SaraLawrence,MichaelHogan,AliceBrower,andStephanieZayed

GlobalPracticesforBuildingInnovationEcosystems

6/11/20 1

• Introductiontoinnovationecosystems• Lessonsfromnationalinnovationsystems• Indonesia’sinnovationeconomy• Nextsteps• Peercountryprofilesannex

2

TableofContents

IntroductiontoInnovationEcosystems

Whatisaninnovationecosystem?

Universities and research

institutes

Capital

Government and Public Agencies

Private sector

Support, services, and connectors

Culture, values, and

norms

Technology

Human Capital

Actors & Organizations

Foundation

An innovation ecosystem is a network of organizations and individuals with assets such as human creativity, business acumen, scientific discovery, and investment capital. These organizations and individuals come together to cultivate ideas so they can grow into vibrant enterprises and competitive industries that create positive societal and economic impacts.

Similar to a natural ecosystem in biology, a healthy innovation ecosystem is formed by the quality and frequency of the interactions of a community of people, companies and institutions.

Adapted by RTI from: The Rainforest: How to Create the Next Silicon Valley

InnovationEcosystemsareActiveNetworks• Ecosystemsaremuchmorethanacollectionof

organizations;theirvaluederivesfromtheirconnectivityandinteractions.

• Itisimportanttoviewinnovationecosystemsasacomplexnetworkoforganizationsandindividualswithhumancreativity,businessacumen,scientificdiscovery,andinvestmentcapitalassets.

• Healthyecosystemsinvolvecontinuousinteractionsbetweentheelementsofthisnetwork. Theseareoftendescribedas“nodes”or“collisions”.

• Whenthesecollisionstakeplaceandcoalescearoundideas,theycangrowintovibrantenterprisesandcompetitiveindustriesthatcreatepositivesocietalandeconomicimpact.

Universities and research

institutes

Capital

Government and Public Agencies

Private sector

Support, services, and connectors

Culture, values, and

norms

Technology

Human Capital

Actors & Organizations

Foundation

ConsiderationswhenBuildinganInnovationEcosystem§ Realizationthatthereisno“onesizefitsall”approach.

Customization isrequired.§ Stakeholdersacrossinstitutionalsectors (e.g.

government,academia,privatesector)andindustrialsectors(existingandfuturegrowth)needtobepartofthestrategy.

§ People arethesourceanddriversofinnovation.Astrategyhastofocusondevelopingtalentandconsumerswhoarepositionedtoparticipateandengageinaninnovationeconomy.

§ Asenseofurgencytoimpactpositivechangeisneeded,butalsoapatiencetounderstandthatinnovationforeconomicgrowthtakestime.Persistence isrewarded.

§ Innovationecosystemsarehighlydynamicandneedconstantattention.

BenefitstoIndustry,GovernmentandHigherEducationAninnovationecosystemstartswiththetriplehelixasabase:academia,privatesector,andgovernmentworkingincollaboration,oftenwithanimpartialintermediary,foracollectivevisionofeconomicdevelopment.Othersectorscanalsobeimportant(non-profit,environmental)expandingthedimensionsofthehelixdependingondevelopmentcontext.

Eachsectorbenefitsfromcollaboration,andtheecosystemcreatesoutputsgreaterthanthesumoftheirparts.

IndustryProductivity,exports,and

revenueSkilledworkforce

InnovationandnewproductsGlobalcompetitiveness

GovernmentImprovedexportsandtax

revenueSkilledworkforce

Improvedjobopportunitiesforcitizens

Globalcompetitiveness

AcademicIndustry-relevantcurriculumImprovedqualityofrelevant

researchScientificpublication

EmploymentforgraduatesAttractionofstudentsand

faculty

ReturnsonInvestmentintheInnovationEconomyResearchExpenditureandProductComplexity

Investmentsininnovationarecloselyconnectedtoeconomicgrowth.

HidalgoandHaussmann's“productcomplexityindex”(PCI)measuresacountry’sdiversityofproductionandspecializationofproducts,andisanaccuratepredictorofgrowthofGDPpercapita.

HigherlevelsofR&Dexpenditures(X-axis)arecorrelatedwithahigherPCI(y-axis),indicatingacorrelationbetweenresearchspendingandeconomicgrowth.

HowdoPolicymakersSupportInnovationEcosystems?Countriestendtoembraceanationalvisionforinnovationsupportedbyaportfolioapproachtopoliciesandinvestmentstofostermultipleecosystemcomponents.1. Createanationalpolicyorvisiontoaligneffortsaroundinnovation,whichincludesanoverarching

organizationtoeffectivelycoordinate governmentagenciesandharmonizepolicyandregulation.

2. Createpoliciesthatincentivizetheprivatesectoranduniversitiesto:• investinR&D,entrepreneurship,andbusinessgrowth• produceaninnovationreadyworkforcerangingfromresearchers,technicians,toconsumers• incentivizeuniversity-industrycollaboration• stimulateprivateandpubliccapitalformationtoinvestininnovation• locateinco-working,co-creationspacessuchasscienceparks,innovationdistricts,businessaccelerators,

orothersharedspaces.

