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Technological Capacity Building of SMEs in Sub-National Innovation System

UN-ESCAP

Beijing, China

Oct. 2006

Deok Soon Yim, Ph.D.

Director

Daedeok Innopolis Office, Korea

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- Contents -

1. Conceptual Framework

2. Needs for New SME Policies

3. Daedeok Innopolis Case

4. Conclusion and Discussion

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Individual level Laboratory level Corporate level Industry (sectoral) level Regional level National level Global level

Innovation at different innovation actors

Conceptual Framework

Different Innovation Factors

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Source: Deok Soon Yim (2002)

Value Chain of Innovation Process

HRD, Information, Consulting, Financing

Primary Value

SecondaryValue

R&D

Knowledge Transfer & Application

Market

Conceptual Framework

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It’s a System for innovation which is composed of actors, processes, and culture. Input Process Output Actors Interaction mechanism between

actors(relationship) S/W like culture, regulation, norms

Concept of Innovation System

Conceptual Framework

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Concept of Innovation System

1. Innovation processes are related with

multiple actors University, public R&D inst., industry Community, financial inst., consulting firm,

culture

2. Innovation processes are

non-linear/networked interaction about S&T knowledge, R&D, Money, people Business development

Conceptual Framework

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Concept of Innovation System

3. New role of innovation actors University: basic research + commercialization

too public R&D inst.: basic/applied research +

commercialization Industry: applied research/business + basic

research too

4. Emergence of innovation cluster Networked actors’ web Cluster(innovation system) is more than the sum

of individual parts

Conceptual Framework

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Government

Research

Institutes

Universitie

s

Industrie

s

Financial Institutes

Other related Actors

Knowledge, Money, People

National S&T

Environment

Global S&T Environment

National Innovation System

Conceptual Framework

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Actors: Government, Industry, University, Financial Institute, Management Consulting Firm

Input: Money, People, Knowledge Output: S&T knowledge --> Competitiveness Government failure vs. Market failure vs. System

failure External and Internal Environment is important

National Innovation System

Conceptual Framework

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Environmental Changes

1. Fast Changes of Science and Technology Breakthrough technologies requires everything

to be changed from business, people,

management etc. Speed also matters

2. Globalization MNCs are leading global value chain process Innovation process is also being globalized

3. Increasing Competition Not only MNCs but also SMEs are competing at

global market Core competence comes from technology

New SME Policies

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Traditional SME Policies

1. SME policies were made in the old context Stable environment Domestic market and competitors

2. Functional, individual policies HR supply, financial, marketing support Low level technological support

3. Short-term oriented Not focused on long-term technological capacity

building

New SME Policies

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Needs for New Paradigm

1. SME policies in the new environment Changing S&T, globalization, technological

capacity building

2. Comprehensive policies System building rather than functional

policy

3. Short-term oriented Long-term and consistent policy

New SME Policies

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SME Policy at Sub-national Innovation System

1. Sub-national Innovation System(SIS) is a

small NIS It has common characteristics of NIS It is influenced by national policy

2. SIS is local/regional based The effectiveness of SIS depends on local

conditions It is influenced by local policy

3. SMEs are important actors in SIS SMEs employ people SMEs create local value

New SME Policies

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Daedeok Innopolis

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Overview of Daedeok Science Town 1973. Nov. (Plan Announced) Establishment

Daedeok, Chungcheongnam-doLocation

27.8 Km² 70.5 Km²Size

23,558 (6,236 Ph.D.s) as of 2005Employment

IT (40%) BT (14%) Material Science (9%) Chemical Engineering ( 8%) Energy resource (8%)

Major Research Area

Total 242 organizations including 21 Government Sponsored Research Institutes 39 Private Research Institutes and 148 Ventures

TenantOrganizations

Mecca and symbol of Korea’s Science and Technology Economic and industrial growth Benchmarking model for developing nations

Status

Daedeok Innopolis

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Major Characteristics of DST Central Government Initiated Driving Force

Government Research Institute + KAISTMain Innovator

Spin-offs from GRIs Technology-based ventures Approx. 800 companies

Start-ups

No (Physical or Operational) Master Plan Island Approach (No community Zone + Separation from surrounding region) No Initial Regional governmental support

Master Plan

Very low becoming active Formal and informal groups

Interaction among actors

Special R&D Zone (2005) Introduction of New Management Body Cluster-supporting Projects

New legal status

Daedeok Innopolis

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How does an innovation cluster evolve?

