10 1016@j Jengtecman 2019 11 002

Journal of Engineering and Technology Management 54 (2019) 81–96
Contents lists available at ScienceDirect
Journal of Engineering and

Technology Management
journal homepage: www.elsevier.com/locate/jengtecman
The key role of dynamic capabilities in the evolutionary process for

T
a startup to develop into an innovation ecosystem leader: An
indepth case study
Nanping Fenga,b,c, Chao Fua,b,c,*, Fenfen Weia,b,c, Zhanglin Penga,b,c, Qiang Zhanga,b,c,
Kevin H. Zhangd
a
School of Management, Hefei University of Technology, Hefei, 230009, China
b
Key Laboratory of Process Optimization and Intelligent Decision-making, Ministry of Education, Hefei 230009, China
c
Ministry of Education Engineering Research Center for Intelligent Decision-Making & Information System Technologies, Hefei 230009, China
d
Department of Economics, Illinois State University, Normal, IL, 61790-4200, USA
A R T IC LE I N F O ABS TRA CT
JEL classification: This paper explores the evolutionary mechanism of an innovation ecosystem by investigating
O31 M13 L26 how the case startup develops to initiate and lead one. The results reveal that the dynamic
capabilities of the case company play a key role. They help the company acquire, renew and
Keywords: reconfigure resources to conquer its own development puzzles. This process naturally solves the
Innovation ecosystem stage challenges of the innovation ecosystem and advances its evolution. During the evolution,
Evolutionary mechanism
the social capital is an important antecedent of the dynamic capabilities. The paper enriches
Dynamic capabilities
understandings of innovation ecosystems and dynamic capabilities. Such understandings can
Startup
help enhance innovation efficiency in practice.
1. Introduction
The innovation ecosystem is a collaborative network in which members combine their individual offerings into a coherent,
customer-facing solution (Adner, 2006). In fact, many scholars treated it as synonymous with business ecosystem (Adner, 2006;
Adner and Kapoor, 2010; Gawer, 2014; Gawer and Cusumano, 2014; Gomes et al., 2018; Overholm, 2015) because they both focus on
creating a collaborative network toward innovation from a systematic approach (Moore, 1993). In recent years, many organizations
have been shifting their innovation strategy from firm centricity to ecosystems (Letaifa, 2014). In addition, topics about the in-
novation ecosystem have garnered growing interest from scholars (Iansiti and levien, 2004; Adner, 2006; Adner and Kapoor, 2010;
Autio and Thomas, 2014; Gawer, 2014; Gawer and Cusumano, 2014; Still et al., 2014; Gastaldi et al., 2015).
Among these topics, the evolution of the innovation ecosystem is a primary and important one (Gawer and Cusumano, 2014;
Ginsberg et al., 2010), because it is likely to carry substantial implications not only for scholars but also for practitioners and
policymakers (Dedehayir et al., 2018). Moreover, in recent years, there have been increasing calls to deepen the understanding of
how an innovation ecosystem forms and evolves (Gawer, 2014; Autio and Thomas, 2014; Dedehayir et al., 2018). However, the
evolution of the innovation ecosystem has received very limited attention (Dedehayir et al., 2018). It is notable that this limited
attention has only been paid to several separate issues, such as the seminal roles of the birth (Dedehayir et al., 2018), the symbiotic
⁎
Corresponding author at: Room 904, Technology Building, Hefei University of Technology, P.O. Box 270, No.193, Tunxi Road, Hefei, Anhui
Province, 230009, China.
E-mail address: wls_fuchao@163.com (C. Fu).
https://doi.org/10.1016/j.jengtecman.2019.11.002
Received 25 March 2018; Received in revised form 4 June 2019; Accepted 11 November 2019
Available online 21 November 2019
0923-4748/ © 2019 Elsevier B.V. All rights reserved.
N. Feng, et al. Journal of Engineering and Technology Management 54 (2019) 81–96
modes and dynamic equilibrium (Yao and Zhou, 2016), the subphases of the birth and expansion phases (Dedehayir and Seppanen,
2015), the impact of the architecture to its evolvability (Luo, 2018). To the best of our knowledge, few studies have investigated the
mechanism that may be essential for the evolution of the innovation ecosystem.
In this paper, we intensively study the evolutionary mechanism of the innovation ecosystem, that is, how the innovation eco-
system is established and developed, or what drives the evolution of the innovation ecosystem. We shed light on the evolutionary
mechanism by investigating how a startup acquires and integrates resources to initiate and lead an innovation ecosystem during the
process of its own development. The reasons are presented as follows. First, each stage of the evolution of an ecosystem has particular
development challenges, and particular resources are required to resolve these challenges (Moore, 1996). Thus, the evolution of an
innovation ecosystem is closely connected with resource acquisition and integration. Second, startups are usually related to in-
novation (Paradkar et al., 2015; Park, 2005) but characterized by resource poverty (Aspelund et al., 2005). They may lack financial
resources (Paradkar et al., 2015), technical and marketing capabilities (Huang et al., 2012), and the attitudes and abilities of the core
team (Chorev and Anderson, 2006). Thus, startups are usually faced with the challenge of how to access the resources necessary to
bring a product to market (Lin et al., 2009; Somuk et al., 2012). Third, although many scholars have treated the innovation ecosystem
as synonymous with the business ecosystem, some scholars argue that the innovation ecosystem is mainly related to value creation,
while the business ecosystem is mainly related to value capture; thus, they are somewhat distinct (Gomes et al., 2018). For startups, it
is obvious that before value capture, the first thing they need to consider is value creation. Therefore, taking a startup as the study
object to explore the evolutionary mechanism should not be controversial.
We select Chery, a typical automobile company in China, as a startup case. We trace its development history and disclose the
evolution of the formative innovation ecosystem in which Chery has been undertaking a leadership role. We analyze the evolutionary
process and the fulfillment of Chery to be the ecosystem leader according to the argument of Moore (1993, 1996) about the evo-
lutionary stages and leadership of business ecosystems. We explore these with a dynamic capabilities approach (Teece et al., 1997;
Eisenhardt and Martin, 2000; Zollo and Winter, 2002), which is rooted in the resource-based view (Barney, 1991; Helfat and Peteraf,
2009; Makadok, 2001) and stresses resource renewal or reconfiguration to respond to the changing environment (Pavlou and Sawy,
2011). It is an overarching framework within which studies of firm behavior from a variety of perspectives can coexist under the
broad umbrella of an inquiry into how firms manage internal and external resources to build sustainable competitive advantages
under deep uncertainty (Teece, 2016). We achieve our research purpose through analyzing how Chery’s dynamic capabilities fa-
cilitate the resource renewal or reconfiguration during the evolutionary process.
2. Literature review
2.1. The evolution of innovation ecosystems
Moore (1993) first put forward the philosophy of the business ecosystem. In a cooperative network, the members, including
partners, suppliers and customers, work cooperatively and competitively to support new products, satisfy customer needs, and
eventually incorporate the next round of innovations. He also identified four evolutionary stages of an ecosystem, naming them as
birth, expansion, leadership and self-renewal, and noted the different challenges in each stage. Then, he presented a basic framework
with revised stages, including pioneering (vision), expansion, authority and renewal (or death) (Moore, 1996).
Since Moore’s seminal publications, many scholars have paid attention to innovation ecosystem related topics, including eco-
system strategy formulation (Adner, 2006), value creation (Adner and Kapoor, 2010), implications for innovation management
(Autio and Thomas, 2014), the roles of different actors, and ecosystem transformation (Dedehayir et al., 2018; Gastaldi et al., 2015).
However, only a few scholars have put an emphasis on the topic of establishment and evolution. One is Dedehayir, who collated the
roles during the innovation ecosystem genesis into four groups based on a systematic literature review, namely, leadership roles,
direct value creation roles, value creation support roles and entrepreneurial ecosystem roles (Dedehayir et al., 2018). In particular, he
investigated the birth phase and expansion phase of an innovation ecosystem through a single case of the “flash converting furnace”
ecosystem (Dedehayir and Seppanen, 2015). Another is Luo, who examined how the interfirm network structure of an innovation
ecosystem may condition its evolvability based on the NK model (Luo, 2018). In addition to these scholars, Yao and Zhou (2016) built
a symbiosis evolution model to analyze the symbiotic modes and dynamic equilibrium of the mobile internet platform innovation
ecosystem to explore its evolutionary path.
However, neither the research of Moore nor the subsequent papers discuss in great depth what drives the evolution of an eco-
system. Our work aims to overcome this problem based on a case and, respond to the appeal to pay greater attention to the emergence
and evolution of the innovation system (Dedehayir et al., 2018).
2.2. Startups, innovation and resources
Startups are ventures in the process of discovering, developing and implementing a viable and scalable business model to exploit
market opportunities (Ehrenhard et al., 2017). Their survival chances can be greatly increased by innovation (Cefis and Marsili,
2006). Their innovation activities differ significantly from those of established firms (Criscuolo et al., 2012). Typically, they are
resource-strapped (Aspelund et al., 2005; Paradkar et al., 2015). Thus, there have been many studies that have investigated the
influence of internal resources on startups’ survival and innovation (Cooper et al., 1994; Bamford et al., 2000; Aspelund et al., 2005;
Newbert et al., 2007; Garnsey and Leong, 2008; Huang et al., 2012). Although most studies drew the conclusion that initial resources
do indeed affect the survival and growth potential of new ventures (Cooper et al., 1994; Bamford et al., 2000; Aspelund et al., 2005),
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some argued that it is not the mere possession but rather the exploitation of a firm’s resources that determines its performance
(Newbert et al., 2007), and entrepreneurial managers can build capabilities within a network of firms to alter their business en-
vironment (Garnsey and Leong, 2008). Our study casts light on the problem of how a startup exploits and renews the resources to
innovate through capability exertion activities, thereby altering its business environment.
2.3. Dynamic capabilities and innovation
The view of dynamic capabilities has attracted much attention since Teece et al.’s (1997) seminal article was published. Research
to date has provided a large array of distinct definitions of dynamic capabilities. However, the original definition that Teece et al.
(1997) offered is perhaps the most influential one. They defined dynamic capabilities as a “firm’s ability to integrate, build, and
reconfigure internal and external competences to address rapidly changing environments” (Teece et al., 1997). Subsequent works
