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Cluster Approach for Promoting Cluster Approach for Promoting Innovation: Innovation:
Comparison of Finland and KoreaComparison of Finland and Korea
Handong Global University
Prof. Eul Yong Park
2003, October2003, October
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1.1. What is the cluster approach? What is the cluster approach? (1)(1)
For promoting innovation, close, formal and
informal, interactions and collaborations among
private sector firms, universities and research
institutions in a region are the key features. They
are forming a cluster.
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1.1. What is the cluster approach? What is the cluster approach? (2)(2)
The cluster approach also includes the
government policy to promote cluster formation
and its effective management to promote
innovation and regional development. Good
examples: Silicon valley in the US; Kista
Science Park in Sweden.
4
2. Why cluster approach? 2. Why cluster approach? (1)(1)
Proven to be one of the most effective ways to
promote innovation and regional development.
Practiced in the US and Europe. In the last 10
years, successful clusters are developed in
Finland and Sweden.
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2. Why cluster approach?2. Why cluster approach?(2)(2)
Jong Guan chon in Beijing follows this approach
in building a cluster. Increasingly, innovative
regional clusters are formed around universities
with strong R&D capability.
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3.1 Why compare Finland and Korea?3.1 Why compare Finland and Korea? (1)(1)
FinlandFinland
(a) One of the few successful countries that transformed its traditional resources based economy into innovation driven economy in the last 10 years;
(b) World Economic Forum, IMD and OECD all rated Finland near the top positions in global competitiveness. This indicates strong growth potential in the future;
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3.1 Why compare Finland and Korea? 3.1 Why compare Finland and Korea? (2)(2)
FinlandFinland
(c) High-tech export share continuously grew from 6% in 1990 to over 20% in 2000;
(d) Nokia factor: In less than 10 years Nokia, a Finish mobile telephone equipment company, became a super multinational producer of mobile telephone with the global market share of 35% (2002). It is well known that Finnish national innovation system in which cluster approach played a key role is behind in this success experience.
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3.2 Why compare Finland and Korea? 3.2 Why compare Finland and Korea? (1) (1)
KoreaRelatively successful in transforming a traditional agricultural economy into a industrial sector driven economy in the last 4 decades. It suffered from the lack of close collaboration among key players in innovation system such as universities, private sector R&D centers, public research institutions and the state.
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3.2 Why compare Finland and Korea? (2)
KoreaIn short, innovation clusters are not well developed. Despite its large size of the tertiary education sector and relatively large inputs in R&D funding, the outputs are not rated high in quality and future growth potential as well as international competitiveness are often questioned.
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Growth Competitiveness Index Growth Competitiveness Index RankingsRankings
United States 1 2
Finland 2 1
Taiwan 3 7
Singapore 4 4
Sweden 5 9
Switzerland 6 15
Australia 7 5
Canada 8 3
Norway 9 6
Denmark 10 14
United Kingdom 11 12
Japan 13 21
Korea 21 23Sources: WEF 2002
20022002 20012001
11Source: Tekes 2002.
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Finnish Trade on High-Tech Products 1990-2000
(Source: Tekes 2002)
13
The Share of High-Tech Exports 1988-2000
(Source: Tekes 2002)
14
4. Changes in the Finnish National Innovation Changes in the Finnish National Innovation System and the Role of UniversitySystem and the Role of University
In the 1950s,1960s and 1970s universities generally followed the traditional view: a strong autonomy in university research and no collaboration with private sector firms. The state’s science and technology policies were clearly separated. Government promoted basic science in the university ignored technology. In the 1980s Finnish government began to change its science and technology policy:
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4.1 Changes in the Finnish National Innovation 4.1 Changes in the Finnish National Innovation System and the Role of University. System and the Role of University.
Emphasis on the development of strategic
technology and innovation as well as basic
sciences;
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4.2 Changes in the Finnish National Innovation 4.2 Changes in the Finnish National Innovation System and the Role of University. System and the Role of University.
