Driving Innovation to Deliver Economic Value: A Needs

Driving Innovation to Deliver Economic Value: A Needs Assessment of the Philippines’ Technology Sector

November 2017

2

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RTI International is a registered trademark and a trade name of Research Triangle Institute.

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

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Prepared for USAID/Philippines Office of Education

Prepared by RTI International 3040 Cornwallis Road Post Office Box 12194 Research Triangle Park, NC 27709-2194

Executive Summary 6

Supporting Information and Insights 13CHAPTER 1 | Background 13

CHAPTER 2 | Innovation Ecosystem 15Indicators and Comparators

CHAPTER 3 | Intellectual Property 22

CHAPTER 4 | High-Tech Sector 24Innovation Needs Assessment Research Process

Stakeholders’ Innovation Needs and Prioritization

Stakeholders' Broader Perspectives on Innovation

CHAPTER 5 | Strategic Areas for Innovation Investment 38

CHAPTER 6 | Best Practices: Increasing R&D • Improving Local Supply • Supporting Start-Ups 40South Korea

Israel

Malaysia

CHAPTER 7 | Current Government Innovation Programs and Directions 44

CHAPTER 8 | Stakeholders’ Recommended Next Steps 48High-Tech Stakeholders' Workshop

Regional DTI Workshops

CHAPTER 9 | Conclusions 52

Acknowledgements

The authors, Molly O'Donovan Dix and David Hall, would like to thank the individuals who contributed to the research that informed this report. This includes representatives from government, the private sector, civil society, and multi-lateral institutions who participated in working groups in various locations in the Philippines during 2017. This also includes those individuals who participated in interviews to inform this report’s case studies and to provide critical context for the broader learnings and recommendations. We would also like to recognize specific support at RTI International beyond RTI’s lead authors (Dix and Hall) that includes Andrew Helminger, Adrienne Brown, and Meghan Camello, of RTI's Innovation Advisors group; Michael Hogan, of RTI’s Innovation Economics group; Richard Abendan, Sam Uichico, Kristine Lacia, Adie Cacho, Jodelyn Bisco, Debbie Hudierez, and Lawrence Ilag of RTI's STRIDE project; as well as Maria Ashbaugh and Dayle Johnson, of RTI’s Creative Services group. The authors would also like to thank the support and input from USAID, especially Mir Shariff C. Tillah. The support and active engagement of various government leaders and agencies was critical to the forward progress of this effort. Many individuals helped to bring insight, connections, and recommendations, and many of these individuals will be the key drivers in continuing the momentum from this study and broader innovation-led economic growth activities. As such we would like to specifically thank Secretary Ramon Lopez, Assistant Secretary Rafaelita “Fita” Aldaba, and Under Secretary Rowena Guevara.

Table of Contents

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4

“High-tech start-ups either don’t start, or fail because there is limited mentorship, and the funding community is not structured for them. If they start there is no obvious exit strategy via acquisition or j-v, so they must also scale, which is a great challenge for even successful entrepreneurs.”

“There is no innovation cluster in the Philippines; rather, innovation efforts are ‘fragmented and scattered.’ Coordination is needed in government on what topics to concentrate on. Guidance is needed for companies to exploit resources and programs.”

5

List of Acronyms

A*STAR Singapore’s Agency for Science, Technology, and Research

ASEAN Association of Southeast Asian Nations

BPO Business Process Outsourcing

BOI Board of Investments

CHED Commission on Higher Education

DOST Department of Science and Technology

DTI Department of Trade and Industry

GDP gross domestic product

IC integrated circuit

IoT Internet of things

IP intellectual property

LGU local government unit

MNCs multi-national corporations

NIC National Innovation Council

PCT Patent Corporation Treaty

PEZA Philippine Economic Zone Authority

R&D research and development

SMEs small and medium-sized enterprises

STEM science, technology, engineering, and mathematics

STRIDE Science, Technology, Research, and Innovation for Development

SWOT strengths, weaknesses, opportunities, and threats

USAID United States Agency for International Development

TWG technical working group

WIPO World Intellectual Property Organization

6

Executive Summary

Aligned with the Philippine Development Plan 2017–2022,1 the Philippines is moving toward an industrial policy that aims to enable inclusive and sustainable growth, building from innovation and entrepreneurship. It is important to consider this in light of the definition of innovation—the process of translating ideas or inventions into useful products and services for customers.2

Innovation is a key element of the Philippine Development Plan,3 and is driving significant legislative effort. This effort recognizes that various national planning and strategic efforts are all zeroing in on innovation as a major component of sustainable economic growth. One objective is to establish a National Innovation Council, or similar, to facilitate long-term innovation policies as well as build an "inclusive national innovation ecosystem".4 The timing of this legislative effort and the conclusion of this study highlights the value of the key findings and brings forward what the high-tech industry sees as critical support elements needed to build successful, inclusive national innovation for economic growth.

The Philippines has been an area of focus; however, the Philippines has a strong manufacturing base and related global advantages that can enable growth beyond other developing economies. For this reason, this study was requested by DTI, and conducted by USAID/STRIDE to identify the innovation support needs specific to the Philippines’ technology sector. As has been articulated, “In the increasingly globalised labour market, the most highly skilled and educated scientists and designers from developing countries are subject to ‘brain drain’ from their home countries: they have the option to relocate to higher-income countries, working for the same giant firms that dominate global industries.”5 This brain drain is a reality for the Philippines, often referred to as the Philippine diaspora. The United States and other countries like Canada benefit from this brain drain, with a “brain gain.” For the US the Philippines is the fourth largest external source of workers for technology-centric industries including biotech, chemistry, architecture, engineering, mathematics, science, medicine/health, education, and business.6 Also, although the agricultural sector is the largest for the Philippines, the technology sector is a significant portion of the Philippines manufactured exports,7 and is also linked to global growth markets.

1 See: http://www.neda.gov.ph/slider-image/philippine-development-plan-2017-2022/ 2 To consider the definition of innovation see: http://www.economist.com/node/9928154#print?story_id=9928154 3 STRIDE completed an Innovation Ecosystem Assessment for the Philippines in 2014 that identified broad strengths and weaknesses related to

innovation. Since completion of this report, STRIDE and other stakeholders have worked to close identified gaps (e.g., STRIDE Knowledge and Technology Transfer Office [KTTO] initiative). See: http://www.stride.org.ph/wp-content/uploads/2016/07/Full-Report.pdf Also, at the time of this report, STRIDE is in the process of concluding a study of the Philippine agribusiness innovation ecosystem.

4 See: http://www.bworldonline.com/content.php?section=Economy&title=senate-passes-philippine-innovation-act-on-3suprdsup-reading&id=144615

5 See: http://cambridgeglobalist.org/2016/01/18/globalising-innovation-how-developing-countries-can-be-competitive-in-a-tech-driven-world/ 6 By number of individuals, based on H-1B visas. India, China, and Canada had the greatest number of H-1B visas 2009–2011, according to

Bloomberg: https://www.bloomberg.com/news/2013-08-20/india-nabs-nearly-two-thirds-of-u-s-h-1b-visas.html 7 Semiconductors and electronics are the Philippines’ largest export, estimated to be ~$30 billion in revenue in 2017 by SEIPI.

1 2 1 3

2 1 1

3 2

1

zFIGURE 1 Four key innovation needs emerged for the high-tech industries in the Philippines.

7

Key stakeholders in the Philippines have been thinking and continue to think about how to increase competitiveness, much of which relates to innovation. As such, preparation for the assessment was informed by existing secondary resources and opinions of the selected Philippines’ industries as captured by the press, or in studies and roadmaps8 (Chapter 1), and patent data (Chapter 3). Building from this base of knowledge related to the target industries, the interview team developed an interview process and framework to probe specific needs and drive for consistency in the collection of perspectives. In parallel, the research team worked to compare the Philippines to other countries on key innovation variables (Chapter 2). The innovation assessment included in-person interviews with approximately 60 individuals representing the aforementioned industries, as well as the cross-cutting area of software and data analysis. The primary research captured the perspectives of multi-national corporations (MNCs), start-ups, and companies owned by Filipino investors. As needs (Chapter 4) and strategic areas for innovation investment (Chapter 5) emerged from the interviews, the team executed additional secondary research to further consider the most relevant best practices globally (Chapter 6). Upon completion of the research, the team released and presented a draft report (May) at the 2017 Inclusive Innovation Conference.9 That document and numerous related meetings with stakeholders, including a workshop, were used to refine the analysis. This final report includes further insights, updates on momentum by the government (Chapter 7), and illustrative next steps recommended by stakeholders (Chapter 8).

All Industries

AerospaceElectronics,Semiconductors

Software, Data Analytics

Transportation,Automotive

Start-Ups

TOP – RANKED PERSPECTIVESTOP RANKED NEEDS PERSPECTIVE and PRIORITIES

Increased R&D, including with foreign partners.

Improved local supply chain for innovation.

Additional shared R&D infrastructure, used by both academia and industry.

Professional support for start-ups related to markets, IP, operations, and finance.

8 Roadmaps used included Aerospace Manufacturing, An Industry Roadmap (2013) by the Aerospace Industries Association of the Philippines www.aiaphilippines.org ; Industry Roadmap for Auto Parts Report (2012) by Rafaelita Aldaba (then Senior Research Fellow Philippine Institute for Development Studies, now Assistant Secretary DTI); Electronics Industry Roadmap (2015) by the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. www.seipi.org.ph

9 Inclusive Innovation Conference 2017, information available at http://industry.gov.ph/inclusive-innovation-conference-2017/

8

High-Tech Innovation Needs AssessmentInformed by innovation best practices, the industry interviews were conducted to help industry stakeholders consider and rank their needs. Each interviewee was first prompted to share their thinking about “top of mind” needs, so as not to bias their thinking. After capturing this open discussion, each interviewee was asked to prioritize specific potential support elements, including:

• Shared research and development (R&D) infrastructure and/or professionals

• Business incubation infrastructure and/or professionals

• Shared manufacturing resources

• Support in attracting foreign R&D partners

• Financial drivers and incentives

• Government R&D funding

• Supply chain for innovation including materials, prototyping, testing, and shared R&D capabilities and facilities

The insight gained from the interviewees highlighted four key needs, as illustrated in Figure 1 from the perspective of the different industries. The "All Industries" ranking includes the top needs for all interviewees combined, ranked in order 1, 2, and 3. The other industry perspectives highlight specific priorities. If fewer than three priorities are indicated (e.g., aerospace has only one), it is because the specific industry’s priorities did not align with the top four. The automotive industry is captured in the "All Industries" category because the sample size was too small, and the answers were too varied. Details of prioritization of the full list of support options, for each industry, are presented in Chapter 4.

In summary, the most articulated need was for more R&D. Participants overwhelmingly pointed to the minimal R&D being performed in the high-tech industries in the Philippines as severely limiting. There is a strong belief that there are capabilities and interest today that can start to improve. Real impact, however, will come from foundational improvements in R&D capabilities, including among higher-level researchers in universities and companies, with access to appropriate resources. Those researchers being challenged to solve real-world problems at a level worthy of peer-reviewed research, and global commercialization, will be poised to make a real difference. The second priority need was for the local supply chain to move beyond academic research toward development with supplies and processes for prototyping, testing, and pilot-scale production. This supply chain highlights the need for sharing, in this case consolidation of supply, which can also be in the form of shared R&D infrastructure, which was the third-level priority. There was excellent insight provided about the existing efforts to provide shared R&D, and how these can be improved, and the next generation optimized for impact for industry-led innovation. As start-ups are a key component in innovation-led economic growth, there was a strong need articulated for support beyond merely forming a company. Professional support is needed for high-tech start-ups, which are the minority, to help understand value propositions for various markets, intellectual property (IP) strategies, venture, and finance, as well as operations.

Societal Needs and Strategic DirectionsBeyond these priority needs, there was a resounding message that the government should strive to enable a longer-term vision and commitment to strategic innovation in topical areas (Chapter 5) of societal importance to the Philippines and global markets. Recommended areas included: (1) sustainability related to transportation and beyond; (2) leveraging the buisness process outsourcing (BPO) business model for high-value technology-based services like design; (3) health and medicine; (4) digitization and big data; (5) manufacturing; and (6) materials. Any

9

one of these topical areas could be the basis for an inclusive innovation effort that addresses the needs identified in Figure 1 and builds an innovation ecosystem and economic impact that gives stakeholders the opportunity to take a longer-term view of participation in large-scale public-private partnerships related to R&D. The government could fund selected efforts without restrictions to ownership, size, industry, etc. By letting the ecosystem propose what they can do to solve a social problem, the government may gain opportunities to fund truly innovative efforts that result in products and expertise of global value. Current government programs are often restrictive in the application process, and topic. Future efforts should consider enabling public-private partnerships that bring forward cross-discipline teams to solve the Philippines' toughest challenges. The government could also consider where it has a role as a major consumer to provide a first market in support of innovative products.10

Innovation EcosystemWhether for grand challenges, or incremental innovation, the innovation ecosystem in the Philippines (academia, industry, government) must work together to better enable researchers to do meaningful research that is linked to real-world problems. Dysfunctions currently exist between the knowledge elements (academic research) and commercial reality (driven by the marketplace). The current less-than-ideal relationships undermine the Philippine’s ability to maximize the potential of local human capital. Limited R&D capabilities hinder the volume and quality of research, and what research exists is limited by the local supply chain. Current and future R&D and innovation efforts need an improved supply chain for materials, parts, and services like prototyping and pilot-scale production. Some of this could be in the form of shared infrastructure. Also, foundational to the long-term innovation success is the need to attract and enable entrepreneurs, mentors, and investors to help companies commercialize the R&D.

