2 July 2010 Suk Joon Kim (President of STEPI, Korea)

Astana Economic Forum 1,2 July 2010, ASTANA Technology Transfer Policy of Korea 2 July 2010Suk Joon Kim (President of STEPI, Korea)

Contents • Globalization and open innovation • Technology transfer as a source of innovation • Industrialization and S&T development of Korea • Technology transfer in Korea • Policy implications

Globalization and open innovation • R&D Globalization: a new keyword in technological innovation • Globalization of technological source • Localization of R&D with localization of production • R&D global network • Technological fusion and convergence • Needs for outsourcing technology, especially in high-tech area • Globalization of R&D plays a very important role in the strategies of multinational companies and it will certainly gain further momentum • Government policy to strengthen the globalization of R&D

Globalization and open innovation Open Innovation • Acquisition of external technology (licensing, corporate VC, M&A, collaborative research) • Externalization of R&D results (licensing, spin-offs) • Globalization to tap into world-wide talent pools Other Firms’ Market Technology Spin-off Internal Technology Base New Market Current Market External Technology Base Technology Insourcing R D

Technology Transfer as a source of innovation • What is ‘Technology Transfer’? • A process by which a body of technical knowledge, techniques, or tools is transferred from one place to another for use in a production or service environment from where it is generated to where it is used • Importance of Technology Transfer • Providing the means by which elements of the existing science-technology base can be more closely coupled to the innovation process in order to spur productivity growth • Offering the opportunity to obtain a greater return from past investment in R&D • Ability to stimulate and strengthen the innovation process

Technology Transfer as a source of innovation • Pros and Cons of International Technology Transfer

Indigenous R&D Learning & Diffusion Effects Imitation Licensing FDI Time Technology Transfer as a source of innovation • Learning and diffusion effects of TT • Short-term effects: Licensing, FDI > Imitation, Indigenous R&D • Long-term effects: Indigenous R&D, Imitation > Licensing, FDI

Technology Transfer as a source of innovation • Barriers in the International TT from DCs to LDCs • Investment Barrier • Application Barrier • Technology Adaptation Barrier • Technical Capability Barrier • Recent Factors Influencing the Environments on International Technology Transfer • Boomerang consideration • Shortening product life cycle • Reluctance to share results of scientific research • Intellectual property concerns

Accumulated Knowledge Government Economic Environments Technological Environments Org’l & social Environments Univ. GRIs TT between Institutions Firms Vertical TT Invention R&D Market [Innovation Process] Technology Transfer as a source of innovation • S&T Development System and TT

Technology Transfer as a source of innovation • Policy Directions for activating TT TT between Institutions Vertical TT • Cooperative R&D program • Personnel exchange • Technology networks • Active dissemination of information and output • Spin-off from GRI & Univ. • Program for supporting commercialization • Professional institutions & manpower for technology market • Technomart • Legal protection for intellectual property

Industrialization and S&T development of Korea • Acquisition of technologies for development : ’60s and ’70s • Development of light industries and heavy chemical industries for import substitution and export-expansion • Generated enormous demand for technologies that were not available from domestic sources • Policy responses • Promotion of inward transfer of technologies • Developing domestic absorptive capacity to digest, assimilate and improve upon the transferred technologies • DFI and FL played relatively less important role in TT in the process of industrialization of Korea. Korea relied on its HR for learning from foreign technologies transferred through informal channels.

Industrialization and S&T development of Korea • Korean economic growth into the 1980s • Increased demand for complex and sophisticated technologies • Increasing reluctance of foreign countries to transfer technologies to Korea • Policy response : Launching the NRDP and promoting private industrial R&D • NRDP in 1982 • Policy incentives for industrial R&D : financial, fiscal, tax, etc.

Industrialization and S&T development of Korea Chronology of Major S&T Policy Measures • Establishment of KIST (1966), MOST (1967) • S&T Promotion Act (1967) 1960’s • Establishment of GRIs in the field of chemical & heavy industries from mid-1970s • Construction of Daeduk Science Town (Started in 1974) 1970’s • Launching of the national R&D program (1982) • Promoting private firm’s research institutes by reforming financial & tax incentives to stimulate R&D investment 1980’s • Promotion of university research: SRC, ERC, etc. • Introduction of new types of nat’l R&D programs • - Highly Advanced Nat’l Program, The 21st Century Frontier R&D Program. • Establishment of inter-ministerial coordination body: NSTC 1990’s • Introduction of National Technology Road Map (NTRM) • - To suggest TRMs for key technologies to secure products/functions. • Introduction of overall coordination system • - Office of S&T Innovation in MOST was created in Oct. 2004 2000’s