Establishment of TEKES, National Technology
Agency, to use government R&D funding as the
key tool in achieving national goals: namely,
Development of innovation driven economy
through promoting firms R&D capabilities and
competitiveness;
17
4.3 Changes in the Finnish National Innovation 4.3 Changes in the Finnish National Innovation System and the Role of University. System and the Role of University.
Promotion of regional science parks as the hub of
technology based regional clusters;
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4.4 Changes in the Finnish National Innovation 4.4 Changes in the Finnish National Innovation System and the Role of UniversitySystem and the Role of University
Decision to increase R&D funding steadily from
1.2% of GDP in 1982 to 2.2% by 1990;
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4.5 Changes in the Finnish National 4.5 Changes in the Finnish National Innovation System and the Role of Innovation System and the Role of
University. University.
New concept of “national innovation system
(NIS)” was formally adopted in the official
government policy discussion;
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4.6 Changes in the Finnish National Innovation 4.6 Changes in the Finnish National Innovation System and the Role of University.System and the Role of University.
A close collaboration among key participants of
the NIS, namely, universities, private sector
firms, and public research institutions was
emphasized. And more government funding was
provided to joint research projects;
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4.7 Changes in the Finnish National Innovation 4.7 Changes in the Finnish National Innovation System and the Role of University.System and the Role of University.
Cross-disciplinary projects and internal
collaboration in R&D was emphasized through
Tekes funding.
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Changes in Major Features of Finnish Innovation SystemFunding Mechanisms* Shift from line item budgeting to lump sum budgeting (universities)* Channeling funding increasingly through funding agencies*Emphasis on competitive/targeted/program-based funding*Multi-year budgetingDevelopment of research activities* Establishing post-graduate schools, advancing “professional research careers”* Creating Centers of Excellence system* Establishing research, technology and “cluster” programs* Promoting internationalization of research* Promoting networking and collaborationInstitutional Changes* Reinforcing the role of funding agencies and increasing co-ordination among them* Establishing transfer and support organizations (e.g. EU liaison offices, innovation centers)* Structural development/profiling of universitiesRegulation and guidelines* From detailed regulation to performance-based management* Evaluation of research and technology* Emphasis on intellectual property right (IPR)New Conceptualizations* E.g. “national innovation system”, ”centers of excellence”, ”accountability”
(Source: This table was adapted from: Nieminen, Mika. Universities and R&D networking in a knowledge-based economy. P34)
Changes in Major Features of Finnish Innovation System
23
Major Players
of Finnish Innovation
System
(Source: Nieminen, Mika and Erkki Kaukonen. University and R&D Networking in a Knowledge-based Economy. P 37)
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Research and Development 2002RESEARCH AND DEVELOPMENT1, 2000
% of BERD2 performed in Researchers Higher Education Expenditure
High Tech Industry
Medium High Tech Industry
Mediumlow-tech and low-
tech Industry
Service industry
Full-time equivalent
Per 1000 total employment
% of GERD
% of GDP
Finland 53.9 18.2 12.9 11.7 26162 11.4 17.8 0.60
France 46.6a 27.0a 11.8a 8.9a 160424c 6.8c 16.7 0.36
Germany 30.4 55.6 7.7 5.4 259214 6.7 16.0 0.40
Japan 40.7 39.3 14.1 2.7 647572 9.7 14.5 0.43
Korea 48.0 22.9 10.7 13.3 108370c 52c 11.3d 0.30d
Sweden 49.1 29.1 7.1 12.8 39921c 9.6c 21.4c 0.81c
United States 40.1 20.9 6.0 31.2 1114100af 7.9af 13.6g 0.37g
EU-15 40.4a 34.4a 9.6a 11.2b 919313g 5.6c 20.9c 0.39c
OECD Total - - - - 3235631 6.6 17.1 0.38
(Source: OECD 2002
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Cumulative Expenditure on Educational Institutions Per Student Over the Average
Duration of Tertiary Studies (1999) Cumulative expenditure per student of
tertiary studies
Countries All tertiary Education
Tertiary-type B Education
Tertiary-type A and advanced research programm
es
Finland 50760 - 50760
Sweden 65529 - -
Germany 50511 13408 67367
France 36832 23410 40901
United Kingdom
33835 - -
Korea 18371 7232 27904
Country Mean
38668 - -(Source: OECD: Education at a Glance 2002)
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Total Public Expenditure On Education Total Public Expenditure On Education (1999) (1999)
Public Expenditure on Tertiary Education As a Percentage of GDP
Countries 1999
Finland 2.1
Sweden 2.1
Germany 1.1
France 1.1
United Kingdom 1.1
United States 1.4
Korea 0.6
Country Mean 1.2
(Source: OECD: Education at a Glance 2002)
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5.1 The Development of Korea’s 5.1 The Development of Korea’s University System. University System.
