Significance over scale when selecting sectors

When promoting territorial economic development from an innovation systems perspective it is important to find ways of increasing the use of knowledge and innovation in the region. However, in mainstream economic development there is a tendency to target the private sector based on scale. This means that practitioners look at quantitative measures such as jobs, numbers of enterprises, numbers of beneficiaries, etc. when deciding where to do analysis and focus support. This is common practice in value chain promotion, sub sector selection, etc. Many development programmes do this as well prioritizing scale measures such as jobs, women, rural individuals, etc.

From my experience of assisting development organisations to strengthen the economic resilience of regional economies (which means more innovation, more experiments, more diversity, increased use of knowledge, more collaboration between different technological domains), I have found that the scale argument is distracting and too focused on the beneficiaries (whatever is counted) and not focused enough on those indirect public or private agents that are significant and that enable a whole variety of economic activities to take place. With significant I mean that there could even be only one stakeholder or entry point (so the direct scale measure is low) but by addressing an issue it enables a whole variety of economic activities to take place.

Of course, scale is very important when a local politicians need votes. It is also important when you have limited budget and must try to achieve wide spread benefit. For this reason scale is very important for social programmes.

However, when local institutions are trying to strengthen the local innovation system, in other words improve the diversity technological capability of a region, then scale becomes a second priority. The first priority then becomes identifying economic activity that enables diversity or that reduces the costs for enterprises to innovate, use knowledge more productively should be targeted. The reason why this does not happen naturally is that these activities are often much harder to detect. To make it worse, “significance” could also be a matter of opinion (which means you have to actually speak to enterprises and their supporting institutions) while crunching data and making graphs often feel safer and appear to be more rigorous.

My argument is that in regions, the long term evolution and growth of the economy is based on supporting diversification and the creation of options. These options are combined and recombined by entrepreneurs to create new economic value in the region, and in so doing they create more options for others. By focusing exclusively on scale, economic actors and their networks increasingly behave in a homogeneous way. Innovation becomes harder, economic diversity is not really increased. I would go as far as saying that success becomes a trap, because once a recipe is proven it is also harder to change. As the different actors becomes more interdependent and synchronized the system becomes path dependent. Some systems thinkers refer to this phenomena as tightly coupled, meaning a failure in one area quickly spills over into other areas. This explains why whole regions goes into decline when key industries are in decline, the economic system in the region became too tightly coupled.

But I must contradict myself just briefly. When interventions are more generic in nature, meaning they address market failures that affect many different industries and economic activities, then scale is of course important.

The experienced development practitioners manage to develop portfolios where there are some activities that are about scale (for instance, targeting a large number of informal traders) and then some activities that are about significance (for instance ensuring that local conformity testing labs are accessible to local manufacturers).

The real challenge is to figure out what the emergent significant economic activities are that improves the technological capability in the region. New emergent ideas are undermined by market failures and often struggle to gain traction. Many new activities requires a certain minimum economic scale before it can be sustained, but this is a different kind of scale than when practitioners use scale of impact as a selection criteria. Many small but significant economic activities cannot grow if they do not receive public support in the form of promotion, awareness raising or perhaps some carefully designed funding support.

There are a wide range of market failures such as high coordination costs with other actors, high search cost, adverse selection, information asymmetry and public good failures that undermines emergence in local economies. It is exactly for this reason that public sector support at a territorial level (meaning sub national) must be sensitive to these market failures and how they undermine the emergence of new ideas that could be significant to others. The challenge is that often local stakeholders such as local governments have limited influence over public institutions in the region that are funded from other spheres of public administration.

Let me wrap up. My argument is that scale is often the wrong place to start when trying to improve the innovation system in a region. Yes, there are instances where scale is important. But my argument is that some things that could be significant, like the emergence of variety and new ideas often get lost when interventions are selected based on outreach. Furthermore, the focus on large scale impact draws the attention to symptoms of problems and not the the institutional or technological institutions that are supposed to address market failures and support the emergence of novelty.

I will stop writing now, Marcus always complains that my posts are too long!

Let me know if I should expand on the kinds of market failures that prevent local economies from becoming technologically more capable.

