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Reform of Hong Kong’s Public Research Funding System
Chintay Shih and Shin-Horng Chen
College of Technology Management, Tsing Hua University, Hsinchu, Taiwanand
Chung-Hua Institution for Economic Research, Taipei, Taiwan
Outline
Introduction A Snapshot of R&D in Hong Kong Hong Kong Public R&D Funding Innovation Governance of Hong Kong Public
R&D Funding Policy Recommendations
Conclusions
2
1. Introduction
Central theme: Public R&D What to be done in order to improve the innovation
governance of HK public R&D; the sound “soft infrastructure” required for the promotion of R&D and innovation in general, public R&D in particular
The way in which the HK government, the ITC in particular administrates the R&D funding schemes Innovation and Technology Support Programme (ITSP) under
Innovation and Technology Fund (ITF) Accounting for 53.75% of the approved projects and 83.5% of
the approved amount respectively The way in which the research institutes interact with the
funding agencies
3
Structure of the Funding Schemes Administrated by the ITC
4
ITC (Innovation and Technology Commission)
Innovation & Technology Fund (ITF) Applied Research Fund (ARF)
Patent Application Grant (PAG)
New Technology Training Scheme
DesignSmart Initiative
Innovation and Technology Support Programme (ITSP) R&D Centres Programme
Guangdong-Hong Kong Technology Cooperation Funding Scheme (TCFS)
Forward-looking and innovative applied R&D projects
University-Industry Collaboration Programme (UICP)Teaching Company SchemeMatching Grant for Joint ResearchIndustrial Research Chair Scheme
Small Entrepreneur Research Assistance Programme (SERAP)
General Support Programme (GSP)
The amount approved under the ITSP amounted to 83% of the whole ITF from its initiation to May 2008.
The investment period of the Applied Research Fund has expired in end March 2005 and the Fund has ceased making new investments.
2. A Snapshot of R&D in Hong Kong (1/3)
R&D expenditures in 2006: HK$ 11.95 billion (US$ 1.54 billion); accounting for 0.81% of GDP Relatively low by international standards, lower than
Taiwan (2.58%) and China (1.42%), and even much lower than a few other economies of similar size
A positive trend: Growing momentum of the private (business) sector in R&D investment 53% of the total R&D expenditure in 2006
R&D expenditure invested by the HK government either fluctuated over time or at most grew at a modest rate. Since 2004, growing at a rate of less than 8% annually
5
2. A Snapshot of R&D in Hong Kong (2/3)
Predominant role played by the service sector in business R&D The wholesale, retail and import and export trades,
restaurants and hotels sector: 58% The financing, insurance, real estate and business services
sector: 24% An extra part of R&D for manufacturing hidden in the
wholesale, retail and import and export trades, restaurants and hotels sector Trading firms with sub-contract processing arrangements De-linking of R&D and manufacturing in terms of location
R&D activities undertaken by the financing, insurance, real estate and business services sector related mainly to information technology
6
R&D Expenditure in the Business Sector by Industry Sector, 2002-2006
7
Industry sector R&D expenditure (HK$ million)
2002 2003 2004 2005 2006
Manufacturing 481.9 406.1 587.1 471.3 369.0
<19%> <11%> <13%> <8%> <6%>Wholesale, retail and import and export trades, restaurants and hotels
936.3 1,255.6 2,310.8 2,541.9 3,676.1
<37%> <35%> <50%> <45%> <58%>Financing, insurance, real estate and business services
552.8 1,493.7 1,299.2 2,184.4 1,528.5
<22%> <42%> <28%> <39%> <24%>
Others 534.8 389.7 393.1 424.0 713.8
<21%> <11%> <9%> <8%> <11%>
Total 2,505.8 3,545.1 4,590.3 5,621.6 6,287.4
<100%> <100%> <100%> <100%> <100%>
Notes: Figures in < > represent the percentages to total. The percentages in a year may not add up to 100 due to rounding.
Source: Adapted from HKCSD (2008a).
