Lecture 7 and 8

National System of
Innovation
February/March 2011
 Several Dimensions to
Innovation
Feliz Janszen in his book, The Age of Innovation describes
that there are various facets to innovation:

T a new Technology;
A a new Application in the form of a new
product, process or service;
M a new Market or market segment;
O a new organisational form or a new
management approach or a combination of two
or more of these elements
What is Innovation?
Innovation = creating value through doing something in a novel way
Innovating = creative problem solving

KNOWLEDGE
PRODUCTION
creativity;
Origination problem solving
or adaptation

productivity;
competitiveness

Diffusion and
KNOWLEDGE
DIFFUSION absorption

entrepreneurialism

Deployment
Source: Terry Cutler 2007
KNOWLEDGE
APPLICATION
Why innovation

Innovation drives productivity growth and

competitiveness of firms
Innovation promotes social inclusion
through expanded opportunities
Innovation will contribute to achieving
environmental sustainability
 Importance of Innovation

Innovation - driver of economic

growth and occupies an position in
public policy ;
Innovation increasingly relies on
effective interaction between
science base and business sector;

accelerating pace of S&T changes

forcing firms to innovate more
networking and collaboration among
firms now more important than in the
past and increasingly involve
knowledge intensive services
A new model needed to provide better
framework on what lies behind
differing national growth rates.

In the 1970s and 1980s NSI approach

gained ground since empirical
findings revealed that innovations
reflect a process where feedbacks
from the market and knowledge inputs
from users interact with knowledge
creation and entrepreneurial
initiatives on the supply side.
The concept of national innovation
system rests on the premise that
understanding the linkages among the
actors involved in innovation is key to
improving technology performance.

Innovation and technical progress are

the result of a complex set of
relationships among actors producing,
distributing and applying various
kinds of knowledge
The actors include firms,
universities, public research
institutions and the people
within them. Linkages can take
the form of joint research,
personnel exchanges, spin-offs;
co-publications; informal
contacts etc.
Innovation occurs within a complex ecosystem .

SKILLS REGULATION

INFRASTRUCTURE
Community CAPITAL
service
providers
GOVERNANCE TAXA
TION
research
firms
providers

NATIONAL Government NATIONAL

CHALLENGES PRIORITIES

PEOPLE COMMUNITY
 The innovation ecosystem is
pervasive
We See a Single
Most Policy Makers See Discrete Issues With
Innovation Policy
Narrow Constituencies
with a Broad
Constituency
Federal R&D
S&E Spending Regional
Workforce Economic
Workforce Development
Training

Entrepreneurship
Intellectual INNOVATION
Property
POLICY
Manufacturin Accounting
Healthcare g Rules
Higher
Technology
Education
Transfer
Internal University
School Industry
collaboratio
Education Collaborations
n
A national innovation system

Equals the sum of multiple and inter-dependent sub-systems and parts

Incorporates regional & sector clusters of activity

Is positioned within a global innovation ecosystem

Fuels future socio-economic prosperity

Successful NIS: Effective Linkages
among the Key Actors

Industry/Firm
Government

Society Academia
 Establishing bridges between
knowledge and the market place
and putting in place the right
environment for innovation is the
new competitiveness challenge.

Choosing to grow: Knowledge,

Innovation and Jobs in a Cohesive
Society
Communication from the EU Commission
to the Spring European Council,
March2003
National Innovation Systems

Definitions

The network of institutions in

the public and private sectors
whose activities and
interactions initiate, import,
modify and diffuse new
technologies (Freeman, 1987)
the elements and relationships
which interact in the production,
diffusion and use of new and
economically useful, knowledge..
And are either located within or
rooted inside the borders of a
nation state (Lundvall, 1992)

a set of institutions whose

interactions determine the
innovative performanceof national
firms (Nelson, 1993)
A system of
interconnected institutions
to create, store and
transfer the knowledge,
skills and artifacts which
define new technologies.

