Abstract
Abstract
Centres of competence models for innovation capability development have been successfully implemented in various countries such as Finland and Estonia. These models promote targeted investment in well-defined areas of technology within a particular geographic region, aimed at gaining global competitiveness to support industrialisation. Such models have also been applied recently in certain regions within South Africa targeting technological innovation in areas such as biotechnology (2004 - Western Cape) and advanced manufacturing (2005 – Gauteng). These models depend on the existence of an inherent competitive advantage coupled to existing innovation capabilities within pubic research institutions and private sector.
Although centres of competence may be geographically concentrated, they rely on networks that extend nationally or even globally. The Titanium Centre of Competence is a typical example, developed on the basis of exploiting the South African titanium reserves through value addition to access global aerospace and automotive supply chains.
This study focuses on the phenomenon in which large companies that are highly innovative and globally competitive exist within marginalised regions. Such companies have evolved on the basis of access to natural resources and the ability to beneficiate these resources into intermediate products for global markets. The potential for industrialisation through downstream beneficiation is inhibited by the lack of institutionalisation of innovation capability, poor entrepreneurship support, long distances from end-user markets and poor logistics networks, among other factors. Industrial centres of competence offers a real opportunity to transform these marginalised economies into industrialised nodes through specialisation, using mechanisms such as leveraging localisation obligations within infrastructure build programmes.
The study includes the assessment of innovation capabilities of regions, analysis of supportive government development frameworks, and identification of technology platforms to support entrepreneurial activity. Overall, the study provides a systems approach for the identification of industrial centres of competence and the design of their core elements, providing a structured innovation framework for industrialisation.
Introduction
Competence centres were first introduced to address deficiencies in conventional R&D systems, which are characterised by orientation to fundamental research, fragmentation of R&D competence within R&D institutions and between them, insufficient cooperation with enterprises, short-term planning and financing of R&D, inadequate business development skills and outdated R&D infrastructure, among others. Complimentary to this, deficiencies in the industrial sectors include the erosion of R&D and innovation capabilities, lack of trust for cooperation with R&D institutions, lack of R&D specialists, as well as inadequate skills related to quality management and protection of intellectual property.
Hence, the introduction of competence centres was aimed at improving the innovation space for entrepreneurship and the competitiveness of enterprises through strategic cooperation between the science and industry sectors, deliberately targeting industry participation and development in key areas of technology. These competence centres are complimentary to centres of excellence that are based at universities and state-funded R&D institutions. The partners and projects of competence centres are deliberately designed to secure competitive advantage and distinctive commercial outcomes through transformation of R&D and innovation. One of the key outcomes is the development of a sustained innovation culture among enterprises, which can be measured in terms of human capital development, technology/knowledge transfer, networking and levels of business investment in R&D.
While the centres of competence model offers prospects for commercial exploitation and industrialisation in highly defined applications, there is a disjuncture in the South African context between these centres and the regional systems of innovation, the latter aimed at broader innovation capability development across a defined region.
The main objective of this study is therefore to propose a new model, referred to as the industrial centre of competence model, based on a cohesive industrial development strategy within a regional innovation system. The model aims to provide a systems approach to develop an innovation framework for industrialisation, one which will be responsive to a new industrial policy shift towards innovation (as the basis for beneficiation and localisation). Such industrial centres of competence offer the added advantage of increasing enterprise participation across entire value chains in industrial sectors within which a particular region has inherent competitive advantages and hence, the propensity to exploit industrial opportunities.
Literature Review
Innovation as a Critical Factor for Entrepreneurship
The link between innovation and entrepreneurship is not the focus of this study, but rather a point of departure. It is noted, though, that the literature supporting this link is rather extensive and is part of a cohort of critical factors for entrepreneurial success that include micro and macroeconomic policy, effective financial institutions, risk management, decision-making ability, etc. These factors, in turn, drive other factors, such as joint ventures and partnerships to pool resources, market access, cost of capital, etc. In particular to this study, entrepreneurship relies heavily on innovation, growth possibilities and setting strategic goals (Wickham, 2006), who also indicated that innovation-related factors, such as skilled human capital, greatly hamper entrepreneurship. In fact, innovation and innovation capability are an integral aspect of entrepreneurship, and the roles of entrepreneurs in organising innovation processes and knowledge flows have been consistently studied (Vaughn, 1992).
