1 cluster approach for promoting innovation: comparison of finland and korea handong global...

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Cluster Approach for Promoting Cluster Approach for Promoting Innovation: Innovation:

Comparison of Finland and KoreaComparison of Finland and Korea

Handong Global University

Prof. Eul Yong Park

2003, October2003, October

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1.1. What is the cluster approach? What is the cluster approach? (1)(1)

For promoting innovation, close, formal and

informal, interactions and collaborations among

private sector firms, universities and research

institutions in a region are the key features. They

are forming a cluster.

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1.1. What is the cluster approach? What is the cluster approach? (2)(2)

The cluster approach also includes the

government policy to promote cluster formation

and its effective management to promote

innovation and regional development. Good

examples: Silicon valley in the US; Kista

Science Park in Sweden.

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2. Why cluster approach? 2. Why cluster approach? (1)(1)

Proven to be one of the most effective ways to

promote innovation and regional development.

Practiced in the US and Europe. In the last 10

years, successful clusters are developed in

Finland and Sweden.

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2. Why cluster approach?2. Why cluster approach?(2)(2)

Jong Guan chon in Beijing follows this approach

in building a cluster. Increasingly, innovative

regional clusters are formed around universities

with strong R&D capability.

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3.1 Why compare Finland and Korea?3.1 Why compare Finland and Korea? (1)(1)

FinlandFinland

(a) One of the few successful countries that transformed its traditional resources based economy into innovation driven economy in the last 10 years;

(b) World Economic Forum, IMD and OECD all rated Finland near the top positions in global competitiveness. This indicates strong growth potential in the future;

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3.1 Why compare Finland and Korea? 3.1 Why compare Finland and Korea? (2)(2)

FinlandFinland

(c) High-tech export share continuously grew from 6% in 1990 to over 20% in 2000;

(d) Nokia factor: In less than 10 years Nokia, a Finish mobile telephone equipment company, became a super multinational producer of mobile telephone with the global market share of 35% (2002). It is well known that Finnish national innovation system in which cluster approach played a key role is behind in this success experience.

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3.2 Why compare Finland and Korea? 3.2 Why compare Finland and Korea? (1) (1)

KoreaRelatively successful in transforming a traditional agricultural economy into a industrial sector driven economy in the last 4 decades. It suffered from the lack of close collaboration among key players in innovation system such as universities, private sector R&D centers, public research institutions and the state.

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3.2 Why compare Finland and Korea? (2)

KoreaIn short, innovation clusters are not well developed. Despite its large size of the tertiary education sector and relatively large inputs in R&D funding, the outputs are not rated high in quality and future growth potential as well as international competitiveness are often questioned.

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Growth Competitiveness Index Growth Competitiveness Index RankingsRankings

United States 1 2

Finland 2 1

Taiwan 3 7

Singapore 4 4

Sweden 5 9

Switzerland 6 15

Australia 7 5

Canada 8 3

Norway 9 6

Denmark 10 14

United Kingdom 11 12

Japan 13 21

Korea 21 23Sources: WEF 2002

20022002 20012001

11Source: Tekes 2002.

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Finnish Trade on High-Tech Products 1990-2000

(Source: Tekes 2002)

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The Share of High-Tech Exports 1988-2000

(Source: Tekes 2002)

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4. Changes in the Finnish National Innovation Changes in the Finnish National Innovation System and the Role of UniversitySystem and the Role of University

In the 1950s,1960s and 1970s universities generally followed the traditional view: a strong autonomy in university research and no collaboration with private sector firms. The state’s science and technology policies were clearly separated. Government promoted basic science in the university ignored technology. In the 1980s Finnish government began to change its science and technology policy:

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4.1 Changes in the Finnish National Innovation 4.1 Changes in the Finnish National Innovation System and the Role of University. System and the Role of University.

