Tài liệu OPEN INNOVATION AND NANOTECHNOLOGY - AN OPPORTUNITY FOR TRADITIONAL INDUSTRIES ppt

By observing industrial and technological lifecycles, this paper aims to establish towhat extent these changes affect the R&D collaboration networks in the industry.The paper also provid

OPEN INNOVATION AND NANOTECHNOLOGY

- AN OPPORTUNITY FOR TRADITIONAL INDUSTRIES

Tuomo Nikulainen

M Sc in Economics

Etlatieto Ltd / ETLA (The Research Institute of the Finnish Economy)

Lönnrotinkatu 4 B, 00120 Helsinki, Finland

11.4.2008

TABLE OF CONTENTS

Abstract 1

1 INTRODUCTION 2

2 LIFE CYCLES AND R&D COLLABORATION 4

2.1 Industry life cycles 4

2.2 Technology life cycles 4

2.3 R&D collaboration and absorptive capacity 5

3 THE FINNISH PULP AND PAPER INDUSTRY 7

3.1 Technological change in the paper and pulp industry 8

3.2 Nanotechnology and pulp and paper industry 10

4 DATA AND RESULTS 12

4.1 Technology life cycles 12

4.2 R&D collaboration 13

4.3 Challenges in adopting nanotechnology 16

5 CONCLUSIONS 19

References 21 APPENDIX I – Detailed technology classifications

This paper focuses on assessing modes of R&D collaboration and technologicallifecycles in the Finnish pulp and paper industry This traditional and mature industry

is currently going through changes due to market and technological developments

By observing industrial and technological lifecycles, this paper aims to establish towhat extent these changes affect the R&D collaboration networks in the industry.The paper also provides insight how the incumbents in this industry change theirinnovation activities in the face of new science-based technology – nanotechnology.The quantitative and qualitative results suggest that the Finnish pulp and paperindustry is adapting to the changing innovation environment by increasing in-ternalR&D investments, and extending and diversifying their R&D collaboration networks.The results also indicate that nanotechnology is seen as a potential new source ofbusiness for the pulp and paper industry, but requires investments to absorptivecapacity in order to take advantage of new technologies

1 INTRODUCTION

Every industry goes through a life cycle starting from the emergence phase andeventually reaches stabiliza-tion stage where the markets are dominated by fewcompanies Coinciding with this evolution, which is often cited as the industry lifecycle, is the technological change that affects the industry These technologicaldevelopments and their cyclical nature are referred to as technology life cycles,which have a significant impact on the different stages of industry life cycles When

an industry reaches its stabilization stage and the industry becomes more mature,the innovative capabilities of the incumbent companies start to play an importantrole Mature industry can benefit from the oligopolistic market situation for a while,but eventually new technologies start to substitute the existing technologies due tothe competence destroying nature of the new innovations Thus the incumbentssurvive through their complementary assets or by adapting the new technologies intheir own products and processes One potential solution is the adaption of newtechnologies by diversifying the innovative activities in the industry

The Finnish pulp and paper (henceforth P&P) industry is a good example of a sectorthat has undergone the whole industry life cycle and is currently in the stabilizationstage In addition, the industry is a phase of technology life cycle where the existingtechnologies develop incrementally and new more radical technologies are seen as asource of new potentially radical product and process innovations Although the newemerging technologies are seen as potential source of industrial renewal for the P&Pindustry, the ability of the incumbents to take advantage of these technologicaldevelopments is still unclear One of the potential new science-based technologies isnanotechnology, which can both provide incremental solutions in short-term andmore radical innovations in long-term for the P&P industry

This study contributes to the existing knowledge of industrial and technological lifecycles by observing the changes in R&D collaboration networks in different stages oftechnology life cycles in a sector specific context and focusing on a traditional andmature industry The existing literature on R&D collaboration focuses mostly onhigh-tech industries and fails to introduce heterogeneity across different sectors.This paper brings forth the discussion of sectoral differences in R&D collaboration byusing a traditional ‘low-tech’ industry as an example In addition the emergencenanotechnology, which is highly relevant for the P&P industry, is analyzed bydiscussing what kind of specific challenges nanotechnology brings to this industry inutilizing the R&D efforts conducted outside of the company – most notable in thepublic R&D sector

The main research question in this paper focuses on the changes in the P&P industrytowards more open R&D collaboration Moreover, the current paper aims to addresschanges in technology life cycles over time in the industry, nature of the externalR&D collaborations, modes of responses to potential technological changes, and newchallenges that nanotechnology brings to the technology transfer from academia tothe P&P industry

This paper is organized as follows: Section 2 provides the analytical framework bydiscussing the industry and technology life cycles, and R&D collaboration; in Section

3 the Finnish pulp and paper industry is presented to highlight the links betweenindustry and technology life cycles, and to review the current developments in themarkets and in the related technologies - especially the connection between paper

and pulp industry and nanotechnology are discussed; in Section 4 data used in theanalysis and the results are presented; and in Section 5 conclusions are drawn.

