Concept and benefits of innovations
In the context of private sector development, “innovation is understood as the commercially successful introduction or implementation of a technical or organisational innovation.” It can be the result of the development of new products or processes, or improvements of existing ones. It also includes the adaptation and introduction of products and processes to new markets (German DC Working Group on ‘Promoting Innovation Systems’).
Innovative products and processes are crucial for increasing the competitiveness, growth and employment generation of individual enterprises and developing economies as a whole. They also have the potential to address specific needs of poor producers and consumers, such as affordable, pro-poor technologies or agricultural innovations.
The Economist’s Schumpeter blog argues that imitation is as important as innovation, as it is widespread and offers significant benefits, such as cheaper research and development and less risk of products failing market testing. Ben Ramalingam responds, though, that imitation is not always easy, and may involve innovative adapting of the original product, and that innovators are still needed in an economic eco-system for imitators to copy from.
An interesting reflection on the use of the term innovation in the donor community is offered by David Lewis on the Guardian Poverty Matters Blog: In his post “Is innovation really essential for development work?” he cautions against an excessive and undifferentiated use of the term. Using the term without a clear meaning should be avoided. Donors should also recognise that not everything can, or should be innovative, as it is a distinctive, risky and often costly activity. Further, he notes that the pressure to innovate may be inefficient and risks reinventing the wheel where effective solutions may already be in place. Innovation should never be seen as an end in itself, but as a tool.
Constraints to innovation in developing countries
Whether an entrepreneur will engage in technical innovation depends partly on the incentives provided by the size and functioning of the market. In developing countries, markets are often small, fragmented and imperfect due to lack of infrastructure, low per capita incomes, as well as misguided policies and institutional constraints, which provide little incentive for innovative activity. (Szirmai, Naudé 2011). Other major constraints to innovation include limited access to finance, a lack of market information, and skills shortages among entrepreneurs. Among smaller businesses in particular, and in some cultural contexts, there may also be only little awareness about the long-term benefits of innovation, or there may be a general lack of appreciation for innovative activities.
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Donor approaches to innovation promotion
Donor programmes follow different approaches to promote innovation in developing countries. An overarching framework for innovation policy is the innovation system. Innovation systems refer to the interaction between companies, research organisations and the state in the creation, diffusion and use of innovations (Science and Development Network). Donor support to innovation systems spans a broad range of activities, including the creation of appropriate framework conditions for innovation, and the development of innovative capacities of companies.
Donors aim to create enabling environments for innovation by advising governments on property rights, cutting red tape, improving access to finance, or tax incentives. They can also help improve the conditions for innovation by funding university facilities and equipment, or training of academic staff.
More targeted approaches may vary for different types of firms (e.g. World Bank 2004). For very small enterprises, donor support may focus on basic business advisory and support services, finance and skills development and providing access to information and communication technologies (ICTs). It may also include awareness-building about the benefits of innovation or information on the adoption and application of new technologies (UNIDO 2003).
For technologically competent enterprises, examples of donor support are the establishment of business incubators to facilitate new business start-ups, technology extension services to expose enterprises to new technologies, and technical assistance to the commercialization, licensing and patenting of products.
With growing innovative capabilities of businesses, the transfer and diffusion of new technologies from larger (often multinational) to smaller companies also becomes an important aspect of innovation policy. Common ways to promote linkages between firms are value chain and cluster approaches: Supplier and subcontracting relationships can be instrumental in helping smaller firms access markets and technology of larger enterprises; in addition, being part of a cluster can help small firms to specialise, absorb new technologies and procure their inputs.
The Basics: Innovation and Innovation Systems
- Developing National Systems of Innovation. University-Industry Interactions in the Global South, Eduardo Albuquerque, 2015. (Book)
- National innovation systems, developing countries, and the role of intermediaries: A critical review of the literature, Open University, 2014.
- Innovation for Development: A discussion of the issues and an overview of work, OECD Directorate for Science, Technology and Industry, 2012.
- Promotion of Innovation Systems, German Development Cooperation Working Group on Promoting Innovation Systems, 2010.
