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Constant gardeners – How we can stimulate innovation in emerging econcomies

 

In a recent blog on Harvard Business Reviews online (http://blogs.hbr.org/cgi-bin/mt/mt-tb.cgi/8878), Vijay Govindarajan and Justin Chakma argued that some VC firms operating in emerging economies follow a systems-based philosophy when making investment decisions. More specifically, some of these companies treat investments in discrete entities as part of a value chain(s), with multiple inter-relationships and inter-dependencies, that needs to function as a whole in order for the individual components to be viable. In scarce environments many of the components that new ventures require to strive (e.g. support services, manufacturing at higher scales, or distribution channels) often do not exist. Therefore, some VC firms, acting like gardeners who want to make sure that their ‘start-ups’ grow and bloom, plant  seeds that are meant to benefit each other in a symbiotic fashion; by creating a more sustainable ecosystem the gardener facilitates growth of a specific investment as well as of entire value chains.

When analysing the influence of government support on innovation in Korean biotechnology SMEs Kang & Park (2011) have found that certain activities, in particular partnerships with upstream and downstream entities, are particularly effective in producing innovation outputs. For this to happen, the players in the system need to have access to a broad pool of information, technologies and financial and human resources (Kang & Park, 2011).

The CPGR has been created to support the development of the biotech sector in South Africa (SA), as an enabler of innovation. Applying an eco-system view, the SA government made the strategic decision to build enabling support infrastructure and resources to make sure biotech activity develops and, ultimately, grows into an economic power of its own.

Against this backdrop, the CPGR was built as an enabler of research and development in the ‘omics’ arena and, more broadly, of innovation in a system that is characterised by a lack of human resources and shortage of funding, to name just two of the major challenges. We found that funding available for academic research significantly limits access for scientists to an offering that is provided on a fee-for-service basis; what’s more, with teaching being part of the academic value chain, catering to the research component only meant that the value derived by scientists from our services was incomplete. In addition, because of the local biotech sector’s infant state we also found ourselves in a difficult situation regarding the generation of sustainable income streams from local industry.

We realised that the value chains in our environment were incomplete. Therefore, we decided to expand the scope of our activities to build capacity upstream and downstream of our core offering, not least by forging stronger relationships with the key players in the innovation system. Notably, the corresponding activities include a focus on human capital development, collaborative projects with academia and industry, and the creation of dedicated offerings for international biotech industry (www.dcyphr.org.za).

Achieving our mandate is a long-term project that requires patience and the ability to understand the complex interplay of a multitude of components in the innovation system and its impact on the viability of a specific asset, be it project, company or value chain. It requires the ability to respond to changes in the environment and careful understanding of the signals that the system sends in response to the interventions that we put in place. Below are some of the changes that we have made to our business model in tackling perceived gaps in up- and downstream of our value chain.

References

What Venture Capital Can Learn from Emerging Markets by Vijay Govindarajan (http://blogs.hbr.org/govindarajan/2011/02/what-venture-capital-can-learn.html)

Kyung-Nam Kang & Hayoung Park (2011) Influence of government R&D support and inter-firm collaborations on innovation in Korean biotechnology SMEs. In press

 

 

 

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