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How to improve the national innovation systems of the catchingup economies


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Title: How to improve the national innovation systems of the catchingup economies

How to improve the national innovation systems of
the catching-up economies ?
  • Urmas Varblane
  • University of Tartu

  • Aim - to develop the model and implementation
    mechanisms of the national innovation system for
    the small country, which accounts for the path
    dependency, considers late-comer advantage and
    ensures sustainable economic development

  • Which characteristic features and problems of the
    national innovation system are caused by the path
  • Which should be the structure of the national
    innovation system in order to account for path
  • Which are the major advantages and disadvantages
    of latecomers and how to utilise those advantages
    by the national innovation system?
  • How does the country size affect the formation
    and development of national innovation system?
  • Which implementation mechanisms are suitable for
    the path dependent national innovation systems of
    small countries?

The framework of the research proposal
The implementation plan of the project
subtopics, working groups
  • NIS partly overlaps with the three systems
    economic- education- and political system gt
  • Working groups
  • Innovation capabilities, its factors and
    development in the economic system
  • Human- and social capital the role of education,
    research and knowledge in the national innovation
  • The role of the public policy and public sector
    in the innovation system.
  • Methodology how to measure innovations and their

Structure of the presentation
  • development of the concept of the national
    innovation system, its elements and function
  • applicability of national innovation system
    approach in different groups of countries
  • advantages and disadvantages of catching up
    economies as latecomer economies
  • major path dependency related problems in the
    building up of the national innovation systems in
    catching up economies
  • Conclusion and recommendations for using
    appropriate policy measures.

Theoretical perspective on innovation and
learning as socially embedded (Lundvall, 2003)
  • Innovation is a process that is
  • Cumulative
  • Nonlinear
  • Path dependent
  • Context dependent
  • Continuous
  • Interactive Firms do seldom innovate alone
  • Innovation and learning
  • You learn from what you do
  • Innovation as joint production of innovation and
  • Learning is a socially embedded process social
    capital is important

Development and diffusion of the concept NIS
  • Historical roots (Friedrich List,1841) -
    national systems of production - a wide set of
    national institutions including those engaged in
    education and training as well as infrastructures
    such as networks for the transport of people and
  • Freeman 1982 and Lundvall 1985 National
    Innovation System
  • innovation process should be treated in a
    systematic manner - need for systemic approach,
    which integrates institutions to create, store,
    and transfer the knowledge, skills and artefacts.
  • understanding innovation as a complex interactive
    learning process
  • learning is important gt key element in both the
    dynamics of the system and as a key agent in
    binding the whole system together.
  • comparative - could not be an ideal NIS, which
    fits different nations with their specific
    socio-economic, political and cultural

Definitions of NIS
  • Innovation System - a system for generating and
    diffusing new technologies - every country has
    such a system, even if it is weak or low in
  • C. Freeman (1987, p. 1) the network of
    institutions in the public and private sectors
    whose activities and interactions
    initiate,import, modify and diffuse new
  • B.-A. Lundvall (1992, p. 12) narrow NIS
    organisations and institutions involved in
    searching and exploring such as RD
    departments,technological institutes and
  • broader NIS includes all parts and aspects of
    the economic structure and the institutional
    set-up affecting learning as well as searching
    and exploring the production system, the
    marketing system and the system of finance
    present themselves as sub-systems in which
    learning takes place.

Definitions of NIS
  • The elements and relationships which interact in
    the production, diffusion and use of new, and
    economically useful, knowledge and are either
    located within or rooted inside the borders of a
    nation state (Lundvall, 1992 p.12)
  • A set of institutions whose interactions
    determine the innovative performance of national
    firms (Nelson, Rosenberg, 1993 p.5)
  • The national institutions, their incentive
    structures and their competencies, that determine
    the rate and direction of technological learning
    (or the volume and composition of
    change-generating activities) in a country
    (Patel and Pavitt, 1994 p.12)

Definitions of NIS
  • That set of distinct institutions which jointly
    and individually contribute to the development
    and diffusion of new technologies and which
    provides the framework within which governments
    form and implement policies to influence the
    innovation process. As such it is a system of
    interconnected institutions to create, store and
    transfer the knowledge, skills and artefacts
    which define new technologies (Metcalfe,

Definitions of NIS
  • C.Edquist (1997) - includes all important
    economic, social, political, organizational,
    institutional and other factors that influence
    the development, diffusion and use of
  • Galli, Teubel (1997)- a historically grown
    subsystem of the national economy in which
    various organizations and institutions interact
    and influence each other in the carrying out of
    innovative activity.
  • NSI as the set of organizations, institutions,
    and linkages for the generation,diffusion, and
    application of scientific and technological
    knowledge operating in a specific country .

