Rising to the Challenge U.S. Innovation Policy for the Global Economy (2012) / Chapter Skim
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Chapter 5 The New Global Competitive Environment America's innovation system has long been the envy of the world. Now the rest of the world is racing to catch up.
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202 RISING TO THE CHALLENGE The innovation agendas and precise policies differ from country to country, based on national needs and aspirations. In some cases, governments are implementing policies modeled after those of the United States.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 203 In the first tier are the emerging economic powers. We looked at China and India in some depth.
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204 RISING TO THE CHALLENGE impressive focus. National spending on R&D has risen by an average of 19 percent a year since 1998,3 and in under a decade has grown from less than one percent of GDP to 1.7 percent.4 China's share of global R&D spending soared from 6 percent in 1999 to 12 percent in 2010.5 By virtually every conventional benchmark -- successful patent applications, scientific publications, post-graduate degrees awarded, and global market share in high-tech goods -- China's progress in science and technology has been solid.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 205 China's heavy focus on absorbing foreign technology, rather than inventing it, also explains its industrial rise.
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206 RISING TO THE CHALLENGE Box 5.1 Constraints on Innovation in China China's massive investments in technological infrastructure, science education, and research programs are key elements in laying the foundation for an innovation economy. But these investments in themselves do not mean that China will become a leading innovator in the near term.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 207 a program focused on fostering original discoveries.22 Despite these limitations, developing major new innovations is not the only source of national strength. Programs that focus on acquiring new and established technologies can help develop the technological competitiveness of the Chinese economy and provide the opportunity for commercial success, first within China and next in export markets, thus laying the foundation for steadily higher levels of commercial application of advanced technologies.
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208 RISING TO THE CHALLENGE China Basic Applied Development U.S. 0 20 40 60 80 100 Percent FIGURE 5.1 China devotes less that 5 percent of total R&D spending to basic research.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 209 strength."28 Such pronouncements have been backed with a flurry of initiatives at the central, provincial, and local levels to upgrade the nation's innovation ecosystem. Among other things, the government is greatly increasing spending on R&D, boosting incentives for corporate R&D, urging universities and government research institutes to form stronger links with industry, building immense science parks, investing aggressively in broadband infrastructure, and vowing to improve intellectual property-right protection.
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210 RISING TO THE CHALLENGE Although the strategy acknowledges that China needs multinational investment and greater international collaboration, it is intends to extract technology from foreign companies to create domestic champions that will eventually compete directly against them. As an extensive study of China's technology modernization drive by CENTRA Technologies concludes: "Caught between a tradition of state planning and the need for markets -- and between an interest in foreign technology assimilation of the lure of domestically developed technology -- China's innovation system faces an ambiguous future."32 Nevertheless, there is little question China has the raw potential -- and certainly the determination -- to emerge as a 21st century innovation power.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 211 2,000 Manufacturing Value-added (Billions of Constant 2005 Dollars)
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212 RISING TO THE CHALLENGE Box 5.2 China's Demographic Challenge Driven by the nation's one child policy, China's total fertility rate has fallen over the past 30 years from 2.6, well above the rate needed to hold a population steady, to 1.56, well below that rate.38 If children of one-child families want only one child themselves, as is typical, China will face a long period of low fertility. Moreover, China faces a rapid aging of its workforce, leading to a contraction of from 72% to 61% between 2010 and 2050.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 213 examination scores, and thousands of China's brightest scholars were allowed to study in the U.S. and Europe.
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214 RISING TO THE CHALLENGE local governments assumed operating control, and universities were given more management autonomy. Universities also were encouraged to become more commercially viable, compete for faculty and research funding, and cooperate with industry and government.47 They also were encouraged to form enterprises, incubate new companies, and create science parks.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 215 resulting from energy and other resource scarcity and severe environmental degradation."51 The leadership believes that China is overly dependent on export manufacturing of goods that export cheap labor but entail little Chinese valueadded. As Lan Xue, dean of Tsinghua University's School of Public Policy and Management explained, the leadership recognized "the need for China to break away from its traditional position in the international division of labor and move up the value chain."52 The result was the Medium to Long-Term Plan for the Development of Science and Technology.
