Innovation in the Asia Pacific

In modern growth or development theory innovation is a crucial factor which pushes the dynamics of an economy and determines its success in the future. Out of innovations, created in the present, the potential for the future of a country are prepared, deciding how its economic fitness and competitiveness will emerge. Future-orientation is in a natural way connected with innovativeness of a firm, a region or a country and shapes the strength and the specifics of the process of development. Looking around the world economy, one can observe a variety of countries which exist at different levels of development. Each of them has to master its economic future, choosing its own specific development strategy. How the various countries, belonging to different continents and cultures, will succeed in this endeavour is surely one of the most exciting and important issues of coming decades. In this global context our study is focusing on “future preparedness” of a specific group of countries, the OECD countries. The origin of this group dates back to 1960, when 18 European countries and the United States as well as Canada created in Paris an organization dedicated to global development. Today the group consists of 34 member countries which span the globe from North to South America, to Europe and the Asia-Pacific region. They include many of the world’s most advanced countries but also emerging ones like Mexico, Chile and Turkey. The concept of “future preparedness” gets its analytical and empirical relevance when it is placed and investigated within a specific development model. Such a model determines the theoretical basis of the study and provides the necessary ingredients for an empirical application. In our study we will use “Comprehensive Neo-Schumpeterian Economics” (CNSE) as an analytical framework (Hanusch and Pyka 2007a). This approach is based (a) on the notion of future-orientation penetrating all spheres of socio-economic life in developed as well as in developing countries; (b) on the principle of innovation as the main driving force and the engine of future-orientation and development. Based on the concept of CNSE the central aim of our study is to gain new insights and findings concerning the “future preparedness” of the OECD-countries. To meet this target we (a) rely on the notion of “future-orientation” as a basic prerequisite for being prepared to master the future; (b) try to bring this concept of “future preparedness” on a concrete basis by using indicator analysis embedded in the framework of CNSE; (c) investigate patterns of similarities in the set of indicators; (d) show how these patterns look like by applying cluster analysis; (e) draw some conclusions from the patterns concerning the status and variety of future-orientation in the group of OECD-countries. Future-orientation will be described and characterized in total by 45 indicators, focusing on the real (16), the public (21) and the financial sector (8) of an economy. The indicators reflect many different activities in the various countries related to innovation and the “emerging future” within the concept of CNSE. Dependent on data availability, the indicator sets comprise different years mainly in the period between 2006 and 2012.

Lee and Kim analyze the NIS of East Asia and Latin America, and to show the sources of the divergent economic performance in these groups of countries. This divergence between East Asia and Latin America reflects that these two regions selected different policy priority in knowledge development; the priority was given to technology in East Asia whereas it was given to science in Latin America. The main characteristic of R&D expenditure in Latin America is that universities and public labs are taking up most of the R&D but they are decoupled from the demands from the private sector. The role of Latin America’s private sectors remains weak, and the difference in corporate R&D among the East Asian countries and Latin American countries are substantial. East Asia and Latin America initially imported foreign technologies, but only East Asia has been able to build up its indigenous technological capabilities. One of the reasons for this difference is that in East Asia, the domestic corporate sectors were the main agents of technology imports, whereas the trans-national corporations were the main agents for production in Latin America. R&D investment by TNCs in Latin America was mainly carried out in their home countries, and the TNCs sought to protect their technologies by confining it within the boundary of the TNCs [Hanson (Economic Development, Education and Transnational Corporations, Routledge, p. 54, 2008)]. Emerging new technologies in short cycle fields present better growth prospects, and the possibility of higher profitability associated with less collision with the technologies of advanced countries and the presence of first-mover advantages. This divergence in technological specialization can be considered as one explanation how the Asian countries went beyond the middle income trap situation in the mid-1980s, whereas Latin American countries failed to overcome the trap. The view of Lee and Kim based on short or long cycle times also differs from the traditional recommendation to focus on trade-based specialization, which is more suitable for low-income countries, because it argues that middle-income countries need to specialize in technological sectors that rely less on existing technologies, and look at the greater opportunities associated with new technologies. It is also complementary to the growth identification and facilitation framework of Justin Lin (New Structural Economics: A framework for Rethinking Development and Policy‚ Washington, DC, The World Bank 2012).

