The Asian and Pacific Centre for Transfer of Technology (APCTT), a subsidiary body of ESCAP, was established on 16 July 1977 with the objectives: to assist the members and associate members of ESCAP through strengthening their capabilities to develop and manage national innovation systems; develop, transfer, adapt and apply technology; improve the terms of transfer of technology; and identify and promote the development and transfer of technologies relevant to the region.

The Centre will achieve the above objectives by undertaking such functions as:

„ Research and analysis of trends, conditions and opportunities; „ Advisory services; „ Dissemination of information and good practices; „ Networking and partnership with international organizations and key stakeholders; and „ Training of national personnel, particularly national scientists and policy analysts.

The shaded areas of the map indicate ESCAP members and associate members The Asia Pacific Tech Monitor is a bimonthly journal of the Asian and Pacific Centre for Transfer of Technology CONTENTS (APCTT) that brings you up-to-date information on Vol. 26 No. 4 ™ Jul - Aug 2009 trends in technology transfer and development, technology policies, and new products and processes. The Yellow Pages feature z Business Coach for innovative firms, Introductory Note 2 as well as technology offers and requests. z Technology Market Scan 3 Website: http://www.techmonitor.net z Technology Scan 7 z Special Feature: Innovation in SME clusters Editorial Board Dr. Krishnamurthy Ramanathan Cluster and innovation promotion in Styria 11 Mr. Nanjundappa Srinivasan Gerd Holzschlag, Michael Kerschbaumer, Dr. Satyabrata Sahu Markus Gruber and Simon Pohn-Weidinger All APCTT Dr. Guenter Clar The business strategy of SME and partnerships: SEZ (Steinbeis-Europa-Zentrum), Germany Cases of intermediary goods manufacturer 22 Mr. Mikael Henzler and SME network Adelphi Research, Germany Nobutaka Odake Promoting innovation in SMEs through transfer ASIAN AND PACIFIC CENTRE FOR TRANSFER OF TECHNOLOGY of technology: Lessons from a metalworking 30 Adjoining Technology Bhawan industry cluster in Indonesia Qutab Institutional Area Tulus Tambunan Post Box No. 4575 New Delhi 110 016, India Technology, innovation and collaboration of Tel: (91) (11) 2696 6509 firms: The case of light engineering clusters 37 Fax: (91) (11) 2685 6274 E-mail: [email protected] in Bangladesh Website: http://www.apctt.org Nurul Quadir and Rasel Mahamud Capitalizing on innovation for exports Opinions expressed by the authors by the SME sector 42 are not necessarily those of APCTT. Nguyen Ngoc Anh, Nicola Jones, Nguyen Duc Nhat The designation employed and the presentation of material in the and Nguyen Dinh Chuc publication do not imply the z endorsement of any product, process Intellectual Property Rights or manufacturer by APCTT. Intellectual property strategies of the 47 Indian medicinal sector since 2005 The contents of the Tech Monitor may be N. Lalitha reproduced in part or whole without change, provided that the Tech Monitor and the z Tech Events 54 authors concerned are credited as the source and a voucher copy of the z Tech Ventures & Opportunities publication that contains the quoted Business Coach material is sent to APCTT. Start-up Venture Creation 56

This publication has been issued without Technology Transfer 58 formal editing Venture Financing 61 Marketing 63 ISSN : 0256-9957 Green Productivity 65 Tech Opportunities Technology Offers 67 ASIAN AND PACIFIC CENTRE FOR TRANSFER OF TECHNOLOGY OF THE ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC Technology Requests 69 apidly increasing global competition presents many unforeseen challenges for small and medium-sized enterprises (SMEs) to sur- Rvive, sustain and grow profitably. These challenges are viewed with critical concern by policy planners since SMEs have been playing a vital role in the growth of national economies around the world. According to Intoductory Note the United Nations Conference on Trade and Development, SMEs in developed countries account for approximately 95 per cent to 99 per cent of all enterprises. They employ 66 per cent of the workforce and account for 55 per cent of national turnover. In the Asian region outside Japan, about 27 million SMEs account for over 93 per cent of industrial output and employ more than 87 per cent of the workforce. In this scenario, innovation can and does play an important role in en- hancing the performance of SMEs in terms of output and growth, thereby strengthening their competitive position. Innovation practices and strategies are dynamic processes that are increasingly drawing upon on modern technology management practices and tools. SMEs, therefore, need to become adept at deploying modern innovation management tools and techniques to enhance their innovation capabilities in order to grow and sustain their competitiveness. In today’s technology-driven business setting, developing all encompassing internal innovation capabilities is no longer considered feasible to gain and sustain competitive advantage. Hence, more and more enterprises are trying to enhance their innovation performance through strengthening collaboration across industrial clusters and networks. Clusters appear to provide an effective platform for SMEs to promote and better manage their innovations based on the mutual interests of members in the cluster. Innovation activities carried out in SME clusters have interesting advantages. Clusters provide a platform for enterprises to share a range of resources such as physical infrastructure, knowledge resources, ideas, skills, innovation management practices, technologies, competencies, production facilities, and business networks. Furthermore, partner enterprises can share their knowledge, experience and resources to strengthen mutually- beneficial innovation capabilities. These advantages can facilitate a rapid flow and diffusion of information and ideas across enterprises in the cluster. However, the success rate of innovations in these clusters appears to depend largely on the extent of knowledge creation and the partnering mechanisms used by the enterprises. Although the concepts and techniques of innovation management have been popularized over time, their institutionalization and application in SME clusters is still evolving in accordance with changing business needs. In SME clusters, innovation management tools and practices appear to mainly address issues such as accessing and utilizing scientific and technical skills, patent search and patenting, pilot-scale testing, trial manufacture, value addition, product quality improvement, market introduction, and training needs. In today’s rapidly evolving global business setting, innovation management in SME clusters have to deal with many more critical issues and challenges in areas such as assessment of technological strengths and formulating appropriate development strategies, decision-making in terms of seeking out and seizing business opportunities through expansion and diversification, technology portfolio selection, and deploying effective technology transfer processes and practices. Efficient management of innovation in clusters could also promote an active innovation culture among enterprises in a locality or region. This issue of Asia Pacific Tech Monitor highlights the strategies, best practices, experiences, challenges and opportunities in the promotion and management of innovation in SME clusters. Dr. K. Ramanathan Head of UNESCAP/APCTT Technology Market Scan

INTERNATIONAL China) with the strongest score for any the average software piracy rate in the country in the patent index; and sig- Asia-Pacific region rose by two per cent nificant climbs in both the trade mark to 61 in 12 months with losses reach- Global Intellectual and copyright rankings,” the release ing over US$15 billion. Property Index said. Mexico also made good gains IDC has predicted that lowering PC and was especially favoured for cost software piracy by 10 points over four According to a survey conducted by effectiveness of enforcement. Canada years would create 600,000 additional the European legal firm Taylor Wess- has had a setback – while it gained jobs worldwide. The findings showed ing LLP, India and China fare last in a little in overall rating and remained that the global economic recession intellectual property (IP) competitive- unchanged in rank and tier, its fall in ness, being placed at the 23rd and 24th copyright rating and rank was the big- was having a mixed impact on soft- positions, respectively, in the Global gest for any sub-index. ware piracy. The piracy level was found Intellectual Property Index (GIPI) 2009. to be less than 20 per cent in Japan, The United Kingdom tops GIPI 2009, http://www.domain-b.com the United States, New Zealand and and is followed by Germany and the Luxembourg, and over 90 per cent in United States. Software piracy rate Armenia, Bangladesh, Georgia and Zimbabwe. According to the IP ranking, the United is on the rise Kingdom, Germany, the United States, http:// Australia and the Netherlands are to- The Sixth Annual Global Software Pi- www.thehindubusinessline.com gether in Tier 1; Canada, Ireland, New racy Study findings reveal that the Zealand, France and Singapore are worldwide software piracy rate has ASIA-PACIFIC in Tier 2; Japan, Israel, Spain, South risen for the second year in a row, Africa and the Republic of Korea are from 38 per cent to 41 per cent. This Major telecom companies in Tier 3; Mexico, UAE and Italy are in has been attributed to the fast growth Tier 4; and Turkey, Poland, Russia, in personal computer (PC) shipments to develop undersea Brazil, India and China are in Tier 5. in high-piracy countries like China cable system India has been awarded an overall and India. The study was conducted rating of 521, showing how well the by market research and forecasting Recently, a memorandum of under- country protects and enforces the in- firm IDC and released by the Busi- standing was signed by Philippine tellectual property. Russia and Brazil ness Software Alliance (BSA). The Long Distance Telephone Co. (PLDT), are at 21st and 22nd positions, respec- IDC-BSA study also showed that in Taiwan’s Chunghwa, China Telecom tively. “The ‘BRIC’ countries (Brazil, 2008, the rate of software piracy drop- and China Unicom from mainland Russia, India and China) remain at ped in 57 of the 110 countries studied, China, KT Corp. of the Republic of the bottom of rankings but all receive remained the same in 36 and rose Korea, Japan’s NTT Communications, significantly higher ratings,” the Index in 16 countries. Telekom Malaysia and Viet Nam Post and Telecommunications Group for said. In another sign of the scale of the pro- building an undersea cable system blem, the monetary value of “losses” The survey was conducted globally within the Asia-Pacific region. among experts (over 18,000 country to the software industry (from software assessments to date) with analysis piracy) showed a record level of US$ The proposed cable system, which is of empirical data and a review of any 53 billion, up by 11 per cent. Industry called Asia-Pacific Gateway will con- recent material changes at the local sources say half of this increase was nect Malaysia, Singapore, Thailand, level. The index provides an assess- due to the falling dollar, excluding the Viet Nam, Hong Kong, The Philippines, ment of the best and worst jurisdic- effect of exchange rates. “We are con- Taiwan, Republic of Korea, Japan and tions to obtain, exploit, enforce and tinuing to make significant progress China. Spanning about 8,000 km, the attack particular types of IP: patent, against software piracy, but it is widely cable system will use the latest Dense trademark, copyright, domain name prevalent, giving illegal software users Wavelength Division Multiplexing tech- and design rights. an unfair advantage in business and nologies with minimum design capa- spreading security risk,” stated Mr. city of four terabits. The Asia-Pacific The United Kingdom and Germany are Robert Holleyman, the President and Gateway, having a high degree of inter- leaders in all areas of IP – they are CEO of BSA. connectivity with current and planned the only two jurisdictions that are in high bandwidth systems, can provide The study covers piracy of all pack- the top tier for every area of IP asses- “an alternate route and restoration sed. Australia and the Netherlands are aged software that run on personal paths to existing cable systems in elevated to the top tier – they join GIPI computers (PC) – including desktops, the region,” said Mr. Alejandro Caeg, 1 leaders, the United Kingdom, the laptops and ultra-portables – but does First Vice-President for PLDT’s inter- United States and Germany. “Russia not include server- or mainframe- national and carrier business group. and Mexico are on the upward move based software. Mr. Jeffrey J. Hardee, – Russia now leads the BRIC group BSA’s Vice-President and Regional Mr. Caeg said the proposed Gateway, of countries (Brazil, Russia, India and Director, Asia-Pacific, observed that which will be ready for service in 2011,

TECH MONITOR z Jul-Aug 2009 3 Technology Market Scan is “intended to meet the requirements One of the institutes included in the CRO, said Ms. Chelvi Ramesh, Pre- for cable route diversity, protection plan, the Lanzhou Institute of Chemical sident and CEO of Chennai-based and to provide capacity to replace the Physics (LICP), had set a precedent Mithas Labs. retiring cables in the region”. for the move when it offered commer- Indian Council of Medical Research cial testing services to local chemical http://www.gmanews.tv has been authorized to oversee the and petroleum companies back in the trials, and there is a Central Ethical 1990s. LICP, which specializes in new CHINA Committee and local ethical commit- materials, made around 1 million yuan tees to keep a tab on the researches. Status of a year from this activity. Under the new India has also formulated a clinical plan, LICP said it would be providing intellectual property trial registry as well as clinical good 11 different services to companies, practices. With international standards China has handled 828,000 patent including infrared spectral radiometry, in place, the industry has come to a applications in 2008, with a 19.4 per X-ray fluorescence, gas chromatogra- level of maturity, says Mr. Malneedi. cent growth, and granted 412,000 pat- phy and mass spectrometry. ents in the same year, with a growth of Further, the cost factor makes CRO 17.1 per cent compared with the same Since the end of April this year, 1,020 to India as appealing as any other period, said Mr. Tian Lipu, Head of the large facilities in eight centres have outsourcing job. “In India the clinical State Intellectual Property Office. As of been offering similar services, said trials for standard drugs could be done 16 March 2009, China’s total patent Mr. Tian Haojiang, a staff member of for a tenth of the cost in the United applications have exceeded 5 million. CAS Beijing National Centre for Tech- States and Europe, and even for onco- nology Transfer. Nanotechnology and logy trials, it is 50 per cent lesser,” he Last year, 698,000 trademark registra- bioscience services were on offer to said, adding almost 75 per cent of the tion applications were received and companies, besides marine sciences costs incurred on a drug discovery is 750,000 trademark applications were and earth sciences. CAS has already spent on clinical trials. reviewed. For the first time, the num- made provision to open facilities at http://www.mydigitalfc.com ber of applications reviewed in a year its 10 equipment centres, eight of exceeded the applications received. which have been completed, for use INDONESIA Some 403,000 trademarks have been by the private sector. approved for registration. As of the end Digital television of 2008, the total number of trademark http://www.hc2d.co.uk launched registrations approved in the country INDIA has touched 3.44 million. In 2008, Indonesia is entering a new phase of China also registered the copyrights Hub of clinical research information and communication tech- of 49,000 software and 12,000 copy- outsourcing nology, with the President Mr. Susilo right contracts. Patent applications Bambang Yudhoyono recently marking and grant of patents on new plant With the adoption of international regu- the migration of the country’s televi- species have seen a large increase. latory standards, India is fast turning sion (TV) broadcasting system from into a global hub of cost-effective cli- analog to digital. The Information and http://www.most.gov.cn nical research outsourcing (CRO). The Communications Minister Mr. Moham- revenue from this sector is expected mad Nuh dubbed the migration the Labs open doors to touch US$1 billion by 2010. From third phase in Indonesia’s broad- to small business US$70 million pumped in by just a few casting system development, with the pharmaceutical companies in 2002, first occurring in 1962, when the then The Chinese Academy of Sciences CRO revenue has leaped to US$800 President Mr. Sukarno officiated the (CAS) has pledged to offer free labo- million now, say industry insiders. country’s premier TV broadcasting ratory services to small and medium- ahead of the Asian Games; and the Mr. Mahesh Malneedi, CEO and Man- sized enterprises (SMEs) during the second in 1976, when the then pre- aging Director of Makrocare, a CRO economic downturn. The prestigious sident Mr. Soeharto launched the firm based in Hyderabad, says: “In the CAS said that the move was aimed at Palapa I telecommunication satellite. helping businesses to enhance their past two to three years the growth in innovation capacities amid the global the sector has been more than 300 In digital TV technology, sound and financial crisis. As per the new plans, per cent. In the past 18 months, we images are converted into a digital more than a hundred research insti- found doubling of outsourcing reve- format and compressed, taking up tutes that come under the supervision nue.” The regulations passed by the less space when transmitted than they of CAS will provide free analysis and government in 2005, committing itself needed in the old analog system. This testing service for SMEs. The plan is to uphold and enforce intellectual pro- allows more channels to be sent out. aimed at helping companies to up- perty protection as per international Digital TV technology has considerably grade their industrial structure, giving standards, has made the European more benefits than the analog one, them technological help to counter nations and the United States to look such as resilience to noise, interferen- financial risk. at India as a preferred destination for ce, fading and environmental change;

4 TECH MONITOR z Jul-Aug 2009 Technology Market Scan efficiencies in bandwidth, network increased 89.5 per cent over the same lished Pashmina as a typical product transmission, transmission power period from just 19 previously. of Nepal. It identifies pashmina items and power consumption; and capa- as commodities that have well-defined http://biz.thestar.com.my city to fit several channels into one material content and traits. single frequency. Biotech investments Nepal Pashmina Manufacturers Asso- Digital broadcasting has been in ex- grow 18 per cent ciation received the confirmation of perimental use in the country since registration of trademark from the January by state TV station TVRI and Total approved investments in the Norwegian authorities a few weeks private broadcaster SCTV. The gov- domestic biotechnology industry so ago and they expect the same from ernment expects all broadcasters to far this year has improved 18 per cent Australian authorities soon. Nepalese migrate to the digital system by 2018. compared with the whole of 2008 on manufacturers had sent their applica- People can still enjoy the free analog increased foreign investments, ac- tions for an international trademark system until 2014, after which they cording to Malaysian Biotechnology to Australia, the United States, the must buy digital TV sets or equip their Corp. Sdn. Bhd. (BiotechCorp). Bio- European Union, Canada, Japan and old TV sets with a separate set-top techCorp is the leading public sector China in December last year. The box to be able to receive digital TV development agency for the biotech- registration is likely to help regain the programmes. nology industry in the country. Total lost market of Pashmina in western countries, which has slowed down in http://www.thejakartapost.com investments this year have reached M$1.3 billion (US$370,000), as com- the last few years. MALAYSIA pared with M$1.1 billion (US$314,000) http://www.nepalnews.com for the whole of last year. Pharmaceuticals PAKISTAN BiotechCorp’s CEO Datuk Iskandar are a big business Mizal Mahmood said the rise in total Steps to draft The Malaysian pharmaceutical market approved investments was respecta- innovation policy is a serious business, with significant ble, considering the current global growth in the last decade at 8-10 per economic climate. He added that the An Innovation Board has been set up cent annually. The local pharmaceuti- increase in investments was boosted in Pakistan by the Higher Education cal market is now worth M$3.8 billion by participation from 15 countries in Commission (HEC) jointly with the (US$1.09 billion). Market research firm BioNexus companies. Competitiveness Support Fund (CSF) to integrate innovation across various Espicom expects this to grow at an Investments in BioNexus-status com- sectors with the aim of bringing Paki- average of 8.2 per cent per annum. It panies came from Europe, the United stan on a competitive global footing. estimates the Malaysian bio-pharma- States, Britain, India, China, Japan The announcement was made during ceutical market at US$75 million in and Hong Kong. BioNexus status is a meeting chaired by HEC Execu- 2008 and forecasts it to rise to US$ a designation awarded to qualifying tive Director Dr. Sohail Naqvi, in the 132 million by 2013. During this time, biotechnology companies, making presence of the executive manage- Malaysia’s share of the regional bio- them eligible for privileges contained ment of CSF and a number of R&D pharmaceutical market is expected within the BioNexus Bill of Guarantees. institutes and universities. to show a marginal increase from 4 These privileges include freedom of per cent to 4.2 per cent. ownership, freedom to source funds The Board will promote targeted re- Local manufacturers are increasingly and to bring in knowledge workers forms across the government, private emphasising research and develop- from abroad, eligibility for competitive sector and academia to achieve wide- ment, particularly in product innova- incentives and other assistance, and spread synergies in the promotion of tion, which has resulted in patents. eligibility to receive aid for international innovation as a driving force for eco- Recently, the government put in place accreditation and standards. nomic competitiveness. CSF was set up by the United States Agency for several incentives to encourage the http://biz.thestar.com.my local production of drugs, particularly International Development (USAID) in the field of biotechnology, as well NEPAL and the Pakistan Ministry of Finance as the manufacture of off-patent drugs. to reposition Pakistan’s economy on Patent rights a more global footing. The incentives include tax exemptions for those biotech companies that are on Pashmina Later, the Board’s Innovation Strategy awarded Bionexus status. Working Group met, and its discus- In Nepal, manufacturers of Pashmina sions and decisions would be a part By the end of 2008, there were 92 wool products have succeeded in reg- of the input into the National Innova- companies with Bionexus status, of istering Pashmina as a trademark in tion Strategy Framework that will be which 36 were focused on healthcare. Norway. This is the first instance of included in Pakistan’s Competitive- This is a rise of 119 per cent over the Nepalese producers succeeding in ness Report. 2007 total of 42 companies; the num- getting international patent rights in ber of healthcare biotech companies Pashmina. The registration has estab- http://www.pr-inside.com

TECH MONITOR z Jul-Aug 2009 5 Technology Market Scan

THE PHILIPPINES ment, is expected to post a 30 per cent R&D investments Government to drive growth in revenues in 2009. The Phi- lippine Software Industry Association attract tax benefits growth in IT sector said although this target is a decrease The government will offer extended from 2008’s export revenue growth of The Philippines’ information technol- tax credits to private companies in an 42 per cent, it is still optimistic that effort to increase research and devel- ogy (IT) services sector will see growth the country will reach its software ex- this year on the back of government opment (R&D) investment. The plan port target of US$1 billion and employ- was unveiled during President Mr. Lee initiatives, according to a report from ing over 60,000 workers by 2010. consulting firm Ovum Plc. In a report Myung-bak's recent meeting with busi- entitled “IT services market in the Supply Chain Consulting Managing ness leaders. According to the plan, Philippines: a fledgling ready to take Director for Asia, Mr. Jan Biezepol, said tax credit will rise from 3 per cent to flight,” Ovum said the government’s the lower growth is an opportunity for 20 per cent if a company makes an various initiatives for technology adop- local players to reposition themselves R&D investment in at least one of 17 tion will drive the IT services sector’s when the economy turns around. As new “growth engines” designated by growth, as these will provide opportu- a global provider of enterprise software the government. The government also nities for vendors catering to domestic solutions, the company continues to plans to set up a fund worth around demand. reach out to the various sectors by US$15.7 billion to promote investment launching several initiatives that will in facilities. “While currently the Philippines is a promote sustainable development for http://english.chosun.com small IT services market in revenue the local industry. It has achieved a terms, less attractive than other South- growth of 35 per cent in the previous VIET NAM east Asian countries such as Singa- year. However, the current economic pore, Viet Nam or Malaysia, it offers condition has made the company con- IBM Innovation Centre good opportunities for vendors fo- servative in its projection for growth comes calling cused on the public sector,” said Ms. as it only expects 20 per cent revenue Deepika Chaubey, research author growth this year. The United States-based information who is a managing analyst at Ovum. technology giant IBM recently opened http://www.tmcnet.com “The various initiatives by the govern- its first Innovation Centre in Viet Nam. ment will provide significant opportu- REPUBLIC OF KOREA The Ho Chi Minh City-based facility will nities to IT services vendors in the provide entrepreneurs and business region, and services such as imple- Patent applications partners across Indochina access to mentation, integration and security technical and business experts to help will witness increased demand,” she surging ahead them deliver digital infrastructure tech- added. Mobile phone-related patent applica- nologies to growth industries like tele- The government, according to Ovum, tions from foreign companies are on communications, finance and energy. has plans to establish a central autho- the increase in the Republic of Korea. Viet Nam reportedly has the highest rity for compiling data from financial The leading applicant is Qualcomm, Internet penetration rate among dev- institutions, which would facilitate according to the Korean Intellectual eloping countries, and the widespread easier verification of a borrower’s Property Office (KIPO). Qualcomm’s access across the country would help credit worthiness. It added that the applications drastically increased from fuel the creation of new businesses government would be initiating the 2006 onwards, and applications in that drive innovation into maturing computerization of all public schools 2008 were quadruple those of 2007, industries, IBM said. To support these and the adoption of e-learning in urban KIPO said. Other major applicants opportunities, the Centre seeks to areas. “Once the database is fully include Motorola, Sony Ericsson and provide partners, independent soft- built, there will be a sharp increase Nokia, all of which are competitors of ware vendors, venture capitalists and in the issuance of credit cards in the Samsung Electronics and LG Elec- academics access to training work- country, which will further increase the tronics, the handset makers from the shops, consulting services, as well as demand for data management, net- Republic of Korea. hands-on assistance to help validate, working and security services,” the The increase in patent applications report said. optimize and test new software tech- by foreign companies may strengthen nologies. The Centre adds to the grow- https://abs-cbnnews.com domestic companies that are begin- ing network of 43 global Innovation ning to lead the global mobile phone Centres of IBM. In 2008, the Centres Software industry market, KIPO said. Last year, Kodak assisted more than 22,000 partners brought a lawsuit on patent violation to post 30 per cent with seminars, workshops and con- against LG and Samsung to the Inter- sultation to build skills and develop revenue growth national Trade Commission to prohibit solutions, leading to over 7,000 tech- import by the United States. nology enablements. The Philippines software industry, a priority sector for economic develop- http://www.telecomskorea.com http://www.thanhniennews.com

6 TECH MONITOR z Jul-Aug 2009 Technology Scan

ASIA-PACIFIC record another layer of information at CHINA 90 degrees polarization, without them Repairing tendons using AUSTRALIA interfering with each other,” said Mr. James Chon, one of the researchers. embryonic stem cells Nanotech to create ‘fifth Even a 1 TB disc created with the A research team, led by Prof. Ouyang dimension’ data storage technology would provide enough Hongwei at Zhejiang University Medi- capacity to hold 300 feature-length cal School, has restored the normal A team of researchers from Swinburne films or 250,000 songs. The team functions of rats with patellar defects, University of Technology has develop- said the technology is likely to have using embryonic stem (ES) cells. The ed a new DVD technology that could immediate applications in a range of paper was published in a recent issue some day boost the capacity of digital fields, such as storing extremely large of Stem Cells. The new techniques video disc (DVD) by 10,000 times that medical files like MRIs, and could be of today’s standard 4.7 GB, reports a employed in the study have signifi- a boon in the financial, military and cantly lowered the risks of causing study published in the journal Nature. security arenas. The researchers said the technology, cancers as the result of incomplete dubbed “multiplexed optical record- http://www.computerworld.com division of ES cells in conventional ing”, can create a ‘fifth dimension’ of experiments. The treated rats did not recording, using polarization and gold Testing the water produce any tumour, and showed en- nano-rods to reflect light, boosting hanced tendon reproduction capability. data density beyond 1,012 bits/cm. Researchers at RMIT University have The researchers grew 10-20 ES cell The team was able to store 1.6 TB of developed a low-cost, portable way to patches on treated cultivating boards data on a disc with the technology and test water quality and help authorities in low density, and collected the ones said that the technique could yield up deal with pollution or pesticide conta- that were qualified for further screen- to 10 TB on a single DVD-type disc. mination. The RMIT researchers colla- ing, cloning and multiplying. They then borated with the Victorian Department divided mesenchymal stem cells and “We were able to show how nano- of Primary Industries to develop a structured material can be incorpo- further cultivated them in a special proof-of-concept, portable sensor for fluid for two weeks to grow into mes- rated onto a disc in order to increase testing on-site water quality. data capacity without increasing the enchymal stem cell sheets that can be rolled into the shape of tendon. physical size of the disc,” said Prof. The RMIT prototype sensor utilizes The sheets were then stretched and Min Gu, one of the three researchers selectively adsorbing polymers that pressed to grow into the tendon cells who co-authored the paper on the can be tailored to detect specific water that work properly. technology. By using nanotechnology contaminants including a wide range in the form of small gold rods that of herbicides, pesticides and fungi- http://www.most.gov.cn reflect light, the researchers were cides. Prof. David Mainwaring, who led able to create a spectral or colour the research, said the device provided INDIA dimension in addition to a polariza- a rapid, inexpensive, on-site method tion dimension, adding two dimen- of measuring chemical residues. The Medicinal fungus sions beyond 3-Dimensions. existing analytical testing methods are to fight ageing problems time-consuming and expensive. The To create the colour dimension, the sensor can evaluate water supplies The Defence Institute of Bio-Energy researchers inserted gold nano-rods targetting specific contaminants. Research, a R&D Laboratory of the onto a disc’s surface. Because nano- Defence Research and Development particles react to light according to Once commercialized, the instrumen- Organization (DRDO), has succeeded their shape, this permitted the team tation will cost less than A$2,500 (US in developing the mycelium culture of to record information in a range of $2,150). If reusable sensing chips are Cordyceps sinensis in lab environ- different-colour wavelengths on the employed, the cost per test appears ment. C. sinensis, considered “green same physical disc location. The re- less than US$0.85. Prof. Mainwaring gold” in China for its high economic searchers created the polarization said functional polymer technology value, is a medicinal parasitic fungus dimension by projecting light waves also had wider applications in the con- that grows on insect caterpillar in the onto the disc and aligning the direc- tainment of contamination for water higher hills (altitude 12,000-16,000 tion of the electric field contained in catchments since the polymers could ft above sea level) of the Himalayan the light waves with the gold nano- absorb more than 10 per cent of their regions in Nepal, Tibet, China and rods. That allowed the researchers weight of a wide range of agricultural India. The specimens of this fungus to record different layers of informa- chemicals. “Further applications of are rare owing to its difficult habitat. tion at different angles. such functional polymers could in- According to DRDO, this fungus is clude the accurate quantitative detec- “The polarization can be rotated 360 used in traditional remedies for many tion of antibodies, heavy metals, E. degrees. We were, for example, able physiological disorders and diseases coli and antibiotics,” he added. to record at zero-degree polarization. like chronic bronchitis, insomnia, hy- Then, on top of that, we were able to http://www.theengineer.co.uk pertension, pneumonia, tuberculosis,

TECH MONITOR z Jul-Aug 2009 7 Technology Scan pulmonary emphysema and anae- of stem cells per unit body weight of JAPAN mia. C. sinensis, being a hormone the patient are being worked out. Flexible CIGS solar cell stimulator, is also considered an im- Doctors are also seeking approval of portant anti-ageing agent. Frequent the internal regulatory board. The team with notable energy use of this fungus may prevent senility, will transplant these insulin produc- conversion efficiency and help in remedying flabby waist ing stem cells initially in ten Type 1 and knee, say researchers. diabetic children. “Since such chil- Researchers at the Research Centre dren’s bodies do not produce insulin, for Photovoltaics have developed a The fungus is sold at a rate of about we will be able to measure the func- technique for dramatically improving US$6,000 per kg in the international tioning of the stem cells derived by the energy conversion efficiency of market. Laboratory culture of this us from fat,” Dr. Trivedi said. flexible solar cells that utilize CIGS, a fungus is the only solution to fulfil the non-silicon semi-conducting material http://timesofindia.indiatimes.com demand of such a high-value medi- made from copper, indium, gallium cinal and highly prized fungus, say and selenium. This technique was researchers, because of its rarity in GIS software used to fabricate high-performance nature and the high labour cost in- The Centre of Studies in Resources solar cells with a variety of flexible volved in its collection. Considering substrates, such as metal foils, poly- its great potential in terms of utility Engineering, Indian Institute of Tech- nology Bombay (IITB), has developed mers and ceramics sheets. The thick- and money, this technology will prove ness of CIGS photoelectric conversion a great success in the preparation of India’s first ‘fully indigenous’ Geo- graphic Information Systems (GIS) layer is just a few microns. Owing to various products from the dried my- this feature, there is potential for the celium, which contains “cordycepin”, software: Geo-Referenced Area Man- agement (GRAM++). GRAM++ helps manufacture of lightweight and flexi- a bio-energy compound, said DRDO ble solar cells that can be installed on officials. This technology has been in locating any spatial feature, visu- alizing, planning, sharing and manag- a curved surface and portable solar transferred to Biotech International cells. Ltd., New Delhi, for its production. ing information for an entire region or enterprise. It is economically priced It has been difficult to develop high- http://www.expressbuzz.com without compromising on capabilities, performance flexible CIGS photovol- explains IITB’s Dr. Parvatham Venka- taic cells so far. The Centre was able Patent for insulin-making tachalam. “It has been widely used to enhance dramatically the energy stem cells for solutions in both rural and urban conversion efficiency of the flexible areas in real life applications such as CIGS solar cells by developing a new Institute of Kidney Disease and Re- district and local level planning for tar- controlled alkaline addition technique search Centre (IKDRC) has applied geted resource allocation,” she adds. and a new polymer substrate hand- for international patent for producing Study on the software began in 1997, ling technology. Using this technique, insulin-producing stem cells from when it was developed with the finan- an energy conversion efficiency of human fat. Head of IKDRC Pathology cial support of Department of Science 14.7 per cent has been demonstrated, Department, Dr. Aruna Vaniker, said and Technology and United Nations using a polyimide substrate with a that the insulin-producing stem cells Development Programme. Recently, CIGS absorber layer grown in low were produced in August in their stem the software has been used by the temperature (400°C). In addition, 17.7 cell laboratory. World Health Organization, India, for per cent efficiency has been demon- strated using flexible zirconia ceramic The mesenchymal stem cells were service availability mapping for HIV- sheet substrate (the CIGS absorber produced from fat taken from a per- AIDS. The software can also be used layer was grown at 550°C). Contact: son’s abdomen. “We found that these by farmers to identify what crop could Dr. Shogo Ishizuka, Research Centre cells have a common gene ISL-1, be cultivated to maximize yield, to find for Photovoltaics, AIST, Tsukuba which produces insulin in beta islet out the optimal location for building Central 2, 1-1-1 Umezono, Tsukuba, cells of the pancreas, making them a water harvesting structure, for air Ibaraki, 305-8568, Japan. E-mail: the stand-by cells to produce insulin. quality monitoring, or just to calculate [email protected]. If this gene is up-regulated, these cells the shortest distance from one place can be differentiated into insulin- to another. GRAM++ GIS has been http://www.aist.go.jp making stem cells,” said Director of used to study the spatial distribution IKDRC, Dr. H.L. Trivedi. of village resources to formulate suit- REPUBLIC OF KOREA able developmental programmes, and Transplant of these insulin-making Highly efficient an urban slum spatial information sys- stem cells helps patients with Type tem was built for development plan- OLED light source 1 diabetes, where the body does not ning in six slum pockets. The software produce any insulin. These cells are Scientists in the Republic of Korea has also been extensively utilized by transplanted in the liver through mini- have developed a highly efficient orga- educational institutes across India. lapratomy techniques. The treatment nic light emitting diode (OLED) that is at an experimental level and doses http://www.indianexpress.com can replace widely used incandescent

