Innovation Is Not Everywhere

There are two strange facts about globalisation. First, innovation activity is not
equally distributed around the world. There are tightly focused hot spots of
creative production. Second, innovation is becoming more concentrated in
particular places, not less. Is it better to move to a hot spot? Or create one?

If everyone has access to documented knowledge then the creation of original

solutions depends on the production of undocumented knowledge. If something
isn’t written down, it’s harder to copy. It can also be difficult to share over long
distances. This kind of knowledge is tacit and learned by doing. It’s the collection
of secrets in people’s heads and their way of doing things. Creation and use of
such knowledge has a social context. Translation of such knowledge requires
understanding of the culture that created it.

The big three US car manufacturers have struggled to translate the knowledge
surrounding the version of continuous improvement used in Japan. They read
books about Toyota, hire ex-Toyota employees, and still the miracles of the
Toyota system do not materialise. Yet Toyota has successfully used its system
with US employees at more than a dozen US factories. It understands the context
in which its system works and can recreate it – competitors find it more difficult.

The physical location of a hotspot is important, but the cultural location of a

hotspot is vital. The Indian software industry is physically located in India but
culturally located via executives with US degrees and US careers. It started to
grow after IBM quit the country in 1978. It has taken 30 years to move from
technical support, to low-cost programming, to create innovative products. It
illustrates the challenges in replicating the conditions necessary to innovate.

Some national cultures and systems are more effective at innovation. China,
Japan, Europe, Korea and the USA account for 75% of all patents. Japan creates
3000 patents per million people. Korea creates over 2500 patents per million. The
USA trails in third place with around 700 patents per million. The innovation
coming from the mid-range countries like France, UK, or Sweden slips to under
300 patents per million. While the whole 600 million people on the continent of
Africa only produced 125 world patents in one year.
Innovation hot spots provide huge advantages. The brightest, best, most
ambitious minds gather attracted by the prospect of working with the brightest,
best, most ambitious minds. People informally share breakthroughs before the
rest of the world sees the resulting products. They also share their failures and
the reasons for them – lessons that the rest of the world doesn’t get to see.
Everything adapts itself to the needs and nature of innovation for each particular
industry. Second place, in another city or country, is a long way behind.

Despite these advantages, there are signs that innovation centers are finding it
harder to keep the talent they need. Restrictive immigration policies get in the
way. Some centers also grow to a point where they overwhelm their own
innovation networks. Opportunities are harder to find as the task of matching
idea to funding becomes more difficult. Returning home and starting a new
company in a less crowded market becomes more attractive. This reverse brain
drain has been slow if occasionally dramatic. It is now speeding up.

Mass-market innovation can happen outside of global hot spots but there are
conditions and limitations:

Skills & Knowledge - It is not possible to innovate in isolation. You need local
people with skills and knowledge that are cutting-edge. You also need enough of
them to support growth and promote competition that increases performance.

Culture & Know-How – Skills and knowledge are not enough. You need people
working within a collaborative culture with the tacit knowledge that makes the
best use of skills. It’s why Toyota’s training centre in India teaches teens personal
grooming and self-improvement along with engineering. It’s part of the package.

Connections & Networks – Knowledge keeps increasing, approaches to

innovation change, while customer needs evolve. Innovators have to ensure that
they have major, multiple connections with the people in global hot spots.

Mass Market Access – The internet only solves access to mass markets for digital
products that can be distributed and sold remotely. For a company to gather the
resources it needs for global quality innovation it needs access to mass markets.
References

Asheim, BT, & Gertler, MS, 2006, “The Geography of Innovation”, in The Oxford
Handbook of Innovation, Oxford University Press

Bathelt, H, Malmberg, A, & Maskell, P, 200, “Clusters and Knowledge: Local Buzz,
Global Pipelines, and the Process of Knowledge Creation” Progress in Human
Geography, 28(1):31-56

WIPO Patent Report: Statistics on Worldwide Patent Activity (2007 Edition)