1. 1 Cluster Approach for Promoting Innovation: Comparison of Finland and Korea Handong Global University Prof. Eul Yong Park 2003, October

2. 2 1.What is the cluster approach? (1) For promoting innovation, close, formal and informal, interactions and collaborations among private sector firms, universities and research institutions in a region are the key features. They are forming a cluster.

3. 3 1.What is the cluster approach? (2) The cluster approach also includes the government policy to promote cluster formation and its effective management to promote innovation and regional development. Good examples: Silicon valley in the US; Kista Science Park in Sweden.

4. 4 2. Why cluster approach? (1) Proven to be one of the most effective ways to promote innovation and regional development. Practiced in the US and Europe. In the last 10 years, successful clusters are developed in Finland and Sweden.

5. 5 2. Why cluster approach? (2) Jong Guan chon in Beijing follows this approach in building a cluster. Increasingly, innovative regional clusters are formed around universities with strong R&D capability.

6. 6 3.1 Why compare Finland and Korea? (1) Finland (a)One of the few successful countries that transformed its traditional resources based economy into innovation driven economy in the last 10 years; (b) World Economic Forum, IMD and OECD all rated Finland near the top positions in global competitiveness. This indicates strong growth potential in the future;

7. 7 3.1 Why compare Finland and Korea? (2) Finland (c) High-tech export share continuously grew from 6% in 1990 to over 20% in 2000; (d) Nokia factor: In less than 10 years Nokia, a Finish mobile telephone equipment company, became a super multinational producer of mobile telephone with the global market share of 35% (2002). It is well known that Finnish national innovation system in which cluster approach played a key role is behind in this success experience.

8. 8 3.2 Why compare Finland and Korea? (1) Korea Relatively successful in transforming a traditional agricultural economy into a industrial sector driven economy in the last 4 decades. It suffered from the lack of close collaboration among key players in innovation system such as universities, private sector R&D centers, public research institutions and the state.

9. 9 3.2 Why compare Finland and Korea? (2) Korea In short, innovation clusters are not well developed. Despite its large size of the tertiary education sector and relatively large inputs in R&D funding, the outputs are not rated high in quality and future growth potential as well as international competitiveness are often questioned.

10. 10 Growth Competitiveness Index Rankings United States12 Finland21 Taiwan37 Singapore44 Sweden59 Switzerland615 Australia75 Canada83 Norway96 Denmark1014 United Kingdom1112 Japan1321 Korea2123 Sources: WEF 2002 20022001

11. 11 Source: Tekes 2002.

12. 12 Finnish Trade on High-Tech Products 1990-2000 (Source: Tekes 2002)

13. 13 The Share of High-Tech Exports 1988-2000 (Source: Tekes 2002)

14. 14 Changes in the Finnish National Innovation System and the Role of University 4. Changes in the Finnish National Innovation System and the Role of University In the 1950s,1960s and 1970s universities generally followed the traditional view: a strong autonomy in university research and no collaboration with private sector firms. The state’s science and technology policies were clearly separated. Government promoted basic science in the university ignored technology. In the 1980s Finnish government began to change its science and technology policy:

15. 15 4.1 Changes in the Finnish National Innovation System and the Role of University. Emphasis on the development of strategic technology and innovation as well as basic sciences;

16. 16 4.2 Changes in the Finnish National Innovation System and the Role of University. Establishment of TEKES, National Technology Agency, to use government R&D funding as the key tool in achieving national goals: namely, Development of innovation driven economy through promoting firms R&D capabilities and competitiveness;

17. 17 4.3 Changes in the Finnish National Innovation System and the Role of University. Promotion of regional science parks as the hub of technology based regional clusters;

18. 18 4.4 Changes in the Finnish National Innovation System and the Role of University Decision to increase R&D funding steadily from 1.2% of GDP in 1982 to 2.2% by 1990;

19. 19 4.5 Changes in the Finnish National Innovation System and the Role of University. New concept of “national innovation system (NIS)” was formally adopted in the official government policy discussion;

20. 20 4.6 Changes in the Finnish National Innovation System and the Role of University. A close collaboration among key participants of the NIS, namely, universities, private sector firms, and public research institutions was emphasized. And more government funding was provided to joint research projects;

21. 21 4.7 Changes in the Finnish National Innovation System and the Role of University. Cross-disciplinary projects and internal collaboration in R&D was emphasized through Tekes funding.

