Chapter 7

How Does International Collaboration Lead to Radical Innovation in Latecomer Firms?

Xiaolan Fu, Cintia Külzer-Sacilotto, Haibo Lin and Hongru Xiong

Introduction

By following different paths, latecomer economies leverage international knowledge to grow and catch up with advanced economies. The “traditional” path is to acquire more advanced technologies and diffuse them internally. Most latecomer countries have taken this path, including China. They acquire, assimilate and adapt foreign technologies through imports, licensing and inward foreign direct investment (Fu et al. 2011). These mechanisms often lead to more incremental innovations, with firms potentially imitating the technologies available in advanced countries. Although this path has benefitted China during take-off and catch-up phases, it is not free from criticism, for example the lack of creativity and heavy dependence on foreign investment (Fu 2015). Another criticism refers to the limitations of foreign advanced technologies. Technologies are usually created to serve a particular environment, and this environment, for instance, in advanced countries, might be very different from those in emerging countries (Acemoglu 2002). Emerging economies are much more labour-intensive, hence the need for technologies that optimise the use of their resources. 

The “unconventional” path is to co-create innovations leveraging international knowledge. In recent years, in its pursuit of the transition from imitator to innovator, China has increasingly employed various unconventional knowledge-sourcing mechanisms. International innovation collaboration (IIC) is regarded as an essential channel for knowledge co-creation as innovation is frequently a collaborative, global undertaking. Can IIC help latecomer Chinese firms become radical innovators at the world technology frontier? There is no consensus on the definition of radical innovation (as discussed in Green et al. 1995). However, we agree that what distances incremental from radical innovation “is the degree of novel technological process content embodied in the innovation and hence, the degree of new knowledge embedded” (Dewar and Dutton 1986: 1423). In particular, we ask: how should the process be managed to ensure that IIC brings the promised benefits to enable leapfrogging in technology advancement for latecomer firms?

It is often argued that IIC provides significant benefits to innovation. It enables an innovator to tap into complementary capabilities (Beaver and Rosen 1979; Wagner and Leydesdorff 2005), access scarce or unique resources in other countries (Zhao et al. 2013) and increase the prestige or visibility of research (Narin et al. 1991; Sooryamoorthy 2009). However, language, cultural, institutional and geographic distances between collaborators may present significant barriers to the knowledge co-production process.

Despite several studies relating to collaboration and innovation behaviour (for example, Kafouros et al. 2015), the research on how collaboration impacts radical innovation is limited. Most literature has focused on international collaboration and innovation (for example, Hird and Pfotenhauer 2017; Criscuolo et al. 2010; Frenz and Ietto-Gillies 2009), and some relates to radical innovation in particular (for example, Enkel and Heil 2014; Leeuw et al. 2014). These studies used evidence from advanced countries predominantly, with two important exceptions: Jugend et al. (2018) who explored the impact of collaboration on radical innovation within Brazil; and Fu et al. (2020) who explored the impact of IIC on radical innovation in Chinese manufacturing firms. However, our understanding of how IIC impacts radical innovation in developing countries is still limited.

This chapter aims to fill this gap in the literature by exploring how IIC impacts radical innovation in latecomer economies. An in-depth case study of a leading Chinese technology company is employed to explore IIC management in successful Chinese firms in their pursuit of leapfrogging to the world technology frontier. This study supports previous evidence that IIC is associated with more radical innovation. However, such gains of collaboration for radical innovation come only with effective collaboration management. Opening up to international partners, combining problem-solving and blue-sky exploration and procuring sufficient internal inputs to facilitate absorption and integration of innovative technology are critical to ensure that IICs are fruitful.

This chapter’s contributions to the literature are firstly to provide evidence concerning the selection of IIC partners and projects in attempts to achieve radical innovation in latecomer firms, and secondly to make the first exploratory analysis to understand how the process of IIC is managed in successful latecomer firms to ensure that the promised benefits are achieved.

