Catching up through green windows of opportunity in an era of technological transformation: Empirical evidence from the Chinese wind energy sector

Abstract

Recent transformations in the global wind energy industry have considerable implications for firms to catch up as the sectoral frontier advances from on- and offshore wind turbines towards digital/hybrid systems. These technological shifts potentially precipitate new green windows of opportunity. This article finds that latecomer firms show different capabilities in responding to technological transformation at the global level, which explains variations in catch-up trajectories under the same framework conditions.

1. Introduction

The global economy is experiencing profound transformation. In light of environmental degradation associated with massive economic growth, especially the threat of climate change, many countries around the world are shifting their energy systems towards low-carbon technologies. Along with this green transformation, the fourth industrial revolution is shaking up sectoral boundaries and business models. Traditional industry classifications are increasingly challenged by new hybrid forms such as smart cities, the industrial Internet of Things (IoT), and additive manufacturing. Green and digital transformations are moving technological frontiers and opening up new windows of opportunity both for firms specialized in renewable energies and for new entrants (Lema et al., 2020) .

The wind energy sector provides a good example of both transformations in play. The production and deployment of wind turbines has grown exponentially since the 2000s, from a niche to a mainstream and even least-cost energy source in two-thirds of the world (Global Wind Energy Council [GWEC], 2019a). By 2050, wind is expected to supply half of the world’s electricity needs together with solar photovoltaics (PV; International Renewable Energy Agency [IRENA], 2018) ). Yet, the global wind turbine sector is transitioning to a techno-economic paradigm characterized by digitalization and hybridization, thus fundamentally challenging previous industry dynamics (IRENA, 2019; UNCTAD, 2019). Data analytics and other software-as-a-service (SaaS) solutions based on machine learning, artificial intelligence (AI), and the IoT represent the new technological frontier in the wind turbine industry. The number of wind patents filed using words like “big data,” “deep learning,” or “algorithm” have soared in recent years. In order to realign their technological in-house capabilities, lead firms have acquired analytics start-ups and initiated strategic collaborations with leading tech and digital consulting firms such as Apple, Microsoft, and Accenture.

This redirection of the economy provides significant opportunities for latecomer countries and firms. Since the 2000s, large developing and emerging economies have been rapidly catching up in renewable energy industries like wind (Zhou et al., 2016; Quitzow et al., 2017; IRENA, 2019). Chinese firms especially have been at the forefront, challenging incumbents from Europe and the USA in unprecedented ways. Although Chinese firms were absent from the global top 15 wind turbine manufacturers in 2000, they held eight of the top 15 positions in 2018 (see Appendix Table A1). Existing scholarship has largely attributed China’s rise in wind power to windows of opportunity related to industrial policies for market creation (Jiang, 2007; Lewis, 2013; Lema et al., 2013; Ding and Li, 2015; Fu, 2015; Mathews and Tan, 2015; Chung-Fung Chen, 2016; Daisuke et al., 2018; Haakonsson and Slepniov, 2018; Haakonsson et al., 2020). Yet, market expansion does not necessarily lead to indigenous technological learning (Altenburg et al., 2008; Hain et al., forthcoming; Quitzow et al., 2017). It may take much longer for emerging market firms to gain technological capacity. It is no surprise then that China’s catch-up predominantly builds on known technologies within the well-established market segment for small- and medium-sized turbines (Appendix Table A2 shows market leaders per size of turbines). In addition, Chinese firms mainly supply the domestic market, which is the largest since 2009 and represents 35% of the world’s installed capacity today (GWEC, 2018). However, some Chinese firms have also managed to narrow the technology gap with incumbent firms by following different strategies as a response to technological shifts at a global level.

This article empirically investigates the relationship between technological change at the global level and varieties of catch-up responses by latecomer firms. It analyses how different types of firm operating under the same framework conditions follow different catch-up trajectories, thereby highlighting inter-firm diversity. The recent transformations and their implications for emerging market firms to move from a path-following or path-skipping to a path-creating catch-up trajectory have not been thoroughly investigated in the existing literature. Against this background, this article addresses the following research questions: “How does technological transformation open green windows of opportunity that affect latecomers’ possibilities for catching up? What strategies can latecomer firms develop to respond effectively to technological shifts?”

The article is organized as follows. Section 2 reviews the literature and introduces the concepts of windows of opportunity and technological regime to analyze the implications of technological transformation for firm-level catch-up. Section 3 presents the data collection and research methods for the present study. Section 4 gives an overview of China’s wind energy policies as institutional responses to windows of opportunity in the wind turbine industry. Section 5 presents the empirical evidence of how incumbent and Chinese wind turbine manufacturers are responding to the new technological frontier. It identifies different firm-level trajectories for technological catch-up due to a combination of company strategy, sectoral evolution, and technological innovation. Section 6 draws conclusions and identifies future research needs.

2. Implications of technological change for latecomer development and industrial leadership

Technological change is a continuous process that can trigger deep structural transformations (Perez and Soete, 1988). The degree of technological change and level of disruption to an existing knowledge base is closely linked to the notion of “technological (learning) regimes” (Breschi et al. 2000). The factors underpinning a technological regime in which innovative activities are organized and structured can change both across and within industrial sectors (Pavitt, 1984; Mu and Lee, 2005; Malerba and Nelson, 2011). Profound changes within technological regimes can trigger changes to the technological frontier and, in case of major change, new techno-economic paradigms, which constitute “radical discontinuities in overall technological evolution” (Perez and Soete, 1988: 460). Hence, sectoral shifts in the technological frontier are highly relevant events in the context of catch-up and industrial leadership change since they may open new windows of opportunity for latecomers. Profound and competence-destroying technological shifts are likely to change the position of key actors in a given industry and can even lead to a situation where incumbents and latecomers find themselves at the same starting line (Lee, 2019). This section introduces the theoretical and conceptual framework for understanding how technological shifts and an accelerating technological frontier affect catch-up opportunities and what strategies latecomer firms can develop to respond effectively to them.

