The	  Role	  of	  Technology	  and	  Technology-­‐based	  Firms	  in	  Economic	               Development	            Ale...
Contents	  •  Technology	  and	  innovaEon	           –  How	  does	  technology	  lead	  to	  growth?	           –  HGFs	...
What	  is	  technology?	  •  “Technology	  is	  the	  uElisaEon	  of	  natural	     phenomena	  and	  regulariEes	  for	  ...
Technology	  •  Defined	  broadly	  to	  capture	  not	  only	  the	     equipment,	  sodware	  or	  instruments	  used	  t...
How	  does	  technology	  	                        contribute	  to	  growth	  ?	  	  •  From	  neoclassical	  growth	  the...
Entrepreneurship	  -­‐	  the	  missing	  link	  ?	  •  Schumpeterian	  models	  imply	  a	  key	  role	  for	     entrepre...
Policy	  implicaEons	  •  1)	  InnovaEon	  policy	  will	  be	  ineffecEve	  if	  the	  condiEons	     for	  innovaEon-­‐ba...
Policy	  based	  only	  on	  market	  failure	             raEonale	  will	  not	  be	  effecEve	  •  System	  failures	  m...
Does	  theory	  match	  real	  life	  ?	                 A	  review	  of	  the	  evidence	  9/09/12	                   Coa...
Does	  R&D	  lead	  to	  growth	  ?	  Yes…	  •  OpEmal	  R&D	  investment	  is	  at	  least	  two	  to	  four	  Emes	  act...
But,	  evidence	  confirms	  that	  	                    R&D	  alone	  is	  not	  enough	  	  •  The	  Swedish	  paradox:	 ...
R&D-­‐growth	  paradox	  seems	  to	  be	   ‘disease’	  affecEng	  high-­‐growth	  sectors	  •  Fast	  growing	  sectors	  ...
But	  R&D	  is	  also	  a	  factor	  boosEng	     technological	  competence	  of	  all	  firms	  •  Firms	  with	  low	  t...
‘Sod	  skills	  are	  increasingly	  complementary	  to	           technical	  skills	  and	  vital	  for	  successful	   ...
So	  does	  entrepreneurship	  alone	  drive	              growth	  and	  innovaEon	  ?	  •  No….	  (Sanandaji	  2010)	  9...
It	  might	  seem	  self	  evident….	  •  But	  we	  need	  high-­‐quality	  entrepreneurship	           –  Industry	  exp...
HGFs	  play	  a	  disproporEonate	  role	                                                      •  4%	  of	  firms	  create	...
Can	  we	  pick	  out	  HGFs	  ex	  ante?	  •  Firm	  growth	  is	  essenEally	  a	  random	  walk	  •  Very	  difficult	  t...
Reality	  check	  1:	  HGFs	  ≠	  high-­‐tech	  •  In	  theoreEcal	  discourse,	  entrepreneurship	  is	  synonymous	     ...
Reality	  check	  2:	  USOs	  ≠	  HGFs	  •  Need	  for	  a	  reality	  check	  in	  terms	  of	  expectaEons:	           –...
So	  we	  need	  to	  look	  for	  other	  pointers	            towards	  growth	  potenEal…	  •  “Across	  a	  wide	  ran...
…focus	  policy	  support	  on	  ‘growth	                           trigger	  points’…	  •  EffecEve	  intervenEons	  at	  ...
…and	  explore	  more	  objecEvely	                barriers	  to	  growth	  and	  innovaEon	  •  Studies	  tend	  to	  foc...
Exploring	  the	  ScoNsh	       conundrum	  
A	  ScoNsh	  Conundrum	  ?	  •  We	  suggest	  Scotland	  is	  a	  mix	  of	  :	  	           –  the	  Swedish	  case	  wi...
Business	  R&D	  and	  economic	  growth	  9/09/12	            Coad	  &	  Reid	  2012	  for	  Sco1sh	  Enterprise	     26	  
Does	  ‘technology’	  contribute	  to	                growth	  in	  the	  ScoNsh	  economy	  ?	  	  •  1)	  Scotland’s	  ‘...
Does	  ‘technology’	  contribute	  to	                growth	  in	  the	  ScoNsh	  economy	  ?	  	  •  2)	  Penny	  for	  ...
