Bortagaray, Innovation Decisions - de CSIC

Paper presented in the Prime-Latin America Conference at Mexico City, September 24-26 2008

INNOVATION DECISIONS, AGENDAS AND POLICIES IN DEVELOPING CONTEXTS: INSIGHTS FROM BIOTECHNOLOGY1 Isabel Bortagaray and Judith Sutz2

1. Introduction

This paper analyses the innovation decisions processes in three innovative biotechnology Uruguayan firms that have turned themselves into niche exporters besides their well-established presence in the local market. One of these firms is devoted to human health, the second to animal health and the third to environmentally friendly treatment of several types of waste. The aim of this analysis is to better understand what Lazonik and O’Sullivan term “social conditions of the innovative enterprise”. Such conditions are both internal and external to the firm, encompassing the decision making processes leading to strategic investments, that include the mobilization of financial resources and the establishment of the right set of incentives that could induce cooperation to implement the innovative strategy (Lazonick 2005, Lazonick and O'Sullivan 2000). We posit that this understanding is necessary to design useful innovation policies, that is, policies able to enhance such social conditions and cooperation. One of the reasons why one size does not fit all in innovation policy –and for that matter, in innovation theorizing, is precisely that the social conditions of the innovative enterprise greatly vary in different contexts, including national, regional and sectoral settings.

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This paper draws on research results conducted as part of the UniDev Project ‘Developing Universities: The Evolving Role of Academic Institutions in Innovation Systems and Development’. It is based on in-depth interviews conducted to three biotechnology firms, their users and knowledge providers. For more information see http://developinguniversities.blogsome.com/ 2 Emails: [email protected], [email protected], University Research CouncilCSIC. Universidad de la República, Uruguay

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Innovation is an interactive process (Lundvall 1985, Lundvall 1988) in which different types of knowledge are combined. In the case of modern biotechnology, the combinations of knowledge almost always involve people in the firm and outside it, given the strong scientific nature of the expertise involved. So, the analysis of the innovation decision at firm level must include the state of the relationships with the knowledge providers: Are they available? Are they willing to interact in ways that are appropriate for the firm? How does the search process of such knowledgeable partners occur? On the other hand, the firm’s clients, the final users of the innovation, can have a key role in steering the innovation decisions. This is specifically the case in Uruguay, where the interaction with old and new clients is, as we will show, a main source of innovative challenges. So, to better understand the setting of the firms’ innovation agendas, the analysis encompasses the firms incorporating the innovations, and the academic or knowledge actors that provide the specialized answers for the problems to be solved. The approach has been actor-based, with the bio-innovator related to a specific bio-project as the entry point, and from there both users and knowledge producers have been traced back and involved in the study. Policies have been indirectly approached, and only from the appreciation and perspective of the bioinnovator. Diagram 1. Sketch of the approach policies Bio-innovator

AKP- academic knowledge producer

Bioinnovation user

The three cases under analysis share a common driving force: searching for problems to be solved is a key and permanent activity of the owners of the firms. Sometimes this is done by exploring the frontiers of knowledge, trying to answer the question “what has become possible to do?”; others by searching and listening carefully to the problems that other productive sector have. It can be said that the

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three firms, through different trajectories, have developed an antennae system for finding and interacting with potential users to better understand both the problems they have and the ways they can be solved. However, their achievements are, to a good extent, against all odds, as they have lacked supporting policies and, in some cases, suffered from antagonistic ones. Such achievements, yet important for the firms’ survival and for the users’ which problems have been effectively solved, are below their accumulated capacities. This feature is to a good extent a result of bad policies, or missing policies. Innovation policy is questioned in this context in a two-fold manner. On one hand, we argue that there is a mismatch between the mainstream innovation frameworks and the actual policy mechanisms to foster innovation in developing countries in general and in Uruguay in particular. For instance, innovation studies emphasize the relevance of the systemic aspects as innovation stands upon the interaction and relationship of multiple and plural actors, from knowledge users and producers, interface and financial organizations, policy agents, etc. However, innovation policy in developing contexts tends to concentrate on a rather singleminded diagnosis of why innovation at firm level is weak: the lack of financial resources, given the inability of the financial institutions to provide a special track for innovative proposals. The bulk of innovation policies thus concentrate in bringing monies into the process. However, the underlying rationale of such policies is to avoid being captured by particularistic interests, and thus the main mechanisms of policy implementation operate through competitive funds, frequently consuming more time and efforts that those firms judge valuable to spend. Policy ineffectiveness stems then from two sources: narrowly conceived policies and cumbersome implementation. On the other hand, the types of considerations included in the firms’ innovation decisions lead to questioning the extent to which is it desirable to have an isolated innovation policy focused on firms instead of combining it with a transversal orientation towards problem-solving in each one and across the more traditional policy domains (i.e., health, agriculture, social development, housing, environment, etc.) to which innovative firms are related to. From a policy standpoint it seems then relevant to ask, what type of policies could allow these three cases to develop their potentialities at the most and, more ambitiously, to evolve to an overall trend? The general worry relates to how to promote the effective mobilization of problem-solving capabilities, a challenge that has proved to be a particularly difficult one in developing countries; when it comes to biotechnology and its potential contribution to the well-being of the population and the rational exploitation of natural resources, the challenge appears particularly pressing. Combining the views of the three types of actors in each case –solvingproblems producer, innovation/solutions user and knowledge provider- can lead to “innovative embedded” policies able to make the best from the collective capacity for problem-solving.

