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8/7/2019 The New Geography of Innovation Asias role in global innovation networks
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The New Geography ofInnovation
Asias role in global innovationnetworks
Dieter Ernst,
East-West Center, [email protected]
mailto:[email protected]:[email protected]8/7/2019 The New Geography of Innovation Asias role in global innovation networks
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Argument
Global innovation networks transform thegeography of innovation.
US firms are key drivers Much of the action now is in Asia (driven
by the resurgence of China and India).
A neglected dimension of Pacific Rimintegration
dearth of data weak foundation for policyadvice
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Questions
1. Innovation processes in transition. What isnew?
2. How important is Asias role? And what forcesare driving Asias network integration?
3. Policy Challenges Will network integration foster decoupling?
Will it reduce entrenched barriers toinnovation in Asia?
Is there scope for sharing the benefits within
Asia and across the Pacific?
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1. Innovation Processes in Transition
(What is new?) Observation (despite poor data):
globally distributed innovation networkscomplement in-house R&D
multiple new locations for innovation areemerging (China, IndiaKorea, Singapore,
Israel, Hungary..)
But: established centers retain dominance
new conflicts over sharing the benefits arise
within Asia and across the Pacific
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Asias Push to Innovate
In 2007, Asia spent US-$(PPP) 436.2
billion on R&D (39% of world total), placingit ahead of the US ($353 billion and ashare of 31%).
With US-$(PPP) 175 billion, China is nowthe second largest R&D investor, after the
US (with $ 353 billion), but ahead of Japan($143.5 billion).
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Asias % share in global R&D spending
2006 2007e 2008p
US 32.7 31.4 30.1Asia 36.9 38.8 40.8
China 13.5 15.6 17.9Japan 13.0 12.8 12.4
India 3.7 3.7 3.7EU all 25.2 24.6 23.9
Battelle 2007
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Persistent U.S.-centric concentration
of the sources of innovation all 15 leading companies with the best record on
patent citations are based in the United States (9
in the IT industry)
The 700 largest R&D spenders (mostly large
U.S. firms) account for 50% of the worlds totalR&D expenditures and >2/3 of the worldsbusiness R&D
> 80 percent of the 700 largest R&D spenderscome from only five countries (United Statesdominates, followed by Japan, Germany, United
Kingdom, France) Dieter Ernst
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Explanation (in progress):
Corporate strategies respond toglobalizing markets (products,
finance,technology, knowledge workers)pressures to improve R&D productivity
Asian upgrading thru innovationstrategies
Enablers (liberalization, ICT, globalization
of higher education) multiple asymmetries (private vs public;
advanced vs emerging economies; largevs small countries)
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Global innovation networks
I. Global companies offshore stages of
innovation to Asian affiliates
intra-firmglobal innovation networks
II. Global firms outsource stages of
innovation to specialized Asiansuppliers
inter-firmnetworksIII. Asian firms construct their own (mostly
intra-firm) networks Dieter Ernst
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2006 Engineer Survey
50% of US respondents (up from 46% in 2005)
report that their company has sent electronics
design work offshore. Job security and unemployment are the
dominant concern of US-based engineers (69%
of respondents), together with offshore
outsourcing (67%).
34 % of Indian respondents report that theiremployers are offshoring high-end hardware
design and software development.
The Electronic Engineering Times
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Intels Global Innovation Network
Location Description
US
(11 labs)
core technology development in Santa Clara,
Folsom and AustinAsia
(7 labs,
moreplanned)
Bangalore (2700 = largest lab outside US),leading-edge processor development
Penang (500), design implementationShanghai (100++) Linux based solutions fortelecom; new applications for emerging markets
Beijing (50++), platform and architecture labIsrael,Russia
Haifa (1400, since 1974), processor research
Nizhny Novgorod (200++): software
Dieter Ernst
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ODM Inter-Firm Network -Notebooks
Tier 1: Flagship
Tier 2: ODM
Tier 3 - Suppliers
Tier 4(and below) - Suppliers
CoreComponentSuppliers
(HDD, Displays,CPU)
CoreComponentSuppliers
(HDD, Displays,CPU)
Dieter Ernst
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New Entrants: Huawei
Kista/Stockholm,Sweden
base station architecture and systemdesign; analog-mixed signal design(RF); algorithms
Moscow, Russia algorithms; RF design
Bangalore, India Development of embedded SW andplatforms
Plano/Texas(Dallas telecomcorridor)
total solutions for CDMA; G3 UMTS;CDMA Mobile Intelligent Networks;mobile data service; optical; VoIP
Dieter Ernst
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2. How important is Asia? And what
forces are driving Asias networkintegration?