2.1 Catch-up cycles and industrial leadership changes

The reasons why some established firms lose their market dominance to industry latecomers has been subject to a plethora of scientific studies and debates (Perez and Soete, 1988; Lee, 2005; Mathews, 2006; Christensen, 2016; Lee and Malerba, 2017). In order to analyze the conditions under which effective technological catch-up of latecomers takes place, we have to first understand the driving forces behind the process of catch-up (Perez and Soete, 1988). Lee and Malerba (2017) developed a framework for understanding why and how successive changes in industrial leadership occur among different geographies over time. They define catching up as “the process of closing the gap in global market shares between firms in leading countries and firms in latecomer countries” (p. 339). A prominent example of such a change in industrial leadership is the memory chips industry, where leadership shifted from the USA to Japan in 1982 and from Japan to South Korea in 1993 (Shin, 2017).

According to the catch-up cycle literature, there are three conditions under which catching up and potential changes in industrial leadership are likely to occur, also referred to as “windows of opportunity.” These windows are temporary openings and constitute changes in technology, in market demand, and/or in institutional regimes (Lee and Malerba, 2017; see also Perez and Soete, 1988; Lee and Ki, 2017). Windows vary in scope and often occur unexpectedly. Consequently, there is no guarantee that latecomer firms will catch up once a window appears (Malerba and Nelson, 2011; Landini et al., 2017; Lee and Malerba, 2017). More precisely, the ability to capture a window of opportunity depends on responses at the national and firm levels as well as the capabilities of the wider innovation ecosystem (Freeman, 1987; Lundvall, 1992; Malerba, 2005). In this context, Sun and Yang (2013) emphasize the superior learning abilities of latecomer firms. They view firms’ absorptive and transformative capabilities through effective learning processes as the driving forces behind effective catch-up. This aligns with Malerba and Nelson (2011), who view catch-up inherently as a learning and capability-forming process. Analogous to , they argue that latecomers have to reach a stage in which they create and export new types of knowledge, products, and technologies in order to successfully close the catch-up gap.

Depending on national responses and firm capabilities, latecomers can pursue a path-following (adopting first-generation technology), path-skipping (adopting up-to-date technology), or path-creating (exploring new technological trajectories) strategy (Lee, 2019; Lee and Lim, 2001). Hence, latecomers can have advantages over incumbent firms as the “arrival of a new techno-economic paradigm can serve as a pull factor for leapfrogging” (Lee, 2005: 97). Leapfrogging (used here synonymously with path creating) occurs when emerging market firms have the opportunity to jump to the technological frontier and create new paths as they may “bypass heavy investments in previous technology systems” (Lee and Lim, 2001: 460). Besides these endogenous responses at national and firm levels, the ability to effectively respond to windows of opportunity opening at a global level is highly sector-specific. As elaborated in Section 2.2, sectors show considerable differences in their underlying innovation patterns, which have important implications for the catch-up potential of latecomer firms.

2.2 Sector-specificity of catching up: technological regimes and Schumpeterian patterns of innovation

Innovation patterns vary across industrial sectors. This can be explained using the concept of “technological regimes” (Breschi et al., 2000), herein defined as the “particular combination of the knowledge base, common to specific activities of innovation and production and shared by the population of firms undertaking those activities” (van Dijk, 2000: 173). Consequently, each industrial sector consists of an idiosyncratic combination of knowledge. The literature on technological regimes is concerned with the relationship between the nature of the technological (knowledge) environment and the intensity of innovation (Nelson and Winter, 1982; Breschi et al., 2000).

Four factors underpin a technological regime: technological opportunities (ease of innovation with a given amount of resources), cumulativeness of knowledge (likelihood of innovating along specific trajectories), appropriability of innovations (ease of extracting profits from innovative activities), and the knowledge base (relevance of existing knowledge; Breschi et al., 2000). These vary across industries, but more importantly they can change over time within a given industry (Ufuah and Utterback, 1997), thereby providing new catch-up opportunities for latecomers. For example, cumulativeness of knowledge is a result of time and experience by intensifying research and development (R&D) into specific technologies. The higher the cumulativeness of knowledge, the harder it becomes for latecomers to reach the technological frontier. However, if cumulativeness is low, it is easier to leapfrog into a path-creating catch-up trajectory. With regard to the knowledge base, the more generic the characteristics of the technological regime, the easier firms from other industries can diversify into the given sector. If the knowledge base of an industry is very specific, it takes time for latecomers to build the ecosystem of innovation required for path-creating catch-up—especially if the technological complexity is high as it is in wind turbines (Huenteler et al., 2016).

Building on the Schumpeterian tradition, two distinct patterns of sectoral innovation have been identified: Schumpeter Mark I (SM-I) and Schumpeter Mark II (SM-II) (Breschi et al., 2000). SM-I is characterized by innovation patterns that lead to creative destruction. Here, innovation predominantly comes from firms that were not previously involved in innovation in the industry. Therefore, this form of industrial innovation leads to a “widening” as new firms take over the technological frontier. In SM-II the opposite is the case. Innovation is generated through a continuous specialization of existing lead firms within the industry engaged in continuous development of innovative activities. This process is referred to as “deepening” (Malerba and Orsenigo, 2000).

