Building Technological Capability for

Industrialization: Analytical Frameworks

and Korea’s Experience
LINSU KIM
(College of Business Administration, Korea University, Seoul,
Korea 136–701. Email: linsukim@unitel.co.kr)

This paper first presents five analytical frameworks—technology trajectory, absorptive

capacity, technology transfer, crisis construction and dynamic learning process—that
may be used to examine the process of technological learning at the firm level. These
frameworks are interrelated to develop an integrative model. The Korean experience is
then discussed as a case in point to illustrate how the frameworks can be used to analyze
the process of building technological capability for industrialization. The paper also
discusses many implications for public policy and corporate management in other
countries.

1. Introduction
Industrial development is, in fact, the process of acquiring technological
capabilities and translating them into product and process innovations in the
Industrial and Corporate Change Volume 8 Number 1 1999

course of continuous technological change (Pack and Westphal, 1986). Tech-

nological capability refers to the ability to make effective use of technological
knowledge. It is the major determinant of industrial competitiveness (Lall,
1990; OECD, 1996; Kim, 1999; Schacht, 1997).
Technological capability has three elements: production, investment (inclu-
ding duplication and expansion) and innovation. Production capability refers
to the numerous capabilities required to operate and maintain production
facilities. Investment capability refers to the abilities required for establishing
new production facilities and expanding capacity. Innovation capability
consists of abilities to create and carry new technological possibilities through
to economic practice (Westphal et al., 1985). The term ‘technological
capability’ is used here to indicate the level of organizational capability at a
© Oxford University Press 1999
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point in time, while ‘technological learning’ is used to depict the dynamic

process of acquiring technological capability (Kim, 1997a).
This paper first presents five analytical frameworks—technology
trajectories, absorptive capacity, technology transfer, crisis construction and
dynamic learning process—that may be used to examine the process of
technological learning at the firm level. These frameworks will be interrelated
to develop an integrative model. Korea’s experience is then discussed as a case
in point to illustrate how the frameworks can be used to analyze the process
of technological capability building for industrialization.
The government, in the form of technology policy, also plays an important
role in facilitating technological learning in industry. However, that subject
will be covered sparingly in this paper; analytical frameworks and Korea’s
experience on technology policy at the macro and institutional levels can be
found in Kim and Dahlman (1992).

2. Analytical Frameworks

2.1 Technology Trajectory Framework

This framework analyzes and integrates two technological trajectories: one in
advanced countries and the other in developing countries. Technological
trajectory refers to the evolutionary direction of technological advances that
are observable across industries and sectors.
Utterback and Abernathy (1975) postulate that industries and firms in
advanced countries develop along a technology trajectory made up of three
stages: fluid, transition and specific. Firms in a new technology will exhibit a
fluid pattern of innovation. The rate of radical (rather than incremental)
product innovation is high. New product technology is often crude, expensive
and unreliable, but it fills a function in a way that satisfies some market niche.
Product changes are frequent as are changes in the market, so the production
system remains fluid to respond quickly and effectively to changes in the
market and technology (Abernathy and Utterback, 1978; Utterback, 1994).
As market needs become better understood and alternative product tech-
nologies converge or drop out, a transition begins toward a dominant product
design and mass production methods, adding competition in price as well as
product performance. Cost competition leads to radical change in processes,
driving costs rapidly down. Production capability and scale assume greater
importance to reap scale economies.
As the industry and its market mature and price competition grows more
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intense, the production process becomes more automated, integrated,

system-like, specific and rigid in order to turn out a highly standardized
product. The focus of innovation shifts to incremental process improvements,
seeking greater efficiency. When the industry reaches this stage, firms are less
likely to undertake R&D aimed at radical innovations, becoming increasingly
vulnerable in their competitive position. Industry dynamism may become
regenerated through invasions by radical innovations introduced by new
entrants (Cooper and Schendel, 1976; Utterback and Kim, 1985; Anderson
and Tushman, 1990). Some industries, however, are quite successful in
extending the life of their products in this specific stage with a series of
incremental innovations to add new values (Baba, 1985).
It is at the later part of this stage that industries are typically relocated to
developing countries where production costs are lower. The upper part of
Figure 1 depicts the above trajectory. This trajectory model is not universally
applicable (Pavitt, 1987; Nelson, 1994) and may change significantly with a
shift in the techno-economic paradigm (Freeman and Perez, 1988). It is,
however, still useful in analyzing the process of building technological
capability in developing countries.
On the basis of research in the electronics industry in Korea, Kim (1980)
developed a three-phase model—acquisition, assimilation and improvement—
to extend Utterback’s model. During the early stage of industrialization,
developing countries acquire mature (specific stage) foreign technologies from
industrially advanced countries. Lacking local capability to establish production
operations, local entrepreneurs develop production processes through the
acquisition of ‘packaged’ foreign technology, which includes assembly
processes, product specifications, production know-how, technical personnel,
and components and parts. Production at this stage is merely an assembly
operation of foreign inputs to produce fairly standard, undifferentiated
products.
Once the acquisition task is accomplished, production and product design
technologies are quickly diffused within the country. Increased competition
from new entrants spurs indigenous technical efforts in the assimilation of
foreign technologies in order to produce differentiated products. The
relatively successful assimilation of imported technology and increased
emphasis upon export promotion, together with the enhanced capability of
local scientific and engineering personnel, lead to the gradual improvement
of mature technology. Technological emphasis during this stage is duplicative
imitation, producing knockoffs and clones.
Linking the technology trajectories of Utterback and Abernathy (1975) and
Kim (1980), Lee et al. (1988) postulate that the three-stage technology
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FIGURE 1. Technological Trajectories.

