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Overview

Investment in knowledge

• Investment in knowledge, defined as public and private spending on higher education, expenditure on research and development (R&D) and investment in software, estimated to be about 5% of APEC-wide GDP. By this measure, the United States, Korea, Hong Kong and Singapore are leading knowledge-based economies in APEC region.
• ICT hardware and software have been the most dynamic area for investment. Investment in software account for 30 to 50% of the contribution of ICT to overall investment growth.
• Education and skills, which underpin the growth of a skilled workforce, account for the bulk of investment in knowledge. In 1999, 65% of the population aged 25-64 had completed upper secondary schooling. The share is more than 20 percentage points higher in the United States and Japan.
• In 1999, about 50 million workers in APEC region are estimated to be in highly skilled S&T-related occupations
• Expenditure on R&D has increased considerably over the past two decades. It has grown by almost 5% a year and has accelerated since the mid-1990s. In 1999, APEC economies allocated over USD 400 billion to R&D. Since the mid-1990s, R&D intensity has increased continuously in Japan and the United States.
• Despite a recent slowdown, venture capital remains a major source of funding for new technology-based firms. Between 1995 and 1999, it amounted to 0.21% of GDP in the United States and 0.16% of GDP in Canada. Almost half of venture capital investment is for ICT, representing more than 67% in the United. Biotechnology is also of growing importance.

The role of business in R&D is increasing

• The business sector is the major source of R&D financing. In 1999, it provided more than 70% of domestic R&D funding. Over the decade, the business sector’s share increased from 57% to 67% of total R&D funding in the United States and it remained stable in Japan at around 72%. The government’s role in funding R&D declined over the 1990s.
• During the 1990s, government support for health-related R&D rose quickly in Japan (10%) and the United States (8%). A significant and increasing part of health R&D concerns biotechnology.
• ICT also accounts for a growing share of overall R&D.
• 1.2 Knowledge flows within and across economies
• The use and generation of knowledge depend not only on the creation of knowledge but also on flows of knowledge within and among economies. Collaboration between business and non-business entities is rising, and the share of R&D performed by the higher education and government sectors and funded by the business sector is increasing. Data from innovation surveys by some economies show that firms with co-operation arrangements with higher education or government institutes account for around 10% of total employment.
• Production of scientific research and technological know-how also increasingly depends on research conducted in other countries. 27% of scientific publications in were the work of multinational teams and 7% of patents were the result of international co-operative research.
• More and more technology is owned by firms from a country other than the inventor’s country of residence. In the United States, the share of foreign inventions in the patent portfolio is only 13%. Japan and Korea are the least internationalized in this respect.
• Knowledge flows also result from migration. In the United States, for instance, the largest number of scientists and engineers (S&Es) with S&E doctorates who were born elsewhere. Majority of foreign-born scientists are from China and India. International mobility of students also represents a potential flow of qualified workers. The United States attracts 29% of foreign. English-speaking countries account for over 50% of the APEC total.
• Many larger corporations have concentrated R&D activities at fewer locations domestically in favor of offshore locations that possess the right resource or innovation mix for a particular technology. This practice is particularly prevalent in areas that require significant investment and a close connection to basic science, e.g., pharmaceuticals and advanced materials.
• Information technology, especially the Internet, allows companies to conduct R&D at numerous locations with a higher degree of strategic and task integration. For R&D in non-capital intensive technologies such as software, it enables more decentralization. As a result, rather than competing for foreign direct investment in manufacturing facilities, many countries like Singapore are competing for foreign direct investment in R&D.
• Public authorities in APEC economies have increased their commitment to international and regional collaboration to tap overseas expertise and to obtain the additional associated benefits that derive from a greater diversity of approaches and ideas. Thus, policies and programs are expanding beyond support for national innovation systems to include: 1) help for researchers and companies to take full advantage of the global innovation system, and 2) measures to attract innovation in the form of direct investment and/or researchers to their shores.

Global trade and financing

• National economies also integrate in other ways. Financial transactions (e.g. direct investment and portfolio investment) constitute the fastest-growing segment of international transactions.
• Flows of foreign direct investment (FDI) have surged in recent years, owing to renewed dynamism in the world economy and a favourable international investment environment. FDI flows as a percentage of GDP are high for China, Hong Kong, Singapore, New Zealand, and the Thailand.
• Mergers and acquisitions are the most common form of FDI. During the 1990s, cross-border mergers and acquisitions increased more than five-fold worldwide on a value basis. The United States was the main target during the 1995-99 period. During the 1990s, the most active sectors at global level were oil, automotive equipment, banking, finance and telecommunications.
• In the period 1995-98, the shares of foreign affiliates in manufacturing turnover rose almost everywhere. In the second half of the 1990s, when manufacturing employment typically declined in national firms, it rose in foreign affiliates in all economies. In most cases, this reflected changes of ownership owing to buy-outs and acquisitions.
• The share of turnover under foreign control in the services sector is over 20% for most of the economies. The share of turnover of foreign affiliates was greater for manufacturing than for services.