(Metcalfe, 1995)
NIS is thus a set of interrelated
institutions; its core is made up of
those institutions that produce,
diffuse and adapt new or improved
technical knowledge be they
industrial firms, universities or
government agencies;

Links between these institutions consists of

flows - knowledge, financial, human,
regulatory
Concept of NSIs expanded to
include systems of innovation -
local, regional, international;
Building blocks of NSIs are
institutions and linkages
The effectiveness and
efficiency of these
linkages are crucial to the
capacity of a country to
diffuse innovations and to
absorb and maximise the
contribution of technology to
production processes and
product development.
 National Innovation System

A system that comprises:

The institutions engaged in

innovation related activities;
The environment in which
these institutions operate; and
The linkages between these
institutions
It is the flow of technology and information
among people, firms and institutions that
are key to the innovative process
 Key Components of NIS

Government funding innovation activities;

performing R&D; regulatory framework;
Education and Training primary,
secondary, tertiary; vocational, technical
Financial system venture capital; funding
for innovation;
Firms R&D performers; market developments;
technology acquisition; HRD
NGOs and Society
 Dynamic Linkages: The National
Innovation Systems Perspective
Regional & Global Market/Competitive Environment
international linkages
Social & Political Macroeconomic,
Environment Trade & Financial
inter- Polices
firm
linkages Industrial &
S&T Policies Firms
Competition Policies

Public S&T Industry

& Industry &
Linkages Manpower
Linkages

international international
transfer movement Source:
Wong(2002)

Financial Market Legend:

Institutions linkages
Public R&D Public S&T and Manpower deployment of
and S&T Education Linkages Development resources
Support Institutions development of
Institutions
Education & resources
Manpower Policy
(induced) flows of
resources
international linkages international linkages environmental
influences
National innovation system

Government and public agencies

Finance and Research and

venture capital education
institutions

Enterprises and workplaces

 Systems of Innovation
A System of Innovation includes ALL the
important factors that influence the
development, diffusion and use of
innovations as well as the relations
between these factors
Factors can be studied and developed in
a national, regional or sectoral context
A long term perspective in the (national)
innovation system is important and
foresight is a useful tool
The linear model of innovation has now
been replaced by the system approach
(~ triple helix model)
 The State supporting
Innovation
Overall responsibility is to create an
environment conducive to innovation

Consistently investing in education and skills

Providing the appropriate regulatory
framework
Limiting bureaucracy
Building technological capability
Introducing innovation-led procurement
policies
Major elements of the NIS framework

Promotion of national strategic

R&D;
HRD;
Creation of linkages between
government supported research
institutions, academia and industry
as well as with foreign parties;
Commercialization of R&D results;
Promotion of venture business;
Establishment of business parks and
business clusters;
Science and technology awareness
Promotion of entrepreneurship
Introduction of a sound S&T
infrastructure
Introduction of a new institution and/or
reformation existing institutions;
 Key Characteristics of NIS

A sound and dynamic NIS is characterised

by:
Effective linkages among the
various actors;
Smooth flow of resources
(intellectual, financial) among the
actors;
Effective learning by the various
actors
Innovation and technical progress
are the result of a complex set of
relationships among actors
producing, distributing and
applying various kinds of
knowledge;
These relationships can be
examined at various levels
national, regional, sectoral

Functioning of an innovation system is highly

imbued by past experiences and path-dependent
trajectories;
In short,NSI is about 3L

Linking - connecting with outside to acquire

technologies and skills;
Leveraging - going beyond arms-length
transactions to squeeze as much as possible from the
relationships
Learning- making the many efforts to
consciously build the foundation for improving current
technologies and creating new ones
 Specificity of NSI

Learning processes which are

at the heart of innovation
processes are embedded in a
specific national context.
Technological change and
innovation should be explored
within the social fabric in
which the innovative activities
are actually developed and
Importance of Learning and
Social Capital

Success of organisations and

nations today will reflect, not
what specific knowledge they
have at a specific moment; but
rather the capability to
learn;
Difference between success and failure
is knowledge that is not easily
appropriated by others. This will
typically be knowledge with tacit
elements.

The learning of tacit knowledge is

typically a social process of
interaction
Innovation System in the
Learning Economy

Learning process has

become important for
economic performance;
Most important elements in
innovation systems have to do
with the learning capability of
individuals, organisations
and regions
Accordingly, attention to human
resource development including
formal education and training ,
labour market dynamics
organisation of knowledge
creation and learning within firms
and in networks
 Improving Innovation
Performance

Firms are the main source of

innovation;
Technological capabilities of firms
determine nations technological
capabilities and its economic
performance;
2 broad components of technological
capabilities - technology absorption
capability and technology
adaptation/creation capability
OECD report reveals that
ability to innovate determined
by:
effective interaction between
science base and business sector;
more competitive markets and
accelerating pace of scientific and
technological changes;
Globalisation of economies making
countries innovation system more
interdependent;
In short, innovation performance
depends not only how specific
actors (eg. firms, research
institutions, universities) perform
but on how they interact with one
another as elements of an
innovation system, at local, national
and international levels
NSI in Developing Countries

