The concept of innovation systems developed simultaneously in different areas in the US and Europe in the 1980s. In recent years, there has been increasing appreciation of the role of NIS in facilitating economic growth and shaping innovation. NIS involves the financial capacity of an economy to invent, diffuse, commercialize and make use of new knowledge and technology. This paper discusses the elements of NIS, the rationale of the innovation system to a country and comparatively analyses its application in developing and developed countries. Even though third world countries have not advanced innovation systems, NIS plays a crucial role in promoting and shaping innovation in developed countries such as the US. The NIS in the United US is tailored to facilitate the harnessing of technological inventions, which gives the country’s enterprises a competitive advantage in the global market.
The phrase ‘National Innovation System’ was coined by Lundvalle and Freeman in 1987. Since then, the meaning and scope of NIS have been a growing subject of analysis, with different descriptions of the term being put forward. Freeman (1987) defined NIS as a complex of institutions in the private and public segments whose activities and relations initiate, import, modify and diffuse new technologies. NIS refers to the elements and associations whose interactions in producing, diffusing and using new technology is found within a nation (Lundvalle, 1992). It also involves the competency and structure of a country’s institution in determining the direction and rate of technological learning (Patel and Pavitt, 1994). Metcalfe (1995) found that NIS refers to that system of diverse organisations, which individually and jointly contribute to the development and dissemination of technologies. This scheme provides a structure within which a government can form and implement policies to influence the innovation process. Therefore, it is a scheme of interconnected institutions, which create, store up and diffuse technological knowledge, skills and artifacts.
From the previous dominant definitions, NIS entails the interplay of the following elements at the national level:
- Invention and modification of technology
- Diffusion of technologies
- New economic value through entrepreneurial exploration and use of new knowledge
- The competency of national structures in influencing the rate and direction of technological learning
- State policies that facilitate the process of innovation
- Interconnectedness and interaction in institutional networks in innovation and technology implementation.
NIS involves the interaction of these elements at the national level from the initial stages of research and invention, to the commercial utilization and imitation of new technologies.
NIS came into being due to the recognition of the significance of information and communication technologies (ICT) in influencing technological advancement and national economic development. ICT also fuelled economic globalization, technological developments and universal manufacture and service provision. In turn, globalization led to increased competition across national boundaries, thereby making it imperative to innovate.
Schumpeter argued that innovation is a primary goal for any person who wants to make a profit, as it is an indispensable driver of economic dynamics and competitiveness (Slezdik, 2013, p. 90). According to this author, innovation involves industrial mutation, which continually transforms an economic system from within. As this transformation occurs, old structures are destroyed and replaced by new ones. He further outlined that innovation has four different dimensions, including the invention, innovation, diffusion and imitation (Slezdik, 2013, p. 89). His theory postulates that basic invention has little impact as compared to imitation and diffusion whose effects ripple through an economy. Inventions, therefore, have an impact only when entrepreneurs adopt scientific inventions since this creates new growth, employment, and investment opportunities.
National innovative performance depends on the manner in which the identified NIS elements collectively interact with each other in the creation of new knowledge and use of new technology. According to OECD (1997, p. 9), the NIS concept rests on the premise of the understanding that the linkages between innovative actors are vital to enhancing technological performance. Innovation and technical progress are the outcomes of a complex network of relationships among actors who are involved in the production, distribution and application of knowledge (OECD, 1997, p. 9).
At the initial stage, studies are undertaken by a country’s academia and public research institutions. The government provides a regulatory environment for the entire process of discovery and new technology use. The state also coordinates the research through policies and outlining future perspectives. Once an invention is made, the entrepreneurs or private enterprises adopt and invest in the new technology, which translates into economic growth. In order to promote innovation, there has to be interaction between the actors. OECD (2009, p. 9) identifies that such linkages can be forged through exchanging personnel, purchasing equipment, joint research and cross-patenting.
A credible innovation system is a vital constituent in the creation of sustainable innovation performance. In the current era of rapid market changes and competitiveness, NIS and the stakeholder linkages facilitate the harnessing of creative inventions and their adoption through private enterprise investments. An operational national innovation system, therefore, increases the diffusion of new technologies, which enables a country to maintain its international competitiveness.
Comparative Analysis of developed and developing Countries on NIS
There are different factors influencing the national innovation system, consequently leading to improved performance of a state. A country’s innovative performance is largely dependent on the diverse actors that affect technology. The idea of the national innovation system has increasingly gained popularity in its analysis of technology in different states, which is a significant factor in economic growth. Understanding the linkages between related institutions, especially their relationships in terms of creation of knowledge, influence how it is diffused and used.
