CHALLENGING ISSUES IN INITIATING REGIONAL INNOVATION SYSTEM DEVELOPMENT: THE CASE OF INDONESIA

Tatang A. Taufik Agency for the Assessment and Application of Technology (Badan Pengkajian dan Penerapan Teknologi / BPPT)

Sub-Committee on S&T Infrastructure and Resources Development (SCIRD). The 7th ASEAN Science and Technology Week (7th ASTW) 2nd Science Congress and Sub Committee Conferences Jakarta, August 5 – 7, 2005

OUTLINE • • • • INTRODUCTION/BACKGROUND FOCUS OF DISCUSSION BRIEF REVIEW IDENTIFIED GENERIC AND CHALLENGING ISSUES : A Policy Perspective • THE PROPOSED COMMON FUTURE AGENDA • BRIEF REVIEWS : FROM SOME EARLY INITIATIVES • CONCLUDING REMARKS : SOME LESSONS LEARNT

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1. INTRODUCTION / BACKGORUND

 BRIEF REVIEW  INDONESIAN CONTEXT

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1. BRIEF REVIEW

 Knowledge/innovation are the increasingly determining and differentiating factor of competitiveness (micro, messo, and macro levels);  Paradigm shifts of the perspective on innovation in the last two decades :  From “linear-sequential” perspectives (of “technology push” and “demand pull” models) to a system perspective/ approach of a dynamic and interactive-recursive model  Some recent trends : more attentions on  Interactions and roles of actors ~ triple helix model  Local/regional dimensions : social learning and social capital, local specificities, ~ regional innovation system and industrial clusters.  Policy implication : national and regional contexts/dimensions of the innovation policy.

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2. THE INDONESIAN CONTEXT

 Eroding competitive position of Indonesia in the international arena ~ widening gap even with some other ASEAN countries;  Not yet fully recovered from the “devastating” 1997 crises ~ followed by political and other influential changes;  Indonesian context ~ innovation system :  a diverse cultural and regional uniqueness-rich country;  a large country problem with a small country capacity/ capability;  More attention to the regional contexts :  Regional roles in development : the shift from centralized economy to regional autonomy / decentralization;  Underdeveloped local specificities potentials for regional unique advantages;  Regional innovation system development : the key to future regional competitiveness.
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2. FOCUS OF DISCUSSION IN THE PAPER:

 KEY AREAS IDENTIFIED IN INITIATING THE REGIONAL INNOVATION SYSTEM DEVELOPMENT  A BRIEF REVIEW FROM SOME EARLY STAGE OF THE INITIATIVES

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3. BRIEF REVIEW ON INNOVATION SYSTEM AND INNOVATION POLICY  INNOVATION, INNOVATION SYSTEM, AND INNOVATION POLICY  SOME RECENT TRENDS (Appendices)

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4. IDENTIFIED GENERIC AND CHALLENGING ISSUES : A Policy Perspective
Attentions based on some dimensions : 2. Common problems ~ some comparative indicators; 3. Innovation policy issues : – market and government failures; – systemic failures. 4. Regional dimensions/contexts.

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GENERIC AND CHALLENGING ISSUES IN INNOVATION SYSTEM DEVELOPMENT :

Weaknesses in general framework. These are related to some issues such as :  Fundamental framework issues related to the innovation system, e.g., : • Regulatory impediments to development of business and innovation; • Weaknesses in legal and regulatory development needed to foster innovation progress; • Weaknesses in specific infrastructural supports important to innovation; • Costly bureaucracy administration process;  Very limited investment (financial supports) for innovative activities;  Uncompetitive fiscal supports (taxation structures/schemes) for innovation;  Weaknesses related to intellectual assets (including IPR awareness, protection, and law enforcement).
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GENERIC AND CHALLENGING ISSUES IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d) • Weaknesses in institutions and S&T supports, and low knowledge (technological) absorption of SMEs. These are related to  “not yet properly” developed (and/or missing) important functions in the innovation system, and  weaknesses in science and technological supports relevant to the development of the best local resources and specificities;  on the other hand, small and medium enterprises (SMEs) as the majority of the business actors (±99% of business actors in Indonesia), in general, have limited capability and opportunity in accessing, utilizing, and developing knowledge (technology) important to their business competitiveness enhancement.