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2. Dynamic of the technology: Biotechnology in motion Biotechnology entails an area of opportunities for developing countries for different reasons. It encompasses a wide range of technologies with varying levels of complexity, costs involved and applicability. Biotechnology applied to agriculture has been one of the areas in which less developed countries have seen large room for innovation opportunities. Even though agro-biotechnology draws heavily on scientific knowledge as biotechnology in general, it also requires important doses of local knowledge on adapted species, micro-organisms, etc., while also the investment required could be maneuvered depending on the budget available. Other types of developments, such as chemical synthesis, demand much larger investments, remaining further along the world of the feasible for developing countries. The role of local knowledge and know-how is of utmost importance as biological systems imply mutation, variation, adaptation and interaction with contextual conditions. Thus, knowledge on local conditions and variation might substantially enhance the efficiency of the product and might be well known and mastered by a local company. This has been the case of vaccines for animal health, which has been indeed an area of opportunity for some local companies in Uruguay. Furthermore, the singular of biotechnology might result misleading as it stands on different but interacting types of knowledge (Bortagaray 2007 ): (i) core subject matter, which in agro-biotechnology involves the fundamentals of genetics, molecular biology, virology, cell biology, etc.; (ii) the instruments and techniques used to either produce biotechnologies or to use biotechnologies for further applications; (iii) knowledge of the problem area in which biotechnology is applied (i.e., changing milk composition) so even if the underlying technologies are relatively common, they are utilized and framed for different purposes. Biotechnologies could be used to solve different problems, and are crosscut by different knowledge disciplines. The case of environmental biotechnology is not so different from agrobiotechnology. The use of micro-organisms for bio-fermentation for instance, shares the same attributes of agro-biotech: the adaptation and specificity of local flora to degrade waste is a very valuable asset within the whole process. Nevertheless human health oriented biotechnology is different, as there the rules of the game are more permeated by global dynamics, costs are higher, as IPRs and markets are quite complex. Still, there are interesting niches for firms in developing countries, in fields such as the area of phyto-therapeutics. 3. The analytical framework and innovation agendas and decisions 3.1. The analytical framework

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To organize the exploration of the innovation decisions of the three Uruguayan biotechnological firms, we propose to analyze the following aspects as shown in Diagram 2.

Diagram 2. Components of innovation decisions at firm level

The firm’s innovation base

The innovative opportunities

Personal innovation drivers (room for creativity, pleasure in detecting problems and ways of solving them, innovative entrepreneurial drive) Accumulation of knowledge at firm level (innovative experiences, productive experiences, failure experiences, searching routines, internal knowledge, cooperation)

Screening scope

What can be searched, produced and sold? Two main common features3: i) local specificities, not served either by existing solutions and even by existing knowledge ii) high cost of current procedures to solve problems

DECISIONS and AGENDAS Market opportunities i) Open market ii)Taylor made products and services iii) Targeted demand

Science and Technology evaluation

Cost evaluation

Who are the customers? What drives customers towards innovation?

The firm innovation base is key to determine the screening scope for innovative opportunities. It depends, first of all, on the personal innovation drive of entrepreneurs. Nothing too different of what happens in academic research, where curiosity plays an important role. “I invent because making new things provides one 3

This applies for the Uruguayan case.

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of the biggest joy of my life – as satisfaction of my curiosity”: this sentence belong to one of the co-founders of Sony Corp. (Dasgupta 1996) (p.26) and in a way or another can be recognized there where innovative firms are. Moreover, boredom is something innovative firms owners avoid as much as they can for personal reasons. So, looking for new avenues just because they have not yet been journeyed is a subjective part of the firm’s innovation base that should be kept in mind, even if it is non quantifiable and even not even told as such directly by entrepreneurs themselves. A common path among the three cases we are analysing show that part of the process that leads to innovation implies doses of irrationality, intuition and guts that shed light on a specific course of action over others. As one of the interviewees put it: “if I have an idea and like it, I of course analyze pros and cons, I counter-assess it against my experience, but then if I like it… I just jump on it”. The accumulation of knowledge at firm level is obviously fundamental to determine the scope of the screening for innovation. Such knowledge includes scientific and technical knowledge and commercial knowledge as well, the latter encompassing the needs, preferences and prejudices of the firm’s clients. Such accumulation, that can also be termed “knowledge trajectory”, has been a central part of the appreciative theory of innovation. As Nelson and Winter put it (1982): “In many technological histories the new is not just better than the old; in some sense the new evolves out of the old. One explanation for this is that the output of today’s searches is not merely a new technology, but also enhances knowledge and forms the basis of new building blocks to be used tomorrow (Nelson and Winter 1982) (pp.255-256).” “The result of today’s searches is both a successful new technology and a natural starting place for the searches of tomorrow (257).” From another viewpoint, the scope for screening is related to the capacity of the firm to assimilate new knowledge coming from outside, termed by Cohen and Levinthal (1990) the “absorptive capacity” of the firm: “… we argue that the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. We label this capability a firm’s absorptive capacity and suggests that it is largely a function of the firm’s level of prior related knowledge.” (…) “We argue that the development of absorptive capacity, and, in turn, innovative performance are history –or path-dependent and argue how lack of investment in an area of expertise early on may foreclose the future development of a technical capability in that area.” (…) “…prior related knowledge confers an ability to recognize the value of new information, assimilate it, and apply it to commercial ends. These abilities collectively constitute what we call ‘absorptive capacity’”.(Cohen and Levinthal 1990) (p.128). The firms’ innovation base integrates too the knowledgeable people within the firm and the knowledge cooperation circuits established along time. The importance of “new people” has been clearly recognized in the literature and in empirical work