Gains from International Collaboration and Radical Innovation: Received Wisdom

Gains from IIC

The transformation from imitation to innovation requires increasing radical innovation in latecomer economies. The launch of radical innovation involves extending the firm’s knowledge base, namely, its knowledge breadth and depth (Zhou and Li 2012). Such an extension can be achieved by investing in internal R&D as well as by accessing external innovation resources and capabilities (Bao et al. 2012). One of the mechanisms for doing the latter is collaboration. External linkages with universities and research institutes (URIs), and along the value chain increase firms’ innovation possibilities (Freeman and Soete 1997). Collaboration not only helps the firm acquire knowledge from outside its boundaries, but it also helps with combining different sources of knowledge to explore uncertain worlds (Belderbos et al. 2004), supporting exploratory research and radical innovation through open processes.

As innovation becomes more open, collaborative and global, it improves innovation performance (Criscuolo et al. 2010; Narula and Zanfei 2004). Application of knowledge production functions to a dataset of thousands of firms discovered that being globally engaged in innovation leads to higher productivity, mainly due to learning from more sources, such as suppliers and customers, universities and their intra-firm worldwide pool of information (Criscuolo et al. 2010). In addition to multinational-led global innovation generation, strategic technology partnering complements internal R&D-based innovation (Narula and Zanfei 2004). This stream of literature found that large firms choose strategic partnering because of their strong technological capabilities and absorptive capacity. That enables firms to keep up with technological frontiers (Cantwell 1995). On the other hand, Narula (2002) found that small firms rely on external sources due to their lack of human, technological and financial resources. They cannot perform all innovation stages, from research and development to commercialisation, to create and capture value within their borders. Small firms often exploit niche markets, and a larger pool of resources and markets helps them implement their specialisation strategy (Chesbrough 2010).

The internationalisation of innovation and the rise of the emerging economies have induced much R&D outsourcing activity from advanced to emerging economies. China and India have invested heavily in R&D, and both have reservoirs of low-cost high-skilled labour (Fu et al. 2011), which makes them particularly attractive partners. However, despite substantial investment in R&D and a large pool of educated scientists and engineers, firms in developing countries are frequently constrained from world-leading innovation performance (for example, Hobday et al. 2004; Dantas and Bell 2009). One salient reason is that universities in latecomer economies are often over-engaged in the diffusion, instead of the creation of knowledge, and this leads to domestic university-firm partnerships enhancing incremental innovation (Fu and Li 2016). Innovation through international collaboration is likely to break these constraints, nurturing more radical innovation and changing the technology trajectory of China.

Motivations and the Actual Gains from IIC for Radical Innovation

Firms collaborate with external partners, such as customers, suppliers and URIs, in a range of paradigm-shifting and technical problem-solving activities. The effect of innovation collaboration is shaped by the type of innovation nurtured by these interactions. For instance, Criscuolo et al. (2010) found that information flows from universities are critical for patenting, whereas flows from business contacts are important for other metrics of innovation performance. Indeed, collaborating with URIs can significantly enhance both a firm’s entry to new technological fields and new product development (George et al. 2002; Perkmann et al. 2011; Mindruta 2013). It can also support paradigm-shifting projects, although Parida et al. (2012) showed that collaboration and integration with customers in the supply chain also positively influence radical innovation in high-tech sectors.

Due to the heterogeneity of knowledge across industries and locations, the supply of expertise in one specific field at a given site may be limited. This phenomenon induces firms to look for knowledge from external sources. Superior performance and assistance in unlocking greater innovation potential are some of the advantages of IICs in emerging economy enterprises (Kafouros et al. 2015; Lichtenthaler 2008; Peng et al. 2013). However, there are disadvantages in that differences in linguistic, cultural, institutional and geographical location challenge IIC effectiveness. Evidence from the UK and the Netherlands suggests that, despite these challenges, firms prioritise the quality of research over geographical proximity (Laursen et al. 2012). In China, location has not been deemed to be an essential factor in deciding international research collaboration in recent years (Zhou and Tian 2014). Once such social and cultural connectors have been allowed for, multinationals are likely to set up R&D labs close to collaborators (Castellani and Pieri 2013). Therefore, the gains from IIC are more substantial than the disadvantages caused by geographical distance.