SomeTacticalWaystoBuildanInnovationEcosystemHow do we create a culture of entrepreneurship that increases chances of long-term success?Foster Effective Entrepreneurship Programs

How do we better align university output with industry needs to produce market-ready technologies and job-ready graduates?Strengthen University-Industry Alignment

How do Small & Medium Enterprises with limited resources find and adopt technologies and processes so that they can grow and thrive?Drive Technology Adoption in SMEs

How do we produce a skilled workforce in in the right numbers and with the right qualifications to propel high-value industries?Develop an Innovation-Ready Workforce

How do we convert R&D investments into commercially valuable new products, processes and services?Accelerate Technology Commercialization

How do we know what’s working? How do we build on success? What should we invest in next?Assess Initiatives for Effectiveness & Impact

How do we match our innovation assets with sectors primed for rapid and sustained growth in global markets?Identify Industry Sectors for Growth

How can a government strengthen its policy tools to effectively foster growth in its innovation economy?Creating Policy Infrastructure for Innovation

HowdoCountriesFundInnovationEcosystems?• Likepolicies,fundinganinnovationecosystemrequiresaportfolioofinvestmentsinstrengtheningthebuildingblocks oftheecosystemandintensifyinginteractions.

• Humancapital,technology,andculturearethefoundationofaninnovationecosystem.Otheractorsandorganizationsserveastheassetsthatneedtobebuiltouttobolsterthefrequencyandqualityoftheintersectionswithintheinnovationrelatednetworks.

• TheWorldBanknotesthatthemostsuccessfulfundingprogramsarebasedinpartnershipsbetweenthetriplehelix—industry,universityandgovernment.

• Weprovideexamples ofhowcountriesfundecosystemcomponentsinthefollowingslides.

Universities and research institutes

Capital

Government and Public Agencies

Private sector

Support, services, and connectors

Culture, values, and norms

Technology

Human Capital

Actors & Organizations

Foundation

InvestmentsinHumanCapitalPeopledriveinnovation,nottechnologyorinstitutions.

Human Capital

§ Kenya’s ICT Authority created public-private and government to government partnerships to build ICT skills in graduates and existing workforce in the country. Some of these include:– CodePamoja: an ICT training program set up to promote ICT literacy

capacity, and innovation and enterprise development– Government of India’s Ministry of Telecommunication and IT:

Collaborate in public sector training for IT development and promotion of ICT investment, partnerships and market

– Huawei Technologies Co. Ltd: Collaboration through internship mentorship and training programs for engineering students, provision of technical infrastructure to academic institutions, among others.

– Oracle Technology Systems Ltd: Collaboration through IT skills development programs and initiatives, internship and mentoring opportunities

§ The ICT Authority budgeted $26.6 million for its ‘Human Capital’ activities in its Strategic Plan 2013-2018

IT&BroadbandInternetaretheenablinginfrastructureforaninnovationecosystem.

InvestmentsinInformationTechnologyInfrastructureIT Infrastructure

• SouthKorea’stechnologyinfrastructurehasdramaticallyadvancedinthelast20years.

• In1990,.02%ofthepopulationwereinternetusers,by201590%ofthepopulationusedtheinternet.

• Broadbandspeedsarethefastestintheworld(TechnologyInquirer).

• SouthKoreahasinvestedintechnologyinfrastructuresincethe1987FrameworkActonInformatizationPromotion,ahighlyambitioustechnologydevelopmentplan.SincetheAct,SouthKoreahasspentmorethan5billiondollarsonconnectivityefforts.

• MostofSouthKorea’sinvestmentsarejointventureswiththeprivatesector.In2003,theKoreangovernmentjointlyinvested2.1billiondollarswithmobilecarrierstoupgradethethe nation’smulti-medianetwork(Telegeography).Morerecently,1.5billiondollarswerepledgedtoleadSouthKoreato5Gmobilestandardsby2019.

Source:TheDailyStar

InvestmentinCulture,ValueandNormsAninnovativeculturesetsnormsthatfostertrustamongactorsandsupportsrisktaking.

Culture, values, and

norms

• Malaysia’sGlobalInnovationandCreativityCentre(MAGIC)createsarisk-taking,entrepreneurialculturethroughitfullsuiteofprogramsandbyhostingfrequentpubliceventsandmeetingstocelebrateandpromoteentrepreneurship.Someofitsprogramsinclude:

• Mentorship—youngpeopleareconnectedwithskilledentrepreneurstogrowandlearnfromtheirexperiences.

• GlobalAcceleratorProgram—Buildsacommunityofstart-upsbytargetingassistanceto80newstart-upstogettheminvestmentready.

• SocialEnterpriseVenture—Capitalfundforsustainableyouth-drivensocialprojects.

• ImpactDrivenEnterprises—Inspiresbusinessestobecomeaforceforgoodbyprovidingaccreditationtoimpactdrivenenterprises,allowingthemaccesstonewmarketsandcapacitydevelopmentprograms.

InvestmentsinSupportServicesSupportserviceproviderssuchasbusinessaccelerators,entrepreneurshiporganizations,scienceparks,orclusterorganizationscreatestructureandmechanismstoconnectwithintheinnovationecosystem.Support Services

China’sZhongguancun ScienceParkbringstogetherresearchuniversities,labs,manufacturingfacilities,businessservices,andcorporateheadquarterstoattractentrepreneursandinnovators.

• Techentrepreneurshaveeasyaccesstobusinessservicesthroughincubatorsandaccelerators

• LocaluniversityresearchershaveaccesstoSMEsandlargebusinessestoconductappliedresearch.

• In2017,ExpertMarketnamedBeijingastheworld’stoptechhub,ledbytheZhongguancun district’sboomingstartupscene.

InvestmentsinCapitalAccesstocapitalistheentrywayforentrepreneurswithviableinnovationstoreachmarketpotentialtoaidinproductionandexpansion.

