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Inclusive innovation Ecosystems in the digital economy

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Presentation to ERC State of Small Business Britain Conference 2017 by Caroline Paunov

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Inclusive innovation Ecosystems in the digital economy

  1. 1. INCLUSIVE INNOVATION ECOSYSTEMS IN THE DIGITAL ECONOMY OPPORTUNITIES AND CHALLENGES FOR SMES 4th ERC State of Small Business Britain Conference 7 September 2017 Caroline Paunov
  2. 2. Digital transformation offers many opportunities for SMEs if the imbalances it creates are addressed
  3. 3. Allowing SMEs to leverage opportunities matters to inclusive growth
  4. 4. Regional patenting intensity in OECD countries (average 2011-13) Patents per million inhabitants, TL3 regions, OECD-wide quintiles Spatial concentration of knowledge economy factors persists
  5. 5. The top 20% regions in OECD countries account for: Spatial concentration of knowledge economy factors persists … 1/3 of tertiary educated workers … 1/2 of countries’ patent applications
  6. 6. 0 20 40 60 80 100 120 140 160 180 200 0 2 4 6 8 10 12 14 16 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 PCTpatentapplicationspermillioninhabitants Top1%incomeshare(beforetaxes)-OECDGDP Top 1% income share Total PCT patent applications ICT PCT patent applications Mechanical engineering PCT patent applications Chemistry and metal PCT patent applications Digital innovation and the top 1% income share Top 1% income share and PCT patent applications for selected OECD countries, 1987-2009 Source: The World Top Incomes Database, http://topincomes.g-mond.parisschoolofeconomics.eu/ (accessed on 15 July 2015) for the 1% income share data; OECD Patents Statistics for PCT patent applications. Note: The statistics are based on a GDP-weighted average for the following 13 OECD countries: Australia, Canada, Denmark, France, Germany, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom and the United States. The selection is based on data availability over the 1987-2009 data period. The data annex provides further information.
  7. 7. Opportunities for SMEs in the digital economy Imbalances affecting SMEs What can policy do? 1 2 Structure of the talk 7 3
  8. 8. Source: Guellec, D. and C. Paunov (2017) Digital Innovation and the Distribution of Income, Contribution to the NBER CRIW Conference on Measuring and Accounting for Innovation in the 21st Century. Sources of opportunities
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  10. 10. • i. Digital innovation  New products and processes based on software code and data – Digital non-rivalry of knowledge makes the market production different from tangible goods – Winning idea can easily be supplied to market with low costs of dissemination of digital goods • ii. Entry barriers are lower -> “scale without mass”/ “cloud computing”/ platforms 10 Disruption is more important with the digital economy
  11. 11. iii. Radical innovation opportunities to challenge incumbents arise from digital technologies Emerging digital technologies ICT applications E-commerce E-learningE-health Big data analytics Blockchain Artificial intelligence E-government Internet of Things
  12. 12. 12 Market opportunities arise across the innovation-intensive economy 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Estimates of selected sectors’ betas relative to the entire financial market for US firms over 2008-12 Source: Guellec and Paunov (2017) based on data by Aswath Damodaran (2015), computed from data from Bloomberg, Morningstar, Capital IQ and Compustat.
  13. 13. iv. Opportunities for catching up are also higher 0.000 0.002 0.004 0.006 0.008 0.010 0.012 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Coefficient Quantiles Firms in small agglomerations Firms in big agglomerations Source: Paunov, Caroline, and Valentina Rollo. "Has the Internet fostered inclusive innovation in the developing world?." World Development 78 (2016): 587-609. • Firm performance gains from IT-enabled knowledge spillover opportunities  based on 50,013 firm observations from 117 countries in 2006–11
  14. 14. Market opportunities for SMEs in the digital economy Imbalances affecting SMEs What can policy do? 1 2 Structure of the talk 14 3
  15. 15. Source: Guellec, D. and C. Paunov (2017) Digital Innovation and the Distribution of Income, Contribution to the NBER CRIW Conference on Measuring and Accounting for Innovation in the 21st Century. Imbalances
  16. 16. Digital non-rivalry & markets  knowledge production is subject to massive economies of scale: the more products sold, the lower the average cost  market concentration 16 “Winner-take-all” markets
