The Mexico City Roundtable on OECD’s Innovation Strategy

2nd Forum on Innovation for Competitiveness

Andrew Wyckoff OECD / STI7 January 2010

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Overview

1. The OECD Innovation Strategy2. The Innovation Imperative

3. The changing nature of innovation

4. Implications for policy

5. Concluding remarks for Mexico

1. OECD’s Innovation Strategy

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A multidisciplinary approach

2. The Innovation Imperative

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Pre-crisis slowdown in productivity

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Innovation offers the largest potential for catching up

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Decomposition of cross-country differences in GDP per capita into their determinants, 2005

(United States = 100)

GDP PPP per capita TFP Human capital Physical capital Employment

United States 100.0 100.0 100.0 100.0 100.0

Canada 83.5 72.0 103.3 105.8 106.0

Japan 72.6 52.6 100.4 130.7 105.1

China 9.8 13.6 57.3 105.2 119.5

India 5.2 12.7 47.7 98.3 87.1

Brazil 20.5 29.3 70.1 103.1 96.8

Russian Federation 28.6 31.5 84.9 97.4 99.3

EU27 + EFTA 64.7 67.8 91.2 114.1 91.3

Total World 22.8 27.9 64.2 104.2 95.8

Source: OECD.

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The need to support innovation grows due to the crisis.

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2. The Changing Nature of Innovationwhat, how, where & who

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What innovation encompasses has changed…• Expansion to services, including non-

market services like public sector services;

• Broader than just R&D to include non-R&D innovation like design, marketing, organisational innovation;

• Applied to social issues – e.g. climate change – not well supported by market mechanisms

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…to include non-tech innovators …

Source: OECD based on Eurostat, CIS-2006 (April 2009) and national data sources.

Share of non-technological innovators by sector

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Share of business R&D by technological intensity (manufacturing, 2006)

…a wide cross section of industries…

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(indexed on 1980=1.0, Annex 1 ratification countries)

...and applications to social issues.

Patenting in climate mitigation technologies relative to all sectors

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How innovation is conducted has changed…

• Increasingly at the intersection / interaction of separate borders: disciplines; geography and institutions

• Cost pressures, competition and desire to reduce risk have led to more open / collaborative strategies;

• Premium and competitive advantage attached to tacit knowledge: know-how, organisational capital, access to networks.

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Domestic co-authors

International co-authors

International Single author

There is more collaboration among scientists...

Trends in co-authorship in scientific publications

Domestic single authors

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Share of companies collaborating in innovation activities, by size

Source: OECD based on Eurostat, CIS-2006 (April 2009) and national data sources.

...and between firms...

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…who are employing “open innovation” strategies for competitive advantage.

– Items shipped on behalf of sellers who utilized Fulfillment by Amazon (FBA): 3x from 2008

– Amazon Web Services (AWS): 300k users

– 100k approved apps, up from 65k in August– estimated 2.5b$US iPhone “apps economy”*

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Q3 ‘09

Q3 ‘09

* www.gigaom.com 27/08/09 “How Big is the iPhone App Economy?”

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Where innovation occurs has changed…

• MNEs still play a huge role; but increasingly more than just “D” abroad;

• Increase in x-border links;

• Rise of China and India.

...as global innovation networks emerge...

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010

2030

4050

60

Ch

inese T

aipei

Belg

ium

Sw

itzerland

Po

land

Po

rtugal

Ireland

Czech

Rep

ublic

Sin

gapore

Hun

gary

Can

ada

Greece

Austria

Ind

ia

Un

ited K

ingdom

Russian

Federation

Mexico

Fran

ce

Den

mark

Sp

ain

Slo

venia

No

rway

Neth

erlands

New

Zealan

d

Sw

eden

Brazil

Germ

any

Israel

Fin

land

Australia

Ch

ina

Italy

Turkey

So

uth A

frica

Un

ited S

tates

EU

27

OE

CD

To

tal

Ko

rea

Japan

2004-061996-98

2004-06

1996-98

PCT patent applications with co-inventors located abroad

(...including Mexico…)

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… as well as new global players...Contributions to growth in global R&D

(in billion constant US PPP and %)

37%

16%

23%

15%

7%

13%

10%

13%

11%

30%

12%

13%

0

20

40

60

80

100

120

140

160

180

1996-2001 2001-2006

Other non-OECD (2)

China

Other OECD (1)

Japan

EU-27

United States

Note: (1) Australia, Canada, Iceland, Korea, Mexico, New Zealand, Norway and Turkey (2) Argentina, Brazil, India, Israel, Russian Federation, Singapore, South Africa, Chinese TaipeiSource: OECD.

