Technology Analysis & Strategic Management

Vol. 17, No. 3, 367 –373, September 2005

The State in Science, Technology and

Innovation Districts: Conceptual Models
for China

CARLA C. J. M. MILLAR
, CHONG JU CHOI† & ROBERT T. J. CHU

University of Twente, The Netherlands, †Australian National University, Canberra, Australia,



Cambridge University, UK

ABSTRACT Throughout the world the creation of successful technology districts has become a
major issue for public policy makers. This paper analyses the potential role of the state in
entrepreneurship and the creation of technology districts, and outlines implications for China’s
social market economy. We identify three types of technology districts: (1) market-driven
technology districts such as Silicon Valley in the USA and Cambridge in the UK; (2) state-driven
technology districts targeting foreign multinational companies, such as Sophia Antipolis
in France and Singapore; (3) state-driven technology districts which nurture local companies,
such as the Hsinchu Science and Industrial Park in Taiwan. We believe that these three
typologies provide the foundation for better understanding the potential role of the state in
science and technology for China in the early 21st century.

1. Introduction
The creation of technology districts and their positive impact on entrepreneurship and
capitalism has become a major issue of public policy and the role of the state in
the 21st century. The best-known example of technology districts, Silicon Valley in
California, USA has been analysed as being driven by market forces, without the interven-
tion of the state. However, more recent successful technology districts, such as Sophia
Antipolis in France and Singapore, and Hsinchu Science and Industrial Park in Taiwan,
have all relied on a close partnership between the state and the market.
One of the greatest changes in the global economy of the 21st century is the emergence
of China. By 2006 China is predicted to be the third largest economy in the world after the
USA and Japan, and in 2003 it was the world’s largest recipient of foreign direct invest-
ment, US $65 billion. In October 2003, China’s new president, President Hu Jintao, in
Australia on his first official visit abroad, pledged that China would continue its 20
years of phenomenal economic growth and transition through a ‘social market economy’.

Correspondence Address: Carla C. J. M. Millar, University of Twente, School of Business, Public Administration
and Technology, Capitool 15; PO Box 217, 7500 AE Enschede, The Netherlands; Tel: þ31-53-489-4618;
Fax: þ33-53-489-2159; E-mail: c.millar@bbt.utwente.nl

0953-7325 Print=1465-3990 Online=05=03000367–7 # 2005 Taylor & Francis

DOI: 10.1080=09537320500211722
368 C. C. J. M. Millar et al.

China’s role as a major economy in today’s global business environment with its
catalysts for structural economic change and the blurring of national boundaries—and
their impact on firms’ activities and performance—has led to an urgent need to reassess
the traditional neoclassical, competition-driven frameworks of international management
research.1 We should also consider incorporating other social science based systems of
exchange including sociology, anthropology and cultural studies.2 These other social
science based disciplines are better able to analyse the nature of a ‘social market
economy’, in turn providing a better understanding of social entrepreneurship in China.3
The role of the state has been fundamental to the rapid economic growth of various Asian
countries since the Second World War. The role of the state in economic and business devel-
opment in Japan has been analysed in works such as Fruin,4 in Korea in works such as
Amsden5 and in Taiwan in Wade.6 Most countries place importance on entrepreneurship
and the creation of technology districts. The potential role of the state and public policy in
this process of interaction between entrepreneurship and technology has many implications
for China’s management of science, technology and innovation in the early 21st century.
The purpose of this paper is to provide a typology of models for analysing the potential
role of the state in entrepreneurship and the creation of technology districts. Successful
global examples and comparisons between France, Singapore, the USA and Taiwan
show that there is a potential role for the state in entrepreneurship and technology district
creation. However, the scale of China is such that different regions may apply one or a
combination of these three generic models of technology districts. The contribution of
our paper is to provide this typology of models and their relevance for China’s potential
management of science, technology and innovation.

2. China vs the USA: Business Systems

There are some key differences in the nature of China’s business system as compared to
the well-researched US system,7 in terms of organisations and institutions. We distinguish
two major ways in which the interaction between institutions and organisations and the
proportion of formal or informal institutions can influence a national business system.
A system could have very strong linkages between institutions and organisations, as in
many collective societies in Asia and in continental Europe. Or where there are strong
legal systems, the relative proportion and thus importance of formal vs informal insti-
tutions is the determinant of performance, and hence we observe a separation between
institutions and organisations.8
In the international business strategy, innovation and development literature the role of
public policy and the state in Asia has been well researched.9 This allows us to contrast the
US system, with its emphasis on formal institutions with that of China, with its emphasis
on informal institutions. It is shown in the figure below and represented by the larger part
of the inner circle taken up by the informal institutions.
One of the facets about the Chinese system which emerges is the closer relationship
between economic, political, social and educational organisations,10 represented by the
thicker, continuous lines in Figure 1. A key strength of this closer partnership across
the organisations is that major developments in China’s science, technology and inno-
vation could happen at a much more accelerated pace than in a system which has
greater separation among the economic, political, social and educational spheres, such
as represented by the dotted lines for the US system.
 Conceptual Models for China 369

Figure 1. Business systems: US vs China (adapted from North, Ref. 7; Choi et al., Ref. 24).

