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OECD Innovation Strategy

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					     The OECD
     Innovation Strategy:
     Findings and
     Implications

Mario Cervantes, Dirk Pilat and
  Karen Wilson, OECD / STI
    Stockholm, 11 February 2010
             Overview
1. The OECD Innovation Strategy
2. The innovation imperative
3. The changing nature of innovation
4. Some broader messages




                               2
1. OECD’s Innovation Strategy




                        3
The OECD Innovation Strategy:
      Cutting across many policy areas
           Education & skills                Science and
                                             technology
     Environment                                       Industry and
                                                     entrepreneurship
   Development
                                                     Information and
                          The OECD work
                                                     communications
     Tax                  involves a wide
                           range of policy
                            Committees                 Statistics
Competition

 Investment                                        Public governance

      Trade                                   Territorial
                                             development
                Consumer policy
                                                                        4
2. The Innovation Imperative




                         5
Pre-crisis slowdown in productivity




                            6
          Innovation offers the largest
            potential for catching up
                 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.
                                                                                                      7
The need to sustain innovation has
     grown due to the crisis.




                            8
3. The Changing Nature of Innovation
    what, how, where, why & who




                             9
 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

                                         10
        …to include non-tech innovators …
             Share of non-technological innovators by sector




                                                                                   11
Source: OECD based on Eurostat, CIS-2006 (April 2009) and national data sources.
        …a wide cross section of industries…
Share of business R&D by technological intensity (manufacturing, 2006)




                                                         12
        ...and applications to global issues.
Patenting in climate mitigation technologies relative to all sectors
            (indexed on 1980=1.0, Annex 1 ratification countries)




                                                               13
Implications from the broadening
          of innovation
• Growing importance of education and training:
  hard and soft skills, including entrepreneurship
• Need to provide space for innovation to flourish:
    o Competition & empowering consumers
    o Solid, predictable institutional framework
      that supports entrepreneurs:
•   Recognition that a bundle of investments are
    needed for innovation: tech & non-tech.
                                           14
   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.          15
There is more collaboration among
           scientists...
 Trends in co-authorship in scientific publications
                                                      Domestic
                                                      co-authors



                                                      Domestic single
                                                      authors


                                                      International co-
                                                      authors




                                                  International
                                                  Single author




                                                             16
                                                             16
                                ...and between firms...
Share of companies collaborating in innovation activities, by size




                                                                                   17
Source: OECD based on Eurostat, CIS-2006 (April 2009) and national data sources.
…who are employing “open innovation”
 strategies for competitive advantage.
                    Q3 „09

   – Items shipped on behalf of sellers who utilized
     Fulfillment by Amazon (FBA): 3x from 2008
   – Amazon Web Services (AWS): 300k users

           Q3 „09
   – 100k approved apps, up from 65k in August
   – estimated 2.5b$US iPhone “apps economy”*
                                                                  18
 * www.gigaom.com 27/08/09 “How Big is the iPhone App Economy?”
    Implications from a more open
          mode of innovation
•   Erect bridges between the different parts, forming
    or joining a network – not necessarily more or new
    hard infrastructure.
•   Soft skills are needed that can traverse
    disciplines, cultures and organisations.
•   Building networks through labour mobility.
•   Use of ICT to build networks; informatics as a
    multidisciplinary field and public depositories of
    information as a platform for innovation;
•   Developing knowledge networks and markets;
                                      19
   Where innovation occurs has
           changed…
• MNEs still play a huge role; but increasingly
  more than just “D” abroad;

• Increase in cross-border links;
• Emergence of a global labour market for the
  highly skilled;

• Rise of China and India.
                                          20
In some OECD countries, foreign
 affiliates carry out more R&D than
          national-based firms
       ...as global innovation networks emerge...

         Share of patents with foreign co-inventors (%)

30.0

                 1993-1995   2003-2005
25.0



20.0



15.0



10.0



 5.0



 0.0




                                                     22
              ...labour markets for the highly-skilled
                         become global…
Growth in the number of tertiary education students enrolled outside their
                country of citizenship worldwide (millions)




                                                            23
Source: OECD and UNESCO Institute of Statistics
            … and new global players emerge...
                            Contributions to growth in global R&D
                              (in billion constant US PPP and %)
         180                1996-2001
         160                      12%                               2001-2006
         140                      11%                                    13%
         120                      10%                                                                     Other non-OECD (2)
                                   7%                                    30%                              China
         100
                                                                                                          Other OECD (1)
           80                     23%
                                                                         13%                              Japan
           60
                                                                         13%                              EU-27
           40                                                                                             United States
                                  37%                                    15%
           20
                                                                         16%
            0
                              1996-2001                              2001-2006
Note: (1) Australia, Canada, Iceland, Korea, Mexico, New Zealand, Norway and Turkey                               24
      (2) Argentina, Brazil, India, Israel, Russian Federation, Singapore, South Africa, Chinese Taipei
Source: OECD.
...that alter the topography of innovation.
                         Broad based Leaders



                   Narrow Leaders /
                          Adopters




Adopters / Followers


                                                    link

                                               25
    Implications of global networks of
                innovation

•   Build absorptive capacity: skills, institutions,
    access to networks;
•   Importance of services as a means of capturing
    value locally & gaining access to lead-users;
•   Universities are an essential node in innovation
    systems that can be the glue between actors, a
    local anchor into global networks and a magnet for
    global talent.
•   Building on existing strengths for dynamic
    comparative advantage through innovation.
                                          26
       Why innovation occurs has
              changed…
• Global Challenges – climate change, health care,
  food security – are exerting a strong “demand-pull”;

• Innovation is an eco-system: not only the supply side
  (R&D, facilities, SET) but also the demand side
  (procurement, “vouchers” and lead users).