1996-2001

2001-2006

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...that alter the topography of innovation.

Broad based Leaders

Narrow Leaders / Adopters

Adopters / Followers

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What drives innovation has changed…

• Global market for the highly-skilled;

• Not only the “I” but now the “C” in ICTs;

• Global Challenges: climate change, health care, food security, development;

• Eco-system: not only the supply side (R&D, facilities, SET) but also the demand (procurement, “vouchers” and lead users)o Not just a “National System on Innovation” but also

a collection of regional / local innovation systems that directly link to global innovation networks

...labour markets for the highly-skilled are globalising…

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Growth in the number of tertiary education students enrolled outside their country of citizenship worldwide (millions)

Source: OECD and UNESCO Institute of Statistics

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…and ICT (especially the Internet) has altered the nature of innovation.

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0

10

20

30

40

50

60

70

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Em

iss

ion

s (G

t C

O2)

WEO 2007 450 ppm case ETP2008 analysis

BLUE Map emissions 14 Gt

Baseline emissions 62 Gt

CCS industry and transformation (9%)

CCS power generation (10%)

Nuclear (6%)

Renewables (21%)

Power generation efficiencyand fuel switching (7%)

End use fuel switching (11%)

End use electricity efficiency (12%)

End use fuel efficiency (24%)

...and global challenges will exert a large “demand-pull”.

Potential technological contributions to CO2 emission reductions

Source: IEA.

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The actors involved in innovating have broadened…

• A range of firms and industries – not just large and high-tech;

• Wide range of actors needed – not just SET but entrepreneurs and non-profits;

• A range of Ministries and public agencies, and all levels of government;

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…forcing a “rethink” of how to manage and govern innovation.

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Finland’s Governance of Innovation Policy

3. Implications for Policy: the OECD IS Policy Principles

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1. Empowering people to innovate

• Providing education and training: hard and soft skills, including entrepreneurship

• Motivation and space for innovation to flourish:

o Competition & empowering consumers

o Solid, predictable institutional framework that supports entrepreneurs:

• Effective and sustained public / private sharing of the costs & risks of innovation.

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2. Providing an infrastructure for a networked-based innovation system

• Policy must seek to erect bridges between the different parts, forming or joining a network – either locally or globally.

• Soft skills are needed that can traverse disciplines, cultures and organisations.

• Building networks through mobility.

• Exploiting modern communication capabilities.

• Providing a modern and reliable knowledge infrastructure and platforms for innovation

• Facilitating knowledge flows and fostering the development of knowledge networks and markets

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3. Capturing value locally while tapping into global networks of innovation.

• Build absorptive capacity: skills, institutions, access to networks

• Universities are an essential node in innovation systems that can be the glue between actors and a local anchor into global networks.

• Building on existing strengths for dynamic comparative advantage through innovation

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4. Improve the governance of policies for innovation.

• A broader conceptualisation of innovation requires a re-think of governance mechanisms to improve coherence;

Across ministries and levels of government;

• Need for strong political leadership;

• Need for measurement and evaluation frameworks to support policy.

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5. Adapt to a post-crisis environment

• Step up competition enforcement so that “creative destruction” can occur and new players can emerge

Use of procurement as a “demand-pull”

• Stretch resources through co-operation / collaboration / PPPs and public depositories of information

• Transform global challenges into innovative opportunities (e.g. Biodiversity; water management; food security).

4. Concluding Remarks: relevance of the IS principles in the

Mexican Context

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• Governance: sustained commitment, continuity & leadership;

• Globalisation: tapping into global networks to complement domestic capabilities in priority areas and Mexican Diaspora;

• Entrepreneurship & Education: remove obstacles and nurture an entrepreneurial culture in the young.

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• E-mail comments & ideas:– Andrew.Wyckoff@oecd.org– Jean.Guinet@oecd.org

• Keep abreast– www.oecd.org/innovation/strategy

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