The globalisation of innovation: knowledge creation and why it matters for development

Transcription

1 The globalisation of innovation: knowledge creation and why it matters for development Rajneesh Narula Professor of International Business Regulation

2 Innovation and technology innovation: changes in the knowledge, ability and techniques required to produce goods and services of higher or better quality per unit price, technology represents the cumulative stock of these innovations Technology includes all activities that provide assets with which an economic unit can generate product or services. Technology: both tacit and codifiable Knowledge creation is a much larger and more systemic phenomenon, although formal facilities account for a large percentage of output.

3 Knowledge creation Formal R&D is just one aspect TNC R&D is a subset (but very important in the formal aspect), either through alliances or subsidiaries knowledge creation concerns both : the acquisition and development of knowledge the diffusion and efficient utilization of this knowledge. TNCs tend to do a lot of asset-exploiting R&D, rather than asset-augmenting R&D

4 R&D Expenditure of foreign affiliates as a % of total R&D expenditures Canada 34.2 Finland (1999) 14.9 France 16.4 Japan 1.7 Netherlands 21.8 Spain (1999) 32.8 UK (1999) 31.2 US 14.9 Czech Republic (1999) 6.4 Hungary 78.5 India (1994) 1.6 Turkey 10.1

5 It is not only about TNCs R&D needs to be seen as a holistic activity, involving a large system of players. Innovation involves complex interactions between a firm and its environment Firms both domestic and TNCs Non-firms: consisting of public research institutes, universities, organisations for standards, intellectual property protection, etc that enables and promotes science and technology development These interact through institutions: formal and informal rules, procedures and traditions that determine the interaction of these groups

6 Industry Factors Influence of local structural features Exhibitions Conferences Competitors Professional & Industrial bodies Influence of local structural features Corporate Factors Informal networks Employees Firms Related firms Suppliers User groups Business Factors In-house R&D Customers Educational Sector Public R&D Sector Industrial Policy agents Influence of local structural features Public sector Factors Influence of local structural features

7 What determines the level of internationalisation of innovation? Centripetal forces Familiarity with domestic environment Complexities of managing R&D Centrifugal forces Need for additional assets not available locally

8 Firm-specific forces play a role.. The need for physical proximity To production activities To customers To inputs To collaborators To centres of agglomeration

9 but Firms need assets not available at home National innovation systems change only very slowly, and often slower than the rate of change of technological needs of firms. Firms need to maintain complex linkages with external networks of suppliers, collaborators and customers, not all of whom are located at home

10 Foreign knowledge Foreign suppliers/foreign customers Foreign firms/armslength purchases of technology/ parent of MNE subsidiary Foreign nonfirm organisations and institutions Private funding organisations (banks, venture capitalists) may be foreign owned Stock of knowledge in the MNE subsidiaries sector Stock of knowledge in the domestic firm sector Supra-national organisations (e.g., WTO, EU, UN) Industrial policy regime, including competition policy Domestic knowledge Stock of knowledge in the domestic non-firm sector Universities Intellectual property right regime Governmental funding organisations Government funding for education Hybrid Supra-national Domestic Foreign

11 Paradox of globalisation On the one hand, Countries remain sovereign; Knowledge creation remains concentrated in a few locations and primarily in the home country of major TNCs. there remains a high level of inertia in the location of R&D of firms, and high cost of learning about a new location and the opportunities On the other hand, firms need access to the best technologies at the best prices

12 Distribution of competences based on managers' perceptions OUTSOURCING PCB manufacture Component mounting, casing PCB design Applied sensor technology System design Control systems software IN-HOUSE R&D Operating systems Hardware design Mechanical design of sensors ALLIANCES Operating systems Component design Specialised equipment testing Display technologies

13 The alliance network of Texas Instruments, micro-electronics

14 Paradox of globalisation (2) the fuzziness of boundaries Countries and TNCs therefore need to seek to utilise the capabilities of other countries (whether through immigration, or by encouraging FDI), and firms may seek to use other firms capabilities (by locating in proximity to other firms, or by developing strategic alliances).

15 How do other firms, non-firms and countries get involved? As suppliers, customers and subcontractors Through equity means Through outsourcing and off-shoring Through non-equity alliances through research consortia Through universities

16 The opportunities are limited, and take time to develop.. Developing a tradition of knowledge creation and diffusion takes decades to build especially human capital First learn to absorb, then to create. The conditions for increased FDI flows are the conditions for increased TNC R&D TNCs need access to local (cheaper) alternatives, and can act as seeds Promote local capabilities in areas of strength The need to build stability, trust and transparent institutions

17 Political economy factors Financial Liberalisation Supra-national institutions Economic integration Liberalisation of economic systems Shifting hegemonies Shifting political ideologies The spread and intensity of TNC activity, trade Innovation by TNCs GLOBALISATION OUTCOMES The interdependence of locations Cross-border migration Blending of cultures Homogeneity of consumption patterns Standardisation The interdependence of firms Figure 1.1 mapping globalisation Rapid technological change Shortening of life cycles, and need to speed up innovatory process New technologies Technological factors Reduction of coordinating costs, transferring and acquiring information ICTs, transportation, new materials, etc Rising costs/risk of innovation The multi-technology firm: Need for complementary assets

18 But there are caveats to this.which may create inertia Industry-specific effects Process vs engineering Mature vs rapidly evolving Size of firms Limits on resources Level of embeddedness Industrial policy techno-nationalism, national champions Import-substituting stance Specialised resources available for targeted industries