To engage in collaborations, firms have to develop scanning capabilities to find the best external partners and projects (Kim and Park 2010). These capabilities are not often in place (Laursen and Salter 2014), particularly in the case of international collaborations, as latecomer firms often cannot leverage on their existing domestic network (Peng et al. 2013). Firms also face challenges in managing long-distance partnerships and securing value from them. On top of the technological, cultural and geographical distances, latecomer firms need to deal with coordination costs, different incentives and appropriability recurrent in all collaborative innovation projects but amplified in international ones. Literature suggests that firms particularly struggle to manage and control knowledge-sharing (Bouncken and Kraus 2013), although “sharing facilitates revolutionary and radical innovation that requires an extensive portfolio of resources” (Bouncken and Kraus 2013: 2063). To overcome such challenges, firms have to take a central role in their partnerships (Brunswicker and van de Vrande 2014), keeping relative control over resources and decisions to enforce commitment and align incentives in international collaborations.

The extent of collaboration depends on the firm’s absorptive capacity, business objectives, type of partnership and the ability to search for and manage international collaborations. Talents and institutions with similar expertise tend to cluster together (Audretsch and Feldman 1996). In this context, if absorptive capacity is in place, cross border IICs are more likely to produce ground-breaking innovations due to a broader knowledge base and the input of leading researchers with world-class expert relevant knowledge. Some prior studies have proved that technology-sourcing is often linked to radical innovation performance for high-tech firms, whereas technology scouting is linked to incremental innovation performance (Katila and Ahuja 2002; Pittaway et al. 2004; Parida et al. 2012). A stronger orientation towards technology breakthroughs instead of problem-solving seems vital for a firm to have radical innovation outcomes from IIC.

IIC in China

Over the past four decades, China’s innovation system has transitioned from being relatively isolated and un-integrated to being relatively open and market-oriented. China was believed to have the highest openness within the developing countries in terms of business, trade activities and relevant institutions (OECD 2008). More recently, China has begun to participate deeply in global innovation networks and international innovation governance. Promoting IIC to enhance indigenous innovation capability is regarded as one of China’s innovation-driven development targets.

Policies Towards Supporting IICs

Policies towards supporting IICs have been proposed since the 1980s and have been evolving with the upgrading of innovation activities in China. Firstly, policy domains have expanded from mainly supporting basic research cooperation to applied research and industrial, technological collaboration. The relevant subjects gradually grow from joint manufacturing to joint R&D, designing, branding, talent training, cross-licensing as well as cross border technology acquisition. Secondly, the main beneficiaries extend from URIs to various forms of domestic enterprises, and from country-level science and technology (S&T) projects to multi-level innovation projects, platforms and research bases. Thirdly, the primary policy orientation has pivoted from inward open innovation to outward open innovation. Since 2012, renewed policy emphasis has accelerated the implementation of going-abroad strategies, making greater use of global innovation resources. In recent years, more policy emphasis has been placed on the combination of “bringing in” and “going global”, taking a more proactive approach to integrating into the global innovation network, and building an open innovation mechanism at a higher level. Fourthly, the use of relevant policy tools has become diversified and more targeted. For instance, the preferential tax policy for R&D collaboration activities was strengthened in 2010. Additionally, in recent years, more cooperation funds and various R&D platforms have been established, together with deregulation and facilitation of cross-border innovation flows (or collaborative interaction). In 2017, the National Natural Science Foundation of China (NSFC) launched an initiative to increase collaboration agreements with countries along the “One Belt, One Road” (Chen et al. 2020). Fifth, the national R&D programme has been opening to the world, and taking the lead in organising international big science programmes, that is, large and complex scientist research programmes, as well as big science engineering programmes. From 2017 onwards, international scientific research institutes and other organisations alike may take the lead or participate in national strategic research (Chen et al. 2020).

