<p>Innovation</p><p>Hard subject to talk about – seems difficult to pin down</p><p>Very Important! Innovation is commonly thought to be the most important source of competitive advantage</p><p>What is innovation? New product or process or service that adds monetizable value to firm or to the economy fresh thinking that creates value</p><p>Innovative versus innovation New product or process service that is or is not monetizable</p><p>Innovation versus invention</p><p>An innovation may not be turned into revenue by the source of the innovation Xerox PARC Universities</p><p>Where does innovation come from? Ignoring conventional wisdom Hungry people – rich are not innovative Recombinant innovation Idea and knowledge creation institutions Universities Research institutes Firms and R&D Dominance of US, Japan and Europe in Global R&D Increasing globalization of R&D and innovation China and India are very good at using Western knowledge Shift from vertically integrated innovation to open innovation</p><p>Incentives for innovation Intellectual Property Rights Risk taking institutions and culture</p><p>Strange features of knowledge</p><p>Knowledge is not like other economic factors/inputs - oil</p><p>Socially produced and used and it easily leaks out– spillovers, spinoffs, mobile knowledge workers, sharing IBM and computer science The more you have the more you can get - cumulative</p><p>Using it does not reduce its availability – expands its worth</p><p>Basis for creating new and improved versions of itself – innovation</p><p>Explosion of knowledge creating institutions and knowledge workers</p><p>WWII Government investment in knowledge</p><p>1964-65 Explosion of college/university enrollment</p><p>Growth of R&D Institutes – NSF, NIH, Darpa</p><p>Corporate R&D Labs</p><p>SME tech suppliers</p><p>Venture Capitalists</p><p>Knowledge networks – formal and informal</p><p>Premium on innovations – VC and IPOs</p><p>Globalization, Knowledge and Innovation</p><p>The barriers to innovation are falling on a global scale</p><p>Knowledge increases as the most important element of production and products</p><p>Global knowledge networks arise out of expansion of ICT, interaction, trade, finance, FDI, education – global diffusion of knowledge</p><p>Global development of knowledge institutions in universities, firms and governments</p><p>Two kinds of innovative firms – combine new ideas with entrepreneurialism</p><p>Start ups</p><p>Large firms – constantly reinvent themselves</p><p>Business model innovation now matters more than R&D for competitiveness of a firm Globalizing knowledge</p><p>The processes of creating global production networks and offshore outsourcing of services accelerates the diffusion of knowledge and seeds innovation capabilities in new firms across the world</p><p>Basis for innovation in nations we once thought were just followers</p><p>Chongqing Li & Fung Infosys, Wipro, Tata Consulting Rapid catchup – Google to Baidu</p><p>Process leads to even greater role for knowledge in production</p><p>Role of software/electronics in products as the key element in value chain</p><p>Cars (Lexus, BMW) are systems of computers Trains, machine tools, production robots are based on software systems Washing machines, refrigerators, toys, clothing</p><p>Different electronic systems must work together – cars and phones</p><p>The more knowledge matters, the greater is the importance for innovation</p><p>This changes the way organizations and firms must work</p><p>Employees as source of innovation, scanning for innovation, application of innovation</p><p>New kinds of workers Learning organizations Entrepreneurial organizations</p><p>Open to outside ideas Recombinant innovation – mashups Flexible – rapid ramp up; shift of focus</p><p>New Global Business Environment</p><p>Global Competition Knowledge based Premium on innovation Speed Core Competency must include: Knowledge creation Knowledge scanning Innovation selection Bring innovations to market</p><p>Are Western firms going to dominate this kind of environment?</p><p>“Is America Losing Its Edge?” http://www.foreignaffairs.org/20041101facomment83601/adam-segal/is-america-losing-its-edge.html Carl Dahlman, “China and India: Emerging technological Powers” http://www.issues.org/23.3/dahlman.html Alan Wm Wolf, “China’s Drive Toward Innovation” http://www.issues.org/23.3/wolff.html</p><p>Global innovation patters http://www.issues.org/24.1/</p><p>Why is Europe less effective at innovation than the US or Europe?</p><p>Poor place for start ups</p><p>Not entrepreneurial – Europeans like easy jobs</p><p>In Europe new ideas don’t diffuse very well – poor entrepreneurial culture</p><p>$9 billion in VC in Europe; $45 billion in the US</p><p>European think innovation is something governments do</p><p>Singapore and Biopolis</p><p>Taiwan and Hsinchu</p><p>Impact of local and global competition – protectionism = stagnation</p><p>China and Innovation</p><p>What are the vehicles for knowledge acquisition by firms in developing nations?</p><p>Joint ventures with TNCs Component supplier – local OEM supplier across global/regional value chains Legal imitation: reverse engineering; borrow idea (paid search) and local innovation Purchase capital equipment Purchase plant with knowledge support Send students abroad – repatriate after employment Hire foreign knowledge workers (including consulting firms) Foreign firms establish R&D centers (Microsoft) Establish R&D center abroad (Silicon Valley) Develop relationships with Venture Capital firms</p><p>Analysis of iPod value chain 5th Generation 30GB iPod late 2005</p><p>QuickTime™ and a decompressor are needed to see this picture.</p><p>Retail price $299 Apple profit = $80 Retailer/distributor profit $75 FIGURE 2: Real GDP (PPP): Projections 2004-2015 (Using 1991-2003 Average Growth Rates)</p><p>Source: Projected based on data in WDI.</p><p>Students Studying Abroad 2004</p><p>China India US 381,000 130,000 47,000 QuickTime™ and a decompressor are needed to see this picture.</p><p>Global Auto Production</p><p>Year China Japan United States</p><p>2007 8.9 (12.2%) 11.6 (15.9%) 10.8 (14.8%)</p><p>2006 7.2 11.5 11.3</p><p>2005 5.7 10.8 11.9</p><p>2004 5.2 10.5 12.0</p><p>2003 4.4 10.3 12.1</p><p>2002 3.3 10.3 12.3</p><p>2001 2.3 9.8 11.4</p><p>2000 2.1 10.1 12.8 Source: OICA - Organisation Internationale des Constructeurs d’Automobiles http://oica.net/category/production-statistics/ Basic argument</p><p>Knowledge is the most important input to products, processes, services</p><p>Knowledge has greater expansive power from social character, reuse, some leads to more, basis for innovation.</p><p>Innovation main source of competitive advantage</p><p>Knowledge economy in rich states = potential rapid growth in poor states by reusing existing knowledge</p><p>Knowledge base in developing nations leads to local and then to global innovation</p><p>New global knowledge pools = Bangalore, Hong Kong, Seoul, Tokyo, Shanghai, Singapore</p><p>Pace of competition and innovation rises</p><p>Premium for knowledge increases</p>