Trade Promotion Infrastructure: Innovation
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Table 2.12. Sector Innovation Patterns and the Main Components of Learning and Innovation Broad sector Traditional manufacturing
Industries Textiles and apparel, footwear, furniture, tiles
Typical firm size SME
Learning Mainly supplier driven
Innovation components and characteristics Most new techniques originate from machinery and chemical industries Opportunity for technological accumulation is focused on improvements and modifications in production methods and associated inputs, and on product design Most technology is transferred internationally, embodied in capital goods Low appropriability, low entry barriers Innovation takes the form of new designs and branding; trademarks would be the ideal way to appropriate innovation efforts
Natural resource based
Sugar, tobacco, wine, fruit, milk, mining industry
Large
Supplier driven, science based
Importance of basic and applied research led by public research institutes due to low appropriability of knowledge Innovation is also spurred by suppliers (machinery, seeds, chemicals, and so on) Increasing importance of international sanitary and quality standards, and of patents Low appropriability of knowledge, but high for input suppliers
Specialized suppliers
Automobile and auto components, aircraft, consumer electronics, pharmaceuticals
Large
Software, precision equipment
SME
Scale intensive and also science-based firms
Specialized suppliers
Technological accumulation is generated by the design, building, and operation of complex production systems or products In-house R&D is critical for innovation Process and product technologies develop incrementally In consumer electronics, technological accumulation emerges mainly from corporate R&D laboratories and universities; there is a skill entry barrier Appropriability is medium, high Important user-producer interactions; learning from advanced users Low barriers to entry and low appropriability High in-house R&D for development of cutting-edge technologies
Sources: Author’s elaboration based on Pavitt (1984) and Giulani, Pietrobelli, and Rabellotti (2005).
as by recent developments (Giuliani, Pietrobelli, and Rabellotti 2005) and the inclusion of the services sectors (Castellacci 2008). Traditional manufacturing includes labor-intensive and mature technology industries, such as textiles, footwear, tiles, and furniture. This group of industries tends to have stable, well-diffused technologies. SMEs dominate the traditional manufacturing sectors. These sectors are defined as supplier dominated because producers of inputs (machinery, materials, and the like) introduce major process innovations (Pavitt 1984). The technologies are primarily embodied in the capital equipment; the low end of the range has relatively simple skill requirements. Many traded products are undifferentiated and compete on price: Thus, labor costs tend to be a major element of cost
in competitiveness. Scale economies and barriers to entry are generally low. The final market grows slowly, with income elasticities below unity. There are exceptions to these features, however,. There are particular lowtechnology products in high-quality segments for which brand names, skills, design, and technological sophistication carry large value added, even if technology intensity does not reach the levels of other innovation patterns (Lall 2000). Firms in traditional manufacturing can upgrade their products (and processes) by developing or imitating new products’ designs, and by interacting with large buyers who are increasingly playing a role in shaping the design of final products and the production process (time, quality standards, and costs). The production of traditional
Module 2
Complex products