From the World Bank Group on Innovation + Entrepreneurship: Drivers of Inclusive and Sustainable Growth.
Presentation delivered at the Global Entrepreneurship Congress in Johannesburg, South Africa (March 2017).
6. Lack of firm innovation
is hampering
productivity growth
especially in emerging
economies
7. The innovation imperative:
Building Capabilities for Increasing firm
productivity
• Lack of firm innovation is
hampering productivity
growth especially in
emerging economies
• Innovation policy focus
should go beyond R&D
to strengthen firm
capabilities to support
technology adoption
7
8. Approach
Vol 1. Building firm capabilities for innovation
Audience:
Policy makers, development partners and researchers
Objective:
Setting the innovation policy agenda for emerging economies
Vol 2. A Guide to Innovation policy instruments
Audience:
Policy makers and practitioners, WBG staff
Objective:
Guide on policy instruments focusing on operational impact
Policy Note: Good practices of innovation agencies
8
9. Innovation policy for
productivity growth
Policy challenges
• Increasing global public expenditure on innovation policies and programs in both
OECD and emerging economies
• Traditionally, public spending on innovation has been heavily skewed towards R&D
- mismatch with nature of innovation in developing countries – technology adoption and
imitation
• Increased R&D expenditure has not led to better innovation outcomes – U shaped
returns on R&D spending – lack of complementary factors; and not much positive
evidence of impact on innovation policy instruments
• Under a constrained budget environment, improving outcomes and impact of public
expenditure on innovation is a key policy challenge to improve productivity: renewed
focus on strengthening firm capabilities for innovation
10. Innovation policy for
productivity growth
Some important policy questions
• What are the main drivers of firm innovation and what are the gaps in the NIS that need
to be addressed for emerging economies?
• What is the policy mix required to support firm level technology adoption and imitation,
and how this should adapt as countries move towards technology generation?
• What is the role of public vs private spending for emerging economies in sharing risks
and provision of public goods? What is the desired return on public investments and
how do we measure impact better?
• What are the practices and capacity required for policy makers to design and implement
effective innovation policies to strengthen firm capabilities?
• How we design innovation agencies to enable effective innovation policies?
11. The nature of firm innovation
in developing countries
• Innovation in developing countries occurs mainly in the absence of formal R&D
activities and relates primarily to the introduction of products that are only new to the
firm (imitation) or processes of technology adoption.
• Policies that emphasize R&D infrastructure and support in developing countries
need to be re-balanced to recognize that the nature of innovation in these countries is
about imitation and technology adoption, and that complementarities need to be in place
to innovate.
• Given existing frameworks conditions in most developing countries, specific R&D
targets offer poor guidance for innovation policy given the local ecosystems and
lack of complementary factors.
• Innovation policy needs a broader focus on the broad firm capabilities needed for
innovation and to ensure that set of complementarities needed to facilitate the
innovation process
12. Most innovation in developing
countries is imitation rather than
radical
Source: Cirera et al, 2015
13. Returns to R&D - distance to the
frontier and complementary
factors
Source: Goni and Maloney, 2014
15. Agencies to Support
Innovation
• Supporting firm capabilities for innovation requires innovation agencies that enable
effective innovation policies, that are realistic, have a clear mandate, well targeted, and
providing adequate services.
• One size does not fil all does not work with agencies, which have been developed in co-
evolution with the local context. Therefore it is not about copying designs but about
developing procedures that address existing local challenges.
• Agencies in developing countries face significant constraints in their local ecosystems –
lack of stable finance for the projects, inability to recruit qualified staff, lack of
involvement from the private sector,…Different agencies have addressed these
challenges differently
• There are some good practices – private sector involvement, effective M&E, avoiding
agency mimicking,..
16. A guide to innovation policy
Instruments
16
Market based incentives Direct provision of goods & services
Regulation
s
Advocacy
&
voluntary
Research
excellence
Technology
Transfer and
Science-
Industry
Collaboratio
n
Business
R&D and
R&D based
Innovation
Non-R&D
Innovation
,
Technolog
y
Adoption/
Diffusion
Direct financial support
Indirect
financial
support
Other direct support
Innovati
on
voucher
s
Matchin
g
grants
Equity
finance
Loan
guarante
es
Fiscal
incentiv
es for
R&D
Incubators
Intellectual
Property
Rights
& Patent
databasesCollaborativ
e, network &
systemic
policies for
innovation
Standards
for
innovation
Resear
ch
grants
Pre-
commercial
procurement Technolo
gy
extension
support
and
business
advisory
Fiscal
incentive
s for
equip.
upgradin
g
Public
procureme
nt for R&D
Basic research
infrastructure
Higher
educatio
n and
research
framewor
k &
incentive
s
Codes of
conduct for
firms
Volunta
ry
agreem
ents &
covena
nts
Within the scope of this
guide
Outside the scope of
this guide
Non market incentives
Collaboratio
n policies
Open
innovation
initiatives
Ex-post
recognition
awards
Accelerator
s
Science & Techno
ParksInduceme
nt
instrument
s
(Competiti
ve grants
& prizes)
Infrastructure & advisoryOpen innovation &
Crowdsourcing
Source: Authors
NQI for
innovation
Legislation, regulation and
standards
Competitio
n, trade
and
industrial
policies
20. In the OECD– if you
start with 100 start-ups,
70 survive after two
years and 7 actually
grow.