Rapid growth of Korea’s tertiary education
system in the last 4 decades. Currently, over
70 % of high school graduates attends
universities and colleges. The rapid increase in
quantity did not accompany with the rapid
development of quality of education.
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5.2 The Development of Korea’s 5.2 The Development of Korea’s University System. University System.
The quality of Korea’s tertiary education system was rated low compared with that of universities in advanced countries due to the following factors: Factors explaining low quality of Korea’s tertiary education system;
a. Government funding was inadequate for along time. Public expenditure on tertiary education as a percent of GDP is well below OECD average. (OECD Average: 1.2%; Korea: 0.6%; Finland: 2.1%).
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5.2 The Development of Korea’s 5.2 The Development of Korea’s University System. University System.
b. The government very reluctant in funding private universities’ education and research in Korea where 2/3 of the total universities are private ones.
c. Korean university system and culture did not allow
competition and incentive rewarding system to professors and staffs.
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5.3 The Development of Korea’s 5.3 The Development of Korea’s University System. University System.
Management of government’s R&D funding to
universities were very inefficient: Many
ministries provided funding without adequate
coordination and close monitoring and feedback.
As a result, the output was very poor.
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5.4 The Development of Korea’s 5.4 The Development of Korea’s University System. University System.
Low quality of Korea’s university education and
research had negative impact in development of
innovative regional clusters.
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5.5 The Development of Korea’s 5.5 The Development of Korea’s University System. University System.
Recent changes in the Korean university system:
a. Great emphasis on close collaboration between universities and private sector firms, especially venture start- ups.
b. Gradual adoption of competition and incentive system in appointment and promotion of professors and staffs.
c. More objective project evaluation, monitoring and feedback of projects.
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6.1 Finnish Cluster Approach:6.1 Finnish Cluster Approach:
The cluster approach was adopted as a key
concept of Finnish national innovation system in
the early 1990s, focusing on close collaboration
among universities, private sector firms and
public research institutions.
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6.2 Finnish Cluster Approach:6.2 Finnish Cluster Approach:
Promotion of regional science and technology
parks as a hub of the clusters. Otaniemi near
Helsinki, Tampere. Oulu regions developed such
parks around quality universities in the region.
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6.3 Finnish Cluster Approach:6.3 Finnish Cluster Approach:
By concentrating on global strategic industry,
such as mobile telecom industry and technology,
these parks were also able to attract foreign
companies and research centers.
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6.4 Finnish Cluster Approach:6.4 Finnish Cluster Approach:
The state, regional government as well as
regional universities played a vision provider in
developing cluster approach. Large firms, such
as Nokia and Technopolis provided the key role
as a system organizer providing formal and
informal networks and forums to firms and
university staffs.