trajectory in developing countries takes place not only in mature technologies

in the specific stage but also in growing technologies in the transition stage.
Firms in developing countries, which have successfully acquired, assimilated
and sometimes improved mature foreign technologies, may aim to repeat
the process with higher-level technologies in the transition stage in advanced
countries. Technological emphasis at this stage is creative imitation, gener-
ating facsimile products but with new performance features. It involves not
only such activities as technology transfer and benchmarking but also notable
learning through substantial investment in R&D activities. Many industries
in the first tier of newly industrialized countries (NICs; e.g. Taiwan and
Korea) have arrived at this intermediate technology stage.
If successful, some of these industries may eventually accumulate indig-
enous technological capability to generate emerging technologies in the fluid
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FIGURE 2. Absorptive capacity.

stage and challenge firms in advanced countries. Innovation is the watchword

in these industries. When a substantial number of industries reach this stage,
the country may be considered to be a member of the advanced countries. In
other words, as shown in the lower part of Figure 1, developing countries
reverse the direction of technology trajectory in advanced countries (Hobday,
1995) and evolve from the mature technology stage (for duplicative
imitation), to the intermediate technology stage (for creative imitation), and
to the emerging technology stage (for innovation).

2.2 Absorptive Capacity Framework

Technological capability is acquired through the process of technological
learning. And effective technological learning requires absorptive capacity,
which has two important elements: existing knowledge base and the intensity
of effort (Cohen and Levinthal, 1990).
First, existing knowledge is an essential element in technological learning,
as knowledge today influences learning processes and the nature of learning
to create increased knowledge tomorrow. Accumulated existing knowledge
increases the ability to make sense of, assimilate and use new knowledge.
Second, the other important element is the intensity of effort or commit-
ment. The intensity of effort refers to the amount of energy relinquished by
organizational members to solve problems. It is insufficient merely to expose
firms to the relevant external knowledge without exerting effort to internalize
it. Learning how to solve problems is usually built up over many practice trials
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on related problems. Thus, it requires considerable time and effort directed at

solving problems early before moving on to solving the more complex
problems. The effort intensifies interaction among the organizational
members that in turn facilitates technological learning at the organizational
level.
These two variables—existing knowledge base and the intensity of effort—
in the organization constitute, as presented in Figure 2, a 2 × 2 matrix that
indicates the dynamics of technological learning. When both existing
knowledge and the intensity of effort are high (quadrant 1), technological
capability is high and rapidly rising. On the contrary, when both elements are
low (quadrant 4), technological capability is low and falling. Organizations
with high existing knowledge and low intensity of effort (quadrant 2) may
have high capability now but will gradually lose it, as existing knowledge will
become obsolete as technology moves along its trajectory. Those organizations
will gradually move down to quadrant 4. In contrast, organizations with low
existing knowledge but with high intensity of effort (quadrant 3) may have
low technological capability now, but will acquire it rapidly, as both
continuous and discontinuous learning can take place through significant
investment in learning, moving progressively to quadrant 1. In short, it can
be said that the intensity of effort or commitment is a more crucial element
than is the existing knowledge for a firm’s long-term learning and compet-
itiveness.

2.3 Technology Transfer Framework

How, then, can firms raise their existing knowledge base? Technology transfer
from foreign firms in advanced countries can be a very important source of
new knowledge for firms in developing countries. Such transfer has two
dimensions for analysis: market mediation and the role of foreign suppliers. In
the first dimension, technology transfer may or may not be mediated through
the market. In market-mediated technology transfer, the supplier and the
buyer negotiate payment for technology transfer, which may be either
embodied in or disembodied from the physical equipment. Foreign tech-
nology may also be transferred to local users without the mediation of market;
in this case the technology transfer usually takes place informally without
written agreements and payments.
In the second dimension, the foreign supplier may take an active role,
exercising significant control over the way in which the technology is
transferred to and used by the local recipient. Alternatively, the supplier may
take a passive role, having almost nothing to do with the way the user takes
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FIGURE 3. Technology transfer framework.

advantage of available technical know-how either embodied in or dis-

embodied from the physical items. These two dimensions—the mediation of
market and the role of foreign suppliers—offer a useful 2 × 2 matrix, as
shown in Figure 3, to identify and evaluate different mechanisms of inter-
national technology transfer (Fransman, 1985; Kim, 1991).
In other words, firms in developing countries have many alternative
mechanisms for acquiring foreign technology. Foreign direct investment
(FDI), foreign licensing (FL) and turnkey plants are major sources of formal
technology transfer in quadrant 1. Contract research with local universities
and government research institutes becomes an important source of quadrant
1, as industrialization progresses in developing countries. The purchase of
capital goods transfers machine-embodied technology (quadrant 2). Foreign
suppliers and original equipment manufacturer (OEM) buyers often transfer
critical knowledge to producers to ensure that the producers’ products meet
the buyers’ technical specifications (quadrant 3) (Kim, 1991). Printed infor-
mation such as sales catalogues, blueprints, technical specifications, trade
journals and other publications, together with observation of foreign plants,
serve as important informal sources of new knowledge for firms in developing
countries (quadrant 4) (Kim and Kim, 1985). In addition, reverse brain-drain
or return of native foreign-trained professionals and moonlighting foreign
engineers significantly increase the technological learning of firms in devel-
oping countries (Kim, 1993). If firms in developing countries have absorptive
capability, they can effectively acquire foreign technology informally without
any transaction costs (quadrants 3 and 4).
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2.4 Crises Construction Framework

