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Sanjaya Lall. Scholar, Mentor, Father, Husband, Friend. Slides and Pictures of and by. Sanjaya Lall. A primer on industrial and technological innovation. Sanjaya Lall Oxford University. What is innovation in developing countries?.
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Sanjaya Lall Scholar, Mentor, Father, Husband, Friend
Slides and Pictures of and by Sanjaya Lall
A primer on industrial and technological innovation Sanjaya Lall Oxford University
What is innovation in developing countries? • ‘Innovation’ is usually considered the creation of technology that is new to the world: this is quite different from using, adapting, improving existing technologies • Evolutionary theories regard this a false distinction: both involve search, risk, effort and building new skills & routines • In poor countries, innovation is largely absorptive & adaptive. Over time it grows more ‘innovative’ in the normal sense
The new setting for industrial innovation: competing in a globalized economy The ‘death of distance’ leads to more immediate, widespread and intense competition than before, affecting most industrial & supporting activities It changes the dynamics of industrial and export activity, shifting the structure towards technology-intensive products and activities It makes it imperative for all productive activities to constantly access and use new technologies, while raising the minimum entry levels
New players, opportunities and threats It raises the role of MNCs in innovation, technology transfer, production and particularly exports. Around 2/3 of world trade is handled by MNCs, about 1/3 is within companies It changes the organization of world trade, with more tightly knit value chains, stronger role for lead players (MNCs or buyers) and higher minimum entry levels Globalization offers unprecedented export and employment prospects: new markets, inputs, specialization in ‘fragmented’ production, services and now R&D: it also faces enormous challenges to those on the periphery
Competing needs greater openness to trade & technologies, but it needs more… • Passive opening is not enough to ensure new technologies are used competitively • The efficient use of technology needs the development of new skills, routines, institutions, rules and infrastructure • This requires building a local learning and innovation system, to absorb the technology and then root it and improve on it over time • The process can be slow, costly & prolonged: it needs policy support at critical points • FDI can play a critical role in the process but only under the right conditions and with the right policies
Risks and challenges arising from inherent nature of innovation • Learning needs infant industry promotion, but this is difficult to manage because of coordination and implementation problems • Cumulative learning, agglomeration, path dependence lead to continued divergence between leaders and laggards • FDI spreads very unevenly, particularly in innovation and high technology activities • ‘Rules of the game’ tightly constrain policy space to develop new capabilities
Innovation involves 5-step strategy Promoting shifts across activities into dynamic & technology intensive activities Promoting learning within activities that promise sustained growth and exports Step 2 Step 2 Promoting learning across linked industries, clusters, value chains Step 1 Step 3 Step 5 Leveraging local capabilities with international factors & value chains Coordinating learning in industry with factor markets & institutions Step 4
Innovation is relocating, as firms… • Focus on core competencies and outsource non-core components, activities & functions • Rely more heavily on cooperative design, development and research by suppliers, especially first tier suppliers. • Look for more economic sites across the globe • Develop organisational and management techniques to manage complex networks over long distances • Governments facilitate FDI & service offshoring
But industrial success is highly concentrated
Manufactured export values ($ m)… East Asia SSA total & SSA ex. SA & Mauritius LAC S Asia MENA
Export concentration at the country level(12 countries provide over 80% of developing world manufactured exports) All dynamic exporters are integrated into global production networks, by FDI or building local capabilities
Exports of ICT & other commercial services also highly concentrated
The top end of service offshoring: the globalization of R&D • China and India are the main recipients of offshored R&D by developed countries • India is now regarded the best location for many kinds of R&D: software, CAD/CAM engineering, chemicals, pharmaceuticals & biotech. It is also becoming a highly desirable site for FDI in general • Latin America gets more FDI per capita but is not geared to hi-tech production (except Mexico) or R&D (except Brazil)
Explaining competitive lags… • Conventional wisdom: poor governance, instability, external shocks and poor business climate. These matter but do not fully explain the lags in the lagging regions • Structural gaps are more important – and more difficult to remedy: • Domestic capabilities: Skills (esp. tertiary level skills) and technological effort • Leveraging: Attraction of FDI and entry into global production networks (linked to targeting and domestic capabilities) • Supporting institutions: S&T, R&D, universities, SME extension, worker training and so on
Malaysia & Thailand are at about 25-30% NOS. OF GRADUATES P.A. IN CHINA (MILLION) China’s tertiary enrolment rose from 2% to >20% in about 20 years Within Africa (tertiary enrolments as % of relevant age group) Korea and Taiwan are at 50-70%
High level technical skills (tertiary technical enrolments per 1000 people)
Determinants of global R&D location • China and India are the main recipients of globalising R&D though on a per capita basis they rank relatively low on all innovation measures • Other factors also affect R&D location: • The availability of a minimum critical mass of researchers • The cost of researchers • First mover advantages • Agglomeration economies, particularly with IT and software, universities and other private research centres • Base of existing R&D activity • Quality of R&D and knowledge institutions • The business climate and incentives for R&D • The structure and complexity of the industrial sector (particularly important for adaptive R&D)
Shares of R&D in developing and transition world: the 12 leaders
Developing world FDI distribution 10 COUNTRIES GET 80% OF FDI IN THE DEVELOPING WORLD: AND THEIR SHARE IS RISING OVER TIME
Pharmaceutical R&D offshoring • Despite the size of the Indian industry, its R&D is small. The leaders are ambitious: Ranbaxy had 900 R&D staff and spent about 7% of sales on R&D in 2004; it plans to raise it to 10% by 2007 • MNCs currently outsource 26% of drug R&D & this may rise to 36% by 2008. India could attract a lot of this. Around $200 million is likely to be outsourced to India in 2005. • Clinical trials are already attracting MNCs. Pfizer has invested around $13 million in India in this • Strength of Indian industry is direct outcome of earlier industrial and IPR policy: both ruled out now
Minimum critical mass: the availability of skilled manpower, 2001
Where will global innovation go in the developing world? • R&D, and innovation more broadly, will remain concentrated in countries with: • Large pools of cheap scientific manpower • Advanced science institutions • Aggressive government policies on R&D • First mover advantages (reputation, networks, reliability of IPRs, knowledge clusters, strong local firms and research institutions) • If innovation diverges, so will growth of productive sector and incomes
This is unacceptable in development, political and equity terms • Growing divergence between ‘haves’ and ‘have-nots’ is travesty of development, and is harmful in many other ways • Divergence is set to grow with current globalization and liberalization trends • Part is driven by basic technological forces but part is due to misunderstanding of role of policy – and growing constraints on policy imposed by the rules of the game
The way forward… • Provide objective and detailed analysis of effects of successful innovation policy • Create more policy space and help countries build the policy capabilities needed • Actively assist governments in designing, implementing and monitoring strategy – a reversal of the current orthodoxy • Throwing money at the problem with current policies (e.g. UK Africa Commission) may be humanitarian but will not help sustained growth