"Converting or “deploying” research into financially viable businesses can be a major challenge. This is because the very skills, equipment, and facilities that create effective R&D may not be useful for new businesses. To ensure the conversion of research into a business, there must be effective financial conduits, business models, entrepreneurs, and matchmaking mechanisms that connect sellers to buyers of technology. These are complementary but distinct conditions. In the vast majority of cases, the people conducting research do not have the knowledge or ability to translate their research into a commercial opportunity.”11 This is true in the Philippines. Additional education and connections between academia and industry can be encouraged, catalyzed, and formalized by the Philippines government as a foundation for future innovation success. The government also has a clear role in building and enforcing a regulatory environment, including intellectual property,12 to encourage R&D commercialization. Policies at the federal and local levels can help or hinder both research and company participation in the innovation economy of the Philippines and globally.

Within the ecosystem, there is an opportunity to reduce the need to import materials and parts for R&D and manufacturing. At present, all materials and parts come from outside the Philippines, from which new parts are produced, and then predominantly exported. Reducing this import-export-import cycle will improve the innovation process, and also the local supply chain, which both have economic benefit. It is important to note, beyond the technology-sector focus, the general findings of this study are applicable across most Philippine industry sectors.

10 An example of this in the US is funding that is set aside for R&D as part of the Small Business Innovative Research Program (SBIR), where federal agencies put forward topics and funding. The Department of Defense (DoD), for instance, is an investor and customer. First products are often sold to a DoD program or prime contractor, enabling innovative products to mature with the government need and then more broadly to additional customers and markets. Information on the SBIR and technology transfer is available at https://www.acq.osd.mil/osbp/sbir/about/index.shtml

11 Yayboke & Rice, 201712 Fink, C., & Maskus, K.E. (eds.). (2005). Intellectual Property and Development: Lessons from Recent Economic Research. New York: World Bank and

Oxford University Press.

Steps to Take and Elements From Which to Build

Existing Support Challenges Future Support Recommendations Best Practice Models to Consider Additional Detail in Chapter 6

Example Tactical First Step Additional Detail in Chapter 8

NEED

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D, in

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ng w

ith

Fore

ign

Part

ners

To increase R&D, the Philippines must better ENABLE existing academia and industry via training and funding, as well as ATTRACT new ecosystem players. There are existing elements from which to build, including existing R&D funding programs, tax holidays, and industry-level exhibition support.

One of the most significant challenges related to the existing support is the limited AWARENESS of, and ACCESS to, opportunities by industry. Potential participants either are unaware, lack understanding, or do not qualify for many of the current programs. The other key element is INCENTIVES, which are used globally by governments to drive R&D and innovation. Tax reform is raising concern with high-tech MNCs. With an estimated increase in cost of 40% for SEIPI member companies, companies see a risk to competitiveness.13 Research at universities is hindered by procurement that is cumbersome. Researchers bear administrative burdens and can't focus on solving research challenges.

Future support efforts should include long-term and coordinated perspectives. The government should enable better guidance on which programs fit for a given individual or organization (e.g., provide professors and companies access to an "innovation ambassador" to help them identify and successfully connect to funding and partners). Also, government should broaden programs and calls for R&D around strategic focus areas. Outcomes will be improved by seeking proposals that drive multi-stakeholder engagement (e.g., co-funding) around real-world problems. Instead of having restrictive calls for proposals, the idea is to solicit broadly, and then pick the best from a higher volume.

There is significant research related to how a nation's tax environment supports innovation, typically including indicators like effective corporate tax rates, R&D tax credits, collaborative R&D tax credits, and "innovation boxes"14 where it is recognized that the commercialization of innovation, going beyond the mere conduct of R&D, constitutes a vital driver of innovation and growth. Innovation boxes tax qualifying profits (profits derived from various kinds of intellectual property) at a lower rate in order to incentivize innovation. Innovation boxes differ from R&D tax credits in that they provide firms with an incentive for the commercialization of innovation, rather than just for the conduct of research. Research has found that innovation box policies do induce firms to patent more, and do more R&D, in the nations that have them. Some even apply to R&D conducted outside the country. One example for the Philippines to consider, because it requires R&D be conducted in country, is Turkey. Since 2014 there has been a tax exemption of 50% on patent-related income, for patents developed in Turkey or Technology Development Zones. This creates an effective corporate tax rate of 10% on qualifying IP, vs a regular corporate rate of 20%.15

Choose topics of national importance where the Philippines might leapfrog (or at least not play catch up) and challenge the people and organizations with passion and resources to collectively propose how they might move forward. For example, consider a shared R&D model related to electric vehicles. Invest government funding to help drive thinking and incentivize the ecosystem to demonstrate capabilities and attracted shared R&D.

Map administrative barriers/support at universities with significant government R&D funding and compare to best practices globally; if appropriate consider enabling research support as a career path by supporting a degree program.

NEED

: Str

engt

hen

the

Inno

vatio

n Su

pply

Chai

n

To strengthen the local supply chain, and better link to the global value chain, the Philippines should work to validate MARKET opportunities and then FOCUS on very specific efforts to fill gaps that can sustain a business.

Existing FUNDING programs like CRADLE and BIST16 may enable some companies in specific sectors, with specific characteristics, but qualification is limited (e.g., no aerospace). Also, companies are not aware, or are averse to applying. Government should consider how to increase the uptake for these programs by consolidating programs (reduce complexity) and broadening qualifications (less restrictive at the proposal stage).

Each industry has awareness of the supply chain needs (see Chapter 4), but needs help in consolidating the market “opportunity” because of the competitive nature of the data. Government data related to imports analyzed by an independent third party could help to build a case for either local investment, or solicitation of suppliers, including foreign players if needed. The goal is to fill key development gaps that impact innovation cycle times and outcomes including materials, parts, testing, pilot-scale production, and more.

Both South Korea and Israel have strategically supported improvement in supply chain at a local level and to compete globally, with successful government-supported ventures being privatized. For the Philippines, one example is the limited heat treating capacity; however, until capability exists there will not be enough volume. These "chicken-and-egg" scenarios related to economies of scale offer opportunities where the government can take the first risk, or incentivize investment. Another example is to support an aerospace supply-chain summit where opportunities have been quantified from government data to help encourage companies to tool up (import volumes today, and maybe someday for Philippine aerospace procurement). Because high-tech industries have to compete globally, the government might also support/incentivize investment toward qualifying for international standards.

Form a technical working group (TWG) including DTI and Department of Science and Technology (DOST). Use TWG to connect with MNCs and trade associations to identify products and services needed to be sourced locally. Consider incentives to help drive interest and success, including start-ups to fill gaps. Leverage academia to help with economic analysis to demonstrate opportunities related to gaps.

NEED

: Add

ition

al Sh

ared

R&D

In

frast

ruct

ure

To successfully provide shared R&D infrastructure

it is imperative to first CONSIDER what existing gap it is addressing in terms of value. With that purpose defined, it is then critical to be sure to address target users (must be academia and industry), required standards and certifications, cost, and confidentiality.

The Philippines can look at LESSONS LEARNED from existing facilities like ADMATEL and MIRDC17 and build forward for an even better next generation of support. Current issues relate to use and cost including issue with samples leaving/entering Philippine Economic Zone Authority (PEZA) locations, accepting/invoicing companies, processes to protect confidentiality, and inability to support commercial scale.

New shared R&D infrastructure should focus on supporting directions of a long-term national innovation strategy, to address key gaps, in key locations that would help to build innovation clusters. For example, for aerospace, it might be prudent to stand up certified support to enable metal finishing and non-destructive testing and evaluation in Clark or Cebu. This would meet the stringent aerospace requirements, but would also be of value to industries like automotive.

To drive toward Industry4.0, next generation infrastructure should consider a model of "...“hybrid infrastructure,” which integrates both physical and digital aspects, moving IT technology advances into traditional infrastructure to significantly improve its performance, is important to delivering the next wave of innovation and economic growth."18

Shared R&D infrastructure investments should start by reflecting on the existing investments made and how they are and are not being used, and why. Where industry use is limited, there should be a determination as to why. Is it because of lack of interest, or access (requirements, cost, etc.)? Infrastructure needs related to the innovation supply chain as referenced above (by industry), should also be considered.

NEED

: Pro

fess

iona

l In

cuba

tion

Supp

ort

The key to a successful entrepreneurial community and associated impact is the ability to ATTRACT entrepreneurs, mentors, and investors.

There are existing incubators and accelerators, entrepreneurial education efforts, tax credits, and funding (e.g., IBID/IBED, TECHNICOM, IPRAP)19 to LEVERAGE. However, for many entrepreneurs, the programs are complex and do not match the entrepreneurs’ abilities or time. Traditional investment is aimed at established businesses20 or markets. There is a need to change risk mind-set to include high-tech ventures (beyond software and apps).

Once long-term strategic areas are selected, government procurement should be considered for those areas as an opportunity to enable local growth, including with start-ups. Entrepreneurs should be enabled to compete with support and by changing regulations to remove barriers. For example, laws related to minimum levels of previous experience (contract value) currently limit the ability for entrepreneurs to procure government contracts. The role of universities and their ability to be a geographically disperse network should be considered.

The i-CorpsTM initiative 21 in the US has gained momentum and offers a model for consideration by the Philippines. Funded by the National Science Foundation to support the commercialization of university research, it brings together teams consisting of a researcher (Principal Investigator), an experienced Entrepreneurial Lead, and a Mentor. The team is required to complete an intensive training program and market research exercises. Successful teams may receive further funding to develop a business.

Develop a version of i-CorpsTM specific to the Philippines, as a pilot to: (1) demonstrate the effectiveness of funding training focused on considering value proposition based on primary market research, and (2) identify and attract experienced mentors. At the time of writing this report, it is pleasing to see DOST is currently considering this approach.

zFIGURE 2 Insights gained from stakeholders, government leaders, and best practices are the basis for recommendations related to each key need.

10

Steps to Take and Elements From Which to Build

Existing Support Challenges Future Support Recommendations Best Practice Models to Consider Additional Detail in Chapter 6

Example Tactical First Step Additional Detail in Chapter 8

NEED

: Inc

reas

e R&

D, in

cludi

ng w

ith

Fore

ign

Part

ners

To increase R&D, the Philippines must better ENABLE existing academia and industry via training and funding, as well as ATTRACT new ecosystem players. There are existing elements from which to build, including existing R&D funding programs, tax holidays, and industry-level exhibition support.

One of the most significant challenges related to the existing support is the limited AWARENESS of, and ACCESS to, opportunities by industry. Potential participants either are unaware, lack understanding, or do not qualify for many of the current programs. The other key element is INCENTIVES, which are used globally by governments to drive R&D and innovation. Tax reform is raising concern with high-tech MNCs. With an estimated increase in cost of 40% for SEIPI member companies, companies see a risk to competitiveness.13 Research at universities is hindered by procurement that is cumbersome. Researchers bear administrative burdens and can't focus on solving research challenges.

Future support efforts should include long-term and coordinated perspectives. The government should enable better guidance on which programs fit for a given individual or organization (e.g., provide professors and companies access to an "innovation ambassador" to help them identify and successfully connect to funding and partners). Also, government should broaden programs and calls for R&D around strategic focus areas. Outcomes will be improved by seeking proposals that drive multi-stakeholder engagement (e.g., co-funding) around real-world problems. Instead of having restrictive calls for proposals, the idea is to solicit broadly, and then pick the best from a higher volume.

There is significant research related to how a nation's tax environment supports innovation, typically including indicators like effective corporate tax rates, R&D tax credits, collaborative R&D tax credits, and "innovation boxes"14 where it is recognized that the commercialization of innovation, going beyond the mere conduct of R&D, constitutes a vital driver of innovation and growth. Innovation boxes tax qualifying profits (profits derived from various kinds of intellectual property) at a lower rate in order to incentivize innovation. Innovation boxes differ from R&D tax credits in that they provide firms with an incentive for the commercialization of innovation, rather than just for the conduct of research. Research has found that innovation box policies do induce firms to patent more, and do more R&D, in the nations that have them. Some even apply to R&D conducted outside the country. One example for the Philippines to consider, because it requires R&D be conducted in country, is Turkey. Since 2014 there has been a tax exemption of 50% on patent-related income, for patents developed in Turkey or Technology Development Zones. This creates an effective corporate tax rate of 10% on qualifying IP, vs a regular corporate rate of 20%.15

Choose topics of national importance where the Philippines might leapfrog (or at least not play catch up) and challenge the people and organizations with passion and resources to collectively propose how they might move forward. For example, consider a shared R&D model related to electric vehicles. Invest government funding to help drive thinking and incentivize the ecosystem to demonstrate capabilities and attracted shared R&D.

Map administrative barriers/support at universities with significant government R&D funding and compare to best practices globally; if appropriate consider enabling research support as a career path by supporting a degree program.

NEED

: Str

engt

hen

the

Inno

vatio

n Su

pply

Chai

n

To strengthen the local supply chain, and better link to the global value chain, the Philippines should work to validate MARKET opportunities and then FOCUS on very specific efforts to fill gaps that can sustain a business.

