Challenges & Opportunities for Research Institutions in the

Minerals Industry

Sarah VandermarkPhD Candidate – Australia Asia Management Centre, ANUDirector – SciWorks Pty Ltd

The current environment —its impact upon research institutions

• Globalisation

• The knowledge economy

• National systems of innovation

• Trends in innovation in the Australian

minerals industry

Globalisation & innovative activities

The creation, use and scale of technology is a major reason why firms are globalising

• Global exploitation of technology• Global technological collaboration• Global generation of technology

Minerals industry readily embraces commercially proven new technology. More technologically adept firms can

squeeze enhanced performance.

Corporate perspective - conceived as the search for competitive advantage across national boarders

The knowledge Economy

Countries with greater inflows and outflows of technological knowledge are able to exploit them for economic development and welfare

Features of the knowledge economy –

• Importance of ‘intangible capital’ as demonstrated by market-to-book values of IT companies

• Increasing ‘knowledge intensity’ of developed economies

• In OECD economies investment in knowledge has grown more rapidly than GDP since the mid 1980s

Contemporary industry and society are often described as being ‘knowledge-based’

Traditional view New view

Domestic Global

Capital-intensive Knowledge-intensive

Low-innovation High-innovation

Large-firm dominated Dynamic industrial structure

National Systems of Innovation

Australia’s NSI is fragile and resource based. The minerals industry is a fundamental component of Australia’s NSI – historically and for the future.

• Minerals system of innovation – Dynamic Minerals Innovation Complex

• Increasingly globalised activities within the DMIC, ie links with international research providers and international companies active in the Australian based DMIC

Nations have different capacities to encourage innovation, reflected in the behaviour of their firms, the institutions that foster

innovation and the policies of government.

MajorMining

Companies

DedicatedExplorationCompanies

Universities

CRCs

CSIRO

ServiceProviders

EquipmentSuppliers &contractors

GovernmentBureaux &Agencies

From vertical integration to ‘the dynamicminerals innovation complex’

Source: Vandermark SE, PhD Thesis, forthcomingNB: This is a schematic diagram, the size of ellipses and number of linkages are not indicative of importance

MajorMining

Companies

DedicatedExplorationCompanies

Universities

CRCs

CSIRO

ServiceProviders

EquipmentSuppliers &contractors

GovernmentBureaux &Agencies

AMIRAInternational research institutions

Source: ibidNB: This is a schematic diagram, the size of ellipses and number of linkages are not indicative of importance

Challenges and Opportunities

• Changes in corporate technology strategy • Increased competition among research institutions

• Role of the multinational company – growth in strategic technological alliances

• Centres of technological competence – Australia and minerals system of innovation

The persistent shortening of the product, innovation and technology life-cycles forecasts an intensification of competition between the leading world centres, and an increase in the speed at which the possible rise and fall of a centre may occur. If this is disregarded, industrial or regional centres of competence could become centres of core rigidities. This happened, for instance, under different premises in the past in the old steel and coal regions.

Source: EC 1998:XVI

Globalisation and changes in strategy

Source: Kjar,T. (1997) AMIRA Technical Conference, Adelaide.

Increased emphasis on shareholder value

Increase in mergers/acquisitions to avoid the cost, risk and research associated with capital development and exploration

More resources allocated to fewer projects in the aim to find superior ore bodies while reducing costs

Belief that competitive advantage is gained from 1-1 projects with research providers, without consideration for application, technological transfer and sustained innovation

Senior executives are tied to performance, which works against projects that don’t deliver an immediate return

• budget cuts• decentralisation• declining exploration expenditures • managing innovation

Changing technology strategy

• technology leader to follower• outsourcing• incrementalism• collaborative R&D

Changing R&D organisation

Increased competition

• Firms & public institutions find it difficult to justify the financing of R&D and related activities

• International trend towards increased competition among research providers and institutions

• Short sighted approaches – stronger application orientation and corresponding reduction in long-term orientation

• In corporations led to weakening of internal research capacity and increasing ‘divisionalisation’

Fiscal consolidation –public and private arenas are coming up against the limits of ‘finaceability’ of R&D.

