Technological Innovation And Competitive Strategy With Network Externality

Telecommunications industry has obvious scale merit, telecommunications equipment often has a large sunk costs, the characteristics of smaller variable costs, equipment prices decrease as the size of the market. Meanwhile, as a result of interconnection requirements in telecommunication networks, standardization, compatibility, installation base, switching costs are typical characteristics of network equipments, that is network externality, also called the scale of demand-side effect. At the same time, with the rapid development of technological innovation in telecommunication industry, from computers to communication networks, technology has been doubling every two years so far can not see stop signs. Network externality and technological innovation makes the two important characteristics of telecommunications industries, which cause many new features in competition compared to raditional industries. Network externality and technological innovation seems somewhat contradictory, which is better when faced "market-driven" and "technology-driven"? New technologies and products are able to win the market? Equipment suppliers and operators how to construct an orderly win-win situation with the new industrial chain? This paper proposed to solve these issues from the bottom of telecommunication industry chain-equipment suppliers, to give an analysis to technological innovation and competitive strategy with network externality of the market characteristics.Economic development of the whole process, from complete free competition to monopoly, competition can be regarded as the main line. Strategic can not be separated from competition, Harvard University Professor (Michael E. Porter) in his strategy series <" Competitive Strategy"" Competitive Advantage "" The Competitive Advantage of Nations ">, created a theory of industrial organization and corporate competitive strategy compatible with the innovative theory and strategy development process and the implementation of the strategy to unify the process of organic, concludes that "the overall cost leadership strategy," "differentiation strategy" and "single-minded strategy", etc. five basic competitive strategy. In Porter's view, competitive advantage is the core of any strategy, to gain a competitive position business must decide the areas in which it hopes to gain advantage. On the other hand, with the rise of the information industry, Jeffrey Rohlfs in 1974, the study of telecommunications services in consumer behavior was found one user of a good or service has on the value of that product to other people, economist call it the network externality (or network effects). Network externalities on competition in the market brought about profound changes. Network externality in the market, enterprises can use the "price discrimination", "switching costs", "market barriers", "the standard of competition", which further increase the size of the role of positive feedback effect.In the new classical economics, it is indisputable fact that technological innovation has been ignored in the long-term. Until the 21st century, information technology, driven by the formation of a knowledge society and its impact of technological innovation further understanding of the scientific community. Originator of innovation economics, the Austrian economist Joseph Alois Schumpeter in 1934 defined innovation theory in the economic development, and for the first time the invention and technological innovation to create differentiated.Schumpeter also explained the relationship between technological innovation and R & D. No R & D there would be no technological innovation, technological innovation that is the premise that R & D activities, but the value of technological innovation is embodied in the adoption of market segments. Therefore, "innovation diffusion", the final phrase of three-phrase show the economic benefits of technological innovation. In the diffusion phase, the United States biologists and demographers R. Pearl and J. Reed (1920) first time in the biological reproduction found the proliferation of S-type curve, was widely used in the process of biological growth in technological innovation. In the S-curve, first of all new technologies there is a take-off point, after take-off point to enter the period of rapid proliferation. Geoffrey Moore in 1957, the technology life-cycle theory, there is a chasm from the early adopters to early majority, also showed that only if successful in take-off point, a firm can create a bandwagon effect in which the momentum builds and the product becomes a de facto standard.Technological innovation itself is an important competitive strategy. Robert and Palade in 1990 put forward the concept of core competence, technology strategy has been duly noted in the "competitive advantage" in his book, Porter also discusses the issue of technological competitiveness. Technolical innovation is also impacted by network externality, enterprise is bound to bring a lot of decision-making choices such as the development of what kind of technology, whether to seek the technical leadership role in technology issues. Technological innovation embodied in the various stages of the cycle, companies faced with the R & D deterrence strategy, "progressive" and "revolutionary" technology, demand-side preferences "meet" or "adjustment", and so on. Most important, for new entrants, due to there is a critical mass in network externalities, which lead to a new technology or is not entered, or has a very large scale, which play a crucial role in the life cycle of the enterprise.In recent years, there are emerged a large number of literatures of network externalities, also for analysis of the impact of technological innovation with network externality. In all, technological innovation with network externalities and competitive strategy is just the beginning of the study, there are still a number of shortcomings existing the research in the field of literature, specifically in the following areas:(1) The existing literature for the theory of the life cycle of technology innovation are in accordance with the "linear" mode of innovation which will be "invention", "innovation", "diffusion", respectively. It has not been considered as a feedback system between the different stages.(2) Whether domestic or abroad research on the impact of technological innovation with network externality mainly focus on R & D investment incentives, technical compatibility, technical standards for competition, lack of research strategy in technology diffusion stage (how to win the market of new technologies).(3) Although the domestic competition on the telecommunications industry to carry out a large number of empirical studies, but mainly for the domestic carrier, there is few analysis for equipment suppliers.In this paper, based on existing theoretical and empirical research, systematic analysis of technological innovation and the competitive strategy in telecommunication industry come out.This paper is divided into eight chapters. Chapter I, Introduction, propose several issues in telecommunications industry, these issues lead to the following research of this article. Chapters II and III, respectively, introduce market competition and technological innovation with network enternalities, which are important theoretical basis for this article. Chapter IV to Chapter VI is the core of this thesis, ordered by cycles of technological innovation, from the invention phase, to innovation phase, up to diffusion phase. Create the model of R & D deterrence, new technologies choices, new technologies adoption, these model used to analyze network externalities in different phases, and on this basis, respectively, discussed the various competitive strategy. Chapter VII for this article is the part to dicuss telecommunication market competitions. In the main line of optical network technology development, dicuss several gaint enterprises as a result of the use of different technologies in different strategies, result in the rise and fall with the success or failure. This part of the case studies and theoretical analysis of the previous mutual verify in order to further explore competiton strategy of telecommunications equipment market in China. For operators, in view of the whole industrial chain, analyze the influence of current environment on long-term social welfare, to answer the issues raised at the first a chapter. The Chapter VIII is the review of all.The main innovations of this article include:(1) According to Schumpeterian theory of technological innovation, this article first propose that impact of technological innovation with network externality would be divided three phrases, and analysis of feedback between different phrases, thus forming integrity technology innovation system in network externality market.(2) The models of "R & D deterrence", "new technologies choices", "new technologies adoption" are all extension of the original researches." R & D deterrence", supposed incomplete information, focus on the first decision-making technological innovation." new technologies choices", comparison with "symmetric" and "asymmetric" model of efficiency, analyze R & D efficiency of the enterprise, technology uncertainties and market demand, these factors impact on technology options. In the "new technology adoption", base on Qz.Shy "iteration model", using numerical simulation methods, analyze relationship between technology adoption delay and the initial size, compatibility, technical improvement of the quality.(3) Thourgh consumer behavior research on the phrase of technology diffusion, found that there is a critical mass in network externalities market, but on the other hand, the inertia of installed base has also become a technological innovation incentives, Only dramatic breakthroughs in technological innovation in order to beyond critical mass to promote technological progress and enhance social welfare.(4) In this paper, in line with optical network development, analysis of the different characteristics of enterprises in technological innovation and different market strategy for new products into the market, from consumer behaviors, draw up an conclusion of co-operation and competitions between operators and local suppliers.With WTO proceeding, Chinese telecommunications market further opening to the world, technological innovation is becoming more and more important competitive strategy, not only for this study to enhance the capacity of domestic enterprises to innovate, but also to establish a good environment for the competitiveness and promote the development of information industry in China.