Capital

• ThemissionofChile’sEconomicDevelopmentAgency(CORFO)istotransformChileintoaglobalinnovationandentrepreneurialhub.

• CORFOhasanearlystageventurecapitaltechfundthatconnectsentrepreneurswithinvestors.

• CORFO’hasseena35percentincreaseinpublicfinancingforthefund.

• Malaysia’sCradlefundmissionistocreateastrong innovationecosystemthatsupportsthedevelopmentofnewideasandrepresentsthegovernmentsefforttoincreasethequantityandqualityofinnovations.

• IncorporatedundertheMalaysianMinistryofFinancein2003• Inthepast13years,Cradlehasfundedover700Malaysiantechstartups• CradleSeedVenturesestablishedin2015toexpandthefund’sportfolioto

equityinvestment.

Cross-EcosystemInvestmentsPrivate sector

Human Capital

STRIDEistheU.S.government’slargesthighereducationprojectinthePhilippines.The5-yearprojectstrengthsthePhilippinescapacityforinnovation-ledinclusivegrowththroughbolsteringhumancapacitydevelopmentinscience,technologyandinnovation(STI)andstrengtheningappliedresearchcapabilitiesinthePhilippineuniversitiesandindustry.

• 189industrypartners,109academicpartners• 30innovationworkshopswith1,923participants• 89guestindustrylectureswith56differentspeakers• 93facultyexternshipsat14hostscompanies• 7knowledgeandtechnologytransferofficeworkshopsengaging39universities• $5.5MUSDresearchgrantsawardedfor68R&Dprojects,35withdirectlinksto

industry

CrossEcosystemInvestmentsGovernment and Public Agencies

Private sector

Support, services, and connectors

TheNationalInstituteofStandardsandTechnology’sHollingsManufacturingExtensionPartnership(MEP)intheUnitedStatesworkswithSME’stohelpthemcreate/retainjobsandgrowrevenue/profits.Theprogramaddressesthefollowingchallenges.

• SMEsmayhavecostlyprocessissuesthatcanbesolvedwithnewtechnologies

• SMEsneedtodeterminewhethertoinvestresourcesinanewidea,product,orcapability.

Universities and research

institutes

Government and Public Agencies

Private sector

CrossEcosystemInvestments

InDecemberof2014,theSaudiArabiaAdvancedResearchAlliance(SAARA)waslaunchedtodriveinnovationandtechnologycommercializationthroughouttheKingdom.SAARAisa“first-of-its-kind”coalitionbetweentheprivatesector,academiaandgovernmentagenciesengagedinS&T/innovation.

Universities and research

institutes

Private sector

Human Capital

CrossEcosystemInvestments

AdvancedFunctionalFabricsofAmerica(AFFOA)isa$317MUSDmillionpublic-privatepartnershipdesignedtoaccelerateinnovationinhigh-tech,U.S.-basedmanufacturinginvolvingfibersandtextiles.Theprogramfocusesonbothdevelopingnewtechnologiesandtrainingtheworkforceneededtooperateandmaintaintheseproductionsystems.Itincludesanetworkofcommunitycollegesandexpertsintechnicaleducationformanufacturing.

• Partnershipincludes32universities,16industrymembers,72manufacturingentities,and26startupincubators,spreadacross27statesandPuertoRico.

• $75MUSDfromtheU.S.DepartmentofDefenseismatchedwithfundingfromindustrialpartners,venturecapitalists,universities,nonprofits,andstates.

LessonsfromNationalInnovationEcosystems

LessonsLearnedGlobally,thereisno“onesizefitsall”approachor“quickfix”forcreatinganinnovationecosystem.Itrequiresalong-termvisionandacoordinated,intentionaleffortacrossinstitutionsandagencies.Aswereviewedthepathsothercountrieshavetaken,weidentifiedsevencommonpracticesthatsupportimplementingthatlong-termvisionandcoordinatedeffort.1. Establishacoordinatingorganization

2. Setinnovationplansandsticktothemovertime3. Investineducation4. InvestinR&D

5. Strengthenuniversity-industrypartnerships6. Haveanindustrysectorfocus7. Createplacestoinnovate

Wereviewedoverarchingpoliciesandprogramsfromsevenpeercountries:Malaysia,Vietnam,SouthKorea,Kenya,Mexico,thePhilippines,andVietnam.

InnovationEcosystemsareaLong-termEffortTheyrequirevision,investment,andcoordinatedintentionaleffortacrossinstitutions

• Aninnovationecosystemistheresultofmultiplepolicies,programs,andactionsimplementedovertime.

• Theyrequirecoordinationandinvestmentsacrossinstitutions,actors,andagencies.

• Thereisno“silverbullet”forcreatinganinnovationecosystem.Aportfolioofpoliciesandinvestmentsbuildandstrengthenecosystems.

• Successfulecosystemshavealong-termvisionandrequiresustainedinvestmentfrompublicandprivatesources.

Example:Long-Term,Multi-FacetedApproachSouth Korea’ssuccessasaninnovationeconomydatestothe1960s,whenitsmanufacturingfirmsbegantomovefromOEMproductionformultinationalstothecreationandadoptionofdomesticallydevelopedtechnologies.

• LeadershipoftheMinistryofScienceandTechnologyandKoreanInstituteofScienceandTechnology,foundedin1960s.

• Skilledlaborforce,strongR&Dspendingfromprivateandpublicsectors,andconsistentreformstothebusinessclimatehelpedthecountryremaincompetitive.

• Infinancialcrises(1997,2008),KoreanfirmscontinuedtoinvestinR&D.

