Innovation Policy: Public Sector Procurement of R&D - Assignment Example

Innovation Policy- Public Sector Procurement of R&D The aim of this assignment is to present a critical assessment to report that public sector procurement of research and development is a superior policy to subsidies and collaborative grants of university based research. Firstly this paper provides the importance of the R&D companies, (namely the ‘soft’ companies) and discusses why government intervention is needed for the commercialization of university based research. Then, it discusses the steps taken by the government to fulfill its objective. The main part of the essay discusses the benefits and the short comings of the steps adopted by the government to fund university based research companies so that the thesis statement can be analyzed properly. Introduction It is important for a country, as Alfred Marshall says to carry on science together with industry. According to him this is the reason that has made the Germans more successful than the British. The British industry has progressed continuously but the Germans are the true leaders because have not left their universities behind. Universities play an important role in the economy. Being a source of knowledge, universities are called ‘knowledgeable economies’ because of their importance to the economy. Universities’ role is multifaceted unlike the companies that carry out research work. . Universities have to educate and train undergraduates graduates and post docs. Also they are responsible for providing public space and increasing the stock of knowledge by means of publications and patents (Cosh, Hughes & Lester, 2006). It is critical to understand that the responsibility of the universities should not just be the conversion of knowledge but also the capitalization of the knowledge so that it can be considered an important institution of the economy. In the past years a lot of emphasis has been placed on R& D departments of the companies. This is because the enhancements of the R &D can lead to technological progresses that can affect the economy in a good way. Since universities prove to be a part of the research work that is done in a certain country, it is important that the government intervenes to commercialize university based approach. There always has been confusion over how much should be allocated to the universities and the companies by the governments in the past. A number of steps have been taken by the governments to ensure that both the universities and the R&D companies are commercialized. The Government support for innovation is quite common in countries like the US and the UK. When asked how many of the university based research companies and firms had taken some kind of financial assistance from the central government for their innovation activities, 20 % of the companies in the UK revealed that they had done it compared to 12% of the firms in the US (Cosh, Hughes, Lester, 2006). The involvement of the government sector in the innovation process has been beneficial for most of the universities and companies. This statement is corroborated by the CBI innovation survey held in 2005 according to which just one in twenty of the universities / companies revealed that they were not satisfied with the government intervention in the innovation process. (Cosh, Hughes, Lester, 2006) Some universities were the ones that were very happy with the government involvement stating that without the financial help of the government either the innovation process or any other activity of the university could not have been carried out. Overall, almost a third of the companies stated that without the government’s assistance they could not have enhanced their Research and Development capabilities. (Cosh Hughes, Lester, 2006) Large businesses especially in the UK were happier because according to them the financial assistance had had great effects on the workforce skills development. This had in turn led to improved marketing strategy and hence a better public image. The Government can support the R&D in many ways. For instance it can encourage R&D credits. Also it can provide subsidies to universities or provide collaborative grants (as the EU framework does). Another way of motivating the research institutions is that the government can help in the public sector Research and Development Contracts. As mentioned earlier the objective of this paper is to present the assessment of the perspective that the public sector procurement of Research and Development is better as compared to the subsidies and the collaborative grants provided by the government. For doing so, it is vital that all of the above mentioned steps by the government are discussed individually. The shortcomings and the benefits of these procedures to universities each have to be known in order to come to the conclusion of whatever method is the most reasonable and the most beneficial of all for the progress of the university based research firms. Firstly the single company grants (or subsidies) are to be discussed. Single Company Grants (or Subsidies) Subsidies are generally compensations that are provided to firms (universities in this case) that produce certain things that are important for the economy as a whole. By the providing of subsidies the governments try to motivate the firm owners. The incidence of a subsidy means that the costs of the factors of production are reduced. With less cost of production the firms are likely to carry on with the process of production as the profit margins increase. Hence the subsidies serve as an incentive to firms. In order to encourage the R&D in the universities, one step that the government can take is that it can provide subsidies to the universities that carry on with the process. Research and Development usually is expensive and unless provided an incentive and recognition, universities may actually lose their motivation towards researching. In order to keep that from happening, the Regional Development Agencies of the United Kingdom since 2003 have awarded single company grants to many aspiring R& D companies and universities. According to a search that was conducted by CBR (the Centre of Business Research), most of the comments