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around innovation. In the Innobarometer 2004, innovation managers throughout Europe were asked about different aspects of their innovative efforts; one of the questions’ sections began with the following one: In the last two years, in support of your innovation activities, did your firm hire one or more new university graduates?” (European Commission 2004). The importance of the new hired personnel for the propensity to innovate has been explored and confirmed empirically (Nielsen 2007). For the Uruguayan firms this has been the case; the importance of knowledge cooperation circuits has proven to be crucial too. The result of the screening effort is the identification of innovative opportunities. These are extremely diverse, including the identification of “non opportunities”, that is, trajectories that are not within the scope of the firm. As one of the Uruguayan biotech firms puts it, referring to the fact that pharmaceutical innovations were out of reach for them: “The difference between the biological and the pharmacological worlds is enormous. In the former we can start from zero and reach a final product with high value added because in general it is about knowledge and working with micro-organisms in a culture milieu, and after several processes (and complex ones, it is not easy) we get the final product. In the latter however, for developing a molecule the investment is huge. We can purchase drugs from India or China, those which patents are about to expire, and do something like a commodity. But in that case the recognition is to the original drug and to the original company. There is room for differentiation by combining existing drugs and by making them efficient for specific conditions. We have done that, because there are still vacuums, and special conditions that require special drugs not available as such. But we focus on the biological aspects”. In developing countries in general and in Uruguay in particular, two types of innovative opportunities, that is, opportunities to solve problems that are of importance for productive actors, are present in the most diverse settings: the need to cope with specificities and the need to find ways of solving a given problem that are cheap enough to be producible or accessible to potential clients. Specificities appear all over the productive fabric but they are particularly strong in everything related to life. Let’s take as an example the vaccine against Leptospira, a pathogen agent that is a main cause of abortion in bovine cattle.4 There are several varieties of Leptospira, and there is not one size fits all vaccine. Ineffective vaccines are detected by epidemiological vigilance done by the public authorities when more than normal abortion rate is occurring in particular settings. In these cases, it is possible to detect the variety of the pathogen that is present; a specific bacteriological vaccine against this variety is needed to immunize the cattle. The doses involved are not too high, around some tenths of thousands, and no foreign firm will undertake the process of 4 The economic importance of this problem is huge, particularly nowadays given the price of meat in international markets (and given the cost of high quality semen). In the case of milk cattle it is even more evident, because cows need to be out of milk production for around six months to be able to get pregnant, so abortion implies a severe economic loss.

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research and development needed to produce the vaccine: this opens one type of innovative opportunity stemming from specificity. The need to substitute imported solutions due to cost reasons is a permanent source of innovative opportunities in developing countries. In fact, it can be argued that this need has lead to a sort of idiosyncratic heuristic problem-solving strategy, “the capacity to innovate in scarcity conditions” that can be seen as a variety in its own terms within the different types of innovation (Srinivas and Sutz 2008). Two quite different examples of this kind of opportunity can be given from the Uruguayan biotechnological firms’ experiences. In the first example the situation is straightforward: as the owner of the environmental firm put it, “You have two possibilities: either you have half a million dollars and you buy the fuel oil furnace, or you have the knowledge of this three young engineers and one hundred and half hundred dollars, plus the metal-mechanical capabilities (to do an alternative furnace)”. The problem aroused when, due to environmental regulations the blood of the slaughter industry was not allowed any more to be thrown into small water pools in the open countryside. What to do with the blood became a difficult problem, given the volume to be disposed. The environmental firm elaborated a proposal to receive the blood from a particularly big slaughterhouse and transform it into blood flour, rich in proteins and able to be use in animal feeding. The proposed methodology to transform liquid blood into blood flour was adapted from the diary industry and its methodology to produce milk powder, because it was the most environmentally friendly. The problem was that the production cycle was first calculated with conventional furnaces fed with fuel oil: the economic equation did not fit given the extremely high cost of fuel oil. The alternative was to use wood instead, that is abundant and relatively cheap in Uruguay, but no furnace using wood and with the needed characteristics was available. Such furnace was designed and manufactured; it was also patented in Uruguay and Brazil, and a process to receive from it carbon bonus through the Kyoto Protocol is under way, given that it substitutes fossil carburant by a renewable one. The innovative owner has the original idea of imitating the transformation from liquid to powder from milk to blood; he also searched for engineers able to design an alternative furnace; he is familiarly related to a great metal-mechanic workshop so the experimentation stage for manufacturing the furnace was assured. The furnace was subsequently improved several times, until it was able to support the drying process of 1,200 litres of blood per day, from an initial productivity of 400 litres per day. The second example is of a different kind: it relates to building, through scientific and technical capabilities, a cheap way of getting useful diagnosis information for a particular genetic disease, “X fragile”, that affects the ability to learn and has not other external manifestations in early childhood. A diagnosis protocol to detect the existence of the X fragile disease exists, and it is extremely costly. For this reason, when a child with persistent learning problems arrives to a medical consultation almost the last inquiry he/she goes through is the X fragile

