Policy concepts and instruments for support of business innovation Keith Smith Australian Innovation Research Centre University of Tasmania

Developments in innovation policy: the changing global context Strong differences between the major economies (especially between USA and EU) New global growth dynamic: Big growth in output, R&D and skilled personnel in China, India, Russia, Brazil, Turkey, Mexico, India etc Entry of smaller countries in advanced technologies - for example Finland, Sweden, Canada in mobile New patterns of R&D globalisation and skilled mobility - global sourcing is replacing trade-driven R&D

Objectives of innovation policy To enhance problem-solving capabilities in society, in such areas as health, education To provide the support conditions for populations of innovating firms, capable of survival and growth

New directions in innovation policy Need to base policies on the real characteristics of innovation processes New emphasis on innovation system policies, and on sectoral approaches Need to take account of changing patterns of demand as world economy grows (for example food, resources) New attention to sectors (especially low-tech) and to resource-based sectors

What do we know about innovation processes? Innovation research over the past two decades has shown: Innovation is generally not science driven Innovation is pervasive across sectors - it is not confined to high tech environments Innovation differs sharply across sectors (in terms of inputs, organisation and actors, knowledge bases, risk profiles) Innovation capabilities are cumulative over time Innovation outcomes are highly uncertain Innovation is collective - it relies on the innovation environment

Innovation environments: the ‘innovation system’ Historically developed patterns of Specialisation Institutions Knowledge creating organizations Risk management agencies Skills and education - that support and structure innovation

System levels Systems can be thought of at different levels: Technological Sectoral National

System functioning - what does a well-functioning innovation system do? Identify opportunities Create capabilities, make experiments Create and diffuse knowledge Manage risk (risk reduction, risk sharing, risk shifting) Mobilise resources Create positive externalities

Key system policy instruments Organisations for developing strategic visions and creating opportunity Education and skills Physical and knowledge infrastructures R&D capability Risk management - finance These elements of system policy are not affected by globalisation rules

At national level in Europe… New organizing concepts (especially systems approaches) New agencies for implementation (with system focus) Wider rationales (bounded vision, limits to firm capabilities, management of uncertainty, institutional and infrastructure frameworks, “system failures”) Broader set of objectives (innovation/R&D policy as broad instrument for other objectives) Wider array of instruments (reflecting innovation complexity) Innovation perspective in other policy arenas (such as competition, regulation) Complex links to EU (transnational issues)

Innovation policy measures Financing (mobilisation of private capital, investment in VC funds, public loan operations)Financing Taxation (fiscal measures beyond R&D – wealth, options, social security issues etc)Taxation Strategic Vision of R&D (forecasting exercises)Strategic Vision of R&D Strengthening Company Research (university-industry collaboration, near- market development schemes)Strengthening Company Research Start-up of technology-based companies Education & Training (specifically related to innovation – skills acqisition, distance learning, lifelong learning etc)Start-up of technology-based companies Education & Training Mobility Students/Researcher/Teachers (inter-sectoral mobility programs, having large efects in some countrries)Mobility Students/Researcher/Teachers Public Authorities (infrastructures, public procurement, monitoring and analysis, statistics and indicators, innovation in the public sector, policy capabilities)Public Authorities Promotion of clustering and co-operation for innovation (regional initiatives, cluster-wide services)Promotion of clustering and co-operation for innovation Competition impacts on innovation, measures to improve tech transferCompetition

Sector policies and agencies in Australia Co-operative Research Centres - about 50, joint funded between industry and government Rural Research and Development Corporations (about 10, in wine, dairy products, etc) ‘Action Agendas’ for sectoral strategies Food innovation grants University links with CRCs Industry development associations - such as Australian Research Institute for Minerals (ARIMA)

Wine in Australia Organisations: Strategic vision - Wine 2025 (made by Wine Makers and Grape Growers Federations) Infrastructure: CSIRO (Commonwealth Scientific and Industrial Research Organisation) Grape and Wine Development Corporation (Joint R&D operation) Science-based wine education - training in 12 universities Infrastructure, R&D and education all supported by Federal government

Wine achievements in Australia Major Innovations: Mechanical harvesting and pruning New root stocks and viticulture methods New varieties Economic outcomes: 12% compound annual growth rates in output and trade since % share of world market Exports: $US2 billion 2000 producers

Wine in Australia - the big problem Industry became dominated by 4 firms - BRL Hardy, Southcorp, Orlando Wyndham, and Mildara Blass In 2003 they had 80% of Australian market and exports None of these firms exists today - owned by Fosters Group (Australian), Constellation Brnads (USA), Pernod Ricard (France) Why? None were able to manage the scale and risks of global distribution

Conclusions Global growth is opening up new areas for innovative products These are not necessarily ‘high tech’ - they include food products, furniture, clothing etc They require sector-specific development strategies, based on thorough knowledge of how innovation occurs Sector policy instruments can be controlled by national governments