China's national system of innovation and uneven technological trajectory : The case of China's integrated circuit design industry

Purpose – The purpose of this paper is to explore the limitations of the national system of innovation (NSI) approach in countries in developing economies with at best incomplete sets of market institutions. Design/methodology/approach – This paper employed a grounded theory approach using semi‐structured interviews to explore a case study of one industry segment (the IC design industry segment) in one developing economy, China. Findings – This paper argues that developing countries have institutions beyond the national system that can affect science and technology activities. Owing to co‐ethnic transnational technology networks and the politics of finance, China's firms experience distinct patterns of performance not explained by the NSI framework. A particular type of foreign firm, the hybrid foreign‐invested enterprise, combines foreign finance with commitment to China to drive China's technological development. Other firms, particularly those closely tied to the Chinese state, contribute less or even negatively to China's development. Strong ties to the state in the context of China actually undermine the incentive for innovation. Originality/value – This paper deconstructs both NSI and the idea of national political economies more broadly. The paper also offers value in presenting a detailed case study of on‐the‐ground innovation and upgrading in China.