...conclude that it has failed to bring about linkages between firms. One exception is provided by a Brazilian supplier network programme--an initiative which helps generate links between large and small firms. However, there is no Brazilian or Chilean programme designed to create linkages between MNEs and local firms. We argue that if the supplier network were modified to do just this, increases in MNE and national competitiveness would ensue.

INTRODUCTION

In this paper we investigate how innovation policy can promote the creation and diffusion of competitiveness in the context of less developed countries (LDCs). We describe the range of available instruments for implementing an innovation policy for LDCs, and we focus on a key area for innovation policy, that of network formation. We investigate through fieldwork the nature of Brazilian and Chilean innovation policies and we point to the insufficiencies of these policies. We emphasize the absence of Brazilian and Chilean innovation policies that encourage the formation of networks between firms. In particular, we argue that Brazilian and Chilean multinational enterprises (MNEs) can contribute to the diffusion of competitiveness from MNEs to their suppliers through networks monitored by innovation policy. We suggest that Brazilian/Chilean innovation policy has a crucial role in ensuring that these networks are not simply profit-maximizing organizational innovations from the perspective of the MNE, but also genuine mechanisms for competitiveness diffusion.

We test two interrelated hypotheses. The first hypothesis is that Brazilian/Chilean innovation policy does not succeed in increasing national competitiveness; the second, that it does not make use of MNEs in its attempt to increase national competitiveness. Following the testing of these hypotheses through an empirical investigation of innovation policy programmes in the context of 17 public and private Brazilian/Chilean innovation institutes, we conclude by suggesting that Brazilian/Chilean innovation policy tap into Brazilian and Chilean MNEs as engines of Brazilian/Chilean competitiveness. We put forward a supplier network programme as a mechanism to facilitate this process.

INSTRUMENTS OF INNOVATION POLICY

Innovation and competitiveness are concepts that apply both to the nation and the firm. In this paper, we seek to emphasize the overlaps between the objectives of public policy-makers and those of firm managers in relation to these concepts. We first define the two sets of objectives and we then identity their overlaps. Part of the objectives of public policy-makers is articulated through innovation policy, whose aim is the acquisition of national competitiveness. While d'Andrea Tyson (1992) defines national competitiveness as a nation's ability to produce goods and services that meet the test of international competition and to ensure that its citizens enjoy a standard of living that is both rising and sustainable, Krugman (1994:7) shows that both in an economy with very little international trade and one with high levels of trade, "the growth rate of living standards equals the growth rate of domestic productivity--not productivity relative to competitors, but simply domestic productivity" ". We follow Krugman's logic and equate the competitiveness of a nation with its productivity. In turn, the determinants of national productivity and competitiveness are technological and organizational innovation. Lucas (1998) and Romer (1986) present economic models of competitiveness that are based on technological innovation while Best (1999), Porter (1990) and Pitelis (1998) accentuate the role of managerial, resource-based and organizational innovation in competitiveness. This is not the place to present these models in full (see Beausang (2003:99-106)) for such coverage), but the key point is that national competitiveness is largely a result of national technological and organizational innovative efforts.

Similarly, the objective of firm managers is to increase their firm's competitiveness. Some traditional indicators of firm competitiveness include the difference between average cost and the market price of the firm's product offering, the growth of sales, the profit/sales ratio and the profit growth/turnover ratio. Yet a more dynamic vision of firm competitiveness emerges if we concentrate on the anticipated future profits of a firm: they depend on the firm's relative productivity and input costs and the relative attractiveness of its product offering over time. In this case, "the future profitability of a firm may be a function of its current spending on R&D, its patenting activity, or many other facets of the firm's strategy" (McFetridge, 1995, p. 6). It is precisely this dynamic/strategic vision of profits and competitiveness that we emphasize here. In particular, we highlight the role of internal and external organizational innovation in increasing firm productivity and competitiveness. For a theoretical analysis of the relationship between internal/external organizational innovation and firm competitiveness, see Schumpeter (1955), Penrose (1959) and for a joint analysis of their approaches, see Beausang (2003, pps. 64-66). The key point here is that an important objective of firm managers is to innovate in order to compete.

Then what is the relationship between the objectives of public policy-makers and firm managers? On the one hand, an important objective of policy-makers is the acquisition of national competitiveness (1). On the other hand, firm managers seek to increase firm competitiveness and productivity, partly through internal and external organizational innovation. Now it is obvious that firms cannot be innovative in the organization of their relationship with other firms/institutions unless these firms and institutions have the minimal innovative capacity that is required to engage in an innovative effort, i.e. unless the national innovative environment is strong. In other words, firm innovation is enhanced by national innovation because innovation breeds innovation. This is due to what William Easterly (2001) calls the agglomeration economies of innovation: a firm located in an environment devoid of innovation is unlikely to innovate. Consequently, the objectives of policy-makers and firm managers coincide in the sense that both gain from increases in national innovation and competitiveness.