37
Finland’s Finland’s RegionalRegionalClustersClusters
Source: IT Cluster in Finland
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7.1 Korea’s Cluster Approach
Korea was late in adopting regional cluster approach in promoting innovation and industrial competitiveness. The main reasons were:
a. Low quality of university education and research, especially those located in the region;
b. Both universities and private sector firms did not find good reasons why they should work closely together.
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7.2 Korea’s Cluster Approach7.2 Korea’s Cluster Approach
Growing global competition and changing
government policy to do the benchmarking of
advanced countries has led the adoption of
cluster approach. Potential good clusters:
Daeduk, Daegu and Busan, and some regions in
Gyunggi province.
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7.3 The Case of Daeduk 7.3 The Case of Daeduk
a. Established as a Daeduk Science Park in 1973 as research town, benchmarking Tsukuba Science Park in Japan.
b. Currently, 4 universities, 28 Government research institutions, 27 private sector research centers, 44 venture start-ups are located in the park. Although the government was able to influence those institutions to locate physically in the region, they were not yet formed an effective cluster.
41
7.3 The Case of Daeduk7.3 The Case of Daeduk
c. Main weaknesses are: First, the government policy to promote the formation of cluster and innovation were fragmented and not well coordinated;
Second, university research capabilities and projects are not yet attractive enough for promoting close collaboration with private sectors firms.
Third, They are weak in attracting foreign firms, R&D centers and educational institutions.
42
7.4 Needed New Policy 7.4 Needed New Policy
a. Strengthening university R&D capabilities through efficient evaluation of research projects, requiring close collaboration with private sector firms and close monitoring of research process;
b. Attracting foreign investment including foreign educational institutions and R&D centers.
43
Present Occupants in DaeDuk Science Research Park
GRI Private Sector
RI
Universi-ties
Govern-ment
Branch Offices
Park Support
Venture Start-
Up
Total
Number (Org.)
28 27 4 9 4 44 116
Number (People)
8925 3297 2319 422 37 899 15899
(Source: Seri (2002), Study of Dae-Duk Science Park)
44
R&D Indicators of Dae-Jun (Dae-Duk) City
GRI Universities Private Sector
Total
R&D Investment
(One Billion Won)
Dae-Jun City
1065.34 130.12 783.39 1978.85
(52.4) (8.3) (7.6) (14.3)
National 2031.98 1561.87 10254.66 13848.50
R&D Human-Resource
(Number of People)
Dae-Jun City
7610 7928 6452 21990
(35.3) (7.9) (5.6) (9.3)
National 21563 100643 115026 237232
R&D Organization
(Number)
Dae-Jun City
22 24 210 256
(9.7) (6.5) (4.5) (4.9)
National 228 368 4631 5227
(Source: Seri (2002), Study of Dae-Duk Science Park)
45
8.1 Changes in Finnish R&D Funding 8.1 Changes in Finnish R&D Funding System and the Role of TEKES System and the Role of TEKES
Tekes, National Technology Agency, was established in
1983 as a key government R&D funding agency to
implement government science and technology policy.
As R&D funding was to increase from 1.2% of GDP to
2.2% in 1990 and 3.0 in 2000 (actual figure was 3.5%
of GDP in 2001), Government R&D funding can play a
key role in achieving the policy objectives.
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8.2 Changes in Finnish R&D Funding 8.2 Changes in Finnish R&D Funding System and the Role of TEKES System and the Role of TEKES
The government policy objective was to increase
competitiveness of Finnish industries by: first,
inducing private sector firms to increase R&D
capabilities; second, by inducing close R&D
collaboration between universities, government
research institutions and private sector firms,
especially SMEs and large firms.
47
8.3 Changes in Finnish R&D Funding 8.3 Changes in Finnish R&D Funding System and the Role of TEKES (1)System and the Role of TEKES (1)
Tekes developed and adopted strategic funding
mechanism to achieve its policy goals.
