The role of innovation

vai trò đổi mới the role of innovation intermediaries in promoting the triple helix system in mnCdominated industries in thailand: the case of hard disk drive and automotive sectors: This article looks into the roles innovation intermediaries play to enhance triple helixbased innovation in Thailand from the vantage point of two multination aldominated industries, namely, the hard disk drive and automotive industries. Innovation intermediaries generally play three important roles: a sponsoring role of making and transmitting policy across all triple helix actors; a brokering role of connecting triple helix actors at strategic levels; and a boundaryspanning role of providing technical services to all triple helix actors. Comparison of the two case studies showed the sponsoring role intermediary organizations play to be crucial for the respective industries for them to be able to engage in triple helix relationship.

International Journal of Technology Management & Sustainable Development

Volume 11 Number 3

© 2012 Intellect Ltd Article English language doi: 10.1386/tmsd.11.3.265_1

Keywords

triple helix model innovation intermediaries hard disk drive industry automotive industry Thailand

Karantarat naKwa and Girma Zawdie

University of Strathclyde

the role of innovation

intermediaries in promoting

the triple helix system in

mnC-dominated industries

in thailand: the case of hard

disk drive and automotive

sectors

abstraCt

This article looks into the roles innovation intermediaries play to enhance triple

helix-based innovation in Thailand from the vantage point of two

multination-al-dominated industries, namely, the hard disk drive and automotive industries

Innovation intermediaries generally play three important roles: a sponsoring role

of making and transmitting policy across all triple helix actors; a brokering role of

connecting triple helix actors at strategic levels; and a boundary-spanning role of

providing technical services to all triple helix actors Comparison of the two case

studies showed the sponsoring role intermediary organizations play to be crucial for

the respective industries for them to be able to engage in triple helix relationship

The sponsoring role of intermediaries compensates for the shortfall in social capital, which bedevils the functionality of the triple helix system in developing countries, not least Thailand The role would be expected to last until trust emerges to underpin the relationship between the university, industry and government spheres of inter-action, and also within each institutional sphere, removing barriers to inter- and intra-industry knowledge exchange and ushering in the development of a triple helix culture for innovation to thrive

introduCtion

The role foreign direct investment (FDI) plays in modern economic growth

is becoming increasingly significant particularly in rapidly industrializing countries like Thailand whose economies are subject to the pervasive forces

of globalization (Intarakumnerd 2007) FDIs often occur through the opera-tion of multinaopera-tional corporaopera-tions (MNCs) In Thailand FDIs are prominent particularly in the electronics and automotive industries, which happen to contribute significantly to employment creation, income generation and tech-nological learning However, the role of FDIs in advancing the state of local technological capability is not always straightforward Apart from the tech-nological strategy of MNCs, the degree of technology capability upgrading depends largely on government policy and the pattern of public–private busi-ness alliances (Hobday and Rush 2007) This article looks into innovation intermediaries as a policy mechanism for facilitating technological learning and knowledge circulation through the establishment of university–industry–

government interactions in two MNC-dominated industries, namely, the automotive and electronics industries

There are only few previous studies on technological learning based on technology transfer via MNCs to the electronics and automotive industries in Thailand For example, M Hobday and H Rush (2007) explored factors affecting technological upgrading of MNC subsidiaries in electronics industry and found the main factors in technological upgrading to be corporate strategies associated with product life cycle and geographical proximity of the headquarters MNCs in Thailand are categorized into two: dynamic MNCs under decentralized decision making, which are likely to upgrade their technological capabilities by forging links with local research and development institutes and universities – i.e west-ern MNCs; and passive MNCs under centralized decision making and closed technological environment, operating as assembly plants – i.e Asian MNCs

The former are likely to be policy receptive P Intarakumnerd (2007) claims that the hard disk drive (HDD) industry in Thailand is likely to be in the former group in which cluster policy can be applied with effect, while the automotive industry, dominated by isolated assemblers, falls into the latter group In the automotive industry, inter-firm technology transfer is considered as the main source of technological capability upgrading (Techakanont and Terdudomtham 2004; Punyasavatsut 2007) K Techakanont and T Terdudomtham (2004) show that large local first-tier suppliers successfully upgraded their technolog-ical capability from process engineering to design and product development capability with the assistance of Japanese assemblers On the other hand, C

Punyasavatsut (2007) found difficulties in upgrading the technological capabil-ity of small and medium lower-tier suppliers, including, for instance, lack of effort, technological capability gap between first-tier and lower-tier suppliers and insufficient absorptive capacity of SMEs

