Expansion of Technical Innovation and Demand Determines Production Organization Pattern in Strategic Emerging Industries – Taking Example of TFT-LCD Industry

Li Pengfei  and Lü Tie
Institute of Industrial Economics, the Chinese Academy of Social Sciences (CASS), Beijing, China

Abstract:  Taking the evolution process of TFT-LCD industry as an example, this paper
applied history-friendly model to analyze the effect of technology innovation and learning, and
market demand growth and fluctuation on the evolution of production organization pattern in
strategic emerging industries. Our research indicates that: (1) when market demand maintains linear growth, continuous technology innovation capabilities of vertically integrated enterprises in leading position of an industry are the key factor in deciding whether dominant production organization pattern will shift from vertical integration to specialization; (2) when market demand is in cyclical fluctuation, the technology learning capabilities of specialized enterprises in catch-up position are the key factor in deciding whether dominant production organization pattern will shift from vertical integration to specialization; (3) when market demand growth is under cyclical fluctuation, if the relative gap between technology innovation capabilities of vertically integrated enterprises and technology learning capabilities of specialized enterprises remains constant, the phase when industry cycle moves from trough to plateau is the best time window for specialized enterprises to catch up with and overtake vertically integrated enterprises. Hence, policy design supporting the development of strategic emerging industries should give full consideration to factors like market demand environment and technology innovation and learning capabilities of domestic enterprises.
Keywords: strategic emerging industries, technology innovation, production organization pattern, history-friendly model

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