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216 RISING TO THE CHALLENGE industries.56 The goal is for these seven sectors to account for 8 percent of GDP by 2015 and 15 percent by 2020, compared to 4 percent now.57 To attain these goals, HSBC Global Research calculates that these sectors would have to grow at a compounded annual rate of 35 percent for the next five years and 29 percent over the coming decade and reach between $1.55 trillion and $2.33 trillion in revenue in 2020.58 The initiative is said to entail an overall investment of $1.5 trillion, with the government planning to account for 5 percent to 15 percent of the funds.59 Chinese government bodies offer some of the world's most generous incentives in targeted industries. They include 10-year tax holidays for production plants, exemption from sales tax income earned through technology transferred via foreign investment, low cost or free land, direct equity stakes by government investors, and procurement regulations that favor domestic production.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 217 The cost of capital is another advantage for Chinese manufacturers. Stephen O'Rourke of Deutsche Bank Securities estimates the Chinese solar cell and module makers pay 3.5 percent interest on average to borrow from government banks.
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218 RISING TO THE CHALLENGE economy and security" should not be purchased from abroad if domestic alternatives are available.66 The 15-year plan and other Chinese statements on rules and regulations have heightened fears by foreign companies that the strategy is to reverseengineer and forcibly extract technology from multinationals as a price for the privilege of selling their products in China. Other policies state that government agencies and government-funded projects -- which account for the bulk of important purchases in China due to the government's pervasive role in the economy -- should favor products invented in China by Chinese-owned companies over those of foreign companies.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 219 the low value-added of its exports.
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220 RISING TO THE CHALLENGE Other (27%) Japan (34%)
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 221 Development and Reform Commission.73 Beijing's target is for a blend of wind, hydro, solar, nuclear, thermal, and other non-fossil fuels to account for 15 percent of consumption by 2020, 20 percent by 2030, and one-third by 2050.74 That compares to 8.3 percent now. Government also is helping build domestic markets for domestic solar and wind power, energy-efficient solid-state lighting, and electrified vehicles industries through government purchases and generous incentives for consumers.
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222 RISING TO THE CHALLENGE to a National Research Council assessment. All of these are "areas of weakness and obstacles to autonomy in the IT communications," the report said.78 Improvement in such areas can "improve and deepen" economic development across industries and the country, explained Xu Jianping of the National Development and Reform Commission's High-Tech Department.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 223 Chinese companies and have earned more than 13,000 patents between 2006 and 2010. CISRI is regarded as a success story.
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224 RISING TO THE CHALLENGE she said, and to tighten collaboration among universities, government, and industry. 88 Chinese universities also have assumed a greater role in government and industrial R&D and creating new businesses.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 225 universities, including Peking University, Tsinghua, Zhejiang, and Jiaotong, account for one-quarter of China's scientific papers and citations.93 The percentage of Chinese researchers at universities has dropped steadily since 1999, to around 15 percent and, although government research grants to universities have grown dramatically, their share of total R&D spending in China has dropped since 1986 to around 8.5 percent, compared 12.8 percent in the United States.94 Even though more than half of Chinese university research is regarded as applied, there still is a debate at many universities over whether they should focus only on basic research, according to Joseph Zhou of Tsinghua University. "The university role in applied research is a big question mark," Dr.
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226 RISING TO THE CHALLENGE significant issues in China.99 Because only a small portion of university businesses are successful -- and can pose serious financial liabilities for universities -- the government has been encouraging universities to yield management control at enterprises to professionals so they can be run as modern businesses.100 Chinese Corporations as Innovators According to Chinese statistics, enterprises are the chief drivers of innovation in China. Large and small enterprises account for around 70 percent of R&D investment.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 227 Guoqing, director-general of the State Council Central Finance and Economics Office.105 This does not mean Chinese companies are not making rapid progress in innovation. One example is data communications equipment.
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228 RISING TO THE CHALLENGE own branded handsets. Market pressures are a much bigger pressure to innovate than government directives.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 229 Box 5.3 Innovation with Chinese Characteristics Westerners tend to equate innovation with creative ideas and gamechanging goods and services. Innovation as generally practiced in China is more modest.