Over the years, studies have concentrated on the aspect of the national innovation systems in developed countries such as the US; however, implementing and studying of NIS in developing countries is minimal. The few developing countries that have been focused on the studies involving NIS include Korea and Singapore, which have more stringent policies on technological learning, a factor that enhances the chances of catching up with the more developed countries. Innovation in the different countries generates new jobs, productivity, and material welfare to meet the society’s needs. Most of the developing countries in Asia, Africa, and South America have few resources, food shortage and have a low gross domestic product. These countries, mostly concentrate on dealing with fundamental problems such as food shortage at the expense of developing the technology. Consequently, delays in adoption of innovation systems make the developing countries lag behind in terms of economic development. The developed countries create entry barriers in the market to the fewer developed states and, therefore, unfavourable competition that leads to tremendous profitability of the former at the expense of the latter. Some of the distinctive features of NIS in the developing countries include (Intarakamnerd, Chairatana, and Tangchitpiboon, 2000, p. 6):
• The level of development of the third-world countries relates to the national innovation systems; therefore, NIS linkage with economic development structures is necessary.
• The lack of development of NIS in the developing countries is by order; therefore, one should consider the phases from the starting point.
• In the developing countries, capital accumulation is the primary contribution the technical progress, contrary to the developed nations that emphasize intangible assets.
• Intensive learning on NIS is inadequate in the developing states and, therefore, catching up with other countries is a challenge.
The national innovative systems encompass different paradigms that discuss various variables that shape idea, especially in relation to the economy. There have been increasingly several concepts that put more emphasis on the systematic characteristics of the concept of innovation. Systemic approach development has been concurrent with parallel efforts in the economy, aimed at integrating innovation and knowledge into the neo-classical growth theory. The theories reflect the new technologies, although the old paradigms emerge once in a while in discussions. However, there is a modern version of the idea of the national innovation systems, which were mainly in developed countries such as the US and the UK.
Schumpeter’s Contribution to National Innovation System
The study of innovation systems was motivated by Schumpeter, who emphasized the need to understand the sources and nature of economic growth. The scholar further argued that innovation revolutionizes the structure of the economy of a country (Marleba, 2007, p 4). Schumpeter’s view of innovation has contributed extensively to the processes related to new business ventures. Schumpeter argues that innovation is a new combination, which offers two contradictory aspects of the concept (Carlsson, 2003, p. 1). These aspects are the radical change, referring to new combinations and continuity, which are the existing elements (Xu et al., 2007, p. 11).
The neo-schumpeterian approach to the economy of a state does advocate for the introduction of novelties, which are important in any financial system of a country. Technological innovation is amongst the most influential form of novelty. Therefore, the Schumpeterian view incorporates learning behaviour and change at the microeconomic level, the meso level in the innovation-driven industries and the macro-level, where international growth and competition are involved (Hanusch and Pyka, 2007, p. 6).
Neoclassical theory is set up on the premise that underdevelopment is primarily attributable to the government’s excessive control and interventions in the economy. However, the theory has been criticized for encouraging monopoly and a non-competitive market because of the lack of a regulatory framework. Primarily, the classical school of thought was first advanced as laissez-faire in the 18th century. Although the classical school of thought had formed part of economic debate in the 18th century. In this respect, economists such as Friedrich List had actively made critiques of the school of thought citing the need for government first to develop their economies (Badeen, 2011, para 4). In this respect, the school of thought was suppressed until in the 19th century by modernity and the emergence of the neoclassical theory. The theory is traceable to the late 1980 where the counterrevolution in the theory of development takes root. Notably, during this period, neoclassical theory, which is at times known as neoliberal theory, reinvented the development theories dominance over an array of other structural schools of thought.
The emergence of the classical theory occurred in a period where most developed countries seemed to shun the trend of controlling capital movements and the reemergence of market-oriented interventions. Consequently, the neoclassical theory advocates for a more liberal approach to trade and fewer restrictive systems, thereby according the free flow of products and services without excessive regulations. The Neoclassical theory emphasizes on the concept of free and open markets (Knoedler, Prasch, & Champlin 2007, p.87). For this reason, neoclassical theories advocates for less institutionalization of the wealth of nations and a more cross-cultural approach to the economy (Durrenberger & Martí, 2006, p.194). In this regard, classical theories are more aligned with a more evolutionary approach to the economy. Consequently, the neoclassical theory tends to intertwine both the evolutionary economic theory and the institutionalization paradigm into a cross-cultural fusion on an international level.