For firms in developing countries to become innovative and competitive, they would need not only exposure to competition in the global market, but

also participation in a network of knowledge exchange between the actors in

the production sphere, the knowledge sphere and the policy and governance

sphere This network is the basis for the so-called triple helix system of

inno-vation The triple helix system is, however, dysfunctional in developing

coun-tries mainly for reasons relating to institutional rigidities and market failures

that are typical for their occurrence in these countries The problem, however

real and significant, is not insurmountable

For instance, Thailand’s policies have been adjusted to respond to changes in the global market environment In the past, protectionist

poli-cies constrained the activities of MNCs, and the local content

require-ment was used to regulate the MNCs and the technologies they transfer to

promote the technological upgrading of local firms In addition, the Board of

Investment (BOI) Unit for Industrial Linkage Development (BUILD),

estab-lished in 1992, provided the framework for the generation of backward

link-ages of the MNC-dominated target industries, including the automotive and

electronics industries After liberalization of trade and investment regimes,

the cluster approach was introduced in Thailand in 2004 as a new

trial policy aimed at enhancing the competitiveness of industries The

indus-trial cluster arrangement integrates indusindus-trial and science and technology

policies to encourage interaction between manufacturing firms, suppliers,

service providers, trade/industrial associations and supporting institutions

located in close geographical proximity in specific industries (Intarakumnerd

et al 2002; Intarakumnerd 2005)

Innovation intermediaries play an important role to facilitate knowledge circulation from MNCs to local subsidiaries and local firms It is apparent

from previous studies that tax incentives are insufficient as a mechanism for

developing linkages between local firms, MNC subsidiaries and local

univer-sities, and for accelerating the process of technological capability upgrading

of Thai subsidiaries and local firms The studies also noted the need for

poli-cy-makers to tailor target policy in the light of the circumstances of

differ-ent industries (Hobday and Rush 2007; Intarakumnerd 2007; Intarakumnerd

and Schiller 2009)

The cluster approach has been introduced mainly to leverage govern-ment support for specific industries In this arrangegovern-ment, governgovern-ment

agen-cies were assigned to play the role of intermediaries to establish clusters and

create collaborative initiatives involving partners from industry and the

knowl-edge sector But this begs the question about the effectiveness of the cluster

approach based on triple helix system as a policy framework for promoting

industrial innovation and competitiveness through the vehicles of FDIs and

MNCs Based on this, the aim of this article is to investigate the effectiveness

of triple helix in promoting innovation and competitiveness in the light of

the experiences of the HDD and the automotive industry clusters in Thailand,

where MNC activities are concentrated Data for the study were obtained

during February–March 2011 through purposive sampling interviews with

participants extracted from universities, government agencies and from firms

drawn from the HDD and automotive industries

The remainder of this article is organized as follows The next section discusses the significance of the role played by intermediary organizations in

the triple helix system In the third section, case studies of the HDD and the

automotive networks are presented to demonstrate the emerging role of the

triple helix system in Thailand as a framework for innovation policy The role

of innovation intermediaries is discussed in the fourth section in the context

of the two industries In section five, the conclusions and recommendations deriving from the analysis are presented

roles of innovation intermediaries in the triple helix frameworK

In most of the studies conducted on innovation intermediaries, the sponsoring role of intermediaries is seen playing the second fiddle to the brokering and boundary spanning roles (see e.g Hargadon 2002; Täube 2004; Fleming and Waguespack 2007; Morrison 2008; Youtie and Shapira 2008; Klerkx and Leeuwis 2009; Kirkels and Duysters 2010) The focus on the brokering and boundary spanning roles was largely a result of the concern of policy with technology transfer and its utilization rather than with technology develop-ment through innovation Brokers connect disconnected actors within the triple helix communities through network building, thus increasing social capital and enhancing possibilities for more effective interactions in terms of knowledge exchange Boundary spanners work across communities to provide technical services, thereby creating the capabilities required for the effective choice and transfer of technologies The roles of brokers and boundary span-ners complement; and while it is possible for boundary spanspan-ners to play the role of brokers, brokers would not be able to undertake the role boundary spanners without acquisition of the requisite technological expertise (Fleming and Waguespack 2007) C.-H Yang et al (2008) classified the roles of inno-vation intermediaries at strategic and operational levels The strategic level