 

 

Innovation systems in Metropolitan Regions of developing countries

During 2015 Frank Waeltring and I were commissioned by the GIZ Sector Project “Sustainable Development of Metropolitan Regions” (on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), Division 312 – Water, Urban Development, Transport) to write a discussion paper about a hands-on approach to innovation systems promotion in metropolitan regions in developing countries. The discussion paper can be found here.

Frank (left) and Shawn (right) in front of the Berlin Wall Memorial

This assignment was a great opportunity for us to reflect on Frank’s experience on structural change in territorial economic development and my experience on industrialization and innovation systems in developing countries. We also had to think hard about some of the challenges of using a bottom up innovation systems logic in developing countries, as such an approach would rely heavily on the ability of local public management to coordinate strategic activities aimed to improve the dynamics between various public and private stakeholders. It was great to reflect on our past Local Economic Development experience and our more recent work on innovation systems, industrial upgrading and complexity thinking.

A key aspect of this discussion document was to think long and hard about where to start. We know many economic development practitioners in cities are often overrun by demands from both politicians and industries for support. We also know that by selecting promising sectors based on past data and assumptions about job and wealth creation often end in little impact and much frustration. We agreed that an innovation systems approach must be aimed at stimulating the innovative use of knowledge, so we decided to not start with a demand focus (assuming the officials are already responding to some of the demand) or with statistics but a knowledge application focus. The use, generation and recombination of knowledge is central to the technological upgrading of regions, industries, institutions and societies. From our experience in promoting innovation systems and our recent research into non-consensus based decision making (this is where you do not select target sectors based on consensus or assumptions about growth potential, but you look at emergent properties in the system) we decided to start with three questions to understand the dynamics of knowledge flows in the region:

  1. Which enterprises, organisations and even individuals are using knowledge in an innovative way? Obviously this question is not simple and can only be answered by reaching out in the local economy to institutions, firms and individuals.
  2. Which stakeholders are actively accumulating knowledge from local or external sources? Again, this is an exploration.
  3. Who are individuals or organisations that know something about unique problems (challenges, demands, constraints) in the region? These could be buyers, supply chain development officials, public officials, engineers or even politicians that are willing to articulate unique demands on the regional economy that might not have been responded on by local (or external) enterprises.

These three questions are treated as an exploration that will most likely be most intensive at the start. In our experience economic development practitioners should constantly be asking themselves these questions when working on any form of private sector upgrading.

A second dimension is about assessing the interplay between institutions and industries and its effect on innovative behavior within regions. Who is working with whom on what? Why? What are the characteristics of the life cycles or maturity of various kinds of stakeholders in the region? Thus we are trying to understand how knowledge “flows” or is disseminated in the region. While some knowledge flows are obvious, perhaps even formal, some knowledge flows could be more tacit and informal. For instance, while knowledge flows from education is quite formal, the informal knowledge exchange that takes place at social events is much more informal, yet very important.

Apart from the identification of the dynamics and interrelations between the industries and the different locations, one other key factor is to identify the drivers of change who want to develop the competitive advantages of the region.

We also present our technological capability upgrading approach as six lines of inquiry, some of which have been covered in earlier posts on this weblog:

  1. The company-level innovation capability and the incentives of firms to innovate, compete, collaborate and improve, in other words the firm-level factors affecting the performance of firms and their net-works of customers and suppliers. These include attempts within firms to become more competitive and also attempts between firms to cooperate on issues such as skills development, R&D, etc.
  2. The macroeconomic, regulatory, political and other framework conditions that shape the incentives of enterprises and institutions to develop technological capability and to be innovative.
  3. Investigation of the technological institutions that disseminate knowledge.
  4. The responsiveness and contribution of training and education organisations in building the capacity of industry, employees and society at large.
  5. Investigation not only of the interaction and dynamics between individual elements in the system, but of the whole system.
  6. Exploring poorly articulated needs or unmet demands that are not visibly pursued by the innovation system.

We, and of course our GIZ colleagues of the Sector Project Sustainable Development of Metropolitan Regions, are very keen to engage with the readers on these ideas? Please post your comments, questions to this weblog so that we can have a discussion.

