1. 1 Technological Capacity Building of SMEs in Sub-National Innovation System UN-ESCAP Beijing, China Oct. 2006 Deok Soon Yim, Ph.D. Director Daedeok Innopolis Office, Korea

2. 2 - Contents - 1.Conceptual Framework 2.Needs for New SME Policies 3.Daedeok Innopolis Case 4.Conclusion and Discussion

3. 3 Individual level Laboratory level Corporate level Industry (sectoral) level Regional level National level Global level Innovation at different innovation actors Conceptual Framework  Different Innovation Factors

4. 4 Source: Deok Soon Yim (2002) Value Chain of Innovation Process HRD, Information, Consulting, Financing Primary Value Secondary Value R&D Knowledge Transfer & Application Market Conceptual Framework

5. 5 It’s a System for innovation which is composed of actors, processes, and culture. Input Process Output Actors Interaction mechanism between actors(relationship) S/W like culture, regulation, norms Concept of Innovation System Conceptual Framework

6. 6 Concept of Innovation System 1.Innovation processes are related with multiple actors University, public R&D inst., industry Community, financial inst., consulting firm, culture 2.Innovation processes are non-linear/networked interaction about S&T knowledge, R&D, Money, people Business development Conceptual Framework

7. 7 Concept of Innovation System 3.New role of innovation actors University: basic research + commercialization too public R&D inst.: basic/applied research + commercialization Industry: applied research/business + basic research too 4.Emergence of innovation cluster Networked actors’ web Cluster(innovation system) is more than the sum of individual parts Conceptual Framework

8. 8 Government Research Institutes Universities Industries Financial Institutes Other related Actors Knowledge, Money, People National S&T Environment Global S&T Environment National Innovation System Conceptual Framework

9. 9 Actors: Government, Industry, University, Financial Institute, Management Consulting Firm Input: Money, People, Knowledge Output: S&T knowledge --> Competitiveness Government failure vs. Market failure vs. System failure External and Internal Environment is important National Innovation System Conceptual Framework

10. 10 Environmental Changes 1.Fast Changes of Science and Technology Breakthrough technologies requires everything to be changed from business, people, management etc. Speed also matters 2.Globalization MNCs are leading global value chain process Innovation process is also being globalized 3.Increasing Competition Not only MNCs but also SMEs are competing at global market Core competence comes from technology New SME Policies

11. 11 Traditional SME Policies 1.SME policies were made in the old context Stable environment Domestic market and competitors 2.Functional, individual policies HR supply, financial, marketing support Low level technological support 3.Short-term oriented Not focused on long-term technological capacity building New SME Policies

12. 12 Needs for New Paradigm 1.SME policies in the new environment Changing S&T, globalization, technological capacity building 2.Comprehensive policies System building rather than functional policy 3.Short-term oriented Long-term and consistent policy New SME Policies

13. 13 SME Policy at Sub-national Innovation System 1.Sub-national Innovation System(SIS) is a small NIS It has common characteristics of NIS It is influenced by national policy 2.SIS is local/regional based The effectiveness of SIS depends on local conditions It is influenced by local policy 3.SMEs are important actors in SIS SMEs employ people SMEs create local value New SME Policies

14. 14 Daedeok Innopolis

15. 15 Overview of Daedeok Science Town  1973. Nov. (Plan Announced) Establishment  Daedeok, Chungcheongnam-doLocation  27.8 Km²  70.5 Km²Size  23,558 (6,236 Ph.D.s) as of 2005Employment  IT (40%) BT (14%) Material Science (9%) Chemical Engineering ( 8%) Energy resource (8%) Major Research Area  Total 242 organizations including 21 Government Sponsored Research Institutes 39 Private Research Institutes and 148 Ventures Tenant Organizations  Mecca and symbol of Korea’s Science and Technology  Economic and industrial growth  Benchmarking model for developing nations Status Daedeok Innopolis