that the universities had were that through single company grants they were able to prove them credible in the eyes of the customers. (Cornell & Probert, 2010) Some also said that these grants helped them interact with other industries thereby extending their contacts. Furthermore, some believed that they did not commercialize and yet managed to learn the different technologies and hence developed their research. Some even explained that without the grants they would not have been able to achieve what they had achieved so far. (Cornell & Probert, 2010) Single company grants are considered important by the universities because they are responsible for carrying out research. This is because these grants add value to the research of the universities. They are encouraged to carry on researching because they can buy more equipments and no equity is lost (Cornell & Probert, 2010). No loss and new research equipment are the most motivating factors that coerce universities into carrying out increased Research and Development. However this is not what is observed today. Many governments have different policies according to which they grant subsidies. These grants may be beneficial to some but may not be of any advantage to others. For example in the case of the United Kingdom, most of the research and development programs were allocated among the firm owners. Firm owners were granted 45% for micro projects and 60% of the research projects. This was not true for the universities where the grants were much lower (Cornell & Probert, 2010) Some universities may also be very doubtful of the grants given by the government. According to them, what happens in the market cannot be determined. In order to assess what really happens after the grant has been provided can only be imagined. The outcome may not always be good for the university. Also, some people argue that the acceptance of subsidies can actually make it difficult for the universities to claim other benefits in other government schemes. The government may also not know which firms and universities to be encouraged. It can be very difficult for the government to decide which of the universities and the companies needs to be awarded. It may face problems in making the division between the two. The government agencies can make wrong deductions that can lead to the granting of the award to a firm that did not deserve it instead of a university. This is what Mike Lynch, founder of Autonomy relates. He says that the government bodies were not able to understand the technological world. () Often the people who were good at filling the firms were awarded instead of those who were good at Research and Development. This obviously can lead to a disappointment of the university researchers who really work hard to get these grants but are unable to do so because of the faulty decision making of the government agencies. To conclude, the granting of subsidies does result in providing incentives to the universities, although this may not stay the same case for all the scenarios. Even such grants can de motivates universities through faulty decision making on the part of the government bodies. Like single company grants, the government can also provide collaborative grant s to the firms that are interested in carrying out Research and Development. Collaborative Grants For the collaborative grants, some themes and competitions are announced each year by the government. The awardees (to whom the collaborative grants are awarded) have to be in a group. For example they can be different universities and companies. The collaborative grants are beneficial for the universities because they provide the universities to interact with the other companies/universities and hence become partners. Small universities/companies may join leading universities/companies in the process of research so they can be globally recognized. Similarly, there can be increased sharing of skills between different universities. Collaborative grants have many advantages but universities that operate under the collaborative grants system may suffer too. According to a survey carried out by Connell & Probert little interest has been found among the companies/ universities of UK, and those under the Technology Strategy Board or the European framework, for the government’s collaborative grants. (2010) Most of the companies term the collaborative grants as being ‘dysfunctional’ stating that occasionally the grants take the researchers away from the market. (Connell & Probert, 2010) The same is felt by the universities. Also according to them, this procedure of government intervention wastes a lot of time. The process of collaborative grants is so unpopular that just three out of a total of twenty two companies (in the survey) had applied for it. Furthermore, there was just one participant who was in the favor of collaborative grants. In his opinion collaborative grants could make the firms look bigger than they actually were. This could make them more knowledgeable among many other competitors. However, except for this one participant there was none who praised the system. For many of the firms and who participated in the survey the collaborative grants (the EU collaborative grants) were bureaucratic. (Connell & Probert, 2010) Also a lot of paper work was needed to apply for the grants. Such things discourage many aspiring researchers especially as they cannot overcome the administrative burdens. Often they do not have the funding that can help them to participate in collaborative projects. One advantage of having to work with the collaborative grants projects is the fact that the universities can work as potential partners with other leading companies/ universities on certain projects. This can be good for the university as it may lead to the formation of an identity of the university in the eyes of the certain companies that may spin out the university researchers. However, working with the some companies may also pose a threat. Universities can be easily exploited by their leading partners. (Connell & Probert, 2010) To avoid this risk the university has to be very selective while looking for partners. The attitude of the universities/firms towards the collaborative grants is