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230 RISING TO THE CHALLENGE Multinational Research Centers Foreign companies have been key catalysts of China's rise in highthrough industries through joint ventures, training programs, and technologytransfer agreements with Chinese partners negotiated in return for access to the domestic market. Foreign companies also have used China as a growing product-development base for their own products, establishing at least 750 R&D centers in Beijing, Shanghai, Guangzhou, Chengdu, and other cities as of 2005.122 The vast majority of multinational R&D activity in China has been devoted to adapting products and technologies for the domestic market or for products manufactured in China for export.123 Such operations continue to grow.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 231 contributing to global projects."127 In all, IBM co-develops products with 10,000 Chinese partners in 350 cities. It also has 100 joint laboratories and technology centers with Chinese universities and offers curricula that have helped trained 860,000 Chinese students and 6,500 teachers.128 Microsoft's research center in Beijing also has become integral to development of next-generation products launched around the world.
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232 RISING TO THE CHALLENGE World Trade Organization protocols on government procurement, essentially compels foreign makers of a wide range of advanced products to manufacture in China and transfer technology to domestic companies.133 Companies said that such concerns have intensified in recent years. Although China is a major exporter of solar modules to Europe and the U.S., it requires at least 80 percent of equipment for its own solar power plants to be domestically produced.134 Due to government procurement policies and rapid expansion by Chinese producers, the foreign share of China's annual new purchase of wind power equipment has fallen from nearly 80 percent to around 20 percent between 2004 and 2008.135 Government bodies essentially require makers of lithium-ion batteries for cars to manufacture in China in order to sell into the growing domestic automobile market.136 Leveraging its huge market for aircraft, China is using technology transferred by U.S.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 233 qualify for subsidies of up to $19,300 per car available to other hybrids in China unless it transfers core technologies to domestic manufacturers.140 In response to high-level complaints by foreign governments, Chinese leaders in 2011 sought to allay major concerns. On a visit to Washington in January 2011, President Hu signed a joint statement with President Barack Obama in which he pledged that "China will not link its innovation policies to the provision of government procurement preferences." The statement also said China will seek to join the WTO Government Procurement Agreement by the end of 2011.141 At a meeting with U.S.
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234 RISING TO THE CHALLENGE Other American business people based in China, however, said they remain under pressure to transfer core technology to Chinese companies, either to joint ventures or through licenses. One executive that does not want to license its core designs to Chinese companies for fear that they will become future competitors said government officials said it should transfer the knowhow because technology is a "human asset" and should be shared.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 235 life sciences, "the United States and China are, in every sense, building a global partnership," noted Deputy Assistant Secretary of State Anna Borg.150 Cooperation through universities is also growing. The University of Maryland, for example, has an extensive relationship with China.151 As the university's former president C
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236 RISING TO THE CHALLENGE 2.2 million new cases in 2009. The crisis "will get much, much worse in the next 10 to 15 years," she said.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 237 sectors such as digital computers and telephone and data transmission systems.158 Whether China is on track to achieving its desire to become a giant engine of innovation is less clear. The study by CENTRIC offered a negative prognosis: "… (T)
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238 RISING TO THE CHALLENGE 95 percent of those were filed domestically with the State Intellectual Property Office, note Anil K Gupta and Haiyan Wang, authors of the book Getting China and India Right.163 Chinese inventors accounted for only 473 so-called "triadic" patents filed in the U.S., the European Union, and Japan, the world's prime patent issuers.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 239 A major question is whether a business culture that has focused on scale and market share is ready to shift to a model driven by adding value and creating breakthrough products. Another question is whether state-led policies and programs that try to put national boundaries around intellectual property and curtail foreign competition can succeed in an era when most of the world is moving toward models of open innovation and global cooperation.