Existing FUNDING programs like CRADLE and BIST16 may enable some companies in specific sectors, with specific characteristics, but qualification is limited (e.g., no aerospace). Also, companies are not aware, or are averse to applying. Government should consider how to increase the uptake for these programs by consolidating programs (reduce complexity) and broadening qualifications (less restrictive at the proposal stage).

Each industry has awareness of the supply chain needs (see Chapter 4), but needs help in consolidating the market “opportunity” because of the competitive nature of the data. Government data related to imports analyzed by an independent third party could help to build a case for either local investment, or solicitation of suppliers, including foreign players if needed. The goal is to fill key development gaps that impact innovation cycle times and outcomes including materials, parts, testing, pilot-scale production, and more.

Both South Korea and Israel have strategically supported improvement in supply chain at a local level and to compete globally, with successful government-supported ventures being privatized. For the Philippines, one example is the limited heat treating capacity; however, until capability exists there will not be enough volume. These "chicken-and-egg" scenarios related to economies of scale offer opportunities where the government can take the first risk, or incentivize investment. Another example is to support an aerospace supply-chain summit where opportunities have been quantified from government data to help encourage companies to tool up (import volumes today, and maybe someday for Philippine aerospace procurement). Because high-tech industries have to compete globally, the government might also support/incentivize investment toward qualifying for international standards.

Form a technical working group (TWG) including DTI and Department of Science and Technology (DOST). Use TWG to connect with MNCs and trade associations to identify products and services needed to be sourced locally. Consider incentives to help drive interest and success, including start-ups to fill gaps. Leverage academia to help with economic analysis to demonstrate opportunities related to gaps.

NEED

: Add

ition

al Sh

ared

R&D

In

frast

ruct

ure

To successfully provide shared R&D infrastructure

it is imperative to first CONSIDER what existing gap it is addressing in terms of value. With that purpose defined, it is then critical to be sure to address target users (must be academia and industry), required standards and certifications, cost, and confidentiality.

The Philippines can look at LESSONS LEARNED from existing facilities like ADMATEL and MIRDC17 and build forward for an even better next generation of support. Current issues relate to use and cost including issue with samples leaving/entering Philippine Economic Zone Authority (PEZA) locations, accepting/invoicing companies, processes to protect confidentiality, and inability to support commercial scale.

New shared R&D infrastructure should focus on supporting directions of a long-term national innovation strategy, to address key gaps, in key locations that would help to build innovation clusters. For example, for aerospace, it might be prudent to stand up certified support to enable metal finishing and non-destructive testing and evaluation in Clark or Cebu. This would meet the stringent aerospace requirements, but would also be of value to industries like automotive.

To drive toward Industry4.0, next generation infrastructure should consider a model of "...“hybrid infrastructure,” which integrates both physical and digital aspects, moving IT technology advances into traditional infrastructure to significantly improve its performance, is important to delivering the next wave of innovation and economic growth."18

Shared R&D infrastructure investments should start by reflecting on the existing investments made and how they are and are not being used, and why. Where industry use is limited, there should be a determination as to why. Is it because of lack of interest, or access (requirements, cost, etc.)? Infrastructure needs related to the innovation supply chain as referenced above (by industry), should also be considered.

NEED

: Pro

fess

iona

l In

cuba

tion

Supp

ort

The key to a successful entrepreneurial community and associated impact is the ability to ATTRACT entrepreneurs, mentors, and investors.

There are existing incubators and accelerators, entrepreneurial education efforts, tax credits, and funding (e.g., IBID/IBED, TECHNICOM, IPRAP)19 to LEVERAGE. However, for many entrepreneurs, the programs are complex and do not match the entrepreneurs’ abilities or time. Traditional investment is aimed at established businesses20 or markets. There is a need to change risk mind-set to include high-tech ventures (beyond software and apps).

Once long-term strategic areas are selected, government procurement should be considered for those areas as an opportunity to enable local growth, including with start-ups. Entrepreneurs should be enabled to compete with support and by changing regulations to remove barriers. For example, laws related to minimum levels of previous experience (contract value) currently limit the ability for entrepreneurs to procure government contracts. The role of universities and their ability to be a geographically disperse network should be considered.

The i-CorpsTM initiative 21 in the US has gained momentum and offers a model for consideration by the Philippines. Funded by the National Science Foundation to support the commercialization of university research, it brings together teams consisting of a researcher (Principal Investigator), an experienced Entrepreneurial Lead, and a Mentor. The team is required to complete an intensive training program and market research exercises. Successful teams may receive further funding to develop a business.

Develop a version of i-CorpsTM specific to the Philippines, as a pilot to: (1) demonstrate the effectiveness of funding training focused on considering value proposition based on primary market research, and (2) identify and attract experienced mentors. At the time of writing this report, it is pleasing to see DOST is currently considering this approach.

11Footnotes are located on page 12.

12

Next StepsIn considering needs, and potential support options, the research team re-engaged with a smaller set of stakeholders, including both government and industry, to probe key issues, to determine potential first steps to drive solutions, and to identify existing elements from which to build.

Figure 2 summarizes the key needs, aspects of how to address the need, existing challenges, potential future support, global best practices, and illustrative tactical next steps. It is suggested that further validation be conducted on the specific suggestions (further described in Chapter 8).

It is clear that the Philippines is poised to leverage the concept of inclusive innovation to drive towards increased and inclusive economic growth. The concepts that “success begets success” and “stigmas can disappear” have been illustrated by the evolution of the BPO industry from early reticence, to success, to today’s justifiable concern for its degradation. This example provides emphasis to the idea that to leverage innovation for continued economic success, the needs identified must be considered by all stakeholders in the Philippines’ innovation ecosystem. All stakeholders must hear the call to action to be a part of a future of open innovation, and it is primarily the responsibility of government to make this call.

Open innovation requires two-way flow of needs, knowledge, and technology, with industry (market needs) pulling and research organizations (industry and academic) pushing ideas from lab to impact. All stakeholders need to take a holistic view and seek ways to help with coordination, awareness, and funding to enable and encourage strong partnerships, investment, and economic growth. Success requires an enabling environment of trust and collaboration built on a strong "core" of education and human capital, with appropriate knowledge creation partnerships and technology transfer/commercialization mechanisms.

The successful innovation ecosystem, given the appropriate knowledge and understanding, can be boosted by carefully placed government-led interventions. Some of these are the activities described in Chapter 8, supplemented by suggestions from the authors in Chapter 9. The findings and recommendations should be considered and included in the DTI’s already-envisaged roadmap such that the execution is a coherent, cross-government initiative based on a common vision and strategic goals.

13According to Business World online: http://www.bworldonline.com/content.php?section=TopStory&title=growth-target-still-comfortable----seipi&id=147102

14 Ezell, S.J., Nager, A. B., & Atkins, R.D. (2016). Contributors and detractors: Ranking countries’ impact on global innovation. A report for the Information Technology and Innovation Foundation (ITIF). ITIF. Retrieved from http://www2.itif.org/2016-contributors-and-detractors.pdf?_ga=2.174776298.975167067.1508356968-752790508.1508356968

15 Atkinson, R.D., & Andes, S. (2011, October). Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation. Report for the Information Technology and Innovation Foundation (ITIF). Washington, DC: ITIF; 11. Retrieved from http://www.itif.org/files/2011-patent-box-final.pdf

16 See: http://dost.gov.ph/knowledge-resources/downloads/file/596-collaborative-research-and-development-to-leverage-philippine-economy-cradle http://dost.gov.ph/knowledge-resources/ downloads/category/105-call-for-proposals-2017

17 ADMATEL is a DOST testing laboratory equipped with advanced analytical equipment for failure analysis and materials characterization. www.admatel.com MIRDC is DOST's Metals Industry Research and Development Center. www.mirdc.dost.gov.ph .

18 For consideration of funding R&D infrastructure see: Singer, P.L. (2017). Investing in “innovation infrastructure” to restore US growth. ITIF. Available at http://www2.itif.org/2017-innovation-infrastructure.pdf

19 http://www.tapi.dost.gov.ph/programs-and-services offers some insight on the programs but is limited in explaining how to engage in the programs."

20 According to the Manila Times: http://www.manilatimes.net/alarm-clock-called-innovation/352615/ 21 See: https://www.nsf.gov/news/special_reports/i-corps/

22 According to Inc.: https://www.inc.com/john-brandon/elon-musk-on-how-to-innovate-20-quotes.html

23 STRIDE is managed by RTI International. More information is available at http://www.stride.org.ph

“Starting and growing a business is as much about the innovation, drive, and determination of the people behind it as the product they sell.”

Elon Musk22

Electronics and

Semiconductors

Tech In

dustries f

or Innovatio

n

Automotive

Aerospace

Aerospace


Electronics,Semiconductors

13

Supporting Information and Insights

CHAPTER 1 | BackgroundInnovation is the process of translating ideas or inventions into useful products and services for customers that perceive value and are willing to pay. Innovation drives economies. The economic value of innovation can be described as a virtuous cycle that involves synergies between innovation ecosystem players, including companies, government agencies, educational institutions, investment organizations, and entrepreneurs. This report offers the consolidated opinions of these various stakeholders in the Philippines, focused on the electronics, aerospace, and automotive industries. It does not address agribusiness or services specifically, although many of the findings apply broadly.

At the request of DTI, the USAID/Philippine STRIDE Program23 reached out to varied stakeholders to participate in an innovation needs assessment. During March 2017, the STRIDE team facilitated approximately 40 structured discussions with approximately 60 individuals about innovation, as defined above, and the needs of the Philippines. The interviews offered multiple perspectives based on each individual, their organization (corporate, education, government), and other factors like industry (aerospace, automotive, electronics/semiconductor, software/data analytics), ownership, and size.

This report is written for all of the innovation stakeholders in the Philippines, not just those who had the opportunity to be interviewed either formally, or informally. For the purposes of the study, we considered the entire innovation ecosystem (see Figure 4) to understand the inherent linkages between stakeholders. The use of an ecosystem model in describing relationships needed for innovation is somewhat common because the synergies within natural ecosystems are a good parallel for the relationships between entities like companies, universities, and governments working to build economic gain from new ideas. Innovation is referred to as an ecosystem because natural ecosystems are defined as communities of

Technical Breakthroughs

Sales and Manufacturing Jobs

R&D to Solve Problems

New Products

14

zFIGURE 3 Driving innovation can lend itself to the question of, "Where to start?"

living organisms interacting with their environment through unique networks and interdependencies as part of a system. Just as nature’s interactions can be defined as an ecosystem, so too can regional and national economies. Much like natural ecosystems, “innovation ecosystems” are (1) living, changing, and evolving; (2) connected and interdependent; and (3) shaped by (and shape) their environment.4 The health and growth of an innovation ecosystem require connections between two distinct but interdependent systems—the knowledge economy (driven by research) and the commercial economy (driven by the marketplace). It is at this intersection that the Philippines, like all countries, faces a challenge.

The two most common comments heard during the interviews related to (1) concern over global politics and recent leadership changes, and (2) the "chicken and the egg." The first issue is constantly evolving and beyond the scope of this effort, but the frequent reference to the chicken and egg highlights how so many of the innovation issues facing the Philippines have an inherent chicken and egg causality dilemma (see Figure 3). This report offers insight into those issues such that stakeholders can consider investment to drive the virtuous cycle of innovation. With the chicken and the egg, what will come first to drive things forward? Should it be local or foreign R&D investment, tax credits or policies to drive R&D, or something else? This report offers insight into issues specific to the technology sector in the Philippines in an effort to enable a meaningful discussion and and help drive forward innovation support for all stakeholders. This report and the research conducted were first used to inform a discussion at the Inclusive Innovation Conference at the end of May 2017 with the goal of informing a strategic “whole-of-government” and ecosystem-level approach to driving innovation in the Philippines. Specifically, the original findings that were based on industry input were shared with, and considered by, various entities in the Philippine government and educational system. From there, a draft report was released for comment, and a follow-on workshop with industry was conducted in September 2017. This final report consolidated all of this work over approximately nine months to bring more tactical recommendations, building on the original research.

Socia

l C

apital > Trust > Information Sharing

COLLABORATION

Knowledge Transfer

Licensing and Commercialization

Startups and

Spino�sUniversity - Industry

Basi

c >

Applied > Translational R&

D

Rese

arch and Knowledge Creation

Education and Human Capital

zFIGURE 4 The USAID/STRIDE, adapted from RTI, Innovation Ecosystem Conceptual Framework highlights the inter-related elements that are foundational to innovation and associated economic development.25

15

CHAPTER 2 | Innovation EcosystemIt is important to first recognize that the Philippines’ technology-sector innovation ecosystem is driven by economic and dynamic relationships that develop technology,24 and is led by the electronics, aerospace, and automotive industries. The ecosystem players include large MNCs; small-medium enterprises (SMEs); and start-ups, associations, universities as research partners and developers of future employees, as well as key government agencies like DTI, DOST, and Commission on Higher Education (CHED). As illustrated in Figure 4, ecosystem stakeholders interact to create and transfer knowledge that enables new products and businesses to ultimately drive economic development.