22. 22 Changes in Major Features of Finnish Innovation System Funding Mechanisms * Shift from line item budgeting to lump sum budgeting (universities) * Channeling funding increasingly through funding agencies *Emphasis on competitive/targeted/program-based funding *Multi-year budgeting Development of research activities * Establishing post-graduate schools, advancing “professional research careers” * Creating Centers of Excellence system * Establishing research, technology and “cluster” programs * Promoting internationalization of research * Promoting networking and collaboration Institutional Changes * Reinforcing the role of funding agencies and increasing co-ordination among them * Establishing transfer and support organizations (e.g. EU liaison offices, innovation centers) * Structural development/profiling of universities Regulation and guidelines * From detailed regulation to performance-based management * Evaluation of research and technology * Emphasis on intellectual property right (IPR) New Conceptualizations * E.g. “national innovation system”, ”centers of excellence”, ”accountability” (Source: This table was adapted from: Nieminen, Mika. Universities and R&D networking in a knowledge-based economy. P34) Changes in Major Features of Finnish Innovation System

23. 23 Major Players of Finnish Innovation System (Source: Nieminen, Mika and Erkki Kaukonen. University and R&D Networking in a Knowledge-based Economy. P 37)

24. 24 Research and Development 2002 RESEARCH AND DEVELOPMENT1, 2000 % of BERD2 performed inResearchersHigher Education Expenditure High Tech Industry Medium High Tech Industry Medium low-tech and low- tech Industry Service industry Full-time equivalent Per 1000 total employment % of GERD % of GDP Finland53.918.212.911.72616211.417.80.60 France46.6a27.0a11.8a8.9a160424c6.8c16.70.36 Germany30.455.67.75.42592146.716.00.40 Japan40.739.314.12.76475729.714.50.43 Korea48.022.910.713.3108370c52c11.3d0.30d Sweden49.129.17.112.839921c9.6c21.4c0.81c United States40.120.96.031.21114100af7.9af13.6g0.37g EU-1540.4a34.4a9.6a11.2b919313g5.6c20.9c0.39c OECD Total----32356316.617.10.38 (Source: OECD 2002

25. 25 Cumulative Expenditure on Educational Institutions Per Student Over the Average Duration of Tertiary Studies (1999) Cumulative expenditure per student of tertiary studies CountriesAll tertiary Education Tertiary-type B Education Tertiary-type A and advanced research programmes Finland50760- Sweden65529-- Germany505111340867367 France368322341040901 United Kingdom33835-- Korea18371723227904 Country Mean 38668-- (Source: OECD: Education at a Glance 2002)

26. 26 Total Public Expenditure On Education (1999) Public Expenditure on Tertiary Education As a Percentage of GDP Countries 1999 Finland2.1 Sweden2.1 Germany1.1 France1.1 United Kingdom1.1 United States1.4 Korea0.6 Country Mean1.2 (Source: OECD: Education at a Glance 2002)

27. 27 5.1 The Development of Korea’s University System. Rapid growth of Korea’s tertiary education system in the last 4 decades. Currently, over 70 % of high school graduates attends universities and colleges. The rapid increase in quantity did not accompany with the rapid development of quality of education.

28. 28 5.2 The Development of Korea’s University System. The quality of Korea’s tertiary education system was rated low compared with that of universities in advanced countries due to the following factors: Factors explaining low quality of Korea’s tertiary education system; a.Government funding was inadequate for along time. Public expenditure on tertiary education as a percent of GDP is well below OECD average. (OECD Average: 1.2%; Korea: 0.6%; Finland: 2.1%).

29. 29 5.2 The Development of Korea’s University System. b. The government very reluctant in funding private universities’ education and research in Korea where 2/3 of the total universities are private ones. c. Korean university system and culture did not allow competition and incentive rewarding system to professors and staffs.

