Innovation and Human Resources: The Experience of Middle Income East Asian Countries

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Innovation and Human Resources The Experience of
Middle Income East Asian Countries
OECD/Germany Workshop on Advancing Innovation
Human Resources, Education and Training Shahid
Yusuf DRG World Bank November 17-18, 2008
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East Asia After manufacturing catch-up, the
need to innovate

• Middle income East Asian economies have growth
  momentum based on manufacturing capability, have
  achieved stability, and have embraced openness.
• However, growth and investment is slowing in many
  East Asian countries, and the ongoing crisis
  might dampen economic activity further. Future
  performance depends on successful transition to
  higher value adding, knowledge and human capital
  intensive activities.
• Innovation and gains in productivity have
  priority.

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GDP growth is slowing, as investment slackens
and net exports contribute less to demand, in
many countries
Source WDI
4
Capital Accumulation is down from its peak in
most countries, China and India being exceptions
Source WDI
5
More growth must now come from total factor
productivity especially as labor force increase
is slowing
Source Data for Malaysia is from EPU (2006) and
World Bank (2005), for Thailand is from Bosworth
(2005), for China and India are from Bosworth
and Collins (2007), and for Korea is from
Kanamori and Motohashi (2007).
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Hence, spending on RD is increasing
Source UNESCO Institute for Statistics ST
database
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Achieving innovativeness will determine
competitiveness and growth
Note indicates that data is for the year
2005. Source WIPO 2007
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Tertiary level enrollment is expanding
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Science, technology, and engineering skills are
key
The share of SE first university degree
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What is holding back innovation weak demand

• Business models of export oriented large firms
  emphasize cost reduction and diversification into
  other areas with low entry barriers.
• Small firms with limited managerial capital seek
  quick returns and are not motivated to pursue
  innovative activities.
• Both large and smaller firms rely on
  technological advance embodied in imported
  equipment.
• Even large companies rarely maintain sizable
  research departments, much of the research is
  on testing, adaptation, troubleshooting,
  incremental improvements, and customization.

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Firms weak demand for innovation

• Few incentives for internal generation of
  suggestions for product and process innovation.
• Little outsourcing of RD and sparse links with
  universities. Market for researchers is small and
  salaries are modest. This affects supply of
  doctoral students and post-doctoral training
  opportunities.
• Small internal research capability constrains
  search for ideas and ability to absorb new
  technology.

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Firms demand for innovation

• Where large domestic firms from China, Korea or
  Taiwan are actively competing on the basis of
  innovation as in telecoms, or semiconductor
  design and fabrication, RD has strong support.
  But these firms are the exceptions.

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MNCs that drive export performance in several
East Asian Economies are not playing a leading
role

• Backward linkages and technological spillovers
  from MNCs are fairly sparse.
• MNCs not trying to groom local suppliers of high
  tech components.
• Foreign firms increasingly protective of own IP
  and careful about locating key research
  activities in Southeast and East Asia. They are
  building little research capital in host
  countries.
• Few employees leave MNCs to start-up
  technologically innovative firms.

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Universities Issues of education quality,
research orientation, and initiative

• Quality of tertiary education in STEM areas
  needs improving. Elite schools do better but not
  much better.
• Students have weak analytical/problem solving
  skills and practical knowledge. Tend to be
  passive. Employers frequently note these
  problems and others.
• Research and post-doc training undervalued. Few
  incentives for faculty to do research that could
  lead to commercializable findings.
• Job opportunities and salaries do not encourage
  pursuit of research.
• Universities do not actively seek links with
  firms to engage in collaborative research and
  vice versa.

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Starting up high-tech firms is a struggle

• Research and innovation in and out of
  universities, also hampered because entrepreneurs
  attempting to commercialize innovative products
  or services must struggle to find risk capital.
• East Asian governments have set up public
  venture funds and other intermediaries to assist
  start-ups with financing. But
• Access is difficult.
• Most venture capital goes to safe and
  conventional activities.
• Public venture capitalists are inexperienced and
  cannot provide firms with the guidance and
  expertise sought.
• Private venture capital is limited because deal
  flow is small and exit options are not well
  developed.

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Environment for innovation in urban centers still
evolving in East Asia

• Innovation is an urban phenomenon and large,
  cosmopolitan cities have an edge. Few cities in
  East Asia have the desired characteristics. E.g.
• Size and significant urbanization economies
  (industrial diversity)
• Presence of multiple research intensive
  activities
• Cultural heterogeneity and milieu supportive of
  innovation
• Large pools of knowledge workers with tertiary
  level skills this is changing (e.g. Korea,
  China)
• Diverse and experienced services providers to
  assist start-ups.
• Concentration of research universities, company
  HQs, and corporate research activities
• International connectivity and openness to ideas
• Sate-of-the-art IT infrastructure (Seoul and
  Singapore are exceptions)

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Government innovation policies need rethinking

• Many programs without an innovation strategy or
  focus.
• Stress on tertiary level ST programs but means
  for raising quality of teaching and research are
  lacking.
• Fixation on short and medium term input targets
  such as RD spending. Or on output targets such
  as patents, published papers, and university
  rankings.
• Dispersed responsibilities and funding for
  promoting innovation and cumbersome application
  procedures limits awareness of incentives and
  access to resources.
• Past or existing policies rarely evaluated,
  modified, and improved or terminated.
• Unwillingness to acknowledge the long gestation,
  culture and institution bound nature of an
  innovation system.

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• Thank you