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How Technology Management Affects the Development of Service Industries:
A Case Study of Chinas Telecommunications Industry
WU Wei-weiYU BoWU ChongLIU Tong
School of Management, Harbin Institute of Technology, P.R.China, 150001
Abstract: Chinas telecommunications industry hasbeen appreciably growing since many years and Chinanow has worlds largest telecommunications networksnot only in terms of network capacity but also number ofsubscribers. This paper, aiming at investigating effects of
technology management and technological capability onindustrial development, lays emphasis on illustratingrelationships among technology management,technological capability and telecommunicationsindustry development and tries to explore howtechnology management affects industrial development.The paper argues that technological capability has themost significant effects on telecommunications industrydevelopment; technology management has moresignificant effects on telecommunications industrydevelopment than labor and capital. Technologymanagement can exert influences on telecommunicationsindustry development through technological capability,
and by interacting with technological capability, effectsof technology management are magnified. In the sameway, technological capability has not only direct effectson industrial development, but also significant indirect
effects by interacting with technology management.
The findings in the paper have important managerialimplications in terms of promoting technologymanagement and technological capability fortelecommunications industry to gain competitiveness,and improving synergy of technology management andtechnological capability to foster the development oftelecommunications industry. The paper also contributesto the existing research in two different ways. First, thestudy demonstrates the effects of technologymanagement at industrial level. Second, the explorationof technology management and technological capability
Supported by the National Natural Science Foundation ofChina (70972089; 71002061), the National Science Foundationfor Post-doctoral Scientists of China (20090460896), theScience Foundation for Young Scholars of HeilongjiangProvince (QC2009C109), the Fundamental Research Funds forthe Central Universities (HIT.NSRIF. 2009110), the ScienceFoundation for Post-Doctoral Scientists of HeilongjiangProvince (LBH-Z09138) and the Development Program for
Outstanding Young Teachers in Harbin Institute of Technology(HITQNJS.2008.037)
and their interactions describes dynamics of thedevelopment of Chinas service industry from a new andcomplementary perspective.
Keywords: technology management, technologicalcapability, telecommunications industry, service
industries
1 Introduction
The importance of the service sector is growing ineconomies. A service industry is a nonoptimized,nonequilibrium and complicated industrial economicsystem. Development of such a system depends on the
balanced growth rate and the mechanism of the internalchanges within the industry[1]. From a systemic
perspective, technological capability (TC) andtechnology management (TM) can be seen as the twomajor components constituting a service industry[2]. Inneoclassical economics, the development of a serviceindustry requires investment and technologicaladvancement. But it is clear that simply having thetechnology available and a check book big enough to payfor it is no guarantee of success[3]. A high level oftechnology management is also a critical factorcontributing to shaping technological capability and
promoting industrial development[4]. Thus a successfulservice system requires not only an effective technologysystem but also a strong technology managementcapability.
However, the vast majority of innovation studies
focus solely on technological capability in the context ofmanufacturing industries, despite the fact that the impactof TM on firm performance is expected to increaserapidly in service industries, in the telecommunicationsindustry in particular. Many researchers investigate suchelements of TC as labor, technology and investment andcontend that technological capabilities are important totelecommunications firms in seeking advantages[5]. Fivetechnological capabilities are needed for an efficienttelecommunications system including investmentcapability, service production capability, major changecapability, linkage capability and R&D capability[6].Majumdar proves that the spread of digital technology
within the local U.S. telephone network plays a
2012 International Conference on Management Science & Engineering (19th)September 20-22, 2012 Dallas, USA
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significant and positive role in impacting the productiveefficiency of the telecommunications industry[7]. Lamand Shiu measure the productivity performance ofChina's telecommunications sector and they contend thatlabor is important but its redundancy and the excesscapacity of long-distance optical cable lines are major
problems in China's telecommunications sector[8]
. At thesame time, they admit that the measurement of otherresources was not attempted and a next step is tocontinue to try to characterize and to measure otherspecific capabilities, not just the technologicalcapabilities.
Although many scholars are beginning to recognizethe importance of technology management, very littleattention is paid to that how TM affects the developmentof service industries. The purpose of this paper is toaddresses this limitation of extant research on industrialdevelopment and shed light on issues associated with TCand TM by examining two interrelated questions: what
are the effects of TM on a service industry system? Andwhat is the interaction of TC and TM? We will addressthe two main research questions by taking Chinastelecommunications industry as an example since wehave collected data supporting our research. We begin byreviewing the extant literature across threedisciplinestechnology management, technologicalcapability, and industrial developmentand we proposesome hypotheses. Next, we describe the research method.Then we present our results and discuss theirimplications for theory and practice. We conclude byoutlining study limitations and directions for futureresearch.