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GENERIC AND CHALLENGING ISSUES IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d) 1. Weaknesses in mutually beneficial linkages and interactions, and collaboration in diffusion of innovation (including best practices and/or R&D outputs).  “Mismatch” in relevance and complementing functions amongst knowledge pool development (knowledge supply side) and technological needs and utilization (demand side), especially by private sectors in many technological areas are widely acknowledged.  Limited development and supports related to both business (commercial) and non-business (non-commercial) technology-based transactions amongst actors, asymmetric information and limitations in capability and opportunity for interactions important to innovation, diffusion and learning process especially in “traditional sectors in the economy” are among policy issues identified that impede mutually beneficial linkages, productive interaction,and synergetic collaboration amongst actors in both the national and regional innovation systems.
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GENERIC AND CHALLENGING ISSUES IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d) • Weaknesses in innovation culture. Among other factors, these are related to – Low appreciation to creativity/innovativess spirits and entrepreneurial business profession; – Slow development in entrepreneurship knowledge and skills, and weak education system in supporting entrepreneurial culture development; – Limited talents (high quality human resources) in many regions (regional brain drains), low high talent mobility and interactions important to innovation and entrepreneurship in the society; – Public authorities in general (at the national and regional levels) are also among the weakness points for both the development of innovation and entrepreneurhsip in their environments and the significant progress in the society.

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GENERIC AND CHALLENGING ISSUES IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d)
• Weaknesses in development focus, value chains, competence development and improvement of the sources of economic progress. Weaknesses in interrelated business and non-business activities (and actors) important to the economic dynamism and the strong foundations for unique competitive advantages are caused by some underlying factors such as : – Varieties of business activities and the supporting non-business activities and regional unique competences developed in general are not geared towards the more focused regional competitive advantage development; – Business/industrial structures and linkages are weak; – Limited leadership and pioneering in progressing innovation and diffusion of innovation; – Low development of start-up/new innovative companies (someteimes called as the new technology based firms/NTBFs); – Most SMEs are lagging behind in creating and capitalzing the opportunities from technological and non technological progress/change.
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GENERIC AND CHALLENGING ISSUES IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d) • Global (Globalization) challenge. Various weaknesses (eventually) influence the ”readiness” of Indonesia (at the national and regional levels) to play the better and strategic role in the global arena and responding some important changes to maximize the benefits for and minimize the negative impacts to the society.

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5. THE PROPOSED COMMON FUTURE AGENDA: THE HEXAGONS OF THE INITIATIVES

Some considered aspects of the agenda : 2. Broad and fundamental policy themes 3. Universal to regional contexts of Indonesia 4. Interrelated areas 5. Keys to the initiatives based on current situations
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1. DEVELOPING GENERAL FRAMEWORK CONDUCIVE TO INNOVATION AND BUSINESS DEVELOPMENT  Developing regional innovation strategies;  Regulatory reforms: evaluating and eradicating impeding regulations;  Improving legal supports and environment important to innovation and businesses;  Developing specific infrastructures important (and “unique”) to the development of regional innovation system;  Improving bureaucracy administration processes;  Enhancing the capacity (and capability) to improve investment in innovation (the financing for innovation);  Developing synergetic efforts to create/improve effective incentive schemes for innovation;  Increasing awareness and implementation of the IPR protection in the regions.
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     

2. STRENGTHENING THE S&T INSTITUTIONS AND SUPPORTS, AND DEVELOPING ABSORPTIVE TECHNOLOGICAL CAPACITY AND CAPABILITY OF SMEs National and regional S&T institutional reforms; Better rewards/appreciation for S&T human resources; Financial and legal supports to, especially, collective R&D programs benefiting regional economies; Practical tools for SME upgrading; Better access for SMEs to knowledge databases and expertise; Enhancing financial supports to strategic SME technological upgrading.

