Download Innovative East Asia: The Future of Growth World Bank

Growth in East Asia:
Innovative Firms in Dynamic
Cities
Shahid Yusuf
World Bank
DECRG
February 18, 2004
Overview
• Many economies in East Asia have successfully
completed the “catch up” phase of development
• A number of factors suggest that they need to
diversify their sources of growth
• My talk focuses on innovation as a key supply side
source of future growth for the smaller open
economies
• What is needed to enhance innovation capability
within a knowledge –oriented economy
• And the changing nature of the Bank’s operational
involvement
The Foundations
of Past Success
• Economic and political stability
• Investment in manufacturing capacity and
infrastructure
• Export orientation
• Mobilization and channeling of savings
• Educated and trained low-cost labor
• Foreign direct investment and participation in
international production networks
• Market institutions and economic freedoms
• Government guidance
Need for New Direction
• Decreasing returns from current resource driven,
export dependent model
• Commoditization of main manufactured exports
• Shorter product life cycles, especially for many
electronic and IT products
• Competition from China across a wide range of
products and services
• Opening of domestic markets to competition due
to WTO, bilateral FTAs
• Changes in the organization of global production
and producer-supplier relationships
• Consolidation of some industries across the East
Asian region—changing geography of production
Future Imperatives
• Open and competitive business environment
• Shift towards a knowledge economy within
routinized innovation that promotes productivity-led
growth
• Continuous effort to move up value chain and create
profitable activities aimed at international markets
• Regional or global scale of operations
• Increase scale and scope of producer services
• Dynamic urban environment attractive for
knowledge workers
• University-centered research infrastructure
Supporting Policies
• Macroeconomic: e.g. exchange rate, demandrelated, fiscal, etc.
• Institutional: e.g. financial, venture capital
development, regulatory and legal
• Technological
• Urban
Will focus on the last two and again talk about the
Bank’s contribution through triple AAA work.
Promoting Innovation
• Openness to new ideas
• Quality of tertiary level training and research
institutions: experience/skills of staff, laboratory,
equipment
• Global circulation of knowledge workers, face-to
face interaction
• International research collaboration
• Strong private sector research effort
• Incentives for commercializing research
Promoting Innovation
(cont’d)
• Risk capital and low entry barriers which
encourage start-ups
• Availability of business services supporting startups
• Institutional environment and management
facilitating growth of firms; exit of failing firms
• Continuous improvement of ICT infrastructure
and services
The Future Agenda
for East Asian Firms
• More flexible, flatter, decentralized organizational
structure giving more incentives to innovate and pursue
disruptive innovations
• Emergence of larger companies with international brand
names and global presence
• Greater investment in R&D, collaboration, and networking
with universities and other firms. Investment in overseas
laboratories, and promising foreign firms.
• Streamline product mix and attain higher volume
• Achieve first-tier supplier status in production networks
and responsibility for design/delivery of major parts and
modules
• Build own regional (and global) production networks
The Future Action Agenda
for East Asian
Firms and Cities (cont’d)
• Parallel upgrading of logistics and supply-chain
management that fully harnesses IT advances
• Effort to maximize innovativeness of traditional
manufacturing industries by incrementally
improving production processes, emphasizing
design, new materials and associated development
of production equipment
Urban Crucibles of
Innovation
• Large cities with substantial agglomeration
effects—particularly urbanization economies
• Cities with efficient infrastructure and services
• Presence of universities and research institutes that
generate skills area foci for research and can serve
as the core of clusters
• Quality of physical environment and personal
security
Urban Crucibles of
Innovation (cont’d)
• Urban amenities: recreational and cultural
• Open environment, social diversity, and
international links
• Strong business services sector
Evolving the
East Asian Model
• From factor-intensive to productivity-driven
growth
• From imitative to innovative growth
• From reliance on markets in a few
industrialized countries to greater reliance
on domestic and regional markets
Requires
• Retaining strengths of the past
• Overcoming the remaining weaknesses of
the present
• Anticipating/and overcoming challenges