30. 30 5.3 The Development of Korea’s University System. Management of government’s R&D funding to universities were very inefficient: Many ministries provided funding without adequate coordination and close monitoring and feedback. As a result, the output was very poor.

31. 31 5.4 The Development of Korea’s University System. Low quality of Korea’s university education and research had negative impact in development of innovative regional clusters.

32. 32 5.5 The Development of Korea’s University System. Recent changes in the Korean university system: a.Great emphasis on close collaboration between universities and private sector firms, especially venture start- ups. b.Gradual adoption of competition and incentive system in appointment and promotion of professors and staffs. c. More objective project evaluation, monitoring and feedback of projects.

33. 33 6.1 Finnish Cluster Approach: The cluster approach was adopted as a key concept of Finnish national innovation system in the early 1990s, focusing on close collaboration among universities, private sector firms and public research institutions.

34. 34 6.2 Finnish Cluster Approach: Promotion of regional science and technology parks as a hub of the clusters. Otaniemi near Helsinki, Tampere. Oulu regions developed such parks around quality universities in the region.

35. 35 6.3 Finnish Cluster Approach: By concentrating on global strategic industry, such as mobile telecom industry and technology, these parks were also able to attract foreign companies and research centers.

36. 36 6.4 Finnish Cluster Approach: The state, regional government as well as regional universities played a vision provider in developing cluster approach. Large firms, such as Nokia and Technopolis provided the key role as a system organizer providing formal and informal networks and forums to firms and university staffs.

37. 37 Finland’s Regional Clusters Source: IT Cluster in Finland

38. 38 7.1 Korea’s Cluster Approach Korea was late in adopting regional cluster approach in promoting innovation and industrial competitiveness. The main reasons were: a.Low quality of university education and research, especially those located in the region; b. Both universities and private sector firms did not find good reasons why they should work closely together.

39. 39 7.2 Korea’s Cluster Approach Growing global competition and changing government policy to do the benchmarking of advanced countries has led the adoption of cluster approach. Potential good clusters: Daeduk, Daegu and Busan, and some regions in Gyunggi province.

40. 40 7.3 The Case of Daeduk a.Established as a Daeduk Science Park in 1973 as research town, benchmarking Tsukuba Science Park in Japan. b.Currently, 4 universities, 28 Government research institutions, 27 private sector research centers, 44 venture start-ups are located in the park. Although the government was able to influence those institutions to locate physically in the region, they were not yet formed an effective cluster.

41. 41 7.3 The Case of Daeduk c.Main weaknesses are: First, the government policy to promote the formation of cluster and innovation were fragmented and not well coordinated; Second, university research capabilities and projects are not yet attractive enough for promoting close collaboration with private sectors firms. Third, They are weak in attracting foreign firms, R&D centers and educational institutions.

42. 42 7.4 Needed New Policy a.Strengthening university R&D capabilities through efficient evaluation of research projects, requiring close collaboration with private sector firms and close monitoring of research process; b.Attracting foreign investment including foreign educational institutions and R&D centers.

43. 43 Present Occupants in DaeDuk Science Research Park GRIPrivate Sector RI Universi -ties Govern -ment Branch Offices Park Support Venture Start- Up Total Number (Org.) 282749444116 Number (People) 8925329723194223789915899 (Source: Seri (2002), Study of Dae-Duk Science Park)

44. 44 R&D Indicators of Dae-Jun (Dae-Duk) City GRIUniversitiesPrivate Sector Total R&D Investment (One Billion Won) Dae-Jun City 1065.34130.12783.391978.85 (52.4)(8.3)(7.6)(14.3) National2031.981561.8710254.6613848.50 R&D Human- Resource (Number of People) Dae-Jun City 76107928645221990 (35.3)(7.9)(5.6)(9.3) National21563100643115026237232 R&D Organization (Number) Dae-Jun City 2224210256 (9.7)(6.5)(4.5)(4.9) National22836846315227 (Source: Seri (2002), Study of Dae-Duk Science Park)

45. 45 8.1 Changes in Finnish R&D Funding System and the Role of TEKES Tekes, National Technology Agency, was established in 1983 as a key government R&D funding agency to implement government science and technology policy. As R&D funding was to increase from 1.2% of GDP to 2.2% in 1990 and 3.0 in 2000 (actual figure was 3.5% of GDP in 2001), Government R&D funding can play a key role in achieving the policy objectives.

