Innova&on: Opportuni&es & Challenges for Emerging Asia. Poh Kam Wong Professor, NUS Business School Director, NUS Entrepreneurship Centre

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1 Innova&on: Opportuni&es & Challenges for Emerging Asia Poh Kam Wong Professor, NUS Business School Director, NUS Entrepreneurship Centre

2 Outline Innova'on, Na'onal Innova'on System & Its Importance for Economic Development Overview of Innova'on Performance of Emerging Asian Economies Innova'on Policy Tools Key Innova'on Policy Issues for Emerging Asia Innova'on Opportuni'es for Emerging Asia

3 Innova&on Innova&on: A New & BeBer Way of Doing Things Technological Innova&on First Exploita'on or Commercializa'on of a NEW Scien'fic Discovery or Inven'on Incremental Improvement to the Cost/Performance ABributes of an Exis'ng technology Non- Technological Innova&on Business Model InnovaAon: a NEW business method or way of organizing business ac'vi'es Design and CreaAve Content: New design and original ar's'c crea'on

4 Typology of Technological Innova&ons Radical vs. Incremental Discon'nuous vs. Con'nuous Disrup've vs. Sustaining (Christensen)

5 Discontinuous vs. Continuous Innovation Discontinuity Performance Effort

6 TECHNOLOGICAL CAPABILITY Levels of Technological Capability Ability to Use Ability to Adapt Ability to Innovate Product vs. Process Technological Capability Forms of Embodiment of technological capability hardware, sosware, humanware (knowledge/skills, experience), system integra'on Codified vs. Non- codified (Tacit) Knowledge Underlying Intellectual Property Rights

7 Na&onal Innova&on System An effec've innova'on system is composed of firms, research centers, universi'es, consultants and other intermediaries that keep up with new knowledge and technology, tap into the growing stock of global knowledge, assimilate and adapt it to local needs, and create new knowledge (World Bank (2007), p. 24). Many factors affect the performance of a Na'onal Innova'on System. In par'cular, policies and ins'tu'ons that promote the crea%on and use of new knowledge and technology, and foster effec've interac%on between producers and users of knowledge and technology, are cri'cal to the performance of an innova'on system

8 Key Elements of a Na&onal Innova&on System (Wong, 2002) Regional & Global Market/Competitive Environment Social & Political Environment S&T Policies inter-firm linkages international linkages Firms Macroeconomic, Trade & Financial Polices Industrial & Competition Policies international transfer Public S&T & Industry Linkages National Technological Resources tangible technological assets embodied in EQUIPMENT & INTELLECTUAL PROPERTY Technology Market Institutions Financial institutions intangible skills, knowledge & creativity embodied in PEOPLE Labour Market Institutions Industry & Manpower Linkages international movement Public R&D and S&T Support Institutions Public S&T and Education Linkages Education & Manpower Policy Manpower Development Institutions Source: Wong(2002) international linkages international linkages Legend: linkages deployment of resources development of resources (induced) flows of resources environmental influences

9 Innova&on & Economic Development Innova'on has been a cri'cal determinant of economic growth of na'ons & interna'onal compe''veness of firms High correla'on between innova'on capability and per capita income of na'ons Significant impact of innova'on on the economic performance and compe''veness of firms and industries Increasing share of Intellectual Property income in GNP Latecomer na'ons & firms that have achieved fast catching up with advanced na'ons and incumbent industrial leaders have done so by inves'ng heavily in technological learning and innova'on Japan & the Asian NIEs The rise of globally compe''ve firms from Asia like Samsung, Haier, TSMC and Infosys

10 Innova&on capability & economic development J. Fagerberg, M. Srholec / Research Policy 37 (2008)

11 Source: World Bank(2007) The Tales of 2 countries

12 Contribu&on of Research & Innova&on to Enterprise Growth R&D Publications Manpower Development IP Creation Innovation / Technology Commercialization New Venture Creation New Products by Existing Firms Creation & Growth of new industries Source: Wong (2006) Technology Utilization / Diffusion to other sectors in economy Improved Competitiveness of Existing Industries 12

13 How Does Innova&on Create Compe&&ve Advantage at the Firm Level? Improving Compe''veness in Exis'ng Business by: Enabling Cost Reduc'on Enabling Differen'a'on of Quality/ABributes of Products or Services Delivered Raising Barriers to Entry/Switching Growing New Businesses by: Enabling Entry into Businesses New to the Firm Crea'ng En'rely New Markets/Businesses Upsedng Industry Incumbents by changing the Rules of the Games

14 Growing Importance of Intellectual Property (IP) In 2012, the global R&D expenses reached $1.5 trillion while the worldwide royal'es and licensing revenue generated from IP were $300 billion. Asset in the form of IP is es'mated to be worth over US$5 trillion in the US in 2005, or over 45% of US GDP (Shapiro & HasseB, 2005) IP- intensive industries accounted for about $5.06 trillion in value added, or 34.8 percent of U.S. gross domes'c product (GDP), in 2010 (US Dept pf Commerce, 2012).