It is held, at present, that the Philippines has a low level of innovation.26 In 2016, the Philippines ranked number 74 out of 128 economies on the Global Innovation Index,27 and 5th out of the 7 Association of Southeast Asian Nation (ASEAN) countries ranked in the index.28 The Philippines, which once would have looked at the United States and Europe for comparison, is now behind most of its geographical neighbors, including Singapore (6th), Malaysia (35th), Thailand (52nd), and Vietnam (59th). The Philippines must consider its current position, and strive to catch up to countries that have invested in the building blocks of innovation including R&D, and support for high-tech businesses including entrepreneurship. The Philippines now is being challenged by Indonesia (88th) and Cambodia (95th); however, there are reasons for optimism.

24 Jackson, D. (2011). What is an innovation ecosystem? Arlington, VA: National Science Foundation.25 RPD Innovations. (2016, April). Innovation ENABLED. Shaping the Saudi Arabia Innovation Ecosystem. Retrieved from http://www.rpdinnovations.

com/workshop_report.pdf 26 Philippines Economic Development Plan 2017–2022, 14-1. Available at: http://www.neda.gov.ph/philippine-development-plan-results-

matrices-2/philippine-development-plan-results-matrices-2017-2022/ 27 The Global Innovation Index is co-published by Cornell University, INSEAD, and the World Intellectual Property Office: www.globalinnovaionindex.

org 28 The establishment of the ASEAN Economic Community (AEC) created a regional market of $2.6 trillion and over 622 million people. In 2014, AEC

was collectively the third largest economy in Asia and seventh largest globally. Information available at www.asean.org

29 World Economic Forum Executive Opinion Survey. (2015). The Executive Opinion Survey 2015 captured the opinions of over 14,000 business leaders in 144 economies between February and June 2015. Available at: http://www3.weforum.org/docs/gcr/2015-2016/GCR_Chapter1.3_2015-16.pdf

30 Higher Education Data: 2014. Philippines Commission on Higher Education (CHED). Available at: http://www.ched.gov.ph/wp-content/uploads/2014/temp/10-03/home/Higher%20Education%20Data%202014%20-%20Public%20and%20Private%20HEIs.pdf

31 From www.stack.com Morales, J. A. (2016). A huge talent shortage is behind the Philippines’ R&D woes. 32 For more information see: http://www.cggc.duke.edu/pdfs/2016_Introduction_Philippines_Global_Value_Chains.pdf One of the main labor issues

in the country is brain drain and the loss of talented and qualified employees to other countries. There are an estimated 10 million Filipino workers based overseas. Foreign-exchange remittances amount to around 10% of the country's GDP (IHS Connect, 2016; UNCTAD, 2016b). Many of the Filipino professionals who migrate are highly skilled professionals, including doctors and nurses, engineers, and information technology specialists (IHS Connect, 2016), an annual average of approximately 7,300 engineers (the equivalent of 15% of the graduating class of 2013), and 10,250 engineering technicians between 2008 and 2010 (TESDA, 2014).

16

Innovation Economy Indicators and ComparatorsA survey of nearly 14,000 executives globally shows that their perception of the Philippines’ capacity for innovation is improving. Figure 5 presents global executives’ perspective on innovation over the last 8 years, specific to the Philippines. Although most of the variables have been relatively flat, there has been an uptick in the view that the capacity for innovation in the Philippines is optimistic.As illustrated in both Figures 4 and 5, the key elements for innovation include (1) human capital including scientists and engineers, which is enabled by the education system; (2) investment in R&D and the creation of knowledge; and (3) transfer of knowledge via start-ups and/or commercialization with existing companies.

When considering the Philippines’ human capital, the supply of young engineers and technical graduates is not lacking. The Philippines graduates about 60,000 engineers annually,30 although the proportion of graduates with science, technology, engineering, and mathematics (STEM) degrees is declining.31 A very small percentage of these researchers go to work in R&D jobs in the Philippines. Many of them leave the Philippines32 or may be underemployed. Many go to business process outsourcing (BPO) jobs, which offer stability, a higher starting salary than manufacturing, and better benefits than manufacturing. Some go to study abroad to continue their education. Others go into industry but they work in non-technical roles rather than as engineers or scientists, working in non-technical business jobs.

Knowledge creation may be the area in which the Philippines is most lacking. As shown in Figure 6, the Philippines lags behind in R&D investment as a percentage of gross domestic product (GDP) and also in terms of total researchers. In the latter category, Singapore leaps to the top with Korea and Japan, and the Philippines falls to the bottom, well below Malaysia. If the Philippines added 8,000 researchers per year, it would take nearly 20 years to be at the level of Malaysia today.

zFIGURE 5 Executives have recently had a more optimistic view of the Philippines’ innovation capacity.29

0

1

2

3

4

5

3.42 3.48 3.61 3.16 3.90 3.01 3.17 3.40 3.65

0

1

2

3

4

5

2.86 3.08 3.29 3.17 3.27 3.39 3.46 3.58 3.79

2007 2008 2009 2010 2011 2012 2013 2014 2015

0

1

2

3

4

5

3.37 3.21 2.99 2.87 2.68 2.82 3.14 3.38 3.67

0

1

2

3

4

5

3.12 3.36 3.44 3.08 2.81 2.88 3.23 3.36 3.54

0

1

2

3

4

5

3.07 3.15 3.16 2.94 2.76 2.71 2.94 3.76 4.54

0

1

2

3

4

5

3.97 3.85 3.75 3.62 3.63 3.66 3.71 3.83 4.04

University-industry collaboration in R&D

Quality of scientific research institutions

Company spending on R&D

Government procurement of advanced technology products

Availability of scientists and engineers

Capacity for innovation

Innovation Capacity Variables (Rated 1-7, 7=best)

Executive Survey Opinions for Philippines Variables

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1997 1999 2001 2003 2005 2007 2009 2011 2013

Israel Philippines Cambodia Vietnam

Thailand Malaysia China Singapore

Japan Korea

Indonesia

Res

earc

h an

d D

evel

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(% o

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Res

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re (%

of G

DP

)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Israel Cambodia Vietnam

Thailand Malaysia China Singapore

Japan Korea

Indonesia

Philippines

Res

earc

h in

R&

D (p

er m

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ople

)R

esea

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&D

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zFIGURE 6 Investment in research, both monetary and human capital, in the Philippines is lacking and lagging.34

33. ISCED97 level 6 as defined by the International Standard Classification of Education (ISCED).34 United Nations Educational, Scientific, and Cultural Organization (UNESCO) Institute for Statistics (2014).

R&D Expenditure (% of GDP)Expenditures for R&D are current and capital expenditures (both public and private) on creative work undertaken systematically to increase knowledge of humanity, culture, and society, and the use of knowledge for new applications. R&D covers basic research, applied research, and experimental development.

Research in R&D (per million people)Researchers in R&D are professionals engaged in the conception or creation of new knowledge, products, processes, methods, or systems, and in the management of the projects concerned. Postgraduate PhD students (ISCED97 level 6) engaged in R&D are included.33

17

The impact of innovation and the potential for innovation are often tied to specific country-level metrics that reflect growth, investment, and other activities. This study considered the commonly cited innovation economy "readiness" indicators in an effort to understand and illustrate the Philippines' current status and future potential related to innovation. Each variable was considered in comparison to a range of countries (Figures 7 and 8) that offer both aspiration (e.g., South Korea, Israel) and a competitive reality check (e.g., Indonesia, Vietnam) for the Philippines. The indicators that are more favorable to the Philippines are on this page, where as those that are not as strong are on pages 18 and 19.

Indicators of Strength• GDP/Capita Growth. This analysis uses data from the World Bank and presents the comparison

of the average growth of GDP per capita from 2012 to 2015 for the selected countries. This is an indicator of the health of an economy, although the growth drivers are also important. The Philippines has an excellent growth rate in comparison, partially because the economy is smaller and easier to “move.” One caveat mentioned about this indicator for the Philippines is that the growth has been based on a “consumption economy,” which may not be sustainable.

• Current Account Surplus (% of GDP). This variable is used by economists to compare countries in terms of their global balance sheet. A positive value indicates that the nation is a net lender, while negative indicates borrower. The Philippines can be viewed favorably here, especially in comparison to other ASEAN countries. The current account balance is the sum of net exports of goods and services, and net primary and secondary income. The data for this variable were also from the World Bank.

• Job Creation. This indicator shows the average annual growth in number of jobs from 2012 to 2015 based on International Labour Organization (ILO) statistical data. The Philippines can be viewed favorably here, especially in comparison to other ASEAN countries.

• Capacity for Innovation. This analysis captures the results of the World Economic Forum’s Executive Survey 2015, representing the consolidated opinion of approximately 14,000 business leaders. More detail from that survey on the Philippines is presented as Figure 5. As previously noted, the data show opinions have grown more positive.

• High-tech Exports (% of Manufactured Exports). This percentage highlights the role of the high-tech industry within the manufacturing economy of a country. The Philippines is the highest ranked country on this variable, illustrating the existence of a healthy tech manufacturing and export sector, emphasizing the importance of continued investment as well as adoption of new designs and technologies. The data for this analysis are from the United Nations' statistics division (UN Comtrade).

18

5.2

4.7 4.8

5.8

4.03.5

3.4

LOW HIGH

Capacity for InnovationExecutive Opinion Survey (scale 1-7 best)

-0.4% 1.4%2.5%

1.0%

LOW HIGH

Job CreationAverage Annual Growth 2012-2015

4.6%

2.5%

3.0%

7.7%

0.5%-2.0%

-9.8%LOW HIGH

Current Account Surplus Percent of GDP

2.4%

1.2%

3.7% 4.8%

LOW HIGH

GDP Per Capita GrowthAverage Annual Growth 2012-2015

78.9%

86.6%69.3%63.2%

FEW MANY

Educated Labor ForcePercent with Post-secondary Education

77.9%

4.7%

4.0%

5.5%

0.5%

3.4%

IsraelCambodia VietnamSouth KoreaIndonesia PhilippinesMalaysia

Patent Activity2015 Filing Activity

2

167,275

582

1,272

1,058

1,285

375LOW HIGH

85.4%

zFIGURE 7 The Philippines can build on positive innovation indicators towards an innovation-driven economy.

5.2

4.7 4.8

5.8

4.03.5

3.4

LOW HIGH


-0.4% 1.4%2.5%

1.0%

LOW HIGH


4.6%

2.5%

3.0%

7.7%

0.5%-2.0%

-9.8%LOW HIGH


2.4%

1.2%

3.7% 4.8%

LOW HIGH


78.9%

86.6%69.3%63.2%

FEW MANY


77.9%

4.7%

4.0%

5.5%

0.5%

3.4%



2

167,275

582

1,272

1,058

1,285

375LOW HIGH

85.4%

26.8%

26.9%

19.7%

6.6%

0.8%

42.8%

53.1%

LOW HIGH

High-Tech Exports Percent of Manufactured Exports

4.14.4

5.23.93.1

4.23.7

LOW HIGH

Government Procurement of Advanced Technology

Executive Opinion Survey (scale 1-7 best)

2.0%2.3%

0.4%

3.7%

3.8%

9.4%

6.1%

LOW HIGH

Foreign Direct InvestmentPercent of GDP


5.2

4.7 4.8

5.8

4.03.5

3.4

LOW HIGH


-0.4% 1.4%2.5%

1.0%

LOW HIGH


4.6%

2.5%

3.0%

7.7%

0.5%-2.0%

-9.8%LOW HIGH


2.4%

1.2%

3.7% 4.8%

LOW HIGH


78.9%

86.6%69.3%63.2%

FEW MANY


77.9%

4.7%

4.0%

5.5%

0.5%

3.4%



2

167,275

582

1,272

1,058

1,285

375LOW HIGH

85.4%

19

zFIGURE 8 Philippines can look to other countries that have enabled innovation.

26.8%

26.9%

19.7%

6.6%

0.8%

42.8%

53.1%

LOW HIGH


4.14.4

5.23.93.1

4.23.7

LOW HIGH



2.0%2.3%

0.4%

3.7%

3.8%

9.4%

6.1%

LOW HIGH



Areas for Improvement• Educated Labor Force. This analysis shows the percentage of labor in a country that has advanced education

beyond high-school level. The Philippines ranks well here, although ASEAN competitors also rank well—in fact, slightly better.

• Foreign Direct Investment (% of GDP). This ratio is used to look at the impact that foreign investment plays in an economy. For emerging economies, the impact of foreign investment can be critical to enable development and growth (e.g., Cambodia). For more mature economies, this value may be lower due to high levels of domestic private and public investment (e.g., South Korea). These data are from the World Bank.

• Government Procurement of Advanced Technology. This analysis is based on the World Economic Forum’s Executive Survey, which measures the perception of innovation from 14,000 business people on a scale of 1 to 7. Government procurement of advanced technology highlights that countries use their own market needs to drive product development and local supply chains. According to the opinion of business executives, Philippines is second to last for this indicator, ahead of only Cambodia.

• University and Industry Collaboration. From the World Economic Forum's (WEF’s) same Executive Opinion Survey, business executives evaluated their perception of university-industry collaboration on a scale of 1 to 7. In this variable, the Philippines ranks higher than both Cambodia and Vietnam.