How, then, should firms manage the intensity of effort? When does the firm
or its members search actively for new technological knowledge? When do
individuals within the firm vigorously commit their energy for technological
learning? To state it differently, when does discontinuous learning take place?
Cumulative technological learning can take place under normal circum-
stances. Discontinuous learning, however, generallly takes place when a crisis
is perceived in market competition and a strategy is implemented to turn
around the situation. In such a case, the firm has to invest heavily in the
acquisition of new knowledge as well as in technological learning activities in
order to overcome the crisis in the shortest possible time. Just as the term
‘crisis’ in Chinese (weiji) is a combination of two characters (threat and oppor-
tunity), some firms manage to turn a crisis into an opportunity to transform
their technological capabilities in a discontinuous manner and enhance their
competitiveness. A crisis may be creative in this sense; otherwise, it can be
destructive (Kim, 1998).
A crisis may be generated naturally when the firm loses its competitive
standing in the market (Meyers, 1990) or intentionally when an external
principal or top management evokes a sense of crisis by proposing challenging
goals (Nonaka, 1994). Intentionally evoked crises may be imposed by the
external coalition on the focal firm or industry in general. In developing
countries, particularly where the state plays an orchestrating role in indus-
trialization, the government could impose a crisis by setting challenging goals
for firms in a strategically designated industry.
Or the dominant coalition within the firm could intentionally construct a
crisis. A crisis is largely a negative word for mediocre managers. It may mean
imminent, unfolding disaster, possibly resulting in management failure and
loss of face. For visionary entrepreneurs, however, crisis construction may be
a strategic means of opportunistic learning, bringing about a valuable
transformation in the firm.
A naturally evoked crisis creates a performance gap: a major discrepancy
between how the firm performs now and how it ought to perform. However,
it is a matter of denial to refuse a crisis which is real. Consequently, the firm
facing naturally evoked crises has to exert a significant portion of its energy
in educating management coalition and organizational members to come to
agreements on crises, mitigating resistance to change and unlearning past
practice (Pitt, 1990). A naturally evoked crisis may be a crisis for top manage-
ment, but not necessarily for organizational members in lower echelons.
In contrast, constructed crises present an unclouded performance gap and
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an antidote to inertia. Unlike naturally evoked crises, the top management,

if necessary, can manipulate the performance gap in constructed crises so as
to make them creative by keeping them from destructive ends. Constructed
crises also generate intense pressure to create mandates for change, enabling
management coalitions to reach consensus on organizational goals and
prompting members to accept them (Kim, 1998).
Constructed crises also increase the intensity of effort both at the individual
and organizational levels in searching for alternative courses of action to make
crises creative. Mandating for a change generates the volume of efforts, while
goal consensus and identification provide the direction for the effort, making
the intensity of effort clearly focused on expeditious learning for survival.

2.5 Dynamic Learning Process Framework

Understanding the dynamic learning process at the firm is essential, because
technological change is localized at the level of firms (Cooper, 1991). These
firms develop their technological capability through in-house efforts, aug-
mented by interactions with domestic and foreign institutions, constrained by
regulations, and stimulated by government incentives in the dynamically
changing global technology environment. When an economy has many firms
that grow dynamically by sustaining competitiveness through effective
technological learning, the economy will enjoy international competitiveness
and healthy growth (Klein, 1977).
Technological learning takes place at two different levels: individual and
organization. The prime actors in the process of organizational learning are
the individuals within the firm. Organizational learning is not, however, a
simple sum of individual learning; rather, it is the process that creates
knowledge, which is distributed across the organization; is communicable
among members; has consensual validity; and is integrated into the strategy
and management of the organization (Duncan and Weiss, 1978). Individual
learning is, therefore, a necessary condition for organizational learning, but it
is not by itself a sufficient condition. Only effective organizations can translate
individual learning into organizational learning.
Technological learning is a process in which the firm acquires, creates and
disseminates new knowledge. Knowledge has two dimensions: explicit and
tacit (Polanyi, 1966). Explicit knowledge refers to knowledge that is codified
and transmittable in formal, systematic language. Explicit knowledge may,
thus, be acquired in the form of books, technical specifications, designs or as
embodied in machines. Badaracco (1991) calls it ‘migratory knowledge’. In
contrast, tacit knowledge is so deeply rooted in the human mind and body
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FIGURE 4. Spiral of organizational knowledge creation. Source: adapted from Nonaka and
Takeuchi (1995).

that it is hard to codify and communicate and can only be expressed through
action, commitment and involvement in a specific context. Tacit knowledge
can be acquired only through experience such as observation, imitation and
practice.
Nonaka (1994) postulates that the organization creates new knowledge by
building both explicit and tacit knowledge and, more importantly, through
the dynamic process of four different types of conversion between these two
dimensions of knowledge. Conversion from tacit to tacit (called socialization)
takes place when tacit knowledge within one individual is shared by another
through training, while conversion from explicit to explicit (combination)
takes place when an individual combines discrete pieces of explicit knowledge
into a new whole. Conversion from tacit to explicit (externalization) can be
said to have taken place when an individual is able to articulate the
foundations of his or her tacit knowledge. Conversion from explicit to tacit
(internalization) takes place when new explicit knowledge is shared through-
out the firm and other members begin to use it to broaden, extend and
reframe their own tacit knowledge. Using Japanese examples, Nonaka and
Takeuchi (1995) provide excellent, detailed discussions of a spiral model of
organizational knowledge creation, showing how an upward spiral process
starts at the individual level and moves up to the organizational level. Figure
4 shows the process of knowledge spiral.
Technological capability at the firm is not a collection of explicit
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FIGURE 5. Integrative model.

knowledge; rather, it is largely a collection of tacit knowledge. The firm may

have some proprietary explicit knowledge such as firm-specific blueprints and
standard operating procedures, but they are useful only when tacit knowledge
enables its members to utilize them. Nelson and Winter (1982) also note
that much of the knowledge that underlies effective performance in the
organization is tacit knowledge embodied in its members.

