Seminario internacional globalización, conocimiento y desarrollo. UNAM-Instituto de Economía marzo 2006 Diffusion and appropriation of knowledge in different organizational structures Analía Erbes, Verónica Robert, Gabriel Yoguel and José Borello

Questions and hypothesis Questions: What are the forces that determine the continuum negative relationship between knowledge diffusion and appropriation in the framework of the new techno productive paradigm? How does new knowledge diffuse in a capitalist economy and how this process is related to a collusive or classical spread of the benefits of technical progress? Hypothesis: The inverse relationship between diffusion and appropriation depends strongly on the simultaneous interaction of technological specificities, knowledge management and prevailing market structures.

Technical change, knowledge and competitiveness From individual firms to interrelated agents: the key role of knowledge in the development of competitive advantages. From public goods to club goods. Imperfect competition and the increasing importance of intangible assets in dynamic competitive advantages. Flexibility in different organizational forms. Knowledge, technological interrelations and complementarities in the development of increasing returns, quasi rents and dynamic competitive advantages.

Innovation and knowledge in economic development Schumpeter (1912, 1942), Arrow (1962), Nelson (1962), Polanyi (1958), and the new evolutionary school (Freeman, Nelson & Winter, Metcalfe, Perez, Lundvall, Dosi, David, Foray, Nonaka, Cohendet, Ancori, Noteboom, Malerba, Orsenigo) From some pre Smithian authors to development theory authors in the 50´ have already discussed: – the relevance of productive and commercial specialization profiles; – the idea of the central role of imperfect competition, increasing returns to scale and excess labor not absorbed by the productive system to explain why economic development is such an uneven process, specially in developing countries.

Firms’ taxonomy according to the importance of knowledge and of production networks Importance of production networks Importance of knowledge as a source of firm´s differentiation LowHigh LowIsolated firmsKnowledge islands High Burocratic production networks Knowledge production networks ………………………………………………………………………………………………………………………………...………………………………………………………………………………………………………………………………………………………………...………………………………

Taxonomy of firms and technological regime Attributes Type of firms related to the importance of network and learning process Isolated firms Burocratic networks Knowledge Islands Knowledge networks 1.Technological regimeMark IMark IIMark IMark II 1.1Accumulativity and origin of technology Reduced, Idiosyncratic and external. Medium, Mature sectors High. High, external and internal sources 1.2 Appropiability Reduced Low-Medium, Standard goods. MediumHigh 1.3 Opportunity Reduced, static advantages, low incentives to innovate. MediumHigh High. Dynamic advantages, high incentives to innovate. 1.4 Knowledge base Firm specific, low complexity Generic, sector specific. Generic and specific, high isolated complexity Generic and specific; high complexity as part of a non hierarchical system 1.5 Main focus of technological activity Reduction of costs Reduction of costs in the network Development of new products and process Increase in mark-up through high speed of innovation and increasing returns Source: Own elaboration based on Malerba and Orsenigo (2000)

Diffusion Mark I Mark II Technological regime Risk

Firms’ taxonomy and knowledge management regime Attributes Type of businesses in terms of the importance of networks and learning processes Isolated firms Bureaucratic networks Knowledge island Knowledge networks 2. Management knowledge regime WeakHierarchicalFlexible internal Flexible internal external 2.1 Organizational structure HierarchicalBureaucraticPost-fordistHypertext a/ 2.2 Learning sourcesTechnology incorporated. Knowledge generated in the business nucleus. Interactions inside the firm Interactions inside the network and with the national system of innovation. 2.3 Learning styleLearning by doing, and producing Learning by using, producing and interacting Learning by doing, producing and using. Complex knowledge generation processes and complex translation 2.4 Absorption capacityLow and limitedHigh in the nucleus, average or low in remaining firms Very highVery high Including take-overs 2.5 Integration among tacit knowledge and codified Limitations to integrate and to develop know- how Adaptation of codified knowledge provided by headquarters Integration supported in personal networks. Only to level business Complete. So much inside of the business as of the network. 2.6 Appropriation styleIdiosyncraticSecret and incremental innovations Patent and/or sale of the businesses Patent, displaced codes book, continuous Innovation.

Diffusion Mark I Mark II Knowledge Management Regime Technological Regime Risk Weak Flexible inside Hierarchy Flexible inside and outside Level of Development of cognitive capabilities

Table 4. Firm’s taxonomy and competition regime Attributes Type of businesses in terms of the importance of networks and learning processes Isolated firms Bureaucratic networks Knowledge islands Knowledge networks 3. Competence regime Competitive, low entry barriers Oligopolistic, high entry barriers. High fix cost. Competitive, high knowledge entry barriers. Oligopolistic, epistemic communities and high entry barriers 3.1 Firm sizeSMEsBigSMEsBig 3.2 Market concentration AverageHighAverage-highVery high 3.3 Continuity at market Scarce stability with agents that travel toward bureaucratic networks Very highIt is reduced. Firms tend to be absorbed by knowledge networks High. Combination of accumulation and creative destruction. 3.4 Quasi-rents stability ReducedHighTemporaryHigh 3.5 Quasi-rents sources Advantages static, natural or locating. RegulationsInnovationClub goods development 3.6 Surplus distribution ---Hierarchy---Distribution of surplus as incentive to innovation

Mark I Mark II Technological Regime Risk Weak Flexible inside Hierarchy Flexible inside and outside Level of Development of cognitive capabilities Appropriation Competitive Oligopoly Knowledge Management Regime Competence Regime

Diffusion Risk Mark I Mark II Weak Flexible inside Hierarchy y Flexible inside and outside Competitive Oligopoly Knowledge Networks QUADRANT IV DIFUSSION- APPROPRIATION RELATION Appropriation QUADRANT III COMPETITION REGIME QUADRANT II KNOWLEDGE MANAGEMENT REGIME QUADRANT I TECHNOLOGICAL REGIME Level of Development of cognitive capabilities Isolated Companies Knowledge Islands Bureaucratic Networks

Curves displacement Technological regime affected by changes in specialization pattern. Knowledge regime affected by changes in the national and local systems of innovation. Competition regime affected by restrictions in property rights (intellectual property, regulations, antitrust law).

Curves displacement QUADRANT IV DIFUSSION- APPROPRIATION RELATION Risk QUADRANT I TECHNOLOGICAL REGIME QUADRANT II KNOWLEDGE MANAGEMENT REGIME QUADRANT III COMPETITION REGIME Mark I Mark II Weak Flexible inside Hierarchy Flexible inside and outside Isolated Companies Knowledge Islands Bureaucratic Networks Knowledge Networks Competitive Oligopoly Level of Development of cognitive capabilities Appropriation

Conclusion and policy recommendations (1) Altogether, these three regimes explain the inverse relationship between knowledge diffusion and appropriation of quasi-rents Developing countries face the challenge of moving in the diffusion-appropriation curve towards positions with greater levels of appropriation for equal degrees of diffusion. This movement will require industrial and technological policies since a free market would consolidate the specialization pattern rather than modify it.

Conclusion and policy recommendations (2) The design of these policies requires, however, operating in a space in which public knowledge increasingly becomes a club good. In that sense, interventions should go beyond the idea of solving market failures. From the perspective of developing countries, appropiability becomes the name of the game. In this sense, appropiability means taking advantage of windows of opportunity by choosing the right technology, and the appropriate knowledge and competition regimes, which would be associated to the right production network.