5.2

4.7 4.8

5.8

4.03.5

3.4

LOW HIGH


-0.4% 1.4%2.5%

1.0%

LOW HIGH


4.6%

2.5%

3.0%

7.7%

0.5%-2.0%

-9.8%LOW HIGH


2.4%

1.2%

3.7% 4.8%

LOW HIGH


78.9%

86.6%69.3%63.2%

FEW MANY


77.9%

4.7%

4.0%

5.5%

0.5%

3.4%



2

167,275

582

1,272

1,058

1,285

375LOW HIGH

85.4%

26.8%

26.9%

19.7%

6.6%

0.8%

42.8%

53.1%

LOW HIGH


4.14.4

5.23.93.1

4.23.7

LOW HIGH



2.0%2.3%

0.4%

3.7%

3.8%

9.4%

6.1%

LOW HIGH



26.8%

26.9%

19.7%

6.6%

0.8%

42.8%

53.1%

LOW HIGH


4.14.4

5.23.93.1

4.23.7

LOW HIGH



2.0%2.3%

0.4%

3.7%

3.8%

9.4%

6.1%

LOW HIGH



23

5282

91

5

99

131

HARD EASY

Ease of Doing BusinessWorld Bank Ranking (scale 1-190 worst)

5.5

3.8

5.3

3.34.6

3.0

LOW HIGH

University and Industry Collaboration


41

11

112121

151

171

180HARD EASY

Ease of Starting a BusinessWorld Bank Ranking (scale 1-190 worst)

20

23

5282

91

5

99

131

HARD EASY


5.5

3.8

5.3

3.34.6

3.0

LOW HIGH



41

11

112121

151

171

180HARD EASY


5.2

4.7 4.8

5.8

4.03.5

3.4

LOW HIGH


-0.4% 1.4%2.5%

1.0%

LOW HIGH


4.6%

2.5%

3.0%

7.7%

0.5%-2.0%

-9.8%LOW HIGH


2.4%

1.2%

3.7% 4.8%

LOW HIGH


78.9%

86.6%69.3%63.2%

FEW MANY


77.9%

4.7%

4.0%

5.5%

0.5%

3.4%



2

167,275

582

1,272

1,058

1,285

375LOW HIGH

85.4%

23

5282

91

5

99

131

HARD EASY


5.5

3.8

5.3

3.34.6

3.0

LOW HIGH



41

11

112121

151

171

180HARD EASY


• Ease of Doing Business. This variable is based on a World Bank rating that considers multiple facets including permitting, infrastructure, property laws, access to credit, taxes, import/export, contracts, and insolvency laws/process. The three countries selected to gain insight, South Korea, Malaysia, and Israel, all rank high on this score, whereas the Philippines is only ahead of Cambodia for the selected set.

• Ease of Starting a Business. This variable is also based on a World Bank rating (ranked order from 1 to 190) and is of importance in fostering entrepreneurs to have an impact on the economy. It is one of the facets that is included in the Ease of Doing Business rating (left). For this indicator, the Philippines and its ASEAN counterparts are all well away from more mature innovation economies like South Korea and Israel.

• Patent Activity. The protection of IP has been tied to innovation and economic prosperity. This analysis includes the total patent applications by residents, both domestic patents in national offices and global patents filed through the Patent Cooperation Treaty (PCT). The data represents patent filings in 2015 and are tracked by the World Intellectual Property Organization (WIPO). The Philippines is lacking in this regard.

21

CHAPTER 3 | Intellectual PropertyGlobally, R&D is typically protected by patents. Patents have been correlated with positive impact for countries, as a system of established private property rights has a direct correlation with economic growth.35 The Philippine Intellectual Property Office has been evolving and more active since 1998.

For this study, a series of patent searches was executed specifically related to electronics/semiconductors, automotive, or aerospace inventions.36 The first search identified approximately 1,000 records (patents and published patent applications) that have been issued in the Philippines since 2014. The dominant assignee was Philip Morris (105 records) with Canon a distant second (19). The same search was run for these industries in Singapore and Malaysia. Singapore had more than 17,000 records with Singapore's Agency for Science Technology and Technical Research (A*STAR) leading (231 records), followed by Novartis (211) and Philip Morris (168). The same search within Malaysia identified about 900 records. Similar to the Philippines, the same search in Malaysia showed limited patenting activity by volume in these industries. However, Malaysia’s dominant assignees resemble Singapore’s, where three of Malaysia’s top five dominant assignees were public-sector agencies: MIMOS Berhad37 (28 records); the University of Technology, Malaysia (18); and the University of Malaysia (18).

This simple exercise highlights that patent activity in the Philippines is not high. The limited activity may reflect the limited R&D in-country, the limited need to protect IP in the market, or a limited value of protection because of an emerging IP system, including the courts. Any of these reasons highlight the need for maturation and value related to patents as a foundation to a healthy innovation ecosystem. Interestingly, the comparison to Singapore and Malaysia brought forward government support of R&D and patenting in competing economies, which is lacking in the Philippines. Agencies of note included A*STAR, which is Singapore's “lead public-sector agency for economic-oriented research to advance scientific discovery and develop innovative technology.”38 In Malaysia, the public-sector organizations included MIMOS Berhad, and several universities. MIMOS Berhad is Malaysia’s national R&D center, operating under the Ministry of Science, Technology, and Innovation. MIMOS develops indigenous technology platforms for local industries and specifically licenses to Malaysian companies to build products for a globally competitive market. The University of Technology, Malaysia operates an Innovation and Commercialization Centre to facilitate commercializing its IP through industry partnerships, start-ups, and joint ventures to benefit the Malaysian economy. The University of Malaysia also licenses technology to industry to accelerate the scaling of their R&D outputs. These agencies use their R&D to bring industry to Malaysia.

35 Haber, S. (2016). Patents and the wealth of nations. George Mason Law Review. Available at: http://www.georgemasonlawreview.org/wp-content/uploads/Haber-FINAL.pdf

36 Search by RTI/STRIDE team using Thomson Innovation37 MIMOS Berhad is a research and development center in Kuala Lumpur, Malaysia under purview of the Malaysian Ministry of Science, Technology

and Innovation. The company was founded as the Malaysian Institute of Microelectronic Systems in 1985.38 A*STAR supports Singapore's key economic clusters by providing intellectual, human, and industrial capital to its partners in industry. It also

supports extramural research in the universities, hospitals, research centers, and with other local and international partners. More information available at: https://www.a-star.edu.sg22

WO (205)EP (196)

United States (584)Korea, Republic of (146)Mexico (37)Singapore (36)Canada (25)United Kingdom (19)China (19)Germany (6)India (2)Australia (2)France (2)Philippines (2)Malaysia (2)Russian Federation (1)Vietnam (1)Czech Republic (1)Argentina (1)

zFIGURE 9 Patent filing by Filippinos outside the Philippines is predominantly in the United States, Europe, and with the World IP Organization.

Another patent search was completed to ascertain the level of patenting outside of the Philippines by Filipinos and Philippine-based operations. Searching with Philippine addresses (companies and individuals) returned about 1,200 records globally since 2014 (Figure 9), a comparable level to filing within the Philippines. From this analysis it appears that patenting outside the Philippines is most frequently in the United States and with the WIPO. Lexmark led in a number of records (68 records) followed by Texas Instruments, E-innovations, ST Micro, Astec, SunPower, International Rectifier, Smart Hub, NCR, and Fairchild (from 36 to 23 records). This search did not capture MNCs that filed with an address outside the Philippines.49

Within an innovation ecosystem, knowledge typically moves in both formal and informal pathways.The informal typically occurs via relationships, and the flow of people in and out of organizations. Formal knowledge transfer is typically in the form of joint research agreements, licensing, or spinoff and start-up companies. The limited research environment, and nascent patent infrastructure, may indicate that formal knowledge transfer is lagging. The Philippines does have a long-standing entrepreneurial culture, and respects IP, which is being encouraged with more entrepreneurial education40 and programs.41

39 This search strategy is limited in accuracy, but gives some sense of Filipinos patenting outside the country, and at what volume. 40 See: http://www.up.edu.ph/up-designs-new-campus-as-technopreneurship-hub/ 41 Examples include “Technopreneurship” courses, an outcome of the recently concluded USAID Innovation Development for Entrepreneurship Acceleration

(IDEA) project, run by PhilDev www.phildev.org or Philippine Development Foundation.

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CHAPTER 4 | High-Tech Sector Innovation NeedsThe Philippine innovation ecosystem has strengths to build from, and weaknesses to address. Supporting the technology industry, as represented by the electronics, aerospace, and automotive segments, is critical for driving innovation. These sectors link to the Philippines' manufacturing base, which currently lags the growth of the services sector. The opportunity in each of these sectors should be considered. The electronics and electrical equipment industry dominates Philippine exports with $23.1 billion42 (2014), with machinery and mechanical appliances a distant second with $8.9 billion. Transportation, including automotive production, is one of the world’s largest manufacturing sectors with global trade of more than $1 trillion,43 and Asia is the fastest growing aerospace market with a significant rise in civilian aircraft projected.44 The automotive industry also inherently includes a domestic market that many countries have used to drive innovation. All of these industries offer excellent opportunities to drive the economy of the Philippines, with investment in elements that drive innovation.

To date, there have been significant efforts by associations and government agencies in the Philippines to create actionable roadmaps to help build a successful future. Key elements related to innovation and recommended actions that were considered prior to the innovation needs are summarized, by industry, in Figure 10.

As the manufacturing base today, these three industries may be the key to the Philippines' future economic realities. The potential for the Philippines and its manufacturing sector is routinely referenced,45 but the Philippines' innovation stakeholders, including companies, academia, and the government, need to prioritize and harmonize innovation support to be successful.

42 Duke Global Value Chain Center (Manufacturing) May 2016, p.7. http://vareo.co/cggcproject/philippines/ 43 Duke Global Value Chain Center (Automotive) May 2016, p.2. http://vareo.co/cggcproject/philippines/ 44 Asia's Aviation Sector Reaches New Heights, STRATFOR Analysis reported Sept. 22, 201645 Japan sees Philippines as the “most attractive investment destination” based on low production costs. As reported by Business World Online in March

2017: Manufacturing must do more to generate jobs. referencing the Joint Foreign Chambers.

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AEROSPACE46

• Build capacity via education and training. Support training programs and certifications for aerospace manufacturers and service providers to conform to the global aerospace standards, and bridge the gap between academia and industry via aerospace engineering curricula.

• Support the development of a local supply chain. Use collaborative endeavors between aerospace manufacturers to develop a supply chain of local producers. Optimize use of DOST facilities and expertise for metal processes and testing of manufactured products/parts.

• Expand markets by enticing Tier 1 and 2 to the Philippines. Focus on Tier 1 or Tier 2 suppliers of big aerospace companies (OEMs) for strategic products and services. Improve government incentives to foreign investors. Tier 1 suppliers sell finished products directly to the OEMs, and Tier 2 suppliers sell their components to the Tier 1 suppliers, who then make the products.

• Increase government investment in attracting local and foreign partners. Increase incentives and reform policies, as well as establish training facilities to elevate the skill levels of the labor force.

AUTOMOTIVE47

• Increase competitiveness with technical maturity of people and infrastructure by working to reduce power costs, increase efficiency in logistic services, and optimize policies related to free trade zones. Create auto R&D centers to develop product technology, while increasing human resource development.

• Incentivize with policy reforms and stability by aligning Philippine standards with other countries, such as labor incentives, customs, procedures, and systems, as well as technical, environmental, and safety standards.

• Provide business intelligence supported by monitoring key auto developments domestically and internationally, including market and technology trends. Create and manage an auto database that houses key indicators, policies, and regulations both locally and abroad.

ELECTRONICS AND SEMICONDUCTORS48

• Identify global market and technology trends, and strategically invest. Select strategic and specific products and technologies from the trends for the Philippines to focus on.

• Compare resources and operating environment competitiveness. Identify the necessary and desired resources, policies, supply chain, and operating environment that will elevate existing firms to attract new investors to the Philippines.

• Augment resources, policies, and supply chain to execute strategically.

Aerospace



zFIGURE 10 Existing industry roadmaps were leveraged to inform interviewees and augment understanding prior to, during, and after the primary research was completed. .

46 Aerospace Manufacturing, An Industry Roadmap, developed by the Aerospace Industries Association of the Philippines in 2013, is available at: www.aiaphilippines.org

47 The Industry Roadmap for Auto Parts, Rafaelita Aldaba in 2012.48 The Electronics Industry Roadmap, created in 2015 by the Semiconductor and Electronics Industries in the Philippines Foundation, Inc., is available at:

www.seipi.org.ph

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Innovation Needs Assessment Research ProcessAs with any good innovation initiative, creating a solution of value must start with understanding the associated needs. As such, in assessing the needs of the Philippines’ high-tech sector, significant primary research effort was used to facilitate discussions with the ultimate users of innovation. Ultimately, about 60 individuals from industry (including associations) were interviewed. The positive response to the request for input is an indicator of the interest in and commitment to the topic of innovation that stakeholders have. The information collected was obtained using a structured, yet informal, interview process. The interviews were not a formal survey. Rather, the process was designed to quickly obtain good qualitative information on potential needs, and to work through prioritization on potential solutions.