Emphasis on the development of strategic

technology and innovation as well as basic

sciences;

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4.2 Changes in the Finnish National Innovation 4.2 Changes in the Finnish National Innovation System and the Role of University. System and the Role of University.

Establishment of TEKES, National Technology

Agency, to use government R&D funding as the

key tool in achieving national goals: namely,

Development of innovation driven economy

through promoting firms R&D capabilities and

competitiveness;

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4.3 Changes in the Finnish National Innovation 4.3 Changes in the Finnish National Innovation System and the Role of University. System and the Role of University.

Promotion of regional science parks as the hub of

technology based regional clusters;

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4.4 Changes in the Finnish National Innovation 4.4 Changes in the Finnish National Innovation System and the Role of UniversitySystem and the Role of University

Decision to increase R&D funding steadily from

1.2% of GDP in 1982 to 2.2% by 1990;

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4.5 Changes in the Finnish National 4.5 Changes in the Finnish National Innovation System and the Role of Innovation System and the Role of

University. University.

New concept of “national innovation system

(NIS)” was formally adopted in the official

government policy discussion;

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4.6 Changes in the Finnish National Innovation 4.6 Changes in the Finnish National Innovation System and the Role of University.System and the Role of University.

A close collaboration among key participants of

the NIS, namely, universities, private sector

firms, and public research institutions was

emphasized. And more government funding was

provided to joint research projects;

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4.7 Changes in the Finnish National Innovation 4.7 Changes in the Finnish National Innovation System and the Role of University.System and the Role of University.

Cross-disciplinary projects and internal

collaboration in R&D was emphasized through

Tekes funding.

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Changes in Major Features of Finnish Innovation SystemFunding Mechanisms* Shift from line item budgeting to lump sum budgeting (universities)* Channeling funding increasingly through funding agencies*Emphasis on competitive/targeted/program-based funding*Multi-year budgetingDevelopment of research activities* Establishing post-graduate schools, advancing “professional research careers”* Creating Centers of Excellence system* Establishing research, technology and “cluster” programs* Promoting internationalization of research* Promoting networking and collaborationInstitutional Changes* Reinforcing the role of funding agencies and increasing co-ordination among them* Establishing transfer and support organizations (e.g. EU liaison offices, innovation centers)* Structural development/profiling of universitiesRegulation and guidelines* From detailed regulation to performance-based management* Evaluation of research and technology* Emphasis on intellectual property right (IPR)New Conceptualizations* E.g. “national innovation system”, ”centers of excellence”, ”accountability”

(Source: This table was adapted from: Nieminen, Mika. Universities and R&D networking in a knowledge-based economy. P34)

Changes in Major Features of Finnish Innovation System

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Major Players

of Finnish Innovation

System

(Source: Nieminen, Mika and Erkki Kaukonen. University and R&D Networking in a Knowledge-based Economy. P 37)

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Research and Development 2002RESEARCH AND DEVELOPMENT1, 2000

% of BERD2 performed in Researchers Higher Education Expenditure

High Tech Industry

Medium High Tech Industry

Mediumlow-tech and low-

tech Industry

Service industry

Full-time equivalent

Per 1000 total employment

% of GERD

% of GDP

Finland 53.9 18.2 12.9 11.7 26162 11.4 17.8 0.60

France 46.6a 27.0a 11.8a 8.9a 160424c 6.8c 16.7 0.36

Germany 30.4 55.6 7.7 5.4 259214 6.7 16.0 0.40

Japan 40.7 39.3 14.1 2.7 647572 9.7 14.5 0.43

Korea 48.0 22.9 10.7 13.3 108370c 52c 11.3d 0.30d

Sweden 49.1 29.1 7.1 12.8 39921c 9.6c 21.4c 0.81c

United States 40.1 20.9 6.0 31.2 1114100af 7.9af 13.6g 0.37g

EU-15 40.4a 34.4a 9.6a 11.2b 919313g 5.6c 20.9c 0.39c

OECD Total - - - - 3235631 6.6 17.1 0.38

(Source: OECD 2002

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Cumulative Expenditure on Educational Institutions Per Student Over the Average

