Technological Capacity Building of SMEs in Sub-National Innovation System

1. Technological Capacity Building of SMEs in Sub-National Innovation System UN-ESCAP Beijing, China Oct. 2006 Deok Soon Yim, Ph.D. Director Daedeok Innopolis Office, Korea

2. - Contents - • Conceptual Framework • Needs for New SME Policies • Daedeok Innopolis Case • Conclusion and Discussion

3. Conceptual Framework Innovation at different innovation actors • Individual level • Laboratory level • Corporate level • Industry (sectoral) level • Regional level • National level • Global level  Different Innovation Factors

4. Conceptual Framework Knowledge Transfer & Application Primary Value Market R&D Secondary Value HRD, Information, Consulting, Financing Value Chain of Innovation Process Source: Deok Soon Yim (2002)

5. Conceptual Framework Concept of Innovation System • It’s a System for innovation which is composed of actors, processes, and culture. • Input • Process • Output • Actors • Interaction mechanism between actors(relationship) • S/W like culture, regulation, norms

6. Conceptual Framework Concept of Innovation System • Innovation processes are related with multiple actors • University, public R&D inst., industry • Community, financial inst., consulting firm, culture • Innovation processes are non-linear/networked interaction about • S&T knowledge, R&D, • Money, people • Business development

7. Conceptual Framework Concept of Innovation System • New role of innovation actors • University: basic research + commercialization too • public R&D inst.: basic/applied research + commercialization • Industry: applied research/business + basic research too • Emergence of innovation cluster • Networked actors’ web • Cluster(innovation system) is more than the sum of individual parts

8. Conceptual Framework Global S&T Environment Government National S&T Environment Research Institutes Universities Knowledge, Money, People Industries Financial Institutes Other related Actors National Innovation System

9. Conceptual Framework National Innovation System • Actors: Government, Industry, University, Financial Institute, Management Consulting Firm • Input: Money, People, Knowledge • Output: S&T knowledge --> Competitiveness • Government failure vs. Market failure vs. System failure • External and Internal Environment is important

10. New SME Policies Environmental Changes • Fast Changes of Science and Technology • Breakthrough technologies requires everything to be changed from business, people, management etc. • Speed also matters • Globalization • MNCs are leading global value chain process • Innovation process is also being globalized • Increasing Competition • Not only MNCs but also SMEs are competing at global market • Core competence comes from technology

11. New SME Policies Traditional SME Policies • SME policies were made in the old context • Stable environment • Domestic market and competitors • Functional, individual policies • HR supply, financial, marketing support • Low level technological support • Short-term oriented • Not focused on long-term technological capacity building

12. New SME Policies Needs for New Paradigm • SME policies in the new environment • Changing S&T, globalization, technological capacity building • Comprehensive policies • System building rather than functional policy • Short-term oriented • Long-term and consistent policy

13. New SME Policies SME Policy at Sub-national Innovation System • Sub-national Innovation System(SIS) is a small NIS • It has common characteristics of NIS • It is influenced by national policy • SIS is local/regional based • The effectiveness of SIS depends on local conditions • It is influenced by local policy • SMEs are important actors in SIS • SMEs employ people • SMEs create local value

14. Daedeok Innopolis

15. Daedeok Innopolis Overview of Daedeok Science Town Establishment • 1973. Nov. (Plan Announced) Location • Daedeok, Chungcheongnam-do Size • 27.8 Km²  70.5 Km² Employment • 23,558 (6,236 Ph.D.s) as of 2005 Tenant Organizations • Total 242 organizations including 21 Government Sponsored Research Institutes 39 Private Research Institutes and 148 Ventures Major Research Area • IT (40%) BT (14%) Material Science (9%) Chemical Engineering ( 8%) Energy resource (8%) Status • Mecca and symbol of Korea’s Science and Technology • Economic and industrial growth • Benchmarking model for developing nations

16. Daedeok Innopolis Major Characteristics of DST Driving Force • Central Government Initiated Main Innovator • Government Research Institute + KAIST Start-ups • Spin-offs from GRIs • Technology-based ventures • Approx. 800 companies Interaction among actors • Very low  becoming active • Formal and informal groups Master Plan • No (Physical or Operational) Master Plan • Island Approach (No community Zone + Separation from surrounding region) • No Initial Regional governmental support New legal status • Special R&D Zone (2005) • Introduction of New Management Body • Cluster-supporting Projects

17. Daedeok Innopolis How does an innovation cluster evolve? Source: SRI – What economic clusters are and why are they important?

18. Daedeok Innopolis Is innovation cluster evolved or developed? • Artificial cluster  natural cluster? • Can artificial cluster survive without external continuous support? • Example? • Value Chain • Can any firm has all the strength in all value chain? • Strength in some value chain only? • Is it possible to extend the strength in one value chain to other value chain?

19. Daedeok Innopolis Evolutionary Process • Initial Conditions • Location, Technology, People, Culture, Venture Capital and Consulting Firm, Other Infrastructure • Down-stream Evolution (Yim, 2000) • From Production to Research • Up-stream Evolution (Yim, 2000) • From Research to Production

20. Daedeok Innopolis What are the factors influencing the formation of an innovation cluster? • Historical circumstance • Unusual, sophisticated, or stringent local demand • Prior existence of related supplier industries • Innovative companies

21. Daedeok Innopolis Kuro industrial complex  Innovation cluster ? Production Complex (1970) Kuro Digital Complex (2006)

22. Daedeok Innopolis Initial Conditions and Development • Central Government Initiated • Government Research Institutes Focused • Initial Condition • Nothing and Planned • Locational Advantages • Middle of South Korea. Distance? • Small market • Pure S&T Island Approach • Down-stream Evolution Process?

