FOSTERING INNOVATION

Carl J. DahlmanGeorgetown University

Columbia University COFAMA Program IIISeptember 15, 2011

Structure of Session

1. What is innovation?

2. What are the sources of innovation?

3. Role of Innovation

4. The Global Innovation system

5. National Innovation Systems

6. Supporting Innovators

7. Developing Clusters

8. Inclusive Innovation

9. Colombia’s Competitiveness in the World

1. What is Innovation ?

• Innovation is not just:• a new product, process , design, • or form or organizing or delivering or using a product or

service that is new to the world

• But one that is new to • the country, the • sector or

• even the organization using it.

2. Sources of Innovation• While internal R&D may be an importance source, other

importance sources are:• contract R&D from government, university, or private labs• suppliers, • customers, • capital goods, and components• competitors,• technical literature, • Universities• accumulated experience• consultants, new hires, etc.

Sources of Ideas for Innovation

Source: Subramanian

Innovation

3. Role of Innovation

• Innovation plays critical role in helping to;• Improve competitiveness• growth, and• welfare

• Innovation is complex• Frontier innovation vs. local innovation• Involves multiple actors• Involves interaction between narrow innovation system and broader

economic and social context• Developing countries can dramatically improve their position by

acquiring existing knowledge• Much of it, especially for improving social welfare ,is in public domain• Lots of it can be acquired through formal modes• Some can also be acquired through informal copying and reverse

engineering• But they also have to develop own capability to acquire,

use, and create knowledge

Central Lesson of the Growth Report: “They fully exploited the world economy.”

Commission on Growth and Development. The Growth Report: Strategies for Sustained Growth and Inclusive Development. Washington DC: World Bank, 2008, p.22.

Innovation: Key Points and Implications

• Key points• There is very large and rapidly growing global stock of existing knowledge• 2/3rds of R&D is done by private sector• 2/3rds of R&D is done by five countries

• Implications for developing countries• Developing countries can get big bang from using knowledge that already

exists• Lots of it is in public domain• Much can by purchased or obtained through formal and informal means• Much can also be acquired by copying and reverse engineering• Enterprise surveys in developing countries find that main sources or

innovation are capital goods, or knowledge from clients or suppliers• Developing countries also need to invest in own capability to acquire,

use, and create knowledge• Need technological capability to know what knowledge to look for, access its

relevance to domestic context, adapt and improve it.• Need to do basic R&D in order to be part of global research networks and be

part of the “invisible college of science

4. The Global Innovation System

Gross Expenditures on R&D in PPP by Country and as Percentage of Global Expenditures 2010.

The R&D Input Landscape

Multinational Companies are the Key Global Innovation Agent

• They account for more than 60% of all R&D in world• Less of basic research• Most of the development and commercialization

• They account for 2/3rds of world trade• Half is intra firm trade between affiliates• Other half is with third parties

• They account for more than 27% of global value added• Underestimate because does not include backward and forward linkages• They control global supply and distribution chains• They are scouring globe seeking talent and markets, and competing based on

innovation, scale and speed.

• Therefore they are key agent that needs to be taken into account in developing effective knowledge strategies• They have become global corporations, losing allegiance to home countries

in pursuit of profits• Countries need to find productive way to engage with them to leverage their

technological capabilities• MNCs also need to be enlisted in efforts to provide innovations relevant for

the poor, as well as to address global public goods, particularly global warming

Total R&D and Percentages by MNCs & other Firms vs. Government and Others

Total $982 Percentage 100.0

Top 1000 MNCs 492.0 50.1

Next 1000 MNCs 36.3 3.7

Smaller MNCs and other companies

85.7 8.7

Government, non-profits, other

369.2 37.6

[Memo: top 20 MNCs] [$128.5] [13.1]

Soured: Baruzelski and Dehoff (2008)

