Transcript [Project Name] Post-Mortem

Digital ecosystems and regional
innovation systems as public
goods for economic development
Olga Memedovic
UNIDO, Private Sector Development Branch
Brussels, 7 November 2007
[email protected]
UNITED NATIONS
INDUSTRIAL DEVELOPMENT
ORGANIZATION
Contemporary Globalization and its Drivers
Advances in ICT; organizational innovations;
internationally accepted product standards
and business process protocols
Liberal trade and investment regimes have
created incentives for
Modularization in all stages of a
production value chain
Outsourcing of the segmented activities
to specialized producers in different
locations around world
Functional reintegration of the geographically dispersed
fragmented activities into new border-spanning business
arrangements of global value chains (GVCs) and production
networks; TNCs have a key role in organizing and coordinating
these new business formation of global value chains and
networks
ICT
application
in transport,
supply chain
management
and logistics
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The effects: New concept of industry: from linear to interactive VC; Vertical
specialization; No clear division between manufacturing and services; Offshoring and
outsourcing in R&D: transition from an intra-firm knowledge base to an distributed intraGVC/GPNs knowledge base
Consumption /after sales
Marketing and sales
Consumption, Disposal and
Recycling
Marketing and Sales
Outbound Logistics
Manufacturing
Manufacturing
Inbound Logistics
Design and product
development; in house
R&D
Design and Product
Development; R&D
offshoring
Source: Memedovic, 2002, 2005, UNIDO
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INDUSTRIAL DEVELOPMENT
ORGANIZATION
GVCs and GPNs
GPN1
Keystone:
BMW, Fiat, Reno
GVC 1
Capitalintensive
Manufact.
Logistics'
VC
GPN2
GVC 2
Branding
&
marketing
Keystone: : large buyers, retailers: Zara; H&M
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Implications
Pressures for specialization and increased interdependences
Modularisation leads to commoditization of technological knowledge ⇨ the way out is innovation ⇨ the
company concept changes into an continuous innovator as competition drivers change: from efficiency and
effectiveness to continuous innovation and learning
Ideas and how to commercialise them become key resources for the knowledge-based economy
Technological advances in activities must co-evolve and complement each other for the the system to
function as a whole ⇨ Many technologies are used to create a product
 Intra-GVC knowledge flows takes place between industries and countries/regions
with different degrees of R&D-intensity
Conceptual distinction between high- and low-tech industries is weakened
 Regional knowledge capabilities begin to determine business location: Countries compete based on their
unique regional competitive advantages: GE in Bangalore, Microsoft in Beijin.
Tendency for coordination of production processes without ownership
Production coordination is achieved through shared vision
 Innovation is becoming more expensive and complex ⇨ Increasing demand for undertaking
more complex tasks in production and in management and for higher rates of innovation and at lower prices
⇨shift to open innovation model
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ORGANIZATION
Traditional corporate laboratories increasingly closed or downsized: companies
offshore and outsource R&D functions (Pharmaceutical firms outsource 50% of their
R&D)
Closed innovation model
Open innovation model
 Firms select desired
 Strategic R&D – integral to business





technologies
Firms perform R&D in-house
Firms put technologies in
products
Product revenues fund
additional R&D
Globalisation (1): adjusting
products to markets



After Cooke, 2006
strategy
Technology acquisition (licensing,
corporate venturing, alliances)
Externalisation of R&D (outsourcing,
firms research institutes, university
centres of excellence)
Knowledge management & collective
intelligence: central role of new ICT
technologies
Globalisation (2): tapping global talent
pools
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INDUSTRIAL DEVELOPMENT
ORGANIZATION
GVC + GPNs = Business Ecosystems (BE)
Spreading of GVC and GPNs suggests complex economic organizational forms ⇨ also
described as ‘business ecosystems’ in the modern business thinking (ecosystem metaphor)
BE = a complex network of interdependent niches occupied by organizations that are open to
all potential contributors and creative participant (Moore, 2005).
