ICT Innovation: A Contact Sport

1
ICT Innovation A Contact Sport

• A Presentation to SAITIS
• Innovation Workshop

By Roger Voyer Senior Associate,
PricewaterhouseCoopers October, 1999
2
The OECD Defines Technological Innovation as

• The First Application of Science and Technology
  in a new way, with commercial success.

3
Innovation Cluster
The Firm Idea RD Eng. Production Market
Universities Colleges Research Labs
Suppliers Competitors
Customers
Financing
Advanced Physical Infrastructure (e.g. -
Communications)
Quality of Life
4
Dynamics of Innovation

• The Innovation Process is more like a rugby or
  basketball game than it is a relay race.

5
Three Competencies for Successful Innovation
Organization
Marketing
Successful Innovation
Technology
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Innovative Firms Have...

• Technological Competences
• Internal RD Capability
• Ability to Rapidly Adopt New Technologies
• Focus on Core Technologies
• Marketing Competences
• Market Driven
• Rapid Product Migration
• First to Market
• Quality Over Price
• Organizational Competences
• Project Based Structure
• Non-Bureaucratic Culture
• RD Linked to Marketing

7
Growth Pattern Technology Firms
Working Capital (1 of working capital to support
1 of sales)
Sales
RD/Marketing
Time
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Some Related Issues

• Intellectual Property Trade secrets preferred
  over patents
• Skilled People Difficulty in getting key people
  (both for technical and managerial positions)
• Research and Development Governments have direct
  and indirect (tax system) support programs need
  to stay within RD sphere or risk attracting the
  attention of WTO and
• Search and Develop Firms have to tap into the
  technological advances around the world. This
  can be a problem for smaller firms with limited
  receptor capabilities.

9

• What is an Industrial Cluster?
• There is no rigorous definition of a
  knowledge-based cluster. Examples range from
  regions like Silicon Valley to Technopoles like
  Ottawa to Research and Industrial Parks like
  Hsinchu.

10
Industrial Clustering The Theory

• A firm cannot capture all the economic benefits
  of its innovation process
• There are spillovers that can be captured by
  other firms
• Geographical proximity of firms increases the
  potential of capture and
• A supportive local infrastructure nurtures the
  process.

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Eight Characteristics of Success

• Recognition of Potential by Local Leaders
• Support of Local Strengths and Assets
• Influence of Champions
• Entrepreneurial Drive
• Various Sources of Financing
• Information Networks
• Educational Research Institutions
• Staying Power

12
Recognition of Potential by Local Leaders
Recognition of the Opportunity Usually Comes out
of Meeting a Need

• Terman wanted job opportunities for Stanford
  Graduates
• Freche wanted to diversify the Montpellier
  economy from tourism and
• Japans Technopolis program was aimed at regional
  development and alleviating pressure on Tokyo.

13
Support of Local Strengths and Assets

• The technological strengths lie in universities,
  government laboratories and major firms
• There can be local market strengths in some well
  represented areas such as government procurement
  and banking and
• Social, cultural and entertainment infrastructure
  can be an important asset because skilled people
  are Foot-Loose and migrate to areas with good
  quality of life.

14
Champions are Important
Champions can be either

• Individuals (e.g., Terman, Kozmetsky, Lafitte,
  Freche)
• or
• Institutions (e.g., Chambers of Commerce,
  Economic Development Groups)

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Entrepreneurial Drive

• It is central to firm and cluster development
• It is found in individuals whether they are
  growing firms (e.g., Terry Matthews of Newbridge)
  or are part of the supporting organizations
  (e.g., Gerry Trucotte at OCRI) and
• Where it is weak clusters stagnate (e.g.,
  Tsukuba).

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Various Sources of Financing

• The full spectrum of instruments is needed
• Angel and venture capital and government funds at
  the start-up phase and
• Debt/equity instruments for the growth where
  about 1 of working capital is needed to support
  1 of sales.

17
Information Networks

• They can be
• Informal where the focus is on the transfer of
  tacit knowledge (e.g., Il Fornaio Restaurant in
  Palo Alto)
• Formal (e.g., Industry Associations, Chamber of
  Commerce)
• Where such structures are weak clustering suffers
  (e.g., Route 128)

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Educational Research Institutions

• They are necessary to provide skilled people and
  technological expertise
• But, they are not sufficient for success unless
  there are strong linkages to industry (e.g.,
  Silicon Valley) and
• Where linkages are weak clustering stagnates
  (e.g., Taedok, Baltimore).

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Staying Power

• It can take 30 () years for a cluster to reach
  maturity (e.g., Ottawa)
• Growth can be accelerated through judicious
  government support (e.g., Hsinchu) and
• Growth can also be accelerated by attracting
  multinational firms rather than growing
  indigenous firms (e.g., Bangalore, Ireland).

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Four Models

• Laisser - Faire Ottawa, Canada
• Planned Hsinchu, Taiwan
• Design Centres of MNEs Bangalore, India
• Production Functions of MNEs Ireland

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Ottawa - A Laisser-Faire Cluster

• The Ottawa cluster is a post-war phenomenon which
  now has some 900 firms and 45,000 professionals,
  mainly in Telecommunications. 75 of Canada's
  Telecom research is undertaken in the region.
• The two main drivers were government laboratories
  and Nortel Networks. The two universities became
  players only recently.

22
Ottawa - A Laisser-Faire Cluster (contd)

• Local government recognized the potential only in
  the 1980s and established the Ottawa Centre for
  Research and Innovation (OCRI) in 1984 to
  stimulate interactions among the players.
• The cluster is remote from major markets. Its
  focus is mainly design rather than production.