2 LIFE CYCLES AND R&D COLLABORATION

The theoretical framework of the present paper draws upon comes from different,although related, streams of literature Industry life cycle is a concept which links theintensity of competition in a particular industry with the time since the breakthroughinnovation that made that market possible This cycle is often connected totechnological life cycle which describes the maturity of the technologies employed bythe industry These life cycles are related to R&D collaboration networks ascompanies organize their innovative active differently in each stage of industry andtechnology life cycle Building on conceptual work of the connection between lifecycles and R&D collaboration (Beije and Dittrich 2007), the discussion below willfocus more on mature industries where the technology life cycles play an importantrole in industrial renewal

2.1 Industry life cycles

The discussion of industry life cycles links the competition dynamics of an industrywith the temporal as-pects starting from the emergence of market creatinginnovation (Gort and Klepper 1982; Klepper 1996, 1997) Typically an industry lifecycle passes through five distinct stages: 1) a dormant stage with low numbers ofcompetitors enjoying monopoly profits; 2) an emergence stage with high entry andlow exit from the market; 3) a high turnover stage with many companies entering themarket and leaving it; 4) a volatile stage with mass exit via e.g mergers andbankruptcies; and 5) a stabilization stage during which a stable oligopoly emerges.The different stages of industry life cycle are associated with the technological lifecycles that affect the product and process innovations relevant for the industry.Although technological life cycles play an important role in evolution of an industrythere are other factors that may launch industry lifecycle include, such asgovernment intervention (e.g deregulation), and liberalisation of external trade (Gortand Klepper 1982) In this paper the focus is on the late stages of industrial life cyclewhere the oligopolistic incumbents are threatened by exogenous elements such asglobalization and technological change

2.2 Technology life cycles

Technology adoption is the most common phenomenon driving the evolution ofindustries along the different phases of industry life cycle Usually a technology lifecycle passes through four different stages: 1) a R&D phase with high investments inexploration and where the prospects of failure are high; 2) an ascent phase withtechnology beginning to gather strength through wider adoption; 3) a maturityphase with dominant design and high revenues; and 4) a decline with reducing gainsand utility of the technology due to a new technological life cycle An end of atechnology life cycle can impact an industry to an extend that the industry eithergoes to a new stage of industry life cycle or creates totally new industry life cycle.The reason for the potentially revolutionary impact to industry stems from thetechnology in question

The nature of innovation is an important question for incumbents in the potentialapplication industry (Teece 1986) Innovations can be divided into incremental andradical innovations Incremental innovation builds on existing knowledge and relies

on existing competences Hence incumbent companies are quick to adapt suchinnovations On the other hand radical innovations, which build on new knowledge,can sometimes be viewed as competence-destroying innovations (Tushman andAnderson 1986) For these types of innovations incumbents might have difficultyutilising the full potential of these new technologies as they might fail to havesuitable knowledge in-house to take advantage of the technological opportunities.Thus depending on the nature of the technology in question the existing literaturetakes the view that the role of incumbent companies depends on its complementaryassets (e.g Teece 1986; Mitchell 1989, 1991; Tripsas 1997; Hill and Rothaermel2003; Teece 2006) Later in this paper the different technology life cycles affectingP&P industry are presented.

2.3 R&D collaboration and absorptive capacity

The recently coined term ‘open innovation’ embodies many of the R&D collaborationrelated aspects to be discussed in this paper Discussion of open innovation can beseen as a synthesis of research on external R&D collaboration and organization ofR&D activities within companies It is a business model where the key notion is tocreate value through innovation and capture a portion of that value (Chesbrough2003; Chesbrough et al 2006; Chesbrough 2007) Although open innovation is abusiness model which takes a more holistic view on corporate activities such as role

of R&D collaboration, corporate venturing and use of IPR‘s to generate additionalrevenue, the current paper focuses mostly on the first topic The other aspects ofopen innovation are left outside the main research scope of this paper, but arediscussed briefly to provide overall picture of the relevance of open innovation in theFinnish P&P industry

