Scott Stern (EE.UU.), Profesor Distinguido de Innovación Tecnológica y Emprendedorismo, MIT

1. The Innovation Challenge for Peru:
Lessons from MIT and Beyond
Professor Scott Stern
MIT Sloan School and NBER
This presentation draws on collaboration between Scott Stern, Michael Porter, Mercedes Delgado, Christian Ketels, Fiona Murray, and work
conducted at the MIT E-Center and the Harvard Institute for Strategy and Competitiveness. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the
permission of Scott Stern and Michael E. Porter.

2. Inca Rope Suspension Bridge
2 www.rutahsa.com

3. A New Peruvian Innovation Agenda
• Building Innovative Capacity and an Innovator
Workforce to Move Peru to the Next Stage of
Economic Development
• Transitioning from Microenterprises to Innovation-
Based Entrepreneurship
• Harnessing the Power of a Cluster-Driven Economic
Strategy
3

4. Over the past decade, Peru has experienced exceptional
economic performance
GDP per Capita
(in 1990 PPP US$)
CAGR: CAGR: CAGR:
$6,000
+2.07% 0.73% +4.81%
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
–Note: PPP using Geary Khamis calculation methodology. Source: Groningen Growth and Development Centre, Total Economy Database (June 2009)
4

5. Significant export growth linked to natural resources and endowments
2.5%
Change In Peru’s Overall
World Export Share: +0.09%
Jewelry and Precious Metals
2.0%
Peru’s world export market share, 2009
1.5%
Metal, Mining
and Manufacturing
1.0%
Fishing and
Agricultural Fishing
Products Products
0.5%
Financial Apparel
Peru’s Average World
Services Hospitality and Tourism Export Share: 0.22%
Communications Publishing and Printing
Services
0.0%
-0.5% 0.0% 0.5% 1.0% 1.5%
Change in Peru’s world export market share, 1997 to 2009 Exports of US$2 Billion =
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School;
Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
5

6. With Some Emerging Strengths in Regional Clusters
Piura
Agricultural Products: Mangoes,
Lemons, Brown Sugar Syrup
Cajamarca (Bambamarca)
Dairy, Processed Foods
La Libertad (El Porvenir, Trujillo)
Leather, Footwear
Ancash (Chimbote)
Fishing and Fish Products
Lima (Infantas, Los Olivos)
Metal Manufacturing, Metal
Furniture
Lima (La Victoria)
Apparel
Ica
Wine
Cuzco
Tourism
Puno and Arequipa
Apparel from Alpaca
6

7. Significant reduction in poverty though much work remains…
60%
50%
40%
% of Population
Under the
30%
Poverty Line
20%
10%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
–Source: Informacion Socio Demografica, from El Instituto Nacional de Estadistica e7Informatica (INEI), 2010

8. However Peru has not yet established itself as a global innovator
Average U.S. patents
per million population,
2005 – 2009
3.5
Croatia
3.0
Estonia
2.5
South Africa
2.0 Greece
Lithuania
1.5 Russia United Arab Emirates
Portugal
Costa Rica
1.0 Poland Argentin Chile
Saudi Latvia China
a
Arabia Uruguay
Mexico
Brazil India
0.5
Ukraine Venezuela
Kazakhstan Philippines
Peru Egypt Kenya
Colombia
Ecuador Thailand Turkey
0.0
-30% -20% -10% 0% 10% 20% 30% 40%
CAGR of US-registered patents, 2005 – 2009 170 patents =
Source: USPTO, World Bank 8

9. The Peruvian Innovation Challenge
• Peru has experienced exceptional economic performance
over the past decade
– Grounded in a shift towards sound macroeconomic policy,
openness to international markets and partners, and the
establishment of a higher level of basic security
– Leveraging natural resources and endowments
• But Peru has not yet established the foundations for an
innovation-driven economy
• Resource-led or cost-based growth has natural limits.
• Peru must start setting the foundations – starting today --
for an innovation-driven, knowledge-based economy.
9

10. HOW CAN WE BUILD A PERUVIAN
INNOVATION ECONOMY?
10

11. The Foundations of
Competitiveness
Microeconomic Competitiveness
Sophistication of
Quality of the State of Cluster
National Business Company Ops
Environment Development
and Strategy
Macroeconomic Competitiveness
Social
Infrastructure Macroeconomic
and Political Policies
Institutions
Natural Endowments
11