Strategic technology alliances

• Interregional alliances between the US-Europe grew from 221 to 457 from 1990-1994

• Alliances are most prolific in the dynamic technology fields – biotechnology, new materials and information technology

• A recent study found that some companies with a high R&D intensity, above 10% sales, conduct over 50% of their total R&D overseas

Since the 1980s the number of new strategic technology alliances have increased dramatically

Source: F. Meyer-Krahmer & G. Reger (1999) in Research Policy 28 p751-776.

Major companies locating R&D according to qualitative motives not theoretical production costs:

• technological excellence, strong education systems and availability of technological skills

• advanced markets• close and dynamic interactions in the value chain and

between research providers and firms

Major companies locating R&D according to qualitative motives not theoretical production costs:

• technological excellence, strong education systems and availability of technological skills

• advanced markets• close and dynamic interactions in the value chain and

between research providers and firms

Centres of technological competence

Research providers and international enterprises are increasingly gaining their competitive advantages from a close link between

basic and applied knowledge

‘Regions with a larger base of technological know-how or excellence in research will

obviously be more interesting for firms searching for partners.’

F. Meyer-Krahmer & G. Reger (1999) in Research Policy 28 p751-776.

• Evidence of increasing strategic alliances in the industry

—Global Mining Initiative, INAP —e-procurement—international professional associations etc

• Industry involvement in knowledge intensive fields—biotechnology —IT—computational simulation & modeling eg CFD

• Excellent minerals system of innovation supported by networks and collaborative research

Australia – a minerals-related Centre of Technological Competence

Is it possible to translate Australia’s minerals innovation system into an international Centre of Technological Competence?

Survey of businesses that had undertaken technological innovation in past 3 years

Minerals 42%

Manufacturing 26%

Australian minerals firms are comparatively innovative

Source: ABS Survey, 1999

Company Industry sector R&D

1 BHP Mining $310m

2 Telstra Telecommunications $225m

3 Rio Tinto Mining $106m

4 Ericsson Australia Telecommunications $90m

5 Alcatel Australia Telecommunications $86m

6 Amcor Limited Wood & Paper ProductManufacturing

$65m

7 WMC Limited Mining $55m

8 CSR Limited Construction & ConstructionTrade Services

$42m

9 Orica Australia Petroleum, Coal, Chemical &Assoc Products

$40m

10 ERG Telecommunications $36

Top ten investors in Australian industrial R&D 1996-97

Source: IR&D Board (1998), R&D Scoreboard 98 Business Expenditure on R&D

Rank and CompanyR&D($m)

A$Turn-over

Staff%

R&D toturnover

R&Dper

employee

1 BHP 310 14 b 40,000 2.21 $7,750

3 Rio Tinto 106 9 b 31,876 1.17 $3,336

7 WMC Ltd 55 2 b 3,860 2.52 $14,210

19 Normandy Gp 23 1.3 b 3,000 1.74 $7,751

20 Pasminco Ltd Gp 22 1 b 3,222 2.14 $6,954

28 North Limited 18 946 m 3,300 1.9 $5,443

68 Aberfoyle Resources Ltd 5 158 m 349 3.15 $14,327

95 World Geosciences Corp 2.8 21 m 175 12.92 $15,949

107 Qld AluminaLtd 2.2 474 m 1,056 0.47 $2,106

108 Ticor Limited 2.2 238 m 598 0.93 $3,696

Top ten minerals companies’ expenditure on R&D 1996-1997

Source: IR&D Board (1998), R&D Scoreboard 98 Business Expenditure on R&D

.

0

200

400

600

800

1000

Ag

ric

ult

ure

, F

ore

str

y &

Fis

hin

g

Min

ing

Fo

od

, B

ev

era

ge

& T

ob

ac

co

Mfg

TC

F &

Le

ath

er

Mfg

Wo

od

& P

ap

er

Pro

du

ct

Mfg

Pri

nti

ng

, P

ub

lis

hin

g &

Re

co

rde

d M

ed

ia

Pe

tro

leu

m,

Co

al

& A

ss

oc

Pro

d.

