Innovation Management

and New Product Development

Seventh Edition

Part 1
Innovation management

Chapter 2
National systems of innovation
and entrepreneurship

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How can governments help innovation?
In the late eighteenth and early nineteenth centuries, Britain was widely
recognised as the leading innovator among nations. Freeman said(1987):

It was certainly not just a succession of remarkable inventions in the

textile and iron industries.

Rather it can be attributed to a unique combination of interacting social

and economic and technical changes within the national economic space.

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 National innovation systems in
emerging markets
• South Korea and Taiwan:
‒50 years ago both were not as developed as now
‒Their governments promoted research and technology setting up important
university research institutes
‒Firms were encouraged to do R&D
‒Initial approach was reverse engineering and technology transfer from the rich
world
‒Later graduated to developing world-class innovations

• China and India:

‒China has encouraged technology transfer
‒India less open, but in the 1990s expanded higher education
‒Indian firms have focused on pharmaceuticals and software

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Figure 2.1
The role of the state in innovation

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 How national states can facilitate
innovation
• The state has played a central role in producing game-
changing breakthroughs.
• An obscure government body even lent Apple $500,000 before
it went public.
• The armed forces pioneered the internet, GPS positioning and
voice-activated ‘virtual assistants’.
• Academic scientists in publicly funded universities and labs
developed the touchscreen and the HTML language.
• Google’s search algorithm was financed by a grant from the
• National Science Foundation.
• America’s National Institutes of Health finances studies that
lead to many of the most revolutionary new drugs.

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 The state is necessary for innovation
because:
1. The ‘public’ nature of knowledge that underpins innovation.
‒R&D Spending by governments

2. The uncertainty that often hinders the process of innovation

‒A stable economy, low interest rates, R&D funds, bank credits

3. The need for certain kinds of complementary assets

‒Infrastructure

4. The need for cooperation and governance, resulting from the nature of
certain technologies
‒To encourage households to switch from conventional cars to electric ones

5. Politics
‒The German Government legislation in automobile safety and environmental
recycling
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 Knowledge accumulation
The potential to create new products, processes, markets or organisations
(INNOVATION)

is path-dependent in the sense that there are certain nations and locations that
seem to have acquired that capability over time, because innovation relies upon
the accumulation and development of a wide variety of relevant knowledge
(Dicken, 1998).

•Historically, national states have played a significant role in the development of

science and technology.

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Figure 2.3
Kondratieff waves of growth and their
main features

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 Illustration 2.4
Regulation required for e-scooters
Regulation required for e-scooters

At present electric scooters in the UK are not legal in the UK cycle lanes.
Whereas in France, Germany and Spain they are legal. E-scooters cost
between £300 and £1,500 and they typically have a top speed between 15
and 24mph. Manufacturers are waiting for regulators in the UK to decide on
the regulations necessary to make these scooters able to use UK cycle
lanes. Across Europe there are concerns about the increasing number of
accidents involving e-scooters travelling at high speed and colliding with
pedestrians. This is the main reason why UK regulators have been cautious.

Source: Robert Watts (2020) E-scooters are the future – they just need to be legal, The Sunday Times, 5 January.
OPOLJA/Shutterstock

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Source: Reproduced and adapted from Dicken, P. (1998) Global Shift: Transforming the World Economy, Paul Chapman, London (a Sage Publications company); Freeman, C. and
Soete, L. (1997) The Economics of Industrial Innovation, 3rd edn, Pinter, London (Cengage Learning Services Ltd).

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Source: Reproduced and adapted from Dicken, P. (1998) Global Shift: Transforming the World Economy, Paul Chapman, London (a Sage Publications company); Freeman, C. and
Soete, L. (1997) The Economics of Industrial Innovation, 3rd edn, Pinter, London (Cengage Learning Services Ltd).

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Source: Reproduced and adapted from Dicken, P. (1998) Global Shift: Transforming the World Economy, Paul Chapman, London (a Sage Publications company); Freeman, C. and
Soete, L. (1997) The Economics of Industrial Innovation, 3rd edn, Pinter, London (Cengage Learning Services Ltd).

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The roles of government in innovation

NHS Covid-19 App

Lead user
Public procurement
Military labs
Innovative products and services
SMEs

E-scooters?

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 Entrepreneurship

In today’s world it is best captured:

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According to Schumpeter, economic development is
the result of three types of factors (Schumpeter, 1964,
61):
1.external factors such as demand by government (changes
in legislation, defence orders);

2.factors of growth or gradual changes in economic life

which are accomplished through day-to-day activities and
adjustments;

3.‘the outstanding fact in the economic history of capitalist

society’, innovation.

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And for Schumpeter, entrepreneurs are galvanised into
action under the following conditions (Schumpeter,
1961: 214):
•The existence of new possibilities more advantageous from
the private standpoint – a necessary condition;

•Limited access to these possibilities because of personal

qualifications and external circumstances;

•An economic situation which allows tolerably reliable

calculations.

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Table 2.2
Definition of entrepreneurship

Source: Stevenson (2000).

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 Innovation policy

Innovation policy has generally focused on four key

objectives:

1.The generation of new knowledge.

2.Making government investment in innovation more effective.

3.Enhancing diffusion of knowledge and technology (network

interaction effects).

4.Establishing the right incentives to stimulate private sector

innovation to transform knowledge into commercial success.

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 Entrepreneurship policies

• Concentrate on developing an environment to foster

the emergence of new entrepreneurs and new firms.

• Yet there has been limited recognition of the full

integration of entrepreneurship and innovation.

• Unfortunately, all too often innovation policies do not

incorporate entrepreneurship as a focus.

• Yet, we know that entrepreneurs are essential to

convert knowledge into economic and social
benefits.
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Case study: Israel

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 National Innovation system (NIS) of Israel

Scientific & educational system Incubators/accelerators

Industry & multinationals

+7000 high tech firms +350 R&D centres
Government support
4% of GDP on R&D

Innovation
Military 5500 startups
Advanced technology & #1 start-up per capita in the world.
Strong Venture Capital system.
cybersecurity experts Largest VC as % GDP in the world..

Culture of
Empowerment
Competitive structure
Diversity, survival mentality
Low market size, close links to US.
and not afraid to fail

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 Key points
•Kondratieff Waves of Growth
•National Innovation Performance
•Innovation Indicators
•The role of state
•The role of universities
•Regional and National Innovation Systems
•Triple Helix Model

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