Exploratory Note on Competitiveness and Innovation · Innovation has to be ‘demystified’: it...

Exploratory Note on Competitiveness and Innovation

Professor Michel LACAVE

OCTA Ministerial Conference, 4 December 2013 Session on Competitiveness and Innovation

Technical Assistance to the Overseas Countries and Territories Association

This project is funded by

The European Union

A project implemented by

ICON-INSTITUT Private Sector GmbH

Prepared by Prof. Michel Lacave

December 2013

RE ADERS SHOULD NOTE TH AT THE REPORT PRES ENTS THE VIEW S OF THE CONSULTANT, W HICH DO NOT NECESS ARILY COINCIDE W ITH T HOSE OF THE EUROPE AN COMMISSION

EuropeAid/130328/D/SER/Multi Exploratory Note on Competitiveness and Innovation

ICON INSTITUT Private, in consortium with AETS, EIPA, SOGEROM, ULB, and UNICA

Page 3

EXECITIVE SUMMARY

SYNTHESIS NOTE ON COMPETITIVENESS AND INNOVATION



Page 4

The present Synthesis Note is based on the Exploratory Note on Competitiveness and Innovation prepared for the 2013 OCTA Ministerial Conference. It is aimed at providing a framework for the presentations and discussions of the session dedicated to competitiveness and innovation.

It presents the concepts of innovation and competitiveness and summarises their main features with respect to the OCT context (§1). It proposes a range of possible policy targets among which the different OCTs could make a selection and for which improved innovation and competitiveness measures are required (§2). It lists methodological questions which have to be answered for setting up innovation and competitiveness strategies and policies (§3).

1 Innovation and competitiveness: the concepts and their application to OCTs

Innovation differs from invention: innovation refers to the implementation ‘in real life’ of a novel idea or method, whereas invention refers to the creation of the idea or method itself. A first global distinction is made between evolutionary or ‘incremental’ innovations, and revolutionary, or breakthrough innovations. Moreover, 4 types of innovation are generally considered: product innovation, process innovation, organisational innovation, marketing innovation (OECD Oslo

Manual1).

Innovation is not only technological, which seems evident for marketing and organisational innovation (even if these types of innovation may also rely on technological inputs, in particular from ICT: e-commerce, e-administration). Innovation can happen and be developed in the public sector, i.e. government and administration, as well as in business.

Innovation has to be ‘demystified’: it does not correspond necessarily to “hightech”: creating an activity which is rather common, but does not not yet exist in a country or territory is an innovation.

In the OCTs, as in the EU outermost regions, there are only few chances for many products and services to be cost competitive, because of the lack of economies of scale, distance which makes expensive both imported inputs and goods exported on foreign markets, and, in general, relatively high labour costs compared to the regional environment. Non-price competitiveness is accordingly a key factor of success.

Non-price competitiveness is based on comparative advantages, mainly the differentiation of products and services, related in general to the local context and conditions, including the local innovation capacities: either concerning products and services which are specific to the region,which will have to find their markets locally (where they are in competition with imported goods) and out of the region, in particular in the parent-states (e.g.: “tropical” products, “counter-season” fruit and vegetables, tourism); or concerning products and services that local capacities will allow for adapting to regional needs and constraints (renewable energies, construction materials, engineering services, health services, etc.) and which will have again to find their place on the local market, possibly on the regional market, and for some niches, on the “wider” (i.e. beyond the markets of the parent-states) international market.

Both concepts are strongly interrelated, in the economic theory as well as in real life: OCTs have to be competitive through differentiation (not forgetting nonetheless that price competition is still there to some extent). Differentiation is based on innovation, non-technological as well as technological.

2 Targeting ways to improve innovation and competitiveness in the OCTs

On this basis, innovation and competitiveness can benefit to the economic fabric of the OCTs in various ways, each of them related to specific sectors.

1 3rd Edition, 2005 (http://www.oecd.org/sti/inno/2367580.pdf).

http://www.oecd.org/sti/inno/2367580.pdf



Page 5

Each OCT has to review to what extent each of these ways is appropriate to its needs and to what extent it can support it through strategies and policies supporting innovation and competitiveness:

Reducing the dependency of the OCT economic fabric upon the exterior in the following sectors:

o agriculture / fishing and the agrofood industry;

o energy: improvement of energy efficiency: selection of the most appropriate renewable energies and of the most appropriate energy mix; transport with the enlarged use of electric and hybrid vehicles.

Exploiting natural resources while reducing/mitigating the impact on environment. Three sectors are mainly concerned: mining, agriculture and fishing, construction, tourism.

Developing the potential for exporting know how, engineering services and expertise. Many OCTs provide excellent sites for experimenting innovative solutions in specific geographical and climatic conditions, that could be transferred to other territories, a situation that gives them a comparative advantage with respect to Europe. Experimentation, while generally carried out in collaboration with large groups, allows for developing local competences (e.g.: energy sector).

Exploring and developing systematically relevant market niches: fruit and vegetables, financial services, eco-tourism.

Consolidating an « evident », but highly competitive and volatile, export sector : tourism and eco-tourism. Non-price competitive advantages have to be found through building on specificities and targeting niche markets

Supporting ICT both as a sector in itself and as a transversal instrument for enhancing innovation and competitiveness in all economic activities.

3 Major issues to be addressed to set up territorial innovation and competitiveness strategies

There are three major issues to be addressed: having a state of the art of the competitiveness and innovation gap; defining policy instruments to fill or reduce this gap; identifying and understanding the expected outcomes.

Assessing their competitiveness and innovation gap

Assessing competitiveness factors:

o Agriculture and agrofood (including fish). Competitiveness has to be assessed: a) on the local market by comparison to imported foodstuffs, taking account of price competitiveness and non-price competitiveness factors such as quality and local branding; b) on the external markets concerning niche products (e.g.: counter-season fruit and vegetables, tropical fruit) mainly on the basis of non-price competitiveness factors.

o Tourism. Competitiveness has to be assessed on the international markets with respect to price and non-price competitiveness factors (taking account of the currency areas), the latter being related to the positioning on specific niche markets.

o Energy. The competitiveness of renewables has to be assessed by comparison to imported fossil fuels, taking account of a mid- and long-term perspective and benefits that can possibly come out of being an experimentation site, while integrating both objectives of self-dependency and preservation of the environment.

Conclusions of the analysis of the competitiveness factors should be summarised through a SWOT presentation higlighting the comparative advantages of the OCT.

Assessing the innovation gap:



Page 6

o Analysis of supply: survey of the existing sources of R&D & innovation in the territory and of the external sources to which an OCT may have an access, in the parent states and/or through international R&D networks;

o Analysis of demand for innovation through a survey of the needs of the main sectors and companies composing the OCT economic fabric (sector level).

The identification and assessment of the innovation gap comes out from the comparison between supply and effective/potential demand.

Defining appropriate policy instruments

The instruments that could be set up to filling, or at least reducing the competitiveness and innovation gap are directly related to this gap in each OCT. They may include:

Support to the development or strengthening of R&D & innovation capacities

Support to entrepreneurship

Immaterial support to innovative projects: assistance, advice, mentoring

Finance beside ‘classical’ banking loans: soft loans, guarantee, seed- or venture-capital

Facilities dedicated to host innovative projects and enterprises (incubators, technoparks ...)