2 Literature review and research hypothesis
2.1 Technological capability and the development of
service industries
Technological capability is the sum of the stock ofendogenous knowledge of an organization which isattached to the personnel, equipment, information andorganization to support the realization of successfultechnological innovation[9]. Industrial development isrecognized as a process of acquiring technologicalcapabilities and transforming them into product and
process innovations in the course of continuous
technological change[10]. In other words, the process ofindustrial development involves generating TC.Therefore, TC is critically important not only to thefuture competitiveness of manufacturing industries, butalso to the development of service industries[5,11].
At the industrial level, elements of TC for serviceindustries are different from those essential formanufacturing industries, such as production engineering,manufacture of capital goods, and research anddevelopment, etc[12], and it is difficult to directly measurethe TC of service industries. We must look for proxiesfor TC. In this study, based on the growth theory ofneoclassical economics, we follow the production
function approach and regard labor, capital, and
technology as the elements of TC for service industries.By using the three elements together, we can easilyexplore the effects of TC and look for consistency intrends.
Labor and capital are the basis of industrialdevelopment, which exert remarkable and long term
effects on industrial development through reinforcingproductive elements to increase industrial outputs andthrough formulating social capital to promote economicdevelopment[13-16]. Technology is becoming a primarydriver, and new technologies can continuously create andcultivate new business. Lovelock regarded thetechnology as encompassing skills, expertise, know-how,and the organization of work and argued technologicalcapability has become a major competitive weapon inservice industries[17] This manifests particularly in thefact that the competitive capacity of the production andservice industries depends increasingly on their ability toadapt new technologies and apply them productively. In
the telecommunications industry, for example, multipleservices can be propelled by new technologies. Thus inthe interaction of technology, market and governance,technology is the driving factor which provides newchances in the market, promotes governance reform and
production efficiency, and enhances industrialdevelopment[18,19].
It is argued that all three elementslabor, capital,and technologyare important, but technology is
probably the most fundamental of the three in modernhistory. Without technological advance, an improveddivision of labor, or a higher rate of capital accumulation
push the industry to a higher standard but not to
continuously high growth[20]
. Ma and Chen et al.measured the contributions of labor, capital andtechnological advance of the communication industry,and concluded that technological advance contributedmore to industrial development[21,22]. However,technology is in fact not applied in isolation but as partof the performance of one economic activity or another,which contributes to development. In industrialdevelopment, technology is again applied, not alone, butwith investment, skills, resources and other relatedfactors. In other words, the application of industrialtechnology cannot be divorced from the total context ofindustrial development.
In summary, TC is of significance to industrialdevelopment as a whole. Wu & Shen even contendedthat technological capability acts as the order parameterin the production system[23]. Thus we argue that TC
positively affects the development of service industries.We postulate the following hypotheses:
H1: Technological capability exerts a positive effecton the development of service industries.
H1a: Labor exerts a positive effect on thedevelopment of service industries.
H1b: Capital exerts a positive effect on thedevelopment of service industries.
H1c: Technology exerts a positive effect on the
development of service industries.
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2.2 Technology management and the development of
service industries
Technology management links engineering, science,and management disciplines to plan, develop, andimplement technological capabilities to shape andaccomplish the strategic and operational objectives of an
organization[24]
. At the firm level, TM acknowledges thestrategic dimension of technology and its significantcompetitive value, which must be wisely channeled bythe company management. It becomes an importantstrategic instrument to improve competitiveness andcreate prosperity. Firms have to engage in initiatives that
promote TM capability to create efficiencies and gain acompetitive edge[25]. At the industry level, TM can berepresented by the degree of the adaptation of theindustrial organizational structure to industrialdevelopment, and by the cumulative effects of theorganization management capability, the resourcemanagement capability and the quality management
capability of enterprises.The enterprises TM capability, as one of the
important components of the industrial TM capability, isthe key index measuring industrial development. Inmany studies, human resources management,organization management, and R&D fund managementare used as important indexes to assess industrialcompetitiveness. The enterprises TM capability
promotes the development of service industries duringthe process of their own evolution, which shows thedirect effects of TM on industrial development
[26-29].The industrial organizational structure can promote
the development of service industries in two respects. In
one respect, a feasible industrial organizational structurehelps promote enterprises moderate clustering, whichcan reduce the enterprises costs and promote usage ofindustrial technology to increase industrial benefits; inthe other respect, a feasible industrial organizationalstructure can improve the competition among enterprises,which impels every enterprise to promote its own TMcapability in competition and leads to the development ofservice industries.
