How Asia increases productivity through SME internationalization

– by Shigehiro Shinozaki –

per-blogSince the 1990s, the global economy has been supported by high growth of labor productivity in Asia. However, the growth pace of labor productivity in the region has been slowing since the 2008/09 global financial crisis, contributing to global economic slowdown. Moreover, as Asia’s population is aging, labor force accumulation will gradually diminish, and it will negatively affect region’s productivity growth. Enhancing labor productivity is thus a central policy issue to sustain growth in Asia.

ADB’s Asia SME Finance Monitor noted that small and medium-sized enterprises (SMEs) play a key role in boosting national productivity. They account for 96% of all enterprises and 62% of national labor force in Asia, but their contribution to national GDPs is still less than half. This suggests SMEs’ potential to reverse the deceleration trend of labor productivity, by strengthening their dynamics.

Global value chains (GVCs) are the key driver for enhancing SMEs’ productivity and advancing Asian economies. Regional cooperation and integration, such as the ASEAN Economic Community, brings global business opportunities to SMEs. The resultant trade liberalization and investment encourages structural changes in the SME business model from being domestically focused to being globally competitive. This has increased SMEs’ attention to participating in GVCs, and requires policymakers to consider how to create and support an enabling environment for domestic SMEs to enter the GVC.

There are several benefits for SMEs to participate in GVCs. For instance, SMEs can increase their competitiveness through business linkages, improve product quality by technology transfer, and expand their business to overseas marketplaces with job creation. On the other hand, there are various factors constraining SMEs from stepping forward, including labor market rigidity, regulations across the country, non-tariff barriers, SMEs’ inability to meet the quality and standards for certain products, managerial constraints, and insufficient financial resources.

UNCTAD (2013) estimated that 80% of global trade takes place within GVCs with multinational firms. This vertical firm linkage model is typically seen in the automotive and electronics industries, where a large multinational firm leads the overall production network and is mainly responsible for final assembly of products, marketing, sales, logistics, and/or exports and imports of products with partner large firms. In this model, SMEs are incorporated in the production network as mostly only end-tier or lower-tier suppliers such as raw material suppliers or partly first-tier suppliers of parts and components. A value chain mechanism that various types of SMEs can tap will need to be developed further, focusing on horizontal firm linkages.

Horizontal firm linkages are a critical model of GVCs in developing Asia, especially in the export-oriented agri-business, food processing, and handicraft industries, where SMEs are involved throughout the production chain as suppliers from the end-tier to the first-tier, the lead firm or producer, packaging and storage firms, marketing agents, wholesalers and retailers, and/or exporters and importers of products. For instance, farm products and raw materials are traded across the border and processed by the small firm in a particular country, and the final products are traded by SME exporters globally. In this model, SMEs often make up a business cluster, but not all clusters are successful because of a lack of the cluster manager coordinating the production process and logistics among participating SMEs and across the country.

SME internationalization has arisen from the demand of an increasingly globalized economy. Participation in GVCs enables SMEs to access a large customer base, learning opportunities from large enterprises and business partners, and boost their productivity and job creation. Strengthening competitiveness and connectivity is required for SMEs in GVCs. In particular, well-coordinated business clusters are essential for functioning horizontal firm linkage models. SMEs need a product quality control, skilled labor, and the owner’s education and ambition, for successful participation in GVCs. To this end, they need to develop business networking, acquire support from business development services (BDS), and secure access to finance. These are critical policy support areas but also areas requiring private sector support.

ADB report identified policy priorities for integrating SMEs into GVCs, which include greater access to trade finance and growth capital through innovative financing models. Economic expansion in Asia has created a base of growth-oriented SMEs with a need for access to long-term growth capital, while the global economic uncertainty has tightened financial institutions’ risk management and financial regulations, making it difficult for global SMEs to tap their timely growth capital funding. This requires new financing solutions for SMEs involved in GVCs, addressing an increased demand for supply chain finance and trade finance.

The currency-swap trade settlement, initially exercised by the People’s Republic of China and the Republic of Korea, is one of the innovative approaches to trade finance facilitation for SMEs. This system enables the importer (buyer) in each country to borrow in the exporter’s currency, to pay for trade bills in that currency. The advent of financial technology or fintech has brought more opportunities for SMEs to access timely and low-cost financing for global business development. Digital finance, represented by mobile banking, internet banking, and crowdfunding, will help them enter into the global marketplaces.

A cross-border policy and regulatory coordination is necessary to support SME participation in GVCs. The development of horizontal firm linkages across the border needs policy coordination among countries concerned in international labor mobilization and trade facilitation. Regulatory coordination in data sharing and financing across the border is crucial for global SMEs to raise timely working and investment capital for international trade. Developing a BDS ecosystem is critical to effectively enhance SME participation in GVCs, which requires public and private sector collaboration. National policymakers need to use broader and coordinated policy approaches for integrating SMEs into GVCs and supporting innovative financing models accessible for these enterprises, which will contribute to accumulating skilled labor forces and stimulate productivity growth in Asia.

This blog rephrased the discussion published as an ADB blog.


