5
Research and Commercialization Infrastructure

Innovation depends on a research infrastructure that generates and validates new ideas and a commercialization capability to take the creations of the R&D process and transform them into commercially successful products and services that generate a return on investment. In a session devoted to these conditions for innovation, moderator J. Thomas Ratchford of George Mason University introduced presentations on Chinese and Indian government plans for science and technology development by Mu Rongping, Chinese Academy of Sciences, and Venkatesh Aiyagari of the Indian Department of Science and Technology.

In describing the context of the discussion, Ratchford commented that globalization, having been enabled by science and technology, has in turn changed the practice of science and technology around the world, including in China and India. In contrast with 20 years ago, both countries now have large, growing economies. China has a gross domestic product (GDP) of between $2.5 trillion and $7-8 trillion, depending on whether it is estimated by the MER or PPP method, and India’s is between $800 billion and $4 trillion. By comparison, the United States has a GDP of $13 trillion. China invests about 1.3 percent of its GDP in research and development, with about 67 percent coming from private investment, not far from the median for developed economies. India, by contrast, spends only about one-third as much—0.4 percent of its GDP—on R&D, with only 20 percent coming from the private sector.

Besides capital, Ratchford added, successful innovation also requires highly skilled technologists and managers. In this regard, both China and India are increasingly well-endowed with hundreds of thousands of well-trained people employed in R&D. China may lead India to some degree in R&D human capital, but both countries unquestionably have access to scientists and engineers trained at some of the best universities in the world and thus have resources for productive, internationally competitive research and development.

CHINA’S NATIONAL INNOVATION STRATEGY

Mu Rongping, addressed China’s changing national innovation strategy. China’s economic growth has been caused more by the low cost of labor and high investment than by innovation, he observed. China has insufficient investment in innovation, an unbalanced allocation of innovation resources, and too little R&D (Figure 8). That realization is now spurring a new development philosophy aimed at

  • closing the large gap between the R&D capacity of leading universities and business enterprises;

  • raising patent productivity in enterprises;

  • raising research productivity as measured by publications and citations; and

  • strengthening linkages among research institutions.

The central government’s policies for building innovation capacity include

  • increasing expenditure on science and technology to spur and maintain growth;

  • instituting tax incentives in the form of deductions for technological development in enterprises;

  • focusing government procurement on purchasing new products;



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5 Research and Commercialization Infrastructure to some degree in R&D human capital, but both Innovation depends on a research countries unquestionably have access to scientists infrastructure that generates and validates new and engineers trained at some of the best ideas and a commercialization capability to take universities in the world and thus have resources the creations of the R&D process and transform for productive, internationally competitive them into commercially successful products and research and development. services that generate a return on investment. In a session devoted to these conditions for innovation, moderator J. Thomas Ratchford of George Mason University introduced CHINA’S NATIONAL INNOVATION presentations on Chinese and Indian government STRATEGY plans for science and technology development by Mu Rongping, Chinese Academy of Sciences, Mu Rongping, addressed China’s changing and Venkatesh Aiyagari of the Indian Department national innovation strategy. China’s economic of Science and Technology. growth has been caused more by the low cost of In describing the context of the discussion, labor and high investment than by innovation, he Ratchford commented that globalization, having observed. China has insufficient investment in been enabled by science and technology, has in innovation, an unbalanced allocation of turn changed the practice of science and innovation resources, and too little R&D (Figure technology around the world, including in China 8). That realization is now spurring a new and India. In contrast with 20 years ago, both development philosophy aimed at countries now have large, growing economies. • closing the large gap between the R&D China has a gross domestic product (GDP) of between $2.5 trillion and $7-8 trillion, depending capacity of leading universities and on whether it is estimated by the MER or PPP business enterprises; method, and India’s is between $800 billion and • raising patent productivity in enterprises; $4 trillion. By comparison, the United States has • raising research productivity as measured a GDP of $13 trillion. China invests about 1.3 by publications and citations; and percent of its GDP in research and development, • strengthening linkages among research with about 67 percent coming from private institutions. investment, not far from the median for developed economies. India, by contrast, spends The central government’s policies for building only about one-third as much—0.4 percent of its innovation capacity include GDP—on R&D, with only 20 percent coming • increasing expenditure on science and from the private sector. technology to spur and maintain growth; Besides capital, Ratchford added, successful • instituting tax incentives in the form of innovation also requires highly skilled deductions for technological technologists and managers. In this regard, both development in enterprises; China and India are increasingly well-endowed • focusing government procurement on with hundreds of thousands of well-trained people employed in R&D. China may lead India purchasing new products; 21