offered the adaptations of the original definition. For example, Eisenhardt and Martin (2000) described dynamic capabilities as
“processes that can be used to integrate, reconfigure, gain and release resources, leading to a new resource configuration, to match
and even create market change”. Winter (2003) defined dynamic capabilities as “those that operate to extend, modify or create
ordinary capabilities”. Helfat et al. (2007) provided a definition as “the capacity of an organization to purposefully create, extend,
and modify its resource base.” Despite their differences, all the definitions implicitly or explicitly reflect that the role of dynamic
capabilities is to change the firm’s resource base in line with changes in environment (Ambrosini and Bowman, 2009). In other words,
dynamic capabilities are rooted in a resource-based view (Barney, 1991; Helfat and Peteraf, 2009; Makadok, 2001) and stress
resource renewal or reconfiguration (Pavlou and Sawy, 2011).
As shown by the definitions, there exist different types of dynamic capabilities. Specifically, Teece (2007) disaggregated dynamic
capabilities into capacity to sense and shape opportunities and threats, capacity to seize opportunities, and capacity to maintain
competitiveness. Based on the literature review, Barreto (2010) argued that dynamic capabilities referred to four distinct but related
dimensions, namely, the propensity to sense opportunities and threats, the propensity to make timely decisions, the propensity to
make market-oriented decisions, and the propensity to change the firm’s resource base. From an exploratory study, Chen and Jaw
(2009) identified six types of dynamic capabilities as the driving forces for the creation of new cultural products.
The specific association with change makes scholars believe that dynamic capabilities align well with the nature of innovation
(Kelley, 2008). For example, Lawson and Samson (2001) proposed an “innovation capability” construct based on the dynamic
capabilities literature. Breznik and Robert (2014) linked dynamic capability with innovation capability and indicated the ways they
can be related. Salunke et al. (2011) concluded that entrepreneurial service firms pursuing innovation could build and nurture a set of
dynamic capabilities that enable them to achieve greater innovation and sustain a competitive advantage. Zheng et al. (2011)
investigated the mechanisms of dynamic capabilities’ impact on innovation performance in networked environments. Following the
dynamic capabilities perspective, Rothaermel and Hess (2007) assessed the direct effects of antecedents at the individual, firm, and
network levels on innovation output.
Although the literature has developed since Teece (2012) asserted that the research paradigm of dynamic capabilities was still
relatively new, and some scholars have related dynamic capabilities to the innovation topic, few works have centered on a startup’s
innovation or on the innovation ecosystem. We explore how our case startup developed the innovation ecosystem it initiated fol-
lowing the dynamic capabilities perspective, thus further extending the literature of dynamic capabilities and their link with in-
novation.
3. Research methodology
3.1. Method and case selection
We investigate the evolution of the innovation ecosystem by conducting an exploratory case study. At the same time, we try to
show the true plot of the case story. The reasons are as follows.
First, case study, a method that can deeply describe and analyze a certain specific phenomenon based on abundant qualitative
data (Eisenhardt, 1989; Eisenhardt and Graebner, 2007), is the most likely to address “how” research questions (Yin, 1994). Second,
Teece (2012) asserted that illuminating case studies are likely to yield powerful insights about dynamic capabilities. Third, Park
(2005) recommended that firms needed to be studied during the actual startup process to develop and maintain a true and unbiased
perspective of the phenomenon. Finally, Ambrosini and Bowman (2009) claimed that fine-grained case studies of firms about the
dynamic capabilities are needed.
We chose Chery Automobile Co., Ltd. (we call it Chery in the paper) as the specific startup case company because it has a number
of special features.
First, it belongs to the manufacturing industry-automobile industry, which is different from the information-technology intensive
industries considered in previous research (Gawer and Cusumano, 2014). When Chery was formally founded in 1997, the automobile
industry had been rather mature. Thus, Chery is a late entrant (a firm that enters a market when the market is stable and close to
maturity), obviously different from the market pioneers (one of the first firms to offer such products or services in a market)
(Robinson and Fornell, 1985) such as IBM, Intel, Google, and Cisco considered in previous studies (Gawer, 2007; Gawer and
Cusumano, 2014; Ginsberg et al., 2010; Moore, 1993).
Second, Chery is one of the most important actors in the Chinese national automobile industry and has made prominent
achievements in innovation. It has been honored as one of the China’s first “innovation-oriented enterprises”. However, when
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established, it had almost no resources. The problem of resource scarcity was particularly serious in its initial stage. Nonetheless,
rapid development was achieved, which greatly surprised industry insiders, and Chery, was therefore called the “Chery Miracle” in
China.
Third, Chery has gradually established and developed an innovation ecosystem, comprising not only Chery and its factories or
subsidiaries but also suppliers, dealers, regulatory bodies, cooperative enterprises, universities, research institutions and consumers.
Undoubtedly, Chery played a leadership role during the process.
3.2. Data collection
To present the case story to the full extent, the time span of related data is from 1997 to 2016, that is, from the very beginning of
the company foundation to the latest year.
We discussed the data collection protocol at the beginning. We insisted that the evolution of an innovation ecosystem must be
bound to its initiator’s development. Thus, we would investigate the ecosystem’s evolution based on Chery’s development history.
There are abundant secondary data about Chery, such as media reports, website information and journal articles, which could help us
obtain a preliminary understanding. From the secondary data analysis, we selected the most influential events during Chery’s de-
velopment. These events also contribute to the evolution of the innovation ecosystem. Then, based on these events, we developed the
interview protocol. We selected six different types of interviewees for collecting more detailed information: (1) one of the government
officials who initiated the idea to start a business of manufacturing automobiles; (2) the leader of the startup team and additionally
the CEO; (3) two other members of the startup team; (4) managers of the R&D department; (5) representative suppliers; and (6)
participants in the crowdsourcing activity. All the interviews used a semistructured format. We also acquired some related archival
data from the interviewees. Various data can form a triangle test (Eisenhardt and Graebner, 2007), ensuring the accuracy of the
information.
The government official interview. The interview lasted approximately 1 h and focused on the idea germination and how the idea
was turned into reality in the initial stage. Examples of questions were: ‘Why did the government choose to develop the automobile
industry?’ and ‘What difficulties did you encounter in the initial stage and how did you overcome them?’
The leader of the startup team interviews. We had in total three interviews with him, a formal appointment interview and two
informal interviews (one at a dinner and one during an industrial conference). The first interview was an interview by appointment
that lasted approximately 1.5 h. The interview began with us asking him to briefly introduce Chery’s development history. Then, he
was requested to describe the important events related to resource acquisition and integration. In the two informal interviews, we
confirmed some data we had collected from other interviewees to ensure their accuracy.
Startup team interviews. After the first interview with the leader, we interviewed two other persons from the startup team. Based
on the information from the leader, these two interviews began with the question ‘Why did you choose to quit your former job and
join the company?’ Then, we traced the important resource acquisition events identified in the leader interview and asked them to
supplement the information if there was anything additional to be provided. The two interviews lasted approximately 45 min each.
R&D department manager interviews. There were four managers we could contact, and thus we conducted a total of four such
interviews. Each manager was requested to describe the R&D strategy and a certain specific product innovation process of his relevant
period. Two of the interviews lasted approximately 1 h each, and two were each approximately 45 min in length.
Representative supplier interviews. We selected two suppliers with whom to conduct interviews. Both the suppliers’ developments
were reported to be closely correlated with that of Chery. The interviews focused on their cooperation with Chery. Examples of
questions were: ‘Do you understand the supplier management relevant policies of Chery?’; ‘How long has your company been a
supplier to Chery?’; ‘Have there been any changes in the cooperation principles?’; and ‘Do you trust Chery and believe that if your
company encountered difficulties, Chery would help out? Why?’. The interviews were each approximately 45 min in length.
Crowdsourcing participant interviews. We selected three participants with whom to conduct the interviews. The interviews
focused on the motives for participating in the crowdsourcing activity, the competitive entry process and their experiences. Examples
of questions were: ‘Why did you participate in the crowdsourcing activity?’; ‘What was the participation procedure?’; and ‘Do you
think it is a good idea to design an automobile? Why?’
3.3. Data analysis
The analysis involves iterating between theory and data. After each interview, all the researchers immediately conducted an in-
depth examination and analysis of the data. We met to discuss the interview data from the perspective of resource restraints and
dynamic capabilities. We asked two questions: ‘What were the resource restraints, and what dynamic capabilities did they help to
solve?’. When all the interviews were finished, we discussed all the data to form an initial framework of understanding how Chery
initiated and developed an innovation ecosystem, and how the dynamic capabilities of Chery influenced the evolution of the in-
novation ecosystem. Then, all the researchers were requested to examine the initial framework separately. A week later, we met to
discuss how we could improve the initial framework and introduce a second edition of the framework. Then, the above cycle was
repeated until we arrived at the final version used in the paper.
The basic information of the research methodology is presented in Table 1.
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Table 1
Basic information about the research methodology.
Case company name Chery Automobile Co., Ltd.
Case industry Automobile
Industry development level when established mature
Data source Interviews and discussions with:

