1.0 Dream or Reality

Every company (established or to be) seeks to overtake its competitors by offering products better corresponding to clients’ needs (actual or future), whilst generating substantial profits. Every researcher wishes to work on a thrilling project.

Imagine your happiness if you had the “idea of the century”. Suppose it would be the case!  You are at the final stage of developing a new “high-tech” product capable of insuring a strong growth for your enterprise or to allow you to start a new one with promises of a bright future. Independent experts confirm that your technology is effectively advantageous, that the manufacturing costs will be relatively low and that the international market is ready for this type of product. The world is within your reach!  It’s every entrepreneur’s dream!

There are still a few steps to take but nothing is insurmountable. There are “formalities” involved and some “difficulties” to overcome to realize this project in your region. Here are 8 of them (the 4 first ones will be the subject of section 3.1 of this article):

• Qualified personnel is rare and the scarceness of specialists is aggravated by the exodus of holders of diploma you look for;
• Government agencies and local universities can only help in a limited fashion to overcome the last challenges;
• Starting such a project usually requires a lengthy and costly authorization process;
• You have to get a patent for your product in your country (to avoid that a local competitor benefits from your idea) and at least make sure no patent will prevent you from commercializing your product in the targeted countries. These relatively lengthy and costly undertakings have to be conducted in parallel with all others to not slow down the lead time of your new product.
• Local suppliers can’t guarantee that all components will meet your specifications;    You will have to support their development process, take increased risks or deal with much more expensive foreign suppliers;
• You will have to export because your product is somewhat an avant-garde and costly for the local market inundated with cheap products;
• When exporting, you will have to deal with large distributors dictating their conditions and you will have to face, on their own grounds, renowned competitors with research and marketing budgets largely exceeding your own;
• Financing is hard to get and interest rates are relatively high for projects as innovative, deemed promising but bearing risks.

Do you think your dream is turning into a nightmare? No, it’s simply the reality of many entrepreneurs doing business in emerging countries! 

We often hear about the advantages in emerging countries for low manufacturing costs, abundance of labor-force and with a strong growth of their local market. We must not forget however that the coin has another side. Lower income leads to low buying power (especially for non-essential products), the labor-force needs good training and the infrastructures of emerging countries cannot support innovation as well as countries largely industrialized from long ago.

The realizations of certain countries deserve admiration because of the difficulties they overcame to achieve such results. If it is true that to “triumph without peril brings no glory” (The Cid by Corneille), then people who succeed to commercialize their innovations in emerging countries deserve “honors and considerations”. Their realizations should be a source of inspiration for all entrepreneurs. This article introduces the subject. Specialists reading these lines are invited to share their comments (or complete article). Some of the next bulletins could go deeper into the matter


2.0 Statistics about Innovation for 3 Types of Countries

According to the “UNESCO Science Report 2005” (2002 statistics) (1)or its summary (2):

The world’s 5.5 million researchers (or 894 researchers per million of people) are distributed as follow:

• 70.8% in more developed countries (3.9 million researchers or 3 300 researchers per million of people in countries holding 19.3% of the world’s population)
• 29.1% in developing countries (1.6 million researchers or 370 researchers per million of people in countries holding 69.5% of the world’s population)
• 0.1% in less developed countries (3 000 researchers or less than 5 researchers per million of people in countries holding 11.1% of the world’s population)
  
  

Total expenditure for R&D would be 830 billion US dollars ($134 per person or $150 000 per researcher) and are distributed as follow:

• 77.8% in more developed countries ($646 billion, $540 per person or $165 000 per researcher)
• 22.1% in developing countries ($184 billion, $43 per person or $114 000 per researcher)
• 0.1% in less developed countries ($0.5 billion, less than $1 per person or $154 000 per researcher)
  
  

 As an average throughout the world, 1.7% of the Gross Domestic Product (GDP)  is devoted to R&D (GERD or “gross expenditure on research and development”)