Regional Innovation Systems
The concept of regional innovation systems has been widely studied over the past two decades (Equist, 1997; Lundvall, 1992) and promoted as a structured approach to the development of competitive advantage within industrial clusters. The essence of such systems is the development of a cohesive framework for innovation between industry, the science sector and regional government policy instruments. In such cases, the definition of a region is varied and often dynamic (Cook & Memedovic 2003). In this study, a region is defined as one that encompasses a provincial region—this definition allows the alignment of the study with current provincially based regional innovation systems, which are indicative of provincial governments seeking to develop and implement regional innovation strategies to support industrialisation towards economic growth and job creation. This need to develop innovation strategies has been catalysed by a shift in government industrial policy towards diversification of the key economic sectors, particularly through beneficiation of natural resources.
In terms of this policy shift, the South African National Industrial Development Framework (NIPF) provides an overarching strategic framework for industrial development, within 13 strategic programmes, one of which deals with innovation and technology. The NIPF is only a recent attempt (2010) in building innovation strategy within the wider microeconomic development framework. Whilst the NIPF provides a strategic framework, the Industrial Policy Action Plan (IPAP), with its fifth iteration approved in 2013, provides a tool for intra-governmental integration and coordination towards the strategic programmes of the NIPF. The IPAP, in particular, promotes downstream beneficiation of natural resources, leveraging opportunities linked to national infrastructure development programmes, and localisation and supplier development linked to contracts issued by state-owned companies to global Original Equipment Manufacturers (OEMs).
Owing to this policy shift and the inclusivity of innovation policy within the broader microeconomic development framework, it is more and more evident that policy makers at provincial and in certain cases, municipal levels in South Africa are formulating regional innovation strategies alongside their economic growth and development strategies. Whilst the latter provides a cohesive microeconomic development framework, linking national to regional strategies, there is still a need for support in the design of regional innovation strategies in terms of the following:
Analysing and assessing the existing innovation capabilities of the enterprises in the region in order to ensure sufficient synergy between the innovation support needs of industry and the innovation support system. A mismatch will hamper the effectiveness of the innovation support system in contributing to economic growth. Introducing global best practices, particularly in terms of applying benchmarking models to assess the industrial competence of local enterprises and models to accelerate the levels of entrepreneurship. Developing processes and regional capacity for accessing innovation support mechanisms at the national level.
Notwithstanding the ability to develop coherent innovation strategy, observations in the South African context show that such strategies are not effectively linked, in a systemic approach, to a range of economic development mechanisms, particularly in the case of SME development. This includes technological assistance, innovation process management, access to risk capital, access to localisation obligations and global supply chains of OEMs, access to business infrastructure and shared resources and spatial development. That is, regional innovation systems strategy is not intrinsically linked to the broader microeconomic development framework of regions. It is still seen as a strategy to promote conventional R&D as opposed to one that spurns economic development in technology-intensive industries. Innovation strategies still seem to be divisionalised within government departments and their implementation is rather project based. Whilst they may address the issue of defragmentation of R&D competence and modernisation of R&D infrastructure, they are still plagued by short-term planning and financing of R&D, and insufficient cooperation between the science sector and enterprises due to reasons such as lack of trust and a history of polarisation between these players.
At the same time, industry is plagued by a range of deficiencies adversely affecting its ability to compete in global markets, which include the erosion of R&D and innovation capabilities, lack of R&D specialists, inadequate skills related to technology upgrading and quality management, and protection of intellectual property.
Whilst regional innovation systems are broad-based across multiple sectors, the concept of a sectoral innovation system was introduced (Malerba, 2002) to allow concentration of innovation capability development efforts within key economic sectors. Sectoral innovation systems are designed to promote innovation within a well-defined set of products and processes, and require a specific knowledge base, technology inputs and market orientation (Harmaakorpi, 2004).
