Innovation

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GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 10 Others 45.3% India: service sector as share of GDP (%) 54.7% Service Others 55.1% 44.9% Service Others 58.6% 41.4% Service India: GDP per capita (USD, constant 2000) 600 550 500 450 400 350 300 250 200 150 100 Source: CEIC, World Bank, Datastream, Bloomberg, Credit Suisse 1960 1965 1970 1975 1980 1985 1987 1990 1995 1997 2000 2005 2007 2010 India: An innovation hotspot India has become one of the world hotspots for innovation over recent years, producing notable achievements in medicine, information technology and other sectors. The kindling of an innovative spirit has contributed to the country’s economic success story, as highlighted by increasing GDP and the growing role of the service sector.
GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 11 The revolution is just starting Growing computer power, nanotechnology, gene science: it is easy to see the early 21st century as one of the globe’s most innovative periods. But it can be argued that what we have seen so far of this information-based, technoeconomic revolution has yet to cause shifts as profound as those triggered by, say, the Industrial Revolution or the invention of the internal combustion engine. Changes in the way we foster innovation are needed if we are to gain full benefits of the new revolution. Giovanni Dosi, Professor of Economics at the Sant’Anna School of Advanced Studies, Pisa Is technological innovation the most important driving force behind economic growth, or do other factors have equal weight? Since the Industrial Revolution, innovation has been a fundamental engine of growth. History, however, is more complex than might appear at first sight. It is too simplistic to look solely at technological innovation. This must be accompanied by the evolution of organizational institutions if growth is to be sustained. From the invention of modern factories at the end of the 18th century right up to “Toyotism” — the market-driven production techniques developed by Toyota — in the late 20th century, one can see how organizational and technological innovation are essentially two sides of the same coin. Technological innovation will not create sustainable growth without the evolution of formal organizational institutions. Paul David, Professor of Economics and Economic History at the University of Oxford, says the absence of such organizational development holds back change in major new technological paradigms. Another factor at play is the rate at which innovation is modulated by the size and dynamic of the market. In the 1960s, a view developed that much innovation was driven by demand, so one would expect that high demand in one area of activity would focus innovation research in that area. But, while some examples back up this hypothesis, others indicate the activity of innovation is governed more by supply than demand. In other words, opportunities arising from developments in advanced applied sciences and engineering can also push innovation. So the idea that bigger markets trigger more innovation is sometimes true and sometimes not. It is often said that the era of information and communication technology (ICT) is producing one of the greatest ever periods of innovation. Is this the case? Clearly, ICT encompasses a set of broadly applicable technologies that influence the rate of innovation in almost all industrial sectors – and increasingly in the service sector too. In that sense ICT, as a new technoeconomic paradigm, is comparable to electricity or the internal combustion engine, even if the effects are not necessarily as dramatic. For example, changes heralded by the introduction of electricity in terms of speeding up the transmission of information can be seen as much greater than those of the ICT era – the leap between the pre-electricity era of carrier pigeons and horse-back mail and the innovation of the telegraph and telephone was arguably much greater than that from phone to Internet.
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Innovation

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