8 TECH MONITOR z Jul-Aug 2009 Technology Scan bulbs as a light source, reports the recharging strips, which are attached state’s Electronics and Telecommu- to small electrical stations, would be nications Research Institute (ETRI). laid in places such as bus lanes and The new light source can achieve 70 the roads running up to intersections lumens per watt, which is more than so that vehicles could power up when four times the efficiency of incande- traffic slows down. scent light bulbs that account for ap- proximately 50 per cent of the world’s The university has built a prototype lighting market, ETRI said. at its campus in Daejeon for electric- powered golf carts and is working on OLED can emit light from flat surfaces, designs that would power cars and has high energy efficiency that can buses. The system will be tested later help reduce greenhouse gas emis- this year for use in the bus systems sions, and is more eco-friendly since of Seoul and other cities. Some of the they do not employ mercury in the country’s automakers are also coop- manufacturing process like incan- erating in the project. Unlike electric descent and fluorescent bulbs. It has lines used for trams, vehicles do not longer operating life, although it may need to be in constant contact with cost more to produce. OLED has light the strips, and a person can touch the Skin cells being cultured qualities similar to ordinary light bulbs lines without receiving a shock. The and are likely to be used for indoor cost of installing the system is an nique has already proven its use, but lighting at homes, shops and factories. estimated about US$318,000 per kilo- has been too expensive and compli- ETRI said that this development is metre of road. cated for mass production until now. important because the Republic of http://www.reuters.com The project team – drawn from four Korea can now position itself to grab Fraunhofer institutes – is at present a part of huge global lighting market. EUROPE working to automate the production The country is the largest producer process. Researchers at the Institute of OLED displays in the world. GERMANY for Interfacial Engineering and Bio- http://www.telecomskorea.com Automated technology (IGB) and the Institute for Cell Therapy and Immunology (IZI) are tissue engineering Recharging road handling the development of the bio- logical fundamentals and validation An interdisciplinary team of Fraunhofer to power vehicles of the machine and its sub-modules. researchers is currently developing Experts from the Institute for Manu- The Republic of Korea’s top technol- the first fully automatic production facturing and Automation (IPA) and IPT ogy university has developed a plan system for two-layer skin models. are taking care of prototype develop- to power electric cars via recharging “Our engineers and biologists are the ment, automation and integration of strips embedded in roadways, using only ones who have succeeded in the machine into a complete func- a technology found in some electric fully automating the entire process tional system. After working together toothbrushes for energy transfer. The chain for manufacturing two-layer skin for one year, the project team has plan calls for placing power strips of models,” explains Mr. Jörg Saxler at the already applied for eight patents. about 20-90 cm width and perhaps Fraunhofer Institute for Production several hundred metres length, built Technology (IPT). The researchers have prepared a onto the roads. Vehicles with sensor- computer model of the overall system, In the multi-stage process, first small driven magnetic devices on their un- along with three fundamental sub- pieces of skin are sterilized. They are derside can suck up energy as they modules. The first module prepares cut into small pieces, modified with travel over the strips without coming tissue samples and isolates the two specific enzymes and isolated into two into direct contact. cell types, while the second prolifer- cell fractions, which are then propa- ates them. The finished skin models The non-contact transfer of electricity, gated separately on cell culture sur- are built up and cultivated in the third, also called inductive charging, works faces. The next step combines the and then packed by a robot. Contact: by magnets and cables on the under- two cell types into a two-layer model, Prof. Dr. Heike Mertsching, Fraun- side of the vehicle which draw elec- with collagen added to the cells to hofer Institute for Interfacial Engi- tricity in the recharging strip to receive form the flexible lower layer, or dermis. neering and Biotechnology (IGB), power as the vehicle travels over it. This gives the tissue natural elasti- Nobelstraße 12, 70569, Stuttgart, The technology is employed in some city. In a humid incubator kept at body Germany. Tel: +49 (711) 970 4117; electric toothbrushes, which do not temperature, cell fractions take less Fax: +49 (711) 970 4200; Website: need to be plugged into anything but than three weeks to grow together to www.igb.fraunhofer.de. use a magnetic connection to receive form a finished skin model having a energy while resting in a cradle. The diameter of roughly 1 cm. The tech- http://www.fraunhofer.de

TECH MONITOR z Jul-Aug 2009 9 Technology Scan

UNITED KINGDOM structured and porous carbon family engineering and CBEN faculty expert Technology to cut called mesoporous carbon, although in water treatment, said Rice’s team they say the same approach could be plans to test sand coated with nano- greenhouse gases used with other materials. At the nano- rust. The material will be used in sand scale level, this type of carbon has a filters to treat groundwater from wells. Scientists at the Newcastle University very uniform pore diameter and pore The water treated with nano-rust will have pioneered breakthrough tech- volume. be kept separate from the water that nology in the fight to cut greenhouse is released for human consumption, gases. The Newcastle team, led by Using a nano-casting method, the Dr. Li said. Mr. Michael North, Professor of organic team assembled a structure of 6.5 chemistry, has developed a highly nm thick carbon rods separated by http://www.azom.com energy-efficient method of convert- empty 3-4 nm wide channels. Carbon ing waste carbon dioxide (CO ) into micro-fibres spanning the empty chan- 2 Optical sensing software chemical compounds known as cyclic nels kept the voids open and pre- carbonates. The team estimates that vented collapse of the architecture. Ocean Optics, the industry leader in the technology has the potential to To fill the voids, sulphur was heated miniature photonics, has increased use up to 48 million tonnes of waste and melted. Once in contact with the the usability and flexibility of its Jaz carbon, sulphur was drawn into the CO2 per year, reducing the country’s modular optical sensing platform with emissions by about four per cent. channels by capillary forces, where it two new software options, the Jaz- solidified and shrunk to form sulphur Cyclic carbonates are used in pro- IRRAD for irradiance measurements nano-fibres. Scanning electron micro- and the Jaz Scripting Language for ducts such as solvents, paint-strip- scope sections revealed that all the pers, biodegradable packaging and building custom applications. The spaces were uniformly filled with sul- modular design of the Jaz family al- anti-knocking agents. Anti-knocking phur, exposing an enormous surface agents make petrol burn better, thus lows it to be customized for a range of area of the active element to carbon applications. With the new software increasing fuel efficiency and reducing and driving the exceptional test results CO emissions. The Newcastle team options, users will be able to further 2 of the new battery. Contact: Ms. Linda tailor measurements to their needs. has succeeded in developing an ex- Nazar, Canada Research Chair, Uni- ceptionally active catalyst, derived from versity of Waterloo, 200 University With Jaz-IRRAD absolute irradiance aluminium, which can drive the reac- Avenue West, Waterloo, Ontario, N2L measurement software, the handheld tion necessary to turn waste CO into 2 3G1, Canada. Tel: +1 (519) 888 4567; Jaz transforms into a dedicated light cyclic carbonates at room temperature E-mail: [email protected]. meter, allowing users to measure cali- and atmospheric pressure, greatly brated absolute irradiance without any http://www.innovations-report.com reducing the energy input required. need for an external computer. Para- http://www.innovations-report.com UNITED STATES meters such as colour temperature, spectral intensity and colour space NORTH AMERICA “Nano-rust” for arsenic values of LEDs, radiant sources and removal from water the sun are captured at push of a CANADA button. Data captured can be post- Rice University scientists will be field- processed to the intensity parameter Breakthrough in lithium testing “nano-rust” – the revolutionary, of choice, such as watts/cm2, lumen, battery technology low-cost technology for removing ar- luz and PAR. senic from drinking water – later this Scientists at the University of Waterloo year in Guanajuato, Mexico. The new The Jaz Scripting Language offers has laid the groundwork for a lithium technology, developed at the Centre nearly endless possibilities for creat- battery that can store and deliver more for Biological & Environmental Nano- ing custom applications. This tool is than three times the power of con- technology (CBEN), is based on the simple enough for non-programmers ventional lithium ion batteries. The unique properties of particles called to build measurement sequences into research team of Prof. Linda Nazar, “nano-rust”, tiny bits of iron oxide that a self-contained application. Opera- graduate student Mr. David Xiulei Ji are smaller than living cells. tions such as measuring the sugar and post-doctoral fellow Dr. Kyu Tae content of a liquid, or expressing ref- In 2006, Dr. Vicki Colvin, Professor of Lee is one of the first to demonstrate lected colour in colour space values chemistry and Director of CBEN, and robust electrochemical performance such as L*a*b*, can be loaded from a his colleague Dr. Mason B. Tomson, for a lithium-sulphur battery. PC onto the Jaz for execution. Con- Professor of civil and environmental tact: Ocean Optics Inc., 830 Douglas The research team leap-frogged the engineering, published the first nano- Avenue, Dunedin, FL 34698, United performance of other carbon-sulphur rust studies. Their initial tests indi- States of America. Tel: +1 (727) 733 combinations by tackling the contact cated nano-rust could be used as a 2447; Fax: +1 (727) 733 3692; E-mail: issue at the nanoscale level. The low-cost means of removing arsenic [email protected]. researchers chose for their proof of from water. Dr. Qilin Li, an Assistant concept study a member of a highly Professor of civil and environmental http://www.oceanoptics.com

10 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters

Cluster and innovation promotion in Styria

Gerd Holzschlag, Michael Kerschbaumer, Markus Gruber and Simon Pohn-Weidinger

Styria, with some 1.2 million inhabitants, is one of the nine Austrian federal provinces. It is today considered as a cluster showcase region. Existing structural problems have been successfully overcome over the past few years with the support of an economic policy based on networking. The Styrian cluster concept is innovation-oriented, adjusting to changing patterns of challenges. The increasing knowledge basis of society as a whole is a fact that clusters need to accommodate. The results are visible in the numerous co- operative research centres that have come into being over the past 10 years. When the diagnosis is correct, R&D is a decisive factor for the economic development not only of companies, but of entire regions.

Mr. Gerd Holzschlag Mr. Michael Kerschbaumer Steirische Wirtschaftsförderungs- gesellschaft mbH (SFG) Clusterland Styria: of successful cluster and network A-8020 Graz, Nikolaiplatz 2, Austria initiatives in each field of its signifi- Tel: +43 (316) 7093 205 a brief history cant economic performance. Fax: +43 (316) 7093 94 tyria is one of the nine federal This was not always the case. E-mail: provinces of Austria, and it is lo- During the Second World War and in [email protected] Scated at the geographic centre the post-War period, Styria was known Website: www.sfg.at of Europe. The region is situated in more for its industries based on raw Mr. Markus Gruber an environment with substantial eco- materials. What started out as a suc- Mr. Simon Pohn-Weidinger nomic power – close to some major cess story saw a dramatic change in Cooperative Knowledge Design European markets and to the growth the 1980s. Major companies in the GmbH (Convelop) regions in the new European Union raw materials-based industries, which A-8010 Graz, Bürgergasse 8-10/I member states. Styria – a region of were nationalized at the time, suffered Austria some 1.2 million inhabitants in the economic debacle during this decade Tel: +43 (316) 720 813 south east of Austria – presents itself with serious consequences for growth Fax: +43 (316) 720 813-20 in economic terms as a technology and employment. Styria became a E-mail: [email protected] region. It is considered today as a “crisis region”. Today, 20 years after Website: www.convelop.at showcase cluster region with a host the crisis, the province is one of the

TECH MONITOR z Jul-Aug 2009 11 Special Feature: Innovation in SME clusters most powerful research and develop- set of challenges. Social and econo- networks, technology networks, ser- ment (R&D) regions in Europe, with mic processes are increasingly getting vice networks, etc.) and they can all an R&D ratio of 3.9 per cent and an knowledge-based. The significance of make use of a specialized (regional) economic performance that notably R&D has increased, particularly when set of infrastructure facilities (educa- outstrips other comparable regions it is a matter of innovation and the tion, research, technical infrastructure, in all important parameters. ability of a company to compete. This state administration, etc.).1 A crucial element in the success- development is gaining increasing Economic clusters as defined by ful structural change that has been weight in clusters, and clusters are Porter (see footnote 1), are scarcely implemented over the past 15 years now much more research-oriented encountered on the scale he refers is a regional economic policy that has than they were 10 years ago. to (as in the much publicized Silicon placed cluster and network thinking If clusters were long associated Valley) in Styria or even Austria. Never- in the focus. This helped Styria to es- purely with company networks that had theless, economically important and tablish itself as a cluster region much emerged from a mix of private initia- networked economic structures exist earlier than other areas. Nationalized tives and public support, the pattern abundantly in Styria – in the so-called industries and the crisis-ridden raw has changed today with research faci- fields of strength – and are to be seen materials-based industrial conglom- lities being increasingly tied-in and as precursors to economic clusters. erates were no longer bailed out by involved. As development promoters, Whether these are clusters as Porter the state; but the development of net- cluster organizations are now very fre- defines them, or fields of strength of works of existing and new ‘outsourced’ quently involved in the development a lesser dimension, the political2 goal companies – above all in the steel and of cooperative research initiatives, remains the same: essentially the automotive industries – received sup- bringing in scientific organizations as generation of cluster or agglomera- port. Business promotion was placed actively as research-oriented com- tion effects, which can trigger self- on an entirely new basis at this time, panies. Scientific facilities are now energizing growth impulses within a and what is now the central promo- integrated with a central stakeholder region. tion agency – the Styrian Business role in clusters. These desirable cluster effects Promotion Agency (SFG) – was set Styria continues to play its role in lead to a wide range of positive im- up. While functioning as a facilitator cluster development, especially when pulses, ranging from reduced produc- and go-between for business and the issue at hand is developing a tion costs and increased innovation public policy, SFG supported active cluster in an increasingly research- capability to boosted productivity and cooperation among businesses. oriented direction. The following ac- thus increased competitiveness. The The first successful showcase count presents the significant aspects cause and the core of these potential project supported with public funds of this role. effects are spill-overs (Gassler and was the rapidly developed automo- Polt, 2003), which occur whenever bile cluster, ACStyria. During its initial Clusters as promoters of companies benefit from, for example, phase, ACStyria was a platform pri- growth: the theoretical innovations or new knowledge that marily for collborative events, organis- background has been generated outside the com- ing common supplier relationships, pany (by other companies, research developing joint quality standards, The cluster approach has developed institutions, etc.) without their actually etc. (Steiner and others, 2006). The as a robust promotion strategy over paying directly for those benefits. As automobile cluster in Styria remains the last two decades. Are the reasons even today. By the 1990s, however, a for promoting clusters automatically diversification trend had set in for the clear? What exactly are clusters in 1 An entire series of varied, and to some cluster activities. Cluster organiza- the first place? Why do growth effects extent very different, definitions of clusters/ tions were established in the many emerge not only for a company but fields of strength could be found in litera- ture. See Alecke and Untiedt, 2005, and different technological fields that are for the entire region as a result of in- Martin and Sunley, 2003, for an overview. important for the region of Styria – the creased networking activities? What A widely accepted definition is provided so-called fields of strength. is the logical reasoning behind the by Porter who defines the cluster as: “geo- The cluster concept was closely promotion avenue that has been pop- graphically close groups of interconnected linked from the start to a clear inno- ular for the past 15 years? companies and associated institutions in vation and quality-oriented approach Business clusters began to gain a particular field, linked by common tech- nologies and skills. They normally exist extending far beyond cooperation in increasing recognition in the 1990s as within a geographic area where ease of material flows. From its inception, important sources of both economic communication, logistics and personal in- cluster development was intended to prosperity and innovation capability. teraction is possible. Clusters are normally focus on and promote innovation in Clusters are characterized by a spa- concentrated in regions and sometimes companies. If networking and innova- tial concentration of companies all in a single town” [Porter, 2003, quoted in tion at the location were the focus involved in a specific business acti- OECD (2007b]. during the early phase of develop- vity. These companies maintain an 2 Throughout this article, the author uses ment in the 1990s, clusters today see intensive mutual relationship to one the term “political” to mean “concerned with themselves as facing an entirely new another (through supplies and sales the function of the government or the state”.

12 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters it is hard to keep secret new knowl- lows for an efficient division of labour. and cooperation lead to a “culture of edge (in the form of new products, pro- Highly specialized companies with innovation”, in which not only com- duction processes, the transfer of non- niche positions are able to make good panies, but research and transfer codified know-how through personal use of the production cost advanta- facilities are integrated equally with contacts, etc.), companies profit from ges because of the existing market public or semi-public institutions. each other’s R&D activities. dimension (economies of scale). The close spatial proximity fosters The range of these spill-overs is The close supplier-buyer relation- this development. In favourable cir- wide and they will, in general, come ship is another decisive factor for the cumstances, the active interaction into play only when specific fields of innovation process. A study that was further reinforces joint conventions, 4 strength, or “critical masses”, have carried out in this context reached the standards and routines among the been formed.3 Once existing location conclusion that “a combination of stakeholders of a region. This is an advantages are developed through the suppliers, partners and customers indispensable prerequisite for the formation of, for example, a technol- is a more significant source of inno- creation of innovation, promoting trust ogical specialization, then spill-overs vation than a company’s employees and reducing transaction costs. will lead automatically to reinforcing and far more important than in-house 4 This aspect is frequently discussed as effects. The mechanisms behind the R&D” (OECD, 2007a). Supplier links “social capital” in literature. effects are manifold and, to some extent, mutually self-generating. Positive spill-overs resulting from clusters One part of the spill-over effect is referred to in the literature by the term Labour market pooling ‘labour market pooling’. When a de- • Specialized labour supply: The demand for specialized labour leads to mand for specific qualifications exists, the appearance of an appropriate labour supply, because training and for example, in a region because of vocational training in those qualifications that are in demand is attractive the principal industries based there, for employees and potential employees. Furthermore, migration be- it will lead to an employment market comes a lucrative proposition for suitable employment seekers. expansion with a focus on highly spe- • Cost advantages: Training and educational facilities adjust their offer to cialized workers. Since these areas the demand. Companies are thus able to save on training and instruc- offer substantial income and career tion costs together with the costs of searching for suitable employees. opportunities, the incentive exists for • Knowledge transfer through employee mobility: The mobility of employ- people to seek training in the quali- ees between the separate companies increases the knowledge and fications that are in demand. This technology transfer level between companies. It also increases learning effect is reinforced by the existence capability and thus innovation and competitiveness. and development of complementary Input-output advantages professional training provisions. This development has a positive effect, in • Efficient division of labour: A large market plus specialization results turn, at company level due to both the from spatial agglomeration, thus promoting efficient division of labour. large pool of highly qualified employ- Highly specialized companies also profit from economy of scales. ees and the cost savings made in a • Close supplier-customer relations: These support tailored and inno- company’s own training and instruc- vative solutions. tion provisions. The appearance of a • Competition: A high tendency for cooperation with simultaneous com- specialized labour market also leads petition increases the “innovative drive”. to employee mobility between com- • Transportation costs: These costs are minimized by regional proximity. panies. This, in turn, promotes knowl- • Trust/social capital: established fields of strength build on established edge transfer and increases learning routines – or “cultures” – which in turn reduce the transaction costs of effects within companies, boosting cooperation. the innovative and competitive capa- bilities of the companies involved. Technological spill-overs • Further to the employment market- Knowledge spill-overs/learning effects: Technological spill-overs are ad- specific advantages, the fields of vantages that companies are able to achieve, because they learn from strength also bring about advantages other companies and can use this knowledge for their own purposes. for the regional production structure This knowledge transfer often occurs free of cost, as new knowledge (in (input-output advantages). A “critical the form of new products, production processes, forms of organization) market dimension” with numerous is often difficult to keep a secret. supplier and buyer relationships al- • Absorption capability: The capability of integrating new knowledge in a company is promoted by spatial proximity. This, in turn, promotes the development of formal and informal information networks in which both 3 See box for a short general account of codified and non-codified knowledge is exchanged. the potential advantages that result from fields of strength. Source: Adapted from Alecke and Untiedt, 2005, OECD, 2007a

TECH MONITOR z Jul-Aug 2009 13 Special Feature: Innovation in SME clusters

In addition to the cooperation as- This is the reason why the stake- to act as a stimulator, a mediator or pect, the high density of companies holders in these areas are the main a catalyst. Supporting regional dia- along the whole value creation chain targets of business promotion. Styria logue, activating key stakeholders for implies equally the existence of a high is characterized in economic terms the innovation process, improving co- level of competition between these today by a series of technological fields operation between companies and, companies. Coupled with a dynamic of strength (See Figure 1 and Table 1) more recently, stressing on networks/ corporate structure (a high estab- along many of which, research net- partnerships – for example, between lishment rate for new companies and works and cluster organizations have companies and research institutes – – technology oriented – spin-offs) this developed. Economically, these pre- are all part of that role. In brief, public parallel existence of cooperation cul- sent a heterogeneous picture. Some policy seeks to optimize the frame- ture side-by-side with a pronounced areas are well established and can work conditions for an “innovative competitive situation promotes a high be regarded as the spearhead of the milieu” in which the fields of strength standard of continual innovation pro- Styrian economy, and earned the pro- can flourish and thus induce growth cesses for the improvement of existing vince international fame as a leader impulses for companies in the entire products and services among the location (for automotive and materi- region. Political intermediaries make locally based stakeholders. als). Other fields of strength are to be their appearance in this process as regarded as growth areas, and are neutral “brokers” to synchronize the Cluster policy in internationally competitive in niche efforts of the individual stakeholders Styria areas (environmental technology, and and to promote cooperation. food and nutrition technology). Cross- Current Styrian economic policies are sector issues, which find application The governance process in a field of based on logic, as explained earlier, in several technological fields, have strength development implies a poli- and pursue the goal of promoting received more attention over the past tical approach that extends beyond tra- spill-overs (labour market pooling, few years. An outstanding example is ditional top-down strategies. Politics knowledge transfer, “critical mass” a network initiative in nanotechnology, itself functions here as one of the many cost advantages, and so on). Critical where a powerful research network stakeholders, with the formulation and masses are primarily to be nurtured (called NanoNet) has been estab- implementation of politically driven along so-called “fields of strength”.5 lished in recent years. measures being a result of intensive communication and consensus for- 5 This does not rule out support for those mation within political networks. The companies that are outside the fields of Cluster policy implies a mediator’s function is seen usually in strength. Promotion instruments are avail- new understanding of politics able on a broad basis for companies out- organizational forms such as regional side the fields of strength, in particular The function of the public sector (fields networks, cluster organizations or for their innovation efforts. of strength) in cluster development is regional development agencies.

Figure 1: Fields of strength in Styria

Cluster of network organization Mobility/ 5 automotive Number of cooperative research centres

Fields of between buisiness and science Materials 4 national context strength in inter-

Energy, environmen- tal technology, 4 Engineering renewable energy

Human 4 special technology TIME 6 Food Growth fields with technology 2 competence advantages

Creative business Wood 1 issues Economic policy focal

Simulation

Logistics Nano, Micro technologies Cross-section Individual project Awareness Development Performance Issue oriented phase phase phase extension intervention

14 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters

Table 1: Fields of strength in Styria – cluster and network organizations and cooperative research centres

Fields of strength Cluster organization / Cooperative research centres involving science Networks and business Automotive/mobility ACstyria • MOBILITY – Sustainable Vehicle Technologies • HYBRIDCAR • Aerospace technology • LEC – environmentally friendly stationary motors • vif – Virtuelle Fahrzeug Forschungsgesellschaft mbH (plus) and ACC – Acoustic Competence Centre Materials Materialcluster Styria • MPPE – Integrated Research in Materials, Processing and Product Engineering • K1-MET – Competence Centre for Excellent Technologies in Advanced Metallurgical and Enviromental Process Development • PCCL – Polymer Competence Centre Leoben GmbH • JOIN – comptence network for joining technology Human technology Human.technology Styria • RCPE – Reseach Centre for Pharmaceutical Engineering • Macro Fun • Onkotyrol • AB – Applied Biocatalysis Energy and environmental Environmental technology • BIOENERGY 2020+ - ABC+RENET technology network • MPPF – Multifunctional Plug & Play Facade ECO WORLD STYRIA • LEC – environmentally friendly stationary motors • Kompetenznetzwerk Wasserressourcen GmbH Food and nutrition Food technologies • Kompetenznetzwerk Wasserressourcen GmbH technology network • AB – Applied Biocatalysis TECHFORTASTE.NET Telecommunications/ • evolaris – evolaris next level information technologies/ • Know-Center Graz – Kompetenzzentrum für new media/electronics wissensbasierte Anwendungen und Systeme GmbH • e-Motion – Research in ICT for the tourism, sport and leisure industries • AAP – Advanced Audio Processing • VRVis – Centre for Virtual Reality and Visualisation • Kompetence Network for Automatic Speech - COAST • Softnet Wood/paper/timber Holzcluster Steiermark – • Holz.Bau timber construction construction the Styrian Timber Cluster

Modern regional economic promotion. This area should be seen Some aspects in the current Styrian policy on the track of as one that complements a broad innovation promotion strategy that de- R&D and innovation range of support initiatives within the serve closer attention are described scope of innovation promotion. These below. Cluster policy is a core area of Styrian include the promotion of corporate business promotion and an integral innovation and R&D, with either the Cluster organizations for component of the regional innovation establishment of new innovation or fields of strength development strategy. Modern business promo- science-based business (e.g. start- Cluster or network organizations have tion is by no means at the end of its ups of new firms) or the qualification contributed to the development of most resources with cluster and network process within companies (Figure 2). of the Styrian fields of strength, and

TECH MONITOR z Jul-Aug 2009 15 Special Feature: Innovation in SME clusters

Figure 2: Cluster and innovation promotion in Styria

Regional economic policy today: Clusters/networks, innovation and R&D

Clusters/networks Innovation and R&D Start-up promotion Qualification

they form the most important political receive support from the public sector that takes in the entire system. instrument today in a field of strength- since they fulfil regional economic This comprises (a) the strategic oriented policy. However, cluster policy policy tasks and functions. further development, (b) project in Styria is seen less as a new instru- developments in each of those ment and more as a specific track Functions of cluster issues that is central to the loca- along which economic policy is direc- organizations in tion, (c) advertising and branding, ted and organized. It is not aligned regional development and (d) monitoring of relevant fields to individual companies, but to Styria of strength data. Cluster organizations fulfil a broad as a business location. Cluster policy z Synchronization of various stake- range of functions in the develop- increases understanding of the co- holders or community builders: ment of fields of strength (Figure 3). operative elements in business pro- Through their mediator function, In addition to their company-related motion and permits a departure from cluster organizations bring togeth- services, they also primarily take on purely sector-related approaches. It er stakeholders from many differ- public sector tasks in the development promotes approaches that have the ent “worlds” and contribute to a entire innovation system in perspective of the business location. This results synchronization of wide ranging and brings region-specific features in a highly differentiated service port- activities that take place in a field into focus with scope for cooperation folio in dependence on the function of strength. Because of this bund- extending beyond the administrative involved. ling function, the cluster organiza- borders. As a rule, cluster develop- z Strategic location development: tion operates as a turntable and ment is dealt with by cluster or net- Cluster organizations drive a fields shortens the information channels work organizations. These are partly of strength-oriented policy and are between politics, business, pro- financed from member fees, but also equipped with a range of vision motion facilities and research. Figure 3: The functions of cluster organizations

Regional development Cooperation

Synchronization, Corporate service Community builder provider

Cluster functions

16 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters

Case study: materials cluster The Materialcluster Styria bundles some 1,100 Styrian companies, institutions and scientific facilities active in the field of materials throughout the value creation chain. This task begins with raw materials production through further development/processing to applications for the finished products. The metal industry has traditionally played a major role in Styria. Side-by-side with this are competences in plastics, ceramics/glass and construction materials. Especially powerful growth potentials are seen in the new materials combinations together with “new advanced materials” (for example innovative combinations, polymers and sustainable growing raw materials, etc.). Figure 4: Materials clusters – stakeholders and networks (simplified)

Cooperative research centres Universities / Integrated Research in Materials, research institutions Processing and Product Engineering Graz University of Technology Competence Centre for Advanced Montanuniversität Metallurgical and Enviromental Process Development Joanneum Research Polymer Competence Centre Leoben etc. Kompetenznetzwerk Fügetechnik

Cluster organization Materialcluster Styria

Approx. 1,000 companies Anton Paar Böhler-Uddeholm Siemens etc.

Research has a key role to play in the development of materials of this kind. Here, Styria benefits from its broad knowledge basis on a university level with two technically oriented universities and other major non-university research facilities, all with a strong specialization focus on materials and material research. Targeted cooperation between science and business has led over the past four years to the erection of four, to some extent very ambitious, cooperative research centres. The biggest of these with a 10 year research programme – Materials, Processing and Product Engineering programme – employs 130 people and has its base firmly in the thematic core of the materials cluster. Metals, ceramics and composites are in the research focus. The goal is to be able to identify new materials and to integrate these in new products, design and production methods. All the issues addressed in materials production, processing and application – and thus in almost all areas of manu- facturing – are of the greatest relevance. Some 40 partners are integrated in the research centre. These comprise the who’s who of stakeholders in the region from among scientists and entrepreneurs, further extended by important partners on a national and inter- national level. The companies involved include: Böhler, voestalpine, RHI and Epcos, besides the most important technical universities and non-university research institutions of the region. z Initiating and mediating cooper- with their honest-broker function, z Service provision for cluster mem- ation: A core element of cluster support cooperation among com- bers: Cluster organizations can activities is sustaining contact with panies and other stakeholders in themselves take on the provision companies. Cluster organizations, the innovation system. of corporate services as specific

TECH MONITOR z Jul-Aug 2009 17 Special Feature: Innovation in SME clusters

industrial sector service providers. cooperative research centres (or com- ing, which had already emerged in the Activities like these are to be pro- petence centres) have been able to 1990s, is a factor that has made a vided under normal market con- establish themselves and flourish in valuable contribution to this develop- ditions and should not be the main cooperation with business to find solu- ment. The competence centres that task of the cluster organization. tions to problems. In the environment have come into existence form an Cooperative research centres of cooperation in Styria, it is easy for integral part of the clusters and fit in stakeholders coming from the most well with the range of issues that a and networks varied contexts and backgrounds to cluster deals with (see the case stud- Styria is mainly a knowledge location: work successfully together. The broad ies on materials cluster and human over the past few years, numerous anchoring of cluster and network think- technology cluster). The number of

Case study: human technology cluster The human technology field of strength, which has gained substantial dynamism in Styria over the past few years, is an example of a technology field that is powered to a great extent by research. This field has a very pronounced scientific basis on the part of university and non-university research in Styria (Figure 5). It is also a growing field for the corporate sector and is represented with over 120 firms (these include Roche Diagnostics Graz GmbH, Fresenius Kabi and Sandoz). The sector gets its strategic drive from the cluster organization, ‘human.technol- ogy.styria’ (HTS) established in 2004, which in addition to classic cluster tasks is also active in targeted conceptual work on research networks. One example is the Competence Centre for Pharmaceutical Engineering, a science- business cooperative research centre for which the cluster organization provided support and conceptual input, which has been receiving public funding for the last seven years. Figure 5: Human technology cluster Styria – stakeholders and networks (simplified)

Universities / Cooperative research centres research institutions Centre for Pharmaceutical Engineering Medical Universität Graz Macro Fun Joanneum Research Centre for Applied Biocatalysis etc. Centre of Excellence in Medicine and IT

Cluster organization human.technology.styria

120 companies Sandoz La Roche Fresenius Kabi etc.

The strengths in terms of content are in the technical area (“integrated health care solutions”, biocatalysis, logistics, etc.), in therapeutic fields (diabetes and metabolic diseases, intensive and emergency medicine, deafness and the prevention of hearing deterioration, etc.) and in focused research (cell and tissue technologies, bioinformatics, biosensors and telemedicine, materials science and nano technology, and biometric identification and security). The goal of the clusters is to double the current 6,000 workforce in the companies and institutions and a 100 per cent increase in the current value by 2015.

