Innovation Policies and Places in China, Japan, Taiwan and Korea

STPS 590

Burak OĞUZ

Instructor: Dr.Erdal AKDEVE

China

• Accepted and encouraged FDI

• Close economic and industrial relations with outside areas

• Reinforced by national and regional policies

China

• Competence block– Functional or Sectoral Cluster

• Knowledge flows and linkages have become key elements in knowledge-based production. A concept that could shed light on high-tech clusters is the competence block, which is defined by a minimum set of competencies that are necessary to profitably identify, generate, select, exploit and expand business ideas.

China

• Urbanization – 4 Types– Early commercial and industrial development– Political and military power– Emerging industrial and mining cities– Industrial cities that have been fuelled through

the combination of heavy foreign direct investment, strong local support and new material and knowledge infrastructures

China

• The Beijing government wants to reduce this dependence and make the nation more self-reliant in developing its own technologies based on advanced research. This ambition rests in a desire to reap more benefits from the ongoing industrialization but also in a national objective to shape its defense capability without being overly reliant on imported technology. In doing so China has in a major way accepted to become a member of an open economic system and actively participate in globalization that in restricted sense “represents the increased speed, frequency, and magnitude of access to national markets by non-national competitors”.

China – Development Zones

• The government has selected a number of “intelligence-intensive” regions and adopted policies to gradually transform them into high-tech development zones with different characteristics. There are now 53 such zones that are expected to become bases for China’s high-tech industrialization.

Shijiazhuang High-tech Industrial Development Zone

• The Development Zone is located in the central area of the urban development planning as well as key development areas and investment hotspots with integration of science, industry and trade. Its geographic locations are extremely superb. Currently there are 1520 enterprises that have registered in the Development Zone with total investments in construction projects exceeding 25 billion Yuan of RMB, among which, there are 125 foreign enterprises with total investments of 1 billion US dollars and actual usage of foreign investment of 0.6 billion US dollars including investments from over 10 countries and regions such as the USA, Germany, UK, Italy, Japan, Canada, Sweden, Malaysia, Poland, Korea, Hong Kong, Macao and Taiwan.

China – Development Zones

• In 1988 the State Council decided to establish Shenzhen, Zhuhai, Shantou, Xiamen and Hainan as comprehensive economic zones which all have broad economic self-management. They provide easier entry for foreign investors with the purpose to attract foreign capital, provide access to advanced technology and international markets. An expected outcome is a close interaction between FDI enterprises, SOEs, collective and private enterprises.

China – Development Zones

• Similar to NHTIDZs China has during 1984-2002 created 49 economic and technological development zones. Their locations include Dalian, Tianjin, Ningbo, Beijing and Harbin. The purpose is to speed up the economic development of such cities by drawing on their special advantages.

China – Development Zones

• Within national programs for regional development the New High-Tech Industrial Development Zones play the most important role in fostering China’s continued drive for industrialization and technological advances. Statistics9 from the Ministry of Science and Technology show that from 1991 until 2002, major economic indicators of 53 high-tech development zones in the country grew almost 50 per cent on a year-on-year basis, with an increase of total turnover volume from RMB8.7 billion (US$1.06 billion) to RMB 1,533 billion (US$186.9 billion) in 2002.

China – Op. and Tech. Clusters

• Earlier studies of HDD manufacturing clearly indicated that clusters in South-East Asia came into existence based on “economies of proximity in input-output relations: speed of throughput, product changeovers, increasingly specialized engineering and assembly labor. Operational clusters may on occasion be sources of new product ideas, but their principal goal is to achieve operational efficiencies, and any new technologies they create are meant to improve production processes of supply chain management”

China - Three Significant Regions

• Taiwan Border

• Korean Border

• Beijing and Tianjin

China – Local Governments

• Provincial and local governments at city and county levels have vital role in economic and technological development. They control about 70 per cent of the state budget and have often their own development strategies, although frequently directed from the central government.

China - Shenzen

• Hong-Kong Border– Virgin land for industrialists– Low wages– Entrepreneurs in the Hong Kong environment

of dominantly private business quickly sensed immediate prospects of doing good business on the Mainland when the central authorities started to grant special status and privileges to the zones.