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2005 Survey of the worlds largest R&D
spenders China is the 3rd most important offshore
R&D location (after the US and the UK)
India is 6th and Singapore 9th
China is the most attractive location forfuture foreign R&D, ahead of the US andIndia
Leading global corporations also intend toexpand their offshore outsourcing of R&D
to Asian firmsUNCTAD World Investment Report 2005
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EIU 2006 Survey
India and China are the 2nd and 3rd
most important offshore R&D location(after the US and ahead of the UK)
Leading global corporations considerIndia, the US and China to be the
best overseas locations for futureR&D
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Systemic nature of driving forces
return-on-investment must exceed risk-adjustedmarket average reduce development cost
demand: proximity to Asias markets and global
factories exploit Asian markets for knowledge workers
(from labor cost arbitrage to external sourcing of
complementary innovative capabilities) global markets for technology facilitate
innovation offshoring
Asian policies: tax and financial incentives;combine liberalization with proactive and flexibleindustrial and innovation policies
Dieter Ernst Interviews with 120 companies in the US, Asia and Europe
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China Market
largest market for telecom equipment (wired &wireless) (test bed for 3G)
ditto for semiconductors and handsets (launch
market) 2nd largest market for cars
Lead market for digital CE (#2)
Leading export market for US, Japan, Taiwanand Korea
bottom- of-the-pyramid markets for less over-engineered products and services withsubstantially lower costs of acquisition andoperation
Dieter Ernst
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Annual Cost of Employing a Chip
Design Engineer* (US-$), 2002Location Annual Cost
Silicon Valley 300,000
Canada 150,000
Ireland 75,000
Taiwan
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Wadhwa 2007
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China growth of science & engineeringPhDs 70% of the 23,500 PhD degrees in 2004 are
in S&E between 1995 and 2003, first year entrants
in science and engineering PhD programs inChina increased six-fold, from 8,139 to48,740
China w i l l p roduc e m ore S& Edoc t orat es t han t he US by 2010NBER - Freeman, 2005
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3. Implications and Policy Challenges
Will network integration foster
decoupling? Will it reduce entrenched barriers to
innovation in Asia? Is there scope for sharing the benefits
within Asia and across the Pacific?
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Will network integration foster decoupling?
Trade : Will reliance on triangular trade giveway to an Asianization of trade and investment,centered on China?
Ta lent poo l : Can Asian countries replicatethe US model of attracting top talent from theglobal market for knowledge workers?
Innovat ion sys t em : Can Asian universitiesbecome trend-setters in reforming innovationsystems?
Innovat ive c apab i l i t ies : Can Asian firmsenter the global innovation race as sources ofnew technology and global standards?
Dieter Ernst
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Strategic Dilemma for Asias emerging
knowledge economies Innovative capabilities continue to lag
substantially behind industry leaders
Reducing the gap will take time.
Is network integration a poisoned chalice?
Or is it a catalyst for reducing entrenched
innovation barriers?
Dieter Ernst
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Network integration A Poisoned Chalice?
global firms compete for Asias limited talent
pool (brain drain)
weak linkages with local universities
limited knowledge sharing
reverse knowledge transfer (institutional
arbitrage)
bridgeheads for platform leadership strategies
IP barriers
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Network integration a catalyst for reducinginnovation barriers?
pressure to upgrade technological andmanagement capabilities and skill levels of
workers exposure to leading-edge technology and (tacit)
knowledge about technology and management
catalyst for reforming national innovationsystems (?)
links with markets and financial institutions access to intellectual tools and sources ofknowledge
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Avoid the commodity price trap
Just competing as lower-cost R&D
contractors may leave them in alow-margin commodity price trap.
Asian firms need to create unique
products and solutions, addressing
important user needs that incumbent
market leaders have neglected.
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Innovation Strategies Matrix
II: mission-based
complex technologysystems (space,military, energy,
environment, climate)
IV: global market
leadership technology leadership
technology
diversification
I: bottom-of-the-
pyramid innovation(essentials for lower-tier urban markets and
rural poor)
III: Global R&D factory
(contract support andR&D services)
R&D
intensity
high
low
Global integrationlow high
Dieter Ernst
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Shar ing t he benef i t s?