The technological regime underlying a specific sector sets the framework conditions for catch-up possibilities of latecomer firms (Jung and Lee, 2010; Malerba and Nelson, 2011). Industries within the SM-I innovation pattern see new entrants moving into lead positions more regularly, which allows for path-creating catch-up. In turn, technological specialization in SM-II is much higher. Here, established lead firms tend to be the drivers of technological change and the position of the lead firm is closely linked to this “deepening” pattern of innovation. Hence, in SM-II industries, catch-up trajectories are dominated by path-following and path-skipping catch-up strategies.

2.3 The heterogeneity of catching up: inter-firm variations of latecomer responses

The responses of latecomer firms to global technological shifts evolve differently across geographies and time due to differences in institutional responses and firm capabilities. Yet as the technological frontier moves, technologies are often not mutually exclusive, but rather co-existing elements, particularly in industries characterized by high levels of cumulative knowledge. Consequently, a sector may encounter multiple generations of co-existing technologies. For example, a shift in the technological frontier may open a new window of opportunity for latecomer firms to take leadership in an established technology while incumbents move into a new one. However, the time lag between shifts at the global level and responses by latecomer firms may decrease over time due to increased technological firm capabilities and potentially higher appropriability of the latecomers (Malerba and Orsenigo, 2000). Latecomers may also catch up into a newly emerging technology as the technological frontier advances, yet follow different innovation paths to other firms, for example, by focusing on product and/or service niches. Therefore, latecomer firm responses within the same country and under the same framework conditions can be highly heterogeneous. For example, while some firms may pursue a path-skipping strategy and adopt technology from a preceding technology, other firms within the same national economy may focus on creating their own paths along the technological frontier. Likewise, firms developing capabilities within the same technology may not follow similar innovation paths (Dosi, 1982; Leiponen and Drejer, 2007).

2.4 Analytical framework: technological shifts and latecomer responses

The catch-up trajectories of emerging market firms are embedded at different levels and over time. Global and exogenous dynamics of technology shifts generate technological windows of opportunity for catch-up. However, realizing catch-up depends on endogenous industrial dynamics; that is, the responses at the national and firm levels—here, a combination of policies and dynamic capabilities. Windows of opportunity related to technologies emerge at the global level as the technological frontier changes. Whether the catch-up strategy is to follow, skip, or create paths is linked to the technological regime and the specific underlying factors found therein for a given technology. These factors are likely to change across paradigms and within a paradigm over time.

Figure 1 illustrates how shifts in technologies and the changes in technological frontier from one technology to another (vertical axis) opens windows of opportunity for latecomers to take different catch-up trajectories (still requiring effective responses). The solid line illustrates the sectoral evolution through the maturing processes of three consecutive technological frontiers (T1–3). The three catch-up paths are illustrated: following, skipping, and creating. Catch-up is seen where latecomers close in on sectoral evolution timewise (horizontal axis). An additional trajectory relates to firms that did not react to changes and are not on the catch-up path (aborted catch-up). The shifts can be different in nature as the degree of change in the four underlying factors differs (see Section 2.2). Moreover, some technological shifts are more radically changing the conditions in a given technological regime. Although a shift in the technological trajectory constitutes a change within a given cluster of possible technological directions, a shift in the technological paradigm redefines the outer sectoral boundaries (Dosi, 1982). Hence, the latter represents a radical change to the technological frontier that potentially links to a new techno-economic paradigm (Perez and Soete, 1988). This is highly relevant, since understanding catch-up as radical change in these factors challenges sectoral boundaries and requires extra-sectoral knowledge (see Fu et al., 2011).

For green sectors the evolution of the technological frontier and the opening of technological windows of opportunity are largely shaped by strong institutional support for a green transition. Therefore, they are not exclusively technological but also “green windows of opportunity” (see introduction to this special issue, Lema et al., 2020). Nevertheless, the green technologies compete with conventional technologies and face strong entry barriers. For example, renewable energy technologies require considerable upfront investment and concurrently benefit from relatively low and stable operating costs, which diverges from traditional business models in the energy sector (Ajadi et al., 2019).

3. Data collection and research methods

For our empirical study, primary data were collected in the form of 178 semi-structured interviews in several rounds of fieldwork between 2014 and 2019 in Denmark, Germany, and China with wind turbine original equipment manufacturers (OEMs), component suppliers, utilities, project developers, licensing and engineering firms, government agencies, research institutes, industry associations, and consultancies. All wind turbine OEMs and suppliers interviewed are either headquartered in China or have a Chinese branch. To gain a balanced view between different firms and their subunits, we interviewed different departments and at different locations, including international subsidiaries and R&D hubs. In addition, we discussed interview observations with multiple experts from industrial associations and consultancies, as well as specialized engineers and researchers in the field. Questions covered both macro-level topics such as industry trends and public policies and specific micro-level questions on the firms’ market, technology and innovation strategies, R&D collaboration, main challenges, and future prospects. To enhance internal validity, the authors independently analyzed the interview material before discussing it. Reliability of our findings was ensured as all interviews were transcribed, coded, and triangulated with external sources.

Secondary data were collected and analyzed at different stages and with different objectives. In order to identify technological shifts, we systematically scrutinized a wide range of both qualitative and quantitative data: patent applications, onshore/offshore statistics, mergers and acquisitions (M&A) activities, and industry and company reports. Relevant data sources were the European Patent Office (EPO), Bloomberg Terminal , FTI Intelligence, GWEC, IRENA, Chinese Wind Energy Association (CWEA), and Crunchbase.