2.6 An Integrative Model

Figure 5 depicts the integrative model of the dynamic process of building
technological capability at the firm in developing countries. It shows that
absorptive capacity (the exiting knowledge base and the intensity of effort)
affect the dynamic learning process (the dynamics of knowledge conversion
through a spiral process that starts at the individual level and moves up to the
firm level). Firm-level learning tends to become faster and larger in scale as
more actors in and around the firm with adequate existing knowledge
intensify their efforts to convert knowledge within and between themselves.
The outcome of knowledge conversion and creation feeds back to the existing
knowledge base to increase its level.
In addition, technology transfer significantly affects the building-up of
the existing knowledge base in developing countries. Books, technical
specifications, designs, as embodied in physical equipment, transfer explicit
knowledge, while the mobility of individuals migrating from one organization
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or country to another and training by foreign expatriates transfer tacit

knowledge, elevating the level of the existing knowledge base. Top managers
can construct a crisis internally, either in response to or in the absence of an
external crisis. The shared sense of the internally constructed crisis among
organizational members intensifies their efforts, elevating the absorptive
capacity of the firm and in turn expediting technological learning and leading
to a higher level of technological capability.
Learning orientation in Figure 5 depicts the dynamics of the technology
trajectory framework. In the mature technology stage, duplicative imitation
through reverse engineering may be the major focus of technological effort.
In the intermediate technology stage, technological effort shifts to creative
imitation, producing imitative products with new performance features. In
the emerging technology stage, major emphasis shifts from imitation to
original innovation. In other words, the sophistication of the existing
knowledge base, the efficacy of crisis construction and the nature of learning
differ significantly along the different stages.
In short, this section introduced five analytical frameworks—technological
trajectory, absorptive capacity, technology transfer, crisis construction and
dynamic learning process—to develop an integrative model. The following
section uses this model to delineate specific strategies that Korean firms have
used to build technological capability.

3. Korea’s Experience in Capability Building

Most developing countries have tried to industrialize their economies. Yet the
majority of them have made little progress; only a few have managed to make
a significant stride in catching up. Korea is one of these countries. Although
Korea experienced a major economic crisis in 1998 due to some mis-
management of macroeconomic matters and insufficient regulation of the
financial sector, it is a temporary problem. Korea has a strong industrial base
and is determined to make major reforms to manage its modern industrial
sector efficiently (Pack, 1999). How have Korean firms managed to achieve
such phenomenal growth in building technological capability in only three
decades? This section discusses Korea’s experience as a case in point to
illustrate how the analytical frameworks can be used to analyze the process of
building technological capability for industrialization.
This section uses technology trajectory and absorptive capacity as the main
structural frameworks to discuss firm strategy for building technological
capability. Other concepts (e.g. technology transfer, crisis construction and
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dynamic learning process), introduced in the presentation of analytical

frameworks, will be dealt with in discussion.

3.1 Mature Technology Stage (Duplicative Imitation)

The mature technology stage did not necessarily take place at the same time
in all mature industries in Korea. Duplicative imitation began in such light
industries as textiles, toys, plywood and consumer electronics in the 1960s,
and in such heavy industries as automobile, steel, shipbuilding and machinery
in the 1970s. How, then, have Korean firms acquired the existing knowledge
base and enhanced the intensity of effort to expedite technological learning in
these industries?

Existing Knowledge Base. The three most important sources of building

the existing knowledge base for Korea in the mature technology stage were
education, foreign technology transfer and the mobility of experienced
technical people. First, education to develop human resources was one of the
most conspicuous efforts Korea made in industrialization. Several other devel-
oping countries attained an equally rapid growth rate in elementary education
as did Korea. But what was unique in Korea was the well-balanced expansion
at all levels of education early enough to support its economic development.
Using data from the late 1950s for 73 developing countries, Harbison and
Myers (1964) found three nations—Korea, Taiwan and Yugoslavia—with
levels of educational achievements far above what would be expected, given
their levels of economic development. This finding reflects the high commit-
ment to education within Korean society. The greater expansion of education
over economic progress, however, created a serious unemployment problem
among the educated. However, the formation of educated human resources
laid an important tacit knowledge base for the subsequent development of
the economy, which soon absorbed the surplus.
Second, lacking technological capability at the outset, Korean firms relied
heavily on foreign sources for both explicit and tacit knowledge. The majority
of important or crucial tacit and explicit knowledge needed to solve technical
problems in the mature technology stage could, however, be obtained free of
charge through non-market-mediated informal mechanisms (quadrants 3 and
4 in Figure 3). This mode of technology transfer has clearly prevailed in
innovative small firms. Large Korean firms, however, resorted to turnkey
plant transfer or technical licensing agreements with foreign suppliers
(quadrant 1 in Figure 4). Given the scale of the large investment required and
the lack of technological capability and experience in the early years, large
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firms relied on foreign suppliers to ensure swift construction, smooth start-up

