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Why there's more to innovation than technical ingenuity

By John Mathews - posted Saturday, 15 January 2000

Innovation was very much in the public spotlight when the nation's business leaders, senior public officials, engineers and corporate executives gathered in Melbourne for the Innovation Summit in February 2000. Amongst the issues they will be debating were how to raise Australia's level of corporate R&D spending, to bring it more into line with other OECD countries, and how to bring industry and the academic research community closer together. These are undoubtedly important issues. But a dozen Summits devoted to these themes would not advance Australia's productive potential. Our problem lies elsewhere.

Lack of technical ingenuity is certainly not Australia's problem. We have shown repeatedly a capacity to develop world class technical breakthroughs, from pathbreakers like the stump-jump plough in the 19th century agricultural industry, to new wheat and crop strains developed jointly by CSIRO and farmers, orbital engines and fuel pumps, to pharmaceutical and biotechnological breakthroughs in the past decade.

So good are Australia's R&D laboratories, and so low are their costs relative to those found in the industrial heartlands of the USA, Japan and Europe, that multinational firms increasingly view Australia as a desirable place to locate corporate R&D facilities. The point is that the performance of R&D cannot be equated with innovation in industry and technological upgrading to secure and maintain international competitiveness.


When this broader perspective is taken, Australia can learn some valuable lessons from its East Asian neighbors. In Taiwan, for example, industry is kept under constant pressure to maintain its innovative activity, ie to keep renewing itself technologically. This does not involve firms being required to generate "new knowledge" but ensuring that they have access to the latest and most important technological breakthroughs, and that they actually implement them in their products and processes.

The institutional framework within which business functions in Taiwan is designed to bring about such a result. The tax system is designed to give incentives to firms to upgrade technologically, through equipment replacement credits and tax incentives. On the other hand, firms which refuse to upgrade technologically, but insist on securing a competitive position simply on the basis of low costs, are excluded from benefits, such as through having access to export credits curtailed. Incentives and discipline work together to secure a desirable outcome for the country as a whole.

Firms are given every assistance to locate the sources for technological innovation, such as through the Industrial Technology Research Institute (ITRI). This body, which is comparable in size to Australia's CSIRO, acts as a huge scanning device, monitoring the world technological horizon for new technologies of interest to firms in Taiwan, and securing access to them (eg by licensing or purchasing or putting its engineers into projects designed to master the technology concerned). This new capability is then diffused across to the private sector as rapidly as possible through ITRI forming R&D consortia with groups of firms selected for the purpose (chosen in part through their willingness and in part through their demonstrated technological capacities).

For example, Taiwan was an early follower in the bicycle industry, but saw its world market share decline in the late 1980s as its costs rose. The Industrial Development Bureau (IDB) of the Ministry of Economic Affairs combined with ITRI to place the industry on a new technological footing, identifying carbon fibre as a new material of choice for specialist bicycles. As ITRI developed carbon fibre bicycle frames, in conjunction with lead firms in the industry, the MoEA acted to provide incentives to firms to upgrade. The result by the mid-1990s has been a revitalized Taiwan bicycle industry which is now a technological leader.

More recently the IDB has combined with ITRI to promote electric-powered motor cycles and even electric four-wheeled vehicles, again through ITRI locating the most desirable technological options, and the IDB promoting the technological upgrading of the existing industry to encompass electric-powered vehicles. Several R&D consortia have been formed to promote the diffusion of new prototype vehicles developed. The result is that as Taiwan enters the 21st century it boasts world-leading electric vehicle industries which are set to achieve substantial export victories wherever polluting petrol-driven engines are reaching environmental limits -- which will mean almost everywhere.

The key to relentless technological upgrading, which keeps firms innovative and competitive, in Taiwan and elsewhere in East Asia, is not just a focus on the technicalities of knowledge generation. It is even more importantly concerned with the creation and operation of institutional machinery for managing the process of diffusion of new techniques throughout the economy.


To manage the process of diffusion is every bit as hard, or harder, than the process of knowledge generation in the first place. It means ensuring that there is a plentiful supply of innovative new firms, that they are well managed and disciplined by a favorable business environment, and that they are given every incentive and opportunity to upgrade technologically, through collaborative arrangements like R&D consortia, through incubators, through tax incentives, and so on. It means that a lead agency takes responsibility for setting a lead for industry to follow -- without preventing firms which are already masters of innovation from pursuing their own goals.

There are many reasons why this perspective is so under-developed in Australia. It could be that it does not gel with our aspiration to be the "next" Silicon Valley or to come up with the next biotechnological breakthrough -- as Australians did with penicillin, for example, in the immediate postwar years. It could be that R&D and knowledge generation represents the "acceptable" face of business in Australia, where there is widespread suspicion of the profit motive. It could be that management of diffusion is seen as "free riding" on others' achievements.

Whatever the reason, it is now a matter of public urgency in Australia that we pay long overdue attention to our institutions of technology management and diffusion. CSIRO has done a wonderful job of promoting technological ingenuity. But something more is needed if we are to prosper as a wealth-generating nation in the 21st century. The rapid rise of countries like Korea, Taiwan and Singapore as technological powers, demonstrates that painstaking attention to the institutions of diffusion is every bit as difficult, and important, as attention paid to traditional knowledge generation.

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The themes addressed in this article are discussed at greater length in the newly published ABF Working paper, "Encouraging knowledge-intensive industries: What Australia can draw from the industrial upgrading experiences of Taiwan and Singapore."

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About the Author

John A. Mathews is the Eni Chair of Competitive Dynamics and Global Strategy at LUISS Guido Carli University, Rome. He is concurrently Professor of Strategy at Macquarie Graduate School of Management, Sydney. His most recent paper is ‘Naturalizing capitalism: The next Great Transformation’, published in the journal Futures.

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