2. A Snapshot of R&D in Hong Kong (3/3)
A mismatch between public R&D and private R&D, esp. in terms of the strategic areas selected by the ITC for the R&D Centre Programme R&D expenditure in the business sector mainly on information
technology (42.5%) and electrical & electronic engineering technology (33.6%)
R&D for Chinese medicine and nanotechnology by the private sector negligible
The business sector in HK engaged substantially in R&D outsourcing Its size more than half the total business R&D Intra-corporate cross-border network, esp. within the PRD
Economic Zone, as the dominant type of R&D outsourcing adopted by the HK-based firms or establishments
8
Total Expenditure for in-House R&D activities in 2007 by Technology Area by Industry Sector
9
(HK$ million)
Technology area
Information technology
Information system and technology
Computer hardware
technology
Computer software
technology
Com-munication technology
Subtotal
Electrical & electronics engineering technology@
Manu-facturing
technology
Bio-technology
Chinese medicine
Nano-technology
Advanced materials
technologyOthers Total(1)
By industry sector
Manufacturing 25.7 47.6 27.0 8.1 108.3 201.0 220.2 4.3 3.8 3.9 49.9 0.1 591.5
<4.3%> <8.0%> <4.6%> <1.4%> <18.3%> <34.0%> <37.2%> <0.7%> <0.7%> <0.7%> <8.4%> <#> <100.0%>
Wholesale, retail and import and export trades, restaurants and hotels
60.0 126.1 189.4 273.2 648.8 1,410.8 448.9 31.6 0.0 45.1 156.3 0.0 2,741.4
<2.2%> <4.6%> <6.9%> <10.0%> <23.7%> <51.5%> <16.4%> <1.2%> <0.0%> <1.6%> <5.7%> <0.0%> <100.0%>
Financing, insurance, real estate and business services
616.5 189.6 610.2 146.9 1,563.2 399.3 32.9 65.5 1.4 14.8 92.9 2.2 2,172.3
<28.4%> <8.7%> <28.1%> <6.8%> <72.0%> <18.4%> <1.5%> <3.0%> <0.1%> <0.7%> <4.3%> <0.1%> <100.0%>
Others 68.5 25.3 76.9 80.9 251.7 26.1 10.4 238.5 0.5 0.1 0.9 21.1 549.4
<12.5%> <4.6%> <14.0%> <14.7%> <45.8%> <4.8%> <1.9%> <43.4%> <0.1%> <#> <0.2%> <3.8%> <100.0%>
Total 770.7 388.6 903.5 509.2 2,572.0 2,037.2 712.5 339.9 5.8 63.9 299.9 23.4 6,054.6
<12.7%> <6.4%> <14.9%> <8.4%> <42.5%> <33.6%> <11.8%> <5.6%> <0.1%> <1.1%> <5.0%> <0.4%> <100.0%>
Note: (1) Figure include expenditure for in-house R&D activities conducted by a local party for itself and / or for other organisation.# Figure less than 0.05%.@ Electrical and electronics engineering technology associated with (a) computer hardware (such as integrated circuits) was included in the area of computer hardware technology; (b) communication technology was included in the area of communication technology.
Source: Adapted from HKCSD(2008b).