To understand the needs, the USAID/STRIDE team sought out key stakeholders who could articulate their views on the needs of their organizations and the country, innovation support solutions to date, momentum (or lack of ), and priorities. The interviews focused on the foundational pillars of an innovation ecosystem (Figure 4) as well as potential support options. The support options were presented as hypothetical services or support and were chosen from innovation best practices that might fit the Philippines' current situation. As has been said about innovation, “It’s not an idea problem; it’s a recognition problem.”49 Most of the hypothetically proposed solutions have been referenced in various Philippines industry roadmaps, or documents by other stakeholders, including the government. Novel support options are not necessary, but prioritization and strategic thinking in alignment with ecosystem needs are. Thus, each participant was asked to consider and rank as “high, medium, or low” the following potential innovation support options:

• Shared R&D infrastructure–offices, labs, equipment, and materials

• Shared R&D professionals–certified researchers to support/conduct research

• Business incubation infrastructure–offices, labs, equipment, and materials to support start-ups and entrepreneurs

• Business incubation professionals–commercialization professionals including legal (e.g., contracts and IP) and business (e.g., strategy, finance, marketing, and sales) expertise

• Shared manufacturing resources–equipment and professionals to support development and pilot-scale production, measurement, and testing

• Support in attracting foreign R&D partners–messaging/connections/policies to attract R&D capabilities and funding to the Philippines to create local knowledge

• Financial drivers–policies and incentives to help with investment and taxes

• Government R&D funding –competitive awards for R&D to companies in strategic areas

• Supply chain–enable SMEs to be collaborative, local suppliers for innovation, including materials, prototyping, testing, and other R&D resources

49 “Innovation Isn’t an Idea Problem (2013) Harvard Business Review

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In total, the USAID/STRIDE team conducted about 40 interview sessions with about 60 individuals representing varied perspectives across industries (electronics/semiconductors, aerospace, automotive) and organizational characteristics (size, ownership, and industry role). There was also a subset of individuals who represented software and data analysis, which is a cross-cutting technology and market area. Many of these interviews also addressed the needs of start-ups. Figure 11 represents the majority of organizations interviewed. A complete list of interviewees, and the perspectives they brought to the effort, is presented in Figure 14.

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Start-Ups Filipino-owned Larger Co.

Multi-nationalCorporations

Academia & Associations

zFIGURE 11 Stakeholders interviewed brought perspectives related to their industry and organization.

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Stakeholders’ Innovation Needs and PrioritizationThe stakeholders’ views on the various support options were captured and analyzed50 across key criteria. In general, many interviewees thought all, or the majority of the options, were of high importance. The interviewees were encouraged to show variability across the options to gain some prioritization, although in many cases they insisted on ranking the majority, if not all potential options, "high." As would follow the law of averages, the combined rankings of the full group had the least variation in prioritization of the various options.

The top four priorities for the full group of interviewees were (in rank order) the need to

attract more foreign partners to do R&D in the Philippines;

bolster the local supply chain, which currently imports production resources and exports goods;

enable shared R&D infrastructure, which is contingent on a direct link to the use of the infrastructure by both academia and industry; and

link to professionals to advise and support start-ups.

When considered by industry, the automotive perspective can not be analyzed alone, as it was a small set, and the variation among the interviewees was too disparate. The one priority that was agreed on by all of the automotive interviewees was the significant need to attract foreign R&D investment. The collective views for electronics, aerospace, and data analysis/software are illustrated in Figure 12. The priorities are fairly consistent in relative ranking of needs with aerospace having similar prioritization, although often a lower sense of need, except in the area of local SME support. The aerospace community saw this as critical, although difficult to attain because of certification complexities. Another support option that saw some variation is the perceived need for the government to fund R&D directly to companies. The aerospace interviewees ranked this much lower than did their electronics or software/data counterparts. This may be a result of the fact that aerospace players in the Philippines are farther removed from the product development cycle than their peers in electronics/semiconductor and software/data analytics companies. The electronics industry sees a lower need for shared manufacturing resources.

The prioritization was also considered by perspective in terms of company size and ownership; only Filipino-owned start-ups were interviewed, and these two sets were combined and compared to MNCs. There are a few MNCs that have Philippine ownership. As illustrated in Figure 13, the needs of the locally owned companies vary from those of the multinationals in that there is a greater sense of need with two real exceptions in needs: (1) financial drivers, and (2) local SMEs. The lower prioritization of needs for multinationals, especially the lower need for shared R&D and government R&D funding, makes sense as resources are more readily available to MNCs and their research is often conducted elsewhere. Also, MNCs likely have a greater need for secrecy to protect product development directions and IP, and thus may be less likely to have the government involved. There was disparity of understanding of what exists today for government R&D funding with many interviewees stating there is no government-funded R&D, and others discussing their efforts to gain access to it. According to one interviewee, “There is confusion because on the books there are programs and tax credits for R&D, but not sure how many get them. Either fix or clarify this confusion on government support to enable use and encourage R&D.”

50 The qualitative rankings were shifted to a quantitative rubric. Not all interviewees had rankings. Some had rankings that counted in more than one category, if their interview truly brought the perspective of both categories (e.g., start-up and data analytics, or association and a specific industry).

1

2

3

4

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zFIGURE 12 Industry-centric perspectives varied most on the need for government R&D funding related to their industry and organization.

Filipino-owned/Start-ups MNC

Shared R&D Infrastructure

Shared R&D Professionals

Business Incubation Infrastructure

Business Incubation Professionals

Shared Manufacturing Resources

Support in Attracting Foreign R&D Partners

Financial Drivers

Government R&D Funding

SME Supply Chain Support

Electronics/Semicond. Software/Data Analysis Aerospace

Low Medium High







Financial Drivers



Low Medium High

zFIGURE 13 Locally-owned companies feel the need for more support than larger multi-nationals operating in the Philippines.

Filipino-owned/Start-ups MNC







Financial Drivers



Electronics/Semicond. Software/Data Analysis Aerospace

Low Medium High







Financial Drivers



Low Medium High

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Aerospace Industries Association of the Philippines—Represents the Philippine aerospace industries as a single voice to champion its cause.

Ayala—Philippine conglomerate that has a portfolio of diverse business interests, including investments in retail, education, real estate, banking, telecommunications, electronics, IT, automotive, healthcare, and BPO.

B/E Aerospace—Designs and manufactures cabin products, fastener distribution, and logistics for commercial, business, and military jets.

Bootstrap Ventures—Manages, co-funds, and develops tech enterprises.

Continental—Develops and manufactures components, modules, and systems related to safety, comfort, and sustainability.

DOST—Governmental agency that is responsible for providing direction and coordination to country-related science and technology, including policies and programs to build national development.

DTI—Government agency that is the primary coordinative and regulatory arm of the Philippine Government with the country's trade, industry, and investment activities.

E-Motors (Zum)—Develops and produces electric vehicles to improve community through its core principles of environmental responsibility and job creation as a 100% Filipino-owned social enterprise.

EIAPI—Acts as a liaison between its members and the government, academia, and other industries.

EMS—Offers advanced and flexible electronics manufacturing solutions, with contract labor and training.

Fairchild—Design and manufacture performance semiconductor products to solve design challenges across a wide range of applications.

FAME—Manufactures air, sea, and land-based systems related to safety. These typically involve a transponder and gateway at a port, airport, or for urban setting.

Famous Secret Precision Machining—Manufactures components for aerospace, automotive, and industrial applications.

Federation of Automotive Industries of the Philippines—Promote road safety, motor sport and green mobility.

HGST Western Digital—Supports the data industry by enabling faster access to higher volumes of data, manufactures, prototypes, and tests technology for digital storage.

Hino Motors—Distributes trucks and buses of Hino Motors Manufacturing in Japan.

IBM—Provides hardware and IT-enabled services to domestic and global clients.

Integrated Micro-Electronic (IMI)—Provides electronics manufacturing services (EMS) and power semiconductor assembly and test services (SATS).

Infineon—Manufactuers, designs, and markets semiconductor and integrated devices.

Ionics—Manufactures printed circuit boards, phone communication boards, chip on board, and other electronic components.

Jamco Philippines—Manufactures commercial aircraft interior components and subassembly parts.

Kickstart Ventures—Provides investment, incubation, and acceleration for start-ups. It is a wholly owned subsidiary of Globe Telecom (which is owned by Ayala).

zFIGURE 14 Interviews were conducted with the following organizations; for many there were numerous individuals involved in discussions.

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Knowles—Designs and manufactures acoustic components for hearing aids, mount microphones, cell phones, and consumer electronic devices globally.

Launch Garage and Plug&Play—Offers a start-up accelerator program. Joint partnership between Kickstart Ventures and Proudcloud.

LEAR—Designs, engineers, and manufactures automotive seating systems and electrical systems.

Maxim—Manufactures analog and mixed-signal products and technologies to make systems smaller and smarter, with enhanced security and increased efficiency.

Microsoft—Distributes computers, computer peripheral equipment, and computer software.

Moog—Designs and produces precision motion control products/systems.

NASAT Labs—Offers analytical services, materials characterization, failure analysis, and technical training for the semiconductor and electronics industry, academia, and others.

National Competitiveness Council—Promotes national competitiveness strategies and pushes implementation of the Action Agenda of Competitiveness.

ON Semiconductor—Offers semiconductor-based solutions, incuding a portfolio of energy-efficient power management, analog, sensors, logic, timing, connectivity, SoC and custom devices.

RCG Global—Offers advisory, data, and analytics and business applications.

ROHM—Designs and manufactures integrated circuits (ICs), semiconductors, and other electronic components.

Semiconductor and Electronics Industries in the Philippines Foundation (SEIPI)—Aims to make the Philippines a globally competitive business environment for semiconductor and electronics technologies.

Shell Philippines Exploration BV—Downstream oil refining and marketing in the Philippines.

Sigmatech—Supplies high-tech laboratory equipment for QA/QC, metrology, R&D, failure, environmental and chemical analysis, and process control.

Smart Communications (SMART)—Leading wireless services provider with more than 5 million subscribers in the Philippines.

Thinking Machines—Consulting to help solve business problems using technology and data science.

University of the Philippines—Electrical and Electronics Engineering Institute, and Philippines Institute for Integrated Circuits (PIIC w/ DOST).

USAID—US Government Agency for International Development; responsible for administering civilian foreign aid. Since 1946, USAID has helped the Philippines and funded this innovation study.

Voyager—Manages the spin-offs from SMART Communications, Inc..

Xinyx—Offers design, consulting services, and training related to analog, digital, and mixed-signal IC design and verification on sub-micron process technology.

Z Lift—Enables analytics for organizations to run smarter.

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Stakeholders' Broader Perspectives on Innovation The interviews that were focused on innovation support needs also brought forward perspectives on root causes related to the Philippines’ innovation challenges. Discussions tended to reveal a combination of positivity and concern. It became clear that the Philippines has strengths from which to build, which may enable opportunities for driving and benefitting from innovation; however, there are also fundamental issues that threaten innovation-based progress. The Philippines has not been standing still in terms of innovation support efforts, yet the efforts do not seem to be well coordinated, and there are lessons to be learned from experience to date. The following key themes emerged:

• Education and training need stronger linkages between industry and academia, especially in the area of R&D. Many companies have started to address this gap themselves with investments in on-the-job training programs. Some of these programs include professors trying to enable knowledge transfer of current technology-related practices back into the classroom. Industry commonly states that graduates do not have the capabilities needed for research, and thus the company invests time and money in the first few years of employment. The companies that are known for building research skills struggle to hire or keep the individuals in whom they invest.

• Government policies and programs related to R&D exist but have limited coordination or uptake. Most organizations interviewed either were not aware of, were confused by, did not qualify for, or did not choose to participate in government-funded R&D programs. From their perspective, the programs are structured with restrictions (e.g., specific industries, organization ownership, repayment, and PEZA) and processes that make the path arduous, and the upside uncertain, so they choose not to invest the time and energy to pursue.

• Investment for technology is “not the norm” in the Philippines. Most investors are comfortable with real estate and traditional businesses. The experience and comfort with riskier investments is lacking. From the company side, many small companies are not motivated to grow, or do not have the capability to scale. Limitations include investment, tax implications, and experience.

• Existing R&D is often funded to move forward on incremental technology development pathways, or to enable academia-centric perspectives that are not driven by industry-centric problems. If the funding is to improve science and technology, it should be required at the global peer-reviewed level such that it offers value that can be exploited via license of resulting IP or know-how. More importantly, there should be more R&D that is focused on solving real-world problems, potentially with industry partners that can leverage the novel solution, or produce improvement for the benefit of the Philippine economy.

• Local supply chain is needed to support innovation with benefits that include decreased cycle time and cost, as well as shared problem solving. Companies at present have to often wait to import key prototype parts, or have to contract globally for prototype and pilot-scale development efforts.

In addition to these key themes, some very specific commentary was captured about innovation support needs across all industries, specific to each technology-sector industry, and also specific to the entrepreneurial perspective. Direct comments are shared because of the great value they provide. The input was consolidated to capture strengths, weaknesses, opportunities, and threats (SWOT) for further analysis as follows:

• All Industries—captures common themes applicable to the Philippines broadly

• Electronics and Semiconductors—specific to and about electrical manufacturing

• Aerospace—predominantly about manufacturing for airframes and interiors

• Transportation and Automotive—predominantly automotive manufacturing and e-vehicles

• Data Analytics and Software—including big data and articificial intelligence

• Start-ups—specific insights from and about start-ups.

All of the strengths, weaknesses, opportunities, and threats in these tables were captured directly from interviewees. As such, some may be inaccurate, controversial, or prejudicial. Regardless, they indicate a viewpoint that even if wrong, or inappropriate, may offer insight on perspectives that can be fixed, and in many cases real problems or opportunities to address.

