INNOVATION & ECONOMIC GROWTH: RATIONALES FOR A NATIONAL INNOVATION STRATEGY

October 17, 2013 INNOVATION & ECONOMIC GROWTH: RATIONALES FOR A NATIONAL INNOVATION STRATEGY TECNOMANAGEMENT 2013 Rob Atkinson, President, ITIF

Today s Presentation 1 What is Innovation? 2 Why is Innovation Important to Companies? 3 4 Why is Innovation Important to Countries? What Are Innovation Policies? 5 Why Do Nations Need Innovation Policies? 6 What Should Nations Do to Succeed in Innovation? 2

What is Innovation? 3

Innovation Is the development of advanced cutting-edge new technologies.

But it is also embedding traditional products with advanced technologies,

And putting in place new production processes

And also developing new business models.

Innovation is Different from Quality & Comes in Different Degrees modest change degree of change radical change Improving what you already do quality systems-centric process-centric improvement-oriented Exploiting known certainties Exploring unknown possibilities Creating new elements of value and differentiation innovation customer-centric design-based creation-oriented incremental architectural discontinuous Degrees of innovation Incremental innovations involve small improvements to an existing product or process to enhance efficiency. Architectural innovations involve incorporating new technology and processes to change business elements. Discontinuous innovations occur when an advance is so powerful, it makes old products or processes obsolete 8

Funding Dev Research The Innovator s Challenge is to Exploit & Explore Simultaneously Game-Changing Innovations exploit explore Incremental Architectural Discontinuous Typically found within your core business Originate from continuous improvement efforts Originate from discovery-oriented activities Often found at the margins of your core business Enabled through OTS components Implemented within a current line of business External partnerships, if any, are straightforward May require significant enabling technologies May require coordination across lines of business Often require major external partnerships Fit within your existing business model ROI is modest but clear-cut May run counter to your current business model ROI is uncertain but upside potential is significant 9

There are Ten Types of Innovation 1 1. Business model how the enterprise makes money 2. Networking enterprise s structure/ value chain 5. Product performance basic features, performance and functionality 6. Product system extended system that surrounds an offering 7. Service how you service your customers Finance Process. Offering Delivery Business model Networking Innovation process Core process Service/prod. performance Svc/prod system Service Channel Brand Customer experience 3. Innovation process how your firm organizes to innovate 4. Core process proprietary processes that add value 8. Channel how you connect your offerings to your customers 9. Brand how you express your offering s benefit to customers Note 1 : Ten types of Innovation by Larry Keeley/Doblin Inc. (1999) 10. Customer experience how you create an overall experience for customers 10

It Can Keep You Ahead of Your Competitors 12

It Can Generate New Revenues 13

It Can Provide Immunity to Baumol s Disease 14

It is a Key Driver of Productivity Growth 16

It Provides Comparative Advantage, Especially Over Low-Wage Nations 17

And Mexico is Not the Low-Wage Producer $34.19 $1.24 $1.74 $5.70 India China Mexico United States Manufacturing hourly compensation costs in USD (2009). Source: U.S. Bureau of Labor Statistics

Allows Nations to Win in the Next Growth Industries 19

How Is Mexico Doing? The study: compares innovation-based competiveness of 44 nations and regions. 16 indicators: including corporate and government R&D, scientists and engineers, new firms, corporate tax, productivity growth. 20

Mexico s Rank Five Highest Factors Venture Capital (25) E-Government (29) Trade Balance (29) Business Climate (30) Foreign Direct Investment (30) Five Lowest Factors Broadband Composition (37) Publications (37) New Firms (37) Business R&D (39) Scientific Researchers (42) 21

Mexico s Rank on Rates of Change 2000 to 2011 Five Highest Rates of Change IT Investments (4) Business R&D (6) Government R&D (14) Researchers (14) New Firms (18) Five Lowest Rates of Change Scientific Publications (32) E-Government (37) Broadband (37) Productivity (38) GDP Per Adult (43) 22

Mexico s Key Challenge: Productivity 70 60 50 60.4 40 30 20 10 0 Korea Turkey Chile United States G7 Mexico Labor Productivity Growth Rates, 2000-2011. Source: Organisation for Economic Co-operation and Development

What is a National Science and Innovation Strategy?

What is a National Science and Innovation Strategy? Those elements of science, technology, and economic policy that explicitly aim at promoting the development, spread, and efficient use of new products, processes, and services. A well-conceived, strategic approach to drive innovation that proactively anticipates and articulates the interactions among policies across: Science and technology R&D Commercialization strategies Education & skills Immigration Statistics/measurement Tax Trade Intellectual property Competition/Regulatory Public procurement Public sector innovation 26

Selected Nations with National Strategies China Denmark Finland Germany India Ireland Japan Korea Netherlands Norway Portugal South Africa Sweden Taiwan Thailand United Kingdom Uruguay United States 27

What is Distinctive About Them?

Ambitious Goals Lead in Key Technology Areas IT: Australia, Canada, Denmark, Finland, Ireland, Japan, Netherlands, Singapore, Korea, and Sweden Clean Energy: Korea, Japan and China. Advanced Manufacturing: Germany Aerospace: UK Plastics: UK, Ireland, Finland, Netherlands

Ambitious Goals Significantly Boost R&D Intensity 120% 110% 110% 100% 80% 60% 91% 75% 40% 20% 0% 34% 31% 22% China Israel Korea Ireland Sweden Canada Japan United States 3%

Establish National Innovation Agencies Country National Innovation Agency/Foundation China Ministry of Science and Technology 1998 Denmark Agency for Science, Tech, and Innovation 2006 Finland Tekes 1983 India National Innovation Foundation 2000 Ireland Forfas 1994 Japan NEDO 1980 Korea Korea Industrial Technology Foundation 2001 The Netherlands SenterNovem 2004 Norway Innovasjon Norge 2004 Portugal Agência de Inovação 2003 South Africa National Advisory Council on Innovation 2006 Sweden VINNOVA 2001 Taiwan Industrial Technology Research Institute 1973 Thailand National Innovation Agency 2003 United Kingdom Department of Business, Innovation, and Skills 2009 United States N/A N/A Uruguay National Research and Innovation Agency (ANII) 2008 Year Agency Introduced 31

Use Tax Policy to Drive Innovation Patent boxes Collaborative R&D tax credits (Denmark, Korea, France, Japan, Spain, UK) R&D tax credits to services industries; (Denmark, Netherlands, Norway) Generous R&D tax credits (e.g., France, India)

Drive University Reform R&D vouchers: (Netherlands) Accountability for results: (Finland and Sweden) Industry-University Centers (Germany, Taiwan)

Because the Stakes Have Been Raised 35

Because markets alone do not produce societally optimal levels of innovation. 36

Get the Economic Growth Policy Pyramid Right 38

Get the Economic Growth Policy Pyramid Right 39

Get the Economic Growth Policy Pyramid Right 40

Get the Economic Growth Policy Pyramid Right 41

www.globalinnovationrace.com Yale University Press 2013

Muchas Gracias Robert D. Atkinson ratkinson@itif.org Follow ITIF: facebook.com/innovationpolicy www.innovationfiles.org www.youtube.com/techpolicy www.itif.org @robatkinsonitif