Leading firms (keystones ecology metaphor), occupying certain niche, coordinate co-
evolution and integration of innovation across numerous contributors spread around different
locations of the world; Their impact on the BE community (+/_) may be very strong and is also
context (industry) specific.
Every agent in the space is facing continuous challenge to keep up with others in the BE co-
evolution supported by keystones. Cooperation and competition is necessary for innovation
and for creation of complementary capabilities.
Key policy challenge is understanding:
 Structure and functioning of the specific BEs
Underlying mechanism of governance the BEs: concentration of power, barriers to
participation, interactions and functional significance of keystones and other agents ⇔
Importance of research and ICT for collecting and processing data for monitoring system
functioning (benchmarking innovation achievements, pricing and margins, competitive
corporate strategies, etc.)
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Digital ecosystem (DE)
Self-organising system, providing a digital environment for networking
among organizations (SMEs) in BE. It supports cooperation, knowledge
sharing, and development of adaptive technologies and new business
models.
Similarly to BE, DE can be context specific and can be tailored to the
specific local needs.
DE tools allow concerned stakeholders to contribute their knowledge to
achieve shared vision.
DE comprise:
Technical infrastructure: hardware devices
Services and formalized DE knowledge
Regulatory: laws and regulations, contracts, etc.
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Key opportunities for internalisation of EU
SMEs, arising from this setting
 Fragmentation in production ⇒ new market niches for products and services in
which SMEs can position themselves, utilizing their comparative advantages in
achieving flexibility, innovativeness, personalized contacts and quality of
products.
 New opportunities for the international sourcing of specialized skills (scarce),
which SMEs’ poses
 SMEs can internationalize faster and cheaper through BE supported by DE
 SMEs can participate in different BEs/DEs (regional/global), hence securing their
growth
 SMEs can follow on the strategy of the firms in the BEs and engage in
outsourcing and offshoring
 SMEs can learn and innovate in fast track manner through BE/DE
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Key challenges for SMEs
More and more demanding markets
Increasing number of standards and requirements set by leading players in BEs
Lack of understanding of the upgrading challenge in the particular BEs in which they
participate: understanding BE characteristics (structure, governance, geography).
Lack of awareness of their competitive strength
Insufficient access to information and training; limited managerial skills and financial
resources
Inadequate support for technological innovation and learning
Lack of direct contacts with customers: How to avoid captivity in BEs? How to
protect their IPRs?
How to reduce SME vulnerability and high mortality rate?
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INDUSTRIAL DEVELOPMENT
ORGANIZATION
BE and DE as public goods
The emerging DBE involve different types of externalities (positive and negative).
From externalities the specific domain of public goods emerges: information, new
knowledge and various kinds of innovations: organizational, institutional,
commercial, social and legal are arising from coordination and co-evolutionary
exchanges in the BE in interaction with DE
PG benefits can spread beyond the administratively defined borders, and can
become regional or even GPGs. Their benefits can also be inter-generational,
resulting in innovations that are of benefit for the future generations.
 The BE and DE organizational forms can also be considered as PGs in that they
facilitate collective provision of these PGs and these in turn reinforce collective
action and leads to increasing return to scale (e.g. their value to any participatory
agents increases as more innovative agents join in).
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BE and DE as public bads
Public bads result from negative externalities like environmental degradation;
monopolistic behavior, knowledge asymmetries, captivity for industrial upgrading;
or computer viruses, spamming, dissemination of undesirable materials (child
pornography).
Key policy challenge is to understand the PG nature of BE and DE and to provide
complementary PGs needed so that society can benefit from PGs and internalize
externalities (reward positive and penalize negative).
Complementary public goods: in the case of BE those are lows, regulations and
their enforcement, and monitoring systems to be able to correct for public bads.
In the case of DE, those include provision of technical infrastructure, laws and
regulations on norms and standards, and capacity building to process information.