Source:OECDReviewsofInnovationPolicy:Korea.2009SouthKorea’smulti-facetedapproachtoinnovationecosystemsledittogofrom“catchingup”withglobalcompetitorstobeingagloballeaderininnovation.

1:EstablishaCoordinatingOrganization

• Coordinatingorganizationsoverseethedevelopmentandpromotethegrowthofthenationalinnovationecosystem.

• Additionally,centralcoordinatingbodiespromotecommunicationbetweenscience,industry,governmentandeducationleaders.

Embracinginnovationasameansofeconomicgrowthoftenentailsanewwayofworkingforgovernment.Supportinginnovationdoesnotfitneatlyintooneagency’spurview.Itcrossesmanyfunctionsandtouchesmanyorganizations.Coordinatingagencieshelpsetthesharedvision,facilitatecollaborationamongdifferentorganizations,andmitigateany“turfwars”amongexistingentitiesthatmaystymieprogresstowardslargersharedgoalsforeconomictransformation.

Innovationecosystemsarecomplexandinvolvemultipleactors.Acoordinatingorganizationhelpstofacilitatetransactionsandsupportthefoundation.

Examples:CoordinatingOrganization

§ Korea’sNationalScienceandTechnologyCommissionwasreconstitutedin2011asacoordinatingagencywithresponsibilityfornationalSTIpoliciesandallocationofpublicR&Dfunding

§ Mexico’s 2002S&TlawestablishedtheNationalCouncilforScienceandTechnology(CONACYT),whichallocatesfundstowardskeysectorsandappliedresearchandisthecountry’sS&Tentity

§ KenyacreatedNationalCommissionforScienceTechnologyandInnovation(NACOSTI)in2013tosupportthecountry’semphasisonastrongfoundationofST&IinitsVision2030.Thecommissionhasadvisory,regulatory,coordinatingandpromotingroles.Itbudgeted$24.3millionUSDinits2014-2018StrategicPlan.

2:SetInnovationPlansandSticktoThem

• Onceplansarecreatedandfollowed,wealsoobservethatgovernmentsreviewprogress,andevery5–10yearsrefreshtheplanstoadapttocurrentneeds,opportunitiesandtheeconomicclimate.

• Thedistinctionbetweencountriesthatcreateplansandthecountriesthatmakeprogresstowardstheplansgoalsispoliticalwill.Leadershipfromthehighestlevelssendsignalsabouttheimportanceofinnovationandthecommitmenttothislong-terminvestment.

• CountrieslikeSingapore,Malaysia,CostaRica,Korea,Rwanda,andChinahavedemonstratedpoliticalwillsetandcommittoaninnovationdriveneconomy.Whenleadershipisnotfullycommittedinvestmentsandsupportbecomeerraticresultinginmany“stops”and“starts”andmakingitdifficulttoseedsystemslevelinvestmentsandchange.

Innovationcrossesinstitutionalandindustrysectorsandisleverageddifferentlyforeconomicdevelopmentdependingongeographyandthekindsofpeopleparticipatingintheinnovationeconomy.Toaddresstheseissuesinawholesaleway,manycountriescreatenationalinnovationplans.Moreimportantlycountriesactivelyandintentionallyfollowtheirplansbycommittingtotheideas,goals,andtargetstheyestablish.

Inthelast6years,morethan50countrieshavelaunchedNationalInnovationPlans

2:SetInnovationPlansandSticktoThem(continued)

Examples:SettingInnovationPlansandStickingtoThem• Malaysia: aimstobeahighincomecountryby2020.Ithasbeentargetinggrowthtowardsinnovationfor44years.

– FoundingofMOSTI(1973)– Vision2020(1991)– FirstR&Dbudgetestablished(1990s).– R&Dfundingdoubledfrom0.6%ofGDP(2006)to1.3%(2014)andtheyareaimingfor2%by

2020.– TenthMalaysiaPlan(2011)– EleventhMalaysiaPlan(2016)

• Vietnam: hasa2035report– BuildingNationalInnovationCapacity

• Focusonimprovingproductivity,investmentenvironment,andR&Dspendingbyprivateactors

• Focusonuniversity-industrylinkagesandrelevanceofskillsinlaborforce

3:InvestinEducation

• Investingineducationpreparesworkerstotakeadvantageofjobopportunitiesinaninnovationeconomyanditpreparedconsumerstotakeadvantageofproducts,services,andprocessesthatcangreatlyenhancebasicqualityoflife.Further,researchindicatesthataneducatedworkforceisoftenoneofthemostimportantingredientsthatcreatesanattractiveclimateforinnovativecompaniestostart,grow,andlocate.

• Withbusinessandotherorganizationsgrowinginaninnovationeconomy,therearemoreopportunitiesthatenticelocaltalenttostayincountry,mitigating"braindrain".

Peoplearetheinnovatorsofaneconomy—nottechnologyorinstitutions.Investingineducatingandtrainingpeopletoparticipateinaninnovationeconomyisthemostimportantinvestmentacountrycanmaketobuildoutitsinnovationecosystem.

Examples:InvestinginEducation

• Philippines hasworkedtoraisethequalityofhighereducationinstitutionssinceearly1990’sbyraisingthequalityofcurrenthighereducationinstitutionsinsteadofbuildingmoreandsupportinggraduatescholarshipstoincentivizeandrewardresearchundertakingsandoutputsfromUniversities.