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240 RISING TO THE CHALLENGE quarters of those poor live in rural areas.169 Only 16 percent of India's population has completed high school and 61 percent of the adult population is literate, compared to 97 percent in China. The World Bank estimates that only 4 percent of India's workforce is formally employed in the modern private sector.170 For India's world-class technology companies, the goal is to develop more proprietary intellectual property and gain global market share.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 241 While India is becoming a top global innovator, an extensive World Bank study concluded that the country is "underperforming relative to its innovation potential -- with direct implications for long-term industrial competitiveness and economic growth."173 The challenges are numerous. India invests only around 1 percent of GDP in science and technology.174 [See Figure 5.5]
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242 RISING TO THE CHALLENGE R&D had achieved some important successes, "their effectiveness has not matched the needs of the Indian economy or been commensurate with the resources invested in them." One reason is that private corporate participation has been minimal. Instead, initiatives are owned and managed by government bureaucracies that "suffer from complex, overlapping structures for policy making and decision making."182 India's New Innovation Push India now is undertaking a number of initiatives to transform its innovation system.183 As the Planning Commission's steering committee on 300 2.0 GERD (left scale)
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 243 science and technology explained in its report for the current Five-Year Plan, a "strong and vibrant innovation ecosystem" requires an education system that nurtures creativity, an R&D culture and value system that supports both basic research and applied technology, an industry culture that is keen to equity and foreign companies that can be involved.184 After doubling national investment in R&D spending between 2002 and 2008 in current Indian Rupees, the government aims to boost research funding by another 220 percent under the current Five-Year Plan for 2007 to 2012. The goal is to boost national R&D investment to 2 percent of GDP by 2020.
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244 RISING TO THE CHALLENGE universities, awards and competitions, outreach programs, and international collaboration.188 Focusing on Inclusive Innovation One of the National Innovation Council's central goals is to foster inclusive innovation189 that provides "access, affordability and quality, and fosters innovations at the grassroots."190 The concept builds on the Indian knack for Jugaad, or the development of makeshift solutions under conditions of scarcity.191 The aim, however, is to go beyond relying on informal, makeshift solutions to everyday needs and build a more formal system of low-cost innovation that address the needs of the majority of Indians living at or near poverty. 192 As a council publication explains: India needs more "frugal innovation" that produces more "frugal cost"' products and services without compromising safety, efficiency, and utility of the products.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 245 Developing Strategic Sectors India also has several large initiatives to boost its global standing in strategic science and technologies areas. The government has more than tripled the budget for the Council of Scientific and Industrial Research, which oversees India's national laboratories, in recent years.
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246 RISING TO THE CHALLENGE nation needs 20 to 30 new "appropriately scaled" universities over the medium term and 1,500 new universities over the long term.200 Indian higher education also suffers from a shortage of qualified senior professors, in large part due to poor salaries. Retired IIT-Delhi director P
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 247 and 50,000 skill-development centers across the country. The goal is to train 10 million new skilled workers a year.203 In terms of elite institutions, the government plans to increase the number of Indian Institutes of Technology from nine to sixteen, add five Indian Institutes of Science Education and Research, six Institutes of Management, and 20 Indian Institutes of Informational technology.
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248 RISING TO THE CHALLENGE relevance. Instead of focusing on many small projects and acting like independent entities, CSIR labs now take on larger, networked projects and collaborate more with each other, according to Dr.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 249 12,000 40 Private R&D (left scale) Private Share (percent)
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250 RISING TO THE CHALLENGE market.217 In 2011, annual revenues of India's IT and business-process outsourcing industry are expected to reach $88.1 billion, with exports accounting for around $59.4 billion of that.218 India's pharmaceutical industry, meanwhile, has become an important ally to Western companies that are under mounting financial pressure to get new drugs to market as patents expire on their most valuable products. India's contract drug research industry is estimated to generate $1 billion in revenue a year.219 By working around the clock with Indian researchers, partners, drug makers hope to slash research time and costs, a crucial consideration given the high risk of failure in explained Eli Lilly executive Robert Armstrong.220 Glenmark Pharmaceuticals exemplifies India's prowess in drug research.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 251 alliances with Johnson Controls and Visteon. Engineers based in different nations collaborated around the clock.
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252 RISING TO THE CHALLENGE largely networked projects in areas such as agriculture, biotechnology, bioinformatics, pharmaceuticals, materials, information technology, and energy. The initiative involves as least 85 industry partners and 280 R&D programs with 1,750 researchers and has generated cumulative investment of more than $100 million.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 253 General Electric is one multinational that has made Indian talent integral to its global innovation activities. GE's $80 million John F
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254 RISING TO THE CHALLENGE Nuclear Research, for example, and the International Thermonuclear Experimental Reactor. India has also entered collaborations in agricultural research with the U.S., Brazil, Japan, and South Korea.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 255 As evidenced by recent policies and the growing focus on "inclusive innovation," the government of Prime Minister Singh is well cognizant of these challenges and determined to address them. If such efforts succeed, India appeared destined to be a 21st century innovation powerhouse.
