Innovation Offshoring and Outsourcing: What are the Implications for Industrial Policy

International Journal of Technological Learning, Innovation and Development, 2008 Vol.1, No.3: pp.309 - 329

21 Pages Posted: 27 Apr 2016

See all articles by Dieter Ernst

Dieter Ernst

East-West Center; Centre for International Governance Innovation (CIGI)

Date Written: April 12, 2008

Abstract

This paper examines the implications for Industrial Upgrading (IU) policies resulting from the internationalisation of innovation and the emergence of Global Innovation Networks (GINs). The paper draws on the lessons learned from the innovation offshoring in Asia’s electronics industry. The paper argues that developing countries cannot build their innovative capabilities by solely relying on their national innovation systems and by developing localised innovation clusters. For quite some time, these countries will have to draw primarily on foreign sources of knowledge as the main vehicle of learning and capability formation. To leverage the potential benefits from innovation network integration, host countries must have in place vigorous policies to reduce potentially high costs that may result from ‘brain drain’ (both domestic and international) when Trans-National Corporations (TNCs) are crowding out the local market for scarce skills, or a possible deterrence effect of TNC labs on local R&D; from the acquisition by TNCs of innovative local companies; and from the disproportional high benefits that may accrue to a foreign parent company. The paper further argues that if no policies exist to develop strong local companies that can act as countervailing forces, integration into GIN is unlikely to produce sustainable long-term economic benefits. The paper discusses three generic policy issues that host countries need to address to maximise the benefits from the internationalisation of innovation: (1) What changes in IU strategies are required as Asia emerges as an important location for GINs that are being grafted on to existing GPNs? (2) What are the implications for policies that seek to attract and expand R&D by TNCs in order to become better connected to GINs? (3) What policies can host countries use to enable local firms to leverage participation in such networks to develop their own innovative capabilities? The paper concludes with policy recommendation and suggestions and future research agenda

Keywords: innovation offshoring, Global Innovation Networks, GINs, Trans-National Corporations, TNCs, Industrial Upgrading, industrial policy, brain drain, national innovation systems, innovation clusters

Suggested Citation

Ernst, Dieter, Innovation Offshoring and Outsourcing: What are the Implications for Industrial Policy (April 12, 2008). International Journal of Technological Learning, Innovation and Development, 2008 Vol.1, No.3: pp.309 - 329. Available at SSRN: https://ssrn.com/abstract=2770095

Dieter Ernst (Contact Author)

East-West Center ( email )

1601 East-West Road
Honolulu, HI 96848-1601
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

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