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3. FOSTERING COLLABORATION FOR INNOVATION AND ENHANCING DIFFUSION OF INNOVATION, BEST PRACTICES AND/OR R&D OUTPUTS  Financial and non financial supports to collaborative innovation activities;  Fostering techno-business based intermediaries development (e.g., business development service providers, regional technology clearing house);  Fostering business technological-based linkages;  Special technology diffusion/dissemination projects benefiting to regional economies;  Developing an open coordination method/mechanism for enhancing exchanges of best practices, benchmarking activotoes, public domain of R&D outputs, and policy coordination.

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4. DEVELOPING INNOVATION CULTURE

 Increasing public awareness;  Education and R&D institutional reforms towards more entrepreneurial organizations;  Entrepreneurship education and trainings;  Fostering new/start-up innovative companies (new technology based firms/NTBFs ~ “technopreneurial” firms);  Regional “reverse brain drain” (talents scouting), and enhancing human resource mobilization;  Capacity building in regional public authority institutions;  Regional innovation awards;  Umbrella and set aside programs for particular regional innovation projects.

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5. FOSTERING AND STRENGTHENING INTEGRATED EFFORTS OF REGIONAL INNOVATION SYSTEM AND INDUSTRIAL CLUSTER DEVELOPMENT INITIATIVES  Strategic regional-specific R&D programs;  Competitive regional innovation development initiative projects (grant and/or resource sharing schemes);  Regional-specific industrial cluster development programs;  Business (SMEs) technological upgrading programs;  Regional strategic alliance programs.

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6. DEVELOPING STRATEGIC RESPONSES TO THE GLOBAL CHANGES  Public awareness and law enforcement of IPR;  Developing local/indigenous knowledge/technological assets (including the legal aspects of the related IPR);  Enhancing regional capacity in the MSTQ system;  Fostering international collaboration in the regions.

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6. BRIEF REVIEWS : FROM SOME EARLY INITIATIVES
1. The regions : • Tegal Regency (Central Java), • • Sumedang Regency (West Java), and Barru Regency (South Sulawesi).

2. General framework for collaboration and coordination pattern 3. An example : Tegal Regency ~ The “starting/entry point” activities

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THE REGIONS

Barru Regency

1 3

Sumedang Regency

Tegal Regency

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GENERAL FRAMEWORK FOR COLLABORATION AND COORDINATION PATTERN

Thematic and/or Specific Initiatives
N A T I O N A L R E

National Dimensions

Regional Dimensions

G I O N A

Framework Conditions

L

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TEGAL REGENCY

Central Java

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TEGAL REGENCY: THE “STARTING/ENTRY POINT” ACTIVITIES ~ 2003
 Serial awareness and capacity building worskhops. Topics related to competiveness and industrial cluster development;  Consensus building on “the grand strategy” : regional industrial cluster development as the platform of and approach to the regional economic competitiveness development;  Establishing the Regional Competitiveness Council (a quasi-public collaborative institution with membership consists of : business actors, association, NGOs, educational communities, ex-officio reps. from regional government, legislative members, prominent persons);  Starting some industrial cluster initiatives (based on agriculture, manufacturing and tourism industries) and industrial cluster task groups;  Revitalising an industrial district area as a center for services and innovation of technology in the region;  Development of a regional vocational education;  Integrating the cluster projects into the annual regional government program and with some other relevant projects (including some national R&D projects).

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TEGAL REGENCY: RECENT ACTIVITIES  Serial awareness and capacity building worskhops. Topics related to regional innovation system development;  Consensus building on the priority activities;  In the process of establishing the Regional Research Council;  Planning the regional innovation strategy document;  Continuing the previously agreed collaborative agenda.