(1) A government official;
(2) The leader of the startup team;
(3) Two other members of the startup team;
(4) Four R&D department managers;
(5) Two representative suppliers;
(6) Three crowdsourcig participants;
Other sources: archival data, journal articles and media reports
Data time span 1997-2016
Characteristics Late entrant;
of case company One of China’s first “innovation-oriented enterprises”;
Almost no resources on hand when established;
Called “Chery miracle” by industry insider;
Having elementarily developed an innovation ecosystem;
Data analysis method Iteration between theory and data
4. Case presentation
4.1. Brief introduction of Chery
Chery, founded in 1997, has become the largest independent brand automobile manufacturer in China. It is also the largest export
enterprise of passenger cars in China. At present, Chery has built a complete R&D system covering vehicle, powertrain, and key
components. By the end of 2016, Chery had accumulated 14,316 patent applications, and 9155 patents have been authorized,
ranking first among domestic automobile enterprises. Due to the achievements in innovation, Chery has been honored as one of
China's first “innovation-oriented enterprises”.
Chery is located in Wuhu City of Anhui Province, an undeveloped central area in China. Before its birth, Wuhu had almost no
advantages for developing an automobile industry: no prominent geographical location, no comparable capital strength vs. coastal
cities, very poor reserves of manpower and technology, and a very weak industrial foundation. However, it has realized years of
leapfrogging development (The sales volume of Chery is shown in Table 2). Therefore, how has Chery realized its innovation and
explosive growth? How has Chery initiated and evolved an innovation ecosystem? These questions will be discussed and answered in
this work.
4.2. Development of Chery and the evolution of the innovation ecosystem it initiated
According to Moore (1993, 1996), there are four stages (pioneering/visioning, expansion, authority and renewal) for a business
ecosystem’s evolution, and each stage has a specific goal; thus, the ecosystem leader has corresponding tasks to achieve the stage
goals. According to the interviews, Chery’s development can be divided into three stages, i.e., birth (1997–2000), fast growth
(2001–2010), and reform (2011-now). We analyze the development of Chery and find that its three stages are somehow in ac-
cordance with Moore’s four stages. More precisely, in each development stage, what Chery did was in accordance with the ecosystem
leader’s specific task Moore insisted upon. The company’s birth and fast growth stages respectively correspond to pioneering and
expansion, while the company’s reform stage corresponds to the authority and renewal stage.
4.2.1. Birth stage vs. pioneering/ visioning

