Over the last several decades, there has been a strenuous debate about policies for economic development between the Washington Consensus promoted by the major international financial institutions and the revisionist political economists . Followers of the former view advocate free and unfettered markets buttressed by institutions to protect property rights. The revisionists argue that development involves social and political processes not adequately captured by the narrow prescriptive focus of the Washington Consensus.

In confronting globalization, there is also a new split among the revisionists themselves. Whereas the Washington Consensus welcomes globalization as a boon to developing countries through expanding the scope of market forces, the revisionists divide over the prospects for developing countries under globalization. The optimists, such as Ernst and Saxenian, see transnational networks as providing opportunities for developing countries to continue to learn the skills and competencies necessary to further their progress. The pessimists of the revisionist camp, such as Stiglitz and Strange, see globalization eroding the capabilities of the state or state-societal alliances necessary for development.

Using the case of technological upgrading (one aspect of economic development) in China's information technology (IT) industry, I demonstrate that opportunities for development exist under globalization. These paths to development are not simply the result of picking the right international networks to join nor are they due to the continued efficacy of state action. They also do not arise from well-developed market institutions within China. China's development success in spite of low levels of state industrial policymaking capacity and very incomplete market institutions tells us that other developing countries similarly unequipped can develop even in this globalized world.

In China's IT industry, two local institutional variables, firm operational strategies and state-firm relations, have interacted with the technology flows present in global networks to create opportunities for certain types of firms to upgrade. A firm's operational strategy (OS) determines its motivation to upgrade in China as opposed to doing so elsewhere. The relationship of firms to the state determines their sources of finance i.e. whether or not they can access functioning financial institutions.

The relationship of firms to the state determines their sources of finance and these sources of finance in turn impact their ability to upgrade. Sources of finance that provide credit with hard budget constraints give firms incentives to upgrade. Firms have hard budget constraints when they do not receive free help in covering their own financial obligations. With hard budget constraints forcing firms to meet their financial obligations, firms have to remain competitive to survive. For technology firms, a critical part of their competitiveness is their technology so they have every incentive to improve their technologies to keep pace with competitors. Finance that provides credit with soft budget constraints deprives firms of the incentives and even the capabilities to upgrade. Firms have soft budget constraints when they do not have to pay for some or all of their financial obligations themselves. These firms can rationally expect to survive even if not competitive because others are willing to bail them out. A third possibility is no source of finance. Firms without financing will not be able to invest in technological development.

There are four types of firms in China: the favored domestic firms, the neglected domestic firms, the hybrid foreign-invested enterprises (FIEs) and the regular FIEs. Financing and motivation have varied across firm categories. Due to different state-firm relations, FIEs rely on foreign finance and domestic firms do not. Hybrid FIEs differ from regular FIEs because the hybrids have a China-based operational strategy. This operational strategy (OS) is a mix of interests and ideational factors that causes these firms to perceive China either as the vital center of their operations (the China-based OS) or as just another location among many (the non-China-based OS). Thus, variation in firm-state relations (finance) and operational strategy (motivation) determine the variation in technological upgrading.

This thesis finds that the two types of FIEs are more likely to contribute to upgrading in China than the two types of domestic firms. Among the FIEs, the hybrid FIEs are more likely to contribute than the regular FIEs though the discrepancy is not as large as it is between the FIEs and domestic firms.

The hybrids are the most successful upgraders because they have both disciplined finance (i.e. credit with relatively hard budget constraints) from foreign financial institutions and the motivation to upgrade in China due to their China-based OS. The unsuccessful domestic upgraders lack finance (neglected domestic firms) or financial discipline (the favored domestic firms) due to their particular relationships to the state. The regular FIEs have the capabilities to upgrade due to their financial discipline and access to transnational technology networks, but undertake less upgrading in China than the hybrids because they lack the China-based operational strategy.

Dr. Liu first offered his view on the current state of the software industry's development and in particular software outsourcing to China. Software prices and margins continue to drop. Coupled with this reality is Liu's view that "only 10-15% of software development is truly innovative and therefore suitable to be developed in Silicon Valley". As software development platforms and communication technologies, especially the Internet, become ubiquitous and affordable, distributed software development is becoming the rule.