Duration of Tertiary Studies (1999) Cumulative expenditure per student of

tertiary studies

Countries All tertiary Education

Tertiary-type B Education

Tertiary-type A and advanced research programm

es

Finland 50760 - 50760

Sweden 65529 - -

Germany 50511 13408 67367

France 36832 23410 40901

United Kingdom

33835 - -

Korea 18371 7232 27904

Country Mean

38668 - -(Source: OECD: Education at a Glance 2002)

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Total Public Expenditure On Education Total Public Expenditure On Education (1999) (1999)

Public Expenditure on Tertiary Education As a Percentage of GDP

Countries 1999

Finland 2.1

Sweden 2.1

Germany 1.1

France 1.1

United Kingdom 1.1

United States 1.4

Korea 0.6

Country Mean 1.2

(Source: OECD: Education at a Glance 2002)

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5.1 The Development of Korea’s 5.1 The Development of Korea’s University System. University System.

Rapid growth of Korea’s tertiary education

system in the last 4 decades. Currently, over

70 % of high school graduates attends

universities and colleges. The rapid increase in

quantity did not accompany with the rapid

development of quality of education.

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5.2 The Development of Korea’s 5.2 The Development of Korea’s University System. University System.

The quality of Korea’s tertiary education system was rated low compared with that of universities in advanced countries due to the following factors: Factors explaining low quality of Korea’s tertiary education system;

a. Government funding was inadequate for along time. Public expenditure on tertiary education as a percent of GDP is well below OECD average. (OECD Average: 1.2%; Korea: 0.6%; Finland: 2.1%).

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5.2 The Development of Korea’s 5.2 The Development of Korea’s University System. University System.

b. The government very reluctant in funding private universities’ education and research in Korea where 2/3 of the total universities are private ones.

c. Korean university system and culture did not allow

competition and incentive rewarding system to professors and staffs.

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5.3 The Development of Korea’s 5.3 The Development of Korea’s University System. University System.

Management of government’s R&D funding to

universities were very inefficient: Many

ministries provided funding without adequate

coordination and close monitoring and feedback.

As a result, the output was very poor.

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5.4 The Development of Korea’s 5.4 The Development of Korea’s University System. University System.

Low quality of Korea’s university education and

research had negative impact in development of

innovative regional clusters.

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5.5 The Development of Korea’s 5.5 The Development of Korea’s University System. University System.

Recent changes in the Korean university system:

a. Great emphasis on close collaboration between universities and private sector firms, especially venture start- ups.

b. Gradual adoption of competition and incentive system in appointment and promotion of professors and staffs.

c. More objective project evaluation, monitoring and feedback of projects.

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6.1 Finnish Cluster Approach:6.1 Finnish Cluster Approach:

The cluster approach was adopted as a key

concept of Finnish national innovation system in

the early 1990s, focusing on close collaboration

among universities, private sector firms and

public research institutions.

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6.2 Finnish Cluster Approach:6.2 Finnish Cluster Approach:

Promotion of regional science and technology

parks as a hub of the clusters. Otaniemi near

Helsinki, Tampere. Oulu regions developed such

parks around quality universities in the region.

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6.3 Finnish Cluster Approach:6.3 Finnish Cluster Approach:

By concentrating on global strategic industry,

such as mobile telecom industry and technology,

these parks were also able to attract foreign

companies and research centers.

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6.4 Finnish Cluster Approach:6.4 Finnish Cluster Approach:

The state, regional government as well as

regional universities played a vision provider in

developing cluster approach. Large firms, such

as Nokia and Technopolis provided the key role

as a system organizer providing formal and

informal networks and forums to firms and

university staffs.