4.2.1.1. Birth of Chery (1997–2000). In 1992, the officials of the Wuhu government were troubled by the economic backwardness of
the city. When they came across the high profits of the automobile industry, they developed the bold idea of developing the industry
to contribute to their local GDP (Gross Domestic Product). Therefore, in January 1995, when they learned that an engine production
line of the British Ford Company was to be sold, they thought it was a good opportunity to start an automobile project.
However, there was almost no automobile talent in Wuhu at that time. To hunt for talent, a Wuhu delegation was organized to
Table 2
The sales volume of Chery from 2001 to 2016 (unit: 10,000 vehicles).
Year 2001 2002 2003 2004 2005 2006 2007 2008
Sales volume 2.8 5.0 8.5 8.2 18.9 30.5 38.1 35.6
Year 2009 2010 2011 2012 2013 2014 2015 2016
Sales volume 48.4 68.2 64.3 53.7 43.7 48.6 55.01 70.47
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visit the FAW (First Automobile Works) shop. At FAW, they found a crucial person—Yin (the leader of Chery’s startup team), who was
born in a city adjoining Wuhu. Yin had worked at FAW for 12 years after graduation from the Hefei University of Technology and was
the youngest technology authority at FAW. Considering the geographical relationship, the officials insisted on inviting him to preside
over the project. Touched by the officials’ sincerity and attracted by the dream of producing Chinese independent-brand cars, Yin
finally quit his job at FAW and accepted the invitation. When Yin reached Wuhu, he also used the geographic relationship and the
dream to persuade seven other persons to join the project, and thus, a startup team was formed.
In 1997, the first plant began construction, and in 1999, the first car was produced. According to the national policies of car
production, this project was not permitted at that time. Thus, the company was publicly known as the “Anhui auto parts industrial
company”, and the project could only be carried out secretly. To support the company without a license to survive, the municipal
government requested that taxi companies in Wuhu used the cars. Then, the project was exposed. Although the produced cars met
safety standards, the company was requested by the national authorities to halt production because of its illegality.
To overcome this dilemma, the local government begged the National Economic and Trade Commission to facilitate cooperation
between the company and SAIC (Shanghai Automotive Industry Corporation). Through this cooperation, Chery joined SAIC with the
expense of 20% of its shareholding and thus acquired an “establishment permit”, but there was a special agreement that SAIC would
not invest in or manage the company. In 2001, the “Anhui auto parts industrial company” was officially renamed “SAIC Chery”. This
name gave the new company a good market image, and its product “Chery Fengyun” quickly entered the market. In fact, many
accessory plants of SAIC directly supplied parts to “Chery Fengyun”, which greatly reduced the production cost and thus helped to
form a price advantage in the market. Although the cooperation was terminated and Chery became independent from SAIC in 2003
for various reasons, joining SAIC had been crucial for its survival.
At the very beginning of its establishment, Chery set “making the cheapest cars for families in China” as the company’s “core
value”. At that time, there was a consumption mania for family cars in China, but the prices of the cars on the market were so high
that most consumers could not afford them. Thus, Chery set a core value to make it possible for a multitude of consumers to own cars
at an acceptable price.
4.2.1.2. Pioneering/ visioning in accordance with the establishment. The goal of pioneering/visioning is that the leader organization has
created a viable and exciting alternative to the status quo. The key is designing and implementing an offering that customers will
desire at a price point that makes it profitable for the leader to deliver the goods in large quantities (Moore, 1993, 1996).
The automobile industry was already mature before Chery’s establishment. The top manager (Yin) discovered that the increas-
ingly large middle class in China had a great eagerness for automobiles, but the market did not exist for them. Thus, Chery took
“meeting the needs of these people” as a market opportunity and accurately understood that for low-end cars, the most important
factor was price, not brand. Depending on accurate market positioning, Chery survived and developed quickly, although it was a late
entrant almost totally without adequate experience, technology or talent when it was established.
The legendary establishment history of Chery is actually based on the core value of “making the cheapest car for families in
China”. Actually, the pursuit of the value targeted a specific market segment—those customers who longed to buy a car but could not
afford the products in the existing market. Thus, Chery created better offerings than the existing products through cost cutting, at
least for the targeted customers, thereby galvanizing customer support and gaining quick and widespread acceptance.
4.2.2. Fast growth stage vs. Expansion

4.2.2.1. Fast growth of Chery (2001–2010). One problem Chery first encountered in innovation was the lack of talent. To solve this
problem, Chery developed a series of measures to absorb talent from all over the world.
In 2000, a dozen R&D engineers were ready to leave the Technology Center of Dongfeng Motor Corporation for various reasons.
When hearing about this, Chery sincerely invited them to join. In 2001, all these engineers arrived in Wuhu, and a car development
team was quickly formed. We call them a “team” because they had worked together for years and cultivated a tacit understanding and
spirit of cooperation.
To ensure the team would innovate effectively, Chery did not let them join organizationally; rather, a specialized automobile
design company was established and funded for them. The company mainly served Chery’s development tasks. Chery accounted for
only two-thirds of the shareholding, while the remainder was held by the team members. With great enthusiasm, the team designed
two types of cars for Chery within only 8 months, one of which was named “QQ” and achieved strong market success. Chery
repeatedly used this simple but efficient operation mode to attract overseas R&D talent.
To narrow the gap with advanced car manufacturers around the world, Chery also introduced experts from the foreign auto
giants. These experts not only brought advanced technology ideas and management experience, but also examined Chery’s R&D from
an international perspective. There were approximately 2000 R&D personnel in Chery, and nearly 150 were from the United States,
Japan, Germany and other countries. Although Chery was young, it had the most professional returnees at that time, which facilitated
Chery in seeking cooperation and support in the world.
In addition, Chery established domestic R&D branches in central cities with intensive talents and highly developed information,
such as Beijing and Shanghai. It also set up branches in Turin, Detroit, Tokyo and Sydney. All these overseas branches were situated in
areas with advanced automobile manufacturing industries to attract outstanding R&D talent and collect the latest industrial in-
formation.
Another critical problem was the lack of core technological resources. To quickly obtain the core technologies, Chery established
an open mode. It sought technological support through cooperation with international professional companies. In fact, the nature of
the cooperation was employment, which meant that the products designed by the cooperative companies should be in accordance
86
with the requirements of Chery, and Chery owned all intellectual property rights of the products. Chery also sent engineers to
participate in the complete processes of design, testing and assembly. The engineers learned advanced technologies and obtained
experience during the participation, and thus Chery cultivated its independent R&D capabilities.
This new open innovation mode helped Chery to rapidly achieve the core technologies and form independent R&D capabilities.
For example, in 2002, Chery cooperated with the world-famous Austrian AVL and designed engines. In 2005, Chery displayed the
engines at the Shanghai Auto Show and caused a stir in the industry. Some experts insisted that the main indicators of the Chery
engines had reached a globally advanced level, and the gap between China and the most advanced level was shortened by almost 20
years. Due to its unique development mode, Chery was able to launch four or five new car models each year.
The industry-university collaboration was also a main mode to access technology. Chery established close cooperative re-
lationships with many universities and institutions in China. It also established a postdoctoral position for securing more talent and
technologies.
Although the initial target market was the domestic middle class, this is a very small share of the global market because, in terms
of the market capacity, China accounted for only 7.5% of the global market. The vast overseas market (92.5%) can offer more growth
space. In view of this, Chery took “being close to the local needs and creating a blue ocean market” as a breakthrough to open foreign
markets. For example, considering the hot weather and desert climate in the Middle East, Chery improved the engine and air intake
system and launched high-temperature resistant and anti-sand cars. Because the innovations captured special market demands, Chery
even sold its cars side by side with Mercedes Benz in some countries.
4.2.2.2. Expansion in accordance with the Fast growth stage. Expansion is fundamentally about getting new partners to join the
economic opportunity. The leader brings a new offer to a large market by working with partners to achieve maximum market
coverage. At the end of the stage, a community must be broadly defined (Moore, 1993, 1996).
For Chery, due to its rather poor resource base, it was not realistic to develop all the processes on its own. However, the mature
industry could offer many potential partners with sophisticated manufacturing technologies and management tools. Thus, Chery
adopted flexible methods to absorb partners to join the value creation activity, including dozens of world-class automobile profes-
sional companies or R&D institutions, and parts and component suppliers.
For the top-level talents, Chery attracted them to flexibly join according to their different needs, such as ambition (developing and
manufacturing China’s cars to realize professional values), shareholding (funding to establish a holding company for the R&D team
from Dongfeng), power (taking a management position as a temptation for talent), and high salary (employing returnees with a salary
even higher than the top manager’s). If some talents could not join for various reasons, Chery cooperated with them through other
modes such as project contracts. These methods helped Chery aggregate the most overseas returnees in the domestic auto industry at
that time.
4.2.3. Reform stage vs. Authority and renewal