15 From Na&onal to Global Innova&on System? With increasing globaliza'on, most na'onal innova'on systems have become increasingly integrated within a global innova'on system, with global actors (mul'na'onal corpora'ons) supra- na'onal standards- sedng and R&D organiza'ons, global informa'on networks (internet), interna'onal/mul'lateral ins'tu'ons (interna'onal IP conven'ons like Berne & TRIPS), and globalized resource flows (informa'on, people, money) Does globaliza'on leads to greater catching up by the late- comer na'ons, or does it lead to increasing concentra'on of innova'on ac'vi'es and resources in a Rich- men s club and growing marginaliza'on of the rest? Innova'on gaps seem to be widening between the advanced economies and many emerging economies, with the excep'on of a few economies like & the Asian NIEs. The middle- income trap is mainly an innova'on barrier

16 Measures of Innova&on Performance Innova'on Input Measures R&D expenditures Number of Research Scien'sts and Engineers S&T Output Measures Publica'ons Patents Innova'on Output Measures % of firms involved in innova'on ac'vi'es % of firm sales derived from new products & services Income from Intellectual Property (IP) Market share and Compe''ve Posi'on Composite Measures of Innova'on INSEAD Global Innova'on Index (incl Crea've Output) WEF GCR Innova'on Index

17 INSEAD GII Components

18 INSEAD Global Innova&on Index 2013 United States Finland Hong Kong SAR Singapore Korea Japan Chinese Taipei Advanced 60.3 Economies ASEAN 5 Malaysia Thailand Vietnam Indonesia Philippines South Asia India Sri Lanka Bangladesh Pakistan Central Asia Kazakhstan Uzbekistan Note: The Global Innova'on Index (GII) is the simple average of the Input and Output Sub- Indices. Taiwan data is for 2010 Source: INSEAD, Global Innova'on Index 2013

19 WEF GCR Innova&on Index 2012 Finland Japan United States Singapore Chinese Taipei Korea Hong Kong SAR Malaysia Indonesia Thailand Vietnam Philippines India Sri Lanka Pakistan Bangladesh Kazakhstan ASEAN 5 South Asia Central Asia Advanced Economies Note: Scale is from 1 to 7 Source: WEF Global Compe''veness Report 19

20 Patents Granted by USPTO per Million People, (Av ) Chinese Taipei USA Japan Korea Finland Hong Kong SAR Singapore Malaysia Thailand Philippines Indonesia Vietnam India Sri Lanka Pakistan Bangladesh Kazakhstan Uzbekistan ASEAN 5 South Asia Central Asia Advanced Economies Source: World Bank KAM 20

21 Local Ownership of Patents (% of total US patents issued), Japan Korea Finland Chinese Taipei Singapore Hong Kong SAR Advanced Economies ASEAN 5 Thailand Indonesia Malaysia Philippines Vietnam Pakistan India Bangladesh Sri Lanka Kazakhstan Uzbekistan South Asia Central Asia Note: Data based on patents granted by USPTO, with at least one inventor from the respec've economies. A patent is considered locally owned if at least one assignee is from the local economy Source: USPTO online patents database 21

22 S&E Journal Ar&cles per Million People, 2007 Finland Singapore United States Chinese Taipei Japan Korea Malaysia Thailand Vietnam Philippines Indonesia India Sri Lanka Pakistan Bangladesh Kazakhstan Uzbekistan Advanced Economies ASEAN 5 South Asia Central Asia Source: World Bank KAM 22

