6/7/2016 Innovation and Firms in Asia Lakhwinder Singh Punjabi University India

6/7/2016 Firms and Asian Economies in Global Context  Dramatic shift of the sources of economic expansion from Western Developed Coutnries to the Asian continent  Increasing Economic Influence of Asian Countries and Firms  OFDI from Asia was US$ 383 billion in 2014  Contribution to World GDP 38%, Export Share 32.9% and 32.9% Manufacturing Value added  Asia Emerged as the Engine of Growth for the Global Economy

6/7/2016 Economic Transformation of Asia  Increasing importance of industrial production (41.3%: 2010) in GDP.  Five out of the top ten most competitive industrial economies of the world (Japan, South Korea, Taiwan, Singapore, and China)  Forbes and Fortune Global list more than 172 ccompanies from Asia  Sources of economic growth have undergone significant transformation from capital accumulation to technological progress, especially in the first decade of 21st century.

6/7/2016 The Rise of Asian Firms: Theory and Empirics  Emergence of Asian Firms as Global Players- Capturing Markets and Innovations Domains. Asian Firms successfully formed capabilities both during the Import Substitution and recent phase of globalization.  Coase-Williamson Theory-Firms are Islands of Consciousness Power in a sea of Market Transactions  Coase-Williamson Tradition stressed on the Costs of Formulating, Enforcing and Monitoring Contracts  Shifted the emphasis from Production of more resources to allocations of resources.

6/7/2016 Evolutionary-Capability-Learning Theories of the Firm  Smith (1776) Expansion of the firm-Division of Labor and Enhancement of Skills (Capabities) through Learning-by-doing.  F H Knight (1921) Emphasised on the Role of Knowledge and Uncertainty in the existence and growth of firms.  Penrose (1959) incorporated the role of tacit knowledge and elusive nature of skills within the firm.  Nelson and Winter (1982) identified evolution of technical routines for producing goods by the firms.  Lundval (1992) and Freeman (1987) used NIS framework and emphasized the role of building innovative and learning capabilities.

6/7/2016 Internationalization of Firms  Dunning's theory emphasized on the unique competitive advantage possessed by the firms. Motives of internationalization- Efficiency Seeking, Market Seeking and Strategic Asset Seeking.  Emerging body of empirical literature on the rise of influence of Asian firms emphasis on the role of innovative capability building in the firms through global interaction (Amman and Catwell 2012).

6/7/2016 Internationalization of Firms  The process of innovation capability building in China, India, South Korea, Taiwan and Malaysia were conducted by Li and Cantwall (2012); Lee and Mathews (2012); Kale (2012); and Rasiah (2012) shows the rise of innovations in the Asian firms.  Theory of firm and empirical studies came to the conclusion that growth and internationalization of firms is complex and multidimensional phenomenon.  Transition of firms from imitation to innovation capabilities requires co-evolution of actors (firms) and its environment.

Country Product Innovation Process Innovations Organizational Innovations Marketing innovations Innovative Active Firms Innovative firms Per capita income US$PPP 2012 Japan South Korea China India Indonesia Malaysia Philippines Average Standard Deviation Coefficient of Variation Table 1: Intensity of Innovative Manufacturing Firms across Asian Countries (Figures in percentages) Source: UNESCO (2015).

CountryMicroSmallMediumLargeTotal China21.27 India Indonesia Japan Malaysia Philippines Republic of Korea Table 2(a) Percentage of Product and Process innovators in manufacturing by size classes

CountryMicroSmallMediumLargeTotal China India Indonesia Japan Malaysia Philippines Republic of Korea Table 2(b) Percentage of organizational innovators in manufacturing by size classes

CountryMicroSmallMediumLargeTotal China India Indonesia Japan Malaysia Philippines Republic of Korea Table 2 (c) Percentage of marketing innovators in manufacturing by size classes

CountryIndiaJapanRepublic of Korea Innovative Firms Innovative Active firms Innovative FirmsInnovative Active firmsInnovative Firms Innovat ive Active firms food product beverages Tobacco products textiles wearing apparel Leather and related products Wood and products of wood and cork, except furniture : manufacture of articles of straw and plaiting materials Paper and paper products Printing and reproduction of recorded media Coke and refined petroleum products Chemicals and chemical products Basic pharmaceutical products and pharmaceutical preparations Rubber and plastic products Other non-metallic mineral products basic metals fabricated metal products, except machinery and equipment Computer, electronics and optical products Electronic-equipment Machinery and equipment n.e.c motor vehicles, trailers and semi-trailers Other transport equipment furniture Other manufacturing Repair and installation of machinery and equipment Innovative firms in manufacturing Table 3 : Distribution of innovative and Innovative active Firms across industrial products

Country In House R&D Contracted- out (External) R&D Acquisition of Machinery, Equipment and Software Acquisition of external knowledge Training Market introduction and Innovations Other Preparations India Indonesia China Malaysia South Korea Japan Average Standard Deviation Coefficient of Variation Table 4: Types of Innovative Activities of Manufacturing Firms across Asian Countries (Figures in percentages)

Country Enterprise or enterprise group suppliers of equipment, materials and components or software Clients or customers Competitors or other enterprises in their sector Consultants, commercial laboratories or private R&D institutes Universities or other higher education institutions Government or public research institutes Conferences, trade fairs, exhibitions Scientific journals and trade/technical publications Professional and industry associations China India Indonesia Japan Malaysia Philippines South Korea Average Standard Deviation Coefficient of Variation Table 5: Sources of Inputs (information) rated highly important by innovative firms across Asian countries

Country Enterprise or enterprise group suppliers of equipment, materials and components or software Clients or customers Competitors or other enterprises in their sector Consultants, commercial laboratories or private R&D institutes Universities or other higher education institutions Government or public research institutes Indonesia Japan Malaysia Philippines Republic of Korea Average Standard Deviation Coefficient of Variation Table 6: Interaction of innovative firms with institutions across Asian countries

CountryIndiaIndonesiaJapanMalaysiaPhilippines Republic of Korea Average Standard Deviation Coefficient of Variation Lack of funds within the enterprise or enterprise group Sources outside the enterprises High costs of innovation Lack of qualified personnel Lack of information non technology Lack of information on markets Difficulty in finding co- operation partners Market dominated by established enterprises Uncertain demand for innovative goods or services No need to innovate due to prior innovations by the enterprise No need to innovate due to no demand Table 7: Highly important hampering factors reported by active innovative firms across Asian countries

CountryIndiaIndonesiaJapanMalaysiaPhilippines Republic of Korea Average Standard Deviation Coefficient of Variation Lack of funds within the enterprise or enterprise group Sources outside the enterprises High costs of innovation Lack of qualified personnel Lack of information non technology Lack of information on markets Difficulty in finding cooperation partners Market dominated by established enterprises Uncertain demand for innovative goods or services No need to innovate due to prior innovations by the enterprise No need to innovate due to no demand Table 8: Highly important hampering factors reported by non- innovative manufacturing firms across Asian countries

6/7/2016 Conclusions  Asian Firms Unlike Wester Developed Coutnries Firms are doing more social innovations compared with that of technological innovations.  Product and process innovations are stable and rising across Asian country firms.  There is increasing tendency towards catch up in innovation intensity among Asian country firms  There is high degree of concentration of innovations in large sized category of firms

6/7/2016 Conclusion  Japan and South Korea are competing in the same category of broad product lines  Increasing tendency towards in-house R&D.  Weak National Innovation System Except Japan and South Korea  Deficiency of internal and external funds but related to stage of innovations.  Public policy should accord high priority to attend the problems of both innovative and non-innovative firms