China's challenges and advantages in software outsourcing

Compared to India, the leader in software outsourcing, China has its own distinct challenges. Chinese software companies have almost no U.S. customers for a number of reasons: language barriers, different working styles, customers' concern for software piracy, and the lack of experienced programmers and technical managers in China. Yet, China also has its advantages. Not only does it have a rapidly expanding domestic software market, but it also has a large pool of fresh engineering talent. "The key, therefore," asserted Dr. Liu, "lies in someone creating the right environment to train and build a local team to be able to develop and deliver world-class software products."

Augmentum's software development goals

This is what Augmentum has set out to accomplish. "...[W]e want to build a world-class, distributed development team for software product development... like the ODM model in the PC world..." declared Dr. Liu. Based on this vision, Augmentum's strategy hinges on its insistence to develop software for top US customers, such as Motorola, Business Objects, and PalmSource--and to rely primarily on local Chinese engineers. Explained Liu: "We want to make sure that the center of most of the people of that team is going to be in China, even though the locomotive, the teachers, is in the U.S., because that's where the leadership is in the software product development world."

Drawing on decades of experience developing top software teams at IBM and other companies, Dr. Liu detailed his company's efforts to attract the brightest local engineers and train them to be even better. He explained, "Culture and team is the true differentiation of Augmentum.... The real...challenge is to build the right culture with the right core team." The company insists on having no expatriates in their China operations but promoting close interaction between experienced mentors in the U.S. and the young teams in China, sometimes using some creative approaches for recruitment and training. For example, Augmentum puts all of its new hires under "a stress test" after hiring and proactively maintains an "upfront churn of at least 30%" in the first three-month period." Their end goal: "a world-class software development team that can bridge the East and the West but still has a cost structure comparable to local companies."

Liu's focus for the future

Despite experienced leadership, ties to leading U.S. companies, and strong young software teams, Augmentum faces real challenges. Liu acknowledged skeptics who question the ability to build a world-class team through working on the "crumbs of companies" of "projects they don't want to work on themselves." Nevertheless, he is confident in the trajectory of Augmentum's future growth, as the company is expecting to double its employees every year for the coming few years. In addition, Dr. Liu's vision includes a landscape beyond Augmentum. "I have a very simple focus. I want to train a lot of world-class software developers in China to serve the world. Many of them will not be working for Augmentum. It is fine...I want to bring my experience to there to make it happen. And the best vehicle to do that at this moment and time, the wave [that] I want to jump on is outsourcing, because it is growing the fastest."

Biography of Leonard Liu

Leonard Liu has spent 30 years in the systems industry, with a track record of developing innovative computing technologies into successful businesses. Most recently, he served as president of ASE Group, a leading provider of IC test and packaging services, having held roles as Chairman and CEO of Walker Interactive Systems, COO of Cadence Design Systems, and President of Acer Group. He was an early champion of outsourcing to India and China at Cadence and Walker. Dr. Liu began his career at IBM where he was responsible for the creation and implementation of SQL and the management of CICS, SNA and AIX, eventually overseeing the worldwide Database and Language lines-of-business. He received his undergraduate degree from Taiwan University and his Ph.D. from Princeton University.

Focus on Innovation and Entrepreneurship in Greater China

SPRIE is a multidisciplinary research program at Stanford University that focuses on innovation and entrepreneurship in leading high technology regions in the United States and Asia. SPRIE has an active community of scholars at Stanford as well as research affiliates in the United States, Mainland China, Taiwan, Japan, Korea, Singapore, and India. During 2005-2006, SPRIE is expanding a new initiative on the rise of leading high technology regions in Greater China and their impact on the global knowledge economy. Specific research topics include globalization of R&D, executive leadership, university-industry linkages, venture capital industry development and leading high technology clusters in Greater China. In addition, industries of ongoing research at SPRIE include semiconductors, computers, telecommunications, and software.

SPRIE Graduate Research Fellows: Research Assistantships & Support for International Field Research

As part of its new initiative on innovation and entrepreneurship in Greater China, SPRIE will select outstanding Stanford students as SPRIE Graduate Research Scholars. SPRIE Graduate Research Scholars will work with SPRIE faculty and senior researchers at Stanford for two (or more) academic quarters in 2005-2006 to gather and analyze data, conduct interviews in Silicon Valley, contribute to publications, and advance progress on the overall project agenda. During summer 2006, they will conduct SPRIE field research through interviews or surveys with business and government leaders in Beijing, Shanghai, or Hsinchu. As part of SPRIE's international research team, they will have the opportunity to interact closely with project leaders and visiting scholars at Stanford as well as partners in Asia, such as the Ministry of Science and Technology, Tsinghua University, or Zhongguancun Science Park in Mainland China or the Industrial Technology Research Institute (ITRI) in Taiwan. They will also participate in SPRIE's public and invitation-only seminars and workshops with academic, business, and government leaders. The financial award will include RA support at 15-20 hours/week (or equivalent) plus summer stipend to cover travel, living expenses, and research.