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INSTITUTION FOR COLLABORATION : The Regional Competitiveness Council (RCC) RCC
Members Cross-sectoral (and cluster) groups Special Committees

Representatives (from particular industrial clusters)

Office Secretariate

Functional Groups
e.g., : • Promotional • Expertise

Special task force/teams
e.g., : • Benchmarking • Specific industrial cluster task groups

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THE ROLE OF BPPT TEAMS  Organizing national and some regional workshops related to regional innovation system themes;  Preparing guidelines (suggested steps and more practical tools/approach) ~ industrial cluster development and regional innovation strategy;  Collecting and disseminating examples of relevant “best practices” ~ industrial cluster development and regional innovation strategy; Planning to develop an internet based as a tool to develop an open coordination mechanism (more simple model adopting from the EU Innovation TrendChart Initiative);  Providing technical assistance :  facilitators (technical assistants/expertise) to accompany the regional counterpart teams, particularly in the initial stage (process)  initiating regional consensus building  Some relevant initiatives at the “national level”, e.g.:  Policy studies;  Collaborations with other organizations;  Academic draft on indigenous knowledge/technology protection.
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AN EXAMPLE OF PRACTICAL TOOLS (STAKEHOLDERFRIENDLY) TO BUILD CONSENSUS ON THE COMMON/COLLABORATIVE AGENDA (AND POLICY INTERVENTION) Starting the Industrial Cluster Development Initiatives (drawing some concepts and/or methodologies, e.g., from Porter’s Four Diamonds, for practical developing practical approaches)

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Results Hierarchy goal purpose outputs activities

Goal/Objective Trees

Alternative Strategies

Program/Activity Matrix

Agenda

Agenda

Agenda

Agenda

Analysing the Improvement of the Business Environmen

Prioritizing Goals/Objectives
+ ­ + ­ + ­ + ­

Stakeholder Mapping

Analysing the Business Environment (The Porter’s Four t@t 2005 Diam

7. CONCLUDING REMARKS : SOME LESSONS LEARNT (FROM THE INTIAL STAGE)

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CONCLUDING REMARKS : SOME LESSONS LEARNT (FROM THE INITIAL STAGE)
• Biggest challenges : – Adapting to the paradigm shift (from a very centralistic and fragmentedsectoral development approach to a more decentralized, participatory and collaborative effort). The learning process is costly yet a very crucial element of development; – Commitment/seriousness of the participating actors; – Consistency in following up the agreed common agenda; – Readiness to some paradoxical fenomena of changes. Common Operational but Significant Obstacles : government budget structure and bureaucratic rigidity. Key Success Factors : – “Unique/specific” local potentials; – Strong motivation amongst regional business actors and program counterparts towards improvement; – Local champions ~ highly motivated and pioneering individuals; – Common platform built upon agreed consensus and widely support to develop synergetic and implementable activities of regional competitiveness efforts; – Regional financial supports, especially regional government, for regionalspecific starting activities.
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• •

APPENDICES

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3. BRIEF REVIEW ON INNOVATION SYSTEM AND INNOVATION POLICY  INNOVATION, INNOVATION SYSTEM, AND INNOVATION POLICY  SOME RECENT TRENDS

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INNOVATION

Innovation

Process

Product

System

Technological

Organizational

Goods

Services

“Technocratic” definitions

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SOME PERSPECTIVE DEVELOPMENTS ON INNOVATION

“Linear-Sequencial” Chains of Capability-driven Forces
Basic Research Applied Research

Technology Push:

R&D 1960s – 1970s

Manufacturing/

Production

Sales/ Distribution

“Linear-Sequencial” Chains of Demand-driven Forces
“Demand”

Demand Pull:
Manufacturing/

Basic Research

R&D

Production

Sales/
Distribution

1970s – 1980s

Applied Research

“Interactive-recursive (and Iterative)” Process and as a Learning Process 1980s – . . . .
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Market Driven:

THE CHAIN-LINK INNOVATION MODEL

Research – Knowledge Creation

Transfer Processes (various)
Detailed Design And Test

Potential Market

Invent and/or Analytical Design

Redesign and Produce

Distribute and Market

Source : Adapted from Kline and Rosenberg (1986).