Mfg

No

n M

eta

llic

Min

era

l P

rod

uc

t M

fg

Me

tal

Pro

du

ct

Mfg

Ma

ch

ine

ry &

Eq

uip

me

nt

Mfg

Oth

er

Mfg

Ele

ctr

icit

y, G

as

& W

ate

r U

tili

tie

s

Co

ns

tru

cti

on

Wh

ole

sa

le &

Re

tail

Tra

de

Ac

co

mm

od

ati

on

, C

afe

s &

Re

sta

ura

nts

Tra

ns

po

rt &

Sto

rag

e

Co

mm

un

ica

tio

ns

, F

ina

nc

e &

In

su

ran

ce

Pro

pe

rty,

Bu

sin

es

s &

Co

mp

. S

erv

ice

s

Go

vt.

Se

rvic

es

Oth

er

Se

rvic

es

1995/961996/971997/98

Expe

nditu

re (

$M)

Industry Sectors

R&D claimed under the tax concessionby industry sector

Source: Matthews and Howard 2000

Company

R&D spend

1998($US b)

R&D

% sales

Patentsgranted1998

Degussa 0.313 3.64 68

NKK 0.206 1.27 44

Usinor 0.193 1.50 12

Kobe Steel 0.134 1.05 7

ALCOA 0.128 0.84 57

BHP 0.119 0.85 4

Merck(pharmaceuticals)

2.86 10.6 344

DuPont(life sciences)

2.751 11.00 395

Microsoft(software)

2.502 17.27 342

IBM(hardware)

4.466 5.47 2674

Comparison of R&D expenditure for minerals companies with companies from other industries

Source: Bowonder et al (2000) R&D spending patterns of global firms Research – Technology Management, September–October

Minerals companies have comparatively low levels of investment in

R&D

R&D %salesCompany 1999 1998 1997 1996 1995Alcoa 0.8 0.8 1.1 1.3 1.1BHP 1.0 0.7 0.9 1.0 –Billiton 1.1 1.1 1.6 2.0 _INCO 1.0 1.0 1.2 0.9 0.8

Noranda 0.6 0.8 – – _

Source: public domain figures not validated by companies

Trends in R&D expenditure for a selection of multinational minerals companies – 5 years

Rethinking technology strategy

• Noranda– sees technology and innovation strategy as the primary vehicle by which

to obtain long-term, sustainable competitive advantage– increased customer base through the provision of quality products &

services

• INCO– Inco ’s technological edge identified as a major competitive advantage

– special interest in innovative nickel products that sell at higher premiums

• Billiton– developed & commercialised bioleaching technology, BIOX™ – leverage bioleaching expertise for access to new deposits eg Codelco of

Chile to establish Alliance Copper Limited, a 50/50 joint venture biotechnology company

Some companies are developing sophisticated technology strategies

Strategic alliances, technology strategy & AMIRA

• Global context– globalisation, knowledge economy, NSI, trends in

industry innovation

• Core competence– Need to identify core competencies and how they sit

within the global context

• Tools– The Complex Product and Systems (CoPS) approach

(Hobday 1998) – AMIRA’s role as a ‘systems integrator’

When developing a technology strategy it is important to identify a position in global context and core competencies

The minerals industry has substantial innovative capacity and can grow innovative, knowledge-based industries

Opportunity• Australian can become the ‘centre of technological

competence’ in the industry– enhanced strategic technological alliances on a global scale

Challenge• ensure Australian minerals research institutions are

attractive and valued partners for strategic technology alliances

• potential role for AMIRA as ‘systems integrator’

ConclusionsConclusions

The following references were the most useful when preparing this presentataion:

• Vandermark SE, The Challenges and Opportunities for Innovation in the Australian Minerals Industry, PhD Thesis, forthcoming

• Dodgson & Vandermark (2000), Innovation and Globalization in the Australian Minerals Industry, The Australian National University

• Dodgson (2000), The Management of Technological Innovation:An international and strategic approach, Oxford University Press

• Meyer-Krahmer & Reger (1999), in Research Policy 28 p751-776

Potential role for AMIRA as ‘systems integrator’ sourced from Complex Product Systems (CoPS) literature:• Hobday (1998), in Research Policy 26 p689-710 with an extended version of

this paper available from the web (CoPS Publication No52)• The Centre for Complex Product Systems (CoPS)

http://www.susx.ac.uk/spru/cops/welcome.html

ReferencesReferences