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Strengths Weaknesses Opportunities Threats

English-speaking workforce with great customer service and creativity/artistry; workers are viewed as hard-working and creative, which can be used for problem solving and innovation

High-tech industry exists and can help drive economic growth beyond the agricultural sector

Graduate ~60,000 engineers annually, many are viewed favorably by other economies and thus go abroad to study and work

Some innovation resources and support exist in government agencies, companies, and universities

Positive public perception that the current president will drive change

Stakeholders are filling the education gap with companies supporting on-the-job training (OJT), and offering occupation-specific training

There is some ongoing R&D (although often held confidential for strategic reasons)

There are government regulations that can drive markets

Citizens accept technology (e.g., Uber, Airbnb) that historically would have been challenging (outside of existing relationships)

Culture is about who you know more than what you do; there must to be a drive to meritocracy

Workers do not question or drive to improve/solve situations because following orders well may be a strength in many cases.

Universities are underfunded with limited higher level education or resources for R&D; technology that “comes out is not a competitive or viable product”

Professional certification (boards) are antiquated and drive education that does not offer employment-related value; students are “educated to be employees not entrepreneurs”

Infrastructure including power, IT/communications, roads, airports, and ports are sub-stan-dard and limit businesses

Lack of government transpar-ency leads to inefficiency and costs associated with corruption; paper culture because limited trust, combined with poor and costly Internet, limits digitalization

Innovation needs of the tech industry do not align with the government programs—diffi-cult/valuable opportunities like “tech” get overlooked for lower value agricultural efforts

Government investment in equipment is underutilized; improve ability for industry to use, and academia to see real-world needs

Professors do not publish in global peer-reviewed journals

Contracts with government must be predictable and performance-focused; funding without corruption/favoritism

Create cross-industry innovation efforts that “break down silos” and work toward national-level needs to enable future products; leverage matching funding between companies, government, and academia (in-kind) to drive strategic development; govern-ment should not re-create what industry has, but enable linkages

Shift government focus from regulation to development; innovation policies to ensure top technology from foreign entities; link PEZA to vision and incentives

Strengthen linkages between academia and industry to drive better education and long-term industry success; enable OJT that includes rotations abroad that require a return

Create role to lead (or guide) companies through innovation options and resources to consolidate and drive collabora-tion; run it like a business; use “neutral party” to help build collaboration that is foundational

Innovation/entrepreneurship are “hot” globally, which can motivate; the government should consider a marketing campaign to create interest in innovation; social entrepreneurship can improve local lives

The BPO business model has been proven and can be leveraged for other service areas (e.g., IC design)

Build local supply chains and develop SMEs to stop cycle of import-export-import; data exist to document market potential and create supply

Improve the ease of doing business, including permits, registrations, and taxes; improve infrastructure (communications, power, transportation)

Eliminate agency redundan-cies and inefficiences

Brain drain takes away talent to competing economies (especially ASEAN); quality of life is better (e.g., no traffic), salaries are higher, and there is a greater trust in employees; BPOs pull STEM graduates from technical jobs

Other countries have strategic government alignment with associated innovation support, and better foreign investment packages

The internet of things (IoT) is quickly becoming “the norm” and is not a driver of innovation but a minimum requirement for participation

Traditional investments (real estate and traditional businesses) are safer and understood; investors and credit agencies have no understanding or experience with high-tech investing; there is not necessarily a lack of ideas, but there is a lack of “good” funding for innovation

Perception that companies working with academia are “taking advantage”

Natural disasters

Foreign-owned businesses are restricted from some sectors

The government does not value businesses as economic drivers; instead sees them as a revenue (tax) source; no “consistency in terms of government perspective on the value of technology and manufacturing”

Currently IP office staff can be hired to file patents. This could be a conflict of interest and undermine the developing IP system

All Industries




Aerospace Start-Ups

All SWOT input is taken directly from industry interviews.

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Largest national export at 50% (70% semiconductor assembly, 30% electronics manufacturing services [EMS]), which has created local experience and talent

Estimated 30% greater efficiency in manufacturing than Malaysia

Electronics community is connected/networked (although much is social around athletics/dances/associations)

Companies are trying to expose professors to current technology to improve the future workforce, and helping develop curriculum (e.g., IMI developed an optics capability with a 13-week course)

Companies have not all leveraged government incentives and some are initiating their own efforts and community-level efforts

Some companies are starting to do IC design on commission

The government has invested in some support for R&D, including FabLabs; funded R&D projects with industry, and associations, via corporate proposals; NOAH (flood monitor-ing) was successful; ADMATEL, 3D printers in universities (yet they are underutilized); signal there will be funding for hardware development

Failure and material analysis are improving (Lapu Lapu and Cebu)

Links to automotive, aerospace, and future IoT

Product mix is dominated by aging products, vs. tablets/mo-bile that use newer technology

Exports have been flat, there is “no momentum for electronics innovation ecosystem,” and pessimism is common

Education does not align to industry needs, especially limited numbers of graduate students (PhDs); need research and labs with equipment in schools and the ability for industry to collaborate and transfer knowledge; companies are filling the gap with training; design engineering takes 5 years of experience to have real value, and the pool is too small

No clarity on government’s awareness/interest relative to the electronics industry

Funded projects often lack the transition organization to translate the effort into a real product; historically, R&D has been at academia where publishing is the goal, not products, and it is hard to “get the research out of the university”; IP culture is lacking; need to drive collaboration vs. worrying about splitting an economic upside that may never come

MNCs are not pushed to bring R&D to Philippines

Government management of confidential information is difficult, which may limit participation by companies in innovation projects; MIRDC charges the same as private options so there is no incentive

Government R&D funding opportunities are not widely known; similarly, limited success with R&D tax holidays (belief is only one or two companies have gotten tax benefit)

Enable higher value products (semiconductor) and pick “winning” products (EMS); consider a “national product” for multiple sectors to drive a competitive advantage

Products for the Philippine market including smartphone, tablets; putting production closer to the customer and future innovation; manufacturing for IoT and automation products, including sensors, and big data servers/routers, and associated data

Localization of the supply chain could “add value”; support from the government to stand up local materials supply and pilot-scale wafer processing, and test; MNCs have the purchasing power to pressure suppliers; government can help bring in “the guys we sell to” (e.g., Foxconn, Celestica)

Create environments with champions to solve problems based on needs; collaborative efforts with government funding at universities

Push to shift research to products as a mindset in education; create an elective course on IC design and let industry “train the trainers”; curriculum needs to include Finite Element Analysis (FEA) for electronic packaging

Broaden awareness and ability to leverage the tax code for R&D

Incentives for manufacturing, but not government-run facilities; if government-run then at zero-profit with vouchers for industry use to avoid corruption

Other governments fund R&D with companies and also have “powerhouse university R&D systems” that easily link to industry and drive economic growth

Singapore has a solid innovation ecosystem with the link between government and academia aimed at strategically important areas; electronics industry gets “red carpet” from global governments (e.g., Singapore, Thailand); power in Thailand is subsidized

Philippines accepts inferior equipment, which results in companies “dumping depreciat-ed assets”

Research and design, and even prototyping, are typically done in country of the company's headquarters with only test in the Philippines, which limits exposure

Supply for competitors globally is immediate (United States via Amazon, China is all local), which gives them a speed advantage in development

Development requires using pilot-scale fabs abroad, which limits potential (typically in Taiwan)



Aerospace Start-UpsAll Industries



34


Reputation for quality and respecting IP (vs. China)

Aircraft maintenance has good reputation (e.g., Lufthansa, SIA Engineering) and air travel in Asia is the next big market

Trade association, airlines, and Maintenance, Repair, and Overhauls (MROs) are aligning on need to up aerospace manufacturing

Government support promoting and expanding networking for parts manufactur-ing, aircraft maintenance, and repair MRO and training

Certified machining now exists to the level of producing a full airplane

Good molding capabilities exist as a potential foundation for R&D

History of enabling designs to be manufactured

Tier 2 capabilities for direct export to OEM markets

Limited local supply hinders response to foreign request for proposals (timing)

Limited testing that meets required certification and standards (companies have some but more is needed for nondestructive evaluation/nondestructive testing for coatings, water testing, and flammability); limited precision machining and heat treating that meets aerospace certifications, and no forging or plastics industry

Cross-industry collaboration for R&D and supply chain; need to see each other as partners more than competitors; including the big three (B/E, Moog, Jamco)

There are common R&D needs, and a need for a local supply chain that includes metal finishing (e.g., anodizing), and nondestructive testing and evaluation; enable SMEs where the airports are

Need shared R&D (equipment) that is certified with government support (no profit) to build capabilities for production

Need to encourage sponsored R&D with Boeing or Airbus with government cost share (e.g., plastic injection molding, or thermoforming)

BPO model for outsourced services (e.g., line drawings) with support near manufacturing

Certification is required, which varies for different customers/mar-kets and is difficult to attain—this limits local supply chain

Capitalization is expensive; “build it and wait for the demand” is hard for businesses to do

IP will not allow for sharing some R&D resources (people are harder than equipment)

Other countries support their aviation industries, including global players like China

The Philippines Air Force buys from Korea (structure counter-trade that is not mangoes)


Automotive exports of $4B in 2014, which is 6.4% of Philippines goods exported (but only a tiny fraction of global market)

History with, and market for, e-vehicles

Government has supported automotive industry (e.g., MIRDC, CARS)

Lower salary as applied engineer whereas sales engineering pays well

Automotive education is about repair, not engineering

Local supply chain is lacking, including need for prototyping

Companies need to upgrade capabilities (e.g., radiators)

MIRDC “does not align to companies’ needs” and does not meet international auto standards (e.g., destruction levels); Concerns that CARS may not meet government expectations

Sustainability is needed in Philippines and globally, and thus there is multinational interest

Invest in transportation infrastructure; choose a Local Government Unit (LGU) to enable product proof of concept

Develop local capabilities from outside to “leave behind” knowledge (e.g., metal casting)

Support shared prototyping and manufacturing equipment, (especially for SMEs); shared services for prototyping, and testing of materials and products to destruction level

Lack of vertical integration (relative to competing countries); OEM in Philippines does not make sense (unlikely)

Companies follow their “national flag,” which impacts politics


Start-UpsAll Industries






Aerospace


Aerospace



35


Southeast Asia is the fastest growing region for big data

AI working groups (e.g., DOST)

The BPO industry association (IBPAP) is looking at artificial intelligence (AI), and Philippines has BPO structure that could align with big data

Universities have capabilities (e.g., the University of the Philippines has start-ups in this space, Ateneo has publications, and De La Salle has IP and publications)

Community has tried to align (e.g., Analytica, which lost momentum when lead left Philippines)

Data science is not a cultural norm for “achievement” like being a doctor/nurse or engineer; “You can’t eat algorithms” is counter to the sari sari low-risk venture, where “you can eat your inventory”

There is a lack of local data science capabilities (e.g., less than 1% of universities have data science degrees; there is also a lack of software capabilities with demand far out-stripping resources)

AI is exciting, but R&D in the Philippines might be premature because the data capture is still immature, and executives do not know the questions to ask and therefore can’t benefit from data analytics; “Demand is here but the businesses lack the maturity to use data analytics”

The government doesn’t specify hardware/software at the appropriate level

The national broadband plan is lacking; improved connection to the provinces is needed

Universities are too protective of their IP and “sit on it”

Examples of innovation success will fuel interest and activity related to innovation; companies can be made more aware of how data can be used to improve organizational effective-ness

Use data to understand markets and opportunities

Government support of long-term or less-obvious return on investment (ROI); select government project as foundation for “shared project” using non-sensitive data (e.g., R Users Group)

Consider cloud computing

Improve data analytics curriculum (with CHED) in alignment with roadmap that is being developed

Singapore has solid start-up support in this area; United States has coding schools that train workers in 10–16 weeks

Interesting digital initiatives get sent to the United States to incubate

Global big data companies are an easy answer (e.g., Accenture) and will be hard to compete with

Companies outsource this kind of work, sometimes as “skunk work”





Aerospace


36


The “human capital” is in Philippines, and is less expensive, but needs to be enabled

There are accelerators (IdeaSpace, Kickstarter, Launch Garage, Plug & Play); and also other shared spaces exist

Government supports incubation; government efforts to support start-ups; Slingshot was cited as a good initiative, although impact may have been limited by "insiders" already knowing each other, and some of the discussion going over the heads of "outsiders"

Cyber-security “hack challenges” have demonstrated that universities can rally engineers to solve real-world problems

There is an effort toward ramping up entrepreneurial education at the university level

Tax credits exist (inventors aren’t aware, and start-ups are not positioned for the red tape)

Culture of entrepreneurship is patriarchal and often low-risk (e.g., sari sari) with limited high-tech experience; when children inherit companies, it is hard to make changes because of family perspectives

Status quo is limiting; “If the house is not burning...then everything is OK”—same philosophy for margins, which limits innovation

Rules favor big players to get government contracts; fix the rule that a company has to have proof that it has done business at the level of 50% of the contract value to only situations with appropriate risk, as this limits start-ups in many cases

Professors are limited in their ability to patent and spin-out (limited monetary upside and heavy teaching loads); universi-ties in general need a better culture and education toward start-ups (young can take the risks); they need to learn to ask the right questions; innovation programs are located in science departments without a link to business school

The majority of local wealth sits in just a few companies for which disruptive innovation is hard; shell companies look like start-ups and the government doesn’t recognize or consider the situation

Kickstarter is the only one to go beyond A/B funding

Increase the number of start-ups that become SMEs; mentorship is needed to help “scale” businesses, including access to relationships; companies need to think about markets beyond the Philippine borders

Enable support beyond just how to legally start a business, including IP management, foreign company interactions, contracts, corporate investing, market insights, and scale-up for a high-tech venture

Create a streamlined reporting process to unburden adminis-trative requirements (monthly, quarterly, annual reporting to city and national) – “US is much easier”

Enable better access to capital through education of investors, and structure of investment mechanisms

Enable access to key technical and market information (e.g., global journals) and support in translating to opportunity analysis

Shared equipment, even simple things like computer numeric control machines (CNC) can help

Consider the electronic financial transactions market to compete with Western Union, which profits from expat Filipinos sending money home

Government could favor local start-ups over foreign companies

“I wish I was Singaporean” as a perspective of how hard a high-tech start-up is in Philippines because Singapore has cheap office space, and if 30% citizen-ownership the government will triple the investment (up to a max.)

