1

CONTENTS
List of figures..................................................................................................................3
Preface ...........................................................................................................................4
Preface ...........................................................................................................................4
Welcome ......................................................................................................................................................................4
Rationale for the manual.............................................................................................................................................4
Overview of the course................................................................................................................................................5
Learning unit 1: Knowledge economies and the national system of innovation ..........7
1.1 Introduction........................................................................................................................................................8
1.2 In pursuit of a knowledge economy...................................................................................................................8
1.2.1 The role of knowledge in economic development.............................................................................................9
1.2.2 Definition of a knowledge economy: Know-why and know-who matter more than know-what...................10
1.2.3 South Africa’s knowledge economy.................................................................................................................11
1.3 The innovation system and a knowledge economy.........................................................................................13
1.3.1 Innovation and its meaning with a system’s view............................................................................................15
1.3.2 Emergence of a national system of innovation approach................................................................................16
1.3.3 What is a national system of innovation?........................................................................................................16
1.4 Leadership of a national innovation system.....................................................................................................19
1.5 Role of the private sector and other considerations........................................................................................26
1.5.1 Current efforts towards triple helix innovation in South Africa.......................................................................26
1.5.2 Intellectual capital is a firm's source of competitive advantage .....................................................................28
1.5.3 The importance of ICT ......................................................................................................................................28
1.5.4 The new economics of information..................................................................................................................29
1.5.5 Globalisation.....................................................................................................................................................29
1.5.6 The role of entrepreneurs ................................................................................................................................31
1.6 Conclusion.........................................................................................................................................................33
Learning unit 2: Introduction to regional innovation – origins and concepts .............34
2.1 Introduction......................................................................................................................................................34
2.2 Clusters and cluster development....................................................................................................................36
2.2.1 Industry clusters and innovation......................................................................................................................37
2.3 Innovation as a factor of regional development..............................................................................................39
2.3.1 Clusters and the new economics of competition .............................................................................................39
2.4 Systems of innovation......................................................................................................................................43
2.4.1 Regional innovation – a systems approach......................................................................................................43
2.4.2 Innovation ecologies – making the triple helix work........................................................................................45
2.5 Regional innovation case studies.........................................................................................................................46
2.5.1 Poland...............................................................................................................................................................46
2.5.2 Finland ..............................................................................................................................................................48
2.5.3 Brazil .................................................................................................................................................................50
2.5.4 Korea.................................................................................................................................................................53
2.5.6 The United States .............................................................................................................................................53
2.6 Regional innovation in South Africa .................................................................................................................55
Learning unit 3: From theory to practice: enabling regional innovation systems in
South Africa..................................................................................................................58
3.1 Guidelines for using regional innovation tools.................................................................................................58
3.2 Activating regional innovation: the tools.........................................................................................................61
3.2.1 Future methodologies......................................................................................................................................61
3.2.2 Foresighting and innovation.............................................................................................................................61
3.2.3 Science parks ....................................................................................................................................................63
3.2.5 Collaboration programmes...............................................................................................................................65
3.2.6 Centres of Expertise (COE)................................................................................................................................65
3.3 Conclusion............................................................................................................................................................67
References..................................................................................................................................................................68
Suggested background reading..................................................................................................................................71

2
 LIST OF FIGURES

Figure 1: The Porter diamond......................................................................................36

Figure 2: The Innovation Triple Helix...........................................................................40
Figure 3: Finland's transition from a resource-driven economy
to an information- and knowledge-driven economy ...................................................49
Figure 4: The role of science parks in the Finnish economy
(figure from Neville Cummins, COFISA).......................................................................64
Figure 5: Facilitation drivers in Finland – key stakeholders and roles.........................66

3
 Preface

Welcome

Welcome to the journey of learning about innovation systems. This manual will help you to
understand what an innovation system is, why the concept of innovation systems is
important for economic growth and job creation and how these systems can be activated in
regions.

The intent of the manual is to present a platform to think about innovation systems and
stimulate practical engagement around the topic through class discussions, case studies and
work group sessions.

Rationale for the manual

The aim of this manual is to introduce a new innovation management framework for use by
innovation actors collectively – to identify and manage opportunities and failures in the
National System of Innovation (NSI) to improve national competitiveness. National
competitiveness is the ability of a nation’s industry to command high prices in foreign
markets and the ability of a nation to create jobs that support high wages, not merely the
employment of citizens at low wages and a dependence on the export of primary resources.
It is imperative that South Africa and its neighbours in the region compete in value added
markets through the creation of new knowledge and the commercialisation of the said
knowledge in international markets.

Niosi et al. (1993) define the NSI as the system of interacting private and public firms,
universities and government agencies aiming at the production of science and technology
(S&T) within national borders. Interaction among these units may be technical, commercial,
legal, social and financial, in as much as the goal of the interaction is the development,
protection, financing or regulation of new ideas and technology. Freeman (1995) emphasises
that innovation should not be viewed as a linear process, whether led by demand or by
technology, but a complex interaction linking potential users with new developments in
thinking and technology.

4
Governments, regions and organisations on the African continent should adopt innovation
on policy levels to promote coordination in their NSIs to ensure that Africa has a set of
institutions, organisations and policies that give effect to their collective ability to innovate.
Through innovation economies are grown.

The evidence presented by Porter (1998), Romer (1990), Callon et al. (1992), Kim (1993),
Odagiri and Goto (1993), Håkansson and Snehota (1995), Buys (2001) and UNDP (2001)
confirms that the rate of technological progress determines the ability of a nation’s industry
to open new markets, and develop new products and services that command high prices in
domestic and international markets. Following this approach, many competitive nations
were able to create jobs that support high wages; not merely the employment of citizens at
low wages.

Overview of the course

What you will learn

The learning goals for this module are called outcomes. In order to help you to know what
you can expect of this module, and to know what you need to aim for in your studies, we
specify an overall module outcome and break it down into unit outcomes.

The module outcome of Innovation Systems Leadership (ISL) is:

To learn and engage on the conceptual models, tools and practical exercises needed to make
innovation a sustainable regional capability.

The module has been divided into learning units, each with its own outcome. These units
and their outcomes are summarised in the following table:

Unit Unit title Unit outcomes

1 National innovation systems 1. To define and explain the purpose of a national
system of innovation

2. To describe the multi-helix approach and the

importance of collaboration in an innovation
system

5
Unit Unit title Unit outcomes
3. To demonstrate insight in the expression
‘innovation is everyone’s business’ in developing
national and regional innovation systems

4. To contextualise the notion of a ‘knowledge

economy’ for countries in Africa

5. To explain how innovation differs from creativity

and invention

6. To express the systems view of innovation

through a diagram or model

7. To identify the leadership requirements in the

context of multi-helix collaboration in innovation
systems

2 Regional innovation systems 8. To explain the difference between a regional

innovation system and a national innovation
system

9. To explain what an economic cluster/region is

and how it should influence regional policies and
strategies

3 Guidelines and tools to 1. To create cooperation mechanisms between

activate innovation systems multi -helix actors on a regional level

2. To understand how tools can be used to stimulate

regional innovation output

6
 Learning unit 1: Knowledge economies and the national
system of innovation

For countries in the vanguard of the world economy, the balance between knowledge and
resources has shifted so far towards the former that knowledge has become perhaps the
most important factor determining the standard of living – more than land, than tools, than
labour. Today's most technologically advanced economies are truly knowledge-based.
World Development Report, 1999
UNIT OUTCOMES

National innovation systems • To define and explain the purpose of a national

system of innovation

• To describe the multi -helix approach and the

importance of collaboration in an innovation
system

• To demonstrate insight in the expression

‘innovation is everyone’s business’ in
developing national and regional innovation
systems

• To contextualise the notion of a ‘knowledge

economy’ for countries in Africa

• To explain how innovation differs from

creativity and invention

• To express the systems view of innovation

through a diagram or model

• To identify the leadership requirements in the

context of multi -helix collaboration in
innovation systems

7
1.1 Introduction

Many developing economies are now looking towards innovation and the pursuit of a so-
called knowledge economy for new solutions and answers to various national challenges and
priorities. Stimulating innovation and increasing innovation output in a macroeconomic
setting necessitates approaching innovation as a system.

In a national or regional system of innovation, three key stakeholder groups can be

identified. They are the academic and research sectors (responsible for generating new
knowledge), the private sector (transforming knowledge into useful products, services and
processes) and the public sector (providing the environment and infrastructure in which
innovation takes place).

Collaborati on between these three stakeholder groups is essential and no single player
should be dictating the direction and vision of the innovation system, but all three should
collaborate and align activities and processes towards unified objectives.

In emerging economies, developing a national innovation agenda is often driven by the public
sector (government), and the role and importance of the private sector is neglected or
misunderstood, while directed collaboration between the three sectors is fragmented at best.

This section draws on the experiences of the author in developing the national and regional
innovation systems in South Africa, and outlines some of the learning experiences in
implementing a system’s view towards increasing national and regional innovation output.

1.2 In pursuit of a knowledge economy

South Africa’s Minister of Trade and Industry in 2009, Mandisi Mpahlwa, once stated that
knowledge is more important and valuable than land, tools and even labour. Similarly, his
colleague, the Minister of Science and Technology, punts the virtues of innovation and has
committed to increase South Africa’s research and development (R&D) spend from 0.91%
to 1% by 2008 and then to 1.8% by 2018.

8
Class discussion
Is a ‘knowledge economy’ realistic for Africa, given that Africa is still mostly dependent on
mining and natural resources, and a large segment of the continent is not yet part of the
existing labour market, whether knowledge-based or otherwise?

1.2.1 The role of knowledge in economic development

According to a submission to the New Zealand government in 1999 1, knowledge economy

thinking has fundamentally changed the way economists view the development of the global
economy.

For the last two hundred years, neo-classical economics have recognised only two factors of
production: labour and capital. Knowledge, productivity, education, and intellectual capital
were all regarded as exogenous factors, that is, falling outside the system.

New Growth Theory is based on work by Stanford economist Paul Romer and others who
have attempted to deal with the causes of long-term growth, something that traditional
economic models have had difficulty with.

Following from the work of economists such as Joseph Schumpeter, Robert Solow and
others, Romer has proposed a change to the neo-classical model by seeing technology (and
the knowledge on which it is based) as an intrinsic part of the economic system. Knowledge
has become the third factor of production in leading economies. (Romer, 1986; 1990).

As can be seen in the development of fast-growing regions and countries, such as Silicon
Valley, Finland, China and India, technology and knowledge are now the key factors of
production.

1
New Zealand. Minister for Information Technology's IT Advisory Group. August 1999 (updated in 2006).
Submission to the New Zealand Government.

9
Class discussion
It is important to ask the question as to why there is such a strong focus on science and
technology in defining a knowledge economy, or even in South Africa, structuring support
only to cater for science - and technology-based innovation?
• Less than 4% of all innovation is science - and technology-based
• Most innovati on in South Africa is incremental, building on existing knowledge and
inventions
• Development in our economy has been primarily service -driven
• Our biggest challenges are non-high-tech innovation challenges such as clean water,
housing, road infrastructure, HIV/Aids, etc.

Economists such as Romer recognise the fact that technology platforms have the ability to
result in creating new ‘economies’ or accelerated growth cycles from which new innovations
will flow. Examples are the introduction of the steam engi ne, the telephone or, recently, the
Internet.

It is, however, important to understand that not all innovation pertains to the development
of such ground-breaking ‘platforms’, as most innovations by far relate to incremental
improvements in the processes or structures of existing products, services or businesses.