Stage Characteristics

Pre-Cluster Few firms with very limited links among themselves. Little

economic impact. Anchor companies emerging in region.

Emerging

Cluster

Firms creating links and organizing among themselves to form

industry associations and alliances.

Expanding Cluster

Growing linkages and critical mass. Economic impact

expanding. Networking is spontaneous.

Restructuring Cluster

High inter-firm links. Cluster spawns new cluster-ettes and

begins to adapt in changing market.

Source: SRI – What economic clusters are and why are they important?

Daedeok Innopolis

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Is innovation cluster evolved or developed?

Artificial cluster natural cluster? Can artificial cluster survive without external continuous

support? Example?

Value Chain Can any firm has all the strength in all value chain? Strength in some value chain only? Is it possible to extend the strength in one value chain to

other value chain?

Daedeok Innopolis

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Evolutionary Process

Initial Conditions Location, Technology, People, Culture, Venture

Capital and Consulting Firm, Other Infrastructure

Down-stream Evolution (Yim, 2000) From Production to Research

Up-stream Evolution (Yim, 2000) From Research to Production

Daedeok Innopolis

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What are the factors influencing the formation of an innovation

cluster? Historical circumstance

Unusual, sophisticated, or stringent local

demand

Prior existence of related supplier industries

Innovative companies

Daedeok Innopolis

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Kuro industrial complex Innovation cluster ?

Production Complex (1970)

Kuro Digital Complex (2006)

Daedeok Innopolis

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Initial Conditions and Development

Central Government Initiated Government Research Institutes Focused Initial Condition

Nothing and Planned Locational Advantages

Middle of South Korea. Distance? Small market

Pure S&T Island Approach Down-stream Evolution Process?

Daedeok Innopolis

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What Daedeok Science Town has done

S&T Knowledge

S&T Manpower

Venture Incubation

National S&T Infrastructure

Promote S&T Culture

S&T Outcomes Socio-Economic Outcomes

Visible

Outcomes

Invisible

Outcomes

Daedeok Innopolis

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Examples IT: PC, TDX, CDMA, ATM exchange (ETRI) BT: The research on DNA characteristics (KRIBB/KRICT) Energy: Korea's standard atomic reactor (KAERI) ST: leading-technology air crafts, artificial satellites (KARI)

S&T Knowledge

KAIST: 10% of total 20,000 Science Professors 20% of 6,400 private company researchers

S&T Manpower

Build and Service over 55 Million R&D Information Database: Over 56 Million Users Annually (KISTI) Setup and Maintain Industrial Standards (KRISS) Provide Mega Research Equipments (KBSI) Sponsor Research Projects and Funds (KOSEF)

S&T Infrastructure

18 Venture Incubators (310 Residence firms) Assist Spin-offs and Start up companies (total 158 ventures) Contribute to regional economic development

Venture Incubation

Create S&T friendly Atmosphere (EXPO, National Science Museum) Promote Public’s Understanding on the Importance of S&T

S&T Culture

Daedeok Innopolis

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0

5000

10000

15000

20000

25000

DomesticUtilityInternational

97 98 99 00 01 02 03 04

• Patents • Venture Companies

0

100

200

300

400

500

600

700

800

900

00 01 02 03 04

Certified

Notcertifiedtotal

ccz

Early Stage of Innovation Cluster:

“S” innovation curve

Daedeok Innopolis

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Many internal/external networks formed Small scale clustering Dedicated internet newspaper Collaborative/open culture International network World Techno-polis Association

Early Stage of Innovation Cluster:

“S” innovation curve

Daedeok Innopolis

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• Response to the Development of Advanced Technologies