Thus it is argued that the industrial organizationalstructure and the enterprises TM capability have closerelationships with the development of service industries,which leads to hypothesis 2.
H2: Technology management exerts a positiveeffect on the development of service industries.
2.3 Technology management and technological
capability
Service industries are undergoing transformationsdue to mega-competition taking place on a global scale.It has become increasingly recognized that decisionsabout technological capability should be made at thestrategic level. Considering that technological changesare continuously creating new challenges andopportunities for industrial diversification, theseopportunities need to be captured and converted into
value through effective and dynamic technology
management. Vertovaproves that achievement oftechnological competences is closely related to TM[30].Due to the endogenous relationship betweentechnological progress and industry structure, TM affectsthe speed of technological change, and further affects the
promotion of TC[31]. Cetindamar, et al. explore the topic
of TM through the lens of dynamic capabilities theoryand the TM framework they present is emphasized on thedevelopment and exploitation of technologicalcapabilities[32].
TC is not only the object that TM works on, but alsothe carrier of TM capability, which provides the innerconditions for the operation of TM. Wu et al. proves thatthe stronger TC is, the more effects TM has. He alsostates that TM will lose the base of its existence if TC isnot available[33]. We argue that there exist interactiverelationships between TM and TC and we posit thefollowing hypotheses:
H3: Technology management and technological
capability interact during the development of serviceindustries.
H3a: Technology management and labor interactduring the development of service industries.
H3b: Technology management and capital interactduring the development of service industries.
H3c: Technology management and technologyinteract during the development of service industries.
2.4 Framework
According to the above analysis, we construct theframework of the study as Fig. 1 shows.
Fig.1 The framework of this study
Fig. 1 includes all the three hypotheses we posit,which illustrate different routines by which TC and TMaffect industrial development. H1 indicates the directinfluence of TC on industrial development; and H2indicates the direct influence of TM on industrialdevelopment. H3 and H2 together indicate the indirectinfluence of TC on industrial development; and H3 andH1 together indicate the indirect influence of TM onindustrial development. We will test H1, H2 and H3 toexplore whether these routines exist or not and thus wecan explain how TM and TC affect the development ofservice industries
H1
Technological
capability
Technology
management
Industrial
development
H2
H3
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3 Research design
3.1 Case selection
In this study, we decide to use a single serviceindustry to test our hypotheses. We choose to focus onChinas telecommunications industry. The reasons why
we choose it to study include:First, the telecommunications industry is an
important service sector. Telecommunication industry isone of the most vital impetuses of the development ofmodern economy and society, which in particular hasdrastically changed the way society operates
[34].One-third of the economic growth in a group of 21OECD countries from 1970 to 1990 could be attributedto the direct and indirect impact of thetelecommunications sector[35]. The telecommunicationsindustry thus can also be a representative serviceindustry.
Second, we have access to the data for measuring
technological capability and technology management. Atthe industrial level, the development of technology is noteasy to measure for its abstractness. But in thetelecommunications industry, the telecommunicationscapacity, denoting the amount of traffic that can becarried in the telecommunications service system, can beused as a proxy of the telecommunication technology[2,36].And its data are easy to understand and easy to get.
Third, Chinas telecommunications industry hasexperienced several changes in its organizationalstructure, which can show the development of its TM. Inaddition, there are only three main enterprises in Chinastelecommunications industry, and its relatively easy to
make a judgment of the enterprises TM.
3.2 Model construction
In accordance with the research on technologicalcapability of the Thailand Technological CapabilityStudy Group, the United Nations Economic and SocialCommission for Asia and the Pacific (ESCAP) and Xu &Wei[37-38], we divide industrial TC into three parts: labor,capital and technology. Labor and capital are consideredfrom the quantity and the quality perspectives. Thequality of labor is represented by the profit per employee.The quantity of capital is measured by the capital depositof the telecommunications industry, and the quality of
capital is measured by the capital efficiency which is theratio of business volume to capital deposit. Technology isconsidered from the stock and the flow perspectives,where the stock of technology implies the currentadvancement of industrial technology, and the flow oftechnology implies development of industrial technology.In our study of the telecommunications industry, theexchange capacity is used to represent technologicaladvancement, and the ratio of the investment in fixedassets to business volume is used to represent theupdating speed of telecommunications technology.