Global integration of economic activity

• Globalisation is a dynamic, multidimensional process. National economies can integrate their activities and internationalise through different channels, e.g. trade in goods and services, capital and labour flows, transfer of production facilities and/or technology.
• Even though such economic linkages are not new, the intensity and multiplicity of transactions have accelerated over the past decade, making the concept of "globalisation" elusive and its economic implications harder to quantify.
• Several interdependent factors have contributed to the globalisation process of the 1990s, e.g. more liberalisation of trade and financial flows, advanced information and communication technology, lower transport costs, firms’ strategies regarding location and the need to exploit worldwide technological and organisational advantages etc.
• As a result, the structure of international transactions has been gradually shifting over the past decade. Financial transactions (direct investment, portfolio investment, other investment) constituted the fastest-growing segment of international transactions. The upsurge in direct investment and portfolio investment was especially significant in the second half of the 1990s.
• However, such investment flows have also proven to be highly volatile; periods of decline were followed by periods of high growth in investment flows, and vice versa. Portfolio investment, for instance, declined in the early 1990s and tripled between 1995-99.
• The lowering of trade and non-trade tariff barriers has contributed to the steady rise in international trade. The share of trade in international transactions has remained persistently high, averaging 15% of GDP in the 1990s.
• In terms of the composition of international trade, the share of trade in goods is four times the share of trade in services, despite the acceleration of the latter in the 1990s.

Internationalization of industrial R&D

The amount and quality of R&D conducted in a country remain essential components of national innovation strategies. The domestic R&D by itself is no longer sufficient because of increased resources and the capabilities of numerous regions and nations to contribute to the global knowledge base. In 1950, the United States contributed nearly forty percent of the developed world's GDP and carried out twice as much R&D as the rest of the world. Half a century later, wealth and knowledge are created and distributed more widely around the globe. USA accounts for around 30% of world GDP and carries out 40% of global R&D.

In many APEC economies, R&D activities are less internationalised than production, but this is changing as more and more multinationals set up offshore R&D laboratories. Evaluating the net effect of R&D performed by foreign affiliates is a complex process. Ideally, the presence of research-performing foreign affiliates enables the host country to benefit from their technological and organisational capabilities. However, the available data indicate that R&D activities abroad consist primarily of design and development to help the parent company establish a market presence in the host country.

The share of foreign affiliates in industrial R&D varies widely across economies. The differences primarily reflect the contribution of foreign affiliates to industrial activity. The share of foreign affiliates also reflects the size of their R&D effort relative to that of domestic firms.

Other factors, such as the quality of scientific personnel and research centres and the scale of technology transfers from parent companies to affiliates abroad in relation to the independent R&D activity of those affiliates, may also play a part.

Diffusion of ICT

• Many economies have determined that upgrading, privatizing or deregulating) their telecommunications infrastructure, and making computers and the Internet widely available and affordable are essential in the knowledge-based economy. Access supports their companies' and researchers' ability to utilize global knowledge, and collaborate domestically and internationally. Canada has built the world's fastest, all-optical research network, and connected all its schools and libraries to the Internet.
• The diffusion of information and communications technology is a key enabler of the knowledge-based economy. Access to ICT has grown rapidly over the past years. Internet technologies are diffusing very rapidly. At the end of 2000, there were nearly 95 million Internet subscribers in the United States, 47 million in Japan and 19 million in Korea, and 13 million in Canada. A ranking of economies in terms of Internet subscribers per 100 population shows high levels of take-up in the Canada, Korea, Hong Kong, United States, Australia, Singapore, Japan and New Zealand.
• Personal computers are still the main device used by households to access the Internet. More than half of all households now have computers. Internet access in households is soaring everywhere. More than half of the adult population now uses the Internet. Internet penetration in households is strongly affected by household income.
• The Internet is still mostly used to search for information, and the propensity to carry out transactions over the Internet varies widely. In certain economies, over 40% of employees use the Internet in their daily work.
• The use of the Internet to conduct transactions, although rising fast, is limited. The value of Internet sales in 2000 ranged between 0.4% and 2% of total sales.
• The difference between Internet usage rates are much higher in large firms than in small enterprises. Usage also vary in different economic sectors. The most intensive business users are generally firms in finance and insurance, business services and whole sale trade.
• Access cost is a key determinant of cross-country differences in the diffusion of the Internet and electronic commerce. There are large differences in prices of leased lines, which provide the infrastructure for business-to-business electronic commerce. Differences in Internet access cost for consumers are even more marked. At peak times, economies such as Australia, Canada, Mexico, New Zealand and the United States, which traditionally have had unmetered local calls are among the least expensive.

