diversification and innovation strategies in natural ...€¦ · power lines point of sale...

1

Diversification and innovation strategies

in natural resource-rich economies:

Benchmarking Azerbaijan and

Kazakhstan

”

Thomas Andersson

Astana, October 23, 2013

2

Disposition

• Technical progress and Globalisation

• R&D and Innovation

• NREs and Benchmarking

• Way forward

3

Technical Progress

and Globalisation

•

Point of Sale IP Cameras Power Lines IP Phones In-Vehicle Infotainment

Home Storage

Sensors Net book

Security IPTV/IMS Military/Aero Learning Home Auto Digital Signage Portable Medical

Net top

Gaming Industrial PC Printers Medical Transport Robotics Factory Automation

MID

Genomics Research

Medical Imaging

Financial Analysis

Weather Prediction

Oil Exploration

Design Simulation

Cloud Computing

Data Center Refresh

… and places us to a world where IT truly moves from cost center to innovator and key business enabler

http://images.google.com/imgres?imgurl=http://www.primidi.com/images/aurora_3d_recognition.jpg&imgrefurl=http://www.primidi.com/2004/11/26.html&h=350&w=400&sz=48&hl=en&start=1&tbnid=UQdLTQNtp7q_nM:&tbnh=109&tbnw=124&prev=/images?q=face+recognition+software&gbv=2&svnum=10&hl=en

Science and ICT Technologies

High-speed communications and advance computation give rise to the era of e-Science.

With a proper scientific e-Infrastructure,

researchers in different domains can

collaborate on the same data set,

finding new insights.

They can share the data across the

globe, protecting its integrity and

checking its provenance.

They can use, re-use and combine

data, increasing productivity.

Empowering and Ubiquitous …

… not using technology for technology’s sake!

Around us: cars, toys, home, automation …

On us: watches, clothes…

Between us: who is who, can know and rely on …

In us: RFID tags for health care and automatic payment …

7

Interwoven Knowledge linkages

NESTA, 2008

Globalisation, FDI Flows (% of GDP, 2011 or latest available)

0

1

2

3

4

5

6

7

8

9

Kazakhstan Azerbaijan Korea Russia US Sweden

Outflows Inflows Source: World Bank, 2013

Source: OECD

Final consumption

3

7

5

6

2

Final assembly

1

4

Trade in inputs

(first tier suppliers)

Trade in inputs

(second tier suppliers)

Stylised Global Value Chain

LOCATION

FIRM

HOME COUNTRY HOST COUNTRY

OUT

SIDE

FIRM

W

ITHI

N F

IRM

DOMESTIC DIVISIONS/AFFILIATES

DOMESTIC SUPPLIERS

FOREIGNAFFILIATES

FOREIGN SUPPLIERS

OFFSHORING

In-firm offshoring

Global sourcing

Dom

estic

outs

ourc

ing

Vertical integration

abroad

OU

TSOU

RCING

Source: based on Van Welsum and Vickery (2004), Miroudot et al. (2009) and Sturgeon (2009)

Company Strategies of Outsourcing and Offshoring

11

“Smile Curve”

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R&D and Innovation

•

R&D Expenditure % of GDP

Source: The World Bank (KAM)

0

0,5

1

1,5

2

2,5

3

3,5

4

Kazhakhstan

Azerbaijan

Russia

South Africa

Malaysia

Sweden

US

Singapore

China

Korea

Thailand

14

Innovation related finance

GOBIERNO

CENTRAL

CENTROS

DE IYD

UNIVS.

EMPRESAS

FINLANDIA

GOBIERNO

CENTRAL

CENTROS

DE IYD

UNIVS.

EMPRESAS

?

ESPAÑA

GOBIERNO

CENTRAL

CENTROS

DE IYD

UNIVS.