Sustained GDP growth doesn't just happen. In order to make investments in knowledge and
utlimately innovation, a country must have sufficient human capital. Human capital is the
formal education, training and on-the-job learning embodied in the workforce.

1.2.2 Definition of a knowledge economy: Know-why and know-who matter more than
know-what

A knowledge economy is one where the majority of sustainable national income is derived
from intellectual-based activities such as product design and development, new business
development, and services, as opposed to selling natural resources such as agricultural
produce, minerals, timber, etc.

10
The phrase ‘knowledge economy’ was popularised (if not invented) by Peter Drucker as the
heading to chapter 12 in his book The Age of Discontinuity (1969, Heinemann, London).

The concept came to prominence in the 1990s to refer to the manner in which various high-
technology businesses, especially computer software, telecommunications and virtual
services, as well as educational and research institutions, could contribute to a country's
economy.

However, this concept has grown and expanded beyond the definition developed by
Drucker.

1.2.3 South Africa’s knowledge economy

South Africa’s economy is still mainly dependent on the mining and manufacturing
industries, leveraging natural resources and minerals.

However, over the last ten years more new jobs were created in the service sector in South
Africa than in any other sector of the economy2. The overall growth rate of job creation in
this period was one of the highest, if not the highest in the recent history of the country.

South Africa does have an existing and thriving knowledge industry, which started with the
development of the early mining industry in South Africa and continued to the present day
with substantial industrial development and investment.

Knowledge -intensive businesses are emerging all over the country, spurred by the culture of
innovation and entrepreneurship for which South Africa is recognised globally, resulting in
export licences and direct foreign investment.

Will the change to a knowledge -based economy sustain this increase? Africa has no choice
but to compete on the basis of value additi on rather than commodities and cost of labour,
to quote Minister Mpahlwa.

2
Expatforum. Internet: http://www.expatforum.com/articles/jobs/jobs -in-south -africa.html .

11
The growth experienced in South Africa as outlined above, fuelled by targeted investments
from government and the private sector, is now expanding the economy rapidly, creating
completely new knowledge industries.

Initiatives such as the Pebble Bed Modular Reactor and the development of regional
incubation centres by the departments of Science and Technology, and Trade and Industry,
such as those for biotechnology, have all contributed significantly to create new core
strengths and skills in a relatively short time.

Government’s promise of an additional R180 billion investment in the primary infrastructure

of the country will lead to further investment and an economic growth explosion.

Africa has the ‘newcomer advantage ’, meaning it has access to existing and proven
technologies, strategies and economic policies that will facilitate the change to a full
knowledge -based economy.

We must learn from those experiences and adapt them to create our own unique solutions
for our own unique problems. A knowledge economy is a key requirement for such a
learning- and solutions-driven society.

Comparing South Africa’s GDP to that of Finland, specifically comparing the economic output
($550 billion for South Africa vs. roughly $176 billion for Finland in 2006) and the size of the
workforce (17 million for South Africa vs. 2.6 million for Finland in 2006) 3, one arrives at the
difference in economic value add between a resource economy (South Africa) and
knowledge economy (Finland): the average economic value add per employee of Finland is
exactly double that of South Africa.

That is the economic basis for establishing and pursuing a knowledge economy: mineral and
related resources are finite, while knowledge and innovation are endless.

3
World Fact Book. Internet: https://www.cia.gov/library/publications/the-world-factbook/index.html .

12
1.3 The innovation system and a knowledge economy

Class discussion
What is innovation? How is this different from creativity and invention?

The process of transforming new ideas or concepts into useful products, services, processes
or organisation models and successfully introducing them to the market is defined as
innovation.

In order words, to have innovated means that a new idea or concept had to be packaged in a
way that it can be utilised or consumed by human kind – this is an end-to-end process.

Invention is the process of generating new knowledge; innovation is taking new

knowledge and transforming knowledge into useful artefacts or processes.

Innovation is the vehicle with which to implement and sustain a knowledge economy.

Many factors have to come together to successfully innovate:

• The creative powers generating new ideas and new knowledge

• The entrepreneurial spirit required to commercialise such new ideas and finding
useful applications in the real world
• The involvement of business and society in shaping the demand for, and utilisation
of new innovations

But even further, in order for innovation to flourish, the presence and influence of the
processes, policies and institutions that support such creative powers, entrepreneurs and
businesses (such as subsidies, tax incentives, finance, skilled and experienced workers), and
a conducive environment stimulating the productive and efficient activity of all such players
should be recognised. Innovation output doesn’t increase by only stimulating individual
components.

13
Increasing the knowledge output by funding higher education institutions (HEIs), for
example, without ensuring that there are adequate numbers of entrepreneurs, will see only
larger volume s of such knowledge permanently confined to the bookshelves and not
transformed into useful businesses, products and services.

Similarly, appropriate funding of entrepreneurs and businesses is required to achieve the

last component of innovation, namely successfully introducing such new innovations to the
market.

It should be clear that for innovation to take place, one is not only talking about the three
main components mentioned above (i.e. HEIs, entrepreneurs and businesses), but should
consider all elements impacting on innovation, directly or indirectly. This includes, for
example, the image of the economy and its ability to attract skills and talent; the ability to
attract investment to the economy.

Also consider the ability of role-players to interact, such as the availability of efficient
transport and telecommunications. A further, important requirement for innovation is the
environment in which innovation output is encouraged, meaning a safe and secure
environment, with access to housing and the ability to conduct business in a fare and
equitable context: innovation demands the presence and collaboration of every component
necessary to take new ideas and apply them to the betterment of society.

To support innovation, the whole picture needs to come together. For this reason, given the
complexity of the number and type of institutions, human capital, policies and role-players,
economists view innovation as a system.

By viewing innovation as a system, the focus is on the successful output of the overall
system and not only the performance of individual components.

14
1.3.1 Innovation and its meaning with a system’s view

Innovation in the system’s view is not limited to R&D and traditional ‘creative’ or ‘inventive’
processes.

The OECD4 (1994, p. 3) provides a useful definition of innovation as "the transformation of

an idea into a new or improved product introduced on the market or a new or improved
operational process used in industry and commerce or into a new approach to a social
service."

This description emphasises the point that technological innovation involves more than R&D
– it also involves the workings of the marketplace. Innovation can, of course, occur in any
human activity, although it is primarily thought of in the context of industrial production.

Work group session 1

Identify the typical stakeholders that would be involved in, or influence the process of taking
the following ideas from the idea phase to innovation. Think, for example, in terms of
policies, regulatory implications, knowledge partners, funding instruments, certification
bodies, consumers, etc.
• Developing a low-cost solar water heating system
• Developing affordable medicine for HIV/Aids treatment to be administered at rural
clinics
• Implementing an integrated traffic management and information system for the
Gauteng Highway System, with the purpose of informing road users of congestion,
flow rates, alternative routes, etc.

4
Organisation for Economic Cooperation and Development, Internet: www.oecd.org.

15
1.3.2 Emergence of a national system of innovation approach

A system’s view to innovation is not a recent phenomenon, as economists as early as

Schumpeter in 1939 defined the concept of an innovation system.

In fact, in his article National System of Innovation in a Historic Context5, author Chris
Freeman argues that the first person to use the expression 'national system of innovation'
was Bengt-Ake Lundvall but, the concept goes back even further.

The idea goes back at least to Friedrich List's conception of ‘The national system of political
economy' (1841), which might just as well have been called 'The national system of
innovation'.

In South Africa’s recent history, the leadership embraced the notion of a national system of
innovation that is at the heart of the South African R&D Strategy launched by the Minister of
Science and Technology in 2002, and is seen to be fundamental in achieving South Africa’s
Accelerated and Shared Growth and Investment Strategy (AsgiSA) growth targets.

1.3.3 What is a national system of innovation?

The National Advisory Council on Innovation (NACI)6 provides a generic definition of a

national system of innovation as following:
A cluster or network of interacting public and private organisations within a specific country
focused on the nurturing and the development of the science and technology space within
the borders of that particular country.

a) Different definitions for an NSI

There are a number of definitions that are used to define an NSI, and the most widely
used are those quoted by the OECD publication National Innovation Systems (1997), as
follows:

5
Freeman, C. 1995. National system of innovation in a historic context. Cambridge Journal of Economics. 19:5-
24.
6
National Advisory Council on Innovation (NACI). Internet: www.naci.ac.za .

16
 • The network of institutions in the public and private sectors whose activities and
interactions initiate, import, modify and diffuse new technologies (Freeman, 1987).
• The elements and relationships which interact in the production, diffusion and use
of new, and economically useful, knowledge... and are either located within or
rooted inside the borders of a nation state (Lundvall, 1992).
• A set of institutions whose interactions determine the innovative performance of
national firms (Nelson, 1993).
• The national institutions, their incentive structures and their competencies, that
determine the rate and direction of technological learning (or the volume and
composition of change-generating activities) in a country (Patel and Pavitt, 1994).
• That set of distinct institutions which jointly and individually contribute to the
development and diffusion of new technologies and which provides the framework
within which governments form and implement policies to influence the innovation
process. As such it is a syste m of interconnected institutions to create, store and
transfer the knowledge, skills and artefacts which define new technologies
(Metcalfe, 1995).

According to the OECD, the NSI is "a network of institutions in the public and private
sectors whose activities and actions initiate, import, modify and diffuse new
technologies."

b) OECD definition of an NSI

‘A system of interacting private and public firms (either large or small), universities and
government agencies aiming at the production of science and technology within national
borders.

‘Interaction among these units may be technical, commercial, legal, social and financial, in as
much as the goal of the interaction is the development, protection, financing or regulation
of new science and technology.’

17
 An NSI can be thought of as a set of functioning institutions, organisations, and policies
that interact constructively in the pursuit of a common set of social and economic goals
and objectives and that use the introduction of innovations as the key promoter of
change.

c) NACI priorities for the South African NSI

NACI provides the following insights towards the priorities of the South African NSI:

• Improving competitiveness
• Improving the quality of life
• Ensuring environmental sustainability
• Working on human resource development
• Ensuring community development through technology transfer instruments

A national system of innovation can thus be defined as the sum total of all the components
of a nation state’s collective capability to innovate. Similarly, a regional system of innovation
can be defined as all the institutions, human capital, policies and role-players that make up
the region’s ability to innovate.

Work group session 2

(Also refer to the suggested reading topics.)

Define a conceptual model for a South African national system of innovation, giving specific
thought to the different role-players identified in work group session 1, especially with
regard to the following:

• Key stakeholders from each element in the triple helix

• Intermediary institutions/role-players that operate between the triple helix (e.g.
trade associations, networks, etc.)
• Representatives of the end-user or beneficiary community that will consume or use
innovations from the NSI
• Science- and technology- related stakeholders, as well as stakeholders and role-
players not related to science and technology

18
Contrast this to the documented model of the South African NSI as promulgated in the South
African documentation included in the suggested reading topics.

1.4 Leadership of a national innovation system

Many emerging nations currently pursuing knowledge economies have turned towards the
innovation system view to shape their innovation ambitions.

This includes the so-called triple helix view of collaboration, outlining collaboration between
the three key stakeholders required for successful innovation: academia and research
institutions (responsible for generating new knowledge), industry (businesses and the
private sector commercialising new knowledge by turning such knowledge into products,
services and new business processes) and lastly the public sector (responsible for the
macroeconomic infrastructure, policies, support instruments and other, with which to
support research institutions and academia, as well as industry).