Systemic approach to innovation
  • According to Ingelstam (2002)
  • 1. a system consists of two kinds of
    constituents there are firstly, some kinds of
    components and secondly, there are relations
    among them. The components and relations should
    form a coherent whole (which has properties
    different from the properties of the
  • 2. the system has a function that is, it is
    performing or achieving something
  • 3. it must be possible to discriminate between
    the system and the rest of the world that is, it
    must be possible to identify the boundaries of
    the system. If we, for example, want to make
    empirical studies of specific systems, we must,
    of course, know their extension.

Elements in the system of innovation
  • Players or actors. Organizations firms
    (normally considered to be the most important
    organizations in Sis), universities, venture
    capital organizations and public agencies
    responsible for innovation policy etc.
  • Rules of the game. Institutions are sets of
    common habits, norms, routines, established
    practices, rules or laws that regulate the
    relations and interactions between individuals,
    groups and organizations, (Edquist Johnson,

Nauwelaers, 2003
Edquist, 2001
A generic national innovation system (Arnold, E.,
Kuhlman, S, 2001, RCN in the Norwegian Research
and Innovation System. Available at
Boundaries of innovation systems types of
  • Spatially, sectorally,functionallygt
  • National Innovation Systems (Freeman, 1987
    Lundvall, 1992 Nelson, 1993)
  • Regional Innovation Systems (Camagni, 1991 Cooke
    et al., 1997 Braczyk et al., 1998 Cooke, 2001
    and Asheim Isaksen, 2002)
  • Sectoral innovation systems ( Breschi Malerba,
    1997, Malerba, 2004).
  • Technological innovation systems (Carlsson,
    1995 Carlsson Stankiewicz, 1991)

Roots of the systemic approach to innovation
  • evolutionary theory (Nelson Winter, 1982).
  • firms are a bundle of different capabilities and
    resources (Eisenhardt Martin, 2000 Grant,
    1996 Spender, 1996) which they use to maximize
    their profit.
  • knowledge is not only information, but also tacit
    knowledge it can be both general and specific
    and it is always costly.
  • Knowledge can be specific to the firm or to the
    industry (Smith, 2000).
  • The innovation process is interactive within the
    firms and among the different actors in the
    innovation system.

Activities in the system of innovation(Chaminade,
Edquist, 2005)
  • function of SIs is to pursue innovation
    processes to develop and diffuse innovations.
  • activities in SIs are those factors that
    influence the development and diffusion of
    innovations. Four approaches
  • innovation production process, looking at the
    different activities needed to turn an idea into
    a new product or process. Edquist, (2004),
    Furman, Porter et al., (2002)
  • knowledge production process - how knowledge is
    created, transferred and exploited (emphasis on
    the channels and mechanisms for knowledge
    distribution). (David Foray 1994 Johnson
    Jacobsson, 2003 innovation systems as learning
    systems (Lundvall, Johnson et al., 2002).

Activities in the system of innovation(Chaminade,
Edquist, 2005)
  • 3) organizational performance - organizations as
    the starting point, identifying the activities of
    the different organizations that have an impact
    in the innovation system (Borrás,2004).
  • 4) innovation policy as a focal point gt what
    activities (and organizations) in the innovation
    system can be stimulated by public intervention
    (OECD and other international organizations)
  • criticism - it considers only those activities
    that can be directly affected by public

Chaminade, Edquist, 2005
  • what is the division of labor between private and
    public actors in the performance of each
  • This will provide policymakers with a new
    perspective on
  • a) what role they can play in stimulating
    different activities in the system of innovation
  • b) once the complex division of labor between
    public and private actors has been unfolded, what
    could be the appropriate instruments to do this
  • c) how to identify future research needs.