18 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters competence centres at present is 20, A range of personal factors must z A line-up of low-threshold mea- with a cooperative mix of financing be added to the above, in particular sures is available specifically for from the private and public sectors. the innovation resistance that often SMEs that are not yet systemati- occurs in regional SME companies cally pursuing R&D and innova- SMEs as a business promotion and which has considerable influ- tion processes. These measures target group ence. All these factors together have extend from R&D funding on a Small and medium sized businesses a share of the responsibility for the small scale to cooperation incen- (SMEs) are a special promotion target low innovation disposition and the un- tives, support for business set- group. This group of companies has systematic and sporadic innovation ups, etc. structural disadvantages, compared activities in the broad spread of re- z The area of qualification is of equal with large corporations, which are ef- gional SME companies. concern to all business stake- fective barriers to innovation and jus- It has also emerged that SMEs are holders. The support offered in this tify public funding support. The factors a heterogeneous group, ranging from area is thus generally directed to that act as innovation barriers and as highly research experienced compa- a broad range of recipients. risks are the following (Steiner and nies with marked innovation manage- Innovation promotion others, 2006): ment competence to companies with Cooperation alone is not sufficient for a very low inclination to innovate. In z Economic factors are high busi- the successful implementation of in- addition, those companies that are ness risk, high innovation cost, a novation. Competence in innovation shortage of resources (workforce, low in innovation also have scarce ex- management, with capability to align time, finance), incorrect estimates perience in cooperation. It is for these the multi-layered processes and faci- of the cost of innovation, a lack of reasons that the business promotion litate the achievement of its goal in a overview of financing sources, low move was to launch broad-based sup- structured way, is an essential re- assessment of the expected rate port mechanisms varied in response quirement for a company. Some key of return, and narrow frameworks to the different types of companies. phases can be described as being for innovation as a result of the sta- This range can be seen in terms of typical of the innovation process, and tutory regulations and applicable a pyramid (Figure 6). significant from the innovation pro- standards; z The companies that are continu- motion perspective (Figure 7). At the z A lack of awareness and inexperi- ously involved in the R&D process start of an innovation process, when ence of the structuring and man- are at the apex. They are the pri- very varied ideas are brought together agement of innovation processes; mary recipients of the most am- for new products/services (the idea- z Innovation inhibiting corporate cul- bitious programmes and projects, finding phase), there is generally a ture and management styles (lack such as, for instance, the coop- much narrower process in the selec- of support for and recognition of erative R&D centres. tion of ideas (the idea acceptance innovations, negative effects that result from non-cooperative man- Figure 6: Promotion measures differentiated to the levels reached agement style, and too much of by companies standardization), with the result that the creativity and innovation potential of the employees are not used; z A shortage of suitable specialist personnel, gaps in qualification, R&D staff shortages or/and difficulties in the recruitiment of key innovation personnel; z A lack of information and commu- R&D nication, both within the company and extending beyond the project team, and inability to grasp inter- disciplinary relations/correlations Cooperation and relations with customers and Start-ups external know-how bearers for ap- Innovation propriate innovation impulses; and z Poor image, a lack of (personal) management access to and timidity in the face of external innovation relevant knowledge sources (such as uni- Qualification versities) paired with fear of know- how brain drain. Broad company base Innovation peak

TECH MONITOR z Jul-Aug 2009 19 Special Feature: Innovation in SME clusters

Figure 7: Phases of the innovation process

Concept development Product/process Idea finding Idea acceptance Marketing planning implementation

Technical/ Marketing Corporate strategy Feasibility studies, Buiness Organi- technological ideas evaluation Organi- plan zational Problem zational concept analysis Sales Develop- Rough idea Selection for Implementation Implementation ment/ selection implementation concept aspects prototype Market Service Personal Personal Research research concept qualifica- tion R&D/technical Spontaneous idea Patent check Legal/patents concept Licensing phase) in regard to their implement- pany qualification measures are thus today “age” acquired knowledge (for ation potentials, with a “stop or go” assured an emphatic support in the example, knowledge obtained in the decision to be faced at the end of this context of introducing new products basic educational process) signifi- phase. Even the early phases rep- or processes (product implementa- cantly faster than was the case in resent considerable planning and tion phase). the earlier decades. This has turned resources challenges to SMEs, with industrial in-firm qualification and “life- their limited innovation management New companies long learning” into decisive issues. capacities. Following a successful The establishment of new companies However, this is something that gets concept development with the inclu- plays a major part in structural change scant attention in the day-to-day busi- sion of R&D/prototype handling, the and is thus given attention in Styria. ness of companies, especially the transition from prototyping to pro- The setting up of technology-oriented SMEs, due to shortage of resources. duction begins leading, to the actual companies is of particular importance Promoting qualification has thus be- production process (product/process for innovation and technology trans- come a cornerstone in supporting the implementation phase), in the course fer policy. To date, two technology innovation capability of companies. of which – and in addition to purely transfer centres (Science Park Graz As part of the network thinking, spe- technical innovations – organizational and the Centre for Applied Technology cial importance is attached to in-firm and qualification adaptation needs in Leoben) have been established in further training and learning within must not be left aside. Styria, with the specific task of continu- networks. Qualification networks are Possibilities for support from in- ously increasing the number of com- thus given extensive support. Addi- novation policy are available in each panies that emerge from academic tional benefits result from the learning of these phases. A full complement of environment. These centres provide that occurs in company-to-company promotion programmes has been set professional consulting and coach- exchanges. To improve the ability of up in Styria to provide companies with ing, and infrastructure and financing SMEs to organize the innovation pro- support all along the course of the in- support to academics (including stu- cess well as an integrated whole, they novation cycle. It includes support for dents) from all specialized fields in are supported with appropriate quali- the development of corporate strate- the initial stages of their company fication measures in their efforts to gies and for product finding process set-up process. Development of a increase knowledge and innovation (the idea generation phase), besides mentoring programme for company management competences within the promotion of feasibility studies and founders is another support step. In companies. market research (idea acceptance addition, for the company founders phase). Special emphasis is given to seen as leaders due to their clear Conclusion activities in these areas (academic R&D orientation, extensive support Today, Styria has emerged as a show- theses, innovation professionals, in- is given in the establishment of both case region for cluster-based develop- house R&D) specifically for the SMEs innovation-aligned and commercial ment. The structural problems faced that have little experience of innova- companies, largely through financial over a long period have been suc- tion and R&D projects (concept devel- support in consulting, qualification cessfully overcome with the support opment phase). The primary backing and investment. of an economic policy that emphasizes sources responsible for the very large networking. In terms of economic R&D projects are, by contrast, derived Qualification performance, Styria has been able to largely from federal business pro- Qualified employees are a basic re- thrust ahead matching or even over- motion funds. Innovation also brings quirement for entrepreneurial action. taking comparable regions. This dev- challenges for the employees. Com- Accelerated technological changes elopment was not a matter of course,

20 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters but largely derived from a new eco- knowledge basis, thanks to its five 2. Gassler, H. and Polt, W. (2003). nomic promotion strategy that placed universities and several non-university Pfadabhängigkeit, Netzwerkeffekte cluster and network thinking firmly in research organizations. At the same und Lock. in. Zur raum-zeitlichen the focus of its efforts. time, a culture of cooperation has Dimension in der ökonomischen Cluster initiatives have been ini- emerged in the province that has en- Theorie, In Pichler, R., ed., Innova- tiated in all the major economic focus abled all stakeholders to work together tionsmuster in der österrichis- areas of the region, resulting in a successfully. The results are visible in chen Wirtschaftsgeschichte, Wien. positive development performance. the numerous cooperative research 3. Martin, R. and Sunley, P. (2003). The decisive factor was the integra- centres that have come into being in “Deconstructing clusters: chaotic tion of all the significant stakeholders the last decade. No other region in concept or policy panacea?” Jour- in the development process and an Austria can point to a similar dense nal of Economic Geography, 3, orientation towards innovation, which network of cooperative R&D centres. (1), pp. 5-35. was continuously adapted to chang- R&D is a decisive factor for the eco- 4. OECD (2007a). Globalization and ing patterns of challenges. nomic development of companies as Regional Economies: Can OECD well as regions, and Styria is certainly The increasing knowledge basis regions compete in global Indus- well equipped to meet the future. of society as a whole is a fact that the tries? OECD, Paris. clusters need to absorb and interna- 5. OECD (2007b): Competitive Re- lize to make decisive contributions. References gional Clusters: National policy Scientific institutions are gaining more 1. Alecke, B. and Untiedt, G. (2005). approaches. OECD, Paris. importance in cluster development, Zur Förderung von Clustern. 6. Steiner, M., Gruber, M. and Zum- and Styria can be regarded as a pio- “Heilsbringer” oder “Wolf im busch, K. (2006): Technologiepo- neer in this. Styria has an outstanding Schafspelz”. litisches Konzept II Steiermark.ˆ

Asia Pacific Incubation Network The Asia Pacific Incubation Network (APIN) was established with commitment from leading incubator managers in the region and support from the World Bank's infoDev Programme and the Department of Science and Technology in India. Its purpose is to help promote, support and develop quality business incubation in the region, developing management and policy capacities, sharing experiences and complementing the work of the Asian Association of Business Incubators (AABI). The network is owned and driven by incubator managers, giving incubation profes- sionals their own vehicle to learn from each other, undertake practical activities and to advocate for policy and other improvements. Within the broader infoDev incubator network, regional networks have been formed in Latin America, the Caribbean, Africa, Eastern and Central Europe, the Middle East and North Africa as well as in Asia. APIN works closely with infoDev and the other regional networks, coming together as the infoDev global incubator network. The APIN has planned its initiatives to strengthen the business incubation movements across and within each country and also develop new synergistic learning and participation across and within the business incubation players of each country in the region. The activities of APIN include: Š Regional workshop & policymakers forum on business incubation; Š AABI annual conference; Š Capacity building program for business incubator managers; Š Online training programme for business incubator professionals; Š Webcasts; Š Video Conferencing; and Š Newsletter on initiatives and achievements in business incubation. For more information, contact: Asia Pacific Incubation Network PSG-Science & Technology Entrepreneurial Park (PSG-STEP) PSG College of Technology Coimbatore, 641 004, Tamilnadu, India Tel: +91 (422) 4363300, 4363301 Fax: +91 (422) 2573833 E-mail: [email protected], [email protected] Web: http://www.incubationasia.com

TECH MONITOR z Jul-Aug 2009 21 Special Feature: Innovation in SME clusters

The business strategy of SME and partnerships

Cases of intermediary goods manufacturer and SME network

Nobutaka Odake

This research analysed two cases of business backgrounds, structures and partnerships. One is the case of a universal joint manufacturer, who is good at the marketing of industrial and intermediary goods. In addition to continuing its relationships with existing customers and learning about the customers' trend towards modularization and component level manufacturing, the company is establishing linkages and partnership strategies with other companies. The other case is of an emerging SME network based on pre-production, which shares customers, resources and outsourcing. A flexible network enhances member companies that focus on individual specialities. Value-adding networks could synchronize with regional goals through industry clusters.

Introduction such as ‘Keiretsu’. Although these manufacturers producing industrial Dr. Nobutaka Odake he manufacturing environment goods or intermediary goods were Graduate School of Techno- in Japan is experiencing major renowned for the superior quality or business Administration Tchanges owing to changes in high precision of their work, they did Nagoya Institute of Technology global structure. In many concentra- not attach importance to planning and (National University Organization) ted industrial areas, because of large development or, more particularly, to Gokiso-cho, Shouwa-ku, Nagoya manufacturers shifting their produc- marketing. Many firms, though known Japan tion to foreign countries or economic for their technological capability, have Tel/Fax: +81 (52) 735 7961 fluctuations, transactional relation- faced difficulties because of the over- E-mail: odake.nobutaka@ ships have changed from the previous dependence on certain firms such as nitech.ac.jp hierarchical industrial organizations the parent firms. With the crumbling of

22 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters these business affiliations (Keiretsu), Figure 1: Four worlds of modern industry the former pattern of stable transac- tions has changed to transactions for Production technology solving a problem. For example, sup- Standard goods, plier companies take the initiative to Speciality goods stimulate demands, or attempt to standardized goods solve problems that the procurement (Characteristics of market) Uncertainty side may be only vaguely conscious of. It can be expected that core func- Flexible specialization Sub-contract SME tions such as product commerciali-

goods world world zation, R&D and marketing would be Specialized

a major part of company strategies Predictability among Japanese manufacturers.

New combinations of organizations (Market) and functions will be required in pro- Innovation world Mass production world duct development, planning, designing goods and R&D. Generalized Positioning in business strategy is important. Maruyama (1993) pointed Economy of scope Economy of scale out four worlds in modern industry (Figure 1). The first is the ‘big corpora- Characteristics of manufacturing process tion world carrying on mass produc- tion’ that can control three markets, Source: Maruyama, 1993 such as products, capital and labour, and initiates technological develop- z Low adjustment cost within divi- been shortened rapidly. Thus, manu- ment by the sheer force of capital and sion of labour in manufacturing; facturers of industrial and intermedi- human resources. The second world and ary goods need to have a marketing is ‘sub-contract small and medium- z Ease of business start-ups. capability that can flexibly respond to sized enterprises’, which operate in Both depth of technological ac- these market changes. Market seg- niches and at the bottom of markets, cumulation and low adjustment cost mentation is an efficient method for and complement mass production. within division of labour become im- market analysis. It is important to The third world manufactures special- portant factors in inter-firm networks. improve the accuracy of market ana- ized goods to solve the problems of Piore and Sable (1984) explained a lysis through market segmentation clients by focusing on specific product return to the craft production system and focusing on one of the segmented markets. categories or production processes, to replace the mass production system and upgrading their technology. This and sought its essence in “flexible In response to this trend, efforts is a ‘flexible and specialized problem- specialization” comprising the follow- to focus on the development process solving world’ that manufactures spe- ing four micro economic adjustment such as designing and pre-production ciality goods employing sophisticated mechanisms: towards connecting directly to real technology. It depends upon near- market have begun around the coun- z Flexibility plus specialization; home needs of extensive consumers try. Regional vitality is mainly linked z Limited entry; and/or users. These ‘innovation type to industrial competitiveness: in other z Encouragement of competition; firms’ expand from a specific product words, cluster competitiveness. A and market towards generalized goods. cluster is “a geographically proximate z Limited competition. Maruyama pointed out that a modern group of inter-connected companies trend is to shift priority from ‘econo- The process of experimental pro- and associated institutions in a parti- mies of scale’ to ‘economies of scope’. duction creating new products is cular field lined by commonalities and linked to this “flexible specialization complementarities.” (Porter 1998). In terms of industrial agglomera- circle”. Also, it can be said that trial The meaning of “interconnected” here tion, it is important that an area be manufacturing or pre-production is is perceived as “reciprocal transac- flexible in order to meet changes in equivalent to a narrowly defined ser- tion”, “customer sharing”, and “tech- external environments and demands. vice industry. In an era in which one nology platform sharing”. These three Itami (1998) described the following cannot find a large, stable market, it points can be applied mechanically three points as fundamental require- is necessary to review the market with to the inter-firm network. In the cluster, ments so that the entire accumulation a wide perspective. Different seg- two aspects exist: “accumulation” in can retain flexibility with economic mented markets, such as micro mar- the sense of proximity and “network” rationality: kets and niche markets, were created in the sense of relationships. If a net- z Depth of technological accumu- from a homogeneous market. The work consisting of firms and institutes lation; product and development cycles have which are located and accumulated

TECH MONITOR z Jul-Aug 2009 23 Special Feature: Innovation in SME clusters in a certain area develops and aims Figure 2: Annual sales turnover of Kyowa Kogyo Co. at forming industrial cluster, it can be a regional target. 3500 3000 Cases 2500 This research analysed two cases of the business backgrounds, struc- 2000 tures and the commitment of public 1500 sectors. One is the case of a universal 1000 joint manufacturer, who is good at

the marketing of industrial and inter- Amount (million yen) 500 mediary goods, located in the Tokai 0 region of Japan where there are many mechanical processing companies. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 The other is an SME network based Years on pre-production that emerged in the business community located south were drill presses and grinders. The to all agricultural machine companies. of Kyoto prefecture. founder was a skilled artisan who But the seasonally variable market of Case 1: Kyowa Kogyo Co. could recognize differences of micro- agricultural machinery together with metres by feel, using only his hands. the bankruptcy of a client forced the Kyowa Kogyo Co. (hereinafter called Around 1952, 10 years after it was company to reconstruct its business Kyowa), a universal joint manufacturer, founded, the company began manu- structure. But at the same time, more is an SME that began working in 1942 facturing joint parts used in multi- users specified Kyowa’s products and and was formally established in 1953. spindle drill presses for machining new dealers requested distributor- It manufactures mainly small-sized automobile engines. At the time, joint ships. Kyowa established exclusive power transmission parts such as parts were fragile. Toyoda Machine agents in Tokyo, Nagoya and Osaka. universal joints. Its headquarters and Works (current JTEKT Corp.) asked Supplying reliable new parts to cus- one factory are located in Aichi pre- Kyowa to solve the problem. Kyowa tomers with maintenance problems fecture, while another factory is in devised manufacturing processes, led to a temporary increase in sales Shiga prefecture. Its profile is as fol- inspection methods, and quality esti- volume, which peaked after a short lows: capital – ¥12 million; employees mation, which together enabled it to time. Kyowa’s parts were 20 times as – 160; annual sales ¥3,150 million produce joint parts with superior rota- durable as previous products, so the (as of April 2008); major products – tional accuracy, strength and dura- market for replacement parts disap- steering joints for automobiles and bility. Finished joints products were peared. In those days, it was common universal joints (UJ) for general ma- achieved by “shop-floor (monozukuri) that joint parts often failed and hence, chines, more than half of which are technologies” of the founder and skill- they were considered consumable 1 auto-related. Kyowa is an excellent ed workers. The innovation of these goods. A more durable part caused company on a growth path since 1998 new joint products resulted in chang- the market for replacement parts to and recently has grown more than 10 ing the attitude of Toyota Motor Cor- dry up. per cent (Figure 2). poration (TMC) towards joint products. 3. Developed new applications They were no longer seen as merely Business development process When faced with the problem of expendable items, but as a functional durable parts ruining the expendable 1. Started business with skilled tech- part owing to spectacularly improved supplies market, Kyowa aimed to nology and manufactured joint parts of durability. In no time, the new products build a new marketing strategy and multi-spindle drill press. became the company standard of to develop new applications. First as Kyowa started in 1942 when its TMC, but Kyowa was expected to sell a prerequisite for marketing, the com- former president, who used to be a only to TMC at that time. pany made sure as many people as gauge artisan in a large company that 2. Expanded into agricultural machin- possible knew about joint parts. They manufactured textile weaving looms, ery area created an illustrated instruction bro- left to establish the company. In the Kyowa started to manufacture and chure for use of joint products, em- beginning, much of the work was done sell agricultural machinery such as phasizing beneficial features such as with hand tools like chisel, hammer combine harvester and binders. At the convenience. These were sold by and so on. The only machines used beginning of 1960, mechanized agri- trainee agents. Over 10 years, they 1 A typical UJ looks something like the joint culture became widespread and sev- tried to develop new applications for of a human body. It transmits power over eral agricultural machinery companies machinery in agriculture, construction a changeable angle or direction and has concurrently began manufacture of and industry. Joint products are power applications in steering wheels and gear machines. Kyowa developed diffu- transmission parts, and are used in shifters. sion-type products and supplied them many markets. Consequently, yoke

24 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters products were developed for use in products market, but its business ginning it has actively cultivated new the propeller shafts of agricultural development process has not been clients, new markets and new applica- transporter vehicles. Earlier, scrapped simple. It has experienced failure or tions regardless of the existing areas automobile parts were used as a collapse and was compelled to re- or applications. While Cultivating new source of sheet steel but during up- construct its business strategy and markets and developing new applica- turns in business, sheet steel become concept. The company consistently tions, the company prepares business coarse because of material procure- provides solutions to production pro- documents that show the functions ment. Because of this, rotational blems, meeting the needs of clients or structures of joint products, and accuracy was not good and vehicle using its technical expertise. To en- provides opportunities for potential vibration was a problem. Having been sure that the requests from clients are customers to touch the products at consulted about the issue, Kyowa taken in appropriately, Kyowa’s busi- exhibitions such as the Tokyo Motor developed and manufactured the ness meetings are chaired by a sales Show. The company emphasizes pre- parts by cold forging, which led to the person rather than a product devel- sentations to clients as essential part present cold forged steering joint opment person, who might be inclined of marketing. In developing designs product series. to justify the product. for new products, the company tries 4. Advanced into automobile market From its inception, the company to ensure that the clients see its pro- has been consistently particular about ducts first. Kyowa also invites potential During the latter part of the 1990s, clients to its factory. Kyowa decided to enter the automo- the original technology and strong bile parts market. By that time, domes- shop-floor (monozukuri) climate. From On the other hand, the company tic automobile market had matured. the time of the founder, who was an judiciously restricts technical uptake Market expansion was not foreseen artisan, to this day, the company itself from the clients in its areas of expert- and in fact, this period was called the manufactures 100 per cent of cold ise. As said earlier, in co-developing “post-automobile age.” Despite this, forging molds. Furthermore, it designs steering joints with a major bearing the company reasoned that other and manufactures machines and manufacturer, relying on the partner’s companies’ offshore production or ad- tools all by itself, and seals its pro- design specifications had consigned vances overseas created business pritary technical know-how into “black the product to failure. It was a lesson opportunities. They participated in an boxes”. Kyowa does not charge die learned, and led to a policy that the auto show in 1997 where the com- costs so that it can acquire know-how, company encourage clients to use its pany aimed to provide visitors oppor- accumulate knowledge and retain the specifications. Although the project tunities to touch the highest quality right to utilize it for other applications. was a failure, the Kyowa design be- products in a traditional way. Thus, they realize “economy of scope”. came the basis for a standard under Japanese Industrial Standards (JIS). At that time, TMC implemented a Kyowa has in-house facilities that project to evaluate the possibility of perform durability tests. Such a com- Kyowa’s business had begun with procuring auto parts from outside of mitment to and climate of monozukuri breakable shop supplies for machine group companies; a project team forms the base of relationship mar- tools. The company then graduated called the VE team was created. Just keting in handling client needs. In to functional parts by improving joint after the opening of the Tokyo Motor addition, the perception of Kyowa’s products and emphasizing small size Show, TMC executed comparative products has changed from shop sup- and durability as selling points. This tests between existing joint products plies to functional parts, because of illustrates the result of working on and Kyowa products. At the same product improvements that the com- product development based on the time, TMC entered the era of model pany has carried out and because its requirement-based characteristics of change in their main type of vehicle. products have become user company products. “Thirty per cent cost down” became an standards. With this monozukuri ap- 3. Change organizational character issue and power steering mechan- proach, which other companies would Kyowa has made efforts to change isms shifted from hydraulic pressure find difficult to replicate, Kyowa main- its organizational character. For ex- to electrical control; the input torque tains its unrivalled competitiveness ample, its material storehouse and was raised from 7 times to 10 times. and outstanding capability for tech- automated warehouse were removed The economic situation changed, and nological development of functional and the layout was changed when the the company’s cold forging products parts. Hence, the company does not company recognized that its automa- which had been considered to be of manufacture products according to ted warehouse was inefficient. In excessive quality now became recog- specifications provided by clients; in- 2000, the company started training nized for having appropriate quality. stead it is able to persuade its clients to put its products or modules into the junior workers based on the Toyota The management of Kyowa clients’ designs. Production System (TPS) because a worker group that had “artisan spirit” 1. Providing the solution for clients 2. New market cultivation, new appli- faced communication problems. Two Kyowa maintains its dominance in cation development years later, the company’s President niche technologies and product areas Kyowa has not concentrated solely organized a “special communication such as cold forging and the joint on specific clients; from the very be- meeting” that intended to improve the

TECH MONITOR z Jul-Aug 2009 25 Special Feature: Innovation in SME clusters communication system and imple- In agricultural machinery, the Kyowa tion 21 found that the demand for out- ment “the three generation change”. partnered with Company S and Com- sourcing of development support – During a training programme for pany KG, a supplier to large compa- such as testing, inspection and ana- manufacturers organized by the local nies and has sheet metal processing, lysis – has increased both in major chamber of commerce, Kyowa was press work, welding and assembly companies and central institutes. Pre- instructed by a key industry leader who businesses, and is almost same size porduction orders are expected to in- had experienced in top management as Kyowa. Three companies around crease in the future. More specifically, at Toyota Industries Corporation. This Kyowa do business together in the demand for outsourcing of new tech- also enabled the company to improve interests of dominating this market nologies in ‘product development’ and its production system. In further dev- area. ‘material development’, and periph- elopment of that theme, Kyowa aimed In a third partnership strategy, the eral technologies including ‘testing’, to create an original production sys- company, together with an industrial ‘inspection’, ‘measurement’ and ‘ana- tem and succeeded in the creation of machinery manufacturer Company I lysis’ is increasing. Thus, there is a a compact production system that and a surface preparation agent clear direction of company strategy to does not use belt conveyers. manufacturer Company N, started to separate in-house functions and out- sourcing. In 2008, by creating an original produce and distribute cost-reducing cold forging system with the goals of and high-efficiency lubricant agent It is clear from listening to client “speed up but manufacture without coating applicators for cold forging. companies that there are opportuni- haste” and “safe and environmentally In cold forging processes for automo- ties for proposal-oriented companies friendly”, Kyowa successfully reduced tive parts production, which normally that can present technologies and facilities by reducing processing steps uses only dip coating of lubricant, the products to improve the efficiency of and eliminated forklifts, cranes and applicator has the same lubricating processes and cost reductions by out- industrial waste. Moreover, by develop- effect as conventional methods. The sourcing of development. Also, as for ing a “one-by-one lubricant embroca- partnership aims to supply to cold placement of pre-production orders, ting device”, which enables an in-line forging manufacturers. It promises to large firms tend to issue orders to system, Kyowa was able to shorten be a great innovation that offers pre- companies with whom they have a lead time to a large extent. treatment cost reduction, significant business relationship or partnership, reduction in the number of processes and have gained credibility because 4. Partnership strategy development and processing time, space-saving of past performance. The current president is marketing- (one-twentieth of conventional pro- oriented and stepped up marketing cesses), and less defects (one-eighth Inter-firm network and efforts around 1970. He takes a pro- that of conventional cold forging). pre-production business active stance for modularizing and Case 2: Kyoto Shisaku Net This case study examines the Kyoto partnership. As mentioned before, Shisaku Net (KSN), an inter-firm net- business development in the auto- This section describes an example of work in an area with an aggregation mobile and agricultural machinery inter-firm cooperation in the pre-pro- of subcontracting manufacturers. KSN industries is based on partnerships duction industry in a mature region. includes companies that incorporate with other module makers. In the auto- In pre-production, there are various the word “shisaku” (pre-production) mobile parts sector, Kyowa partners levels: first is functional pre-production as part of the firm’s name. The case with module maker Y, which supplies that is usually performed at elemen- study analyses elements of this inter- the large automobile manufacturer, tal technology stage and hand-made firm network through its activities. Honda, and Company Y, which opera- level; second is prototype production The characteristics and principles tes globally in the automobile after- to test product reliability and perform- of aggregation in the south of Kyoto market. As a result of the partnership ance; third is a mass production trial city are different from those in other with Company G, Kyowa started to to optimize yield, cost, etc.; and so on. areas. Among the companies located supply Company F from 2002 and Generally speaking, pre-production in this area are: Kyocera Corporation; recently their parts are installed in a is a trial production prior to full mass Murata Manufacturing Company Ltd.; number of vehicle lines, thus expand- production. However, this paper uses Horiba Ltd.; Rohm Co. Ltd.; Nidec ing the company’s efforts globally. As a broader definition that also includes Corporation; and Omron Corporation. with the partnership with Company G, original concept work through to the These leading companies that rep- Kyowa developed high-performance planning stage as well. Pre-production resent Japan are self-funded and are steering joints. This resulted in some enables the operational range, allows not in any specific industrial group. Tier 1 and Tier 2 overseas manufac- the cost of the product to be rational- Therefore, they are operating positive turers requesting partnerships and ized by examining the original ideas risk-taking businesses in which they consequently, two of these manufac- and concepts, and also enables user present products planned and de- turers were included. feedback to be obtained. signed in-house to the world market The second partnership strategy A survey on the marketability of the (Suematsu and others 2002). At the has Kyowa expanding into agricultural, pre-production industry conducted by same time, many conventional sub- construction and industrial machinery. Kyoto Industrial Support Organiza- contract factories are also located in

26 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters this area. The number of establish- KSN’s target is to use the Internet linkages, trying to be part of a com- ments in the Kyoto city prefecture to organize an inter-business network mon mission and build trust among has shown a decreasing trend after between component companies and the members. 1980, although there were ups and intermediate material companies in Each member firm deals with con- downs through the years (Figure 3). domains where individual companies sultations from customers, accepting In the midst of the downward trend cannot operate, and to provide spe- all items and trying to give feedback of economic forces, KSN has gained cialized pre-production solutions. It within two hours. That is their main attention as a new development of focuses on designing and trial manu- selling point. The strategy is to gain competitive small and medium-sized facturing because each member of access to new markets by keeping enterprises (Suematsu and others, the network has a common recogni- the scope of business open. The stra- 2002). KSN was established from its tion that such processes are nothing tegy places priority on customer’s parent oganization, Kyoto Kikai Kinzo- less than knowledge creation. As an needs without setting specific fields ku Chusho Kigyo Seinen Renrakukai organization of self-sustaining firms and targets. Although this has the (Kiseiren). Kiseiren, established in based on specific expertise, KSN aims downside of increased burden, be- 1981, is a self-generated community to deal with issues generated in both cause the contents of consultations consisting of about 80 companies who R&D and application research. might not be always relevant, they see are mostly associated with machining The ten Kiseiren members who an advantage in terms of high novelty processes. KSN began in July 2001 formed KSN are superior in terms of in themes that are brought in. As an as a voluntary group of ten companies technologies and operations. When organization that deals with Internet- from among Kiseiren members enga- KSN was set up, the membership based orders and as an organization ged in engineering and metalworking was: system/sub-system assembly – of self-supporting firms based on each industries. This network tries to inte- 3; components less than 5 mm thick- company’s expertise, KSN aims to grate traditional and modern manage- ness – 1; components more than 5 handle issues that occur in custom- ment using regional agglomeration. mm thickness – 3; and components ers’ R&D and application research Thus, it tries to create a new structure. (resin, etc. – 1, others – 2). At the time stages. The nework carries out some In this regard, however, KSN itself has of establishment in 2001, the focus marketing activities, such as visiting been unincorporated. was on workshops more than direct clients as a four-member team from

Figure 3: Change in the number of establishments in Kyoto prefecture

Establishments 14,000

12,000

10,000

8,000

6,000

4,000

2,000

0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

TECH MONITOR z Jul-Aug 2009 27 Special Feature: Innovation in SME clusters member companies, but using the assumed the role of its Vice Repre- tured for “specific client” and “specific KSN business card. The team mem- sentative when it was established and application”. Quality is definitely im- bers introduce not only their own com- has been the Representative since portant, and depends upon the spe- pany but also other KSN members as June of 2006. cialized capability of skilled artisans. required. KSN tries to share customers, Because of specialized goods, the KSN follows three business prin- resources / driving forces and out- rate of production is relatively low; but ciples: “solution orientation”, “value sourcers. It has a marketing staff of along with developing markets in large creation orientation”, and “loyalty to 35 (as of December 2008). One or two domains, they raise operation rates. Kyoto”. As for the last principle, KSN is persons in each member company Many emergent inter-firm networks working to establish a pre-production are in charge of sales affairs of KSN. have an element of cross-industrial platform in Kyoto with the main ob- In other words, such staff members exchange. Kooij (1990) suggested jective of making Kyoto “a major pre- do double duty, working for his/her that there are three potential possi- production area.” To realize this goal, company and KSN. In Yamamoto bilities in cross-industrial exchange: KSN is making efforts to increase the Seiko, four sales personnel also serve (1) the creation of new technological number of member companies to 18, KSN. Those in charge of sales serve knowledge; (2) the promotion of pro- one by one based on the confidence not only their own company but also duct innovation; and (3) the cultivation acquired. As the efforts of KSN pro- other member companies. This helps of new markets. In addition, he stated, gress, positive impact on other firms broaden sales persons’ horizons and as a further development stage, that can be expected. This network plays a generates a synergetic effect through cross-industrial exchange could be core role in regional vitalization, and cooperation. divided into three stages: (1) the ex- also can be a partner or an agent of change stage that leads towards de- public sectors. Discussion sirable and diversified business by exchanging broad-gauge information Competitiveness means the capabi- Yamamoto Seiko Co. Ltd.: in foreign composition; (2) the devel- lity of growing continuously for long a representative company opment stage during which a core of periods. Fujimoto (2003) categorized cross-industrial exchange is created of Kyoto Shisaku Net competitiveness into two: superficial by beginning project development and deep-lying. Superficial competi- The current representative of KSN is and exchanging technology with one tiveness involves externally observable Mr. Shosaku Yamamoto, Executive another; and (3) the project stage factors like price, due date and pro- Vice President of Yamamoto Seiko Co. wherein a newly-developed product ducts while deep-lying competitive- Ltd. (est. 1980), an SME capitalized and service is put into operation. The ness considers deeper, more hidden at US$3,600,000 with 40 employees case of KSN is an inter-firm network factors such as know-how and sys- (as of September 2008). focusing on experimental production tems amassed within an organization. The company is engaged in alumi- or pre-production. Therefore, it falls nium cutting work, surface treatment In the case of Kyowa, deep-lying into the third or project stage as de- and machine design. In 1982, it deci- competitiveness emanates from its fined by Kooij. An inter-firm network ded to focus on marketable aluminum marketing, problem-solving capability should enhance its value through processing, and to move from mass and strong shop-floor (monozukuri) linkages and must offer advantages production line to a ‘high mix and low principles, which manifest themselves beyond the combined size of member volume’ production type, especially as superior quality. The company ori- firms. single part processing. At the same ginally made manufacturing tools, KSN is an organization centred on time, the company embraced IT for such as steel stamping dies and test- the small-to-medium-sized machine work improvement by using machines ing/measuring instruments. In the and metal processing companies in to do simple things. After experiencing case of KSN, on the other hand, the the area. The organization focuses on a substantial drop in sales, the com- original production system of each knowledge-based processes; in other pany completed a unique foolproof member company, and the sales and words, pre-production. Regarding the control programming support system marketing system as a group based business of outsourcing, Kyowa is by compiling an artisan skill database on “trust” among member companies, trying to meet the demand for the trend in 1990. create a deep-lying competitiveness. of unitization, modularization and blan- More recently, the company has ‘Specialized goods’ is the market ket orders. They have commonalities accepted assignments such as semi- character of both Kyowa and KSN, and in the way they find opportunities for conductor manufacturing equipment, ‘speciality goods’ is their production outsourcing related to “technology industrial robots and precision part technology. Flexible specialization is validation” and in the strong concept processing for medical devices. The a strategy of permanent innovation: of locality. Both of these organizations company has kept the ratio of opera- continued accommodation of change, aim at responding to customer re- ting profit to net sales at 25 per cent. rather than an effort to control it. This quests that cannot be handled by one In 2007 financial year, the recurring depends upon flexible, multi-purpose company. In addition, each of them profit margin is over 20 per cent. Mr. equipment (Piore and Sable 1984). perceives the keyword “pre-produc- Yamamoto, a core member of KSN, High quality products are manufac- tion” in a broad sense and puts it to