of their production processes, and manufacturing of goods to meet stringent
OEM specifications (Kim and Lee, 1987). Informal technology transfer has,
however, been most significant in further broadening the capabilities of both
large and small firms (Westphal et al., 1985; Kim, 1997a).
Third, the mobility of experienced technical people was one of the most
effective ways for late entrants to acquire the necessary tacit knowledge base.
The majority of consumer electronics producers in the 1970s entered the
industry by poaching experienced managerial and technical people from
existing firms. For instance, the first four large black-and-white television set
producers entered into foreign licensing to acquire the initial knowledge base,
but the remaining 11 relied on the mobility of experienced personnel from
the first four firms (Kim, 1980). State-owned large chemical and machinery
companies in the 1950s and 1960s relied completely on turnkey transplant
and foreign engineers for the initial knowledge base, but engineers who
accumulated modern production experience in these firms spun-off later to
private enterprises to provide the crucial knowledge base there. Many studies
show that a quantum leap in technological capability in small firms is
commonly associated with the arrival of technical personnel recruited from
other firms (Kim and Kim, 1985; Kim, 1997a).

The Intensity of Effort. Both the Korean government and top manage-
ment used four major means to enhance the intensity of effort: export
promotion, the hasty creation of heavy and chemical industries (HCIs),
technology transfer strategy, and crisis construction. First, given the small
domestic market, the government used export promotion as a major instru-
ment for achieving economic growth goals. The export promotion policy
created business opportunities and concurrently imposed externally evoked
crises for firms to undergo a ‘life or death’ struggle in the competitive
international market. To survive in the crises and to maximize the utilization
of capacity in excess of local market size, Korean firms in turn created internal
crises to accelerate technological learning by reverse engineering, importing
and rapidly assimilating production technology from abroad.
Second, the Korean government also imposed an externally evoked crisis
on firms by the hasty creation of HCIs without adequate preparation in
technological capability. The Korean government launched the HCI program
ahead of its schedule at a far greater intensity and in a far shorter time than
previously envisioned. This hasty move was motivated more by the aim of
building a self-reliant national defense capability in the wake of the US move
to withdraw its forces from Korea than for economic purposes. Such hasty
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promotion bred a rapid increase in foreign debts, misallocation of resources,

inflation and further concentration of economic powers in the many chaebols
involved in HCIs.
The most significant effect of the hasty HCI promotion, however, was
expeditious technological learning. Lacking capability, these chaebols had to
rely almost entirely on foreign sources for technology. Tasks required to
assimilate imported technology were so far beyond the capability available at
these firms that the HCI program imposed a major crisis in setting up and
starting up plants, let alone mastering production technology. Firms were
forced to assimilate technology very rapidly through knowledge conversion
and creation, as in Figure 5, and in turn to upgrade capacity utilization by
expediting learning in order to survive. As a result, it took only 15 years for
the ratio of value added in light industries over HCI to fall from four to one
in Korea, whereas the same shift took 25 years in Japan and 50 years in the
USA (Watanabe, 1985).
Third, government policy and firm strategy on foreign technology transfer
also led to strengthening the intensity of effort. The Korean government
restricted FDI but promoted instead technology transfer through other means
such as capital goods imports in the 1960s. As a result, FDI had a minimal
effect on the Korean economy, unlike its effect on other developing countries.
Such policies forced Korean firms to maintain their management
independence from foreign multinationals. Even if some equity participation
was allowed, management independence was maintained. Hyundai Motors is
a good example (Kim, 1997b). Hyundai created a crisis, coercing Korean
firms to invest aggressively for technological learning and consequently to
accumulate technological capability. Unlike foreign subsidiaries that can
depend upon parent firms to supply technologies, independent Korean firms
had to take initiatives and a central role in acquiring, assimilating and
improving mature foreign technology for duplicative imitation.
Fourth, many Korean firms constructed crises proactively either in response
to or in the absence of externally evoked crises by setting ambitious goals as
a means to expedite technological learning. Constructed crises increase the
intensity of effort at the individual and organizational levels in the search for
alternative courses of action to make the crises creative rather than destruct-
ive. Crisis construction and expeditious learning were widespread in Korean
manufacturing. Firms in automobiles (Kim, 1998), shipbuilding (Amsden
and Kim, 1985; Amsden, 1989), steel (Amsden and Kim, 1985; Amsden,
1989), electronics (Kim, 1997a) and machinery (Amsden and Kim, 1986)
have undergone a similar process of crisis construction and expeditious
learning in the mature technology stage.
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3.2 Intermediate Technology Stage (Creative Imitation)

Eroded competitiveness in low-wage-based mature technology industries
forced Korean firms in the 1980s to shift their emphasis from strategies
focusing on mature technologies to those focusing on intermediate
technologies as depicted in the lower part of Figure 1. This required a
significantly higher level of existing knowledge base than that in the previous
stage to bring about creative imitation rather than duplicative imitation.