Best wishes, Shawn and Frank (Mesopartner)

 

 

Series: Building technological capability

In the next few posts I will focus on building technological capability in developing countries. I am specifically thinking of Sub-Saharan Africa as I write these posts, but I am sure that some of the ideas will be relevant to my colleagues working in other parts of the world.

What do I mean with technological capability? We see technological capability as going beyond what firms can do, to what societies or parts of society can use or do with technology. It is a capability that is manifest in products and processes, but that arise from a capacity to match a problem or opportunity with technological systems, sub-systems or combinations of systems. This means that technological capability is not only about technological skills (for instance in knowing how to combine different technologies, or what the latest advances are), but also has business and networking skills to identify and recognize opportunities, discover what solutions can fit the context and constraints (like performance specifications, prices, volumes) and how to organize supply, delivery and maintenance. It thus combines all the elements of innovation including product knowledge (understanding components, sub-systems, architectures), process knowledge as well as business knowledge.

To build technological capability in a country or an industry is the result of an ongoing search process where networks of businesses, academia and government officials search for what is possible at reasonable value and margins, what can and what cannot be done within the local context. What can and cannot be done in the local context is a complex issue that is affected by four factors that I will briefly outline below. It is not only an engineering design problem, and it is not only about products and patents. It is not about a lack of knowledge or a lack of PhDs and engineering students. There are several things that must be worked on at the same time but a whole range of actors working towards different goals.

In many instances the public sector is more eager to develop domestic technological capability than the private sector itself. The private sector in Sub Saharan Africa is in most countries fragmented, and search costs as well as coordination costs at the level of products, processes and networks are very high. That is why those that can afford to take risks and that can afford to take a long term view will most certainly benefit disproportionately to those who are driven by short term profits. For instance, local manufacturers of components that invest very little to nothing in R&D cannot be expected to compete in the long run with international or regional competitors who are investing in R&D.

My late friend and business partner, Jorg Meyer-Stamer argued that there are four pillars [1] that technological capability is built on:

  1. The skill of the producers to imitate and innovate at product, process and business model levels. This is largely dependent on pressure to compete as well as pressure to collaborate with each other;
  2. The economic, political, administrative and legal framework conditions, which determine whether incentives to develop technological capability exist. In the past, it was often not recognised that these incentives do not exist in many developing countries, especially if an import substitution policy relieved companies of all pressure to be competitive or to innovate;
  3. Direct support by technology-oriented state institutions or specific types of knowledge intensive service companies – depending on the given development level, the competition situation and the characteristics of a technology branch in the given country. These organizations disseminate technical and expert knowledge between different actors, knowledge domains and industries and play a critical role in the use of and application of tacit and explicit knowledge;
  4. Indirect support by the public and private educational system; in addition to a sound basic education it is important that technical training of a suitable quantity and quality is available at the secondary-school level and also in the universities. The private sector often plays a role in short term training aimed at particular technology applications. Overall the responsiveness of the education sector in identifying and responding to changes in how technology is applied, developed or used in society.

The close interaction between these four pillars creates technological capability. Thus technological capability differs between countries and even within countries because the context differs. A single firm may in the short to medium term manage to get a sophisticated product into the market, but to sustain its position it will sooner or later need to tap into the education system, the knowledge networks of intermediaries and technology experts, or in supplier networks. Technological capability is not measured at the level of patents or products developed (this does not measure the system, it measures a single firm), but is best measured at the level of regional or international competitiveness of industries, entrance of new domestic and international competitors, and exports.

What developing countries fail to achieve is to crowd in many firms and industry networks by creating public goods that intensifies competition and that force firms to collaborate on critical issues like skills development, the development of industry specific infrastructure, etc. Despite being a big buyer in many countries, procurement patterns, priorities and performance criteria are not available to domestic producers (until it is too late). The education sector is mainly funded to provide basic and undergraduate education along strict disciplines, not to constantly upgrade the existing workforce to cope with technological shifts and the integration of different knowledge bases. Universities are funded to do research at a product or process level, not to do applied research that will modernize industries. The importance of various networks of technological intermediaries and knowledge providers are overlooked.