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22 THE DRAGON AND THE ELEPHANT 300 enterprises 250 institutions of higher education independent research institutions 200 150 100 50 0 2000 2001 2002 2003 2004 2005 FIGURE 8 R&D expenditure in China (billion RMB Yuan) SOURCE: Source: Adapted from S&T Statistics Data Book (2001-2006) Chinese Ministry of Science and Technology • investment. Fields in which it is believed China providing direct financial support; • can make a substantial unique contribution to encouraging adoption of imported, assimilated technologies; and global science and technology include biology • enhancing protection of intellectual and Chinese medicine, nanotechnology, space property rights with higher standards, science and technology, and energy. faster processing of applications, better trained and qualified reviewers, and facilitation of the flow of patented INDIA’S RESEARCH INFRASTRUCTURE technology to enterprises. Venkatesh Aiyagari described India’s In addition to national government changing research infrastructure. The driving initiatives, localities have instituted incentives factors in scientific innovation are investigators’ for science and technology investment, with the passion for a discipline, for crossing intellectual result that S&T expenditures have increased boundaries, and for meeting society’s needs. dramatically in most provinces, even since 2006. Early pioneers in Indian innovation focused on Nevertheless, a great many enterprises have yet improvements in agricultural and dairy to benefit from national and regional innovation production, led by the TATA Institute of policies, either because of a lack of awareness or Fundamental Research (TIFR), and in space and because the rules for taking advantage of the satellite technology, led by the country’s defense incentives are complicated. laboratories and Council of Scientific and China’s goal of becoming an innovation- Industrial Research (CSIR). driven country is highly ambitious. It depends Today, recognizing that Chinese investment on many factors including an innovation- in R&D far outpaces India’s, the country aims friendly internal culture and effective foreign for faster and more inclusive growth, according

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RESEARCH AND COMMERCIALIZATION INFRASTRUCTURE 23 level of commitment and claim that China and to Aiyagari. Government plans focus on India are making rapid progress in spurring • developing talent by inspiring students innovation. Others draw sharp contrasts to pursue careers in science and between the two countries, and still others focus technology; on the distance China and India have to go to • fostering creativity rather than rote match western, especially U.S., standards. He learning; and asked the members of the panel to characterize • ensuring that scientific and technical their own views. careers are secure and attractive. Defining innovation as the ability to develop In the 11th national plan covering a five-year and successfully market new products and period that commenced in 2007, India is services in the global economy, Carl Dahlman, endeavoring to triple investment in basic Georgetown University professor and former research while quadrupling overall investment in World Bank official, observed that a variety of science. Earlier the government created the institutional and policy changes, such as Fund for Improvement of S&T Infrastructure in liberalized trade policies, contribute to that Universities and Higher Educational Institutions capacity. Other conditions are holding each of (FIST), launched a program for research in the countries back. In India, he said, weaknesses nanoscale science and technology, and began to in the educational system constrain the growth expand the network of Indian Institutes for of the country’s talent pool. He judged human Science and Research (IISERs) as well as the resources in the information and computer number of Indian Institutes of Technology technology field to be “quite shallow.” Both (IITs). Although in its early stages, the countries have a long way to go, in Dahlman’s nanotechnology initiative, while focusing on view, before they become technology basic research, has involved industry in eleven superpowers. centers of excellence. Harkesh Mittal, from India’s Department of In addition to public investment, the Indian Science and Technology, highlighted India’s government aspires to encourage growth in diversity in climate, language, and culture, private investment, including by small and making it “a nation of nations.” A tension exists medium-size enterprises. The New Millennium between the stability that is politically desirable and the disturbance required for change and Indian Technology Leadership Initiative, for growth. In Mittal’s view, at least for the time example, includes a small business initiative in being, India, has achieved an equilibrium that is biotechnology with medical, agricultural, food, contributing to economic momentum. He cited industrial, and environmental applications. The the example of an Indian nanoscientist premise is that technology producers and users participant in the Global Innovation Challenge need to collaborate for innovation to address held in Berkeley, California. He brought market needs and opportunities. Nevertheless, artificial flowers whose fragrances were so real overall, Indian efforts to boost private that he was detained temporarily by U.S. investment have not been highly effective. Customs for bringing in banned botanical samples. Another example he cited was an Indian firm with a new technology for foiling PANEL DISCUSSION car thefts. Such cases, according to Mittal, are grounds for great optimism about India’s These presentations on Chinese and Indian innovation climate. S&T policies were followed by a panel Lan Xue of Tsinghua University claimed discussion led by Denis Simon of the Levin that over the past 10-12 years, China has Graduate Institute of the State University of established the infrastructure necessary for New York. Simon observed that there is a wide sustained, technology-based growth. The divergence in views of Chinese and Indian challenge for China is to make the infrastructure progress among both western and native experts. work successfully with industry. Other Some emphasize the resurgence of activity and challenges include a wider distribution of