Technology levels and trade

• By the end of the 1990s, high and medium-high technology manufacturing sector has grown rapidly over the 1990s.
• Telecommunications, finance and insurance and business services are typically the most intensive technology users among market services.
• Services have a much smaller share in R&D than in GDP.
• The ICT sector makes a substantial contribution to the economy. In 1999, ICT value added represented between 5% and 14% of business sector value added in APEC area. The ICT sector is a major source of employment growth. The growing importance of knowledge-intensive industries is also visible in the structure of manufacturing trade. The share of high-technology industries in total trade increased from 18% in 1990 to one-quarter in 1999.
• In spite of the growing importance of high-technology industries in overall trade, few APEC economies specialise in high- and medium-high-technology industries. A considerable number of APEC economies still have a strong comparative advantage in medium-low-technology and low-technology industries.

Innovation Policies

In the interconnected, yet decentralized global economy, the long-term cost associated with not investing sufficiently in technology, innovation and people is high. While it might have been possible in the past to treat technology as a factor of production to be bought and sold, the technology-based, innovation infrastructure that will be required for economic success in the 21st century is harder to incubate.

The key word for S&T policies in the Year 2000 is innovation. Innovation is viewed as much more than R&D investment or the ability to apply technology to make new and better products. It is seen as a process driven by:

• Intellectual creativity derived from basic research and human resource development;
• Collaboration in technology clusters and internationally using new technologies and human networks; and
• Entrepreneurship and risk-taking by the private sector.
• Knowledge and innovation make a large contribution to growth. A high share of investment in fixed capital goes for ICT. Furthermore, rapid productivity growth in high-technology sectors such as ICT has contributed strongly to growth in several countries.
• Indicators of patenting confirm the brisk pace of technological progress.
• Countries and companies are busy reassessing and restructuring their S&T policies and institutions to prepare for the innovation age. The following have been found accepted as critical elements for survival and prosperity in the global, knowledge-based economy:
• High levels of R&D investment;
• strong and innovative small and medium-sized companies (SMEs);
• highly skilled and educated workforces; domestic and international R&D collaboration;
• internationally accepted standards;
• access to information technology and the Internet; and
• private-sector led innovation.

Speed

Basic Research

Japan, Korea and other nations believe innovation requires them to create knowledge through their own basic science research rather than applying technology created elsewhere. For smaller countries like Thailand and New Zealand, it means joint public/private sector foresight exercises to prioritize the basic research areas in which their capabilities and resources can be expended most productively.

Industrial basic research is relatively more developed in Korea and Japan where around one-third of basic research is performed by the business enterprise sector. This could mainly be due to the large share of R&D performed by the business sector, approximately 70% of overall R&D.

Life Sciences

Conclusion

Internationalisation, especially in the fields of science and technology, can or cannot take place due to various reasons or factors. Different economies provide varied strengths to encourage foreign investments while their weaknesses deters any outide participation. Japan focuses on electronics, the US is the center for new technology, Indonesia, Hong Kong and other EPZs are known for their manual labour capabilities. Specialists from all over the world go to particular countries due to the opportunities in a certain field available there. Niche strengths of some of the economies are listed below:

• US' research, financial and manpower resources
• Japan's pursuit of the extremes of a technology
• Australia's strength as a good testing ground with its high acceptance of new products and technologies. Products that find acceptance in Australian market also tend to succeed in other developed markets.
• Skilled and educated manpower e.g. China, Singapore, Japan, US, including local graduates, post-graduates and foreign-returned ones.
• The South Korean's successful commercialization of existing technologies, rather than the invention of new ones.
• In the forestry, New Zealand has a definite advantage. Its trees reach full maturity in a much shorter period than in most economies.
• Economies like Papua New Guinea, with specific resources like minerals, gold etc. are attractive to some research investors.
• Some economies like Papua New Guinea and Singapore also act as a springboard from which MNCs can enter other markets in the region.
• Thai scientists, engineers and industrial decision-makers already possess some unique abilities, e.g. utility of problem-solving and the use of information services.

This section discusses the reasons, factors, cultural issues, policy issues and other issues which encourage/discourage globalisation.