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diagnosis. In the Uruguayan biotechnological firm devoted to human health the scientific leader thought differently: inverting the question (how can I assure that a child does not have the X fragile disease) he developed a diagnosis kit which cost is 20 dollars and can be put then between the firsts steps of the medical protocol. The test does not assure that the child has X fragile; it is only able to assure, if it is the case, that the child does not have the disease, rationalizing the search for alternative explanations of the observed symptoms. In all cases, the innovative opportunities, that is, the matching of the selfperceived capacity to solve a problem with the identification of the actor having that problem, need to pass through a double evaluation process: the real scientific and technological possibility to solve the problem in a reasonable time and the cost of finding and implementing the solution. This is a key stage of the innovation decision. In one case, that of the biotechnological firm devoted to animal health, the hiring of a group of young biologists and biochemist had the effect of multiplying the proposals to follow innovative paths that never before were considered by the firm. Luckily enough, this managerial move was part of a restructuring of the innovative decision making protocol of the firm, with one of the owners fully dedicated to this task, so a systematic process of evaluating the proposals in scientific as well as in economic terms could be implemented. The market opportunities for these biotechnological firms can be schematised in three patterns: open markets, tailor-made solutions and targeted demand. We shall briefly exemplify them as they appear for the animal health biotechnology firm, but they capture as well the market opportunities for the other firms; moreover, these patterns can be observed in other high-tech Uruguayan productive sectors, for instance professional electronics (Snoeck, Sutz, Vigorito, 1992). By “open market” we mean serving a market without any particular producer in mind; that is, solving a problem that is present for a whole kind of producers. The examples in this case are vaccines against common diseases of cattle that the firm can provide at a better cost or with better biological characteristics though their frequent interactions with producers, which enable it to better know and take into account the specificities of the Uruguayan production. By “tailor-made solutions” we name a situation where a specific client ask for a solution to a problem that is particular to him. The example in this case is a vaccine to protect sturgeons, an incipient and encouraging new exporting industry in Uruguay. The pathogen was isolated by the sturgeon firm and the vaccine was developed by the biotechnological firm; it was possible because of the accumulated experience of the latter, but it was not just making the antigen but to adapt it to the methodology of immunization that is totally different from cattle immunization, the main field of expertise of the firm. By targeted demand we refer to a situation where a specific demand is presented by a specific actor, but not just to solve the single problem of a given client but for the satisfaction of a more general problem. The experience in vaccine production of the biotechnology firm dedicated to animal health was accumulated

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through the production of vaccines against very different diseases: one of them was cattle anthrax. An entrepreneur interested in the development of a vaccine against human anthrax contacted the firm with this specific demand. The antigen was successfully developed and tested within the firm premises, but the process of encapsulating will be done in a specially built premise in a trade free zone; the necessary authorization from the public health authorities to start the first phase of clinical trials is under way. Finally, it is important to explore the reasons why a client becomes innovative, either by accepting suggestions to innovate, by asking for innovative solutions or by proposing innovative paths itself. Specificities and high costs has been already mentioned as innovation drivers; in the biotechnological realm, particularly in everything related to environment, regulations play a major role. A case at stake, that combines specificities and regulations, is that of the disposal of rumen (the content of the stomach of cattle) from the slaughter industry. Before the new environmental regulations, rumen was just disposed throwing it in the field without further treatment: this is not longer allowed. Moreover, rumen has the potential to be transformed into a high quality organic fertilizer. But to do that specific ways to biodigest the rumen are needed, and as the owner of the environmental biotechnology firm discovered by himself, being good at bio-digestion does not guarantee the ability to design a bio-digester for rumen, given that only countries where cattle eat grass all the year produce a sufficient volume of rumen to justify the procedure. The biotechnological firm in alliance with researchers in the Chemistry Institute at the Faculty of Engineers developed a specific bio-digester that produces a very effective organic fertilizer on the one hand, and biogas on the other hand, solving at the same time the problem of rumen disposal, the starting point of the whole process. 3.2. Innovation agendas: transiting from ideas to projects Innovation agendas are compounded of both, ideas and projects. They coexist along a continuum, varying in terms of their maturity, feasibility, or concreteness. Innovations were ideas at some point. Ideas are key resources for innovation, as triggers of innovation processes. As such, mechanisms for hunting new ideas are institutionalized in some organizations through ‘offices of innovation’ which are aimed at nurturing the emergence of new ideas (Ilori and Irefin 1997), or through innovation managers, innovation midwives (Vincent 2005), etc.. But even if ideas are at the birth of materialized innovations, there is not a linear sequence between them. There are circularities, gaps, conscious efforts as well as chance and casual circumstances that confabulate to make a brilliant idea become an innovative project and then an innovation per se, while others do not get such path or might follow a different one. How do ideas become such in the first place? How do they get into the agenda? This question has been tackled by a scholar like Kingdon but applied to the field of public policy. The author has analyzed how policies became issues, and

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concludes that it is through participants and the processes that agenda issues and alternatives become prominent (Kingdon 1984).In the case of innovation agendas at the level of the firm, different factors might account as triggers for new ideas. A first distinction is based on the loci of such trigger: from external actors to internal R&D processes, going through intermediate situations like technological vigilance and identification of knowledge gaps. The next diagram illustrates this continuum, where the set of studied firms are placed:

Diagram 3. Triggers of innovation ideas External request

Internal vision and Internal technological screening vigilance H u m a n H e a l t h A n im a l H e a l t h E n vi r o n m e n t

Firms tend to combine two types of strategies in their innovation agendas. On the one hand they carry on strategies aligned with their core strengths that enable to build and accumulate on the established trajectory. These are aimed at anchoring their skills and core strengths, but get well articulated with more explorative initiatives. But exploration is not random or totally blind, but focused and adjusted by a series of factors and successive steps. To an important extent core strengths set the broad boundaries within which screening and scanning processes take place, as firms tend to build on previously accumulated strengths, shaping a path dependent search process, where more or less directly, incremental efforts lead to the expansion of that focus. Often existing competences drive the emergence of new ideas, shaping a loop, as firms tend to search for solutions within the neighbourhood of their practice, but known terrains embody new questions and problems. That process lead to new ideas even though sometimes a third party is required to help with making those issues visible. In these cases the translating role is played by the cognitive producer. New areas of application drive new searching efforts through an iterative process. New ideas do not emerge in the vacuum; they build up coupled with existing competencies, which in turn set the boundaries from where to depart in the search for unknown. As mentioned earlier doses of irrationality, intuition and guts nurture a common path among the three cases. If guts and intuition define part of the boundaries of ideas, the level of acceptable risk sets the ceiling, one that cannot be too high and that is defined by plausibility in this type of firms; the unimaginable remains outside the scope of considered ideas. Other triggers of new ideas have to do with synergies and cross-fertilization between different actors, such as users, or

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junior researchers in search of room for new ideas. This is part of the context of one of the cases studied. The incorporation of young researchers has meant a change in the exposure and flow of new ideas into the firm. From new ideas to new projects it could lay an unpredictable road. Decisions pave that road, along different dimensions. The following paragraphs attempt to disentangle some of the knots that mediate between them. 3.3. Innovation decision processes The process of decision-making is often tackled through phases: the entire process is divided among a series of discrete and sequential phases moving from the identification of the problem/opportunity, evaluation of alternatives, choice of the ‘best’ one, followed by its implementation. This type of approach is utilized to study decision processes in other areas such as policy-making (Birkland 2001). Overall decisions stand on a combination of positive, explicit and pursued factors with others that are brought into the process as residuals. Decisions are of different types and concerning different themes, even when focusing at the level of innovation decisions. They shape an interconnected web with circuits coexist with sequences, which might move along one dimension and then suddenly shift into another one, leaving a gap in between them. Decisions are not linear, nor it is always possible to establish a temporal or continuous trace along them. One of the first steps in the process of scanning the alternatives for growth and development of a small firm from a small country entails a negative selection of the spectrum in which the firm cannot compete. Thus the first assertion in an attempt of conquering new areas and/or markets has to do with being aware of what is not going to be part of the strategy. In the words of a small biotech firm’s manager: “we cannot compete in the large markets, so we either have to look for niches or segments or innovate in terms of markets that has not been attended”. But this initial orientation and screening of new niches is in tandem with the strengthening of the firm’s capacities. The latter acts as a bridge strategy for the former. At a certain time there is a compromise in which the bets goes for expanding and reinforcing capacities and capabilities so that then new markets are accessed. As the firm gets its core strengths consolidated, it is able to push the frontier of those niches. It is a bi-directional movement in which the processes of pushing aside for expanding its core strengths nurtures and complements the one of pushing forward for accessing new markets. Within these boundaries, varying alternatives and combinations remain. Some are more incremental decisions, which refer to a succession of events that build on previously accumulated strengths, shaping an interwoven decision process. Others are more radical as they refer to something new, to something that did not exist earlier. But between these extremes, is where most decisions stand, based on a combination of incrementalism and radicalism.

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After that first innovative idea pops up, the immediate step is almost certainly to assess how feasible it is, at least in two different senses: in terms of the knowledge required and in economic terms. These two dimensions are very distinctive in the series of decisions they involve, the type and loci of advice they call for, etc. Regarding the former, very often, new decisions require cognitive advice that cannot be found within the firm. Deciding whether to commit to a new development implies much more than the consideration of its pros and cons as it interacts with other considerations such as the existing portfolio regarding dimensions like the technological, economic, markets, human capital, etc. In a small country it also implies assessing the difficulty of getting the inputs to face the new product. In the pharmaceutical industry the inputs for drug production are an important bottleneck as most of them are imported. The possibility of substituting them with locally produced inputs is thus, crucial. The first step in assessing the chances to get them produced locally is to find the potential producer. The second is to evaluate the costs and the production process. At this point the decision to have them produced locally is not only driven by financial interests, but also by deeper socio-economic factors. It also has a demonstration effect, by doing it the firm is demonstrating that it is possible, and it is distinguishing itself from the rest. 4. The cases in the analytical framework In what follows the three biotechnological firms are briefly put into the analytical framework just described. The firm’s innovation base Personal innovation drivers Biotechnology human health: The owner is a university researcher, who incubated the firm in the Faculty of Sciences, which after four years was absorbed by a national pharmaceutical firm but retaining its distinctive molecular biology knowledge base. One of the strategies of the firm was to hire young biologists and biochemists with the attraction of offering challenging intellectual work. His approach to the firm, regarding his personal intellectual interests as a scientist, resembles and extends his practice at the former full time academic job. In fact, more than 80% of the firm activity is R&D. Biotechnology animal health: The owners are veterinarians with a long entrepreneurial experience. They almost lost the firm when in 1994 a new sanitary policy threw them out of their star product’s market, an innovative vaccine against foot and mouth disease, in which they had made an important investment. They chose to remain in the country trying different products and finally they invested