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24 THE DRAGON AND THE ELEPHANT foreign direct investment in fostering knowledge benefits from technology and harnessing science spillovers, not only to local firms but also to and technology to support efforts to address research institutions, including universities, with China’s enormous environmental problems. which the multinationals are forging more and Adam Segal from the Council on Foreign more links. Relations posed the question, “What Foreign influences are helping in both differentiates young innovators in China?” The countries to create a culture of creativity, but first wave, including Lenovo, used a model of progress is not necessarily rapid. Hewlett getting into new market space. The second Packard’s Forcier remarked that he is impressed generation of innovators is tapping global by the talent and energy of the local Indian networks for a confluence of government workforce but finds many reluctant to take a funding and returning expatriate talent. State- great deal of initiative. Mentoring the local staff run enterprises do not have this synergy. often involves encouraging employees to raise Richard Forcier of Hewlett-Packard noted a new ideas in corporate planning processes and disparity between China’s and India’s energy not hold back. Lan Xue agreed that in China the infrastructure. China is pursuing a huge growth tendency is to duplicate previous innovation in power generation, planning to build 500 coal- successes rather than create new products. fired power plants in the next decade, at the rate There are, for example, ten to fifteen Chinese of almost one a week, while India’s power sector versions of MySpace and Facebook. is slowing. Companies in China are building Simon questioned the panel about the more innovation capacity to attract more distribution of innovation-related investment experienced managers. among regions in China and India. Are To grow R&D capacity in China, Xue significant investments being made outside observed that research universities are seeking to Shanghai and Bangalore? Panel members work with multinational companies. A key agreed that there is wide variation in both feature of the Indian landscape, Mittal noted, is countries, with some areas showing considerable the growth of public technology incubators, a interest and others relatively little. In India, network of centers where enterprises can tap according to Mittal, most activity remains in the technical and managerial expertise in a single regional hubs, but it is starting to trickle beyond location. The National Science and Technology those cities, in directions determined by Entrepreneurship Development Board investment and market contacts. In China, (NSTEDB), a division of the Department of government incentives have led to greater Science and Technology, is spearheading the activity in certain western provinces such as creation of incubators in universities and other Xian, but a large majority of the R&D institutions. Activities are ramping up, but not investment is still concentrated on the East all entrepreneurs are taking advantage of their Coast. Less well developed regions tend to services. Nevertheless, the panel agreed that follow the central government’s lead on both countries are doing a great deal to stimulate innovation policy and to depend on central innovation from the supply side. government resources. Wealthier provinces like In both cases a critical driver of innovation Hangzhou, on the other hand, have taken the is the country’s diaspora, linking the research lead on innovation without depending on and commercial enterprise to the global system. national initiatives. Even remotely, Chinese and Indian researchers Finally, Simon probed the public-private and business entrepreneurs living abroad provide sector distribution of R&D. Lan Xue observed sources of investment and opportunities for that in China there has been a dramatic shift in market development. But increasingly, R&D performance in recent years. In 2006, members of the diasporas are returning home to more than 70 percent of research funds were lead research institutions and enterprises, and spent by industry, whereas 20 years ago public they bring with them needed managerial research institutions accounted for almost that expertise as well as links to foreign laboratories proportion, about 60 percent. On the other hand, and firms with superior capabilities. Equally multinational corporations account for a large important, according to Lan Xue, is the role of

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RESEARCH AND COMMERCIALIZATION INFRASTRUCTURE 25 recent years. India has yet to achieve a share of the growth – over 70 percent of distribution of R&D activity between public and industrial R&D spending in Shanghai and private sectors comparable to that of other roughly 30 percent nationwide. Indigenous industrial countries. enterprises also lag in taking advantage of the strengthening of intellectual property rights in

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