China, India and Korea: the new geography of innovation

In this article – based on the Demos Atlas of Ideas project – Leadbeater and Wilsdon argue that the West is no longer the dominant source of innovation, given the speed and scale of activity in China, India and Korea. Britain now needs to develop a distinctive national innovation strategy for an economy based on services, culture, media and software.

ON THE OUTSKIRTS of Shanghai, 1,000 researchers are working in a state-of-the-art Intel research facility that was built from scratch in just five months. By 2012 there will be 10,000 spread over two sites. In Beijing, engineers at Ericsson’s research centre are developing routers for mobile phone systems at a third of the cost of those in Europe. On the edge of Delhi, among the call centres and new shopping malls, Ranbaxy, the Indian drug company, has opened an R&D centre with 2,000 scientists, modelled on a Bristol Myers Squibb facility in the US. In Daejon in South Korea, geneticists equipped with the latest gene sequencing machines are generating world-class stomach cancer research after just three years. The knowledge parks and high-tech zones springing up across Asia are demolishing the barriers to entry into scientific innovation.

Flowing through the airports that serve Asia’s innovation hotspots are the people who make this shiny hardware work: research scientists, corporate innovation managers and serial entrepreneurs, flooding back mainly from the US and carrying with them western management methods, money, contacts and ambition. They are attracted by a potent cocktail: fast-growing markets; plentiful state funding for research; and middle-class lifestyles in the increasingly cosmopolitan cities that they can call home.

The reverse migration of these nomad innovators heralds a new phase of globalisation, one in which ideas and innovation will flow from many more sources. In the last 30 years, global supply chains have transformed how we make products. Our pensions, savings and bank accounts now depend upon seamlessly connected global markets. Something similar is about to happen to the way we develop and apply ideas. Innovation will emerge from global networks that link research, testing, development and application.

We used to expect new ideas to come from the universities and research laboratories of major companies in the US and Europe. Technology flowed from this innovative core to the technologically dependent periphery. No more. The core and periphery are being scrambled up. Places that were on the margins of innovation ten years ago – Bangalore and Pune in India, Daejon in Korea, Shanghai and Shenzen in China – are now essential stopping-off points in the continuous flow of people, ideas and technologies around the world.

The rise of China, India and South Korea will remake the innovation landscape. US and European pre-eminence in sciencebased innovation cannot be taken for granted. The centre of gravity for innovation is starting to shift from west to east.

What is at stake?

Yet the rise of innovation from China, India and Korea is also feeding a climate of anxiety in Europe.

Britain must avoid making two big mistakes. First it must wake up to what is unfolding in China and India, and not respond with too little too late.

Second, it must work to prevent a global retreat into techno-nationalism, and instead evangelise for a cosmopolitan approach to innovation.

The rise of Asia will inevitably challenge our position in knowledge-based industries. More knowledge jobs will go offshore. Research and development will become more international. In the long run, China, India and Korea will start to earn more from exploiting their own intellectual property, and our share of income from intellectual property may decline.

However, it would be extremely short-sighted to view these developments purely as a competitive threat. Britain can prosper from global innovation networks, as it has from the internationalisation of financial services, but only if we choose not to isolate ourselves from global flows of knowledge. We need to act decisively to make ourselves central to global innovation networks, based on a longer-term view of what is at stake both for Britain and the rest of the world.

Innovation in Asia may accelerate development and raise incomes, creating a larger market for British services. The resources India and China are devoting to innovation are large, but still feeble when set against the challenges of poverty they face. In India, 390 million people live on less than $1 a day, often without clean water and electricity. Some of China’s poorest regions have a standard of living on a par with that of the poorer parts of Africa. These countries need innovation to deliver tangible social improvements. The more successful they are, the more opportunities there will be for Britain to trade with them.

Innovators in Britain may also be more productive if they can collaborate with Asian partners with complementary skills, for example in the application and development of technology. Our hubs of scientific innovation, in London, Cambridge, Oxford and Manchester, should attract inflows of talent from around the world, just as the City of London has.

