Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Chapter 2
Technological Specialization:
The Case of China’s Construction Machinery Industry*
KIMURA Koichiro †Abstract: This report shows the technological position of firms in an industry, and theimpact on the whole industry as a result of increasing intellectual properties with a caseof Chinese construction machinery manufacturers. Although firms are doing R&D for
product differentiation and filing many intellectual properties, but because a productconsists of multiple technologies there are many options for their technological positionin terms of technological fields. Firstly, we show that firms tend to diversify technology
in terms of technological fields, but at the same time, focus on some technological fields.
The technologies in the industry are specialized for products by combining thetechnologies for the inherent basic functions of the products and the various
technologies for increasing the value of products. Secondly, we show that technologicalinformation opened as intellectual property can diffuse to the whole industry. Firms canlearn the technological stock of each other. Consequently, technological differentiationand learning by firms are driving technological specialization for producing attractive
products across the whole industry.
Key Words: Intellectual property, technological distance, specialization, China

1. Introduction
Innovation hubs are spreading throughout the world. Previously, innovation activities*

This is a report for the “The Growth and Innovation of Asian Firms” research project
organized at the Institute of Developing Economies (IDE), JETRO. I thank Dr. Masahito
Ambashi (Economic Research Institute for ASEAN and East Asia), Prof. Gary Jefferson(Brandeis University), Mr. Zhenyu Gong (Brandeis University), Dr. Saowaruj Rattanakhamfu(Thailand Development Research Institute; TDRI), Mr. Supasyn Ittiphatwong (TDRI) for theircooperation and comments.
†
Associate Senior Research Fellow, Institute of Developing Economies (IDE), JETRO / IDE
Bangkok Research Center, JETRO Bangkok
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

were centered mainly in the traditional developed countries, such as the European
countries, the United States, and Japan. However, with the rise of many emerging
countries and the Fourth Industrial Revolution, the wave of innovation activity is
spreading to China and other East Asian countries and areas.
As a result, intellectual properties are increasing along with increasing researchand development (R&D) activities in East Asia. Of course, not all the results ofinnovation activities become intellectual property rights. Some are not made public andare kept as trade secrets. In recent years, Internet-related business model innovations
have increased in particular. Although we have to notice about that, however,intellectual properties remain useful information for technological analysis.
We show how Chinese firms have formed technological positions with theincrease of intellectual properties. Much has been studied about the relationshipbetween performance and the patents by firms (Hall et al., 2005). However, because a
product generally consists of multiple related technologies and the business structure
and product lineup of each firm are different among firms, even if they belong to thesame industry, so the technological positions also differ from firm to firm. Moreover,because firms cannot obtain all the related technologies for business within a shortperiod of time, the process of accumulating technologies can also vary among firms.
This chapter shows the following concerning the intellectual properties ofChina’s construction machinery industry. Firstly, firms are improving theirtechnological competitiveness by diversifying technologies in terms of technologicalfields, and by focusing on some technological fields for the basic functions of products.
Secondly, firms can learn about the technologies from existing technologicalinformation opened as intellectual properties. Consequently, we show an example oftechnological differentiation and learning by firms in an emerging country.
The structure of this chapter is as follows. Section 2 introduces the approach
used for our analysis. Section 3 compares the technological distance among Chineseconstruction machinery firms. Section 4 compares them with the previous technologicaldistance. Finally, we summarize and conclude the analysis.

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

2. The Approach: Technological Information and Distance2.1. Technological Information

In this study, we use the Orbis Intellectual Property provided by the Bureau van Dijk for
intellectual property and firms’ information. 1 The Orbis Intellectual Property combines
Bureau van Dijk’s accounting information of firms, Orbis, and Lexis Nexis’s intellectual
property information. The firms and intellectual property information are identified by aunique code for each firm given by the Bureau van Dijk.
We focus on China’s construction machinery industry. The industry is
specifically the “Construction Machinery Manufacturing” of the North American
Industry Classification System (NAICS) for 2017 (NAICS 2017). The reasons forchoosing this industry are as follows. Firstly, there are some major Chinese firms thathave gradually developed overseas markets in the construction machinery industry.
Since technological competitiveness is often required for overseas markets, we can findthe trend of some firms that are trying to improve their technologies. Secondly, theproduct markets of major firms in the industry are relatively overlapping. Because anindustry in the industrial classification generally consists of firms in various productmarkets, it is often difficult to classify firms into an industry in terms of the competition
relationship in a particular product market.
The conditions of intellectual properties in this chapter are as follows. Firstly,
we use patent applications and utility models as of January 10, 2020. 2 Since the numberof utility models has often increased first in China, therefore those were also included
here. Secondly, we use intellectual properties filed by indigenous Chinese firms in
China. Therefore, firms which have foreign capital as the ultimate owners are excluded.
However, if firms are owned by a Chinese ultimate owner firm are established in Hong
Kong or tax havens, then the firms are included as indigenous Chinese firms. Thirdly,
patents filed jointly by firms are treated as if each firm has filed one patent application.
Consequently, the number of intellectual properties and firms counted based on
the intellectual properties we use here are 49,877 intellectual properties and 1,162 firms,
respectively. The number of patent applications and that of utility models are quite thesame with 24,199 and 25,678, respectively. However, there were more utility models