4.2.3.1. Reform of Chery (2011-present). In 2011, joint venture brands began to compete with local brands at reduced prices in the
Chinese market, and the sales volume of Chery decreased. To address this predicament, Chery made a strategic transition. The
transition mainly focused on three aspects: integrating supply chain resources, acquiring complementary resources through joint
ventures and accessing consumer resources through crowdsourcing.
4.2.3.1.1. (I)integrating supply chain resources. Despite the rapid development during 2001–2010, the cooperation among the
members of the supply chain was not efficient. One of the main causes was the traditional supply chain management philosophy. As a
customer of its suppliers, Chery deemed itself the absolute authority on the supply chain, and many contracts considered more of its
own benefit and seldom that of the suppliers. This philosophy resulted in a lack of cohesion among the members of the supply chain.
Recognizing this, in 2012, Chery turned to a supply chain system management philosophy.
To reduce supply costs, Chery began to treat the suppliers as inner plants or departments and pay close attention to their costs. At
the same time, Chery set a stable policy toward long-term cooperation with suppliers to assure them that it would not transfer to them
the risks from market change and product adaptation. For example, a three to five year contract could relieve suppliers’ worries about
the risks of investment in hardware and software, so they could cut their costs in a planned way through technical improvement or
process improvement.
Chery divided its 500 suppliers into four categories: the first with skillful abilities and good performance, the second with skillful
abilities but poor performance, the third with poor abilities but a strong desire to do well, and the last with poor abilities and a
passive attitude to do well. For the first and second categories, Chery ensured their benefits from investment in hardware and
software by increasing the purchase amounts and using long-term contracts. For the third category, Chery set up a special support
group to help them improve their abilities. For the last, Chery firmly weeded them out of the supply system. Through these measures,
the suppliers were reduced from 500 to 350, and the cooperation efficiency in the supply system was enhanced greatly.
4.2.3.1.2. (II)acquiring complementary resources through joint ventures. To better achieve internationalization, Chery successively
initiated the establishment of two joint ventures in 2011 and 2012. The products of the ventures aimed at global markets, particularly
those of developed countries. Many top experts were recruited to join, including a former manager of Volkswagen in America and the
chief designer of BMW MINI. The international team brought advanced technologies, management, and manufacturing experience.
This mode realized the flow and combination of technologies, procedures and talents among the “big Chery” (inclusive of joint
ventures and Chery itself) in many fields, including system construction, product development, and brand building. Thus, it promoted
Chery’s building of a global R&D and management system with international standards.
The innovation ability of Chery has been significantly enhanced, with the accumulated patents ranking first in the Chinese
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automobile industry in 2016. At the same time, its competence in the international market has also been enhanced. In the annual
investigation of Chinese enterprises’ overseas image (Central and Eastern Europe) initiated by the Chinese State Council Information
Office, Chery ranked first in the equipment manufacturing industry in 2016, being the only automobile company on the list.
4.2.3.1.3. (III)accessing consumer resources through crowdsourcing. For Chinese automobile companies, the design was always
dependent on the internal design department or external design companies, which would cause a common problem: although the
design process might include a market investigation, communication with consumers was still insufficient. In 2014, Cowin Motor Co.,
Ltd., a subsidiary of Chery, introduced the principles of “disintermediation” and “decentralization” to develop a car, meaning that
Cowin would open its product development process and allow the public to participate in it.
Cowin launched a crowdsourcing task on its official website to collect appearance sketches, interior decoration sketches and effect
pictures of a future product. The official website released the task description, design advice, task incentives, and other rules. The
ultimate product chosen by the public would be put into mass production.
More than 3.6 million persons participated, and some 1 million of them voted to rank the drafts. Cowin collected 586 design drafts
and effect pictures. More than 500 media outlets paid close attention to the crowdsourcing. Reuters, the Boston Globe, and the
Phoenix Business Journal all reported on the activity. In particular, the CEO of ED Design, the largest design and engineering
company in Italy, wrote a letter to offer contributions to the program. At the same time, many consumers became fans of Cowin
because of their personal participation.
4.2.3.2. Authority and renewal in accordance with the reform stage. In the Authority stage, the ecosystem leader should provide a
compelling vision for the future that encourages suppliers and customers to work together to continue improving the complete offer.
It reinforces its role by making important innovative contributions to the performance of the ecosystem. The renewal stage occurs
when a mature business community is threatened by sudden new environmental conditions, which include changes in customer
buying patterns. In the Renewal stage, the leader works with innovators to bring new ideas to the existing ecosystem or to restructure
themselves to try coping with a new reality (Moore, 1993, 1996).
The reform stage of Chery is both the authority stage and the renewal stage of the innovation ecosystem. First, the transition to a
supply chain system management philosophy, including paying close attention to the suppliers’ costs, the stable policy toward long-
term cooperation with suppliers, and the different policies for different categories of suppliers, enhanced the performances of all
ecosystem member organizations. Simultaneously, these measures also helped Chery win suppliers’ trust and thus encouraged them
to cooperate with Chery more diligently in the future. It is clear that the symbiosis of the ecosystem was more obvious. Second,
establishing joint ventures was an important decision for Chery to break out of its dilemma caused by the changes in market
requirements and fierce competition. Its goal was to raise the grade of the products and enhance competitiveness, which was a vital
strategy transition for Chery and had also brought many international innovators to the existing ecosystem. Third, there was no doubt
that crowdsourcing would gather many new innovative ideas. It could also publicize the products and thus further consolidate the
leader’s position.
5. Analysis and discussion
Section 4 demonstrates that when Chery solved its stage development puzzles, the evolution stage goal of the innovation eco-
system that Chery initiated and led is naturally achieved. Thus, the evolutionary process of the innovation ecosystem is imbedded in
the development process of Chery. In this section, we further analyze the evolutionary process from a view of dynamic capabilities.
More precisely, we explore what are Chery’s dynamic capabilities that facilitate the evolution of the innovation ecosystem, and what
sustains these dynamic capabilities. Based on these, a holistic evolutionary framework is constructed.
5.1. Dynamic Capabilities help develop the innovation ecosystem
Moore (1993, 1996) insisted that in each evolutionary stage, the ecosystem has particular development challenges to realize its
specific goal or task, and thus requires particular resources to resolve the challenges. Following this argument, we should explore how
Chery—the ecosystem leader, acquired the resources needed to resolve the stage challenges to advance the evolution of the in-
novation ecosystem. Due to the contributions of dynamic capabilities to resource renewal, we explore this question from the
viewpoint of dynamic capabilities. The development indicates that there are two main dimensions of dynamic capabilities that
contribute to Chery’s resource renewal: dynamic capabilities about market and dynamic capabilities about technology.
Disaggregating dynamic capabilities into market dimension and technology dimension is somewhat similar to the research of
Danneels (2008).
Dynamic capabilities about market. The core of dynamic capabilities about market is a deep understanding and insight into
customer demands, including existing ones and potential ones. The dynamic capabilities about market can enable companies to
accurately grasp market opportunities and changes. They are primary for the survival and development of companies. In our case,
market-sensing is a prominent dynamic capability about market.
Dynamic capabilities about technology. The core of dynamic capabilities about technology is to track and identify the current
technology trend, and then absorb and integrate the new technologies through resource reconfiguration and operation adjustment.
The dynamic capabilities about technology can enable companies to accelerate the development and production of new products. In
our case, integrating capabilities, coordinating capabilities and learning capabilities are three prominent dynamic capabilities about
technology.
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N. Feng, et al.
Table 3
Chery’s dynamic capabilities to renew the resource base for stage challenges.
Evolution stage Stage challenges Dynamic capabilities Renewed resources New ecosystem members
Pioneering/Visioning How to transform the idea into commercial Market-sensing, integrating Physical technology, entrepreneurial talents, institutional assets, Governments, SAIC and its suppliers
revenue streams reputation assets, market assets, unique organizational culture
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Expansion How to bring the new offer to market and Integrating, market-sensing, Talents, technological assets, market assets International professional companies, R&D
achieve maximum market coverage coordinating, learning institutions, universities
Authority and Renewal How to reinforce the leader’s role and Integrating, coordinating Advanced technologies, advanced management and Foreign automobile manufacturers,
encourage members to cooperate manufacturing experience, consumer resources consumer
Journal of Engineering and Technology Management 54 (2019) 81–96
Through the dynamic capabilities and their combinations, the company’s resources were renewed and the stage challenges were
solved. During the process, the innovation ecosystem had been gradually established and evolved with continuous new member
entries. Table 3 shows the challenges, the dynamic capabilities, the renewed resources and the new ecosystem members in four
evolution stages.
5.1.1. Dynamic capabilities and renewed resources in Pioneering / visioning