28 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters the best possible use as a tool for cessing companies agglomerate; the creating cooperation platforms such finding a market. The process of pre- other is an example of an SME net- as inter-firm networks will become a production was inherent in conven- work based on pre-production that dominant choice in the industrial stra- tional business. However, the network emerged in the business community tegies in mature regions. appeals to the market in putting a located south of Kyoto. greater emphasis on widely-defined Intermediary goods manufacturers References pre-production. Both Kyowa and KSN like Kyowa could modularize through 1. Fujimoto, Takahiro (2003). Capa- also have a function in demand arti- partnerships because the company bility Building competition: Why culation. Ultimately, both the sample has core technology, such as funct- Japan’s automobile industry is cases seek to benefit by securing ional parts, together with marketing strong? Chuuokouron Shinsha. (in orders from further downstream in the ability. It is significant and necessary Japanese). development stage. Therefore, it can for knowledge creation to make vari- 2. Imai, Kenichi and Kaneko, Ikuyou be said that they are seeking the dev- ous tools for manufacturing, to keep (1988). The theory of network or- elopment of an industry derived from production processes confidential and ganization. Iwanami Shoten Pub- manufacturing – such as marketing to carry out performance evaluation lishers. (in Japanese). or outsourcing; that is, the narrowly- tests of products in the company. In defined service industry. 3. Itami, Hiroyuki (1998). Sangyou addition, encouraging communication Shuuseki no Igi to Ronri. Sangyou The competence of KSN is formed and improving the health of the com- Shuuseki no Honshitsu - Juunan from leading companies gathered pany led it to be a learning organiza- na Bungyo to Shuusekino Jouken, from its parent body and linked to- tion. Kyowa is a business model that Yuhikaku. (in Japanese). gether. As these participating com- integrates marketing, design, devel- 4. Kooij, Eric Van (1990). Industrial panies are self-sustaining based on opment and production. network in Japan – technology their expertise, they can quickly build It is important to perceive the busi- transfer to SMEs. Entrepreneurship up measures on how to utilize their ness model as a process of gathering & Regional Development, No. 2, resources. Moreover, these commu- knowledge and skill. In the trend of pp. 279-301. nities serves a screening function in blanket orders, meeting the demand 5. Maruyama, Masaru (1993). Eco- terms of reliability. In short, KSN is the of unitization and modularization has nomic revitalization in matured place to learn about the competence become mainstream and the inter-firm industrial district – related with the of a company or an executive, and to network is a dominant choice to real- experience of old ‘Iron city’ Pitts- select and eliminate top manage- ize that such an inter-firm network for burg. The history and present in ments who have a negative impact pre-production is not only a cross- Chita Hantou (peninsula), No. 5, on the community. KSN has earned subsidized relationship, but also a Azekura Shobo, pp. 154-203 (in this confidence over its twenty years matter of companies working jointly Japanese). of business activities. Regarding the to take advantage of each other’s ex- involvement of public sectors, KSN pertise. This is also a fundamental 6. Piore, Michael J. and Sable, has a close relationship with the re- requirement for multiple companies Charles F. (1984). The Second gional government and has made it to build coalitions. Based on the acti- Industrial Divide – Possibilities possible to acquire official support vities of such companies as members for Prosperity. Basic Books. through proposal-oriented business. of a flexible network, each company 7. Porter, Michael. E. (1998). On The partnership of Kyowa and KSN can increase its competence. Inter- Competition. Harvard Business can be described as a component of firm networks formed from industrial Review, Harvard School Press. industrial clusters as well as a form communities can also be a form of pp.197-287. of such a cluster. If there is a trend industrial cluster based on the area 8. Suematsu, Chihiro, Hioki, Koui- towards having a deal with reputed and linked to the regional target such chirou and Wakabayashi, Naoki individuals or corporations, a social as realization of a craft production (2002). The Feature and Chal- bond can get the cluster together and system. It is believed that drawing out lenge of Industrial Agglomeration help in the process of value creation. potential energies from the compa- in Kyoto. Organizational Science, Thus, it can be said that the devel- nies in the regions, and accelerating Vol. 36, No. 2. pp. 54-63 (in opment of inter-firm networks will lead partnering among specific SMEs and Japanese).ˆ to competitiveness among clusters, delivering a regional advantage. World Development Report 2009 Conclusion Reshaping Economic Geography World Development Report 2009 professes the message that economic This research made a comparative growth is seldom balanced. Efforts to spread it prematurely will jeopardize analysis of two cases: one that of a progress. Two centuries of economic development show that spatial dis- functional parts manufacturer, which parities in income and production are inevitable. To download free PDF is good at marketing industrial and version, access: intermediary goods in Japan’s Tokai http://siteresources.worldbank.org/INTWDR2009/Resources/Outline.pdf region, where many mechanical pro-

TECH MONITOR z Jul-Aug 2009 29 Special Feature: Innovation in SME clusters

Promoting innovation in SMEs through transfer of technology

Lessons from a metalworking industry cluster in Indonesia

Tulus Tambunan

Promoting innovations in SMEs may be facilitated by, besides other means, improving knowledge or technology. This study is on the experience of SMEs in developing innova- tions and the role of technology transfer in the Tegal metalworking industry cluster in Indonesia. Three important lessons were derived from this experience: (1) absorptive capacity is essential in SMEs to realize the benefits of technology transfer; (2) cooperation between SMEs makes it easier to master the transferred technology for developing inno- vations; and (3) it is necessary to have all possible support from the local government agencies.

Introduction The success of the Republic of Korea and Taiwan in developing their t is often argued that building capa- technology shows the importance of cities through improved technology technology transfer. In the early phase Iis the key to increasing the competi- of their development, they acquired tiveness of small and medium enter- technology from abroad. Now, with prises (SMEs) in developing countries. their ability to master foreign tech- Technology development can take Dr. Tulus Tambunan nology, they are not only the most ad- Centre for Industry, SME and place within the firm, or it can be ac- vanced among developing countries, Business Competition Studies cessed from external sources through but also major suppliers of high- University of Trisakti transfer of technology, technical technology goods to the world (Nelson Jl. Kenari VII No 18 Bintaro Jaya licensing agreements or import of and Pack, 1999; Yusuf, 2003; Yusuf Jakarta Selatan, Indonesia capital goods. In this paper, technol- and others, 2003; and Hsueh, 2006) Tel: +62 (21) 737 5365 ogy is defined in broad terms to Fax: +62 (21) 737 5365 include product, process, as well as Taking the Tegal metalworking in- E-mail: [email protected] management skills. dustry cluster in Indonesia as a case,

30 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters this study proposes to examine, the The importance of cific customers, suppliers and sub- importance of technology transfer in contractors benefit from the consid- promoting innovations in SME clus- technology transfer erable technology transfer. ters in a developing Asian country. While there is extensive literature on In Indonesia, as in the other Asian Specifically, this study addresses three the importance of technology transfer developing countries – such as Thai- questions. First, how important is to the developing countries, including land, Malaysia, the Philippines and technology transfer for innovations in those in Asia, there is hardly any on China – SMEs and LEs (including SMEs? Second, what are the precon- this issue with respect to SMEs. This MNCs) tend to form sub-contracting ditions that SMEs should primarily is probably the reason why Berry and linkages more frequently in some in- meet in order to optimize the use of Rodriguez (2001) state that while LEs dustries than the others: for example, transferred technologies for building in the developing countries achieve textiles and garments, machinery, their capabilities for innovation? Third, a considerable increase in producti- electronics and automotive. In general, what role can the local government vity levels simply by borrowing tech- play in this matter? however, there are not many net- nologies available in the world, for worked SMEs that are leading sub- Technology can be transferred to SMEs, it is not so evident that tech- contractors or joint-venture firms in SMEs through various channels: pro- nology transfer routes such as MNC their own right in these countries. duction linkages in the form of sub- sub-contracting, technology licensing, The potential SME sub-contractors in contracting arrangements with local joint ventures, and access to engi- these countries (as is evident in the large enterprises (LEs) or multina- neering and other advances provide developing world) initially do not have tional companies (MNCs); technical the gains needed. the minimum skills and know-how re- licensing agreements between LEs quired to absorb new and innovative and SMEs; the import of intermediate Very few authors have given atten- tion to technology transfer in the technologies and management prac- and capital goods; training; technical tices. Their self-improvement and self- consultancies by consulting firms; or existing literature on SMEs in the developing countries. Islam (1992) is upgrading capacities are severely simply from the migration of workers constrained by inefficient and inade- from LEs to SMEs. one of those authors who wrote an overview of the process of transfer, quate infrastructure, limited informa- This study concerns technology dissemination and adoption of tech- tion and contacts, and scanty finances. transfers through production linkages nology from MNCs to SMEs in Asia’s Thus, MNCs and domestic LEs may for the following reasons. First, given developing region. He found that the find it expensive, time-consuming and/ that firms from advanced economies MNCs have sub-contracting linkages or risky to bring the SMEs up to the opt to produce in developing countries, mostly with medium enterprises (MEs) expected standards and criteria especially since trade and investment or LEs. Through sub-contracting, they (Wattanapruttipaisan, 2002). liberalization policies have been adop- provide the sub-contractors with de- ted aggressively by the latter (includ- signs of the products and the required Tegal metalworking ing Indonesia) in the past decade, training. Also, by creating a learning more foreign firms and MNCs would industry cluster effect in the receiving country, MNCs enter the developing countries. The The case of the Tegal metalworking help in the emergence of entrepre- entry of foreign firms and MNCs is a industry cluster is a concrete exam- neurs and skilled workers who, in preferred route and is therefore, a pro- ple of the importance of technology turn, can initiate similar industries at minent channel of technology transfer. transfer from MNCs through sub- a smaller scale. Moreover, for many developing coun- contracting production linkages for tries, MNCs represent a more attrac- Dunning (1993) and Morcos (2003) innovations in SMEs in a developing tive means of developing technology also have made statements about the country. The district of Tegal (Kabu- in their industries than technology importance of MNCs for technology paten Tegal) is part of the provincial licensing or other means. transfers to SMEs. Dunning explains Government of Central Java, located The reason for this preference for the ways by which SMEs can benefit at the northern shore near the border MNCs over other sources of technol- from sub-contracting with MNCs. In of West Java. Tegal is among the few ogy transfer is that with the MNCs, order to ensure that the inputs lead areas in Indonesia with a long history technology transfer is an evolving pro- to a standard level of production of of development in the metalworking cess. Technology transfer through goods, MNCs provide SMEs (as sub- industry. It has been a metalworking them involves continuous interaction contractors/suppliers) not just with the centre since the mid-1800s, when it between the acquirer (SME) and the specifications but sometimes also was the focus of sugar processing supplier of technology (MNC). The with assistance to increase their tech- factories and other enterprises, such main reason behind this is that tacit nological capacities. Morcos argues as locomotive repair shops and metal knowledge is a component of virtu- that sub-contracting arrangements act processing factories. The industries ally all technologies, but at the same as very efficient mechanisms and tools continued to thrive, particularly under time, it is the most difficult one to for the technological enhancement of the New Order’s extensive infra- transmit between the different agents SMEs. By engaging in an active and structure and development agenda. (UNCTAD, 2007). collaborative agreement with spe- In the early 1980s, sub-contracting

TECH MONITOR z Jul-Aug 2009 31 Special Feature: Innovation in SME clusters started in the district, sparking off employees, while the technical capa- limited range of simple products, such governmental activity to develop the city of the workshop depends upon as pulleys and ship windows, to this metalworking industry. him. Inti workshops often sub-contract market. While these retailers may Although metalworking involves a part of their production to plasma work- demand a sample product, there is range of processes, the sector is dom- shops. Local workshops, which have much less emphais on precision. If inated by plate forming businesses. no sub-contracting businesses with they are lucky, they could become They have a comparative advantage other firms, manufacture entirely for plasma unit for KI’s existing inti sub- in meeting small orders for simple the wholesalers and retailers or sell contractors. metal products or components, used their products directly to local consu- in the making of not only household mers. Many wholesalers and retailers Technical capacities appliances and handicrafts, but also purchase goods from Tegal metal and technology transfer furniture and, to a lesser extent, in workshops for resale in different parts To access technology from KI, how- general machinery and automotive of the country. ever, a workshop must have attained industries. The small size of the work- In general, the technical capability a certain level of technical and mana- shops gives them greater flexibility of the Tegal metal industry derives gerial capacity. Larger workshops are and Tegal’s abundant cheap labour from a long history of family experience more likely to adopt new technologies outweigh the advantages of capital- in metalworking or similar industries. in their bid to be sub-contracting inti intensive production. Often, there is With accumulated technical knowl- to KI. By building upon existing tech- an intense price competition between edge of over 20 years, Tegal metal nical and managerial capacity, they the workshops. workshops are now capable of pro- are able to enter a virtuous circle where ducing various kinds of agricultural According to the production size quality output leads to sub-contracts and industrial machinery, as well as and level of production sophistication, and which, in turn, leads to private automotive and ship components. there are two types of workshops in training by KI. the Tegal metalworking industry: MEs However, the quality of most of their and LEs, as one type, are called as products is low. The need for quality To become sub-contractors, the inti; and another type, the SEs (small is a concern for those firms who have local firms must prove that they have enterprises), are called as plasma. core business dealing with compa- the capacity to produce high-quality Inti workshops receive orders for metal nies such as KI. In such firms, the components and meet the stringent components from firms outside the ability to understand or interpret tech- time schedules of delivery. An audit district. The large inti workshops, in nical drawings and to manufacture determines if they have the required particular with up to 100 employees, products according to listed or drawn machinery, workforce (for two shifts earn a majority of their income from specifications is well developed (Iman for higher productivity), production 1 sub-contracting. According to a survey and Nagata 2002). facilities, legal standing and use of ISO standards.2 After that, they are in 2005, several companies (mostly LEs are the main external provi- LEs) – including PT Komatsu Indo- requested to produce a sample com- ders of technology to the Tegal metal ponent from the technical drawings nesia Tbk, PT. Daihatsu, and some industry, mostly as foreign affiliate divisions of the Astra Group such as provided. According to KI’s inti work- companies such as KI to its sub- shop owners, before an agreement PT. Sanwa, PT. Kubota and PT. Kat- contractors (inti workshops), and to shusiro – sub-contracted work to is signed, they often ask for a trial run a lesser extent, the local government. of the mass production process, sub- Tegal metal workshops. Among these Inti sub-contractors supply heavy companies, the most prominent one jecting the output to quality control equipment components to KI. A few tests. If the inti workshops produce is PT Komatsu Indonesia Tbk (KI), a domestic retail market suppliers also a certain product or item on a regular subsidiary of a Japanese company, act as knowledge providers by in- schedule and of consistent quality, which established sub-contracting forming the metal workshops about they would be granted a licence for production linkages with the Tegal consumer preferences, demand and manufacturing different product items, metal workshops in 1998. The com- new innovations. A workshop owner thereby expanding their product line. pany produces various construction who was interviewed stated that the In the last two years, many suppliers and mining equipment – such as hy- retailers created new products and have been tested through a few initial draulic excavators, bulldozers, motor commissioned them from the local batch orders. In the end, however, graders, frames, steel cast products, small workshops. While quality is the only four local enterprises were able off-highway dump trucks and related first priority for KI, retailers generally components – under the global trade- emphasize on low cost over quality. 1 KI, like many other LEs, requires their sub- mark of Komatsu. This study focuses The wholesale/retail market is the on KI and its local sub-contractors. contractors to be a P.T. (a limited liability only choice of business linkages for company) and not a C.V. (a limited part- Plasma workshops usually hire those small workshop owners (mostly nership not involving a legal person, and cheap, unskilled labour or use family SEs) who were rejected by KI as their personal assets liable for obligations). members (mostly men) as unpaid inti sub-contractors, as they did not 2 KI, as many other LEs, requires the use workers (helpers). The owner passes have the capacity by way of machinery, of ISO standards even if the workshop on basic metalworking skills to his workforce and facilities. They sell a is not officially certified.

32 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters to meet KI’s satisfaction; two of them was given by the government, the SEs capable of output of higher quality. Inti are included in this study.3 need direct assistance as well. and plasma firms involved in sub- During the survey, it was found that An inti sub-contractor has access contracting are more likely to use MEs are more capable than SEs to to a significant level of technical train- technical service units (UPT), which meet such requirements. A few SEs ing. According to a sub-contractor of are provided by the government to have indirect sub-contract with LEs KI, these trainings directly address many clusters. UPT, which consists through plasma relationship with inti the technical needs of the workshop of various machinery and tools and sub-contractors. Interviews with SE in order to meet KI’s production re- a laboratory, is especially important owners revealed that the shortage of quirements. The Indonesian experts to test the quality of materials. The capital, lack of access to information from the Jakarta KI office, who led the users of UPT pay not for using its and limited skills are the three most training, used a teaching style that machines or tools, but for its labo- important constraints. They did not clearly delivered the necessary knowl- ratory. In such a situation, those sub- have enough money to purchase the edge and emphasized its practical contractors are able to offset usage required machinery and hire workers. application, with 90 per cent of time costs through the higher price paid Many SEs are self-employment units spent on hands-on experience. The by their clients for quality parts better without helpers or hired workers, and trainers also help the workshop in than those who are not in the sub- they often use second-hand or locally identifying problems and in trouble- contracting business. fabricated equipment. If they do hire shooting. Learning takes place through qua- workers, then often the low-skilled lity control, as inti firms often outline However, according to KI’s two inti workers with little or no experience a procedure for troubleshooting errors workshop owners, the training does rely on the shop owner’s technical in their sub-contracting relationships. not seek to develop their capability knowledge.4 Since many SE owners Inti workshops coach plasma on qua- beyond their capacity as low-cost have built their expertise by working lity control standards and, in some production centres for selected com- in small shops and rarely have formal cases, support former employees ponents. Furthermore, while KI does academic training, they have difficulty familiar with these standards in set- help them gain the capacity to manu- in reading technical drawings. Instead, ting up a plasma.5 facture component parts, there has they rely on copying samples, leading been little interest in upgrading from Notably, producers in the Tegal to less accurate output. Therefore, the manufacture of specialized parts metalworking industry have a tradi- they lack the technical ability to pro- to the manufacture and assembly of tion of collaboration as indicated by duce complicated components with finished products. the important initiative taken by the the precision required by LEs. In addi- Takaru cooperative inside the cluster. For workshops rejected by KI (or tion, they do not know how to meet This activity has a strong flavour of other LEs) as inti sub-contractors, the ISO standards because of the lack of business and technology, based on source of technology or knowledge information and skills. They said that market requirements, and has pro- is the retail supplier. Other sources they could not expect too much from duced a hand tractor for the domestic include linkages as plasma with inti the government. Though information market. To quote from Pantjadarma sub-contractors or the untargeted, (2004), “the manufacturing of custom- irregularly publicized government pro- 3 ized hand tractor is considered as a The two inti sub-contractors, PT Prima grammes. SE owners who sell their Karya and PT Karya Padu Yasa, said that ‘bonding agent’ for this collaboration”. products only to the retail market said the past reputation and personal network The production of this self-designed that the strong competition among were also critical factors for their suc- hand tractor involves 17 firms that are retail suppliers inhibits knowledge cessful bid to become sub-contractors. producing different parts. The Takaru transfer and, instead, encourages However, they insisted that the oppor- cooperative organizes, assembles tunity to become KI sub-contractors was production of low-quality, inexpensive and performs quality control checks. open to every workshop in the cluster as products. long as they can prove their capability to The latter requires a process of cer- meet KI’s quality requirements. Periodi- Plasma sub-contractors gain from tification, which has to be conducted cally, KI holds open competition for new the incentive to produce higher qua- by other institutions, including the inti workshops. lity for a higher price with technical government research laboratory. 4 Cheap labour and relatively small and coaching from their inti clients in their shifting job orders reduce incentives for own circle. Inti respondents for auto 5 Owner of a plasma sub-contractor for SEs to specialize or acquire expensive components, for example, turn to PT Karya Padu Yasa, an inti of KI, ex- machinery to increase productivity. As a plasma workshops to produce 10-15 plained that his company received useful seasoned metal worker explained, the per cent of their orders from their technical coaching as part of a quality strength of the plasma workshop is the clients. These components or basic control process conducted upon delivery flexibility to do smaller orders. However, of his product to PT Karya Padu Yasa. In parts are usually made more cheaply this flexibility becomes a liability in capa- a case of knowledge spill-over, his firm city development when workshops must in small workshops while still pass- applied some of these technical lessons fill many small orders and never develop ing the quality level required. Often, not only to his sub-contracting operations, the specialization that leads to expanded soft loans are provided to plasma units but also to the production of retail market command of technology. to help them acquire new machines goods.

TECH MONITOR z Jul-Aug 2009 33 Special Feature: Innovation in SME clusters

It appears from the interviews and This case study reveals two most more than half of thom are high school focus group discussions during the important facts. First, despite limita- graduates or under, while two are col- survey period that, in general, knowl- tions, MNCs such as KI are indeed lege graduates. The company’s first edge or technology transfer among very important source of technology experience as a sub-contractor began workshops is often contingent on per- transfer to local SMEs. KI enhances in 1985, when it won a contract with sonal networks and is conditioned by technology and thereby increases the a large local conglomerate for manu- competition. In particular, the compe- production capability of its inti sub- facturing large quantities of a coffee tition among the workshops that pro- contractors and that of the plasma peeler machine.6 At present, PK is an duce for the retail market sometimes workshops that sub-contract from the inti suppliers for KI, and one of the becomes unhealthy. This has an ad- inti. Blomström and Sjöholm (1999) prime local suppliers for Natra Raya verse effect and inhibits the diffusion support this observation in their ana- (NR), an affiliate of the Caterpillar of knowledge. For example, a com- lysis of Indonesia’s statistical data. company of the United States. PK has peting firm bought off a shop owner’s The analysis indicates that industries managed to expand its products line driver after a marketing trip, and fol- with a large presence of MNCs are to more than 100 items supplied to lowed up with lower bids to the same able to increase the production capa- KI and NR on a regular basis. Its total potential clients. Several workshop bilities of its local companies. Within turnover, which stood at Rp 650 mil- owners are worried about competitors’ the SMEs, SEs are largely excluded lion in 1999 (approx. US$85,000 then), tactics to reduce production costs, from direct transfer of technology, as has continued to increase, though often at the expense of quality. A few MNCs are more likely to sub-contract marginally, over the recent years. PK workshops find the right combination parts of their production to local firms later expanded its operations to the of cheap scrap metals in their pro- that have attained a certain level of manufacture of pumps, agriculture ducts and get them past the buyers’ technology capability. This criterion is equipment, parts for scales and door inspection standards. However, these met mostly by MEs. The literature too railings for the general market. These low-quality items wear out faster and states that local firms with more ab- jobs were incidental orders received do little to bolster the reputation of sorptive capacity will benefit more by in addition to the routine work that the the Tegal metalworking industry as a transfer of technology. As stated in company did for KI and NR. Although whole. This cost-cutting, in turn, puts Saggi (2002), for instance, without the company is chronically short of a pressure on price, forcing compet- adequate human capital or invest- working capital, because of the ar- ing workshops to engage in a race ments in research and development, rangement whereby payments are to the bottom in terms of quality. technology spill-over from MNCs to made only after the final products are It also appears that trainings by local SMEs will fail to materialize. delivered, its prospects for growth are KI have proved to be the most suc- Thus, local SMEs must first have the extremely favourable. cessful method of efficiently transfer- basic knowledge on a particular tech- PK has good innovative capabi- ring knowledge to its inti workshops. nology to become capable of absorb- lity. It was able to advance from making While government-led initiatives have ing its advanced version from external relatively simple products to supplying attempted to cover a broad range of sources and transforming it for use metal components with higher grades workshops with more topics, they did in new products. of precision consistently, demonstra- not result in the efficient transfer of Second, although the technical ting its ability to learn and improve its high-quality, usable knowledge to inti capabilities in the local SMEs in the skills. This ability is largely attributable workshops. According to those who cluster are generally low, many of to the owner who has been vigilant in participated in government trainings, them, mostly MEs, have innovation solving on-site technical problems. these activities were poorly targeted, capability, as they were able to ad- According to the owner, being accep- often exceeding their skills or not suit- vance from making relatively simple ted as a prime KI supplier was his able for the machinery available or products to consistently supplying company’s first milestone, a role that focusing on skills already mastered. metal components with higher grades requires a proven ability to translate Those trained by LEs state that the of precision. This was demonstrated technical drawings into the final pro- private training materials are suitable by the KI’s inti suppliers. Two most duct. As a prime KI supplier, another for improving their business. Focus successful local inti sub-contractors prerequisite fulfilled by PK was a level group discussions and interviews with to KI are PT. Prima Karya and PT. of quality, which ensured that no rejects representatives of the local govern- Karya Paduyasa. were serious enough to be classified ment and non-government organiza- as fatal ones; the company was able tions reveal that the lack of sufficient Case 1: PT. Prima Karya to correct defects easily and ship the funds and dedicated skilled staff, plus PT. Prima Karya (PK), which was set products back to KI. weak feedback mechanisms between up in 1983 and began its operations PK reached the second milestone the government and the metalworking with the manufacture of spray cans when it met the challenge of supply- shops are factors that come in the way and agricultural machinery such as ing a large complex piece associated of making government training suc- hand tractors, specializes in making cessful and systemic in improving the parts and components for heavy equip- 6 The contract was later terminated due skills of local firms. ment. Currently, PK has a staff of 50; to the economic crisis in 1997-98.

34 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters with engine hoods. Making the first However, because of the arrange- activities with LEs to produce compo- sample proved very difficult, as the ment under which payments are sent nents and spare parts. The first one machinery used was inappropriate for only after the final products are manu- is the most active cluster of SMEs in the work. Even with several days of factured and delivered, the company the industry since the colonial period, expert help from KI, the company was suffers a shortage in working capital, and has been producing cooking uten- still unable to produce a satisfactory and there has been major layoffs. sils for nearby markets. The cluster sample as per specifications. After KP has ample facilities for metal- encompasses a variety of metal cast- several trials that were driven by the working operations, which range from ing firms – from SEs that produce owner’s persistence, PK completed casting to welding to finishing. What basic utensils for the local market to the sample to KI’s satisfaction. is more impressive, however, is the MEs working exclusively for large All jigs and fixtures that allow as- company’s ability to make an increas- national companies, such as the rail- sembly and welding on a consistent ingly complex range of products as way and car-manufacturing firms. basis are built by the company itself. it acquires experience over time. This Ceper cluster is concentrating on the Much of the machinery is developed ability was a key factor in KP being production of both intermediate and in-house, such as large bending and chosen as one of the regular sup- finished products. Finished products pressing machines, with a local con- pliers to KI and NR. The company’s include household and agricultural tent of up to 70 per cent. This level of most recent accomplishment was its implements while the main interme- accomplishment demonstrates the expansion into the manufacture of diate products are components manu- company’s acquired experience and automobile components for an auto- factured under sub-contract linkages skills, largely in tacit form, as it over- maker. This move was soon followed with LEs. Presently, the cluster manu- came each and every major challenge. by the construction of a plant dedi- factures household items, agricul- One of the benefits of working with KI cated to the stamping process. The tural equipment and various products is the opportunity to go for training at company equipped the plant with its KI’s facility in Jakarta. own dies and fixtures, and set up a for military needs. Few firms make small crane to make a large and Samurai swords and export them Case 2: PT. Karya Paduyasa heavy bottom piece for a tractor. It through traders to Japan. Besides the swords, other handicrafts produ- PT. Karya Paduyasa (KP) has three manufactures many of the machines ced in the clusters are also exported plants, each with a specific produc- and tools it uses in this plant. Its to Japan, an important export market. tion objective: casting hydrants and dedication to efficiency is seen in its An increasing number of firms that fire monitors; incidental job orders, efforts to minimize waste from paint produce spare parts and interme- usually in small lots; and a stamping spraying by constructing six large fans diate inputs are involved in sub- process, especially for large parts and directed at a pool of water to capture contracting production relationships automotive components. It began by paint droplets. The stamping plant’s making textile equipment and parts facilities are well organized and well with LEs outside Sukabumi, mainly in Jakarta in the 1950s. After it moved maintained. in the Jakarta area. to Tegal, KP has diversified into mak- KP also pays considerable atten- In both these clusters, innovation ing agriculture tools and machinery. tion to skill development. It provides trickled down through a number of pro- While rapidly diversifying its product incentives to employees to partici- ducers. In fact, the transfer of tech- base, KP has improved its productive pate in various training activities at nology not only originated from LEs capability. The company’s important different locations by covering their as the contractors but also was achievements include the develop- expenses towards travel as well as stimulated by the growing involve- ment of the casting capability to pro- accommodation. ment of materials suppliers and duce hydrants. The manufacture of traders. The government principally hydrants was driven by government Other case studies contributed to the clusters by improv- contract, and the company made ing the environment. around 200 units per month at the This current study on Tegal is not the peak of production. only evidence establishing the im- portance of technology transfer for Some lessons One major milestone for KP was innovation and SMEs innovation capa- to be learned its selection as one of the few local bility in the cluster. Sandee and others A number of lessons can be learned prime suppliers for heavy equipment (2002) also depict a similar picture for KI and NR. Furthermore, because from the case study of Tegal metal- from their study on two other impor- of its ability to deliver the products on working industry cluster. These les- tant metalworking industries, namely time and consistently of an accepta- sons, which can be adopted as the in the cluster in Ceper, Klaten, Cen- ble quality, KP’s base of product lines best practices to promote as well as tral Java and the cluster in Cibatu in the heavy equipment business ex- manage innovations in SME clusters, village, Sukabumi regency, West Java. panded rapidly.7 are as follows: Both clusters have sub-contracting Recently, its hydrant orders have z Technology transfer through sub- increased to 10-20 per month, with a 7 However, the company manufactures contracting production linkages similar jump in orders from KI and NR. fewer items than PK for both KI and NR. is a crucial source of innovations