16. 16 Major Characteristics of DST  Central Government Initiated Driving Force  Government Research Institute + KAISTMain Innovator  Spin-offs from GRIs  Technology-based ventures  Approx. 800 companies Start-ups  No (Physical or Operational) Master Plan  Island Approach (No community Zone + Separation from surrounding region)  No Initial Regional governmental support Master Plan  Very low  becoming active  Formal and informal groups Interaction among actors  Special R&D Zone (2005)  Introduction of New Management Body  Cluster-supporting Projects New legal status Daedeok Innopolis

17. 17 How does an innovation cluster evolve? StageCharacteristics Pre-Cluster Few firms with very limited links among themselves. Little economic impact. Anchor companies emerging in region. Emerging Cluster Firms creating links and organizing among themselves to form industry associations and alliances. Expanding Cluster Growing linkages and critical mass. Economic impact expanding. Networking is spontaneous. Restructuring Cluster High inter-firm links. Cluster spawns new cluster-ettes and begins to adapt in changing market. Source: SRI – What economic clusters are and why are they important? Daedeok Innopolis

18. 18 Is innovation cluster evolved or developed? Artificial cluster  natural cluster? Can artificial cluster survive without external continuous support? Example? Value Chain Can any firm has all the strength in all value chain? Strength in some value chain only? Is it possible to extend the strength in one value chain to other value chain? Daedeok Innopolis

19. 19 Evolutionary Process Initial Conditions Location, Technology, People, Culture, Venture Capital and Consulting Firm, Other Infrastructure Down-stream Evolution (Yim, 2000) From Production to Research Up-stream Evolution (Yim, 2000) From Research to Production Daedeok Innopolis

20. 20 What are the factors influencing the formation of an innovation cluster? Historical circumstance Unusual, sophisticated, or stringent local demand Prior existence of related supplier industries Innovative companies Daedeok Innopolis

21. 21 Kuro industrial complex  Innovation cluster ? Production Complex (1970) Kuro Digital Complex (2006) Daedeok Innopolis

22. 22 Initial Conditions and Development Central Government Initiated Government Research Institutes Focused Initial Condition Nothing and Planned Locational Advantages Middle of South Korea. Distance? Small market Pure S&T Island Approach Down-stream Evolution Process? Daedeok Innopolis

23. 23 What Daedeok Science Town has done S&T Knowledge S&T Manpower Venture Incubation National S&T Infrastructure Promote S&T Culture S&T OutcomesSocio-Economic Outcomes Visible Outcomes Invisible Outcomes Daedeok Innopolis

24. 24 Examples  IT: PC, TDX, CDMA, ATM exchange (ETRI)  BT: The research on DNA characteristics (KRIBB/KRICT)  Energy: Korea's standard atomic reactor (KAERI)  ST: leading-technology air crafts, artificial satellites (KARI) S&T Knowledge  KAIST: 10% of total 20,000 Science Professors 20% of 6,400 private company researchers S&T Manpower  Build and Service over 55 Million R&D Information Database: Over 56 Million Users Annually (KISTI)  Setup and Maintain Industrial Standards (KRISS)  Provide Mega Research Equipments (KBSI)  Sponsor Research Projects and Funds (KOSEF) S&T Infrastructure  18 Venture Incubators (310 Residence firms)  Assist Spin-offs and Start up companies (total 158 ventures)  Contribute to regional economic development Venture Incubation  Create S&T friendly Atmosphere (EXPO, National Science Museum)  Promote Public’s Understanding on the Importance of S&T S&T Culture Daedeok Innopolis

25. 25 97 98 99 00 01 02 03 04 Patents Venture Companies Early Stage of Innovation Cluster: “ S ” innovation curve Daedeok Innopolis

26. 26  Many internal/external networks formed  Small scale clustering  Dedicated internet newspaper  Collaborative/open culture  International network  World Techno-polis Association Early Stage of Innovation Cluster: “ S ” innovation curve Daedeok Innopolis