Activities in the system of innovationproposed
by Chaminade, Edquist, 2005
  • Provision of knowledge inputs to the innovation
  • 1. Provision of RD - creating new knowledge,
    primarily in engineering, medicine and the
    natural sciences.
  • 2. Competence-building (provision of education
    and training, creation of human capital,
    production and reproduction of skills, individual
    learning) in the labor force to be used in
    innovation and RD activities.
  • II. Provision of markets demand-side factors
  • 3. Formation of new product markets.
  • 4. Articulation of quality requirements
    emanating from the demand side with regard to new

The linear model of innovation is dead
Basic research gives birth to an idea and
relevant new knowledge
The old belief was that industrial innovation was
predominantly the result of ideas born in
universities and transformed by companies.
Applied research turns the idea into something
Industry development of new products and processes
The company brings the new product to the market
Activities in the system of innovationproposed
by Chaminade, Edquist, 2005
  • III. Provision of constituents for IS
  • 5. Creating and changing organizations for the
    development of new fields of innovation
    (e.g.enhancing entrepreneurship to create new
    firms and intrapreneurship to diversify existing
    firms, creating new research organizations,
    policy agencies, etc.)
  • 6. Provision (creation, change, abolition) of
    institutions (e.g. IPR laws, tax laws,
    environment and safety regulations, RD
    investment routines, etc) - influencing
    innovating organizations and innovation processes
    by providing incentives or obstacles to
  • 7. Networking via markets and other mechanisms,
    incl. interactive learning between organizations
    (potentially) involved in the innovation
    processes. Integrating new knowledge elements
    developed in different spheres of the SI and
    coming from outside with elements already
    available in the innovating firms.

Activities in the system of innovationproposed
by Chaminade, Edquist, 2005
  • IV. Support services for innovation firms
  • 8. Incubating activities (e.g. providing access
    to facilities, administrative support, etc. for
    new innovating efforts).
  • 9. Financing of innovation processes and other
    activities that can facilitate commercialization
    of knowledge and its adoption.
  • 10. Provision of consultancy services of
    relevance for innovation processes, for example,
    technology transfer, commercial information and
    legal advice.

Problems of the building the national innovation
system in catching-up economies
  • National innovation system approach - proposed
    based on the experiences of high income
    economies, (strong accumulated knowledge base,
    stable and well functioning market system,
    developed institutional and infrastructure
    support of innovation activities).
  • Catching-up economies are different lower income
    level, less accumulated knowledge, weaker
    institutional support etc. plus
  • Path-dependency gt common command economy past,
    which has influenced the whole logic of building
    up their national innovation system

Problems of the building the national innovation
system in catching-up economies
  • Catching-up economies own latecomer advantages -
    extremely high dynamismgt special requirements
    also to the innovation system.
  • Impossible automatically transplant the national
    innovation system concept based on the technology
    frontier countries from Western Europe in the
    catching-up economies of Eastern Europe.

Advantages and disadvantages of coming late
  • Gerschenkron (1962) initial ideas patterns of
    industrialization(imitation, scale economies,
    access to the modern technology at lower costs
    access to already established markets etc.)
  • Perez and Soete (1988) - potential disadvantages
    of latecomers - showed that scale economies are
    industry-specific and technology-specific.
  • Bell and Pavitt (1997) not sufficient for the
    catching-up country simply to install large
    plants with foreign technology the capacity to
    absorb the new technology into the human capital
    stock is also critical.
  • Active learning policies are needed to create
    absorptive capacity defined as the ability of
    a firm to recognise the value of new, external
    information, assimilate it and apply it to
    commercial ends (Cohen, Levinthal 1990, p. 128

Advantages and disadvantages of coming late
  • Abramovitz (1994) accepted the potential for
    catch-up by latecomers, but suggested that
    exploitation of the potential is not an automatic
    process. He proposed that differences in
    countries abilities to exploit this potential
    might be explained with the help of two concepts
    technological congruence and social capability.
  • technological congruence - degree to which the
    leader and the follower country are congruent in
    areas such as market size, factor supply, etc.
  • social capability - capabilities that the
    developing countries have to acquire in order to
    catch up, especially the improvement of education
    and business infrastructure and more generally
    technological capabilities (RD facilities etc.).
  • Freeman (1999) added capacity to make
    institutional changes (social capability for
    institutional change - to overcome learning and
    technology divide(Arcena, Sutz,2003)

Social capability (M.Abramowitz)(1986, pp.
387-390 1994a, pp. 34-35 1994b, p. 88)
  • not only individual skills (acquired through
    education) but collective capabilities - what
    organizations in private and public sector are
    able to do and how it is supported (or hampered)
    by broader social and cultural factors.
  • Social capability
  • technical competence (level of education),
  • experience in the organization and management of
    large scale enterprises
  • financial institutions and markets capable of
    mobilizing capital on a large scale
  • honesty and trust
  • the stability of government and its effectiveness
    in defining (enforcing) rules and supporting
    economic growth.