EMPRESAS

CHILE

Innovation Output Patents granted/mill. People (2005-09)

Source: World Bank (KAM,2013)

0

50

100

150

200

250

300

350

0,1 0,12 1,28 2,51 5,63

138,05

308,84

97,01

1,05

151,18

0,51

19

Innovation

• Definition … “the customer” decides

• Technological – non-technological

• Incremental - radical

• Open innovation

• Social innovation

• Innovation system

20

Abandoning the linear model

21

Open innovation model

Open Innovation: The New Imperative for Creating and Profiting from Technology, H. Chesbrough, 2003

Innovation system

23

Supply and demand

• Innovation stimulated from two ends

• Enormously enhanced opportunities

• Requires specialisation and collaboration

• Learning around your core business

• New combinations

• Experimentation, risk-taking

24

Evolution of innovation metrics

First Generation Input Indicators

(1950s–60s)

Second Generation Output Indicators

(1970s–80s)

Third Generation Innovation Indicators

(1990s)

Fourth Generation Process Indicators

(2000s plus emerging

focus)

·R&D expenditures

·S&T personnel

·Capital

·Tech intensity

·Patents

·Publications

·Products

·Quality change

·Innovation surveys

·Indexing

·Benchmarking innovation capacity

·Knowledge

·Intangibles

·Networks

·Demand

·Clusters

·Management techniques

·Risk/return

·System dynamics

25

NREs and Benchmarking

•

Undiversified economy High-technology exports (% of manufactured exports)

0

5

10

15

20

25

30

35

40

45

1

5

8

13

18

21

26 26

31

43 45

Source: The World Bank, 2010 or latest available

Assets: Natural Resource-based; Manufacturing; KBE

Capital:

Labour:

Knowledge:

Infrastructure:

Governance:

Abundant, depleting;

Abundant unskilled;

Expensive;

Good;

Strong state;

Fixed, expensive;

More expensive;

Specialised;

Good;

industrial relations;

Intangible

Expensive

Complex

Very good

Market driven

Examples: GCC, Kaz, Az; Brazil, Korea; Nordics, Japan, US

Natural resource-based economies

Production process: multidimensional, spanning from extraction,

exploration, manufacturing, and services

High purchasing of existing technologies rather than in-house R&D

Resource innovation influenced by degree of collaboration with suppliers,

customers, competitors, governments …

Tendency for innovation to focus on processes and distribution of low-to-

medium goods and services rather than high-value products and services

Bulk of innovation activities in large extensively internationalised firms,

deficit of dynamic SMEs and opportunity-based entrepreneurship

Competitiveness ranking, 2013-14

Source: The Global Competitiveness Report 2013-2014

Index rank Kazakhstan Azerbaijan Russia South Africa

Malaysia Sweden US Singapore China Korea Thailand

Growth Competitiveness Index Rank-GCI

50 39 64 53 24 6 5 2 29 25 37

Institutions 55 59 121 41 29 5 35 3 47 74 78

Infrastructure 62 69 45 66 29 20 15 2 48 11 47

Macroeconomic env. 23 8 19 95 38 14 117 18 10 9 31

Health and Primary Education.

