KEF VII: KEF VII: Technology Absorption by Innovative Technology Absorption by Innovative

SMEsSMEs

Concluding Remarks Concluding Remarks

F. Montes-NegretF. Montes-NegretDirector, Private and Financial SectorDirector, Private and Financial Sector

Europe and Central Asia, The World BankEurope and Central Asia, The World BankJune 19, 2008, Ancona, ItalyJune 19, 2008, Ancona, Italy

AgendaAgenda• Globalization & Technology AbsorptionGlobalization & Technology Absorption• Technology Absorption ChannelsTechnology Absorption Channels• Clusters & Global Supply ChainsClusters & Global Supply Chains• Competitiveness & Human CapitalCompetitiveness & Human Capital• Responsive HEIs & IndustryResponsive HEIs & Industry• Regional InnovationRegional Innovation• PartnershipsPartnerships• Quality StandardsQuality Standards• Start-Ups & Spin-OffsStart-Ups & Spin-Offs

Technology diffusion in the developing Technology diffusion in the developing worldworld• Globalization has been a main driver of Globalization has been a main driver of

technological progress; technological progress;

• The technology gap between rich and poor The technology gap between rich and poor countries has narrowed -- but remains large;countries has narrowed -- but remains large;

• Progress in developing countries reflects the Progress in developing countries reflects the absorption of pre-existing technologies – not absorption of pre-existing technologies – not at-the-frontier inventions;at-the-frontier inventions;

• Technology diffusion across countries has Technology diffusion across countries has picked up, but diffusion within countries picked up, but diffusion within countries remains slow and penetration rates uneven; remains slow and penetration rates uneven;

• Persistent weakness in technological Persistent weakness in technological absorptive capacity may constrain further absorptive capacity may constrain further technological progress.technological progress.

Key features of a pro-technology policy Key features of a pro-technology policy

stancestance • No detailed roadmap for promoting technological No detailed roadmap for promoting technological

progress, but certain policy directions are indicated:progress, but certain policy directions are indicated:

– Maintain openness to trade, foreign direct investment and Maintain openness to trade, foreign direct investment and participation of diasporaparticipation of diaspora

– Further improve the investment climate so as to allow Further improve the investment climate so as to allow innovative firms to grow and flourishinnovative firms to grow and flourish

– Improve basic infrastructure (roads, electricity, telephony) Improve basic infrastructure (roads, electricity, telephony)

– Raise the quality and quantity of education throughout Raise the quality and quantity of education throughout economy not just major centerseconomy not just major centers

– Emphasize technology diffusion by reinforcing dissemination Emphasize technology diffusion by reinforcing dissemination systems and the market-orientation of R&D programssystems and the market-orientation of R&D programs

Technology progress is mainly about Technology progress is mainly about absorbing and adopting technologies absorbing and adopting technologies developed elsewheredeveloped elsewhere

Source: World Bank, Global Economic Prospects (2008)

Technology in the developing country

Exposure to foreign

technology

Capacity to absorb

=

+

Technological progress

In-country diffusion

Technological FlowsTechnological Flows• Unbundling of Productive ActivitiesUnbundling of Productive Activities

• Technology transfer strongly affected by North/ Technology transfer strongly affected by North/ South firm interaction;South firm interaction;

• Unbundling of production has created Unbundling of production has created extraordinary new opportunities for technology extraordinary new opportunities for technology diffusion; diffusion;

• Technological flows no longer unilateral;Technological flows no longer unilateral;

• Many countries or part of countries still excluded.Many countries or part of countries still excluded.

Policies for K AbsorptionPolicies for K Absorption

• Absorption depends on Local R&DAbsorption depends on Local R&D• China’s “Sea Turtles” Expatriates RoleChina’s “Sea Turtles” Expatriates Role• ECA: proximity to EU: ECA: proximity to EU:

→ → return migrationreturn migration→ → outsourcing outsourcing → → absorption absorption

• R&D reform →R&D collaborationR&D reform →R&D collaboration• R&D-driven FDI effectsR&D-driven FDI effects• Sequencing: R&D→ Sequencing: R&D→ deal flow→ seed→ VCdeal flow→ seed→ VC

Patents & Co-InventionPatents & Co-Invention

•Patents provide rich information on technological development, even in “follower” countries, and (some) patents can even provide direct measures of technology absorption;

•Patents can be quite useful in filling in the gaps in our knowledge surrounding technological development and technology absorption in ECA and other developing regions

•A large fraction of ECA patents are made up of multinational inventor teams: “international co-invention”;

•Much of it takes place under the auspices of Western multinationals

•Are ECA inventors increasingly participating in an international division of R&D labor?

