1. Innovation in Portugal: What do we know? What would we like to know? What would we like to know? Manuel J. Bóia, Pedro Conceição, Rui Santos and Manuel Heitor Center for Innovation, Technology and Policy Research, IN+, Instituto Superior Tecnico, Lisbon, http://in3.dem.ist.utl.pt http://in3.dem.ist.utl.pt Faculdade de Ciências Sociais e Humanas, Universidade Nova de Lisboa Fundação Calouste Gulbenkian, 2 October 2003 Work partially funded by OCES

2. Outline 1.From Catching-up to Forging Ahead… 2. The Third Community Innovation Survey, CIS 3 3. Convergence Performance Improvements in Main Indicators Performance Improvements in Main Indicators Leading towards the EU Mean Leading towards the EU Mean 4. Purely quantitative vs. qualitative convergence Do results indicate latecomer growth?Do results indicate latecomer growth? Do qualitative weaknesses remain? Do qualitative weaknesses remain? Or is there evidence of qualitative changes as well? Or is there evidence of qualitative changes as well? 5. Conclusions What do we know? What do we know? What would we like to know? What would we like to know?

3. The Imperative: improve productivity and efficiency, not the extension with which resources are used Contributions of Hourly Productivity and of Hours Worked to the Gap in GDP per Capita (1998)

4. How to increase productivity? There is a need to enhance innovation. Why? Because Portugal is already competitive in low value-added activities. Proportion of Exports According to the Price/Quality Ratio (Value) of Exported Goods (EUROSTAT)

5. What is lacking to enhance productivity? a) R&D investment, namely by firms High Tech Exports and R&D Intensity in Firms (OCDE,2002)

6. Firm Revenues Invested in Activities Oriented towards Innovation What is lacking to enhance productivity? b) expenditure on innovation

7. c) Portugal also lacks technical skills and competencies What is lacking to enhance productivity?

8. d) Portugal is behind in organizational, as much as in technological, innovation Adoption of Flexible Management Practices OCDE (1999). Employment Outlook

9. What does Portugal have going for it? a) Portugal is now a dual country: excellence coexists with poor performance Written Literacy: Results for Population between 20 and 25 Years with Advanced High School Diplomas Literacy: Results for the Entire Population

10. b) Portugal has been growing fast, but less so than other catching-up countries What does Portugal have going for it? Variation in the Number of Patents and Number of Published Scientific Articles

11. What does Portugal have going for it? c) Portugal has a new wealth in incoming people Growth in the Population of Each Country with Foreign Origin (1988-1998), OECD(2000)

12. In the way of a summary....... There may be agreement on some general and generic areas for investment (education, science and technology, infrastructures, social capital defined in a broad way). But the design and implementation of specific policies meets two challenges: –The lack of understanding of the barriers and opportunities –A lack of qualified people able to understand and interpret the developmental shortcomings of the country and of designing and implementing, at the firm level or in the public sector, the measures that could overcome these shortcomings. Portugal needs to jump from a catching-up model of economic growth and development, to a model of forging-ahead by exploring creativity and ingeniousness by developing and diffusing innovation.

13. Outline 1.From Catching-up to Forging Ahead 2. The Third Community Innovation Survey, CIS 3 3. Convergence Performance Improvements in Main Indicators Performance Improvements in Main Indicators Leading towards the EU Mean Leading towards the EU Mean 4. Purely quantitative vs. qualitative convergence Do results indicate latecomer growth?Do results indicate latecomer growth? Do qualitative weaknesses remain? Do qualitative weaknesses remain? Or is there evidence of qualitative changes as well? Or is there evidence of qualitative changes as well? 5. Conclusions What do we know? What do we know? What would we like to know? What would we like to know?

14. Survey Sample Initial Sample: 4727 firms stratified by firm size and sector (INE–1999 Data)Initial Sample: 4727 firms stratified by firm size and sector (INE–1999 Data) Corrected sample: 4127 firmsCorrected sample: 4127 firms Sectors Surveyed Mining and Quarrying, all Manufacturing, Utilities, Wholesale Trade and a selection of industries in the Service SectorMining and Quarrying, all Manufacturing, Utilities, Wholesale Trade and a selection of industries in the Service Sector Survey Target Population All Manufacturing and Service firms with more than 10 employees 2. The Third Community innovation Survey: CIS 3 Application to Portugal Innovation Defined as: Market introduction of a product (Good or Service) new or significantly improved, or the introduction of new or significantly improved processes, based on new technological developments, new combinations of existing technologies or on the use of other type of knowledge acquired.