12. Peruvian Competitiveness Position
Macroeconomic Microeconomic
Endowments
Competitiveness Competitiveness
A Strong Getting the Transitioning to a New
Foundation House in Order Stage
• Rich endowments of • Establishment of sound • Significant improvement
mineral and natural macroeconomic policy over the past decade in
resources and serves as the foundation the national business
astonishing biodiversity for the last decade of environment
• Favorable location to economic performance • Business remains
serve as a hub for • Strong benefit from focused on extracting
Latin America and openness to resources and cost-
Asian and N. American international trade and based strategies
trade investment • Nascent clusters are
• World-renowned • Continuing concerns present, but cluster
historical and about basic security, strategy still at an early
cultural legacy basic education, and stage
political institutions
12

13. Building a Regional Innovation Ecosystem
Regional Cluster
Strength
Regional Regional
Innovation Entrepreneurship
Capacity Capacity
13

14. Regional Innovation Capacity
• The capacity of a region to generate “new
Regional to the world” ideas, products and services
Innovation
Capacity supported by:.
PEOPLE -Pool of innovators
-Education in tech commercialization
-Networks
FUNDING -Funding for research
-Government programs
-Corporate R&D spending
INFRASTRUCTURE -Physical infrastructure
-Example: hi speed internet
POLICY -Clear rules around patents
-Clear support for STEM education
REWARDS & NORMS -Experimentation culture
-Celebration of invention and innovation
- Rewards to innovation – tenure process
DEMAND -Nature of companies in region (relates
directly to cluster analysis)
14

15. Peru lags neighbors in investments and Innovation
resources towards basic education at the Capacity: People
primary, secondary and tertiary level
–Source: UNCTAD Science, Technology and Innovation Policy Review, 2011 15

16. Fi
n
10.0
12.0
14.0
16.0
18.0
0.0
2.0
4.0
6.0
8.0
Ta lan
i d
Ic wa
N e n Employees
ew J lan
Ze apad
Researchers /1,000
U Swala n
ni D ed n d
te
d en e
St N ma n
at o r k
es r w
2009. Data 2007 except where noted.
(2 ay
0
Fr A Ko 06)
an us r e
ce t r a
C a
an B (20 lia
ad elg 06
a iu )
(2 m
A 005
G us )
er t r
m ia
R an
Sw L u y
itz ux Slo ss
er e m v e i a
l n
Ir e and bo ia
16
la (2 urg
nd 0
(2 04)
0
U S p 06)
innovator workforce
Sl
ni o a
te E va in
d s ki
C K to a
ze ing nia
ch Po do
r m
N Re tug
et p a
he ub l
r l
make great progress in enhancing its
Peru is starting at a low level, but can
H lan ic
un d
g s
G ar
re y
Ita Po ece
ly la
( 2 nd
Tu 006
)
PeSou C rke
ru th hi y
(e Af na
st ri
i m ca
at
e)
Innovative
Source: National Science Council, R.O.C., Indicators of Science and Technology, Taiwan, 2008; OECD Science, Technology, and Industry Scoreboard
Capacity: People

17. Innovative
Capacity: People
and Policy
But…
Higher Education
remains focused on
education training, law,
and administration…
Key STEM areas such
as computer science,
biotechnology, and
nanotechnology
register at very low
levels.
17

18. Innovation Capacity Agenda
• All stakeholders– business, government, and university
– must make a much higher level of commitment to
the Peruvian education system at all levels and for all
Peruvians
18

19. Peru Has a Low Level of Innovation Effort Innovative
Capacity: Funding
19

20. While Peru investment in technology Innovative
infrastructure has lagged, recent catch up… Capacity:
Infrastructure
Juana Kuramoto and Máximo Torero, 2004
20

21. Innovative
“Mens et Manus” Capacity:
Rewards & Norms
Mind and Hand….
21

22. The MIT Inca Bridge Project
Research: John Ochsendorf and colleagues
Teaching: Heather Lechtman, Linn Hobbs and MIT
Undergrads!
22

