Capability Building and Global Innovation Networks

Michael Gastrow, Glenda Kruss

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138937734
• eBook ISBN: 9781317383741
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book explores the dynamics of global innovation networks and their implications for development. Knowledge is often seen as the main determinant of economic growth, competitiveness and employment. There is a strong causal interaction between capability building and the growth in demand for, and supply of, technical and organizational innovation. This complex of skills, knowledge and innovation holds great potential benefit for development, particularly in the context of developing countries. However, despite evidence of the increasing importance of knowledge and innovation, there has been relatively little research to understand the distribution and coordination of innovation and knowledge-intensive economic activities on a global scale – and what this might mean for economic development.

Each chapter – though sharing an underlying conception of innovation systems, innovation networks and their relation to capability-building and development – takes a different theoretical stance. The authors explore the emerging relationship between competence building and the structure of global innovation networks, thus providing a valuable new perspective from which to critically assess their development potential.

This book was originally published as a special issue of Innovation and Development.

INTRODUCTION

Global innovation networks, human capital, and development

Michael Gastrow and Glenda Kruss

In this Special Issue, we explore the dynamics of global innovation networks (GINs), and their implications for development. In the neo-Shumpeterian and ‘new trade theory’ context, knowledge is seen as the main determinant of economic growth, competitiveness and employment (Lundvall and Borras, 1998; Archibugi and Lundvall, 2001). The relationship between skills and innovation has been widely investigated (Lall, 2001; teVelde, 2005; Fagerberg and Verspagen, 2007; Martin, 2008; Toner, 2011), and has generated theoretical frameworks such as that of ‘absorptive capacity’ (Cohen and Levinthal, 1990). The evidence in this body of literature suggests that there is a strong causal interaction between capability-building and the growth in demand for, and supply of, technical and organizational innovation. Taken together, this complex of skills, knowledge and innovation holds great potential benefit for development, particularly in the context of developing countries (Grossman and Helpman, 1991; teVelde, 2005; Lorentzen, 2009).

Globalization has influenced the international distribution of economic activity, and production chains are increasingly co-ordinated through global production networks (GPNs). These trends are well researched in the economic literature (Henderson et al., 2002; Gereffi, 2005). Despite the evidence of the increasing importance of knowledge and innovation, there has been relatively little research to understand the distribution and coordination of innovation and knowledge-intensive economic activities on a global scale – and what this might mean for economic development.

The original research articles in this volume contribute to address this gap. They draw on a research programme on the impact of networks, globalization and their interaction with EU strategies, a first large-scale international attempt to understand the emergence and evolution of GINs. Chaminade (2009) defines GINs as ‘globally organized networks of interconnected and integrated functions and operations by firms and non-firm organizations engaged in the development or diffusion of innovations’. These innovation networks are ‘global’ when developing countries are also involved in knowledge-intensive innovation activities. The research considered the roles of countries, regions, sectors, firms and institutional frameworks in driving the emergence and structure of GINs. Cutting across, and central to such analysis, is the role of competence building. The global distribution of human capital is a major determinant of the global distribution of innovation activity. However, this relationship has never been comprehensively studied before – hence, the focus of this Special Issue.

Taken together, the articles have a broad coverage – sectorally, geographically and theoretically. They include cases from the ICT sector, the agro-food sector and the automotive manufacturing sector, thus covering a range a high, medium and low-tech enterprises. Comparative analysis reveals the important role played by sector-specific factors in shaping GINs, such as value chain dynamics, tacit knowledge and market requirements.

Three of the articles in the Special Issue are written from the perspective of developed countries, including Denmark, Sweden and Germany. Two are written from the perspective of developing countries – South Africa and Brazil. The final article presents an overview of cases from both the developed and developing world. This range of geographical coverage reveals two sides of a global story. The developed country perspective emphasizes the offshoring of innovation activity, and the manner in which firms search the globe for strategically suitable capabilities – in the context of other factors such as costs, markets and regulation. The developing country perspective is focused on the means of attracting innovation activity into local subsidiaries, capability upgrading to support increased innovation activity and co-evolutionary learning through insertion into the internal knowledge networks of multinational firms. At the same time, there is an emerging trend of firms from developing countries outsourcing innovation activities to developed economies and purchasing strategic knowledge assets in the ‘North’. Overall, this body of research shows how these perspectives are part of an integrated story, in which innovation and capability-building are truly globalized and multi-polar.

Each of the articles, while sharing an underlying conception of innovation systems, innovation networks and their relation to capability-building and development, approach the question from a somewhat different theoretical stance. This renders a diverse set of findings that shed light on distinct aspects of the relationship between the globalization of innovation and evolving capabilities in developing countries.