TECH MONITOR z Jul-Aug 2009 35 Special Feature: Innovation in SME clusters

in SMEs. However, for that, the which is mainly human nature (for Literature and Case Studies from SMEs must have a minimum ab- instance, the talent and creativity the SPX Network. Mimeo, UNIDO, sorption capacity: they must have of a person) (Yusuf, 2007), it can Vienna. a basic knowledge of the parti- be encouraged by the local gov- 8. Nelson, R.R. and H. Pack (1999). cular technology. In this respect, ernment through various ways. The Asian growth miracle and SMEs owned by ex-employees of These ways include training or modern economic growth, Eco- LEs or workers with a diploma in education, market incentives, and nomic Journal, 109: 416-436. engineering are more likely to be security or protection of innovated 9. Pantjadarma, Derry (2004). The successful as sub-contractors products/processes through intel- potential role for an ICT entrepre- than the SMEs owned by those lectual property rights and other neur in accelerating SME devel- who have only primary or second- measures. opment in Indonesia: the case ary school diplomas (as is often of the metal working industries in the case in SMEs, especially SEs References Tegal. Journal of International Busi- in the developing countries). 1. Berry, Albert and Edgard Rodri- ness & Entrepreneurship Devel- z The role of government, espe- guez (2001). Dynamics of Small opment, 2(2): 17-24. cially the local government, is and Medium Enterprises in a Slow- 10.Saggi, K. (2002). Trade, foreign crucial as the main facilitator (for growth Economy: The Philippines direct investment, and interna- example, providing UPT, training, in the 1990s. Research paper, the tional technology transfer: a survey. capital and building infrastructure) World Bank, Washington, D.C. World Bank Research Observers, and in improving the business/ 2. Blomström, M. and F. Sjöholm 17(2): 191-235. investment environment in order (1999). Technology transfer and 11. Sandee, H., B. Isdijoso and S. to attract LEs, especially MNCs, spill-overs: does local participa- Sulandjari (2002). SME Clusters to do business with SME clusters. tion with multinationals matter? in Indonesia: An Analysis of In addition, the local government European Economic Review, 43: Growth Dynamics and Employ- must also be very active in promo- 915-23. ment Conditions. International ting sub-contracting activities. It Labour Office, Jakarta. can mediate between LEs/MNCs 3. Dunning J. H. (1993). Multina- 12.UNCTAD (United Nations Confer- and local SMEs, especially since tional Enterprises and the Global ence on Trade and Development) SMEs are often reluctant to pro- Economy. Addison-Wesley, Wok- (2007). The Least Developed mote themselves as potential sub- ingham. Countries Report 2007. Knowl- contractors or find it difficult to 4. Hsueh, Roselyn Y. (2006). Who edge, Technological Learning identify potential contractors. rules the international economy? Taiwan’s daunting attempts at bi- and Innovation for Development. z There must be at least one key United Nations, Geneva. player, who leads the innovation lateralism. In Vinod K. Aggarwal 13.Wattanapruttipaisan, Thitapha activities of SMEs in the cluster. and Shujiro Urata, eds., Bilateral (2002). SMEs sub-contracting as The leading firm can be the most Trade Agreements in the Asia- bridgehead to competitiveness: successful sub-contractor or the Pacific: Origins, Evolution and Im- framework for an assessment of most innovative firm in the cluster. plications. Contemporary Political supply-side capabilities and de- However, two preconditions must Economy Series, Routledge, Uni- mand-side requirements. Asia- be met for the leading firm to play ted Kingdom. Pacific Development Journal, this role optimally. First, no dis- 5. Iman, Mohamad S. and Akiya 9(1): 65-87. tortions must prevent the dis- Nagata (2002). Institutional Coor- semination of technology from dination Problem: An Obstruction 14.Yusuf, Shahid (2003). Innovative the leading firm to the other firms to Promotion of Industrial Back- East Asia: The Future of Growth. in the cluster. In other words, the ward Linkages. Research paper. World Bank and Oxford University cluster must have a strong inter- School of Knowledge Science, Press. firm cooperation culture (which Advanced Institute of Science and 15. Yusuf, Shahid (2007). From Crea- often is not the case in many SME Technology, Tatsunokuchi, Japan. tivity to Innovation. Policy Research clusters in developing countries: 6. Islam, Rizwanul (1992). Transfer, Working Paper 4262, June 2007, individual firms work alone or dissemination and adoption of Development Research Group, compete in an unhealthy manner technology for small and cottage World Bank, Washington, D.C. with each other). Second, there industries: an overview. In Rizwa- 16.Yusuf, Shahid, M. Anjum Altaf, must be an innovation culture in nul Islam, ed., Transfer, Adoption Barry Eichengreen, Sudarshan the cluster. Otherwise, the inno- and Diffusion of Technology for Gooptu, Kaoru Nabeshima, vation takes place only in the Small and Cottage Industries. ILO- Charles Kenny, Dwight H. Perkins leading firm and not in the other ARTEP, Geneva. and Marc Shotten (2003). Inno- firms in the cluster. Although the 7. Morcos, Jean-Louis (2003). Inter- vative East Asia: The Future of innovation culture is closely rela- national Sub-contracting versus Growth. The World Bank and ted to the entrepreneurship culture, Delocalisation? A Survey of the Oxford University Press.ˆ

36 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters

Technology, innovation and collaboration of firms

The case of light engineering clusters in Bangladesh

Nurul Quadir and Rasel Mahamud

The light engineering industry plays an important role in the economy of Bangladesh, as it provides useful products and services to agriculture, helps imports substitution, besides aiding industrial development. The light engineering industry clusters’ development is due to the support it provides to other industries, such as the transport sector, the agricultural sector and the power sector. These clusters have the capacity to meet the market demand through knowledge-based internal collaborations. Although they do not function in an organized way to manage technology and innovation, they are capable in their own way to respond to the market when the opportunities arise.

Introduction Economic opportunities play a signi- ficant role in technology upgrading and he world is experiencing a phe- innovation, which require an organ- Nurul Quadir nomenal and unprecedented ized application of knowledge, proper Deputy General Manager Tgrowth in technology over the allocation of resources, and integra- E-mail: [email protected] last few decades. This growth has tion. Large companies, mostly mul- Rasel Mahamud made it difficult to forecast the dev- tinational corporations (MNCs) from Programme Manager elopment scenario in the long term. developed countries, have systems E-mail: [email protected] The free market economy and follow- that respond to the market with tech- Small and Medium Enterprise up of the Uruguay Round Agreement nological innovations. Companies in Foundation is one of the important factors for this the developing countries, with their 4 Panthapath change in technology (Azim, 1999). poor endogenous technological ca- Dhaka 1215, Bangladesh Business and economic devel- pacities, face numerous challenges. Tel: +88 (2) 814 2983 opments are hastening the pace of Nevertheless, they are operating in Fax: +88 (2) 814 2467 technological change, with innova- a globally competitive market system, Website: www.smef.org.bd tions that further human capability. applying their own innovations and

TECH MONITOR z Jul-Aug 2009 37 Special Feature: Innovation in SME clusters technology management. This paper Table 1: LE industry products emphasizes on technology innovation, 1. Agricultural machinery and spares and the role of inter-firm collaboration to sustain and grow in a technology- 2. Automobiles, railway and marine transport spares intensive industry – light engineering 3. Blades, battery and carbon rods industry (LE)1 of a developing country 4. Bread, biscuit and food processing machinery like Bangladesh. 5. Construction, building machinery and maintenance services An innovation can be defined as 6. Gas distribution, LPG cylinder and fire extinguishers a process that takes an idea or in- 7. General machinery and spares vention, links it to a market demand, 8. Hardware, kitchen and bathroom fittings and turns it into a product, a tech- 9. Metal products and steel furniture nique or a service that is bought and 10. Moulds and dies, foundry and Casting sold (Bas and others, 2008). Innova- tion also includes the improvement 11. Paper, pulp, sugar, cement, plastics, rubber, and paint machinery and of an existing product or process and spares bringing it to the market. This study 12. Pharmaceutical machinery and spares depicts the manner in which market- 13. Printing and packaging machinery and spares based innovation is driving techno- 14. Textile and jute machinery and spares logical development – in particular, Source: BEIOA website, 2009 technology upgrading and innovation – across different clusters in the local supports all other industries by pro- which is the country’s largest industry LE industry in Bangladesh. viding capital machinery, spare parts association (BEIOA, 2009), the con- This study conducted field as well and maintenance support. There is tribution of this sector has been 2.15 as literature-based surveys to collect no historical reference about LE in- per cent of Bangladesh’s Gross Do- information. The primary information dustry in Bangladesh. However, the mestic Product (GDP) in the last few serves as the critical framework for common saying is that the industry decades. It is producing a wide range analysis, while the secondary infor- started by providing maintenance sup- of products as listed in Table 1. A brief mation provides important input for port to the large-scale industrial units picture of the LE industry is as follows understanding the context and ration- commissioned in the 1950s in Bang- (The Daily Star, 2007): ale. This combination provides a rich ladesh (then East Pakistan). Spare Number of enterprises: Approxima- contextual explanation of the situation. parts manufacturing for those indus- tely 40,000; Instead of structured data collection trial units came in the second stage, Employment: 89,632 employees; and instrument, the study employs obser- as an extended service to mainte- Market size: Tk 51,510 million (US$ vations and investigations with pro- nance. The Dholaikhal area of Dhaka 748.7 million) for local manufacturers. was at the centre of such activities. jections. Secondary data came from Akter (2009), quoting Ahmad, said available literature and relevant web- These activities developed all over the country, but mostly concentrated that the sector in Bangladesh contri- sites. The key informants include in- butes 2.2 per cent to the GDP, which dustry experts, government officials, in the vicinity of the large-scale indus- tries. In the 1980s, the Dholaikhal is more than the foreign aid received functionaries from non-government every year (The Daily Star, 2009). organizations and the private sector, project and sub-contracting with state- business membership organization owned enterprises were facilitated Major LE clusters leaders, academicians, researchers through the Bangladesh Small and in Bangladesh and policy-makers. Cottage Industries Corporation, a state-owned organization for the pro- According to the International Finance LE industry motion of small and cottage industry Corporation’s South Asia Enterprise in Bangladesh in the country. This provided the initial Development Facility, of the 48 clus- boost to this sector, which was flour- ters in the country, 27 are in Dhaka LE industry plays a pivotal role in the ishing with thousands of workshops and its suburbs (The Daily Star, 2007). industrial landscape, both locally and and foundries across the country. Bogra, the commercial hub of the globally. It offers many opportunities According to Akter (2009), the sector North-West part of the country, has of value addition, thereby, contributing involves three kinds of work: making three clusters while Chittagong and to Bangladesh’s economic growth complete machinery, producing spare Jessore are two other districts with and poverty reduction. It is frequently parts, and repairing old machines. As several clusters. referred to as a mother industry that stated previously, it also carries out It is noted that the Dhaka clusters maintenance of different machinery. have concentrated on capital machin- 1 ery, bicycles, construction equipment Light engineering industry represents Industry overview small-scale engineering firms involved in and spare parts for the automobile production of metal-based spare parts and According to the Bangladesh Engi- and various other industries, factories machines, and maintenance services. neering Industry Owners’ Association, and mills, in addition to maintenance

38 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters work. The Bogra clusters have their Table 2: Category of production focus on foundry, agro-machinery and spare parts for small agro processing Category Process Products industries, in addition to maintenance Relatively Casting products. Agricultural machinery and work. larger scale Other activities include parts, parts for automobile drawing, forging, rolling, industy, etc. Technology, extrusion, sheet metal innovation and inter-firm forming, and collaboration in LE wire drawing Small scale Different machining Import substitute goods and Technology use operations products for agriculture, in LEs in Bangladesh machines, automobile The production technology used by the industry is not standardized, and in production by the industry. Drilling, relatively large scale, as the market adoption of new technology changes grinding and boring machines are to demands a large volume of these is slow. Majority of the enterprises use be found in almost all the machine products. The Bogra clusters are the traditional and outdated machines and shops. Most of the units are facing main suppliers to this market. A case tools with poor precision that results problems with accuracy, precision, low study (Case 1) presented here ex- in poor quality. Obsolete plants from intensity workforce and productivity. plains the manner in which this large- India and China, including machines The foundries are using cupola and scale demand is being met through used for ship-breaking, are the major crucible furnaces for melting metal. a technology upgrading, which has sources of machines for the industry. Casting of brass and other alloys is taken place recently due to inter-firm The various international fairs organ- done in crucibles. Sand mould and collaboration. ized in Bangladesh and interaction manual pouring system are used for On the other hand, where goods with machinery suppliers have served iron casting, while both sand mould and parts for the substitution of im- to increase the use of modern ma- and metal dies are used for alloys ports are concerned, the market is chines that use technologies such as casting. The entrepreneurs acknowl- sensitive to the changing customer computerized numerical control (CNC) edge that they are using outdated usage patterns. This is why these and electrical discharge machining processes, which give no assurance goods and parts are produced in a (EDM). of quality and the rate of wastage is relatively smaller scale. The Dhaka The capacity of human resources high. Foundries often face problems clusters are responding to this market engaged in the production and oper- in testing, metal property control, effi- (Case 2). The Dholaikhal cluster, situ- ation is not standardized. Usually, cient patterning and die making. ated close to the Noabpur market, is workers get on-the-job skills training Technology development the largest wholesale market in the from their predecessors, who them- country for machines and spare parts. selves have not had any formalized and inter-firm linkages It is familiar to innovation through education and training in this trade, In the beginning of 1980, studies on reverse engineering. The study has but have learned by working in the the role of innovation in economic identified how this market is utilizing industry. Technology upgrading is par- development brought up the need to reverse engineering to respond fast ticularly difficult when the workforce organize innovation activities within to the market demand and the way in is not adequately trained to manage firms. Therefore, innovation manage- which inter-firm linkages are working that technology. ment became a strategic business here for new product development. The organizational effects are im- element (Zawislak and Marins, 2007). portant because they exert a powerful The LE units in Bangladesh, as a Case 1: Foundries of influence on the ability of firms, indus- response to the market and under- Bogra collaborate to tries and nations to adapt to new tech- lying economics, innovate and update upgrade technology nologies (Florida and Kenney, 1991). their technology in various processes The foundries of Bogra are manufac- Technology is organized in an informal or product development. The study turing agricultural machinery and parts way in the LE industry. The entrepre- reviewed many cases, but has des- on a mass scale. Most of the Bogra neurs are mostly managers who lack cribed only two of them in this report. foundries use relatively large cupolas formal education, and have educated Case 1 focuses on the process and (with an inner diameter of 30 inches themselves through interaction with Case 2 on product development. or more). The metallic charge usually peers and the market. These contacts To get a better understanding of consists entirely of scrap metal and are the primary channel for flow of the LE industry, it may be classified foundry returns, and pig iron is rarely information for new technology, ideas into two major categories based on used. Pollution control does not seem and knowledge. the production scale (Table 2). Pro- to be an important issue. Most of the It is noted that mostly low preci- duction of agricultural machinery and foundries produce small-sized cast- sion, non-automated lathes are used parts by the local manufacturers is on ings used in machine tools as well

TECH MONITOR z Jul-Aug 2009 39 as agricultural implements. These Figure 1: Inter-firm linkages in the dholaikhal cluster foundries were incurring high produc- tion costs, mainly due to the high cost Physical supply Product of energy. This was a result of using inefficient cupolas leading to a low market rate of production while meeting the market demand. Knowledge/information A team of about 10 foundry entre- preneurs from of the Bogra cluster, Physical Physical who formed the Foundry Owners Expert facility facility Association of Bangladesh (FOAB), visited India for a week in July 2007. The objective of FOAB was to provide an opportunity for firms to unite and collaborate. The team visited the Scrap Raw foundry clusters of Howrah in West market materials Bengal, Rajkot and Ahmedabad in Gujarat, and Agra in Uttar Pradesh. It identified low-cost, energy-efficient technologies suitable for foundries in This example demonstrates hori- to produce import substitutes and Bangladesh. The team’s field visits zontal linkages among the foundries ancillary products. As Zawislak and and interactions with foundry owners in technology development through Marins (2007) pointed out, the dynamic provided it with a good understand- collaboration in the management of capitalistic trends promote innovation, ing of the technology used in India. It knowledge and expertise. The Bogra change, discontinuity, replacement, also realized the scope to save energy foundries are now capable of instal- and creation, marked by value ag- by upgrading the conventional cu- lation and commissioning of DBC for gregation. polas in operation in Bangladesh’s the mentioned capacity. These firms, Because of their close interaction foundry units, as it observed that the using their own capabilities, could with the importers/wholesalers, the foundry units in Howrah and Rajkot upgrade technology to meet the in- local manufacturers get information are using the divided blast cupola creasing market demands for their about niche market demands. In many (DBC). The team found this type of products. The FOAB members are ways, this is rewarding in terms of the furnace were suitable for Bangladesh currently studying the designs of vari- price. The manufacturers in the clus- because the reduced energy intake ous capacities of DBCs. This is being ters can spend time for researching they offer is an attractive payback on done in order to install DBCs accord- products for reverse engineering. investment. ing to requirement of the foundries, Another important aspect obser- The Bogra foundry entrepreneurs which need to produce products for ved in the Dholaikhal cluster is the contacted the design provider for the export market. For instance, an provision of repair and maintenance DBC. Two members of FOAB – Milton Indian buyer has placed an order for service for a wide range of machines. Metal Industries and Gunjon Metal 20,000 pieces of centrifugal pumps At times, the repair jobs extend to Works – decided to install DBC, with to be supplied by December 2009. replacement of parts that are not in capacity to produce 4 tonnes of melt (The Daily Star, 2009). the stock of the company, prompting iron per hour. The FOAB members, Case 2: Reverse engineering it to reverse engineer the part. The who studied the design, planned to capacity for reverse engineering has install DBCs by garnering resources in Dholaikhal, Dhaka been developing over the years in this from the local market through a col- The Dholaikhal cluster is adjacent to manner. The inter-firm linkages aug- laborative effort. Two DBCs were thus Noabpur market, the largest whole- ment knowledge, input supply and installed by joint efforts, with engi- sale market in the country for all types physical capacity of the firms in re- neering assistance from two other of machinery and parts. The market verse engineering a product (Figure 1). foundry owners who had a relatively has roughly more than 5,000 such better understanding of foundry tech- shops. Most of the machinery and The firm gets an original sample nology. Thus, knowledge was trans- parts are imported – mostly from other of a product to be reverse engineered ferred in the installation as well as Asian countries such as China, India, from the adjacent market. The scrap commissioning of the project. Later, Taiwan, Malaysia, Singapore, Repub- market provides a good opportunity the FOAB members installed and lic of Korea and Japan – and only a to change or reshape certain parts to commissioned two more DBCs using small portion is locally manufactured. make the product through supplying the same design; one more in Milton The changing market demand, im- scrap of similar product or a product Metal Industries and another in Haque position of import duties and tech- of same material properties. It also Metal Industries, which helped install nological changes are continuously serves as a source of input for some the first two DBCs. making space for local manufacturers products that are not available in the

40 TECH MONITOR z Jul-Aug 2009 regular markets. In some cases, the thereby leading to the development 2. Azim M.A. (1999). Paradigm shift scrap market is quite adequate to or upgrading of technologies. A com- in engineering profession and the supply the required volume of inputs mon observation from the two cases flexible engineer. Journal of Insti- for the product/spare to be reshaped described is that the firms are not tution of Engineers, Bangladesh. or manufactured. The physical facili- documenting their activities nor are Vol. Mul-dis 23 & 24. No. 1 & 2. ties are mostly shared because every they communicating the knowledge 3. Bas, Tomas Gabriel, Ernesto firm has some degree of specializa- in an organized way. Hence, they are Amoros and Martin Kunc (2008). tion for a specific job. As the volume remaining in the same loop of dev- Innovation, entrepreneurship and for this production is relatively low, the elopment. There may be two options clusters in Latin American natural firms with limited investment capa- for their further development: one is resource – implication and future city are unable to diversify resources. finding a way for their immediate gra- challenges. Journal of Technol- Thus, the inter-firm linkages play a duation and future growth; and the ogy Management & Innovation, very important role to accomplish or other is integrating knowledge gained Vol. 3, Issue 4, pp. 52-65. manage a total production process from the formal sector. According to 4. BEIOA (Bangladesh Engineering required to produce a product. the Japanese Ministry of Trade and Industry Owners’ Association) The firms of Dholaikhal cluster Industry, Japanese manufacturers (2009). Website: www.beioa.net. generally focus on new product devel- devoted over one-fourth of their re- 4. Florida, R. and M. Kenney (1991). search and development investment opment that can maximize their profit. Organizational factors and tech- to imported technology during 1960s The reverse engineering they use is nology intense industry: The US and 1970s (Kodma, 1992). As a late knowledge and expertise they gained and Japan. New Technology, Work adopter of technology, there is much in their ongoing business. For instan- and Employment. Vol. 6., No. 1. opportunity in Bangladesh’s LE indus- ce, the testing of material for a part 5. Kodma, Fumio (1992). Technology try to adopt a similar methodology and is done by sight, sound, feel, etc. The fusion and the new R&D. Harvard for its technology development agen- mechanical properties are tested by Business Review, Jul-Aug 1992. cies to emulate the experience of using the part where it is meant to be Japan to adapt technologies in an 6. The Daily Star (2007). IFC-SEDF used. This is due to lack of facilities organized way. presentation on LEs cluster study. or unaffordability of testing services. 8 November 2007, Dhaka, Bangla- At times, it is also owing to a lack of Note: The views and observations ex- desh. knowledge about the relevant or pressed in this paper are solely those 7. The Daily Star (2009). Bogra important service. This learning by of the authors, and SME Foundation seizes Indian market for irrigation practice has produced numerous is not responsible or liable for them equipment. 12 April 2009, Dhaka, successes that are visible as new in any manner. Bangladesh. products coming in the market. References 9. Zawislak, Paulo Antônio and Luciana Manhães Marins (2007). Conclusion 1. Akter, S. (2009). Light engineer- Strengthening innovation in dev- This study found that the knowledge ing seeks government funding. eloping countries. Journal of Tech- and expertise gained through prac- The Daily Star, 18 May 2009, nology Management & Innovation, tice is developing innovations and Dhaka, Bangladesh. Vol. 2, Issue 4, pp. 44-53.ˆ

Small & Medium Enterprises Finance Initiative The SME/Finance Initiative (SME/FI) is a knowledge-cum-business network that will put together development banks, other special- ized financial institutions and development organizations in different countries to discuss and address specific issues in the financing of and other support services to SMEs. The Initiative is a joint effort of the Association of Development Financing Institutions in Asia & the Pacific (ADFIAP), the Association of Development Finance Institutions in Malaysia (ADFIM) and the International Trade Centre (ITC). The purpose of the Initiative is to enable and promote an international exchange of information, experiences, and best practices on financing SMEs among banking and finance professionals and institutions and to further improve the development and growth of the SME sector. The SME/FI aims to eventually evolve into the largest public/private partnership of like-minded institutions in sustaining SMEs. For more information, contact: Small & Medium Enterprises Finance Initiative C/o Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) 2nd Floor, Skyland Plaza Senator Gil Puyat Avenue Makati City, 1200 Philippines Tel: +63 (2) 816-1672; 843 0932, 843 5892 Fax: +63 (2) 817 6498 E-mail: [email protected] Web: http://www.smefi.com

TECH MONITOR z Jul-Aug 2009 41 Special Feature: Innovation in SME clusters

Capitalizing on innovation for exports by the SME sector

Nguyen Ngoc Anh, Nicola Jones, Nguyen Duc Nhat and Nguyen Dinh Chuc

A key question before Vietnamese policy makers is how to improve the competitiveness of SMEs. Innovation is among the many initiatives proposed to address this. The initiative is based on the assumption that innovation can impact a firm’s competitiveness and its status in exports by increasing productivity, reducing costs, and by developing new goods for the international market. Based on quantitative data analysis and qualitative case- studies, the paper stresses the importance of innovation for raising export competitiveness of Vietnamese firms in their exports, and provides several policy recommendations.

Mr. Nguyen Ngoc Anh (Corresponding author) Development and Policies Introduction improvement in economic efficiency Research Centre (DEPOCEN) and finally, exports contribute to pro- 216 Tran Quang Khai Street t is generally believed that the dev- ductivity gains through diffusion of Hanoi, Viet Nam eloping countries can enhance their technical knowledge and learning by E-mail: [email protected] Igrowth prospects through export doing. promotion strategies. Underpinning Ms. Nicola Jones The successful experiences of Overseas Development Institute this belief is the export-led growth model that postulates a positive rela- the East Asian economies are good 111 Westminster Bridge Road examples of the importance of the London SE1 7JD, United Kingdom tionship between export growth and economic growth. According to econo- export sector to economic growth and Mr. Nguyen Duc Nhat mics literature, a large and growing development, and following in their Development and Policies export sector will allow economies footsteps, Viet Nam has adopted an Research Centre (DEPOCEN) with small domestic markets to over- exports-oriented strategy. During the 216 Tran Quang Khai Street come their limitations of size and reap last two decades of economic reforms, Hanoi, Viet Nam the benefits of economies of scale. the exports sector has been a major E-mail: [email protected] The exports earnings will provide the driving force of Vietnamese economic Mr. Nguyen Dinh Chuc much-needed foreign exchange to growth. In 2007 and 2008, exports Development and Policies import capital and intermediate goods, formed 70 per cent of the country’s Research Centre (DEPOCEN) which in turn will improve the pro- Gross Domestic Product (GDP). 216 Tran Quang Khai Street duction capacity of the economy. The However, the main problem faced Hanoi, Viet Nam exposure to increased competition by Viet Nam is that its private sector E-mail: [email protected] in the export markets leads to an – the small and medium enterprises

42 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters

Table 1: Number and performance of Vietnamese SMEs (2000-2005)

Year 2000 2001 2002 2003 2004 2005 1. Total number of firms 42,288 51,680 62,908 72,012 91,755 112,952 2. Number SMEs 39,897 49,062 59,831 68,687 88,222 109,338 3. Share of SMEs in total firms (%) 94 95 95 95 96 97 4. SMEs’ share of total labour force (%) 36 34 35 35 36 38 5. SMEs’ share of total capital stock (%) 38 29 29 31 34 33 6. SMEs’ share of total gross output (%) 48 45 49 48 45 46 Note: Previous year = 100 per cent Source: Enterprise Census 2000-2005 of General Statistic Office, Viet Nam

(SMEs) in particular – is not yet suf- introduced only in 1997, with support and micro levels (Cassiman and ficiently competitive at a global level. from the International Development Martínez-Ros, 2004). At the macro Viet Nam’s development strategy Research Centre (IDRC). Therefore, level, innovation is an important mea- aims to achieve effective economic the role and importance of innovation sure for industrial and country-level growth and its success depends, to for competitiveness at the enterprise growth, and exports represent an a large extent, on the development of and national levels are neither fully indication of national competitiveness. the private sector, which consists realized nor well understood. Hence, Innovation is also important for the mainly of SMEs. In the context of the the purpose of this paper is three- competitive advantage of firms and country’s integration into the world fold. First, it provides an overview of determines their growth potential. market, marked by its entry into the the linkage between innovation and Besides the comparative advanta- World Trade Organization (WTO) at exports. This is of vital importance ges that stem from a country’s natural the end of 2006, SMEs have great in the Vietnamese context because, resources, economic theories sug- opportunities to expand by exporting although there is considerable dis- gest that innovation is important for to other markets. At the same time, cussion about innovation in general, success in the international market. however, they are also facing tough linkages to the exports sector have International trade models developed competition at their doorstep. In order not been explored previously. Second, by Vernon (1966), Krugman (1979) the paper highlights the importance to maintain economic growth, these and a few others suggest that of the SME sector and the influence SMEs must be able to compete in the innovation is the driving force behind of innovation on exports, drawing exports market. This is now even more exports. These models suggest that on the Viet Nam Small and Medium pressing because: (1) Viet Nam’s the causation runs from innovation to Enterprise Survey conducted in 2005 trade deficit as a percentage of its export. As developing countries imi- (SME 2005). The link between inno- GDP has risen to alarming double- tate the innovative products imported vation and exports, and attempts to digit figures in 2007 and 2008; and from developed countries, they will answer the question whether more (2) the world economic recession has later be able to export back matured innovative firms are more likely to ex- made exporting more challenging due products to the developed markets. port are investigated. This paper also to a fall in demand. Developed countries have to innovate captures innovation activities in three A key question that policy makers to keep up their exports and income. different ways: a new product inno- face is how to improve the competi- At the firm level, it has been argued vation, a new production process and tiveness of Viet Nam’s SMEs. Among that innovating firms have incentives a modification of existing products. the many initiatives being proposed to expand to other markets for earning The case studies of nexus between for this, innovation has attracted higher returns from their investment innovation and export also highlight attention from not only the policy (Teece, 1986). Through innovation, the conclusion drawn from quanti- makers, but also the researchers and innovating firms will obtain and sus- tative analysis. Finally the paper dis- the business community. Innovation cusses policy implications for the SME tain their competitive advantage both in SMEs has been given special sector, and identifies a number of domestically and internationally. emphasis in a recent declaration in concrete steps that the key policy Therefore, a positive linkage from in- Hanoi by APEC’s ministers. These makers could undertake to streng- novation to exports can be expected. initiatives are based on the assump- then the innovation environment. tion that innovation can affect a firm’s SME sector’s contribution competitiveness and exports status Innovation and export to Vietnamese economy by increasing productivity, reducing Viet Nam’s SME sector plays a key costs and by developing new goods Trade and innovation – role in its economy. Table 1 presents for the international market. theoretical background a clear picture of position of SMEs However, innovation is a relatively Innovation and exports are related to among the Vietnamese firms in terms new concept in Viet Nam, having been national competitiveness at macro of population and performance during

TECH MONITOR z Jul-Aug 2009 43 Special Feature: Innovation in SME clusters

Box 1: Distinguishing between that innovate are more likely to export. Table 2 presents the innovation and product and process innovations export activities of firms as per the A general distinction can be made between product innovation (including SME survey (2005). Among the 2,739 both new product innovation and modification of an existing product) and surveyed manufacturers, 1,113 firms process innovation. Process innovations are a way to improve productivity are product innovators, 809 firms are and reduce production costs, while product innovations give the innovating process innovators and 1,654 firms firms a competitive advantage in the market. The hypothesis is that product are engaged in product modification. innovations and process innovations have different effect on export The table suggests that innovations performance (Utterback and Abernathy, 1975, and Cassiman and Martínez- positively correlate with the export Ros, 2004). However, often, product innovations and process innovations decision of firms. As shown in Table are linked, as newly developed products or modified products often require 2, 11 per cent of firms with active pro- new production technology (Kirbach and Schmiedeberg, 2006). duct innovation are exporters, whereas for non-product innovators, the rate Innovations are produced by a few “performance-maximizing” firms, who of exporters is just 4 per cent. Similar- have strong technological capability and connection with the market, ly, 12 per cent of process innovators, implying that product innovations are first produced in the advanced compared with just 4 per cent of non- technology countries (Utterback and Abernathy, 1975). As far as product process innovators, are involved in innovators in smaller developing countries like Viet Nam are concerned, exports, and 9 per cent of product exports are likely to be positively affected, as demand in the domestic adapters compared with 3 per cent of market is not yet well developed and firms discriminate between domestic non-product adapters are exporters. and international markets for these novel products for which they do have Across the board, firms engaged in some market power (Cassiman and Martínez-Ros, 2004). innovation – be it product innovation, The effect is different in the case of process innovations, as this type of process innovation or product modi- innovation reaches typically more mature markets where product innovations fication – are more likely to export. introduced by “sale-maximizing” firms are often a variation of existing To establish a causal relationship products rather than for creating entirely new products. Process innovations between innovation and export among are beginning to build up and, along with product innovations, they are SMEs in Viet Nam, a model linking stimulated by advanced technology (Utterback and Abernathy 1975). The exports and three measures of inno- effect of process innovations on exports is less than product innovations vation – product innovation, process (Cassiman and Martínez-Ros, 2004). Process innovations help securing innovation and product modification a firm’s market position given the characteristics of its product supply. Both – was created using the survey data modes of innovation are expected to raise the firm’s propensity to export. of SMEs in 2005 (Nguyen and others, With respect to product modification, firms competing in foreign markets 2008). The paper estimates an ex- may choose to adapt the physical characteristics or attributes of a product porting model specified as follows: and its packaging to meet the needs and desires of consumers in different Export = β +β X + θ Innovation +ε (1) countries in a better manner and thereby bear additional costs. To be 0 1 2 successful, a modified product must add sufficient incremental revenue where Export is an indicator taking such that the additional manufacturing and marketing costs that result from value of 1 if firm i is an exporter in the adapting the product are recovered. The hypothesis is that given Viet Nam’s survey year and 0 otherwise, X is a current technological position, product modification is expected to be the vector which includes firm’s charac- most frequent type of innovation. teristics such as firm size, turnover, Source: Nguyen and others, 2008 capital intensity, regional dummies, sector dummies, and ε is an error 2000-05. SMEs consistently account cent of the total gross output. In short, term. As the dependent variable for a large majority of the total Viet- SMEs are the backbone of Viet Nam’s Export is a binary response variable, namese firms – from 94 per cent of economy, and appropriate policies the equation (1) is estimated as a 42,000 firms in 2000 to 97 per cent should be directed at this sector to probit or logit model. Innovation in (1) of more than 110,000 firms in 2005. improve their performance and con- is a generic measure of innovation. According to observed performance tribution to economic development. Three measures of innovations are indicators, SMEs comprised a stable considered, in particular, in the em- portion of the total labour force at 34- Innovation and export pirical investigation: 38 per cent each year, and displayed by Viet Nam’s SME sector z Product Innovation: A dichotomous a fluctuating share of capital stock The link between innovation and ex- variable that takes the value 1 that peaked at 38 per cent in 2000 ports is an important one, but till date when the firm introduces new and struck rock bottom at 29 per cent in Viet Nam, it has received little products in the survey year; and in 2001. The gross output produced attention as far as policy making or 0 otherwise. by SMEs has maintained a constant analysis is concerned. The current re- z Process Innovation: A dichoto- share between 45 per cent and 49 per search however, indicates that firms mous variable that takes the value