China – Shenzhen

• Shenzhen Special Economic Zone– Shenzhen High-Tech Industrial Park– Shenzhen Software Park– Shenzhen High-Tech Industrial Belt

China - Shenzhen

• The industrial output of Shenzhen is predicted by 2020 have increased from RMB350 billion to RMB2,000 billion. SHIB only will by 2010 have an industrial output of RMB500 billion, also according to expectations. By 2020 semiconductor manufacture is expected to have become a very important part among the IT industries in Shenzhen.

• Higher education

China – Regional Clusters

• A successful development of clusters requires capabilities and facilities to meet a number of demands. One is the physical infrastructure such as water and power supplies, physical transportation and telecommunications, and must also include easy access to ports and airports. Equally important is institutional development which must facilitate investment measures and offer transparent tax rules.

China – BoHai Rim (BHR)

• Availability of human resources– Tianjin Economic Development Area

China –Regional Clusters

• Yangtze River Delta (YRD)– Budding automobile cluster– China will soon become the world’s third largest

producer of cars

• Pearl River Delta Region (PRD)– Toyota, Honda and Nissan – joint venture– Desktop and computer parts manufacturing

center. The industrial chain in Dongguan is so complete that the city is able to supply 95 percent of all component parts needed to assemble a computer.

China - Education

• Enrollment of Institutions of Higher Education and Specialized Secondary Schools by Region (2002)

China - Innovation

• Three Types of Patent Applications Examined and Granted by Region (2002)

Japan

• In 2004, both Prime Minister Koizumi and the Finance Minister have publicly singled out science and technology as the exceptional area in which discretionary government spending will be allowed to increase.

Japan – R&D Expenditure

Japan - NIS

Japan – Basic Plans for S&T

• Strengthened cooperation between industry, universities and government research organizations

• Promotion of the establishment of new ventures based on technological seeds or ideas from universities or research institutes

• Increased support for young researchers by drastically increasing the number of post-doctoral fellowships

• Increased mobility of researchers• More competition for research funds and higher degree

of concentration of research funds• Increase in government resources to R&D

Japan

• As part of the administrative reform in 2001, the legal status of most national research institutes was changed to Independent Administrative Agencies (IAI). This greatly increases the flexibility of the institutes in terms of personnel and financial management.

• Also transformation of national universities into IAI.

Japan

• Researchers shall be eligible for funding regardless of what type of organization they belong to as long as they meet the criteria established for a certain research program, such as open publication of results.

• The transformation of national research institutes and national universities into IAI:s will give the researchers a large degree of freedom in designing their own career and employment systems.

Japan – Four priority fields

• Life sciences, • Information and communication,• Environment, and nanotechnology• Materials

• Similar strategies have been developed for another four areas: energy, manufacturing technology, social infrastructure, and “frontiers” (space and oceans). The four priority fields. represent around 45 percent of total government R&D-spending and the additional four fields another 38 percent.

Japan

• Support for intellectual property

• Regional development– An overwhelming part of R&D activities in

Japan are concentrated in either the region including and surrounding Tokyo (Kanto) or in the region centered on Osaka, Kyoto and Kobe (Kansai).

Japan

• Cooperation with other countries in Asia-Pacific– According to a recent OECD-report1, in 2001 China

spent USD 60 billion on R&D. The currency conversion has been done using so-called purchasing power parities (PPP). The corresponding figures for Japan and Korea for the same year were USD 104 billion and USD 22 billion respectively. Added ogether these three countries spent USD 186 billion, which was the almost exactly the same as for the whole of the EU!

Japan

• At least 60 percent of government R&D-funding to nonuniversity organizations

• Small share of industry R&D directly financed by the government

• 20 percent of university project funding from industry

• Life sciences and energy dominate government S&T-spending

South Korea

• Korean “Chaebols”, or large multisector conglomerates– Hyundae, Samsung, Daewoo and Lucky

GoldStar

• Recent evidence suggests that small and medium sized firms are also gaining in prominence in the Korean industrial economy.

South Korea

South Korea

• R&D Expenditure by source of funds

• Number of patents

South Korea

• Korean industrial development strategy is also known for the active interventionist role taken by the State in shaping industrial, trade, investment and technical policies of manufacturing enterprises.

South Korea

• Increasing significance of SMEs and large firm-small firm networks

• Proportion generated by SMEs increased from 37.6% in 1985 to 47.6% in 1992.

• Within the electronics industry 70% of SMEs are said to be subcontractors

South Korea

• The most ambitious government vision is the Highly Advanced National R&D Project, also known as the G-7 Project, which is aimed at lifting the nation’s technological capability to the level of G-7 countries by 2020.