Innovation governance (including statistical tools)

Identifiying and understanding expected outcomes

Through supporting innovation and competitiveness, the major stake for the OCTs is to find opportunities for diversification and growth on their own domestic market, and on external markets – whatever they are, EU parent-states, regional area, wider international – in order to trigger a ‘virtuous’ spiral of development.

This ‘virtuous’ spiral may be triggered through the various instruments listed above, tailored to the specific context of each OCT, and will expectedly result into multiplier effects (increased local demand), productivity effects and competitiveness effects.

It is necessary to assess the outcomes (or results) and the impacts of an innovation and competitivenss strategy and the programmes and actions set up for implementing it, in order to be sure that the local community effectively has benefited from it. Assessing outcomes and impacts require that a set of appropriate indicators is set up when strategy is elaborated in order to monitor and follow up its implementation. The set of indicators leads to a scoreboard of the achievements. As statistical data are often missing in the OCTs, an innovation and competitiveness strategy often provides an opportunity for improving the statistical data building and collection with the creation of an economic and social ‘observatory’, which will be in itself an innovation. Indicators, scoreboard and observatory constitute a key element of the innovation governance system, in so far as they will allow for a better understanding of the trends affecting the OCT and contribute to improve the steering instruments in a fast changing global context.



Page 7

EXPLORATORY NOTE ON COMPETITIVENESS AND INNOVATION



Page 8



Page 9

Contents

1. Towards a typology of OCTs 10

2. Innovation and competitiveness: the concepts and their application to OCTs 13

2.1 Innovation: taking the broader vision 13

2.2 From innovation to competitiveness 15

3. Key fields for improving innovation and competitiveness in the OCTs 17

3.1 Reducing the dependency of the OCT economic fabric upon the exterior 18

3.2 Exploiting natural resources while reducing/mitigating the impact on environment 20

3.3 Developing the potential for exporting know how, engineering services and expertise 21

3.4 Exploring and developing systematically relevant market niches 22

3.5 Consolidating an « evident », but highly competitive and volatile, export sector : tourism and eco-tourism 23

3.6 Supporting ICT as a sector and as a transversal instrument for enhancing innovation and competitiveness 24

4. Towards territorial innovation and competitiveness strategies 26

4.1 Carrying out an analysis of the ‘innovation and competitiveness gap’ 27

4.1.1 Assessing competitiveness factors 27

4.1.2 Assessing the innovation gap 27

4.2 Instruments 28

4.2.1 Support to the development or strengthening of R&D & innovation capacities 28

4.2.2 Support to entrepreneurship 28

4.2.3 Immaterial support to innovative projects 28

4.2.4 Finance 29

4.2.5 Facilities dedicated to host innovative projects and enterprises 29

4.2.6 Innovation governance 30

4.3 Expected outcomes 30

4.3.1 Identifying and understanding outcomes 31

4.3.2 Assessing outcomes and impacts 32



Page 10

1. Towards a typology of OCTs

OCTs share similar characteristics which represent particular challenges to ensure

sustainable economic growth and carry out innovation to the benefit of their

communities : geographical isolation resulting in high transportation costs, small size of

their economy (in particular small size of the local market), high dependency on imports

(including energy resources) and sometimes on financial transfers and assistance, poor

diversification of exports of goods and services, low competitiveness of the local

industries, few and in some cases no R&D resources.

Balancing these handicaps, they often benefit from significant natural resources, as sea

resources linked to their exclusive economic zone, biodiversity, mining, potential for

developing renewable energies, attractive climate for tourism, etc.

However, OCTs display a number of differences between them in terms of relative

wealth, geographical characteristics, access to higher education, physical isolation and

internal political organization. In terms of relative wealth, the income per capita is very

diverse, ranging between 4,000 and 40,000 €. Half of the OCTs have an income per capita

of less than 13,000 €.

There is neither literature nor analyses addressing specifically the typology and

characteristics of the OCTs. There is however a significant number of studies concerning

small insular and isolated countries and territories, and in particular ‘small island

developing states’ (SIDS)2, which are fully-fledged states, and as such institutionnally and

politically differ from OCTs, while sharing with them many features and problems.

We present hereafter typological criteria regarding small insular countries and territories

in general, and, for each of them, examine how far they can be applied to OCTs.

A first criterion is that of isolation and distance from populated and/or developed

geographical areas. It implies high transportation costs (with in general a discontinuity

resulting in a non-linear increase of costs), a ‘territorial discontinuity’ for countries and

territories linked to a parent-state, and a barrier to the diffusion of innovation, know-

how and information in general.

Two indexes of isolation are currently used. The first one relies on the ratio ‘surface of the

EEZ / surface of the territory’: the higher this ratio is, the stronger the isolation. This index

leads to four categories of islands: ‘structured archipelagos’ as in the Caribbean;

‘coherent oceanic territories’ (Mayotte with Comores and La Réunion); ‘dispersed

archipelagos’ (French Polynesia, New Caledonia); isolated islands (St Helena, Ascension,

Tristan da Cunha, French Southern and Antarctic Lands). The second index is of a ‘geo-

biological’ type and was established by UNEP3. It is based on the potential sources of

diffusion of endemic vegetal and animal species, varies from 1 to 149 (Easter Island: 1), 2 Regarding the concept of ‘small island developing states, see: www.sidsnet.org. 3 United Nations Environment Programme.

http://www.sidsnet.org/



Page 11

and is applied in general to islands with two gateways (port and airport). It leads to the

following ranking: Pacific islands (62-109), Indian Ocean islands (47-103), Caribbean islands

(15-48).

However, these two indexes do not include the concepts of ‘relative distance’ and

specialisation of economic activities. The concept of ‘relative distance’ refers in particular

to air links: e.g. Mayotte may seem less isolated than La Réunion, but flying between

France and Mayotte requires a stop in La Réunion. More important probably is what

regards specialisation. The diffusion of innovation and the improvement of

competitiveness are widely considered as linked to spatial proximity, as illustrated with

clusters and local productive systems, which allows for diffusion of information and

know-how through informal networks, scale and variety externalities, etc. The more

isolated is a territory, the less it benefits from such advantages.

A second criterion is economic specialisation. There are quite a lot of indexes measuring

specialisation; the most widely used are those of specialisation and concentration; the

first one measures the share of the predominant activity in the total economic activities

(in terms of GDP, jobs, investment, etc.); the second one measures the spatial

concentration of a sector in relation to its national distribution (in tems of jobs, value

added, etc.).

These indexes allow for qualifying territories according to their specialisation. Six

categories have thus been proposed for insular and peripheral territories4:

- highly isolated and focused on production and services to inhabitants (St Helena,

Wallis & Futuna);

- making their living mainly from sea resources or mining (St Pierre et Miquelon,

New Caledonia);

- agricultural with some specialisation allowing for export (some Caribbean islands

with sugar cane and rum);

- with a strategic geographical position, characterised by service activites, maritime

transport (St Eustatius) or scientific missions (TAAF);

- mainly touristic (St Barthélémy, St Maarten, etc.);

- commercial and/or financial platforms with in general a high GDP per capita (BVI,

Cayman).

This division must not of course be taken as rigid. A number of OCTs can be considered as

belonging to more than one category. Curaçao for instance combines trnashipment,

tourism and offshore activities; Greenland combines fisheries and scientific activities;

New Caledonia combines mining, fisheries, tourism; the French Southern and Antarctic

Lands combine strategic geographical position and fisheries; etc.

