inclusive innovation ecosystems in the digital economy
TRANSCRIPT
INCLUSIVE INNOVATION
ECOSYSTEMS IN THE DIGITAL
ECONOMY
OPPORTUNITIES AND CHALLENGES FOR SMES
4th ERC State of Small Business Britain Conference
7 September 2017
Caroline Paunov
Digital transformation offers many opportunities for SMEs
if the imbalances it creates are addressed
Allowing SMEs to leverage opportunities matters to inclusive growth
Regional patenting intensity in OECD countries (average 2011-13)
Patents per million inhabitants, TL3 regions, OECD-wide quintiles
Spatial concentration of knowledge economy
factors persists
The top 20% regions in OECD countries account for:
Spatial concentration of knowledge economy
factors persists
… 1/3 of tertiary educated workers
… 1/2 of countries’ patent applications
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1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
PC
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aten
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Top
1%
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OEC
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Top 1% income share Total PCT patent applications
ICT PCT patent applications Mechanical engineering PCT patent applications
Chemistry and metal PCT patent applications
Digital innovation and the top 1% income share
Top 1% income share and PCT patent applications for selected OECD countries, 1987-2009
Source: The World Top Incomes Database, http://topincomes.g-mond.parisschoolofeconomics.eu/ (accessed on 15 July 2015) for the 1% income share data; OECD Patents Statistics for PCT patent applications. Note: The statistics are based on a GDP-weighted average for the following 13 OECD countries: Australia, Canada, Denmark, France, Germany, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom and the United States. The selection is based on data availability over the 1987-2009 data period. The data annex provides further information.
Opportunities for SMEs in the digital economy
Imbalances affecting SMEs
What can policy do?
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Structure of the talk
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Source: Guellec, D. and C. Paunov (2017) Digital Innovation and the Distribution of Income, Contribution to the NBER CRIW Conference on Measuring and Accounting for Innovation in the 21st Century.
Sources of opportunities
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• i. Digital innovation New products and
processes based on software code and data
– Digital non-rivalry of knowledge makes the market production different from tangible goods
– Winning idea can easily be supplied to market with low costs of dissemination of digital goods
• ii. Entry barriers are lower
-> “scale without mass”/ “cloud computing”/ platforms
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Disruption is more important with the digital
economy
iii. Radical innovation opportunities to challenge
incumbents arise from digital technologies
Emerging digital technologies
ICT applications
E-commerce E-learning E-health
Big data analytics
Blockchain
Artificial intelligence
E-government
Internet of Things
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Market opportunities arise across the
innovation-intensive economy
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Estimates of selected sectors’ betas relative to the entire financial market for US firms over 2008-12
Source: Guellec and Paunov (2017) based on data by Aswath Damodaran (2015), computed from data from Bloomberg, Morningstar, Capital IQ and Compustat.
iv. Opportunities for catching up are also higher
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0.002
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10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
Coeff
icie
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Quantiles
Firms in small agglomerations
Firms in big agglomerations
Source: Paunov, Caroline, and Valentina Rollo. "Has the Internet fostered inclusive innovation in the developing world?." World Development 78 (2016): 587-609.
• Firm performance gains from IT-enabled knowledge spillover opportunities based on 50,013 firm observations from 117 countries in 2006–11
Market opportunities for SMEs in the digital economy
Imbalances affecting SMEs
What can policy do?
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Structure of the talk
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Source: Guellec, D. and C. Paunov (2017) Digital Innovation and the Distribution of Income, Contribution to the NBER CRIW Conference on Measuring and Accounting for Innovation in the 21st Century.
Imbalances
Digital non-rivalry & markets
knowledge production is subject to massive economies of scale: the more products sold, the lower the average cost
market concentration
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“Winner-take-all” markets
Resulting market power creates rents the
traditional & necessary fuel to innovation (Schumpeter)
Innovation and “winner-takes-all” dynamics
Current context is one of increased concentration
(& less investment): Evidence on growing winner-take-all
markets for the United States (Autor et al., 2017; De Loecker
and Eeckhout (2017).