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256 RISING TO THE CHALLENGE once low spenders on R&D, contributed more than 69.7 percent of total spending on research in Taiwan.242 The island is beginning to excel in innovation as well. Taiwan is among the world leaders in U.S.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 257 400 4 Billions of New Taiwan Dollars (left scale) R&D/GDP (percent)
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258 RISING TO THE CHALLENGE into innovative technologies and industrial capabilities." 250 Among other measures, the plan calls for shifting the R&D focus more toward "pioneering" research, strengthening currently weak ties between universities and private industry, building better links between basic research and downstream applications, and reforming Taiwan's education system to encourage more critical thinking and interdisciplinary studies. This will likely mean an attempt to increase spending on basic R&D, which was 10.4 percent of total R&D spending in 2009.251 [See Figure 5.8]
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 259 Basic (10%) Applied (26%)
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260 RISING TO THE CHALLENGE with notebook computers, liquid-crystal displays, semiconductor fabrication and design, and bicycles made of carbon composites, an industry Taiwan dominates. The Taiwan government is applying this strategy to a range of new industries, including logistical services.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 261 attrition rate of around 15 percent, or about 900 researchers a year, so that they circulate through industry. "If people want to work in a laboratory for life, you don't have the energy to help industry," Lo explained.259 In addition, ITRI operates a training college that has 3,000 to 5,000 students attended programs lasting one month to one year and an Open Lab that houses some 60 outside companies working on collaborative R&D projects.
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262 RISING TO THE CHALLENGE certain share of resources to high-level R&D, and employ a significant marketing staff within three years. This process enabled the government to "cherry pick" Hsinchu tenants, according to Dr.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 263 ITRI is leading a similar effort in LED lighting, where it has organized an alliance of 20 Taiwanese manufacturers. The companies are developing LED products and materials for street lighting.
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264 RISING TO THE CHALLENGE attitudes that they will need to confront and deal with the problems of a fastchanging society."269 The plan calls for making universities more business-friendly and more open to outside collaboration. Among the recommended measures are establishment of more incubators, better incentives for academics to commercialize research, expanded entrepreneurial training, programs to "broaden students' knowledge of practical innovation design skills," and curricula that promote interdisciplinary knowledge.270 To secure sufficient manpower, Taiwan should recruit more talent from abroad, especially from mainland China, the plan says.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 265 The National Science Council calls for expanding Taiwanese collaborations with international research institutes and industry consortia. It also recommends attracting more multinationals to use the island as a global innovation base.
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266 RISING TO THE CHALLENGE 9 3 Total R&D Spending (left scale) Private R&D Intensity (right scale)
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 267 In terms of international patents, start-ups, and the dynamism of domestic companies, Singapore is still far from an innovation powerhouse.280 The government has charted an ambitious agency to push its innovation system to a higher level. In 2004, the Ministerial Committee on Research and Development was formed to review the nation's R&D strategies and direction and compare them with those of other nations.
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268 RISING TO THE CHALLENGE To lead the national drive, Singapore set up a high-level Research, Innovation and Enterprise Council. Prime Minister Lee Hsien Loong chairs the council, which also includes several cabinet ministers and international science and technology experts such as Stanford University President John Hennessy, Harvard Business School professor Clayton M
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 269 wants its universities to become much more globally connected and to train more students for the kind of multidisciplinary, creative industries the government wants to develop. New Institutions Underscoring its commitment to educating a creative class, the government established the new Singapore University of Technology and Design.
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270 RISING TO THE CHALLENGE • Seed money for early-stage venture capital funds. The NRF will match capital raised by venture capitalists in these funds, which will be managed by professional investors and must invest only in Singapore based high-tech startups.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 271 conditions pushed Singapore's R&D spending-to-GDP ratio down to 2.3 percent as of 2009, well short of the 3 percent goal for 2010.291 Singapore's small scale is another perceived handicap in generating domestic innovation, especially in science-based industries such as biotechnology. Singapore's big investments in life sciences and incentives for pharmaceutical multinationals has resulted in a large biomedical manufacturing base, whose output tripled to S$21.7 billion from 2000 through 2009.292 They also have created high-paying jobs and spurred development of suppliers of materials and R&D services.