How To Apply (limited to current Stanford graduate students)

Successful candidates will have demonstrated a track record of superior analytical ability, strong oral and written communication skills (including full fluency in English and Chinese), knowledge of high technology and entrepreneurship, high motivation, and willingness to be part of a dynamic international research team.

Applicants should submit:

1. A brief statement (not to exceed two single-spaced pages), which describes the candidate's interests and skills,
2. a curriculum vitae
3. contact information for 2 references, preferably recent professors, advisors, or employers

Send applications to:

SPRIE
Encina Hall - East 301
Stanford University 94305-6055

or by email to George Krompacky. Questions? Please contact George Krompacky, Program Coordinator, by email or call 650.725.1885

Deadline for receipt of all materials: December 30, 2005

Applicants will be notified of decisions in January 2006

The Stanford Project on Regions of Innovation and Entrepreneurship (SPRIE) is a multidisciplinary research program of the Shorenstein Asia-Pacific Research Center at Stanford University that focuses on innovation and entrepreneurship in leading high technology regions in the United States and Asia. SPRIE has an active community of scholars at Stanford as well as research affiliates in the United States, China, Taiwan, Japan, Korea, Singapore, and India.

Fellowship Program

As part of its initiative on Greater China, SPRIE will select two outstanding post-docs or young scholars as SPRIE Fellows at Stanford for the academic year 2006-2007 for research and writing on Greater China and its role in the global knowledge economy. The primary focus of the program is the intersection of innovation and entrepreneurship and underlying contemporary political, economic, technological and/or business factors in Greater China (including Taiwan, Mainland China, Singapore). Topics of particular interest include, but are not limited to, globalization of R&D, executive leadership, university-industry linkages, venture capital industry development and leading high technology clusters in Greater China. In addition, industries of ongoing research at SPRIE include semiconductors, computers, telecommunications, and software.

SPRIE Fellows at Stanford will be expected to be in residence for at least three academic quarters, beginning the fall quarter of 2006. Fellows take part in Center activities, including research forums, seminars and workshops throughout the academic year, and are required to present their research findings in SPRIE seminars. They will also participate as members of SPRIE's team in its public and invitation-only seminars and workshops with academic, business and government leaders. Fellows will also participate in the publication programs of SPRIE and Shorenstein Asia-Pacific Research Center. The Fellowship carries a stipend of $40,000.

How to Apply

Applicants should submit:

1) A statement of purpose not to exceed five single-spaced pages which describes the research and writing to be undertaken during the fellowship period, as well as the projected products(s) that will be published;

2) a curriculum vitae (with research ability in Chinese preferred); and

3) 2 letters of recommendation from faculty advisors or other scholars. All applicants must have Ph.D. degrees conferred by August 30, 2006.

Address all applications to:

Stanford Project on Regions of Innovation and Entrepreneurship,

Shorenstein Asia-Pacific Research Center,

Encina Hall - East 301,

Stanford University

Stanford, CA 94305-6055

Questions? Please contact George Krompacky, Program Coordinator

Deadline for receipt of all materials: January 13, 2006

Applicants will be notified of decisions in March 2006

Q. What is the history of the Journal of Korean Studies?

A. The Journal of Korean Studies was begun, I believe, in 1979 at the University of Washington by Professor James Palais, a preeminent Korean historian. The Journal of Japanese Studies appeared at the same time and both journals made tremendous contributions to their respective fields. The Journal of Korean Studies was unquestionably the top journal in the field of Korean studies. In fact, one of my first publications appeared in the Journal of Korean Studies. However, unlike the Journal of Japanese Studies, which has been published without interruption since its founding, publication of the Journal of Korean Studies was suspended in 1992 due to financial and administrative problems. So now we're reviving it at long last.

Q. Why did you feel it was important to revive the journal of korean studies and bring it to APARC?

A. First of all, there isn't really any top journal in the field at present, and Korean studies has grown enormously in the last ten years. As a result, there has been considerable demand for a good journal, especially among young scholars who want to publish their work. For Korean studies to continue to grow in the United States, it's vital for scholars to have a place to publish their research outcomes.