15. Harmonized questionnaire (the same for Services and Manufacturing and other industries)Harmonized questionnaire (the same for Services and Manufacturing and other industries) Questions regarding:Questions regarding: General Information Basic Economic Information Product and Process Innovation Patents and Other Protection Methods Innovation Activities and Expenditure Intramural R & D Other Strategic and Organizational Important Changes Effects of Innovation Public Funding Innovation Co-operation Sources of Information for Innovation Hampered Innovation Activity Companies Characteristics Innovation Extension Companies Options Systemic Characteristics 2. The Third Community innovation Survey Questionnaire Questionnaire

16. 3. Convergence : Performance Improvements as Measured by Main Quantitative Indicators (results obtained throuhg OCES)

17. Ireland Austria Germany Netherlands UK Sweden Norway France Luxemburg Belgium 0% 20% 40% 60% 80% 100% 20%40%60%80%100% Proportion of Manufacturing Innovating Enterprises Proportion of Service Innovating Enterprises Portugal Italy (1)For comparison with the data of 1995-1997 some Sub sectors (NACE 63, 73, 74.3 e 64 except 64.2) and the manufacturing companies in between 10 and 20 employees which were part of the CIS 3 survey are not considered (2)Includes the results not considered in (1). Note:Final disaggregated and comparable results are not yet available for the other participants in the exercise. (1) (2) CIS III (Preliminary) CIS II Finland 3. Convergence Leading the Convergence towards the EU Mean

18. Ireland Germany Austria Netherlands UK Sweden Norway France Finland Belgium Portugal 0% 20% 40% 60% 80% 0.0%2.0%4.0%6.0%8.0% Expenditure in Innovating Activities as Share of Turnover Porportion of Innovative Enterprises Manufacturing Sector CIS III (Preliminary) CIS II 3. Convergence: Input vs Output

19. 3. Convergence Smaller Improvement in the Share of Turnover due to Innovation

20. Or Is there evidence of qualitative changes as well? 4. Purely quantitative vs. qualitative convergence Do results indicate latecomer growth? Do qualitative weaknesses remain? Questions to be raised:

21. 4.1Evidence Supporting Qualitative Change MEs Catching Up MEs Catching Up (results obtained throuhg OCES)

22. 4.1Evidence Supporting Qualitative Change Innovation pervades the economy Innovation pervades the economy Note: Less confined to the Technologically advanced sectors (results obtained throuhg OCES)

23. 4.1Evidence Supporting Qualitative Change Shift of innovation expenditure toward intangibles: services sector However, weak and ambiguous in the manufacturing firms - decrease in marketing & training, rise in R&D…

24. 4.1Evidence Supporting Qualitative Change … consistent with the rise of BERD since 1997, still quite low by EU standards… (Source: R&D Survey, IPCTN, 2002)

25. 4.1Evidence Supporting Qualitative Change … and with the observed correlation between technological and other innovations (results obtained throuhg OCES)

26. 4.2Evidence Supporting persistent structural weaknesses Industrial structure skewed to very small and small enterprises...

27. 4.2Evidence Supporting persistent structural weaknesses … which are much less prone to innovate… … which are much less prone to innovate… (results obtained throuhg OCES)

28. 4.2Evidence Supporting persistent structural weaknesses … and to middle-low and low technology sectors… … and to middle-low and low technology sectors…

29. 4.2Evidence Supporting persistent structural weaknesses … also less innovative

30. 4.2Evidence Supporting persistent structural weaknesses Limited market scope Limited market scope The restriction of most firms' targets to the national and local markets sets lower innovative challenges; The restriction of most firms' targets to the national and local markets sets lower innovative challenges; It also accounts for the unusually high percentage of products "new to the market, especially of services It also accounts for the unusually high percentage of products "new to the market, especially of services

31. 4.2Evidence Supporting persistent structural weaknesses Protection Methods Protection Methods Protection of innovation, though mainly developed in house and new to the market, relies heavily on informal procedures (secrecy, complexity of design, time-to-market) Protection of innovation, though mainly developed in house and new to the market, relies heavily on informal procedures (secrecy, complexity of design, time-to-market) This also helps to explain the persistence of a low use of formal IPR (patents, registration of design patterns, copyright): The only exception is trademarks. This also helps to explain the persistence of a low use of formal IPR (patents, registration of design patterns, copyright): The only exception is trademarks.