Centres of Competence
To address the aforementioned deficiencies and develop an intrinsic link to regional (and national) innovation strategy, the concept of centres of competence was introduced within the South African innovation landscape in 2007. This was based on its largely successful implementation in countries such as Sweden, Estonia (ESTAG, 2002), Austria and Finland. The mergence of such centres of competence with their respective regional innovation systems is of particular significance in developing a coherent economic development framework for technology-intensive and innovation-driven industries. In this regard, the Regional Development Platform Method (Harmaakorpi, 2004) provides a structured approach to identifying the core competencies required for competitiveness and the future megatrends (or core business processes) that will dominate the innovation trajectory.
In South Africa, the Titanium Centre of Competence, aimed at exploiting the beneficiation of titanium reserves, and the Hydrogen Infrastructure Centre of Competence, aimed at exploiting innovation in hydrogen and fuel cell technologies, are two such cases. These centres of competence are premised on strong industry participation in highly specialised markets, with targeted investment in related R&D infrastructure and human capital development.
However, the South African model simply resulted in shifting some government support for R&D from public institutions to industry, introducing certain R&D tax incentives in the process. It does not address the full spectrum of innovation support as alluded to earlier. The reason for this is that the centre of competence programme is supported from within the same government ministry as that charged with supporting public sector R&D, as opposed to the cited European cases in which the programmes are driven by the government economic development ministries. Furthermore, the focus on highly defined technology applications resulted in limited participation of enterprises across broader value chains.
In addition to these deficiencies, the centres of competence are inherently consortium based, depending on R&D capacity of participants. The centre in a centre of competence is not reflective of the region (or sub-region) in a regional innovation system, and their mergence to form effective economic hubs or regional industrial competencies is far from a reality in the South African context.
Measuring the Innovation Capability of Regions or Sectors
Various approaches have been documented with numerous case studies on measuring innovation capability as well as the impact of innovation support mechanisms. The discussion of these approaches and methods are outside the scope of this paper. A comprehensive guideline is provided in the Oslo Manual (OECD & Eurostat, 2005). In essence, these models require the assessment of a range of innovation-related activities and outputs in areas such as capacity for human capital development, knowledge creation, technology diffusion, infrastructure, employment capacity, leadership, entrepreneurial activity, networking, etc. At the enterprise (or sector) level, the measurement of innovation capability focuses on (a) actual innovation capabilities (human resources, linkages, quality assurance systems, ICTs) linked to technology activities; (b) expenditure on innovation activities—investment in R&D (capital equipment, HR, etc.), technology transfer/diffusion (including IP acquisition), skills development, marketing organisational development, non-R&D infrastructure (machinery and equipment, ICT, land & buildings) and (c) organisational innovation (adoption of knowledge management practices, adoption of ICTs, client response, flexibility, networking capability, learning capability).
Some of these methods are highly quantitative, requiring in-depth data analysis, while others provide a more qualitative approach. In this study, a more qualitative approach will be used within a well-established innovation evaluation framework.
A Case Study: The Mpumalanga Agriculture and Forestry Sector
The province of Mpumalanga, one of nine in South Africa, has a highly resource-based economy through the exploitation of minerals, mainly iron ore and coal, and other natural resources linked to agriculture and forestry. At the same time, the region is marred by high levels of unemployment, and the beneficiation of its natural and intermediate resources is necessary to ensure employment-driven economic growth. This is clear from statistics comparing the contribution of the individual industry sectors to the province’s GDP to their levels of employment. What is evident, though, is the presence of large globally competitive enterprises, such as Sasol, Columbus Steel, Middleburg Ferrochrome, and Sappi, just to mention a few, which have highly innovative process chains and established global markets.
Identification of Industrial Clusters
As a region, the province has a fairly large geographic footprint with different economic sectors dominating different sub-regions of the Province. The evaluation of the gross value added data per industrial sector allows the identification of industrial clusters across the region. Using this approach to analyse the agriculture and forestry sector across the province, a relatively high degree of clustering is found in the Mbombela (Nelspruit) area with some degree of clustering in the Hazyview and, to a lesser extent, in Delmas and Komatipoort (the location of the proposed Nkomazi Special Economic Zone) on the border with Mozambique).