Does	  ‘technology’	  contribute	  to	                growth	  in	  the	  ScoNsh	  economy	  ?	  	  •  3)	  Linear	  model...
So	  what	  about	  business	  R&D	  and	                                 growth	  ?	  	  •  Evidence	  suggests	  that	  ...
ScoNsh	  business	  R&D	  has	  been	                             growing	  9/09/12	                  Coad	  &	  Reid	  20...
And	  ScoNsh	  owned	  firms	  	                are	  closing	  the	  ‘R&D	  gap’	  9/09/12	               Coad	  &	  Reid	...
But	  growth	  in	  BERD	  is	  not	  coming	  from	            the	  	  high-­‐tech	  sectors…	  9/09/12	           Coad	...
…which	  have	  a	  declining	  R&D	  intensity	  9/09/12	          Coad	  &	  Reid	  2012	  for	  Sco1sh	  Enterprise	   ...
However,	  high-­‐tech	  sectors	  do	                contribute	  to	  ScoNsh	  growth	  9/09/12	                 Coad	  ...
But	  not	  employment	  9/09/12	           Coad	  &	  Reid	  2012	  for	  Sco1sh	  Enterprise	     36	  
So	  is	  there	  ‘hidden	  innovaEon’	  in	  the	                     ScoNsh	  economy	  ?	  •  Industrial	  structure	  ...
If	  overall	  entrepreneurial	  drive	  in	                   Scotland	  is	  low	  (Levie,	  2009)…	  9/09/12	          ...
…are	  HGFs	  driving	  ScoNsh	  growth	  ?	  •  HGFs	  are	  indeed	  present…	           –  “the	  single	  most	  strik...
Rethinking	  InnovaEon	  and	                Enterprise	  Policy	  in	  Scotland	  9/09/12	                 Coad	  &	  Rei...
Summing	  up	  •  BoosEng	  R&D	  intensity	  of	  an	  economy	  is	  a	     necessary	  but	  not	  sufficient	  condiEon	...
What	  does	  our	  work	  imply	  for	  ScoNsh	      business/innovaEon	  policy	  ?	   Scotland	  does	  face	  a	  ‘te...
RedirecEng	  policy	  to	  the	  trigger	  points	        of	  innovaEon	  based	  growth	  •  Redirect	  support	  for	  ...
RedirecEng	  policy	  to	  the	  trigger	  points	        of	  innovaEon	  based	  growth	  •  Challenge	  sectoral	  &	  ...
A	  taxonomy	  of	  learning	  mechanisms	                           (Radosevic,	  2011)	  9/09/12	            Coad	  &	  ...
Comments	  /	  QuesEons	  •  Alasdair	  Reid	  -­‐	  alasdair.reid@technopolis-­‐group.com	  •  Alex	  Coad	  -­‐	  A.Coad...
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The Role of Technology and Technology-based Firms in Economic Development

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A presentation by Alasdair Reid of Technopolis Group and Alex Coad of the University of Sussex (SPRU) of a 2012 a 'think piece' commissioned by Scottish Enterprise that investigates the role of technology development in driving growth, and notably high-growth firms, in the Scottish economy. The paper was presented to representatives of the Scottish Government services, Scottish Enterprise and other stakeholders on 11th September.

The authors argue that there is a need for a rebalancing of Scottish innovation and enterprise policy to tackle a 'Scottish conundrum' (which they describe as a mix of the 'Swedish paradox' - a strong higher education research sector but low growth due to weak entrepreneurship and the 'Norwegian puzzle', low ranking on main R&D and innovation performance but a highly productive and technologically intense economy. They conclude that Scotland suffers from being trapped in an underperforming UK innovation system with a doubly whammy of 'low business innovation intensity and weak economic growth' compared to neighbouring smaller northern European economies over the last decade.

