Evolutionary dynamics of high technology industry: modeling of semiconductor sector in China

Purpose – The purpose of this paper is to explain how institutional elements and market conditions shape and then reshape the development of high‐tech industries in large emerging countries. Design/methodology/approach – This paper develops a new framework to assess the impact of market and institutions on the high‐tech industry evolution in large emerging economies such as China. The qualitative approach based on historical data and interviews are provided to support the framework. Findings – The framework and empirical research suggest that the institution systems and market dynamics will interact and influence the transformation process of industrial structure and the strategic choice of partnership arrangement between the domestic and foreign firms. The complementary assets which are considered as proxy to the resource accessibility in the market are also identified in the framework and it was verified in the case study. Practical implications – This study has important implications for business strategy in emerging economies. The authors' observations indicate building close ties with domestic firms is an important asset to minimize the liability of foreignness for multinational firms. The paper has alluded to co‐evolutionary dynamics in the development of high‐tech industry in China by linking market initiative with institutional environment. Originality/value – First, the study contributes to institutional‐based view of business strategy by explaining the choice of strategic partnerships between indigenous and foreign players arising from institutional and market considerations. Second, the study extends our understanding of technological catch up in newly‐industrializing countries by showing the interrelation between market elements and institutional arrangements and the corresponding changes to meet technological development needs.