Policies towards inward open innovation, or innovation exploration, have been particularly influential in China. International technology transfer and assimilation have been critical to supporting indigenous firms in implementing radical innovation and opening their innovation processes (Fu 2011). Other strategies in this direction are a collaboration with universities, equity in university spin-offs, overseas investment and acquisition. Policies towards outward open innovation, or innovation exploitation, have been implemented but not as extensively used as those regarding exploration (Fu 2011). These policies aim at promoting the external commercialisation of new technologies and are more associated with incremental innovation. Policies towards open innovation networks have been used by immediate innovation service institutions, science parks and incubators in the context of helping indigenous firms as well. The aim of these policies is to support market-oriented R&D systems centred around the firm, and to develop technology transaction markets where technology can be transferred, consulted, exchanged and mediated (Fu 2011).

IIC and Radical Innovation in Chinese Firms

According to the National Innovation Survey of 646,000 firms carried out by the National Bureau of Statistics of China in 2014, while around 130,000 (20.1 per cent) Chinese firms have engaged in collaborative innovation, the proportion is higher in the manufacturing sector (26.4 per cent). For those firms that have engaged in collaborative innovations, the majority were state-owned firms (61.3 per cent), while privately-owned firms engaged in university-industry collaboration stood at 38.8 per cent (National Bureau of Statistics 2017). Firms collaborate with various partners, including other firms within their company groups, suppliers, customers, competitors, consultants or private R&D institutes, URIs and commercial labs. URIs are the sector that registered the most significant number of collaborations, especially domestic URIs. Suppliers and customers also have many innovation collaborations. Collaboration with customers is the most popular pattern of innovation collaboration, with 45.4 per cent of all cases registered in this category, followed by suppliers, reported as 36.1 per cent of innovation collaboration.

Despite the fact that most of the collaborations are domestic, evidence shows that IICs are relevant and growing. Previous literature states that international cooperation is critical for China’s scientific knowledge creation (for example, Wang et al. 2013; Liu et al. 2015). Using data from the NSFC, Yuan et al. (2018) studied the prevalence and trends of international collaboration. Out of 326,000 grants between 2006 and 2016, 15,966 were assigned to 75 countries and 7,989 institutions. The majority of these collaborations were with G7 and Asia-Pacific countries, particularly with the US, the UK and Australia. However, collaborations are expanding into other countries in Europe and along the “One Belt, One Road”.

Using the national innovation survey dataset of manufacturing firms, Fu at al. (2020) assessed the impact of IICs on radical innovation in China. The authors found evidence that firms with a greater extent of international collaboration introduce more radical innovation, measured as the percentage of new to the market innovation (regarded as ground-breaking at the world level). The authors reported a positive impact of IIC intensity and the moderating effects of R&D intensity on the relationship between international openness and radical innovation that a firm produces. The R&D intensity itself also exerts a significant positive impact on radical innovations. Moreover, firms in high-technology industries are more likely to develop radical innovation than firms do in traditional sectors. Exporters and firms that receive support from public research programmes are also more likely to create radical innovations.

Methodology and Data

We used an exploratory case study approach to analyse how IICs lead to radical innovations. C-Tech, a leading Chinese technology company, was selected for the study. C-Tech is admittedly an exceptional case: it is a private, competitive and internationalised company that has caught up technologically with its competitors in emerging and advanced countries. In 2010, C-Tech successfully implemented an initiative to systematically build and manage collaborative innovation, domestically and internationally. Since then, it has engaged in over 6,000 collaborations with more than 300 universities in 20 countries, many of them leading to ground-breaking innovations. Extensive and effective collaborative innovation is indeed an essential strategy of the firm, for incremental and radical innovation. As its founder, the President of C-Tech, stated, “C-Tech possesses an open innovation paradigm because blind exclusivism would make innovation sink into a closed system that leads to death”.