In the pioneering stage, the leader organization needs to create a viable and exciting alternative to the status quo (Moore, 1993,
1996). Obviously, in our case, the challenge encountered was to transform the bold idea of producing automobiles into reality, and
the establishment of an automobile company is the foundation.
We find that the unique historical circumstances were vital for Chery’s establishment: the urgent need of local government to
develop the economy and the high profit of the industry at that time. Originally, there was no physical capital resource (Barney,
1991), except for the government’s vision to develop the automobile industry. Then the government played the most important role
in the acquisition of all the resources in this stage. This is very different from the establishment of other ecosystem leaders such as
IBM and Intel.
After the top manager undertook the project, he acutely identified unmet customer needs and took it as a market opportunity for
Chery. He was responsive to the market trends and detected resource combinations to pursue the specific middle-class market
segment. As an entrepreneurial manager, he showed his dynamic capabilities of market-sensing (Teece et al., 1997; Pavlou and Sawy,
2011). Besides, the recruitment of seven other core talents to build the startup team also showed the integrating capabilities of the top
manager.
Therefore, there are two main dynamic capabilities in this stage: market-sensing and integrating. Market-sensing represents the
capabilities of opportunity recognition, adaptation and resource reconfiguration (Teece, 2007, 2012; 2016; Pavlou and Sawy, 2011;
Sheng, 2017). The case indicates that market-sensing is a process of detecting market, understanding customer needs and then
responding to the market. Integrating represents the capabilities to combine individual resources into a unit’s new operational
capabilities (Pavlou and Sawy, 2011). The internal integrating capabilities are embodied in the efficient utilization of the various
resources of the company, while the external integrating capabilities are mainly the acquisition of outside resources through co-
operation with other agents.
With the dynamic capabilities of market-sensing and integrating, the original resource base was renewed. In addition to the
physical technology (the production line) and the entrepreneurial talents (the startup team) mentioned above, we should emphasize
the four other types of renewed resources: institutional assets, reputation assets, market assets and unique organizational culture.
Institutional assets (Special policy resources). Public policies constrain what firms can do (Teece et al., 1997) as well as influence
innovation processes (Borrás and Edquist, 2013). In developing countries such as China, the government plays a particularly im-
portant role during the formation and development of technological capability (Fan, 2006; Howell, 2015). In addition to the national
institutional settings, which were the same for all companies in China, Chery had special institutional assets from the government
under the unique historical circumstances (Barney, 1991). For example, the government used public procurement as an important
demand-side policy instrument (Georghiou et al., 2014) to support Chery’s survival. The government also coordinated different
partners (Gao, 2015) to help Chery join the SAIC and obtain its “establishment certificate”. Last but not least, the Wuhu municipal
government’s vision of developing the automobile industry directly provided a spark and ensured a supportive environment for the
new venture (Gao, 2015).
Reputational assets. Positive reputations often summarize a good deal of information about firms and shape the responses of
customers, suppliers, and competitors (Teece et al., 1997). This intangible asset was viewed as a type of rare resource and cited as a
source of competitive advantage (Barney, 1991). Although the initial purpose of Chery’s joining SAIC was to enter the market legally,
the joining also gave the new company a positive market reputation, thus informing external constituents about the trustworthiness,
credibility and quality of the company (Galbreath, 2005).
Market assets. Innovation needs convert new ideas into marketable outcomes (Doruk and Söylemezoğlu, 2014). Commerciali-
zation is essential for successful innovation (King et al., 1994; Van de Ven, 2005). Thus, we consider the product market a type of
important resource for innovation. Although Chery was a late entrant, Yin acutely identified the unmet customer needs and offered
benefits that satisfied those needs better than the competitors could do.
Unique organizational culture. Another type of resource we cannot omit was the formation of a culture. Because of its unusual
development path, Chery has developed its own unique culture, particularly the pioneering spirit that emerged in the early stages.
Consequently, the company is culturally disposed toward betting on change. This unique and valuable organizational culture is an
imperfectly imitable resource (Barney, 1991).
5.1.2. Dynamic capabilities and renewed resources in expansion

In the expansion stage, the ecosystem leader needs to bring the new offering to the market and achieve maximum market
coverage (Moore, 1993, 1996). In our case, due to the original weak resource base, Chery had to access the resources needed for the
production and broader marketing channel establishment.
Talents. Organizations, whether large or small, public or private, must manage their workforces to gain and sustain a global
competitive advantage (Tarique and Schuler, 2010). Initially, without an employer brand (Srivastava and Bhatnagar, 2010), Chery
flexibly used other methods, including shareholding, power and high salaries, to attract excellent researchers and experts, and then
empowered them. These employees shared individual knowledge or experience and combined them into the company’s new op-
erational capabilities (Pavlou and Sawy, 2011). They may also have different views for the future market and incorporate them into
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their innovation direction (Lawson and Samson, 2001).

Technological assets. Being a late entrant, one major method for Chery to access the required technologies is cooperating with
external agents such as international companies, R&D institutions and universities. Through this cooperation, it acquired, assimilated,
transformed and exploited knowledge (Zahra and George, 2002) to accelerate its innovation (Terziovski and Morgan, 2006).
Market assets. To further exploit the international market, Chery investigated the target regional markets and cooperated with
local companies to build overseas production bases. Similarly, Chery also made a strategy of “close to the local demand” to improve
its competitiveness (Wang et al., 2016).
In this stage, besides integrating capabilities and market-sensing, there are two other key types of dynamic capabilities: co-
ordination capabilities and learning capabilities.
Coordinating capabilities. These abilities help orchestrate and deploy tasks, resources, and activities in the new operational
capabilities (Pavlou and Sawy, 2011). Although different, the integrating capabilities and coordinating capabilities are always bound
together. For example, in our case, acquiring the talents was integrating capabilities, while empowering them was coordinating
capabilities.
Learning capabilities. These abilities help acquire knowledge (obtain new knowledge), assimilate knowledge (articulate knowl-
edge and broker knowledge), transform knowledge (solve innovative problems, brainstorm and create new thinking) and exploit
knowledge (pursue new initiatives) (Pavlou and Sawy, 2011; Zahra and George, 2002). For Chery, the cooperation with international
companies was also a process of learning. The goals of the engineers’ participation in the design, testing, and assembly were to
acquire, assimilate, transform and exploit knowledge. The rapid development of Chery’s R&D capabilities in this stage largely de-
pended on its learning capabilities.
5.1.3. Dynamic capabilities and renewed resources in authority and renewal