The private sector must also shoulder some blame. Industry bodies are often mainly focused on advocating for favorable conditions to protect existing investment or interests, not on increasing local supplier networks or building industries. Firms would often rather collude than collaborate. Industry associations are typically organized via traditional sub-sector structures, while global production is becoming more integrated, multi-disciplinary and application orientated.

In closing, technological capability is not only created through policy. It is not created through industrial or innovation policy, although it helps. It is not created by individual champion firms, although this certainly makes it easier. Technological capability is built as a result of an innovation system where the context matters. Firms able to manage their own internal technology and innovation are essential, but these typical arise out of public funded investment into technology intermediaries, management capability and the overall performance in the education sector. It is not possible to increase the technological capability of a group of firms in a particular industry without looking at the broader context where the four areas outlined earlier shape the outcomes in the medium to long term.

From my experience in assisting to promote technological capability in developing countries an ongoing facilitation effort funded by the public sector AND the private sector is needed to broker collaboration, but also to look at ways that local demand can be met by the broader system in the long term. In many countries and industries the best host for such a process is a technology intermediary attached to an university or a development programme, with a mandate to build networks around local opportunities that is not only about engineering, but also about reducing the costs of finding opportunities, suppliers and suitable technologies.

 

Notes

1 – These four pillars later became the foundation of the RALIS methodology that we use to diagnose and improve innovation systems.

Promoting sectoral innovation systems

I am receiving more requests for support to diagnose and improve innovation systems than ever before. It’s just been a few years since I have decided to focus all my attention at working with the upgrading of regions and industries from an innovation systems perspective and I am pleased that this decision is working out.

The most popular demand is for support to promote sectoral innovation systems. However, people confuse the “sectoral” with a classical sector driven approach. In a purely sector driven approach the focus is on a broad group of firms that falls within a broad industry classification. This may to some extent include some suppliers and key customers, but even a sector-based approach can still be too broad to tell us much about the patterns of innovation, how knowledge is used, and how institutions respond to the typical market failures in that sector.

A sectoral innovation system is more about how different groups that uses a common knowledge and technological domains work, how knowledge flows and how technology (which includes knowledge) evolves. To quote my own work (Cunningham, 2012)

“According to Malerba (2005), the emphasis of sectoral innovation systems is on a group of firms that develop and manufacture the products for a specific sector and that generate and utilize the technologies of that sector. The boundary of the system is drawn around a technological paradigm that is formed by a knowledge base, specific technologies and inputs, the different actors and networks that are systemically interacting, and the institutions supporting a specific industry. This is an important difference from value chain analysis, where the logic of the chain is determined by the system surrounding the conversion of a raw material into a product for a market. “

What I am trying to say is that instead of looking at the manufacturers based on similar inputs (raw materials, equipment, skills) and outputs (products and services), in an sectoral innovation system approach we look more at the common technological or knowledge domain that brings various firms and institutions together. This knowledge domain could spread over several industrial sectors, linking different value chain actors together. In fact, many industrial clusters often emerge around a particular group of complimentary knowledge bases. For example, aluminium die casters, aluminium casting equipment manufacturers, and their key customers in the automotive and aerospace industries would make in interesting sectoral innovation system to investigate. On the surface, automotive and aerospace companies don’t seem to belong together, but from a knowledge and technological domain around aluminum processing and its applications it makes sense.

The second part that people get wrong about a sectoral innovation system is that it goes way beyond innovation at the level of the firms. While the physical results of innovation is often easy to see at the levels of firms, this is just the tip of the iceberg. The innovation system describes how knowledge gets created, shared, forgotten and the dynamic relations between them. Furthermore, in any innovation system approach attention must be given to how policies and rules create incentives to innovate (or not to innovate).

