This study asks how a firm’s market orientation influences its returns to R&D investment and its capability to benefit from external technology opportunities brought about by the globalization of manufacturing and innovation activities. We use a panel of firm-level data on production and R&D activities to study China’s semiconductor industry. Building upon an earlier qualitative study, we find supporting evidence that this dynamic industry sector is characterized by two segments with very different market orientation: a domestically focused one with lagged technology, and a globally focused one employing advanced technology. While the former comprised the bulk of revenue and employment in the industry in 1998, the latter segment has grown substantially faster, and has now overtaken the former. We hypothesize that these two segments will differ in their R&D productivity, and ability to absorb external R&D.
