Toward a data collection & research agendaToward a data collection & research agendato promote inclusive innovation and growthto promote inclusive innovation and growth

WIPO Expert Group Meeting, Geneva, September 17-18, 2009

Objective: to understand how the IP-SMEs nexus matters for inclusive growth, and the policy implications thereof…

Mark Dutz

Overview of presentationOverview of presentation

1. India’s context as motivation (WHY)1. India’s context as motivation (WHY) Economic dualism Productivity dispersion Inclusive innovation

2. Enabling environment for innovation (WHAT)2. Enabling environment for innovation (WHAT) Competition as key spur to innovation Skills and absorptive capacity Targeted policy options for inclusive innovation

3. Complementary strategies (HOW)3. Complementary strategies (HOW) Asking the right questions Connecting datasets, projects, institutions and researchers

1. Broad definition of inclusive innovation:1. Broad definition of inclusive innovation:creation & absorption relevant for the poorcreation & absorption relevant for the poor

Product Innovation

Process Innovation

Organizational Innovation

DIFFUSION & ABSORPTION

CREATION & COMMERCIALIZATION

Shifting out the global frontier of

knowledge

Moving toward the global frontier of

knowledge

Sustainable and Inclusive Growth

Inclusive innovation is needed to respond Inclusive innovation is needed to respond to the reality of dual economiesto the reality of dual economies

ContextContext Nuclear and space power Top innovation player Challenge Pro-growth competitiveness agenda

11% of employment

89%

Formal Sector

Informal Sector

ContextContext 1/4 of population below poverty 70% rural, 46% of women illiterateChallengeChallenge Pro-poor inclusiveness agendaPro-poor inclusiveness agenda

2. IP-SMEs as one part of a broad 2. IP-SMEs as one part of a broad enabling environmentenabling environment

KNOWLEDGE

CREATION AND

COMMERCIALIZATION

KNOWLEDGE

DIFFUSION AND

ABSORPTION

INCREASED PRODUCTIVITY & WELFARE THROUGH BROAD INNOVATION

INFORMATION

INFRASTRUCTURE

INNOVATION

FINANCE

SKILLS AND

EDUCATION

COMPETITION

ENABLING ENVIRONMENT

INCLUSIVE

INNOVATION

Components of enabling environment

Policies Institutions Capabilities

Creation and commercialization of new knowledge

Policies to promote more private R&D o IPR regime o Matching grants o Tax subsidies

Public spending on R&D o National mission

programs o Competitive grants o Peer reviews

Pro-innovation public procurement

Support for pro-poor innovations

Public labs, universities Private R&D labs IPR institutions Technology transfer offices Science and technology parks Technology incubators Research and education

networks Specialized nongovernmental

institutions Grassroots networks Early-stage technology

development finance and venture capital

High-level human capital for R&D (scientists, engineers, technicians)

Techno-entrepreneurship

Diffusion and absorption of existing knowledge in new locations

Openness to global knowledge flows o Trade o FDI & JVs o Technology

licensing policy o Internet access

Foreign education and attracting the diaspora o Cross-border flows o Betw. FDI subsid.

and local firms

Technical information services

Technology upgrading Productivity organizations Metrology, standards, testing,

and quality control systems National research and

education networks Networks at cluster level Technology absorption

finance for micro, small, and medium enterprises

Formal education and skills

Engineering consulting firms

Business support services

Broader investment climate

Competition and trade Regulatory policies,

especially toward infrastructure

Entrepreneurship support Good rule of law Macroeconomic stability

Efficient financial system Flexible labor market Effective courts and judiciary Market-responsive formal

education institutions and lifelong learning system

Literacy Secondary and

higher education graduates

Managers Entrepreneurs

Competition is critical for innovation: Competition is critical for innovation: Pharma industry success storyPharma industry success story

• TRIPS provided “stick” by foreclosing growth thru simple imitation in developing country weak patent markets, providing imperative to seek new opportunities• trade/FDI reform and devaluation in early 90s reinforced attractiveness of process innovation “carrot”: relaxed regulatory hurdles of US generics market (& bulk drugs), from Hatch-Waxman Act of 1984• future: from “upgrading of manufacturing & process R&D capabilities” to “more substantive product development”?(see Ashish Arora et al., “Strong Medicine? Patent Reform and the Transformation of the Indian Pharmaceutical Industry”, mimeo, July 2008)

0

10

20

30

40

50

60

70

80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Pat

ents

Year

U.S. Drug Patents Granted By Grant Year

ChinaIndia

To spur experimentation & risk-taking, To spur experimentation & risk-taking, reform bankruptcy for easier re-entryreform bankruptcy for easier re-entry

Recovery Rates when Closing a Business (cents on $)

• increase competition & innovation by reforming bankruptcy process

68.6

64.2

80.5

35.3

10.4

28.2

17.1

0 10 20 30 40 50 60 70 80 90

OECD

Mexico

Korea, Rep

China

India

Russia

Brazil

To promote continuous learning, To promote continuous learning, invest more for in-service traininginvest more for in-service training