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INDUSTRIAL DEVELOPMENT
Structural and Framework Factors –
ORGANIZATION Incentive Systems
Public/Private Governance
Public Goods
Public Goods
GOVERNANCE
RULE System
of LAW
Political
Asymmetric Information
Externalities
Macroeconomic Policies
FINANCIAL STABILITY
Investment
Microeconomic Policies
KNOWLEDGE /INFORMATION
And
Rule of law
ENVIRONMENT Competition
INFRASTRUCTURE
Institutional Support System
S, T&E System
Resources
PPP
(Capital
)
Resources
Collective Actions:
Corrective
action
Players
Human capital
HUMAN
PPP
Social
capital
SOCIAL
Natural
capital
NATURAL
Market&
Government
NGOs
and market failures
Market failures
Innovation
&
Innovation and
Technical change
Technical
Change
Productivity
Productivity
Quality
Quality
growth
growth
Physical
capital
PHYSICAL
Private sector
Private sector
(not for profit)
Asymmetric
Information
Externalities
Private
Government
sector
(for profit)
Barriers to entry
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Public goods characteristics
They are non-excludable in their supply: there is no easy way of preventing
someone from having access to their consumption ⇒ it is not easy to limit the
supply of PG only to those who are willing to bear the costs of supplying them for
society ⇒ free riding: potential users may hide their preferences for the good and
wait till they are supplied and then consume the good for free.
They offer non-rival benefits: consumption by one agent does not diminish the
availability of the good’s benefit for others. ⇒ zero marginal costs of use ⇒
exclusion is inefficient ⇒ welfare is not maximized by exclusion
Externalities (positive/negative)
Agent actions have negative or positive consequences for others and these are not
taken into account in the decision process that generates those effects and are
uncompensated.
( Samuelson, 1954)
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Provision of Public Goods
Characteristics of PGs (non-excludable and non-rival) and externalities ⇨ There are no
market incentives to make an optimal decisions ⇨ leaving their provision to the market means
their undersupply ⇨ the logic of individual interests results in a socially less than optimum
response ⇨ resources are not efficiently used and prospects for economic development are
affected.
Collective action (planned effort by two or more agents to act together to achieve result
desirable for all) becomes necessary to supply PGs, through coordination, cooperation or
coercion.
When mutually beneficial goals are not sufficient to ensure the voluntary participation in a
collective action (“collective action failure”), institutional innovation to facilitate strategic
interactions conducive to cooperation among individual agents are called for.
At the country level, that response is directed through the available institutional framework,
with the nation state at the center. At the supranational level, the response has to be initiated
through various forms of institutional innovation and voluntary coordination and cooperation,
generally among countries.
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ORGANIZATION
PGs Provision Principles
The subsidiarity principle = a match between the decision-making jurisdiction
and the spillover range of the public good: a national PG should be provided by
a national government, a supra-national regional PG by a supra national
regional organization, and global PG should be supported by an international
organization.
The subsidiarity principle may be counterproductive when there is :
Economies of scale in PG production or distribution. Then, it is more efficient to
search for institutional solutions with a larger jurisdictional remit aiming to
explore the advantages derived from increasing returns from scale.
Economies of scope, unit costs decrease as more public goods are provided
Economies of scale and scope suggest that it might be advisable for the
institutional response to have a wider jurisdictional coverage
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INDUSTRIAL DEVELOPMENT
Local,
regional and global impacts
ORGANIZATION
Regional
Local
Regional
Global
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INDUSTRIAL DEVELOPMENT
ORGANIZATION
Institutional Innovation for PG provision
Supra national EU
level
Instruments
Formal coordination
EU/ ECB
System of Enforcement
by Sanction:
Stability & Growth Pact
Voluntary coordination
Guiding Rules:
Luxemburg and Cardiff
Process
Lisbon strategy
UNITED NATIONS
INDUSTRIAL DEVELOPMENT
ORGANIZATION
Globalization and Regional Innovation Systems (RIS)
Globalization proceeds through BEs linking nodes of economic power, which tend to
concentrate in certain regions or knowledge centers.
Region (administratively defined within a country) becomes the strategic level for innovations,
technological learning and upgrading.
Increasing interdependences between regions and nations ⇨ it is important to maintain core
competences/activities in the location/region and to upgrade this activity through RIS.