As a successful latecomer, C-Tech is paving the way for the international-isation and opening up of other indigenous firms in China. Understanding how C-Tech systematically manages IICs sheds light on how other high-tech indigenous firms can open their innovation processes, leverage international knowledge and co-create ground-breaking innovations with external partners. It also sheds light on critical inputs required by indigenous firms to effectively search for and manage IICs to inform managerial and policy implications.

We focussed on the C-Tech Innovation Research Program (IRP) and the unit of analysis of relevant R&D projects involved. To collect the primary data, we conducted several rounds of field interviews with C-Tech executives and staff from 2014 to 2018 and interviewed several external collaborators. Additionally, secondary data were used for identification and corroboration purposes. A statistical test was carried out on a random sample of IRP projects (100 domestic and 100 international from a pool of 6,000 collaboration projects) to examine whether there are significant differences in the novelty of the outputs between domestic and foreign projects.

An In-depth Case Study of a Leading Chinese Technology Firm

Is There a Difference between Foreign and Domestic Collaborations? Project-level Evidence from C-Tech

C-Tech began to build an open, collaborative framework for technology exploration and exploitation in 1999. In 2010, its S&T Fund was reshaped into the Innovation Research Program (IRP). The programme adopts a more systematic approach to allow C-Tech engineers to collaborate with researchers at top universities and other organisations, both domestic and foreign, to achieve technology breakthroughs or to solve complex technical problems. By the end of 2016, the IRP had supported more than 6,000 research projects. Academic institutions take a leading role in their research partnerships; URIs form nearly 60 per cent of the company’s total research partners.

From the IRP’s 6,000 collaborative projects’ dataset, we randomly selected a sample of 200 projects. We examined the attributes of collaborative partners’ geographic region (foreign vs. domestic) and Cooperation Type.^[1] Table 7.1 shows the cross-tabulation of the novelty of the projects against the type of partner. The 100 projects with external partners comprised 62 Technical Research projects containing a high level of originality and 38 Technical Development projects, which mainly involved the development of existing technologies. The 100 projects involving domestic collaboration comprised only 44 Technical Research projects containing a high level of novelty and 56 Technical Development projects. We used a logistic regression test to confirm the significance of the differences between the two groups because the dependent variable is a binary variable which equals 1 for novel innovation-oriented research collaborations and 0 for incremental innovation-oriented technical development projects. Table 7.2 shows that the estimated coefficient of the “foreign” variable was 0.731 with an odds ratio of 2.077 and was statistically significant at the 5 per cent significance level. This evidence confirms that foreign and domestic collaborations differ in terms of the type of collaboration. Collaboration with external partners is linked to a more research-oriented project, potentially leading to more breakthrough innovations. Of course, this evidence suggests correlation instead of any causality going from international collaboration to radical innovation. The classification of outcomes may merely reflect the initial category from which the projects were funded. Therefore, caution is needed in drawing any conclusions regarding the impact of international collaboration based on this evidence.

How Does C-Tech Choose Innovation Collaborators? Opening Up to International Collaboration

While considering potential partners, C-Tech optimises technological distance over geographical proximity to ensure the best potential for novelty creation. According to the literature, the greater the technological distance between the firm and an external collaborator, the higher the potential for novelty, but the lower the ability of the firm to absorb the knowledge (Nooteboom et al. 2007). Given C-Tech’s high absorptive capacity, it can regard originality and technical leadership as the primary selection criteria. Indeed, the most crucial internal principle of technology cooperation is, as C-Tech interviewees mentioned, “tracing the source and choosing the best of best” despite the geographical distance. They generally start from “keeping abreast of the initial technical source, clarifying academic context, identifying the leading people, selecting the best and continuing to develop the Top 1 & 2 lab resources globally”.