In this way, the sub-region of Mbombela and its surroundings, which include Sabi, Hazyview and Komatipoort, has been identified as a possible centre of competence in agriculture and forestry. A centre here is conveniently defined as a sub-region that has an inherent industrial capability in a key industrial sector that has the potential of expanding its downstream value-add capabilities. This definition is particularly useful in regions that are dominated by strong resource-based industrial sectors, such as the case in many regions in South Africa.
Measuring the Innovation Capability of the Sub-region
At this stage, the extent of the innovation capability of the agriculture and forestry industrial sector in the Mbombela sub-region is not clear. It is therefore necessary to assess this capability in order to establish whether it indeed can be classified as an innovation cluster that has the propensity to be transformed into a centre (sub-region) of competence. To this extent, the innovation measurement framework shown in Figure 1 provides sufficient information to establish the innovation capability of the cluster.
Through an intensive evaluation of the elements depicted in Figure 1, it has been found that the agriculture and forestry sector in the Mbombela sub-region is relatively well developed with globally competitive capabilities. This is driven by the large companies in the area, which include Sappi, Mondi and York Timbers. The value chain is relatively long, with harvested production either exported as high value production (such as fresh fruit exports) or beneficiated into materials (such as timber products for the construction industry, dissolving wood pulp, and specialised cellulose for production of textiles as depicted in Figure 2) or finished products (such as furniture and edible oils). The innovation elements mainly lie in the upstream end of the value chain—the pre-harvest and post-harvest treatment and processing of production. The latter is supported by two well-established R&D and technology transfer institutions in the sub-region. However, this part of the value chain is hampered by limitations in cold chain logistics capabilities in the region (as far as agricultural produce is concerned).
The cluster is adequately supported with education infrastructure, mainly through the University of Mpumalanga, and to some extent with SME incubation support. The cluster is also well supported by a range of dedicated government programmes and incentives, which includes support programmes under the Mpumalanga Agricultural Development Corporation.
In summary, the Mbombela and surroundings sub-region was found to exhibit a reasonable level of innovation capability in agriculture and forestry, with the latter’s focal point in the Sabi area, and has the potential of developing a competence in agro-processing with a focal point in the Nkomazi Special Economic Zone. The potential for developing a highly sophisticated innovation system, though, will depend on the sub-region's ability to develop innovation partnerships, infrastructure and resources for technology development and transfer.
Conceptualising the Industrial Centre of Competence
Developing the Mbombela sub-region into a national and global industrial hub in agriculture and forestry will require a two-fold action: firstly, to develop the innovation system within the specific sector (i.e., the sectoral innovation system), targeting innovation specifically in the agriculture and forestry sector, and secondly, to develop a microeconomic development framework specifically targeted towards this sector. The latter includes the alignment of local development strategies and priorities and involves targeted investment in related infrastructure, institutions and human capacity development, in addition to the facilitation of local and global partnerships.
The identification of core competencies is necessary in the design of these interventions, among other factors such as market analysis. The approach used is to firstly define the product value chains that provide opportunities for enterprise development. One such value chain is shown in Figure 2 in the case of production of bio-composites from already-produced intermediate products and their conversion into value-add components (which can be incentivised through policy mechanisms related to infrastructure procurement, for example). In addition to the identification of core competencies, value chain analysis allows the design of enterprise support mechanisms, such as business infrastructure and technology development institutions.
Some of the core competencies that emanated from the value chain analyses are shown in Figure 3 to demonstrate the approach based on the Regional Development Platform Method. The figure depicts related industrial sectors/subsectors, the future megatrends (or core business processes) and the development of related innovation networks. These form a framework for regional innovation strategy, which includes the development of resources (institutional, R&D infrastructure and skills development, among others), the development of innovation partnerships that will address core business processes linked to future megatrends, and the development of innovation-related capabilities such as networking, leadership and culture, among others.
