Technology upgrading and RTD challenges in Western Balkan region: issues and policy options

Transcription

1 Technology upgrading and RTD challenges in Western Balkan region: issues and policy options Prof. Slavo Radosevic Vienna, 27 March 2014 WEB-INCO NET Final conference: Towards New Horizons for RTD and Innovation in the Western Balkan Region

2 Annual rates of GDP: pre and post ,9 6,7 7, ,3 3,6 3,9 3,5 3,3 3,1 2 1, Albania Bosnia -0,1 and Herzegovina Croatia Kosovo Montenegro Macedonia, FYR Serbia -0, ,8-4 Source: World Bank Development Indicators database 2

3 Pre-2008 spurt and post-2008 growth prospects Spurt = a short period of growth which eventually exhaust itself due to limited catch-up upgrading, institutional reforms and restructuring..... also high costs of that growth (cf. finance-dependent and debt-intensive growth, Dobrinsky, 2013) Industrial upgrading and innovation driven growth as a new policy concern (cf. smart specialization) A move away from exclusive focus on structural reforms 3

4 Protracted de-industrialization in Western Balkans Share of industry value added (% of GDP) Source: WBDI

5 Post-2008 alternatives: RTD policy as one of levers of growth? Structural reforms as standalone supply side policies are not able to generate catch-up A room for Keynesian or quantitative easing type policies are quite constrained in SEE Big push policies in infrastructure (energy, transport) at regional level are not (yet) feasible for a myriad of political reasons SEE: EU accession as the only game in town despite warning that.. The benefits of EU integration for countries that are catching up are not and cannot be unqualified, but are conditional on the quality of national policies and the EU framework itself (Breugel report, 2010) RTD policy as one of levers of growth? 5

6 POINT OF DEPARTURE: THE IMPORTANCE OF STRUCTURAL DIFFERENCES BETWEEN LOW, MIDDLE AND HIGH INCOME COUNTRIES (CF. NEW STRUCTURAL ECONOMICS) ARE CURRENT POLICIES FIT FOR PURPOSE I.E ARE THEY DIFFERENTIATING BETWEEN COUNTRIES OR ARE THEY DOMINATED BY THE BEST PRACTICE POLICIES? ARE W.B. INNOVATION POLICIES CONDUCIVE TO THEIR INDUSTRIAL AND TECHNOLOGY UPGRADING? 6

7 Outline RTDI in Western Balkans: bibliometrics, patents, ISO9001, trademarks Supply and demand for RTD in W.B. WB as an outsider in the EU value chains Technology upgrading in WB Western Balkans and R&D driven growth: alternative models Policy challenges 7

8 A stylized mainstream policy model of technology upgrading: (i)relevant model for WB? Research and development Innovation Competitiveness Economic growth Employment growth 8

9 Different sources of productivity improvements in countries behind technology frontier Diversity of the EU27/WB in terms of driving factors of growth (WEF 2008 GCR) Efficiency driven (BG/RO/Western Balkans); in transition (other NMS), Innovation driven (SI, EE and EU15) The sources of productivity improvements in FDI in CEE: Production capability (quality assistance), not technological capability (Majcen. Radosevic and Rojec et al, 2009; Production capability (ISO9001) as the most significant driver of productivity growth in transition economies (Kravtsova and Radosevic, 2011) Innovation at behind the frontier is about acquisition and adoption of machinery, equipment and software, not R&D

10 WB: two low R&D spenders groups Gross expenditures in R&D in % of GDP, latest available year Source: World Bank Development Indicators 10

11 Regional leaders and followers Number of scientific papers published in ISI journals SERBIA CROATIA BOSNIA & HERZEGOVINA MACEDONIA MONTENEGRO ALBANIA Source: Science Indicators database, Thomson Reuters 11

12 Catch up and reintegration of the WB science systems Average annual rate of growth of ISI papers in Western Balkans and EU-27 EU-27 7% SERBIA 70% MONTENEGRO 63% FYROM 14% CROATIA 14% BOSNIA & HERZEGOVINA 24% ALBANIA 10% 0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00% 70,00% 80,00% Source: Science Indicators database, Thomson Reuters 12

13 W.B. top 10 science areas (ISI papers ): medicine, math, chemistry Med, General & Internal Chem, Multidisc Chem, Physical Eng, Chem Mathematics, Applied Mathematics Mat Sci, Multidisc Eng, Electrical & Electronic Anthropology Biol 13