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Market concentration in the digital economy
Distribution of the 100 largest firms in terms of sales among the top R&D firms within the software and
computer services and heavy industries sectors in 2015
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10%
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30%
40%
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90%
100%
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Software & Computer services Heavy industries
Number of firms in decreasing order of sales
Shar
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Source: EU (2016), EU R&D Scoreboard 2016.
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• Business strategies allow retaining rents for a period of time: economies of scale and scope, network economies, big data
• Capital and networks to upscale and sell innovations render acquisitions effective but may challenge dynamic competition
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Advantages for incumbents
Market opportunities for SMEs in the digital economy
Imbalances affecting SMEs
What can policy do?
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Structure of the talk
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1. More competition market conditions result with fewer opportunities to exploit network effects, less platform dominance, fewer leading technical standards and better data
2. Critically depends on policy: anti-trust, entrepreneurship and IP rights re-designed for the intangible economy
3. Avoiding possible biases towards large players in policy support tools
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Policy imperatives
• Building support for SMEs with competitive potential by offering funding, advice and technology support
• Examples of inclusive innovation policies in support:
– Korea: Centres for Creative Economy and Innovation
– Ireland: Competitive Start Fund for Female Entrepreneurs
– Lithuania: European Progress Microfinance Facility Programme
– China: Innovation fund for SMEs
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What specific innovation policy approaches
can support wider opportunities?
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Korea: Centres for Creative Economy and
Innovation
• Objective: Promote business start-ups and innovation by SMEs in all provinces
• Policy instruments:
– Business consultation services for start-ups
– Creation of networks (linking SMEs and innovation actors)
– Assistance in R&D and marketing, among others
Ireland: Competitive Start Fund for Female
Entrepreneurs
• Objective: Empower (women-led) start-ups that face financial constraints to launch new competitive products internationally
• Policy support:
– Equity investment of up to EUR 50,000
– Mentoring
• Digital transformation offers many opportunities for SMEs if the imbalances it creates are addressed
• Policy needs to ensure innovators are rewarded for innovations while market conditions provide opportunities for challengers
• This policy approach supports growth & inclusiveness
Conclusions
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Further ongoing project of the OECD Working
Party on Technology and Innovation Policy (TIP)
Objective
Define how innovation policy
frames and instruments should adapt to the digital
transformation
More on the project
https://innovationpolicyplatform.org/TIPdigital
Project’s website at: http://oe.cd/inclusive
Innovation Policy Platform page: https://innovationpolicyplatform.org/inclusive
Open and inclusive innovation:
https://innovationpolicyplatform.org/TIPdigital
Contact:
Caroline Paunov: [email protected]
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Further information
Inclusive innovation policy toolkit
Policy cases from Chile, China,
Colombia, Germany, Hungary,
India, Ireland, Israel, Japan, Korea,
Lithuania, Mexico, New Zealand, South
Africa, United States, EU-wide programmes
Programmes to support women
entrepreneurship
Programmes to support integration of
minority groups in productive activities
Programmes to foster
productivity in lagging areas
https://innovationpolicyplatform.org/inclusivetoolkit
• OECD (2017), Making Innovation Benefit All: Policies for Inclusive Growth
• Digital Innovation and the Distribution of Income (2017), Contribution to the NBER CRIW Conference on Measuring and Accounting for Innovation in the 21st Century (with D. Guellec)
• "Has the Internet fostered inclusive innovation in the developing world?." World Development 78 (2016): 587-609 (with V. Rollo)
• “Inclusive Innovation Policies: Lessons from international case studies”, OECD Science, Technology and Industry Working Papers, 2017/02, OECD Publishing, Paris (with S. Planes Satorra)
• “Innovation and Inclusive Development: A Discussion of the Main Policy Issues", OECD Science, Technology and Industry Working Papers, No. 2013/01, OECD Publishing, Paris.
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References