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again in state of the art facilities to develop a new series of biological cattle vaccines: reproductive vaccines. In parallel they introduced organizational changes to better steer and monitor the firm’s innovation portfolio, which for them is a key asset of the market position of the firm. Environmental biotechnology: The owner has no higher education background, but instead is fully knowledgeable and has a personal deep interest in environmental issues and a strong confidence that problems can be solved. Part of that knowledge is acquired by his curiosity and interest in how other people have resolved problems, by participating in seminars, congresses and being in touch with researchers (Spanish or Portuguese speaking researchers) related to environmental issues, particularly environmentally safe disposal of waste. He started offering his services to the Municipality of a department in the countryside for recollecting and disposing urban waste, evolving towards innovative as well as productive ways of coping with new environmental regulations. Accumulation of knowledge at firm level Biotechnology human health: The members of the firm involved in R&D, particularly the original founder, is dedicated to actively search for knowledge related to the firm’s core activities, mainly in molecular biology but also in medical applications. This search encompasses the investments in laboratory equipment needed to cope with state of the art experimental work. Strong relations with academic researchers in the bio-medical domain as well as open doors for young biologists and biochemists, some hired by the firm and some hosted for temporary projects, makes a strong intellectual environment for the firm. Biotechnology animal health: The firm always had a “technical periphery”, including university researchers in Uruguay as well as Uruguayans abroad, mainly veterinarians. They also developed strong linkages with international bodies regulating and monitoring animal health and providing standards for best practices. Most recently they hired on a permanent basis young biologists and biochemists, while strengthening their relations with academic researchers in domains like microbiology, virology, animal physiology and molecular biology. Environmental biotechnology: The owner established cognitive relations with different kind of actors, from engineers to academic researchers, always with difficult questions in mind, searching for innovative solutions. He also hired on a permanent basis a graduate from a new university career, food technology, to take charge in the technical requirements of the blood flour plant and to support the future plans to develop more value added products from the same raw material. He has proven successful in establishing fruitful knowledge relations with very different kind of interlocutors, probably due to his capacity to pose problems from the vantage point of the actual practice.

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Screening scope For the three firms, the combination of personal drive, accumulated experience and reliance on external cooperation have substantively enlarged their screening scope. In particular, innovative projects are proposed to the firms by external actors through different modalities (direct contacts, bids). The firms’ innovation agenda is then fuelled by internal proposals and by ideas and projects coming from outside. The main core strength in each one of the three firms is still the original one, but particularly in the case of the oldest and best-established firm, the animal health one, external demands have been able to widen its activities’ scope. Innovative opportunities Biotechnology human health: A main generic source of innovative opportunities for this firm stems from the capacity to “navigate the genome” and find new ways to use the related knowledge to determine genetic diseases. This is accompanied by the issue of specificity, with important policy implications. For instance, the discussion in the Uruguayan Ministry of Public Health around providing or not a vaccine for the virus causing uterus cancer revolved around the efficacy of the imported vaccine: the hypothesis was that the Uruguayan strain of the virus was different and the vaccine could be ineffective. The firm was hired to determine the characteristics of the local strains of this disease, an expertise that could be applied to other diseases, like Hepatitis B. For this firm, the transformation of innovative opportunities into innovation projects is heavily dependent on the technological public procurement of the Ministry of Public Health and, more broadly, on the national health policy. Biotechnology animal health: As already mentioned, the specificities of the local milieu is a main source of innovative opportunities for this firm, given that bacterial strains are diverse and changing over time, so new specific vaccines need to be developed. Moreover, the diversity of animal diseases in need of immunizations is a permanent source of innovative opportunities, at least as candidates to enter its innovation agenda. At present, the transformation of innovative opportunities into innovation projects in this firm is mainly a result of an internal process of evaluation and decision-making. Environmental biotechnology: The innovative opportunities for this firm are associated with the capacity to provide new types of environmental services by transforming environmentally damaging waste into saleable products. The need to provide such services and produce such transformations at low cost calls for innovation in a diverse range of issues, from the kind of energy used to ways of exploiting every possible facet of the disposal to be treated. The innovative opportunities in environmentally related activities depend in a fundamental way on regulations as well as on its enforcement, both at national and international level. Each by-product that cannot be disposed in the traditional way requires innovation to

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correct for that problem moreover if in the process something new and useful is to be obtained. Market opportunities The three firms share, even if to different extents, the type of markets opportunities they face. Part of their business is done through the “open market”, that is, with no previously individually identified clients in mind. This type of market can change do to external circumstances, mainly through public policy, a characteristic specially associated with business related to human health and the environment, which are particularly sensible to such policies. The tailor-made market opportunities hold a different importance for these firms. While for the environmental one it represents a main part of its business (the privileged relationship with a big slaughter industry) for the animal health it represents the way to explore new avenues outside their main area of experience. Targeted demand is a particularly important driver of market opportunities for the animal health and human health firms. In the last case, targeted demand is associated with its main type of clients, medical doctors. Such professionals get acquainted through different procedures about state of the art diagnosis practices and push to have them available in their working environments, leading to a type of targeted demand particularly suitable to the firm expertise. 5. The role of policies and regulations5. From discrete to hyphenated policies with an innovation focus: innovativeness and innovation across policy domains Innovation policy has tended to comprise two main types of instruments and mechanisms. On one hand it has involved policies oriented to foster innovation across specific sectors, the so-called targeted policies. This type of technology policy has its critics as it resembles an industrial policy in which, according to them, winners and losers are picked and chosen6. On the other, it has also entailed the promotion of mechanisms beyond a specific sector, i.e., horizontal policies (Teubal 1998). Some horizontal science and technology policy include7:

5

As mentioned earlier in this work policies are considered from the standpoint of the firm: it is an indirect approach based on firm’s perceptions. 6 For a discussion of this issue see Borrus, M. & J. Stowsky. 1999. Technology Policy and Economic Growth. In Investing in Innovation: Creating a Research and Innovation Policy that Works, eds. L. Branscomb & J. H. Keller. Cambridge: The MIT Press. 7 For more details see (Edquist, C. & L. Hommen. 1998b. Government Technology Procurement and Innovation Theory. Linköping: Department of Technology and Social Change, Linköping University.; Lundvall, B.-A. 1994. Innovation policy in the learning economy. In Paper presented at the International Seminar on Policies for Technological Development organized by CIDE. Mexico City: OECD/DSTI.)

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• • • • •

R&D investment (government funding of research); Government technology procurement; Standards setting; Training and education policies; Collaboration-oriented policies: o Supplier-producer (university-industry programs) o User—producer (articulating demand) o Producer-producer o Interface organizations (e.g., research technology organizations) making a bridge between science based organizations and industrial practices [User-producer-supplier (interfaces)] o Support organizations for business firms (including government agencies) Besides, time-horizon as well as the amount of dedicated resources are also important criteria at the time of deciding and designing innovation policies, whether targeted or horizontal. Overall, policies for innovation have gone through different waves, from science, to technology, to innovation policy, depending on the prevailing analytical lenses and understanding of the factors triggering innovation and innovativeness, and on the contextual specificities and dynamics (Lundvall and Borras 2005). In Europe for instance, “[S]ince the 2000s, the EU innovation policies belong to the third generation, which implies having innovation at the center of all policies in the knowledge-based economy according to the Lisbon strategy.” (Rodriguez and Montalvo 2007). This approach to innovation policy resonate with the systemic aspects of innovation; the systems approach introduces a vertical perspective on the industrial system, seeing it as a network and as value chains where certain stages might be more suitable for firms in a specific country” (Lundvall and Borras 2005) (p.612). In Uruguay and along these cases, one of the common driving forces in the firms’ search for solutions is scarcity, which is not exclusive to these firms nor this country; it accounts for an important part of innovation in developing countries, as analyzed by Srinivas and Sutz (Srinivas and Sutz 2008). Scarcity is an environmental pattern, according to the authors, that permeates the entrepreneurial behaviour and firm choices as for what problems to solve and how to do it. Thus, scarcity matters in a two fold manner: scarce resources trigger the need to find alternative solutions that fit such a context while also shapes the appearance of those solutions, they must be adaptive solutions to such conditions. It set the boundaries both in terms of the specific content to solve, and in terms of how to do it. If that argument is stretched one level further to the policy context, we could also ask how does institutional (i.e. policy) scarcity matter for and what does it imply. More in particular, how do firms face their learning and innovation processes in a context characterized by missing policies? It is important to note that while biotechnology entails a window of opportunity for existing cumulated strengths in

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the area of life sciences in Uruguay, at the same time it pushes the knowledge frontier and opens up new opportunities, which exploration and exploitation require public support and public policies. In spite of the relevance and awareness of the need for a government role, in Uruguay policy makers have tended to neglect the importance of innovation and biotech firms’ needs, rather than being adapters or even less optimizers as the literature suggests (Teubal 2002). Furthermore, the policy toolbox in the context studied has been rather meager and sometimes even worst, as emptiness has been substituted by explicit obstacles and barriers that firms have had to overcome, sometimes putting their existence at risk (Bortagaray 2004). Hence, how do firms cope with the context of predominant scarcity at the policy level? What practices have they established to cope with it, what do they claim for from government? An attempt to revert that policy absence brings again the issue of scarcity into scene, but now from the point of view of government choices. Not only resources are scarce, but also the set of competing priorities for those scarce resources is wide. A compromise must be made, and the question of how and what to prioritize entails a complex challenge for government. That is a key feature claimed for along this study. In the context of developing countries, innovation policy requires much more than bringing monies into the productive landscape. Lack of coordination and cooperation, encapsulation and isolation, and lack and fragmentation of demands are the bread and butter of firms’ everyday life calling for new policy designs. Having innovation throughout the policy sphere, in each one of its domains rather than concentrated as a single and discrete policy issue. But the argument needs to take into consideration an important part of the reality that characterizes the environment of these firms. Based on this research results, the need for a government role appears not so much in terms of targeted policies, supporting one or another sector or technology. Neither the call is for horizontal policies exclusively. The claim is for introducing an additional layer, one in which innovation and innovativeness is pursued and fostered through hyphenation, that is by having innovation distributed across the different policy domains but placed at their core, from agriculture, to education, food, health, housing. It needs to be conceived as a pervasive component throughout each and every one of those policy domains: distributed but in a systemic way across domains, in a hyphenated way. If public policies aimed at fostering innovation are introduced throughout, and innovation is approached and fostered as a pervasive pattern, the scope and potential of innovation gets widened, increasing the area of opportunities for matching problems (tackled by those policies) with innovative solutions developed by firms. Somehow similarly, Lundvall and Borras (2005) point out the need for having a coordinating role that could be played by the Ministry of economic affairs or the Industry one, and then it is said that “in principle most ministries could be involved in efforts to redesign the national innovation system” (p.614). The