The strength of the triple helix depends more on the networks between the different
stakeholders, in other words connectivity and communication, rather than the number and
individual capacity of the respective stakeholders.

Class discussion
What would be the typical instruments, institutions, individuals and activities required
within the South African NSI with which to build and develop networks between the
different stakeholders in the NSI?

The majority of NSI-type initiatives, especially in emerging economies, are implemented and
spearheaded by the public sector: governments defining innovation policies and establishing
innovation instruments, such as national departments of science and technology, research
laboratories, funding instruments, etc.

19
It follows that such implementations place enormous focus on the role of the public sector
(in South Africa, the Department of Science and Technology promotes itself as the so-called
‘custodian’ of the National System of Innovation), and by extension, those institutions
funded through public funds, such as universities, science councils and national laboratories.

So, for example, NACI sees the NSI in the following context:

Structures of the NSI (towards creating an effective NSI)

• The Department of Science and Technology, Department of Trade and Industry and
Science Councils are responsible for the development and implementation of an
effective NSI.
• The NSI also has 12 centres, of which four are funded by the Department of Trade and
Industry.

The typical approach to such public-driven NSI initiatives is that of taking an institutional
view to improving the NSI: developing better and more efficient/relevant innovation support
institutions. This approach often neglects addressing structural, communication and
networking inefficiencies.

But where is the private sector in all this? What about the intermediaries, such as
consultants, lawyers, entrepreneurs, etc.?

In South Africa, there is a clear disconnect between the different triple helix role-players,
especially in the different spheres. Shared vision and objectives are traded for individual
mandates that often overlap. Most innovation activities at public sector level are driven by a
component of the NSI, being individuals with science, research or engineering backgrounds.

Innovation, in the system’s view, requires the involvement of policy-makers, regulators,

business persons, marketers, funding instruments, etc. These disciplines are often not
represented in the policy development or implementation contexts of the bodies
responsible for driving NSI development.

20
An innovation system that is dictated by any one or two of the key role-players in the triple
helix model will not result in a sustainable knowledge economy; all three partners need to
collaborate accordingly and contribute equally towards a single and common purpose.

Case Study: China7

Stakeholders in China's NSI
In industrialised countries, the term ‘stakeholders’ is used in discussions of systems of many
kinds, including discussions of NSIs, to indicate the institutions and individuals who are
participants in the system in question or whose activities are significantly affected by the
operation of that system.

It is necessary to include in any analysis of an NSI a clear listing of the relevant stakeholders,
which follows below.

Policy-making institutions
A number of important national commissions, ministries and institutes have significant roles in
China's NSI, including the following:
• SSTC, with its important roles in policy development and programme implementation
• SPC, which is directly involved in financing a number of important S&T programmes
• SEdC, which has particular responsibilities for the activities of institutions of higher
education
• SETC, which has an important role in the technological renovation of enterprises
• The State Commission for Restructuring the Economic System (SCRES), whose
general economic reforms have in many ways interacted with reforms in the S&T
sector
• The many sectoral ministries (responsible for individual sectors of the industrial
economy), some of which are now undergoing transformation into what look like
holding companies in the socialist market system
• Some policy research institutes, particularly the National Research Centre for Science
and Technology for Development (NRCSTD) and ISPM-CAS

Similar organisations at the provincial and municipal levels also have important roles.

7
Organisation for Economic Cooperation and Development. OECD reviews of innovation policy: China. Internet:
www.oecd.org/sti/innovation/reviews/china.

21
Principal S&T institutions
The following six kinds of organisations constitute the heart of the Chinese NSI:
• Research institutes
• SOEs
• Private, joint venture, and urban collective enterprises
• Universities
• Defence research institutes and enterprises
• TVEs

All of these organisations have been significantly affected by the reforms of the last decade.
Estimates of the number of such organisations vary, but one attempt to estimate the numbers
of those heavily engaged in R&D – and therefore having a significant potential to promote
innovation.
One of the important considerations that affects the functioning of an NSI is the extent to
which the relevant governments can bring about an integration of their policies and funding
programmes to produce a positive policy environment that encourages entrepreneurial activity
and technological innovation.

The OECD countries, in a series of publications emanating from a major programme of research
on technology and economic policy (e.g. OECD 1991, 1992), concluded that industrialised
countries need to improve the integration of their various programmes and policies. This
approach is easier to prescribe than to implement, and each country has to devise a system
suited to its own political culture.

22
Case Study: Finland8

The Finnish National Innovation System

The Finnish National Innovation system of today consists of a number of actors with
different tasks. However, the Finnish system consists of relatively few actors, making
cooperation and task allocation smoother. The most important policy-making bodies are the
Parliament, the Cabinet and the Science and Technology Policy Council.

Their role is to formulate general policy guidelines for the innovation system. The ministries’
main function is to coordinate and allocate funding and supervise the system according to
general policy guidelines. Nonetheless, as decision-preparing bodies, the ministries also
participate to some extent in the creation and formulation of innovation policy. Under the
ministries are the main public financing organisations, the Academy of Finland and the
National Technology Agency. These are predominantly financing bodies, but also supervise,
coordinate and assess the functioning of the system.

The Science and Technology Policy Council (STPC) was created in 1987 to continue the work
of the Science Policy Council, although with different tasks and orientation. The members of
the council consist of various important persons from the public and private sector.
The Prime Minister of Finland chairs the board of the council. Other members of the council
are the ministers of Education, and Trade and Industry, four other ministers and
representatives from the research community, industry and employers and employee
organisations.

Every three years, the STPC publishes a report defining the guidelines of the Finnish
innovation policy. The most recent dates from 2003 and is entitled Knowledge, Innovation
and Internationalisation. In the report, the internationalisation of the innovation system is
emphasised together with the various challenges and opportunities that follows from this.
The council recommends that Finland’s most important know-how resources, which are
education, researcher careers and the utilisation of research results, should be further
developed. Furthermore, the council emphasises that social innovations and regional policy
are important sources for economic and technological development.

8
Ahlback, J. 2005. The Finnish National Inovation System . Errin. Internet: http://www.nvca.org.

23
Besides preparing guidelines, the STPC also plays an important role as a platform where
different actors from the public, private and academic sector meet and discuss what makes a
successful national innovation system.

The most important ministries in the innovation system are the ministries of Education, and
Trade and Industry. Together these ministries oversee nearly 80 % of the entire public R&D
budget. Other ministries that also deal with innovation policy are the ministries of Social
Affairs and Health, Environment, and Agriculture and Forestry.

The Ministry of Education administers Finland’s 21 universities and 31 polytechnics, as well

as the Academy of Finland. The Academy of Finland is the most important funding agency
for basic research. Its main tasks are to finance individual research projects and broader
programmes and support researcher careers through the financing of academic posts and
training.

The academy is divided into four councils representing different research fields:
Biosciences and Environment, Culture and Society, Natural Sciences, as well as Engineering
and Health. As the academy’s funding is not concentrated in a specific research area, but
rather funds all basic research, the competition for it is intense. Yearl y the academy receives
about three times more applications than it is able to grant. The funding decisions are based
on scientific reviews of the applicants and their research plans. Starting in 1993, the Ministry
of Education and the academy launched a programme of nominating centres of excellence in
university research. The centres of excellence have been selected on the basis of open
competition and rewarded with extra funding.

The academy also nominates the candidates for the honorary title of Academician. This title
is the highest recognition in Finnish scientific research and is bestowed by the President of
the Republic for a life’s work in the service of science.

The Ministry of Trade and Industry handles the technology policy and the support to private
R&D. The ministry is also responsible for EU research activity, and the administration of
Finland’s Technical Research Centre and The National Technology Agency (Tekes).

24
Tekes is one of the most important organisations in the Finnish innovation system. Tekes
was established already in 1983, then with the name ‘Technology Development Centre’, and
has throughout its existence played a major role as a financing body in the development of
Finnish technical research and technology. Approximately 30% of the public research budget
is channelled through Tekes, equalling about 400 million euros.

Tekes funds industrial projects, as well as projects in research institutes, and especially
promotes innovative and risk-intensive projects. The most important funding instrument for
Tekes is the technology programmes. It promotes networking and internationalisation and is
therefore seldom the sole financer of R&D projects. In 2003, Tekes was engaged in a total of
2 196 R&D projects.

The total budget for these projects was 785 million euro, of which Tekes provided about
half. Of this funding, 230 million euro were targeted at corporate projects and 162 million
euro at universities, research institutes and polytechnics.

Another important R&D funding agency is Sitra, the Finnish Fund for Research and
Development. Sitra is an independent public foundation supervised by the Finnish
Parliament, created in 1967. The foundation was set up in conjunction with the Bank of
Finland in honour of the 50th anniversary of Finnish independence. Sitra mainly provides
venture capital and supports companies conducting experimental research and exploring
new areas.

Sitra is also an important organisation for the development of the innovation system. It
facilitates seminars and consistently conducts studies and evaluations on the Finnish
innovation system. Sitra upholds its independent status by financing its activities through
the return of its own investments.

As the Academy of Finland supports basic research, Tekes supports generic technology and
Sitra supports explorative activity, the three funding agencies complement each other.
Apart from the institutional set-up for the innovation system in Finland, judicial regulations
in many fields also play a significant role. Basically all regulations affect innovation directly or
indirectly.

25
The most important fields of regulations, however, relate to patents, copyrights and brands,
as well as competition and environmental law. In Finland it is considered important that
regulations in all these fields are constantly developed. Insufficient or backward regulations
may cause innovation failures and hinder innovative activities.

Private property rights may, for example, be so ill defined or transaction costs so high that
incentives for creative activities are completely lost. However, too much tampering with
regulations might also affect innovativeness counterproductively. There is a clear need of
foresight and openness in developing regulations.

During the last decades, most regulations have been prepared with consideration of their
effects on innovation. It must be noted that, since Finland’s entry in the EU, many
regulations have been influenced by EU policies. According to competitiveness surveys, in
which various businesspeople in Finland were interviewed, Finnish regulations do not hinder
innovativeness. The openness and effectiveness of Finnish public institutions in particular
are found as positive with regard to this aspect.

1.5 Role of the private sector and other considerations

Class discussion
So what should be the role of the private sector? Can innovation take place without
entrepreneurs, businesses and open markets?

It is industry that interfaces with consumers and customers, that brings balance between the
supply and demand for products and services. It is industry that understands how to package
knowledge for customer consumption. It is industry that anticipates and monitors the future
demand for new innovations.

1.5.1 Current efforts towards triple helix innovation in South Africa

The public sector, including research institutes and academia, traditionally approached
innovation from a research or technology push point of view, i.e. conducting research or
developing new inventions without clear indications of how these will be introduced to the
market.

26
This can be seen in the number of patents that never see the light of day, or the amount of
research papers and theses gathering dust on academic bookshelves.

Africa appears to increasingly have research capability, but does not efficiently transform
such research into useful products and services. There is not sufficient industry participation
in innovation activity.

This so-called innovation chasm results in Africa being a net importer of products and goods
from foreign markets. Even South Africa, with a well-developed and competitive private
sector, has a culture of firms rather importing or buying technology than pursuing their own
innovation.

Practice-based innovation, i.e. pursuing innovation from new knowledge dictated by clear
market needs and customer requirements, requires the development of industry in
emerging economies.