23. Daedeok Innopolis What Daedeok Science Town has done S&T Outcomes Socio-Economic Outcomes S&T Knowledge S&T Manpower Venture Incubation Visible Outcomes Invisible Outcomes National S&T Infrastructure Promote S&T Culture

24. Daedeok Innopolis Examples S&T Knowledge • IT: PC, TDX, CDMA, ATM exchange (ETRI) • BT: The research on DNA characteristics (KRIBB/KRICT) • Energy: Korea's standard atomic reactor (KAERI) • ST: leading-technology air crafts, artificial satellites (KARI) S&T Manpower • KAIST: 10% of total 20,000 Science Professors 20% of 6,400 private company researchers S&T Infrastructure • Build and Service over 55 Million R&D Information Database: Over 56 Million Users Annually (KISTI) • Setup and Maintain Industrial Standards (KRISS) • Provide Mega Research Equipments (KBSI) • Sponsor Research Projects and Funds (KOSEF) Venture Incubation • 18 Venture Incubators (310 Residence firms) • Assist Spin-offs and Start up companies (total 158 ventures) • Contribute to regional economic development S&T Culture • Create S&T friendly Atmosphere (EXPO, National Science Museum) • Promote Public’s Understanding on the Importance of S&T

25. Daedeok Innopolis Early Stage of Innovation Cluster: “S” innovation curve • Patents • VentureCompanies 97 98 99 00 01 02 03 04

26. Daedeok Innopolis Early Stage of Innovation Cluster: “S” innovation curve • Many internal/external networks formed • Small scale clustering • Dedicated internet newspaper • Collaborative/open culture • International network • World Techno-polis Association

27. Daedeok Innopolis Changing Roles of Daedeok Science Town Innovative capability • Response to the Development of Advanced Technologies • Utilization of the S&T output • Promotion of Venture Start-ups • Emphasis on Development of Advanced Technologies • Focal Points for the Linkages between Universities, Industries, and Research Institutes • Promotion of Mega-Sized R&D Projects • Assistance to Corporate R&D Activities • Leading the National R&D Capability through GRIs year 1973 1978 1993 1999 Construction of infrastructure Expansion of R&D Base Creation of Innovation Formation of Innovation Cluster

28. Daedeok Innopolis R&D Driven Innovation Cluster R&D ability is the key function and driving force of an industry value chain Primary Value Functions Marketing R&D Production Secondary Value Functions Human Resources / Information Supply Venture Capital / Consulting / Etc.

29. Daedeok Innopolis SWOT Analysis • International Recognition • Geographical Expansion • Linkage with Surrounding Clusters • Reinforcement of Transportation • Technology Driven Economy Opportunities • Economic Recession • Gov’t Support for other Regional • Clusters • Increasing Overseas Competition Threats • 30 Years R&D Experience • Human Resources • Hi-tech Ventures based on • Advanced Technology • Support of Central Government • Locational Advantage • Excellent Research Environment Strengths • Lack of Self-sustainability • Lack of Interactions/Networking • Immature Business Environment • Lack of International Business • Environment • Brain Drain Weaknesses

30. Daedeok Innopolis What are the development factors of DST? • First, strong government support • A recent financial crisis in 1997 and following restructuring process with venture boom • Introduction of Local self-government system in 1995 • Introduction of Daedeok Innopolis Office

31. Daedeok Innopolis Zhongguancun : Market + Being Global

32. Daedeok Innopolis McDonald: Global Player

33. Daedeok Innopolis Starbucks: Knowledge Place

34. Conclusion and Discussion Conclusion and Discussion • Strong government commitment • Importance of system (not individual or individual unit) and competitiveness • Benchmark developed countries but create its own policy • Policy changes according to industrial development (From S&T to industry and innovation) • S&T think-tank to assist gov’t policy

35. Conclusion and Discussion From system formative Pperiod to system Developmental Period Global Innovation System National Innovation System Changes in Technology environment Changes in Social environment Regionnal Innovation Cluster Conclusion and Discussion • Transition to open system internationally and cluster-upbringing system domestically Source: Young Ja Bae, Wi jin Song, Deok Soon Yim(2002)

36. Conclusion and Discussion Conclusion and Discussion • Integrate regional innovation system to national innovation system and finally to global innovation system • Global division of roles at global innovation system  All the innovation policies have to be made at the global level

37. Conclusion and Discussion Conclusion and Discussion • Is the Gov’t support really necessary? • Then how long and how much? • Does it take long time to be developed as a self sustainable innovation cluster? • It may depend on the location specific characteristics (Technological capabilities, Good universities, Refined and big market, Venture capital, and etc.) • For the artificially designed innovation clusters (without satisfactory initial conditions for innovation), the infant R&D capabilities would soon die out if there is not consistent support form the Gov’t.

38. New SME Policies Key Success Factors for the Development of Sub-national Innovation System • Research Capabilities • Research/Business Manpower • Research/Business Infrastructure • Financial Resource • Cooperative/Competitive Culture • Management and Vision • International Player (MNC) • Start-up Companies

39. New SME Policies SME Policies at Sub-national Innovation System • Strategic Mind Setting • Awareness for the importance of SIS in SME policy • It’s matter of survival not selection • Long-term, System-oriented Policy • The policy may take longer time to bring the results but has to be consistent and system-oriented • Technology Capacity Building • It may need benchmarking case • Policy should encourage the co-work between local university and SMEs

40. Thank You! Any Question?