In an analysis of an evolutionary approach to innovation Suenaga examines how several countries and firms in the Asia Pacific move from imitating developed countries to generating innovation? Neo-classical economics often assumes that only one production curve exists for the whole economy of a country, when actually there are various production curves depending on the industry, product, and process, and the introduction of a new production curve involves high risk. Innovative, risk-taking entrepreneurs are required for the introduction of a new production curve, even in developing countries. With reference to the production capability required to improve productivity, i.e., to shift the production curve upwards, when workers and technicians accumulate production experience, they develop increased expertise, resulting in improved productivity. Economies and firms in the Asia Pacific have realized technological changes by engaging not only in simple imitation but also in ‘creative imitation’ (Kim and Nelson 2000). An example involves adapting technologies to their environments and applying them to other industries. What is the relationship between innovation and the division of labour? Smith (1776: 9) points out the following three effects of the division of labour: (1) an increase in productivity, (2) saving time, and (3) the invention of machines. Smith’s discussion specifically concerns the division of labour in a workshop, however the division of labour between factories or industries also stimulates an increase in productivity and the invention of machines. The ideas of Smith and Schumpeter appear to contradict one another at first glance: Smith’s ‘division of labour’ and the ‘new combinations’ which Schumpeter regards as a key factor in economic development. Suenaga inquires whether the main factor involved in economic development is a ‘dividing’ or a ‘combining’ one? The views of Smith and Schumpeter are not contradictory he argues but complementary. Specialization in particular processes is made possible by the division of labour, yet the possibility of a new combination is also born during these processes, and this encourages a further division of labour by extending the market. Suenaga (2015a) refers to this pattern of economic development as ‘Smithian = Schumpeterian development.’

Singapore and Hong Kong are two small highly successful economies in Asia that illustrate very divergent paths of catching up and innovation as Jue Wang reveals. Singapore and Hong Kong have a similar history: both developed from British colonies and experienced an upgrade of industrial structure from labor intensive industries such as textile and clothing to high tech industries such as electronics and to banking and financial services (Young in NBER Macroeconomics Annual 7:13–51, 1992). The two city states have comparable economic performance and competitiveness and are often placed close to each other in various rankings such as Global Competitiveness Report (WEF 2016), World Competitiveness Yearbook (IMD 2016), Global Innovation Index (GII 2016). The GDP per capita in these two economies was almost identical until the 2000s. Singapore’s economic growth slowed down in the late 1990s but quickly recovered and surpassed Hong Kong in 2004 and even overtook the US in 2011. With its recent success in finance and other sectors, Singapore is presently ahead of Hong Kong on many indicators. Although there are many similarities, the differences in the development trajectory of these two cities are clear, the most important distinction is the role of the government. Singapore is noted as government-made city-state for the high level of government intervention in various aspects of the society (Mok in Res Policy, 34, 537–554, 2005). By contrast, Hong Kong adopts a “positive non-intervention” policy that favors the free economy and minimizes the power of government in influencing the market. The difference is reflected in the innovation policy in these two economies. The Singapore government has actively implemented a series of strategies and allocated substantial funds to promote innovation and entrepreneurship. While a similar set of policies and programs are in place to drive research and innovation in Hong Kong, the scale is much smaller.

In the final Chapter of Part One Clarke, Chelliah and Pattinson offer a comparative survey of the contrasting innovation systems of the Asia Pacific. While Asian economies have achieved rapid industrial progress, as they reach the global technological frontier they need to develop new institutional capabilities for sustaining international competitiveness. Foundational institutions including education, research, law and finance require coordination around coherent national innovation systems to sustain commitment to innovative products and processes. Technological innovation is more likely to succeed “when the elements of the broader environment surrounding firm’s activities are well articulated into a system, than in situations where each element works largely isolation… The overall innovation performance of an economy depends not so much on how specific formal institutions (firms, research institutes, universities) perform, but on how they interact with each other as elements of a collective system of knowledge creation and use, and on their interplay with social institutions (such as value, norms and legal frameworks)” (Dodgson in Elgar companion to neo-Schumpeterian economics. Edward Elgar Publishing, Cheltenham, U.K, pp. 193–200, 2007: 592). The national innovation system essentially facilitates how knowledge is generated and accumulated in the economy to serve as the catalyst and fuel for innovation (Yim and Nath in Science Technology Society 10, 2005).