• Vietnam hasthehighesteducationexpenditureamongASEANcountries.Overthepast10years,ithasbeensuccessfulinexpandingaccesstotertiaryeducation.BoththeHigherEducationReform(2005)andtheHigherEducationLaw(2012)setambitiousgoalsforraisingcapacity,quality,andefficiencywhilegivinghighereducationinstitutionsgreaterautonomy.

• Enrollmentsincreased57%between2005to2012• FacultymemberswithPhDsincreasedby54%between2005and2012

4:InvestinResearchandDevelopment

• InvestinginR&Disakeycomponentofanationalinnovationecosystem.• SouthKorea,KenyaandMexicohaveeachsetgoalstoincreasethepercentofGDPinvestedinR&D.• Manycountriesaimtoinvest2.0%ofGDPforinnovation.15countriesareinvestingatthisbenchmarkasof2014.

• Ideallythereisablendoffundingfromboththepublicandprivatesector.Typicallythepublicsectorisaninvestorinearliermoreriskyresearchwhichtheprivatesectorinvestsinmoreappliedresearch.

Peoplearoundtheworldarelookingforwaystoimprovetheirlivesthroughbetterproducts,services,andprocesses.R&Distheprocessbywhichnewideasevolveintoproducts,services,andprocessescanreachmarkets.Itisalsothemechanismthatcountriesusetounleashlocaltalentandhelpthembecomeinnovators.

Examples:InvestinginR&D

• SouthKorea:R&Dexpenditurewentupfrom 0.25%ofGDPin1963to2.8%intheearly1980s,andinvestmentqualityimprovedenormously.Itisnowaworldleaderwith4.3%ofGDPinvestedinR&D.

• Kenya: ResearchFundhasbeenestablishedundertheNationalCouncilforScienceandTechnologyin2013.Theinitialallocationforthefundwasof$2.43millionUSD,whichincreasedto$4.83millionUSDforthe2015-2016fiscalyear.Itfundsmulti-disciplinaryprojectsinlinewiththecountry’snationalpriorities.

• Mexico: The2014-2018ProgramforScience,Technology,andInnovationsetsgovernmentfundingforSTI,withagoalofR&Dreaching1%ofGDPby2018(0.54%in2014)

5:StrengthenUniversity-IndustryPartnerships

• Strengtheninguniversity-industrypartnershipscanlimitbraindrain,traintheworkforcetomeetimmediateemploymentdemands,andalignresearchtowardsviablecommercializationopportunities.

• Incentivesorwaystoencouragecollaborationtakemanyformsbutcaninclude:• JointR&Dgrants/investments• Curriculumdevelopment• Internships/externships• Professionalsabbaticalsincompanies• Sharedspacesthatattractbusinesspeopleandacademicstothesamelocation,suchasresearch

parks,incubators/accelerators,sharedlaboratories,innovationdistricts.

Universitiesandindustryoftenareawkwardpartners.Theyoftenlacktheexperience,cultureandnormsforhowtoworktogethereffectivelytowardsmutuallybeneficialoutcomes.Universitiesandindustrytendtoworktodifferenttimelines,outcomesandpurposes.Yetwhenpairedtogethertheycreateapowerfulsynergisticcombinationthatcanacceleratethedevelopmentofaninnovationdriveneconomy.

Examples:University-IndustryPartnerships

• Kenyaisfocusingonstrengtheninguniversityandindustrylinkages,particularlythroughexternship-likeopportunities.

• Itisalsolinkingindustrytotrainingwithpolicygoalsto:

• Place10,000studentsonindustrialattachment.

• Train5,800studentsinindustrialskills.• Examineallindividualswhoregisterfortradetestexams. Since2007,university-industrycollaborationinR&D

increasedfrom3.22to4.22intheWorldEconomicForumexecutiveopinionsurvey,alongwithanincreasedperceptioninthecapacityforinnovation

6:HaveanIndustrySectorFocus

• Potentialforimpactcanrefertomanykindsofeconomicdevelopment—futureglobalcompetitor,impacttolocalvaluechainandthusmanyassociatedbusinesses,impacttoworkersorconsumers(e.g.improvedagriculturalyieldsorhealthcareservices).Itisadvisabletodevelopastrategybehindthetargetindustrysectors.

• ThePhilippines,Kenya,Malaysia,andMexicohavedevelopedspecificindustryprogramsandpolicieswithintheirinnovationstrategiestofocusgrowth.

• Korea,Taiwan,Japan,andSingaporefocusedonindustrysectorsforgrowthaspartoftheireconomictransformationinthe1990’s.

Innovationecosystemsisasprawlingconcept.Itcanbedifficultfordecisionmakerstofocushowtobestinvestintheecosystemforeconomictransformation.Onewaygovernmentstargetinnovationinvestmentsistoidentifyasubsetofindustrieswiththemostpotentialforeconomicimpactthroughinnovation.Thiscanprovideaframeworktohelpgovernmentsprioritizeinvestmentsandcoordinatingactivities.

Example:IndustrySectorFocus• Kenya: Vision2030hasafocusoninnovationtodrivethedevelopment

ofaformalICTindustrysector.Thegovernmentcreated micro/SMEcentersofexcellenceledbytheMinistryofMiningtofocusresearch.

• Mexico:NationalCouncilforScienceandTechnology,foundedin2002,alignedgovernmentS&Tfundstowardskeysectorsforgrowthinthecountry.Itallocatedfundstowardskeysectorsandappliedresearchsuchassustainableenergy,agriculture,andtechnologicaldevelopmentinenergy,amongothers.