By only stimulating the research and academic side of the equation, innovation will not
increase, and Africa will simply witness a mass exodus of skills to economies with the
capability to leverage such skills for innovative products, services and businesses.

Innovation clearly comprises a number of processes, one of which is the creative act.
Business, entrepreneurial and management skills are all required to transform the act of
creativity into an innovative offering to the market.

The future of emerging economies weighs on the ability to bridge the innovation chasm and
bringing more people into the formal sector. Bridging the chasm requires the entry of more
entrepreneurs and the rapid maturation of newly created ventures into sustainable
enterprises.

Class discussion
What are the leadership requirements in a knowledge economy, especially with regards to
optimising the triple helix collaboration and innovation output in the NSI?

27
1.5.2 Intellectual capital is a firm's source of competitive advantage 9

To become knowledge-driven, companies must learn how to recognise changes in

intellectual capital in the worth of their business and ultimately in their balance sheets. A
firm's intellectual capital – employees' knowledge, brainpower, know-how and processes, as
well as their ability to continuously improve those processes – is a source of competitive
advantage.

But there is now considerable evidence that the value of the intangible component of high-
technology and service firms far outweighs the tangible values of their physical assets, such
as buildings or equipment. The physical assets of a firm such as Microsoft, for example, are a
tiny proportion of its market capitalisation. The difference is its intellectual capital.

How do we measure a firm's intellectual capital? How can a firm tell whether its knowledge
assets have increased or diminished over a certain period of time? According to Strassman
(1998), intellectual capital is what is left over after suppliers, employees, creditors or
shareholders and the government have been paid, and obsolete assets replaced. There are
other approaches, including those of Sveiby (1997) and Stewart (1997). One tool that is now
widely used by US companies is Kaplan and Norton's Balanced Scorecard, which combines
financial with non-financial measures, such as internal business processes, learning and
growth, and various customer-related measures (Kaplan and Norton, 1996).

Competency models seek to define and classify the behaviours of successful employees and
calculate their market worth, while a business worth approach seeks to consider the value of
information and the costs of missed or under-utilised business opportunities.

1.5.3 The importance of ICT

Information and communication technology (ICT) releases people's creative potential and
knowledge. It is the enabler of change. ICT does not by itself create transformations in
society, but is best regarded as the facilitator of knowledge creation in innovative societies
(OECD, 1996). The new economy looks at ICT not as a driver of change , but as a tool for
releasing the creative potential and knowledge embodied in people.

9
New Zealand. Minister for Information Technology's IT Advisory Group. August 1999 (updated in 2006).
Submission to the New Zealand Government.

28
However, the ICT sector has a powerful multiplier effect in the overall economy, compared
with manufacturing. A 1995 study of the effect of software producer Microsoft on the local
economy revealed that each job at Microsoft created 6.7 new jobs in Washington State,
whereas a job at Boeing create d 3.8 jobs (Mandel, 1997).

Wealth generation is becoming more closely tied to the capacity to add value using ICT
products and services.

1.5.4 The new economics of information

The rate of technological change has greatly increased over the past thirty years. Three laws
have combined to explain the economics of information (Gilder, 1994). Moore's Law holds
that the maximum processing power of a microchip at a given price doubles roughly every
18 months. In other words, computers become faster, but the price of a given level of
computing power halves.

Gilder's Law – the total bandwidth of communication systems will triple every 12 months –
describes a similar decline in the unit cost of the net. Metcalfe's Law holds that the value of
a network is proportional to the square of the number of nodes. So, as a network grows, the
value of being connected to it grows exponentially, while the cost per user remains the same
or even reduces.

While Metcalfe's Law has been applied to the Internet, it is also true of telephone systems.
Gordon Moore first formulated Moore's Law in the early 1970s. There can be no doubt that
the cycle of technology development and implementation is accelerating and that we are
moving inexorably onward, out of the Industrial Age and into the Information Age.

1.5.5 Globalisation

ICT opens up global markets and fosters competition.

With the advent of information and communication technologies, the vision of perfect
competition is becoming a reality. Consumers can now determine the prices offered by all
vendors for any product. New markets have opened up, and prices have dropped.

29
When businesses can deliver their products down a phone line anywhere in the world, twenty-
four hours a day, the advantage goes to the firm that has the greatest value addition, the best-
known brand, and the lowest weight. Software provides the best example: huge added value
through computer code, light weight, so that it can be delivered anywhere at any time.

Competition is fostered by the increasing size of the market opened up by these

technologies. Products with a high knowledge component generate higher returns and a
greater growth potential.

Competition and innovation go hand in hand. Products and processes can be swiftly imitated
and competitive advantage can be swiftly eroded. Knowledge spreads more quickly, but to
compete , a firm must be able to innovate more quickly than its competitors.

Brands are critical. They strengthen consumers' trust in nations and their products.

In a global marketplace where consumers are overwhelmed by choice, brand recognition

assures their trust in both the tangibles and intangibles that a product will deliver. Like
intellectual capital, brand equity can be hard to measure, yet it may account for a significant
proportion of a company's value.

It is intangible in the sense that it often consists of customers' perceptions of the value they
gain from using a product or service rather than any measurable benefit. A nation's brand
can be as important (or more) as the firm's, and provide extra leverage for whichever firm's
brand is attached to the actual product – examples are Swiss watches, Scotch whisky,
German cars, Japanese appliances, New Zealand butter.

Capital searches the globe for the best returns, looking for innovation.

This has lead to the globalisation of capital. Capital continually circulates in search of
maximum investment opportunities. Information technology has accelerated this process
and made it more successful. It is no longer geography that determines the winners. Idea-
driven innovation cycles in the knowledge economy determine an economy's position in the
global hierarchy. The more innovative and intelligent a business location is, the higher its
rank in the ladder of global investment.

30
1.5.6 The role of entrepreneurs

Governments should not only focus on encouraging entrepreneurship and only work to
increase the number of entrepreneurs, as this neglects the need for appropriate and
commercialisable knowledge and know-how.

The accepted notion among many economists and academics is that the underlying drivers
for entrepreneurship must be created and instilled in everyday society, so once more of us
have become Shuttleworths, the economy will overcome its challenges.

This view is flawed. Entrepreneurs play only a limited role in the process to create jobs and
grow any economy. They are often not the ones who come up with new ideas. Instead, they
find willing buyers for other people’s ideas. Many entrepreneurs want to move on and
repeat their experiences elsewhere once initial business success has been achieved.

Furthermore, entrepreneurs are typically not successful managers. The majority of venture
capitalists in the US, responding to a recent survey commissioned by their National Venture
Capital Association10, stated that the first thing they did after investment was to replace the
entrepreneur with an experienced business manager.

For successful innovation to take place, entrepreneurs have to collaborate in a system

comprising other players: the creator (comes up with new ideas), the implementer (takes
the idea from mind to market), and the business person (establishes a sustainable and
growing enterprise). This collaboration can only thrive via strong and multidimensional
networks; conditions in which ideas, entrepreneurs and business persons meet frequently
and where policies and incentives promote such collaborations to the benefit of each
respective contributor.

Instead of boosting the number of entrepreneurs, one needs to take a systemic approach to
innovation output by stimulating each component of the innovation system – reward
structures that allow each contributor to focus on its own capability and strengths, while
profiting from the success of the overall innovation output. In this model, each player,
although focused on different activities, is committed to only one purpose – the commercial
success of the new venture.

10
National Venture Capital Organisation. Internet: http://www.nvca.org.

31
We should stop encouraging a culture of going it alone. Instead we need a culture of sharing
and cooperation. Government should focus less on supply side measures to support
entrepreneurs and more on creating powerful incentives to promote the formation of new
businesses along focused market needs, such as the current piloting of a centres of expertise
(CoE) programme in South Africa, taking input from the Finnish CoE experience.

Collaboration can be achieved through the aggressive implementation of measures to

promote procurement from small and medium enterprises (SMEs), both from public and
private sectors, simultaneously addressing a key constraint in many businesses: access to
market. Some measures exist already, but are not implemented.

To enhance sustainability, active networks of academics, scientists, researchers,

entrepreneurs, businesspeople and bureaucrats are needed who are collectively able to
deliver SMEs that can successfully address procurement needs. In such a networked
environment, SMEs can compete effectively against large players, since the resources of the
network compensates for the limited resources of the SME.

The third requirement is a supportive environment for SMEs, including access to funding,
business support and mentorship, available skills and a tax-friendly regime.

Entrepreneurship has a role in an innovation system that requires equal inputs from all
players and that pursues and rewards the outputs of successful collaboration in the entire
system.

Work group session 3

(Refer specifically to the suggested reading topic ‘Finnish Innovation System’ by ERRIN.)
Contrast the South African current NSI and the leadership of the Department of Science and
Technology to the role of the Science and Technology Council in Finland. Give specific
attention to the current structuring and functions of NACI and make recommendations as to
how to improve triple helix leadership within the current South African NSI.

32
1.6 Conclusion

Government should not be alone in developing and driving innovation. Both government
and industry are equally important in a national system of innovation, working together with
research insti tutions and academia to develop and exploit new and useful knowledge.

However, government should not be the custodian of innovation, as this should be the
shared responsibility of all three partners in the triple helix model of collaboration.

33
 Learning unit 2: Introduction to regional innovation – origins
and concepts

UNIT OUTCOMES

Regional innovation systems • To explain the difference between a regional

innovation system and a national innovation
system

• To explain what an economic cluster/region is

and how it should influence regional policies
and strategies

2.1 Introduction

The concept of ‘regional innovation’ is an integral element of globalisation and the

knowledge -based economy that we find ourselves in. The paradox of regional innovation is
that even as globalisation (and competitiveness) is the dominant driver of economic activity
in the global economy, locality or regions matter more than ever.

This apparent paradox is explained by the fact that although technology, capital, knowledge
and (knowledge) workers move across international borders, it is how these ‘assets’ are
utilised at the local or regional level that determines competitiveness and prosperity.
Regions that can attract talented people and support the development of highly innovative
firms will support greater prosperity. This is in contrast to traditional economic development
models that are based on low wage rates, tax incentives and basic extraction of natural
resources. In the era of the increasing intensity of knowledge to work processes the old
model will not be able to sustain competitiveness and create prosperity.

Regional innovation is about leveraging the totality of a region’s assets. These assets would
include purely physical assets or attributes, such as location or the availability of natural
resources, but can also include the legacy (positive or negative) it inherits from historical
developments and past policies. These inherited legacies include things such as institutions,
educational systems, transport infrastructure, environment and so on.

34
Leveraging these assets can occur by chance (which is historically what happened), but it is
now recognised that a knowledge - and innovation-based economy requires cooperation and
coopitition, as well as knowledge exchanges between firms, knowledge institutions and the
public sector and other stakeholders. This interaction is too important to be left to chance
alone, and hence the need for a deliberate and directed effort in creating an enabling
environment for the networking, cooperation and coopitition that is required for innovation.
This deliberate and directed effort is at the heart of regional innovations systems.

Regional innovation is therefore about creating systematic and systemic processes to

develop interfaces and cooperation mechanisms to match supply of innovation, research
and development to demand.

In the South African context, regional innovation is about creating an environment for
collaboration between knowledge creators, business, civil society and government, which
will be the key to unlocking the huge innovation potential in various parts of the country.

This chapter attempts to contextualise regional innovation, how the concept developed and
is applied and what it means for the (economic) performance of regions and ultimately what
it means for South Africa.

Class discussion
What is the difference between a regional innovation system and a national innovation
system?
• Who are the actors?
• How do they collaborate?
• What should be considered?