  17. 17. Resulting market power creates rents  the traditional & necessary fuel to innovation (Schumpeter) Innovation and “winner-takes-all” dynamics Current context is one of increased concentration (& less investment): Evidence on growing winner-take-all markets for the United States (Autor et al., 2017; De Loecker and Eeckhout (2017).
  18. 18. 18 Market concentration in the digital economy Distribution of the 100 largest firms in terms of sales among the top R&D firms within the software and computer services and heavy industries sectors in 2015 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 Software & Computer services Heavy industries Number of firms in decreasing order of sales ShareinsalesofleadingR&Dfirms Source: EU (2016), EU R&D Scoreboard 2016.
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  20. 20. • Business strategies allow retaining rents for a period of time: economies of scale and scope, network economies, big data • Capital and networks to upscale and sell innovations render acquisitions effective but may challenge dynamic competition 20 Advantages for incumbents
  21. 21. Market opportunities for SMEs in the digital economy Imbalances affecting SMEs What can policy do? 1 2 Structure of the talk 21 3
  22. 22. 1. More competition market conditions result with fewer opportunities to exploit network effects, less platform dominance, fewer leading technical standards and better data 2. Critically depends on policy: anti-trust, entrepreneurship and IP rights re- designed for the intangible economy 3. Avoiding possible biases towards large players in policy support tools 22 Policy imperatives
  23. 23. • Building support for SMEs with competitive potential by offering funding, advice and technology support • Examples of inclusive innovation policies in support: – Korea: Centres for Creative Economy and Innovation – Ireland: Competitive Start Fund for Female Entrepreneurs – Lithuania: European Progress Microfinance Facility Programme – China: Innovation fund for SMEs 23 What specific innovation policy approaches can support wider opportunities?
  24. 24. 24 Korea: Centres for Creative Economy and Innovation • Objective: Promote business start-ups and innovation by SMEs in all provinces • Policy instruments: – Business consultation services for start-ups – Creation of networks (linking SMEs and innovation actors) – Assistance in R&D and marketing, among others
  25. 25. Ireland: Competitive Start Fund for Female Entrepreneurs • Objective: Empower (women-led) start- ups that face financial constraints to launch new competitive products internationally • Policy support: – Equity investment of up to EUR 50,000 – Mentoring
  26. 26. • Digital transformation offers many opportunities for SMEs if the imbalances it creates are addressed • Policy needs to ensure innovators are rewarded for innovations while market conditions provide opportunities for challengers • This policy approach supports growth & inclusiveness Conclusions
  27. 27. 27 Further ongoing project of the OECD Working Party on Technology and Innovation Policy (TIP) Objective Define how innovation policy frames and instruments should adapt to the digital transformation More on the project https://innovationpolicy platform.org/TIPdigital
  28. 28. Project’s website at: http://oe.cd/inclusive Innovation Policy Platform page: https://innovationpolicyplatform.org/ inclusive Open and inclusive innovation: https://innovationpolicyplatform.org/ TIPdigital Contact: Caroline Paunov: caroline.paunov@oecd.org 28 Further information
  29. 29. Inclusive innovation policy toolkit Policy cases from Chile, China, Colombia, Germany, Hungary, India, Ireland, Israel, Japan, Korea, Lithuania, Mexico, New Zealand, South Africa, United States, EU- wide programmes Programmes to support women entrepreneurship Programmes to support integration of minority groups in productive activities Programmes to foster productivity in lagging areas https://innovationpolicyplatform.org/inclusivetoolkit
  30. 30. • OECD (2017), Making Innovation Benefit All: Policies for Inclusive Growth • Digital Innovation and the Distribution of Income (2017), Contribution to the NBER CRIW Conference on Measuring and Accounting for Innovation in the 21st Century (with D. Guellec) • "Has the Internet fostered inclusive innovation in the developing world?." World Development 78 (2016): 587-609 (with V. Rollo) • “Inclusive Innovation Policies: Lessons from international case studies”, OECD Science, Technology and Industry Working Papers, 2017/02, OECD Publishing, Paris (with S. Planes Satorra) • “Innovation and Inclusive Development: A Discussion of the Main Policy Issues", OECD Science, Technology and Industry Working Papers, No. 2013/01, OECD Publishing, Paris. 30 References

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