Clusters and Market Failure in the Small Business Sector

Transcription

1 The Competitiveness Institute 5th Global Conference Cairns, 7-11 October 2002 Concurrent Session 3: Addressing Market Failure Clusters and Market Failure in the Small Business Sector Dr Alan J. Jones Innovation Analysis Industry, Tourism and Resources

2 Australia s Biodiversity

3 Outline of Presentation Approaches to Innovation Policy and Market Failure Traditional and systemic Competitiveness and the Cluster Concept Examples where market failure has driven SME clusters in Australia. Establishing clusters and possible support.

4 Approaches to Innovation Policy Systems approach suggests innovation policy is primarily concerned with knowledge diffusion. That is, to generate economic growth, social development, and new jobs, knowledge has to be developed, diffused and exploited. How is this best achieved? Argue that today innovation policy needs to take into account all areas of systemically weak performance.

5 Market Failure Market failure occurs in clearly defined circumstances that include the presence of : Externalities benefits accrue to others. Natural monopolies insufficient competition. Public goods accessible to all. Imperfect information and uncertainty buyers and sellers cannot locate each other, or buyer unaware of the nature and benefits of a service, etc.

6 Traditional Innovation Policy Market failure spillovers and high uncertainty result in under-investment in knowledge creation - basic research. For large-scale technologies transformation of scientific knowledge not manageable by market alone. Concentration on supporting key technologies to avoid technology dependency. Effectively - direct government control over dynamics of technological development.

7 Developing the Rationale Too simplistic to assume that new scientific or technological knowledge will automatically stimulate innovation - processes are more complex. Must ask the question where and how the performance of the innovation system is weak. What are the failures in a dynamic, highly interdependent and complex (globalised) innovation system?

8 Systemic Failures (Examples) Infrastructure failure under-investment in physical and knowledge infrastructure Organisational failure eg., transform internal organisation of a firm OR inter-firm cooperation Structural market failure anti-competitive behaviour of firms (ACCC province in Australia). Institutional failure the institutional settings and regulatory framework Transformation failure changing systemic rigidity processes demand coordination.

9 Market Failure Approach versus Innovation Systems Approach Who - Actor itself What -Knowledge creation Program style - mission oriented Economics - correcting market failures Relationship among players Knowledge diffusion Diffusion oriented Correcting systemic failure

10 Competitiveness Competitiveness dependent on strength of whole economy. Therefore, development of conditions common to all industries and technologies (shift from selective policies). Compromise between development of general framework conditions and more specific framework conditions of particular groups is found in industrial clusters or building networks.

11 Clusters The cluster concept captures all the important dimensions of the innovation process. Clusters are networks of interdependent firms, knowledge producing institutions, technology providing firms, bridging institutions and customers, linked in a value creating production chain. Clusters capture all forms of knowledge sharing and exchange. The geography of clusters can be complex.

12 Some Examples of SME Clusters Market Access Local and International The information technology cluster in the Hunter Valley and Newcastle districts, comprising about 20 small firms seeking market expansion (geographic). Early example - scientific equipment producers from Melbourne and Sydney SGE International, GBC Scientific, Cochlear, Telectronics, Optiscan, and others. Exports currently exceed $0.5 billion. Invetech Operations which is part of Vision Systems offers commercial development and international marketing partners for selected products.

13 Some Examples of SME Clusters Building around Key Infrastructure and Facilities Monash university precinct CSIRO, S&T Park, Axxess Corporate Park, Telstra Research, Bayer, NEC, Varian, Compark, Philips, Bosch, Vision Systems and the Australian Synchrotron. Supply Chain Ford Australia s proposed Business Park cluster of suppliers around the manufacturing facility for in-line sequencing to assembly. Bidding for Large Contracts - The Defence Teaming Centre South Australia with 56 members. - SA Water Industry cluster.

14 What Market Failure in Oz? Market failure for clusters in Australia appears to be largely based on information failure. The question of differentiating a cluster from other forms of cooperation and collaboration, eg: compare clustering with combining bids for Government tenders, a common practice in Defence; compare with formation of strategic alliances a common approach for technology and/or market access. The question of more Monash-type clusters built around S&T parks and universities. The question of cluster formation around large multinationals and associated investment attraction

15 Critical Factors in Establishing Clusters - (Paraphrased OECD) Establish framework conditions to provide market-based incentives to participants. Look for high levels of interdependency between firms - which translate into market-based knowledge flows. Use outsourcing as a strategy for partnership. Generate links to education and training system. Establish financial support eg., venture capital. Work from a regional base.

16 Government Support Tax Concession for R&D 125% plus 175% Premium and R&D Tax Credit. R&D Start Competitive Grants ($535m). Commercialising Emerging Technologies COMET program ($70m). Innovation Access Program (100 million) diffusion. Pre-seed Fund ($78.7m) addresses early stage finance gap. Innovation Investment Fund, total $358m for investment in technology-based firms. Pooled Development Fund invested over $550 million in Australian firms.