In the Authority stage, the ecosystem leader needs to reinforce his role and encourage suppliers and customers to continue to
cooperate, and in the Renewal stage, the ecosystem leader needs to bring new ideas or restructure the existing ecosystem to cope with
a new reality (Moore, 1993, 1996). For Chery, the transition to supply chain system management, establishing joint ventures and
crowdsourcing are also activities meant for acquiring the resources needed to accomplish the tasks in the Authority and Renewal
stages.
5.1.3.1. Valuable resources from suppliers. Chery optimized the supply chain system to create a climate for trust and thus facilitated
adaptability and coordination among system members (Fainshmidt and Frazier, 2017) and eventually reinforced and extended its
control.
Complementary resources from joint ventures. A joint venture is formed when “two or more firms pool a portion of their resources
within a common legal organization” (Das and Teng, 2000). Joint ventures combine complementary strengths from different firms to
achieve a more effective use of resources (Harrigan, 1986). In our case, what Chery truly wanted from the specific joint venture was
international advanced technologies and management experience to compete in the global market.
5.1.3.2. Creative ideas and collective intelligence from consumers. Crowdsourcing is a new web-based business model that opens the
innovation process of a firm to integrate numerous and disseminated external competences to obtain innovative solutions (Jeff,
2006). It is an alternative way for a company to access external knowledge and collective intelligence. In particular, some research
regards its essence as an intentional mobilization for the commercial exploitation of creative ideas (Kleemann et al., 2008). Chery’s
crowdsourcing was a solution for a distant search (Afuah and Tucci, 2012) and enlisted the public to help develop a new product. It
explored creative ideas directly from consumers and meanwhile laid a sale base for its future product.
In this stage, the transition to supply chain system management embodied integrating capabilities. The joint ventures and
crowdsourcing embodied both integrating capabilities and coordinating capabilities.
5.2. Social capital as an important antecedent of dynamic capabilities in the evolution
The analysis presented in Sub Section 5.1 demonstrates that dynamic capabilities of Chery play a key role in the renewal of its
resource base and the development of the innovation ecosystem. In this subsection, we further discuss what sustains Chery’s dynamic
capabilities.
As indicated by Danneels (2008), there were five organizational antecedents that foster dynamic capabilities, which are will-
ingness to cannibalize, constructive conflict, tolerance for failure, environmental scanning, and resource slack. However, Danneels’
work is based on sample firms whose mean age is up to 24.52, which means that relevant results may not be suitable for Chery. For
example, resource slack is not suitable for Chery to be an antecedent because Chery is resource-strapped.
Except for the above five antecedents, there may exist other antecedents of the dynamic capabilities of a certain company, such as
social capital (Bourdieu, 1986) in our case. Through the interviews, we find that social capital is especially important for Chery to
sense market opportunities, integrate and coordinate resources, and learn advanced technologies. In the following, we focus on how
social capital help sustain Chery’s dynamic capabilities.
A unified definition of social capital is not available to date (Carrillo and Riera, 2017). One distinguished scholar, Pierre Bourdieu,
explained social capital in terms of social networks and connections and defined it as “the aggregate of the actual or potential
resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance
or recognition” (Bourdieu, 1986). We adopt the Bourdieu’s definition because it specifically focuses on the formal or informal
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relationships and has a clear linkage to the value of resources. We apply it as an underlying theory to explain how social capital
helped Chery to develop dynamic capabilities.
In the case, there are two levels of social capital that contribute to sustaining the dynamic capabilities: the individual level and the
organizational level.
5.2.1. The individual level

The individual level mainly refers to the managerial social capital (Helfat and Martin, 2015). During Chery’s development, it is
obvious that the top manager (Yin) played an entrepreneurial role. He sensed and seized market opportunities, developed and
implemented flexible innovation modes, built capabilities, and guided transformations. His skills are important to sustain dynamic
capabilities (Teece, 2014). The managerial social capital is an antecedent of the top manager’s skills, because his social network ties
helped sense the market opportunities, access and integrate the vital resources needed to exploit the identified opportunities (Ferri
et al., 2009). For example, the classmate relationship between Yin and some core talents facilitated the startup team establishment,
while the recruitment of the R&D engineers and some returnees was mainly due to his weak social ties. Similarly, the detection of
overseas market opportunities also could not be conducted without his social capital. Therefore, both his bonding social capital
(relationships between people who know each other well) and bridging social capital (weak informal ties between people with
different backgrounds) (Sabatini, 2009) provided the access to resources as well as the information about market opportunities. These
two types (bonding and bridging) are related to the structural dimension of social capital, which refers to the overall pattern of
connections between actors (Nahapiet and Ghoshal, 1998). Last but not the least, the internal power and influence of the top manager
also facilitated alterations in personnel, physical assets and the organizational structure involved in integrating and coordinating
capabilities (Helfat and Martin, 2015). The flexible recruitment policies that Yin adopted to attract talent in the case provide support
for of the argument.
5.2.2. The organizational level

For this level, we emphasize the other two dimensions of social capital: the cognitive social capital and the relational social capital
(Nahapiet and Ghoshal, 1998). The cognitive social capital mainly focuses on shared representations, interpretations and systems of
meaning among parties, while the relational social capital mainly focuses on the particular relationships people have (Nahapiet and
Ghoshal, 1998). In the case, the shared belief of “producing Chinese independent brand cars” encouraged Yin and the subsequent
talents to join Chery. In addition, other members of the ecosystem were also inspired by the belief. For example, the suppliers said
they were proud that a Chinese company could produce automobiles, and they were greatly inspired that their company’s products
could be part of China’s own automobiles. Therefore, the shared belief, which is a key aspect of the cognitive social capital (Tsai and
Ghoshal, 1998), enabled the integration of resources. The shared belief also helped to create an environment of trust in Chery as well
as between Chery and its suppliers. Trust, a key aspect of the relational social capital (Tsai and Ghoshal, 1998), further facilitated the
integration and cooperation of resources. For example, in addition to the motivating the R&D engineers from Dongfeng, the es-
tablishment of the design company for them is also a typical signal of the mutual trust between employees and the top manager.
Obviously, this mutual trust is mainly derived from the shared belief and is essential to the great success of “QQ”.
The above analysis demonstrates that social capital is an antecedent for Chery to build up the dynamic capabilities of sensing,
integrating and cooperating. We also consider social capital an antecedent of the learning capabilities, because the learning process is
embedded in the cooperation with international companies, and the access to the international companies is mainly based on the
individual social capital.
5.3. The Holistic evolutionary framework
Based on the analysis and discussion presented in Sub Sections 5.1 and 5.2, we develop a holistic evolutionary framework for a
startup to be an innovation ecosystem leader based on its dynamic capabilities. The evolutionary mechanism of the innovation
ecosystem initiated and led by the startup is also embedded in this framework (see Fig. 1). The essence of the framework is presented
as follows:
With the dynamic capabilities, the startup accesses and integrates various types of resources to promote its development, and this
process naturally leads to the establishment or development of an innovation ecosystem, in which the startup acts as the leader. The
process also leads to the solution to specific stage challenges of the innovation ecosystem, which enables the ecosystem to evolve to
the next stage. With the process, the startup also enters its new development stage.
The relationship between social capital and dynamic capabilities has been discussed in Sub Section 5.2. The following mainly
discusses the other core elements and their relationships in the framework.
5.3.1. Innovation strategy

Innovation is today understood as converting new ideas into marketable outcomes (Doruk and Söylemezoğlu, 2014). It ranges
from the invention of radically new technologies to simple incremental additions to existing knowledge (Paradkar et al., 2015). It can
but need not involve a technological innovation (Suárez, 2014). Since Chery’s inception, it has continued making innovations on its
own and working hard to become a technical enterprise. Thus, Chery’s development strategy is centered on innovations. Although in
the very initial stage, there was little new technology in the products, Chery introduced a viable and exciting alternative to the
existing products on the market that aimed at satisfying the demand of those who longed to buy a car but could not afford the
products on the market. Indeed, this is a type of product innovation (Suárez, 2014). Because our framework stems from Chery, it is
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Fig. 1. The holistic evolutionary framework.
assumed that the organization focuses on innovation and takes it as the primary competitive strategy. The innovation strategy directs
the organization’s attention (Lawson and Samson, 2001), and its formation should be based on the organization’s vision and resource
base.
5.3.2. Vision
A vision articulates a view of a realistic, credible, attractive future for an organization (Campbell and Yeung, 1991). In general, a
vision should include what the managers expect for innovations and the new product area (Martensen and Dahlgaard, 1999), or
should create products that outperform and provide a distinct market position (Lawson and Samson, 2001). Creating an attractive,
challenging and encouraging vision and articulating it can arouse the enthusiasm of employees to achieve the goal, as shown in our
case. The vision of “manufacturing China’s own automobiles” not only encouraged Yin and other subsequent talents to join Chery, but
inspired the suppliers to cooperate more closely.
5.3.3. Resource base