Sectoral innovation systems researchers distinguish between high R&D-intensive sectors (such as electronics or drugs) and low R&D-intensive sectors (such as textiles or shoes). These systems change over time as the different elements co-evolve. This means that within a traditional economic sector like the foundry sector (using standard industrial classification schema) there could be areas that are more R & D intensive (such as aluminium) and other parts where the R & D is mainly done either by equipment suppliers or customers. Each of these different intensity R & D systems within the foundry sector would constitute the starting point of a sectoral innovation system. Another example is the machine tooling sector. In some knowledge domains, tooling is developed by the customer of the toolmaker that is developing a new product. In other knowledge domains, the toolmaker is responsible for assisting a customer to come up with a tooling design. Yet in another area, equipment manufacturers push toolmakers to adopt new ways of making tools. For me these are all different sectoral innovation systems. Lastly, these sectoral innovation systems can also be very different within a country like South Africa. Some regions may be dominated by downstream industries like packaging, while other regions might be influenced more by the availability of high quality infrastructure, market density and logistics.

Let me stop here to keep the post short. In conclusion, a sectoral innovation system approach is more about the knowledge and common technological domains than it is about standard classifications of industries and sub sectors. Within an economic sub sector (like tooling or foundries or food processing) there could be several sectoral innovation systems. To make matters more confusing, several different sectors or links in a value chain could be brought together within a particular sectoral innovation system around specific knowledge or technology domains.

I am looking forward to your questions and comments to this post.

 

Sources:

CUNNINGHAM, S. 2012. 2012.  The fundamentals of innovation system promotion for development practitioners. Leveraging a bottom up understanding for better systemic interventions in innovation systems. Mesopartner Monograph 5. Mesopartner.

MALERBA, F. 2005. Sectoral Systems. How and why innovation differs across sectors. In The Oxford handbook of innovation. Fagerberg, J., Mowery, D.C. & Nelson, R.R. (Eds.), Oxford ; New York: Oxford University Press.

 

Preparing for a different manufacturing future

In Africa, we face the challenge of a manufacturing sector that often manufactures products in low volumes. In a country like South Africa, we manufacture a wide range of products but often at low scale. Even our manufacturers that manufacture in larger volumes are still small compared to European or Asian competitors. In some parts of Africa we are further challenged by not having very sophisticated domestic demand in many sectors. When demanding customers are far away it becomes much more difficult to be innovative and well informed of what is possible and what can be done to exceed or at least meet the demands of customers.

But I can sense an important change taking place. I am frequently visiting manufacturers that are becoming much more knowledge intensive. They are smaller and more flexible than their more established competitors, and they combine different skills sets, technology platforms and knowledge bases.

In a forthcoming paper [1] that I co-authored with Garth Williams of the Department of Science and Technology and Prof. Deon de Beer (Vaal University of Technology), we offered the following definition of Advanced Manufacturing.

Advanced manufacturing is an approach that

  • Depends on the use and integration of information, knowledge, state of the art equipment, precision tooling, automation, computation, software, modelling and simulation, sensing and networking;
  • Makes use of cutting edge materials, new industrial platform technologies [2], emerging physical or biological scientific capabilities [3] and green manufacturing philosophies; and/or
  • Uses a high degree of design and highly skilled people (including scientific skills) from different disciplines and in a multidisciplinary manner.

We also argue that Advanced Manufacturing includes a combination of the following.

  • Product innovation: Making new products emerging out of new advanced technologies (including processing technologies).
  • Process innovation: New methods of making existing products (goods or services).
  • Organizational innovation or business model innovation: Combining new or old knowledge and technologies with traditional factors of production [4] in non-traditional fields or disciplines in unique configurations.

I am very proud that our definition of advanced manufacturing was also taken up by the Department of Trade and Industry in their next Industrial Policy Action Plan (IPAP) 2014/15-2016/2017.

The implication is that our technology development, technology transfer and education programmes need to change in order to be better able to equip and support manufacturers. Manufacturers increasingly need to be able to manage multidisciplinary teams using different technologies. These manufacturers must not only be able to learn fast from the market around them, they must be harness and pro-actively develop new combinations of knowledge within their enterprise. Existing or potential manufacturers must also think differently about manufacturing. Smaller factories, using more modern equipment in a flexible way is now a competitive advantage. The entry costs for starting a small manufacturing enterprise has never been so low. For instance, the cost of an automated electronics surface mount production line has come down by more than 70% in less than 10 years. Additive manufacturing allows tooling and products to be developed in parallel, but also makes it possible to develop new products very fast.