First, Tekes funding was restricted to 25-50% of
the total funding required, so that stakeholders
also use their own fund in the project;
48
8.3 Changes in Finnish R&D Funding 8.3 Changes in Finnish R&D Funding System and the Role of TEKES (2)System and the Role of TEKES (2)
Second, Tekes funding was restricted to the joinprojects with universities, private sector firms and government research institutions.
The collaboration was also extended more formally to appoint the researchers from GRIs and private sector research centers as adjunct professors in the university system.
49
8.4 Changes in Finnish R&D Funding 8.4 Changes in Finnish R&D Funding System and the Role of TEKESSystem and the Role of TEKES
Tekes’ performance was evaluated periodically
by international body of experts.
50
Research and Development Expenditure in Some OECD
Countries 1985-2000
Source: OECD and Research and Development in Industry. OECD 2001
51
Development of research funding 2000 – 2003
20002000 20012001 20022002 20032003
Public funding,Public funding,Billion EURBillion EUR
1.281.28 1.341.34 1.391.39 1.441.44
Public funding,Public funding,% x GDP% x GDP
1.031.03 1.041.04 1.041.04 1.041.04
R&D funding, R&D funding, total,total,
Billion EURBillion EUR
4.004.00 4.294.29 4.564.56 4.814.81
R&D funding, R&D funding, total,total,
% x GDP% x GDP
3.23.2 3.33.3 3.43.4 3.53.5
(Source: Science and Technology Policy Council of Finland, “Review 2000: The Challenge of Knowledge and Know-how”, 2000
52
Tekes funding for industrial R&D in 2000 by size of company
(Source: Tekes 2002)
53
Total Tekes R&D Funding in 2000
(Source: Tekes 2002)
54
Impact of Tekes Activities
(Source: Tekes 2002)
55
9. Weakness of Korea’s R&D 9. Weakness of Korea’s R&D Funding System Funding System
Korea’s R&D funding inputs are substantial
(2.8% of Korea’s GDP), but the output is meager.
Why?
56
9.1 Weakness of Korea’s R&D 9.1 Weakness of Korea’s R&D Funding System Funding System
University R&D capabilities except a few
outstanding universities are weak due to the long
term neglect of developing university R&D
capabilities, graduate school education and
research funding;
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9.2 Weakness of Korea’s R&D 9.2 Weakness of Korea’s R&D Funding System Funding System
Administration of the government R&D funding and management process, from the selection of project to the monitoring and feedback of the research projectsneed to improve its effectiveness and efficiency.
Compared to Finnish national innovation system and the
role of Tekes as key funding agency, Korean government did not have strategic goals in R&Dfunding and hence limited output.
58
10.1 Concluding Remarks 10.1 Concluding Remarks
Finland: Despite its fine performance of its
economy, Finland needs to further improve R&D
policy and cluster approach to stay competitive
in the world market
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10.1.1 Concluding Remarks 10.1.1 Concluding Remarks
They must attract excellent human resources, namely students, researchers and engineers and foreign firms from abroad, so that the existing clusters would become a globally competitive ones through extensive competition and collaboration with foreign firms in the Finnish clusters.
Government needs to change its tax system, and other incentive system to attract foreign inputs, human, resources and FDIs including R&D centers.
60
10.2.2 Concluding Remarks 10.2.2 Concluding Remarks
Finland also needs to see beyond EU, that has
already become its domestic market, as their next
market to enter, including Asia and other emerging
markets, so that growing demand from the emerging
market will strengthen its economy, especially those
products from the Finnish R&D
clusters.
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10.2.3 Concluding Remarks 10.2.3 Concluding Remarks
Korea must change its social and economic
system, so that foreign firms, R&D centers and
educational institutions find Korea as an
attractive place to move in and stay. They will be
good participants in the making of a competitive
R&D cluster in Korea.
62
10.2.4 Concluding Remarks 10.2.4 Concluding Remarks
Korea must change its tax system, so that more
close collaboration between universities and
private sector firms can earn tax credits.