14 Stagnant and marginal technology effort Patent applications, residents, Albania Bosnia and Herzegovina Croatia Montenegro Macedonia, FYR Serbia

15 Marginal or non-existent world frontier technology effort US Patents by Inventor's Country, Albania Bosnia and Herzegovina Croatia Montenegro Serbia FYR Macedonia Kosovo

16 WB countries are trailing behind in terms of production capability (800ISO9K per 1mn gap) Number of ISO9001 ISO Certificates per mn population and GDP per capita,

17 . But growing importance of production capability Number of quality certificates ISO9001,

18 Process of quality upgrading (product differentiation) taking place in traditional industries, especially food, furniture, clothing, footwear Trademark applications, direct resident in Western Balkan countries Source: WBDI 18

19 Assessment of supply of R&D, Quality of Quality Quality of Availability Availability education of math scientific of scientists of research and research and and training science institutions engineers services education Croatia Bosnia and Herzegovina Montenegro Macedonia, FYR Serbia Albania average

20 Assessment of demand for R&DI, Firmlevel technology absorption Extent of staff training, Degree of customer orientation On-thejob training Buyer sophistication Albania Montenegro Croatia Bosnia and Herzegovina Macedonia, FYR Serbia average Brain drain Source: WEF GCR Database 20

21 W. B. DEMAND FOR RDI IS BIGGER CONSTRAINT THAN SUPPLY, EXCEPT IN ALBANIA Comparative assessment of supply and demand for R&D in Western Balkan countries,

22 Factors discriminating between more and less successful innovators in CEE based on indepth analysis of 45 pairs of successful and less successful innovations Understanding of user needs and user involvement Understanding of market Less important Successful R&D collaborations Successful innovation collaborations Source: Slavo Radosevic and Esin Yoruk (2012) SAPPHO Revisited: Factors of Innovation Success in Knowledge-Intensive Enterprises in Central and Eastern Europe, UCL Working Paper 22

23 In CEE... non-r&d innovators dominate Source: Arundel, A., C. Bordoy and M. Kanerva (2008), Neglected innovators: how do innovative firms that do not perform R&D innovate? Results of an analysis of the Innobarometer 2007 survey No. 215, INNO-Metrics Thematic Paper 23

24 Turnover from innovation as percentage of total turnover EU 10 New EU15 Old Similar innovation dynamics but... within different mode of innovation

25 GDP in PPS per person employed relative to US = 100, 2006 Innovation at behind the frontier is about acquisition of machinery, equipment and software Relationship between embodied investments and labour productivity 1.35 Luxembourg Belgium Ireland 0.75 Netherlands Denmark Greece y = x R² = Czech R Malta Slovenia Portugal Lithuania Hungary Turkey Lithuania Poland Cyprus Croatia Estonia Romania Bulgaria Share of expenditures for acqusition of machinery, equipment and software in total innovation expenditures, 2006

26 R&D intensities in value added (Direct R&D and indirect R&D/embodied in inputs and capital goods) R&D intensity embodied in imported capital goods and in imported inputs is quite comparable to the UK. i.e. Bulgaria imports equally sophisticated equipment and inputs as UK Bulgaria Czech R UK R&D embodied in imported capital goods R&D embodied in domestic capital goods R&D embodied in imported inputs R&D emboded in domestic inputs R&D Source: Recalculated based on Knell, M. (2008), Embodied technology diffusion and intersectoral linkages in Europe, Europe Innova Sectoral Innovation Watch deliverable WP4, Brussels: EC, available at innova.eu/c/document_library/get_file?folderid=24913&name=dlfe-2646.pdf 26

27 Current factors of WB competitive advantage Proximity: hours from WE; apparel - 22% cheaper than Chinese; nearshoring (language capability and cultural understanding) Costs of labour 15-50% of Hungarian wages; except HR... But still not part of the EU global value chains 27

28 despite flexible labour markets in Western Balkans (2010) - comparable to China 28

29 SEE: integrated into EU economy as markets but not as production location SEE: FDI are focused on non-tradeables (market seeking) FDI in SEE contributed much less towards the build-up of a competitive and sufficiently sized tradable sector (efficiency seeking FDI) than it did in the CE5. 29

