China and India have one of the largest telecommunications equipment markets in the world. This paper employs the sectoral system of innovation framework for understanding the differential outcomes in innovation capability building in the industry achieved by China and India. The two countries have pursued widely diverging strategies for developing their domestic innovation capability. India followed a very rigid policy of indigenous development of domestic technologies by establishing a stand-alone public laboratory that developed state-of-the-art switching technologies. The public laboratory was not given any strategic direction, even though it was technologically speaking, very competent. Consequently, the country, despite possessing good quality human resources was unable to keep pace with changes in the technology frontier and the equipment industry has now become essentially dominated by affiliates of MNCs. China, on the contrary, first depended on MNCs for her technology needs in this area. But subsequently encouraged the emergence of three national champions, two of which are erstwhile public laboratories. The country has built up considerable hardware capability in both fixed line and mobile communications technology and has also emerged as a major player in world markets.