R&D consortia have been regarded as an effective means of promoting innovation, and several R&D consortia obtain public financial support, which may affect its governance structure and performance. This study investigates the governance mechanisms of publicly funded R&D consortia and their effects on innovation. Regarding R&D consortia, few studies have empirically addressed the effect of project monitoring by the government. Moreover, the role of project leadership in R&D consortia remains poorly explored. Focusing on a major support program for R&D consortia in Japan and using a sample of 315 firms that participated in publicly funded R&D consortia from 2004 to 2009, we empirically confirm that project leadership by a private firm, especially its coordination capability, significantly increases the probability of project success (early commercialization of innovation outcomes). We also find that project performance is positively affected by the strictness of project monitoring and evaluation by the government, but negatively affected by interventions in application procedures. Finally, we find neither complementarity nor substitution between project leadership and government monitoring with regard to the effects on project performance.

In the following chapter Hu, Zhang and Zhao examine the relationship of patents to technology innovation. The development of patents is conventionally regarded widely as a significant part of the innovation process in many modes of innovation. Patents are often used as an indicator of technology innovation, and China’s patenting surge raises the question whether China has become as innovative as her patent numbers suggest? If patents measure innovation output, a measure of inputs to the innovation process is R&D expenditures. China’s R&D spending has more than kept pace with the rapid growth of GDP in China. R&D as a share of GDP increased from 1.4 in 2007 to 1.8% in 2011, which was not far from the OECD average. However, patent numbers have been growing even faster than the increase in R&D expenditure. The number of invention patents granted to resident, non-individual applicants per 10 million dollars of R&D expenditure (in 2011 purchasing power parity prices) was 3 for China and 2 for the U.S. in 2007. In four years, the ratio for China rose to 6.3, and that for the U.S. increased more modestly to 2.4. While not impossible, it would seem unlikely that this large and widening disparity in patents to R&D ratio can be explained by the difference in the productivity of R&D of the two countries. The objective of this chapter is to explore both innovation and non-innovation-related explanations of China’s patenting surge and to discuss their policy implications. “The conventional role of patents lies in preventing copying and pre-empting unauthorized entry, the need for which rises when new technologies are created, thus implying a tight connection between technology innovation and patenting.” Recent experience in developed countries, particularly the U.S., indicates that applying for patents has also been driven by firms’ concerns that an unfavorable court ruling over the ownership of intellectual property could inflict significant financial damages on them. This has led firms to build up a war chest of patents that might increase their bargaining power in anticipation of such intellectual property disputes. The propensity to apply for patents can increase, when the underlying rate of technology innovation has not significantly, but when developments in legal institutions and public policy change the firms’ perception of the need for such strategic maneuvers.

With the growth of emerging economies in Asia-Pacific over the last three decades collaboration with the aim of innovation between firms within and with partners outside the region have developed substantially. Not always have such partnerships fulfilled their anticipated strategic objectives. The literature suggests that the nature of market arrangements and the role of government within that system play a role, but also innate contracting practices and governance of innovation partnerships are related. Yet, our understanding about the specific relationships between these factors and the emerging partnership innovation culture that facilitates joint business activities in an Asia-Pacific context remains vague. In this conceptual chapter we suggest how characteristics of so called network capitalism in conjunction with the nature of contractual agreements between partners, the alignment of their innovation objectives and the ambiguity inherent in their mutual contributions to the partnership can be interpreted as indicators of joint innovation culture. However, while innovation partnerships generally may result to be bureaucratic, market, clan, or adhocracy, we discuss how in an Asia Pacific context, innovation partnerships are limited by the extent of codification and diffusion of information and the social embeddedness of economic transactions.

Technological innovation systems (TIS) play significant roles in technology innovation. Apart from promoting technology innovations, some TIS can contribute to the sustainability of industry, while others cannot. However, existing innovation studies about understanding how TIS can impact industry sustainability have proven to be insufficient, especially in the industry of information technology (IT). By comparing two TISs of TD-SCDMA and TD-LTE in China’ telecommunication industry, this work aims to answer the questions about how TIS may impact IT industry sustainability, and what kinds of TIS enhance sustainability? An innovation system functions based framework is applied to structure the data collection and result analysis. Extensive documentary research and semi-structured interviews are conducted in this research. The comparative case study suggests: a well-functioned TIS significantly contributes to sustainability of IT industry, by pushing forward the process of socio-technical transformation; TIS functions are determined by its configuration, and a well-configured TIS could be characterised as: constituted by stable and early enrolled core actors, who connect with diversified and early developed networks, and influenced by both regulative powers and normative influences. This work advances the understanding of how industry sustainability is impacted by TIS, and what a TIS should be for enhancing sustainability. In practice, this work also offers practical implications for other technology late-coming countries who want to catch up through technology innovation like China.