The Theory of Modern Innovative Enterprise
Principally, unlike the classical theory that is criticized for encouraging cross-cultural approach to the markets, the innovative enterprises advocate the firm as the focal point for economic growth. The theory of modern innovation system supports the institution as the focal point for national economic growth. The theories ideas are in sharp contrast to the classical school of thought that critics the firm as the focus of national economic growth. The theory of modern, innovative enterprise advocates for the transformation of the cost structure as the most informed way of growing an economy. Further, the approach focuses on the growth and development of productive resources in the firm to generate higher quality, while incurring low costs of production and services. In this regard, the theory advocates for the government to establish support mechanisms towards the achievement of the innovative enterprises as opposed to the overreliance on what neoclassical theory refers to as cross-culture interactions (Chang, 2007, p.134). To this end, modern, innovative theory argues that the economy gains significantly from the government’s economic policies and support. Notably, the approach differs with the neoclassical theory, which describes the market as a perfect competition.
The modern, innovative theory argues that in an economy where monopolistic tendencies are encouraged, then there are possibilities of the growth of new firms. The possibility of the emergence of new firms is reduced by the existence of large companies that do not offer the new enterprises any possibility of growth. Further, the theory of modern innovation elucidates the deficiency in the market economy approach, and better expounds on the real elaboration of the nature of the firm. Constrained optimization is significantly negated in the theory of innovative enterprise. Alternatively, they were substituted with an understanding of the robust economy as a communally uncertain environment, where outcomes are the premises of economic development and not in effect the causes (Jones & Zeitlin, 2008, p.73).
NIS and how it has shaped and promoted Innovation
Innovation should be considered as more than just science and technology because it is responsible for the promotion of these two elements. The NIS includes the elements that make up the economic and political factors; in addition, it also features the social institutions that have implications on innovation. Some examples of the features of NIS include national financial systems, systems of pre-university education and regulatory policies among others (Atkinson, 2014, p. 1). The NIS is rather a network of different institutions that exist in the public and private sector, which tend to initiate, enhance modification and diffusion of new technology. Bozeman admits that NIS, such as policies and institutions, have the ability to shape the innovation within an economy (1999, p. 1).
The Organization for Economic Development (OECD), suggests that NIS encourages the flow of information and technology among enterprises, institutions and people, which are the key components of the innovative processes (1997, p. 7). The organization argues that NIS can shape innovation by identifying different leverage points that would enhance performance and competitiveness of innovative processes. These systems also help in pinpointing the existing mismatches in the current systems in institutions and government policies. If the mismatches are not spotted, they can reduce the development in technology and innovation. Both the OECD and Bozeman (1999, p. 1) reveal that the NIS is a complex system. The author adds that the degree of influence on innovation is nation-specific. There are many different factors in terms of policies and institutions that affect the direction and rate of advancement innovation at national level.
In the United States, for example, the nation-specific factors that have shaped and promoted innovation are the growth of national security missions, which determine the research policies. The defense projects have majorly influenced innovative advancements. Intarakumnerd, Chairatana and Tangchitpiboon (2002, p. 1445) reveal that the concept of NIS can promote innovation by influencing the functions and policies of institutions to adopt intensive-learning by the nationals. Such learning practices will facilitate technological advancement and help the learners to catch-up on other developed economies. The authors, just like Bozeman, acknowledge that the governments play the key role in the innovative advancements triggered by NIS.
Ramanathan (p. 28) reveals that in countries that are economically advanced, such as those in Europe and North America, the governments offer enough support for NIS. As such, there have been research institutions and universities, among others, which work collaboratively to promote and shape innovation as from the company level. The main reason for government participation in such practices is that they spur economic development. Innovation is crucial in maintaining the viability of companies, particularly those that exist in dynamic business environments. Businesses in the current market tend to prefer locations where intellectual property and knowledge positively influence a firm’s competitiveness and the economy (Habaradas, 2008, p. 2).