4 Germanaz (C.), 2007.



Page 12

The characterisation of territories through their specialisation is of major importance

since it allows to identify key sectors for which innovation and competitiveness – and

their factors – have to be assessed, and improved as far as possible. However, this does

not mean that strategic thinking on innovation and competitiveness in the OCTs has to be

limited to existing sectors: potentialities for developing new activities are to be taken into

account.

A third criterion is related to the political and institutional status of the insular and

peripheral territories. Three categories can be distinguished: territories which are almost

fully ‘integrated’ (politically and economically) in a parent-state, as the French outermost

regions; small island developing states (SIDS); territories which are in an intermediary

position as the OCTs. Even if OCTs have different levels of institutional capacity, they are

not managing their own currency and their balance of payments is in principle that of

their parent-state, which relieves them of crucial problems faced by SIDS. Thus,

innovation and competitiveness are more an issue for ensuring sustainable development

and an improved standard of living and GDP per capita than a question of balance of

external trade.

The last criterion refers to vulnerability. There are two indexes, both of which take in

consideration five groups of variables: economic diversification; dependency upon

exports and imports; performance of the local labour market (unemployment rate);

capacity of resilience to natural (e.g.: climate change) and economic (e.g.: price

fluctuations, international pressure on tax havens, etc.) risks; dependency upon financial

transfer or international aid. Although results may diverge, the islands of the Pacific have

the highest vulnerability score. It must be noted that these indexes are difficult to

elaborate for the variables are not always available and/or statistical measurement is

poorly reliable.

Beside these four criteria, and in particular the indexes of specialisation and

concentration, other ones could be used, more targeted to the competitiveness and

innovation issues, as: rate of enterprise creation (and mortality); average and median size

of enterprises; percentage of export / internal market in the local final demand; the

‘openness’ rate of the local economy (exports + imports / GDP) and trade balance. It

should be useful, when innovation strategies will be carried out by OCTs, to collect the

available statistical data corresponding to these criteria, and to construct those which will

prove unavailable (see below § 4.3.2).

Moreover, an outcome of the future innovation strategies could be to have an instrument

allowing to follow-up the major changes affecting the economic fabric and the

performance of the different OCTs, based on a proposal coming out from the UN

Development Policy and Analysis Division, associating three types of indicators:

GDP per capita (calculated in PPP5), the simplest and probably the most effective

instrument for measuring the disparities between different levels of development

5 Purchasing Power Parity.



Page 13

An indicator of economic vulnerability, composed of two complementary

indicators:

o An ‘exposition index’ taking account of three factors: size + geographical

distance + specialisation

o A ‘shock index’ taking account of the level of natural risks and

commercial/financial risks which the economy may face

A ‘Human Asset Index’ focused on training and qualification: education attainment

levels (basic, upper secondary, tertiary)6 as a % of population aged 25-64; school

attendance and enrolment rates for the 15-24 population (primary, secondary,

higher education)

2. Innovation and competitiveness: the concepts and their application

to OCTs

2.1. Innovation: taking the broader vision

Innovation can be defined7 as the application of better solutions that meet new

requirements, inarticulate needs, or existing market needs. This is accomplished through

more effective products, processes, services, technologies or ideas that are readily

available to markets, governments and society. The term innovation refers to something

original and, as consequence, new that "breaks into" the market or into society.

Innovation differs from invention in that innovation refers to the use of a better and, as a

result, novel idea or method, whereas invention refers more directly to the creation of

the idea or method itself. To be called an innovation, an idea must be replicable at

an economical cost and must satisfy a specific need. Innovation involves deliberate

application of information, imagination and initiative in deriving greater or

different values from resources, and includes all processes by which new ideas are

generated and converted into useful products and services. In business, innovation

often results when ideas are applied by the company in order to further satisfy

the needs and expectations of the customers. In a social context, innovation helps create

new methods for alliance creation, joint venturing, flexible work hours, and creation

of buyers' purchasing power. Innovations are divided into two broad categories:

evolutionary or ‘incremental’ innovations, that are brought by many incremental

advances in technology, processes, etc.;

revolutionary, or breakthrough innovations which are often disruptive.

6 The International Standard Classification of Education (ISCED-97) is used to define the levels of education in a comparable

way across countries. The OECD Handbook for Internationally Comparative Education Statistics describes ISCED-97 education programmes and attainment levels and their mappings for each country.

7 The general definition we give of the concept is inspired from the Business Dictionary: http://www.businessdictionary.com/definition/innovation.html#ixzz2i4so6hOm

http://www.businessdictionary.com/definition/innovation.html#ixzz2i4so6hOm



Page 14

The well-known OECD Oslo Manual8 introduces a typology of innovations:

A product innovation is the introduction of a good or service that is new or

significantly improved with respect to its characteristics or intended uses. This

includes significant improvements in technical specifications, components and

materials, incorporated software, user friendliness or other functional

characteristics. Product innovations can utilise new knowledge or technologies,

or can be based on new uses or combinations of existing knowledge or

technologies.

A process innovation is the implementation of a new or significantly improved

production or delivery method. This includes significant changes in techniques,

equipment and/or software. Process innovations can be intended to decrease unit

costs of production or delivery, to increase quality, or to produce or deliver new

or significantly improved products.

A marketing innovation is the implementation of a new marketing method

involving significant changes in product design or packaging, product placement,

product promotion or pricing. Marketing innovations are aimed at better

addressing customer needs, opening up new markets, or newly positioning a

firm’s product on the market, with the objective of increasing the firm’s sales.

An organisational innovation is the implementation of a new organisational

method in the firm’s business practices, workplace organisation or external

relations. Organisational innovations can be intended to increase a firm’s

performance by reducing administrative costs or transaction costs, improving

workplace satisfaction (and thus labour productivity), gaining access to non-

tradable assets (such as non-codified external knowledge) or reducing costs of

supplies.

These categories cast light on two key points, which are surely important for the OCTs.

First, innovation is not only technological, which seems evident for marketing and

organisational innovation (even if these types of innovation may also rely on

technological inputs, in particular from ICT: e-commerce, e-administration). Second,

innovations do not only concern business: they can happen and be developed in the

public sector, i.e. government and administration, as well as utilities managed by public

bodies.

Thus, the innovation concept has to be ‘demystified’ in some way. ‘Innovation’ does not

correspond systematically, far from it, to “hightech”, and it can be non-technological

innovation which does not require high level R&D. We can give an example which is not

taken in any OCT, but in a highly dynamic city of Congo, Pointe-Noire (the country oil

capital): a young lady created last year a start-up aimed at organising b2b events in order

8 3rd Edition, 2005 (http://www.oecd.org/sti/inno/2367580.pdf).

http://www.oecd.org/sti/inno/2367580.pdf



Page 15

to facilitate contacts between large groups and potential subcontractors (SMEs); such an

activity is surely not brand new in itself, but it was in Congo and is thus typically an

innovative project9.

2.2. From innovation to competitiveness

Competitiveness must be seen as concerning existing products and services as well as

innovative ones. However, there is a logical link between the two categories with respect

to competitiveness.

In the OCTs, as in the EU outermost regions10, there are only few chances for many

products and services to be cost competitive, because of the lack of economies of scale,

distance which makes expensive both imported inputs and goods exported on foreign

markets, and, in general, relatively high labour costs compared to the regional

environment.

At the same time, innovation means risk-taking: innovative products and services have to

find their markets and customers, either on the local market or through export. If

innovative products and services are the result of incremental innovation, they have to

bring a clear added value in comparison to existing ones, through lower prices and/or

quality (in the broadest meaning); if they are completely new and result from a

breakthrough innovation, there is no reference in terms of price.