Shigehiro is Financial Sector Specialist (SME Finance), Sustainable Development and Climate Change Department, Asian Development Bank (ADB). Shigehiro supports ADB developing member countries in improving SME access to finance through various technical assistance projects. His expertise includes policy issues in microfinance, SME finance, housing finance, and capital market development especially in Asia. Prior to joining ADB, Shigehiro worked at Japan’s Ministry of Finance, the OECD, and as an advisor to the Government of Indonesia.

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Crowdsourcing Innovation

– by Adriano La Vopa –


parachute-1432296_960_720“Crowdsourcing is the act of taking a job traditionally performed by” an employee “and outsourcing it to an undefined, generally large group of people in the form of an open call”
. With these words in 2006 Jeff Howe on Wired online magazine explained for the first time the approach of sourcing tasks or activities from a crowd of people, generally outside the company, by means of calls that are usually open to the external world.

Following Howe’s definition, any company can basically leverage crowds out of their four walls to have some works done. Such a definition recalls also the very popular concept of Open Innovation, by Professor Chesbrough (2003), through which he basically explains how companies can leverage what is outside to create new knowledge, architectures and systems from which the company will benefit. To stress this concept of leveraging external knowledge, there is another quote I love, the one of Bill Joy, the Sun Microsystems’ co-founder “[…] no matter who you are, most of the smartest people work for someone else”. This latter clearly speaks by itself, showing a deep wisdom and consciousness that there are talents outside your company that are definitely smarter than the ones you have in house.

Then, the question is: how to leverage those talents, this knowledge, and how to reach them? The reply is definitely: by means of crowdsourcing.

Crowdsourcing is therefore sitting under the wide umbrella of Open Innovation, following the paradigm of opening to the outside world, and looking for leveraging the external knowledge by means of contests, challenges or calls that can gather any kind of contribution. Designs, solutions, ideas, concepts, expertise, skills, technologies, IP are just a few examples of what can be sourced by effectively exploiting the crowd. At a certain extent crowdsourcing is also linked to the main scouting activities, where in general a company seeks what they do not have in house, usually with a narrower focus, or need.

All these means are definitely affordable by any company, of any size, and of any pockets. What I always suggest to companies approaching the crowd, and willing to launch a challenge or a call, is that they have to set two very basic things: their strategy and their need.

Strategy

An effective strategy is indeed the very first step on approaching crowds. You can use the typical top-down approach, where you drive the show, can set the challenge, select communities and gather solutions. On the other hand, you can think to use a bottom-up approach, where the base is driving, by opening a generic call and waiting for contributions from the crowd.

In both cases, you should carefully balance the equation: company vs. communities (i.e. specific crowds). The right side of the equation is indeed expecting you to carefully plan the way you are going to cluster, assess, select and discard the results of your activity. This implies you have to plan in advance:

  • the time you are going to spend on this activity;
  • the resources you are going to invest (a team of assessors); and
  • the money (your budget) you are going to spend.

The left side of the equation imposes you to also carefully plan and look into the right communities to source from. This means you have to be clear on who you are going to ask your “question”, or outsource your “job”. For instance, there is no need to post a challenge on a social media if you would like to attract only mechanical engineers from Europe for solving your problem with the design of your product.

To be clear on what your company is going to do, and how, to reach the final goal of the crowdsourcing campaign you are launching is essential. To be clear means also you have to know what you want, and what your real need is.

Need

In several projects I worked on, defining the need is not always an easy task. Reasons for finding this exercise quite difficult are many: language, day-to-day work, jargon, mindset, and so on. In any case, there are few simple steps that I usually suggest to follow:

  • Be clear on what you need, and what is needed from a person to do in order to solve your issue, or to deliver what you want;
  • List down criteria, or requirements, that you are going to follow when assessing and selecting the best ideas;
  • Ask for an external help, meaning that you should ask to an external colleague (external to your team or department) to have a look at your brief, in order to understand if it is clear enough also to someone that is not daily in contact with a specific product, or service;
  • Use the right language for the right community. If you are going to ask for new ideas to your customers, do not use a technical language, or acronyms, but be very basic and use a “foul proof” vocabulary.

Defining the need in the right way is essential for an appreciable result of your campaign, and will be giving to the crowd the right trust they need, to start proposing their ideas. If the call is too complex, some people will not even read it; same goes with a call that is too easy, maybe the crowd you want to work with (e.g. researchers) will not engage because they will not feel enough challenged.

At this point, someone could ask: yes, nice concept, but how my business could benefit from it? Benefits are many, but usually could be reduced at three main ones, which are also the ones where most of companies, especially SMEs, are struggling with innovation: time, money and people.

Using crowdsourcing could definitely help you in decreasing the time spent for some activities. Being the crowd your source, you could be able to get the right solution to a problem that otherwise could have been hampering your new product development. Likewise, driving yourself a call, using the top-down approach, you could define a time limit to source solutions, which anyway should be consistent with the complexity of your call. Indeed, you could find a great new algorithm to enable your new protocol for your IoT device, simply sourcing it from outside and avoiding to develop it from scratch. People are also a critical factor to your innovation. The lack of resources, could stack people in their day-to-day work, and not give them the right time to think to new solutions, or “out of the box”. By leveraging the crowd, you basically leverage a potentially huge amount of people, which means extending your R&D department, for instance, asking to external experts how to solve a specific issue. Some simple math: being you a SME, and having just 10 engineers in your mould tooling design department, you might think to ask for help outside, in finding a better solution for your tool wearing problem. There you might find 10-20 more researchers or engineers for every one of yours, and this might be exponentially growing the possibility to find a solution, maybe from the other side of the world, but still valid to solve your problem. Last, but not least, there is money. Money is time, and a cent saved is a cent potentially reinvested in innovation. Thus, what if I can save money by simply asking outside and giving a reward of 10,000 € for a solution that it could have been likely costed my company 10 or 100 times more? This is business, and being able to leverage also this opportunity will make your business benefit from something which is anyway enabling you doing your business, even though it is not your own IP.