35
2.2 Clusters and cluster development

Clusters are geographic concentrations of interconnected companies, specialised suppliers,

service providers and associated institutions in a particular field that are present in a nation
or region. Clusters arise because they increase the productivity with which companies can
compete. Historically clusters have evolved in response to demand conditions. The Porter
diamond model is perhaps the clearest framework to illustrate this phenomenon (Figure
1)11.

CHANCE

GOVERNMENT

!
Figure 1: The Porter diamond

The Porter model explains many regional economic developments in South Africa. The
chance discovery of gold on the Witwatersrand provided the factor conditions that
responded to the demand conditions for gold. Mining was supported by a huge number of
related and supporting industries. The state played a role in many ways, from providing
basic services to ensuring that a supply of cheap labour was available. In time, competition
and rivalry developed between the supporting and related industries, which theoretically led
to market-driven efficiency and innovation.

11
Porter, M. The competitive advantage of nations.

36
The legacy of this phenomenon is still visible in the socio-economic, political and spatial
landscape of greater Johannesburg today. The same phenomenon describes the economic
development of Kimberley and, in more recent times, the regional development in the North
West Province based on Platinum.

The importance of this phenomenon is acknowledged in the development and upgrading of

clusters as an important agenda for governments, companies and other institutions.
Whereas historically cluster development occurred by chance or ‘natural evolution’, directed
cluster development initiatives are now an important new direction in economic policy
development. Again, in the South African context, the Gauteng Provincial Government’s
Smart Province Strategy implicitly recognised the importance of clusters when it chose to
support the automotive cluster in Rosslin, north of Pretoria, and the upgrading of
infrastructure around the City Deep inland container terminal and around the OR Tambo
International Airport.

It must be emphasised that these clusters do not necessarily result in efficiency, innovation
and global competitiveness.

2.2.1 Industry clusters and innovation

In order to survive and prosper in a globalised and increasingly knowledge-driven economy,

clusters cannot simply depend on factor and demand conditions. In order for clusters to
grow and prosper innovation, must take place .

Therefore industry cluster policies to drive innovation are a current trend in economic
development planning. As noted above, these policies represent a major shift from
traditional economic development programmes that focused on individual firm-oriented
policies and were often based on cheap labour, tax incentives or other inducements. Cluster
policies, on the other hand, are based on the recognition that firms and industries are inter-
related in both direct and indirect ways (cooperation, coopitition, solution demand and
supply issues).12

12 Le Veen, J. March 1998. Plan 261: Urban and regional development.

37
Given the interest in innovation for economic development by both the public and private
sectors, industry cluster policies have received significant attention in current literature.
However, there is considerable debate regarding the actual definition of an industry cluster,
how to identify an industry cluster, or what factors drive the development of an industry
cluster. The literature focuses on the different definitions of industry clusters, and much of
the literature involves case studies illustrating different types of clusters. Examples of
industry clusters range from the small hosiery cluster in rural North Carolina, or the
apparel/hosiery cluster in Northern Italy, to Silicon Valley. In the South African context the
automotive cluster in north Tshwane may be cited as an example.

A second focus in the literature is the identification of industry clusters. Given the many
variations in the definitions of clusters, it is not surprising that there are several different
approaches to identifying clusters. A third common theme in the literature is cluster
policies, and how these policies can be incorporated into economic development
programmes. However clusters are described, innovation in these clusters are certainly one
of the defining characteristics.

Work group session 4

1. Use the conceptual model developed in work session 2. Adapt the model for a
regional innovation system.

2. Identify three economic clusters in different regions in Gauteng and three economic
cluste rs in different regions in the Eastern Cape.

3. Propose a set of collaboration mechanisms between government, academia and

industry for one of the clusters identified.

38
2.3 Innovation as a factor of regional development 13

Traditional regional economic development policies based entirely on physical infrastructure

improvement, direct grants to firms and foreign investment attraction have not proved to be
very successful in many areas. The reasons are varied and include the following:

• They may be poorly adapted to current business needs and therefore may not be
cost-effective.
• They tend to be short term and to work bette r with winners than with losers.
• Most importantly, there is often limited capacity in these regions to absorb funding
efficiently, even though there is a comparatively gre ater need. (In the South African
context, these limiting absorptive capacity issues include infrastructure and an
appropriately skilled labour pool.)

However, a major element is that these regions do not have (or historically evolved)
innovation systems and therefore have limited institutional and organisational capacity to
drive innovation (e.g. there is little or no tradition of public-private and inter-firm
cooperation, a weak research base, lack of interfaces for research, development and
technological innovation (RDTI), insufficient social/relational capital, etc.). In short, there are
no formal or informal networking or cooperation mechanisms to match innovation and
research demand and supply. Therefore especially SMEs find it hard to access the
technology sources, network and make contacts with the partners, including informal
personal contacts that are necessary to keep up with technological change.

2.3.1 Clusters and the new economics of competition14

Why do clusters foster high levels of productivity and innovation? This is a paradox, since in
the era of globalisation location should, in theory at least, no longer be a source of
competitive advantage.

13 Landabaso, M. 2003. European Commission – DG Regional Policy. In, proceedings of International Forum Europe-Latin
America, 4 – 7 November 2003.
14 Porter ME. 1998. Harvard Business Review, November-December 1998.

39
In theory, open global markets, rapid transportation and high-speed communications should
allow any company to source anything from any place at any time. In practice, however,
location remains central to competition. The economic map of the world today is
characterised by what Porter calls clusters, “critical masses in one place of linked industries
and institutions – from suppliers to universities to government agencies – that enjoy unusual
competitive success in a particular field”.

In the ‘regional innovation strategy business’ these clusters of critical masses of linked
industries and institutions – from suppliers to universities to government agencies – can be
described in terms of an innovation triple helix (Figure 2).

• Social compact • R&D Needs

• Enabling environment • Skilled Personnel

•R&D Needs
•Trained staff

Figure 2: The Innovation Triple Helix

These clusters or geographic concentrations of interconnected companies and institutions

are a feature of virtually all national, regional and even metropolitan economies, especially
in more advanced nations.

40
Case study
The concept of these clusters of inte rconnected companies and institutions as key drivers of
innovation economies is exemplified by two of the top twelve ‘mega-regions’ in North
America, the Boston-Washington corridor and the Toronto-Chester Region15:
• The Boston-Washington (Bos-Wash) Mega-region stretches for some 1 000
kilometres along the East Coast of the US from Boston, through New York, to
Washington. It has a population of some 54.3 million people and its economy is
worth $2.2 trillion. The leading economic sectors are in finance, the media and in
biotechnology. The key creative class jobs include computer engineers, fashion
designers and investment dealers.
• The Toronto-Buffalo-Chester Mega-region (Tor-Buff-Chester) runs from Toronto in
Canada through Buffalo and Rochester in New York State. Its economy is worth
some $530 billion. It is the 12th largest mega-region in the world and its prosperity is
attributed to superb universities, leading arts, entertainment, design and culture
industries, and it also has what is arguably the most diverse population in the world.

It is now recognised that clusters throughout the world reveal important insights about the
microeconomics of competition and the role of location in competitive advantage. Even
though the ‘older’ reasoning for clustering (see Porter’s diamond model) have diminished in
importance, the dynamics of the knowledge -based economy and the role of demand and
supply of knowledge and innovation (the triple helix) and their importance for
competitiveness represent a new way of thinking about national, regional and local
economies. Hence, the necessity for a structured approach to innovation and the roles for
companies, governments and other institutions in enhancing competitiveness at the regional
level.16

15
Florida , R. The Rise of the Creative Class.
Florida, R. The Flight of the Creative Class.
Florida, R. The Breakthrough Illusion.
Florida, R. Beyond Mass Production.
16 Porter, ME. February 2000. Location, competition and economic development: local clusters in a global economy. Economic
Development Quarterly. 14(1): 15-34.

41
The most famous example of this new approach to regional innovation is Silicon Valley.
Porter explains how clusters affect competition in three broad ways:

• Firstly, by increasing the productivity of companies based in the area

• Secondly, by driving the direction and pace of innovation
• Thirdly, by stimulating the formation of new businesses in the cluster

“Geographic, cultural, and institutional proximity provides companies with special access,
closer relationships, better information, powerful incentives, and other advantages that are
difficult to tap from a distance .” The more complex, knowledge-based, and dynamic the
world economy becomes, the more this is true. Competitive advantage lies increasingly in
local things – knowledge, relationships, and motivation – that distant rivals cannot
replicate. In the South African scenario one might think of the effect of geographic
clustering, of demand and supply and innovation in the mining industry in the Johannesburg
area, which involved the mining companies creating the demand side of the equation and
academia and a myriad service industries fulfilling the supply side. In more recent times, this
is equally true of the ICT clusters in the Midrand area.

This realisation has led to the Clusters of Innovation Initiative undertaken to understand
how regional economies’ ability to produce high-value products and services depends on the
creation and strengthening of regional clusters of industries that become hubs of innovation
– how these clusters enhance productivity and spur innovation by bringing together
technology, information, specialised talent, competing companies, academic institutions,
and other organisations.17

The Harvard Cluster Mapping Project uses detailed county level data and statistical
techniques to profile regional economies and their performance over time, with a special
focus on clusters. Clusters are geographically concentrated groups of interconnected
companies, universities, and related institutions that arise out of linkages or externalities
across industries. Regions and clusters are analysed at various geographic levels, including
states, economic areas and metropolitan areas.18

17
Harvard Business School, Institute for Strategy and Competitiveness. 2008. The cluster mapping project.
18
Ibid

42
The outcome is that the economic development potential of a region can be described in the
following framework:

• Regional competitiveness and innovative capacity

• The economic performance of regions
• The composition of regional economies
• The evolution of regional economies
• The determinants of regional competitiveness and innovative capacity
• Creating and implementing a regional economic strategy
• Action agendas for the public and private sectors19

Class discussion
Apply the above-mentioned framework on the Western Cape’s regional innovation system
or a system that you will be able to have a discussion about.

This approach is very much in line with what is being proposed for systems of innovation and
regional innovation strategies in South Africa that are promulgated by the Department of
Science and Technology at a national level and also for sponsoring various provincial
initiatives.

2.4 Systems of innovation

2.4.1 Regional innovation – a systems approach

It is clear from the above that in a globalised knowledge-based economy, regional economic
development through innovation cannot be left to chance and that a directed approach to
regional innovation requires a systems approach.

19
Ibid

43
The view of an innovation system is that of a holistic approach to the overall capability of the
system (i.e. a region in its entirety) to achieve the future objectives or desired end state for
that region:

The set of economic, political and institutional relationships occurring in a given geographic
area which generates a collective learning process leading to the rapid diffusion of
knowledge and best practice.20

Therefore innovation in the systems view is not limited to science, technology and
engineering, as is the popular misconception, but comprises the total capability in a region
to innovate and includes new products, (public) services, processes, organisational and
social innovation. This view is reinforced by the fact that, according to recent studies in
Finland, science -based innovation accounts for roughly 4% of all innovation.

In a systems approach the strength of the innovation system is determined by the number
and quality of networks between the different components of the system (as illustrated in
Figure 2).

Collaboration within this system, towards the common objectives of the overall system, is at
the heart of a regional innovation system.