Non-price competitiveness is accordingly a key factor of success. At firm level, non-price

competition is a strategy “in which one firm tries to distinguish

its product or service from competing products on the basis of attributes like design and

workmanship”11. The firm can also distinguish its product offering through quality of

service, extensive distribution, customer focus, or any other sustainable competitive

advantage than price. (By contrast, price competition is where a company tries to

distinguish its product or service from competing products on the basis of low price.)

Non-price competitiveness is based on comparative advantages, mainly the

differentiation of products and services, related in general to the local context and

conditions, including the local innovation capacities:

either concerning products and services which are specific to the region

(Caribbean, Pacific, Indian Ocean, and the whole inter-tropical area; Nordic/Arctic

and Antarctic) which will have to find their markets locally (where they are in

competition with imported goods) and out of the region, in particular in the

parent-states (e.g.: “tropical” products, “counter-season” fruit and vegetables,

tourism), while taking account of the external markets targeted and related

currency area (EURO/USD);

9 Feasibility study of a ‘technopole’ in Pointe-Noire (Congo), UNESCO, a study carried out by Prof. Michel Lacave. 10 See in particular : INSEE - IEDOM - AFD (2008), L'ultra périphéricité, définit-elle un modèle de croissance ? ; Caupin (V.) et Savoye (B.), Une entreprise dans un DOM. Est-ce que cela change la donne ? Une analyse comparative des entreprises des DOM et de métropole, Focales 15, AFD, juin 2012. 11 McConnell-Brue, 2002, Economics : Principles, Problems and Policies, 15th ed., 2011.



Page 16

or concerning products and services that local capacities will allow for adapting to

regional needs and constraints (renewable energies, construction materials,

engineering services, health services, etc.) and which will have again to find their

place on the local market, possibly on the regional market12, and for some niches,

on the “wider” (i.e. beyond the markets of the parent-states) international

market.

It is important to enter into further details regarding the meaning of differentiation.

Microeconomics and firm competition theory generally points at four factors entailing

non-price competitive advantages: quality, functional features or design, differences in

availability (timing and location), specificity.

The two first first factors do not bring particularly interesting inputs as far as OCTs are

concerned (this does not mean of course that OCT firms cannot rely on them).

Differences in quality are usually accompanied by differences in prices. Functional

features and design refer in principle to incremental innovation and improve the product

or service with respect to the corresponding “common” one.

Things start to be effectively relevant to the OCT situation with the two last factors.

Differences in availability typically refer to products or services that can be offered to

external markets at a moment when they are not available in these markets: this is the

case with fruit and vegetables, as well as with ‘sea and sun’ tourism. Regarding fruit,

melon offered the example of a success story in Guadeloupe in the 2000’s: melon had not

been so far cultivated on a significant scale, when some producers decided to explore

opportunities on the French (and secondarily the EU) market, and succeeded in selling

melon in the winter season (in particular Christmas / New Year Eve time).

Specificity may be cultural (referring to the identity of the territory or of its area) and/or

to specific local (or regional) conditions, leading to products or services which are unique.

Three examples can be provided:

- Rum: the product is unique; however, although its specificity concerns the entire

Caribbean area (let apart La Réunion), the segmentation of the rum market

provides opportunities for higher-end products positioned on the luxury market or

specific brands (vs products commercialised by large beverage & spirits groups);

- Provision of renewable energies, and the resulting energy mix, based on the best

cost/benefit local resources (geothermal, wind, solar, sea);

- Eco-tourism in relation to the specific flora and fauna which is to be found in the

different countries and territories.

The four factors listed, and especially the two last ones, require in general, in order to be

turned into competitive advantages, a strong marketing and branding strategy.

12 Regional markets may however differ widely in terms of demand and solvability : the Caribbean area gives in principle access to more opportunities than the Pacific.



Page 17

In economic theory, successful product differentiation leads to monopolistic or

oligopolistic competition and is inconsistent with the conditions for perfect competition,

which include the requirement that the products of competing firms should be perfect

substitutes. The objective of differentiation is to develop a position that potential

customers see as unique. Differentiation primarily affects performance through reducing

directness of competition: as a product or service becomes more different,

categorisation becomes more difficult and hence draws fewer comparisons with its

competitors. A successful differentiation strategy will move the product or service from

competing based primarily on price to competing on non-price factors

However, the price premium that a firm could charge on a unique product or service is

limited in a large majority of situations, because even a “unique” product or service in

only unique in relative terms. Taking again the example of eco-tourism, if a bird-watching

tour in an OCT is extremely expensive, even aficionados of bird-watching will turn to see

other fauna in another OCT; the same may probably happen with sea cruises along the

Greenland coast and the North-West ‘passage’). In the field of renewable energies, if sea

power technologies remain very expensive, imported fossil fuels will still be a significant

part of the energy mix, whatever the ‘green’ orientation of policy-makers, the

environmental impact and the lasting dependency upon imports.

It is thus necessary to think differentiation not only in absolute terms, but in taking

account of ‘families’ of products and services within which there is a certain level of

substitution due to price competition.

The only field in which price competition can be expected to almost disappear concerns

high-end luxury markets with a quality, specificity and branding of product or service are

so high that the market is reduced to a small niche with customers who do not pay

attention to price. Market niches of the sort have increased with globalisation and the

higher number of billionaires in the last 15 or 20 years, which has had an impact in some

OCTs, but they remain few.

The conclusion regarding the innovation and competitiveness concepts is clearly that

both concepts are strongly interrelated, in the economic theory as well as in real life:

OCTs economic fabric and business actors have to be competitive through differentiation

(not forgetting nonetheless that price competition is still there to some extent).

Differentiation is based on innovation, non-technological as well as technological.

3. Key fields for improving innovation and competitiveness in the OCTs

The first chapter of this paper was dedic ated to a typological approach of the OCTs.

Among the criteria allowing for establishing a tentative typology, specialisation was

considered of major importance in so far as it allows to identify key sectors for which

innovation and competitiveness can be assessed and improved, provided that the

potential for developing new activities is neither forgotten not neglected.

The specialisation criterion led to six categories: highly isolated and focused on

production and services to inhabitants; making their living from sea resources or mining;



Page 18

agricultural with some specialisation allowing for export; with a strategic geographical

position, characterised by service activities, maritime transport or scientific missions;

mainly touristic; commercial and/or financial platforms with in general a high GDP per

capita. As previously stressed, this categorisation must not be taken as rigid, a number of

OCTs belonging in fact to more than one category.

Beyond the six categories of OCTs, a summa divisio can be added with respect to the

sectors active in some or all of them:

sectors delivering products and services to the local market;

export sectors, taking account of the different target markets (regional, parent-

states/EU, international).

Some sectors may belong to both groups, as foodstuffs (including fish) or engineering

and ICT services.

On this basis, innovation and competitiveness can benefit to the economic fabric of the

OCTs in the following ways:

- reducing the dependency of the OCT economic fabric upon the exterior;

- exploiting natural resources while reducing/mitigating the impact on the

environment;

- developing the potential for exporting know-how, engineering services and

expertise;

- exploring and developing systematically relevant market niches;

- consolidating an “evident”, but highly competitive and volatile, export sector:

tourism and eco-tourism;

- supporting ICT as a sector and as a transversal instrument for enhancing

innovation and competitiveness.