After this quick overview, let me just give you few very last advices:

  • Be careful in estimating the way you engage with communities;
  • Be clear that crowds should be benefiting your business and not hampering it, so crowdsourcing is an option, but not the option;
  • Crowdsourcing, as everything, has advantages and drawbacks, so ask for help of some crowdsourcing experts.

I hope I was able to show you a new path for innovating and accelerating your business, by means of crowdsourcing. Those above are just few considerations on how approaching crowds could mean to start your open innovation journey, and to use what others have already done, or are doing. Do not reinvent the wheel over and over, but just be smart and open instead.

 


adriano-la-vopaAdriano is a physicist with a specialisation on Earth Observation and satellite data processing. He earned an international master in Nanotechnologies (and business administration). He has an extensive experience in the technology transfer arena, and masters innovation management processes. He worked along to many SMEs, startups and big multinationals to support their innovation strategies by use of new technologies. He is an expert technology broker, a scout and a consultant, supporting companies in planning and executing their innovation strategies. He has a sound knowledge of processes, tools, methods and ways to empower the hidden innovation potential of any company. Adriano is currently partner at Innoventually, the one-stop source for innovation.

 

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Innovation in Latin America: Potential Untapped Due to Weak Economic Conditions

– by Ricardo Aceves –

Prospects for increasing innovation are lackluster

magnetic-levitationThe weak economic performance seen this year in Latin America has accentuated the need to increase productivity as a key vehicle for more solid and sustained long-term growth. Supporting innovation is a crucial component in the productivity equation, and yet the outlook for this in Latin America is bleak: weak public finances are expected to reduce spending on research and development (R&D) even further this year. Although not all is gloomy and some gains may come from ongoing trade liberalization, Latin America will continue to lack the dynamism of its emerging-economy counterparts as little progress is expected on structural reforms that would grant all stakeholders the same opportunities to succeed.

The consensus is crystal clear among analysts and business leaders that innovation is key to increasing output and productivity, and is a crucial driver to sustainable long-term economic growth. However, measuring innovation in national economies is always tricky: the concept is intangible and not specifically measured by central banks or national statistical institutes. Nonetheless, international agencies, such as the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the Organization for Economic Co-operation and Development (OECD) provide guidelines on how to measure innovation, incorporating variables like expenditure on R&D, incorporation of new technology, growth in labor productivity, number of patents per capita, as well as education standards. Moreover, the policy environment is equally vital. A solid competition policy, a stable contractual environment and an agile bureaucracy are more likely to encourage new entrepreneurs to invest in start-ups and existing players to raise capital investment to grow businesses.

Languishing hopes

Latin America has traditionally lagged behind many other regions in terms of innovation as a result of subdued R&D investment levels, low education standards and a weak policy backdrop. In the period from 2004 to 2009, a combination of free-trade agreements (FTAs) and improved export promotion policies created the initial conditions for innovation in Latin America. In that period, the region registered solid gains in exports of goods and services, which also enhanced competition and opened the gates for larger markets for innovative products and services. The result was the emergence of the region’s largest multinational companies labelled “multilatinas”.

The five-year period up to 2009 provided stable public budgets in the region, which prompted many analysts and business leaders to expect that higher private and public investment in R&D would stimulate long-term growth rates. However, these hopes turned to disillusionment and bitterness when Latin America was hit hard by the global financial crisis and, in 2009, the region’s economy contracted for the first time in 20 years. In 2010, the economy rebounded strongly, but GDP growth has decelerated steadily since then. GDP growth fell from 4.5% in 2011 to a meager 0.8% in 2014, before stagnating entirely in 2015. For this year, Latin America’s growth prospects remain grim. The economic analysts FocusEconomics surveys on a monthly basis have reduced the region’s 2016 GDP growth forecasts for 20 consecutive months and they now project that the economy will contract 0.5%. On top of that, data recently released by the United Nations World Intellectual Property Organization (WIPO) revealed that the number of patent applications for new inventions submitted by Latin American entities in 2015 was flat compared to the previous year. In contrast, in the same period, several Asian countries registered double-digit increases in the number of patent submissions. WIPO has attributed Latin America’s recent dismal track record to its poor economic performance, with a plunge in commodities prices exacerbating fiscal pressures, which, in turn, cut the amount of resources that governments, businesses and universities could invest in innovation. According to the Organization, only 1,358 patent applications were registered in Latin America in 2015, which  substantially contrasts the nearly 58,000 submissions registered in Europe and the 60,000 in Canada  and the U.S. combined, and which represented only a fraction of the nearly 95,000 levels recorded in Asia as a whole. Within Latin America, Brazil, Chile and Mexico accounted for the lion’s share of patent applications.