• 2.3% in more developed countries (where we find 59.4% of the world GDP)
• 1.0% in developing countries (where we find 39.1% of the world GDP)
• 0.1% in less developed countries (where we find 1.5% of the world GDP)
  
  

 The GERD/GP ratio varies a lot between continents:

• 2.7% in North America
• 1.7% in Europe (1.8% for the EC and 1.2% elsewhere in Europe)
• 1.5% in Asia (with important variations: 3.1% in Japan, 1.2% in China, 0.7% in India and around 0.1% in most Asian countries)
• 1.4% in Oceania
• 0.6% in South America
• 0.3% in Africa
  
  

Countries with 80% of the world’s population have 40.6% of the world GDP; they have 29.2% of the researchers and invest 22.2% of the international budgets for R&D. Many of these countries have shown they can do much with little but it is evident that the gap between the needs and the means is an important holdback for the development of these countries’ potential in spite of the progress made for the last 30 years.

Here are four references to learn much more in little time:

• (3) gives access to an Excel spreadsheet showing more detailed data about resources allocated to R&D between 1996 and 2004 within 106 countries and territories.
• (4) shows interesting statistics about the sources of research funding in many countries (but the figures are often older than 2000).
• (5) describes the evolution of R&D between 1990 and 2000
• (6) the first pages give interesting world’s statistics although they fairly differ from those given above
  
  
  

3.0 Some of the Constraints to Innovation in Developing Countries

3.1 The “Brain Drain”
Many efforts are in need to increase the number of researchers in developing countries, as much from governments investing in education as from families supporting these students. Part of these efforts are lost because of a significant number of holder of diploma immigrate to foreign countries, either because they wish to pursue specialized studies not available in their country, or because they do not find adequate jobs at home, or they are attracted by better conditions abroad, or simply because of the appeal of adventure.

It is estimated that countries not part of the OECD supplied, most involuntarily, more than 50% of highly qualified immigrants now working in the United States (7.8M), in Europe (4.7 M), in Canada (2M) and in Australia (1.4 M) to name only a few examples, (7) because the phenomenon surely prevails elsewhere.

The unbalance between the availability and the demand for researchers in more developed countries fuels the brain drain. Since 1980, the quantity of jobs in S&E (“Science and Engineering”) in the United States has grown 5 times quicker than the number of American students in these fields (8).

The situation might keep going on in the United States. On one hand, the American youth is less attracted by science and engineering than the preceding generations. On the other hand, the soon to come retirement of the “baby boomers” (80 million of Americans born between 1946 and 1964) will increase the gap between the availability and the demand for researchers (50% of the graduates in S&E are more than 40 years old).

If the trend keeps on, the United States will need to import researchers (which will increase the “brain drain”) or export R&D work (which would favor emerging countries).

The innovation race between Europe, America and Japan (see bulletin no. 2), will amplify the relocation of specialists phenomenon or of R&D work with impacts that could echo in many emerging countries.

3.2 Little Support for R&D
Taking into account the variety of needs to fulfill and the relative rareness of resources (researchers and budgets), developing countries can only support a limited number of projects. Even priority subjects do not dispose of abundant resources. Thus, the local industrialists receive limited support to tackle their powerful foreign competitors on their grounds with high-tech products. Many have developed the art of innovating on a shoestring, including the design of products manufactured from components available locally.

To succeed in such a situation, even the most innovating industrialists have advantage to turn to developing products and services using more intensively labor force than capital because they will gain an advantage in terms of manufacturing costs. That, however, implies training people and to mortgage one’s future with a manufacturing process greatly depending on cheap labor force (that can desire a significant improvement of its working conditions) rather than on highly performing equipment yielding (theoretically) constant quality and benefit from future economies of scale.