3. Hong Kong Public R&D Funding (1/2)
Innovation and Technology Support Programme (ITSP) under the Innovation and Technology Fund (ITF) The lion’s share of the research institutes’ funding from
ITSP The amount approved under ITSP: 83% of the whole ITF
A new three-tier structure in funding proposals under the ITSP since 2005 Tier 1: R&D centres in six areas
Automotive parts & accessory systems Logistics & supply chain management enabling technologies Textile & clothing Nanotechnology & advanced materials Information & communications Chinese medicine 10
3. Hong Kong Public R&D Funding (2/2)
The designated functions for these centres To conduct industry-oriented research To facilitate IP commercialisation To provide technology and market intelligence To provide a platform for exchange of IT/technology To promote technology development, transfer and knowledge
dissemination Some of them like project offices, with limited in-house
R&D capacity and a limited number of staff members ASTRI established in 2000 to conduct industry-oriented
applied R&D Photonics technologies, internet applications, wireless
communications and IC design
11
4. Innovation Governance of Hong Kong Public R&D Funding
12
Public R&D Investment and Portfolio (1/3)
Insufficient level of R&D intensity: 0.81% China’s R&D : 1.42% in 2006 and to reach 2% by 2010
Beijing, Shanghai and Guangdong in 2005: 5.5%, 2.3% and 1.1% respectively
Taiwan and Singapore: Both setting a goal to raise R&D intensity to the 3% level around 2010
The resource allocation of public R&D in HK intrinsically short-termism R&D initiatives funded by ITC by and large short-term-oriented,
dispersed and reactive type, at most individual programme-specific or technology policy by nature Short of long-term, integrated type of R&D and innovation
initiatives, or “innovation policy” in a broad sense ASTRI: Mainly doing development work, not genuinely forward-
looking research Because of the short time spans of the projects
13
Public R&D Investment and Portfolio (2/3)
Lessons learned in OECD Budgetary practices often promote short-term thinking and
in some cases undermine strategic, long-term policy making To reduce fragmentation and create critical mass and
excellence in the public research sector Finland: Strategic Centre for Science, Technology and
Innovation (SHOKs) A new way of coordinating dispersed research resources to
meet targets important for Finnish business and society Companies, universities and research institutes working
together to formulate a jointly-agreed research plan to meet the application needs for practical application by member companies within a 5-10-year period
14
Public R&D Investment and Portfolio (3/3)
Recommendation: HK to have a more balanced R&D portfolio Public R&D investment in long-term strategic topics
A more flexible governance relationship between the funding agencies and the research institutes needed
Public R&D expenditure in service innovation, systemic service innovation in particular Controversies around the factor of de-linking of R&D
and manufacturing in terms of location “Enclave” vs. leverage on the mainland
To build strength on strength and serve as a “testbed” for brand new service innovation Demanding needs to trigger service innovation The success of “Octopus Card”
Digital TV services?15
A Four Dimensional Model of Service Innovation
16
NEW SERVICECONCEPT
(DIMENSION 1)
NEW CLIENTINTERFACE
(DIMENSION 2)
NEW SERVICEDELIVERY SYSTEM
(DIMENSION 3)
TECH-NOLOGICAL
OPTIONS(DIMENSION 4)
organisational
capabilities
HR
Mca
pabi
litie
s
marketing & distributioncapabilities
capabilities, skills & attitude of existingand competing service workers
char
acte
rist
ics
of e
xist
ing
and
com
peti
ng s
ervi
ces
char
acte
rist
ics
of a
ctua
l a
nd p
oten
tial
cli
ents
© Dialogic
Source: den Hertog (2001, p.4).
When promoting systemic service innovations, the government needs to adopt a holistic and flexible approach, which will be different from that to the promotion of manufacturing-centric R&D or technology-centric initiatives.
The Funding Mechanism and Institutional Arrangements (1/6)
The research institutes in HK deficient in their R&D portfolio & short of capital for making strategic investment The funding schemes by ITC: Short term-oriented, dispersed and
reactive type ASTRI: constrained to pursuing development work and/or me-
too projects Compounded by ITC’s requirement of 10 % of industrial
contribution basically for each project The business sector in HK: A strong preference for short-term
profitability DoIT’s funding schemes in Taiwan for research institutes:
Different types of research and/or strategic investment Ranging from pioneering technology research, the building-up of
infrastructure required, to large-scale R&D facilities The assessment procedures varying across different types of the
funding schemes17
The Types of Funding Schemes for Research Institutes, Administrated by the DoIT in Taiwan
ITRI, with financial support from the DoIT, can propose and conduct long-term R&D projects, say up to four or five years. Annual reviews for checking progress still needed
The assessment procedure for the Pioneering Technology Research Program is conducted by ITRI itself in order to provide appropriate room and flexibility for the formation of more creative projects. External and overseas reviewers with international reputation called upon to the
assessment committee.18
1. Pioneering Technology Research Program (獨立性創新前瞻計畫 )
2.Key Technology Base Program (關鍵性計畫 )
(1)Forward-Looking R&D Program (創新前瞻類 )
(2)Key Technology/Product Program (關鍵技術 /產品類 )
(3)Infrastructure-Building Program (環境建構類 )
3.Large-scale R&D Facilities Program (獨立型環境建構計畫 )
(Unofficial Translation)
The Funding Mechanism and Institutional Arrangements (2/6)
10 % of industrial contribution to ensure industry-orientation Some local professionals: This requirement troublesome and
rigid ASTRI: Some flexibility shown by ITC, allowing ASTRI to get
an average of 10% from a number of projects rather than a full 10% for each project
Our views: Not so unreasonable as it looks The problem: ITC’s R&D funding schemes for research institutes
not so diversified as the case of the DoIT in Taiwan Recommendation: ITC to provide a wider variety of R&D
schemes for the research institutes Some of the schemes still demand industrial sponsorship, while
others allows the research institutes to involve strategic R&D even without industrial participation right from the beginning.