is related to the brokering role in building collaboration, and the operational level involves technological and managerial services that could be considered

to fall under the boundary spanning role

In addition to the brokering and boundary spanning roles, J Howells (2006) argued that innovation intermediaries play policy roles aimed at build-ing new possibilities or ‘choice environments’ as well as steerbuild-ing the directions

of technological development through sponsoring Policy-makers play a spon-soring role when implementing government policy through the provision of government funding and other mechanisms of support In the context of the triple helix model, W H A Johnson (2009) categorized the roles of innova-tion intermediaries into five: sponsor, filter, management provider, broker and conflict mediator These roles of innovation intermediaries can be effectively reduced to two main roles: sponsoring and brokering Filtering and manage-ment providing roles can be done by sponsors as these roles are necessary for sponsors to ensure that their resources are efficiently utilized through moni-toring and management (Braun and Guston 2003) Brokers can be conflict mediators connecting various types of actors whose interests and cultures are different In addition to these two roles, innovation intermediaries can also play a boundary spanning role

Sponsoring is, strictly speaking, the primary role of intermediary organi-zations This involves them in the task of providing knowledge and techno-logical infrastructure (Johnson 2008), which are crucial for the creation of the so-called triple helix culture that provides a fertile ground for innovation to emerge and thrive The funding role of innovation intermediaries, pursued with the view to developing innovation infrastructure, includes screening, filtering, monitoring and assessing (Braun and Guston 2003)

The principal-agent theory can be used to analyse the principle underlying the sponsoring role of intermediaries while promoting interactions between

the political sphere and the knowledge sphere (Van der Meulen 1998) in the

context of the triple helix system An intermediary organization can be a

fund-ing recipient from the government (the principal) and a fundfund-ing allocator at

the same time The funds are allocated to scientists in the knowledge sphere

with the necessary condition that players in the knowledge sphere work with

players in the production sphere (i.e firms) This is in line with the triple

helix framework of strategies designed for promoting innovation and national

competitiveness (see Figure 1)

As shown in Figure 2, the roles that intermediaries play as sponsors, brokers and boundary spanners result not only in the expansion of the domain

of activities in the three institutional spheres of the triple helix system, but

also in the blurring of boundaries following interactions between actors across

the three spheres At the strategic level, networks of innovators are formed by

brokering intermediaries; and so brokering intermediaries play an important

role in forging linkages between universities, industry and government

agen-cies through engagement in collaborative schemes

There is, however, more to the brokering role than this, as networking involves not merely linking actors across institutional spheres, but, equally

importantly, actors within these spheres, so that the gains to be had from the

circulation of knowledge can be maximized Each institutional sphere can be

expected to constitute multiple networks Ronald S Burt (2004) points out

that the behaviour of actors within a network is more homogeneous than

that between networks When actors neglect information flow outside their

groups and are not connected to each other, ‘structural holes’ arise The

exist-ence of ‘structural holes’ in open networks creates gaps in information and

knowledge flows, thus giving rise to the ‘moral hazard’ problem and making

the system somewhat dysfunctional (Ahuja 2000) According to Burt (2004),

‘structural holes’ should be closed to minimize opportunistic behaviour and

the ‘moral hazard’ problem and maximize opportunities for social capital

formation through brokerage

Source: Adapted from D Braun (1993) and B Van der Meulen (2003).

Figure 1: Configurations between principal, intermediary and agents.

Brokering intermediaries could be one of the innovators or knowledge-based business service providers Y Kirkels and G Duysters (2010) found that most of the innovation intermediaries linking the science and industrial sectors through the flow of innovation information were science-based, non-profit organizations Depending on the nature of its organization, its resources and the circumstances of its business, a broker can also undertake other responsi-bilities as, for example, the role of a coordinator, a gatekeeper, a representa-tive, a cosmopolitan and a liaison (Fernandez and Gould 1994)

Boundary-spanning intermediaries gather and access resources from diverse sources and provide operational services to promote knowledge circulation between universities, government agencies and industry, thereby enhancing the blurring of organizational, institutional and technical boundaries (Aldrich and Herker 1977) This means in a knowledge-based economy, the new institutional

Figure 2: Roles of Innovation Intermediaries in the Triple Helix Framework.

boundaries of players in the system would be expected to be broader than the

traditional ones as shown in Figure 2 (Benner and Sandström 2000)