1
2

Bureau van Dijk (the Netherlands) became part of Moody’s Analytics (the U.S.) in 2017.
Some patent applications are registered as granted patents through examination.
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

until 2014. On the other hand, the ratios by technological field are relatively similar.
2.2. Technological DistanceIn order to show the difference in technology among firms, we use the technologicaldistance used by Jaffe (1986). Technological distance is a concept that indicates thedifference in the technological position of each firm in terms of the technological field.
Here, the difference in technological position of each firm is measured based on thetechnological field of intellectual properties.
The technological distance can be defined as follows. If the number ofintellectual properties applied by Firm i in a technological field k is Fik, Fi = (Fi1... Fin)
represents the technological position of the firm. Then, the technological distance D
between Firm i and Firm j is formulated as follows (Jaffe, 1986; Yamada, 2009). 3
𝐷𝐷𝑖𝑖𝑖𝑖 = 𝐅𝐅𝑖𝑖 𝐅𝐅𝑗𝑗′ /[(𝐅𝐅𝑖𝑖 𝐅𝐅𝑖𝑖′)�𝐅𝐅𝑗𝑗 𝐅𝐅𝑗𝑗′ �]1/2

We use the international patent classification (IPC) for the technological field.
The IPC is a hierarchical system based on the technological content of the patents. An
IPC code(s) is assigned to each intellectual property. We mainly use the second layer(Class) of the five layers. If firms have a similar ratio of the number of intellectual
properties in each field, the technological distance is close to 1; otherwise, it is close to0.
The technological distance is often used to measure the distance between eachfirm, but here, we measure each firm’s distance from a fictitious benchmark firm whichfiles one intellectual property in every technological field, that is, Fbenchmark = (1, 1, 1,…,
1). However, it should be noted that “all fields” here are all the fields applied for by
Chinese construction machinery firms, not those of the IPC. Therefore, since thetechnological position of the benchmark firm is the state that the firms apply equally to
all the technological fields, if it is general that the number of intellectual properties
differs depending on the technological fields, there is a possibility that the distance ofeach firm to the benchmark will not be as close to 1. 4

3

There is a variety of technological distances (Bar and Leiponen, 2012).
In this case, the differences depending on the technological fields cannot be reflected in thetechnological distance. For example, the technological distance of a firm that has no intellectual25

4Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

3. Technological Distance: A Comparison Among Firms
Figure 1 shows the relationship between the technological distance of Chineseconstruction machinery firms to the benchmark firm, and the number of intellectual
properties of the firms. The numbers on the horizontal axis are logarithmic values. The
technological distance closest to 0 is 0.09, and one intellectual property is a case of
0.09.
Figure 1: Technological Distance and the Number of Intellectual Properties
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
1

10

100

1000

10000

Source: Author’s creation based on Orbis Intellectual Property.

We can find the following two points from the diagram. Firstly, the diagramshows that technological distance tends to move away from 0 as the number ofintellectual properties increases. Since the benchmark firm has one intellectual property
in every technological field, the technological distance moves away from 0 because
firms are more likely to develop technologies in more technological fields as they apply
more intellectual properties.
Secondly, on the other hand, even if the number of intellectual properties

property only in one different technological field, and the same number in the rest of thetechnological fields, becomes the same as each other.
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

increases, the technological distance is around 0.30, that is, far from 1.00. Also, thetechnological distance of the total number of all the firms is 0.40. Therefore, even if thenumber of technological fields that firms file increases, the number of intellectual
properties in each technological field is significantly different. It means that thetechnological position of the benchmark firm is a special case of the perfect equality
among the technological fields.
Consequently, the two facts indicate that firms tend to diversify technologies interms of technological fields, but the number of intellectual properties in some fields isvery large. Both elements of the technologies are important for firms: one is thetechnologies for the basic functions inherent in the products; the other is the various
technologies for improving the products’ value and enhancing the product lineup. In
other words, firms are improving their technological specialization as a technologicalstructure. While specialization through the division of labor can increase productivity
and change the industrial structure (Ros, 2013), firms do not focus on one technologicalfield alone.
The total number of intellectual properties in China also shows unevenness interms of the technological fields. The number of technological fields is 117, but the top
10 fields account for 65.7% of the total number. Intellectual properties concentrate in
the technological fields related to construction operations (B66, E02, E01, E21, B65),
and those related to basic elemental technologies, such as engineering elements (F16)and hydraulic cylinders (F15).