23. Recent initiatives show promise by focusing on
university-industry collaboration
But have not yet
reached critical
mass…
23

24. Peru has globally unique resources whose
potential for innovation has not yet been tapped
24

25. Innovation Capacity Agenda
• Peru stakeholders– business, government, and
university – must make a much higher level of
commitment to the Peruvian education system at all
levels and for all Peruvians
– The next generation must be an innovator workforce
• Both business and government must commit to
significantly (and steadily) increase their financial
investment in R&D and innovation
– Not government versus industry, but government plus
industry
• Peru innovation investments should be focused on the
unique advantages of Peru – such as biodiversity, or
building fundamental science and engineering
foundations in specialized agricultural and mining areas.
25

26. Action Item
What are you going to do – before the
end of CADE – to begin enhancing the
Peruvian innovation environment?
Commit your firm to a new innovation partnership?
Fund a new generation of scientists and engineers?
Convene a meeting of how your firm can leverage the
incredible biodiversity of Peru and contribute to its
preservation?
26

27. Regional Entrepreneurship Capacity
• The capacity of a region to generate new
Regional start-up companies supported by:
Entrepreneurship
Capacity PEOPLE - -Entrepreneurship Education & Training
ENTREPRENEURS -Mentorship programs
-Groups to share info
FUNDING -Government early stage funding
-Angel funding
-Private & public risk capital
INFRASTRUCTURE -Real estate
-Voice & Data Communications
-Services for start ups (legal, acctng, HR)
POLICY -Bankruptcy laws
-Ease of incorporation
- Ease of doing business
CULTURE  REWARDS -Recognition in press for success
& NORMS -Rewarded for trying
-Societal stigma or halo
DEMAND -Procurement policies of government
-Procurement policies of companies
-Transportation infrastructure
27

28. Peru has a very large level of Entrepreneurial
entrepreneurship, with a strong majority of Capacity: People
all employment linked to microenterprises
and small enterprises
UNCTAD, 2011
28

29. While microenterprises are an important Entrepreneurial
source of poverty reduction and employment, Capacity: Funding
these enterprises lack growth capital
(and in many cases, lack access to even
microfinance loans)
But suggest the potential for
growth-oriented entrepreneurship
in Peru…
29

30. Peru mobilizes a medium level of overall risk Entrepreneurial
capital, and is dominated by large private Capacity: Funding
equity investments rather than angel funding
or venture capital
Peru
30

31. Building on a record of economic reform, Peru
has established itself as an overall regional leader Entrepreneurial
in terms of “Doing Business” Capacity: Policy
Venezuela: 172
Guyana: 100
Colombia: 39 Suriname: 161
Ecuador: 130
Peru: 36 Brazil: 127
Bolivia: 149
Paraguay: 106
Chile: 43
Uruguay: 124
–Argentina: 115
–Source: The World Bank, Doing Business (2011), 183 countries
31

32. Strength in investor protections and Entrepreneurial
openness, but continued challenges in terms Capacity: Policy
of contract enforcement and permitting
120 –Favorable –Unfavorable
–Ranking, 2011
(of 183
countries)
100
–Peru’s per capita GDP rank: 81
80
60
40
20
0
Ease of Doing Getting Credit Protecting Registering Trading Starting a Paying Taxes Closing a Dealing with Enforcing
Business Investors Property Across Business Business Construction Contracts
Borders Permits
–Source: The World Bank, Doing Business (2011), GDP rank on GDP per capita, ppp-adjusted
32

33. However, growth engine has been in traditional industries, often
dominated by larger firms (including government spin-offs)
2.5%
Change In Peru’s Overall
World Export Share: +0.09%
Jewelry and Precious Metals
2.0%
Peru’s world export market share, 2009
1.5%
Metal, Mining
and Manufacturing
1.0%
Fishing and
Agricultural Fishing
Products Products
0.5%
Financial Apparel
Peru’s Average World
Services Hospitality and Tourism Export Share: 0.22%
Communications Publishing and Printing
Services
0.0%
-0.5% 0.0% 0.5% 1.0% 1.5%
Change in Peru’s world export market share, 1997 to 2009 Exports of US$2 Billion =
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School;
Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
33