C-Tech emphasises persistent and mutual complementarity, as well as promoting long-term cooperation relationships with high-quality partners. The technical cooperation department also effectively coordinates the collaborative programmes with internal R&D by providing more resources to enhance the competitiveness of C-Tech itself. Moreover, C-Tech is continuously building a qualified collaborative partners list and implementing portfolio management in selecting potential partners. For example, all the existing collaborative projects and potentially relevant partners would be evaluated and classified routinely according to C-Tech’s TQRDCS evaluation system (an initialism which refers to technology, quality, response, delivery, cost-effectiveness and social responsibility dimensions), and only the fittest will qualify. In general, comprehensive technological distance is the most critical factor in their selection of research partners. The higher the advanced technology level of the potential partner, the higher the cooperation probability. Experiences in collaboration with industrial partners are the second requirement. Geographical distance is taken into account only when comprehensive technology distances are the same.

Effective Collaboration Management: The Problem-Breakthrough-Integration Model

From a long-term perspective, C-Tech’s IRP seeks a large variety of potential technological partners for radical innovation. There are three sub-programmes, Exploratory, Open and Flagship^[2]Each one has a “problem-breakthrough-integration” model to facilitate open radical innovations. C-Tech seeks technical cooperation in two categories of R&D projects: (1) those for which the technology and market fields have bright prospects but insufficient internal capabilities, and (2) those for which there is considerable uncertainty in technology or market prospects. The Flagship programme mainly serves category (1), supporting research that will significantly impact technological capability. C-Tech’s internal R&D staff participate in these programmes alongside partners. Most Open and Exploratory programmes belong to category (2). For instance, a unique feature of the IRP Open programme is funding projects that support novel and early-stage research ideas. C-Tech issues an annual “IRP Open Call for Proposals” that lists key topics of interest and solicits proposals for research subjects. These programmes not only increase blue-sky exploration, broadening C-Tech’s existing technology horizons, but also constitute a source pool for long-term or strategic cooperation.

C-Tech has developed an effective management system to guide the dynamic cooperation process. To ensure clarity over the responsibilities of the different players, IRP and the internal technology department, which raised the demand for cooperation, are kept separate but mutually dependent. The technology department can make suggestions for potential partners in the cooperation management department. However, in order to prevent internal corruption, the technology department is prohibited from bypassing the cooperation management department and communicating directly with the partners.

Within collaborations, the IRP designs and executes a series of bonus systems and IPR-sharing systems to maximise the incentive effects for each high-quality partner. It also deploys a lean mission-oriented team, called “The Iron Triangle”, to manage the operational business of each technology cooperation project in the programme. This team is generally involved with three key roles: the project manager (PM) who is in charge of general operations, the principal investigator (PI) who is focused on technical interaction and generally based in the host department and the local cooperation manager (LCM) responsible for managing the partnerships. The implementation of “The Iron Triangle” minimises potential conflict and maximises interaction efficiency, significantly reducing the potential obstacles brought about by geographical distances.

Taking the practice of an Optical Transmission System-related project as an example, the power consumption of high-capacity, long-distance systems is very challenging. The technical team worked with several incumbent collaborators, but all failed. Then they presented this as an IRP Open challenge. A German professor of wireless communication proposed a novel idea that introduced a method from wireless technology hitherto unknown to the optical transmission system experts. After initial exploratory efforts validated the assumption, an IRP Flagship project was set up to fully integrate the method with all the product details and to carry out rigorous testing. Both sides met monthly to discuss the current operations and jointly solve countless problems, both in theory and in engineering. Common goals led to a strong committed team, which included the professor and his best PhDs, who joined C-Tech to continue the research after the joint project. The collaboration team finally produced patentable breakthrough technologies that led to a marketable solution. Thus, it can be seen that the problem-breakthrough-integration model enables radical innovation.