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NATIONAL RESEARCH AND INNOVATION SYSTEM
Demand Consumers (final demand) Producers (intermediate demand) Framework Conditions Financial environment; taxation and incentives; propensity to innovation and entrepreneurship mobility ... ;

Industrial System Large companies Intermediaries Research institutes Brokers

Education and Research System Professional education and training Higher education and research

Political System

Government

Mature SMEs

Governance

New, technologybased firms

The potential reach of public policies ...
Infrastructure

Public sector research

RTD policies

Banking, venture capital

IPR and information

Innovation and business support

Standards and norms

Source: Erik Arnold & Stefan Kuhlmann, 2001
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THE TRIPLE HELIX MODEL

Tri-literal network and Hybrid Organization

Academia

Linkages/interactions amongst institutions in the “sphere” as “dynamic and endless transitional processes”

Government

Industry

Source : Etzkowitz and Leydesdorff (2000).
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NATIONAL AND REGIONAL INNOVATION SYSTEMS : A Perspective on Regional/Local Uniqueness, Competence, and Cross-sectoral Linkages

The national Innovation System
Industrial Cluster 1

RIS

RIS

Sector I
Industrial Clusters :

Region A

Region C

Sector II

Industrial Cluster 3

Industrial Cluster 1-Z Industrial Cluster 3-B Industrial Cluster 2-C

Sector III
RIS : Regional Innovation System.

Industrial Cluster 1-A

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SOME PARADIGM SHIFTS ON INNOVATION AND POLICY IMPLICATIONS
The View
Innovation (i.e., “technological change”) as residual factors of economic growth (neoclassical models). Inovation as a ”linear-sequential process” (pineline linear model).

The Era
Innovation has not received special attentions (prior to 1960s). Technology push era (1960s – 1970s).

Main Policy Implications
No adequate attention and efforts for special intervention (as policy issues).

  

Policies emphasized on the supply side of technology were dominant (supply driven). Science/research policy were the central theme in the government interventions. Technology policy began to develop. Policies emphasized on the demand side of technology were increasingly dominating the government attention to intervene the market (demand driven). Technology policy and/or science and technology (S&T) policies developed, but most attentions were in a one-way perspective (one-side policy). Innovation policy (based on system approach) began to develop. Innovation policy are more two-side policy considered also as a learning process developed towards the developemnt/strenthening a more adaptable innovation system. Innovation policy was no longer the “monopoly” of the “Central” government, but “Regional” government as well. 2005 t@t

Demand pull era(1970s – 1980s).

Inovation viewed in a system approach as a system of an“interactive-recursive process” (feedback loop/chain link model) of a complex and dynamic elements of creation (actors, activities such as discovery, invention, etc., and other elements), utilization, diffusion, and learning process holistically.

Innovation system era (1980s – now). Note: New Growth Theory developed.

 

AN INNOVATION POLICY FRAMEWORK
Macroeconomic Policy  Monetary  Fiscal  Trade

Education Policy  Knowledge and Skills  Creativity  Professionalism  Entrepreneurship

Industrial Policy  Investment  Taxation - Subsidy  Incentives  Sectoral regulations

R&D Policy Science Policy

Innovation Policy

Regional Policy
Technology Policy

Industrial Progress and Development: Competitiveness, Innovative Capacity, Rate of Diffusion, Learning, Entrepreneurial Performance

Improvement of Existing Businesses Investment Development Development of New Firms (NTBFs) 2005 t@t

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