Existing Knowledge Base. The five major sources of building the existing
knowledge base in the intermediate technology stage were formal technology
transfer, reverse brain-drain, corporate R&D, universities and government
research institutes (GRIs). First, foreign technology transfer continued to
serve as a major source of building the existing knowledge base in Korean
firms. While mature technologies were readily available and could be
obtained free of charge through informal mechanisms, sophisticated tech-
nologies could be obtained only through formal mechanisms, making it
increasingly expensive for Korean firms to obtain necessary technologies. This
is evident from statistics. FDI increased from $218 m. in 1967–71 to $1.76 b.
in 1982–86, while royalties associated with FL increased from $16.3 m. to
$1.18 b. during the same period.
Second, another important source of external knowledge was the reverse
brain-drain of the high-caliber Korean manpower pool abroad. The Korean
government took a relatively liberal policy with regard to the brain drain at
the mature technology stage. As of 1967, 96.7% of Korean scientists and
87.7% of engineers educated abroad remained there, mainly in the USA,
compared with the corresponding world comparisons of 35 and 30.2% for all
countries (Hentges, 1975). When industrialization progressed rapidly in the
1970s, the Korean government made systematic efforts to repatriate Korean
scientists and engineers from abroad. The state-led reverse brain-drain
program was quite successful, as few repatriates went back to advanced
countries. The program also became a model for the private sector, which
began in the 1980s to assertively recruit high-caliber scientists and engineers.
These scientists and engineers played a pivotal role in both emerging GRIs
and corporate R&D centers.
Third, the emergence and increasing intensity of corporate R&D activities
was one of the most remarkable characteristics in the intermediate technology
stage to give rise to bargaining power in formal technology transfer,
assimilation of imported technologies, and generation of new knowledge
through knowledge conversion and creation by research. As shown in Table
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TABLE 1. Research and Development Investment in Korea, 1965-1995 (unit: billion won)

1965 1970 1975 1980 1985 1990 1995

R&D expenditures 2.1 10.5 42.7 282.5 1237.1 3349.9 9440.6

Universities 0.4 2.2 25.9 118.8 244.3 770.9
GRIs 8.9 28.1 104.5 367.2 731.0 1766.7
Private sector 0.2 1.3 12.3 81.4 751.0 2374.5 6903.0
Public versus private 61:39 97:03 71:29 64:36 25:75 19:81 19:81

R&D/GNP 0.26 0.38 0.42 0.77 1.58 1.95 2.69

No. of researchers (total)a 2135 5628 10 275 18 434 41 473 70 503 128 315
Universities 352 2011 4534 8695 14 935 21 332 44 683
GRIs 1671 2458 3086 4598 7542 10 434 15 007
Private sector 112 1159 2655 5141 18 996 38 737 68 625

R&D exp/researcher 967 1874 4152 15 325 27 853 47 514 73 574

(W 1000)
Researchers/10 000 0.7 1.7 2.9 4.8 10.1 16.4 28.6
population
No. of corporate R&D 0 1b 12 54 183 966 2270
centers
a
Figures do not include research assistants, technicians, and other personnel.
b
For 1971
Source: Ministry of Science and Technology, Korea.

1, the number of corporate R&D laboratories increased from one in 1970 to

966 by 1990, reflecting the seriousness with which Korean firms were
pursuing intermediate technology development. The total R&D investment
increased from W10.6 b. ($28.6 m.) to W3.35 tr. ($4.68 b.) and the share of
R&D in GNP (R&D/GNP) increased from 0.32 to 1.95% during the same
period. This growth rate is the highest in the world. The private sector
accounted for only 2% of the nation’s total R&D expenditure in 1963 but
81% by 1990, which is one of the highest among both the advanced and
NICs (Kim and Yi, 1997). The average annual growth rate of business R&D
per GDP is also the highest in Korea (31.6%) compared to 23.8% in
Singapore, 16.5% in Taiwan, 14.0% in Spain and 8.8% in Japan (DIST,
1994). It should, however, be pointed out that there are many reasons to
suspect bubbles in the R&D statistics, particularly that of the private sector.
Fourth, the intermediate technology stage required universities to produce
well-trained scientists and engineers and to have more sophisticated basic
capabilities than ever before. But the poor quality in university education and
research was a major bottleneck in building Korea’s knowledge base.
Frustrated in its efforts to reform the undergraduate teaching-oriented
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universities, the government founded the Korea Advanced Institute of Science

and Technology (KAIST), a research-oriented graduate institution specializing
in science and engineering. Nevertheless, one institution could not produce
sufficient numbers of graduates to meet the increasing level of the firm’s
knowledge base.
Fifth, in the absence of university research, the government took the
initiative in establishing several GRIs by recruiting overseas-trained Korean
scientists and engineers. These GRIs were highly industry-oriented, focusing
on such sectors as chemicals, machinery, electronics, ocean science, standard-
ization, nuclear energy, biotechnology, system engineering and aerospace to
serve the growing needs of the private sector. These GRIs produced many
experienced researchers who spun-off to corporate R&D centers.

The Intensity of Effort. First, as Korea undertook structural adjustments

from mature technology industries to intermediate technology industries, its
competition in the export market shifted from that against other developing
countries to that against advanced countries. As a result, the continued
emphasis on export promotion resulted in tougher competition for Korean
firms than before, creating a formidable crisis in the international market. The
tougher competition in more technology-intensive industries and the reluc-
tance of the advanced countries to share sophisticated technologies forced
Korean firms to intensify their R&D efforts so as to enhance learning by
research.
Second, although creative imitation in the intermediate technology stage
requires far more ingenuity than duplicative imitation in the mature
technology stage, crisis construction continued to serve as a useful strategic
means to intensify efforts in technological learning. For instance, Korean firms
in the electronics and semiconductor industries deliberately created crises to
expedite technological learning (Kim, 1997a,b). The usefulness of crisis
construction, however, is inversely related to the degree of creativity required
in technological effort.

3.3 Emerging Technology Stage (Innovation)

Having mastered intermediate technologies, some Korean chaebols began to
challenge emerging technologies. For instance, in semiconductors, Samsung
developed the 256 Mbyte and 1 Gbyte dynamic random access memory
(DRAM) chips ahead of Japan (Kim, 1997b). Although a core patent was
licensed from the USA, Korea was the first country that succeeded in
commercializing code division multiple access (CDMA) mobile telephone
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technology. What made it possible for these Korean firms to achieve this
level? What are problems they face now?