19
The Funding Mechanism and Institutional Arrangements (3/6)
Some unease with the regulation that approval from the Finance Committee of the Legislative Council required for project requesting more than HK$15 million each from ITF From October 2008, the financial ceiling is increased from
HK$15 million to HK$21 million For such projects to kick off, the research proposals have to
go through five panels. internal review, industrial review, technology review, ITC review
and board of directors, plus the Legislative Council Recommendation: As funding practices in many countries,
the technology review committee given authority to make decisions, before reporting to ITC for final approval
20
The Funding Mechanism and Institutional Arrangements (4/6)
Project management on the part of ITC criticized Not to tolerate any changes in the projects Outputs from the R&D projects specified beforehand
DoIT in Taiwan: Tolerate failures in some cases, while evaluates the performance of the research institutes from a long-term perspective Esp. regarding forward-looking and risky programme, as the
Pioneering Technology Research Program Recommendation: ITC to reduce administrative
micromanagement Changes in projects up to certain extent allowed and endorsed
mainly by the review committee rather than all the way by the ITC, except for major changes
21
The Funding Mechanism and Institutional Arrangements (5/6)
The R&D centres not truly engaged in R&D activities Some of them: serving simply as a project office, creating an additional
layer of bureaucracy between ITC and the other innovation actors The projects funded by the R&D centres not that different from
those funded by some other major schemes by ITC Recommendation: Upon completion of their project time span, ITC
to conduct an intensive evaluation on the performance of the individual R&D centres To review the R&D centers’ business plan, to be formulated by the
centers and their major stakeholders, which should be in line with ITC’s long-term strategy, if any.
ITC to make a critical decision for the consolidation of the Programme in the near future A mismatch between public R&D and private R&D
22
The Funding Mechanism and Institutional Arrangements (6/6)
Shortage of dedicated professional (technology manager) for the promotion of technology transfer on the part of the research institutions and universities ASTRI’s R&D personnel to shoulder the work of R&D and the
promotion of technology transfer at the same time Taiwan: Research institutes have dedicated units for technology
transfer and/or technology management DoIT providing the research institutes with resources required through
the Infrastructure-Building Program. Recommendation: ITC to step up its efforts in this regard
HK to take advantage of the training and supporting system built by the Association of University Technology Manager (AUTM) in the US and/or the Association of University Technology Managers (AURIL) in the UK to train and recruit the technology managers required
23
5. Conclusions
If HK’s R&D investment keeps move at the same pace or cannot manage to catch up with its neighboring economies for years to come, it will be unrealistic for HK to become an “innovation hub” in the region
If the funding mechanism and institutional arrangements continue to work based on administrative mindset, HK’s innovation governance will be undermined.
Recommendation: To solve the above problems from a long-term perspective, the HK government as a whole to follow the example set by its neighboring economies to promulgate a HK version of “Science and Technology Basic Law” that can facilitate the speeding-up of public R&D investment with “additionality” and the sound development of innovation governance
24
Thank you for your AttentionComments More Than Welcome
25
R&D Expenditure by Performing Sector, 2002-2006
26
Sector R&D expenditure (HK$ million)
2002 2003 2004 2005 2006
Business 2,505.8 3,545.1 4,590.3 5,621.6 6,287.4
<33%> <41%> <48%> <51%> <53%>
[0.20%] [0.29%] [0.36%] [0.41%] [0.43%]@
Higher education 4,800.7 4,796.2 4,707.3 5,085.0 5,410.9
<64%> <56%> <50%> <47%> <45%>
[0.38%] [0.39%] [0.36%] [0.37%] [0.37%]@
Government 237.1 207.5 207.6 215.2 248.6
<3%> <2%> <2%> <2%> <2%>
[0.02%] [0.02%] [0.02%] [0.02%] [0.02%]@
Total 7,543.6 8,548.8 9,505.2 10,921.8 11,946.9
<100%> <100%> <100%> <100%> <100%>
[0.59%] [0.69%] [0.74%] [0.79%] [0.81%]@
Notes: Figures in < > represent the percentages to total. The percentages in a year may not add up to 100 due to rounding.Figures in square brackets represent the ratios to GDP. The GDP estimates are based on the data on expenditure-based GDP estimates at current prices released on 27 February 2008.@ Figures are subject to revision later on.