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272 RISING TO THE CHALLENGE machinery to high-speed trains and wind turbines by small and large firms alike296 surged by 18.5 percent in 2010 to €951.9 billion ($1.3 trillion) ,297 leading the country out of recession.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 273 promoting wide dissemination of environmental technologies have enabled German companies to capture 16 percent of world trade in that sector, which employs 1.5 million in Germany. Germany is a world leader in optics, a €2 billion industry that also has received significant public support.
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274 RISING TO THE CHALLENGE in R&D surged from €2.3 billion in 2005 to an estimated €9.4 billion in 2008.309 Total R&D spending in Germany reached 2.82 percent of GDP in 2009, the highest level since reunification with Eastern Germany. [See Figure 5.10]
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 275 80 4 Billions of Euros (left scale) R&D/GDP (percent)
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276 RISING TO THE CHALLENGE Finland Denmark Singapore Japan Sweden U.S. France Canada Germany 0 2 4 6 8 10 12 14 16 18 Researchers per 1,000 Total Employment (FTE)
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 277 TABLE 5.2 Net Contribution of R&D-Intensive Products to Germany's Foreign Trade R&D-Intensive High-Technology Medium High Products Technology 1995 70 -24 94 2000 49 -36 85 2005 50 -33 83 2009 47 -19 66 SOURCE: The Commission of Experts on Innovation, Research, Innovation and Technological Performance in Germany Report 2011, February 2011, Table C7-6. NOTE: Net Contribution = Contribution to Exports – Contribution to Imports.
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278 RISING TO THE CHALLENGE R&D spending is on industries in which the country already is established, such as automobiles and machinery.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 279 Overall, the German research system "is a system that works well, with a clear division of labor, varying degrees of autonomy and state control, and distinct research organizations whose activities partly overlap and partly are different," explained Leibnitz Association President Karl Ulrich Mayer. One challenge, Mr.
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280 RISING TO THE CHALLENGE innovation activities across all departments around five broad themes: climate and energy, health and nutrition, mobility, security, and communication. The government defines "forward-looking projects" in science, technology, and social development and detailed roadmaps to achieve each of the overarching missions over 10 to 15 years.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 281 research alliances,332 and small-business assistance. Government measures to establish Germany as a "lead market" for new energy technologies also help German industry attain scale in emerging industries.
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282 RISING TO THE CHALLENGE the large potential of ICT for growth and employment in Germany." 338 Broad goals include wiring the country with high-performance broadband networks of at least 50 megabits per second that will reach three-quarters of the population by the end of 2014 and the entire country as soon as possible. They also include deploying state-of-the-art, smart IT networks and services across industries and enabling paper-free government by 2012.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 283 competitiveness." 341 A turning point was the Knowledge Creates Markets initiative in 2001 to create a "broad-based patenting and exploitation infrastructure." 342 Among other things, universities were given ownership of intellectual property created by academics, along the lines of the U.S.
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284 RISING TO THE CHALLENGE according to a BMBF report. The federal government and Länder have approved another €2.7 billion in funding through 2017.348 Another goal is to sharply increase enrollment in higher education.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 285 new diagnostic products and imaging procedures for clinics at the molecular and cell level. Other such alliances focus on automotive electronics, energy-efficient lighting using organic light-emitting diodes, organic photovoltaic cells, and lithium-ion batteries for energy storage.353 BioIndustry 2021 is another such initiative.
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286 RISING TO THE CHALLENGE Inno's high transparency, easy access, and relative lack of bureaucracy and found that some three-fourths of participating firms would not have conducted the R&D had it not been for the program.358 ZIM has an annual budget of around €300 million, and it received an additional €900 million through Germany's economic stimulus program in 2009 and 2010. It also expanded its services to include larger companies with up to 1,000 employees.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 287 investors. In Germany, they often go to the government -- or abroad.