This requires the identification of the objectives of the system (i.e. desired innovation
outputs, regional economic development), defining all the subcomponents of the system
and their interrelationships and creating a common purpose and a common vision for the
system. This should be followed by the creation of a neutral platform at the highest level of
(political and administrative) power within the region, where the different stakeholders in
the innovation system (i.e. triple helix representatives) can meet on a regular basis to guide
the regional innovation system.

In the Finnish Innovation System, this platform is known as the Science and Technology
Council and is headed by the President of the country and staffed by the Ministers of Trade
and Industry, Finance and Labour (to name a few), as well as senior executives from the
private sector.

20
Wolfe, DA. Social capital and economic development: Local and regional clusters in Canada. [PhD thesis]
Centre for International Studies. Program on Globalisation and Regional Innovation Systems.
University of Toronto and National Coordinator.

44
The very nature of the system dictates that “there is no single entity with the power to
control the workings of the system, but there are many which exert significant influence,
and there are often key points of leverage for government to strengthen and enhance the
performance of the system as a whole”.21

Collaboration between these three stakeholder groups is essential and no single player
should be dictating the direction and vision of the innovation system, but all three should
collaborate and align activities and processes towards unified objectives.

There is substantial academic backing to show that the quality and quantity of innovation
output increases with an increase in collaboration between the triple helix role-players.

2.4.2 Innovation ecologies – making the triple helix work

If the above is true, then the innovation system must operate a ‘natural ecology’ in which
there are natural feedback mechanisms for the system to be self-regulating and sustainable,
and as in any natural system, this requires an analysis and understanding of the drivers of
innovation at a global level, as well as a national and regional level.

National (and regional) innovati on systems are subject to transnational and interregional
forces and a regional innovation system may require new public policy tools.

Making the triple helix work requires the following (among other things):22

• A network of institutions that interact to initiate, import and diffuse new

technologies and ideas in order to bring the demand and supply side together. This
requires:
o government policy ;
o private sector R&D;
o an educational and training system; and
o industry structures.

21
Mullin, J, Adam, RM, Halliwell, JE and Milligan, LP. 1999. Science, technology and innovation in Chile. IDRC, Canada,
22
Wolfe, DA. Social capital and economic development: local and regional clusters in Canada. [PhD thesis]
Centre for International Studies. Program on Globalization and Regional Innovation Systems.
University of Toronto and National Coordinator.

45
 • An understanding of the patterns of interaction between firms as collective learning
processes in how new knowledge is acquired and applied, which, in turn, requires an
insight into:
o the internal organisation of firms (and how and whether firms become
learning organisations);
o how interfirm networking and relationships occur;
o the degree and intensity of R&D; and
o what role the public sector should play.

• Elements of the innovation system (knowledge creation and enablers):

o Private firms, especially R&D performers
o The science and technology infrastructure
o Public, private and cooperative research organisations’ research (for both
social - and science-based innovation)
o A mechanism (e.g. an agency) for innovation transfer (managing the demand
and supply side)

• A financial system to support innovation financing:

o Financial brokering and venture capital

2.5 Regional innovation case studies

2.5.1 Poland23

Poland is in many respects a developing country and the lessons of its regional innovation
strategies have many similarities with the South African scenario, and hence hold many
lessons for South Africa.

In keeping with the systems approach outlined above, regional innovation strategies in
Poland are described in terms the different types of regions and their respective regional
assets:

23 ECORYS-NEI . Regional innovation strategies in Poland: lessons and recommendations. Rotterdam, the
Netherlands .

46
 • Production site regional economies – regions that are attractive to significant flows
of inward investment and conducive to export-driven manufacturing companies
• Regions as sites of increasing returns – regions that have clustered and locally based
internationally competitive industries
• Regions as hubs of knowledge – regions that receive and transmit high levels of
internationalised knowledge, both formalised and tacit, and are dependent on high-
technology enterprises and high value services
• Mixed regional economies – regions with mainly low productive sectors with limited
exports

Each type of region called for a different strategy towards economic development and
innovation. Even in one type of region differences can be discovered, although similarities
dominate. For each region, the following basic questions apply:

• Where are we and where do we want to go?

• How do we get there ?
• What are the totality of assets in each region?
• How do we manage the development journey?

The authors of this study provide the following lessons based on an analysis of regional
innovation in Poland:

• Before an innovation strategy is undertaken, a much greater understanding of the

differing types of regions, their characteristics and the desired outcome in terms of
economic development must be undertaken.
• There needs to be a greater alignment between national and regional innovation
policies.
• This, in turn, requires a transparent articulation of the respective responsibilities of
national and regional bodies, development of formal mechanisms of interaction
between the two levels, and an explanation of how national policy and interventions
should be interpreted and implemented at a regional level.
• There also needs to be more coordinated leadership from the centre for regional
innovation, e.g. the ministries of Economy, Labour and Social Affairs.

47
 • This implies that there needs to be communication of national industrial priorities
and greater foresight work undertaken at the centre. The regions need to know
what are the current and probable future industrial priorities of the national
government and the types of assistance available, and need to be able to articulate
how the regional economy contributes to these priorities.
• Innovation investments at the regional level should be seen in a holistic manner.
National and regional funds that are being spent for innovation in a region need to
be identified and assessed for complementarity with national and regional priorities.
• Investment should take place in a coordinated manner that optimises the impact for
both the regional and national economies.
• There must be a clear articulation of the policy tools for stimulating innovation
available through national and regional government. There needs to be a clear
demarcation and broad communication within regions of the tools and incentives
that are available and via what level of government.

2.5.2 Finland24

Like Poland, Finland holds many lessons for South Africa. Finland was (and as is the case with
South Africa today) primarily a resource-driven economy. This transition from a resource-
driven economy to an innovation- and knowledge-driven economy is schematically
illustrated in Figure 3. However, that is where the comparison ends.

South Africa is a resource- and production-based economy, but has ten times the population
of Finland, the same number of universities and only one real science park.

All the elements required for a systems approach to regional and national innovation
systems (“the set of economic, political and institutional relationships occurring in a given
geographic area which generates a collective learning process leading to the rapid diffusion
of knowledge and best practice”) are present in Finland.25

24 The Geographics of IT in Finland.

25 Wolfe, DA. Social Capital and economic development: Local and regional clusters in Canada. [PhD thesis]
Centre for International Studies. Program on Globalization and Regional Innovation Systems.
University of Toronto and National Coordinator.

48
 • Domestic
innovation and
knowledge
• Ability and generation
willingness to • Indigenous
invest innovation
• Imported but • Own R&D and
upgraded technologies
technology • Products spanning
•Abundant & Cheap • Differentiated completely new
•Wood raw material products markets
•Imported • Machinery, • ICT, electronics,
•Standard products engineering machinery
•Forest based industries • Engineering, forest
•Industries • Forest products based industry
based industries • Chemicals

Mid 1800’s to early End of WW2 to Since 1980’s to

1900’s early 1980’s 2000

Figure 3: Finland's transition from a resource-driven economy to an information- and

knowledge-driven economy

Finland’s industrial renewal into an innovation- and knowledge -based economy was
precipitated by poor economic conditions in the 1980s. A systems view was adopted early in
industrial and technology policies in Finland with the emphasis shifting from macroeconomic
toward microeconomic policies. This was accompanied by the liberalisation of trade and the
lifting of restrictions on capital flows in the 1990s.

Building on inherent assets such as good public governance and a low level of corruption and
a very sound educational system (the key to both the supply of and demand for innovation),
in which there was equality in gender, region, and socio-economic development, propelled
Finland to became the most ICT-specialised country in the world in the 1990s, with the
highest ranking in the World Economic Forum’s (WEF) competitiveness index and the OECD’s
Programme for International Student Assessment (PISA) studies.
Creating innovative institutions such as The Committee for the Future has resulted in a
successful system in an innovation- and knowledge-based economy of 5 million people, 21
universities and 23 science parks.

49
Currently, it is possible to identify four major clusters in Finland:

• Helsinki and its environs, in which the main driving force is that Helsinki plays host to
Nokia, as well as ‘lesser’ (in a relative sense) ICT companies such as Sonera and
major academic centres such as the University of Helsinki and the Helsinki University
of Technology. As a result, the area is estimated to attract approximately 80% of
Finnish technology investment funds.
• Oulu is an ICT cluster based on the collaboration of a state -owned electronics
research centre and the local government to create a technology park. Now owned
by a publically held company called Technopolis, this park has more than 2000
companies employing over 4500 workers. Bolstering this was Nokia's decision to
establish an R&D facility in the area in 1985. Looking forward, Oulu is projected to
be home to 22 000 high-tech jobs by 2006.
• Turku is home to more than 170 high-tech companies, with major names such as
Nokia, Ericsson, Bosch and IBM, as well as dozens of start-ups and small software
companies. Of these, 40 are research and educational operations and 80 are
technology firms. The workforce numbers 1 700 people, in addition to 1 500
university and graduate students.

• Tampere is a major academic centre, as well as home to incubators such as the

Tampere Technology Centre.

2.5.3 Brazil26

Innovation and entrepreneurship has played a pivotal role in the growth of internationally
competitive Brazilian firms and helped the Brazilian economy diversify beyond the dominant
agricultural and commodity-based sectors.

Brazilian companies such as Petrobras, a pioneer in off-shore, deep-water oil exploration,

and Embraer, the world’s leading producer of regional jet aircraft, exemplify the benefits of
adopting innovation-oriented business strategies.

26
Woodrow Wilson Center for International Scholars . Brazil’s innovation challenge.

50
Brazil’s successes are due in large part to the role of the National Institute for Industrial
Property (INPI), the equivalent of the US Patent and Trademark Office. The INPI promotes
innovation in Brazil by operating on three levels:

• On the broadest level, the institutional framework (INPI) manages the structuring of
markets for intangible assets (defined as intangible products of knowledge that have
commercial value, encompassing copyrighted property such as literary or artistic
works, and ideational property such as patents, appellations of origin, business
methods and industrial processes).
• Stemming from this is an institutional framework (the legal standards) that regulates
these asset-based transactions.
• On the most specific level, policy tools and service mechanisms serve to identify,
individualise and evaluate these knowledge-based goods.

The INPI essentially plays three basic roles:

1) Helping government and business build a strong intellectual property (IP) system
that fosters innovation and competitiveness throughout the economy by improving
IP rules in international agreements and strengthening domestic IP-related laws and
regulation
2) Promoting the IP system by making it well known to potential beneficiaries
3) Operating the IP system itself; ensuring the system’s efficiency, efficacy and quality

The INPI has established IP as the central mechanism to promote innovation and innovation
policies in the economy. The institution also coordinates national networking by developing
joint initiatives and guiding other institutions to value IP as a positive growth strategy, and
conducts seminars and leads research programmes on IP through the Academy of
Intellectual Property and Development.

The outcomes have resulted in economic development initiatives such as the Brazilian
ethanol industry (which produces more than 33 percent of the world’s ethanol) and
biopharmaceutical innovation in which the Brazilian Consortium of Pharmaceutical

27 Dr. Glauco Arbix, Professor of sociology at the Universidade de São Paulo and past president of
The Research Institute on Applied Economics (IPEA).
28 Organization of Economic Cooperation and Development (OECD), Economic Department, Economic Survey of Brazil 2006.

51
Companies (COINFAR) facilitates inter-firm partnering to mitigate the risks inherent in this
type of high-cost venture.