23 Some Innova&on Policy Tools Public Funding for R&D and Innova'on Capability Development Public funding for R&D in PRIs, IHLs and private sector Public funding of S&T manpower & Infrastructure development Tax incen'ves & subsidies for private sector R&D Legal Protec'on & Enforcement of IP S'mula'ng Demand for Innova'on Public Procurement Subsidies for Adop'on & Use of New Technologies Compe''on Policy, Openness to trade and investment Fostering Linkages between the Actors in the Innova'on System Development of Innova'on Intermediaries (eg TTO, incubators) Financing for Innova've Entrepreneurial Start- ups

24 Total Expenditure on R&D (% of GDP) 2011 Finland Korea Japan Chinese Taipei United States Singapore Hong Kong SAR Advanced Economies 1.8 Malaysia Vietnam Thailand Philippines Indonesia India Pakistan Sri Lanka Kazakhstan ASEAN 5 South Asia Central Asia Note: 2010 data for Korea, Japan, Thailand and Indonesia data for Philippines and Pakistan data for Sri Lanka data for Vietnam Source: IMD World Compe''veness Report; UNESCO online sta's'cal database 24

25 Total R&D Personnel per Capita (FTE per 1000 people) 2011 Finland Chinese Taipei Singapore Japan Korea Hong Kong SAR Malaysia Thailand Philippines Indonesia Vietnam Pakistan India Sri Lanka Kazakhstan Advanced Economies ASEAN 5 South Asia Central Asia Note: 2010 data for Japan, Korea, Thailand and Pakistan data for Indonesia and Philippines data for Sri Lanka, 2006 data for India and 2002 data for Vietnam Source: IMD World Compe''veness Report 25

26 Score for Scien&fic Infrastructure 2013 United States Japan Korea Finland Chinese Taipei Singapore Hong Kong SAR Malaysia Thailand Indonesia Philippines India Kazakhstan Advanced Economies ASEAN 5 South Asia Central Asia Note: Scale is from 0 to 100 Source: IMD World Compe''veness Report 26

27 Intellectual Property Protec&on 2012 Finland Singapore Hong Kong SAR Japan Chinese Taipei United States Korea Malaysia Indonesia Philippines Thailand Vietnam Sri Lanka India Pakistan Bangladesh Kazakhstan ASEAN 5 South Asia Central Asia Advanced Economies Note: Score for the ques'on: How would you rate intellectual property protec'on, including an'- counterfei'ng measures, in your country? [1 = very weak; 7 = very strong] Source: WEF Global Compe''veness Report 27

28 Venture Capital Availability 2012 Hong Kong SAR Singapore Chinese Taipei United States Finland Japan Korea Malaysia Indonesia Thailand Philippines Vietnam India Pakistan Sri Lanka Bangladesh Kazakhstan Advanced Economies ASEAN 5 South Asia Central Asia Note: Score for the ques'on: In your country, how easy is it for entrepreneurs with innova've but risky projects to find venture capital? [1 = very difficult; 7 = very easy] Source: WEF Global Compe''veness Report 28

29 University- Industry Collabora&on in R&D 2012 United States Singapore Finland Chinese Taipei Japan Hong Kong SAR Korea Malaysia Indonesia Thailand Philippines Vietnam India Pakistan Sri Lanka Bangladesh Kazakhstan Advanced Economies ASEAN 5 South Asia Central Asia Note: Score for the ques'on: To what extent do business and universi'es collaborate on R&D in your country? [1 = do not collaborate at all; 7 = collaborate extensively Source: WEF Global Compe''veness Report 29

30 Global Innova&on Policy Index, 2012 Advanced Economies Aggregate Trade Science/ R&D Domes'c Compe''on Intellectual Property ICT Government Procurement High- Skill Migra'on Finland Upper Upper Upper Upper- Mid Upper Upper- Mid Upper Lower Japan Upper Lower- Mid Upper- Mid Upper- Mid Upper Upper- Mid Upper Upper- Mid USA Upper Upper Upper- Mid Upper Upper Upper Upper Upper- Mid Hong Kong SAR Upper Upper- Mid Upper- Mid Upper Upper- Mid Upper Upper Upper Korea Upper- Mid Lower- Mid Upper Lower- Mid Upper- Mid Upper Upper- Mid Lower- Mid Singapore Upper Upper Upper Upper Upper Upper Upper Upper Chinese Taipei Upper Lower- Mid Upper Upper- Mid Upper- Mid Upper Upper Upper Lower- Mid Lower Upper- Mid Lower- Mid Lower- Mid Lower- Mid Lower Lower- Mid ASEAN 5 Indonesia Lower Lower Lower Lower Lower Lower Lower Lower- Mid Malaysia Lower- Mid Lower- Mid Lower Upper- Mid Lower- Mid Upper- Mid Lower Upper- Mid Philippines Lower Lower Lower Lower Lower Lower Lower Upper- Mid Thailand Lower Lower Lower Lower- Mid Lower Lower- Mid Lower Lower- Mid Vietnam Lower Lower- Mid Lower Lower- Mid Lower Lower Lower Lower- Mid South Asia India Lower Lower Upper- Mid Lower Lower- Mid Lower- Mid Lower Lower- Mid Source: ITIF/Kaufmann, Global Innova'on Policy Index 30