For acquiring technological competences interaction between local and global knowledge
networks are also needed, and this is best achieved at the regional/cluster level.
Key challenge for the region becomes: How to deal with asymmetric knowledge capabilities and
with imbalances between knowledge exploration and exploitation (commercialization)? EU
Challenge: Is Europe becoming an exploration Platform for US?
For policy: RIS, learning regions, industrial cities and clusters can guide public policies to
support firm upgrading, productivity and competitiveness and for achieving long-term,
innovation-driven development strategies.
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ORGANIZATION
RIS/ SMEs/Clusters-BE linkages
Role of
multilateralism
& regionalism/
bilateralism
International
public goods
Global
Domain
National
Domain
National
public
goods
Role of
public and
private
sector
GVC
BE
RIS:SMEs
&Clusters
RIS:SMEs
&Clusters
BE/DE
Regional/local VC
Business Environment
Strategies, policies and programmes
Framework conditions
Memedovic, 2006,UNIDO
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INDUSTRIAL DEVELOPMENT
ORGANIZATION
What is Regional Innovation System (RIS)?
RIS consists of inter-linkages and interdependence between three subsystems
(Cooke, 2006; Boschma, 2004):
a. Knowledge Generation Sub-system: university leaders, research institutes, etc.
b. Knowledge Utilization Sub-system or production system: SMEs/clusters
c. Intermediaries between a. and b.: knowledge transfer experts, innovation lawyers
for patents & IPR; investors (venture capital); business service providers, local
government agencies (development and innovation agencies); technology institutes
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INDUSTRIAL DEVELOPMENT
ORGANIZATION
Regional Innovation
System
-
Knowledge application &
exploitation subsystem
BE(SMEs/Clusters)
Customers
Contractors
Intermediaries:
Knowledge
transfer experts,
innovation
lawyers for
patents & IPR;
investors
(venture
capitalists);
business
service
providers, local
politicians;
knowledge
explorations and
testing institutes
Governance
system:
embedded
structure
Memedovic after Cooke 2006, UNIDO
SMEs/Clusters
horizontal &
vertical
Competitors
Collaborators
ICT
Flows of resources:
knowledge, finance
& skills; Building
trust and
confidence in
institutions and
their reliability
DE
Technology
mediating
organizations
Market mediating
organizations
Public research
organizations
ICT
Workforce
mediating
organizations
Educational
organizations
Knowledge generation &
diffusion subsystem
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What is National Innovation System (NIS)?
National Innovation System is a system of interconnected organizations and
institutions to create, store and transfer the knowledge, skills and artifacts which
define new technology” (Cooke, 2005, 2006).
NIS has broader institutional scale and has primary focus on new technology but
not on commercialization of new knowledge
NIS approach has been dominant in the past, now RIS is gaining in importance
because of the impact of globalization processes on local innovation and learning.
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How RIS emerge?
1. Institutional RIS: top down model
basically regionalized NIS. European RIS tend to be more institutional
(dependent on public intervention and funding). (e.g. Research linked to the
needs of larger, state-owned firms in or beyond the region.)
2. Entrepreneurial RIS: bottom-up interactive innovation model
generated and organized locally at town or district level. Financially supported
and generated locally, from family, community, local credit agency. Some
Nordic countries, US,etc.
3. Network RIS model: hybrid model, combining elements of 1. and 2.
Most efficient RIS model: related variety of regional clusters supported by a
regional supporting institutional infrastructure (Emilia-Romagna in Italy),
Bavaria in Germany, Styria in Austria).
Institutional support comes from local/regional, national and supranational
levels. Funding is guided by agreements among banks, gov. agencies and
firms.
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Innovation system dimension in RIS:
Innovations are outcomes of a systemic relationships between various actors (a.b. &
c.), underpinned by an regionally embedded governance structures, and supported
by regulatory and institutional frameworks on the national level.
RIS acknowledges important role of:
 institutions: shared values, norms, attitudes and practices that are necessary to
ensure system coherence and that nurture the culture of innovation and processes
of knowledge transfer.
cooperation, competition, coordination.