In the United States, the intellectual property system is deeply rooted into the country’s constitution. This situation has given Congress enough power to promote the adoption of innovative process and ownership to these ideas. With the owners feeling that their intellectual property is secure, they are encouraged to make innovations in the future (Atkinson, 2014, p. 13). The government also offers a good regulatory climate for businesses that are innovation-based. However, it should be noted that the creation of a good environment does not mean that the businesses do not have any regulations, although the government acknowledges that the provision is crucial in sustaining markets and flourishing innovation. Such an environment when created by NIS, also leads to the creation of supportive science and technology culture. The existence of such a culture encourages the flow of global ideas and creates the right ambience that is bound to promote innovation (Ramanathan, p. 33).
The government must create awareness of the benefits of innovative activities that will lead to the creation of such a culture that would change the economy. Yuri, Irina and Zivota (2011, p. 25) state that the government has to give attention to awareness creation of innovative products, and this can be realized through proper innovation policies. Such policies and proper implementation of the same do enhance the functioning of NIS and shape the innovation adoption in different sectors. State agencies play crucial roles in promoting innovation within the NIS because of the services that they provide, which enhance the performance of the systems. Another way that NIS can promote and shape innovation is through public policy. Relevant government institutions can enhance the flow of knowledge into the economy. The institutions can enhance the importation of foreign technology and diffusion of such. These practices are meant to reduce the challenges that are faced during the adoption of technology (Habaradas, 2008, p. 6). Supportive economies, with adequate technology and development, encourage innovative companies to continue to innovate (p. 20). Governments are not the only actors of NIS; private firms are also a part of this lot.
Some firms have undergone massive growth without much advancement in their technological capabilities, and this has led to slow learning of innovative practices. Some firms prefer to import the technology they need rather than come up with innovative practices. Others have even engaged in joint ventures with foreign entities in an attempt to acquire new technology. The companies, however, have realized that these solutions are temporary, as such they have to set up their R&D centers in order to promote innovation and achieve a long term solution (Intarakumnerd, Chairatana and Tangchitpiboon (2002, p. 1447).
Universities are also actors in the NIS and have the power to shape the course of innovation. Atkinson (2014, p. 3) reveals that universities can form partnerships with governments for research in an effort to spur innovation and investment in information technology. The research outcomes aids encouragement of technology adoption in the private sector and R&D. Intarakumnerd, Chairatana and Tangchitpiboon (2002, p. 1451) indicate that if the research capability of the university is unsatisfactory, its effectiveness as an actor of NIS becomes insignificant.
For the major actors in the NIS, there needs to be a more focused approach to realize promotion and shaping of innovation, at national or other levels. Ramanathan suggests that there needs to be encouragement of partnerships between different actors of NIS. For instance, universities can partner with R&D institutions or the institutions can partner with governmental policy-formulating bodies (p. 32). These partnerships will enhance innovation that will lead to new technology; however, they usually require fiscal support from financial agents to fund such practices (Pellegrin et al., 2010).
Critique of the National Innovation Systems
The correlation between economic development and innovative structures cannot be underemphasized. Arguably, in a technologically robust world there is a need for economic growth to be intertwined with innovative strategies. Therefore, without this dynamic investment the probability for the growth of an economy is highly limited (Niosi, 2010, p.73). In addition, the possibility of any nation competing with other wealthy countries is significantly dependant on the capability of the country investing in innovative approaches. The successful production of any quality product depends heavily on two concepts; firstly the operational system and secondly, the innovative system. Essentially, the either may be the cause of economic failure in the firm and the national economy in extension.
On the other hand, the possibility of innovative ideas varies with regions: different regional backgrounds do not have an equal balance of creative ideas and innovative strategies. To this end, there is always a possibility that some regions or wealth of nations will benefit more from innovations than others. Secondly, the aspect of the coordination of ideas manifests. In this regard, it is probable that different agents will have varying innovative ideas (Fischer, 2001, p.14). The coordination of these agents’ plans, and ensuring that all the ideas do work for the growth of the firm and the economy of the nation is daunting for the relevant authorities.
National innovation systems are crucial in shaping and promoting innovation in different countries. The role of the national innovation system is to guide development of the essential ideas, which consequently leads to economic growth of a region. The NIS is different in the developing and developed countries, as the third world states lag behind in technological advancements. This aspect further derails the economic progress of the developing countries. The concept of national innovation systems is understandable through an analysis of the different paradigms that relates to it. For instance, the Schumpeterian view of innovation systems arises from this idea of new combinations, which depicts creativity that enhances economic growth and development. The United States’ NIS has developed over the years to encompass technological advancements, despite different challenges such as the recession. However, the policies that govern the national innovation systems in the US are keen on promoting innovation that is beneficial to the country.
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