Increasing Internationalization of Global Knowledge Flows - 1

Increasing Internationalization of Global Knowledge Flows - 2

5. The National Innovation System

The Enabling Environment for Innovation: Policies, Institutions and Capabilities

Sources of Innovation and Use Map

1. Acquiring Knowledge from Abroad

2. Acquiring Knowledge from elsewhere in country

3. Creating New Knowledge in Country:Public Research InstitutesUniversities and Training InstitutesFirmsIndividuals

4. Disseminating Knowledge:MarketGrowth of more efficient firmsSpecialized suppliersEngineering and consulting firms

Informal NetworksPeople networksInformal technology enabled networks

Specialized organizationsInformation CentersProductivity CentersExtension Organizations

Technology InfrastructureMetrologyStandards and Quality Control

Modes of Acquisition or Transfer

Purchase of: -capital goods & components,-technology licensesCopying and reverse engineeringOutside technical assistance servicesOutside technical literatureEducation and training outside countryInvestments by established companiesImmigration of persons with technology and skills People knowledge sharing networksInformation technology enabled networks for sharing knowledge

Modes of Transfer of Locally Created KnowledgePatents and LicensingTechnology consultancy servicesEducation and Training of students and managersBusiness incubator and spin-offs or creation new technology based firmsMovement of persons from research institutes and universities into business and social sectorsInformation sharing networks

FirmsAgricultureIndustryServices

GovernmentAdministration and managementDevelopment planning and implementation

Social organizationsNgosCommunitiesCooperatives

People

Public InstitutionsEducation systemHealth systemInfrastructure service institutionsCourtsSecurity

Users of Knowledge

Key Enablers: Economic and Institutional Regime--Information and Communications Infrastructure-Education

Copying and Reverse Engineering

• Basic Figures• Don’t have basic figures, but is arguably the most

important source of technological catch-up• Key Elements

• Requires exposure to global system (trade, FDI, foreign education, travel, etc.)

• Requires domestic technological capability to assimilate and may use of the global knowledge

• Has been the most important source of catch-up for rapidly growing economies, from US in the 1800s to Japan, Korea and Taiwan in the 1900s, and China and India now.

Acquiring Global Knowledge vs. Domestic R&D Effort by Developing Countries

Modes of Acquiring Global Knowledge

Estimated KnowledgeValue ( $US Billion)

Percent of total

Merchandise Imports 239 37%

Service Imports 43 7%

Foreign Direct Investment 60 9%

Technology Licensing 34 5%

Technical Assistance and Consulting 14 2%

Foreign Education and Training 22 3%

Copying and Reverse Engineering 68 11%

Subtotal for Acquiring Global Knowledge

480 74%

Total Domestic R&D 166 26%

Total 646 100%

Sources of Innovation Map for Developing Countries

1. Acquiring Knowledge from Abroad[$480 billion]

2. Acquiring Knowledge from elsewhere in country [?]

3. Creating New Knowledge in Country:Public Research InstitutesUniversities and Training InstitutesFirmsIndividuals

[ $166 billion]

4. Disseminating Knowledge:MarketGrowth of more efficient firmsSpecialized suppliersEngineering and consulting firms

Informal NetworksPeople networksInformal technology enabled networks

Specialized organizationsInformation CentersProductivity CentersExtension Organizations

Technology InfrastructureMetrologyStandards and Quality Control

Modes of Acquisition or Transfer

Purchase of: -capital goods & components,-technology licensesCopying and reverse engineeringOutside technical assistance servicesOutside technical literatureEducation and training outside countryInvestments by established companiesImmigration of persons with technology and skills People knowledge sharing networksInformation technology enabled networks for sharing knowledge

Modes of Transfer of Locally Created KnowledgePatents and LicensingTechnology consultancy servicesEducation and Training of students and managersBusiness incubator and spin-offs or creation new technology based firmsMovement of persons from research institutes and universities into business and social sectorsInformation sharing networks

FirmsAgricultureIndustryServices

GovernmentAdministration and managementDevelopment planning and implementation

Social organizationsNgosCommunitiesCooperatives

People

Public InstitutionsEducation systemHealth systemInfrastructure service institutionsCourtsSecurity

Users of Knowledge

Key Enablers: Economic and Institutional Regime--Information and Communications Infrastructure-Education