As the development of digital/hybrid technologies in the wind sector (T3) is still in its nascent stage, we could not draw upon deployment statistics as we could for onshore and offshore wind. Therefore, we retrieved patent data from EPO’s Espacenet (version 1.10.0) and created a search code based on the International Patent Classification (IPC) for T3 (see Table 1). In line with our definition of T3, we include all patents related to both “wind motors” (IPC class F03D) and “computing, calculating, counting” (IPC class G06) or “wind motors” and “energy storage” (IPC class H01M), as well as all “hybrid wind-PV energy systems” (IPC class H02S10/12). For our patent analysis, we included all pending and granted patent applications to minimize the time lag since the filing of the application. We consider patent applications from all patent offices in the period 1980–2020 and use the priority date per extended patent family (INPADOC) to avoid double-counting. In total, we identified 8115 patent applications and 5313 patent families in T3. The Espacenet database covers 110 million patent documents from worldwide patent offices and is updated on a weekly basis, allowing for an analysis of the progress of emerging and state-of-the-art technologies (EPO, 2020).

In order to analyze how firms can respond effectively to technological shifts under the same framework conditions, we selected a single-case design with China being an extreme case with multiple units of analysis, namely latecomer firms pursuing different catch-up trajectories (Yin, 2003; Flyvbjerg, 2006). In selecting latecomer firms, we applied purposeful sampling (Suri, 2011) to identify a small number of information-rich cases along the different catch-up trajectories.

4. China’s catch-up: overview of the Chinese wind industry

The first wind farm in China was built in the early 1980s. At that time turbines were produced and installed by European firms for demonstration and technology transfer. During the mid to late 1990s Chinese companies initiated domestic production of wind turbines (Dai and Xue, 2015). Previous research has attributed China’s fast wind development to industrial and energy policies (Lewis, 2007; Wang et al., 2012). Central milestones in the industrial development that followed were the local content requirements introduced in 2003 and the Renewable Energy Law from 2006. By setting long-term targets and prioritizing renewable energy in the national grid system, the Renewable Energy Law marked the beginning of an unprecedented growth of the domestic market and industrial catch-up. Although there were only a few domestic small-scale turbine manufacturers at the beginning of 2005, the number of new firms entering the market reached 40 in 2007 and almost doubled again by 2008 (IRENA, 2013; Quitzow et al., 2017). At the same time, foreign wind turbine manufacturers experienced a dramatic drop, from a 79% market share in China in 2004 to 12% in 2009 (Sun and Yang, 2013).

In the following 5 years, China’s installed capacity grew from one gigawatt (GW) to 44.7 GW and the global market share of China reached 22.6% (GWEC, 2011, 2017, 2019b). Strong national support schemes formed the market and institutional base of the industry, paving the way for a rapid market increase in installed wind power capacity. Until 2010, these schemes focused on establishing a national base for onshore wind. When this was established, focus shifted to include offshore projects. Policies since 2017/2018 have moved again, towards energy transition and increased use of renewables in the energy mix more broadly. Table 2 outlines the responses in the Chinese institutional framework for wind turbine development. By the end of 2017, China accounted for 35% (188 GW out of 539 GW) of the cumulative installed capacity in the world, double that of the USA, the second largest market (GWEC, 2017). Today, wind has surpassed nuclear power to become the third largest source of China’s growing electricity consumption, accounting for 5% of national electricity supply, following fossil fuels (71%) and hydropower (19%; Dai and Xue, 2015; GWEC, 2017). In 2018, 19 Chinese OEMs remained in the market, with the three leading firms, Goldwind, Envision, and Mingyang, accounting for over 50% of the domestic market share (FTI Intelligence, 2018).

Despite the rapid catch-up in market shares, Chinese manufacturers produce mainly onshore turbines for the domestic market. In 2018 only 1.8% of total Chinese production was installed outside China (FTI Intelligence, 2018). Many Chinese firms have not yet acquired certifications from internationally recognized bodies (Backwell, 2017). With an initially slow and hesitating evolution in the Chinese market for offshore wind power, it is not surprising that the top-tier companies are largely competing in the onshore medium-sized turbine segment of 1.5–2.5 megawatts (MW) and only recently in the more advanced offshore wind power markets in terms of average turbine size (see Appendix Table A2). Hence, Chinese companies are approaching the technological frontier but do not yet belong to the group of international frontrunners, consisting of Siemens Gamesa, Vestas, and GE (Backwell, 2017). The domestic industry is dealing with problems of disorder, overproduction, and imbalance, for example, by reducing curtailment rates and lowering wind energy prices (Zhu et al., 2019). In light of the presence of strong institutional support schemes at the national level, Chinese wind firms show a variety of different catch-up patterns, which will be elaborated on in the next section.

5. Latecomer responses to technological shifts

Different types of firm are maneuvering, balancing, and evolving through a shifting, competing, and progressing technological frontier in the wind turbine industry. The technological frontier in China has evolved from a paradigm of onshore wind turbines to offshore wind to a more fundamental shift towards digital/hybrid transition. This section examines the responses and strategies of Chinese latecomer firms to the technological windows of opportunity created, paying close attention to the dynamics of incumbent and latecomer firms and how strategies shift with the evolution of the three emerging technologies. It looks first at how incumbent firms responded to global technological transformation and potential paradigm shifts, before turning to how Chinese latecomers caught up.

Onshore (T1) and offshore (T2) technologies are situated within an SM-II technological regime and characterized by deepening innovation patterns and a spatially sticky global innovation system (Binz et al., forthcoming). At the technological frontier, the global wind turbine lead firms are currently operating across three different technologies (T1–3) as defined by their innovation and technology focus (see Table 3). The share of F03D (core wind tech) patents decreases from T1 to T2 and from T2 to T3 when looking at the top-5 IPCs. Hence, there is a widening of the technological regime which may eventually lead to a paradigm shift from SM-II towards SM-I.

Although the technological frontier has changed along two major shifts, the three technologies co-exist, since the new technologies constitute add-ons to products developed in the previous one(s) and the markets for all three are still expanding. However, the incumbent lead firms have largely moved their technological focus downstream towards more value-added segments in their value chain. Along with these technological changes, windows of opportunity to follow or skip the path have opened up for latecomer firms.