• Malaysia:Somesector-specificpublicfundsincludetheScienceFund(nanotechnology),BiotechnologyR&DGrantScheme(coveringAgro-Biotechnology,PharmaceuticalandNutraceutical,andGenomicandMolecularBiology)

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Lesson7:CreatePlacestoInnovate

§ Thetypesofplaces thatcountriescreateforinnovationhaveevolvedoverthepast20years.Theyincludearangeofoptions,suchasscienceandtechnologyparks,innovationdistricts,andinnovationhubs.

§ Spacesforinnovatingcanincludeco-workingorsharedspacesandbusinessincubatorsoraccelerators.

§ Innovativeplacestendtobedense,multi-purpose,andmixedusetoensuredifferenttypesofpeoplearefrequentingthelocation.

Innovationrequiresnewgeographiesandphysicalspacestoflourish.Placestothatfosterwaysforideasandpeopletocollideunexpectedlyareideal.Countriesandcitiesseektocreateplacesandspacesthatareaccessible,attractpeoplewithdiversebackgrounds,andhaveactivities/eventsthatbringpeopletogether.

Examples:CreatingPlacestoInnovateKenyaandthePhilippineshaveinvestedinbuildinginnovationhubstoacceleratethegrowthoftheirecosystem.§ Philippines:investedinbuildingitsinnovationinfrastructurebyfundingtheestablishmentofinnovationhubsinstrategiclocationsinthecountrywithvaryingindustryfoci.Withdevelopmentgoalsofpromotingandacceleratingtechcommercializationandutilization;theseinnovationhubswillmakeresources(assetsandcapital)availableforstartupsandMSMEs.

• Kenya: CreatedtheiHub inNairobiandiscurrentlydevelopingKonza TechnologyCity,asmartcitythatwillbecomethecountry'shubforeducation,lifescience,andtelecom

• MalaysiaestablishedTechnologyParkMalaysiain1996• ICT,EngineeringandBiotech,Telecommunicationsclusters• 241productshavebeenlaunched,22intellectualpropertyregistered,861incubateshavereceivedincubationservices.

Indonesia’sInnovationEconomy

BenchmarkingIndonesia’sInnovationEconomyCountry-levelindicatorsofinvestmentandoutputofinnovationcanprovideinsightsintohowacountryisperformingovertimewhencomparedtopeers.

RTItrackedindicatorsacrossfivecategories(seenextslide)forIndonesiaandsixpeercountries(Kenya,KoreaMalaysia,Mexico,Philippines,&Vietnam)togiveanoverviewoftrendsininnovationandeconomicgrowth.

Benchmarkingisafirststepingaugingprogressincreatinganinnovationeconomy.Itisnotintendedtoprescribeacourseofaction.

Economictransformation

Humancapital Researchinputs Ideaflows Entrepreneurship

BenchmarkinganInnovationEcosystem

EconomicTransformationMovementto highervalue-added,innovativeproducts,processes,andservices• GDPpercapitagrowth

HumanCapitalEducated workforceinresearchandtechnicalfields• Post-secondaryenrollment,globalpatentfiling

ResearchInputsInvestmentinR&Dandinfrastructure forcommercialization• R&Dspending, densityofresearchers,scientificpublication

IdeaFlowsOpennesstosharingglobalideas• Internet users,globalpatentfiling

EntrepreneurshipCreationofnew,innovative enterprises• Newbusinessesregistered

RTItracks5categoriesofcountry-levelmetricstounderstandinnovationecosystems.

EconomicTransformation:GDPPerCapitaGrowth

Indonesia’sGDPpercapita,anindicatorofthegrowthoftheeconomy,remainsrelativelylowcomparedtopeers,and,inrealterms,declinedfrom2011to2015aftersharppost-recessiongrowth.

Economicgrowthoverthepast20yearswasprimarilytheresultofnaturalresourceexportsandgoodtradelinkswithglobaleconomies.

HumanCapital:Post-SecondaryEnrollmentEnrollmentinpost-secondaryeducationisoneindicatorofthehumancapitalcapacityinacountry.• Indonesia’senrollmenthasincreasedfrombelow15%ofalleligiblein2000to31%in2014,nearlydoublingoverthetimeperiod.

• ItsincreaseisinlinewithotherpeersincludingthePhilippines,Vietnam,Mexico,andMalaysia

• Koreaconsistentlyenrollsover90%ofitsstudentsinpost-secondaryeducation.

HumanCapital:ScientificandTechnicalPublication

OutputofscientificandtechnicaljournalarticlesgivesarelativemeasureoftheoutputsofR&Dandthehumancapitalavailable.• Indonesianresearcherspublishednearly3,000 articlesin2013,showingincrementalgrowthoverafiveyearperiodandoutperformingsomeregionalpeers.

• Overthesameperiod,Malaysianoutputnearlytripled,toover17,000scientificjournalarticlespublished.

ResearchInputs:R&DSpendingasaPercentofGDP

R&DspendingasapercentofGDPcapturespublicandprivateinvestmentsininnovation.

Indonesia,likeVietnamandthePhilippines,hasfewresourcesdedicatedtoR&D.Indonesiainvests0.08% ofitsGDPandmostofitcomesfromgovernment.

RegionalcompetitorssuchasMalaysia(1.2%)andglobalpeersincludingMexico(0.5%)arededicatingmoreresourcestoR&Dtocompeteintheglobaleconomy.GloballeaderslikeSouthKoreaspendupwardsof4%ofGDPonR&D.

