Innovation and Human Resources:
The Experience of Middle Income
East Asian Countries
OECD/Germany Workshop on Advancing Innovation: Human
Resources, Education and Training
Shahid Yusuf
DRG
World Bank
November 17-18, 2008
East Asia: After manufacturing
catch-up, the need to innovate
Middle income East Asian economies have growth momentum
based on manufacturing capability, have achieved stability, and
have embraced openness.
However, growth and investment is slowing in many East Asian
countries, and the ongoing crisis might dampen economic
activity further. Future performance depends on successful
transition to higher value adding, knowledge and human capital
intensive activities.
Innovation and gains in productivity have priority.
GDP growth is slowing,
as investment slackens and net
exports contribute less to demand,
in many countries
12.0
10.0
8.0
1995
6.0
2000
2006
4.0
2.0
0.0
i
Ch
na
Source: WDI
dia
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ia
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n
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n
pa
a
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d
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ina
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an
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,
ala
Th
n,
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ea
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r
a
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iw
Ko
Ta
Capital Accumulation is down
from its peak in most countries,
China and India being exceptions
Capital Formation (% of GDP)
50
45
40
35
30
25
1995
20
2005
2000
15
10
5
Source: WDI
C
hi
Ta
na
iw
an
,C
hi
na
K
or
ea
,R
ep
.
In
do
ne
si
a
S
in
ga
po
re
Ja
pa
n
al
ay
si
a
Th
ai
la
nd
M
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di
a
0
More growth must now
come from total factor
productivity especially as labor
force increase is slowing
TFP growth for some South-East Asian Countries
Country
Period
TFP
Malaysia
2001-2005
1.3%
Thailand
1999-2004
2.1%
China
1993-2004
4.0%
India
1993-2004
2.3%
Korea
2000-2004
1.0%
Source: Data for Malaysia is from EPU (2006) and World Bank (2005), for Thailand is from Bosworth (2005),
for China and India are from Bosworth and Collins (2007), and for Korea is from Kanamori and Motohashi (2007).
Hence, spending on
R&D is increasing
0
1
2
3
R&D spending (% of GDP)
1996
1998
2000
2002
2004
year
Malaysia
Japan
Singapore
Indonesia
Source: UNESCO Institute for Statistics S&T database
Thailand
China
India
Korea, Republic of
2006
Achieving innovativeness
will determine competitiveness and
growth
Patents Granted by Country of Origin
China
Indonesia
India
Japan
Korea
Malaysia
Philippines
Singapore
Thailand
1995
1,679
-494
140,806
8,796
29
-20
1
2000
6,712
1
584
166,689
29,412
-8
110
45
2006
21,519*
13
819
201,611
97,738
147
38
995
40
Note: * indicates that data is for the year 2005.
Source: WIPO 2007
Tertiary level enrollment is
expanding
China
Japan
Korea
Malaysia
Thailand
Brazil
Mexico
1991
3.0
29.6
38.6
8.1
..
11.3
14.7
2006
21.6
57.3
92.6
28.6
45.9
25.5
26.1
Note: Data for Malaysia and Brazil are from 2005, data for Korea is from 2007
Source: WDI
Science, technology, and
engineering skills are key
The share of S&E first university degree
1985
1995
2004
China
55.4
62.4
51.0
Japan
25.8
26.2
24.4
South Korea
32.6
36.6
39.6
Germany
32.1
27.9
28.4
Mexico
28.3
Source: Science and Engineering Indicators 2008
What is holding back
innovation: weak demand
Business models of export oriented large firms emphasize cost
reduction and diversification into other areas with low entry
barriers.
Small firms with limited managerial capital seek quick returns
and are not motivated to pursue innovative activities.
Both large and smaller firms rely on technological advance
embodied in imported equipment.
Even large companies rarely maintain sizable research
departments, much of the ‘research’ is on testing, adaptation,
troubleshooting, incremental improvements, and
customization.
Firms: weak demand for
innovation
Few incentives for internal generation of suggestions
for product and process innovation.
Little outsourcing of R&D and sparse links with
universities. Market for researchers is small and
salaries are modest. This affects supply of doctoral
students and post-doctoral training opportunities.
Small internal research capability constrains search
for ideas and ability to absorb new technology.
Firms’ demand for innovation
Where large domestic firms from China, Korea
or Taiwan are actively competing on the basis
of innovation as in telecoms, or semiconductor
design and fabrication, R&D has strong
support. But these firms are the exceptions.
MNCs that drive export performance
in several East Asian Economies are
not playing a leading role
Backward linkages and technological spillovers from MNCs
are fairly sparse.
MNCs not trying to groom local suppliers of high tech
components.
Foreign firms increasingly protective of own IP and careful
about locating key research activities in Southeast and East
Asia. They are building little research capital in host countries.
Few employees leave MNCs to start-up technologically
innovative firms.
Universities: Issues of
education quality, research
orientation, and initiative
Quality of tertiary education in STEM areas needs improving.
Elite schools do better but not much better.
Students have weak analytical/problem solving skills and
practical knowledge. Tend to be passive. Employers frequently
note these problems and others.
Research and post-doc training undervalued. Few incentives for
faculty to do research that could lead to commercializable
findings.
Job opportunities and salaries do not encourage pursuit of
research.
Universities do not actively seek links with firms to engage in
collaborative research – and vice versa.
Starting up high-tech firms is
a struggle
Research and innovation in and out of universities, also
hampered because entrepreneurs attempting to commercialize
innovative products or services must struggle to find risk
capital.
East Asian governments have set up public venture funds and
other intermediaries to assist start-ups with financing. But
– Access is difficult.
– Most venture capital goes to safe and conventional activities.
– Public venture capitalists are inexperienced and cannot provide firms
with the guidance and expertise sought.
– Private venture capital is limited because deal flow is small and exit
options are not well developed.
Environment for innovation in
urban centers still evolving in
East Asia
Innovation is an urban phenomenon and large, cosmopolitan
cities have an edge. Few cities in East Asia have the desired
characteristics. E.g.
–
–
–
–
–
–
–
–
Size and significant urbanization economies (industrial diversity)
Presence of multiple research intensive activities
Cultural heterogeneity and milieu supportive of innovation
Large pools of knowledge workers with tertiary level skills – this is
changing (e.g. Korea, China)
Diverse and experienced services providers to assist start-ups.
Concentration of research universities, company HQs, and corporate
research activities
International connectivity and openness to ideas
Sate-of-the-art IT infrastructure (Seoul and Singapore are exceptions)
Government innovation policies
need rethinking
Many programs without an innovation strategy or focus.
Stress on tertiary level S&T programs but means for raising
quality of teaching and research are lacking.
Fixation on short and medium term input targets such as R&D
spending. Or on output targets such as patents, published
papers, and university rankings.
Dispersed responsibilities and funding for promoting
innovation and cumbersome application procedures limits
awareness of incentives and access to resources.
Past or existing policies rarely evaluated, modified, and
improved or terminated.
Unwillingness to acknowledge the long gestation, culture and
institution bound nature of an innovation system.
Thank you