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Table 1: The Number of Intellectual Properties by Technological Field
IPC

Description

Patents

Total－

49,877

B66 Hoisting; Lifting; Hauling

5,949

E01 Construction of roads, railways, or bridges

4,088

E02 Hydraulic engineering; Foundations; Soil-Shifting

4,045

E21 Earth or rock drilling; Mining

3,881

F16

Engineering elements or units; General measures for producing and maintaining
effective functioning of machines or installations; Thermal insulation in general

2,954

B65 Conveying; Packing; Storing; Handling thin or filamentary material

2,797

F15 Fluid-Pressure actuators; Hydraulics or pneumatics in general

2,604

B23 Machine tools; Metal-Working not otherwise provided for

2,309

B60 Vehicles in general

2,221

G01 Measuring; Testing

1,904

Source: Same as for Figure 1.

Although the content of the technological positions differ from firm to firm,
there is also something in common. Table 2 shows firms with more than 1,000
intellectual properties (Table 2). We can find major Chinese construction machinery
firms, such as Zoomlion Heavy Industry Science and Technology (中联重科; Zoomlion),
XCMG Construction Machinery (徐工集团; XCMG), Sany Heavy Industry (三一重工;
Sany), and Shantui Construction Machinery (山推; Shantui). The technological distanceof them is around 3.0. Each firm produces excavators, bulldozers, etc., even though the
product lineups differ partially. There is a two-way relationship between competition
and technology development, so it is difficult to identify specific factors of R&D
activities (Belleflamme and Peitz, 2010), but there is a correlation that large firms have
many intellectual properties and similar technological positions.

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Table 2: Firms with More Than 1,000 Intellectual Properties
Firm

Total

Distance(patents)

Sales# of employees(th USD)(persons)

Zoomlion Heavy Industry Science and Technology

7,889

0.30

4,187,509

15,121

XCMG Construction Machinery

3,068

0.29

6,189,296

14,318Sany Heavy Industry

2,539

0.37

7,881,235

17,383

Shantui Construction Machinery

1,551

0.27

1,000,933

5,390

China Railway Engineering Equipment Group

1,384

0.13

603,690

1,240

Dalian Huarui Heavy Industry Group

1,331

0.28

940,319

5,588

China First Heavy Industries

1,147

0.23

1,503,140

7,858

Note: Sales and # of employees are in 2018.
Source: Same as for Figure 1.

The major businesses of the other three firms, China Railway Engineering
Equipment Group (中铁装备; CREG), Dalian Huarui Heavy Industry Group (华锐;Huarui), and China First Heavy Industries (中国一重; CFHI) are partially the same andpartially different with the above four firms. CREG conducts underground construction
under the China Railway Engineering Group. Huarui and the CFHI are heavymachinery manufacturers including construction machinery. Although the technologicaldistance of CREG is relatively far from 0.30, the technological distance of the heavymachinery manufacturers are close to it.
These seven firms tend to file intellectual properties in more technologicalfields as the number of applications increases, but nearly half the number of intellectual
properties is concentrated in a few top technological fields (Table 3). Moreover, the top
five fields largely overlap with the major technological fields for construction
machinery manufacturing in Table 1. 5 Although Chinese firms depend heavily on
foreign firms for core components such as engines and hydraulic cylinders (Jin, 2013),
and the quality of the intellectual properties is required to be analyzed, however, it
shows that these four firms have also applied for many intellectual properties intechnological fields related to the basic functions of construction equipment. On theother hand, diversifying technologies have been increasing the sophistication of the
products. The objectives include improving the method of processing materials, work

5

The top five fields of CREG overlap with the technological fields in Table 1, but thetechnological distance is different from those of the other six firms because the number of the
top fields is particularly large.
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

efficiency, safety, and so on.
Table 3: Technological Positions of Firms
with More Than 1,000 Intellectual Properties
Items
Total
Fields% of Top 5
IPC
B66
F15
E01
F16
B60

Zoomlion
7,375
73
53.0

Items
Total
Fields% of Top 5
IPC
E21
G01
F16
B65
F15

CREG
1,350
36
85.4

1,770
628
616
503
391

956
82
44
38
33

Items
Total
Fields% of Top 5
IPC
B66
E02
E01
F15
B60

XCMG
3,051
59
62.9

Items
Total
Fields% of Top 5
IPC
B66
B65
C10
B22
F16

Huarui
1,320
47
63.3

646
379
332
288
274

274
264
133
85
79

Items
Total
Fields% of Top 5
IPC
E01
B66
B28
B60
F15

Sany
2,169
54
45.5

Items
Total
Fields% of Top 5
IPC
B21
B23
B22
G01
C21

CFHI
1,146
38
65.0

218
208
198
182
181

Items
Total
Fields% of Top 5
IPC
E02
F16
B60
B62
B23

Shantui
1,545
52
61.6
415
228
110
100
99

412
144
82
66
41

Source: Same as for Figure 1.

