Using either the Varieties of Capitalism or the National Systems of Innovation approach compare and contrast the national business or innovation systems of two countries of your choice. Discuss some of the practical implications for international business practitioners of these national differences.
The concept of National Systems of Innovation (NSI) has been gaining importance in past few decades owing to its close connectivity with the intellectual and practical applications. One of important international organization - OECD (Organization for Economic Cooperation and Development) has recognized and adopted this conception and encouraged further research and study for the benefit of nations. In the recent years the NSI has attracted the attention of the developing countries to address certain serious economic problems. Various economists treat this as having potential to highlight the root causes for the difference in economic development. They also believe that this would also serve as a powerful framework that can reveal new policies and create institutions that are capable of bridging these differences.
What is a National Innovation System?
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The answer to the question can be partly derived from the very term "National Innovation Systems".
Innovation is seen as the creation of new processes, products or services based on the advances in technology, change in market demand or a combination of the two (Pavitt, 1994). These new processes, products or services once commercialized aids in economic growth. Therefore it becomes obvious that nations are interested in utilizing the opportunity to build an approach (system) through innovation that causes economic growth. This innovation is made possible through research and interactions. The inclusion of interactions is important as innovation is considered as a social process rather than a process that happens only in research labs. The idea of interactions triggers other aspects of social systems such as national institutions, universities, business firms, government policies, laws and regulations which greatly influence these interactions.
To be precise the National Innovation Systems focuses on the flow of technology and information through the social systems such as firms, institutions and people. The complex set of relationships between the actors of these social systems results in innovation and technological development. Therefore identification and understanding the nature of these linkages is important to build a framework. Here much emphasis is given to the determinants and organization of innovation action
Figure 1 : Significance of NIS for economic success
Various theories have been published by a number of authors, who tried to explain NSI focusing on various aspects of innovation. Some of the widely noted and accepted definitions are given below.
"... The network of institutions in the public- and private-sectors whose activities and interactions initiate, import, modify and diffuse new technologies" (Freeman, 1987)
His definition of NSI focuses on the importance of networks of relationships that is essential for any firm to innovate and develop. His core argument is that the national educational institutions, industrial relationships, technical and scientific institutions, government policies, regulations and cultural traditions have an influence on the innovation systems and is very fundamental.
"... The elements and relationships which interact in the production, diffusion and use of new, and economically useful knowledge... and are either located within or rooted inside the borders of a nation state" (Lundvall, 1992)
Lundvall's approach aims at understanding 'the national innovation systems' in the broad sense. Innovation is viewed as an ongoing cumulative process which is just not incremental but also involves diffusion and absorption. He also introduces many sources of innovation and mainly considers NIS as an interactive process between various bodies such as firms, network of firms, educational institutions, labor markets etc that determine what kind of innovation takes place in the national system.
Developed Nations Vs Developing Nations
The Innovation systems framework operates on the policies and procedures the nation employs. It is quite evident that there is a clear distinction between the National Innovation Systems of developed nations and developing nations.
Developed nations have attained the stage where innovation and economic development has crossed the acceptable limit. They just need to maintain already established level. On the other hand there are these developing nations who are struggling with "catching up" of the growth factors. Creating policies that pick up research or improving the science and technology studies inside universities would not be sufficient as there is less absorptive capabilities that can disseminate modern knowledge and technology. That is the current challenge for the developing nations and hence policies and rules should aid the process of improving the conditions gradually.
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This explains that there is clear variation of the forms and policies of the developed nations to that of the developing nations. It is interesting to understand what these challenges would be and how nations actually build policies and procedures that aid growth and also the areas where they can improve on. The choice of the policies must be well analyzed and therefore we look to choose certain common variables that developing nations rely on for improving economic growth.
A comparative case study on two developing countries Brazil and Korea provide insight into the various policies and decisions that individual nations applied to improve their economic conditions.
A Comparative Case Study:
Before we begin detailed study on these nations, we need to organize the comparison with various variables that determine the national innovation systems for these nations. The comparison begins here with these variables and move towards how each nation applied these different variables to elevate their economic status. Some countries were successful in applying them for their growth some fell short.
These variables are listed below:
Research and Development (R & D) :
Research is the mother of innovation. Any development that happens requires considerable analysis. This is made possible via dedicated research labs, University Institutions and inside business firms. A nation focusing on R & D would definitely benefit and lead an innovative growth. Hence looking at R & D as one of the variables for NSI seems essential.
Educational Systems and Human Capital Investments:
Educational systems create base for any creativity that can happen at subsequent changes. The educational systems form the fundamental knowledge bank. Improved and sophisticated educational systems help the nation to build the absorptive capabilities. Therefore developing nations have to create the future relying on imparting knowledge to nation's population.
Foreign Direct Investments:
FDI, play a major role for imbibing the newer technologies as everything and anything is new to the under developed nations. The developed nations already attained and improved on the available technology and would want to explore newer locations. Hence developing nations should take good advantage of the available technology through FDI's. The manner in which the developing nations formulate and utilize this advantage is what that contributes to the nation's success.
Government & Financial Policies:
The government policies contribute a lot for shaping the nation's focus and growth. Introducing tax benefits, relaxing trade barriers, giving concessions on certain establishments play a major role to improve the condition. They encourage setting up institutions that aid R & D. These forms and policies therefore become one of the determinants of National Innovation Systems.
Brazil Vs Korea: A Comparative Study:
The case study is performed in tabulation to ensure clear distinction of the various view points. They are presented below:
Implications to the International Business Practitioners:
We have noted few interesting points that determine the National Innovation systems of a nation. The practical implications as an international Business practitioner are summarized below:
An international Business person might be interested in investing in another country ( location). The NIS framework of that particular nation helps determine the feasibility of setting up a firm.
Reveals the availability of skilled resources:
One of the factors of determining the establishment of a firm or business venture, would be to analyze the work force available in that particular location. Highly skilled labor from a developing nation is a point of interest for various reasons. The quality of the work expected greatly depends on this factor.
Availability of Infrastructure:
This is seen as an added advantage and aids the business person to take decision as transportation; communication costs etc, add up and affect the profit margins. They also determine the feasibility of starting a new business as poor facilities do not attract foreign investments.
The government policies play a major role as trade barriers, tax rules, investment plans, concessions etc influence the business activities conducted in a foreign location.
Thus understanding the NIS framework greatly helps nations understand their current state of growth and also gives insight of the areas where improved methodologies can be implemented.
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Further study and research into the subject would reveal interesting facts about how nations operate and develop policies. It would also help speculate future economic conditions and trends. Hence NIS forms one of the important subjects of interest.