By Sonobe Tetsushi Otsuka Keijiro
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Additional info for Cluster-Based Industrial Development: An East Asian Model
That is to say, once the production technology is standardized, the cost of production is determined largely by the cost of unskilled labor, so that production takes place in low-wage countries, like China. It is also possible that after a set of innovations are widely adopted by the surviving enterprises, another round of the quantity expansion and quality improvement phases can follow. This is what large Japanese manufacturing enterprises have experienced; they have invested heavily in the development of high-tech products and produce them in Japan, while shifting the production of lower-quality, standardized products to ASEAN countries in earlier years and to China in more recent years.
Thus, new entries decrease over time and then cease, but the price of output continues to fall because the R&D competition continues. The declining price forces less innovative enterprises to exit the industry. Klepper and Simons (2005) use detailed data on four industries to ﬁnd that the Klepper model provides the best explanation to the observed patterns of evolutionary changes in technology and market structure. A major question is whether these product life cycle theories are relevant to the industrial development process in developing countries.
Viewed from the technologically advanced countries, the innovation in developing counties is not far from the imitation of the innovation in the remote past. Thus, it may be appropriate to call it “imitative innovation,” which developing countries can learn from the experience of developed countries. Thus, the industries in Taiwan learned a great deal from the Japanese experience, and the industries in China took advantage of being latecomers by learning from both Taiwan and Japan. Innovative entrepreneurs in the quality improvement phase, who can carry out imitative multifaceted innovations, tend to be highly educated persons, in contrast to the pioneers in the initiation phase.