A Survey of Existing Instruments

Now that we have outlined the framework that binds competitiveness and innovation policy, we can specify the various innovation policy instruments and the ways in which innovation policy can best be applied in an LDC context. There are many possible instruments that can further innovative development in an LDC. Macroeconomic policies affect innovative capabilities through interest rates, price changes, exchange rates, fiscal and monetary policies, and foreign exchange restrictions. The trade regime also has an impact on innovative development, since world competition improves quality, introduces new products, forces LDCs to keep up with technological progress, and offers economies of scale. Indeed, "industrial efficiency is a function of the efficiency with which countries have utilised technologies and of the high rates of productivity growth they have enjoyed. Boosting capabilities implies a dynamic technical efficiency as opposed to a static allocative efficiency. However, outward orientation does not mean the absence of selective trade and other interventions in strategic sectors for the development of an industrial base, quite the contrary; and strategic industrial policy requires time, investment and effort" (Lall, 1996, p. 37). (2)

Another instrument of innovation policy is skills development. The link between innovation policy and skill acquisition is clear: "more advanced technical training becomes critical as the industrial structure develops ... The educational system has to match the skill needs of the industrial structure" (Lall, 1996:42). Skills must be tailored to the specific needs of industry.

Technical information and support services are other instruments of innovation policy. They exist under different forms. Information can be gathered through journals, contacts with capital goods suppliers, buyers of export products, and interactions with subcontractors. Public infrastructure for science and technology is the most prominent policy area concerned with the diffusion of information. The need for information and technical support grows with the level of technological capability development but strengthening of the information structure can greatly help the technological development process.

Unfortunately, in many cases, there is no proper linkage between the promotion work of institutions involved in information and technical support and the technological needs of industry. This is why the role of technological parks is key to bridge these two areas. These parks provide necessary governmental support for industrial and communications infrastructure, and for labor training. The experience of East Asian countries with these parks is particularly enlightening. In South Korea, the Electronics and Telecommunications Research Institute (ETRI), which is a technological park and one of the four subsidiaries of the Ministry of Information and Communication, has contributed to Korea's industrial development through the early transfer of research and development (R&D) results. It runs the Industrial Technology Enhancement Centre, whose main goal is to contribute to the improvement of technology standards and to the "Koreanization" of strategic high technology. The flaw of the Centre's programmes is their poor local synergy: the Centre usually has a strong tendency to focus on national priorities in R&D instead of private company interests. Another subsidiary of the Ministry of Information and Communication called the Industrial Technology Research Institute has a major role in technology transfer. It maintains a close relationship with private firms in its park and carries out joint research projects with them. Many of its research projects stem from consultations with firms. Similarly, the Technological Innovation Centre at the Korean Advanced Institute of Science and Technology carries out industry-oriented projects and facilitates technological developments in the industrial sector.

Alternatively, the Taiwanese government-led Hsinchu Science-Based Industrial Park is based on another model, whereby the government only provides 50% of the park's budget, in order to maintain a stable linkage between its Electronics Research and Service Organization and private companies. The other 50% is met through service contracts and sales of technology to private companies, as a way of contributing to the upgrading of the technological level of Taiwan's electronics industry. The benefits to attract investors include a flexible tax-free period of 5 years, a tax levy maximum of 22%, low interest loans, duty-free imports of machinery, raw materials, fuels, services or semi-finished products, and capitalization of the investors' patent rights.

Finally, because a great part of innovative capability development is based on formal technological effort, involving long-term experimentation and introduction of new processes that face considerable market risk, finance is...

NOTE: All illustrations and photos have been removed from this article.



More articles from Journal of Comparative International Management
Global competitiveness and Canadian sectoral/regional labour productiv..., December 01, 2003
Neural network forecasting of the production level of Chinese construc..., December 01, 2003
Human capital availability, competitive intensity and manufacturing pr..., December 01, 2003

Looking for additional articles?
Search our database of over 3 million articles.

Looking for more in-depth information on this industry?
Search our complete database of Industry & Market reports by text, subject, publication name or publication date.

About Goliath
Whether you're looking for sales prospects, competitive information, company analysis or best practices in managing your organization, Goliath can help you meet your business needs.

Our extensive business information databases empower business professionals with both the breadth and depth of credible, authoritative information they need to support their business goals. Whether it be strategic planning, sales prospecting, company research or defining management best practices - Goliath is your leading source for accurate information.