Technological capability
  • (Chandler, 1977) the scale and scope paradigm
  • focused on the economics of large, integrated
    companies and the social, economic and
    organizational capabilities needed to support and
    finance them.
  • Nonaka and Takeuchi (1995) - concept the
    knowledge-creating company
  • emphasis on exploration and exploitation of
    technology and getting the organizational
    prerequisites for that right (Japanese success
  • Cohen and Levinthal (1990) absorptive capacities
    - the ability of a firm to recognize the value
    of new, external information, assimilate it and
    apply it to commercial ends
  • (Kim 1997, p. 4) technological capability -
    the ability to make effective use of
    technological knowledge in efforts to assimilate,
    use, adapt and change existing technologies.
  • Kim - three aspects of it innovation-,
    production- and investment capability

Capabilities and development - an integrated
framework (Fagerberg, Shrolec, 2007)
National Technological Learning (Watkins, 2007)
ST learning capacity
ST learning opportunities

Knowledge generation capacity
Knowledge absorption capacity
Diaspora and Expats
Capital imports
Export Customers
Inward FDI
ST co-operation
Tree of national technological learning
Human capital accumulation
Creative- isolated
Active FDI-dependent
Aid supported
Passive FDI-dependent
Slow learning
Six models of national technological learning
(Watkins, 2007)
  • Traditionalist slow learning,
  • Passive FDI-dependent,
  • Active FDI-dependent,
  • Autonomous,
  • Creative-isolated,
  • Creative-cooperative.

Advantages and disadvantages of coming late
  • Big gap in technology gtpotential for a rapid
    catch-upgta wide diffusion process of innovations
    needed(UNIDO 2005).
  • East Asian vs.Latin America gtthe importance of
    the technology diffusion management
  • market-induced imitation and organizationally-indu
    ced technology transfer.
  • Matthews (1999) indicates that those are passive
  • East Asia gtactive model of the technology
    diffusion management, which leveraged those
    innovations and quickly turned into technological
    capabilities and competitive products
  • Linkage Leverage - Learning
  • Instead of establishing typical RD support
    institutions suggested by the experience of high
    income economies, they developed a whole network
    of institutions for technology diffusion and also
    organisational capabilities management.

Favourable condition for the diffusion of modern
  • Three major groups of factors allows faster
    technology diffusion
  • 1) Latecomer advantage
  • 2) Openness to foreign trade and investments
  • 3) Foreign direct investments support diffusion
    of technologies in host countries
  • R.Perkins, E.Neuymayer (2005) controlled
  • on three technologies continuous steel casting
    shuttleless textileweaving looms,digital
    telephone mainlines
  • Results First and second holds, third not

Favourable condition for the diffusion of modern
  • Additional factors supporting faster technology
  • 4) Geographical location of the country
    diffusion is geographically localised
    (Globermann et al, 2000Milner, 2003)
  • 5) Level of education. Well educated workers
    are more likely aware about the new technologies
    and bale to master them profitable.(Caselli,
    Coleman, 2001)
  • 6) Social system heterogeneity. Learning
    through social interaction.New technologies
    spread more slowly in socially mixed populations
    (Takada, 1991, Dekimpe et al, 1998)

How technologies spread?
  • Technologies do not spread instantaneously
    diffusion is a long process
  • Models disagree about the reasons behind it
  • Epidemic models gtinformation (Griliches,1957).
    Some firms contact earlier with technologies
  • Firms heterogeneity (Ireland, Stoneman, 1986)
  • differ by organisational, environmental etc.
  • (firms capital stock, human capital,
    available credit)
  • gt economic returns on adoptation are
    different (Blackman 1999).
  • CONSEQUENTLY countries with skilled labour,
    high capital labour ratio, low interest rates
    are first adopters. They could also better absorb
    potential losses from the absorption of
    technology (Bell, pavitt, 1997 Todaro, 2000)

Why and how latecomer economies could diffuse
technology more rapidly
  • Key assumptions
  • 1. Latecomers could take advantage of
    technological advantage made by first-comer
  • Directly - FDI, technology purchases (importing,
  • Indirectly knowledge spillovers (imitation,
    reverse engineering, transfer of know-how by
    movement of employees etc.
  • They can obtain technology cheaper not paying
    the full costs of RDgtleapfroging decades of
    technological porgress (Teece, 2000)

