Innovation in Developing Countries

In the nineteenth century, ‗foreign‘ technology and its international diffusion are the most important factors that contributed to the industrialization both in Europe and the United States. It also impacted strongly the industrialization in Japan in the twentieth century. Nowadays, in the twentieth-first century, there is the rapid industrialization of the newly industrializing countries. Or it is called ‗dynamic Asian economics‘, for instance, South Korea, Taiwan, Singapore, and more recently China, India and Indonesia. Developing countries had higher growth rates than those of the developed countries during the 1980s and 1990s. (Freeman and Soete, 1997)

Freeman and Soete (1997) analysed how technologies evolve and diffuse and under what conditions ‗effective‘ technological catching up will happen. His research focused on in-depth historical studies of countries in the production and use of particular technologies (Ames and Rosenberg, 1963). He emphasises the historical institutional framework within which the process of imitation/technological catching up will happen.

Making development happen requires previous capital to produce new capital, previous knowledge to produce new knowledge, so it is with the technology. Technological ‗locking out‘ of underdevelopment opposes the international diffusion of technology. (Associated with IP) In some of the neo-technology international trade, the further international diffusion of the technology to ‗less developed‘ countries takes place. These countries acquire comparative industrialization advantage in low tech mature products and industries through the ‗use‘ of imported technologies. The capability of creating and improving new technology rather than the simple ‗use‘ of technology can make technological catching up happen. In

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summary, these countries must become the imitators or innovators of the new products or processes. In the beginning of the new technologies and industries, small companies make the most important contribution.

In house process innovation is different from open market product innovation. Technical uncertainty needs to be solved in Product innovation. Whereas, both technical uncertainty and market uncertainty need to be solved in in-house process innovation.

According to Freeman and Soete (1997), the decision-makers decide to implement an innovation project in the company according to three parameters, as following:

 ‗The probable costs of development, production, launch and use of marketing of the innovation and the approximate timing of these expenditures.‘

 ‗The probable future income stream arising from the sale or use or the innovation and its timing.‘

 ‗The probability of success, technically and commercially.‘

National Innovation System (NIS) in India

Joseph (2005) argues there was a rise in foreign collaboration for technology import, investment in R&D, industry academia interface, growth of GDP, foreign exchange reserves and FDI inflows. He also highlights:

 Indian enterprises are also making outward investments as a part of their internationalisation process.

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 Some Indian enterprises are emerging as multinationals in knowledge based industries such as in pharmaceuticals, automotives, and IT software and Services.

 India is also emerging as an R&D Hub for MNCs

Joseph (2005) explains:

“The main issue was the failure of the factor in the role of NIS (National Innovation System). A country that invests increasingly in R&D and having larger share of its imports from advanced countries with higher technological knowledge is likely to experience faster TFP growth. India‟s investment in R&D as a proportion of GDP increased from about 0.35% in 1970-71 to 0.62 percent in 1980 and increased further to reach an all time high level of 0.96 per cent in 1989-90. The rate of growth in the number of engineering graduates increased from 0.61 per cent during 1968- 79 to 4.64% during 1979-89.”

However, he also addresses many challengers, such as, Declining R&D; Weak interface with academia at large; poor quality of manpower and new patent Regime and others. Although there has been a boom in sectors like IT and software as well as off shoring of R&D services by MNC‘s, their research and work is not addressing India‘s problems and issues but mainly global ones.

National Innovation System in Thailand

Intarakumnerd (2005) claims private companies, government, universities, private bridging organisations, financial intermediaries and institutions are playing different role in the National Innovation System of Thailand. He analyses the role played by various actors such the government, universities, private firms, private bridging organizations, financial intermediaries and institutions.

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―Thai firms regarded research institutions as less important sources of knowledge and information. On the contrary, 53 percent of Korean firms regard universities and research institutes as the sources of knowledge and information. Only 36 and 29 percent of Thai firms considered so respectively. ‖

Intarakumnerd (2005) also highlights the fact that the proportion of innovating firms is low in Thailand. The share of product and process innovating companies in Thailand only added up to 2.9 percent compared to 21 percent in Korea. He also outlines the major characteristics of organisations in Thailand:

 Limited roles in diffusing innovation, unlike Japanese industry associations in R&D consortium in the 1960s.

 Limited roles in building trust among members

 Mostly represented vested interests (FTI, TCC), focus on political bargaining. A few like Thailand-Japan Technology Promotion Association (TPA) and Kenan Institute Asia performing knowledge brokers/diffusion roles, and assisting local firms to increase technological/managerial capabilities.‖

National Innovation System in Vietnam

Sinh (2005) highlights the needs why Vietnam‘s transformation to NIS is he believes inevitable:

 ―Vietnam is undergoing double rapid transitions: from centrally planned to market economy and Regional integration‖

 ―Implications on relationship between R&D institutions and enterprises including private ones‖

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 ―First introduction of concept by IDRC mission to Vietnam in 1997 NIS provides theoretical framework in understanding the dynamic interaction between actors involved in innovation, not only public R&D institutions and enterprises.‖

Sinh (2005) explains Weak interaction among actors on NIS arises because relationship between research and industries is still very weak. He argues that the enterprises do not rely on the support of the local R&D institutes for their technological innovation. Very few enterprises participate in large state research programmes and projects. And there is lack of information channels and intermediary agencies for facilitating the innovation process. Also, the structure of a centrally planned economy still dominates.

According to Sinh (2005):

“Lack of motivation for innovation had four major reasons. There was limited technology learning among enterprises from foreign partners including FDI projects. Due to secret keeping tradition and inadequate protection of IPR, the innovation system is more static with limited flows of knowledge. There is lack of intermediary institutions and services. Finally, there is no venture capital.”

He suggests transformation of industrial technology R&D institutes as the policy options for gradual restructuring of the existing NIS where: building R&D capabilities in enterprises through spin-in and spin-out transformation; a change on role and functions of R&D institutes knowledge producers, users and brokers.