3. China’s Business System

To enable us to better judge these implications for China, we need to analyse further the
country’s business and financial system. Economic integration and progress requires
Chinese financial institutions (securities, markets, banks) to focus on long-term perform-
ance and avoid the problems of short-termism that are very common in the Anglo-Saxon
market-based system. This active role of debt has been developed in the Anglo-Saxon
countries through the evolution of the market-based system.11 None-the-less, major criti-
cism has been levied against the relatively heavy reliance on short-term stock market
financing, which has led Anglo-Saxon firms to plan their financing and investment
decisions to satisfy the short-term interests of their myopic shareholders.12 For China’s
business system to focus on the long-term performance, it is necessary to strengthen the
legal infrastructure to enable a more active role for finance banks. Failing this, China’s
banks cannot play the promised active role in corporate governance. In fact, low equity
holdings in bank institutions goes against the foundations of the relationship-based
business system, which is particular to the region.
For the reasons that follow, strategic progress requires structural changes to the Chinese
corporate governance system if it is to become more transparent. Economic integration
will gradually lead the Chinese market to be more liberalised, which requires more dis-
closure to outside investors. The stage of economic transition in China requires low-
cost long-term financing which cannot be guaranteed unless financiers are sure about
the near and distant future of Chinese firms. In this regard, China is in a good position
to reach a reduced transaction cost level by utilising its technological information advan-
tage, and to become more transparent to existing and potential investors and stake-
holders.13 Evidence in the field supports the positive relationship between firm
disclosure, reducing cost of equity, cost of debt and performance in the product market.14
Market liberalisation in China has required firms to follow the IAS and the disclosure
regulations of the leading international financial centres in the Anglo-Saxon (US/UK)
business system. Nevertheless, due to the weak legal infrastructure China has not suc-
ceeded in forcing adequate disclosure as many cases of fraudulent accounting and viola-
tions of disclosure rules have been detected. The main areas of low or absent disclosure
370 C. C. J. M. Millar et al.

Table 1. Entrepreneurship in three types of business system

Types of business systems Context of entrepreneurship

Anglo-Saxon System † Shareholders and the dynamics of financial markets

Communitarian System
China’s Business System
† Dominated by private entrepreneurship and the profit motive
† Stakeholders: employees, suppliers, government and the
community
† Closer mix among social institutions, businesses and the
communit
† Privatisation of government ministries, state-owned enterprises
† Social market economy
† Mix of both shareholder and stakeholder systems

were asset valuation, disclosure of off-balance sheet items and transactions with parties
related to controlling shareholders.
Transparency will lead to better financing and investment decisions as market-based
mechanisms use price signals to efficiently allocate resources and monitor market
returns. In this regard, we suggest a measure of the progress of China’s corporate govern-
ance system reform that relies, inter alia, on the percentage of long-term and short-term
financing to total financing. We posit that the higher the percentage of long-term financing,
the more we can infer the extent of outside investors’ confidence in the future of China’s
firms. A long-term perspective is crucial to a sustained competitive corporate governance
system in China, as the economics-driven business system, and the Anglo-Saxon corporate
governance systems associated therewith, have resulted in short-termism in both financing
and investment decisions. In addition, attention has been drawn to the importance of
including the logic and analysis of other social sciences disciplines such as sociology
and anthropology next to traditional neoclassical economics in the analysis of national
business systems.15
In line with other researchers we posit that China’s business system will be a hybrid
mixture of the two major systems, the Anglo-Saxon shareholder and the Communitarian
stakeholder systems.16 The different modes of corporate governance and information
disclosure can have an important influence on the strategic behaviour of firms and organ-
isations, e.g. in deciding to undertake social entrepreneurship.17 The table 1 shows the
differences between the three business systems and their implications for entrepreneurship
in China’s social market economy.