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Finland’s Finland’s RegionalRegionalClustersClusters

Source: IT Cluster in Finland

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7.1 Korea’s Cluster Approach

Korea was late in adopting regional cluster approach in promoting innovation and industrial competitiveness. The main reasons were:

a. Low quality of university education and research, especially those located in the region;

b. Both universities and private sector firms did not find good reasons why they should work closely together.

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7.2 Korea’s Cluster Approach7.2 Korea’s Cluster Approach

Growing global competition and changing

government policy to do the benchmarking of

advanced countries has led the adoption of

cluster approach. Potential good clusters:

Daeduk, Daegu and Busan, and some regions in

Gyunggi province.

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7.3 The Case of Daeduk 7.3 The Case of Daeduk

a. Established as a Daeduk Science Park in 1973 as research town, benchmarking Tsukuba Science Park in Japan.

b. Currently, 4 universities, 28 Government research institutions, 27 private sector research centers, 44 venture start-ups are located in the park. Although the government was able to influence those institutions to locate physically in the region, they were not yet formed an effective cluster.

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7.3 The Case of Daeduk7.3 The Case of Daeduk

c. Main weaknesses are: First, the government policy to promote the formation of cluster and innovation were fragmented and not well coordinated;

Second, university research capabilities and projects are not yet attractive enough for promoting close collaboration with private sectors firms.

Third, They are weak in attracting foreign firms, R&D centers and educational institutions.

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7.4 Needed New Policy 7.4 Needed New Policy

a. Strengthening university R&D capabilities through efficient evaluation of research projects, requiring close collaboration with private sector firms and close monitoring of research process;

b. Attracting foreign investment including foreign educational institutions and R&D centers.

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Present Occupants in DaeDuk Science Research Park

GRI Private Sector

RI

Universi-ties

Govern-ment

Branch Offices

Park Support

Venture Start-

Up

Total

Number (Org.)

28 27 4 9 4 44 116

Number (People)

8925 3297 2319 422 37 899 15899

(Source: Seri (2002), Study of Dae-Duk Science Park)

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R&D Indicators of Dae-Jun (Dae-Duk) City

GRI Universities Private Sector

Total

R&D Investment

(One Billion Won)

Dae-Jun City

1065.34 130.12 783.39 1978.85

(52.4) (8.3) (7.6) (14.3)

National 2031.98 1561.87 10254.66 13848.50

R&D Human-Resource

(Number of People)

Dae-Jun City

7610 7928 6452 21990

(35.3) (7.9) (5.6) (9.3)

National 21563 100643 115026 237232

R&D Organization

(Number)

Dae-Jun City

22 24 210 256

(9.7) (6.5) (4.5) (4.9)

National 228 368 4631 5227

(Source: Seri (2002), Study of Dae-Duk Science Park)

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8.1 Changes in Finnish R&D Funding 8.1 Changes in Finnish R&D Funding System and the Role of TEKES System and the Role of TEKES

Tekes, National Technology Agency, was established in

1983 as a key government R&D funding agency to

implement government science and technology policy.

As R&D funding was to increase from 1.2% of GDP to

2.2% in 1990 and 3.0 in 2000 (actual figure was 3.5%

of GDP in 2001), Government R&D funding can play a

key role in achieving the policy objectives.

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8.2 Changes in Finnish R&D Funding 8.2 Changes in Finnish R&D Funding System and the Role of TEKES System and the Role of TEKES

The government policy objective was to increase

competitiveness of Finnish industries by: first,

inducing private sector firms to increase R&D

capabilities; second, by inducing close R&D

collaboration between universities, government

research institutions and private sector firms,

especially SMEs and large firms.

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8.3 Changes in Finnish R&D Funding 8.3 Changes in Finnish R&D Funding System and the Role of TEKES (1)System and the Role of TEKES (1)

Tekes developed and adopted strategic funding

mechanism to achieve its policy goals.