Why and how latecomer economies could diffuse
technology more rapidly
  • 2. Latecomers are able to diffuse new technology
    across their economic structure faster due to
    latecomer advantage
  • Two sources of latecomer advantage
  • a) Level of capital stock. They need to install
    capacity may choose technologies. Less inertia
    in technological change (Clark, Wrigley, 1999
    Amiti 2001)
  • b) Learning investments and increasing net
    returns to adoption over time (they can take
    advantage of accumulated learning of frontrunners
    about using the new technologies). (Dekimpe et
    al, 2000)

General Background of IndustrialDevelopment of
1.2 Economic Take-Off with Outward-looking
Development Strategy (5/5)
KOREA - Changes in Export Commodity Profile
From Light Industry to Heavy Industry
Semiconductor, Mobile Phone, DTV, Display,
Automobile, Ship-building, etc.
Export Commodity Profile
HCI Product
Light Industry Product
Agricultural Product
Example of building a National Innovation System
Korea (1)
  • Original condition
  • Unbalanced industrial development
  • Strong final assembly industry, but weak capital
    goods and system integration industry
  • Unbalanced National Innovation System
  • Underdevelopment of university research system
  • Dormant industry-academic cooperation
  • Lack of infrastructures for creative innovation
  • Lack of investment in basic science
  • Weak protection of intellectual property rights
  • Underdevelopment of venture financing and support

Korea (2) Innovation Strategy
Promote balanced National Innovation System
  • Vitalization of university research
  • Networking among Industry, academia, govt

Sustain infrastructure for creative innovation
From supply push To demand pull
  • Mission-oriented governmental
  • RD programs
  • Technology targeting
  • Sustained investment for
  • basic science (KIAS)
  • Increased protection for
  • intellectual property rights
  • Promotion of venture companies

Latecomer firms (Mathews, 2007, 2005, 2002)
  • strategic goal - to catch up with the advanced
    firms and to move as quickly as possible from
    imitation to innovation.
  • able to exploit their late arrival to tap into
    advanced technologies (do not replicate the
    entire previous technological trajectory)
  • bypassing some of the organizational inertia that
    holds back their more established competitors.
  • Linkage with the global value chains as
  • Through linkage latecomer firm could acquire from
    more advanced firms knowledge, technology, and
    market access
  • It is this capacity to secure more from a
    relationship than the firm puts in, that we call
  • linkage and leverage can be repeated over again
    until firm or group of firms enhance their
    capabilities and become, potentially, advanced
    players (industrial learning).

Latecomer firms (Mathews, 2007, 2005, 2002)
  • The institutional innovations involved are all
    concerned with the capture of technologies in
    timely fashion
  • the building of capabilities in these
    technologies, such as in government-owned RD
  • the diffusion of these capabilities as rapidly as
    possible to the private sector (e.g. through a
    sequence of targeted RD consortia).
  • Mathews calls it as the national system of
    economic learning
  • the process involved is the management of
    technological diffusion, or technology diffusion
  • Technology Leverage Institution (TLI) is needed
    (like Taiwanese Industrial Technology Research
    Institute, ITRI)
  • task of the TLI is to identify technologies of
    interest to a developing country, fashion
    strategies for acquiring technologies, adopting,
    adapting and diffusing them to the firms in the
    country, where they can be used to build new
    businesses and industrial sectors.

Technology Leverage Institution (TLI)
  • not be engaging in fundamental scientific
  • would be concerned strictly with identifying and
    evaluating available technologies.
  • provide shared RD services for existing and
    emerging industries in the developing country.
  • Technologies already being used are subject to
    testing to see how they can be improved
  • technologies used by rivals and competitors are
    constructed and analyzed
  • potential technologies that could substitute for
    the ones in use are being evaluated.

Overview Industrial Technology Research Institute
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Sources of early mover and latecomer advantages
Generic Technological Capability Development
Routes of Latecomer Firms (Poh-Kam Wong, 1999)
  • "Reverse Value Chain" Strategy (from OEM to ODM
    to OIM or OBM)
  • OEM (Original Equipment Manufacturing)Original
    Design Manufacturers (ODM)
  • (Original Idea Manufacturing OIM) (Own Brand
    Manufacturing (OBM)).
  • Reverse Product Life Cycle Innovation Strategy
    ("Late-follower" to "Fastfollower")
  • Process Capability Specialist Strategy
  • Product Technology Pioneering Strategy
  • Applications Pioneering Strategy