If more researchers are doing more science, with ever more powerful computers, this increases the likelihood of meeting the global scientific challenges we face: from low-carbon innovation to vaccines against pandemics. More brains, working on more ideas, in more places around the world, are good news for innovation. Out of that may come new fields of science, such as synthetic biology, and new methods that transform how science is done.

There is no single Asian innovation model

China, a country whose leaders mostly trained as engineers, is now engaged in the biggest mobilisation of scientific resources since John F Kennedy launched the race to put a man on the moon. Massive increases in government R&D spending, rising multinational investment in innovation, and flows of researchers, entrepreneurs and managers returning from Europe and the US are fuelling China’s ambitions to become a science superpower, less reliant upon foreign technology thanks to a new generation of home-grown high-tech companies. China hopes that its most innovative regions will soon be where South Korea is now.

South Korea emerged in 1960 from a ruinous civil war, its economy on its knees, with virtually no natural resources, low levels of literacy, just 800 graduates and GDP per capita on a par with that of some African states. With US support, the state orchestrated rapid industrial development, working hand in glove with a group of large familyowned companies. That provided the base for Korea’s ambitions to become a knowledge driven economy, with R&D set to reach 3% of GDP by 2010. Korea plans to be a world leader in biotechnology and nanotechnology, through doubling investment in R&D to expand the scientific research workforce from 180,000 to 250,000. Korea’s well-educated population, connected by pervasive broadband and mobile phone penetration, could unleash a wave of mass innovation in media and services.

India is a different story altogether. China is a one-party state, India an imperfect but vibrant democracy. In Korea the state orchestrated development; in India the state is chaotic at best, and at worst a drag on innovation. In Korea, work is defined by the phrase ‘hurry, hurry’; India is more languid. China is seeking to become a source of ‘independent innovation’; India has already turned away from that goal.

Political independence from Britain in 1947 ushered in a concerted attempt to build a self-reliant Indian science and innovation system. But since India opened its economy to international investment and trade in 1991, it has positioned itself as an interdependent innovator, serving multinational companies and creating technologies for global markets.

India’s innovative energy comes from its people: 2.5 million graduates a year, 350,000 of them engineers. By 2015 India could be producing 1.4 million graduate engineers a year. At the heart of this is a group of global Indians, who many hope will lead the country’s transformation. India does not have an innovation system but an innovation class: the global, non-resident Indians who are embedded in social and business networks that connect India to Silicon Valley and beyond.

In the hall of mirrors

Judging what kind of innovations these three different countries could produce is complicated. It is easy to both underestimate and overestimate what they are capable of. It is like being in a fairground hall of mirrors: the same statistics can simultaneously look very large or very small depending on your vantage point. In India these problems are further compounded because reliable information is sometimes not available.

Four problems bedevil attempts to make reliable judgements about the strength of these innovation systems.

1. Quantity does not mean quality

India has a huge pool of young graduates but perhaps only 10% of them have an education of international quality. Korea produces scientific papers in prodigious quantity but most tend not to be heavily cited by other scientists, which suggests that their quality and originality is not high.

2. Choose the right yardstick

China and India’s aggregate output of science and scientists is growing fast. Yet, set against the size of their population science is under-developed: India produces large numbers of engineers in global terms, but still only 5% of its population go to university.

3. Inputs do not equate to outputs

Innovation measures focus on the resources being pumped into science and research. How productively these resources are used also matters. Here the picture is more mixed. In China, for example, it is common for policy makers to point out that world class hardware and infrastructure for innovation does not equate to world-class culture and software for innovation.

It is still early days. Korea seemed to be leading the world in stem cell research until the results of now disgraced researcher Dr Hwang, then Korea’s supreme scientist, were exposed as fraudulent. Similar ‘science bubbles’ may inflate in China where resources are pouring into a research system that insiders say is rife with plagiarism. China faces larger uncertainties over whether economic growth can be maintained, the prospects for political reform, and whether top-down planning will stifle innovation even as it funds it. In India the inequalities associated with globalisation have provoked a cultural and political backlash that has forced politicians to refocus on the needs of the rural poor. Only ten years ago, India was still seen by many as case for aid; now equally erroneously it is sometimes assumed that India is becoming a vast software park.