Demand Pull and Supply Push

• Demand Pull is critical• Without need to improve performance there is little effort• The overall economic and institutional regime is critical to create this

demand pull• Supply Push is also important

• Many areas of general public infrastructure support such as education and training, basic technological support infrastructure

• Targeted programs to focus on specific problems• Includes removing restrictions on accessing global knowledge or

establishment and expansion of new firms• Also need pressure and orientation to improve performance of

government• Transparency• Performance targets• Monitoring and accountability

Domestic Technological Absorption Capability

• Depends largely on• Entrepreneurship• Human capital

• Basic education• High level skills

• Also requires supporting institutional infrastructure• Standards and quality control• Engineering • R&D capability

• But also depends on economic regime forcing better performance• Competitive Pressure• Results driven and accountable government

6. Supporting Innovators• Provision of business services

• Basic industrial services (promotion, marketing, internationalization)

• Technology extension services• Metrology, standards and quality control • Innovation in organization and management• Information and communication services

• Examples of specialized service infrastructure:• Shanghai public R&D services platform• US Manufacturing Extension Service• Chile’s SERCOTEC

Support for small innovative firms• Netherlands knowledge vouchers• UK’s small business research initiative• U.S. small business innovation grants• Business incubators: many different types in various

countries• General purpose incubators• Economic development incubators• New technology based firms incubators

Financing Cycle for New Technology Based Firms

7. Building Clusters and Networks• There are many approaches to developing clusters and

networks• There has also been an evolution• Old model

• mainly government driven, top down• single cluster orientation

• New model• Regional collaborative process involving government, firm,

universities, other institutions• Regional level, multi-cluster approach

Rolf Hansen

. Working with Industry Associations• Working with industry associations to identify weak or missing

parts of value chain• Initial step it to do a competiveness analysis• Identify binding constrains• Identify how to address the constraint

• Developing action plans for who is to provide what• Industry association to provide shared services• Individual members or cluster• Municipal, local, or federal government and development agencies• Outside support institutions such as universities or other support

organizations• Foreign technical support

• Developing on ongoing system for continuous analysis and upgrading efforts

Rolf Hansen

Rolf Hansen

8. Inclusive Innovation• Is a term that is being used for explicitly developing innovations

that address the mundane needs of billions of people at the bottom of the income pyramid

• Globally there are:• 4.7 billion people (2/3rds of world population )living on less than $11

dollars a day --$3,945 a year.• 2.5 billion of them live on less than PPP $2.00 a day

• The needs of these people have not been the focus of the innovation system because their low incomes were not considered sufficiently attractive markets for the innovative efforts of firms.

• However firms are discovering that they present attractive markets and are beginning to innovate products and services for them.

• Governments and NGOS are also making explicit efforts to serve this population

•

Key Areas to Strengthen for Inclusive Innovation• Enhancing capacity to use available technologies

• Investing in education in general and in science and technology at all levels• Strengthening capacity for public and private organizations to deliver existing

technologies to people who need them• Changing incentive regime for researchers at universities, and public

research institutes to develop products and processes relevant for poor people• Promotion criteria• Rules regarding share of royalties and consulting income

• Providing incentives for the private sector to develop products and processes relevant for poor people

• Tax incentives, grants• Technological information and management assistance• Procurement specifications • Prizes• Venture capital and conventional finance

• Forging international technology partnerships to generate new technologies in underfunded areas:

• Agriculture--CGIAR• Environment—Clean Development Mechanism, Environment Research Centers• Public health- Gates Foundation

Gates Foundation as Example of Inclusive Innovation in Health

• Private Foundation: endowment of about $65 billion (with matching grant from Buffet),

• Main objective is enhance healthcare for poor in developing countries

• Four activities:• Discovery: vaccines, drugs, diagnostics (i.e. diarrhea, HIV/aids,

malaria, maternal and neonatal health, nutrition, pneumonia, polio, tuberculosis,

• Development: product development partnerships to develop affordable health interventions

• Delivery: partnerships to deliver underused vaccines and other health solutions, and country level demonstration projects

