The incremental innovator Vs the trader : Contrasts between the sectoral systems of innovation of the Indian pharmaceutical and telecommunications industries
India has pursed a policy of economic growth with technological self-reliance right through the 1950s when she embarked on a planned form of development. Two industries that were targeted especially was the manufacturing of drugs and telecommunications equipments. However the final outcomes have been very different. The drug industry has become self sufficient, has emerged as net exporter and has a strong patenting record abroad while the telecommunications industry has increasingly become dependent on MNCs and imports and the industry does not have many patents to boast of. I argue that although the broad external environments obtaining to both industries are roughly similar, the differences in outcomes could be explained by the differences in their sectoral systems of innovation (SSI). The SSI of the pharmaceutical industry presents an ideal picture where private sector business enterprises occupy the central stage. They have been supported very well by a conducive intellectual property regime, which enabled them to reverse engineer known technologies, and thereby emerge as incremental innovators. On the contrary, a public laboratory dominates the SSI of the telecoms industry and the production enterprises in the system did not have much innovation capability: the enterprises were completely dependent on the public laboratory. The government too did not support the laboratory adequately and very often the public technology procurement- the main instrument pursued by the state supposedly to support domestic technology generation through the laboratory was actually against it. Consequently most of the enterprises constituting the SSI of the telecoms industry have become mere traders- distributing products manufactured elsewhere. The analysis thus brings out important but practical policy prescriptions. The paper is structured into four sections. Section 1 will outline the framework for analysis, which is essentially the sectoral system of innovation propounded by Malerba (2004). The second section provides some numbers on the innovative performance of the two industries. The third section undertakes a detailed mapping out of the sectoral system of innovation of two high tech in the Indian context, namely the pharmaceutical and telecom equipment industries. India’s pharmaceutical industry is one of the most innovative industries in the country’s manufacturing sector. The innovation system of the industry has three strong pillars: very pro active government policy regime especially with respect to intellectual property right, strong government research institutes and private sector enterprises which have invested in innovation. The TRIPS compliance of the intellectual property right regime making it mandatory for pharmaceutical products to be patented has not reduced the innovation capability of the industry although it has not made them work on R&D projects that may lead to the discovery of drugs for neglected diseases of the developing world. Although the innovation system has the capability to develop new chemical entities the two main components of the innovation system, namely the enterprises and the Government Research Institutes does not appear to be having all the requisite capabilities to bring a new drug to the market. Although the state has been very proactive with respect to this industry, this is an area where public policy support is still required. On the contrary in the case of the telecom equipment industry, India followed a very rigid policy of indigenous development of domestic technologies by establishing a stand-alone public laboratory that developed state-of-the-art switching technologies. These were then transferred to manufacturing enterprises in both public and private sectors. The enterprises themselves did not have any in-house R&D capability. The public laboratory was also not given any strategic direction, even though it was technologically speaking, very competent. Consequently the country, despite possessing good quality human resource was unable to keep pace with changes in the technology frontier and the equipment industry has now become essentially dominated by affiliates of MNCs. and by imports. The fourth and last section contrasts the two SSIs within the same national system of innovation and draws out the policy implications.