Generic Technological Capability Development
Strategies ofLatecomer Firms from Late
Industrializing Economies
(Poh-Kam Wong, 1999)
Key Technological Learning Processes for the Five
GenericTechnological Capability Development
Dominant Generic Technological Capability
Development Routes in National Innovation System
Models of three NIE
(Poh-Kam Wong, 1999)
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Innovation processes are path-dependent
  • Evolutionary characteristics - we do not know
    whether the potentially best or optimal path is
    being exploited.
  • The system never achieves equilibrium, and the
    notion of optimality is irrelevant in an
    innovation context. We cannot specify an ideal or
    optimal innovation system
  • Comparisons between an existing system and an
    ideal or optimal system are not possible, instead
    comparison with the other countries is available.
  • Instead of market failure the term systemic
    problems or systemic failures are used.

Systemic problems mentioned in the literature
include (Smith, 2000 Woolthuis, Lankhuizen et
al., 2005)
  • infrastructure provision and investment,
    including the physical (IT, telecom, transport)
    and scientific infrastructure (universities,
  • transition problems the difficulties that
    might arise when firms and other actors face
    technological problems or changes in the
    prevailing technological paradigms that exceed
    their current capabilities
  • lock-in problems, derived from the
    socio-technological inertia, that might hamper
    the emergence and dissemination of more efficient
  • hard and soft institutional problems, linked to
    formal rules (regulations, laws) or nonformal
    (such as social and political culture)
  • network problems, derived from linkages too
    weak or too strong (blindness to what happens
    outside the network) in the NIS
  • capability problems, linked to the transition
    problems, referring to the limited capabilities
    of firms, specially SMEs, their capacity to adopt
    or produce new technologies over time.

Development of the national innovation system in
countries with command economy past
Development of the NIS in the countries with
command economy past
  • Movement from the one extreme full state
    dominated model to the extreme laissez faire of
    model (subparts strongly isolated, role of the
    state weaker than in the Western countries)
  • Systemic change created huge instability in the
    economy and society gtBeing successful required a
    lot of efforts and therefore attempt to be able
    to solve problems individually (on the level of
    single person, firm or academic institution)
    became dominating.
  • Competition was the key notion and cooperation
    was seen as the threat to the individual success.

Path dependency problem
  • inefficiencies and ineffectiveness of NISs may
    be partly related to path dependence and lock-in
    situations (evolutionary and historical economics
    - Niosi, 2002).
  • In the case of the new EU member-state - path
    dependency of the whole system of innovation.
  • The change in 1980s was systemic, majority of the
    components of the innovation system changed, but
    at different speeds as some components were
    easier to change than others. Misfit between
    components of NIS (Replacement of fixed assets
    vs. introducing institutions guiding economic
    transactions like trust)
  • Subjective factors - policy makers do not want to
    face up to this issue. Wishful thinking and
    neglect of path dependency is very dangerous the
    result is action plans that are inadequate, and
    in any case not implementable.

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Path-dependency problems of building the national
innovation systems in the catching-up economies
  • dominating role of the linear innovation model
    and neglecting demand
  • confrontation between high and low tech
  • overvaluation of the role of foreign direct
  • lack of social capital and network failures
  • weak innovation diffusion system and low
    motivation to learn.
  • underestimation of the role of public sector in
    the national innovation system

Passive FDI-dependent learning
  • passively relying on FDI to bring in new
  • low ST learning capacity,
  • no or weak government technological strategy,
  • limited opportunities for technological
  • high risk of losing in economic competition
    with poorer, lower-wage countries.

Active FDI-dependent learning
  • relatively high ST learning capacity,
  • active government strategy aimed at building
    national human capital and accelerating national
    technological learning from FDI,
  • active targeting of the most beneficial FDI,
  • much wider opportunities for technological
    learning from FDI,
  • lower risk of losing in economic competition
    with lower-wage but lower-skill countries.

Weak innovation diffusion and low motivation to
  • Success of the catching-up economies depends on
    the capability and willingness of actors within
    NIS to search for, adapt and utilise knowledge
    produced outside those countries.
  • In this process they need specific skills to
    understand the knowledge stock, and to be able to
    use it and adapt it to create new knowledge.
  • Nonaka (1991) has argued that learning about new
    technologies requires significant levels of
    absorptive capacity as a condition of being able
    to diffuse technologies produced elsewhere.
  • Knowledge needed to absorb new technologies is
    often not available in codified form. Since
    effective learning involves both tacit and formal
    components, a key task is to capture and codify
    to make learning explicit.

