Fostering innovation

1. Fostering innovation Carl J. Dahlman Georgetown University Columbia University COFAMA Program III September 15, 2011

2. Structure of Session • What is innovation? • What are the sources of innovation? • Role of Innovation • The Global Innovation system • National Innovation Systems • Supporting Innovators • Developing Clusters • Inclusive Innovation • Colombia’s Competitiveness in the World

3. 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.

4. 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.

5. Sources of Ideas for Innovation Source: Subramanian

6. Innovation

7. 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

8. 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.

9. 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

10. 4. The Global Innovation System

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

12. The R&D Input Landscape

13. 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

14. Total R&D and Percentages by MNCs & other Firms vs. Government and Others Soured: Baruzelski and Dehoff (2008)

15. Increasing Internationalization of Global Knowledge Flows - 1

16. Increasing Internationalization of Global Knowledge Flows - 2

17. 5. The National Innovation System

18. The Enabling Environment for Innovation: Policies, Institutions and Capabilities

19. Sources of Innovation and Use Map Modes of Acquisition or Transfer Purchase of: -capital goods & components, -technology licenses Copying and reverse engineering Outside technical assistance services Outside technical literature Education and training outside country Investments by established companies Immigration of persons with technology and skills People knowledge sharing networks Information technology enabled networks for sharing knowledge Modes of Transfer of Locally Created Knowledge Patents and Licensing Technology consultancy services Education and Training of students and managers Business incubator and spin-offs or creation new technology based firms Movement of persons from research institutes and universities into business and social sectors Information sharing networks Users of Knowledge Firms Agriculture Industry Services 1. Acquiring Knowledge from Abroad Government Administration and management Development planning and implementation 4. Disseminating Knowledge: Market Growth of more efficient firms Specialized suppliers Engineering and consulting firms Informal Networks People networks Informal technology enabled networks Specialized organizations Information Centers Productivity Centers Extension Organizations Technology Infrastructure Metrology Standards and Quality Control 2. Acquiring Knowledge from elsewhere in country Public Institutions Education system Health system Infrastructure service institutions Courts Security 3. Creating New Knowledge in Country: Public Research Institutes Universities and Training Institutes Firms Individuals Social organizations Ngos Communities Cooperatives People Key Enablers: Economic and Institutional Regime--Information and Communications Infrastructure-Education

20. 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.

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

22. Sources of Innovation Map for Developing Countries Modes of Acquisition or Transfer Purchase of: -capital goods & components, -technology licenses Copying and reverse engineering Outside technical assistance services Outside technical literature Education and training outside country Investments by established companies Immigration of persons with technology and skills People knowledge sharing networks Information technology enabled networks for sharing knowledge Modes of Transfer of Locally Created Knowledge Patents and Licensing Technology consultancy services Education and Training of students and managers Business incubator and spin-offs or creation new technology based firms Movement of persons from research institutes and universities into business and social sectors Information sharing networks Users of Knowledge Firms Agriculture Industry Services 1. Acquiring Knowledge from Abroad [$480 billion] Government Administration and management Development planning and implementation 4. Disseminating Knowledge: Market Growth of more efficient firms Specialized suppliers Engineering and consulting firms Informal Networks People networks Informal technology enabled networks Specialized organizations Information Centers Productivity Centers Extension Organizations Technology Infrastructure Metrology Standards and Quality Control 2. Acquiring Knowledge from elsewhere in country [?] Public Institutions Education system Health system Infrastructure service institutions Courts Security 3. Creating New Knowledge in Country: Public Research Institutes Universities and Training Institutes Firms Individuals [ $166 billion] Social organizations Ngos Communities Cooperatives People Key Enablers: Economic and Institutional Regime--Information and Communications Infrastructure-Education

23. 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

24. 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

25. 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

26. 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

27. Financing Cycle for New Technology Based Firms

28. 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

29. Rolf Hansen

30. . 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

31. Rolf Hansen

32. Rolf Hansen

33. 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

34. 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

35. 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

36. Gates Foundation Grand Challenges 1: Create Effective Single-Dose Vaccines that Can be used Soon After Birth 2: Prepare Vaccines that Do Not Require Refrigeration 3: Develop Needle-Free Delivery Systems for Vaccines 4: Devise Reliable Tests in Model Systems to Evaluate Live-attenuated Vaccines 5: Solve How to Design Antigens for Effective, Protective immunity 6: Learn Which Immunological Responses Provide Protective immunity 7: Develop a Genetic Strategy to Deplete or Incapacitate a Disease-transmitting Insect Population 8: Develop a Chemical Strategy to Deplete or Incapacitate a Disease-transmitting Insect Population 9: Create a Full Range of Optimal, Bioavailable Nutrients in a Single Staple Plant Species 10: Discover Drugs and Delivery Systems that Minimize the Likelihood of Drug ResistantMicro-organisms 11: Create Therapies that Can Cure Latent Infection 12: Create Immunological Methods that Can Cure Latent Infection 13: Develop Technologies that Permit Quantitative Assessment of Population Health 14: Develop Technologies that Allow Assessment of Individuals for Multiple Conditions.

37. Results through 2009 Se 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

38. 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.

39. 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

40. 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 • BhratiAir 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

41. 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

42. 9. WEF Ranking of Colombia’s Competitiveness WEF 2011

43. WEF Survey Results 2011

45. Thank You ! Carl J. Dahlman Georgetown University Email: carl.dahlman@gmail.com