While at the EU-level there are many programmes and efforts to increase the interaction and collaboration with China, policies have also been set up and (partially) implemented to keep Europe’s competitive edge over China, but also other competitors. A number of technological fields are nominated by the European Commission as an important input or precondition for Europe’s future competitiveness, among them the so called Key Enabling Technologies (KETs). This chapter examines where Chinese companies stand in terms of national and international competitiveness in these Key Enabling Technologies. A more general question is whether Europe is not taking a realistic view of its current and future position with regard to the KETs. Our empirical analysis shows that Europe’s current position in AMT seems to be good—mainly due to a high performance of Germany, but also France and the UK—while it is rather poor in KETs. Concerning the potential threat from Chinese companies, it seems that they are shortening the gap. Recently, the vast majority of patent applications, both in KETs and in AMT, at SIPO stem from Chinese applicants. The answer to the question “How does China perform?” is quite clear at the moment. It does not yet perform very well on the international stage, but the national market for technologies is mostly dominated by Chinese inventors/companies. The answer to the second research question whether Europe is daydreaming about its current and especially its future positioning in KETs and AMT is: “Most probably yes”. The good news for Europe is that it still holds strong positions in Societal Grand Challenges, which will contribute even more to jobs and growth in Europe than KETs and AMT alone. The idea that KETs and AMT not only provide direct input to this goal of growth, but also indirectly help to keep the competitive edge in the Grand Challenges, is a reasonable one.

In Part III of the book the organisational and human dimensions of innovation in the Asia Pacific are examined, beginning with Clarke and Gholamshahi’s analysis of the significance of human capital for the development of knowledge-based economies. In the OECD countries, more than half of GDP is accounted for by knowledge-based industries, including the main producers of high-technology goods, high and medium technology manufacturing, and knowledge intensive services such as finance, insurance, business, communication and social services. This is manifest in the rising human capital levels of the population in OECD countries as measure in educational attainment, and in the increased demand for highly educated and highly skilled workers. The challenge for the Asia Pacific is to develop the human, social and institutional capital necessary for successfully competing in the knowledge economy. The Forum for the Future (2016) suggest a five capitals model of human capital, social capital, finance capital, manufacturing capital and natural capital. Defining human capital as people’s health and well-being, knowledge, skills and motivation, and defining social capital as the institutions which sustain and develop human capital in partnership with others for example families, communities, businesses, unions, schools and voluntary organizations including the values and behaviours that allow these social forms to operate). Human capital is one of these five interdependent forms of capital, and is not a separate, substitutable item in itself (that is human capital works with and complements other forms of capital). Human and social capital become ever more critical as the knowledge economy progresses. Hoff and Stiglitz insist, “Development is no longer seen primarily as a process of capital accumulation but rather as a process of organizational change” (2001: 389). The Asian Development Bank in a report on Moving Towards Knowledge-Based Economies (2007) suggests a new paradigm for economic development “It is even envisaged that knowledge can eventually become a means of mass production—similar to manual labour in the industrial economy—once web-based information and communication technologies (ICTs) have reached worldwide penetration levels, allowing individuals to work and provide routine knowledge in a virtually networked (global) environment” (ADB 2007: ix).

The development of innovation across a very wide canvas is portrayed in the final chapter of the book by Michael Lester. The disruptive impact of new digital networked technologies upon the transformation of enterprises and industries extends to a disruption of the processes of innovation itself, encompassing the nature of innovation concepts, theory, research and practice. This suggests we need to rethink our ideas on innovation as we enter what has been described as the second machine-age of big data, super computers and broadband communication (Brynjolfsson and McAfee, The second machine age: work, progress, and prosperity in a time of brilliant technologies. Norton, New York, 2014). The chapter highlights the disruption of conventional wisdom on innovation processes examining the new wave of entrepreneurial start-ups in the digital age. Unprecedented opportunities exist it is claimed in the rapid expansion of creative innovation and entrepreneurship with a social as well as economic purpose. New product technology platforms and open source software have reduced the technological barriers and risks to product innovation. The evolution of big data combined and powerful data algorithms creates the capacity to discern patterns in complexity integral to the creation of new knowledge. Big data tools are being applied across all scientific disciplines and industries and businesses. The institutional foundations of this innovation and growth are examined and the importance of inclusive and open institutions stressed for accelerating innovation, conceiving of innovation as the knowledge-based outcome of complex linkages and interactions between actors and institutions including universities, businesses and government (Freeman, J Econ 19:5–24, 1995). This suggests a systems approach to the wide institutional relationships including education, taxation, law and other institutions including governments in shaping the markets of the future.