Patenting TrendsPatenting Trends• The growth of ECA patenting is decelerating, even as The growth of ECA patenting is decelerating, even as

Chinese and Indian patenting acceleratesChinese and Indian patenting accelerates

• Indigenous ECA patenting continues to lag in quality, Indigenous ECA patenting continues to lag in quality, quantity, and connectedness to the global state of the quantity, and connectedness to the global state of the artart

• Multinational R&D in ECA raises the quality and Multinational R&D in ECA raises the quality and quantity of ECA patentingquantity of ECA patenting

• ECA inventors are participating in international ECA inventors are participating in international coinvention networks, a phenomenon worthy of coinvention networks, a phenomenon worthy of further studyfurther study

• Increasing (but few) international patentsIncreasing (but few) international patents

• Relative importance of Eastern & Central Asia for EU Relative importance of Eastern & Central Asia for EU core: decreasing; while role of Asia for EU core core: decreasing; while role of Asia for EU core countries is increasing.countries is increasing.

Clusters & Collective Clusters & Collective EfficiencyEfficiency

External economies

Joint actions

Collective Efficiency

Italian “Smallness Trap” Lessons for Italian “Smallness Trap” Lessons for emerging countries?emerging countries?

… … in particular, for countries emerging from in particular, for countries emerging from transition private SMEs are the necessary antidote to transition private SMEs are the necessary antidote to the old model of large and inefficient state-owned the old model of large and inefficient state-owned firms firms

As soon as the private sector has consolidated, and As soon as the private sector has consolidated, and the economy has reached a middle-income level of the economy has reached a middle-income level of development, how to stimulate the endogenous development, how to stimulate the endogenous dimensional growth of firms should become a policy dimensional growth of firms should become a policy prioritypriority

Otherwise, as the recent Italian experience shows, an Otherwise, as the recent Italian experience shows, an economy about to approach an advanced development economy about to approach an advanced development stage may enter a “smallness trap”stage may enter a “smallness trap”

Short & Medium term challenges for SME policy in Russia

•Differences in enabling environment across Russian regions and clusters is key challenge for national SME policy

• National SME policy should be more focused on stimulating and supporting regional SME policy

•Regional and local governments will play more important role in SME development

•Regional SME policy (short and medium term) can be focused on some important issues: infrastructure (i.e. industrial/suppliers park), availability of financial resources, regional innovation infrastructure and administrative barriers

KraussMaffei MessageKraussMaffei MessageHR Development should not be delegated:It has to be made a priority by top management

Improve top-down communication within organization

Listen to your own people and have a look at things from their perspective

Appraisal interviews are a chance to give orientation to both of employees and organization

Improve customer orientation of staff

Benchmark on all hierarchy levels (plant visits, common projects like quality, service, cost awareness, etc.) with other companies of the same size and with a similar structure; it is not mandatory to be in the same business

Integrated Talent ManagementIntegrated Talent Management

TalentTalentManagement through a Management through a competency frameworkcompetency framework

Recruiting

Learning

Performance Management

Succession Planning

Retention Compensation

Innovation-led Growth: Four Pathways Innovation-led Growth: Four Pathways (MIT)(MIT)

Indigenous creation of

new industry

Exogeneous creation

of new industry

Diversification of existing industry into

new

- Create entirely

new industry

- Import new

industry to the region

- Use the core technologies of an existing and declining

industry

Upgrading existing mature industry

- Enhance products,

services or production

technologies

From Core Values to Business From Core Values to Business CompetitivenessCompetitiveness

16

What we need to know & to do

How we develop our human capital Business

CompetitivenessPeople

Development

Knowledge Enhancement

Core Values

What we want to be

Le Marche Specific and Perhaps Exclusive Le Marche Specific and Perhaps Exclusive Features!Features!