GlobalPatentFilings

GlobalpatentfilingsthroughthePatentCooperationTreaty(PCT)areanindicatorofintellectualpropertyoutputandglobalimpactoninnovation.PatentfilingsinIndonesiaandregionalpeersareincreasing.

• Indonesianpatentfilingsincreasedfrom2000to2014,from157to702,anincreaseof347%.

However,theyarefarbelowregionalandgloballeaders.

• Overthesametimeperiod,SouthKoreanPCTfilingsincreasedtoover164,000.

ResearchInput:HumanCapitalDedicatedtoR&D

ThedensityofhumancapitaldedicatedtoR&D,measuredbyresearcherspermillion,isanindicatoroftheresourcesavailableanddedicatedtoresearch.

• In2009(mostrecentyearavailable),Indonesiahad90 researcherspermillionpeopleinR&D,adeclinefrom213in2000.

• Overthesametimeperiod,researchersinMalaysiaincreasedfrom274permillionto1,070(nearly4xincrease),andby2014reached2,052 (7.6x thedensityofresearchers)

• In2014,SouthKoreahadnearly7,000researcherspermillion

IdeaFlows:InternetUsers

Internetusersisoneindicatoroftheconnectionandflowofideasinacountry.

Lessthan26% ofIndonesiansusedtheinternetin2016,farbehindVietnam(46%),thePhilippines(55%),andMalaysia(79%).

UseoftheinternethasincreasedinIndonesiaoverthepasttenyears,butataslowerpacethaninneighboringandpeercountries.

Entrepreneurship:NewBusinessesRegistered

Numberofnewbusinessesregisteredperyearisameasureoftheeaseofdoingbusinessinacountry,aswellastheentrepreneurialculture.

From2004to2012thenumberofnewbusinessesregisteredinIndonesiaincreasedby57%.Globalandregionalpeerssawsimilarincreasesinnewbusinessoutput.

Businessgrowthisaidedbyimprovementoftheeaseofstartingabusiness,whichtookanaverageof24.9daysin2016.Thisisanimprovementfromanaverageof164daysin2005.

DataTakeawaysforIndonesia• Indonesia,amiddle-incomeeconomy,historicallyexperienced

economicgrowthfromnaturalresourceexportsandgoodtradelinkswithglobaleconomies.

• GDPpercapitaremainsrelativelylowandGDPgrowthhasslowedcomparedtopeers.

• Additionally,Internetadoptionisslowandlagsbehindthatofpeers.

• Thecountry’sinvestmentinR&Dislow,atlessthan0.1%,andmostofitcomesfromgovernment.Likewise,thegovernment’sexpenditureoneducationandhighereducation,whileexpandingovertheyears,isstilllowcomparedtosomeofitsneighbors.

• Thoughstillatanearlystage,theinnovationsysteminIndonesiashowspotentialinincreasedpatentoutputsandentrepreneurship.Ayoungandgrowingpopulationandimprovingbusinessclimatecanhelptransforminvestmentsintoeconomicgrowth.

KeyfiguresGDPGrowth2015-2016:

5.0%Grossenrolmentratio,tertiary,2014:

31.1%Patentapplications,residents,2014:

702%pop.usingInternet,2016:

22.0%FDI(netinflows%ofGDP),2016:

2.3%R&DExpenditure(%ofGDP),2014:

0.1%Timerequiredtostartabusiness

(days),2016:24.9

DataSummaryTableCountry GDPPerCapita

(PPP)GDPpercapita

growthTertiary

enrollmentratioResidentpatentapplications

5YearPercentchangeinpatentapplications

PercentofpopulationusingtheInternet

R&Dexpenditure(%ofGDP)

FDI,netinflows(%ofGDP)

Timerequiredtostartabusiness

(days)GIIRanking

Indonesia $11,126 3.5% 31.3% 702 69% 25.4% 0.09% 0.4% 24.9 87

Philippines $7,254 4.2% 35.7% 334 94% 55.5% 0.14%* 2.6% 28 73

Malaysia $26,314 3.5% 29.7% 1,353 10% 78.7% 1.26%* 3.7% 18.5 37

Vietnam $6,024 5.5% 30.5% 487 89% 46.5% 0.20% 6.1% 24 47

SouthKorea $36,511 2.2% 95.3% 164,073 29% 92.7% 4.30% 0.8% 4 11

Kenya $3,207 2.9% 4.0% 132 175% 26.0% 0.79%** 2.2% 22 80

Mexico $17,534 1.2% 29.9% 1,246 51% 59.5% 0.54% 2.6% 8.4 58

Year 2017 2015 2014 2014 2009-2014 2016 2014 2016 2016 2017

Source:WorldBankWorldDevelopmentIndicators,WIPO,UNESCO,GlobalInnovationIndex2017*2013**2010

NextSteps

TheNeedforIndonesiaChallenge• Thereisaweakfoundationtosupportaninnovationdriveneconomy• Thefragmentedpolicyenvironmentexacerbatestheweaklinksanddisconnectswithintheemerginginnovationecosystem.

OpportunityGiventhathumancreativity,knowledgeanddrivearethemainsourcesforinnovation,Indonesia’ssignificantyoungpopulationcandriveanew-foundinnovationeconomy.

Indonesia’sOpportunityToharnessitspotential,Indonesiawillneedtodotwothings:1. Investandbuilduptheinnovationbuildingblocksforaninnovationinfrastructure.

• IndonesiawillneedtoinvestinR&D,education,university-industrypartnershipsandcreateplacestoinnovate.

2. Setapolicyenvironmentforinnovationsystemstothrive.• Indonesiawillneedtosetaninnovationplanandsticktoit,establishcoordinatingorganizations,andhavean

industrysectorfocus.