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288 RISING TO THE CHALLENGE construction at Oak Ridge National Laboratory. The German government is seeking to expand such partnerships.370 German Minister of State Werner Hoyer noted that Germany and the U.S.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 289 risk capital. The commission asserts that shortages of angel funding and venture capital could worsen unless Germany adopts an "internationally competitive, growth-promoting tax framework."375 Although technology transfer from universities and research institutes has improved in recent decades, there still is room for improvement.
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290 RISING TO THE CHALLENGE Box 5.4 The German Fraunhofer Institutes Fraunhofer-Gesellschaft has been a major factor behind Germany's continued export success in advanced industries despite high labor costs. Established in 1949 as part of the effort to rebuild of Germany's research infrastructure,379 the non-profit organization is one of the world's largest and most successful applied technology agencies.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 291 59 Institutes of Applied Research in Germany collaborate closely with manufacturers in 16 different clusters. The federal government generally matches funds raised from industry.
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292 RISING TO THE CHALLENGE continued images by moving his or her fingers. The institute also is developing a handheld devise using Terahertz waves to probe for cancer cells inside the body.387 Another element of Fraunhofer's success is its ability to strike a balance between coordination of its German institutes with management autonomy.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 293 certain level of staff turnover is good for Fraunhofer as well as German industry. For engineering graduates, the opportunity for landing jobs at top German technology collaborating with Fraunhofer is a major assure of joining the organization.
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294 RISING TO THE CHALLENGE continued laboratory research to wide-scale production without having to sacrifice intellectual property rights.396 It offers design and modeling expertise, equipment, and access to Fraunhofer facilities in Germany. Fraunhofer's U.S.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 295 Groups that collaborate reinforce their scientific research because industrial partners present academics with real problems. 402 To incentivize universities, the government provides block grants to institutions that strive to meet performance metrics such as increased numbers of spin-offs, patent applications, and contracts.
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296 RISING TO THE CHALLENGE four high-level research institutes: Interuniversity Micro-Electronics Centers (IMEC) , the Flemish Interuniversity Institute for Biotechnology (VIB)
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 297 TABLE 5.3 IMEC -- Major Areas of Research sub-22nm CMOS Heterogeneous integration Electronics for healthcare and life sciences Wireless communication Imaging systems Organic electronics Energy Sensor systems for industrial applications VIB now has 60 research groups in nine departments, and 50/50 costand profit-sharing partnerships with its four universities. It focuses on work of "strategic importance," such as cancer, cardiovascular biology, neurodegenerative disorders, inflammatory diseases, growth and development, proteomics, and bioinformatics.
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298 RISING TO THE CHALLENGE technological services, and projects that foster innovation for particular issues or in sub-regions. Flanders also has programs aimed at addressing an aversion to entrepreneurial risk on the part of the domestic financial sector and business community, which is regarded as a serious obstacle to innovation.416 The government created a program in 2001 called Arkimedes, which provides government guarantees and tax credits for investments in certain smalldenomination bonds.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 299 rated as Europe's most innovative business environment.421 This has enabled the nation to restructure an economy that depended on pulp and paper for two-thirds of its exports in the 1960s to one dominated by electronics, most notably telecommunications equipment. Finland's economy also has grown faster than the OECD average both before and after the 2008 recession.422 Much of the credit goes to far-sighted government technology policies initiated in the 1980s that focus both on scientific research and on disseminating new technologies to industry.
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300 RISING TO THE CHALLENGE 10 5 Enterprises (leŌ scale) Higher EducaƟon (leŌ scale)
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 301 12 9 Billions of Euros 6 3 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Exports Imports FIGURE 5.13 Finnish exports of high-technology products fell sharply in 2009 and 2010. SOURCE: National Board of Customs, Finland, (Tullihallitus, Tilastoyksikkö)
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302 RISING TO THE CHALLENGE go to universities, national research universities, and early-stage financing for start-ups. Whether the applicant is a university or private company, Tekes favors projects that involve cooperation between the two sectors.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 303 declined in inflation-adjusted terms since 2001.436 Canada's BERD intensity is among the lowest of industrialized economies. [See Figure 5.14]
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304 RISING TO THE CHALLENGE 4.0 3.0 BERD/GDP (Percent) 2.0 1.0 0.0 OECD Czech Republic Sweden Netherlands United States France United Kingdom EU27 Hungary Spain Denmark China Luxembourg Canada Finland Australia Belgium Portugal Iceland Russian Federation Switzerland Slovenia Israel Norway Japan Austria Germany Ireland Korea Italy FIGURE 5.14 Canadian business R&D intensity is among the lowest of the industrialized countries.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 305 The government's approach to science and technology shifted significantly in the 1990s. Public funding for basic research rose sharply.