In addition to these major finished product manufacturers, the technologicalposition of other small- and medium-sized and component firms also have a similartendency. Firms are likely to diversify technologies and focus on some technologicalfields. Therefore, even with a few intellectual properties, the number of technologicalfields is generally less than that of the intellectual properties. Although not only
technological distance but also the increase in intellectual properties is important, we
can find that buds that form the technological structure with these two technologicalelements are emerging.

4. Relationship with the Technological Stock: A Comparison with thePast
Firms can learn technologies from other firms from technological stock. If firms learn
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

from past intellectual properties in the construction machinery industry, thetechnological distance of each firm in the industry may approach that of all the past
intellectual properties.
Figure 2 shows the relationship between the technological distance of each firmfrom the total number of intellectual properties as of 2009 (the horizontal axis), and themoving distance of each firm between 2009 and 2019 (the vertical axis). Here, firmsthat have never applied for an intellectual property until 2009 are excluded in the
diagram, because they did not have a technological distance in 2009. 6 This is acomparison of the technological distance before and after the early 2010s, when thenumber of intellectual properties increased rapidly. The technological distance of all theintellectual properties in 2009 was 0.39 (the total number of intellectual properties was
2,573), and that in 2019 was 0.40 (the total number is 49,887 as shown in Table 1).
Therefore, although the number of intellectual properties has increased sharply, the pastand current technological distances of all the intellectual properties are almost the same.
Figure 2: Difference from the Total Number in 2009 andMoving Distance between 2009 and 2019
0.25

0.20

0.15

0.10

0.05

0.00
0.00

0.05

0.10

0.15

0.20

0.25

0.30

-0.05

Source: Same as for Figure 1.

6

The technological distances of the firms with no intellectual properties as of 2009 moved by
the distance between 0.09 to 0.37.
31Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

The diagram shows that, although there is some width in the moving distances,the longer the differences, the longer are the moving distances. The technologicaldistance of firm with one intellectual property was only 0.09 in 2009, but that of somereached around 0.29, while that of some show no change. On the other hand, when the
difference between the technological distances of all the intellectual properties as of2009 and each firm is small, there is a possibility that the moving distances decrease.
Firms can learn technologies from the knowledge information opened as
intellectual properties. As a result, the technological position of each firm can become
similar in terms of technological fields. The greater the difference, the more difficult it
may be to learn. However, since we focus on firms that have one or more intellectual
properties, there is no doubt that the firms here have the capability for technologicaldevelopment as of 2019.

5. Conclusion
This report shows the technological position of firms in one industry and the impact on
the whole industry as a result of increasing intellectual properties with the example ofChinese construction machinery manufacturers. Although firms are doing R&D for
product differentiation and filing many intellectual properties, because a productconsists of multiple technologies, so there are many options for their technologicalposition in terms of the technological fields.
The following are indicated. Firstly, firms tend to diversify technologies interms of technological fields, but at the same time, focus on some technological fields.
The technologies in the industry are specialized for products by combining thetechnologies for the inherent basic functions of the products and the various
technologies for increasing the sophistication of the products. Secondly, thetechnological information opened as intellectual properties can diffuse to the wholeindustry. Firms can learn from the technological stock of each other.
Consequently, the technological differentiation and learning by firms are
driving technological specialization for producing attractive products as the wholeindustry in comparison with other industries. Even though the technological positions
become similar in terms of the technological fields as the intellectual properties increase,each intellectual property is a source of product differentiation against competitors. On
the other hand, the publication of intellectual properties gives other firms information as
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

to where the technological problems are and how to solve them. The combination ofboth differentiation and learning has led industrial differentiation in terms oftechnologies across the whole industry.

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Hall, Bronwyn H., Adam B. Jaffe, and Manuel Trajtenberg (2005) “Market Value andPatent Citations: A First Look,” RAND Journal of Economics 36(1): pp. 16—38.
Han, Jinjiang (2013) “The Market Competition of the Construction Equipment Industry
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