30 The newly established German- Austrian industrial system, SEE is largely outside Source: Based on WIIW report

31 SEE is integrated via buyer driven value chains Type of network relationship Producer driven value chains (Largely equity relationships) Buyer driven value chains (Largely subcontracting) 2003 FDI stock in manufacturing per capita ($) Networks' exports per capita (%) Share of clothing export in manufactured export Average annual growth rate of clothing export Hungary Slovenia Croatia Bulgaria Romania Serbia & Montenegro FYROM Albania Turkey Source: Based on World Bank (2005), From Disintegration to Reintegration: Eastern Europe and the Former Soviet Union in International Trade, Edited by Harry G. Broadman, 2005, The International Bank for Reconstruction and Development / The World Bank 31

32 Central Europe: flying geese model of tandem growth > win win outcome A process of quality upgrading of CE but much less so in SEE and Baltics (Dulleck et al, WIIW, 2004) Germany s MNCs relocations to CEE: boost to productivity improvements and decreased unit labour costs in Germany Productivity gains from offshoring to CEE > Germany and Austria experienced only minor job losses German offshoring to CEE boosted not only the productivity of its subsidiaries in CEE by almost threefold compared to local firms, but it also increased the productivity of the parent companies in Germany by more than 20% (estimates by Hansen 2010 and Marin 2010). 32

33 Conclusion: this cannot be the only policy model of technology upgrading for WB! Research and development Innovation Competitiveness Economic growth Employment growth Cf. Horizon 2020 is largely about R&D based growth 33

34 Policy model for WB should be based on pattern of technology upgrading for latecomers Production capability (quality) > Process and product engineering (incremental innovations) > Advanced development for manufacture > Exploratory development (prototypes) > <Applied research < Basic research 34

35 Patterns of RTD upgrading: upstream and downstream Pure science Basic research Applied research Exploratory development Advanced development Process and product engineering Production capability New knowedge for radically new marketable product Improvements of existing products and processes Differentiated Prototype in Improved quality of Intrinsic knowledge product 'on paper' Prototype in a system manufacture products and processes Own design Own brand manufacturers manufacturers Original equipment manufacturers PhD PhD required with experience in R&D PhD not required/ MSc and BSc required Skilled engineers Skilled technicians Sourced: Adapted and extended based on Amsden and Tschang (2003) 35

36 Patterns of RTD upgrading: transitions Transition from advanced development to basic research Transition from exploratory development to basic research Transition from advanced development to applied research Transition from exploratory development to applied research Transition from basic resarch to advanced development Transition from basic resarch to exploratory development Transition from applied reserach to exploratory development Transition from applied R&D to advanced development Transition from engineering innovation to exploratory development Transition from engineering innovation to advanced development Transition from 'pure science' to basic research Transition from production to technology capability Pure science Basic research Applied research Exploratory development Advanced development Process and product engineering Production capability New knowedge for radically new marketable product Improvements of existing products and processes Differentiated Prototype in Improved quality of Intrinsic knowledge product 'on paper' Prototype in a system manufacture products and processes Own design Own brand manufacturers manufacturers Original equipment manufacturers PhD PhD required with experience in R&D PhD not required/ MSc and BSc required Skilled engineers Skilled technicians 36

37 Patterns of RTD upgrading: threshold area from applied research to development and vice versa Western Balkan thresholds: from production capability to technology capability and from 'pure science' to basic research Transition from advanced development to basic research Transition from exploratory development to basic research Horizon2020 Transition from advanced development to applied research Transition from exploratory development to applied research Transition from basic resarch to advanced development Transition from basic resarch to exploratory development Transition from applied reserach to exploratory development WB Transition from applied R&D to advanced development Transition from engineering innovation to exploratory development WB Transition from engineering innovation to advanced development Transition from 'pure science' to basic research Transition from production to technology capability Pure science Basic research Applied research New knowedge for radically new marketable product Exploratory development Advanced development Process and product engineering Improvements of existing products and processes Production capability Differentiated Prototype in Improved quality of Intrinsic knowledge product 'on paper' Prototype in a system manufacture products and processes Own design Own brand manufacturers manufacturers Original equipment manufacturers PhD PhD required with experience in R&D PhD not required/ MSc and BSc required Skilled engineers Skilled technicians 37