The two indexes measuring technologymanagement are the degree of the adaptation of the
industrial organizational structure to industrial
development, and the TM capability of enterprises in thetelecommunications industry, which are both marked byexperts (from 1 to 5). Industrial development is measured
by the two indexes of the business volume per employeeand the ratio of the business volume to GDP. All indexesare depicted in Tab.1.
Tab.1 Indexes
Index Variable Code
TechnologicalCapability
(TC)
Labor(LAB)
Quantity of labor LAB1
Per profit LAB2
Capital(CAP)
Capital deposit CAP1
Ratio of business volumeto capital deposit
CAP2
Techno-logy(TEC)
Exchange capacity TEC1
Ratio of the investment infixed assets to businessvolume
TEC2
Technology
Management(TM)
Adaption degree ofindustrial organizational
structure
TM1
Technology managementcapability of enterprises
TM2
IndustrialDevelopment(IND)
Per business volume IND1
Ratio of business volumeto GDP
IND2
We argue that TM, labor, capital and technologyinteract to promote industrial development. Accordingly,we adopt the structural equation model as our researchmethod and construct the following conceptual model(Fig.2).
Fig.2 The conceptual model of this study
3.3 Data
We use monthly data from 1991 to 2009 to perform
LAB1
LAB2
LAB
TEC
CAP
TM
INDCAP2
CAP1
TEC1
TEC2
TM1
TM2
IND1
IND2
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our research. The data of TC and industrial developmentcome from the Year Books of ChinasTelecommunications Industry, the Annual Reports ofChinas Telecommunications Industry, and internaldocuments. The data of TM is gained by thecomprehensive judgments of twelve scholars and middle
and top managers of Chinas telecommunicationsindustry. We standardize data collected by formula 1.
5max( )
i j
i j
i
mM
m= (1)
where i jM is the standardized value of i in year j; i jm
is the original value of i in year j; and max( )im is the
maximum value ofi. Descriptive statistics of the data arepresented in Tab. 2. The results of the normal distributiontest indicate that the data applied in our research arenormally distributed and further analysis is guaranteed.
Tab.2 The average value and standard deviationVariable Mean Std. Deviation
LAB1 3.9419 0.57704
LAB2 1.9125 1.72910
CAP1 1.9163 1.62194
CAP2 3.2406 1.11027
TEC1 1.6950 1.62259
TEC2 2.1631 1.54246
MAN1 3.3625 1.00722
MAN2 3.4875 0.94507
IND1 1.8675 1.76695
IND2 2.4769 1.68357
3.4 Model test
We test our models applicability according to thebasic fit standard and the overall goodness of fit. Toolswe use are SPSS11.5 and AMOS6.0. The results of the
basic fit standard analysis are shown in Tab. 3. It can beseen that the factor loading values of all latent variablesare over 0.5 and reach the significance level, whichindicates that our model conforms to the basic fitstandard.
Tab.3 The results of the basic fit standard analysis
Variable
Factor
loading Error P value
LAB1 0.765 0.462 0.000
LAB2 0.898 0.356 0.000
CAP1 0.793 0.510 0.000
CAP2 0.852 0.334 0.000
TEC1 0.901 0.365 0.000
TEC2 0.764 0.468 0.000
MAN1 0.806 0.296 0.000
MAN2 0.877 0.454 0.000
IND1 0.791 0.368 0.000
IND2 0.748 0.487 0.000
We test our models overall goodness of fit by
calculating df/2 , RMSEA, NFI, TLI, CFI, and GFI.
Results are shown in Tab. 4, from which we can see thatexcept for GFI, all the other values are confirmed to theirstandards. Thus we confirm that our model has a highgoodness of fit.
Tab.4 The overall goodness of the fit of this model
Indexes of fit Value Calculated Standard
df/2
4.729 5/1 2
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promote industrial development since they both exertpositive effects directly.