Source: Adapted from HKCSD (2008a).
Innovation and Technology Fund:Distribution of Approved Projects among Different Industrial
Sectors (as at 30/9/2008)
27
Programme
Innovation and Technology Support
ProgrammeGeneral Support
Programme
University-Industry Collaboration Programme
Small Entrepreneur Research Assistance
Programme Total
Industrial Sector No $mn No $mn No $mn No $mn No $mnBiotechnology 77 236.3 5 2.8 37 62.9 23 22.6 142 324.4
Electrical and Electronics 225 1,120.3 3 2.8 37 31.6 74 76.1 339 1,230.9
Environmental 19 44.2 1 1 8 19.6 12 12.5 40 77.3
Information Technology 139 709 8 9.6 42 49.1 139 144.2 328 912.1
Foundation Industries 135 667.4 4 3.2 46 27.9 13 12.6 198 711.0
Textiles/Clothing/Footwear 55 223.5 1 0.4 5 3.3 4 3.2 65 230.4
General (Cross Sectors) 3 37.7 84 92.9 - - 1 0.9 88 131.5
Others 6 20.9 10 17.0 - - 10 8.3 26 46.1Total 659 3059.3 116 129.7 175 194.3 276 280.4 1226 3663.7
Note: There may be a slight discrepancy between the sum of individual items and the total as shown in the tables owing to rounding.
Source:http://www.itf.gov.hk/eng/statistics/StatTable104View.asp?StatTypeId=104&StatId=517&StatCaption=Distribution+of+Approved+Projects+among+Different+Industrial+Sectors.
Funding Indicators of the Major Funding Schemes under the Auspices of the ITC, 2006-2008 (1/2)
28
2006(Actual)
2007(Actual)
2008(Estimate)
ITSPΨApplications received and processed 126 137 137Projects funded and being monitored 117 116 144
TCFSApplications received and processed 62 51 60Projects funded and being monitored 58 90 103
R&D centres’ projectsφ
Automotive Parts and Accessory Systems R&D Centre New projects -- 9 39Projects funded and being monitored -- 9 48
Hong Kong R&D Centre for Information and Communications Technologies
New projects 16 35 43Projects funded and being monitored 16 51 93
Hong Kong R&D Centre for Logistics and Supply Chain Management Enabling Technologies
New projects -- 8 13Projects funded and being monitored -- 8 21
Nano and Advanced Materials Institute New projects -- 5 48Projects funded and being monitored -- 5 53
Hong Kong Research Institute of Textiles and Apparel New projects -- 13 20Projects funded and being monitored -- 13 33
Funding Indicators of the Major Funding Schemes under the Auspices of the ITC, 2006-2008 (2/2)
29
Notes:ΨThe figures do not include applications submitted by or projects undertaken by the five R&D centres and the ASTRI, which are reported under the indicators “R&D centres’ projects” and “ASTRI projects”.φAll projects (including TCFS projects and feasibility studies) undertaken and/or monitored by R&D centres are included. For the Hong Kong R&D Centre for Information and Communications Technologies (ICT R&D Centre), the actual figures for 2006 have been updated to include feasibility studies.@The figures do not include projects undertaken by the ICT R&D Centre hosted by the ASTRI, which are now reported under the new indicator “R&D centres’ projects”. Separately, the actual figures for 2006 have been updated to include feasibility studies undertaken by the ASTRI.
Source: Adapt from ITC, Controlling Officer’s Report (2008).
2006(Actual)
2007(Actual)
2008(Estimate)
ASTRI projects@New projects 8 -- --Projects funded and being monitored 32 25 11