5.1 Path-creating incumbent firms shaping the technological frontier

The incumbent lead firms are undergoing what they call a disruption and are strategizing their technological investments and engagement accordingly. Given that the industry has reached the point of grid parity, where energy from new wind parks is cheaper than conventional sources, mainly coal, a complete shift is occurring in the energy market. One European lead firm explained:

“We are selling unsubsidized turbines in New Zealand. The market trend is that the average cost of electricity is on grid parity in many markets. By 2030, wind and solar energy will be by far the cheapest sources of energy.”

This occurred as national feed-in-tariffs were gradually decreased or fully removed. At the firm level, market strategies and business models are increasingly adjusting to this shift, in particular as the wind energy markets in advanced economies shift to an auction-based system. In such a market design, the production of energy is the focus, not the wind turbine itself. At the same time, wind turbines as products have been largely commodified and incumbent firms have externalized production through outsourcing while increasingly focusing on downstream activities as they relate to, for instance, systems integration and park development. Table 4 shows how Vestas, the world’s largest wind turbine manufacturer, changed its strategic focus to downstream integration while also investing in acquisitions of and partnerships with specialized actors, for example in digitalization technology.

Similar developments were found in Siemens and General Electric. For example, in 2016, Siemens Wind Power developed the product Sinalytics in for advanced data analytics and General Electric introduced the Predix Platform, a cloud-based software system for digital wind farm management. Among the Chinese firms, Envision stands out in developing software systems for advanced analytics and forecasting, EnOS and Ensight.

The incumbent firms are undergoing a major change in shifting technologies. As noted by one incumbent firm manager, “You don’t make money by just selling commodities.” Consequently, these firms are expanding the wind turbine business towards sustainable wind energy solutions encompassing full grid systems applications by providing complementary types of energy sources such as solar power, energy storage, smart grid solutions, or hybrid systems (combining solar and wind) that are holistic from an energy mix perspective. Another incumbent firm reflected:

“We are in a process of restructuring. In India and elsewhere, we do the whole wind park development (downstream integration), whereas in Australia we have integrated new storage systems into the wind park.”

As shown in Table 4, in 2017 Vestas built the world’s first complete utility on-grid energy park in Australia, integrating solar, wind, and battery technologies. This integration trend is also reflected in changes to product warranties, from a standard warranty of five years for the turbine in the previous system, to the production of energy in most current markets.

The market change requires radical technological innovation. To make production of green energy stable and sustainable, turbines have to be able to adjust in how much energy is produced. Digital technologies such as SaaS, advanced analytics, and failure prediction, and other forms of AI, are integrated into the design and operation of wind parks. This is also reflected in the patents files by the incumbent firms. For example, back in 2008 Siemens filed a patent for predictive modeling which predicts the production of the wind turbines to allow for the energy grid to adjust. Vestas (2011) and General Electric (2012) filed patents for similar tools; computer programs for power system stabilization and dynamic role engine, respectively. In 2016, Goldwind filed a patent for monitoring followed by Mingyang in 2018 and Envision in 2019 (for a control system for energy storage; EPO, 2020). Figure 2 illustrates the annual filing of patents within T3 by incumbents and Chinese firms. As with the examples above, this graph shows a delay in response by the Chinese firms. Although in the previous paradigms of onshore and offshore turbines, lead firms competed in designing larger turbines and dominating the market, in this paradigm they have broadened their innovation beyond the turbine itself. Table 5 shows how large incumbent lead firms have acquired specialized technology in T3 since 2008. This has also been the case for Chinese firms, starting in 2016.

Software is key in the new digitalized and hybridized paradigm, moving the industry towards a more ICT-based system of innovation. As one interviewee noted:

“We can make the turbines produce more power when the electricity price is higher, so the turbine itself understands when to produce more; the load consumption turbine specific software increases the wind turbine’s ability to use itself.”

Therefore, path-creating incumbent firms are broadening their scope to focus on new developments beyond turbines, such as digitalized control, systems integration, power plant controllers, transmission technologies, storage solutions, and energy mix. The competitive dynamics are transforming from a race for larger turbines to delivering downstream activities. However, radical technological capacity can be gained through either in-house innovation or M&As. As noted by a leading European manufacturer, “Our M&A section is very busy acquiring and buying companies downstream.” Obviously, there is a major shift in the fundamental factors of the industry’s innovation patterns and no guarantee that traditional lead firms will maintain their position.

With climate change-related policies being implemented across the world and the emergence of new technologies such as electric vehicles, more national energy systems are being electrified. But, the deployment of renewable energy goes far beyond electricity; it goes into new sectors such as transport, agriculture, and even water and sanitation. The incumbent lead firms are first movers in responding to the green windows of opportunity, yet they experience a loss in global market share when measured as installed capacity. According to one such firm, “When we are not performing in market shares, it is China, since the Chinese market is the largest.” However, in terms of creating technological trajectories, incumbent firms are still defining and developing the technological frontier. These companies remain important actors in offshore turbines even if their focus has shifted to understanding downstream segments and system integration as well as finding new methods for optimizing this integration.

5.2 Chinese wind turbine manufacturers catching up through different trajectories

Chinese firms have responded to the window of opportunity related to the most recent technological shift in the past decade. Since technological change in this industry is particularly cumulative in T1 and T2, the technologies co-exist. This provides latecomer firms the opportunity to catch up in existing technologies through path-following or path-skipping catch-up trajectories. The trajectories of catch-up in emerging markets differ according to institutional settings, market responses, and firm levels.