• The cluster is mainly based on a The cluster is mainly based on a culturalcultural approach: approach:

- creativity and entrepreneurship are the ground - creativity and entrepreneurship are the ground skills for the spin-offskills for the spin-off

- imitation and emulation effects push newcomers- imitation and emulation effects push newcomers

- competition & cooperation allow for the - competition & cooperation allow for the distribution of production phases among many distribution of production phases among many firmsfirms

- traditional and non hi-tech industries involve low - traditional and non hi-tech industries involve low entrance barriersentrance barriers

- high specialization in each production step needs - high specialization in each production step needs a low plant costa low plant cost

Le Marche: Public-Private Partnership!Le Marche: Public-Private Partnership!• The cluster is an endogenous and self-governing The cluster is an endogenous and self-governing

phenomenon: the public role is rarely a decisive start-up phenomenon: the public role is rarely a decisive start-up factorfactor

• Nevertheless, the policy maker may offer strong support Nevertheless, the policy maker may offer strong support to strengthen the external economies (the core of a to strengthen the external economies (the core of a cluster!)cluster!)

• External economies change continuously: establishment External economies change continuously: establishment areas, basic services, worker availability and suitable areas, basic services, worker availability and suitable education, material and immaterial infrastructures, education, material and immaterial infrastructures, quality and environmental certification…quality and environmental certification…

• As the cluster grows, the governance becomes more and As the cluster grows, the governance becomes more and more relevant: in the Marche Region the “Technological more relevant: in the Marche Region the “Technological Center System” as well as the “District Council” are Center System” as well as the “District Council” are composed of local stakeholders (such as representatives composed of local stakeholders (such as representatives of Public Boards and social and economic actors)of Public Boards and social and economic actors)

Institutions & Infrastructure Institutions & Infrastructure for Global Quality Standardsfor Global Quality Standards

• Metrology, standards, testing and certificationMetrology, standards, testing and certification– help diffuse technology to SMEshelp diffuse technology to SMEs– provide the technical infrastructure for innovationprovide the technical infrastructure for innovation– increase trust between SMEs and their buyersincrease trust between SMEs and their buyers

• Quality, testing and certification service platforms can act as Quality, testing and certification service platforms can act as important facilitators of SME innovation in clustersimportant facilitators of SME innovation in clusters

• Public-private partnerships Public-private partnerships can play an important role in helpingcan play an important role in helping clusters clusters define the types of services that can help define the types of services that can help foster regional foster regional innovationinnovation

• BUT BUT metrology, standards, testing and certification metrology, standards, testing and certification CAN ALSO CAN ALSO HAMPER HAMPER technology absorption and innovation when technology absorption and innovation when imposedimposed on a on a top-downtop-down basis by the government basis by the government– by placing barriers to trade in technologyby placing barriers to trade in technology– by limiting “freedom to innovate”by limiting “freedom to innovate”

Business IncubatorsBusiness Incubators

Business incubators are a leading instrument used by European governments to facilitate technology transfer from public research organizationsCommercial risks pose a greater problem than technical risks when taking R&D results to market, not least because spin-offs are often founded by scientists with technical capacities but without business skills

Connecting the “dots”Connecting the “dots”• Complexity => No single path or model;Complexity => No single path or model;

• Key to facilitate enterprise entry and , critically, their Key to facilitate enterprise entry and , critically, their growth;growth;

• Multiple tools: Incubators, spin-offs, …Multiple tools: Incubators, spin-offs, …

• Innovation and Absorption Innovation and Absorption – COMPLIMENTARY NOT EXCLUSIVE PATHSCOMPLIMENTARY NOT EXCLUSIVE PATHS

• All industries must innovate in products and processesAll industries must innovate in products and processes– BRANDING & DESIGNBRANDING & DESIGN increasingly differentiating elementincreasingly differentiating element

• Core of Innovation and Sustained Enterprise Growth Core of Innovation and Sustained Enterprise Growth – CONTINUOUS & ADAPTIVE INVESTMENT IN TALENTCONTINUOUS & ADAPTIVE INVESTMENT IN TALENT

• MODERN HEIs MODERN HEIs embody entrepreneurial and embody entrepreneurial and technological leadership to serve Local SMEs technological leadership to serve Local SMEs (INCENTIVES) rooted in (INCENTIVES) rooted in 3Ts3Ts::– TALENT, TECHNOLOGY, TERRITORYTALENT, TECHNOLOGY, TERRITORY