Successful RIS integrates innovations, knowledge entrepreneurship, and talent
formation through purposive activity of society.
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Role of Regional Governance
Key to RIS success is in :
Multi-level governance approach: from national to regionally embedded, with the
purpose to facilitate interactive learning and innovation for commercialization of new
knowledge and to coordinate policies.
At the national level various institutions have the coordination role between national,
regional and local levels. Public like the National Innovation Agency, private like
Industry Association or Chambers of Commerce.
‘
At the regional level, there can be Regional Development Agencies, public
organizations such as universities, polytechnics and representatives from industry
associations and chambers of commerce
Role of local government in RIS is essentially in:
Supporting and augmenting the intra-linkages in the RIS and linkages with other
RIS through interaction in BE (GVC/GPNs).
Facilitating inclusion of private and public sectors and others.
Stimulating collective learning through network building, collective
entrepreneurship, utilizing of social capital advantages; regional financing and
investment, labor market adjustment services, etc.
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RIS as Public Goods
In line with new economic growth theory, RIS rest basically upon the public
goods provision knowledge, innovation, information, through collective action
(public and private sector participation).
RIS:
Utilize existing social capital advantages and build networks
Stimulate collective learning through network building
Provide innovation support services (public and private or combined)
Integrate various financing means for start ups (multilevel public and private
investments (venture capital) for seed funding.
Provide regional financing and labor market adjustment services ( talent and skill
formation).
Encourage collective entrepreneurship
Provide necessary infrastructure (business incubator facilities, science parks, zones, )
Coordinate policy through multilevel formal governance structure with a mesogovernmental body having leading role.
Increases returns from agglomeration economies
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Clusters and RIS: conceptual differences
Clusters and RIS can coexist in the same territory. RIS can host several clusters
but cluster is not RIS. Cluster may have some kind of governance but this is more
of informal character (e.g. cluster association, etc. )
there is still lacking systemic explanation of
Relations between clusters and RIS in already established industries and how
these are formed ?
 What relations between clusters and RIS are needed to trigger the emergence
of new industries (clusters)?
Asheim and Lars, 2005
Recent research on SME policy and economic development points to the need for
a more systemic approach and for a more pro-active SME and entrepreneurship
innovation-based policy
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Specialization vs Diversification?
Cluster literature: implies specialization
Specialization is risky for economic development: exposure to external sectorspecific shock
‘Jane Jacobs’ models (1969): benefits of diversity in urban and regional
economies are driving forces of economic growth.
Many dynamic regions have a diverse portfolio of specializations (clusters):
unrelated variety and/or related variety of industries.
Unrelated variety produces portfolio effect: important for risk spreading
Related variety of industries: important for knowledge spillover effects and
innovation-driven growth
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Constructing Regional Comparative Advantages
Based on the idea that
Modern economies progress based on inter-related sectoral relations and
knowledge spillovers of 'related variety' of industries: there is swift adaptation of
innovations to nearby related industries and 'absorptive capacity' of related sector
management is high.
A key carrier of innovation is entrepreneurship, particularly 'knowledge
entrepreneurship’.
A ‘related variety’ industry requires more than simply sector-specific policy
support.
The policy challenge of this approach is in innovative policies to stimulate
innovation, entrepreneurship and industrial related variety.
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 The co-existence of many intra-regional clusters with various knowledge bases
and different relations to the RIS calls for more developed governance
structures to secure a planned and systematic co-ordination between industry
and knowledge creating and diffusing organisations.
 Provision of RIS as a public good requires an innovation system of a ‘triple-
helix’ character (including university/ industry / government platforms) .
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Industry platform : exploring
related variety of industries
ICT
Biotech
Finance
National &
Regional
Constructed
Advantage
Stakeholders platform: pursuing a
planned and systematic cooperation
and interaction between:
Policy platform:
Economy
Skills
Infrastructure
what type?
Universities
Industry
Government
Analytical/symbolic/
synthetic
Thank you for your attention
[email protected]