Introduction

Given that economic growth is driven by firms in the private sector, what determines firm performance is an important issue in the study of economic catch-up. In the analysis of firm performance, our starting point is that firms in advanced countries and latecomer countries differ in many respects, including the level of capability and behavior. In Mathews (2002a), a latecomer firm is defined as a late entrant to an industry that is resource poor but has some initial competitive advantages, such as low cost. We take the second condition of being resource poor as one of the most distinguishing aspects of latecomer firms. We consider that the main task of firms in developing economies is not only to utilize existing resources efficiently but, more importantly, to acquire the resources they lack and improve the availability of these resources over time.

We can then reason that firms from latecomer or catching-up countries will pursue growth rather than short-run profitability, as compared with firms in advanced economies that are more pressured to pursue profits to be redistributed to shareholders. Although the growth versus profitability comparison is one of the basic characterizations of firms in the catching-up and advanced economies, other distinctive dimensions of firms in the catching-up context are available. This chapter explores such dimensions, focussing on the aspect of the knowledge bases of firms.