Do we see the same
7% trend in
developing
economies?
21. An interplay between factors at the
individual, firm and macro levels
21
Level of Analysis Crucial Elements for
Entrepreneurship
Impact of
Entrepreneurship
Individuals
Firms
Macro
Attitudes,
Skills, Actions
Start-ups, entry
to new markets,
innovations
Variety,
competition,
selection
Competitiveness,
economic growth,
jobs
Personal wealth
Firm
performance
23. Early Findings
• A very small proportion of startups eventually grow
fast and scale up – in Brazil it is only 1 %
• High growth firms can from any sector and are more
likely to emerge in manufacturing than in retail
• HGF leaders and employees are clearly different–
these founders have more education, more
managerial experience, often come from the formal
sector, and worked in large multi-nationals
• Can we identify, target and stimulate high-growth
firms/entrepreneurs?
24. 15 Countries:
Brazil, Colombia, Costa Rica, Mexico
Cote d’Ivoire, Ethiopia, Ghana, Kenya, Rwanda,
South Africa
Tunisia and Turkey
India, Indonesia, Malaysia
24
200+
interventions
The policy inventory…
26. Preliminary insights/trends
•Strong emphasis on tech
•Pre-occupation with finance: 7 have at least one
direct financing instrument targeting high growth
potential firms
•Most instruments use a targeted approach, but
selection processes are not clear
•Results measurement is rarely under-taken
•Trends towards multi-country (regional) initiatives
and engagement of diaspora
26
27. Resources available now
27
• http://www.infodev.org/growth-entrepreneurship
Coming soon: Policy Options to Enable Growth Entrepreneurs (est. April 2017)
Innovation is measured as an introduction (in the survey year) of a substantially new product or process. Product can be new to the firm or new to national market (imitation) or new to international market (radical innovation).
Left axis shows the percent of a country’s firm that have introduced a new product or process in the survey year.
Data source: World Bank Enterprise Surveys, Innovation and ICT module. China not included (module wasn’t implemented in China).
Ellen
Let me introduce you to Sabrina Meharali
You don’t know her?
Well – she is of Indian decent, grew up in Virgina and has family in Tanzania. She was always interested in business, and decided to go to Tanzania and shadow her uncle for a while. She then realized there was a business opportunity in trading pulses. She took her $25,000 in savings and started a company….fast forward eight years later…Sabrina operates a $10m company that trades and processes…and Tata – the big Cheetah! Is looking to buy her out!
What else did she do? Oh – she realized that the farmers she was sourcing from could not supply her adequate quantities so she helped set up a micro credit scheme….and she set up a pulses association to represent the industry and advocate for the industry.
What do you think? Is this a growth entrepreneur?
HGFs may look different depending on how we measure what an HGF is…in Sabrina’s case it took eight years to go from $25K to $10m, and she started with two people – she and her sister
Denis
High growth firms appear to have many benefits
Ellen
So what does reality look like?
)…out of 100 companies that start, only about 7 grow…and these 7 create most of the value in the economy. Not very good odds…this is from OECD countries…what about developing countries?
So whether we have a lot of gazelles, ostriches, cheetahs and lions in our economy at any given time says something about the dynamism of the economy - and this in itself is valuable – it puts pressure on innovation and competitiveness.
But how do get from a fast growing early-stage firm to a medium or large company? From baby cheetah to grown-up cheetah…
Source: Hsieh and Klenow (2014). The Life Cycle of Plants in India and Mexico, The Quarterly Journal of Economics
Source: Hsieh and Klenow (2014). The Life Cycle of Plants in India and Mexico, The Quarterly Journal of Economics
Ellen
So back to the stats…it seems that the odds of companies growing are even lower in low and middle income economies…if you see the lines below these are growth patterns of companies in the US, Mexico and India with the US on top…just one illustration from manufacturing specifically.
Now – the fact is that we don’t know much about low and middle income economies
Denis
Reference that Paulo will focus on the individuals and firm as the level of analysis, while Daniel will focus on the broader enabling environment
Adapted from Carree and Thurik 2010
Individual: education, work experience, gender, age, psychological traits
Firm: firm age, firm size, sector, ownership, exports
Macro: policy/regulation, human capital, finance, agglomeration, culture, infrastructure, markets
Ellen
or from hobby jogger to college, national or world champion runner? Or from varsity soccer to national or world competitive soccer team? When does that journey start and what are the most influential factors?
Everyone can jog, but can everyone become a local, national or world champion? There are likely factors at both the level of the individual and in the environment he/she exists in what she will end up being. And it looks like it is the same with high growth firms.
Ellen
I am not going to start a discussion about the rationale for government intervention intervention at this stage, but we could discuss this in the Q&A
I will share how we approach the policy inventory