South Korea

• Weaknesses in innovation system:– research at universities is relatively weak;– there is a serious lack of interplay between

universities and the private sector;– there are relatively few technological spin-

offs;– there is a dearth of diffusion mechanisms to

transfer research results from public research establishments (PREs) to industry and particularly to SMEs.

Lucky Gold Star Network

GSA – Production Network

Taiwan

• The main challenge facing the Taiwanese economic planners was how to move from a condition of little know-how, inadequate institutions, and an under-supply of trained scientists and engineers to that of a high-tech based economy.

Taiwan - Acquiring technology from more advanced countries

• If the major purpose of a foreign R&D activity was restricted to the needs of the Taiwan market, foreign firms tended to set up a transfer technology unit (TTU) or an indigenous technology (ITU) unit in Taiwan. If the objective was to enhance technology learning, in recognition of Taiwan’s strategic position in the global market, foreign firms tended to set up international interdependent laboratories (IILs) in Taiwan. Another conclusion was that most of Southeast Asian firms preferred to set IILs, not ITUs, while European firms prefer to set up IILs. According to the authors an IIL made the largest impact on the Taiwanese knowledge flow system, ITU came second, and least impact was from the TTU.

Taiwan - Creating science and technology capacities

• Industrial Technology Research Institute (ITRI) was established in 1973. ITRI is now the largest industry-oriented research institution in Taiwan. In 1973 it had about 450 employees. By 2000 it grew to 6100 employees, 900 of them hold doctoral degrees and more than 3600 had bachelor or master’s degrees (ITRI, 2000). ITRI receives contracts from the government to develop generic technologies, and transfer the results to the industries in a non-exclusive manner.

Taiwan - Creating science and technology capacities

• The Hsin-Chu Science-based Industrial Park (HSIP) was established in 1980 under the guidance of national Science Council. Started with a few companies, today it hosts a large number of companies, providing employment for nearly 40 000 people (visit to HSIP, 2000).

Taiwan - Converting research results into commercial products

• In order to speed up the conversion of R&D results into commercialisation, The Department of Industrial Technology (DOIT) of the Ministry of Economic Affairs, employs the strategy of industry-institute joint research projects. Based on needs of companies with limited R&D facilities, DOIT also promotes a research-based ‘open laboratory’ strategy. These open laboratories give access to companies for the purpose of maximizing existing resources and minimizing investment risks before commercialization can take place.

Taiwan - Shortcomings

• According to Shyu and Chiu (2002), there are some important issues relevant to Taiwan’s innovation infrastructure:

1. Insufficient laws and regulations regarding innovation. Taiwan has imposed too many restrictions that discourage the private sector’s interest.

2. Limited budgets and manpower for innovation.3. Some key technologies depend on other leading

countries.

Taiwan – IT Sector

• Taiwan, which served as a source of cheap labour for foreign consumer electronics multinationals as late as the 1970s, is known today as a global centre of IT systems design and manufacturing. Taiwan’s strength lies in PC-related information products and IC (semiconductor) sub sectors.

Taiwan – IT Sector

Taiwan - Hsinchu Science Park

• It was modelled like Stanford Research Park in Silicon Valley.

• The Silicon Valley-Hsinchu relationship nowadays consists of formal and informal collaborations between individual investors and entrepreneurs, SMEs as well as larger companies. A new generation of venture capital providers and professional associations serve as intermediaries linking decentralized infrastructures of the two regions

Taiwan – Aerospace Cluster

Taiwan vs China

Taiwan vs China

Comparison

Comparison

Conclusions from UNIDO

• The experiences gained during five years of UNIDO’s involvement in network/cluster-related projects permit certain conclusions to be drawn.– Demand orientation– Business orientation

• Focus on production

Conclusions from UNIDO

– Multidimensional concept– People involved– Training and exposure to best practices– Combination of private and public investment

Conclusions from UNIDO

– Evaluation criteria– Market cost recovery– No single and predefined path

References

• Korea’s National Innovation System and the Science and Technology Policy, Deok Soon Yim

• Government Research and Innovation Policies in Japan, Lennart Stenberg

• Industrial Clusters and Networks: Case Studies of SME Growth And Innovation, Khalid Nadvi

• SME Cluster And Network Development In Developing Countries: The Experience Of UNIDO, Cegie G., Dini M.

• The innovation systems of Taiwan and China: a comparative analysis, Pao-Long Chang, Hsin-Yu Shih