42.3%

92.4%

15.6%

57.9%

59.1%

0% 20% 40% 60% 80% 100%

Korea, Rep.(2005)

China (2003)

India (2006)

Russia (2005)

Brazil (2003)

Percent (%)

• increase quality and quantity of education and training to increase skills

% Formal Manufacturing Firms offering In-Service Training

These firms are 25% more productive

Targeted policy options to make innovation work Targeted policy options to make innovation work better for all, with IP-SME componentsbetter for all, with IP-SME components

(1) Formal (1) Formal creationcreation activities activities Soft loans & matching grant support for R&DSoft loans & matching grant support for R&D Public procurement to raise demand for innovationPublic procurement to raise demand for innovation

(2) Hi-tech & grassroots (2) Hi-tech & grassroots commercializationcommercialization Advisory services to make start-ups “VC-ready”Advisory services to make start-ups “VC-ready” Support for early-stage Venture Capital fundingSupport for early-stage Venture Capital funding Special IPRs for traditional/grassroots knowledge?Special IPRs for traditional/grassroots knowledge?

(3) (3) AbsorptionAbsorption of knowledge by enterprises of knowledge by enterprises Cluster-based technology upgradingCluster-based technology upgrading Diaspora mobilizationDiaspora mobilization

(1) Enhance commercially-driven R&D(1) Enhance commercially-driven R&D

Strengthen & scale-up existing programs thru risk-sharing competitive matching grant funding & PPPsmatching grant funding & PPPs:

Appropriate technologies: program for individual SMEs or collaborations for pro-growth or inclusive projects, building on• SPREAD (ICICI’s Sponsored R&D program, 89/02)• PRDSF (DST’s Pharmaceutical R&D Support Fund, 04)• SBIRI (DBT’s Small Business Innovation Research Initiative, 06)

Frontier technologies: program for consortia of firms, R&D labs and universities, building on• NMITLI (CSIR’s New Millennium Indian Technology Leadership

Initiative, 03) • OSDD (CSIR’s Open Source Drug Discovery consortium, 08)

(2) Promote commercialization(2) Promote commercialization

Build early-stage technology-oriented companiesBuild early-stage technology-oriented companies• Hi-tech ventures from R&D labs, universities and others• Rural grassroots informal business ventures

Deal flow support servicesDeal flow support services: increase quality and volume of deal flow thru support to “Tech Assistance Companies”

• services include technology/market assessment, business plan formulation, testing/validation, market linkage development, and legal advice on IP strategy (+ PFCs, TTOs, IP support, subsidies for foreign filings)

Risk capital financeRisk capital finance: SPV to manage 2 kinds of funds-of-funds for demonstration impact

• FOF Tech: investments in advanced technology ventures(building on APIDC, GVFL, ICICI Knowledge Park Fund, etc.)

• FOF BOP: riskier investments in ventures to benefit the poor(building on Aavishkaar, Acumen Fund, Soros/Omidyar/Google SME Fund, etc.)

(3) Help firms better absorb knowledge(3) Help firms better absorb knowledge

Introduce institutionalized “strategic” pilots“strategic” pilots (scalable, with clear governance and accountability structures to spur learning)

based on search networks (to unblock constraints to development) beneficiaries re-assemble existing programs (to meet local

needs) supported by bottom-up contests for matching grants

Support SME-led cluster initiativesSME-led cluster initiatives• Matching grants to strengthen technology upgrading initiatives

(building on MSME’s Micro and Small Enterprises Cluster Development Program)

Improve access to global knowledgeglobal knowledge• Matching grants to strengthen capabilities of diaspora networks

(building on the Overseas Indian Facilitation Centre, a PPP between the Ministry of Overseas Indian Affairs and the Confed. of Indian Industries)

3. “What we measure affects what we do… with 3. “What we measure affects what we do… with wrong measures, we strive for the wrong things”wrong measures, we strive for the wrong things”

Toward better measuresToward better measures It’s all about implementation: How best to measure de facto

enforcement of IP across countries? (vs de jure rules) It’s not no. of patents but commercializable value generated Better diffusion of existing knowledge is critical: do stronger IPs

facilitate better diffusion? (e.g. patent disclosures used?) How assess impact of S&T capabilities on IP-SME outcomes? What are best metrics of inclusive innovation & creativity by

SMEs spurred by IP?

Data-based evaluation of policy outcomesData-based evaluation of policy outcomes Evidence-based assessment of what works and doesn’t: what

are most compelling success stories? Ex-ante: Include elements of randomized field trials (treatment

vs control group) in programs Ex-post: Conduct regular, independent evaluations with

international benchmarking

3. “What we measure affects what we do… with 3. “What we measure affects what we do… with wrong measures, we strive for the wrong things”wrong measures, we strive for the wrong things”

Toward better measuresToward better measures It’s all about implementation: How best to measure de facto

enforcement of IP across countries? (vs de jure rules) It’s not no. of patents but commercializable value generated Better diffusion of existing knowledge is critical: do stronger IPs

facilitate better diffusion? (e.g. patent disclosures used?) How assess impact of S&T capabilities on IP-SME outcomes? What are best metrics of inclusive innovation & creativity by

SMEs spurred by IP?