3.3 Administrative Constraints to the Start of a Business
The figure “Administrative Costs to Start a Business” (reference 9 page 12) shows that “administrative costs” are an important holdback in many developing countries. Taking into account the per capita revenues, the start of a business in a developing country represents at least 2 and often 10 times the revenue slice that citizens of the most industrialized countries have to invest into the start of their business.

3.4 Cross-Border Ownership of Inventions (10 ) ( 11)
As an average, in OECD countries, there are 13.7% of local patents owned by strangers and 13.9% of foreign patents owned by “nationals”. In certain countries, the situation is much different has shown by the following statistics (“Foreign ownership of domestic inventions» vs. “Domestic ownership of inventions made abroad”):

• South Africa (38.7% vs. 15.2%),
• Brazil (40.1% vs. 8.4%),
• India (49.3% vs. 13.8%),
• Singapore (51.8% vs. 26.0%),
• China (52% vs. 25.6%).

With such a large portion of foreign owned patents, these countries have certainly little influence on the commercialization of local innovations.

3.5 “Non-Problems”
Great many documents focus on innovation throughout the world. The comparative evaluation of countries, evidently, has a base of objective criteria. However, certain measures can be subjective if we do not take into account culture or context differences.

The number of scientific publications is a good example: 

• It will probably be less where cultures favor quality over quantity and revere reflection time as opposed to execution speed;
• It will be more if there are incentive programs allocating additional resources (time and money) to people who publish (which is not the case for all countries);
• It depends on the nature of the job (research, teaching, services, production, etc.), the type of employer (government, large enterprises, small and medium size enterprises, etc.) and on the workload from other obligations of articles authors.
• It varies with the relative importance given to notoriety and confidentiality that depend upon political and social considerations that in turn vary from one country to another.

Even if the number of publications seems to be an “objective” criterion, one sees that it can be significantly influenced by cultural or contextual differences not related to the degree of scientific advancement.

Without going into a long debate and deciding what is good and what is not for specific cases, let’s look at some other examples of elements that are often considered in the evaluation of countries but that do not have the same meaning everywhere:

• The advancement state of the services sector or the % of GDP from the services (is it a prerequisite or a consequence of the economic development?);
• A university education with lot of room for practice (is it a way to attract students or to better train them?);
• The number of triadic patents (do the country’s enterprises have the capacity to take on American, European and Japanese markets?);
• The mastery of English (is it essential when taking into account the targeted markets?);
• The productivity level (does the country need to favor the multiplication of jobs or the increase of value added per employee?).

We must not ask ourselves if the studied country favors behaviors that are important for us. We must examine if it will reach the goals it deems important for its own development!

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University research, intellectual property rights and European innovation systems
This paper surveys the literature on university patenting. The first part of the paper addresses two major questions. First, what is the economic logic of Bayh-Dole, and, second, what were the effects on universities and the knowledge they develop. In the second part, the paper addresses the issue of whether “Bayh-Dole-like” legislation would be beneficial for European countries.
Europe / Bart Verspagen - Eindhoven Centre for Innovation Studies / February 2006 / 22p.


Innovation Performance and Government Intervention
External financing is important when inventors and small technology-based firms wish to commercialize their inventions. Using a unique database on Swedish patents owned by individuals and small firms, this paper by Roger Svensson analyzes how different forms of external financing influence the outcome when patents are commercialized. It suggests that government institutions should make their loans more market-oriented already in the R&D-phase.
Sweden / Roger Svensson – The Research Institute of industrial Economics / March 2006 / 35p.


People and Excellence: The Heart of Successful Commercialization
This report covers a comprehensive package of 11 recommendations to provide a strong starting point for Canada to achieve its full potential. At the core of these recommendations is the development of a business-led Commercialization Partnership Board (CPB). The CPB would create a new role for the private sector as a full partner in charting the course for, and developing policy related to, commercialization.
Canada / Expert Panel on Commercialization / April 2006 / 40p.


Accelerating Economic Development Through University Technology Transfer
This report highlights models of university technology transfer and commercialization, related efforts such as entrepreneurship programs, and the infrastructure and environment needed to support commercialization efforts.
USA – Innovation Associates Inc./ February 2006 / 155p.