Weak innovation diffusion and low motivation to
  • Information about the innovations and
    technologies is neither free nor widely
    available, particularly for small firms.
  • The majority of firms in catch-up economies are
    small in terms of the scope of management
  • Mechanisms to raise awareness of the available
    innovations, and the means of access to the
    relevant channels of communication, need to be
    organised explicitly - to help firms to identify
    which technologies they need, and thus avoid the
    pitfall of inappropriate technologies.
  • (Analysis of Estonian regional ST intermediary
    system revealed - intermediaries do offer
    services like technology watch collecting
    information on relevant existing technologies and
    technological audit, but the employees of these
    intermediaries are not competent enough. Usually
    the employees of SMEs know much more about new
    technologies and production possibilities
    existing in their area than intermediaries.
    Previous is mainly problem in RD intensive

Weak innovation diffusion and low motivation to
  • In latecomer economies with a command economy
    past, the technology transfer problem is really a
    problem of learning in enterprises and
    intermediaries. To increase the learning capacity
    of the whole society.
  • Rapid catch-up requires rapid learning.
  • But learning is not automatic there must be
    motivation to enter the learning cycle.
    Overcoming path dependency in thinking.
  • Where catch-up is already proceeding rapidly
    (e.g. Baltics) the lack of extra-organisational
    stimulus to change can become a serious problem.
  • As long as the existing business model continues
    to generate steady, rapid growth, it is extremely
    difficult to persuade the actors in the
    innovation system (not only firms, but also
    policy-makers and non-market institutions) to
    enter into the learning cycle in a serious

Weak innovation diffusion and low motivation to
  • The latecomer advantages have created short-run
    success, and this in itself has tended to result
    in very low motivation to create learning
  • Firms often fail to learn because they are
    isolated and lack support for key stages in the
    process, partly because of elements of path
    dependency stemming from the old planning system.
  • Practical experience suggests that learning can
    be supported by structures and procedures to
    facilitate the operation of the learning cycle,
    and that this, indeed, is the mark of a properly
    functioning innovation system.

(No Transcript)
  • The task of innovation system in this case should
    be to move firms up the ladder described in
    Figure 1.
  • It requires activities in two directions.
  • Firstly, to encourage firms to improve their
    capacity to absorb technologies from abroad and
    innovate by providing access to different sources
    of technologies.
  • Secondly, to improve the internal motivation of
    firms to change, which requires providing data
    for firms about their relative position comparing
    with the best practises in the world.

Conclusions for the improvement of the NIS in
economies coming from systemic change
  • Precondition - consider the path dependency
  • a) Linear innovation model should be replaced
    with the balanced interaction based approach
  • Innovation should not be equalised with RD -
    understanding that non-RD dimensions of
    innovation are equally important for catching up
  • b) Discrimination of low tech industries
    allocating majority of resources into creation of
    high tech sector is not appropriate policy
    instead funding of the use of high technologies
    in traditional industries and services
  • c) Support the development of the system of
    absorption and diffusion of knowledge produced
    outside and inside of the catching-up economies

Combining high technologies with traditional
industries and services
  • Traditional
  • industries Services

It requires motivation from both side, adequate
knowledge base needed Instruments of innovation
policy also play a role
Conclusions for the improvement of the NIS in
economies coming from systemic change
  • d) On firms level
  • encourage motivation of firms to change
  • support the process of building absorptive
    capacities of the firms.
  • e) lack of managerial and organisational skills
    are very important barriers of innovation (even
    more than better access to modern technology) and
    should not be overlooked.
  • f) Integration of local firms into networks of
    foreign investors should be supported. Selection
    must be used by FDI policy in catching up
  • g) Technological path-dependency could be used
    not as a threat but as an opportunity. Resistance
    to change is weak and offers an opportunity to
    skip the whole generation of technology and
    introduce new solutions.

The typology of services (Innovation in Services
Typology, case studies and policy implications)
  • Problem solvers create value by solving specific
    and unique problems for their customers. Low
    standardization. Suppliers provide services that
    the clients are not able to produce themselves
    (law firms, medical doctors, engineers,
    architects, and researchers)
  • Producers of assisting services generate customer
    value by taking over time consuming activities
    for firms and households that are easy to
    standardize (Security services and cleaning
  • Producers of distributive services - value
    through facilitation of interaction between
    customers (e.g. selling goods and transporting
    commodities, passengers and information). A large
    sub-group operates predominantly through digital
    channels (telecom or financial services. Due to
    the large scale and productivity effects of
    operating in such channels split into digital and
    manual distributive service providers.
  • Producers of leisure services generate values by
    stimulating the emotions, perceptions and
    spiritual experience of customers. Highly
    heterogeneous. (sports, arts, entertainment,
    restaurant services and media services).