With respect to APARC serving as the home for the Journal of Korean Studies, we are still building up Korean studies at the Center, and at Stanford as a whole. I believe that having a premier journal in the program will more quickly place the program itself on the national map. It's also a great service to Korean studies in general. Many people-including very senior leaders in the field-really appreciate that we have put in the effort to bring back this important publication after such a long hiatus. And I'm so grateful to APARC for its financial, editorial, and administrative support in making the issue a reality. Chiho Sawada, postdoctoral research fellow in Korean studies at APARC, assisted me as associate editor and Victoria Tomkinson has done a wonderful job of editing the articles. We will celebrate the revival of the Journal of Korean Studies at the upcoming national meetings of the Association for Asian Studies.

Q. Where does the journal of korean studies fit into stanford's korean studies program?

A. Stanford's program began relatively late. This isn't to say that we haven't grown hugely, because the program has really taken off in the past three years. Yet there are other programs that have been up and running much longer, and therefore are more established. When I left the University of California, Los Angeles, which has the most well-established program in the nation, I wanted to create a unique Korean studies program at Stanford.

My vision for the Stanford Korean Studies Program can be summarized in two terms: social science and research. The research mission includes student training through research projects. Many students-both undergraduate and graduate-are involved in various research projects within the Korean Studies Program. Most other institutional programs focus on humanities and I don't intend to repeat what others elsewhere in the country and the world have already done. As I want to focus on social science, and research and publication, the Journal of Korean Studies will be a key component of that mission.

Q. Does the journal of korean studies have a particular focus within the field of korean studies?

A. Until now, the Journal of Korean Studies has predominantly published articles on history, literature, and culture, reflecting a general trend in the current field of Korean studies. Going forward, I'd like to publish more papers on social science. The revival issue doesn't reflect that goal and given the current concentration on humanities in the field, it won't be easy. Yet it's my hope that we'll tip the balance toward social sciences in subsequent issues and this is another way of making a contribution to the field as a whole.

Q. Publishing a major academic journal is a big job. What's the editorial procedure? What, for you as the co-editor [with john duncan, at the University of California, Los Angeles], is the most challenging part of putting the journal of korean studies together each year?

A. The number one challenge is getting good manuscripts. Last year, we received over twenty articles, but we accepted only one (and asked a few authors to revise and resubmit). Now that the journal is out, we expect more submissions in the months to come. My top priority is to control the quality of what we publish.

The second big challenge is finding good reviewers. The Journal of Korean Studies is, of course, a refereed journal. Usually we send each submitted manuscript to two people to read and evaluate, but the field of Korean studies is pretty small, and we can't go back to the same people all the time. Finding good readers will continue to be a vital but time-consuming part of the editorial process.

Q. What topics do you plan to cover in future issues?

A. My plan is to publish one general issue per year that covers a broad spectrum of topics in Korean studies, much like our revival issue. And, beginning this summer, I'm going to hold an annual one-week summer workshop, a small gathering here at Stanford. I'll pick a specific topic or theme and then through open competition select five or six scholars who have a draft paper on the topic. I will bring them to Stanford for one week and work with a senior scholar to lead the workshop. I plan to publish the papers that come out of that workshop as a special issue of the Journal of Korean Studies. The workshop we are organizing for summer 2005 will address the globalization of Korea. Professor Michael Robinson of Indiana University (who previously collaborated with me on Colonial Modernity in Korea) will lead the workshop. Thus, starting in 2006, the Journal of Korean Studies will publish one general and one special issue each year.

Q. Any highlights from this inaugural issue?

A. All of the articles in this inaugural issue have been carefully selected and are very strong in their quality. I'm particularly pleased that the articles range across so many subjects, from Michael Kim's piece on vernacular fiction and popular reading, to Robert Buswell's study of the significance of Sugi's collation notes on the Korean Buddhist canon, to Jin-Kyung Lee's article about feminist literature in 1950s South Korea. In addition to these, there are two other research articles, and a number of reviews of recent books in the field.

Q. How can people get copies of the journal of korean studies?

A. Subscriptions to the Journal of Korean Studies are being handled by Rowman & Littlefield Publishers, located in Maryland. They, too, have been wonderfully supportive and involved in getting the Journal of Korean Studies off the ground. Those wishing to subscribe to the Journal can find more information on the .