3.1. Reducing the dependency of the OCT economic fabric upon the exterior

This is surely an important stake for the OCT, and more in terms of endogenous

development than in terms of balance of trade.

Two main sectors can contribute to reducing the dependency upon the exterior:

agriculture / fishing and agro-food industry; renewable energies and energy efficiency.

Concerning first agriculture / fishing and the agro-food industry (including sea products),

many OCTs are facing a food deficit and/or competition of lower cost imported

foodstuffs. In some territories, in particular in the Caribbean area, the deficit is

particularly high for frozen meat and for fruit and vegetables. However, some EU

outermost regions, as Martinique, have proved able to become self-dependent,



Page 19

or almost self-dependent, for fresh meat and eggs. This success relies on : the capacity to

guarantee both quality and regularity of supply, which require an appropriate integration

and structuring of the sector or filière (from farm to market); and on a marketing strategy

focused on “local” products, based on the local identity13.

Innovative solutions can thus be implemented at organisational level (organisation of the

sector/filière) and at marketing level (as illustrated by the efforts made in New Caledonia

concerning the shrimp filière). The latter can also have an impact on tourists (see

hereafter § 3.4).

The energy sector is a key sector for isolated insular territories, both in terms of self-

dependency and protection of the environment.

The major issues regard:

the improvement of energy efficiency: this issue is related to innovations in

building techniques (e.g.: isolation), in building materials (materials adapted to the

local climatic conditions), and in control of the energy demand (e.g.: through

smart grids14);

the selection of the most appropriate renewable energies according to the local

context: geothermal; waste biomass; solar (in particular PV15 solar); wind

(including floating wind turbines); marine renewable energies (MRE), which

include tidal energy, wave energy and ocean thermal energy conversion (OTEC)16 –

it must be noted that some technologies are still at an experimental or pre-

industrial stage, and that isolated islands may provide excellent sites for

experimentation of innovative solutions (see hereafter § 3.3);

the definition of the most appropriate energy mix: fossil fuels will still be used for

some time, while the use of renewables will combine various sources in a majority

of territories; the definition of the energy mix has to take account of the balance

between intermittent and stable renewables and storage techniques, and of

course of the different business models attached to each source and technology –

it is accordingly a crucial issue in terms of public policy with respect to the

selection of technologies and related investments;

transport with the enlarged use of electric and hybrid vehicles (individual as well

as public transportation) through tax and duties reductions.

Many OCTs have already engaged actions in this field or have planned to develop such

actions17 as: Anguilla (wind and solar energy), Aruba (green energy: wind, solar, waste

13 This refers to the strategy of the products “Péyi” carried out in Guadeloupe and Martinique. Wallis & Futuna is encouraging

the consumption of local foodstuffs. 14 Among the EU outermost regions, La Réunion has taken some lead in this field. 15 Photovoltaic. 16 The Orkney Islands provide an example of a strategy focused on the use of MRE (www.orkneymarinerenewables.com). 17 See in particular: How Cool is Green ?, OCTA-EU 11th Ministerial Conference, September 2012.

http://www.orkneymarinerenewables.com/



Page 20

biomass; electric and hybrid vehicles; energy efficiency), Bonaire (wind energy), BVI

(solar, wind), Cayman Is. (solar energy, electric vehicles), Curaçao (projects: wind, waste

biomass, solar, OTEC), Greenland (hydropower), Montserrat (geothermal energy

project), French Polynesia (hydropower since 1986 representing above 30% of total needs

and possibly doubled in the next decade; solar; SWAC18 with a strong local expertise),

New Caledonia (cluster “Synergie” focused on energy efficiency and renewables), Wallis

& Futuna (PV solar, hydropower projects), St Helena and Ascension (wind) ), French

Southern and Antarctic Lands (wind and photovoltaic energy projects in extreme

climates).

3.2. Exploiting natural resources while reducing/mitigating the impact on environment

The exploitation of natural resources may cause damages to an environment which

particularly fragile in insular and isolated countries and territories.

The stakes of innovation are in this case of course environmental – preservation of the

environment and biodiversity. They are also economic:

damages to environment can entail non-reversible changes and be costly for the

community, not only in the long term;

they may generate conflicts within the community and a resistance to innovation

which will hamper the adoption of innovative solutions in the future;

they may have a negative impact on tourism, and tourism is an important part of

the economy for a number of OCTs.

Four sectors are mainly concerned: mining, agriculture and fishing, construction, tourism.

Mining has clearly a high environmental impact. New Caledonia, where mining constitutes

a key sector because of nickel resources, is particularly concerned by the development of

good operating practices and prevention of risks in the mining sector. Greenland is also

very much concerned for the future (uranium).

The use of pesticides in agriculture should be reduced as far as possible through the

development of organic farming and production of organic foodstuffs. The case of

18 Sea Water Air Conditioning.

French Polynesia has developed experience and expertise in Sea Water Air Conditioning

(SWAC) technology. Air conditioning may represent up to 40% of total energy consumption in

some tropical territories, which makes it very expensive if the territory is heavily dependent on

imported fossil fuels. The use of the SWAC technology allows for reducing energy costs,

dependency on imports, CO2 emissions. In addition, the ascent of deep water may lead to the

development of various activities.

The SWAC technology has been used since 2006 in French Polynesia (Intercontinental Hotel and spa facilities in Bora Bora). Another hotel, the Brando, relies 100% on renewables solar, biomass from coprah, SWAC) and is certified LEED Platinum.

This experience has allowed for developing local high-level technical expertise and competences.



Page 21

“chlordécone” used in banana plantations in Guadeloupe and Martinique is an illustration

of the damages caused by chemical products with soil and water pollution which have an

impact on various cultures and on fishing and aquaculture (rivers and seaside where the

rivers open on the sea).

A good knowledge of halieutic resources, provided by the development of local research

capacities and/or the use of external ones, is necessary for regulating fishing activities,

and also for envisaging the planning and implementation of fish farms and aquaculture

projects. Among the OCTs, St Helena, Ascension and Tristan da Cunha19, New Caledonia

(with its Zonéco programme), as well as the French Southern and Antarctic Lands (use of

scientific methods for supporting sustainable fishing), are particularly concerned by the

issue.

Construction is a critical sector in so far as construction techniques and materials have to

be adapted as far as possible to the local environment and climate in order to save energy

and have the minimal impact on environment. New Caledonia is paying particular

attention to this issue in its Technopole project.

Tourism is to be included among the activities relying on the exploitation of natural

resources, and, as such, badly managed touristic activities and badly built touristic

facilities may cause damages to the environment. The development of sustainable

tourism – and not only of eco-tourism – is accordingly an issue which concerns practically

all OCTs (e.g.: St. Eustatius, BVI, Pitcairn, Saint Pierre et Miquelon).

In addition, the management of waste, industrial as well as domestic, is also a key issue in

insular territories20, and recycling activities have to be developed and supported as far as

possible, using innovative technologies, and in particular those which produce energy

(biomass). Among the OCTs, the French Southern and Antarctic Lands reduce and

remove all waste from their lands, BVI has projects concerning the recycling of plastic

bags and sail cloth21, Bonaire intends to explore markets for waste processing in South

America.

3.3. Developing the potential for exporting know-how, engineering services and expertise

This potential starts with the fact that many OCTs provide excellent sites for

experimenting innovative solutions in specific geographical and climatic conditions

(‘natural labs’), that could be transferred to other territories, a situation that gives them a

comparative advantage with respect to Europe. Experimentation is generally carried out

in collaboration with large groups, in particular utilities, and allows for developing

competences locally.

