Part II Open Innovation in an Economic System and the National
2.4 Simulation of the Dynamics of Open Innovation
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open innovation (Lee and Lim 2001). They introduce the external base by adding knowledge-based learning and industrial dynamics through catch-up growth with an internal base and by explicitly applying the open innovation-based industrial dynamics to the catch-up model.
7. For the effect of the open innovation policy on the National Innovation System (NIS), the inquiry into the dynamics of open innovation at the national level through system dynamics is also matched with the theory of the dynamics of OIES (Yun et al. 2015).
2.4 Simulation of the Dynamics of Open Innovation
2.4.2 Low-Speed and High-Speed Cases
The low speed of the dynamics of OIES as well as the economic growth and high unemployment rate are shown in Fig. 2.7a and b.
In Fig. 2.7a, there is a strong open innovation ecosystem based in SMEs as well as a sound and sizable closed innovation economy but a weak social innovation economy. Hence, growth stagnates. In this case, the financial support to the social innovation economy by large businesses is weak, and the support to the social inno-vation economy becomes insufficient in terms of experience, know-how, and man-power from the open innovation economy. The subjects of the open innovation economy focus on limited open innovation in which the combination of the current technology and market is newly improved rather than on the creation of new jobs through creative and new start-ups based on the seed grown in the social innovation economy. In addition, there are too few open innovation relationships between the open innovation economy and the closed innovation economy. The closed innova-tion economy, based on large businesses, also creates new sources of technology inside and focuses in the activity of delivering the technology to the existing or expanding market, resulting in a more aggravated situation of no additional job creation. Japan in the 2000s is similar to the situation depicted in Fig. 2.7a. Without the effort to vitalize the social innovation economy and with an open innovation
(Early Stage) (Middle Stage)
(Mature Stage) Open Innovation
Economy (50%)
Open Innovation Economy
(100%)
Open Innovation Economy
(60%) Closed
Innovation Economy (20%)
Closed Innovation
Economy (40%)
Closed Innovation
Economy (100%) Social
Innovation Economy (100%)
Social Innovation
Economy (60%)
Social Innovation Economy (40%)
Fig. 2.6 Example of the natural life cycle of OIES (Source: Yun (2015))
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Fig. 2.7 Examples of low-speed OIES dynamics and high-speed OIES dynamics (Source: (Yun 2015))
a
b
Open Innovation Economy
(100%)
Open Innovation Economy
(50%)
Closed Innovation
Economy (50%)
Closed Innovation
Economy (100%) Social Innovation
Economy (20%)
Social Innovation Economy
(20%)
2.4 Simulation of the Dynamics of Open Innovation Economy System
Open Innovation Economy
(70%)
Open Innovation Economy
(70%)
Closed Innovation
Economy (50%)
Closed Innovation
Economy (100%) Social Innovation
Economy (100%)
Social Innovation Economy
(50%)
c
d
Fig. 2.7 (continued)
strategy that based the relationship between the open innovation economy and the closed innovation economy, it is inevitable that this economic system promotes growth without job creation, resulting in growth stagnation.
In Fig. 2.7b, large businesses sustain closed innovation-based growth without a social contract or national intervention, and SMEs and start-ups that are competing
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in an open innovation economy are depleted. Of course, the social innovation econ-omy with slight direct and indirect support, in the good will of the closed innovation economy, is more contracted to a size that decreased during the OIES dynamics procedure. In this case, big businesses do not prefer to cooperate with SMEs or start-ups through open innovation strategies such as friendly M&As, partnerships, and technology-licensing agreements because they are based on their strong market shares and capital power. In Fig. 2.7b, economic growth stagnates because it is led by large businesses, and even if economic growth is rapid owing to environmental factors, it leads to growth without employment and thus stops economic growth.
Figure 2.7b depicts a situation similar to that of Korea as well as most European nations apart from Germany.
It should be noted that the common point of the two case models in which the dynamics of OIES are slow is a weak social innovation economy. The social innova-tion economy is a necessary condiinnova-tion that determines the vitality of the dynamics of OIES.
The rapid speed of the dynamics of OIES, the low unemployment, and the rapid speed of economic growth are shown in Fig. 2.7c and d. In Fig. 2.7c, social enter-prises and new social entrepreneurs in a sizeable and strong social innovation econ-omy actively combine technology and society in various ways. To do this, massive support from the government or strong financial assistance from large companies should be established. In addition, in an open innovation economy, manpower and know-how are massively provided to activate the social innovation economy and convert new combinations between technology and society to new combinations between the technology and the market so as to establish the foundation of start-ups for the open innovation economy. Nations at an early stage of economic develop-ment are examples of this case. Thus far, only China’s economy has closely resem-bled this case, although now, India’s economy also applies. The Indian government has made efforts to strengthen the open innovation economy, vitalize the social innovation economy, support the social innovation economy financially, and pro-mote the growth of large businesses at a certain scale by linking the open innovation economy and the social innovation economy through the Grassroots Innovation Awards, the Innovation Festival of India, and the Innovation Foundation of India, respectively. Korea’s rapid economic growth until the 1980s exemplified this case.
In case of Fig. 2.7d, this economic system is formed through a social contract or through strong government intervention when the growth of the OIES dynamics is stagnated. The mutual development of big business with SMEs or start-ups is pur-sued through strong regulation by the government of the closed innovation system and of open innovation strategies such as friendly M&As, partnerships, and technology- licensing agreements. For example, the USA continuously implements and develops the world’s first and strongest regulation system of big businesses in the closed innovation economy, such as stipulating unfair businesses as unlawful and allowing people to take legal action through the Sherman Act of 1890, the Clayton Act of 1914, the Hart–Scott–Rodino Act of 1976, and the Federal Trade Commission. In addition, large businesses directly provide financial support, or the nation activates various types of social economies through taxes. In such a case, a
2.4 Simulation of the Dynamics of Open Innovation Economy System
social innovation economy continuously creates jobs in all economic systems. In the short term, it becomes the source of a new combination between the technology and the market of SMEs and start-ups. In the long term, it becomes the seed of con-tinuous new combinations of large businesses. In the USA, the image of the best large companies set by Rockefeller, Carnegie, and others in the 1910s has led to continuous contributions and the financial support of large businesses to the social innovation economy. The economic systems of the USA and of European countries from the 1970s to the 1980s, enjoying rapid economic growth, are examples of this case. The economy of the USA with a high economic growth rate of 4% and little promotion of job creation as of late 2014 exemplifies this case. President Obama suggested the “Startup America Partnership” program to activate a mutual virtuous circle between large companies and SMEs, with the ratio of the open innovation economy to the closed innovation economy expected to increase. This causes a rise in the economic growth rate.