Innovation and the developing world: obstacles and opportunities
Introductory resources and current thinking
- GIZ (2017): Knowledge, Technologies and Innovation for Development in the Agenda 2030: Revisiting Germany’s contribution.
- Innovation in Nigeria, Centre for Economic Policy Research, May 2016.
- Innovation capabilities for sustainable development in Africa, UNU-WIDER, 2014.
- Innovation systems framework: still useful in the new global context?, UNU-MERIT, 2013.
- Entrepreneurship and Economic Development. Theory, Evidence and Policy, IZA Working Paper, 2013.
- Innovation and Entrepreneurship in Developing Countries. UNU-WIDER Policy Brief, 2011
- The performance of firms in Latin America and the Caribbean: Microeconomic factors and the role of innovation, UNU-MERIT, 2015.
- Collaborative Innovation: Transforming Business, Driving Growth, WEF, August 2015.
- Supporting Growth-Oriented Women Entrepreneurs: A Review of the Evidence and Key Challenges, The World Bank Group, 2014.
- Latin American Entrepreneurs: Many Firms but Little Innovation, The World Bank, 2014.
- Building up of a National Innovation System for a Poor Country – Case evidence from the national innovation system of Mozambique, Maria Lima-Toivanen, 2013.
- Ghana Entrepreneurship Ecosystem Analysis, Koltai & Company, LLC for DFID, 2013.
- Compendium of Evidence on Innovation Policy, Manchester Institute of Innovation Research, 2012.
- Understanding Responsible Innovation in Small Producers’ Clusters in Northern Vietnam: A grounded theory approach to globalization and poverty alleviation, Jaap Voeten, 2012.
- A Multilevel Analysis of Innovation in Developing Countries, CERGE-EI, 2011.
- Openness and Technological Innovations in Developing Countries: Evidence from Firm-Level Surveys. Journal of Development Studies, Vol 44/5, 2008.
- Innovative Firms or Innovative Owners? Determinants of Innovation in Micro, Small and Medium Enterprises. World Bank Policy Research Working Paper, 2009. (Sri Lanka case study)
- Agribusiness and Innovation Systems in Africa, The World Bank, 2009.
Innovation policy in developing countries
- The Global Innovation Index. Effective Innovation Policies for Development, Cornell University, INSEAD and WIPO, 2015.
- Enabling Innovation and Productivity Growth in Manufacturing Small and Medium Sized Enterprises in Low Income Countries: Exploration of policy and research issues in Kenya, Tilburg University, 2015.
- Financing business innovation. A review of external sources of funding for innovative businesses and public policies to support them, The World Bank Group, 2014.
- Inclusive Innovation. Harnessing creativity to create economic opportunities and welfare for the poor, The World Bank Group, 2014.
- Making Innovation Policy Work – Learning from Experimentation, OECD and The World Bank Group, 2014. Read by chapter
- DFID is supporting a four-year research project “Coordinated Case Studies – Innovation for Productivity Growth in Low Income Countries“, implemented by Tilburg University and other partners. An initial diagnostic report and policy briefs published by the project are listed below.
- Policy Diagnostics Report Kenya, Innovation and Growth Research Project, 2015.
- A Series of Policy Briefs: Promoting Innovation and Finance for Productivity Growth in Low Income Countries, Innovation and Growth Research Project, 2015.
- Policy Brief: Promoting Human Capital and Innovation in Low Income Countries, Innovation and Growth Research Project, 2015.
- Promoting eco-innovation. Challenges and potential solutions for private sector development, GIZ, 2013.
- Start-up promotion instruments in OECD countries and their application in developing countries, GIZ, 2012.
- The World Bank (2012): Agricultural Innovation Systems. An Investment Sourcebook.
- Toolbox for Promoting Innovations Systems, GIZ, 2014.
- Innovation Policy. A Guide for Developing Countries, The World Bank, 2010.
- Global Good Practice in Incubation Policy Development and Implementation, The World Bank, 2010.
- Website of the Innovation Policy Platform, a joint initiative of OECD and the World Bank Group.
- The Practitioner Hub on Inclusive Business.
- The Global Network for the Economics of Learning, Innovation and Competence Building Systems
- Reports on specific sectors (e.g. ICTs) are available on the DCED Value Chains database