An analytical distinction between innovation for the purposes of ‘exploitation’ and ‘exploration’ is utilized by Haakonsen. This model provides an evolutionary understanding of the development of innovation networks from the point of view of MNCs engaged in the internationalization of innovation. In this view, international exploitation refers to the marketing of nationally produced innovations beyond the company’s home market. Exploration entails corporations re-organizing their activities beyond the home economy and (re)locating innovative activities in host countries. In this context, Haakonsen examines the internationalization of innovation in agro-processing firms in Denmark as an emergent phenomenon, associated with exploration strategies, that engages with capabilities in the host economy.

Within the framework of ‘knowledge exploiting’ and ‘knowledge exploring’ strategies of firms, Chaminade and De Fuentes employ a primary analytical distinction between the roles of competences as ‘drivers’ and as ‘enablers’. Their examination of case study and survey findings indicates that, for Swedish ICT firms, firm-level competences are an enabler for the globalization of innovation, particularly for offshoring. Competences at the regional level are important drivers for globalization of innovation, particularly for offshoring and collaboration. This suggests that the breadth and depth of competences available in host countries determine the type of innovation activities that the subsidiary performs, as well as the role that it plays in the global innovation strategy of the firm.

The role of knowledge management in the setting of transnational R&D and engineering functions of multinational firms is explored by Schamp and Stamm. Case studies of three German automotive manufacturers with subsidiaries in India provide an exploratory analysis of knowledge and human resources management tools and how they are related to the globalization of innovation – including the relation between knowledge management within multinational firms and the national education and training policies in the host country.

Writing from the developing country perspective, Lorentzen and Gastrow retain an analytical focus on the relationship between firm strategies and human capital in the host country, and what this implies for the management and structure of technological change and innovation. They examine five case studies of the globalization of innovation within automotive firms, including three German firms with subsidiaries in South Africa, and two South African firms with subsidiaries in Europe. The cases show that the offshoring of innovation is taking place in the automotive sector, which traditionally has concentrated knowledge-intensive activities in the home country. This offshoring is bi-directional, with firms based in developed economies taking advantage of growing local capabilities in developing countries, and firms based in developing countries acquiring strategic knowledge assets in developed countries.

Dias et al. also examine case studies from the automotive sector, in this instance from Brazil, including a large European automotive assembler and four automotive systems suppliers. They demonstrate how the establishment and deepening of GINs in this context has been driven by both technological and market incentives and, how, over time, participation in such GINs can increase technological and innovation capabilities at the local level.

An overview paper by Gastrow and Kruss develops an analytical framework that incorporates concepts of dynamic upgrading with the distinction between centripetal and centrifugal forces that act to expand or contract GINs. Their analysis of 14 case studies of 11 multinational firms suggests that skills act as a centrifugal force distributing innovation around the globe. However, this general pattern overlays many other influential factors at the macro, meso and micro levels, including factors related to market characteristics, sectoral characteristics, policy contexts, geographical location, cultural contexts and micro-level determinants. Within each individual network, they identify a unique and complex interaction between these sets of forces, which together shape the emergence and structure of GINs. This model is particularly useful for understanding innovation in a multipolar world where the ‘North–South’ polarity may not always be descriptively or analytically accurate.

Together, these papers create a new picture of the emerging relationship between competence building and the structure of GINs. This, in turn, provides a valuable new perspective from which to critically assess their development potential. Firms from developing countries can play active roles as primary agents within GINs. As such, developing countries are empowered to search the globe for skills and markets that motivate for the expansion of the networks that drive knowledge production and innovation and, hence potential for economic and social development.

References

Archibugi, D., and Lundvall, B. (eds) (2001) The Globalizing Learning Economy (Oxford: Oxford University Press).

Chaminade, C. (2009) On the concept of global innovation networks. CIRCLE Working Paper 2009/05.

Cohen, W.M., and Levinthal, D.A. (1990) Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35, pp. 128–152.

Fagerberg, J., and Verspagen, B. (2007) Innovation studies – the emerging structure of a new scientific field. TIK Working Papers on Innovation Studies No. 20090104.

Gereffi, G. (2005) The global economy: Organisation, governance and development, in: S. Smelser and R. Swedberg (eds) Handbook of Economic Sociology, Princeton University Press and Russel Sage Foundation: Princeton, NJ, pp. 160–182.

Grossman, G.M., and Helpman, E. (1991) Innovation and Growth in the Global Economy (Cambidge, MA: MIT Press).

Henderson, J., Dicken, P., Hess, M., Coe, N., and Yeung, H. (2002) Global production networks and the analysis of economic development. Review of International Political Economy, 9(3), pp. 436–464.

Lall, S. (2001) Competitiveness, Technology and Skills (Cheltenham: Edward Elgar).