Research (based on an analysis of 1 200 industrial firms in Brazil) has indicated that these
forms (compared to ones in Mexico and Argentina) have become competitive in the
international export market for medium- and high-technology goods. Their success is a
significant development in Brazilian business, because it does not only signal the
diversification of the Brazilian economy beyond the resource- and commodity-based sectors,
but also highlights the role innovation and entrepreneurship play in the growth of medium-
and high-tech firms.27

Despite these impressive results, Brazil’s main challenge in innovation policy still is to
encourage the business sector to engage in productivity-enhancing innovative activities. At
1% of GDP, R&D spending (both public and private) is comparatively low by OECD standards
and is carried out predominantly by the government. Most scientists work in public
universities and research institutions, rather than in the business sector. Output indicators,
such as the number of patents held abroad, suggest that there is much scope for
improvement. Academic patenting effort is being stepped up and should be facilitated by
the easing of restrictions on the transfer and sharing of proceeds of intellectual property
rights between businesses and public universities and research institutions. Innovation
policy is beginning to focus on the potential synergies between science and technology
promotion, R&D support and trade competitiveness. To be successful in boosting business
innovation, these policies will need to be complemented by measures aimed at tackling the
shortage of skills in the labour force. This shortage is among the most important deterrents
to innovation in Brazil, particularly against the backdrop of a widening gap in tertiary
educational attainment with respect to the OECD area.28

52
2.5.4 Korea29

Korea laid the foundations for its research- and technology-based innovation economy by
promoting its human resource development.

Its move from an illiterate workforce in the 1950s (22.0% in 1953) to a literacy rate of almost
90% within two decades demonstrates the high priority that Korea has for education. The
spending in education compared to total government spending has increased from 2.5%
(1951) to 22% (1980). This rapid increase created a highly skilled workforce for an
innovation- and knowledge-based economy.

In the 1960s and 1970s R&D in Korea was largely driven by the state. Over the past two
decades, the Korean government has shifted its stance from having a leading hand in R&D to
encouraging the private sector to undertake R&D activities. This was done by such an extent
that by 1990 74% of research was performed by the private sector, while the public sector
only performed 18.5% (a drop of 43.5%).

Concurrently, the type of R&D performed in Korea has shifted towards technology
development over basic. Basic research declined from 22.9% in 1970 to 13.2% in 1996. In
addition, the Korean state -founded companies, the chaebols, had reached the technological
frontier from reverse engineering and efforts were poured into R&D to gain international
competitiveness. This was a key strategic move for Korean firms.

2.5.6 The United States

Intense global competition for goods, services and talented workers and the success of
countries such as Singapore and Finland, which have shown remarkable economic growth
and development through regional innovation activities, have spurred enormous regional
innovation efforts in the Unites States.

29
Ho, K and Luban, K. March 2004. National innovation systems: A case study of South Korea and Brazil. [Coursework for
Economic and Public Policy of Technology, MSc Technology Management]

53
The process is in keeping with the principles of regional innovation noted in the introduction
to this learning unit, namely that individual states, like individual firms, must begin by
carving out areas where returns are tangible and commensurate with risks taken. The
benefits do not only include building talent and high-paying jobs in respective states, but can
also be seen in solutions to pressing social problems, improved business efficiency and
productivity, and success in global markets.

Successful states get to these results with steps that are unique in the hands of governors,
legislators and other policy-makers. These include:30

• Developing state-wide research and innovation strategies that not only puts in place
all the components for innovation, but aligns them in ways that provide advantages
to in-state companies
• Making investments to gain talent, build first-class research enterprises and
compete for Federal Government research funding in those focused areas where the
state can be world-class
• Encouraging (possibly even mandating) collaboration among universities, the private
sector and other institutions
• Putting world-class professionals, not political cronies, in key positions
• Creating an organisation and consistent funding source that facilitates a continuity in
R&D partnering and spending
• Holding the recipients of public investments accountable for delivering on promised
benefits

These are principles that are also applicable to regional innovation efforts in South Africa.

30
Innovation America.
Investing in Innovation.
The National Governors Association (NGA).
The Pew Center on the States.

54
2.6 Regional innovation in South Africa

At the time of writing, there are no formal regional innovation strategies in South Africa,
although several initiatives are underway.31

The fact that South Africa needs regional innovation initiatives as a response to economic
development needs is not disputed and, as in the examples cited from Poland, the strategies
will have respond to regional issues in terms of the different types of regions and the
respective regional assets.

South Africa has only recently emerged from a difficult political past, and has a socio-
economic legacy that must be honestly and realistically examined in so far as it impacts on
the requirements and the absorptive capacity for regional innovation.

Having noted the above, these very same issues – the legacy of apartheid in terms of socio-
economic and political impacts – have created an enormous demand side for innovation in
all spheres of economic development. Regional innovation strategies can almost start with a
clean slate by articulating the following:

• A future desired outcome : where are we and where do we want to go?

• How do we get there?
• What is the totality of the assets in each region in relation to where we want to go?
• How do we manage the development journey?

In this future state , regional innovation strategies can be directed to address innovation in
the high-technology and knowledge-intensive economic sectors, as well as to investment in
innovation in the second economy and in social innovation that will lead to an economically
and socially cohesive and just society in South Africa.

A socially cohesive society will require addressing not only the various kinds of poverty
(income, asset, infrastructure, services and knowledge poverty), but also structural issues,
given the nature of current global economics.

31
Gauteng City Region Innovation Strategy; Eastern and Western Cape and Limpopo.

55
Furthermore , innovation strategies must also address the issue of social cohesion, i.e. the
creation of mutual trust among citizens (neighbours, communities), combined with a
willingness to intervene on behalf of the common good to create the kind of environment in
which innovation and creativity can thrive.

The need therefore for regional innovation presents enormously fertile ground in South
Africa for Innovation in a range of activities. However, there is a caveat – South Africa has
become notorious for having brilliant policies, but failing to implement them. The following
are requirements for regional innovation strategies to work:

• Developing regional research and innovation strategies that not only put in place all
the components for innovation, but align them in ways that provide advantages to
regional companies
• Encouraging and facilitating collaboration between universities, the private sector
and other institutions (the triple helix);
• Appointing professional personnel and not political appointees in key positions;
• Creating sustainable innovation institutions with consistent funding that will ensure
continuity
• Holding the personnel accountable and addressing the substructure required to
enable an economically dynamic and competitive country.

By ‘substructure’ is meant the set of socio-political -economic-psychological feedback loops

that maintain a coherent and meaningful structure in a given society. It can include the
culture, institutions, power structures, roles, and rituals of the society. For the purposes of
regional innovation, it includes the totality of assets which will give any region a competitive
and comparative advantage , such as a safe and secure environment, secure and sustainable
energy and water sufficiency, an effective and efficient public administration, and an
effective and efficient educational system.

Without addressing these fundamental issues, regional innovation strategies will fall into the
same trap as those noted by Professor Dave Kaplan on the South African National System,
namely the following:

56
 • The system is overly ambitious.
• The missions and challenges lack specification.
• With respect to the skills required, the targets are too ambitious, for example, the
number of PhDs required is 30% per annum, whereas the current rate of production
is 3%.32

32
Kaplan, D. Science and technology and economic growth in South Africa: Performance and prospects. In, proceedings of
COFISA, 10 November 2008.

57
 Learning unit 3: From theory to practice: enabling regional
innovation systems in South Africa

UNIT OUTCOMES

Guidelines and tools to activate • To create cooperation mechanisms between

innovation systems multi -helix actors on a regional level

• To understand how tools can be used to

stimulate regional innovation output

3.1 Guidelines for using regional innovation tools

As has been stated in the preceding section, South Africa presents enormously fertile ground
for innovation in a range of activities. Where to start? Firstly, a set of guidelines will be
proposed for interventions to activate regional innovation systems. This set of guidelines will
be followed by a short description of three widely used tools, namely future methodologies,
science parks and centres of expertise (CoE).

The following is a broad set of guidelines:

• Clearly define the purpose of the initiative and define and describe the ‘ideal desired
outcome’ and by when this should ideally happen.

• Workshop this with all relevant stakeholders, so that there is agreement and
common purpose for the initiative.

• Create a sustainable innovation institution(s) with consistent funding that will

ensure continuity.

• Appoint knowledgeable personnel that are passionate about innovation in key

positions and then work on encouraging and facilitating collaboration among
universities, the private sector and other institutions (the triple helix). The purpose
of the triple helix is the following:

58
 o To formalise partnerships between stakeholders (academia, industry,
institutions, labour)
o To create bridges between R&D expertise that reside in public research
institutions, companies, and universities
o To link university activities to innovation demands
o To link university students to research projects that are integrated with
what is taking place in their societies and to projects that are trying to
compete internationally, which, in turn, help to produce university
graduates that are more responsive to social and industrial needs.

• Improve awareness among all stakeholders (in the triple helix) of the conditions
necessary to promote innovation.

• Catalyse consensus on policy to support regional (and subregional) economic

development.

• Provide tools and techniques that make it possible (at the regional and local level) to
inventory, evaluate and benchmark their innovation capacity – i.e. the totality of
their assets. This must be done in relation to regional economic development issues.

• Regional issues will dictate what is needed in terms of regional assets to create
economic development and this will, in turn, define the demand side for innovation.

• Relevant stakeholders in the triple helix can then collaborate on the supply side
through innovation. This demand side of the equation could include the following:
o Innovation in education (i.e. the role of innovation in schooling)
o Innovation in business
o Innovation in transport
o Innovation in health care
o Innovation in energy
o Innovation in enabling infrastructure (ICT)
o Innovation in housing
o Innovation in community service
o Innovation in public service delivery

59
• The triple helix collaboration venue for the above could include the following:
o The development of science parks in appropriate places. Science park
activities do not only refer only to large purpose-built Innovation Hub-type
projects, but also to projects that could be expansions of existing initiatives,
such as incubators, refurbishment of downtown under-utilised buildings,
etc.
o Adopting the centres of expertise concept in regions, e.g. the following:
§ A CoE for waste and environmental management
§ A CoE for energy management
§ A CoE for agriculture and biotechnology
§ A CoE for energy-efficient low-cost housing development

• Communicating and getting stakeholder buy-in is critical and should be obtained

through advocacy and awareness of innovation. Innovation needs to be
propagandised by explaining what it is and why it is important. It should also be
made accessible to a wider population segment.

• The innovation vision should inspire and move the triple helix to contribute. It
should also assist in providing provincial cohesion and cl arity of goals. The language
used should be inclusive and understood by all.

Work group session 5

Based on your conceptual model developed in session 3, choose one intervention in

a specific region in South Africa (the group can decide which region) that will
stimulate innovation in the region.
• Motivate the choice of intervention.
• How will you lobby for it and get the appropriate funding?
• Who are the stakeholders?
• How will you activate the intervention?
• How will you measure the results of the intervention in terms of innovation
output?

60
3.2 Activating regional innovation: the tools

3.2.1 Future methodologies

An insight into the future with respect to innovation as a key driver of economic growth and
development is provided by the Global CEO Study of 2006.33

A previous study had indicated a growing recognition that new innovation was the preferred
path to achieving organic growth and brand value. The 2006 study focused on the challenge
of unlocking new innovation, and the opportunities it presents to the enterprises that do it
most effectively.

The results – gathered through 765 in-depth interviews with CEOs around the world –
provide valuable insight. Sixty five percent of chief executives and other leaders say they will
have to make fundamental changes in their businesses over the next two years. New
products and services remain a priority, but they are placing increasing emphasis on
differentiating themselves through innovation in the basics of their business models. They
believe that external collaboration across their business ecosystems will yield a multitude of
innovative ideas.