Where do South Africa enterprises learn to become more knowledge intensive at the moment? The answer is: At European Trade Shows. If you are a manufacturer or a potential entrepreneur, start saving up. There are many excellent trade shows throughout the year.

Which Meso-organisations offers the best examples, technology demonstration and training on this? Again, European Universities, Technology Transfer centres and universities. (The US and Canada also provide brilliant services, but it is much harder to access for us). If you cannot find a local expert or academics to help you, reach up to Europe.

What do we have to do? Think of ways to get as many of our entrepreneurs curious or interested in the newer technologies available, and learn from our (larger) competitors. Also, we have to get our universities to be more involved in technology adaptation and participating in new research areas. The academia should focus less on publishing in journals and get involved in real research collaboration that gives our industries (exporting) opportunities and that at the same time address unique needs in our domestic markets.

Oh, and by the way. Start reading up on the “internet of things”. Maybe my next post should focus on that.

 

Notes:

[1]  Our paper will be presented at the International Conference on Manufacturing-Led Growth for Employment and Equality in Johannesburg on the 20th and 21st of May. The paper is titled “Advanced Manufacturing and Jobs in South Africa: An Examination of Perceptions and Trends”.

[2] Such platforms have multiple commercial applications, e.g. composite materials, and exhibit high spill-over effects.

[3] E.g. nanotechnology, biotechnology, chemistry and biology.

[4] Labour, materials, capital goods, energy, etc.

 

Building institutions that supports knowledge flows to industry

It sounds like a cliche to state that manufacturing has changed a lot in the last 30 years. Yet people often say this without thinking of how it has changed. It is not just about the size of our manufacturers, or the increased competition from Asia or elsewhere. It is also not about the sophisticated equipment and the tremendous range of products that are now available to consumers. An important aspect of manufacturing change is the dependence on knowledge from internal and external experts, or Knowledge Intensive Business Services (KIBS). These knowledge experts include engineers, product developers, process experts, industry experts or logistical experts. While in a country like Germany, there are many public, academic and private specialists to go around and assist manufacturers to tweak their processes or solve specific problems, in developing countries we have a bigger challenge. Knowledge intensive services are prone to several market failures, and therefore it is important that we consider the role, importance and challenges that these knowledge services have.

Let me just state upfront that despite my PhD research focusing on the importance of knowledge services in the manufacturing sector, I am hesitant to treat the “knowledge economy” as something separate as it is often done in the South. The increasing importance of many different kinds of knowledge throughout the economy is pervasive. Just ask a commercial farmer in Africa how they have had to change their farming practices in the last 3 decades. It is almost unthinkable that 30 years ago a person could start commercial farming without a tertiary education or at least one highly experienced supervisor. The same goes for manufacturing.

There is a big difference between generic Business Development Services (BDS) and Knowledge Intensive Services. While with BDS our problem is to get good all-rounders to provide services to enterprises where it is very hard to determine the real value of the service offering, in Knowledge Intensive Services the service is very specific to a certain (technical) problem, it is deep knowledge and the value (and cost) is usually very clear. Firms that know what they are doing need knowledge intensive service providers to fill in the gaps where deep knowledge is needed, a BDS provider is typically out of their depth with a manufacturing enterprise that are trying to be competitive.

  • The first challenge we have with intensive or specific knowledge is scale. When just a few manufacturers use more advanced equipment in a country there is a good chance that few service providers, experts or technicians will be available. In market failure terms, this is called an indivisibility (you cant divide the cost of the expert easily between different enterprises, or just take a small piece of the expert). It could also be about scale (not enough business to justify the emergence of a specialized service provider). It is often difficult for manufacturers to coordinate their use of expert service providers, or to coordinate the procurement of similar equipment that makes the development of a pool of service providers possible. This is called a coordination failure and it is pervasive in our developing economies.
  • A second challenge is that many manufacturers are hesitant to search outside their firm. This is often due to costs (which includes the time spent to find the right expert), but also because for so long manufacturers had everything they needed in-house. In South Africa, many of our older firms are hesitant to use “consultants” because they don’t trust them. This could be described as a market failure around asymmetrical information or adverse selection.

