The ‘indigenous’ mindset and the way forward
There is a need to address the potential contradiction between the idea that global networks are the best way of promoting innovation and the continued pull of national politics and regulation. Particularly in the current context where globalization is being questioned, and with some degree of nationalist political pressure in both Europe and China, it is not going to be possible – or politically desirable – to do away with national borders when it comes to innovation. There will always be a tendency for politics to push to protect or enhance ‘local innovation’. At the same time, it is in the longer-term interests of both the EU and China to encourage innovation collaboration, not least because transnational innovation networks provide the most effective outputs. Effective innovation cuts across national boundaries, and in an era of globalization fully ‘indigenous’ innovation is not possible, even if it were politically desirable. In any case, the ability to integrate a diverse range of technological and innovation capabilities across different parts of the world will be more important for MNCs in the future. Adoption of an ‘indigenous’ mindset could only succeed in the short term in selected specific areas (though in the long term its chances are better in larger and more diverse economies such as the US and China).
Moreover, both the EU and China are large markets in themselves. Together, they constitute an even larger one. It is well known that the economic returns to innovation increase disproportionately to the size of the market, because once the fixed costs of innovation are recouped, the additional sales generate pure profits. Thus the Chinese market may be worth much more to Apple because the iPhone development costs have already been amortized in the US market. The EU and China, through appropriate reciprocal or expedited cross-patent registration and greater IPR enforcement, can boost returns significantly for all their innovators.
EU and Chinese leaders should therefore encourage an open mindset among policymakers, businesses and researchers, and move beyond thinking about innovation as a national or regional project towards measures that enrich the engagement of all their researchers and enterprises in global networks, taking advantage of their vast combined market, as well as the rest of the world. The statement at the second EU–China innovation cooperation dialogue in 2015 of the benefits of ‘a global open innovation ecosystem without unnecessary obstacles to innovation and cooperation across borders’ is welcome in this regard.
The EU and China, through appropriate reciprocal or expedited cross-patent registration and greater IPR enforcement, can boost returns significantly for all their innovators.
Achieving this would be helped by avoiding government targets that encourage the indigenous mindset, such as a focus on market shares in particular technologies, and by facilitating cross-border patenting between EU states and China. This will be challenging, as the nation state is firmly embedded in global evaluations of innovation capacity. However, increased use of measures of innovation that reflected the ‘global value chain’ approach to measuring trade would help to move policy towards enriching global innovation networks.
Another important perspective in considering how to promote network innovation is to distinguish between public-sector and private-sector collaboration. The former involves government and other public bodies and is driven by non-market-based public need, whereas the latter happens when profit-making enterprises work together to increase competitiveness and profits.
Basic research is an area in which EU–China collaboration could be promoted. As there is not much conflict of commercial or other interests, the results of such cooperation can be jointly owned or be put into the public domain. CERN, the European Organization for Nuclear Research, is a successful example of international cooperation and collaboration in R&D in basic research. The assignment and ownership of the IPR arising from discoveries at CERN are not contentious as the research results could not directly be exploited for commercial profits.
Space exploration that is unrelated to military use is another possible area for EU–China collaboration and would avoid duplicating efforts. China will become the only country with a working space station in the not-too-distant future. It has a leading edge in research in selected areas such as quantum communication, genomics and supercomputers, which means that collaboration with the EU in these areas could be very promising.
Mitigation of climate change (and decarbonization) is another promising area for close collaboration as both parties are committed to full implementation of the Paris Agreement. China would benefit from the EU’s extensive experience on carbon trading and carbon tax. Joint research could be conducted on subjects such as nuclear power (including fusion power), new battery technology, promotion of the use of heat pumps (of which the EU is the leader), lowering the cost of long-distance transmission of electricity, and the phasing out of coal and the possibility of its alternative uses. There could also be collaboration in setting standards for electric cars, and agreeing the standardization of the terms and conditions of long-term social financing to encourage efficient substitution by capital costs for operating costs so as to achieve the goal of reducing carbon emissions.
One important precondition for collaboration in R&D is to facilitate the convenient and frequent movement of the people involved in research and innovation. Flexible and easy-to-navigate visa regimes should be introduced. Encouraging and supporting student exchanges, including gaining overseas work experience after the completion of studies, are also important. It has been noted that Chinese researchers who have studied overseas and returned to China are particularly valuable for the development of collaboration with other countries, and attempts should be made on both sides to develop similar networks of European researchers with research experience in China. Within the EU, there is probably a need to encourage greater geographical diversity: for example, given the strengths of their research base, the Nordic countries are relatively weak in the exchange of researchers.
One challenge is finding the optimal balance between high-level coordination and the organic development of bottom-up links between individuals, institutes and enterprises: it is clear from both official statements and other materials that the scope of research relationships between the EU and China is increasingly broad, and even mapping this thoroughly is probably not a feasible exercise. On the European side, the 2012 report of the STI expert group recommended a smarter, more focused and better-coordinated EU strategy. This may not be possible owing to the varying degrees of devolution between and within member states, but the arguments on how such a strategy should be developed are relevant to considering innovation relations between the EU and China. There is a need to combine top-down and bottom-up identification of priorities for international collaboration, based on identifying gaps, bottlenecks and areas where market conditions outside Europe can stimulate innovation. In this regard, features of China’s markets discussed above, such as growing consumption and effective engineering talent, offer opportunities for European companies to develop their products and services. These should be complemented by developing platforms that coordinate across innovation, research, business and education, and by making use of flexible models of cooperation genuinely led by businesses and researchers.
It is in areas of industrial competition that innovation relations are most difficult to manage, and these ‘overlaps’ between Europe and China may increase over the next decade (already since 2010, China has been the largest exporter of high-tech final goods by value, though many are designed in the US or Europe). The political challenges this will bring should not be underestimated. Proper risk management to maintain individual firms’ incentives to invest in innovation should be given due regard in the process of developing innovation networks. Transnational firms have already established such risk management measures, such as ring-fencing parts of their product R&D processes. Governments should continue to upgrade intellectual property protection regimes. This is an area in which the Chinese government has been focusing resources over recent years, for example through the establishment of specialized IPR courts. However, much more needs to be done to build institutional capacity and business culture.
Sensitivity to politics also brings to the fore the varying degrees of innovation capability, which in turn reflect and feed hierarchies of global political economy. Evaluating this has become more complex with the rise of China, and shifts to a more diffuse and multipolar world. But as argued in this paper, in general terms the greatest strengths in innovation still lie in developed economies (including in Europe), which are also home to most of the corporations that dominate research-intensive industries (these often tend to be capital-intensive sectors). In a small number of areas, Chinese companies are beginning to break through into these areas, and are enhancing their capability through international acquisitions, although the stock of such investment remains small in global terms. The determination and creativity of these companies should not be underestimated, but at the same time EU policymakers and companies should have confidence in the strengths that mature research institutions and supportive regulatory frameworks can bring to innovation on a global canvas.