27. 27 Response to the Development of Advanced Technologies Utilization of the S&T output Promotion of Venture Start-ups 1973197819931999 year Innovative capability Construction of infrastructure Leading the National R&D Capability through GRIs Expansion of R&D Base Creation of Innovation Formation of Innovation Cluster Promotion of Mega-Sized R&D Projects Assistance to Corporate R&D Activities Emphasis on Development of Advanced Technologies Focal Points for the Linkages between Universities, Industries, and Research Institutes Changing Roles of Daedeok Science Town Daedeok Innopolis

28. 28 Primary Value Functions Production Marketing R&D Secondary Value Functions R&D ability is the key function and driving force of an industry value chain R&D Driven Innovation Cluster Human Resources / Information Supply Venture Capital / Consulting / Etc. Daedeok Innopolis

29. 29 -International Recognition -Geographical Expansion -Linkage with Surrounding Clusters -Reinforcement of Transportation -Technology Driven Economy -Economic Recession -Gov’t Support for other Regional Clusters -Increasing Overseas Competition -Lack of Self-sustainability -Lack of Interactions/Networking -Immature Business Environment -Lack of International Business Environment -Brain Drain -30 Years R&D Experience -Human Resources -Hi-tech Ventures based on Advanced Technology -Support of Central Government -Locational Advantage -Excellent Research Environment Strengths ThreatsOpportunities Weaknesses SWOT Analysis Daedeok Innopolis

30. 30 What are the development factors of DST?  First, strong government support  A recent financial crisis in 1997 and following restructuring process with venture boom  Introduction of Local self-government system in 1995  Introduction of Daedeok Innopolis Office Daedeok Innopolis

31. 31 Zhongguancun : Market + Being Global Daedeok Innopolis

32. 32 McDonald: Global Player Daedeok Innopolis

33. 33 Starbucks: Knowledge Place Daedeok Innopolis

34. 34 Conclusion and Discussion Strong government commitment Importance of system (not individual or individual unit) and competitiveness Benchmark developed countries but create its own policy Policy changes according to industrial development (From S&T to industry and innovation) S&T think-tank to assist gov’t policy Conclusion and Discussion

35. 35 Transition to open system internationally and cluster- upbringing system domestically Source: Young Ja Bae, Wi jin Song, Deok Soon Yim(2002) From system formative Pperiod to system Developmental Period Global Innovation System Changes in Technology environment Changes in Social environment National Innovation System Regionnal Innovation Cluster Conclusion and Discussion

36. 36 Conclusion and Discussion Integrate regional innovation system to national innovation system and finally to global innovation system Global division of roles at global innovation system  All the innovation policies have to be made at the global level Conclusion and Discussion

37. 37  Is the Gov’t support really necessary? 1.Then how long and how much? 2.Does it take long time to be developed as a self sustainable innovation cluster? 3.It may depend on the location specific characteristics (Technological capabilities, Good universities, Refined and big market, Venture capital, and etc.) 4.For the artificially designed innovation clusters (without satisfactory initial conditions for innovation), the infant R&D capabilities would soon die out if there is not consistent support form the Gov’t. Conclusion and Discussion

38. 38 Key Success Factors for the Development of Sub-national Innovation System 1)Research Capabilities 2)Research/Business Manpower 3)Research/Business Infrastructure 4)Financial Resource 5)Cooperative/Competitive Culture 6)Management and Vision 7)International Player (MNC) 8)Start-up Companies New SME Policies

39. 39 SME Policies at Sub-national Innovation System 1.Strategic Mind Setting Awareness for the importance of SIS in SME policy It’s matter of survival not selection 2.Long-term, System-oriented Policy The policy may take longer time to bring the results but has to be consistent and system-oriented 3.Technology Capacity Building It may need benchmarking case Policy should encourage the co-work between local university and SMEs New SME Policies

40. 40 Thank You! Any Question?