4. Innovation is not linear

It does not roll off a production line, with researchers, equipment and resources going in at one end, and papers, patents and applications flowing out at the other. China, India and South Korea will be more significant sources of innovation in future.

Yet predicting where things are headed next is tricky. The already significant differences between these countries’ approaches to innovation may grow rather than diminish.

Each country and the regions within it will produce innovations that reflect their particular strengths and weaknesses. China’s and Korea’s development is based on products; India’s growth relies on services. In China the state is at the centre of innovation efforts, in India the impetus comes from social networks and the private sector, and in Korea, the chaebol have surpassed the state as the largest funders of R&D. China’s innovation system is directed towards longterm goals; India’s is diffuse and chaotic. China is not a democracy; India is. China wants independent innovation to lessen its reliance on the west. India is positioning itself as an interdependent innovator to connect with the west; China’s innovation ideology is laced with techno-nationalism, India’s with the cosmopolitan confidence of the global Indian elite. Compared to China, democracy may be India’s strongest card: ensuring the freedom to think and debate that may prove critical to long term innovation.

Where Britain stands

Britain needs to learn lessons from those industries. The innovative part of the British car industry is now confined to a global niche making Formula One and Indy Cars, after long-drawn-out efforts to rationalise the British mass production car industry ran into the ground. Britain’s science and innovation system might end up in just such a niche unless it embraces reform, raises its productivity and makes international collaboration central to its way of working.

The City of London could also have ended up as a cottage industry in world terms. But in the 1980s, its arcane practices were swept away and now the City is firmly established as one of the world’s leading finance hubs. Britain’s goal should be to develop the same ‘City of London’ model for science: cosmopolitan, skilled and efficient; open to new entrants and technologies; supported by trusted but business-friendly regulators.

Steering British science and innovation will mean facing some tough strategic choices that go beyond simply levels of funding for R&D. Britain will not be able to compete with the scale and low cost of innovation resources in Asia. It will have to compete by using its resources more productively and creatively. That will require reforms to how science is funded, to promote innovation and research across disciplines; strengthening links across the innovation ecosystem between universities, business and finance; and ensuring that a culture of creativity and exploration thrives in universities.

Britain will need to make choices about which areas of science it wants to specialise in as other places build up their capabilities. It will need to rethink how it collaborates internationally and with whom: for example, by merging more British science programmes with partners in Europe or the US to gain economies of scale.

How Britain governs and regulates science will be critical to this, securing public trust through greater and earlier openness to debate, while simultaneously supporting innovation in leading-edge fields such as stem cell research. Britain should lead the world in the good governance of innovation.

All this needs to be wrapped up in a distinctive, national story of innovation, in an economy that is largely based on services, culture, media and software. Too often, innovation policy has been designed to fight the last war, to revive Britain’s vanishing manufacturing base, rather than to prepare for the next.

Britain needs an approach to innovation that is not just about the scientific elite, the trendy creative class or entrepreneurial heroes, but that recognises the contribution that everyone can make as consumers, citizens and creators. And this message must be cast in terms of cosmopolitan innovation: Britain as a place that is open to the world’s best ideas, and that will support anyone from anywhere to put those ideas into practice.

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Korea plans to be a world leader in biotechnology and nanotechnology through doubling investment in R&D.

Innovation is not linear. It does not roll off a production line, with researchers, equipment and resources going in at one end, and papers, patents and applications flowing out at the other. China, India and South Korea will be more significant sources of innovation in future.

Steering British science and innovation will mean facing some tough strategic choices that go beyond simply levels of funding for R&D. Britain will not be able to compete with the scale and low cost of innovation resources in Asia. It will have to compete by using its resources more productively and creatively.