34. Business Growth Remains Limited by Entrepreneurial
Capacity: Policy
Physical Infrastructure Requirements,
including roads and water
UNCTAD, 2011
34

35. HOW CAN PERU TRANSITION TO
INNOVATION-BASED
ENTREPRENEURSHIP?
35

36. MIT serves as the fulcrum for the
Cambridge biosciences cluster…
36

37. MIT is not simply a center for innovation
but a driving force in entrepreneurship
Estimated
Percent of Median Median Sales Total Estimated Total
Jobs Companies Employees ($Millions) Employees Sales ($Millions)
More than
10,000 0.3% 15,000 1,523 1,339,361 1,389,075
1,000-
10,000 1.8% 1,927 308 1,043,932 235,532
Less than 97.9% 39 <1 900,001 226,671
1,000
Total
100.0% 155 <1 3,283,294 1,851,278
Currently Living MIT Alumni Founders are Responsible
for more than 25,000 firms, more than 3 million jobs,
and $3M in sales
Roberts and Eesley, Entrepreneurial Impact: The role of MIT, 2011
37

38. Prof Yet-Ming Chiang
38

39. But how does MIT create this environment?
39

40. Entrepreneurial Capacity Agenda
• Peru must develop a much higher capacity for growth-
oriented entrepreneurship.
– Enhancing the attractiveness of entrepreneurship for
educated professionals (beyond microenterprise)
– Investing in a significant expansion of risk capital
– Ensuring the overall health of business environment
• The public and private sector must collaborate to
establish specific institutions and programs – tailored to
the strengths of each region – to enhance the potential
for an innovator workforce and commercializing new
technologies and business processes
40

41. Action Item
What are you going to do – before the
end of CADE -- to catalyze innovation-
based entrepreneurship in Peru?
Mentor? Start a University Partnership?
Commit your firm to be a risk capital
partners in Peru moon shot fund?
41

42. Cluster-led economic strategy enhances the payoffs
to innovation-based entrepreneurship
Regional Cluster
Strength
Regional Regional
Innovation Entrepreneurship
Capacity Capacity
42

43. The Peru Cluster Environment
Piura
Agricultural Products: Mangoes,
Lemons, Brown Sugar Syrup
Cajamarca (Bambamarca)
Dairy, Processed Foods
La Libertad (El Porvenir, Trujillo)
Leather, Footwear
Ancash (Chimbote)
Fishing and Fish Products
Lima (Infantas, Los Olivos)
Metal Manufacturing, Metal
Furniture
Lima (La Victoria)
Apparel
Ica
Wine
Cuzco
Tourism
Puno and Arequipa
Apparel from Alpaca
43

44. Peruvian Clusters and Peruvian Universities
• Peru’s current clusters are based heavily on natural endowments, and
have much room for further upgrading
• Even in areas with significant clusters – such as Cajamarca, Arequipa, and
Moquegua in mining – there have historically been significant
technological bottlenecks
• Though there are some strong universities universities have historically
played a limited role in supporting the development of entrepreneurial firms
that catalyze local clusters.
• There is a limited tradition of collaboration among actors for regional
development
• There is a weak institutional capacity – which could be addressed by
leading Peruvian universities -- hampering the development of clusters.
44

45. Innovating the Economic Strategy
The Old View: The New View:
Sectors and Industries Clusters
• Manufacturing vs. • Clusters of related
services industries
• High tech vs. low tech • All clusters are good
• One path to prosperity • Many paths to prosperity
• Critical is what you do • Critical is how you do
what you do
45

46. What is Different about Cluster-Based Economic Policy?
Cluster vs.
Narrow
Industries
Public-Private Regional
Collaboration Perspective
Focus on
upgrading
productivity
Demand-
Build on
driven
Regional
Policy
Strengths
Priorities
46

47. 47

48. The Australian Wine Cluster
Locations
Northern
Territory
Queensland
Western
Australia
South
Australia
New South
Wales
Victoria
Tasmania
Note: Colored areas indicate wine growing regions
Source: Australian Wine & Brandy Corporation
48