Chinese wind firms accumulated technological capacity in onshore turbines (T1) as they gradually caught up via imported components, licensing, M&As, building overseas research centers, and investing in in-house innovation. More recently, a number of Chinese firms, including Sinovel, Shanghai Electric, Goldwind, and Envision, have invested in offshore technology on 4–6 MW turbines and have built capabilities in offshore technologies either internally (based on the R&D capacity gained in onshore experience) or externally (internalizing technological capabilities through licensing and M&As). When the latest shift in the technological frontier emerged at the global level, the domestic market for onshore wind was still highly profitable compared with markets abroad. Yet, installed onshore wind capacity in China presents a decreasing trend since 2015 due to the high curtailment rate (CWEA, 2018).

As shown in Section 4, the development of wind technology had major responses at the policy level in China, most recently, after 2017, targeting an increase in the overall integration of wind energy. The Clean Energy Accommodation Action Plan (2018–2020; NDRC, 2018) set a requirement for a 3-year continuous increase in the wind availability hours with 95% as the 2020s goal. The plan also set a national curtailment rate (loss of energy) drop to around 5%. This is just one example where policy focus has been shifted from the installation of wind energy per se to energy production. The other regulatory change affected the price of wind energy. Whereas China’s renewable energy feed-in-tariff policy served as an effective institutional response to onshore (T1) and offshore (T2) technological shifts, the gap between payable subsidies and actual subsidies continued to widen. In its requirement that wind energy prices be determined through market competition, the Relevant Requirements of Wind Power Construction Management in 2018 (NEA, 2018) changed the marketplace. These policy responses pushed Chinese companies to actively adapt new technologies in their search for market; that is, to focus more on combined energy production and integration rather than on selling wind turbines as a commodity. Chinese firms have responded differently to both the exogenous sectoral dynamics shifting towards technologies for systems integration, and to the endogenous responses in the market and institutional framework specific to the Chinese context. Consequently, they have followed different catch-up trajectories and responded differently to technological change.

5.2.1 Path-following firms’ response to technological change

Path-following Chinese wind turbine manufacturers are long-established players who maintain a high degree of similarity with incumbent firms in terms of technology roadmap and market development strategies. These firms have mature technological capacity within onshore technology, and occupy a good share of the domestic market. During their initial catch-up, they also initiated investments in offshore technology and market exploration. One example is Goldwind, a market leader in China, which produced 26.6% of the installed capacity in 2017. Although its main products are 2, 2.5, and 3 MW onshore turbines, Goldwind released a 6.7 MW turbine product in 2018 for offshore. Currently, Goldwind holds the third largest offshore market share in China (after Shanghai Electric and Envision; GWEC, 2020).

When technological change occurs, path-following firms have two choices: continue their R&D and market expansion in offshore turbines or respond to the windows of opportunity created by the new technology and redirect to digitalization and energy integration. Unlike the catch-up speed into offshore turbines, which is still ongoing, the Chinese path-following firms recognized the shift towards hybrid technologies and digital solutions much earlier and followed the path of the incumbent firms closely (see Section 5.1). In 2016, Goldwind proposed a new slogan, “Innovation—Leading the future of the global energy,” to illustrate its vision to become a leader in the global renewable energy sector. It is expanding its strategic portfolio in wind turbine manufacturing while diversifying into related technologies such as water projects, energy saving, smart grid, smart agriculture, health, solar PV, and financial services. Technologically, Goldwind is expanding into in digitalization, smart grids, and AI due to the national priority to develop those industries. Path-following firms also invest upstream in the design and development of turbines where new innovation projects are taking place through European specialized suppliers and, in one case, through an acquired design hub in Europe. As a manager in a path-following company noted, international connections helps the company “focus on wind operation digitalization, energy integration, and smart solutions for the energy system, hoping to make the wind production chain green and smart via diversified innovation, and to explore new emerging business areas other than wind.”

Developing a catch-up strategy towards the latest shift does not crowd out path-following firms’ efforts to catch up in offshore turbine technology. Goldwind, for example, after decades of catch-up in wind turbine technology, has released its 6 MW offshore turbine, and currently 8 and 10 MW offshore turbines are under development. The technological readiness in offshore wind turbines, however, has to give away to an unexpected slow development of the offshore market in China. Instead, these actors are integrating vertically and investing in specialized component suppliers to ensure access to financially stable and profitable offshore technologies. This is contrary to the incumbent firms, which are increasingly externalizing their manufacturing processes, yet helps firms to ensure supply as well as lower the overall cost of the turbine in response to the reducing subsidy.

Institutional responses that helped path-following firms ensure their domestic market share in onshore turbines (T1) may become institutional barriers in moving towards offshore (T2) and digital/hybrid technologies (T3). Benefiting mainly from the cost-out strategy in the domestic market, path-following firms are having a hard time entering the international offshore market that is extremely competitive where product quality and energy production during the lifetime of the turbine are key competitive parameters. Even for firms working hard to gain a larger international offshore market share, it takes decades to build an international reputation.

The path followers in our study mentioned possible institutional barriers to following incumbent along the technological frontier, especially in international markets. For example, international technology transfer agreements with specialized engineering and design firms usually include geographic market restrictions, leaving Chinese companies limited room to exploit international markets. The firms also encountered high institutional transaction costs in international markets, especially compared with domestic market exploration costs. Therefore, although these firms regard international market exploitation as the ultimate goal, they are not actively pursuing it for now. In summary, the path-following firms catch up by narrowing the gap with the incumbents. With the help of a national technological base that is developed in software and AI, Chinese firms are in the process of bridging the technological gap at speed as the technological regime develops towards a less cumulative and specialized nature.