Tab.5 also reports that under the significance levelof 0.05, the path coefficients between indexes of TC andTM are all significant. The interaction between TM andtechnology is the greatest, which is 0.484. The
interaction between TM and labor is 0.458, greater thanthat of TM and capital which is 0.421. However, theirdifferences are not big. Theses results support H3a, H3band H3c. We then can get the conclusion that TC and TMinteract during the development of service industries, andthus H3 is proved. All these imply that there existindirect paths for TC and TM to promote industrialdevelopment.
Further, we decompose coefficients correspondingto the paths between TM and TC into the direct effectsand the indirect effects, and depict the results in Tab. 6.
Tab.6 The results of decomposition of coefficients between
TC and TMPath Indirect effect Total effect
LABTMIND 0.213
0.634CAPTMIND 0.196
TECTMIND 0.225
TMLABIND 0.210
0.620TMCAPIND 0.167
TMCAPIND 0.242
From Tab. 6 we can see that the indirect effect(0.620) of TM on industrial development is greater thanits direct effect (0.465). This manifests two facts: (1) TM
can exert influences on industrial development not onlydirectly but also through TC; and (2) by interacting withTC, effects of TM are magnified. These findings can bedepicted in Fig.3.
Fig.3 The effects of TM on industrial development
Fig.3 clearly shows how TM affects industrialdevelopment directly and indirectly, and provides thenew information that its interaction with TC is a moreimportant way to promote the development of serviceindustries. In the similar way, TC has not only directeffects on industrial development, but also significantindirect effects by interacting with TM (Fig.4). However,the direct effects of labor, capital and technology aregreater than their indirect effects, which indicates that theinteraction between TC and TM may not so important toTC as to TM in promoting industrial development
although it actually enlarges TCs effects. In conclusion,
effects of TM and TC on the development of thetelecommunications industry are reinforced in the
process of their interaction. As the two subsystems of thetelecommunications system, TM and TC interact to
produce synergistically amplificatory effects.
Fig.4 The effects of TC on industrial development
5 Conclusions and implications
In this paper, we reveal how technologymanagement affects the development of serviceindustries. We first prove that TM is a very important
impetus to the development of service industries. Beingable to offer better service -- faster, cheaper, higherquality -- has long been seen as a source of thecompetitive edge of service industries. In today'senvironment rich in opportunities for technologicalchange, competitiveness depends on how well the overall
process of technological change is managed -- how torecognize the important signals about threats andopportunities in the marketplace, how to interpret thosesignals and create a viable strategy, how to acquire theneeded technological resources, how to implement thechosen technologies -- and how to learn from theexperience. TM embraces all those activities which
enable service industries to make the best use of scienceand technology, whether internally or externallygenerated. This knowledge will lead to an enhancementof innovative capability in a way which will help to
promote efficiency and effectiveness to competitiveadvantage. Therefore it is of significance to promote TMincluding promoting enterprises TM capabilities and
perfecting an appropriate right industrial organizationalstructure for service industries to gain competitiveness.
Meanwhile we prove that technological capabilityhas significant effects on the development of serviceindustries, and is the crucial factor affecting industrialdevelopment. This implies that such elements of TC as
technology, labor and capital should be strengthened.Especially new technologies should be created andcurrent technologies must be well applied sincetechnology has the most significant effects, which helpsto capture and retain market shares, and increase the
profitability in those markets.Another important finding in our research is the
interactive relationships between TM and TC during theprocess of industrial development. We argue that thedevelopment of service industries is a process of TM andTC interacting with each other. The interaction generatesthe indirect effects of both TM and TC on industrialdevelopment. Our results illustrate that these indirect
effects are also significant. The managerial implication is
Industrial
developmentIndirect effects (0.620)
Direct effects (0.465)
Technological
capability
Technology
anagement
Industrial
development
Technology
management
Indirect effects
Direct effects
Technological
capability
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that measures should be taken and policies andregulations should be made to promote the synergy ofTM and TC.
A number of limitations of the current study need tobe noted, as well as directions for future research. Firstly,in this study, we do not take different development stages
of the telecommunications industry into consideration indiscussing relationships among TM, TC and industrialdevelopment. We plan to make a comparative analysis
based on this research in the future. Secondly, we cannotexplain the degree of the effects of interaction of TM andTC on industrial development in this paper. It issignificant to measure and analyze it. Thirdly, themeasure of enterprises TM capability may be too simpleand subjective, but its the first attempt to makemeasurement of TM at the industrial level. An elaboratemethod for more accurate measurement should bedeveloped. We will leave these for further studies.
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