The Importance of Internal R&D and Organisational Inputs

C-Tech’s internal R&D and relevant R&D management inputs are important for radical innovation. On the one hand, radical innovations need the firm’s absorptive capability and joint efforts to turn the ideas into practice. C-Tech has many engineers and continuously spends on R&D, which builds a strong base for knowledge absorption. Each year, C-Tech devotes more than 10 per cent of its revenue and almost half its employees to R&D, resulting in a portfolio of over 50,000 patents. The substantial long-term investment in R&D and a large engineering team help create absorptive capacity.

On the other hand, R&D management inputs such as the “IRP Open Call for Proposals”, “Iron Triangle” and network-based knowledge communication flows are required for successful collaborative blue-sky exploration. The open call pushes the internal R&D team out of their comfort zone to interact with researchers and scientists with different expertise, challenging the internal team’s ideas and driving out-of-the-box thinking towards blue-sky exploration. Among “Iron Triangle” coordination teams, the LCMs, mostly based in overseas R&D centres or institutes, play an indispensable role in promoting formal or informal communication between host R&D staff and overseas partners. This helps C-Tech not only to manage established collaborations, prevent and solve potential conflicts, but also to identify new projects and partners overseas. In the process of a joint research project, the department in charge will organise frequent cross-disciplinary discussions among the partners and internal research staff, to examine the validation platform of the pilot test team, together with the product development team, and there will also be input from customer demand, to gradually make the “pain points” clear.

Figure 7.1 represents the knowledge flows’ network embedded in a typical IRP Project. In short, interactive flows are multidirectional and integrated between internal research, development and implementation departments (see solid lines). The initial research demand information towards the (external) partners is through an open call for proposals or invitations to selected potential partners. The research institute needs to rephrase the wording of the problems seeking solution into academic research questions so as to speed up the collaboration progress and facilitate the communication between industry and academia (see the connection between the Research Institute and Partners). Solutions provided by external partners are tested by the Validation Platform and the validated technical solutions are then passed on to the Product Line. Feedback is then provided to the Partners to finalise the collaboration outputs. Therefore, in addition to policy incentives, careful internal collaboration management is another factor that is crucial to ensuring the success of international innovation collaboration.

Figure 7.1: Knowledge Flows Network Embedded in a Regular IRP Project

Conclusions and Policy Implications

This chapter examines the role and means of IIC in achieving radical innovation in China. Given that innovation is increasingly a collaborative task and that globalisation is driving more firms to adopt international collaboration, this chapter analyses how IIC can contribute to China’s transformation from imitator to radical innovator. IICs are more likely to produce ground-breaking innovations due to a broader knowledge base and the input of interactive cooperation between leading researchers with different backgrounds.

Through an in-depth case study of C-Tech, this chapter has discussed how successful latecomers search and manage IICs, and how that leads to breakthrough innovations. In particular, C-Tech engages foreign partners for research-oriented collaborations. Comprehensive technology distance is the most crucial factor in their selection of research partners. The higher the advanced technology level of a potential partner, the higher the cooperation probability. To ensure international collaborations, C-Tech combines problem-solving with blue-sky exploration and sufficient internal inputs to facilitate absorption. Internal R&D capability, especially that embedded in extramural R&D, strongly determines the transfer performance in making use of external knowledge or complementary resources, mainly due to the absorptive capacity and technology distance effects. Latecomers need to increase their R&D intensity, both internally and externally, during open innovation processes. Integration capability is also vital for effective IICs. C-Tech created the IRP to search and manage international collaboration systematically. Within the IRP, C-Tech assigns a mission-oriented R&D team organised to manage the operational business of each IRP project.

