Hard Subject to Talk About Seems Difficult to Pin Down

Innovation

Hard subject to talk about – seems difficult to pin down

Very Important! Innovation is commonly thought to be the most important source of competitive advantage

What is innovation? New product or process or service that adds monetizable value to firm or to the economy fresh thinking that creates value

Innovative versus innovation New product or process service that is or is not monetizable

Innovation versus invention

An innovation may not be turned into revenue by the source of the innovation Xerox PARC Universities

Where does innovation come from? Ignoring conventional wisdom Hungry people – rich are not innovative Recombinant innovation Idea and knowledge creation institutions Universities Research institutes Firms and R&D Dominance of US, Japan and Europe in Global R&D Increasing globalization of R&D and innovation China and India are very good at using Western knowledge Shift from vertically integrated innovation to open innovation

Incentives for innovation Intellectual Property Rights Risk taking institutions and culture

Strange features of knowledge

Knowledge is not like other economic factors/inputs - oil

Socially produced and used and it easily leaks out– spillovers, spinoffs, mobile knowledge workers, sharing IBM and computer science The more you have the more you can get - cumulative

Using it does not reduce its availability – expands its worth

Basis for creating new and improved versions of itself – innovation

Explosion of knowledge creating institutions and knowledge workers

WWII Government investment in knowledge

1964-65 Explosion of college/university enrollment

Growth of R&D Institutes – NSF, NIH, Darpa

Corporate R&D Labs

SME tech suppliers

Venture Capitalists

Knowledge networks – formal and informal

Premium on innovations – VC and IPOs

Globalization, Knowledge and Innovation

The barriers to innovation are falling on a global scale

Knowledge increases as the most important element of production and products

Global knowledge networks arise out of expansion of ICT, interaction, trade, finance, FDI, education – global diffusion of knowledge

Global development of knowledge institutions in universities, firms and governments

Two kinds of innovative firms – combine new ideas with entrepreneurialism

Start ups

Large firms – constantly reinvent themselves

Business model innovation now matters more than R&D for competitiveness of a firm Globalizing knowledge

The processes of creating global production networks and offshore outsourcing of services accelerates the diffusion of knowledge and seeds innovation capabilities in new firms across the world

Basis for innovation in nations we once thought were just followers

Chongqing Li & Fung Infosys, Wipro, Tata Consulting Rapid catchup – Google to Baidu

Process leads to even greater role for knowledge in production

Role of software/electronics in products as the key element in value chain

Cars (Lexus, BMW) are systems of computers Trains, machine tools, production robots are based on software systems Washing machines, refrigerators, toys, clothing

Different electronic systems must work together – cars and phones

The more knowledge matters, the greater is the importance for innovation

This changes the way organizations and firms must work

Employees as source of innovation, scanning for innovation, application of innovation

New kinds of workers Learning organizations Entrepreneurial organizations

Open to outside ideas Recombinant innovation – mashups Flexible – rapid ramp up; shift of focus

New Global Business Environment

Global Competition Knowledge based Premium on innovation Speed Core Competency must include: Knowledge creation Knowledge scanning Innovation selection Bring innovations to market

Are Western firms going to dominate this kind of environment?

“Is America Losing Its Edge?” http://www.foreignaffairs.org/20041101facomment83601/adam-segal/is-america-losing-its-edge.html Carl Dahlman, “China and India: Emerging technological Powers” http://www.issues.org/23.3/dahlman.html Alan Wm Wolf, “China’s Drive Toward Innovation” http://www.issues.org/23.3/wolff.html

Global innovation patters http://www.issues.org/24.1/

Why is Europe less effective at innovation than the US or Europe?

Poor place for start ups

Not entrepreneurial – Europeans like easy jobs

In Europe new ideas don’t diffuse very well – poor entrepreneurial culture

$9 billion in VC in Europe; $45 billion in the US

European think innovation is something governments do

Singapore and Biopolis

Taiwan and Hsinchu

Impact of local and global competition – protectionism = stagnation

China and Innovation

What are the vehicles for knowledge acquisition by firms in developing nations?

Joint ventures with TNCs Component supplier – local OEM supplier across global/regional value chains Legal imitation: reverse engineering; borrow idea (paid search) and local innovation Purchase capital equipment Purchase plant with knowledge support Send students abroad – repatriate after employment Hire foreign knowledge workers (including consulting firms) Foreign firms establish R&D centers (Microsoft) Establish R&D center abroad (Silicon Valley) Develop relationships with Venture Capital firms

Analysis of iPod value chain 5th Generation 30GB iPod late 2005

QuickTime™ and a decompressor are needed to see this picture.

Retail price $299 Apple profit = $80 Retailer/distributor profit $75 FIGURE 2: Real GDP (PPP): Projections 2004-2015 (Using 1991-2003 Average Growth Rates)

Source: Projected based on data in WDI.

Students Studying Abroad 2004

China India US 381,000 130,000 47,000 QuickTime™ and a decompressor are needed to see this picture.

Global Auto Production

Year China Japan United States

2007 8.9 (12.2%) 11.6 (15.9%) 10.8 (14.8%)

2006 7.2 11.5 11.3

2005 5.7 10.8 11.9

2004 5.2 10.5 12.0

2003 4.4 10.3 12.1

2002 3.3 10.3 12.3

2001 2.3 9.8 11.4

2000 2.1 10.1 12.8 Source: OICA - Organisation Internationale des Constructeurs d’Automobiles http://oica.net/category/production-statistics/ Basic argument

Knowledge is the most important input to products, processes, services

Knowledge has greater expansive power from social character, reuse, some leads to more, basis for innovation.

Innovation main source of competitive advantage

Knowledge economy in rich states = potential rapid growth in poor states by reusing existing knowledge

Knowledge base in developing nations leads to local and then to global innovation

New global knowledge pools = Bangalore, Hong Kong, Seoul, Tokyo, Shanghai, Singapore

Pace of competition and innovation rises

Premium for knowledge increases