97 109 71 135 33 13 34 2 40 18 81

Higher education and training

54 87 47 89 46 8 7 2 70 19 66

Goods Market Efficiency

56 71 126 28 10 12 20 1 61 33 34

Macroeconomics and Infrastructure, 2013-14


Index Rank Kazakhstan Azerbaijan Russia South Africa


Overall quality 64 55 111 63 25 21 19 5 74 23 61

Quality of air transport

infrastructure 89 48 107 11 20 24 18 1 65 22 34

Quality of electricity supply

78 75 126 101 37 14 30 8 67 39 58

Budget balance 13 15 92 115 103 32 142 12 61 18 54

Government debt 14 13 54 73 105 62 140 141 28 50 78

Credit Ranking 53 65 97 48 39 3 12 4 23 22 44

Education & Training, 2013-14




Life Expectancy 103 94 101 136 63 10 34 8 75 19 65

Quality of primary

education 69 111 61 133 33 24 41 3 56 23 86

Secondary education

enrollment rate 29 39 75 55 105 43 49 18 90 47 94

Tertiary education

enrollment rate 58 93 14 102 62 18 3 20 83 1 55

Quality of the educational

system 88 114 85 146 19 17 25 3 54 64 78

Quality of Math and

Science education

75 110 56 148 27 41 49 1 48 20 80

Extent of staff training

56 80 88 17 11 7 12 6 48 51 50

Labour Market, 2013-14




Cooperation in labour-employer

relations 40 48 112 148 19 6 42 2 132 37

Flexibility of wage determination

24 36 41 144 33 140 29 5 61 111

Hiring and firing practices

21 8 77 147 26 114 9 3 108 31

Redundancy costs, weeks of salary

27 101 85 35 110 68 1 6 120 135

Pay and productivity 9 23 46 142 2 74 12 4 21 31

Effect of taxation on incentives to work

56 70 122 15 10 20 38 4 111 44

Country capacity to attract talent

41 34 97 55 22 25 6 2 31 32

Goods market efficiency, 2013-14




Intensity of Local competition

120 128 113 45 32 23 14 19 46 8 41

Extend of market dominance

78 83 93 37 18 21 10 12 23 118 76

Effectiveness of anti-monopoly policy

91 127 116 8 23 3 14 4 55 49 69

Effect of taxation on incentives to invest

54 76 125 16 12 23 40 4 41 104 57

Total tax rate, % profits 33 78 124 47 29 120 107 27 131 36 73

Domestic market size index

55 77 8 24 29 34 1 45 2 12 22

Foreign market size index 44 66 7 38 20 35 2 13 1 5 16

Technology Readiness, 2013-14




Availability of latest technologies

88 65 124 40 37 2 6 16 105 27 75

Firm-level technology absorption

78 59 126 35 33 1 9 13 71 21 50

FDI and technology transfer 93 65 125 40 13 33 46 5 78 84 36

Capacity for innovation 74 35 64 33 15 7 5 18 30 22 87

Quality of scientific research institutions

102 78 65 35 27 15 5 11 41 24 60

University-industry collaboration

79 84 64 29 16 10 3 4 33 26 51

Government procurement of advanced technology

58 14 108 119 4 22 15 2 13 31 105


The most problematic factors for doing business

0 5 10 15 20 25

Restrictive labour regulations

Inadequately educated workforce

Poor work ethic in national labour force

Inflation

Inefficient government bureaucracy

Access to financing

Inadequate supply of infrastructure

Policy instability

Corruption

Foreign currency regulation

Government instability/coups

Tax regulations

Tax rates

Insufficient capacity to Innovate

Kazakhstan Azerbaijan



0,0 5,0 10,0 15,0 20,0 25,0




Inflation


Access to financing


Policy instability

Corruption



Tax regulations

Tax rates


Kazakhstan Azerbaijan US


37

0 5 10 15 20 25




Inflation


Access to financing


Policy instability

Corruption



Tax regulations

Tax rates


Kazakhstan Azerbaijan Korea

38

Penetration of selected ICTs, 2012

(per 100 people)

Source: ITU, 2013

0

20

40

60

80

100

120

140

160

180

Kazakhstan Azerbaijan China Korea Sweden US

Fixed lines per 100 inhabitants Mobile-cellular telephone subscriptions per 100 inhabitants

Percentage of Individuals using the Internet Fixed (wired)-broadband subscriptions per 100 inhabitants

Governance Indicators: Government Effectiveness

Source: WGI, Worldwide Governance Indicators

Kazakhstan

Azerbaijan

Russia

Korea

Sweden

Geramny

US

China

39,8

23,92

40,7

84,2

98,6

93,3

90,4

55,9

40

Way forward

•

Central Asia – Context

High Growth based on natural resources, dip with crisis but recovered.

Critical challenge to diversify away from oil & gas and large public sector with high cost levels

Political stability but efficiency and trust issues

Generational changes; informed, wired and educated young, but quality problems in education, mismatch with labor markets

Emphasis on real estate and tangible investment

Not yet inspirational and inclusive approach to research, innovation and entrepreneurship!!

Nexus of issues

Mindset

Research, innovation

Risk-taking

Opportunity-based Entrepreneurship

Coordination Collaboration

Quality Education

Incentives for Long Term Commitment

Risk and Failure

Seed and Venture Capital

IPR infrastructure

Public Private Partnership Investment Law

On Mindset

Reactive Receptive Constructive

Attitude We follow the rules We do what we have to in smartest way

We look for competitive advantages

Position

Defensive

Acceptance

Conscious decision

Perceived impact

Threat Competition neutral Opportunities

Typical solution Filter on pipe Process change Product development/innovation

Collaboration partners

Technical specialists Responsible within the industry

Customers, suppliers, competitors

Focus

Cut costs

Optimize investment

Carve out strategic edge

Key to Value-Creation

• Specialisation; A sharp portfolio of strengths, permeating

research, graduate education and innovation

• Critical mass; Sufficient own and networked resources and

capabilities to create a unique platform

• Bridging; Academia engaged with society; businesses and

entrepreneurs that engage with academia; medical research, hospitals

and care centres linked with society

• Environment; A living, green and smart city, or rural areas that

are “alive” - conducive to active life and sustainable development

• Wellness; Healthy lifestyle and a vibrant medical & health sector

• Governance; Quality control, efficiency, inclusion

Ring 3 Traditional ‘Industrial’ Activities

Rings 1 & 2 Services Industries

Ring 1 Creative & Experience Industries

Gastronomy & nightlife

Music

Film & video

Content production

(computer/TV games

& software)