WIPO’s Global Innovation Index (GII) 2016 also showed that Latin America remains well behind other regions. According to WIPO, Latin America has been labelled as a region with important untapped innovation potential. Despite this, the Organization recognized that individual GII rankings, relative to other regions, have not steadily improved. None of the countries in Latin America has been considered “an innovation achiever” in recent years, which WIPO defines as a country that performed at least 10% higher than its peers given its level of GDP. Some such “achievers” are many economies in Sub-Saharan Africa, such as Kenya, Madagascar, Malawi and Rwanda. In Asia, Vietnam and India are clear examples of innovation achievers. Nonetheless, some Latin American economies, such as Chile, Colombia, Costa Rica, Mexico and Uruguay, achieved the highest regional GII results.

Challenging economic situation highlights need for R&D spending

Latin America’s difficult economic situation could prompt some governments to take action and improve the business environment in order to better the conditions for entrepreneurial activity. Under this scenario, since governments are no longer able to rely on high commodities prices to support economic growth, they would instead focus on the structural issues that have curtailed innovation and, consequently, economic growth.

A few of the regions key players have begun addressing the need to invigorate innovation. Mexico is a good example of country that is implementing a program of structural reforms in order to improve competition, productivity and the outlook for stronger potential GDP growth. In Argentina, the turnaround in the political landscape and the consequent change of government has triggered better prospects for an improvement in business conditions for the private sector. In Brazil, although the economy is experiencing considerable turbulence, tentative signs of improvement are emerging and Michel Temer’s temporary government is keeping the innovation agenda squarely on its radar.  

Aside from these examples, there are not many signs that governments in the region are committed to structural reforms to improve the conditions for innovation. As WIPO mentioned, it is vital for governments to overcome short-term political and economic constraints and cling to a longer-term innovation commitment. Data from UNESCO—the latest available are from 2012—confirm that spending on R&D in the region is significantly low. On average, most countries in the region spend less than 0.5% of GDP on R&D and expenditures come mainly from the public sector. In contrast, average expenditure in R&D in OECD countries and in developed economies ranges from 2.0% to 4.0% of GDP. It is important to note that, due to the economic cooling in Latin America, investment in R&D is likely to have fallen further at a time when the growth prospects for the region are not bright.

How can conditions for innovation be improved?

Considering the economic constraints in the region at the moment, governments across Latin America could take action to nurture entrepreneurship and innovation in various ways. Measures that could be taken to persuade investors to spend more on R&D in the region include strengthening competition policies, improving the contractual framework, cutting red tape and enforcing intellectual property rights. Meanwhile, the ongoing effort to increase trade liberalization both within and outside the region—the newly created Pacific Alliance and the Trans-Pacific Partnership if signed by Chile, Mexico and Peru—will encourage domestic businesses to target new fast-growing markets. However, conditions remain weak and the scenario reinforces the view that innovation is not only a strategy for risk-taking or for obtaining larger market shares, but for improving the policy environment, increasing investment in R&D and lifting long-term growth rates materially. The latest Consensus Forecast of 268 analysts from FocusEconomics projects that Latin America’s economy will rebound and expand 1.9% in 2017 and pick up some momentum toward 2020, when economic growth in the region is projected to rise to 3.3%.


ricardo-aceves-focuseconomicsRicardo Aceves is Senior Economist at FocusEconomics where he leads the company’s flagship report, LatinFocus, as well as the Commodities Consensus Forecast report. He holds a Master’s degree in International Business and Economics from the University of Applied Sciences in Schmalkalden, Germany, with a focus on international economics. Ricardo is from in Puebla, Mexico, and is based in Barcelona, Spain.

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How effective are public innovation support programmes?

– by Eva Diedrichs –

pexels-photo-24503

In many countries public innovation support programmes are in place – mainly to support the development of small and medium sized enterprises (SMEs). A recent international IMP³rove survey including SMEs’, policy makers’, and intermediaries’ view on the impact of public innovation programmes revealed room for improvement.

Although more than 70% of the SMEs indicated that they have obtained measurable innovation output results

  • only 11% of the SMEs mentioned that they would not have been able to achieve these results without the support programme(s) they benefitted from.
  • In contrast to this, more than 20% indicated that they would have been able to achieve the results through other means.
  • The remaining share of SMEs answered that they “maybe” could have obtained the results through other means.

This indicates that these innovation policy programmes were not fully addressing those companies which perceive support programmes to be vital for their innovation success.

Focusing on policy makers´ responses, more than 70% prioritized the commercialization rate of SMEs’ innovation output as the most important criteria. However, the extent to which the innovation policies met this criterion received the second lowest score by the policy makers themselves ahead of the growth in employment rate of benefitting SMEs.

table
Figure.1 Importance of success criteria in relation to success criteria achieved based on international survey of 44 policy makers from more than 20 countries (both axes: average importance rankings for all 8 success criteria)

How can effectiveness of innovation policies be increased while addressing market failures? First of all, SMEs need to assess their innovation management capabilities and then develop them based on the assessment’s results. After developing capabilities in the front end of the innovation process, we have to put focus on the commercialization of the innovative product, service, process or business model. Secondly business advisors supporting SMEs in their efforts need to develop expertise in supporting SMEs in all dimensions of innovation management. They should advise SME management on how to create strong business impact by systematic innovation management. With the IMP³rove online innovation management assessment as well as the training and certification programme for business advisors, coherent services of proven value are available to be integrated in existing and new innovation programmes.