32. 4.2Evidence Supporting persistent structural weaknesses The relatively low academic qualification of the labor force persists, especially in the manufacturing sector The relatively low academic qualification of the labor force persists, especially in the manufacturing sector This is all the more important as there is a significant difference in qualification between innovative and non-innovative firms

33. 4.2Evidence Supporting persistent structural weaknesses As in CIS II, firms' perception of the obstacles hindering innovation contrasts with that of EU As in CIS II, firms' perception of the obstacles hindering innovation contrasts with that of EU

34. 4.2Evidence Supporting persistent structural weaknesses Firms tend not to consider, and even less than in CIS II, organizational rigidities and lack of qualified personnel as barriers.Firms tend not to consider, and even less than in CIS II, organizational rigidities and lack of qualified personnel as barriers. Firms overemphasize obstacles beyond their control (finance, costs, risk) and underemphasize those they can influence.Firms overemphasize obstacles beyond their control (finance, costs, risk) and underemphasize those they can influence. But both qualification of personnel and organizational change are in fact associated to innovative firms, and Portugal has comparatively under-qualified workforceBut both qualification of personnel and organizational change are in fact associated to innovative firms, and Portugal has comparatively under-qualified workforce

35. The innovative performance of Portuguese firms has improved over the second half of the 1990s, as far as one can learn from self-reported indicators.The innovative performance of Portuguese firms has improved over the second half of the 1990s, as far as one can learn from self-reported indicators. 5. Conclusions I: What do we know? Technological innovation appears to be strongly correlated with Organizational Innovation and Change - there may be limited value-added and returns in looking at technological or organizational innovation per se.Technological innovation appears to be strongly correlated with Organizational Innovation and Change - there may be limited value-added and returns in looking at technological or organizational innovation per se. Important structural weaknesses remain – both associated with factors external to the firms and with firm behavior, with firms attributing more importance to the former when asked to indicate barriers to innovationImportant structural weaknesses remain – both associated with factors external to the firms and with firm behavior, with firms attributing more importance to the former when asked to indicate barriers to innovation The enhancement in innovative performance has been accompanied by limited, but significant, structural changes – that is, the improvement in performance goes beyond catching-up dynamics.The enhancement in innovative performance has been accompanied by limited, but significant, structural changes – that is, the improvement in performance goes beyond catching-up dynamics.

36. What would the characterization of innovation in Portugal would be like based, instead of self-reported indicators, on independent assessments? More specifically, what should we learn, compare, typify and seek to explain about innovative processes as a whole?What would the characterization of innovation in Portugal would be like based, instead of self-reported indicators, on independent assessments? More specifically, what should we learn, compare, typify and seek to explain about innovative processes as a whole? What has the impact of policies been on the innovation performance of firms? When has it been positive, negative, redundant (that is, crowding-out what firms would do anyway as a response to changing market dynamics).What has the impact of policies been on the innovation performance of firms? When has it been positive, negative, redundant (that is, crowding-out what firms would do anyway as a response to changing market dynamics). What explains the correlation between technological and other types of innovation? What are the organizational adjustment and learning costs to innovation and how can they be minimized? Which are the organizational opportunities and how can they be optimized?What explains the correlation between technological and other types of innovation? What are the organizational adjustment and learning costs to innovation and how can they be minimized? Which are the organizational opportunities and how can they be optimized? 5. Conclusions II: What would we like to know?

37. What is generic, and what is specific, to the (still weak) innovative performance of the Portuguese firms? From what we would know to be generic, which lessons from other contexts could we apply in Portugal? From the specificity, what would constitute adequate responses? How important is innovation to enhance the welfare of Portugal? What alternatives to becoming more innovative would be available to meet the challenge of reaching the European average economic performance?