44 TECH MONITOR z Jul-Aug 2009 Special Feature: Innovation in SME clusters

Table 2: Innovation and export status among SMEs

Type of innovation Product innovation Process innovation Product modification Export status Active Non-active Active Non-active Active Non-active Export 117 59 98 78 145 31 (11%) (4%) (12%) (4%) (9%) (3%) Not for export 996 1,567 711 1,852 1,509 1,054 (89%) (96%) (4%) (96%) (91%) (97%) Sub-total 1,113 1,626 809 1,930 1,654 1,085 (100%) (100%) (100%) (100%) (100%) (100%) Total samples surveyed 2,739 2739 2739 (Manufacturing only) Source: SME Survey, 2005

1 if the firm introduces new produc- should focus on national innovation Innovation will lead to new businesses tion processes/new technology; strategy – the development of new as well as to the increased compe- and 0 otherwise. products, the adoption of new pro- titiveness of existing enterprises. The z Product modification: This is a duction process/technology and the analysis provides empirical evidence dichotomous variable that takes modification of existing products. to prove that innovation enhances the the value 1 if the firm introduces To complement the quantitative likelihood of exports for Vietnamese any major improvement of exist- analysis, several qualitative case SMEs, which form the backbone of ing products or changed specifi- studies on the link between different the economy. cation in the survey year; and 0 types of innovation and export were To engage more successfully in otherwise. conducted. The cases are presented international trade, Vietnamese SMEs Following previous research, con- in Box 2. The case studies also high- have to improve their efficiency, pro- trol is also for a range of variables in light the importance of all three types ductivity and innovation. Like other the vector X that possibly affect the of innovation – product innovation, developing countries, the innovation decision to export. The issue of process innovation and product modi- system in Viet Nam is disconnected endogeneity between innovation and fication – for the success of export to and fragmented. Therefore, some export is also dealt with, by estimat- foreign markets. policy recommendations to develop ing an equation specified as: an effective national innovation sys- Innovation = Zγ + u (2) Conclusions and tem can be suggested as follows: where Z is the vector of instruments. policy implications z General: It is important to build an The strategy is to use the fitted value integrated national innovation sys- The results of this study have im- of innovation obtained after estimat- tem in which the link between portant implications for Viet Nam’s ing equation (2) as the instrument in enterprises and research institutes strategy on economic development. equation (1). The regression results is strong, coherent and intimate. They suggest that to maximize Viet show that innovations are important z Stimulating and supporting enter- Nam’s comparative advantage in the determinants of exporting for Viet- prise innovation: The government exports sector, a policy to encourage namese SMEs. All three measures should have policies and pro- of innovation employed were stati- innovation by SMEs should be dev- grammes/schemes that (a) are stically significant. The model also eloped. This is particularly important adapted to different types of en- indicates that among the three inno- in a SME-dominant economy, which terprises, (b) tackle the various vation measures, product innovation is integrating into the global market needs of enterprises, such as has the strongest effect on exporting. via international trade. Furthermore, technical, commercial and legal, The results have important implica- such a strategy should pay particular and (c) are embedded in broader tion in the Vietnamese context. That attention to the break-up of national actions aimed at upgrading the is, on top of the comparative advan- innovation strategy – the development overall enterprise management. tages that push Viet Nam’s exports, a of new products, the adoption of new z Building appropriate research policy must be in place to encourage production process/technology and and technology infrastructure: innovation activities to be practiced on innovations that modify existing Research activities from basic to by SMEs. This makes more sense in products. applied level must be adapted to an economy dominated by SMEs and In a modern economy, innovation local needs and capabilities. integrating into the global market via is crucial for value creation, produc- z Legal and regulatory environment: international trade. Furthermore, it tivity, export, growth and employment. The legal and regulatory environ-

TECH MONITOR z Jul-Aug 2009 45 Special Feature: Innovation in SME clusters

Box 2: Case studies on innovation and exports Product innovation There is a growing number of examples of new product innovations that have helped Vietnamese enterprises to enter the exports market. One good example is that of bamboo-based floor tiles produced by Tien Dong Ltd. Company. In 2007, the company introduced bamboo-based products in place of their traditional wood-based floor tiles due to the falling supply of wood-based input materials. The advantage of the bamboo-based product over the wood-based product is its durability and strength. The company has now entered into an agreement with a foreign partner to produce bamboo-based floor tiles for export markets. Another good example is that of Dien Quang JSC’s investment in the development of new high-end products such as energy-saving bulbs. As a result of this investment in innovation, the company has been able to export its products to European countries. Process innovation The Viet Nam Milk Product Company (Vinamilk) is an interesting example of process innovation. By importing new technology and equipment from Denmark, the company has been able to export its products to new markets. In 2007, the company was able to export milk powder to Dubai, Cappuccino coffee to Australia, and many other coffee products to Cambodia and the Philippines. By entering into a joint venture with the United States beer manufacturer, SABMiler, Vinamilk has been able to increase its beverage exports by 30 per cent in 2006. Another case of process innovation comes from the Daso Group, which decided to invest in a lemon farm of 250 ha area. The company has set up a long-term purchase arrangement with farmers. The purpose is to maintain a good supply of input materials to meet its production capacity. By doing this, the company has been able to meet large export orders from the United States. Product modification Thanh Cong Textile and Garment company provides a good example of successful product modification. By modifying the design, colour and styles of garment products to ensure that they meet the taste of consumers, the company has been able to secure large contracts with the Wal-Mart company of the United States. In 2006, Wal- Mart placed a very high-value order for the company’s pullover T-shirt (over 1 million pieces). In 2007, Thanh Cong’s exports to the United States reached USD 24 million.

ment should be built up in a 3. Krugman, P. (1979). A model of boration, licensing and public manner conducive to innovation. innovation, technology transfer, policy. Ricerche Economiche, z Learning from experience: It is and the world distribution of 40(4), 607-643. important to learn from the expe- income. Journal of Political Eco- 6. Utterback, J.M. and W.J. Abernathy riences of other countries in the nomy, 87(2), 253-266. (1975). A dynamic model of pro- region such as Taiwan, Republic 4. Nguyen, A. N., Ngoc Quang Pham, cess and product innovation. In of Korea and Malaysia who have Chuc Dinh Nguyen and Nhat Duc C. Freeman, ed., The Economics been implementing very effective Nguyen (2008). Innovation and of Innovation, Edward Elgar, innovation policies. Study tours export of Viet Nam’s SME sector. Aldershot. pp. 424-441. and knowledge exchange (includ- European Journal of Development 7. Vernon, R. (1966). International ing formal institutional arrange- Research, Vol. 20(2), 262-280. Investment and International Trade ment) would be beneficial for Viet 5. Teece, David. J. (1986). Profiting in the Product Cycle. Quarterly Nam. from technological innovation: Journal of Economics, 80 (2), References implications for integration, colla- 190-207.ˆ 1. Cassiman, Bruno and Ester Mar- SMEnetwork tínez-Ros (2004). Innovation and Exports: Evidence from Spanish SMEnetwork is a unique network of small and medium enterprises (SME) associations Manufacturing. IESE Working and their members in India. It is coordinated by Federation of Indian Micro and Small Paper. Mimeo. and Medium Enterprises (FISME), a national body of SMEs. SMEnetwork aims at 2. Kirbach M. and C., Schmiedeberg creating a unique Internet-based infrastructure which encompasses: (2006). Innovation and export per- • Marketing platform composed of SMEs with data verified by associations; formance: adjustment and remain- • One stop source of information; • Communication tools for information exchange between associations and their ing differences in East and West members; and German manufacturing. Mimeo, • SME e-communities, both Sectoral and Geographic. Department of Economics, Uni- For more information, access: http://www.smenetwork.net versity of Ulm, Germany.

46 TECH MONITOR z Jul-Aug 2009 Intellectual Property Rights

Intellectual property strategies of the Indian medicinal sector since 2005

N. Lalitha

This article focuses on strategies related to the intellectual property rights (IPRs) for the protection of the modern pharmaceutical sector and the traditional medicinal sector in India. Pharmaceutical companies focus on generics to gain a foothold in the regulated markets before venturing into new product development. In the traditional medicine sector, the preparation of the Peoples Biodiversity Register will identify the extent or nature of traditional knowledge that needs to be protected and help formulate a strategy on benefit sharing. The government move to make it mandatory to disclose the origin of traditional knowledge will help protect IPRs of the traditional knowledge holders.

Introduction direction of research and develop- ment (R&D). Even after the adoption he issue of intellectual property of the process patent regime, R&D (IP) rights on innovations in in the pharma industry has remained Tmedicines is controversial for at less than 2 per cent of the sales its possible impact on public health turnover. The comparative advantage and the pharmaceutical industry. As of the Indian pharma industry has medical research advances by the been in the production of generic day, IPR issues become complicated drugs, and this article will examine and public health issues, such as ac- whether this continues to remain the Dr. N. Lalitha cess and availability, become murkier. industry’s strategy after 2005. This is Associate Professor India enjoys near self-sufficiency in relevant, as the new chemical enti- Gujarat Institute of Development the production of medical formula- ties (NCE) pipeline of resource-rich Research, Gota, tions, and its pharma industry meets companies of the West is drying up, Sarkhej-Gandhinagar Highway the demand for medical drugs within and competition in the generic sector Ahmedabad, 380 060, India and outside the country. However, is becoming tougher. Tel: +91 (2717) 242367, 242368 there is a concern about the adapta- Therefore, in this article, IP stra- Fax: +91 (2717) 242365 bility of the pharmaceutical industry to tegies (a) as practiced by the modern E-mail: the product patent regime, in terms pharmaceutical sector and (b) as [email protected] of production expenditure as well as designed by the government for the

TECH MONITOR z Jul-Aug 2009 47 Intellectual Property Rights

Table 1: Destination of India’s exports – drugs, pharmaceuticals and fine chemicals (% share in total exports)

Country 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 World (US$ million) 2068.21 2655.41 3312.74 3973.02 4994.62 5939.11 7241.28 United States 16.68 17.15 14.85 15.20 14.32 16.65 18.09 Germany 5.11 6.08 6.37 25.19 5.06 4.99 4.65 Russia 4.89 4.03 4.22 4.33 4.86 4.91 4.11 United Kingdom 2.86 3.35 3.29 3.28 3.75 3.35 3.69 China 3.88 3.50 3.08 3.05 3.54 2.55 2.80 Brazil 3.56 2.86 2.62 2.74 2.81 2.88 2.58 Canada 1.51 1.99 2.71 2.77 2.37 2.09 2.53 South Africa 0.90 0.95 1.15 1.21 2.02 1.86 2.23 Nigeria 3.85 2.86 2.49 2.59 2.37 2.34 2.21 Netherlands 1.96 1.90 1.89 1.67 1.81 1.78 1.73 Spain 1.71 1.60 1.94 1.93 1.58 1.73 1.66 Turkey 0.80 0.93 1.28 1.33 1.99 1.74 1.66 Viet Nam 2.17 2.15 1.72 1.70 1.85 1.54 1.59 Israel 0.65 0.95 1.33 0.94 1.46 2.00 1.47 Italy 1.21 1.37 1.91 1.70 1.90 1.87 1.46 Mexico 1.52 2.05 2.32 1.55 1.67 1.69 1.46 UAE 1.44 1.58 1.48 1.55 1.58 1.31 1.41 Singapore 2.04 1.65 1.45 1.33 1.73 1.53 1.37 Iran 1.29 0.86 1.48 1.26 1.36 1.33 1.25 Rate of change 2001-08 : 2.50% Source: CMIE, 2008 traditional medicinal sector1 are high- Modern medicine the developed countries or the so- lighted. The reason for discussing the called regulated markets. As is evi- traditional system of medicine in this Nearly 5,000 units are engaged in the dent from Table 1 and Table 2, the sphere is, as the NCE pipeline is dry- production of pharmaceuticals in overall rate of exports is marginally ing up, interest in the rich repertoire India. The Indian pharmaceutical in- less than the rate in imports during of Indian traditional medicine is in- dustry achieved significant growth 2001-2008, indicating that pharma creasing. There is hence a need to after the Patent Act of 1970 that faci- imports are increasing over the ex- evolve effective IP rights in order to litated process patenting. That growth ports. Although there is considerable prevent biopiracy and protect tradi- has continued even after 2005. A ma- fluctuation in these figures, it can be tional medicine. While innovations in jority of the pharmaceutical sector is seen that imports from China have chemicals-based pharmaceuticals engaged in the production of patent- been increasing, which is attributed and biotechnology-based biopharma- expired generic drugs, which each by the industry to lower production ceuticals are protected by patents, company sells under its own brand costs in that country, which makes medicines based on traditional knowl- name. Only a handful of the pharma- domestic production uneconomical. ceutical companies are engaged in edge are protected through the Bio- The shift in exports of Indian drugs development of new drugs, and new logical Diversity Act of 2002, because towards regulated markets – such as drug delivery systems. This is prima- the patentability criteria that are ap- the United States of America, Europe rily because of resource constraints, plied to modern medicines, such as and South Africa – has significant long-drawn processes and uncertainty novelty and newness, cannot be ap- implications for R&D in Indian com- of results. plied to traditional medicine. panies, since it calls for increased During the process patent regime, investment to upgrade the manufac- 1 In this article, traditional system of the focus of the generic industry had turing facilities as well as production medicine includes the various branches been more on the domestic market processes. Although the exact break- of Indian system of medicine like Yoga, and on exporting to unregulated up is not available currently, it is Ayurveda, Siddha, Unani and folk medi- markets. Post 2005, this has shifted observed that the R&D expenditure cine (herbal). increasingly to the generic market of of companies has been increasing

48 TECH MONITOR z Jul-Aug 2009 Intellectual Property Rights

Table 2: Sources of India’s Imports – medicinal and pharmaceutical products (% share in total imports) Country 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 World (US$ million) 426.19 593.19 644.12 705.12 1027.77 1292.18 1659.97 China 24.68 25.31 28.70 28.66 34.68 36.30 41.33 Switzerland 7.70 14.61 11.23 11.84 12.03 18.85 13.65 United States 7.89 8.52 8.91 9.40 9.35 8.30 9.85 Germany 8.76 7.11 4.42 5.95 6.12 7.06 5.86 Italy 4.42 5.73 6.73 4.14 3.75 4.31 3.11 France 4.29 5.44 3.90 3.43 3.49 2.86 2.91 United Kingdom 4.67 3.31 4.76 4.12 2.93 2.67 2.40 Belgium 1.90 1.05 3.49 3.36 2.54 2.21 1.86 Spain 0.68 0.78 0.91 2.40 1.88 1.52 1.75 Japan 2.09 2.10 1.81 1.85 1.37 1.29 1.24 Korea, Republic of 2.13 1.46 1.20 1.89 1.31 0.54 1.07 Netherlands 4.89 3.16 3.30 3.84 2.06 1.26 1.02 Indonesia 2.33 1.49 0.93 0.43 0.07 0.69 0.65 Mexico 1.06 1.77 2.64 2.59 0.49 0.26 0.46 Thailand 0.41 0.83 0.91 0.56 0.70 0.22 0.39 Russia 1.19 0.52 0.32 0.48 0.52 0.46 0.39 Singapore 1.37 0.50 0.56 0.32 0.38 0.22 0.39 Canada 0.31 0.28 0.09 0.42 0.22 0.31 0.39 Australia 1.08 0.65 1.19 0.59 0.43 0.30 0.37 Rate of change 2001-08 : 2.89% Source: CMIE, 2008 since 19952. However, this expendi- United Kingdom. The number of Drug in Gujarat is presented below. The ture is not incurred entirely for the Master Files (DMF)3 and Abbreviated state’s pharma industry, which com- development of NCEs but also for the New Drug Application (ANDA)4 filed pleted 100 years in 2007, accounts for modification of manufacturing plants by the Indian companies is also on 40 per cent of the formulation pro- according to the international norms the rise. A brief discussion on the R&D duction in the country (Mulchandani, so as to meet the export standards. strategies of a few pharma majors5 2007). Some of the its pharma majors In addition, expenditure is incurred for – like Sun Pharmaceuticals, Zydus modifying the existing generic drugs to 3 For exporting bulk drugs to the United Cadila HealthCare, Torrent Pharma- enable an entry to the regulated mar- States, companies are required to file a ceuticals and Alembic Ltd. – figure in DMF. For this, the company has to submit kets. An increasing number of Indian detailed information on the equipment used, the top 25 pharma companies of companies are getting their labora- location of the plant, description of pro- India in terms of sales and R&D ex- tories and production standards certi- duction facility, process chemistry, raw penditure, according to the website fied by the United States Food and materials specifications, stability data, of Pharmabiz. Drug Administration (FDA) and the impurity profile, etc. The cost of filing a Sun Pharmaceuticals Ltd. has DMF can be up to US$200,000, depending Medicines and Healthcare Products committed 8-10 per cent of its turn- Regulatory Agency (MHRA) of the on the product, the steps involved, the processes and the number of tests to be over for research and since 1993, has invested Rs 9,500 million (US$ 2 done etc (Chaudhuri, 2005). A recent analysis by Pharmabiz of 25 top 6 4 197.91 million ) for research. The companies between 2005-06 and 2007- For marketing a formulation, a company 08 shows a decline in the R&D expendi- is required to file an ANDA, mentioning the company has received 72 of the 414 ture of some of the companies because suppliers of the bulk drugs and the DMF patents it filed for. Every year, it of the strategy of the companies like Sun numbers. Filing an ANDA may cost up to introduces an average of 25-30 new Pharmaceuticals, Piramal Healthcare and US$1 million per product depending on the products to the Indian market. These Ranbaxy to demerge their R&D activities product, and the approval may take up to products, all of which are equivalent and move them to a separate company. five years (Chaudhuri, 2005). See Chaudhury, 2005 for a discussion on 5 Information collected from and company 6 All Rs-to-US$ conversions used in this R&D of the pharma industry of India. profiles on www.pharmabiz.com. paper are at the rate of US$1 = Rs 48.

TECH MONITOR z Jul-Aug 2009 49 Intellectual Property Rights to internationally available brands, increased from Rs 307.3 million (US$ in Gujarat engaged in R&D, are recog- has scaled up 25 active pharmaceu- 6.4 million) in 1998-99 to Rs. 2,943 nized by the Department of Science tical ingredients (APIs), developed million (US$61.3 million) in 2006-07. and Technology. Its ethambutol and and filed more than 30 ANDAs for the Zydus’ R&D focus is currently on fluoxetine manufacturing facilities have United States and about 10 DMFs for new molecular entities, novel drug obtained approval from FDA and col- the United States/Europe. The com- delivery systems, therapeutic proteins laborates with more than 30 leading pany’s exports have increased from and vaccines by r-DNA technology, as R&D centres in India. Cadila got Rs 1,135 million in 2000-01 to Rs well as identification and validation patents granted for its Lactobacillus 2,751 million in 2004-05. Its formula- of therapeutic targets. Research on + antibiotic combinations in Eurasia, tion site in Gujarat has received the new drugs for metabolic disorders the United States, United Kingdom, approval of FDA, MHRA, South Africa’s such as diabetes, dyslipidemia, in- Kenya, Sri Lanka and India, as well as by the African Regional Intellectual Medicines Control Council (MCC), flammation, obesity and pain is in Property Organization. Novel drug Brazilian National Health Surveillan- progress. Zydus’ manufacturing facili- delivery systems under development ce Agency (Anvisa) and Colombian ties have been approved by the FDA. National Institute for Drug and Food include sustained release formula- Zydus began its acquisition spree Surveillance (INVIMA). tions, pelletization technology, osmo- in 1995 when it bought Indo Pharma tically releasing oral system, micro Besides this, another important Pharmaceuticals Works. By acquiring IP strategy adopted by the pharma particulate drug delivery systems, as Recon Healthcare, it gained a foot- well as chewing gum and transdermal majors is to acquire production plants hold in the South Indian markets. The and brands abroad in order to ease patches as drug delivery systems. acquisition of Germen Remedies and their entry in the regulated markets. Alembic Ltd., which completed its Aten gave leadership to Zydus in fe- By acquiring 75 per cent of the equity centenary in 2007, has developed male healthcare and cardiovascular in United States-based Caraco Phar- several APIs meant for the regulated segment, respectively. Its entry into maceutical Laboratories, Sun has markets. This led to the filing of six European generics market was facili- created a significant presence in the DMFs during 2006-07. It has filed tated with the acquisition of Alpharma United States generics market. It has applications for 161 patents for APIs France. Similarly, acquiring Nippon also puchased a plant in Ohio, the and intermediates so far. Alembics’ Universal Pharmaceutical strength- United States, the business of ICN, R&D, as percentage of its sales turn- ened its base in Japan. Hungary, from Valeant Pharma, and over, increased from 3.47 per cent in the assets and IP rights of Able Labs With a four-pronged research pro- 2002-03 to 5 per cent in 2006-07. from the United States District Bank- gramme Dishman Pharmaceuticals Torrent pharmaceuticals has ruptcy Court in New Jersey in 2005. and Chemicals is into contract re- about seven research or innovation- Its latest acquisition of Taro Pharma- search and process improvement of oriented projects in the pipeline. It ceutical Industries in Israel, is in the contract manufactured molecules, has filed 219 patents for NCEs in all process. Besides the acquisitions pilot studies of new molecules for the major markets worldwide and abroad, Sun has also bagged a few clients, process optimization and im- has been granted 123 so far. Torrent Indian companies such as MJ Phar- provement, and research for in-house has also widened its base by ac- maceuticals, Gujarat Lyka Organics, applications. The process chemistry quiring a Brazilian company in 2002, Tamil Nadu Dadha Pharmaceuticals, wing of Dishman has grown from two Heumann Pharma GmbH in Germany Pradeep Drug Company and Milmet active pharmaceutical ingredients and entered into an in-licensing deal Labs, and also brands from Natco (APIs) developed in 1995 to a port- with Tasly of China to market its car- Pharma. Altogether, Sun holds 3.3 folio of 150 APIs. On an average, 25 diotonic pill in India. APIs are developed every year, in- per cent of the market share in India. This brief R&D profile of a few of cluding for projects for DMF filing. The R&D expenditure of Zydus the pharma majors in Gujarat presents Dishman’s R&D outlay has grown Cadila Healthcare, as a percentage the scenario since 2005. Although from Rs 12.8 million (US$ 267,000) of its sales turnover, has increased new product development features on in 2001-02 to Rs 99.1 million (US$ from 3.72 per cent in 2002-03 to 10.39 the agenda of all these companies, per cent in 2006-07. The company has 2.06 million) in 2006-07 – from 1.42 their focus is also on capturing the filed 26 ANDAs and 11 DMFs with the per cent of its sales turnover to 3.50 generic export market, particularly in FDA during 2006-07, taking the total per cent. Its exports went up from Rs the regulated markets. Hence, it is filings to 55 DMFs and 60 ANDAs (of 932.1 million (US$19.42 million) to found that most of the companies which 23 have been approved) as on Rs 1,915.5 million (US$39.91 million) mentioned here have: (a) their manu- March 2007. So far, more than 225 in the same period. Dishman has facturing facilities approved by the patents have been filed in the United also made overseas acquisitions of FDA or MHRA; (b) filed applications States, European Union and some Chemconserve BV in the Netherlands, for ANDA or DMF; (c) filed for patents, emerging markets. Additionally, 15 and IO3S and Carbogen Amcis in many of which have been granted; and dossiers were submitted for new pro- Switzerland. (d) acquired other pharma compa- ducts in the French market, taking the The facilities of Cadila Pharmaceu- nies in India and abroad to increase total to 23. The company’s exports ticals, another pharmaceutical major their market presence.

50 TECH MONITOR z Jul-Aug 2009 Intellectual Property Rights

Biopharmaceuticals steps in a cumulative innovation pro- Pradesh, Karnataka and, to a certain The biotech market in India is shared cess. Thus, the anti-commons theory extent, Maharashtra, more biophar- by organizations in healthcare, agri- builds on the framework that if a pro- maceutical companies are found in biotech, industrial and environmental duct has to be derived from two pro- Gujarat. One of the reasons for the biotech, contract research, nutraceu- ducts A and B, which are covered by focus on biogenerics is that, unlike ticals, and marine biotech. Around individual patents, each company will their western counterparts, the Indian 300 dedicated as well as diversified charge a monopoly price to allow the companies do not have huge finan- companies are engaged in the pro- exploitation of the patent. Hence, the cial resources for new product devel- duction of biopharmaceuticals. While derived product would be charged opment. They are also not adequately the major biopharma market share exorbitantly to reflect on the monopoly backed by a mature venture capital lies in the vaccines and diagnostic kits price that is paid. However, if either A financing mechanism. Hence, like segment, the recombinant market is or B refuses exploitation of the pat- the pharmaceutical companies, the also growing where the IP issues are ent, then the derived product would biopharma companies are adopting more complicated (Lalitha, undated). not be produced at all (Burk and a strategy to focus on biogenerics, Unlike the pharmaceuticals, which Lemley, 2003). develop market presence and then grew significantly with the stimulus Although empirical data that quan- enter the area of new product dev- provided by the process patents of tifies the negative effects of patents elopment. Therefore, it is essential the 1970s, the biopharma sector on the supply and cost of molecular for companies to study the patent faces stiff challenges on IP rights. genetic testing in the United States landscape thoroughly before they This is because, genetic patents by and elsewhere is limited, evidence decide on their niche area. and large cover (OECD, 2002): has proved that where providers have Dr. Villoo Patell, Founder & CMD z Genes or partial DNA sequences discontinued or have been prevented of Avesthagen Limited, follows an IP such as cDNAs, SNPs, ESTs pro- from providing genetic testing for in- rights strategy for her company that moters and enhancers; herited breast and ovarian cancer, it is apt for other biopharma compa- z Proteins encoded by these genes has led to severe neurodegenerative nies in India as well. As Rao (2008) and their functions in the organ- disorders like Duchenne muscular describes it: dystrophy, a potentially lethal cardiac ism; The IP team is involved at every stage syndrome and a host of not so com- z Vectors used in the transfer of of the research and development monly discussed conditions (Klein, genes from one organism to an- process to enable the development 2007). Also, as many as 30 per cent other; of truly novel technologies for global of laboratories have discontinued or z Genetically modified (GM) organ- markets and ensures that the R&D not developed genetic testing for isms, cells, plants and animals; activities conducted in these business haemochromatosis because of exclu- z Processes used for making GM units are fully protected by means of sive licensing of patents that assert products; and patents. z Uses of genetic sequences or rights over the most common muta- proteins, which include specific tions in the gene involved (quoted by “By means of competitive IP intelli- tests for specific genetic dis- Thomas and others, 2002). Thus, gence, we assess the technology and eases or predisposition to such enforcement of gene patents has the patent landscape associated with the diseases, drugs developed on the effect of reducing innovations in assay current and future products/technol- knowledge of proteins and their development and limiting the num- ogies. The knowledge of this relevant biological activity, and industrial ber of test providers. This increases patent landscape provides a sustain- applications of protein functions. costs of healthcare and reduces or able competitive advantage for dev- eliminates patients’ opportunities to eloping and executing core business Hence, a single DNA that is used send specimens to alternate labora- strategies,” said Dr. Villoo. Hence, by in all of the above-mentioned would tories to confirm the accuracy of test studying the patent landscape Aves- qualify for separate patents, and thus results. thagen avoids the pitfalls of forging possibly come in the way of wider dis- Following Article 27.3b of the into a heavily patented area, if it semination of knowledge, leading to chooses to work in a competitive the sub-optimal utilization of a useful Trade-Related Intellectual Property Rights (TRIPS) agreement, India al- arena. In addition, the patent litera- innovation resulting in a situation of ture available provides insight into 7 lows patenting of micro-organisms. ‘anti-commons’. The problem of anti- the priorities and strategies of com- commons can occur horizontally or However, majority of the companies in India are engaged in the produc- petitors, and point to potential ac- vertically: horizontally, if the patent quirers, licensors of technology and covers different constituents that have tion of vaccines, diagnostic kits and recombinant DNA (rDNA) products gaining an insight into the scientific to be integrated into a product; and trends and developments. vertically, if the patent covers different where there are no patents. These rDNA products are in the therapeu- After having established a compe- 7 “Anti-commons” is a scarce resource, tical areas like cancer, diabetics and titive IP landscape, the next step is which is underused because too many growth stimulating factors. While dedi- to develop an IP roadmap – a step- ownerships block wider use. cated start-ups are more in Andhra by-step plan that outlines the finer

TECH MONITOR z Jul-Aug 2009 51 Intellectual Property Rights details of the IP strategy and directs communities to the conservation and might feel that by parting with their decisions about IP investment. The sustainable utilization of biological knowledge, the efficacy of the treat- map points to inventors to the areas resources through traditional knowl- ment is lost. Hence, convincing the where they should innovate and the edge, practices and innovations and traditional practitioners to part with legal team to what is patentable. The provides for equitable sharing of ben- such knowledge will be an ordeal for main step-by-step patenting process efits with such people arising from BMCs. Hence, they may have to pro- in Avesthagen includes conception, the utilization of their knowledge, vide appropriate incentives to make primary documentation, capture, initial practices and innovations need to be the practitioners to part with their review, formal documentation, formal recognized and protected.” To this knowledge. NBA has already prepared review, legal documentation, and pat- end, while the National Biodiversity a sample methodology for the pre- ent prosecution by a team specially Authority (NBA) of India will assess paration of PBR and which is open constituted for the purpose. External applications from the foreign appli- for comments from the public. The support comes in the shape of law cants for the access to the biological task does not end with collecting firms who handle the patent applica- resources of the country, prior inti- such information, as its value will tion on behalf of the company. mation to the State Biodiversity Board become more precious only after its “Inventors are intimately involved with (SBB) regarding the access to bio- validation and appropriate digitiza- the fine details of the technical steps logical resources by Indian citizens tion. Such collected information, once leading to their invention and hence, is required. Almost all the states have validated, becomes the IP database they often find it difficult to discern set up SBBs (NBA, 2007). The other of the region and anybody working in between their inventions and prior art. important agencies that possess in- that region or using the biological The patent team in Avesthagen clears formation about local knowledge and resource will have to first consult this hurdle by scrutinizing their labo- innovations are the Biodiversity Man- PBR and make a reference to the ratory books every week and then agement Committees (BMCs), to be same. Once compiled, the PBR could targets areas of potential interest,” set up at the local government level. be made available to the patent of- said Dr. Villoo. BMCs are expected to collect all in- fices. PBR must contain the source of formation about the time and location knowledge and biological resources Presently, the concentration of the specific availability of biological re- so that any commercial benefits biopharma companies is on the do- sources, traditional medical practi- arising by the use of this information mestic market and the unregulated tioners, their practices, requirement would result in appropriate benefit markets. The regulated markets are and use of local biological resources sharing. To do this, the information not fully open for the biogenerics from by organizing the People’s Biodiver- collected has to be translated in India or elsewhere. This is because sity Register (PBR). Karnataka and various languages for ready acces- the biopharma lobby, particularly in Andhra Pradesh, where the SBBs are sibility and also be updated from time the United States, is not interested in functioning, have established BMCs to time. allowing generic competition in this and organized PBR. In many other An appropriately documented PBR sector. Further, unlike the pharma- states, however, SBBs are yet to start will prove to be a valuable document ceuticals, equivalence between the their operations and therefore, BMCs about the availability of biological original and biogeneric products can- have not been established. resources at different points of time. not be established based on chemi- They will also direct the institutions cal and biophysical characters alone. A detailed PBR would prevent bio- as to where the conservation efforts Product properties such as impurity piracy (Lalitha, 2008). The preparation should be taken up for the sustained profile, folding, etc. varies with the of PBR, however, is a Herculean task, use of the resources. As far as the processes applied, and thus they too as it needs to have detailed informa- traditional practices are concerned, would differentiate the product char- tion about all the biological diversity it would be helpful in two ways. First, acteristics. The guidelines will have to of the village/region. Recording data if the traditional knowledge is not evaluate carefully the pros and cons regarding the biological resources of preserved, many of the herbs and of the different processes used to a region is a multi-disciplinary task medicinal plants would be treated arrive at the product and its thera- and the individuals engaged in this as weeds and their purposes will peutic efficacy. Therefore, companies task will have to undergo training. remain unknown. Secondly, since the proposing to produce biogenerics will Furthermore, recording information PBR will also validate the medicinal have to study the patent landscape about the traditional knowledge, on practices, those herbs and medicinal in detail before plunging in to this medicinal practices, for instance, plants that are not validated or are area – which appears to be the pre- would be difficult because people based on superstitions may be weed- sent strategy of Indian companies. should first be convinced about the purpose of PBR to be able to part with ed out. Thus, a PBR constitutes an Traditional medicine their knowledge. Most traditional prac- important source of knowledge trans- titioners do not use their medicinal fer as well. As far as traditional knowledge is con- practice to make a living but treat it In view of the earlier patent battles cerned, the Biodiversity Act states: as a service for the society. There on neem and turmeric, the Govern- “Contributions of local and indigenous could also be some practitioners who ment of India’s Department of AYUSH