Existing Knowledge Base. In the previous two stages, relevant knowledge

was readily available elsewhere and Korean firms could copy or purchase
them. In the emerging technology stage, however, Korean firms must gener-
ate them. Four mechanisms—basic research in universities, mission-oriented
applied research at GRIs, intensity of corporate R&D activities, globalization
of R&D and the recruitment of high caliber personnel from abroad—may be
worth mentioning.
First, recognizing the importance of basic university research, the Korean
government began to transform a dozen or so universities into
research-oriented graduate schools. As a result, university research almost
tripled in five years from W244.3 b. ($345.5 m.) in 1990 to W770.0 billion
($999.5 m.) in 1995. The number of university researchers also more than
doubled from 21 332 to 44 683 during the same period. In addition, emula-
ting the US experience, the government introduced in 1989 a scheme to
establish Science Research Centers (SRCs) and Engineering Research Centers
(ERCs) in the nation’s leading universities. The number of SRCs and ERCs
increased from 13 in 1990 to 35 in 1995. Another program introduced by
the government in 1997 to enhance Korea’s basic capability is the Creative
Research Initiative Program. Most Korean universities, however, are still not
equipped to play an adequate role to support the country’s economy and
industry. It requires enormous investment and cultural change and will take
at least a decade, if not longer, to build a strong modern university system.
Second, in parallel with the increased investment in university research,
GRIs played a role in developing some of the significant research results (such
as 4 Mbyte DRAM memory chips, electronics switching system, CDMA
mobile telephone system) which have subsequently been passed on to the
private sector. The government introduced in 1992 the Highly Advanced
National R&D (HAN) Project, also known as the G-7 Project, which is aimed
at lifting Korea’s technological capability to the level of the G-7 countries by
the year 2020. A total of $5.7 b. is to be invested jointly by the government,
universities and industries, about half of which comes from the private sector.
Nevertheless, in the face of the rapid expansion of private R&D activities and
increasing intensity of university R&D, reform of GRIs to redefine their roles
has been discussed for the future. Organizational inertia and the labor union
in GRIs have, however, made it difficult to implement these reforms.
Third, in light of the increasing difficulty in obtaining technology from
abroad and the growing importance of innovation capability in sustaining
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Korea’s international competitiveness in recent years, the private sector

drastically stepped up its R&D efforts, from W2.37 tr. ($3.36 b.) in 1990 to
W6.90 tr. ($8.95 b.) in 1995. It maintained its proportion to the nation’s
total R&D at 81% during the same period (see Table 1). This rate is among
the highest for both advanced countries and NICs. The table also shows that
the number of corporate R&D centers increased from 966 in 1990 to 2270
in 1995, reflecting the seriousness attached to R&D by private firms in the
recent years.
Fourth, although investment for university and GRI research increased
significantly, Korean firms must devise other alternatives to build their
existing knowledge base for emerging technologies in the face of rising
reluctance from foreign technology suppliers. One of the alternatives is the
globalization of R&D, which includes R&D outposts, merger and acquisition
(M&A) and strategic alliances. Chaebols established a number of R&D outposts
in the USA, Japan and Europe in order to monitor technological change and
undertake frontier R&D. Samsung’s leapfrogging into semiconductors is a
good example of how Korean firms used outposts to acquire the necessary
knowledge base (see Kim, 1997b). Korean firms are also acquiring the
necessary knowledge base through M&A of R&D-intensive foreign venture
firms. Hyundai acquired Laserbyte Corp. in Sunnyvale, California to gain
access to magneto-optical disk drive technology; Metaflow in La Jolla, Calif-
ornia to develop SPARC-compatible microprocessors; and Image Quest in
San Jose, California to develop flat panel displays. However, the globalization
of R&D is so new to Korean firms that they are going through a trial-
and-error process in managing acquired foreign firms.
A few leading chaebols at advanced stages have begun to enter into strategic
alliances with foreign firms to develop future technologies. Samsung has
teamed up in semiconductors with such rivals as Toshiba, Mitsubishi, NEC,
Fujitsu, General Instrument, Micron Technology, ISD and Array (Kim,
1997a). But the triad—Japan, the USA and Europe—accounts for 95.6% of
the total number of such cases. The strategic alliance with NICs, including
Korea, accounts for only 2.3% of the total (Freeman and Hagedoorn, 1993).
Korea must develop its own technologies to share with rival firms in order to
expand its global technology network.
Fifth, reverse brain-drain becomes even more important for Korean chaebols
to upgrade their existing knowledge base in the 1990s to ‘leapfrog’ into
state-of-the-art technologies. Many chaebols in such industries as automobiles,
electronics and semiconductors have lured away some of the best Korean-
American scientists and engineers. Korean chaebols gave them challenging jobs
and attractive compensation packages with considerable independence.
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 Building Technological Capability for Industrialization

Government statistics show that the number of scientists and engineers

recruited by corporate R&D centers from abroad was 427 in 1992 alone.