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The Role of Technology and Technology-based Firms in Economic Development

  1. 1. The  Role  of  Technology  and  Technology-­‐based  Firms  in  Economic   Development   Alex  COAD,  Alasdair  REID   11th  September  2012   AtlanEc  Quay,  Glasgow  
  2. 2. Contents  •  Technology  and  innovaEon   –  How  does  technology  lead  to  growth?   –  HGFs  and  innovaEon   –  Barriers  to  innovaEon  and  growth  at  the  firm-­‐level  •  ScoNsh  case   –  Does  R&D  drive  growth  –  a  high-­‐tech  myth  ?   –  Entrepreneurial  dynamics  and  high-­‐growth  firms  •  Rethinking  InnovaEon  and  Enterprise  Policy  in   Scotland  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   2  
  3. 3. What  is  technology?  •  “Technology  is  the  uElisaEon  of  natural   phenomena  and  regulariEes  for  human   purposes”  Mokyr  (2008)    •  OECD  FrascaE  manual:  scienEfic,   technological,  organizaEonal,  financial,  and   commercial  acEviEes    •  ‘Hidden  innovaEon’  that  is  not  reflected  in   tradiEonal  indicators  (e.g.  oil  &  energy  sector)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   3  
  4. 4. Technology  •  Defined  broadly  to  capture  not  only  the   equipment,  sodware  or  instruments  used  to   produce  a  good  or  service  but  also  the  (tacit)   knowledge,  techniques,  organisaEonal   methods,  etc.  used  to  design,  develop  and   market  the  products  and  services  by   businesses  (and  indeed  the  public  and  not  for   profit  sector),  in  co-­‐operaEon  with  other   actors  in  the  innovaEon  system  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   4  
  5. 5. How  does  technology     contribute  to  growth  ?    •  From  neoclassical  growth  theory…   –  Output  depends  on  available  labour  and  capital,   technology  is  ‘exogenous’  to  the  system   –  But  implies  long-­‐run  stable  growth  and  convergence   over  Eme  –  not  up  held  by  facts  •  …  to  endogenous  growth  theory   –  Key  role  of  private  sector  R&D  drives  technological   progress;   –  Appropriate  government  policies  (market  failure)  can   permanently  raise  growth  rates;     –  But  again,  limited  empirical  support  (although  beier   than  NGT)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   5  
  6. 6. Entrepreneurship  -­‐  the  missing  link  ?  •  Schumpeterian  models  imply  a  key  role  for   entrepreneurial  dynamics  in  explaining  growth      •  A  higher  rate  of  firm  turnover  leads  to  higher  growth:   –  a  process  of  creaEve  destrucEon  generates  entry  of  new   innovators  and  exit  of  former  innovators.  •  Introduces  concept  of  the  global  technological  fronEer   and  disEnguishes  between  a  ‘fronEer  innovaEon’  and   ‘imitaEon’  innovaEon.   ‘Innova;on  frequencies’,  strongly  influenced  by   entrepreneurial  dynamics,  determine  a  country’s   growth  path.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   6  
  7. 7. Policy  implicaEons  •  1)  InnovaEon  policy  will  be  ineffecEve  if  the  condiEons   for  innovaEon-­‐based  growth  are  not  met:     compeEEon  policy  favouring  entrepreneurial  dynamics       investment  in  higher  (and  lifelong)  educaEon     credit  and  labour  markets  that  foster  structural   adjustment     a  counter-­‐cyclical  fiscal  policy  (Mr  Osborne  take  note…).        •  2)  the  policies  (and  insEtuEons)  that  favour  imitaEon   are  not  the  same  as  those  that  favour  leading-­‐edge   innovaEon.    9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   7  
  8. 8. Policy  based  only  on  market  failure   raEonale  will  not  be  effecEve  •  System  failures  more  important:   –  Capability  failures  (company  level)   •  Boost  know-­‐how  and  availability  of  skilled  people  in  companies  –   foster  innovaEon  management  to  enhance  ‘absorpEve  capacity’     –  InsEtuEonal  failures   •  Think  ‘Freakonomics’  and  apply  to  incenEve  systems  in  main   players  of  innovaEon  system  –  financial,  academic,  etc.     –  Network  failures   •  Not  enough  to  ‘fix’  university-­‐industry  Ees.  InnovaEon  surveys   underline  that  inter-­‐company  links  are  more  important.   –  Framework  failures   •  AienEve  to  regulatory,  cultural,  etc  impediments  to  the  success  of   otherwise    9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   8  