• Advocacy: to inspire sustained private and public financial commitments to global health and to create a more conducive environment for development and delivery. Includes developing innovative financing mechanisms such as use of bonds to raise capital for children's vaccines

Gates Foundation Grand Challenges

1: Create Effective Single-Dose Vaccines that Can be used Soon After Birth2: Prepare Vaccines that Do Not Require Refrigeration3: Develop Needle-Free Delivery Systems for Vaccines4: Devise Reliable Tests in Model Systems to Evaluate Live-attenuated Vaccines5: Solve How to Design Antigens for Effective, Protective immunity6: Learn Which Immunological Responses Provide Protective immunity7: Develop a Genetic Strategy to Deplete or Incapacitate a Disease-transmitting

Insect Population8: Develop a Chemical Strategy to Deplete or Incapacitate a Disease-transmitting

Insect Population9: Create a Full Range of Optimal, Bioavailable Nutrients in a Single Staple Plant

Species10: Discover Drugs and Delivery Systems that Minimize the Likelihood of

Drug Resistant Micro-organisms11: Create Therapies that Can Cure Latent Infection12: Create Immunological Methods that Can Cure Latent Infection13: Develop Technologies that Permit Quantitative Assessment of

Population Health14: Develop Technologies that Allow Assessment of Individuals for Multiple

Conditions.

Results through 2009Se up in in 2005 but already has several promising results• Global health grants of $13 billion• With GAVI Alliance: vaccines for 250 million children• With GAIN, fortified foods for 250 million people in 26 countries• With Global Fund, antiretroviral treatment for 2.5 million people,

tuberculosis treatment for 6 million people, 104 million insect treated bed nets for malaria

• Product development: supporting 68 new candidate vaccines, drugs, diagnostics and other health technologies. Some examples• Inexpensive cholera vaccine for Africa• Meningococcal meningitis vaccine for Africa• Vaccine against Japanese encephalitis• Compounds to control of mosquitoes carrying malaria or dengue

Examples of Inclusive Innovation from India• Health

• Hepatitis B vaccine costing $0.50 rather than $20 a dose• Psoriasis treatment costing $100 rather than $20,000• Aravind Hospital's cataract surgery for $30 rather than $3,000• An artificial foot for $33 rather than $10,000

• Services• Bharti Air Tel cell phone calls for 1cent per minute• India’s Emergency Management and Research’s system of rapid

response for mostly free medical response • Tata Consulting Service’s computer based literacy program

• Consumer goods• The Tata 4 passenger Nano car for U.S. $2,000 rather than $10,000• A single blade razor produced by Procter and Gamble for Indian

market not being produced for U.S.

Other Examples• Cemex Patrimonio Hoy housing program for low income

housing in Mexico• Grameen village phone program in Bangladesh• Bicycle powered rice sheller• Kickstart International’s (Kenya ngo)Money maker

irrigation pump foot powered pump• MITs

• Medikits• Spiral needle stove• Bicilavadora –pedal powered washing machine• Safe surgery sterilizer solar powered auto-enclave

Key Elements of Most of these Examples• Started by identifying need• Then worked backward to develop more effective way of addressing

that need• This sometimes required developing a new technology or product

• Nano car• Single blade razor• Hepatitis B vaccine and psoriasis treatment

• But many times it was a radically different and more effective way of delivering a service based on existing technology• Bhrati Air Tel• Emergency Response System• Cataract surgery• CEMEX’s Patrimonio Hoy

• And sometimes developing simple products based on available technologies• Jaipur foot• Spiral needle stove• Bicycle power maize sheller, and pedal powered washing machine . etc

Inclusive Innovation and the Millennium Development Goals

• Most of the millennium development goals can be met with existing knowledge

• Meeting them is largely a matter of political will, the allocation of resources, and the development of appropriate delivery mechanisms

• Developing new technologies will help, but is not central except perhaps to deal with some of the health goals

9. WEF Ranking of Colombia’s Competitiveness

WEF 2011

WEF Survey Results 2011

THANK YOU !Carl J. Dahlman

Georgetown University

Email: carl.dahlman@gmail.com