Industrialization and S&T development of Korea • Key factors that influenced the innovation system of Korea • Outward-looking development strategy Pressure for R&D investment • Government policy toward FDI and TT Focus on indigenous R&D • Government-led industrial development • Industry-targeting Inter-industry R&D imbalance • Favoring large enterprises R&D system biased for large firms/Financial capability to invest in R&D • S&T for industrialization R&D system biased toward technology development • Rich pool of well educate HRST  High absorptive capacity • Government-led development of S&T infrastructure  Relative importance of GRIs

Technology Transfer in Korea • Technology Import Policy of Korea • Establishing a base for technology import and regulations (’62-’69) • Relaxing regulations for technology import (’70-’78) • Stepwise freeing technology import (’78-2000) • 1960’s : • “Act for importation of foreign capital (1962)” specified conditions and permission criteria of technology import • Priority for technologies in export-oriented industry, capital goods, large spin-off impacts • Rigid regulations for technology import : Royalty rates should be within 3% • It had worked to make the price of imported technology, but technology import itself was not activated

Technology Transfer in Korea • Technology Import Policy of Korea • 1970’s : • Larger needs for foreign advanced technology in right time -> government relaxed conditions and regulations for technology import • Government established GRIs to support selecting appropriate technology and assimilation & diffusion of imported technology (ex: KIST -> Consulting Center for Technology Import) • 1980’s - : • Government simplified approving processes of technology import more than 10 times after 1978, step by step • Excepting several strategic industries, such as aerospace, nuclear and defense, government allowed all technology import without approving process

Technology Transfer in Korea • Technology Import Policy of Korea • Technologies for strategic industries were imported form AC • 87% of imported technologies : machinery, metal, electric & electronics, refined petroleum and chemicals • Technology import had contributed to increasing plant & equipment investments, enlargement of production facility and industry developments • Turn-key based technology import in chemicals, fertilizer, cement, iron, paper making industries • Technology acquisition by importing capital goods -> machinery for production facility • Amount of capital goods import is 23 times larger than that of FDI and 70 times larger than that of licensing

Technology Transfer in Korea Technology Exports & Imports (Million US$, %) Tech. Exports Tech. Imports Tech. Balance Balance Ratio

Technology Transfer in Korea Technology Exports & Imports (Million US$, 2008)

Technology Transfer in Korea • TT Policy of Korea focusing on TT from public to private • GRI have been played active roles for transferring advanced technology to the industry from 1960’s. • From the 1980’s, National R&D Programs initiated cooperative research and development between GRI and industry. • Technology Transfer Program for SMEs • Technology transfer program to identify marketable technologies which had been on the shelves of GRIs, and to transfer them to SMEs • In 2000, Technology Transfer Act was announced to enhance technology transfer between public and private sector, and commercialization of R&D results.

Policy Implications • Lessons from Korean experiences • Market competition is the very source of motivation for innovation and technology outsourcing • Pressure for technological competitiveness in the market • Effectiveness of the outward-looking development strategy for small economies • Needs for advanced technology by technology transfer • Human resource is the key to technological innovation • “learning by doing” with imported technology • Government can play effectively the role of facilitator and promoter at the early stage of development • Supporting technology import in selecting best partner with reasonable prices

Policy Implications • Appropriate technology transfer policy is needed with economic development stages • Less developed stage : technology import with government regulations • Developing stage : technology import with accumulating indigenous R&D capability • Overcome barriers in the international TT from DCs to LDCs • Investment Barrier • Application Barrier • Technology Adaptation Barrier • Technical Capability Barrier

Policy Implications • Factors to be considered for technology import for developing countries • “Make-some-and-Buy-some” path • Impacts on economy : economic growth, local value-added • Impacts on S&T : innovation capability • Impacts on society : distribution of wealth and income • Dynamic TT rather than static TT

Thank you!

[Appendix] • Government S&T System of Korea President Presidential Advisory Council for S&T (PACST) National S&T Council (NSTC) Principal Secretary of Education and S&T for President Prime Minister Ministry of Strategic Planning and Finance Ministry of Knowledge Economy Ministry of Education and S&T Korea Research Council for Industrial S&T Korea Research Council for Fundamental S&T Other S&T related Ministries MOHW, MOE, MOCT, MOAF etc.

2 July 2010 Suk Joon Kim (President of STEPI, Korea)