5.2.2 Path-skipping firms’ response to technological change

The path-skipping firms are either latecomers who entered directly into offshore or hybrid/digital solutions—for example, Shanghai Electric—or followers in onshore technologies that skipped large-size turbine development and put the company’s focus directly into hybrid/digital solutions—such as Envision. Shanghai Electric pursued its catch-up via technology licensing targeting the advanced offshore technology. The firm used to be an energy supplier, but in 2012, it established two joint ventures with Siemens Wind Power for offshore turbines for the Chinese market. Shanghai Electric successfully installed the first 4 MW offshore wind turbine using Siemens licensing in 2014. In 2015 Shanghai Electric took full control of this technology through acquisition and obtained a manufacturing license to produce 6 MW Siemens wind turbine. This partnership helped Shanghai Electric gain the largest offshore market share in China in 2018, accounting for 44% of newly installed offshore capacity (CWEA, 2019) and, although dependent on the technology available from its partners, it became a lead firm in the offshore market in China by skipping technology accumulation in onshore turbines.

Envision represents another kind of path-skipping pattern. The firm emerged in 2007, shortly after the Renewable Energy Law and market take-off of the Chinese wind sector. From the beginning, Envision positioned itself as a company with broad international technological collaborations and insisted on also building indigenous innovation and maintaining its advantages in software development. In China, this positioning has shaped its image of “incrementally improved quality” and gained its market share. In 2018, Envision occupied 25% of the Chinese onshore and offshore market respectively (CWEA, 2019).Yet, the company does not develop wind turbines above 4.5 MW. According to a manager, the rationale behind this is that Envision uses very similar turbines for onshore and offshore markets, thereby keeping technological adjustments at a minimum level. Instead it started to invest in various new energy-related product areas, including batteries, electric vehicle charging, smart grids, electricity generation insurance, and IoT in the energy sector. Technologically, this strategy represents a path-skipping catch-up from T1 to T3.

The main window of opportunity for these companies to path-skip is technological. For Shanghai Electric, the joint venture with Siemens upgraded its domestic research when it licensed 6 and 8 MW technology. For Envision, which has defined itself as a high-tech company from the beginning, the strategy and technological ambition relate to software technology. The company sees many potential opportunities in the most recent technology shift:

“We already have the software for solar and wind. Basically, the idea is to become the Google in energy control software. In internet business the winner takes it all, so we need to be the winner of all this software for energy.”

Operating in the Chinese context provides advantages in integrating with the software industry to acquire technical talent.

Path-skipping companies face market challenges similar to path-following companies. Their responses are similar: the domestic market is still very attractive after path-skipping catch-up since profit margins outside China are smaller. Meanwhile, institutional responses towards new technologies, particularly the mixed energy trading trend, makes energy integration and digitalization increasingly important to the industry both for price reduction and for smooth production output—and this indirectly pushes the path-skipping strategy.

5.2.3 Aborted catch-up by latecomer firms’ failed responses

Not all Chinese manufacturers have experienced a successful catch-up. Because institutional responses are so tightly connected to the establishment and growth of demand in the domestic market, some companies have managed to obtain significant market share but have fallen behind because their business strategy was not sustainable or because their products were revealed as having quality issues. Sinovel, for example, used to be a leader in China in both market share and technological capacity. It released the first Chinese 1.5 MW turbine in 2010, year before Goldwind released its 1.2 MW turbine (Sinovel, n.d.). However, Sinovel mainly relied on the institutional framework that emphasized localization in a market characterized by a race to the bottom through cost-out strategies: “This protection (tendering system) faded away in 2010,” which reduced Sinovel’s profit. Meanwhile, large-scale wind curtailment in China raised the technological upgrading costs of the firm, meaning it was unable to invest in its turbine R&D and lost the technological capacity to catch up. Even though it released China’s first 6 MW turbine in 2011, Sinovel lost its leading position and fell out of the top 22 in 2017 (CWEA, 2018) as government subsidies started to decrease at a faster speed and wind energy was pushed further into electricity market competition. Similarly, some of the early Chinese turbine manufacturers followed a learning-by-doing strategy through technology licensing without building in-house innovation capacity. As a result, most have failed to respond to the new technologies and rigorous institutional changes and have subsequently dropped out of the market. Their catch-ups were aborted in onshore technology. Some experimented with new materials (e.g. bamboo blades), bore the innovation risk, and fell behind.

5.3 Three responses to TEP shifts with different characteristics

Our analysis confirms the three consecutive technologies dominating the wind turbine sectoral system of innovation, namely: small- and medium-sized onshore turbines; larger offshore turbines; and downstream integration with digital and hybrid technologies. The recent downstream changes in the technological frontier are largely attributed to the fact that “green transition” is a broad umbrella that covers various sectors and offers cross-sectoral and global green windows of opportunity. Therefore, the technological roadmap and sectoral boundaries are all likely to extend and integrate further during the green energy transition. The consequences of global trends in policy towards green and sustainable solutions are particularly clear in the wind energy sector, encountering a technological shift.

As illustrated in Figure 3, this evolutionary development from onshore (T1) to offshore (T2) to digital/hybrid (T3) was led by the incumbent firms in Europe and the USA. Chinese firms are currently strongest in the area of small- and medium-sized turbines (T1) and moving into offshore (T2). Due to their experience and capability development, the response time of Chinese firms to technological windows of opportunity has reduced throughout the three technological shifts. For onshore technology the response time was almost two decades, for offshore one decade, and for hybrid/digital technological shift much shorter (see Table 6). Meanwhile, incumbent firms are still dominating the global market for large turbines while increasingly moving towards downstream integration and hybrid solutions. This is visible through their M&A activities, business priorities, product launches, and patents. Moreover, Chinese firms are catching up in size and capacity, making still larger and better turbines, also recently with offshore technology. Yet for wind turbines, one technology is not replacing another.