52 TECH MONITOR z Jul-Aug 2009 Intellectual Property Rights is preparing a Traditional Knowledge The requirement to disclose the 2. CMIE (Centre for Monitoring Digital Library, which transcribes the place of origin has been incorporated Indian Economy Pvt. Ltd.) (2008). codified texts of Ayurveda and Siddha in the amendment made in 2005 to Foreign Trade and Balance of into five languages, including English, the Patent Act. As per this amend- Payments: 2008. CMIE, Mumbai, German as well as French. Such tran- ment, the patent applications will have India. scribed materials are being made to clearly state the origin of the biolo- 3. Chaudhuri, Sudip (2005). The WTO available to different patent offices gical resources and the associated and India’s Pharmaceuticals In- for consulting before granting any IP traditional knowledge. Failing which, dustry-Patent Protection, TRIPS, rights concerning traditional medici- the patent will not be granted and a and Developing Countries. Oxford nal knowledge and practices. patent granted can also be revoked University Press, Delhi, India. The PBR is an urgent need, as a if it is found that the origin mentioned 4. Chaudhuri, Sudip (2007). Is Pro- precise assessment of the number of is wrong. duct Patent Protection Necessary traditional practitioners is not avail- for in Developing Countries for able. At present, each state gives an Conclusion Innovation? R&D by Indian Phar- estimate only about registered Indian This article attempted to highlight the maceutical Companies after System of Medicine Practitioners, and IP strategies of the modern pharma- TRIPS. Working Paper Series, there is no system that counts those ceutical sector in India engaged in 614, Indian Institute of Manage- practitioners who are not registered the production of pharmaceuticals ment, Calcutta, India. or those with uncodified knowledge and biopharmaceuticals. In both the 5. Klein, Rojer. D. (2007). Gene passed on by generations. This un- cases, the companies adopt the stra- patents and genetic testing in the codified knowledge could range from tegy of focusing on the generics first United States. Nature Biotech- identification of medicinal plants to to gain a foothold and venture into the nology, Vol. 25, No. 9, 989-990. extraction of snake venom by the development of new products. Owing 6. Lalitha, N (undated). Biophar- snake catchers. to the uncertainty in drugs develop- maceuticals in India: Issues and Once the traditional knowledge is ment and resource limitation, however, Prospects for Growth. Report to adequately protected, the next issue is the pharmaceuticals companies are the Indian Council for Social the sharing of benefits arising out of increasing their R&D to gain market Science Research, New Delhi, its commercialization. A certain per- presence in the regulated markets. India. Under preparation. centage can be fixed on the sales In the biopharmaceuticals sector, the 7. Lalitha, N (2008). Intellectual turnover of the innovation that has patent issues are more complicated Property Rights for Traditional used the local biological resources than in the pharmaceutical sector, Medicines in India. Gujarat Insti- for foreign nationals and the citizens where again the focus is on generics tute of Development Research, of India. Such royalties are presently that have no patent issues. Ahmedabad, India. Mimeo. remitted to the National Biodiversity Thus, the IP strategies of the 8. Mulchandani, Anil (2007). Gujarat Fund, which will distribute them to Indian pharma sector since 2005 Pharma Industry: 100 Years of 8 the identified benefit claimants . If an continue to concentrate on generics Growth and Excellence 1907- innovation has used only one biologi- with a focus on regulated markets. 2007. Pharmaceutical Industry of cal resource of a region, it would be As far as the traditional medicinal Gujarat, Ahmedabad, India. easy to identify the claimants to share sector is concerned, preparation of 9. NBA (National Biodiversity Autho- the benefits. However, in case the a PBR will help to assess accurately rity) (2007). Biological Diversity innovation has used more than one the traditional knowledge that is to be Act, 2002 and Biological Diversity resource, and these resources are protected, and also decide on the Rules 2004. NBA, Chennai. from different places in India (which strategies for benefit sharing. This 10.OECD (Organisation for Econo- is normally the case with traditional is a multi-disciplinary task that calls medicines that employ a number of mic Cooperation and Develop- for public-private partnership. As an ment) (2002). Genetic Inventions, resources to arrive at a drug), then a initial step, the Indian Government different methodology will have to be Intellectual Property Rights and has already incorporated the manda- Licensing Practices – Evidence worked out for benefits sharing. Here tory requirement to disclose the again, the PBR can help identify re- and Policies, Paris. p. 28. place of origin of the biological re- 11. Rao, Srinivas ( 2008). IP to market sources as well as those who con- sources in order to protect the IP serve these in each region. place, Avesthagen shows the rights of those who hold traditional way. Biospectrum, Vol. 6, No. 2, knowledge in the region. 20-23. 8 NBA has defined the benefit claimer as 12.Thomas, Sandy, Michale M. the conservers of biological resources References and their by-products, creators and Hopkins and Mas Brady (2002). holders of knowledge and information 1. Burk, Den and Mark Lemley Shares in the human genome – relating to the use of such biological (2003). Policy levers in patent law. the future of patenting DNA. resources, innovations and practices Virgenia Law Review, Vol. 89, No. Nature Biotechnology, Vol. 20, associated with such use and application. 6, 1575-1696. No. 12, 1185-1188.ˆ

TECH MONITOR z Jul-Aug 2009 53 Tech Events

07-09 Oct POWER-GEN ASIA 2009 03-05 Nov ATCi 2009 – International Advanced Technology Bangkok Contact: PennWell Conferences & Exhibitions Kuala Lumpur Congress 2009 Thailand 1421 S. Sheridan Road, Tulsa Malaysia Contact: ATCi 2009 Secretariat Oklahoma 74112, United States of America Institute of Advanced Technology Tel: +1 (918) 835 3161 Universiti Putra Malaysia E-mail: [email protected] 43400 UPM Serdang Website: www.powergenasia.com Selangor, Malaysia Tel: +60 (3) 8946 6437; Fax: +60 (3) 8656 6061 07-10 Oct Manufacturing Technology World Series 2009 E-mail: [email protected] Pasay Contact: Global-Link Marketing and Management Website: www.itma.upm.edu.my/atci2009 Philippines Services Inc. Unit 1003, Antel 2000 Corporate Centre 03-07 Nov ENERGY SHOW 2009 121 Valero Street, Salcedo Village Shanghai Contact: Hannover Fairs China Ltd. Makati City, The Philippines China Rm. 301, B&Q Pudong Office Tower Tel: +63 (2) 750 8588; Fax: +63 (2) 750 8585 393 Yinxiao Road, Pudong E-mail: [email protected] Shanghai 201204, China Tel: +86 (21) 5045 6700; Fax: +86 (21) 5045 9355 07-10 Oct ENVIRO-TECH PHILIPPINES 2009 E-mail: [email protected] Pasay Contact: Global-Link Marketing and Management Website: www.energyasia.com.cn Philippines Services Inc. Unit 1003, Antel 2000 Corporate Centre 09-10 Nov International Conference on Solid Waste 121 Valero Street, Salcedo Village Khulna Management: Technical & Socio-economical Context Makati City, The Philippines Bangladesh Contact: Professor Dr. Muhammed Alamgir Tel: +63 (2) 750 8588; Fax: +63 (2) 750 8585 Geotechnical and Geoenvironmental Engineering E-mail: [email protected] Department of Civil Engineering Khulna University of Engineering & Technology (KUET) 09-11 Oct ENERGY EXPO INDIA 2009 Khulna, 9203, Bangladesh Ahmedabad Contact: Confederation of Indian Industry Tel: +880 (41) 769468 Ext. 211, 212 India 203-204, Sears Tower, Gulbai Tekra E-mail: [email protected] Nr. Panchvati, Ahmedabad 380 006, India Website: www.wastesafe.info Tel: +91 (79) 6521 5956; Fax: +91 (79) 2646 2878 E-mail: [email protected] 18-20 Nov Clean Energy Expo Asia 2009 Singapore Contact: Koelnmesse Pte. Ltd. 14-17 Oct Environment Technology Indonesia 2009 152 Beach Road, #25-05 Gateway East Jakarta Contact: PT. Pamerindo Buana Abadi Singapore 189721 Indonesia Deutsche Bank Building, 13th Floor Tel: +65 6500 6700; Fax: +65 6294 8403 Jl. Imam Bonjol No. 80, Jakarta 10310, Indonesia E-mail: [email protected] Tel: +62 (21) 316 2001; Fax: +62 (21) 316 1981 Website: www.cleanenergyexpoasia.com E-mail: [email protected] 01-04 Dec ENVIRO ASIA 2009 23-25 Oct EXPO PAKISTAN 2009 Singapore Contact: Conference & Exhibitions Management Karachi Contact: Pegasus Consultancy (Pvt.) Ltd. Services Pte. Ltd. Pakistan 2nd Floor, Business Centre Mumtaz Hassan Road 1 Maritime Square, #09-43 Harbour Front Centre Karachi, 74000, Pakistan Singapore 099253 Tel: +92 (21) 111 734 266; Fax: +92 (21) 241 0723 Tel: +65 6278 8666; Fax: +65 6278 4077 E-mail: [email protected] E-mail: [email protected] 26-27 Oct International Conference on Engineering, Website: www.enviro-asia.com Manado Environment, Economics, Safety and 07-08 Dec The International Conference on Energy and Indonesia Health 2009 (CONVEEESH’09) Malacca Environment 2009 (ICEE2009) Contact: Aristotulus Tungka Malaysia Contact: Prof. Ir. Dr. Abd. Halim Shamsuddin IAI, Department of Architecture ICEE2009 Technical Programme Committee Chairman University Sam Ratulangi, Manado Universiti Tenaga Nasional North Sulawesi, Indonesia KM7, Jalan Kajang-Puchong, 43009 Kajang E-mail: [email protected] Selangor, Malaysia Website: http://main.conveeesh.com Tel: +60 (3) 8928 6370; Fax: +60 (3) 8921 2116 26-27 Oct CARBON FORUM ASIA 2009 E-mail: [email protected] Singapore Contact: Koelnmesse Pte. Ltd. Website: icee2009.uniten.edu.my/conference/ 152 Beach Road, #25-05 Gateway East index.php/ICEE/ICEE2009 Singapore 189721 07-08 Dec Environmental Science and Technology Tel: +65 6500 6700; Fax: +65 6294 8403 Kuala Conference 2009 (ESTEC ’09) E-mail: [email protected] Terengganu Contact: ESTEC’09 Secretariat Website: http://www.carbonforumasia.com Malaysia Department of Engineering Science, 28-31 Oct ECO EXPO ASIA 2009 Faculty of Science and Technology, Hong Kong Contact: Hong Kong Trade Development Council Universiti Malaysia Terengganu, 21030, China 38th Floor, Office Tower, Convention Plaza Kuala Terengganu, Terengganu, Malaysia 1 Harbour Road, Wanchai, Hong Kong E-mail: [email protected] Tel: +852 1830 668; Fax: +852 2824 0249 Website: www.umt.edu.my/ESTEC2009/ E-mail: [email protected] index.html Website: ecoexpoasia.hktdc.com 14-17 Dec ENERGY TECH INDIA 2009 02-06 Nov ACP - Asia Communications and Photonics New Delhi Contact: Mr. N.K Sehgal, General Manager Shanghai Conference and Exhibition 2009 India India Trade Promotion Organization China Contact: International Society for Optical Engineering Pragati Bhawan, Pragati Maidan P.O. Box 10, 1000 20th Street, Bellingham New Delhi, 110 001, India WA 98225-6705, United States of America Tel: +91 (11) 2337 1868; Fax: +91 (11) 2337 8901 Tel: +1 (360) 676 3290; Fax: +1 (360) 647 1445 E-mail: [email protected] E-mail: [email protected] Website: www.energytechindia.com

54 TECH MONITOR z Jul-Aug 2009 Tech Ventures & Opportunities

Business Coach Tech Opportunities

Start-up Venture Creation Technology Offers 67 z Role of incubators: z Polyester technology (China) Benefits of starting from an incubator 56 z i+MED Laboratories: z Regression test tool and A value chain link in bio-business 57 interaction analyser (Hungary)

Technology Transfer z Chocolate conche (India) z Negotiating agreements: z Adhesives for woodworking, paper Factors in technology transfer deals 58 and packaging (India) z Technology transfer: Definition of arrangements 59 z Low-cost solar cooker (Japan)

Venture Financing z Optical character recognition software z Funding a business: (Republic of Korea) Sources of finance for SMEs 61 z Honey evaporator (Thailand) z Venture capital fund for SMEs: Facilitating Thai business competitiveness 62 Marketing Technology Requests 69 z Brand valuation models: z Lime calcination technology (Germany) Oriented towards business finance 63 z Hitachi brand strategy: z Bio-coal technology (India) Standing out in the crowd 64 z SAP rollout, development, support Green Productivity and services (India) z GHG emissions verification: z Manufacturing of lime (India) Sustainable business development approach 65 z Cleaner production: z Manufacture of Sodium hydrosulphite Successful industrial models 66 (Pakistan)

Web-based Technology Resources of A P C T T

Technology Opportunities Business Information Innovation Systems www.technology4.sme.net www.businesss-asia.net www.nis.apcct.org

Biotechnology Network Traditional Medicine Latest Innovations & www.binasia.net Network News www.apctt-tm.net www.apctt.org

TECH MONITOR z Jul-Aug 2009 55 Business Coach Start-up Venture Creation Role of incubators Benefits of starting from an incubator http:/www.technopreneurdevelopment.net.my Technopreneur Development Division, Multimedia Development Corporation, Malaysia

Incubators represent an ideal place to start a business. Malaysian incubators Incubators normally provide technopreneurs with reasona- In Malaysia, incubator ownership varies. The incubators ble rental rates and extend business-consulting services, are located at: networks and access to capital. 1. Cyberjaya – The MSC Central Incubator Benefits of starting a venture in an incubator 2. Teknology Park Malaysia At an incubator, there are many benefits that one could 3. Kulim Hi-tech Industrial Park usually enjoy. These include: 4. Johor Incubator Center 5. Cyberjaya – BT Multimedia z Office space at an affordable though temporary basis 6. Kuala Lumpur – Resource Centre Technology Park with expandable space on a flexible lease all under 7. Serdang – UPM-MTDC Technology Incubation Centre one roof; 8. UTM-MTDC z Common services, including secretarial support and 9. Bangi – Malaysian Bio Diagnostic Research shared use of office equipment and machinery; 10. UUM-MTDC – Advanced Electronic z Hands-on business counselling with regards to busi- 11. Kuala Lumpur – OptixLab ness planning, training in management skills, as well 12. Kuala Lumpur – YTL e-Solutions as access to specialized assistance such as R&D 13. Skudai – Bureau of Innovation and Consultancy support and venture capital; 14. Shah Alam – Small and Medium Industries Develop- z Networking activities among entrepreneurs inside the ment Department premises and beyond to the local community; 15. Penang – Usians Holding z Access to venture capital and seed funding; and Incubation period z After-care and outreach services, providing assist- ance to tenants after they graduate. An incubator is meant to nurture young enterprises to a level of maturity. The period of incubation varies, from 12 Features of technology incubation months to two years, depending on the enterprise and the A technology incubation programme is an innovative system speed at which the technology is to be commercialized. designed to assist entrepreneurs in the development of The key role of an incubator is to leverage entrepreneur- new technology-based firms, both start-ups and fledg- ship. The entrepreneur and enterprise should therefore, lings. It seeks to effectively link talent, technology, capital grow to a level of competency that allows the enterprise and know-how to leverage entrepreneurial talent in order to be established as a self-standing entity. to accelerate the development of new companies, and The lessons learned and the experience gained at the thus speed the commercialization of technology. incubator should equip a new venture with the confidence The special emphasis is on providing assistance directly and ability to establish itself outside the incubator. By that from the technology sector, relevant government depart- time, the entity will be ready to market its technology or ments and from the universities. Links directly to facilities product without external support.ˆ such as multimedia corridors and information super high- ways enhance the benefits to new technology-oriented Agri-Science Park@ICRISAT companies. The Agri-Science Park@ICRISAT is the flagship initiative of Inter- Internet incubator national Crops Research Institute for the Semi-Arid Tropics (ICRISAT), which is designed to be the “hub” for public-private Internet incubators have distinct differences from other partnerships that enhance the development and commercial- business or technology incubators. Many in the United ization of science-generated technologies and knowledge States are run by venture capitalists (VCs). Like traditional through market mechanisms to benefit the poorest of the poor. VCs, they provide financing for start-ups in exchange For more information, contact: for equity; but, unlike traditional VCs, they provide on-site ICRISAT, Patancheru 502 324, Andhra Pradesh, India guidance. Further, since they work at Internet speed, their Tel: +91 (40) 3071 3071; Fax: +91 (40) 3071 3074 start-ups develop quickly into sizeable companies. It is E-mail: [email protected] Website: www.agri-sciencepark.icrisat.org all about speed.

56 TECH MONITOR z Jul-Aug 2009 Start-up Venture Creation Business Coach i+MED Laboratories A value chain link in bio-business http://www.boi.go.th Board of Investment, Thailand

It all started when a couple of enterprising individuals immune system. It also helps determine whether or not a decided to apply for financial support from the Thai govern- patient needs to start anti-retroviral therapy. Usually, CD4+ ment’s SME Venture Capital Fund for an idea that they had counts are done by a machine called a flow cytometer, to establish a biotechnology company. They recognized which costs around 5 million baht (US$148,000) and must that there was a missing link in the value chain of the be run by a specialist. On top of that, each test costs about biotechnology industry in Thailand. While Thailand had 500 baht (US$15) and takes about three hours for results. played host to many research & development programmes With CD4SELECT, all that is needed is an automatic and had ample distribution of foreign-made products, the hematoanalyzer (in laymen’s terms, a standard complete country had little in the way of production and industrializa- blood count machine), along with basic software and a tion of biotechnology products. Mr. Komkrit Sajjaanantakul, simple training both provided for free to the hospital by i+MED’s Managing Director thus explains that i+MED was i+MED. Further setting it apart from the flow cytometer, is established “to position itself to complete the value chain that tests cost only 300 baht per person, results are ready of bio business in Thailand”. in under an hour, and it requires no special maintenance, With the acceptance of their application and 34.5 million transportation costs or new equipment purchases. baht (about US$1.02 million) in funding provided from the All of these products are manufactured at the company’s fund, i+MED Laboratories Co. Ltd. was born. In addition 600 square metre factory with GMP and ISO 13485 cer- to the SME fund, the company received an even greater tification on 12,800 square meters of land at the Eastern amount of funding from its founders and Thai individual Seaboard Industrial Estate in Rayong province. This large investors. plot leaves plenty of room for expansion in the future as In its six years of operations, i+MED has proven to many i+MED sets its sights on its goal of becoming “the leader that “biotechnology manufacturing” and “Thailand” need in bio-medical business in Southeast Asia by 2011”. not be incongruous. Part of the reason for its success can To do this, the company will need to build its brand name be credited to its unique mission statement: G.I.V.E., for and focus on innovation. Mr. Komkrit is the first to admit Good Governance, Innovation, Value to Customers and that i+MED and other Thai biotech firms cannot survive Excellent Operation. Another part of its success comes by trying to compete with India and China for low-cost, from its management’s decision to start its first phase of high-capacity generic production. operations off slowly by manufacturing simpler products first, such as rapid diagnostic tests, which include home “In Thailand, there are opportunities [in biotech],” says pregnancy tests and drug abuse tests. Mr. Komkrit “because here you have the freedom to create a product without the country’s image interfering.” Since Recently, i+MED entered a new phase of production with biotechnology manufacturing is rather new in Thailand, the rolling out of two new groundbreaking products, iLAB Mr. Komkrit believes that the country still has a neutral Alpha Thal IC Strip Test and CD4SELECT. Both of these reputation internationally, which gives companies the op- products represent the fruit of several years of networking portunity to find their own niche in the global market. with the Thai research community. The technologies, dev- eloped by Thai researchers, were transferred to i+Med As for the future of i+MED, Mr. Komkrit reveals that the by the National Centre for Genetic Engineering and Bio- company already has a new product in the pipeline. Looking technology (BIOTEC). beyond that, the company plans to move into immunology over the next 5 to 6 years and to potentially expand into The first of these products, iLAB Alpha Thal IC Strip Test, food diagnostics as well. Furthermore, they would like to is the world’s first strip test for screening for various types eventually begin upstream activities as well by producing of the blood disorder known as alpha Thalassemia. With their own reagents, which they presently import or pur- i+MED’s new strip test, the test can be carried out within chase from research labs within Thailand. three minutes and costs less than 180 baht per person. Earlier, the tests used to be time-consuming and costly Finally, for foreign investors looking to start up a biotech at about 2,000-3,000 baht (US$60-90). The CD4Select liquid company in Thailand, Mr. Komkrit recommends that they reagent is a simple-to-use, accurate as well as inexpen- consider joining up with Thai biotech companies, since sive method to count for CD4+ lymphocytes in the blood. local companies have more established links with local For people living with HIV, a CD4+ count is the way that research institutions and have a better understanding of doctors monitor how the infection is affecting a patient’s the local culture.ˆ

TECH MONITOR z Jul-Aug 2009 57 Business Coach Technology Transfer Negotiating agreements Factors in technology transfer deals http://www.wipo.int Small and Medium-Sized Enterprises Division World Intellectual Property Organization The sale and purchase of the exclusive rights to a patented party will also play a role (e.g. size, technological capacity, technology or of the permission to use a given technology etc.). On the whole, as a company develops and improves or know-how, takes place through legal relationships bet- its technological capacity, its ability to absorb new tech- ween the owner of the exclusive rights or the supplier of nology also increases, as does its negotiating power and the know-how, called the “transferor”, and the person or capacity to manage technology developed by others. As a legal entity which acquires those rights or that permission result, companies with the capacity to effectively integrate or receives that know-how, called the “transferee”. new technology developed by others may require less The nature of the relationship between the two parties assistance from the transferor to absorb the new tech- and the type of agreement that will result from a technology nology and learn how to use it properly. transfer negotiation will depend on a number of factors Technology transfer agreements may involve different including some of the following: players, including large multinationals, small enterprises, z The complexity and the level of development of the tech- public sector bodies, or any other entity or individual nology that is to be acquired; seeking to acquire or sell new technology or technological z The actual needs of the recipient; information. What is crucial is that both parties perceive the agreement as beneficial to their company and/or institu- z The technological capacity of the transferee and ability tion. Neither must feel that the other party has obtained a to use and/or adapt the technology being purchased; better deal and/or that the agreement is unfair. The secret z The relevance, availability and cost effectiveness of to the success of technology transfer agreements is that alternative technologies; each party perceives the other as a partner in a fruitful z The price to be paid (in cash or kind) by the recipient, collaborative process. z Other proposed terms and conditions for transfer, such as support offered during and after transfer in absorb- In many circumstances, strategic alliances between com- ing and adapting the new technology, or rights over panies may include a technology transfer agreement, and improvements or adaptations made by the recipient; are generally useful for allowing a business to meet its objectives, while maintaining the flexibility to adapt quickly z The negotiating power of both parties (which will, in to technological developments, as appropriate. Strategic turn, depend on variables such as size, technological alliances that are well constructed help partners pool ex- sector, demand for the technology, number of compe- pertise, enter new markets, share financial risks and get titors, etc.); products and services to market faster. Strategic alliances z The type of relationship envisaged between the two can be tricky. Partnerships foster mutual benefits, but the parties (e.g. long-term, short-term or one-off purchase alliances exist only as long as they are advantageous to of products/services.); both parties. Yet, in recent years, the concept of gaining a z Issues concerning product liability, indemnity, warranty, marketplace advantage by teaming up with another com- etc.; and pany whose products or services fit well with one’s own is z Whether technical support and training for use of new being adopted by an increasing number of businesses. technology and related equipment is required. In many situations, a strategic alliance may be a prelude Many of the above factors will influence the ability to nego- – a sort of a trial phase before committing – to a longer- tiate a mutually beneficial agreement by the two parties. term relationship of a joint venture or an eventual merger In many cases the external context (e.g. laws, competitive or acquisition. In each of these situations, however, both context, demand, etc.) will be crucial in determining the sides to safeguard their respective interests must ade- outcome of the negotiations. The characteristics of each quately address the intellectual property issues.ˆ

Asia-Pacific International Molecular Biology Network The Asia-Pacific International Molecular Biology Network brings together the leading minds and institutions in the region to work towards ensuring that the economies in the Asia and the Pacific Rim will find themselves always at the cutting edge of new developments in biotechnology, and not as by-standers. For more information, contact: IMBN Secretariat, Bio-MAX Institute, Seoul National University Seoul 151-742, Republic of Korea Tel: 82-2-872-8016; Fax: 82-2-882-6702; Website: www.a-imbn.org

58 TECH MONITOR z Jul-Aug 2009 Technology Transfer Business Coach Technology transfer Definition of arrangements http://www.ipophil.gov.ph Intellectual Property Office of the Philippines

Technology transfer registration Prohibited clauses (Section 87, IP Code) The signing of Republic Act 8293, otherwise known as 1. Those that impose upon the licensee the obligation the Intellectual Property (IP) Code, on 6 June 1997 liberal- to acquire from a specific source capital goods, inter- izes regulations on technology transfer registration (TTR), mediate products, raw materials and other technologies, particularly the rate of fees or royalties, and strengthens or of permanently employing personnel indicated by the intellectual property rights protection in the Philippines. licensor; The Code provides for voluntary licensing. Recordal with 2. Those pursuant to which the licensee reserves the the IP offices of agreements that involve transmission of right to fix the sale or resale prices of the products rights is necessary. However, registration is no longer re- manufactured on the basis of the licence; quired where the agreement conforms with the require- 3. Those that contain restrictions regarding the volume and ments of the law under Sections 87 and 88. structure of production; 4. Those that prohibit the use of competitive technologies Voluntary licensing in a non-exclusive technology transfer arrangement; Difference between TTR policies and Chapter IX of the IP 5. Those that establish full or partial purchase option in Code on voluntary licensing are given in the table below: favour of the licensor; Coverage of the law TTR policy (old law) Chapter IX of the IP Code on Voluntary Licensing Parties Only those between domestic All technology transfer arrangements companies and foreign or foreign- owned companies Subject matter Industrial property Intellectual property Registration requirements Mandatory Not required except in the following cases: 1. Requests for exemption from Sections 87 and 88 of the IP Code; 2. Recording of trademark licence arrangements with the IPO; and 3. Other legal purposes. Focus of evaluation Restrictive business processes, Anti-competition and trade royalty fees Policy on royalty Requires extensive evaluation of Liberalized fees, if beyond 5% of net sales Effects of non-registration Unenforceable on third parties Unenforceable (Sec. 92 of the IP Code)

Definition of technology transfer arrangement 6. Those that obligate the licensee to transfer for free to the licensor the inventions or improvements that may ‘Technology transfer arrangement’ refers to contracts or be obtained through the use of the licensed technology; agreements (and their renewals) involving the transfer of systematic knowledge for the manufacture of a product, 7. Those that require payment of royalties to the owners the application of a process, or rendering of a service of patents for patents which are not used; including management contracts; and the transfer, assign- 8. Those that prohibit the licensee to export the licensed ment or licensing of all forms of intellectual property rights, product, unless justified for protection of the legitimate including licensing of computer software, except computer interest of the licensor such as exports to countries software developed for mass market. Section 87 of the where exclusive licenses to manufacture and/or distri- IP Code covers the prohibited clauses which are adverse bute the licensed product(s) have already been granted; to competition and trade. 9. Those that restrict the use of the technology supplied

TECH MONITOR z Jul-Aug 2009 59 Business Coach Technology Transfer

after the expiration of the technology transfer arrange- On the other hand, Section 88 of the IP Code contains ment, except in cases of early termination of the provisions that need to be included in voluntary licence technology transfer arrangement owing to reason(s) agreement as follows: attributable to the licensee; 10.Those that require payments for patents and other Mandatory provisions (Section 88, IP Code) industrial property rights after their expiration or ter- 1. That the laws of the Philippines shall govern the interpre- mination of the technology transfer arrangement; tation of the agreement and in the event of litigation, 11. Those that require that the technology recipient shall the venue shall be the proper court in the place where not contest the validity of any of the patents of the tech- the licensee has its principal office; nology supplier; 2. Continued access to improvements in techniques and 12. Those that restrict the research and development acti- processes related to the technology shall be made vities of the licensee designed to absorb and adapt the available during the period of the technology transfer transferred technology to local conditions or to initiate arrangement; research and development programmes in connection 3. In the event the technology transfer arrangement shall with new products, processes or equipment; provide for arbitration, the Procedure of Arbitration of 13.Those that prevent the licensee from adapting the the Arbitration Law of the Philippines or the Arbitration imported technology to local conditions, or introducing Law of the United Nations Commission on Interna- innovation to it, as long as it does not impair the tional Trade Law (UNCITRAL) or the Rules of Conci- standards prescribed by the licensor; and liation and Arbitration of the International Chamber of 14. Those that exempt the licensor from liability for non- Commerce shall apply and the venue of arbitration fulfillment of his responsibilities under the technology shall be the Philippines or any neutral country; and transfer arrangement and/or liability arising from third 4. The Philippine taxes on all payments relating to the party suits brought about by the use of the licensed technology transfer arrangement shall be borne by the product or the licensed technology. licensor.ˆ

International Design Registration System

Member states moved on 24 September 2009 to simplify the international design registration system by suspending the earliest of the three Acts that govern the Hague Agreement concerning the International Deposit of Industrial Designs. This decision will streamline the administration of the Treaty, which offers the possibility to protect designs in several countries by filing one single application (in one language with one set of fees in one currency – Swiss francs). The Hague system also simplifies the subsequent management of industrial design rights. The decision was taken at an Extraordinary Meeting of the Contracting Parties to the 1934 (London) Act of the Hague Agreement on the sidelines of the WIPO Assemblies’ meetings from 22 September to 1 October 2009. The Hague Agreement concerning the International Deposit of Industrial Designs of November 1925 consists of three different Acts, namely the London Act of 1934, the Hague Act of 1960 and the Geneva Act of 1999. At a meeting this week, the 15 signatories of the obsolete 1934 London Act decided to freeze that Act from 1 January 2010. This decision will reduce the complexity of the system and will focus greater attention on the 1999 Geneva Act which enhances the existing system by making it more compatible with registration systems in countries where protection of industrial designs is contingent on examination to determine the acceptability of an application. The Geneva Act also introduces a modified fee system, the possibility of deferring publication of a design for up to 30 months and the ability to file samples of the design rather than photographs or other graphic reproductions. The latter features are of particular interest to the textile and fashion industries. Under this decision, as from 1 January 2010, no new designations under the 1934 (London) Act may be recorded in the International Design Register. Designations under that Act made before that date will not be affected. It was unanimously agreed that the next step would be to terminate the 1934 (London) Act. For further information, please contact: Media Relations Section World Intellectual Property Organization Tel: +41 (22) 338 8161 or 338 9547 Fax: +41 (22) 338 8280 E-mail: [email protected] Website: www.wipo.int

60 TECH MONITOR z Jul-Aug 2009 Venture Financing Business Coach Funding a business Sources of finance for SMEs http://www.smeinfo.com.my Small & Medium Industries Development Corporation, Malaysia