1. Chinas resurgenc e Japan; Taiwan; Korea; ASEAN2. Ind ia s resurgenc e India-China; South Asia; East Asia
3. Redef in ing t r iangu larre la t ionsh ips US-Japan-China US-China-India
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US-Asia division of labor in innovation -Scenarios
Hierarch ica l : selective and tightlycontrolled offshoring of lower-end innovationtasks and capabilities
Complementary : U.S.-led global innovationnetworks combine system integrationcapabilities in the United States with lower-
cost offshore development of intellectualproperty
Unequa l in t e rdependenc e : architecturalinnovations and new standards aredeveloped both in the US and in Asia, but theUS will continue to shape the terms of
interdependence Dieter Ernst
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EWC Innovation Research
1. Innovation System Dynamics in the Global
Knowledge Economy - A Comparative
Analysis of Leading Asian ExportEconomies
2. Globalization of Knowledge Work - Why ischip design moving to Asia ?
3. Governing the Global Knowledge Economy:
Mind the Gap! (with David M. Hart, George
Mason University)
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EWC innovation publications(1)
Ernst, D., 2007, Beyond the Global Factory Model:Innovative Capabilities for Upgrading Chinas IT Industry,International Journal of Technology and Globalisation(MIT)
-, 2007, Can Chinese IT Firms Build InnovativeCapabilities Within Global Production and R&DNetworks?, in: China's Quest for IndependentInnovation(M. Gong Hancock, H. S. Rowen, and W. F.
Miller, editors), Shorenstein Asia Pacific ResearchCenter and Brookings Institution Press
-, 2007, Innovation Offshoring - Root Causes of AsiasRise and Policy Implications, in :Multinational Corporations and the EmergingNetwork Economy in the Pacific Rim(Palacios, Juan J.,ed.), London: Routledge. Co-published with the Pacific
Trade and Development Conference (PAFTAD)
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EWC innovation publications (2)
Ernst, D., 2006, INNOVATION OFFSHORING: Asias Emerging Role in
Global Innovation Networks, East-West Center Special Report, incooperation with the U.S. Asia-Pacific Council, Julyhttp://www.eastwestcenter.org/fileadmin/stored/pdfs/SR010.pdf
- , 2005, Complexity and Internationalisation of Innovation: Why is Chip
Design Moving to Asia?, in International Journal of InnovationManagement, special issue in honour of Keith Pavitt, Vol. 9,1: 47-73
-., 2005, Limits to Modularity - Reflections on Recent Developments in ChipDesign, Industry and Innovation, Vol. 12, No.3: 303-335
-., 2005, The New Mobility of Knowledge: Digital Information Systems andGlobal Flagship Networks, in: R. Latham and S. Sassen (eds), DigitalFormations. IT and New Architectures in the Global Realm, published forthe U.S. Social Science Research Council, Princeton University Press,
Princeton and Oxford -., 2005, Pathways to innovation in Asias leading electronics-exporting
countries - a framework for exploring drivers and policy implications,International Journal of Technology Management, special issue onCompetitive Strategies of Asian High-Tech Firms"; Vol. 29, 1/ 2: 6-20
http://www.eastwestcenter.org/fileadmin/stored/pdfs/SR010.pdfhttp://www.eastwestcenter.org/stored/misc/Complexity.pdfhttp://www.eastwestcenter.org/stored/misc/Complexity.pdfhttp://eastwestcenter.org/stored/misc/Limits_Modularity.pdfhttp://eastwestcenter.org/stored/misc/Limits_Modularity.pdfhttp://www.eastwestcenter.org/stored/misc/New_Mobility.pdfhttp://www.eastwestcenter.org/stored/misc/New_Mobility.pdfhttp://www.eastwestcenter.org/stored/misc/Pathways_to_Innovation.pdfhttp://www.eastwestcenter.org/stored/misc/Pathways_to_Innovation.pdfhttp://www.eastwestcenter.org/stored/misc/Pathways_to_Innovation.pdfhttp://www.eastwestcenter.org/stored/misc/Pathways_to_Innovation.pdfhttp://www.eastwestcenter.org/stored/misc/New_Mobility.pdfhttp://www.eastwestcenter.org/stored/misc/New_Mobility.pdfhttp://eastwestcenter.org/stored/misc/Limits_Modularity.pdfhttp://eastwestcenter.org/stored/misc/Limits_Modularity.pdfhttp://www.eastwestcenter.org/stored/misc/Complexity.pdfhttp://www.eastwestcenter.org/stored/misc/Complexity.pdfhttp://www.eastwestcenter.org/fileadmin/stored/pdfs/SR010.pdf