The next stage of the process in conceptualising the industrial centre of competence involves designing the key institutions that need to deliver on the required competencies and support measures. These have been packaged under the following developments:
A forestry technology centre, linked to the regional university, as a focal point for the development and diversification of the forestry sub-sector, through the provision of specialist technology and business development services for the forestry and forestry products industries. This includes forestry- and environment-related information services, consultation and expert services, research and technology development, education and training, and technical support through a range of specialist laboratory services. The laboratory services are intended to provide the industry with shared resources in biosciences to enable innovative technological assimilation for improved competitiveness. Enterprises in the wood sector, including enterprises in furniture manufacturing, will be the industrial partners to the proposed centre, and would utilise the services of the centre to expand their innovation capabilities. In this way, students from the regional university will be exposed to real enterprise challenges and gain insight in the forestry sub-sector and the wood products industry. Importantly, the proposed centre will enhance the profile of the forestry sub-sector and brand the region’s forestry sector as a promising career prospect for the new generation of knowledge workers and entrepreneurs. A wood SME incubator, alongside the forestry technology centre, for the incubation of new enterprises. The incubator would provide a conduit for large businesses to contribute to SME development through their social labour plans, skills transfer and technology support as well as the outsourcing of non-core functions to new SMEs in the incubator. A forestry industrial park that will house the forestry technology centre and the wood SME Incubator to form a forestry hub. The park will provide a platform for inter-enterprise cooperation, and lead to specialisation and improvement in quality standards for exports out of the sub-region. In addition, it would provide centralised facilities as a shared resource for enterprises. A food technology centre that will compliment existing education, training, technology transfer and R&D capabilities of the innovation cluster, and extend its value-addition capabilities. The centre will provide technical expertise and technology support for the agri-food industry through technology solutions, skills development, innovation and R&D. The centre will also act as a business incubator to enable new companies to be formed and to provide a vast array of resources and technology services to both new and existing SMEs. These technology services will include product development and analysis and expert services in marketing, branding, packaging and legislative compliance. An international fresh produce market, a new agricultural hub, to boost both commercial and emerging growers through developing new markets in addition to strengthening existing local and international markets. Small-scale producers and cooperatives will be linked to the market, through integrated agri-hubs in rural areas, gaining exposure to local, regional and international consumers through an improved supply chain.
The mapping of the Agriculture and Forestry Industrial Centre of Competence, as depicted in Figure 4, shows the potential to create a highly coordinated and integrated development platform in the Mbombela sub-region to exploit economic opportunities within these sub-sectors. This includes coordination and integration of skills development programmes, technology development and transfer, supply chain development, logistics and investment, among others inputs for innovation and industrial development. In particular, the Forestry Technology Park will provide a mechanism for institutionalising the capabilities that will lead to such integration within the forestry sub-sector. A similar role would be played by the international fresh produce market within the agriculture sub-sector.
This approach furthermore allows for existing innovation instruments, both institutional and support measures, to be synergised within the broader objective. This includes existing public institutions (such as the Timbali (horticulture) Furniture Incubators), and industry R&D centres (such as KLF Research located in Sabi), among others. It also allows national and provincial support instruments to be streamlined and focused on the activities within the central hubs.
Concluding Observations
The design and institutionalisation of innovation support mechanisms targeting industrial competence in a specific sector (in this case, agriculture and forestry), forms the basis for the conceptualisation of an industrial centre of competence. The ensuing plan of action will require both a regional (or sectoral) innovation strategy together with the required microeconomic development strategies calls for coherence in the efforts of government, industry and academic role-players.
Unlike a purely innovation-driven approach, the development of core competencies allows for a central role by industry. This approach is particularly viable in regions or sub-regions which are home to large companies with a global footprint. This not only allows ownership of the innovation process to be shifted closer to markets, but allows for the transfer of in-house capabilities into the public domain.
Such an industrial centre of competence will rely heavily on entrepreneurship activities to pursue new opportunities in beneficiation. This is not easily achieved through innovation strategy alone and has had some success through government support instruments for enterprise development. The industrial centre of competence approach, in which large companies play a central role, can leverage the market opportunities arising from structured capability development to promote entrepreneurial activity.
Overall, the industrial centre of competence provides an all-encompassing model, from innovation support through to market development, in a structured and deliberate manner, with targeted investment. Besides spurning the institutionalisation of new capabilities, it allows existing institutional capability to be synergised into the broader industrialisation objective.