KEF VII: Technology Absorption by Innovative SMEs Concluding Remarks

1. KEF VII: Technology Absorption by Innovative SMEs Concluding Remarks F. Montes-Negret Director, Private and Financial Sector Europe and Central Asia, The World Bank June 19, 2008, Ancona, Italy

2. Agenda • Globalization & Technology Absorption • Technology Absorption Channels • Clusters & Global Supply Chains • Competitiveness & Human Capital • Responsive HEIs & Industry • Regional Innovation • Partnerships • Quality Standards • Start-Ups & Spin-Offs

3. Technology diffusion in the developing world • Globalization has been a main driver of technological progress; • The technology gap between rich and poor countries has narrowed -- but remains large; • Progress in developing countries reflects the absorption of pre-existing technologies – not at-the-frontier inventions; • Technology diffusion across countries has picked up, but diffusion within countries remains slow and penetration rates uneven; • Persistent weakness in technological absorptive capacity may constrain further technological progress.

4. Key features of a pro-technology policy stance • No detailed roadmap for promoting technological progress, but certain policy directions are indicated: • Maintain openness to trade, foreign direct investment and participation of diaspora • Further improve the investment climate so as to allow innovative firms to grow and flourish • Improve basic infrastructure (roads, electricity, telephony) • Raise the quality and quantity of education throughout economy not just major centers • Emphasize technology diffusion by reinforcing dissemination systems and the market-orientation of R&D programs

5. Technology progress is mainly about absorbing and adopting technologies developed elsewhere Exposure to foreign technology + Capacity to absorb = Technological progress Technology in the developing country In-country diffusion Source: World Bank, Global Economic Prospects (2008)

6. Technological Flows • Unbundling of Productive Activities • Technology transfer strongly affected by North/ South firm interaction; • Unbundling of production has created extraordinary new opportunities for technology diffusion; • Technological flows no longer unilateral; • Many countries or part of countries still excluded.

7. Policies for K Absorption • Absorption depends on Local R&D • China’s “Sea Turtles” Expatriates Role • ECA: proximity to EU: → return migration → outsourcing → absorption • R&D reform →R&D collaboration • R&D-driven FDI effects • Sequencing: R&D→ deal flow→ seed→ VC

8. Patents & 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?

9. Patenting Trends • The growth of ECA patenting is decelerating, even as Chinese and Indian patenting accelerates • Indigenous ECA patenting continues to lag in quality, quantity, and connectedness to the global state of the art • Multinational R&D in ECA raises the quality and quantity of ECA patenting • ECA inventors are participating in international coinvention networks, a phenomenon worthy of further study • Increasing (but few) international patents • Relative importance of Eastern & Central Asia for EU core: decreasing; while role of Asia for EU core countries is increasing.

10. Clusters & Collective Efficiency External economies Joint actions Collective Efficiency

11. Italian “Smallness Trap” Lessons for emerging countries? • … in particular, for countries emerging from transition private SMEs are the necessary antidote to the old model of large and inefficient state-owned firms • As soon as the private sector has consolidated, and the economy has reached a middle-income level of development, how to stimulate the endogenous dimensional growth of firms should become a policy priority • Otherwise, as the recent Italian experience shows, an economy about to approach an advanced development stage may enter a “smallness trap”

12. Short & Medium term challenges for SME policy in Russia • Differences in enabling environment across Russian regions and clustersis 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

13. KraussMaffei Message HR Development should not be delegated:It has to be made a priority by top management Improve top-down communicationwithin organization Listen to your own people and havea look at things from their perspective Appraisal interviews are achance 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

14. Learning Performance Management Recruiting Talent Management through a competency framework Compensation Retention Succession Planning Integrated Talent Management

15. Innovation-led Growth: Four Pathways (MIT) Indigenous creation of new industry Exogeneous creation of new industry Upgrading existing mature industry Diversification of existing industry into new • Use the core technologies of an existing and declining industry - Enhance products, services or production technologies - Create entirely new industry • Import new industry to the region

16. From Core Values to Business Competitiveness How we develop our human capital Business Competitiveness What we want to be People Development What we need to know & to do Core Values Knowledge Enhancement 16

17. Le Marche Specific and Perhaps Exclusive Features! • The cluster is mainly based on a cultural approach: - creativity and entrepreneurship are the ground skills for the spin-off - imitation and emulation effects push newcomers - competition & cooperation allow for the distribution of production phases among many firms - traditional and non hi-tech industries involve low entrance barriers - high specialization in each production step needs a low plant cost

18. Le Marche: Public-Private Partnership! • The cluster is an endogenous and self-governing phenomenon: the public role is rarely a decisive start-up factor • Nevertheless, the policy maker may offer strong support to strengthen the external economies (the core of a cluster!) • External economies change continuously: establishment areas, basic services, worker availability and suitable education, material and immaterial infrastructures, quality and environmental certification… • As the cluster grows, the governance becomes more and more relevant: in the Marche Region the “Technological Center System” as well as the “District Council” are composed of local stakeholders (such as representatives of Public Boards and social and economic actors)

19. Institutions & Infrastructure for Global Quality Standards • Metrology, standards, testing and certification • help diffuse technology to SMEs • provide the technical infrastructure for innovation • increase trust between SMEs and their buyers • Quality, testing and certification service platforms can act as important facilitators of SME innovation in clusters • Public-private partnerships can play an important role in helpingclusters define the types of services that can help foster regional innovation • BUT metrology, standards, testing and certification CAN ALSO HAMPER technology absorption and innovation when imposed on a top-down basis by the government • by placing barriers to trade in technology • by limiting “freedom to innovate”

20. Business Incubators Business incubators are a leading instrument used by European governments to facilitate technology transfer from public research organizations Commercial 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

21. Connecting the “dots” • Complexity => No single path or model; • Key to facilitate enterprise entry and , critically, their growth; • Multiple tools: Incubators, spin-offs, … • Innovation and Absorption • COMPLIMENTARY NOT EXCLUSIVE PATHS • All industries must innovate in products and processes • BRANDING & DESIGNincreasingly differentiating element • Core of Innovation and Sustained Enterprise Growth • CONTINUOUS & ADAPTIVE INVESTMENT IN TALENT • MODERN HEIs embody entrepreneurial and technological leadership to serve Local SMEs (INCENTIVES) rooted in 3Ts: • TALENT, TECHNOLOGY, TERRITORY