If you are interested in discussing concepts to develop innovation management capabilities in your region(s) building on the IMP³rove services, please contact us. We are looking forward to supporting you in creating effective innovation policies for SMEs.


diedrichsEva Diedrichs is founding managing director of the IMP³rove – European Innovation Management Academy EWIV, non profit (www.improve-innovation.eu). Prior to this, she gained comprehensive experience as senior consultant at A.T. Kearney in different industries including Aerospace and Defense, Financial Sector, Medical Device, Pharma, Public Sector, Telecom supporting large and medium sized enterprises in developing and implementing innovation strategies, developing innovation processes and in transforming organisations. In this role Eva Diedrichs also led the project IMP³rove, the European Commission’s flagship project on innovation management.

With her global experience in innovation management she advices public agencies and institutions in developing effective innovation support programs. Eva Diedrichs is also actively engaged in the development of international standards on innovation management. She was convener of the European CEN TS 389 Working Group “Innovation Management Assessment” that developed the European standardization document, CEN TS 16555-7, and is convener of the ISO Working Group on “Innovation Management Assessment”.

She is author of several articles on innovation management and co-authored the book in core competences.

IMP3ROVE AcademyIMP³rove – European Innovation Management Academy, non profit (www.improve-innovation.eu) offers innovation management support services to enterprises, consultants and intermediaries. It also provides financial actors, policy makers and academia with consulting support and technical assistance related to innovation and innovation management. The services include innovation management benchmarking for enterprises, training and certification in innovation management, research on innovation management issues and promotion of best practices in innovation management. With its global network, IMP³rove Academy has set the standard for innovation management assessment. IMP³rove – European Innovation Management Academy emerged from the European Commission’s flagship program “IMP³rove”. It was supported by the European Commission’s Competitiveness and Innovation Framework Programme and receives continued support by Horizon2020.

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Crafting a Supportive Global Economic Environment for SME Innovation

– by Stephen Ezell-

Innovation – the creation of new or improvement of existing products, processes, services, and business or organizational models – drives the modern knowledge and technology-based global economy. For example, the U.S. Department of Commerce finds that between one-third and one-half of the economic growth in the United States since World War II can be directly attributed to technological and scientific innovation. But the knowledge that innovation drives growth is no longer a secret: countries throughout the world increasingly recognize that fostering robust levels of innovation in their enterprises, industries, and societies is vital for robust, long-term economic growth and sustainable improvements to quality of life and standards of living. And, as the Information Technology and Innovation Foundation (ITIF) documented in the book Innovation Economics: The Race for Global Advantage, this recognition has spawned an intense race for global innovation leadership, as evidenced by the fact that scores of nations have created national innovation foundations and/or articulated national innovation strategies.

Yet constructively managing and guiding this global competition among nations for innovation leadership has become perhaps the central economic challenge of our times, for in their efforts to implement innovation-enhancing policies, countries can do so in a number of qualitatively different ways, with some designed to add to the global stock of knowledge and innovation and others designed to merely shift innovation (and the production it engenders) from one country or region to another.

For example, when countries invest in the basic building blocks of innovation – such as by increasing expenditures on scientific research, educational attainment, and digital and physical infrastructure or by putting in place better policies to transfer technologies developed in university or national laboratories to the private sector – they empower the innovation potential of their own economies and enterprises while also generating positive spillover effects that benefit other nations, thus creating a win-win result for themselves and for the entire world. (See Figure 1). In contrast to such “Good” innovation policies, when countries implement zero-sum, mercantilist-inspired “Ugly” policies – such as blocking digital trade, stealing others’ intellectual property, imposing high tariff barriers, or manipulating currency or standards – these can help one country win, but at the expense of all others. Such policies harm truly innovative enterprises and thus degrade the quality of rules-based international economic competition.

Immagine

There also exists a set of “Bad” innovation policies that countries have implemented – such as import substitution industrialization policies – thinking that such policies will help their innovation economies, but in reality the policies only end up harming both themselves and the rest of the world. For example, for every $1 of tariffs India imposed on inbound information and communication technology (ICT) products – in the interest of spurring creation of an indigenous ICT manufacturing sector – the country suffered a $1.30 economic loss, as the productivity of India’s economy was stunted as all other sectors of Indian enterprise had to use more expensive or less effective ICT equipment. (Such a policy was “Bad” for the global economy because it distorted global trade and harmed the world’s most efficient producers of ICT products). Similarly, today, ITIF estimates that the additional taxes and tariffs Brazil imposes on imported ICT products costs its GDP as much as 2 percentage points annually. Finally, countries can also implement “Self-destructive” innovation policies—which harms themselves while helping others—such as when the immigration policies of countries, such as the United States, make it difficult for high-skill immigrants to enter or stay in a country.

Given how important innovation has become – and how dramatically one nation’s policies to drive innovation affect the rest of the global economy – how 0nations decide, both individually and collectively, to pursue their innovation-based economic growth strategies has tremendous consequences for the health of the global innovation system.