Lorentzen, J. (2009) Learning and innovation: What’s different in the (sub)tropics and how do we explain it? A review essay. Science, Technology & Society, 14, pp. 177–205.

Lundvall, B., and Borrás, S. (1998) The Globalising Learning Economy: Implications for Innovation Policy (Brussels: Commission of the EU).

Martin, B.R. (2008) The evolution of science policy and innovation studies. TIK Working Paper on Innovation Studies No. 20080828.

teVelde, D.W. (2005) Globalisation and education: What do the trade, investment and migration literatures tell us? Working Paper 254 (London: Overseas Development Institute).

Toner, P. (2011) Workforce skills and innovation: An overview of major themes in the literature, OECD Education Working Papers, No. 55 (Paris: OECD).

This Special Issue is dedicated to the memory of Jo Lorentzen. Jo was a well known and loved member of the innovation studies community. He was central to the conception of the INGINEUS project, and led the way in understanding the relationship between capability-building and GINs. Jo tragically passed away in 2011, shortly before the conclusion of the project. He was passionate about the power of innovation to drive human development, and we hope that this publication represents one small step towards achieving this.

Competences as drivers and enablers of globalization of innovation: The Swedish ICT industry and emerging economies

Cristina Chaminade^a and Claudia De Fuentes^b

^aCIRCLE, Lund University, Lund, Sweden; ^bSobey School of Business, Saint Mary’s University, Halifax, Canada

This paper explores the relationship between competences and global innovation networks in the Swedish ICT industry. More specifically this paper combines econometric techniques and case study analysis to capture the interplay between firm level competences (competences as enablers), the availability of competences in the host country (competences as drivers), and the specific strategy of the firm for engaging in global innovation networks. Our results show that for Swedish ICT firms, firm-level competences are an important enabler for globalization of innovation, particularly for offshoring. Home regional competences also play an important role for the mode of globalization of innovation that firms engage in. Host regional competences are important drivers for globalization of innovation, particularly for offshoring and collaboration. The results suggest that the breadth and depth of competences available in host countries actually determine the type of innovation activities that the subsidiary performs, as well as the role that it plays in the global innovation strategy of the company.

1. Introduction

The objective of this article is to discuss the relationship between competences and global innovation networks (GINs) in the Swedish ICT industry using both survey data and information from a case company. This article portrays the interplay between firm-level competences, the availability of competences in the host country and the specific strategy of the firm for engaging in GINs. GINs are defined in this article as ‘a globally organized network of interconnected and integrated functions and operations by firms and non-firm organizations engaged in the development or diffusion of innovations’ (Chaminade, 2009). Firms can globalize their innovation activities by engaging in the global exploitation of innovations (exports), global sourcing of technology, global research collaboration and offshoring of innovation (Archibugi and Michie, 1995; Audretsch and Feldman, 1996). This article is concerned with the last two forms of GINs.

This article starts by discussing the interplay between competences and GINs, distinguishing between regional and firm-level competences. Competences may influence GINs in at least two ways: as drivers of globalization and as enablers of globalization. Scholars in international business and innovation studies (Arora et al., 2001; Arora and Gambardella, 2004, 2005) argue that offshoring MNCs pursuing an asset seeking strategy (Howells, 1990) may be attracted to a certain region to tap into the specific competences available there (Narula and Zanfei, 2004; Cantwell and Piscitello, 2005, 2007; Lewin et al., 2009). Therefore, competences may play a role as a driver for the establishment of GINs, notably, for global research collaboration and offshoring for innovation, as the evidence of knowledge hubs like Bangalore shows (Arora et al., 2001; Saxenian, 2001b; Parthasarathy and Aoyama, 2006; Chaminade and Vang, 2008). That is, firms may be driven to certain locations to access competences available there. In this sense, competences as drivers refer to the role of regional competences attracting innovation activities to a particular region. On the other hand, firm-level competences may also be enablers for the establishment of GINs (Nooteboom, 2000, 2004; Nooteboom et al., 2007), that is...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Citation Information
• Notes on Contributors
• Dedication
• Preface
• 1. Introduction: Global innovation networks, human capital, and development
• 2. Competences as drivers and enablers of globalization of innovation: the Swedish ICT industry and emerging economies
• 3. The globalization of innovation in the Danish food industry: exploitation and exploration of emerging markets
• 4. Building capabilities through global innovation networks: case studies from the Brazilian automotive industry
• 5. Multinational strategies, local human capital, and global innovation networks in the automotive industry: case studies from Germany and South Africa
• 6. New trends in an old sector: exploring global knowledge and HR management in MNCs and the North–South divide in human capital formation
• 7. Skills and the formation of global innovation networks: a balancing act
• Index