 8.9% was from the government, and 80% is from the enterprises. In 2004, the total investment increased to 428.47 billion Yuan RMB, the proportion of government investment dropped to 2% the share of enterprises investment rise to 87% The total expenditure for R&D grew 14.1 times; the rate of rise has been much higher than other industries in 10 years. The R&D input from the government rose by 3.1 times from 278 million to 837 million Yuan RMB from 1995 to 2004. As to the enterprises, it rose by 12.76 times, from 2,485 million to 31.717 billion Yuan RMB, which grew 12.76 times. So we find the R&D input in China's IT manufacturing is mainly from the enterprises, the source of innovation is the income acquired by selling products.(see table 2) __________________ Table 2 about here. _________________ As a component of industrial technology innovation(see table 3) the number of the organizations that engaged in innovation dropped from 964 in 1995 to 537 in 2003, but up to 847 in 2004 and was in unstable condition. However the total number of people