First, Tekes funding was restricted to 25-50% of

the total funding required, so that stakeholders

also use their own fund in the project;

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8.3 Changes in Finnish R&D Funding 8.3 Changes in Finnish R&D Funding System and the Role of TEKES (2)System and the Role of TEKES (2)

Second, Tekes funding was restricted to the joinprojects with universities, private sector firms and government research institutions.

The collaboration was also extended more formally to appoint the researchers from GRIs and private sector research centers as adjunct professors in the university system.

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8.4 Changes in Finnish R&D Funding 8.4 Changes in Finnish R&D Funding System and the Role of TEKESSystem and the Role of TEKES

Tekes’ performance was evaluated periodically

by international body of experts.

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Research and Development Expenditure in Some OECD

Countries 1985-2000

Source: OECD and Research and Development in Industry. OECD 2001

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Development of research funding 2000 – 2003

20002000 20012001 20022002 20032003

Public funding,Public funding,Billion EURBillion EUR

1.281.28 1.341.34 1.391.39 1.441.44

Public funding,Public funding,% x GDP% x GDP

1.031.03 1.041.04 1.041.04 1.041.04

R&D funding, R&D funding, total,total,

Billion EURBillion EUR

4.004.00 4.294.29 4.564.56 4.814.81

R&D funding, R&D funding, total,total,

% x GDP% x GDP

3.23.2 3.33.3 3.43.4 3.53.5

(Source: Science and Technology Policy Council of Finland, “Review 2000: The Challenge of Knowledge and Know-how”, 2000

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Tekes funding for industrial R&D in 2000 by size of company

(Source: Tekes 2002)

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Total Tekes R&D Funding in 2000

(Source: Tekes 2002)

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Impact of Tekes Activities

(Source: Tekes 2002)

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9. Weakness of Korea’s R&D 9. Weakness of Korea’s R&D Funding System Funding System

Korea’s R&D funding inputs are substantial

(2.8% of Korea’s GDP), but the output is meager.

Why?

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9.1 Weakness of Korea’s R&D 9.1 Weakness of Korea’s R&D Funding System Funding System

University R&D capabilities except a few

outstanding universities are weak due to the long

term neglect of developing university R&D

capabilities, graduate school education and

research funding;

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9.2 Weakness of Korea’s R&D 9.2 Weakness of Korea’s R&D Funding System Funding System

Administration of the government R&D funding and management process, from the selection of project to the monitoring and feedback of the research projectsneed to improve its effectiveness and efficiency.

Compared to Finnish national innovation system and the

role of Tekes as key funding agency, Korean government did not have strategic goals in R&Dfunding and hence limited output.

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10.1 Concluding Remarks 10.1 Concluding Remarks

Finland: Despite its fine performance of its

economy, Finland needs to further improve R&D

policy and cluster approach to stay competitive

in the world market

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10.1.1 Concluding Remarks 10.1.1 Concluding Remarks

They must attract excellent human resources, namely students, researchers and engineers and foreign firms from abroad, so that the existing clusters would become a globally competitive ones through extensive competition and collaboration with foreign firms in the Finnish clusters.

Government needs to change its tax system, and other incentive system to attract foreign inputs, human, resources and FDIs including R&D centers.

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10.2.2 Concluding Remarks 10.2.2 Concluding Remarks

Finland also needs to see beyond EU, that has

already become its domestic market, as their next

market to enter, including Asia and other emerging

markets, so that growing demand from the emerging

market will strengthen its economy, especially those

products from the Finnish R&D

clusters.

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10.2.3 Concluding Remarks 10.2.3 Concluding Remarks

Korea must change its social and economic

system, so that foreign firms, R&D centers and

educational institutions find Korea as an

attractive place to move in and stay. They will be

good participants in the making of a competitive

R&D cluster in Korea.

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10.2.4 Concluding Remarks 10.2.4 Concluding Remarks

Korea must change its tax system, so that more

close collaboration between universities and

private sector firms can earn tax credits.