46. 46 8.2 Changes in Finnish R&D Funding System and the Role of TEKES The government policy objective was to increase competitiveness of Finnish industries by: first, inducing private sector firms to increase R&D capabilities; second, by inducing close R&D collaboration between universities, government research institutions and private sector firms, especially SMEs and large firms.

47. 47 8.3 Changes in Finnish R&D Funding System and the Role of TEKES (1) Tekes developed and adopted strategic funding mechanism to achieve its policy goals. First, Tekes funding was restricted to 25-50% of the total funding required, so that stakeholders also use their own fund in the project;

48. 48 8.3 Changes in Finnish R&D Funding System and the Role of TEKES (2) Second, Tekes funding was restricted to the join projects with universities, private sector firms and government research institutions. The collaboration was also extended more formally to appoint the researchers from GRIs and private sector research centers as adjunct professors in the university system.

49. 49 8.4 Changes in Finnish R&D Funding System and the Role of TEKES Tekes’ performance was evaluated periodically by international body of experts.

50. 50 Research and Development Expenditure in Some OECD Countries 1985-2000 Source: OECD and Research and Development in Industry. OECD 2001

51. 51 Development of research funding 2000 – 2003 2000200120022003 Public funding, Billion EUR 1.281.341.391.44 Public funding, % x GDP 1.031.041.041.04 R&D funding, total, Billion EUR 4.004.294.564.81 R&D funding, total, % x GDP 3.23.33.43.5 (Source: Science and Technology Policy Council of Finland, “Review 2000: The Challenge of Knowledge and Know-how”, 2000

52. 52 Tekes funding for industrial R&D in 2000 by size of company (Source: Tekes 2002)

53. 53 Total Tekes R&D Funding in 2000 (Source: Tekes 2002)

54. 54 Impact of Tekes Activities (Source: Tekes 2002)

55. 55 9. Weakness of Korea’s R&D Funding System Korea’s R&D funding inputs are substantial (2.8% of Korea’s GDP), but the output is meager. Why?

56. 56 9.1 Weakness of Korea’s R&D Funding System University R&D capabilities except a few outstanding universities are weak due to the long term neglect of developing university R&D capabilities, graduate school education and research funding;

57. 57 9.2 Weakness of Korea’s R&D Funding System Administration of the government R&D funding and management process, from the selection of project to the monitoring and feedback of the research projects need to improve its effectiveness and efficiency. Compared to Finnish national innovation system and the role of Tekes as key funding agency, Korean government did not have strategic goals in R&D funding and hence limited output.

58. 58 10.1 Concluding Remarks Finland: Despite its fine performance of its economy, Finland needs to further improve R&D policy and cluster approach to stay competitive in the world market

59. 59 10.1.1 Concluding Remarks They must attract excellent human resources, namely students, researchers and engineers and foreign firms from abroad, so that the existing clusters would become a globally competitive ones through extensive competition and collaboration with foreign firms in the Finnish clusters. Government needs to change its tax system, and other incentive system to attract foreign inputs, human, resources and FDIs including R&D centers.

60. 60 10.2.2 Concluding Remarks Finland also needs to see beyond EU, that has already become its domestic market, as their next market to enter, including Asia and other emerging markets, so that growing demand from the emerging market will strengthen its economy, especially those products from the Finnish R&D clusters.

61. 61 10.2.3 Concluding Remarks Korea must change its social and economic system, so that foreign firms, R&D centers and educational institutions find Korea as an attractive place to move in and stay. They will be good participants in the making of a competitive R&D cluster in Korea.

62. 62 10.2.4 Concluding Remarks Korea must change its tax system, so that more close collaboration between universities and private sector firms can earn tax credits.