  9. 9. Does  theory  match  real  life  ?   A  review  of  the  evidence  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   9  
  10. 10. Does  R&D  lead  to  growth  ?  Yes…  •  OpEmal  R&D  investment  is  at  least  two  to  four  Emes  actual   investment  (Jones  and  Williams,  1998)  ;  •  Business  expenditure  on  R&D  (BERD)  is  significantly  posiEvely   correlated  with  producEvity  growth  (OECD)   –  Effect  largest  in  countries  that  are  intensive  in  business   R&D,  and   –  With  lower  share  of  defence-­‐related  government  funding.    •  Irish  evidence  suggests  that  domesEc  firms  improved  TFP   faster  as  a  result  of  the  increased  R&D  by  FDI  firms.     –  Suggest  need  to  develop  strategies  to  absorb  industrial  learning  in  the   local  economy.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   10  
  11. 11. But,  evidence  confirms  that     R&D  alone  is  not  enough    •  The  Swedish  paradox:   –  high  and  above  average  R&D  expenditure  and  below   average  growth;   –  But,  if  Swedes  see  good  opportuniEes  to  start  a   business,  very  few  actually  do,  and  those  who  do  have   modest  growth  aspiraEons.    •  The  Norwegian  puzzle:   –  High  growth  and  wealth  levels  but  ranks  modestly   internaEonally  for  innovaEon  and  business  R&D   –  Hidden  innovaEon  (e.g.  in  oil  &  gas)  and  industrial   structure  one  element  in  explaining  puzzle.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   11  
  12. 12. R&D-­‐growth  paradox  seems  to  be   ‘disease’  affecEng  high-­‐growth  sectors  •  Fast  growing  sectors  prone  to  decreasing   returns  to  R&D;  which  slow-­‐growth  sectors  do   not  experience  (Ejermo  et  al,  2011)  •  Effect  of  iniEal  R&D  on  high-­‐tech  firm  growth   is  through  increasing  levels  of  inter-­‐firm   alliances  in  first  post-­‐entry  years  –  exploitaEon   of  external  knowledge  is  key.   So  R&D  maiers  for  a  limited  but  important  set   of  new-­‐high-­‐tech  and  high  growth  firms...  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   12  
  13. 13. But  R&D  is  also  a  factor  boosEng   technological  competence  of  all  firms  •  Firms  with  low  technological  competence   enhancing  capabiliEes  follow  a  convergent   declining  growth  paiern    •  “The  success  of  high-­‐tech  industries  and  their   impact  on  produc4vity  depends  on  the  extent  to   which  they  are  adopted  by  other,  lower-­‐tech   industries.”  (BIS,  2011)   Need  to  focus  on  business  skills  that  enhance   technological  competence  and  absorpEve   capacity.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   13  
  14. 14. ‘Sod  skills  are  increasingly  complementary  to   technical  skills  and  vital  for  successful   innovaEon’  (BIS,  2011)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   14  
  15. 15. So  does  entrepreneurship  alone  drive   growth  and  innovaEon  ?  •  No….  (Sanandaji  2010)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   15  
  16. 16. It  might  seem  self  evident….  •  But  we  need  high-­‐quality  entrepreneurship   –  Industry  experience   –  InnovaEve  idea  (not  just  another  fish  &  chip  shop)   –  Efficient  start-­‐up  size  •  Yet  policy  makers  sEll  set  targets  such  as:   –  ‘increase  the  number  of  firms/per  capita’  or  ‘create  any  old   new  firm’,     •  Carl  Schramm,  hailed  by  The  Economist  as  the  "evangelist  of   entrepreneurship”:  "As  a  naEon,  we  should  seek  to  have…  a   million  new  business  start-­‐ups  every  year  (nearly  twice  present   levels)."   –  ignoring  evidence  on  link  between  scale,  producEvity  and   innovaEon.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   16  
  17. 17. HGFs  play  a  disproporEonate  role   •  4%  of  firms  create  50%   of  the  jobs  (Storey,  1994)   •  HGFs  have  an  impact  on   subsequent  industry   growth  (Bos  &  Stam,   2011)   •  HGFs  play  a   complementary  role  on   labour  markets,   recruiEng   ‘outsiders’  (Coad  et  al   2011)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   17  
