Christopher Foster, University of Sheffield
Shamel Azmeh, London School of Economics
With the expansion of the internet and the growing importance of digital data in all sectors of the economy, online platforms and services are becoming increasingly central to the operation and success of economies. We are also seeing a global expansion in the use of the internet, where global access has facilitated greater use in middle-income and emerging economies. However, the rapid expansion in global use of the internet has not been mirrored by a similar global expansion of locations of internet firms and platforms, which are predominantly globalised firms, originating and run from the US or EU.
With the sluggish emergence of local firms and localised services, a number of middle-income and emerging countries (we will refer to these as ‘digital latecomers’) have begun to institute national strategies and policy in order to protect or nurture digital firms, to support capacity, and build digital sectors (Azmeh & Foster 2016). For instance, national internet filters define who can transmit to customers, trading rules define how international web firms must act before they can legitimately trade online and technology transfer rules outline ways firms must share data and integrate with local businesses.
Typically national policies related to the internet have been seen as the antithesis to ‘openness’and dismissed as out of order. This has limited our knowledge on such national policy, and there is a risk of missing a rich set of policy making that is emerging on ground (ibid.). Whilst some elements of such policy have negative impacts, others can be more prudent. The goal then is to undertake an analysis of such policies to provide insights on useful policy that can aid digital development in latecomer economies.
In this paper we particularly focus on policy around platforms as a key point of contention and policy focus for ‘digital latecomers’economies. Alongside the ability for businesses to rapidly expand internationally through platforms, it is well known that the properties of platforms have a tendency to move towards monopoly-like control and reduced mobility of customers (Farrell & Klemperer 2007). Thus, it comes as no surprise that platforms have been a particular focus of policy makers. As the ‘platform society’emerges and platforms become increasingly central to economic success, we predict that it is likely that such policies will become more prevalent in the future.
China has instituted a particularly contentious set of national policies in recent years. These policies have attracted criticism in that they are closely entwined with censorship or dubbed as ‘digital protectionism’. Yet Chinese policy making needs to be taken seriously as a successful policy. It has yielded startling success, and policy can be directly linked to the emergence of internet platform giants such as Alibaba, Baidu, Tencent, and Sina Wiebo(Liu 2010).
We seek to unpack some of the layers of policy in order to build a wider understanding of platform growth. In order to do this we undertake case study research to explore a selection of Chinese platforms, and examine the links between policy and platform successes and failures. We draw upon secondary reports, documents and interviews to explore firm histories and this material is supported by a systematic analysis of specific Chinese policy and strategies around platforms.
Our approach (at least during analysis) is to seek to analyse this case without making ethical judgements that have plagued work on Chinese internet policy. Rather, we draw upon more prescriptive frameworks of industrial policy that have outlined the policy approaches by which latecomer economies have been able to build economic sectors (e.g. Hobday 1995). We seek to explore if these policy models fit with this Chinese case, and how they fit in the specific case of online platforms (which are rather different in their nature from the industrial development origins of such models). This more systematic approach to exploring policy making can thus aid us in our understanding of policies, and which elements might be relevant more widely.
Preliminary materials are still being analysed, but early insights suggest that Chinese policy with relation to platforms encompasses a far richer and varied set of activities than has been previously characterised. Notably we see policy approaches that resemble what Mathews & Cho(2000) have referred to as ‘developmental resource leverage’where the state has supported policy to accelerate knowledge and technology transfer. In particular, platforms have been aided by technology transfers rules that support Chinese firms in building ‘clones’of successful international platforms. These clones then rapidly develop with local features and operations, mirroring previous literature of successful industrial development (Kim 1997). What is particularly stark about online platforms is how quickly such processes of change can occur, and thus the case study offers potential insights on strategies and policies that can support the emergence of localised platforms, skills and sectors.
However, there is some doubt about how such models will operate in other contexts. Chinese platform development is successful due to the very large markets of customers, controversial policies that have accelerated technology transfer around platforms, and the increasingly granular filtering of the ‘great firewall’to shield infant platforms in China. Thus, whilst ‘resource leverage’approaches could work elsewhere, further research will be needed to understand how viable these approaches will be outside the specificity of China’s state-led development model.
Azmeh, S. & Foster, C.G. (2016) The TPP and the Digital Trade Agenda: Digital Industrial Policy and Silicon Valley’s Influence on New Trade Agreements, LSE International Development Working Paper, 175, LSE, London, UK.
Farrell, J. & Klemperer, P. (2007) Coordination and Lock-in: Competition with Switching Costs and Network Effects. Handbook of Industrial Organization, 3, pp. 1967’2072.
Hobday, M. (1995) East Asian Latecomer Firms: Learning the Technology of Electronics. World Development, 23(7), pp. 1171’1193.
Kim, L. (1997) Imitation to Innovation: The Dynamics of Korea’s Technological Learning. Harvard Business School Press, Boston, MA. Liu, C. (2010) Internet Censorship as a Trade Barrier: A Look at the WTO Consistency of the Great Firewall in the Wake of the China-Google Dispute. Georgetown Journal of International Law, 42, p. 1199.
Mathews, J.A. & Cho, T. (2000) Tiger Technology: The Creation of a Semiconductor Industry in East Asia. Cambridge Univ Press, Cambridge, UK.