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Module 2: Competitiveness Diagnostics
manufactures has undergone massive relocation from rich to poor countries, with assembly operations shifting to low-wage sites and complex design and manufacturing functions retained in industrial countries. This relocation has been the engine of export growth in this industry, though the precise location of export sites in textiles, and clothing has been influenced strongly by trade quotas and trade agreements (Gereffi, Humphrey, and Sturgeon 2005). Other exports that have benefited from active relocation in this group are toys, sports and travel goods, and footwear (Lall 2000). The natural resource-based sector activities imply the direct exploitation of natural resources, for example, copper, marble, or fresh fruit. The output of extractive industries is the internationally standardized product. For example, copper produced by a mine in Latin America is likely to be identical to copper produced in Zambia. An implication is that downstream integration from commodity extraction often fails because buyers can choose any producer of such standardized goods. To date, however, such downstream activities have often been the main focus of government attempts to broaden the economy from its extractive industries base (UNIDO 2009). Traditional manufacturing and natural resource-based sectors are, by far, the most common in developing countries. The complex products group includes automobiles, auto components, aircraft, ICT, and consumer electronics, among others. These industries are dominated by large
firms that take advantage of the economies of scale intrinsic to the sector’s technologies. Complex product industries can be separated further using Pavitt’s (1984) categories of science-based industries and scale-intensive sectors. First, science-based industries have an innovation pattern that is closest to the traditional linear model of innovation, for which in-house R&D is critical for innovation (see box 2.24). Science-based innovation has five stages: fundamental research, applied research, engineering development, production engineering, and service engineering (Balconi, Brusoni, and Orsenigo 2008). Innovations are appropriated by the inventor and take the form of a large number of patents. Their products have advanced and fast-changing technologies. The most advanced technologies require sophisticated technology infrastructures, high levels of specialized technical skills, and close interactions among firms and between firms and universities or research institutions. Some products like electronics have labor-intensive final assembly, and their high value-to-weight ratios make it economical to place this stage in low-wage areas. These tend to be lead products in international integrated production systems for which different processes are separated and located by MNCs according to fine differences in production costs. Second, scale-intensive industries are the heartland of industrial activity in mature economies. They tend to have complex technologies, with moderately high levels of R&D, advanced skill needs, and lengthy learning periods. Those in
Box 2.24. Linear Model of Innovation The linear model of innovation is associated with V. Bush, who claimed that scientific progress is essential to technological innovation and economic development. This thesis was laid out in a policy paper meant to raise support for public funding of basic research (Bush 1945). Basic research is performed without thought of practical ends. It results in general knowledge and an understanding of nature and its laws. The scientist doing basic research may not be interested in the practical applications of his work, yet the further progress of industrial development eventually would stagnate if basic scientific research were long neglected. In general, science does remain an important condition and component of technological progress, and one that is fundamental in science-based industries (for example, consumer electronics, pharmaceuticals, aircraft and spacecraft, and so on). See tables 2.10 and 2.11 for a list of science-based sectors. The linear model of innovation conceptualized the steps involved in transforming a new concept to a practical reality in the form of a new product. The sequence is as follows: Basic Research ‡ Applied Research ‡ Development ‡ Production Applied research is nurtured by the results of fundamental (basic) research, and it emphasizes new products and processes. Development includes the improvement, testing, and evaluation of a process, material, or device resulting from applied research. In the linear model of innovation, to sustain basic scientific research, it is necessary to train a large pool of scientists and to strengthen the centers of basic research, which are colleges, universities, and research institutes. Nevertheless, there is a clear division of labor along the sequence among different types of agents who specialize in the various relevant stages. Typically, basic research is conducted in universities and public laboratories, whereas applied research and technological development are carried out by firms, especially large ones, that can afford expensive R&D investments. Source: Balconi, Brusoni, and Orsenigo 2008.