To better understand these dynamics, in January 2016 ITIF released a first-of-its kind study called Contributors and Detractors: Ranking Countries’ Impact on Global Innovation, which assessed 56 countries accounting for over 90 percent of the global economy (including all the leading economies from Asia, Europe, and the Americas) on how their economic, innovation, and trade policies (on a per-capita basis) either contribute to or detract from global innovation. The report scored countries on 27 measures, grouped into 14 “Contributions” indicators – covering research and development (R&D) and technology, human capital, and innovation-incenting tax policies – and 13 “Detractions” indicators – including a range of trade barriers and measures of weak intellectual property protection. This approach allowed for countries to be awarded an “Overall” score as well as a “Contributions” and “Detractions” score.

Finland, Sweden, and the United Kingdom led as the countries whose policies do the most (per-capita) to support global innovation – and the least to detract from it. India, Indonesia, and Argentina ranked weakest overall, fielding an above-average number of policies (such as localization barriers to trade or weak protections for intellectual property) that detract from global innovation while having policies that contributed the least to global innovation. The United States ranked 10th overall in the study and China 44th. Italy ranked 33rd in the study, placing 39th in terms of how constructively its economic, trade, and innovation policies positively contribute to global innovation, although Italy scored better, 25th, in terms of refraining from implementing policies that harm global innovation. In general, the report’s intent is to help countries rank themselves against peer nations on key metrics of innovation policy and to guide them toward only using win-win innovation policies best-positioned to help both the country and the rest of the world.

This issue matters particularly for the innovation potential of the world’s small-medium sized enterprises (SMEs), for if they are to flourish globally, they (no less than large multinational corporations) need access to global markets at scale across which they can export their products and services to grow their fragile businesses. Another key finding of the Contributors and Detractors report – and ITIF’s research more broadly – is that SMEs face unique innovation challenges which policy makers must be responsive to. For example, helping SMEs find access to the capital they need to scale innovation efforts is of particular concern. To address this, as ITIF has documented, almost a dozen countries – including Austria, Belgium, Canada, Denmark, Germany, the Netherlands, Ireland, and Sweden, among others – have introduced innovation vouchers. Usually ranging in value from €5,000 to €30,000, innovation vouchers enable SMEs to “buy” expertise from universities, national laboratories, or public research institutes regarding preparatory studies, analysis of technology transfer, analysis of the innovation potential of a new technology, or other similar services. Studies in a number of countries have found that innovation vouchers encourage “additionality” in SME innovation, meaning they enable SMEs to undertake innovation efforts that may not otherwise be able to.

As a related policy instrument in the United States, several states have introduced “manufacturing reinvestment accounts,” these are tax-deferred accounts into which SMEs can deposit up to $1 million that can be subsequently withdrawn tax-free for purposes of expenditures toward research and development, workforce training, or investment in improved plant and capital equipment. Likewise, many countries have introduced favorable tax treatment for SMEs, including expanded R&D tax credits, refundable or transferrable R&D tax credits for pre-revenue SMEs, or even tax forgiveness for young SME start-ups in the first three years.

Finally, SMEs often lack the resources larger firms do to identify and to adopt the latest technologies or production practices, particularly when it comes to SME manufacturers. Accordingly, as ITIF documents in International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers, manufacturing extension services (also called technology extension services) play an important role in promoting technology adoption by SMEs; supporting technology transfer, diffusion, and commercialization; performing research and development in direct partnership with SMEs, and/or providing access to research labs; and engaging SMEs in collaborative research and development and/or technology specific consortia. Such manufacturing extension programs are increasingly common throughout the developed and developing world, and in many cases the capabilities of such programs are also available to services firms.

With more than 95 percent of firms in Organization for Economic Cooperation and Development (OECD) countries being SMEs and those firms accounting for 60 to 70 percent of OECD employment while generating a disproportionate share of new jobs in OECD economies, it’s vitally important that public policy pay specific attention to supporting SMEs’ innovation potential. However, those efforts will only be successful if they take place in the context of a global economy that permits innovation by all firms to flourish to the maximum possible extent, which is why it’s imperative that the international economic community and its institutions push nations to only use “win-win” innovation policies.


Stephen Ezell is Vice President, Global Innovation Policy at the Information Technology and Innovation Foundation (ITIF), a Washington-DC based technology and economic policy think tank, where he focuses on science, technology, and innovation policy as well as international competitiveness, trade, and manufacturing policy issues. He is the co-author with Dr. Robert Atkinson of Innovation Economics: The Race for Global Advantage (Yale, September 2012) and a co-author of Innovating in a Service-Driven Economy: Insights, Application, and Practice (Palgrave McMillan, November 2015). Mr. Ezell came to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003. He previously worked in the new product development group at NASDAQ. Mr. Ezell holds a B.S. from the School of Foreign Service at Georgetown University, with an Honors Certificate from Georgetown’s Landegger International Business Diplomacy (IBD) program.

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The JEUPISTE Project

“You don’t get harmony when everyone sings the same note”

Doug Floyd

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Over the last three years, the JEUPISTE project helped to further promote cooperation in Science, Technology and Innovation (STI) between Europe and Japan. The EU-funded initiative tackles major issues in these fields through analytical, promotional and supporting actions.