31 Key Innova&on Policy Issues for Emerging Asia Tapping Effec'vely into Global Knowledge vs. Promo'ng Indigenous Innova'on Capability Development Innova'ng to Compete in Global Markets vs. Solving Domes'c Needs Promo'ng Innova'on Ac'vi'es for Inclusive Growth General vs. Sector- Specific Innova'on Policies Opportuni'es for Knowledge- Based Services Nurturing Innova've Entrepreneurs Enhancing Financing System for Innova'on Reforming Enabling Ins'tu'ons and Regula'ons (EIR) to make them conducive for Innova'on

32 Innova&on Policy Choice for Emerging Asia Policy Choice depends on Stage of Economic Development, Size of Domes'c Markets & Natural Resources, and Regional Contexts In early development stages, tapping foreign technologies is likely to be more important; developing indigenous innova'on capability becomes more important to overcome the middle- income trap Learn from the Asian NIEs that have developed their innova'on capability through diverse strategies Korea: large chaebol, indigenous capability emphasis Taiwan: SMEs, PRI- led consor'a- diffusion strategy Singapore: FDI & foreign talent- leverage strategy Hong Kong SAR: crea've industry, business innova'on Adapt specific successful policies and programs to your unique na'onal context

33 Innova&on Opportuni&es for Emerging Economies? Conven'onal thinking about innova'on capability development of developing countries assume a catching- up approach, with the less developed countries following the same path of the advanced countries, first learning how to make the less advanced technological products, and then move up the learning curve to make more advanced products However, recent developments suggest that the emerging economies need not just follow this catch- up strategy, but could also pursue their own innova'on strategy by focusing on the innova'on opportuni'es in the emerging markets, including the needs of the bobom (or lower half) of the pyramid

34 Examples of Innovators from Emerging Asia leveraging superior knowledge of emerging market needs Grameen Bank: Innovator of Micro- Finance for low- income women in Bangladesh Haier: Innovator of home appliances adapted to the mass markets of & other developing economies Luyuan: Innovator of electric bicycle in Su- Kam : Innovator of Backup Power Equipment from India, which suffers from frequent power outages Aravind Eye- Hospital: Innovator of eye- surgery hospital adapted to the BOP market in India

35 As some of these examples have shown, rather than trying to catch up with technological leaders in advanced economies, many indigenous innova've firms from emerging markets are pioneering their own frugal innova'ons to produce low- cost products that meet the needs of low- income consumers and businesses in these markets. Some of these innova'ons are later diffused to advanced economies and become known as Reverse Innova'ons. In addi'on, some of these emerging economies have developed dis'nc've open innova'on ecosystems, such as the Shanzhai system for mobile devices in, that combine a mixture of imita'on and innova'on to enable rapid and flexible product innova'on.

36 These trickle- up/reverse innova'on and open imita'on- innova'on phenomena are promp'ng some of the leading global MNCs from advanced economies to re- think their conven'onal innova'on strategy, and to learn to plug into such emerging market innova'on ecosystems in order to compete. Innova'on policy makers from Emerging Economies should likewise consider adop'ng policies that promote such indigenous innova'on systems that target the needs of the lower- income popula'on in their own or other similar emerging markets Besides complement the tradi'onal technological catch- up learning strategies, such policies also contribute to the goal of inclusive development

37 Over the last 2-3 decades, many economies from emerging Asia have successfully exploited the wave of outsourcing of manufacturing from advanced economies, while India has done so in the outsourcing of IT services Pervasive deployment of internet & mobile communica'ons on a global scale is now heralding a second wave of global outsourcing, this 'me in knowledge- based services (KBS). There is thus an opportunity for emerging Asia to also become the world s KBS exporters. However, emerging Asia must invest significantly into human capital, ICT infrastructure and services innova'on to capture this opportunity

38 Thank You!