The findings from this research have profound managerial implications. Radical innovation in Chinese firms is internationally collaborative. Technology is advancing at an unparalleled rate, so innovation cannot be limited to internal development alone. Enlarging the talent pool and collaborative networks is vital for fresh perspectives and new skills. To some extent, collaboration is a crucial conduit for innovation-related knowledge flows, both for firms that use R&D (either internally developed or externally acquired) and for those that are not R&D active. International collaboration plays a vital role by allowing firms to gain access to a broader pool of resources and knowledge at a lower cost with shared risks, integrated into global value chains. Thus, an organisation’s disruptive or radical innovator strategy must actively seek international partners who can provide complementary assets to accelerate its innovation path.

Moreover, an open mind and a strategy for path-breaking innovation are required instead of path-following incremental innovation during the transition from imitative innovation to radical innovation. One of China’s main development objectives is to make the economy become an innovation powerhouse in the world. This massive transition of the national innovation system requires high-level creative ideas and talents that are different from those necessary for imitative innovation. It involves vision in identifying the strategic direction and substantial investment for long-term R&D activities with partners to share risk, plus high-level, complex skills to carry out ground-breaking innovations. International collaborative innovation is, therefore, an effective mechanism to address these challenges for path-breaking radical innovations and achieve global innovation leadership.

In the increasingly global context, with innovators drawing on technologies and ideas from all over the world, innovations can be built on unique local and regional strengths. Policies should facilitate the development of enduring linkages and networks among researchers and innovators across countries (OECD 2015). This focus is, in fact, a widely observed trend among OECD countries that have introduced a series of programmes to encourage and support international collaboration. More recently, specific open innovation policies have been discussed to improve the linkages between science and innovation, embrace uncertainty with the intersection of disciplines and sectors, increase private investment and help firms navigate a complex regulations environment to disrupt traditional industries (Bogers et al. 2018).

Some aspects are still preventing IICs and limiting their impact vis-à-vis boosting radical innovations. The lack of R&D expenditure, particularly basic research, which functions as the absorptive capacity for assimilation of technologies, prevents latecomer firms from using foreign advanced technology, competing with international firms in an open economy and engaging in radical innovations (Chen et al. 2020; Gao 2019). Remarkable progress has been made in addressing this deficit, but China still lags behind developed countries (Fu 2011; Chen et al. 2020). The lack of efficient global technology transaction markets and professional open innovation management expertise also prevents indigenous firms from engaging in IICs. Most firms do not have the necessary infrastructure to search and manage IICs effectively. Policies strengthening the layout of the IIC network and facilitating international collaborations, such as the development of platforms and other tools to orchestrate international collaborations, increase the chances of regular indigenous firms connecting with and managing external partners (Chen et al. 2020).

Although less direct, policies related to regulations and competitiveness are also supported by the evidence presented in this study. Policies help indigenous firms navigate regulations, such as those affecting IIC (for example, intellectual property sharing) or radical innovation (for example, barriers to enter highly regulated but impactful sectors). Policies are needed which promote not only cooperation but competition among indigenous firms to keep managers and shareholders motivated, willing to take risks and continue to innovate (Bogers et al. 2018).

This study has limitations that should be overcome by future research. The conclusion regarding how to manage IICs to lead to radical innovation is derived from a single in-depth case study. This study described how a private, internationalised and highly innovative firm effectively uses IIC to create radical innovations. Given the exceptionality of the case, it should not be directly generalised. Most indigenous firms are in entirely different situations. Therefore, although policies towards increasing absorptive and integration capacity in latecomer firms can be translated precisely to them, more studies are needed on how latecomer firms use and manage IICs to lead to radical innovations. Moreover, our empirical evidence suggests that firms may assign more technical research projects for international collaboration in comparison to technical development projects. It is still not clear how successful a latecomer firm can be in the creation of ground-breaking radical innovation through international collaboration. Future research needs to provide more accurate evidence on this potential gain, in particular on the size of the benefits. Caution is still needed not to over-state the benefits of international collaboration relative to collaboration with domestic partners.