Policy areas of importance to services
Innovation in Services Typology, case studies
and policy implications. ECON Report, 2006, Norway
Tertiary graduates by field of study (2002)
Source OECD (2004), Education at a Glance.
Source OECD, Main Science and Technology
Indicators database.
From science and technology policy to innovation
policy (NIFU-STEP, 2005)
  • 1st generation Science and technology policy
  • Focus on research and especially research in
    universities and laboratories
  • Ministries of industry/economy (industry policy)
    and research/education (science policy)
  • 2nd generation Innovation policy
  • Focus on policy measures and institutions
    targeting the innovative capabilities of firms
  • Ministries of industry/economy and
  • 3rd generation holistic innovation policy
  • Focus on institutions and policy measures that
    directly or indirectly influence the innovative
    capabilities of firms
  • Most ministries

Now A more complex understanding of innovation
  • Innovation takes place in complex systems of
    companies, knowledge institutions, financial
    institutions and within a extensive regulatory,
    social and cultural framework.
  • Innovation is based on complex learning processes
    involving a large number of persons, all with
    different educational backgrounds and
  • Innovation thrives on spillovers and unexpected
    combinations of persons, existing knowledge and

The company centred model of the innovation system
Industrial system
International setting
Policy organisations
Research institutions
  • Learning
  • Networking
  • Innovation

Financial institutions
Cultural environment
Regulatory framework
The basis for systemic innovation policies
(NIFU-STEP, 2005)
A changing framework for innovation policy
National System of Innovation (Nauwelaers, 2003)
  • Increased awareness of the role of innovation as
    crucial ingredient for economic development
  • Interactive view of innovation innovation
    differs from RD
  • System-based approach to innovation, emphasis on
    learning and diffusion / absorption of knowledge
  • Mobility of tacit knowledge embedded in
    humansbecomes a key performance factor
  • Glocalisation localised nature of (tacit)
    knowledge spillovers - importance of global

Policies for innovation systems (Nauwelaers,
  • From picking-the-winners towards
  • System performance is mainly determined by the
    weakest node
  • From stocks to flows as main focus of policy
  • Flows in the system need to be addressed in
  • From raising resources towards promoting
  • Performance is affected by learning abilities of
    firms and others
  • From best practice towards context-specific
  • Policies should be fine-tuned to specific system
  • From standard policy-making towards policy
    learning process
  • There is a need for more strategic intelligence
    in policy-making

Policy Conclusions (I)
  • Effectiveness of innovation systems depends on
    balanced combination of 3 capacities
  • creation of knowledge
  • diffusion of knowledge
  • absorption of knowledge
  • Governments role shifts from investor to
    facilitator - promotion of public/private
    partnerships and interface management
  • Growing importance of framework conditions
  • entrepreneurship
  • competition rules
  • labour market conditions
  • social capital, ...

Policy Conclusions (II)
  • Danger of fragmentation of innovation policy
    need for intra-government policy coordination
  • Increasing role of regions for innovation need
    for vertical policy coordination
  • More efficiency through Policy packages rather
    than isolated instruments
  • Need for more policy intelligence
  • monitoring and evaluation of policies
  • sound analyses of innovation systems
  •  intelligent  benchmarking practices
  • long term views
  • inclusive policy design processes

A Simple Taxonomy of Science, Technology and
Innovation Policies
The Impact of RTD on Competitiveness and
Employment (IRCE), EC, 2003
Social capital and the small country
paradox(slide from B.A.Lundvall)
  • Small size (cf. The costs of respectively
    production and reproduction of knowledge) and low
    tech specialisation should be a serious handicap
    for small countries and especially for Denmark
    but small countries perform better than big ones
    in the new economy why?
  • In the learning economy speedy adjustment,
    learning and forgetting is rooted in social
    relationships. Trust, loyalty and ease of
    communication is easier to establish in
    culturally homegeneous nations with shared
    responsibility for the costs of change.

Export Structure by Technology Category Producing
what vs. producing how