In the existing literature on open innovation and R&D collaboration the focus hasbeen more on industries with high R&D intensity These studies have overshadowedthe more traditional industries where R&D intensity is often low Therefore it would

be useful to discuss the differences of open innovation in different sectors indifferent stages of industry and technology life cycles Beije and Dittrich (2007)divide the different modes of R&D collaboration by taking into account the sectoraland cyclical differences (see also Pavitt 1984; Audretsch and Feldman 1996) Beijeand Dittrich (2007) discuss the different stages of technology life cycles and R&Dcollaboration as follows: 1) an exploration phase with various modes of collaboration

to co-develop and gain access to potential new technologies; 2) a fluid phase withcollaboration aimed towards specific application areas; 3) a transitional phase withemergence of dominant designs and standards; and 4) a specific phase with variety

of collaborative modes During the emergence of a new technology (explorationphase and fluid phase) the incumbents collaborate through various modes of to co-develop or get access to technology Once the potential technologies are identified,the incumbents collaborate to enter specific regions with own technology or to co-develop ‘extra’ designs When the industry specificities are taken into account, thepotential actions of the incumbents are more detailed In a single product industry,such as P&P, the incumbents’ access the new technologies through the mostadvanced suppliers of the ‘old’ dominant design In addition, they co-developmentvarious designs, depending on the breadth of the supply network (in addition toother alliances) Beije and Dittrich (2007) also take into account the different types oftechnologies in question, and this aspect will be discussed in greater detail when theP&P industry related technologies are discussed

Before going into the discussion of the P&P industry and the role of R&Dcollaboration in its innovative process, it is useful to take a glance why companiesengage in this type of activity R&D related co-operation outside the companyboundaries can be divided into two types: exploitation and exploration (March 1991).Exploitation is co-operation where a company aims to acquire knowledge that is use

in its existing operations Thus it is drawing on a similar knowledge base that thecompany has and hence this knowledge is more easily adapted to the existing R&Dactivities Exploration is based on scanning the environment for new potentialtechnological solutions that might have significance for the company, but direct link

to existing operations is looser than in the exploitation type of co-operation Thisdiscussion of exploitation versus exploration is very closely linked to the discussion

of the role of incumbent’s complementary assets in technology life cycles There isalso empirical evidence of the optimal form of collaborating in R&D (Laursen andSalter 2006) They observed that the use of different sources of knowledge andimportance of these sources in order to analyze how open innovation and opensearch strategies, in terms of depth and breath, are affecting innovativeperformance They found that searching widely and deeply is curvilinearly (taking aninverted U-shape) related to performance This finding indicates that very low or veryhigh involvement in R&D collaboration fails to yield results that can be achieved byfinding the right balance between the depth and the breath of collaboration

The discussion of R&D collaboration is also related to the ability of companies to usethe information acquired from the collaboration The term ‘absorptive capacity’ hasbeen coined to illustrate the capabilities of companies in the acquisition andutilisation of external knowledge (Cohen and Levinthal 1989) It measures acompany’s ability to value, assimilate and apply new knowledge Absorptive capacity

is one of the reasons companies invest in internal R&D instead of simply buying theresults (e.g patents) (Cohen and Levinthal 1990) To enhance internal absorptivecapacity, companies resort to a variety of activities As the incumbent identifies aninteresting new technology and begins to explore its potential uses in-house, theproject management aspect within companies comes into play The main problem infinding the right projects which yield to most value are difficult to identify Thediscussion of false positives and false negatives becomes important (Chesbrough2004) As company tries to identify the most important projects it might reject usefulideas or proceed with ideas that eventually yield to direct benefit to the company.This increases the significance of in-house competences in identifying ‘right’projects Another aspect that has an impact on using external sources of knowledge

is the ‘not invented here’ - syndrome (Katz and Allen 1985; Rosenberg andSteinmueller 1988)

By reviewing some of the relevant contributions in the literature, this paper providesthe framework where the Finnish P&P industry is analyzed Before going into thediscussion of data and results, it is useful to review the Finnish P&P industry in moredetail In the following section the significance of Finnish P&P industry in Finland isdiscussed, as well as the currently market situation and the role of technologicalchange within the industry