This is especially true in the field of energy efficiency and renewable energies. Some EU

outermost regions have already started to export know-how and engineering services in

19 Sustainable management of lobster resources. 20 Waste can be exported, but it is generally a costly solution. 21 How cool is Green ?, pp.9-10.



Page 22

geothermal, solar and wind energy22. The limitation is that large groups are in the driving

seat and that it may be difficult for local SMEs to be effectively involved in the

development of leading edge technologies. Among the OCTs, Aruba is contemplating to

develop the transfer of know-how with summer courses for European students, and has

the ambition to be the “green gate” for the economic and technological exchange

between Europe and the Caribbean area.

In the future, it could be envisaged to export expertise in the field of energy public

policies (strategies set up and implemented, energy mix) to less developed countries.

The same can be said of other types of expertise and engineering services in fields as:

tropical building materials and tropical building techniques and methods; protection and

valorisation of biodiversity (with the development of related biotechnologies); mining

techniques preserving the environment; sustainable fishing techniques; waste

processing; etc.

Of course, for an OCT (or an EU outermost region), exporting such expertise, know-how

and services requires that they have been experimented and implemented locally, and

that there is a good command of the related techniques. Those of the OCTs which have

higher education institutions, universities and/or research activities have an additional

advantage.

Markets can often be approached through calls for tenders of international organisations

and agencies (UN agencies, Interamerican Development Bank, Asian Development Bank,

African Development Bank, etc.).

3.4. Exploring and developing systematically relevant market niches

Among the niche markets which can be developed by OCTs, we find the high added value

or knowledge-based services mentioned above.

Agriculture and the agro-food sector can also provide opportunities on the European and

international markets. This happens already with rum in the Caribbean area. The rum

market is fully globalised and mainly in the hands of large beverage & spirits

multinationals. However, there is room for high-end products which can use as selling

arguments both high specificity and high quality, the former being linked to local tradition

and branding. Barbados and Martinique provide interesting examples of an attempt to

rely on this marketing approach.

Other opportunities regard fruit and vegetables produced off-season for European

markets (there is a success story in Guadeloupe with melon), squash (exports of New

Caledonia to Japan), coffee, chocolate, and spices. Being successful in these market

niches require non-technological innovation, as targeting very specific markets, or

22 Guadeloupe and La Réunion. See : Growth Factors in the Outermost Regions, European Commission, DG REGIO, 2011;

Etude sur les filières d’avenir et les avantages comparatifs dans les Départements d’Outre-mer, Agence française de Développement (AFD), 2013 (a study carried out by Technopolis |ITD|).



Page 23

attractive packaging. Producers can target in particular Caribbean communities in large

European cities and tourists back home.

We can also add some export products directly related to biodiversity such as: natural

pharma and cosmetics products, aquarium fish species.

The limitation is that, due to the size of the territories concerned, the quantity available

for export is necessarily small. There have been some interesting efforts to overcome this

limitation: in Guadeloupe, for instance, a coffee manufacturer has proved successful in

selling a high-end product on the European market, while buying coffee beans from

different countries and territories of the Caribbean area (and not only from Guadeloupe):

the innovation and the added value are to be found in the marketing and branding, as

well as in the business model.

Among the OCTs, Curaçao is currently planting aloe vera for developing a sustainable

production of different aloe-based products for the cosmetics industry. As there are

already a number of regions in the world in this business, Curaçao will have to

demonstrate its capacities in terms of competitive advantage.

Some OCTs have established specific expertise in financial services (e.g.: Cayman Is.,

Anguilla, BVI) and in transhipment services (St Eustatius, Curaçao). The sustainability of

these market niches raises different types of issues. Regarding financial services, the main

issue today is related to the attacks of large countries against tax havens and,

accordingly, to the changes (innovations) that should be brought to the current laws and

regulations. Concerning transhipment services, the issue is the follow up of all

innovations which affect logistics and transport systems and could affect the position of

the OCTs specialised in such services; addressing this issue requires the development of

economic and market intelligence tools.

Finally, a last market niche is eco-tourism (see below).

3.5. Consolidating an « evident », but highly competitive and volatile, export sector :

tourism and eco-tourism

Tourism is par excellence a major exporting sector for a large majority of OCTs, because of

their geographical position and specific climatic conditions, as well as of the security they

guarantee to visitors (political and economic stability, safety). Another key advantage,

linked to the changes in the global tourism market, is provided by biodiversity and natural

resources.

At the moment, tourism in the Caribbean is favoured by political instability in the

Southern and Mediterranean countries, in spite of the crisis that affects Europe. In the

Pacific area, the crisis is still there and distance is an aggravating factor.

It remains that, in the mid- and long term, the touristic market suffers from being often

serrated. Competition is fierce. OCTs, as the EU outermost regions, are facing

competition of low-cost destinations (such as the Dominican Republic), destinations with



Page 24

a strong ‘politico-cultural’ identity (Cuba), or high-end (Bahamas, Mauritius, Maldives) /

very high-end (Seychelles) destinations. Saint-Barthélémy has proved able to position

itself on this last market.

Within such a competitive context, comparative and non-price competitive advantages

have again to be found through building on specificities and targeting niche markets,

such as eco-tourism and even, within eco-tourism, ‘super niches’ as, for instance, bird

watching. This is again innovation – non-technological innovation – and it depends upon

the efforts realised in the field of environmental protection.

Specificities and image have to be carefully built and branded, while at the same time it is

necessary to offer lodging and hotel facilities and services appropriate to the customers

targeted.

3.6. Supporting ICT as a sector and as a transversal instrument for enhancing innovation

and competitiveness

ICT constitute a key factor for both competitveness and innovation everywhere around

the world, but even more in the OCTs. ICT allow for overcoming the distance from the

main economic and demographic concentrations and connecting the most isolated

territories.

ICT can be compared to the environment-related economic sector: it is both an economic

sector in itself and at the same time it ‘irrigates’ a large number of industrial and service

sectors.

As a consequence, supporting ICT within a perspective of enhancing innovation and

competitiveness means:

Improving infrastructure for ensuring access to high-speed broadband

telecommunications at an affordable cost for the customers/users, often a critical

issue – having an excellent, but expensive, access to high-speed

telecommunications has a limited impact on innovation, competitiveness and

economic growth.

Improvement of infrastructure is a two-level process: connection of the territory to the

‘outside’ via cable or V-sat; local cable network (e.g.: optical fiber).

A good ratio cost/quality is a key condition for the development of ICT services and

applications and uses.

Development of ICT services:

By ICT services, we mean the services offered in the fields of data management, CRM,

management of personnel, accountancy, etc., to industries, trade, transport and logistics



Page 25

companies, utilities and administrations. These services include SaaS23 and customised

applications set up for clients.

The ICT companies offering and delivering these services (in French SSII: sociétés de

services en ingénierie informatique) are often large companies operating at international

level; however, small and mid-size companies of the sort have been created in some EU

outermost regions and OCTs.

They need storage capacities, which may lead them to build their own data centers. New

Caledonia has data centers and French Polynesia has projects. There is currently the CTEX

data center project in Curaçao (with 71,000 square feet facilities delivering enterprise-

class cloud services, IT solutions, colocation, disaster recovery and managed services)24. It

is definitely important to think in terms of ‘green’ data centers, i.e. data centers with a

high energy efficiency, since data centers consume a lot of energy for cooling and energy

is expensive in the OCTs.