In the context of the triple helix model, intermediaries act as agents of transformation of institutional actors, so that they would be able not only to

exchange knowledge but also to expand the boundaries of their

responsi-bility into each other’s domain, thus creating the culture of partnership and

collaboration, which is crucial for the advancement of knowledge and for the

occurrence of innovation Thus, intermediaries serve as instruments of policy

intervention to develop the organizational and institutional capacities of the

triple helix actors – namely, university, industry and government – and to

stimulate them to interact in the process of knowledge exchange In the case

of the United States, intermediary organizations were used in

university–gov-ernment relations to do business with industry when neither the universities

nor the government were in a position to handle the task (Etzkowitz 2008) For

example, the US government set up programmes to support SMEs to

commer-cialize university R&D, such as Small Business Innovative Research (SBIR) and

Small Business Technology Transfer (STTR) (Wonglimpiyarat 2006)

The role of intermediaries is all the more important in the case of devel-oping countries where the triple helix system is dysfunctional with the

insti-tutional spheres fragmented and the potential actors marginalized while

‘structural holes’ abound Intermediaries would liaise with actors from the

knowledge, production and policy/governance spheres, spanning their

bound-aries to promote knowledge circulation across the triple helix domain

In developing countries, MNCs are often the sources of new technolo-gies Local firms can directly acquire technical knowledge from their suppliers

and customers, including MNC subsidiaries and large local firms The

acqui-sition and effective exploitation of knowledge and technology hardware by

local firms and MNC subsidiaries depends on their absorptive capabilities

(Miesing et al 2007) Knowledge transfer is successful when local firms not

only acquire tacit knowledge, but also externalize it in the form of explicit

knowledge (Techakanont and Terdudomtham 2004) However, the weak

absorptive and innovative capabilities of local firms in developing countries

means that governments in these countries would need to intervene by

build-ing the absorptive capacities of local firms to facilitate knowledge transfer and

exchange between themselves and with MNCs (Intarakumnerd 2007)

Based on a study of intra-industry spillovers in developed countries,

M Blomström and A Kokko (1998) have shown the significance knowledge

spillovers from MNCs as a major source of positive externalities that benefit

local firms Some spillovers are public goods, which can be accessed through

imitation and recruitment of former MNC employees Others are considered

as intellectual properties, which have to be accessed through market

transac-tions, such as licensing

In developing countries, spillovers from FDIs benefit local firms through vertical linkages in a supply chain framework (Smarzynska 2002) Backward

linkage creation is the only scope open for host countries to engage in the

generation of value added Local firms in upstream industries can exploit

knowledge spillovers from MNCs when they access the supply chain network

of MNCs as suppliers or sub-contractors For example, MNCs help local

suppliers to set up production facilities through direct technology transfer, and

provide technical assistance (TA) and training Under global sourcing strategy,

local firms with high technological capabilities can enter export markets

consequent upon access to the supply chain network of MNCs This is what

Blomström and Kokko (1998) refer to as market access spillovers According to

B S Smarzynska (2002), MNCs producing for domestic markets are likely to use more local suppliers than those producing for global markets Joint ventures tend to use local suppliers, who already have linkages with local partners, while wholly owned MNCs prefer to import from their global suppliers For this reason, negative externalities of FDIs can occur as export-oriented MNCs decide to employ global sourcing strategy, thus forcing local firms to exit

To avoid such negative externalities and capture spillovers, host countries would be expected to facilitate the participation of local firms in the supply chain networks of MNCs through the triple helix mechanism For instance, the research and training capabilities of universities and government supports can be mobilized to assist the upgrading of local firms’ technological capabili-ties But for this to occur, the role of intermediaries is crucial, particularly in developing countries, where the absence of a coherent network linking insti-tutional spheres and the prevalence of technological gaps and cultural differ-ences militate against prospects for knowledge exchange and collaboration between actors in the different spheres that constitute the triple helix domain (Intarakumnerd 2005; Brimble and Doner 2007; Yokakul and Zawdie 2010)

the emerGenCe of triple helix interaCtion in thailand

In industrializing countries like Thailand, FDIs have become the main source

of industrial development Thailand started promoting FDIs through the enforcement of the Investment Promotion Act in 1960 and the subsequent establishment of the Thailand BOI in 1966 Since 1970, there has been a shift

of industrialization strategy from import substitution to export promotion

This shift has entailed a rapid expansion of FDIs As can be seen in Figure

3, the FDI turnover in Thailand has dramatically risen since the late 1980s

Following the financial crisis in 1997, the investment policy relaxed the restric-tions on joint venture ownership in order to attract more inward investment

Thus, in 2000, the investment regime was liberalized by the government

Source: Bank of Thailand.