NSI in developing countries

less developed - technological
and institutional elements
necessary for modern growth
not developed within their
systems;
Lack of intensive learning in
developing countries unlike in Korea
and Taiwan;
market mechanism in
developing countries still under-
developed
capital accumulation rather
than intangible assets (such as
knowledge) and learning is the main
contributor to technical progress in
developing countries
Policy Implications from Thai Study

Policies must address

activities that strengthen
technological capabilities; and
not merely R&D alone;
Institutional reform of
bureaucracies needed;
strengthening of linkages
with industry;
 NSI for Malaysia
Is there an NSI for Malaysia?
Yes, but linkages weak and
absence of flow of
resources/information within
system
Many issues raised in Thai
study hold true for Malaysia;
 Our NIS: An Overview

Supply-side bias;
Diffused research efforts
lack strategic focus
Lack attention to developing
absorptive capabilities;
Poor capabilities to
exploit research
findings;
Weak diffusion of
industrial research;
STI efforts largely top-
down; local and regional
efforts poorly developed;

Research funding and

incentives - limited in
scope, cumbersome and
time consuming;
Weak public sector-
industry linkages;
Rote learning still
prevalent in education
system;
Weak management
both nationally and
institutionally;
Key Features of Sound NIS: Cross
Country Survey*

education and training - in

Japan, Korea and Taiwan majority of
students enrolled in scientific
disciplines;

*See Nelson, R.R., (ed) (1993) National Innovation Systems: A

Comparative Analysis.
science and technology capabilities -
level of resources devoted to R&D and other
innovation related activities distinguishes the
advanced countries from the rest;

Government/business balance - how

much of R&D done by Govt and industry. In
countries like Japan, Germany, and Switzerland,
R&D heavily focused on promoting industrial
competitiveness.
Industrial Structure - Firms are the
principal agents of technological
innovation. The level of competition faced
by companies in their domestic market also
plays a crucial role on R&D investment
choice.
Interactions among the different
parts of the innovation system - the
level of coordination among different actors is a
crucial aspect to foster technological change.
Close cooperation between govt. and industry
responsible for successful industrial development
in Japan, Korea and Taiwan
Implications from Nelsons
study
while some of the key characteristics
of innovative systems can be
transferred from one country to
another, others cannot be transferred
especially in the short term. The
route which leads each
nation to build its
technological competence is
highly path-dependent;
There is no single model able to
generate successful economic
performance. More than one
innovation system can lead to
industrial development;
nations that fail to adopt
innovation systems will fall further
behind;
Governments Role in Innovation

While firms drive innovation they depend

on the Govt. to perform three core tasks:

invest in basic scientific research;

to lay the right conditions for business
innovation;
-stable macroeconomic environment;
-regulatory set-up that promotes competition and
innovation;
-education and training programmes
to help improve the innovation system
itself
 Summary
What do you understand by NIS and
why is NIS important?
What are the characteristics of
NIS?
How would you describe NIS in
Malaysia?
Key findings from Richard Nelsons
study;
NIS in developing countries;
Do you believe that we need to
adopt an NIS framework in the
development of our national S&T?
 References

Freeman, C., (1987), Technology Policy and Economic Performance.

London: Pinter Publishers
Intarakumnerd, P, Chairatana, P and Tangchitpiboon, T (2002), National
Innovation System in less successful developing countries: the
case of Thailand Research Policy Vol. 31, pp. 1445-1457
Kelly, K (1999), New rules for the New Economy New York:Penguin
Nelson, R.R., (ed) (1993) National Innovation Systems: A Comparative
Analysis. Oxford: Oxford University Press
Romer, P (1986), Increasing Returns and Long Run Growth, Journal of
Political Economy 94, October, 1002-37
UNIDO (2003), Industrial Development Report. Competing through
Innovation and Learning 2002/2003
Zainal Aznam Yusof (2001), Knowledge-based economy- A Brief Note.
Paper presented at Workshop on Implementation of
Policy/Programme for RM8 organised by MOSTI, November 9-
10.
 Further Reading
Richard R Nelson, National Innovation
Systems. A Comparative Analysis OUP
1993
OECD Observer N0 217/218 1999:
Promoting Innovation - Does it Matter?
The Economist - A Survey of Innovation
in Industry February 20, 1999
Venturous Australia building strength in innovation

Australias national innovation

systems review available
online at
www.innovation.gov.au