  18. 18. Can  we  pick  out  HGFs  ex  ante?  •  Firm  growth  is  essenEally  a  random  walk  •  Very  difficult  to  predict  which  firms  will  grow  •  Perhaps  idenEfy  which  firms  will  NOT  grow   –  founder’s  educaEon,  sector,  venture  capital   investment,  patents,  business  plan,  start-­‐up  size,  etc   –  Loiery  winners  vs  loiery  losers  (had  a  try  but  did  not   ‘win’),  vs  those  that  don’t  even  buy  a  Ecket  (no  hope   of  a  ‘win’)  •  In  sum:  HGF  policy  risks  being  a  blunt  instrument.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   18  
  19. 19. Reality  check  1:  HGFs  ≠  high-­‐tech  •  In  theoreEcal  discourse,  entrepreneurship  is  synonymous   with:   –  InnovaEon  (e.g.  Dennis,  2011)   –  High  growth  (e.g.  Henreksson,  2005)  •  Anecdotes  focus  on  high-­‐tech  HGFs:   –  Apple,  Microsod,  Google,  Genentech,  etc  •  However,  empirical  evidence  does  not  support  idea  that   HGFs  are  more  common  in  high-­‐tech  sectors   –  Survey  by  Henrekson  and  Johansson  (2010):     •  “Gazelles  exist  in  all  industries.  They  seem  not  to  be  overrepresented   in  high-­‐technology  industries,  but  there  is  some  evidence  that  they   are  overrepresented  in  services.”     –  If  anything,  HGFs  are  under-­‐represented  in  high-­‐tech  sectors   (Mason  and  Brown,  2012)    9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   19  
  20. 20. Reality  check  2:  USOs  ≠  HGFs  •  Need  for  a  reality  check  in  terms  of  expectaEons:   –  Reid  et  al  (2011):  it  takes  about  90  million  dollars  on   average  of  research  spending  to  generate  one  spin  off  from   the  top  200  US  universiEes.  EsEmated  figure  is  similar  for   the  UKs  top  universiEes.   –  Wennberg  et  al  (2011):    Corporate  vs  University  SOs   •  “CSOs  outnumber  USOs  14  to  1”   •  “the  vast  outnumbering  of  CSOs  compared  to  USOs  in  combinaEon   with  the  performance  advantages  of  CSOs  calls  into  quesEon  the   dominance  of  public  policy  singling  out  and  supporEng  USOs.”   •  “an  important  imperaEve  to  assist  USOs  is  building  viable  teams   that  have  the  requisite  commercial  experience  to  succeed.”  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   20  
  21. 21. So  we  need  to  look  for  other  pointers   towards  growth  potenEal…  •  “Across  a  wide  range  of  countries  and   industries,  exporters  have  been  shown  to  be   larger,  more  producEve,  more  skill-­‐  and   capital-­‐intensive,  and  to  pay  higher  wages   than  non-­‐exporEng  firms.  Furthermore,  these   differences  exist  even  before  expor;ng   begins.”  Bernard  et  al  (2007,  p105)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   21  
  22. 22. …focus  policy  support  on  ‘growth   trigger  points’…  •  EffecEve  intervenEons  at  growth  ‘trigger   points’?  (cf  Brown  and  Mawson  2012)   –  Hiring  first  employee  =  doubling  in  size!   –  First  steps  in  export  markets   –  Opening  a  new  plant  in  a  new  region   –  New  product  introducEon  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   22  
  23. 23. …and  explore  more  objecEvely   barriers  to  growth  and  innovaEon  •  Studies  tend  to  focus  on  ‘subjecEvely-­‐perceived’  barriers  •  Not  all  firms  deserve  finance,  not  all  R&D  projects  should  be   pursued  •  Not  all  barriers  should  be  removed  (e.g.  ‘intense  compeEEon’)  •  Some  barriers  should  be  heeded  (e.g.  lack  of  skilled  employees,   recruitment  of  staff,  bureaucracy,  finding  partners  &  collaborators)  •  Others  less  so  (e.g.  too  much  compeEEon,  inefficient  size,  lack  of   demand)  •  Main  reported  barrier  to  innovaEon  is  cost-­‐related  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   23  
  24. 24. Exploring  the  ScoNsh   conundrum  