The Intensity of Effort. As Korean firms approach closer to the tech-

nological frontier, it is increasingly difficult for them to manage the intensity
of effort. A few points, however, deserve mentioning. First, increasingly
heightening market competition is a major source of stimulus for Korean
firms. In addition to export orientation, import liberalization became a new
source of stimulus under the World Trade Organization regime. This forced
Korean firms to compete against multinational firms not only in the export
market but also in the domestic market, creating an externally evoked crisis
on Korean firms to intensify their effort.
Second, crisis construction was an effective means of expediting tech-
nological learning in catching-up but is no longer so in pioneering. Learning
goals may be more specific and clearer in catching-up than in pioneering.
Catching-up firms can acquire existing knowledge through literature review,
poaching of personnel, observation tours and technology licensing. In
contrast, pioneering firms must work with a strategic ambiguity that provides
only broad direction (Nonaka, 1988). They have difficulty identifying
external sources or relevant knowledge. Consequently, learning in pioneering
may be creative but not necessarily expeditious.
Third, Koreans are no longer as hard working in the 1990s as in previous
decades. Democratization and the labor movement have resulted in signi-
ficant change in the social and organizational climate; workers have become
far less submissive than previously. And the new generation brought up in
affluence is less willing to work hard compared with the older generation,
making it increasingly difficult even for catching-up firms to use crisis
construction as a means of intensifying learning effort.

4. Summary and Discussion

This paper first presented five analytical frameworks and an integrative model
that may be used to analyze the process of building technological capability in
industrialization. The analytical frameworks enable public policymakers to
identify effective ways to help firms build technological capability. They also
help firms to identify, analyze and prescribe both external and internal
elements that may influence the process of building technological capability.
This paper also presented the Korean experience as a case in point. Korea
has made phenomenal growth in building technological capability over the
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past three decades, offering many implications for public policy and corporate
management.
First, both public technology policies and private technology strategies
must evolve over time in response to changes in the market and technology
environment. For instance, Korea’s national innovation system had func-
tioned effectively in the mature technology stage but became problematic in
the subsequent stages due to government failure in modernizing the nation’s
educational system and readjusting industrial structure in response to changes
in the economic environment. Korea is at a turning point with regard to
re-engineering its national innovation system (Kim, 1999).
Second, export promotion is the most effective public policy instrument for
creating competitive stimulus for firms to expedite technological learning.
Consequently, firms in the export-oriented industries were forced to learn
significantly more rapidly and grew faster than firms in import-substituting
industries. Likewise, countries with export-oriented industrialization (EOI)
grew faster than countries with import-substituting industrialization (ISI).
For instance, the average annual economic growth rate for EOI countries was
9.5 and 7.7%, respectively, for 1963–73 and 1973–85, as compared to 4.1
and 2.5% for ISI countries. It is for this reason that the EOI-oriented NICs
in East Asia grew faster than ISI-oriented counterparts in Latin America.
Third, the expansion and quality of education at all levels are among the
most fundamental and effective measures governments could do to help firms
build an adequate existing knowledge base. Rapid expansion in education at
the mature technology stage enabled firms to acquire an adequate existing
knowledge base for technological learning. However, underinvestment in
upgrading the quality of education in the subsequent stages created one of
the most serious bottlenecks in technological learning by generating poorly
trained human resources and providing an inadequate basic research cap-
ability. Baumol et al. (1991) also conclude that the quantity and quality of
education in an economy is one of the major influences determining whether
the economy is catching up rapidly to narrow the gap with advanced
countries.
Fourth, a liberal policy on brain-drain is necessary for developing countries
over the long run to allow scarce scientists and engineers to migrate to
advanced countries before or in the early stage of industrialization. Otherwise,
many of them will not find suitable jobs at home in the early stage to continue
to advance their technical competence. Brain-drain was a serious problem for
Korea through the 1960s. These Korean scientists and engineers returned
home and played a pivotal role in cracking intermediate and emerging
technologies.
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Fifth, the high tacit knowledge base is an important prerequisite to

effective technological learning. Three major ways to build it may be: (i) the
recruitment of high-caliber human resources, (ii) foreign technology transfer
and (iii) learning by research through in-house R&D. The Korean experience
shows that these three elements are complementary rather than substitutive.
The introduction of higher tacit knowledge through the recruitment of
high-caliber scientists enables the firm to challenge more sophisticated
technologies in in-house R&D and, in turn, strengthen bargaining power in
negotiating technology transfer.
Sixth, technology transfer strategy should evolve over time, as indus-
trialization progresses. When technology is mature and simple, local firms can
reverse-engineer foreign products. When technology is beyond the capacity
of local firms, firms can rely on foreign licensing. They can, however, pursue
efforts to assimilate imported technology in the shortest possible time. When
the technology is at the intermediate stage, local firms should intensify
in-house R&D to strengthen bargaining power in technology-transfer
negotiations. When technology is at the emerging stage, they can establish
R&D outposts in advanced countries and use M&As and strategic alliances
to gain access to frontier technologies. Successful proactive management of
the evolving nature of technology transfer will enable firms to sustain
competitiveness over time.
Seventh, the intensity of effort is another prerequisite to building tech-
nological capability in industrialization. The Korean experience shows that
constructing crises by setting ambitious goals is one of the most effective ways
to intensify effort at the individual and organizational levels. The goal-focused
high intensity of effort to resolve crises prompts members to actively search
for information for new ways to respond to them and to expedite knowledge
conversion and accumulation at the individual level. This also intensifies
interactions among them, giving rise to knowledge conversion and accumu-
lation at the organizational level.
In conclusion, to be dynamic, firms should keep upgrading the existing
knowledge base by recruiting higher-caliber human resources. They should
also take advantage of the technologies available elsewhere. At the same time
they should invest in in-house R&D efforts to work on imported technologies
and to challenge increasingly sophisticated technologies in the process of
industrialization. It is also important to construct and successfully manage
crises to intensify learning efforts. The absence of any of these factors is likely
to retard the pace of technological learning.

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