49. The Australian Wine Cluster
Recently founded Institutions for Collaboration
Winemakers’ Federation of Australia Cooperative Centre for Viticulture
 Established in 1990  Established in 1991
 Focus: Public policy representation of companies  Focus: Coordination of research and education
in the wine cluster policy in viticulture
 Funding: Member companies  Funding: other cluster organizations
Australian Wine Export Council Grape and Wine R&D Corporation
 Established in 1992  Established in 1991 as statutory body
 Focus: Wine export promotion through  Focus: Funding of research and development
international offices in London and San Francisco activities
 Funding: Government; cluster organizations  Funding: Government; statutory levy
Wine Industry National
Wine Industry Information Service Education and Training Council
 Established in 1998  Established in 1995
 Focus: Information collection, organization, and  Focus: Coordination, integration, and standard
dissemination maintenance for vocational training and education
 Funding: Cluster organizations  Funding: Government; other cluster organizations
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
49

50. The Emergence of the Australian Wine Industry is Rooted in the
Evolution of Australian Competitive Advantage
Gold
Mining and Travel and Tourism
Natural Iron / Aluminum Bauxite
Resources
Logistics / Trade
Wool
Beef Wine
Produce Information Technology
Abundant Grains
Productive
Land Ag Research
Centers
Education and
Knowledge Creation
Medical Devices
Bioscience Biotech / Pharmaceuticals
Research
Centers
1980 1990 2002 +
50

51. The Australian Wine Cluster
Trade Performance
Australian Wine Australian Wine
Exports in million US Dollars World Export Market Share
$1,000 8%
$900 7%
$800
6%
$700
$600 5%
Value
$500 4%
Market Share
$400 3%
$300
2%
$200
$100 1%
$0 0%
1995 1996 1997 1998 1999 2000
Source: UN Trade Statistics
51

52. Over the 1990s, growth in Australian exports was
driven by improvement in Australia’s wine cluster
Share of Australian Exports,
2000
35%
Materials/Metals
30%
25%
20% Food/Beverages*
15%
10%
Transportation
5% Textiles/Apparel Oil/Chemicals Equipment
Multiple
0% Business Health Care
-8% -6% -4% -2% 0% 2% 4%
Change in Share of Australian Exports,
1995-2000
Note: Wine export growth accounts for >45% of the increase in the export share of food/beverages
Source: UN Trade Statistics
52

53. And has continued to grow…
Source: UN Trade Statistics 53

54. CITEvid – Enhancing the Pisco Industry
Source: Juana Koromoto, GRADE
54

55. Facilitating a rapid rise in production and exports….
55

56. The Economic Case for Cluster Policy
Create Platforms Organize Public
for Joint Action Policy around
Clusters
Path
dependency
Local
Externalities
Coordination Information
failures asymmetries
56

57. Organize Public Policy around Clusters
Business Attraction Education and Workforce Training
Science and Technology
Infrastructure
Export Promotion (e.g., centers, university
departments, technology
transfer)
Clusters
Market Information Setting standards
and Disclosure
Specialized Physical Environmental Stewardship
Infrastructure
Natural Resource Protection
• Clusters provide a framework for organizing the implementation of many public
policies and public investments directed at economic development
57

58. Clusters, Innovation and Economic Strategy
Positioning
• Identifies, communicates, and strengthens the
specific value proposition of the location
Business Cluster
Environment Portfolio
• Improved economic
• Accelerates growth in
platform for all clusters
those fields where the
and companies
country has some
• Enhances innovation strengths
opportunities
• New clusters emerge
• Leveraging innovative from established clusters
and entrepreneurial
capacity 58

59. The Role of Government in Cluster Initiatives
Government Government Government
should may should not
• Support all existing • Initiate/ • Pick favored
and emerging Convene clusters
clusters • Co-Finance • Pick favored
• Participate companies
• Enable data • Subsidize or
collection and distort
dissemination at the competition
cluster level • Define cluster
• Be ready to action
implement priorities
recommendations
59

60. A New Peruvian Innovation Agenda
• Building Innovative Capacity and an Innovator
Workforce to Move Peru to the Next Stage of
Economic Development
• Transitioning from Microenterprises to Innovation-
Based Entrepreneurship
• Harnessing the Power of a Cluster-Driven Economic
Strategy
60

61. Action Item
What are you going to do?
61

62. How Can We Build a Bridge to a Peru Innovation Nation?
62