Support to applications and uses of ICT in a wide range of activities of particular

interest to OCTs with respect to what has been said before, such as:

o Mobile communications: creation of specific applications for smart phones;

o Development of cloud services for administrations and utilities;

o Energy efficiency, with the use of smart grids;

o Education / life-long learning: MOOC;

o Tourism: digitalisation of touristic information and applications for mobiles;

o Heritage: digitalisation of archives; development of e-tools

o Creative industries;

o E-commerce (e.g.: handicratfs, local specialities);

o E-administration;

o Etc.

23 Software as a Service. 24 http://www.ctexpartners.com.

http://www.ctexpartners.com/



Page 26

4. Towards territorial innovation and competitiveness strategies

OCTs are preparing to carry out territorial innovation strategies. This paper does not

intend to anticipate what will be the main priorities and axes of these strategies which

will have anyway to be adapted to the actual context of each OCT.

The ambition of this last chapter limits to providing food for thought concerning the

framework of the future strategies and a sort of check-list of the key issues which they

will have to address, on the basis of the concepts that have been exposed (innovation,

non-price competitiveness) and of the possible fields of intervention.

Three major issues have to be addressed:

- having a state-of-the-art of the ‘innovation and competitiveness gap’ through

comparing supply and demand for innovation in each OCT and its community;

- reviewing the different instruments that can be used for reducing or filling the

gap;

- assessing and understanding the outcomes or results of an improvement of

innovation and competitiveness.

Apart from these issues which are specific to each OCT, the exchange of good practices

among the OCTs – and between the OCTs and the EU Outermost Regions – is surely a key

factor for encouraging innovation and competitiveness all over the OCT community.

Saint-Pierre-et-Miquelon recently carried out a feasibility study on the economic

development of ICT (June 2013). The local government had previously (2011) identified 3

priority sectors: fisheries, tourism, digital economy / ICT. The global objective concerning the

digital economy is to reduce the digital divide with metropolitan France and Europe. The main

conclusions of the study are as follows.

“The assessment of the current trade and economic state of affairs regarding the attractiveness of SPM for internet-based services in particular for operators offering ‘software as a service’ and cloud computing solutions (e-Businesses) reveals in particular that:

By 2016, the technical context in SPM will favour the development of ICT activities in particular thanks to the deployment of a fiber cable to connect the islands with the worldwide internet network and of a new electric plant

The tax and regulatory context do not provide for a favourable regime for e-Businesses”

The main recommendations of the study “to improve the e-Business attractiveness of SPM are:

Establishment of a Datacenter in Saint-Pierre

Dematerialization of regulatory and tax procedures

Amendment to the Code Local des Investissements

Targeted marketing actions”



Page 27

4.1. Carrying out an analysis of the ‘innovation and competitiveness gap’

4.1.1. Assessing competitiveness factors

Regarding first competitiveness, there are at least three major sectors for which an

analysis of competitiveness and various competitiveness factors should be carried out:

Agriculture and agro-food (including fish and sea products):

Competitiveness has to be assessed on the local market by comparison to imported

foodstuffs, taking account of price competitiveness and non-price competitiveness

factors such as quality and local branding.

It has also to be assessed on the external markets concerning niche products (e.g.:

counter-season fruit and vegetables, tropical fruit) mainly on the basis of non-price

competitiveness factors.

Tourism:

Competitiveness has to be assessed on the international markets – introducing in

principle a differentiation according to the currency area (USD, EURO) both in the OCT

and the markets targeted – with respect to price and non-price competitiveness factors,

the latter being related to the positioning of specific niche markets (scuba diving, kite

surfing, various types of eco-tourism such as bird-watching, sea-tortoises, etc.).

Energy:

The competitiveness of renewables has to be assessed by comparison to imported fossil

fuels, taking account of a mid- and long-term perspective and benefits that can possibly

come out of being an experimentation site, while integrating both objectives of self-

dependency and preservation of the environment.

Conclusions of the analysis of the competitiveness factors should be summarised through

a SWOT presentation highlighting the comparative advantages of the OCT. They should

also include a survey of the innovation inputs that could improve competitiveness and

contribute to strengthen the comparative advantages, thus introducing the analysis of

the innovation gap.

4.1.2. Assessing the innovation gap

Classically, the assessment of the innovation gap starts with an analysis of supply and

demand.

The analysis of supply relies first on a survey of the existing sources of R&D & innovation

in the territory: higher education institutions, universities, research organisations and

research labs (public and private). As a number of OCTs have only few sources of this

type, if any, it is important to take also account of the external sources to which an OCT

may have an access, in the parent states and/or through international R&D and

technological networks (e.g.: marine research, biodiversity, etc.).



Page 28

The analysis of demand for innovation relies on a survey of the needs of the main sectors

composing the OCT economic fabric (sector level), using the conclusions of the

assessment of competitiveness, and of the needs of the local companies through a series

of interviews aimed at deepening the understanding of companies’ strategies (micro-

economic level)25. The analysis of demand should be not only the analysis of the effective

demand at the time of the survey (which may be a weak demand), but the analysis of the

potential demand in the mid-term.

The identification and assessment of the innovation gap comes out from the comparison

between supply and effective/potential demand.

4.2. Instruments

The instruments that could be set up to filling, or at least reducing the competitiveness

and innovation gap can be listed as follows:

4.2.1. Support to the development or strengthening of R&D & innovation capacities

This may result from the creation of new institutions or attraction of labs from other

countries (due for instance to the potential of the OCT as an experimentation site) or

integration/connection to international scientific and technological networks.

While the development of R&D capacities is surely useful, it is not by itself a guarantee of

innovation to the benefit of the local economic fabric: in general, a bridge has to be built

between research (academics) and business.

4.2.2. Support to entrepreneurship

Creating a context favourable to entrepreneurship and entrepreneurial spirit may be

based on various actions: reducing the administrative burden for creating new

enterprises, favourable taxation for young enterprises, training courses for candidate

entrepreneurs, etc. – and the following types of support hereafter.

4.2.3. Immaterial support to innovative projects

By immaterial support, we mean all measures and actions leading to provide assistance,

advice and mentoring to all people wanting to develop innovative projects. Fields

covered can be: market studies, business plan, technical advice and consultancy, legal

advice (including IPR: intellectual property rights), etc. Mentoring is especially important

for young entrepreneurs; it can be provided by active or retired entrepreneurs.

These support services may be provided free of charge and be funded by the government

(possibly with EDF contribution); they may also be charged, totally or partially, to the

‘client-innovators’, depending upon the public policy option taken by the government.

25 Such an analysis was already carried out in New Caledonia.



Page 29

4.2.4. Finance

Beside ‘classical’ banking loans, financial support may be provided through the three

different categories of financial instruments:

- soft loans (possibly zero-interest depending upon government support) – in

French: prêts d’honneur – supporting new businesses or innovative projects in

existing businesses;

- guarantee of loans with guarantee funds;

- equity (or quasi-equity) with seed- or venture-capital and investment funds,

business angels, crowd funding platforms.

Government aid to the two last instruments should depend on the OCT market gap in

financing innovation, since private guarantee funds and equity funds may prove able to

address the needs of businesses.

Concerning loans, the experience shows that in the EU outermost regions and in some

OCTs, the ‘classical’ banking system is often reluctant to finance innovative projects.