Figure 3: Foreign Direct Investments in Thailand during 1970–2010.

adopting policy abolishing the local content requirement of promotion and

allowing wholly owned MNC subsidiaries to operate in the manufacturing

sector (Brimble and Urata 2006) After 1997, the FDIs fluctuated peaking at

10,480 million USD in 2006

FDIs in the manufacturing sector were concentrated in two industries, namely, the electronics and automotive industries As can be seen in Table 1,

the machinery and transportation equipment industry is the largest industry

in the manufacturing sector attracting FDIs The second largest is the

elec-tronics and electric appliance industry The third and the fourth are chemical

and metal and materials industries, respectively These received less than half

of the largest and the second largest industries

The HDD and the automotive industries are selected as case studies in this article on grounds of the significance of their contributions to the Thai

economy These industries are known to create the scope for technological

learning and improvement, and to contribute significantly to the development

of the intellectual capital of the country (UNCTAD 2005; Brimble and Urata

2006; Hobday and Rush 2007)

Thailand has been the largest manufacturing base of the HDD industry in the world since 2005 with a market share of 42 per cent of the global market

Machinery and transportation

Source: Bank of Thailand.

Table 1: Stock of Foreign Direct Investments in Thailand during 1970–2010.

Four big HDD manufacturers, including Seagate, Hitachi, Western Digital and Fujitsu, have established their bases in Thailand There are about 60 HDD parts manufacturers, grouped in three tiers with 34, seventeen and nine firms

in the first, second and third tiers, respectively (NSTDA 2008) In 2009, the HDD industry contributed 4.5 per cent to GDP, creating local value added of about 100 billion baht and local employment of about 220,000 jobs

The automotive industry has been in operation in Thailand since 1971 (TAPMA 2011) It is the second largest export industry of Thailand and ranked fifteenth in the world in terms of production capacity (Thai Automotive Institute (TAI) 2007) In the early phase of industrial development, production was promoted mainly for import substitution Thailand has been exporting cars since 1996, and now provides the manufacturing bases for Japanese and American assemblers of 1-ton pick-up trucks and passenger cars Of the 100 world largest parts manufacturers, 55 have established their bases in Thailand

to supply to these Japanese and American assemblers Over 1000 local firms were established to supply to the assemblers and the first tier parts manufac-turers The automotive industry creates local value added of approximately

210 billion baht and has generated about 230,000 jobs In 2010, the export value of the automotive industry alone was 780 billion baht, accounting for 12.6 per cent of the total export value

The HDD network was set up in 1999 to provide opportunities for the improvement of local technological capability development In 1999, four MNCs established the Thailand branch of an international industrial associa-tion, namely the International Disk Drive Equipment and Materials Association (IDEMA), to mutually develop human resources and share information about global trends of the HDD market A triple helix type arrangement then emerged around the HDD industry involving interactions between government and industry At the initial stage, IDEMA negotiated with the National Electronics and Computer Technology Center (NECTEC), a research centre under the National Science and Technology Development Agency (NSTDA), for more support, over and above the tax incentives of the BOI NSTDA is a government agency acting as a research institute and a funding agency and contributes significantly to the science and technology policy-making process by funding policy research done by the Asian Institute of Technology (AIT) and the Asia Policy Research Co., Ltd (APR), in collaboration with IDEMA An outcome of the policy research was the recommendation for the establishment of the Hard Disk Drive Institute (HDDI) and for the preparation of a technology roadmap

During the first period of policy formulation, IDEMA called for the institu-tion of a triple helix network to facilitate access of HDD makers to the research and knowledge sector After all, high-level manpower development was needed not only for existing production activities, but also for new investments in more advanced activities NSTDA, the government agency, considered this crucial for technological capability upgrading, lest the country be locked into low technolo-gy-based production with low rate of return on investments in the face of increas-ingly competitive global market environment The government was, therefore, keen to attract the big HDD makers to move their more advanced manufactur-ing bases to Thailand through the provision of appropriate policy environment that would make the opportunity cost of investing in Thailand favourable for them Thus, the motivations of industry and government were matched, making way for collaboration between two institutional actors to emerge

The interaction between IDEMA, NSTDA, AIT and the APR produced the HDDI as a triple helix hybrid organization Based on the recommendations