3 THE FINNISH PULP AND PAPER INDUSTRY

The P&P industry was the first pillar of the Finnish economy since the late nineteenthcentury and its development highlights the progression of the Finnish economy fromthe resource- and investment-driven stages, to the knowledge-driven stage.1 Thecurrent development in the industry started through a phase of technological andproductivity gains in the 1970s, which was investment driven that resulted inmassive capital investments to spur productivity in existing P&P segments anddirected the attention toward higher value-added products to gain new markets.Currently the P&P industry is in the phase of consolidation and globalization whichare marked by rapid internationalization and globalization of production activities.Nowadays the Finnish P&P industry is well developed and coherent industrial clusteraround the core product groups of high-grade pulp and paper products The overallcontribution of the P&P industry to the Finnish economy has been and is stillsignificant In the 1980’s the P&P industry accounted from around 30% of exportsfrom Finland, a level that was maintained until the mid 1990’s when the emergingICT sector in Finland started to grow Today the P&P industry accounts to around15% of exports

The rapid internationalization and globalization has had, especially in the mostrecent, a significant impact on the P&P industry globally The newly industrializedcountries (such as China, India and Latin America) have entered the globalcompetition with new raw material qualities and cheaper production costs, whichcoupled with the negative changes in demand structure in the current main markets,pose challenges for the existing structure of the global P&P industry Additionalchallenges come from the increasing awareness of sustainability issues, the need forenvironmental control in P&P production and closer integration with the EU, whichmade some of the national policy instruments (e.g devaluation of currency)obsolete The entry of new countries into the already intensive competition requiresthe old established incumbents to development and produce of new specialtyproducts This requires close collaboration with customers abroad and thus providesadditional challenges for the production activities in Finland This is evident from therecent investment activities as the Finnish P&P industry has invested recently mostly

in developing countries (e.g China and Latin America) which are seen as majoremerging markets

If the evolution of the Finnish P&P industry (or even the global P&P industry) iscompared to the different stages of industry life cycles, it is evident that the industry

is in a stabilization stage There are few almost oligopolistic companies and whilethere are changes in the market structure, the major actors have fairly strongposition Although the market situation is somewhat stable, the emergence of newcompetitors from new countries and the technological changes that are taking placesuggest that there is a real potential for a new industrial life cycle This is trueespecially in the current main markets where demand is declining is some of the coreP&P products

The technological developments affecting the industry, through which productivitygains and product diversification are hoped to emerge, are posing new challengesand opportunities for the industry The technological development in ICT,

1 A more detailed description of the history of the Finnish forest industry can be found in Paija &

Palmberg, 2006 (In Dahlman, Routti & Ylä-Anttila (Eds.), “Finland as a Knowledge Economy - Elements of Success and Lessons Learned”, Ch 6.)

biotechnology, nanotechnology and changes in environmental regulation are themain areas that have an impact on the P&P industry The R&D efforts have beentypically collaborative among main Finnish P&P conglomerates (i.e Stora-Enso, UPM-Kymmene, M-Real and Myllykoski), machinery and equipment suppliers, universitiesand research institutes This paper aims to understand how these largerconglomerates in this industry cope with the changes in this fairly close-knit R&Denvironment Thus, in the following the innovative active of the Finnish P&P industry

is reviewed in greater detail

3.1 Technological change in the paper and pulp industry

The core of the knowledge base and technologies employed in the Finnish P&Pindustry are related to process engineering and mechanical engineering Processengineering plays a role in the pulp production and in paper coatings Mechanicalengineering is important in the process of turning the pulp in to paper (and alsoturning wood into pulp), but some of the development work related to papermachines is conducted by suppliers The in-house knowledge of the incumbents hasincreased due to close co-operation with suppliers and thus the knowledge base isvery strong in these two areas The relevant technologies have naturally evolved overtime, but this industry has escaped any competence destroying innovations fordecades The inputs of production have not changed significantly, while theincremental development has been more frequent in the machinery side Theengineering knowledge in paper and pulp, related process engineering andmechanical engineering has been and is among the best in the world in Finland, asthe core products in this industry have not changed dramatically Hence theknowledge base and technologies employed by the industry are highly focused in anarrow range of areas

The concentrated knowledge base potentially creates a problem, when the demandfor the existing products starts to diminish With declining demand for existingproducts companies usually try find new markets or to introducing new products tothe existing markets In the latter case the change in product portfolio requires newskills often outside the established companies Thus if companies wish to enter newproduct markets, they need to acquire or co-operate with partners who possess thenecessary skills for the development of the new products

The actors in the Finnish paper and pulp industry related system of innovation can

be divided into four different groups: established conglomerates (incumbents),suppliers (incumbents in chemistry and paper machine engineering), researchinstitutes and universities