Further, our analysis indicates that companies with superior financial performance are
pursuing this kind of collaboration.

3.2.2 Foresighting and innovation

An essential component of regional innovation is foresighting. A foresighting exercise and

process is intended to give inputs regarding potential opportunities for longer-term
innovation and growth in alignment with other relevant strategies, e.g. regional or national
growth and development strategies.

Foresighting specifically provides a range of tools that break out of the conventional,
restricted, incremental approach to strategising dominated by budgets, risk avoidance and
short-term goals.

33
IBM Global Business Services.2006. Expanding the innovation horizon, the global CEO study 2006.

61
Instead, it opens up a range of possible futures, not usually exposed by incremental
processes, and makes the issues around achieving those desired futures more tangible.
Foresight is proving particularly valuable in the understanding and development of systems
of innovation, which, in turn, are seen as being essential to the development of knowledge
societies34.

The New Scientist Special Report35 provides insights to the kinds of thinking that may be
applied in foresighting exercises.

The report covers areas from astronomy and particle physics to medicine and computer
modelling. Below is a sample of futuristic thinking:

1. Steven Weinberg forecasts the future: The discovery of a final theory that dictates
all properties of particles and fields
2. Lewis Wolpert forecasts the future: The development of embryos will eventually
become fully ‘computable’
3. Frans de Waal forecasts the future: Disentangling the feedback loop between brain
development and the ancient primate tendencies that shape our societies will be a
huge advance
4. Edward O Wilson forecasts the future: The biggest leap in biogeography and
conservation biology will be the near-complete mapping of global biodiversity at the
species level
5. Richard Miller forecasts the future: In ageing research
6. Ellen Heber-Katz forecasts the future: The ability to prescribe drugs that cause
severed spinal cords to heal, and hearts to regenerate
7. Igor Aleksander forecasts the future: A scientific understanding of consciousness will
come from a recognition of the brain as an informational machine
8. Rodney Brooks forecasts the future: How to make artificial intelligences that can
recognise and classify objects
9. Antonio Damasio forecasts the future: Advances in molecular neurobiology and an
understanding of the systems related to cognition and behaviour

34
Cooperation Framework on Innovation Systems between Finland and South Africa (COFISA).
35
Special Report: Brilliant minds forecast the next 50 years: What will be the biggest breakthrough of the next 50 years? New
Scientist.

62
In Finland, future clubs are very popular. People believe widely that participating in thinking
about the future of the country is the first step in creating the desired future.

A good example of future methodologies in practice in South Africa is the COFISA-supported

Gauteng Biotechnology Foresight Initiative. Documentation in this regard can be obtained
from the COFISA website. COFISA launched provincial foresight exercises in three provinces
in 2007/2008. Documentation on the process and the outcomes can be obtained from the
COFISA website .

3.2.3 Science parks

A science park is an organisation managed by specialised professionals whose main aim is to

increase the wealth of the community by promoting the culture of innovation and the
competitiveness of its associated businesses and knowledge -based institutions.

A science park stimulates and manages the flow of knowledge and technology between
universities, R&D institutions, companies and markets, facilitates the creation and growth of
innovation-based companies through incubation and spin-off processes, and provides other
value-added services together with quality space and facilities.

Science parks create environments where:

• the triple helix and collaborative philosophy is the norm;

• innovation is an expectation and an objective;
• business, research and government can all play their appropriate roles together to
mutual benefit; and
• the country can create showcases of knowledge economy development to enhance
its image to foreign investors.

Science parks should be context-specific and can focus on themes that are appropriate for
the region they operate in, for instance an ICT science park, a biotechnology science park
and more. Science parks can also set specific aims, such as the following:

63
 • To create new products and job opportunities in special focus areas
• To create opportunities for skilled workers in a specific region (attract and retain
specific skills in the region)
• To actively encourage and lead the creation and growth of new sustainable
innovation-based companies
• To incubate start-up companies
• To be self-sustainable
• To stimulate a culture of quality and innovation
• To develop and maintain international business networks

Figure 4 illustrates the value that interventions like science parks and centre of expertise
programmes housed in science parks has for the economy and job creation.

Finnish Science Parks in 1980 – 2000 and CoE concept

in 1980’s
University Company
in early
1990’s
Universities

Science Park Companies

in late 1990’s and 2000’s

Universities Centre of Expertise Programme
Polytechnics

Science Park
Companies

Figure 4: The role of science parks in the Finnish economy (figure from Neville Cummins,
COFISA)

The following are some practical pointers when setting up a science park (N Cummins, 2008,
presentation at COFISA):

• Potential partners must have a sound and common understanding of the intended
STP concept and implications.
• The key objective of each partner’s involvement must be documented and agreed
on.
• The principles on which the project w ill be governed, institutionalised, managed and
financed need to be agreed as an input into the feasibility study.

64
 • The more defined the elements of the feasibility study, the less problems during
implementation and operation:
o The agreed principal objectives and proposed institutional framework
provide the landscape for this study.
o A market study to determine the assessed tenant mix, sources and numbers
is fundamental and often inadequately done.
o The physical resources for the proposed STP then needs to be defined – i.e.
location, size, etc.
o A cash flow analysis for at least 10 years, based on the policies, should be done.
• Obtain partners’ agreement on the project as per the feasibility study.
• Identify a project champion to drive the initiative.
• Finalise the institutional format.
• Establish the operational and development team.
• Agree on performance measures to measure the success of the science park.

3.2.5 Collaboration programmes

Collaboration between triple helix role-players can be supported by various initiatives and
programmes. One of the recognised methods of supporting collaboration on regional levels
are centre of expertise (COE) programmes. Finland has a proven record when it comes to
COE programmes.

3.2.6 Centres of Expertise (COE)

The main idea with a COE programme is to utilise top-level knowledge and expertise as a
resource for business operations, job creation and regional development.

A COE programme is a fixed-term special programme pooling local, regional and national
resources to utilise top expertise. The programme aims to support regional strengths. It also
concentrates on internationally competitive fields and on the development of business
activities. Figure 5 shows how COE programmes support the formation of joint strategies for
commercialisation and competitiveness, project management, newest knowledge
competence, infrastructure and funding between universities and research institutes, cities
and municipalities, regional administration, companies and science parks.

65
Figure 5: Facilitation drivers in Finland – key stakeholders and roles

CoEs are groups of people who come together to share information and to learn from one
another face -to-face and virtually. They are held together by a common interest in a body of
knowledge (e.g. energy-efficient low-cost housing) and are driven by a desire and need to
share (and solve) problems, experiences, insights and best practices. What holds them
together is a common sense of purpose (what they practi se) and a real need to know what
each other knows and how the community members can deepen their knowledge by
interacting on an ongoing basis.

Valuable Finnish experience shows the following:

• COEs require efficient cooperation at the regional level (research, education,

companies and management) and a natural home base.
• They motivate regions to revive through innovations.
• They encourage strategic choices and motivate actors to cooperate between
the regions.
• They direct the resources of the regions (training, research and funding) to
develop the chosen clusters and fields of expertise.
• COEs require a programme and measures that are targeted at participating
companies’ needs and possibilities.
• They require the commitment of different regional actors to implement the
long-term programme (basic funding/other measures).
• COEs need catalytic-state basic funding that will be put into competitive
tendering.

66
3.3 Conclusion

The use of tools such as future me thodologies, science parks and centres of expertise are
crucial for the development of regional innovation systems. They enable innovation in a
system.

67
References

Ahlback, J. 2005. The Finnish National Innovation System. Errin. Internet:

http://www.nvca.org.

Arbix, G. (Professor of sociology at the Universidade de São Paulo.)

Centre for International Studies. Program on Globalization and Regional Innovation Systems.

Cooperation Framework on Innovation Systems between Finland and South Africa (COFISA).

ECORYS-NEI. Regional innovation strategies in Poland: Lessons and recommendations.

Rotterdam, the Netherlands.

Expatforum. Internet: http://www.expatforum.com/articles/jobs/jobs-in-south-africa.htm.

Florida, R. Beyond mass production.

Florida, R. The breakthrough illusion.

Florida, R. The flight of the creative class.

Florida, R. The rise of the creative class.

Freeman, C. 1995. National system of innovation in a historic context. Cambridge Journal of

Economics. 19:5-24.

Gauteng City Region Innovation Strategy; Eastern and Western Cape and Limpopo.

Harvard Business School, Institute for Strategy and Competitiveness. 2008. The cluster
mapping project.

68
Ho, K and Luban, K. March 2004. National innovation systems: A case study of South Korea
and Brazil. [Coursework for Economic and Public Policy of Technology, MSc Technology
Management]

IBM Global Business Services. 2006. Expanding the innovation horizon, the global CEO study
2006.

Innovation America.

Investing in Innovati on.

Kaplan, D. 2008. Science and technology and economic growth in South Africa: Performance
and prospects. In, proceedings of COFISA, 10 November 2008.

Landabaso, M. 2003. European Commission – DG Regional Policy. In, proceedings of

International Forum Europe-Latin America, 4 – 7 November 2003.

Le Veen, J. March 1998. Plan 261: Urban and regional development.

New Zealand. Minister for Information Technology’s IT Advisory Group. August 1999
(updated in 2006). Submission to the New Zealand Government.

Mullin, J, Adam, RM, Halliwell, JE and Milligan, LP. 1999. Science, technology and innovation
in Chile. IDRC, Canada.

National Advisory Council on Innovation (NACI). Internet: www.naci.ac.za.

National Venture Capital Organisation. Internet: http://www.nvca.org.

Organisation for Economic Cooperation and Development (OECD), Economic Department.

Economic survey of Brazil 2006.

Organisation for Economic Cooperation and Development. 1994. Internet: www.oecd.org.

69
Organisation for Economic Cooperation and Development. OECD reviews of innovation
policy: China. Internet: www.oecd.org/sti/innovation/reviews/China.

Porter, M. The competitive advantage of nations.

Porter, ME. 1998. Harvard Business Review, November-December 1998.

Porter, ME. February 2000. Location, competition and economic development: Local clusters
in a global economy. Economic Development Quarterly. 14(1): 15-34.

Special Report: Brilliant minds forecast the next 50 years: What will be the biggest
breakthrough of the next 50 years?. New Scientist.

The geographics of IT in Finland.

The National Governors Association.

The Pew Center on the States.

The Research Institute on Applied Economics (IPEA).

University of Toronto and National Coordinator.

Wolfe, DA. Social capital and economic development: Local and regional clusters in Canada.
[PhD thesis]

Woodrow Wilson Center for International Scholars. Brazil’s innovation challenge.

World Fact Book. Internet: https://www.cia.gov/library/publications/the-world-

factbook/index.html.

70
Suggested background reading

i. Benchmarking evaluation of public science and technology programmes in the USA,

Canada, Israel and Finland by Rosalie Ruegg, TIA Consulting, January 2003
ii. The Finnish National Inovation System, Errin by Johan Ahlback, 2005
iii. Innovations generate regional vatality – knowledge, specialisation and networking
determine success in international competitiveness, TEKES 2004
iv. VICTA – virtual ICT accelerator, Juha Ruohonen, TEKES, 2007
v. Visit Finland Report – South African visit to Finland to review the national system of
innovation and the Oulu Region Centre of Expertise, NACI Short Report, 2002
vi. South African NSI – PowerPoint presentation by Deputy Minister of Science and
Technology, Derek Hanekom, February 2007

71