                                              27
… ICT (especially the Internet) has
altered the nature of innovation...




                             28
                                      28
                         ...and global challenges are exerting
                                a large “demand-pull”...
Potential technological contributions to CO2 emission reductions
                       70
                                                                                        CCS industry and transformation (9%)
                                          Baseline emissions 62 Gt
                       60                                                               CCS power generation (10%)

                                                                                        Nuclear (6%)
 Emissions (Gt CO2)




                       50
                                                                                        Renewables (21%)


                       40                                                               Power generation efficiency
                                                                                        and fuel switching (7%)


                       30                                                               End use fuel switching (11%)



                       20                                                               End use electricity efficiency (12%)

                                     BLUE Map emissions 14 Gt
                                                                                        End use fuel efficiency (24%)
                       10     WEO 2007 450 ppm case                  ETP2008 analysis



                        0
                         2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

                                                                                                              29
                      Source: IEA.
        ...raising the awareness of the
          demand-side of innovation.

                             Demand-side measures


                                e.g. Procurement policies




                       Policies to     Policies to      Policies to
   e.g. Promotion        support        enhance         strengthen
of entrepreneurship   investment       innovation    linkages within   e.g. Public-private
    & innovation        in S&T &     competencies       innovation        partnerships
      in SMEs          innovation        of firms         systems




                                e.g. R&D tax incentives
                                        Grants



                              Supply-side measures                         30
  Implications of the changing
     drivers of innovation
• Harnessing innovation to address global
  challenges
   combination of “getting prices right” and stimulating
  innovation;
   stable and long-term policy horizon;
   international science and technology co-operation;
   support for capacity building in developing countries;
   incentives for the adoption of appropriate
  technologies


• Demand and supply side policies
                                                  31
    Who the actors are in the
innovation system has changed…




                        32
...by broadening to include
  a wide range of actors...




                         33
…a range of Ministries...
Finland’s Governance of Innovation Policy




                                            34
…and many levels of government.




                        35
   …which raises issues of how to
   govern policies for innovation.
• Need for strong political leadership;
• Need to clearly delineate local, regional &
  national roles to avoid duplication, and build
  coherence.
• Need for measurement and evaluation
  frameworks to support policy.


                                       36
4. Some broader messages




                      37
       Policies for supply and demand:

 Responding to a changing Why of innovation: Policies for
innovation need to focus on meeting the demands of society.
– The objectives of innovation (growth, sustainability, health, …) are
  achieved through diffusion and take-up
– Most public policy is aimed at the creation of knowledge.
– Need to better join up “push” and “pull” policies:
   • Empowering people to create knowledge and apply knowledge
   • Protecting IPR and creating value from IPR
   • Getting prices right to create markets for environmental innovation
     and policies that can create radical innovations and breakthroughs.

                                                                  38
      Seizing benefits at the local level:

– Setting priorities and creating excellence and critical mass

– Strengthen and capitalise on local strengths: knowledge
  institutions, people, services, social factors, culture, etc.

– An open environment

– Develop a joint vision and strategy for long-term investment


                                                             39
 The roles of government and business:

– In many cases, the role of markets can be strengthened to
  unleash demand and foster innovation: e.g. through getting
  prices right, regulatory reform, smart use of public
  procurement, consumer involvement, etc.

– At the same time, governments play an important role in
  driving innovation in the post-crisis environment

– Need for a true public-private partnership


                                                       40
  The 5 areas of action in the Innovation
                  Strategy:

1. Empower people to innovate.
2. Unleash innovation in firms
3. Invest in knowledge creation and encourage its
   diffusion
4. Improve the frameworks for innovation to address
   global challenges
5. Improve the governance of policies for innovation

                                               41
    The Innovation Strategy in 2010 …
• A short Ministerial paper setting out the challenge
  and priorities for action on innovation, combined with a
  set of policy principles
• A compendium of policy-relevant indicators that
  will enable countries to benchmark themselves on a
  range of policies and measurements
• Synthesis and background reports, providing
  evidence on key factors and drivers of innovation
• The beginnings of a policy handbook, that will enable
  countries to examine their own performance and system,
  and provide tools and examples to take action
                … and beyond
• Further work could involve:
   – Implementing and monitoring action
   – Country reviews
   – Moving ahead on the measurement agenda
   – Addressing remaining questions
   – Focusing on specific questions, e.g. green
     growth and innovation.
    For further information
• E-mail comments & ideas:
  – Dirk.Pilat@oecd.org
  – Mario.Cervantes@oecd.org
  – Karen.Wilson@oecd.org


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




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