One way to increase the availability of knowledge intensive service provision in a developing country is through the connection between academic institutions, public funded industry support programmes and industries themselves. This requires that technical or knowledge experts are able to be released from certain teaching or research duties to work with firms. This is often very difficult due to the high student load in many of our African universities. I am often astounded by the world class research capacity and expertise that are hidden inside universities that are desperately needed in industry. This failure has many names, but in market failure terms it is called a public goods failure, in other words, public funds are not used to overcome persistent market failures in industry.

A second and parallel strategy should be to make sure that the Meso level organizations (which include universities and higher education institutions) are concentrating on overcoming the market failures in industries and in firms. In developing countries these Meso organizations, meant to address specific performance issues at firm or industry level, are more focused on securing and spending national (or international) funding than to become valuable and responsive to the needs of industry. To get the Meso organizations focused on the plight of firms requires an industrial and modernization policy that is focused on building the right economic and industry supporting institutions – this cannot be done just by merely implementing projects or programmes – it must be systemic. With right I mean relevant and equipped with high level experts that understand and can relate to the issues in industry.

This phenomena of the disconnect between public knowledge services and the need of industry is more widespread than you would think in our developing countries. It is a public good failure that undermines the well being of our economies. I believe this is also an ideological failure, because governments tries to use their funds to provide incentives or prioritize certain kinds of behavior both in the public sector and in the private sector. Instead of responding to what is emerging or what is needed in the private sector, the public sector tries to prioritize what it believes to be ideal. The result is that the firms that are most able to create jobs and wealth are left without public support.

In Mesopartner we will be working on consolidating our experience in bottom up industrial policy. We will work closely with research organizations and development partners around the world to strengthen and develop a body of knowledge on how some of these issues can be addressed in the developing world. We do this by developing a theme where instruments, concepts, theories and practice can be integrated. If you are interested in participating in this process, or have experience to share, please give us a shout.

I have previously written about this some years ago in the post about the service sector  and about the increased importance of knowledge intensity here.

Moving from generic to specific and then onto systemic

When working with development organizations in the mesolevel we often find that their programmes are very generic. The same can be said of the findings of many diagnosis. The result is that firms do not really use the services of these organizations, because the value add and the impact of the services are not really clear.

For me there should always be a movement from the generic (e.g. the foundry sector is not competitive) towards the specific (e.g. the foundry industry is not competitive because it lacks capacity to do good front end engineering and design). After we have developed a sense of some specific issues that are affecting the performance of firms, there are two things we have to do.

Firstly, we want to try and figure out if there is something that we can do at a more systemic level to try and influence the specific issues. With systemic I mean that instead of addressing a particular issue repeatedly at various firms, see if there are other ways to achieve the same outcome. An example would be instead of only offering a design service to firms, make sure that the university curricula includes sufficient content dealing with design. Of course, we should always strive to have multiple interventions to address a particular issue.

Secondly, we should verify whether our specific findings are unique to the firms we have diagnosed or engaged with. For instance, and food initiative run by a university might find that the private sector is affected by a lack of a particular kind of testing lab. Then instead of designing a solution just for a limited number of producers, the university should check whether similar firms in other industries (related and not even related) are facing the same constraints. It may just be possible to design a solution that is useful to a much broader target group, making the solution more sustainable and more relevant to the private sector.

From my experience of working within many different value chains is that there are many issues that are treated as being unique (or specific) to a particular value chain that are in fact affecting many different kinds of enterprises. The South African Industrial Policy framework for instance is designed around many different sub-sectors, with many different interventions implemented by different organizations and programmes that are actually not unique to a particular sub-sector. This is expensive and also not really systemic, these interventions are not permanently changing the meso level in South Africa or the service offerings of meso organizations such as universities and other development programmes. The South African manufacturing sector is struggling with low volume, outdated designs and rapidly increasing costs across the board. I imagine that it should be possible to based on the insights from the different sub sectors to design much better programmes that are cross cutting over many different sub sectors, and that from the start are designed to improve the service offerings from meso organizations to firms.

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