Our analysis shows that new windows of opportunity emerge along with technological shifts. New technologies, market opportunities, and institutional settings enable Chinese follower firms to catch up via a path-following or path-skipping strategy. The gap is narrowing since the current change in the technological frontier is less conditioned by cumulativeness and is not reliant on a knowledge base established throughout the industrial development (see Table 7).

Although institutional responses supported the catch-up of the industry, they also generated barriers that now prevent many Chinese firms from moving into path-creating catch-up. When existing institutional support for the national industry fades away, firms relying on support schemes rapidly lose their competitive advantages. Building national innovation capabilities is crucial for moving into a path-creating catch-up trajectory. The emerging technologies within energy integration are an illustrative example of this since it requires advanced technological capacity that cannot be acquired by international M&A alone. To respond to the green window of opportunity of sustainable energy integration, firms must be familiar with wind turbines, and additional technologies also need to be integrated, such as energy transmission, storage, distribution, and usage optimization. The incumbent companies have internalized these key technologies while externalizing turbine component technologies, which hint at a trend towards a widening of the technological regime through changes in the conditions. Further catch-up in market shares of onshore and offshore technologies is very likely as the incumbent firms are increasingly outsourcing parts of turbine production; however, catching up in digital/hybrid technologies will relate to the extent to which followers can gain new market shares internationally.

6. Conclusion: wind technologies and firm-level responses to green windows of opportunity

As green and techno-economic windows of opportunity emerge with the global policy focus on energy transformation, the wind turbine industry is undergoing massive change. Since the 1980s, the industry has evolved to become a core actor in addressing climate change by reducing global carbon emissions. In order to make wind a sustainable and reliable source of energy the industry has moved through three technological shifts: onshore, offshore, and digital/hybrid. Emerging market actors, predominantly from China, have entered the market since the 2000s and are today among the largest in the world for small- and medium-sized turbines.

Combined with the construction of an institutional framework forming the domestic market, the Chinese industry has experienced immense catch-up in market share. Chinese firms have moved into onshore and offshore technologies via path-following and path-skipping trajectories. They have established themselves as competitors in the global wind turbine industry mainly lowering the costs of turbines. However, their technological catch-up efforts vary widely. The incumbent firms are losing market positions in installed capacity because they are moving beyond the turbine into the new paradigm of energy systems integration, energy mix, storage, and digital solutions.

At the company level, the analysis identified different responses to technological windows of opportunity. Three different types of strategies were identified at the firm level. (i) Path-following firms succeeded in catching up with existing technology, allowing them to expand their market share in installed capacity but also to closely follow leaders’ efforts into technological change. These path-followers aim to integrate into the new technologies as part of their firm strategy but do not yet have the capacity to forge a path-creating strategy. (ii) Path-skipping firms are also successful because they keep narrowing the technology gap with incumbent sector leaders, which may lead to continuous market share increase. These firms also experienced market catch-up, as defined in the catch-up cycle framework. In the long term, path-following and path-skipping firms may risk becoming uncompetitive, leaving them trapped in the mid-segment market. (iii) Catch-up aborting firms failed due to their dependency on policy-driven domestic market demand. As they have not managed to build the technological capabilities needed for an enduring catch-up strategy, these firms experienced aborted catch-up cycles.

Although we found successful path-followers and path-skippers in the Chinese industry, this applied only to the domestic market. Their competitive capacity in the international market is quite different. Although in China, market share depends on prices, cost-out strategies, flexible design, quick response in service provision, integrating capacity suppliers, and quality, international market exploration requires technological capacity in large offshore wind turbines and high-quality manufacturing along with major investments in technological capacity for energy integration. Hence, these firms still lack the enabling factors needed to respond to green windows of opportunity through path-creating strategies that relate to the international market.

In conclusion, this article has two main implications. First, recent transformations in the global economy may change the factors underpinning the technological regime of a sector and open new green and technological windows of opportunity for latecomer firms. Especially if industrial innovation leads to sectoral widening, latecomer firms have the advantage of lower transaction costs as the technological frontier is shifting from one technology to another. The digital transformation and adaptation of technologies such as machine learning and AI is happening very quickly in China and latecomer firms seem to be more agile than incumbent firms in moving into completely new technologies. Second, we found that latecomer firms under the same framework conditions show different responses to technological transformation. Hence, catch-up (and catch-up failures) can only partly be attributed to the innovation ecosystem and institutional environment but strongly depend on the dynamic capabilities at firm level.

This article constitutes an empirical contribution to the catch-up literature connecting the ongoing and relevant discussions of (green) windows of opportunity and evolutionary sectoral change in an era of technological transformation (for sectoral comparison, see Lema et al., 2020). However, our findings open up for new research avenues into catch-up opportunities in times of technological change. First, as digitalization and hybridization are likely to have profound implications of catch-up and industrial leadership across industrial sectors, these implications need further exploration. The relationship between industry characteristics and implications of technological shifts calls for in-depth and comparative analyses. Second, in this article, we focused on latecomer firms’ responses within the same national framework conditions. China constitutes an extreme and unique case and to further develop the concepts and frameworks of technological regimes and catch-up cycles, it is relevant to systematically test our findings in cross-country analyses. Third, our article shows that the nature of technological change is fundamentally changing. As it becomes increasingly difficult to delineate sectors along conventional boundaries due to industry digitalization/hybridization, the existing literature on catching up and industrial leadership changes could benefit from conceptually integrating these changes.

Acknowledgment

We thank the guest editors and anonymous reviewers for their careful reading of our article and their insightful comments and suggestions. We gratefully acknowledge the financial support from the following sources: Sino-Danish Center for Education and Research (SDC) and the National Science Foundation of China (No. 71874098).

References

Appendix