Successful small and medium enterprises (SMEs) require equipment, vehicles, industrial and manufacturing equip- support on all fronts, not least of all, financially. In many ment, as well as construction and heavy equipment. countries, governments have schemes for financing SMEs. There are two types of leasing facilities available: operating The private sector too has some private sector alternatives lease in which the ownership is held by the financial insti- for SMEs. In Malaysia, these include the following. tutions; and finance Lease in which though ownership is Banking institutions held by the financial institutions, the lessee has the option to purchase the asset at the end of the tenure. SMEs can approach commercial banks and Islamic banks Leasing offers some benefits to SMEs such as: for funding, depending on their needs. z Facilitates management of funds, as leasing instal- Conventional as well as Islamic financing products are ments amount is pre-determined; available for a wide range of needs. These would cover: z For an operating lease, maintenance cost is borne items like term loans, industrial hire-purchase for asset by the lessor (financial institution); and acquisitions or business expansions, and leasing; over- z Instalments paid for lease are eligible for full tax relief. drafts, revolving credit facilities and factoring for working capital; letters of credit (LC), trust receipts, banker’s Factoring acceptance (BA) and Export Credit Refinancing (ECR) for SMEs can also choose to pledge their future income in trade financing; and bank guarantee as well as shipping order to obtain working capital. Factoring companies guarantee facilities. specialise in buying debt owed to a business, or account receivables, at a discounted price. If this happens, the Development financial institutions factoring company will take over collection of the debt, Aside from commercial banks and Islamic banks, there while the company selling the debt receives money for are government-backed development financial institutions the debt earlier and up front. (DFIs), which can provide SME financing. Venture capital companies The government-backed DFIs (governed by the Develop- ment Financial Institutions Act 2002) are: SMEs in need of capital injections might also look to venture capital companies. Venture capitalists willing to z Bank Perusahaan Kecil & Sederhana Malaysia Berhad take a stake in a business will provide capital, usually in (SME Bank) exchange for a minority stake in the company concerned. z Bank Pembangunan Malaysia Berhad Businesses with expansion and the potential for and z Export-Import Bank of Malaysia Berhad eventual listing on the stock exchange are favoured tar- z Bank Kerjasama Rakyat Malaysia Berhad gets of venture capitalists. The money is often provided for z Bank Pertanian Malaysia long-term expansion projects undertaken by the company z Bank Simpanan Nasional concerned.ˆ Other DFIs are the following: z Malaysian Industrial Development Finance Berhad LIRNEasia z Credit Guarantee Corporation Malaysia Berhad (CGC) LIRNEasia is a regional information and communication tech- Leasing and factoring companies nology (ICT) policy and regulation think tank active across the Asia-Pacific. It aims to catalyse the transformation of ICT gov- Leasing ernance and regulation in the Asia-Pacific region from obstruc- SMEs in need of expensive machinery need not rely only tive, inhibiting regimes, into ones that will allow opportunities on hire-purchase arrangements as a means to financing for people to use ICTs in ways that will improve their lives. their business. They can also choose to lease equipment, For more information, contact: which would give them the use of equipment owned by a LIRNEasia leasing company, in return for regular lease payments over 12 Balcombe Place, Colombo 08, Sri Lanka a specific period of time. This allows SMEs the use of vital Tel: +94 (11) 267 1160, 493 9992; 497 9795 equipment without ever having to buy it. Fax: +94 (11) 267 5212 E-mail: [email protected]; Website: http://lirneasia.net Any moveable asset can be leased. This includes office

TECH MONITOR z Jul-Aug 2009 61 Business Coach Venture Financing Venture capital fund for SMEs Facilitating Thai business competitiveness http://cms.sme.go.th Office of Small and Medium Enterprises Promotion, Thailand

Rationale good corporate governance as well as professionalism. OSMEP may cooperate with other public and private Since Thailand recovered from the economic crisis, the agencies for related support. government has set new policies for economic development z OSMEP shall exit from a joint venture investment (JVI) and reforms, focusing on 2.2 million small and medium as the investment term ends or when SMEs business enterprises (SMEs) as new key driving forces for the over- becomes viable and stable. all growth of the economy. In response to the need of the SMEs, the government initiated an SMEs promotional policy Criteria for venture capital investment to ensure systematic and sustainable growth of SMEs. The conditions/criteria for venture capital investment are: One of the basic problems facing SMEs was difficult access to finance. In response to the problem, the Venture Capital Characteristics Fund for SMEs was set up as a financial tool for small SMEs qualified for venture capital funding must possess and growing enterprises. It has helped SMEs increase one of the following characteristics: their competitiveness mainly by providing equal access z Creativity/innovation/differentiation-based; to finance. Furthermore, the Fund has also been providing z Knowledge-based; support, assistance, and advice on many aspects of busi- z IP application/local wisdom-based; ness operation including marketing, management, and z Import substituting; and accounting standards to enable professionalism, trans- z Export-oriented. parency, accessibility and good corporate governance among the Thai SMEs. Target industries z Fashion & Design; Objectives z Information & Communication Technology; The venture capital fund for SMEs was set up to: z Food & Herbs; z Act as a source of fund for SMEs entrepreneurs with z Automotive; high business potential and for SMEs under some z Tourism & Spa; selected business categories according to the Stra- z Energy & Nanotechnology; and tegic Plan for SMEs Promotion (2002-2006); z Supporting industries for the above. z Encourage good corporate governance and transpa- Other criteria for venture capital application rency among SMEs entrepreneurs, especially small z The business must be categorized as SME under the companies; and definition set by the Ministry of Industry and registered z Support Thailand’s capital market, which helps streng- with the Ministry of Commerce as a ‘Co.Ltd.’ then the country’s macro financial system. z Following a JVI, 25-35 per cent of the registered capital shall be held by OSMEP Fund. Venture capital investment procedures z The period of a JVI may vary 1-7 years, depending on Venture capital investment procedures are as follows: the SMEs business status or other conditions. z The Office of Small and Medium Enterprises Promotion z OSMEP Fund shall buy shares of par value, book value, (OSMEP), joining with a public or private venture part- par value/book value plus premium, or other forms that ner, selects and classifies targeted SMEs. The Venture are deemed appropriate by the Committee. Capital Sub-committee and/or the Venture Capital Com- z Exit from a JVI shall take the following processes: mittee then respectively consider fund investment. ƒ SMEs must register the shares in security market, z A “due diligence” investigation will be conducted by in- either Market for Alternative Investment (mai) or the dependent financial consultants selected by OSMEP. Stock Exchange of Thailand (SET), and OSMEP Fund Then a Venture Capital Fund shall be invested in a form shall sell the shares in the market, respectively. of share purchase with qualified SMEs. ƒ If SMEs cannot register with mai/SET, OSMEP Fund z A mentor, consultant or expert will be provided to re- shall sell the shares back to the business owners at inforce the business performance in areas such as book value, market value or prices deemed appro- market management, manufacturing and accounting priate by the Venture Capital Committee. Otherwise, during the term of venture capital investment to ensure OSMEP Fund may sell shares to a new investor.ˆ

62 TECH MONITOR z Jul-Aug 2009 Marketing Business Coach Brand valuation models Oriented towards business finance http://chaturvedibraj.wordpress.com Braj Mohan Chaturvedi Consultant, Accenture, India

There are several finance-oriented brand valuation ap- Crimmins and Herp have proposed models based on price proaches such as capital market-oriented valuation, market premium. In price premium-oriented approaches, the brand value-oriented valuation, cost-oriented valuation, brand is seen as generating an additional benefit for the cus- valuation based on the concept of enterprise value, earning tomer, for which they are willing to pay a little more. Sander capacity-oriented brand valuation, license-based brand proposed “Hedonic brand valuation method”, which is valuation and customer-oriented brand valuation. based on hedonic price theory. It explains product prices The “market value-oriented brand valuation” approach is in terms of various product characteristics, or rather the the method in which, the value of a brand is established extent to which they are present. Crimmins points out three by referring to fair market prices of comparable brands. dimensions of brand value: actual amount, band breadth, “Capital market-oriented brand valuation model” was pio- and content of brand value. Herp builds upon the brand neered by Simon and Sullivan, who defined brand equity valuation model on conjoint measurement. In this model, as the present value of all future earnings attributable brand value is defined as the sum of all incremental solely to branding. Thus, from a financial markets per- revenues earned as a result of branding a company. spective, brand value can be calculated from a company’s Advertising support varies hugely from industry to industry. stock market capitalization or market value. But, this BBDO’s brand valuation model also considers the ad- valuation method can be useful only for stock exchange- vertising in brand valuation, which most of the other models listed companies as the model is based on the idea that do not consider and present a distorted picture. The the stock price of a company will perform to reflect the brand equity evaluation system is a multi-phase factor future potential, its brands provide. model of brand valuation, which takes into account the In the case of a single-brand company, brand value will differences between industries and solves the basic therefore consist of the company’s capitalized or realized problem of the advertising support. This model also takes market value. Brand value of a company can be calculated forward-looking variables to establish brand’s develop- by using simple formula: ment potential. The model identifies eight determinants of brand equity. Brand Value = (stock price x number of shares) – (tangible The constituents of brand environment – sales perform- assets + all remaining intangible assets) ance, net operating margin and development prospects If a company has more than one brand, the calculation is – are aggregated into a joint factor of brand quality. The done pro rata for each brand’s share of total revenues or new brand quality factor is channelled together with the profits. remaining four weighting factors (international orientation, Brand valuation can also be based on the idea of the net advertising support, brand’s strength within its industry, asset value approach that is frequently drawn upon in the image) to form an overall factor value. It is subsequently field of corporate valuation, which is called “cost-oriented used as a multiplier of earnings before taxes. The mone- brand valuation”. In net asset value approach, depending tary value of brand equity is the product of the average on the time perspective chosen, the assets may be pre-tax earnings in the last three years and this combined valued either at their historic cost or at replacement cost. the weighting factor. Brand valuation with the replacement cost method is done There are few other methods to calculate brand value like on the principle – what it would cost today to build up an “customer-oriented brand valuation model”, which is equivalent brand from scratch. Whereas historic cost based on customer contribution margins. “Kern’s x-times- assumes that brand is an asset based on resources that model”, which is based on earning capacity, establishes have been invested in it. Not only net asset value but the monetary value of a brand by capitalizing the value of enterprise value is also seen as a base to value brand potential earnings. License-based brand valuation pro- equity. It also involves the aggregation of marketing and posed by Consor is yet another model, which values a R&D expenditure relating to a brand. This method is used brand on the basis of the licence rates typical of the by Cadbury Schweppers for brand valuation. Historic cost industry and earned by comparable brands. The model method, involves the aggregation of marketing and R&D focuses on brand licensing, and the value calculated is expenditure relating to a brand. The problem is the isola- the sum of money, another company would be willing to tion of costs specific to the brand alone, which may require pay either to purchase the brand outright or to obtain a the capitalization of costs incurred decades ago. Sander, license for it.ˆ

TECH MONITOR z Jul-Aug 2009 63 Business Coach Marketing Hitachi brand strategy Standing out in the crowd http://www.hitachi.co.in Hitachi Limited, India

Hitachi confronts a crisis and is thoroughly imbued with Hitachi’s way of thinking so that everyone involved in the Hitachi brand can use In March 1999, Hitachi Limited, was confronting a grave the platform as a set of guidelines for how to think and crisis with severe financial deficits. To confront these difficult act in regards to the company. business conditions, management sought to move forward by uniting the Hitachi Group into a single-minded company, The “Hitachi Brand Platform” embodies the common spirit and strived to create a competitive edge by seeking how to of all Hitachi Group employees and functions as a message differentiate Hitachi from other companies. One important to its shareholders.The keywords “harmony”, “sincerity”, policy related to these efforts was the formation of a brand and “pioneering spirit” that express the founding objec- creation project, resulting in the establishment of a mes- tives of the company, together with all Hitachi employees sage, the “Hitachi Brand Platform”, which could be con- understanding and sharing the “Hitachi Brand Platform” sistently communicated by all Hitachi Group employees. inevitably results in the expression of a single, consistent message. The “Hitachi Brand Platform” was created not just for the customers of Hitachi; it was set up also to listen to the The development of a corporate statement started in the voice of the customers of Hitachi’s competitors, making desire to create a message that could encapsulate this them think, “So, that is what Hitachi is striving for”. At the brand platform in an easy to understand expression that same time, management and rank-and-file employees was straight to the point yet also powerful. Various view- were surveyed so that an image of “What would you like points were given consideration, with an emphasis placed to see Hitachi become?” could be thoroughly refined and, on the essence of the brand platform as being “an attitude as a result, the core identity of the Hitachi Group emerged. of continual innovation”, and an appeal was made to the It is an identity based on Hitachi’s DNA of “Trust” and employees to help decide upon a statement expressing “Technical Capability” built up over many years, and one this attitude. With the numerous suggestions that had that expresses the company’s commitment to being a been collected to review, the Management Council and catalyst for a changing society and continually challeng- Board of Directors deliberated until a corporate statement ing itself to discover new value and possibilities. was born that succinctly summed up the thoughts and feelings of Hitachi shareholders: “Inspire the Next”. Hitachi Brand Platform The phrase “Inspire the Next” refers to not only the spirit The clearly stated “Hitachi Brand Platform”, as based on infused into all Hitachi Group efforts, products and ser- the Hitachi Group’s core identity, consists of three main vices, but also expresses the moral and material value pillars of “brand vision”, “brand mission” and “brand value”, that the Hitachi Group provides throughout the world.ˆ

Access to Research for Development and Innovation The Access to Research for Development and Innovation (aRDi) programme is coordinated by the World Intellectual Property Organization together with its partners in the publishing industry with the aim to increase the availability of scientific and technical information in developing countries. By improving access to scholarly literature from diverse fields of science and technology, the aRDi programme seeks to: • Reinforce the capacity of developing countries to participate in the global knowledge economy; and • Support researchers in developing countries in creating and developing new solutions to technical challenges faced on a local and global level. Currently, 12 publishers provide access to over 50 journals for 107 developing countries through the aRDi programme. For more information, access: http://www.wipo.int/ardi/en/

64 TECH MONITOR z Jul-Aug 2009 Green Productivity Business Coach GHG emissions verification Sustainable business development approach http://www.bsigroup.co.in BSI Management Systems India Pvt. Ltd., India

Overview verified data is faithfully represented, contains no material mis-statements, is consistent and has been collected and The European Union (EU) Directive for mandatory green- analysed in a transparent and reliable manner. house gas (GHG) emissions reductions is part of a wider strategic and economic requirements regarding GHG Transparency management that affects organizations across the globe. Reporting externally verified GHG emissions data demon- BSI Management Systems India Pvt. Ltd. (BMSI) under- strates a commitment to environmental transparency and take GHG emission verification for baseline emissions, accountability. A GHG emission report may form part of a annual emissions and project-based emissions reduction public or corporate environmental or sustainability report for diverse regional initiatives. This includes cap and trade and be a step towards ‘green governance’. in Europe, reduction-based schemes in Asia and the latest Consistency international management system standard ISO 14064-1. Third party emissions verification will ensure that the data There has been a surge in demand for third party verifica- is consistent according to set protocols. BMSI, using a tion around the world due to organizations declaring their unique process developed by its experienced GHG verifi- GHG emissions. In Europe, this is because of the EU cation team, will ensure that the data is accurate for the Emissions Trading Scheme (EU ETS), which commenced purpose for which it is designated. in 2005. In Asia, voluntary schemes such as the emerging Reliability Taiwanese Bureau of Energy Scheme and Japanese Vol- BMSI ensures that its third party verifications will produce untary Emissions Trading pilot project are driving interest. reliable and faithful representation of all emissions data. Various states in the United States of America are drafting Through accreditation under the United Kingdom Accre- related legislation, with California leading the way and ditation Service scheme EN 45011, BMSI has achieved others grouping together into regions to establish their an important independent professional endorsement of own regulations. its verification process. Understanding GHG inventorying techniques, emissions Value addition verification and emissions trading is fundamental to any organization wishing to manage GHG. BMSI’s approach Third-party verification of GHG emissions provides signi- will help such organizations to identify opportunities for ficant value addition for the participating organizations. energy consumption savings and process improvement, Going through the verification process will assist an while demonstrating the objectively assessed measure- organization in: ments that key stakeholders are demanding. z Identifying opportunities for making savings in energy consumption; Benefits z Identifying opportunities for process improvement; There are a range of benefits associated with undertaking z Getting a greater understanding of how different de- third-party verification of GHG emissions: partments, functions and industrial processes interact; z Suggesting ways in which detrimental environmental Financial impacts can be minimized; Independent verification allows the organization to partici- z Enhancing the corporate image; pate in emissions trading schemes such as the EU ETS, z Improving stakeholder perception; and as well as joint implementation and clean development z Providing credible information to financial markets and mechanism projects that contribute to the achievement insurance companies.ˆ of emissions targets under the Kyoto protocol. Credibility Green Business League – Asia Third party verification provides a degree of credibility Green Business League – Asia is a network providing green when it comes to reporting and publishing environmental business training, and a chance to meet and socialize with information. This has implications for interested parties other green businesses. For more information, contact: such as employees, customers, brokers, shareholders Green Business League - Asia and insurance companies. Tel: +971503767281 Integrity E-mail: [email protected] Website: http://greenbusinessleagueasia.com Independent verification assures stakeholders that the

TECH MONITOR z Jul-Aug 2009 65 Business Coach Green Productivity Cleaner production Successful industrial models http://cpi.moit.gov.vn Cleaner Production in Industry, Viet Nam

In order to reduce environmental pollution and improve the the company to gather all hot water during the periodic effectiveness of the use of materials and fuels in industrial clean-in-place (CIP) process, recover carbon dioxide rapidly, production, since mid-2008, with assistance of the Cleaner gather the waste sodium hydroxide (NaOH) for use in clean- Production in Industry Component (a part of the Devel- ing bottles, reduce the amount of water that is used for opment Cooperation in Environment) programme between sterilization purposes, and minimize the break of bottles the governments of Vietnam and Denmark), the Phu Bai during the cleansing process. The company also applies Brewery of the Hue Brewery Limited and the Saigon- a special method to make use of all the steam that ap- Dak Lak Beer Joint Stock Company (SADABECO) has pears during the production process. A water meter system practiced cleaner production methods and achieved has been installed to measure the volume of water in use. encouraging initial results. Appropriate measures have been taken to restrict the The Phu Bai Brewery specializes in making bottled beer, adverse impact of chemicals on workers as well as to en- canned beer and draught beer with the designed capacity sure effective use of experimental equipment. The company to produce 80 million litres of beer each year, which will has invested D94 million (US$5,250) in applying cleaner be increased to 160 million litres this year and 290 million production methods and these methods allow the com- litres in the future. Aware that applying cleaner production pany to save nearly D71.18 million (US$3,990) each week. methods is an effective way to improve the quality of Thus, the company got back its investment capital after 9 days. The company also invested D97 million (US$5,430) products, reduce the production cost and enhance their in gathering NaOH for use to treat the smoke that comes brands’ competitiveness, the leadership of the Phu Bai from the boilers (2 cu.m each day). This method allows Brewery has established a team headed by its Director the company to save nearly D11.40 million (US$640) each to coordinate the application of cleaner production methods. week, and thus the company got back its investment During April-October 2008, under the Cleaner Production capital after 8½ months. project, many measures were taken to improve production Further, to reduce the consumption of water, the company at the Phu Bai Brewery. In December 2008, it was found has installed intermediate relays at the discharge valves that power consumption has been reduced from 7.9 kWh/ so that the valves will automatically close when the power hl to 7.3 kWh/hl, water consumption from 7.9 cu.m/hl to is off. This measure has helped the company save about 6.5 cu.m/hl, and the chemical oxygen demand (COD), D46,000 (US$2.60) each time when the power is off by which used to be below 2,000 mg/l has been reduced to reducing water consumption, steam losses and power below 1,650 mg/l. All the input materials are examined consumption. Investment in installing those intermediate carefully in terms of quality before use. Happy with such relays totalled only D100,000 (US$5.60). The company good initial results, the leadership of the Hue Brewery has a plan to invest D400 million (US$22,430) in 2009 to Limited and the Phu Bai Brewery is determined to inten- increase the fermentation capacity from 96 per cent to 98 sify the application of cleaner production methods in order per cent to save about D1 billion (US$56,070) each year. to reduce the loss of dry substance, the consumption of thermal energy and water as well as the use of chemicals The experience of SADABECO and Hue Brewery Limited in the bottle cleansing process. shows that cleaner production methods are very bene- ficial to businesses and help protect the environment.ˆ SADABECO is a subsidiary of the Saigon-Central Beer Company and holds a 30 per cent share of the beverage market in the Tay Nguyen (Central Highlands) region. ENERGIA – Network on gender and energy SADABECO is investing in increasing its production capa- ENERGIA is an international network on gender and sustainable city from 25 million litres to 70 million litres per year. The energy. It works from the contention that projects, programmes company is operating the ISO 9001:2000 and ISO 14001: and policies that explicitly address gender and energy issues 2004 integrated management systems. The leadership will result in better outcomes, in terms of energy sustainability of the company has learned and found that the application and development opportunities available to both genders. For of cleaner production methods will help minimize envi- more information, contact: ronmental pollution, use materials and fuels effectively, ENERGIA's Regional Network Coordinator for Asia reduce the production cost and improve the effectiveness E-159, Sector 21, Jalvaya Vihar, Noida, 201301, India of production activities. After careful research, the company Tel: +91 (120) 2532932 has decided to apply cleaner production methods at the E-mails: [email protected], [email protected] http://www.energia.org brewery and fermentation stages. These methods allow

66 TECH MONITOR z Jul-Aug 2009 Technology Offers

machine is a rotary type chocolate conche connected with C H I N A motor and having a jacket for circulating cold/hot water to control the product temperature during the process. The Polyester technology mix of ingredients is passed through a refiner to reduce particle size. This refined product is fed into VCS conches, A Chinese firm is offering various technologies related to which needs to run for 12 hours to develop cocoa aroma. polyester and polyethylene terephthalate (PET) materials, This machine is provided with exhaust to remove the un- with properties such as cationic dyeable, alkali-soluble, desirable volatile acidic components. The company invites water-soluble, anti-static, flame-resistant, antibacterial, proposals from interested entrepreneurs/business firms ultraviolet-resistant, etc. across the Asia-Pacific region for the technology. Areas of application Areas of application Chemicals and Textiles Food processing industry Transfer terms Environmental aspects Consultancy; Turnkey; and Research partnerships. Energy efficent Contact Transfer terms Polytex Chemical Engineering Co., No. 18 Wenchang Mid Road, Yangzhou city, Jiangsu, 225009 China. Tel: +86 Technical services; Equipment supply; and Turnkey. (514) 8785 9276; Fax: +86 (514) 8785 7559; E-mail: market Contact @polytex.cc. Varsha Engineering Company, Plot No. 08, Sathya Ragha- vendra Colony, Malkajigiri, Secunderabad, Andhra Pradesh, H U N G A R Y 500 047, India. Tel: +919396527204; E-mail: varshaengi Regression test tool and [email protected]. interaction analyser Adhesives for woodworking, A Hungarian firm is offering a special software termed paper and packaging regression test tool and static analyser. The technology involves a static impact analyser and regression testing An Indian firm is offering complete set of technologies tool, which can reveal influences deep inside the software for manufacturing of all kinds of water-based, eco-friendly being tested, and can find a number of static program adhesives for use in woodworking, paper and packaging errors, such as null pointer exceptions. It has a powerful industries. The technology package includes machinery capability to find faults resulting from unexpected influences sourcing, raw materials selection and formulation, etc. introduced during modifications. Identifying the appropriate Areas of application software modules to test is often a challenging task for Woodworking and furniture industries; Packaging indus- software developers. The firm is inviting proposals for glo- try; and Paper products industry. balizing this technology. Environmental aspects Area of application Cleaner production technologies Information technology Transfer terms Advantages This tool reduces software maintenance costs by 15 to 35 Consultancy; Joint venture; Technical services; Tech- per cent, and makes it simple to locate errors. It improves nology licensing; Equipment supply; and Turnkey. software quality significantly. Contact Transfer terms Mr. Lohia, Shop No. C17, Shastri Circle Shopping Centre, Joint venture Jodhpur, Rajasthan, 342003, India. Tel: +919414132409; E-mail: [email protected]. Contact Laser Consult Limited (Hungary), H-6701, PO Box 1191, J A P A N Szeged, Hungary. Tel: +36 (62) 562 782; Fax +36 (62) 562 783; E-mail: [email protected]. Low-cost solar cooker Solar Cooker Japan (SCJ) is an organization established I N D I A by members of several Japanese NGOs for promoting Chocolate conche solar cooking in Africa for reducing the dependance on wood-fuelled cooking which results in deforestation and An Indian firm manufactures Thouet type conches, with desertification. The newly developed inflatable solar cooker capacities ranging from VCS 500 kg to VCS 4000 kg. The is made of rubber. When the cooker is inflated with air,

TECH MONITOR z Jul-Aug 2009 67 Technology Offers light reflectors made of aluminium, with evaporated film alphabets. With its document analysis capability, Any Page stretched out on its concave orbicular surface. It provides can classify text, table and image blocks, and then convert high performance using low-cost light reflectors. It is also them into electronic files. portable when deflated. Such a solar cooker will be very Areas of application helpful in disater situations when facilities such as elec- tricity or liquified petroleum gas (LPG) are not avialable Information technology and Electronics. for food preparation. Transfer terms Areas of application Technology licensing Renewable energy; Rural technologies; Disaster man- Contact agement; and Food industry. Mr. Hyung-do Lee, President & CEO, Samsung Electro- Advantages Mechanics, 314 Maetan 3-dong, Paidal-ku, Suwon, Kyungki- do, 442-743 Republic of Korea. Tel: +82 (331) 210 5114; z Low-cost technology Fax: +82 (331) 210 6363. z High performance z Portable size and easy for transportation z Very helpful in post-disaster management situations. T H A I L A N D Transfer terms Honey evaporator Consultancy and Technology licensing A Thai firm offers technology for an evaporator for lowering Contact of moisture in the raw honey product. The evaporator is scrap-surface type, and operates at low temperatures and Mr. Toshikazu Mito, Solar Cooker Japan, c/o A- Rising Co. pressures. The machine consists of a feed tank, boiler, Limited, 2F KT-Buildings, 4-7-6 Ebisu, Shibuya-ku, Tokyo, evaporator, cooler, vacuum chamber and auxiliary pumps. Japan. E-mail: [email protected]. The company has developed the technology to pilot plant stage. Interested firms and entrepreneurs are requested R E P U B L I C O F K O R E A to contact the firm. Optical character recognition Areas of application Agro-industry; Food processing; and Fruit beverage making. software Transfer terms A company from the Republic of Korea offers the technology Consultancy; Equipment supply; and Turnkey. of optical character recognition (OCR) software. The OCR software called “Any Page” allows automated, optical input Contact of printed documents to computer. It can read documents SARAPEE, Chiang Mai, Thailand. Tel: +66 (53) 420468; of Korean and Chinese characters, as well as the English Fax: +66 (53) 420468; E-mail: [email protected].

Asia Innovation Initiative

The Asia Innovation Initiative (AII) is a pan-Asian annual meeting to discuss the key innovations that Asian corpo- rations and countries need to leverage or to engineer to sustain high growth rates. AII aims not only at strengthening business and policy linkages throughout the region but contributes also to the process of economic and business integration taking place in Asia. Its agenda encompasses contemporary drivers shaping the competitiveness of the region's corporate champions, from technological developments, business and marketing strategies, financial innovations to the social and political context in the region and the global environment. AII is a catalyst for innovative regional approaches to some of the technology and business challenges most relevant to the future of Asia, and for the emergence of new entrepreneurial ventures. It brings together the best and the brightest among the new entrepreneurs from the region and the established business leaders and investors - thus generating a propitious context for fostering future business developments. It also acts as a business incubator. For more information, contact: Asia Innovation Initiative Secretariat Office c/o FORMA Corporation Roppongi First Plaza 421, 1-9-39 Roppongi Minato-ku, Tokyo, 106-0032, Japan Tel: 81 (3) 5570 4359; Fax: 81 (3) 5570 6296 E-mail:[email protected] Website: www.aii21c.org

68 TECH MONITOR z Jul-Aug 2009 Technology Requests

Area of application G E R M A N Y Information technology Lime calcination technology Transfer terms A Germany-based firm, through its joint venture company Join venture and partnership in India, is seeking projects in the field of lime calcination Contact technology that will enable them to provide product such as limestone, hydrated lime and quick lime. The firm is Confederation of Indian Industry, 8-C, II Floor, Thiruvalluvar particularly focused in using energy-saving processes for Salai, Thiruvanmiyur, Chennai, 600 041, India. Tel: +91 (44) this technology. 4501 8999; E-mail: [email protected]. Areas of application Manufacturing of lime Agro-industry; Construction industry; Chemicals industry; An Indian firm is interested in technology for manufacturing Cosmetics industry; Sewage treatment; Leather industry; lime. It is seeking for a new technology, which is cost- food supplement; and glass production. effective and help reduce carbon emissions. The technol- Transfer terms ogy should be environment-friendly with scope for earning Consultancy; Turnkey plant; Technical services; Equipment carbon credits. supply; and Technology licensing. Area of application Contact Chemicals Innosat Projects Pvt. Ltd., Enterprise Plaza, 2nd Floor, 7&8 Transfer terms Cuttack-Puri Road, Bhubaneswar, Orissa, 751006, India. Tel: +91 (674) 257 3188, 257 0318, 257 5307; Fax: +91 (674) Consultancy 257 2355. Contact I N D I A Dehra Mineral Corporation, 21/57, EC Road, Dehradun, 248 001, India. Tel: +919927122466; E-mail: ag.nitin77@ Bio-coal technology gmail.com. An Indian firm is seeking advanced technologies for the P A K I S T A N manufacture of bio-coal, fuel made from agri wastes. Manufacture of Sodium Area of application Energy sector hydrosulphite Transfer terms A Pakistan-based firm is interested in the manufacture of sodium hydrosulphite, and is seeking technological Consultancy know-how and expertise. Contact Area of application Mr. Bhavesh, Digaciya Khadki, Hansot, Bahruch, 393030, Chemicals Gujarat, India. Tel: +919909101683; E-mail: hibhavesh [email protected]. Transfer terms SAP rollout, development, Consultancy and Turnkey Contact support and services Mr. Asif, 22 KM, Sheikhupura Road, Lahore, 54950, An Indian firm is seeking partners in SAP implementation, Pakistan. Tel: +92 (321) 848 2202; Fax: +92 (321) 797 rollout, development and support in industrial clusters. 0757; E-mail: [email protected].

Learning, INnovation and Knowledge Learning, INnovation and Knowledge (LINK) is a joint initiative of the United Nations University specialist training and research centre on science, technology and innovation policy studies (UNU-MERIT) and the United Nations Food and Agriculture Organization (FAO). Its focus is policy aspects of rural and agricultural innovation in developing countries. LINK is an internationally recognized source of expertise and information on the application of innovation systems ideas in agriculture and rural development. It aims to “link” policy research on innovation with policymakers and practitioners in national and international development organizations and to “link” together innovation researchers and practitioners in different regions. For more information, contact: LINK Secretariat 8-2-608/1/2, Karama Enclave, Banjara Hills, Road No 10, Hyderabad, 500 034, India Tel: +91 (40) 6610 8111; Fax: +91 (40) 2330 0844 E-mail: [email protected]; Website: www.innovationstudies.org

TECH MONITOR z Jul-Aug 2009 69 PUBLICATIONS from APCTT

PERIODICALS (Free access at www.techmonitor.net) ‰ Asia Pacific Tech Monitor (6 issues/year) (e-version) ‰ VATIS Update (6 issues/year)  Biotechnology (e-version)  Non-conventional Energy (e-version)  Food Processing (e-version)  Ozone Layer Protection # (e-version)  Waste Management (e-version)

Indian Rupees* US Dollars* BOOKS (India, Bhutan and Nepal)

‰ Managing Innovation for the New Economy: Training Manual, 2002 1,000.00 50.00 Volume 1: How to Guide & Quick reference materials Volume 2: Articles & Lectures ‰ Regional Capacity-building for the Adoption of ISO-14000 and 600.00 30.00 Transfer of Environmentally Sound Technology: Training Manual, 2000 ‰ Small Rural Industries in the Asia Pacific Region: Enhancement of 600.00 30.00 Competitiveness of Small Rural Industries in a Liberalized Economic Environment and the Impact of Poverty Alleviation, 2000 ‰ Technology Transfer and Technological Capacity-building in Asia and the Pacific  Volume 1: Big Countries and Developed Economies, 1999 600.00 30.00  Volume 2: ASEAN, NIEs, SAARC and the Islamic Republic 600.00 30.00 of Iran, 1999  Volume 3: Least Developed and Pacific Island Countries and 600.00 30.00 Economies in Transition, 1999  Volume 4: Emerging Issues in Regional Technological Capability- 600.00 30.00 building and Technology Transfer, 1999 ‰ Rural Industrialization as a Means of Poverty Alleviation: Report of 600.00 30.00 the Regional Seminar on the Enhancement of Partnerships among Governmental, Non-governmental and Private Sector Entities for the Promotion of Rural Industrialization for Poverty Alleviation, 1999 ‰ Institutional Development for Investment Promotion and Technology 500.00 25.00 Transfer, 1999 ‰ Ozone Depletion Substances Phase-out Technologies: Problems & 300.00 15.00 Issues on Technology Transfer, Absorption and Generation, 1998 ‰ Development and Utilization of S&T Indicators: Emerging Issues in 300.00 15.00 Developing Countries of the ESCAP Region, 1998 ‰ ODS Phase-out: A Guide for Industry, 1998 500.00 25.00 ‰ Proceedings of the Consultative Meeting on Technology Management 800.00 40.00 Education and Training for Developing Countries, 1997

Notes: Amount less than Rs 500 should be sent through a demand draft only. Otherwise, payment should be made by cheque/ demand draft/UNESCO coupon in favour of the Asian & Pacific Centre for Transfer of Technology, payable at New Delhi. # Print version supported by the Ozone Cell, Ministry of Environment & Forests, Government of India, for distribution to a select target group. * Amount to be sent to APCTT with the order for covering costs and handling charges.