  25. 25. A  ScoNsh  Conundrum  ?  •  We  suggest  Scotland  is  a  mix  of  :     –  the  Swedish  case  with  a  strong  higher  educaEon   research  sector  and  weak  entrepreneurship  but   without  the  home-­‐grown  mulEnaEonal  industrial   ‘powerhouses’  which  drive  Swedish  innovaEon;     –  &  the  Norwegian  case  where  innovaEon  is  under-­‐ esEmated  due  to  industrial  structure  and  the   specific  types  of  non-­‐technological  or  ‘resource   based’  innovaEon  occurring  in  the  economy.    9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   25  
  26. 26. Business  R&D  and  economic  growth  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   26  
  27. 27. Does  ‘technology’  contribute  to   growth  in  the  ScoNsh  economy  ?    •  1)  Scotland’s  ‘world  beaEng’  academic   research  appears  to  count  for  liile:   –  Spin-­‐offs  have  a  marginal  direct,  short-­‐term   impact  (TargeEng  InnovaEon,  2008)         –  Knowledge  transfer  :  there  is  a  posiEve  impact  of   HEI-­‐firm  links  on  producEvity,  but  ScoNsh  firms   that  source  knowledge  from  HEIs  do  worse  than   their  counterparts  in  other  UK  regions,  while   foreign-­‐owned  subsidiaries  in  Scotland  do  much   beier  (Harris  et  al,  2012)    9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   27  
  28. 28. Does  ‘technology’  contribute  to   growth  in  the  ScoNsh  economy  ?    •  2)  Penny  for  penny  of  science  spend,  Scotland     outperforms  neighbouring  Nordic  countries  in   terms  of  scienEfic  impact,  but  this  is  not  being   turned  into  technological  leadership   –  High-­‐tech  patenEng  trends  declining  over  last   decade  (similar  to  rest  of  UK)   –  No  noEceable  growth  in  patenEng  in  any  high-­‐ tech  field  !  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   28  
  29. 29. Does  ‘technology’  contribute  to   growth  in  the  ScoNsh  economy  ?    •  3)  Linear  model  –  basic   research  translates  into  new   innovaEons  and  economic   growth,  right?..   –  Partly  true,  but  very   complex  and  unpredictable,   there  are  fricEons,   boilenecks,  interacEons   and  feedbacks,  huge  Eme   lags  involved  (decades),   hard  for  a  small  country  to   appropriate  all  commercial   benefits  from  its  basic   research,  etc…  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   29  
  30. 30. So  what  about  business  R&D  and   growth  ?    •  Evidence  suggests  that  over  last  decade:   –  Absolute  growth  in  ScoNsh  BERD  driven  by  ‘other   sectors’  (oil  &  gas…)  and  by  ScoNsh  owned  firms!   –  No  growth  in  high-­‐tech  sector  BERD  !   –  No  growth  in  R&D  intensity  of  high-­‐tech  sectors  !   –  High-­‐tech  sectors  have  experienced  posiEve  GVA   growth  but  declining  employment.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   30  
  31. 31. ScoNsh  business  R&D  has  been   growing  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   31  
  32. 32. And  ScoNsh  owned  firms     are  closing  the  ‘R&D  gap’  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   32  
  33. 33. But  growth  in  BERD  is  not  coming  from   the    high-­‐tech  sectors…  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   33  
  34. 34. …which  have  a  declining  R&D  intensity  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   34  
  35. 35. However,  high-­‐tech  sectors  do   contribute  to  ScoNsh  growth  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   35  
  36. 36. But  not  employment  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   36  
  37. 37. So  is  there  ‘hidden  innovaEon’  in  the   ScoNsh  economy  ?  •  Industrial  structure  is  more  important  explanaEon  than  class-­‐size   (Turnbull  &  Richmond,  2011)   –  TradiEonal  manufacturing  innovaEon  performance  above  UK  average,   wholesale  &  retail  perform  below   –  Scotland  has  smaller  %  of  former  and  higher  percentage  of  laier.   –  InnovaEon  investment  more  widespread  than  R&D  staEsEcs  suggest.  •  But  type  of  innovaEon  is  equally  an  explanaEon:   –  ScoNsh  firms  innovate  much  more  than  UK  average  through  bought-­‐in   technology  and  training,  much  less  in  markeEng  and  internal  R&D.   –  ScoNsh  Internal  R&D  -­‐  key  condiEon  for  knowledge  absorpEon  -­‐  is  ¾   of  UK  average.      •  Need  to  expand  base  of  ScoNsh  SMEs  undertaking  internal  R&D   (Roper,  2006,  Harris  et  al,  2011).  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   37  