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argument stressed in this paper is slightly different as we are referring to the design of innovation policy per se, in a distributed but nested way. Coordination of each domain’s focus on innovation is fundamental to enhance the potential for complementarities8, not only at the policy level but also between firms in the different areas. One of the noticeable features of the firms studied here is that they did not engage in collaborative efforts with other biotech companies, nor have they done so between them, in spite of the area of intersection existing between some of their interests and scope of search. The approach to policies for innovation discussed here posits innovation as nested in each policy domain (hyphenated innovation policy), improving the resonance between problems and local solutions. But for strengthening complementarities and connecting the innovation dots, shaping a chain across policy domains a coordinating umbrella is necessary that overviews and links those hyphenated innovation approaches across policy domains. Wrapping up As for innovation policy and given the context of policy scarcity, the argument laid down here calls for the (re) design of policies aimed at fostering innovation, in which horizontal policies are complemented with an approach in which innovation is centred in a distributed way across policy domains, from health to agriculture. By having innovation across each one of the domains, in a hyphenated pattern, innovation becomes part of each one of the policies while also stressing the need for coordination and complementarities. Biotechnology firms for instance, would thus face new problem areas, new demands that arise through two channels. One comes from having innovation at the core of health policy, agriculture policy and environmental policy (based on the three firms studied here), thus having an interlocutor in the policy sphere concerned with local innovation and innovativeness. Second, the policy actor turns into an echo for existing problems that were not revealed before to the firms, or just because by regulating it opens up new demands. So it contributes to turn what used to be no-problems or no-demands into problems and demands for firms to explore. References Amable, B. & P. Petit. 2001. The Diversity of Social Systems of Innovation and Production during the 1990s. In Paper prepared for the second Conference of The Centre Saint-Gobain pour la Recherche en Economie. Paris. Birkland, T. A. 2001. An Introduction to the Policy Process: Theories, Concepts and Models of the Policy Process. New York: M.E.Sharpe.

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For a discussion of the importance of complementarities see Amable, B. & P. Petit. 2001. The Diversity of Social Systems of Innovation and Production during the 1990s. In Paper prepared for the second Conference of The Centre Saint-Gobain pour la Recherche en Economie. Paris.

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Borrus, M. & J. Stowsky. 1999. Technology Policy and Economic Growth. In Investing in Innovation: Creating a Research and Innovation Policy that Works, eds. L. Branscomb & J. H. Keller. Cambridge: The MIT Press. Bortagaray, I. 2004. Instituciones, cooperación y aprendizaje en una PYME agrobiotecnológica uruguaya: estrategias cambiantes de desarrollo empresarial [Institutions, Cooperation and Learning in a agrobiotechnological SME in Uruguay: Changing strategies of firm development]. In Nota Técnica del Projeto Aprendizado, Capacitação e Cooperação em Arranjos Produtivos e Inovativos Locais de MPEs: implicações para políticas, eds. J. E. Cassiolato & H. M. M. Lastres. Rio de Janeiro: Redesist-UFRJ-OEA. ---. 2007 The building of agro-biotechnological capabilities in small countries: The cases of Costa Rica, New Zealand and Uruguay. In Public Policy. Atlanta: Georgia Institute of Technology. Cohen, W. M. & D. A. Levinthal (1990) Absorptive Capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35, 128-52. Dasgupta, S. 1996. Technology and Creativity. New York: Oxford University Press. Edquist, C. & L. Hommen. 1998b. Government Technology Procurement and Innovation Theory. Linköping: Department of Technology and Social Change, Linköping University. European Commission. 2004. Innobarometer 2004. In Flash Eurobarometer 164. Brussels: European Commission. Ilori, M. O. & I. A. Irefin (1997) Technology decision maing in organisations. Technovation, 17, 153-160. Kingdon, J. W. 1984. Agendas, Alternatives, and Public Policies. Glennview: Scott, Foresman and Company. Lazonick, W. 2005. The Innovative Firm. In The Oxford Handbook of Innovation, eds. J. Fagerberg, D. C. Mowery & R. R. Nelson. Oxford: Oxford University Press. Lazonick, W. & M. O'Sullivan. 2000. Perspectives on Corporate Governance, Innovation, and Economic Performance In Targeted Socio-Economic Research Programme. Brussels: European Commission. Lundvall, B.-A. 1988. Innovation as an interactive process: from user-producer interaction to the national system of innovation. In Technical change and economic theory, eds. G. Dosi , C. Freeman, R. Nelson, G. Silverberg & L. Soete. London: Pinter. ---. 1994. Innovation policy in the learning economy. In Paper presented at the International Seminar on Policies for Technological Development organized by CIDE. Mexico City: OECD/DSTI. Lundvall, B.-A. & S. Borras. 2005. Science, Technology, and Innovation Policy. In The Oxford Handbook of Innovation, eds. J. Fagerberg, D. C. Mowery & R. R. Nelson. Oxford: Oxford University Press.

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