Here, we would discuss the resource base for the strategy formulation. Aspelund et al. (2005) argued that internal resources are
the basis for the strategy formulation, and successful strategic management in new firms is found at the intersection of where internal
resources meet the business opportunity. However, in our case, in addition to the internal resources, the external ones that are
accessible are also important for strategy formulation.
When the Wuhu government planned to develop the strategy of manufacturing automobiles, there were almost no internal
resources. However, they successfully invited Yin to join Chery. Moreover, there were many accessible manufacturing technologies
and management tools in the automobile industry. Under this circumstance, Chery did not hesitate to choose the strategy of
“bringing” to access various domestic and overseas resources with an open system. Therefore, the case demonstrates that it was “the
possible accessible resources”, not “the internal resources”, that influenced the innovation strategy formulation. This means that the
resources at hand together with those that could be realistically acquired form the basis of the innovation strategy. Here, we do not
deny that new firms are generally resource-strapped, and the resource base leaves much less strategic freedom (Aspelund et al.,
2005).
5.3.4. Dynamic capabilities and innovation strategy

Dynamic capabilities contribute to both the formation and implementation of the innovation strategy. On the one hand, for the
formation of a suitable and realistic innovation strategy, dynamic capabilities are required to create an effective vision, evaluate what
are “the possible accessible resources” and then access the resources. On the other hand, when dynamic capabilities are combined
with a good strategy, it enables the organization to position the right products and markets to address the consumer needs and the
competitive opportunities in the future (Teece, 2012). In the case, with the dynamic capability of market-sensing, Chery created the
vision of “manufacturing China’s own automobiles” and adopted an innovation strategy of “bringing”. Then when the abilities
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including sensing, integrating and coordinating were combined with the “bringing” strategy, Chery positioned the vacant segment
market and manufactured automobiles the middle class could afford.
5.3.5. Dynamic capabilities, accessed/integrated resources, and evolution

It is certain for the organization to solve the puzzles during the strategy implementation. Then, through dynamic capabilities, the
organization accesses various internal or external resources and integrates them to solve the puzzles, at the same time naturally
renewing its resource base. During this process, other actors are involved in sharing the vision and align their activities with the
strategy (Teece, 2016), thus naturally resulting in the establishment or development of the innovation ecosystem it initiated. At the
same time, with the solution of the puzzles, the specific stage challenges of the innovation ecosystem are also naturally solved,
leading the innovation ecosystem to the next new evolution stage.
6. Conclusions
The evolutionary mechanism is a primary and important topic in the innovation ecosystem area, but it has received limited
attention. Based on an indepth case study, we shed light on the evolutionary mechanism by investigating how the case startup
acquired and integrated resources to initiate and lead an innovation ecosystem during its own development. A typical Chinese
automobile startup is selected as a case company. In the investigation, the dynamic capabilities of the case company (the initiator and
leader of the ecosystem), are found to play a key role during the evolutionary process. They help the leader acquire, renew and
reconfigure resources to conquer its own development puzzles. This process naturally solves the stage challenges of the innovation
ecosystem and therefore drives the ecosystem to evolve to the next stage.
The study demonstrates that two main dimensions of dynamic capabilities contribute to the resource renewal process: dynamic
capabilities about market and dynamic capabilities about technology. The market dimension is embodied as market-sensing cap-
ability. It is primary for the survival and development of companies. The technology dimension includes integrating capability,
coordinating capability and learning capability. They can help accelerate the development and production of new products.
Although there may exist a few antecedents of Chery’s dynamic capabilities, social capital is the focused antecedent in the study.
There are two levels of social capital that contribute to sustain the dynamic capabilities of Chery: the individual level and the
organizational level. The individual level mainly refers to the managerial social capital, which is related to the structural dimension
of social capital. The organizational level is mainly related to the cognitive dimension and relationship dimension. The social capital
can help companies sense the market opportunities, learn the new technologies, integrate and coordinate the resources needed to
accelerate the development and production of new products.
Based on these findings, the holistic evolution framework is proposed. With dynamic capabilities, the startup creates a company
vision, evaluates the resource base and forms an innovation strategy; then, it accesses various resources to implement the strategy and
achieve its development. During this process, other actors are involved to share the vision and align their activities with the strategy,
thus naturally leading to the establishment or development of an innovation ecosystem in which the startup acts as the leader. When
the development puzzles of the startup are solved, the specific stage challenges of the innovation ecosystem are also solved, therefore
resulting in the innovation ecosystem’s evolution to the next stage. Of course, the resource base and innovation abilities of the startup
are enhanced in this process.
This study contributes twofold to the existing literature. On the one hand, the investigation discloses the key role of the ecosystem
leader’s dynamic capabilities in the evolutionary process of the innovation ecosystem, thus enriching the understanding of the
innovation ecosystem’s establishment and development. On the other hand, previous research mainly discusses dynamic capabilities
within a strategic management framework, and analyzes how dynamic capabilities help organizations achieve sustainable compe-
titive advantages. Although some scholars relate dynamic capabilities to the innovation topic, few works center either on a startup’s
innovation or on the innovation ecosystem. We integrate the dynamic capabilities into the innovation ecosystem initiated by a
startup, which thus enriches the understanding of dynamic capabilities (Pavlou and Sawy, 2011; Ambrosini and Bowman, 2009).
Moreover, our framework can help managers better understand dynamic capabilities, innovation network building and in-
novation ecosystem evolution. These insights can be integrated into innovation management efforts and the guidance of manager
behavior to enhance the innovation efficiency in their organizations.
The study is based on only one company case. Although the analysis relies on multiple data sources to ensure the validity of the
findings, there still exist limitations precluding wider application. To increase the generalizability, our framework needs further
empirical testing. Moreover, the innovation strategy of “bringing” in our case is definitely not suitable for a market pioneer, and
manufacturing innovation has been characterized as distinct from service innovation (Salunke et al., 2011); thus, whether the fra-
mework suits an innovation ecosystem initiated by a pioneer or a service company merits further study. In addition to what is
mentioned above, studies based on incumbent enterprises or different countries could also be new lines of research.
Declaration of Competing Interest
None
Acknowledgments
This work was supported by the National Natural Science Foundation of China under Grant numbers 71303073, 71622003,
94
71571060, 71601066, 71671057, and 71501055.
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Journal of Engineering and Technology Management 54 (2019) 81–96

Contents lists available at ScienceDirect

Journal of Engineering and

The key role of dynamic capabilities in the evolutionary process for

2.1. The evolution of innovation ecosystems

2.2. Startups, innovation and resources

2.3. Dynamic capabilities and innovation

3.1. Method and case selection

3.2. Data collection

3.3. Data analysis

Data source Interviews and discussions with:

4.1. Brief introduction of Chery

4.2.1. Birth stage vs. pioneering/ visioning

4.2.2. Fast growth stage vs. Expansion

4.2.3. Reform stage vs. Authority and renewal

5. Analysis and discussion

5.1. Dynamic Capabilities help develop the innovation ecosystem

5.1.1. Dynamic capabilities and renewed resources in Pioneering / visioning

5.1.2. Dynamic capabilities and renewed resources in expansion

their innovation direction (Lawson and Samson, 2001).

5.1.3. Dynamic capabilities and renewed resources in authority and renewal

5.2. Social capital as an important antecedent of dynamic capabilities in the evolution

5.2.1. The individual level

5.2.2. The organizational level

5.3. The Holistic evolutionary framework

5.3.1. Innovation strategy

Fig. 1. The holistic evolutionary framework.

5.3.3. Resource base

5.3.4. Dynamic capabilities and innovation strategy

5.3.5. Dynamic capabilities, accessed/integrated resources, and evolution

Declaration of Competing Interest

71571060, 71601066, 71671057, and 71501055.

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