  38. 38. If  overall  entrepreneurial  drive  in   Scotland  is  low  (Levie,  2009)…  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   38  
  39. 39. …are  HGFs  driving  ScoNsh  growth  ?  •  HGFs  are  indeed  present…   –  “the  single  most  striking  observaEon  [is]  the   heterogeneous  nature  of  HGFs”  (Mason  and  Brown   2010)   –  Found  in  all  sectors   –  Based  around  Scotland’s  main  ciEes   –  Most  are  private  firms,  many  foreign-­‐owned  •  …if  high  growth  is  not  a  characterisEc  of  a  sub-­‐set   of  firms  but  rather  a  ‘state’  that  firms  experience.   –  Then  policy  support  needs  to  be  constantly  ‘on  its   toes’  to  be  ‘dancing  with  the  right  partner’.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   39  
  40. 40. Rethinking  InnovaEon  and   Enterprise  Policy  in  Scotland  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   40  
  41. 41. Summing  up  •  BoosEng  R&D  intensity  of  an  economy  is  a   necessary  but  not  sufficient  condiEon  for  growth  •  Enhancing  ‘absorpEve  capacity’  –  ‘imitaEon   innovaEon’  and  (non-­‐technological)  innovaEon  -­‐   in  a  broader  range  of  firms  is  necessary  •  Similarly,  a  high  entrepreneurial  propensity  does   not  guarantee  growth.    •  Firms  in  a  transitory  ‘high-­‐growth’  state  are  key  to   growth  and  ‘creaEve  destrucEon’  leading  to   structural  change.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   41  
  42. 42. What  does  our  work  imply  for  ScoNsh   business/innovaEon  policy  ?   Scotland  does  face  a  ‘technology  deficit’:    Even  accounEng  for  industrial  structure  and   hidden  innovaEon,  the  R&D  intensity  of  the   economy  is  too  low  to  increase  compeEEveness.   Need  to  think  of  HGFs  and  high-­‐tech  firms  as   different  categories  (with  a  small  overlap)      Both  types  of  firms  play  an  important  role  –  the   former  boost  employment  and  GVA  growth  in  the   short  term,  the  laier  foster  structural  change  and   producEvity  growth  over  the  longer-­‐run.  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   42  
  43. 43. RedirecEng  policy  to  the  trigger  points   of  innovaEon  based  growth  •  Redirect  support  for  technology  development  towards   business-­‐business  collaboraEve  projects  targeted  at   ‘emerging  clusters’  rather  than  ‘individual  innovaEon   events’  in  the  ‘usual  suspects’:   –  84%  of  Smart  and  R&D  awards  concentrated  on  just  three   sectors  over  last  three  years  (SE  data,  June  2012).  •  Broaden  the  efforts  to  idenEfy  and  support  (account   management,  etc.)  high-­‐growth  companies  across   Scotland  and  across  all  sectors   –   58%  of  SE  account  managed  high-­‐growth  companies  are   from  only  three  sectors  (SE  data,  June  2012)   –  Explore  potenEal  for  corporate  spin-­‐offs  ?  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   43  
  44. 44. RedirecEng  policy  to  the  trigger  points   of  innovaEon  based  growth  •  Challenge  sectoral  &  regional  partnerships  to  increase   the  number  of  innovaEon  acEve  firms     –  through  tailored  acEon  to  enhance  absorpEve  capabiliEes   and  internal  R&D  management  of  firms  with  ‘ambiEons  to   innovate’   –  Seek  to  increase  number  of  ‘innovators  in  business’  -­‐   graduate  placement  type  schemes.  •  Rebalance  support  for  knowledge  transfer  towards   broader  learning  in  the  economy:   –  Half  of  spending  in  Scotland’s  innovaEon  system  focused   on  two-­‐way  knowledge  transfer  (SE-­‐HIE-­‐SFC,  June  2012).   –  Foster  both  internal  learning  by  doing  and  external   learning  from  other  firms  (suppliers,  etc.).  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   44  
  45. 45. A  taxonomy  of  learning  mechanisms   (Radosevic,  2011)  9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   45  
  46. 46. Comments  /  QuesEons  •  Alasdair  Reid  -­‐  alasdair.reid@technopolis-­‐group.com  •  Alex  Coad  -­‐  A.Coad@sussex.ac.uk    9/09/12   Coad  &  Reid  2012  for  Sco1sh  Enterprise   46  

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