Pre-commercial procurement of innovation: A missing link in the European innovative cycle
This report shows how a first-buyer function can be built up in a European single market that aims at being competitive, fair and transparent. The report introduces the concept of Pre-commercial Procurement of Innovation, to address a generally missing link in the European innovation cycle, the public procurer that is prepared to share benefits and risks with industry in order to exploit the results of research, moving research developments from their early stages to tested pre-commercial products ready for commercialisation.
Europe / European commission / March 2006 / 33p.


Product cycles, innovation and exports: A study of Indian pharmaceuticals
This paper sheds light on the product cycle and neotechnology theories of trade in the context of generic pharmaceuticals. The paper studies the export performance of 177 Indian pharmaceutical firms for the post-liberalization period 1991-2004. The results indicate that technology proxied by foreign patent rights has a positive impact on exports. This suggests that developing countries with innovation skills for process innovations are capable of penetrating international markets in the later stages of the product cycle by using patents, which were the barriers to trade in the early stages of the product cycle. Thus, Indian pharmaceutical firms adept at reverse-engineering of brandname drugs have an opportunity to enter the global generic market for off-patent drugs.
Singapore / Alka Chadha –National University of Singapore / 2005 / 29p.


Finding the Balance in Innovation and Commercialization
This paper, authored by Dr. Alan Cornford and edited by Dr. Richard Lipsey discusses the importance to Canada’s innovative capacity and, in turn, international competitiveness, of establishing the optimal balance of investments among public research and development (R&D), private R&D, highly qualified personnel and risk capital. The paper observes that these key drivers of innovative capacity interact with each other, making the balance among them at least as important as the investment levels in each.
Canada / Alan Cornford – Atlantic Canada Opportunities Agency / January 2006 / 3p.


From ideas to development: the determinants of R&D and patenting
This paper uses panel regressions to investigate the effects of innovation policies and framework factors on business R&D intensity and patenting for a sample of 20 OECD countries over the period 1982-2001. Both sets of factors are found to matter; the main determinants of innovativeness appear to be the availability of scientists and engineers, research conducted in the public sector (including universities), business-academic links, the degree of product market competition, a high level of financial development and access to foreign inventions. The effect of direct public financial support for business R&D is generally positive but modest, though it may larger for cash-constrained firms.
International / OECD / December 2005 / 59p.


Networks of Small Producers for Technological Innovation: Some Models
Small producers face a variety of challenges – some related to markets and others related to capabilities. Inability to develop technological capabilities has often restricted small firms from growing large. In this paper, Panjak Chandra presents learning from three global networks, i.e., TAMA in Japan, Wenzhou in China and Rajkot in India, that have adopted a variety of mechanisms of coordination between small producers and has led to both capability enhancement and demand enhancement. The author proposes distinctive determinants of a collaborative model for engaging SMEs in technological innovation over a period of time.
India / Pankaj Chandra - Indian Institute of Management / March 2006 / 27p.


Decision-Making and Quality in the Patent Examination Process: An Australian Exploration
The quality of patents granted by national patent offices is currently the focus of significant investigation worldwide. The vast majority of this work examines the quality of the end-product of the examination process – the patents themselves. This Working Paper is founded upon the perception that it is equally important to explore the quality of the process that precedes the patent grant – the examination of patent applications by patent office examiners.
Australia / Chris Dent - Intellectual Property Research Institute of Australia / January 2006 / 35p.


Technical Change Theory and Learning Curves: Patterns of Progress in Energy Technologies
This paper presents a comparative analysis of energy technology learning and progress within the framework of Schumpeter’s invention-innovation-diffusion paradigm. The results point to relative importance of R&D in the process of technological progress.
UK / Tooraj Jamasb - Faculty of Economics, University of Cambridge / March 2006 / 27p.

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