• Utilization of the S&T output

• Promotion of Venture Start-ups

1973

1978

1993

1999

year

Innovative capability

Construction of

infrastructure

•Leading the National R&D Capability through GRIs

Expansion of R&D Base

Creation of

Innovation

Formation of Innovation

Cluster

•Promotion of Mega-Sized R&D Projects

•Assistance to Corporate R&D Activities

• Emphasis on Development of Advanced Technologies • Focal Points for the Linkages between Universities, Industries, and Research Institutes

Changing Roles of Daedeok Science Town

Daedeok Innopolis

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Primary ValueFunctions

ProductionProduction MarketingMarketingR&DR&D

Secondary ValueFunctions

R&D ability is the key function and

driving force of an industry value

chain

R&D Driven Innovation Cluster

Human Resources / Information SupplyVenture Capital / Consulting / Etc.

Daedeok Innopolis

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-International Recognition-Geographical Expansion-Linkage with Surrounding Clusters-Reinforcement of Transportation-Technology Driven Economy

-Economic Recession-Gov’t Support for other Regional Clusters-Increasing Overseas Competition

-Lack of Self-sustainability-Lack of Interactions/Networking-Immature Business Environment-Lack of International Business Environment -Brain Drain

-30 Years R&D Experience-Human Resources-Hi-tech Ventures based on Advanced Technology-Support of Central Government-Locational Advantage-Excellent Research Environment

Strengths

ThreatsOpportunities

Weaknesses

SWOT Analysis

Daedeok Innopolis

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What are the development factors of DST?

First, strong government support A recent financial crisis in 1997 and

following restructuring process with

venture boom Introduction of Local self-government

system in 1995 Introduction of Daedeok Innopolis Office

Daedeok Innopolis

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Zhongguancun : Market + Being Global

Daedeok Innopolis

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McDonald: Global Player

Daedeok Innopolis

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Starbucks: Knowledge Place

Daedeok Innopolis

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Conclusion and Discussion Strong government commitment

Importance of system (not individual or individual unit) and competitiveness

Benchmark developed countries but create its own policy

Policy changes according to industrial development (From S&T to industry and innovation)

S&T think-tank to assist gov’t policy

Conclusion and Discussion

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Transition to open system internationally and cluster-upbringing system domestically

Source: Young Ja Bae, Wi jin Song, Deok Soon Yim(2002)

From system formative Pperiodto system Developmental Period

Global Innovation System

Changes in Technologyenvironment

Changes in Social environment

National Innovation System

Regionnal Innovation

Cluster

Conclusion and DiscussionConclusion and Discussion

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Conclusion and Discussion

Integrate regional innovation system to national innovation system and finally to global innovation system

Global division of roles at global innovation system

All the innovation policies have to be made at the global level

Conclusion and Discussion

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Is the Gov’t support really necessary?

1. Then how long and how much?2. Does it take long time to be developed as

a self sustainable innovation cluster?3. It may depend on the location specific

characteristics (Technological capabilities, Good universities, Refined and big market, Venture capital, and etc.)

4. For the artificially designed innovation clusters (without satisfactory initial conditions for innovation), the infant R&D capabilities would soon die out if there is not consistent support form the Gov’t.

Conclusion and Discussion

Conclusion and Discussion

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Key Success Factors for the Development of Sub-national

Innovation System

1) Research Capabilities

2) Research/Business Manpower

3) Research/Business Infrastructure

4) Financial Resource

5) Cooperative/Competitive Culture

6) Management and Vision

7) International Player (MNC)

8) Start-up Companies

New SME Policies

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SME Policies at Sub-national Innovation System

1. Strategic Mind Setting Awareness for the importance of SIS in SME

policy It’s matter of survival not selection

2. Long-term, System-oriented Policy The policy may take longer time to bring the

results but has to be consistent and system-

oriented

3. Technology Capacity Building It may need benchmarking case Policy should encourage the co-work between local

university and SMEs

New SME Policies

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Thank You!

Any Question?