The global landscape is evolving rapidly as an increasing amount of research and innovation is being created and conducted in non-European countries. Strengthening connections with international partners and cooperating for mutual benefit became essential for all players to ensure competitiveness and sustainable development both for Europe and Japan.

JEUPISTE (Japan-EU Partnership in Innovation, Science and Technology) followed the successful footsteps of the J-BILAT project, an initiative running from January 2010 to December 2012, to increase awareness on the 7th European Framework Programme in Japan and address relevant challenges regarding Science, Technology and Innovation.

Based on the achievements of the J-BILAT initiative, the JEUPISTE project put EU-Japan partnership building at the core of its strategy. Without losing sight of the main objective of the initiative, the Consortium – composed of ten partners both from Japan and diverse European countries – acted on multiple fronts and focused on key enabling technologies and similar societal challenges for both the regions. ICT, advanced materials, biotechnology and innovation in SMEs have been selected as key enabling technologies for fruitful collaboration among the EU and Japan. Health, demographic change and well-being, secure, clean and efficient energy, and inclusive, innovative and reflective societies were identified as societal challenges.

An intensive and systemic activity of collection of relevant data, analysis and an accurate monitoring process on EU-Japan STI cooperation with a special attention to the priorities covered under the project, has been carried out to identify relevant areas where cooperation potential between EU and Japan can be further exploited. The project has managed to establish a steady flow of information between the EU and Japan to support stakeholders involved in policy dialogues in defining priorities for the creation and implementation of joint strategic agendas for research, development and innovation. Three major outputs resulted from this activity: an inventory of STI Programmes and Analysis of the EU-Japan Cooperation, providing an overview of the current level of cooperation and ongoing STI programmes between the European Union and Japan; a report assessing the participation of Japanese organizations in the Seventh Framework Programme for Research and Technological Development and a study analyzing EU-Japan Co-Publications outputs (more information at this link).

JEUPISTE considerably increased Japan’s access to available tools and resources for cooperation with Europe and vice versa. The project paved the way for a greater participation of the R&D community to EU and Japan’s respective programmes. On the one hand, various opportunities were presented by prominent organizations in the Japanese R&D landscape such as the Japan Science and Technology Agency and the Japan Society for the Promotion of Science counting on their vast collaborative ties with important institutions worldwide: Postdoctoral Fellowships for Overseas Researchers, Invitation Fellowship Programs for Research in Japan or international exchange initiatives offer a fertile ground for cooperation between the regions. On the other hand, opportunities for Japanese participation to Horizon 2020 were showcased by National Contact Points and success stories of Japanese participation to FP7 emphasized the benefits of a closer collaboration between the EU and Japan. Initiatives such as EURAXESS – Researchers in Motion have been presented providing access to relevant information and support services to researchers willing to develop their career in Europe, and topics, deadlines and budgets related to EU-Japan Joint calls in the new Horizon 2020 Work Programme have been outlined (a complete list of the events organized and relevant presentations is available at this link).

Through coordinated networking and twinning actions, the JEUPISTE project facilitated the establishment of public-private partnerships, joint technology initiatives and academia-industry collaboration. The multi-disciplinary topic of “Smart Cities in a broader term” was selected as the focus of three innovation workshops, that were the occasion to further share experiences and brainstorm with high-level representatives both from European and Japanese organisations and lay the foundations for future business collaborations.

A further opportunity for European and Japanese stakeholders is the professional assistance offered by the JEUPISTE help desk, providing advice on a wide range of areas from Japanese research funding programmes that can be used in the context of EU-Japan cooperation to relevant H2020 topics and types of action for cooperation with Japan and recommendations on integrating a Japanese partner in a H2020 research project. In collaboration with the National Contact Point and the Enterprise Europe Network in Japan, the help-desk also facilitates partner search through a dedicated tool aiming at bringing together organisations for the submission of joint project proposals.

Since the launch of the initiative coordinated by the EU-Japan Centre for Industrial Cooperation, INSME (Partner of the JEUPISTE Project) offered its active contribution by facilitating partnership building and by disseminating the added-value of EU-Japan collaboration to a multi-stakeholder audience.

By focusing on science, technology and innovation, initiatives such as the JEUPISTE project can contribute to the competitiveness of a country. Supporting policies, increasing the attractiveness of human resources and linking the S&T communities with private sector competences are fundamental steps to take to find a way out of a sluggish economy.


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IPR Strategies for the South-East Asian Knowledge Market

– by Helika Jurgenson –

Closed doorMany European SMEs may be under the impression that they do not conduct R&D in South-East Asia, because they do not have a research facility there. The likelihood is however that in reality, a high proportion of them engage in activities which fall under at least one of the terms: research or development. An example of R&D activity might include an SME entering into a contract with a local company to use their engineers to develop a prototype into a commercial product. The future of R&D looks promising in South-East Asia, as the rapidly growing market becomes more accessible to franchisors around the world and as the legal environment is showing promising signs of improvement. As an example, the number of foreign franchises in Indonesia has been growing around 13% on a yearly bases since 2012. Nevertheless, it is still vital to have an IP protection strategy when conducting R&D activities in South-East Asia.