23
Ottawa - A Laisser-Faire Cluster (contd)

• Recognition of Potential by Local Leaders a
  recent phenomenon
• Support of Local Strengths and Assets government
  labs, Telecom RD
• Influence of Champions key individuals early-on
• Entrepreneurial Drive well developed over the
  years

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Ottawa - A Laisser-Faire Cluster (contd)

• Various Sources of Financing full spectrum of
  mechanisms
• Information Networks well developed through
  OCRI
• Educational and Research Institutions two
  universities two colleges concentration of
  government and private sector laboratories and
• Staying Power 50 () years.

25
Hsinchu Science-Based Industrial Park - Taiwan

• Established in 1980 to emulate Silicon Valley and
  to lure back Taiwanese researchers working
  abroad. About half the firms in the park are run
  by returned Taiwanese
• More than 220 firms with 60,400 employees and
  revenues of 12 Billion
• 2 universities and a technology institute

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Hsinchu Science-Based Industrial Park - Taiwan
(contd)

• Specialization in computers, semiconductors and
  telecommunications
• Major incentives offered 5 year tax exemptions,
  prefabricated factories, generous grants, etc.
  and
• Government investment has been 500 million since
  1980.

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Hsinchu A Planned Cluster

• Recognition of Potential by Local Leaders
  Government
• Support of Local Strengths and Assets Government
  Labs (e.g., ITRI)
• Influence of Champions Politicians
• Entrepreneurial Drive Returning Ex-Patriots

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Hsinchu A Planned Cluster (contd)

• Various Sources of Financing Government programs
  dominate
• Information Networks Catalyzed by ITRI
• Education and Research Institutions Two
  universities and ITRI
• Staying Power nearly 20 years of sustained
  support

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A Bastion of Laissez-Faire Admits That

• Taiwans Hsinchu Park is an example of
  intelligent government intervention.This year
  the government will break even on the project's
  40 million a year running costs.

The Economist March 9 - 15, 1996
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Bangalore India A Design Centre

• State Government of Karnataka created the
  Electronics City, a 300 acres industrial park
  in the early 1980s, despite the lack of basic
  infrastructure (e.g., transportation,
  electricity)
• In 1985, Texas Instruments, attracted by the low
  costs skills base set up a design centre and
  exported its software via satellite
• Software Technology Park set up in 1991

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Bangalore India A Design Centre (contd)

• Currently there are about 180 companies with
  20,000 skilled professional exporting 85 of its
  software products as merchant exports (350
  million U.S. in 1996-97, growing at 64 per
  year)
• Karnataka has a long history of supporting the
  development of higher education and research and
  development. There are
• 51 engineering colleges
• 186 polytechnics
• 249 industrial training institutions
• 712 general collegesand
• 10 universities
• Government incentives offered include duty free
  imports and 5 year tax exemptions.

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Bangalore A Software Design Centre for MNEs

• Recognition of Potential by Local Leaders State
  Government of Karnataka
• Support of Local Strengths and Assets low cost
  software skills base
• Influence of Champions Politicians, scientific
  leaders (e.g., Tata) early -on
• Entrepreneurial Drive developing with more
  indigenous firms

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Bangalore A Software Design Centre for MNEs
(contd)

• Various Sources of Financing mainly government
  programs and MNEs
• Information Networks limited
• Educational and Research Institutions well
  developed
• Staying Power early days yet (15 years since
  Texas Instruments came)

34
Ireland Assembly / Production Functions Moving
Towards Design

• Ireland is now the second largest exporter of
  software after the U.S.
• Transformation began in 1973 when Ireland joined
  E.U. and accessed major funds to build new
  infrastructure including two new technical
  universities
• Attracted MNEs with incentives (e.g., 10
  corporate tax rate) including Intel in mid 1980s

35
Ireland Assembly / Production Functions Moving
Towards Design (contd)

• Encouraged strategic partnerships between MNEs
  and local suppliers - especially for design and
  development
• Encouraged the development of indigenous firms
  600 firms today with 40 - 50 start ups each year
• Encouraged export of software and
• Consensus decision-making.

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Ireland Assembly / Production Functions Moving
Towards Design (contd)

• Recognition of Potential by Local Leaders
  government
• Support of Local Strengths and Assets education,
  infrastructure
• Influence of Champions political level
• Entrepreneurial Drive improving with new firm
  creation

37
Ireland Assembly / Production Functions Moving
Towards Design (contd)

• Various Sources of Financing mainly government
  and E.U. programs
• Information Networks improving linkages
• Educational and Research Institutions two new
  technical universities
• Staying Power about 15 years since Intel

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Relative Status of Three Clusters
Regional Strengths
Recognition of Potential
10


Silicon Valley

5
Champions
Staying Power



Ottawa-Hull
Education and RD Institutions


Entrepreneurship





Hsinchu
Information Networks
Financing
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Relative Status of Three Clusters
Recognition of Potential
Regional Strengths
10
Silicon Valley



5
Champions
Staying Power



Ireland





Education and RD Institutions
Entrepreneurship


Bangalore
Information Networks
Financing
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Some Lessons

• The organizational, marketing and technological
  dimensions need to work together at the level of
  the firm
• The eight characteristics of success need to work
  together at the level of the cluster
• Laisser-faire clusters take a long time to reach
  critical mass
• Cluster development can be accelerated through
  planning and sustained support

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Some Lessons

• A commercial rather than a scientific orientation
  is needed to stimulated cluster development.
• Capture design functions of MNEs where possible
  and
• Move to higher value-added functions in clusters
  where assembly / production functions dominate.