4. Three Models of Entrepreneurship in Relation to Technology Districts

The role of public policy and of the state in entrepreneurship and technology districts is a
growing area of research and increasingly a subject of debate among economic policy-
makers throughout the world. A key research and policy question is ‘What is the best
way to develop entrepreneurship and technology districts?’ We believe there are three
major frameworks and models for entrepreneurship in technology districts.
The first one concerns market driven technology districts such as Silicon Valley in the
USA and Cambridge in the UK.18 The second is state-driven technology districts targeting
foreign multinational companies, such as Sophia Antipolis in France and Singapore.19
 Conceptual Models for China 371

Table 2. Three models for science, technology and innovation districts

Model Examples Key characteristics

Market Silicon Valley, US and Developed over time, with close

Cambridge, UK interaction between universities,
technology companies and
entrepreneurs
State I Sophia Antipolis (France), Close involvement of the state in
and Singapore encouraging foreign multinational
companies in technology industries
State II Taiwan Close involvement of the state in
encouraging local technology
companies and local entrepreneurs

The third is state-driven technology districts which nurture local companies, such as the
Hsinchu Science and Industrial Park in Taiwan.20 We believe that these three typologies
provide a generic framework for entrepreneurship and technology districts throughout the
world and this paper provides a preliminary analysis thereof.
These three frameworks are consistent with research on the role of government and gov-
ernment intervention in the market, which has been widely studied, certainly in an Asian
context.21 This research showed the importance of government regulation in driving the
response of businesses, especially with regard to encouraging exports. Fruin and
Amsden in particular showed the importance of the role of governments in Asian countries
such as Japan and Korea.22 The ability of government intervention to be effective in such
contexts is not, therefore, in doubt. It is important, however, to distinguish between
developments that are market led and those that are driven by the state, and also
between the different types of state driven entrepreneurial technology district, i.e.
foreign multinational focused, or local industry focused.
The key characteristics of these three frameworks of global entrepreneurship and tech-
nology districts are shown in Table 2.
At national level there can be a mix and the reality tends to be a combination of all three
‘extreme’ frameworks occurring somewhere in any one country. This makes it difficult to
classify or prescribe the ‘best framework’ for any given country, and particularly not a
large rapidly transforming country such as China. However, we believe that our typology
of frameworks provides a preliminary conceptual analysis for understanding the choice
and potential of models and frameworks in entrepreneurship and the successful creation
of technology districts.

5. Conclusions and Further Research

In the early 21st century the creation of successful science, technology and innovation dis-
tricts has become a major issue for public policy makers throughout the world. This paper
focussed on the potential role of the state in entrepreneurship and the creation of science
and technology districts and the possible implications for China’s social market economy.
First, we positioned China’s economy in terms of the context for the development of entre-
preneurial activity and discussed China’s business system options against the two major
372 C. C. J. M. Millar et al.

ones—the Anglo-Saxon and Communitarian business systems. Comparative capitalism

and comparative business systems became a major topic of research in the 1990s. Com-
parisons between the well known Anglo-Saxon business system of countries such as the
USA and the contrasting Communitarian23 business system of continental European
countries such as Germany and France as well as developed Asian economies such as
Japan, Korea, Taiwan and Singapore have shown the global diversity of successful
business systems and capitalisms.24 China’s system has been related to these, at least in
terms of the context for entrepreneurship.
Then we distinguished three systems of technology districts: first, the market driven
technology districts such as Silicon Valley in the USA and Cambridge in the UK;25
second, the state-driven technology districts targeting foreign multinational companies,
such as in Sophia Antipolis in France and Singapore in Asia;26 third, state-driven technol-
ogy districts, which nurture local companies, such as the Hsinchu Science and Industrial
Park in Taiwan.27 We believe that these three typologies provide a generic framework for
entrepreneurship and technology districts.
This paper has thus introduced frameworks for comparative and global analysis in
relation to entrepreneurship and science, and technology and innovation district creation.
Here we have advocated analysis in terms of a typology of three types of entrepreneurship
as either driven by the market or one of two types of state and public policy involvement in
such entrepreneurship and technology district creation.
Two areas warrant further research: (1) an analysis of the implications of the role of the
state in entrepreneurship and the creation of technology districts for other emerging
economies such as Brazil, Eastern Europe and India; (2) an empirical analysis globally
comparing science, technology and innovation-driven industrial districts where the state
has played a substantial role in their creation. We believe that the role of the state in
the management of science, technology and innovation will be a major and continuing
research topic for China in the 21st century.

Notes and References

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83, 1995, pp. 1073–1113.
 Conceptual Models for China 373

12. K. J. Laverty, Economic ‘short-termism’: the debate, the unresolved issues, and the implications for
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D:Society and Space, 10, 1992, pp. 377–391; L. Miller & E. Garnsey, Industrial districts: comparing
Cambridge and Sophia-Antipolis, Mimeo, Cambridge University, 2000.
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W. Lazonick & M. O’Sullivan, Varieties of capitalism in the twentieth century, Oxford Review of
Economic Policy, 15(4), 1999, pp. 102 –120.
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(Oxford, Oxford University Press, 2001); R. T. J. Chu, Entrepreneurship and Institutional Business:
an Application to Taiwan, PhD Thesis, University of Cambridge, 2000.
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