usually negative. This can be seen explicitly in the survey undertaken by Connell. According to the survey most of the firms /universities do not approve of the grants. To them these grants are very ‘researchy’ meaning that they are expected to do a lot before being granted. The second argument that they make is that these grants are usually long term. Long term means that the time taken to complete one collaborative grants project is sufficient for completing any three to four projects. Thus obviously the collaborative grants program wastes the time that might be used in other innovations. Also the universities are not promised ample returns in it. Because of the low returns and the slow process of the collaborative grants, universities prefer to act on their own. This way they do not have to act slowly. Also they do not have to go through the trouble of presenting themselves as being applicable for the grants. Operating on their own gives them the freedom to complete projects in a lesser amount of time without the fear of going through the trouble of the entire administration. In David Chiswell’s words the firms and the universities do nothing but sit around wasting time for a little amount of money that is not worth the wait. (Connell & Probert, 2010) Another problem that the firms/universities face in accepting collaborative grants is that these grants do not actually commercialize the technology. The basic reason the grants are introduced is to encourage and exploit new technology. However it seems that the collaborative grants have failed to achieve this goal. Commercial activity is responsible for the building up of the industry, the formation of new jobs and the broadening of the skills of the staff. Sadly, the collective grants have failed to attain any of the aforementioned objectives. Practically, research organizations need to be more commercial because unlike other organizations they have are meant to have better a better project management team and are supposed to be closer to the market. By adopting collective grants however universities become farther away from the market. As mentioned before, the entire process is very slow. The slow nature of the procedure discourages the universities and so their research and development capabilities are compromised. Doing one project in three long years again does not help with the main idea of commercialization of university based research. Many firms get discouraged this way. CEO Jerry Turner said that they assume that the process has been applied and realize that instead of going through the whole hassle it is better for the company to operate on its own (Connell & Probert, 2010). Although most of the universities do not really benefit from the collaborative grants, there are exceptions. Universities that have enormous research and development costs are more inclined to adopt the system of collaborative grants. This way they can share the huge costs and are able to operate easily to carry out research .This is something that the universities that require expensive equipments cannot have achieved keeping in mind the massive costs they incur. Thus the existing knowledge of the people in these universities is enhanced. To sum it all up, the collaborative grants, although were initiated to help the firms and universities with their Research and Development, have not been able to do so. Even though universities with some high cost research may have an advantage in going for the grants, majority of the universities do not favour these grants. The reasons according to them are that the entire process is very slow and they are unable to prove to the companies around that their research is important. Hence there is nothing present in the collaborative grants that prove to be an incentive or tries to attract university based research. Another means of the government intervention (and the most important one) in the innovation of the research industries is the public sector procurement of Research and Development. Public Sector procurement of R&D In public sector procurement of Research and Development the aim of the government is to award some R&D contracts to firms and universities that are unable to operate on their own. Rather than being a grant initiative that gives partial of the funding to the universities the public sector procurement funds hundred percent of all the development costs that a firm or a university faces. Public sector procurement is generally important for small firms and universities. This is because it helps the universities and firms that are not capable of operating on their own (as there are high costs involved). As a result, these small universities prosper and develop gradually. An example of the public sector procurement program is USBRI, more commonly quoted as the US Small Business Research Initiative. When the World War II ended, this program helped firms and universities that carry out R&D. This is the reason why America is more successful in the business of computers and semi conductors. (Cornell & Probert, 2010) According to the SBIR all of the federal agencies are required to expend approximately 2.5% of their annual budgets towards the smaller companies and educational institutions. Consequently, each of the larger federal agencies announces the kind of projects it needs. Firms and universities opt for the projects that they find more interesting and apply for it. Since many varied government agencies contribute to this program, the universities can get a variety of choices. After being selected the universities carry out with the project and the federal agencies fund them. A certain amount of profit is also promised to them so that they are motivated to work for example they can be offered jobs. This program, like all the other public sector procurement programs in different countries, has led to the giving of almost four thousand awards annually to the small firms and universities. The importance of such programs can be judged from the fact these programs are actually referred to as a fund, more commonly stated as the World’s Largest Seed Capital Fund. Drawbacks Public sector procurement of R&D may prove to be of great importance to the universities however, this procedure again has some