The incumbents in this industry are Stora-Enso, UPM-Kymmene, M-Real andMyllykoski All of them are either top ten companies in global P&P markets or havesignificant market shares in certain submarkets The other important industries forthe P&P industry are the suppliers of machinery and chemicals, which are one of thetraditional sources of innovation in P&P Thus, when considering the innovativeactive of the sector the role of suppliers should be taken into account It should benoted that much of the R&D stemming from the related industries is oftenincremental by nature, but they also might provide a pathway for introduction ofmore radical innovations

Research institutes have a very important role in the innovation activities of theFinnish P&P industry There are two public and one private research institutes, which

have activities aimed towards P&P industry Metla (Finnish Forest Research Institute)conducts research on supply of forest related raw material and different uses offorests It is more orientated towards mechanical forestry; although many of theaspects are related to the production of P&P VTT (Technical Research Centre ofFinland) is the leading research institute in applied research in Finland It operates in

a variety of technological fields and is very active in P&P related R&D VTT’s P&Prelated activities range from R&D on raw materials to end-products KCL is a privateresearch institute owned by the Finnish P&P incumbents KCL is the key operator inP&P related R&D in Finland Their activity is directed towards applied research, whichcan be adapted quickly to commercial use Their research programs cover the wholepapermaking value chain, including the use of printed and packaging products.Due to the economic significance of the P&P industry in the Finnish economy mostuniversities are involved in P&P related R&D at least to some extend Finnishuniversities having more P&P related activities are Lappeenranta University ofTechnology, Helsinki University of Technology, Åbo Akademi, University of Oulu,University of Helsinki and University of Jyväskylä Naturally the role of universities is

to conduct basic research thus advancing the scientific knowledge, but quite oftenthe research projects do have a partner from the industry In Figure 1 the traditionalview of the P&P innovation network is presented to illustrate the different actors andtheir significance in R&D collaboration

Figure 1 Traditional innovative interactions in the Finnish paper and pulp industry

Innovation related networks and types of co-operation in the P&P industry varydepending on the partner in question The main partners in the traditional R&Drelated networks are the suppliers (chemical and machinery industries), KCL (theprivate research institute owned by the incumbents), public research institutes anduniversities The closest co-operation in R&D has been traditionally with KCL and thesuppliers Although public research institutes and universities play a role in the R&Defforts in the P&P industry, the incumbent owned research institute KCL can be seen

as a filtering much of the knowledge coming from public institutions This network ismostly national, although there are some connections to international partnersespecially on the supplier side

3.2 Nanotechnology and pulp and paper industry

In addition to the broader perspective of the R&D activities in the P&P industry, thisstudy aims to analyze how the incumbents cope with the emergence of a newscience-based technology – nanotechnology Nanotechnology as a newly emergedscience-based technology poses some new challenges for large incumbents whichmight benefit for the technological and scientific advances One of the keychallenges is the multidisciplinary nature of nanotechnology and nano-relatedsciences (Shea 2005; Palmberg and Nikulainen 2006) Nanotechnology andnanosciences draw upon a variety of different disciplines It is related to both organicand inorganic disciplines, such as physics, chemistry, biology and biosciences.Therefore for an incumbent to scan and be able to utilize all the relevant sources ofknowledge poses new challenges

The current developments in nanotechnology can be divided into two differentapproaches: more incremental top-down approach and more radical bottom-upapproach The top-down approach aims at miniaturisation of current technologicalsolutions Thus the majority of contemporary applied R&D in top-downnanotechnology builds on prior knowledge and is thus more incremental by nature(Igami and Okazaki 2007; Youtie et al 2007) The radical nature of nanotechnology

is most likely linked to the emergence of in-novations that build on bottom-upapproaches, where the innovations rely on molecular level manipulation rather thanthe current advances in miniaturisation The R&D efforts related to bottom-upapproaches are still mostly basic research orientated, while more applied research ispredicted to emerge in the mid- to long-term (Hullman 2006)

In this paper the focus is not on the general development of nanotechnology butrather focus on single industry and to see what kind of new challenges emerge in theadoption of nanotechnologies This paper will only analyze activities innanotechnology at a general level and keeping the technological aspects outside thescope of this paper Broadly speaking the nano-related activities in Finland thatmight have technological potential in the Finnish paper and pulp industry are:functional paper, smart paper, printability, and in the physical properties of paperthrough advances in instrumentation (for more technology related discussion seeReitzer 2007)

There is patent analysis based evidence of potential nanotechnological linkages inthe Finnish economy (Nikulainen 2007) These potential technological linkages based

on similarity in patenting activity between smaller nano-dedicated companies andlarger incumbents in various industries In Table 1 the distribution of the identifiedindustries is illustrated