Innovationecosystemsflourishinenvironmentswheresynergiescanbecreatedandnetworksreinforcedthatlinkinnovators,entrepreneurs,workers,finance,business,governments,andmarkets.Thecountrywillneedtoalignlaws,ministrybudgets,andactionsbygovernmentanduniversitiestowardthesamegoalsanddirectionsofthenationalinnovationagenda.

NextStepsWeidentified6nextstepsforIndonesiatoembarkonitsnextphaseofbuildingitsinnovationecosystem.1. MaptheInnovationEcosystem2. AssesstheInnovationEcosystem3. AssessInnovationpolicyEnvironment4. IdentifyIndustrySectorsofFocus5. AssesthePoliticalEconomy6. DetermineInstitutionalCapacity

Manyofthesestudiesmayalreadybecompleteorembeddedwithinexistingreports.WerecommendcompilingtheinformationaccordingtothesesixcomponentstobetteroutlineacohesiveandactionableplanningapproachtobuildingIndonesia’sinnovationecosystem.

NextStep#1:MaptheInnovationEcosystemWhatinnovationassetsdoesIndonesiahaveacrossitsinnovationecosystem?

• Whatkeyinstitutionscomprisetheactorsandorganizationsoftheinnovationecosystem(outerringofthediagram)?

• Howwouldyoudescribethestatusofthefoundation oftheinnovationecosystem(innercircle)?

• Statusandqualityofworkforce?• Appetiteforrisktaking?Opennesstonewwaysofworking?

Leveloftrustorexperienceofgovernment,university,andindustryinteractions?

• Whatprogramsorinitiativessupportorconnectcomponentsoftheecosystem?

• Whoarethemainconnectorsandchampionswithintheecosystem?

Howwellarethecomponentsoftheecosystemconnecting?

Universities and research

institutes

Capital

Government and Public Agencies

Private sector

Support, services, and connectors

Culture, values, and

norms

Technology

Human Capital

Actors & Organizations

Foundation

NextStep#2:AssessInnovationEcosystem• Arethereinnovationassetsinplacethatcomprisetheecosystem?

• Ifpresent,whatisthestatusoftheassetsintermsofitsabilitytooperateinaninnovationeconomy?

• Ifassetsarestrongwhataretheplansandstrategiestoreinforcethem?

• Whatassetsaremissing?Orwhataretheweaklinkswithintheecosystem?

• Whatareareasforpriorityinvestmentstoestablishorstrengtheninnovationassets?

• Whatareprogramsorincentivestofacilitatejointcollaborationandinteractionamongmembersoftheecosystem?

Universities and research institutes

Capital

Government and Public AgenciesPrivate sector

Support, services, and connectors

Culture, values, and norms

Technology

Human Capital

Actors & Organizations

Foundation

NextStep#3:AssessInnovationPolicyClimate

OverarchingQuestionstoaddress:• Whatpoliciesarereinforcingtheecosystem?

• Whatpoliciesarebottleneckingtheinnovationecosystem?

• Whatpoliciesaremissing?• Whatpoliciesneedtoberemovedormodernizedtosupportaninnovationeconomy?

Universities and research

institutes

Capital

Government and Public Agencies

Private sector

Support, services, and connectors

Culture, values, and

norms

Technology

Human Capital

Actors & Organizations

Foundation

NextStep#4:DetermineIndustrySectorFocus• WhichindustriesarebestpositionedinIndonesia?

• Forcompetitiveeconomicgrowthregionallyorgloballythroughinnovation• ForeconomicbenefitorimpacttoIndonesianhouseholds,workers,andcompanies

• Whatarethetop3– 5sectorsforfocusattheoutset?• asthesystemstrengthensandadjacentsectorsbegintobenefitthroughinnovationconsiderrefreshingand/orexpandingindustrytargets

NextStep#5:AssessthePoliticalEconomy

• Whatisthepoliticalappetiteforinvestingandimplementinginnovationrelatedprograms?

• Whataretheinstitutionsandleadersmostlikelytochampionandpressfornecessarychangestoorienttheeconomyandsocietytowardsinnovation-basedapproaches?

• Canyouanticipatebottlenecksanddevelopstrategiestoaddress?

NextStep#6:AssessInstitutionalCapacity• Isthereanorganizationthatcanserveasanoverarchingcoordinatingbody?

• Canitcollaborateeffectivelyacrossgovernment,universitiesandbusiness?

• Ifno,howcananorganizationbeestablishedtoservethisrolewithauthoritytocoordinate,overseeandsetavisionforIndonesia’sinnovationecosystemwithoutoversteppingintotheworkofother’sintheecosystem?

NextSteps:Conclusion• ThesenextstepsareintendedtosetaframeworkforhowIndonesiacanadvancethedevelopmentofitsinnovationecosystembasedonexperiencesofothercountries.

• Manyoftheseassessmentsmayalreadybecompleteorareunderway.

• Wesuggestcompilingthisinformationinoneplacetosetaclearvisionforthecountry;prioritizeinvestments;andalignorganizationsandpoliciestosupporttheprogramsthatwillbeimplemented

• Asyouundertaketheseassessments,youmaylearnofrelatedquestionsortopicsthatwillbeimportanttounderstand.ThenextstepsinthisdocumentaremeanttobeareferencepointsodecisionmakerscanbestdeterminewhatiswellestablishedandwhatmayneedmoreclarityasIndonesiabuildsitsinnovationecosystem.