38 Example: RTDI weaknesses in SEE automotive components (OECD, 2010) Learning management practices (ISO % /TS16949 standards 12% quality at source; ERP): Skills gaps in design and engineering) Linkages (B2B/16% on line procurement, links with FDI; skills gaps in supply chain management; sectoral linkage programmes) Leverage (partnerships with 2nd tier suppliers; collaborative innovation FDI/SME/RDI) 38

39 Patterns of industrial upgrading in Western Balkans in selected industries Apparel: from only CTM (42%) services to gradual introduction of Value Added services (OEM/OBM) + beyond imitation (design schools) Automotive suppliers: to move out of subcontracting cost trap towards improved quality standards, design and supply chain management skills BPIT Outsourcing: from fragmented, diversified and local market oriented firms towards focus on core competencies (specialization) and creation of BPITO champions Source: Based on OECD (2010) 39

40 Innovation policy implications The irrelevance of entirely R&D-led models of innovation and policies for catching up countries (cf. WB) Innovation policy in WB is not concerned with users and demand side factors (see Edler, 2011) which based on our research seem to be the major differentiating factors in innovations in CEE. There is strong focus in CEE policies on science industry linkages but largely upstream oriented i.e. driven by technology push incentives and opportunities (Radosevic, 2011, SPP). A much greater relevance of downstream R&D and innovation collaborations which are driven by firms with the view of enhancing market led innovation. 40

41 A way forward The biggest obstacles: irrelevant policy models Recognise major stylized facts of the WB context Policy options should support: Upgrading from production to technology capability Integrate FDI and innovation policy: linkage, leverage, learning Continue but limit the scope of R&D commercialization policies: excellence vs. relevance 41

42 Support the weakest agent in innovation system: local business R&D&E&S (R&D, engineering and software) Programs for adoption of ISO certificates. It should be cofinanced via vouchers issued to enterprises based on certificates by eligible international and local organisations for standardization. Support programs for engineering. These programs should be added to current funding for R&D based on co-funding Program of support to software training 42

43 The challenge for periphery (WB): Missing levers to growth? EU Centers of excellence MNCs: parents and other subsidaries National centres of excellence weak horizontal linkages Local FDI subsidaries Weak vertical integration & horizontal fragmentation Vertical and horizontal links do not work in WeBa? Policy focus: - Support to the weakest agent: local business R&D - Transfer function on supply side (R&D) - Transfer function on demand side (FDI/local firms) 43

44 Integrate FDI into innovation policy How to plug WB firms into EU/German and Austrian (Italian) industrial networks based on the principles of linkage, leverage and learning? Weak domestic firm level capabilities key factor for weak spillovers (technology transfer) from MNEs How to support countries to shift towards third wave policies ( after care embedding, supply chain focused)(czechinvest as model) Increase R&D but in interaction with imported and indirect domestic R&D (embodied in capital goods and inputs) > FDI and innovation policy integration

45 Find your leading dragon 45

46 The EU W.B. version of NSE: W.B. - EU Integrator Twining industry partnerships Support for domestic firms to become quality suppliers for MNEs. A long-term aim is to increase the number of lines of businesses for and partnerships with MNEs. Program should be evaluated based on share of local firms in overall purchases of the large enterprises and MNEs 46

47 Improve country s absorptive capacity A reform and modernization of universities education and skills are the emerging major constrain. Establish industry and technology specific intra-regional vocation training programs as part of twining industry partnerships Prioritize movement of people between industry and HES/PROs (PhDs) 47

48 Diversification and challenges of managing excellence vs. relevance The exclusive use of excellence criteria may actually freeze science specialisation and thus hinder diversification Funding systems are still inadequate in terms of ensuring industry and social relevance > a stronger involvement of users in evaluation and funding Stronger science vs. weaker innovation constituency

49 Strategic dilemmas of smart specialization RDI policy: in between locally (i)relevant and internationally (non)excellent R&D Excellence Nonexcellence Locally relevant (1) First best/ Virtuous cycle (3) Third best/ Locally relevant but mediocre R&D Locally irrelevant (2) Second best/islands of excellence but not relevant locally (4) Bad strategic option/ Locally irrelevant and mediocre in terms of quality/ Vicious cycle Source: Radosevic Slavo and Benedetto Lepori (2009) Science and Public Policy, 36(9), November 2009, p

50 THANK YOU 50