Exploitation and Exploration of Sectoral Systems of Innovation in Catch- up of China's Car Industry

The purpose of this paper is to examine evolutionary processes of sectoral systems of innovation in catch-up situation. The main findings are: market catch-up of China’s self-owned brand cars expanded from low to high end market segment. Changes of the five building blocks of innovation system of China’s car industry drove the market catch-up since 1980’s. The five building blocks are: market demand, industrial technology and knowledge base, institutional setting, industrial structure, firms' competences and strategy. China’s car industry evolved through exploitation and exploration, which were affected by the five building blocks. The exploitation and exploration shaped the catch-up way of China’s car industry: from production localization to design localization and self-owned brands. Exploration of the self-owned brand group built on exploitation of the jointventure group. The paper contributes to the research stream on sectoral systems of innovation by understanding building blocks and evolutionary processes at the base of change and growth in catch-up situation.