Protecting IP with registrations

SMEs can protect their valuable R&D through patents, design patents, industrial designs, trade secrets and trade mark registration. SMEs should keep in mind that patents acquired in Europe do not give automatic protection in South-East Asian countries and therefore, if a European SME is planning to create any new intellectual property in South-East Asia, it is highly recommended to apply for invention patents or design patents in the South-East Asian country, that you seek to do business in. Early protection is the key. The average time for getting a certification varies between 3-8 years for invention patent and between 12 months to 3 years for design patents depending on the country of reference.

Patent registration and design registration generally function under the ‘first-to-file’ principle, meaning that the first person to file for registration in a particular South-East Asian country will own that right once the registration is granted, irrespective of ‘first use’. Therefore, an SME should register its patents and relevant IP even before entering their destination markets. Registration in advance is extremely important, because a registration certificate is the only method to establish rights over patents, designs and trade marks. A registration certificate also enables a company to license and assign certain IP rights, and to enforce IP rights in a more straightforward procedure.

IP strategies: how to valorize R&D related IP in South-East Asia

R&D could be valorized through the use of IP rights by the company, by assigning IP rights to others or through licensing or franchising. Managing IP rights gives SMEs the advantage of obtaining profits or funds gained from the IP assets created and owned in South-East Asia. At the same time it may require an extensive management system and can be costly both in terms of annual maintenance fees and validity rights for innovation patents and design patents. Additionally, SMEs would also have to monitor their IP assets in order to detect infringements early.

Assigning IP rights to a local company will allow European SMEs to increase their profits and reduce the need for constant monitoring of their IP rights and potential infringements. On the other hand, SMEs will no longer continuously benefit from their IP rights but will receive a lump sum payment for the sale.

Opting for licensing or franchising will allow European SMEs to quickly expand their business, enjoy the steady flow of periodical income from IP rights as royalties and take advantage of the local resources and knowledge. Similarly to managing IP, franchising requires regular monitoring of the use of the IP assets, which might be time and resource consuming.

Legal environment for enforcing IP rights

The legal environment for IP protection has improved in recent decade in South-East Asia.  Most South-East Asian nations have relatively recently acceded to major international IP treaties like the WTO Trade Related Aspects of International Property Rights (TRIPS) Agreement, Paris Convention or Madrid Agreement. In recent years, Thailand, Vietnam and Indonesia have undertaken a vast program of reforms regarding major IP laws. In particular, these nations have modernized laws regarding trade secrets, patents, trade marks, technology transfer and unfair competition, which are particularly relevant when SMEs try to protect their R&D related IP.

Nevertheless, problems still remain, for example Vietnam still lacks specialized laws dealing with different R&D related issues. Vietnamese franchise regulations are still rather symbolic, impractical and inefficient. What it means for SMEs operating in Vietnam is that they should make sure they have strong non-disclosure agreements and confidentiality agreements in place to protect their R&D related IP assets during their development.

Future trends and takeaways for the R&D sector in South-East Asia

Market experts predict that crowdsourcing (making tasks available for anyone in the ‘crowd’ to complete) relating to R&D is becoming a popular trend in Vietnam and throughout the major South-East Asian countries. This will of course include several IP-related risks for businesses, including the question of IP ownership and infringement claims from the members of the crowd who were not successful in selling their solution to the crowdsourcing SME. Companies considering crowdsourcing should put sound IP strategies in place that include creating barriers between their IP and the crowdsourced responses and documenting all actions to protect themselves from possible infringement claims. This is especially important considering that current Vietnamese IP laws are not fully prepared to deal with disputes relating to IP issues in crowdsourcing.

However, deeper international integration is expected to improve the legal environment as better legal instruments, capable of dealing with the changes in ways businesses approach their R&D, will become available. Full implementation of the Trans-Pacific Partnership Agreement (TTP) will, for example, reform franchising regulations, making the enforcement of licensing agreements more predictable.

Meanwhile, SMEs engaged in R&D activities in South-East Asia should keep in mind that acquiring legal protection for their IP assets as soon as possible, understanding the business partner and the market and seeking local expertise in relation to IP issues is the key to successful business endeavors in South-East Asia.


Picture of Helika Jurgenson
Helika Jurgenson is a project executive for two European Union funded projects China IPR SME Helpdesk and South-East Asia IPR SME Helpdesk. She is currently responsible for publications, outreach and organizing webinars.

South_East AsiaThe South-East Asia IPR SME Helpdesk supports small and medium sized enterprises (SMEs) from European Union (EU) member states to protect and enforce their Intellectual Property Rights (IPR) in or relating to South-East Asian countries, through the provision of free information and services. The Helpdesk provides jargon-free, first-line, confidential advice on intellectual property and related issues, along with training events, materials and online resources. Individual SMEs and SME intermediaries can submit their IPR queries via email (question@southeastasia-iprhelpdesk.eu) and gain access to a panel of experts, in order to receive free and confidential first-line advice within 3 working days.
The South-East Asia IPR SME Helpdesk is co-funded by the European Union.
To learn more about the South-East Asia IPR SME Helpdesk and any aspect of intellectual property rights in South-East Asia, please visit our online portal at http://www.ipr-hub.eu/.
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