Radio & TV

(media) Books & the press

(publishing)

Design

(fashion) Architecture

Advertising

(Performing)

arts & crafts

Edutainment

(experienced-based

learning)

Sports & leisure (Amusement parks) attractions

& events (festivals)

TOURISM

SECURITY

BANKING

FINANCIAL

ACCOUNTING

LEGAL

UTILITIES

HEALTH

RETAIL

INVESTMENT MARKETING

PUBLIC SERVICES DISTRIBUTION

BUSINESS SERVICES INSURANCE

EDUCATIO

N

ENV.

Product is, itself,

an experience/

service (film, art,

design, ships’

registry)

Firm’s product enhanced via sales &

marketing services &/ experiences

(storytelling, events, product launches,

competitions)

Experiences

&/services provide

added revenue

streams for firm’s

core product

Experiences &/ services

integrated into products

(customer engagement on

design / aesthetics)

Experiences &/ services enhance firm’s HR,

organisation &/ management activities

Outsourced experiences

&/ services support

world-class operational

delivery

Experience/service-based business

development as a source of

differentiation, growth & innovation

AGRICULTURE &

FISHERIES MANUFACTURING

FOOD &

BEVERAGE

AGRO-

PROCESSIN

G CONSTRUCTION

MINING OIL & GAS

FORESTRY TEXTILES

ENGINEERING SHIP BUILDING

Essentials

Knowledge era

Innovation, trust and inclusion

Diverse networks and human relations

Soft power

Local identity, user-centric

Inspiring entrepreneurship, coaching, mentoring

Embracing what is inexperienced, challenging the incumbent – overcoming rigidity

Content driven by relevance and engagement

Regulatory Framework and Incentives

Enabling tangible and intangible investment, incl. research funding and innovation support (fiscal incentives not most important)

Governance, public goods provision coupled with strong stakeholder engagement and influence

Public – private partnership (pooling of risk, diverse contributions, requires: legal structure that is transparent and lenient, operational modalities, principles for funding and for participation)

IPR (flexibility to negotiate win-win, qualified support by institution to innovator)

Embrace knowledge-based entrepreneurship, start-ups and diverse sources of investment (all funding components)

Employment (40-40-20, under responsibility)

• Jumping stages of infrastructure development

• Foregoing vested interest formation

• Overcoming fragmentation and mediocrity

• Creating user- and needs-driven innovation and development-oriented communities

• Building on cultural strengths for enhanced creativity and embracing entrepreneurship and innovation

• Provide the enablers – seed-funding and mechanisms for entry, competence development and growth

Gazelle Society

Natural resource-based innovation governance

Strong governance promoting constructive collaboration

Promoting cross-sectoral technology transfer

Strong leadership in engineering mindset change: from sunset to

strategic sector - vision of resource based sector as innovative and

creative

Promoting diversification through product innovation, adding design,

intelligence, experience industry aspects …

Promoting constructive university – industry linkages, in research and in

higher education

Improving image in market, sustainable development, societal relevance

From evaluations as events to evaluations as learning processes

Time

Innovation System Analysis =

hypothesis

Programme execution

Programme

Management

Evaluations produce data by which

corrections of the innovation system analysis

and programme plans continuously are made

”Timing matters”

ISA

Monitoring/Evaluation

incl. by stakeholders

Scientists

Innovation Policy Positioning:

Implicit

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

EnvironmentScientists

Innovation Policy Positioning:

Traditional

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

Environment

I.P.

Traditional positioning of innovation policy Implicit positioning of innovation policy

Scientists

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

Environment

Innovation Policy:

Explicit Positioning

I. P.

Scientists

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

Environment

Innovation Policy:

Explicit Positioning

I. P.

Explicit positioning of innovation policy Explicit positioning of innovation

policy with interactions

Source: IKED (2003)

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