Data-based evaluation of policy outcomesData-based evaluation of policy outcomes Evidence-based assessment of what works and doesn’t: what

are most compelling success stories? Ex-ante: Include elements of randomized field trials (treatment

vs control group) in programs Ex-post: Conduct regular, independent evaluations with

international benchmarking

3. “What we measure affects what we do… with 3. “What we measure affects what we do… with wrong measures, we strive for the wrong things”wrong measures, we strive for the wrong things”

Toward better measuresToward better measures It’s all about implementation: How best to measure de facto

enforcement of IP across countries? (vs de jure rules) It’s not no. of patents but commercializable value generated Better diffusion of existing knowledge is critical: do stronger IPs

facilitate better diffusion? (e.g. patent disclosures used?) How assess impact of S&T capabilities on IP-SME outcomes? What are best metrics of inclusive innovation & creativity by

SMEs spurred by IP?

Data-based evaluation of policy outcomesData-based evaluation of policy outcomes Evidence-based assessment of what works and doesn’t: what

are most compelling success stories? Ex-ante: Include elements of randomized field trials (treatment

vs control group) in programs Ex-post: Conduct regular, independent evaluations with

international benchmarking

The more technologically advanced developing The more technologically advanced developing countries are good candidates for initial studies…countries are good candidates for initial studies…

Science and Technology Capabilities2000 Counts and Ratios

Country Group

Max. # Countries Reporting

Count (000s)

Per 1,000

PeopleCount (000s)

% Gross Enrollm.

RateCount (000s)

Per 100

PeopleCount (000s)

Per 100

PeopleDeveloping Countries 88 71.8 1.17 757 18.2% 1,418 4.7 1,191 3.9

Asian tigers 4 68.0 3.48 1,097 49.7% 7,096 37.8 7,114 32.3Emerging 8 8 311.6 1.61 4,041 27.8% 6,879 5.1 5,834 4.0Other 76 14.1 0.78 378 15.2% 483 2.8 390 2.4

Developed Countries 26 199.0 5.43 1,254 52.0% 13,087 34.8 10,921 30.1Full Sample 114 118.4 2.73 873 26.2% 4,201 11.9 3,410 9.9

R&D Personnel Tertiary Students PCs Internet Users

• Asian tigers = Taiwan (70,643), So.Korea (57,968), Singapore (4,097), Hong Kong (3,805)• Emerging 8 = China (5,162), India (4,080), So.Africa (3,976), Hungary (2,871), Mexico (2,509), Russia (2,409), Brazil (2,094), Argentina (1,249)- cumulative patents granted in US to end-08 in parentheses

……because they reap the shorter-term benefitsbecause they reap the shorter-term benefits of a stronger IP regime of a stronger IP regime

Outcome VariableAll

developingAsian tigers

Emerging 8

Other developing

Medical industries

Pharma sector Other

Technology Transfer through

FDI: U.S. stocks x x x XXX

Alliances: R&D alliances xx X XXX XXX

Local Innovation through

Patents: EPO applications X X XXX xxx XUSPTO grants XXX XX Coinvention filings xxx XXX XXX xxx XXXCoinvention grants xxx XXX XXX xxx

R&D: Expenditures x

Summary Table: Impact of Strengthened Patent Protection in Developing Countries

Country Groups across all sectors Sector Groups

Note: XXX=IP index has at least 1% level of statistical significance in both "all countries" and "developing countries" samples, XX=at least 5% in both, X=at least 10% in both; xxx=at least 1% level of statistical significane in one of the two samples, xx=at least 5% in one, x=at least 10% in one. For Sector Groups, we only report XXX, XX and X as there is only one set of regressions for developing countries for each outcome.

Possible initiatives: Connecting datasets, Possible initiatives: Connecting datasets, projects, institutions and researchersprojects, institutions and researchers

Start by focusing on a few advanced MICsStart by focusing on a few advanced MICs Begin where most likely to find solid results Connect existing firm-level datasets with IP filings data

• India: Prowess database maintained by CMIE (Dutta and Sharma, 09)• Sri Lanka: SL Longitudinal Survey of Enterprises (de Mel et al., 09)• WB Enterprise Surveys: approx 60 countries with R&D data (Sharma, 07)

Set up collaborative web site and link in-country researchers across a few initial target countries, together with policy implementers not just from Patent and Trademark Offices but Ministries of Economy, Industry, S&T, etc.

Partner with 2-3 ongoing SME-focused projects to sharpen project evaluation and continuous improvement, and add/strengthen IP-SME dimension of projects (& complements)

• India: SBIRI (DBT, MOST); IIT Mumbai business incubator; Technology Upgrading Program (TIFAC, MOST & MSME); Patent Facilitating Center and 20+ PICs (TIFAC); The Center for Genomic Application (PPP R&D center)…

So. Africa: Automotive Component Supplier Development Program (DTI)