Accordingly, a system of public-supported soft loans may appear necessary as well as a

loan guarantee system (which will incentivate the ‘classical’ banks to be less risk-averse).

4.2.5. Facilities dedicated to host innovative projects and enterprises

Such physical facilities are business incubators which host young entrepreneurs in the

initial stage before the formal creation of their company and in the very beginning of the

life of this company. It must be noted that the French generally make a difference

between incubator and pépinière d’entreprises, the former hosting young entrepreneurs

in the very initial phase, and the latter during the first years of the company.

Another type of physical facilities is constituted by science & technology parks (STP)

which host innovative and knowledge-based businesses.

Incubators and STPs happen to be often combined on the same location. They provide at

the same time the immaterial support services to innovative projects listed above

through their own staff and through a network of partners, in particular R&D

organisations and universities.

In New Caledonia, PROMOSUD (Société de Financement et de Développement de la Province Sud)

has acted as a public-supported equity fund for 20 years and has recently invested in innovative

aquaculture projects for a total amount of 4,19 EUR



Page 30

4.2.6. Innovation governance

A specific innovation governance system is very useful for at least two reasons:

- supporting and promoting innovation and competitiveness require a collaboration

of the various actors involved: businesses, academia (education, training, R&D),

finance (local banks and financial institutions), and government which can provide

different types of public support;

- due to globalisation, the economic context is changing at a fast pace, which means

that it is necessary to watch the changes occurring in markets (and consumers

behaviour) and technologies, and adapt accordingly.

The innovation governance system should be as simple and flexible as possible, including

the leading actors and relying on the observation of: a) what happens in the OCT in terms

of innovation and competitiveness (with a selected number of indicators); b) the global

trends that affect or may affect the OCT economic fabric.

4.3. Expected outcomes

In this last paragraph, we will come back shortly to economic theory in order to have a

review of the outcomes and results of improved competitiveness and innovation.

New Caledonia is currently setting up a ‘Technopole’ which is focused on four thematics which

have been defined as priorities for the territory in relation to innovation opportunities: marine

resources (living and mineral); terrestrial resources (living and mineral); renewable energies and

building materials for ‘green construction’; ICT and multimedia. These priority thematics rely on

R&D resources and are expected to boost innovation in the related economic sectors.

The Technopole offers to innovators the immaterial services supporting innovative projects that have been listed above and includes a multi-site incubator for innovative enterprises. It will also include its own R&D labs experimentation and transfer centers (i.e. not only those of French R&D organisations) with dedicated facilities and teams developping innovative programs on marine and terrestrial ressources / ecosystems.

The development of the Technopole is carried out by ADECAL, the New Caledonia Development Agency.

In French Polynesia, an ‘Innovation Pole’ named Tahiti Fa’ahotu was created in 2009. It is

grouping local businesses , and local R&D and training organisations, with the objective of

supporting innovation through the valorisation of natural resources. It is certified as a cluster by the

French government (programme Grappe d’entreprises).

It has four axes: exploitation of sea natural resources; exploitation of terrestrial natural resources; biodiversity and biotechnologies; renewable energies and sustainable protection of the environment.

It is aimed at: developing scientifc and technological watch to the benefit of its members; supporting R&D projects; accompanying the setting up of innovative projects by its members; developing collaborations with other clusters in France and at international level, depending upon the needs of its members.



Page 31

4.3.1. Identifying and understanding outcomes

Through supporting innovation and competitiveness, the major stake for the OCTs is to

find opportunities for diversification and growth on their own domestic market, and on

external markets – whatever they are, EU parent-states, regional area, wider

international – in order to trigger a ‘virtuous’ spiral of development.

This ‘virtuous’ spiral may be triggered through various actions and instruments, tailored

to the specific context of each OCT, and leads to multiplier effects, productivity effects

and competitiveness effects.

Multiplier effects:

The multiplier effects, put in evidence by Keynes26, refer to the consequences (upstream

and downstream) of an exogenous growth of final demand, caused by increased exports

or increased public spending, on the local income.

They can result from the development and diversification of tourism (in particular with

eco-tourism), the exportation of expertise, know-how and engineering services (energy,

tropical building techniques), and of niche foodstuffs, the development of financial and

transhipment services, etc. They can also result from investments funded or co-funded by

the parent-states in higher education and R&D, or port and airport infrastructures – and

foreign direct investment (FDI) caused by an increased attractiveness of the territory.

Productivity effects:

Productivity effects27 allow for taking account of the dynamics of supply generated by

productivity gains related to innovation, rationalisation or capacities investment.

They can result for instance of progress made in the use of waste for producing energy –

e.g.: lignocellulosic biomass energy form sugar cane, coprah or wood – or in energy

efficiency due to building materials and techniques adapted to the local climatic

conditions. They can also result from improved agricultural techniques linked to

agricultural research, a better training of the work force, etc.

Competitiveness effects:

Competitiveness effects correspond to the consequences of competitiveness gains (price

or volume) on local growth, through the introduction of an import substitution process

and/or the promotion of exports.

26 The multiplier effect showed that any government spending brought about cycles of spending that increased employment and prosperity regardless of the form of the spending. For example, a $100 million government project, whether to build a dam or dig and refill a giant hole, might pay $50 million in pure labor costs. The workers then take that $50 million and, minus the average saving rate, spend it at various businesses. These businesses now have more money to hire more people to make more products, leading to another round of spending. This idea was at the core of the New Deal. 27 Productivity is defined as a measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical determinant of cost efficiency.



Page 32

They can come out from progress in agricultural and agro-food production (which leads

local consumers to buy more local products), local energy production (various types of

renewables according to the local context) and energy saving in buildings and transport

(with the reduction of imported fossil fuels), use of local materials for building, etc. They

can also result of exports of niche products or services benefiting from non-price

competitiveness factors (specificity, cultural identity, high-end positioning), while

remaining in a pricing range which stays ‘in the market’ and does not drive consumers to

buying substitution products of services.

4.3.2. Assessing outcomes and impacts

It is definitely important to assess the outcomes (or results) and the impacts of an

innovation strategy and the programmes and actions set up for implementing it, in order

to be sure that the local community effectively has benefited from it, and not only from a

strictly economic point of view.

Outcome evaluation measures the change that has occurred as a result of a programme.

An impact evaluation looks at the long-term, deeper changes that have resulted from

that programme. While the outcome evaluation tells us what kind of change has

occurred, an impact evaluation paints a picture as to how a programme might have

affected the economic, social, cultural and institutional fabric on a broader scale.

Assessing outcomes and impacts require that a set of appropriate indicators is set up

when the innovation strategy is elaborated in order to monitor and follow up its

implementation. The issue of indicators was first raised at the beginning of this paper

when addressing the typology question (§ 1). The set of indicators allows for having a

scoreboard of the achievements that will have to be analysed. As statistical data are

often missing in the OCTs, an innovation strategy often provides an opportunity for

improving the statistical data building and collection with the creation of an economic

and social ‘observatory’, which will be in itself an innovation.

Indicators, scoreboard and observatory constitute a key element of the innovation

governance system (see above § 4.2.6), and of the overall governance system in the

broadest meaning, in so far as they will allow for a better understanding of the trends

affecting the OCT and contribute to improve the steering instruments in a fast changing

global context.

Date post:	11-Aug-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

Exploratory Note on Competitiveness and Innovation · Innovation has to be ‘demystified’: it...

Documents