LITERATURE REVIEW

Over time, competition and legitimacy concerns would force firms to renew their resources and develop innovative offerings. We first examine the role of the government policies in the catching up process. Hobday (1995) and Kim (1997a), for instance, explored in detail the catching up process of firms in the late industrializing East Asian tigers like Hong Kong, Korea, Singapore, and Taiwan. They argued that governments of these economies played a pivotal role in the initial stages of catching up. Kim (1997a) argued that the government’s intellectual property regime in Korea was supportive of the local firms, such that the local firms had the freedom to imitate the technologies of multinational players during the early stages of catching up.
We also examined the processes more closely and observed that once a country reaches a stage where innovation is possible, then stronger intellectual property laws are instituted and the government serves more as a facilitator.

A more feasible plan for the technology deficient firms would be to develop innovative technology on their own in a phased manner, but in the meantime to focus on applying any less advanced technology that is readily available at less expense. Thus, the preferred catch up strategy during the initial stages would be that of being efficient rather than being effective (Kerin, Varadarajan, & Peterson, 1992). Therefore, technology deficient firms in emerging economies often prefer to imitate what is readily available rather than search for cutting-edge technologies and differentiate their offerings in terms of cost.

To gain acceptance among consumers and suppliers, late entrants need to enhance the quality of their offerings. To differentiate itself from its competitors and to gain legitimacy among its stakeholders the latecomer firm would have to be continuously innovative (Tellis & Golder, 1996). To be innovative a firm needs to replace obsolete resources with new, sustainable, and more competitive ones, either by total substitution or through sequential evolution (Lavie, 2006). Although Lavie (2006) does not provide an explicit definition of resource substitution and resource evolution, we could still draw from his arguments that resource substitution is a resource renewal process whereby firms have the option of totally scrapping out an existing resource in the event of a new resource being available to the firm that renders the old resources obsolete.