Knowledge Coordination, Distributed Cognition and Transactional Innovation in Creating National Competitive Advantage: A Theory-Grounded Case Study of Chinese Drone Industry

We develop a theoretical framework based on the notion of transactional innovation as a driver of national competitive advantage, mediated via the entrepreneurial activities of firms. This builds on recent literature that highlights the ‘hyper-specialization’ of international trade networks, compared with the generic role of comparative advantage. We argue that transactional innovations involve the complex interplay of different forms of social and organizational capital, technology and social cognition. The latter phenomenon is essential in the case study on which we apply our theoretical framework, the Chinese drone industry, in which one single company emerged as the leader. Social cognition involves the accumulation of publicly accessible knowledge via digital media, and directly interacts with decentralized and modularized production structures in the Pearl River Delta. This enables the efficient exploitation of comparative advantage in a highly specific industrial niche with huge growth potential, combined with the development of specific skills.