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306 RISING TO THE CHALLENGE government R&D spending as a percentage of GDP to No.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 307 Guelph, a project to improve understanding of the brain and spinal cord at Dalhousie University in Halifax, and monitoring of ecosystems in the Canadian Arctic at the Université du Québec à Rimouski.454 Canada Research Chairs complements the foundation by funding development of world-class research capacity at universities and a cadre of researchers. The program has a $300 million annual budget to recruit and retain top-flight academics.
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308 RISING TO THE CHALLENGE In most cases, IRAP agrees to work with companies over time, rather than only provide one-time help for specific projects. IRAP charges companies for advisory services, but doesn't break even.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 309 sector, or technology area. Companies can deduct the full cost of R&D machinery and equipment.
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310 RISING TO THE CHALLENGE introduce new or significantly improved goods and services.468 The Science, Technology, and Innovation Council said in a 2008 report that R&D spending by Canadian firms is "falling behind our major competitors and the gap is growing."469 Business R&D spending equaled around 1 percent of GDP in 2009, compared to a 1.6 percent average for OECD nations.470 [See Figure 5.14] Milway, executive director of the Institute for Competitiveness and Prosperity, recently remarked that this performance "is another bit of evidence that our businesses are not competing on the basis of innovation, value-added and sophistication."471 Total R&D intensity in Canada has thus been trending downward for the past decade, to 1.81 percent of GDP in 2010.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 311 2.15 2.10 2.09 2.05 2.04 2.04 2.07 2.04 2.00 2.00 1.96 R&D/GDP (Percent) 1.95 1.92 1.90 1.90 1.85 1.80 1.81 1.75 1.70 1.65 2001 2002 2003 2004 2005 2006 2007 2008 2009p 2010p FIGURE 5.15 Canadian R&D intensity has been trending downward in the past decade.
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312 RISING TO THE CHALLENGE also undertook a number of initiatives to increase entrepreneurialism, including a small-business loan program similar to America's Small Business Innovation Research program. To spur corporate R&D spending, Japan grants generous tax credits.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 313 4 3.80 3.62 3 R&D/GDP (Percent) 2.77 2 1 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 FIGURE 5.16 Japanese R&D intensity peaked at 3.8 percent of GDP in FY2008 before declining slightly in FY2009.
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314 RISING TO THE CHALLENGE their own research priorities by separating them from the civil-service system. These institutions were transformed into non-profit corporations.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 315 university-industry research, small-business incubators, and a network of 45 Venturing Business Laboratories, which help young researchers commercialize their work. In addition, the government relaxed rules that had barred university faculty from serving on the boards of private companies.
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316 RISING TO THE CHALLENGE 60,000 50,000 U.S. PCT International Applications 40,000 Japan 30,000 20,000 Germany China 10,000 Korea 0 2006 2007 2008 2009 2010e FIGURE 5.17 Japanese patent applications have been increasing in recent years.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 317 firms, rather than see them as sources of innovation and job creation.491 Policymakers also viewed large corporations as bigger contributors of wage and labor productivity. By the 1990s, however, the government recognized that startups were providing major stimulus to the economies of the U.S.
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318 RISING TO THE CHALLENGE not improved dramatically since then. Of 59 nations studied by the Global Entrepreneurship Monitor, Japan ranks second to the bottom, behind only Italy, in entrepreneurial activity.495 A lack of capital is a major reason.
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THE NEW GLOBAL COMPETITIVE ENVIRONMENT 319 through industry. Sadao Nagaoka and Kenneth Flamm suggest that Japan still may lack the complementary institutions needed to make U.S.-style industryuniversity partnerships more effective, such as infrastructure for supporting high-tech startups, availability of risk capital, and professional services.500 A number of reforms have been proposed in Japan to address many of these shortcomings.
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Key Terms
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