limitations. The most important limitation is that some of the universities do not feel very encouraged to carry on with this process. For example, in the United Kingdom a comparison of a public sector R&D firm and a single grant company suggested that the public sector revenues were one fifth of the revenues earned by the firms that were given subsidies. (Cornell & Probert, 2010) The same is true for the universities. According to Hughes, ‘Only 167 out of 27322 patents held by 193 US university institutions in 2004 made over 1$m’ (2008,p.6) With the revenues that are five times higher for the single grant universities and only 167 out of a total of 27322 patents earning a million in the US, the universities overall will obviously be suffering if they work in the public sector. With fewer benefits the university researchers would not have an incentive to participate in any of the competitions and themes announced by the government. Universities may feel that they are being exploited by the federal agencies. This can be observed from data collected by Lester, Cosh & Hughes that analyzes the fact that the universities although considered important may not be given their true importance. In their words, ‘The most striking feature is that in both countries (UK and US), universities are ranked far down the table in terms of frequency of use. In both countries, the knowledge sources are dominated by industrial sources (customers, suppliers, competitors, and the internal pool of knowledge of the firm itself)’ (2006, p.2) Another problem with the public procurement of R&D is that recently there has been an increased amount of privatization of the Research and Development industries. As a result of privatization, many small firms and universities face difficulties in attaining public sector contracts. Generally the privatized industries are preferred over the universities because they are more experienced. This is evident in the report of the Centre of Business Research when the author rights that most of the large federal firms either ignored or did not consider the public sector as possessing potential Research and Development technology. Many universities and small firms hence have problems in gaining access to the procurement process. It has been also observed that university based research is not given enough consideration by the public sector. The reason that is given is that the universities, although may be important centers for research, do not possess the right technical skills needed for technological progress. They may not have the right equipments and the right strategies that are important for research as is stated by Cornell & Probert. ‘And academic research departments tend to be poorly equipped to develop an innovative technology to the point at which it can be exploited commercially through a spin-out company, certainly with a hard, product focused business model’ (2010, p. 113) Hence many of the universities cannot be commercially exploited by a spin out company. The large federal agencies prefer the proper R&D companies. This may discourage potential researchers who may be very good. They may have developed technologies which the private industries might not have but because of a general assumption that the equipments used in the universities are less developed the universities may suffer. Conclusions This paper has so far discussed the impacts on the universities under the single grants, the collaborative grants and also the public sector procurement of the Research and Development in this university based research. From what has been explained so far it can be seen that the universities may have some benefits and may suffer from disadvantages in all the three cases of the government interventions. In the case of the subsidies the costs of the universities can be reduced and they can have a better chance of proving themselves credible in the eyes of different companies. However there is a chance of them not being successful in their objective. This is because they might not be given sufficient subsidies. Since the allocation of awards is done by the government there is a chance that the governments prefer the firms over the universities. The allocation of the resources has always confused the government agencies and the universities (because they are considered secondary research companies) may not be allotted what they deserve. The collaborative grants may not also work for the universities. They could be used by the universities to develop links with different companies. These links can be used in the future when the researchers need jobs. However there is also a chance of universities being exploited by the companies. Universities may not be given a great share of the profits earned by the companies. As far as the public sector procurement of research and development is concerned, it no doubt gives the university a better chance to engage with larger federal agencies. The universities are given a choice to experiment and research on any area of interest. This may encourage universities more than the subsidies and the collaborative grants. However, the presence of private industries and special research and development companies may not let the universities to work for the federal agencies. Naturally, companies that are just based in Research and Development would be preferred more. To conclude, the public sector procurement of university based research may benefit the universities in the best possible way. However terming it as a superior strategy over subsidies and collaborative grants would not be right because it has its disadvantages too. Everything needs to be considered before coming to such a conclusion. These things may vary from case to case. Works Cited "Competing in the Global Economy: the Innovation Challenge" Competing in the Global Economy:the Innovation Challenge (Decemeber 2008). Print. Connell, David, and Jocelyn Probert. "Exploding the Myths Of. UK Innovation Policy: How Soft Companies and R&D. 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"The Race to the Top : A Review of Government?s Science and Innovation Policies." The Race to the Top : A Review of Government?s Science and Innovation Policies (October 2007). Print. Read More