Other countries have anchor “high-tech” or “big-tech” that motivate or create entrepreneurs (e.g., Google, Facebook)

Currently, ”entrepreneurs” make money with Internet content and get paid for hits, not high-tech entrepreneurship

Philippine venture capital funds go abroad (e.g., Silicon Valley, Singapore, Hong Kong)

Foreign start-ups do not come because of red tape and lack of infrastructure (easier to incorporate in the United States)

The political environment limits the ability to be a global magnet (e.g., Singapore or Chile)

Interest rates are high

U.S. start-ups deduct cost from their income taxes


All Industries


Aerospace Software, Data Analytics

Start-Ups


37

CHAPTER 5 | Strategic Areas for Innovation Investment The future of innovation is not just about what the government can do, but also about academia and industry driving forward both independently and collaboratively. The success will come if the innovation ecosystem can build relationships and cooperate. There is no one answer, nor will any one single program meet all needs; however, for national-level strategic growth from innovation, there are efforts the government should consider either bolstering or standing up. To begin, there must be a shared understanding via definitions, language, and framework for innovation. These include support options that were offered for prioritization in the interviews, including efforts to increase and attract R&D funding, empower entrepreneurship, accelerate product development with prototype and pilot-scale production, enable local testing, and create an innovation-friendly business environment.

Many innovation programs already exist, but their impact must be improved by enabling companies to navigate the ecosystem and by recognizing synergies and encouraging partnerships. Also, the Philippines can drive innovation in the short term by selecting a few strategic areas with meaningful local and global needs in which to invest. As illustrated in Figure 15, the strategic investment could align with and/or motivate multi-stakeholder investment in R&D, support local start-ups and SMES, and be a direct link to academia to enable higher level, research-based education, as well as real-world applications. Government support, as articulated by the stakeholders, would be valued if it could help attract foreign research partners, provide R&D incentives, reduce barriers for start-ups and SMEs, and enable strategic procurement for product testing and scale-up, and will provide funding.

Sustainability Next-GenerationBPO

Health & Medicine

Digitization & Big Data

Materials &Manufacturing

R&D Education and ExperienceBuilding the Human Capital

For Innovation and Entrepreneurship

R&D EnablerDriving the Research Agenda

With Investment and as a Customer

R&D PartnerImplementing Innovative Services and Products

With Investment and Commercialization

INNOVATION ECOSYSTEM

Public & Private

Academia IndustryGovernment

zFIGURE 15 Human capital in the Philippines can be enabled by government and industry with investment and commercialization in strategic areas.

38

There was a resounding message that the government should strive to enable a longer-term vision and commitment to strategic innovation. There was frequent commentary about the Philippines' 6-year political cycle and the propensity to undermine what has been done previously. Specifically, the government should select areas to build an innovation cluster that can help to drive a collaborative innovation effort, and highlight the benefits of coordination across government agencies, companies, and academia. Opinions on strategic areas put forward by interviewees, in the order of opinion:

• Sustainability including waste management infrastructure; power and energy including batteries, solar/renewable (e.g., wind); transportation including public infrastructure and traffic, electric vehicles/mobility including self-driving capabilities; and smart monitoring and management for agriculture and urbanization including smart buildings, as well as the general topic of water. Interviewees saw a need for stand-alone and scalable power to enable the poor to have minimum levels for education/hygiene without being taken advantage of.

• Next-Generation BPO whereby the proven business model of BPO can be applied to a new area of value, like outsourcing IC design specifically, or engineering services more broadly.

• Health/Medicine where the strength of the local market is leveraged based on needs and capabilities, including the geographic dispersion’s link to telemedicine, and also the broader topics of biotech, biomedical devices, and pharma including potential for natural drug discovery from endemic species.

• Digitization and Big Data, because there is a significant need in the Philippines, which is still a paper culture because of limited trust; this also fits well with the geographic distribution of the country, but infrastructure is needed. This also could include the IoT and data management, which is a big global ecosystem in which the Philippines can contribute via sensors, electronics, software, and network protocols. This also links to smart buildings. A quote that represents the majority opinion offers that, “IoT is a must, and now, not for strategic reasons as this is needed as a minimum capability to compete globally in the future.” It was commonly stated that artificial intelligence should not be a focus because even though it is a threat to BPO, it is not attainable at present for the Philippines. Cloud computing was also mentioned.

• Manufacturing, including future methods for process innovation that leverage the human element and link to robotics but do not diminish the value of the Philippines’ workers. It was stated the thrust should NOT be for semiconductor fabrication, as it is too late and power is too expensive.

• Materials including metals, plastics, and coatings; some felt the Philippines was too far behind already to compete in alternative chemistries today.

In discussing support options, and locations for infrastructure, the predominant perspective was that a single center was an acceptable starting point to build from to demonstrate success. It should be noted, however, that there was a strong view that eventually multiple locations would be best to provide stability by protecting capabilities from natural disasters. Also, disparate locations can act as magnets and drive greater impact geographically. There was also the common belief that virtual support would be appropriate, like for business accelerator support, given the geographic diversity of Philippine start-ups. The location of potential support should align with the strategic investment topic; however, since that has yet to be determined, the following captures thinking offered by the interviewees on support location by industry sector:

• Transportation and Automotive —Metro Manila, Calabarzon, Cebu, Davao, IloIlo

• Electrical and Semiconductor —Metro Manilla, Calabarzon, Cebu, Luzon

• Aerospace —Clark, Cebu

• Software and Data Analysis —Pampanga, Cebu

39

CHAPTER 6 | Best Practices Matching Philippines’ Innovation Needs

Considering all of the findings and perspectives captured and considered, there are numerous global case studies from which the Philippines can take elements. Interviewees mentioned countries and programs specifically, including in the Americas (Chile, United States), Asia (India, Japan, Korea, Malaysia, Singapore, Thailand, Vietnam), Europe (Germany, Portugal, Netherlands, United Kingdom), and the Middle East (Israel, United Arab Emirates). Although these all offer stories of success, or improvement, not all programs or policies fit the issues being considered in this research, or the realities associated with the Philippines. Focusing on the key needs articulated by the participants, this report considered best practices that address specifically

government support of R&D domestically and with foreign partners;

development of the local supply chain; and

strategic investment to bolster the complete innovation ecosystem, including shared R&D infrastructure with a direct linkage to the education system.

South Korea, Israel, and Malaysia were selected to profile based on having best practices and other national aspects of relevancy to the Philippines. Thus, the belief is that some of the philosophies and actions that have helped drive innovation for these countries are transferable to the Philippines.

Similar to the Philippines, these countries all value education. Also, South Korea, and Malaysia were former colonies, and Israel and South Korea have special relationships with the United States. Unlike the Philippines, South Korea and Israel both have hostile border(s) and mandatory military service, which is cited as a driver for innovation in terms of both need (e.g., military) and also development of young leaders who are comfortable with risk. Malaysia, as a fellow ASEAN country, shares traits that are related to geography. Each of these countries has done well in driving forward with foundational elements that leverage innovation for economic stability. For example, since the mid-2000s, Malaysia has undergone a concerted effort to invest in R&D spending and R&D personnel. As previously highlighted, from 2006 to 2014, its spending on R&D doubled and its density of researchers in R&D increased fivefold. This chapter offers example best practices to bring insight of value to the Philippines' innovation support efforts.

1

2

3

40

The Republic of South Korea (RSK) is a global target for high-tech R&D, and its domestically funded R&D is one of the largest globally. RSK’s R&D investment stood at only $526M or 0.81% of GDP in 1981, rose to $13.5B or 2.6% of GDP in 1996, and to $26.3B or 2.9% of GDP in 2005. During a period of 24 years, R&D investment increased almost 50 times.51 The R&D investment is believed to have enabled growth of new businesses. As illustrated in Figure 16, between 2006 and 2014, total new business starts in RSK grew from approximately 50,000 to 84,000, offering evidence of a healthy small business ecosystem. This growth followed an increase in GDP per capita following the 2008–2010 global financial crisis and recession. Additionally, the new business density increased from 1.5 to 2.3 new business registrations per 1,000 adults.

As has been done previously, the RSK government strategically supported a national supplier to improve the local supply chain. In this case, in 2016, the government approved $5.68B for a shipping industry competitiveness plan. Ultimately, the government procured container vessels from Hyundai, as well as contracted with a new vessel leasing company, which will subsidize chartered ships for RSK shippers. Hyundai’s52 supply chain is the key to their success. Hyundai suppliers are highly developed across the country (e.g., suppliers generate $45B per year for automotive industry).

The RSK government works with both small and large companies. For example, the Ministry of Knowledge Economy signed an agreement with Samsung and members of a group of SMEs launching a program for providing financial support for R&D projects.53 Samsung Electronics will raise $89.4M for funding SMEs' research projects. The founder of The Shared Growth Program recently ran for president to encourage cooperation in R&D between large companies and SMEs. He ran to end the corruption between government officials and large companies. An example innovation hub funded by the RSK government is J-Space, a Jeju Island-based co-working space, and start-up incubator.54

South Korea

51 See: https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/tax/deloitte-nl-tax-global-survey-r-and-d-incentives-2015.pdf 52 See: http://automotivelogistics.mz.gov.il/FinanceIsrael/Docs/En/publications/InvestorsBooklet.pdf53 According to the Korea Herald: http://www.koreaherald.com/view.php?ud=20110725000648 54 See: http://jejucoworking.com 55 Based on data from World Bank World Development Indicators

1988 1992 1996 2000 2004 2008 2012 2016

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zFIGURE 16 Growth in new business starts in South Korea may be evidence of a healthy small business ecosystem.55

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Israel is a global leader in start-ups, with a peak of over 3.5 new businesses registered per 1,000 adults in Israel in 2010. As of 2007 (see Figure 17), about 50% of the world’s top technology companies had acquired Israeli start-ups and/or opened R&D centers in Israel.56 In 1992, Israel created Yozma57 (Hebrew for initiative) by putting aside $100M to attract experienced international venture capital. Yozma provides matching investments to venture capitalists that team up with a local Israeli. The Israeli government has funded specific sectors to position Israel as a link in the global supply chain such as technology, medical devices, and R&D. If successful, the government will privatize their efforts.58 Foreign investors can get capital grants (up to 20% for fixed assets such as equipment/buildings for 5 years), employment grants (20%–30% of the salary cost for additional employees), and R&D grants (20%–50% of a company’s total eligible R&D).59

The Israel Innovation Authority aims to foster the development of industrial R&D within Israel. It established a program to encourage collaboration in industrial R&D between Israel and MNCs. Collaborative projects could be entitled to financial assistance of 50% of the Israeli company’s R&D approved costs.60

Microsoft, GE, Qualcomm, Tata, HNA Group, and the Israeli firm Pitango VS partnered with Tel Aviv University to invest in Israeli startups that develop technology for IoT.61 The $20M fund will be called IoT Innovations and will help three to five start-ups each year with up to $1M investment for each. The Tel Aviv municipality turned an old library into a shared working space for teams developing Internet start-ups and technology companies.62 The library provides networking events and professional infrastructure for entrepreneurs.

Israeli innovators pioneered SOSA , an innovation clubhouse that brings together early stage tech start-ups and influential industry participants, seeking to invest in the Israeli market.63 Corporate partners include Yahoo Japan, HP, and Jefferies Group.

56 Start-up Nation, The Story Of Israel’s Economic Miracle. Senor & Singer. 2009.57 See: http://yozma.asia 58 Managing Supply Chains on the Silk Road: Strategy, Performance, and Risk. Iyer & Seshadri. 2011.59 See: http://www.ey.com/gl/en/services/tax/international-tax/alert--israel-proposes-new-innovation-box-regime-to-attract-ip-investment 60 See: http://www.financeisrael.mof.gov.il/FinanceIsrael/Docs/En/publications/InvestorsBooklet.pdf 61 Tower.org staff. (2016, October 11). Microsoft, Tel Aviv University start $20 million fund to invest in Israeli Startups. The Tower (online). Retrieved

from: http://www.thetower.org/4138-microsoft-tel-aviv-university-start-20-million-fund-to-invest-in-israeli-startups/62 See: http://www.thelibrary.co.il/63 See: http://sosa.co/64 Based on data from World Bank World Development Indicators

Israel

2003 2005 2007 2009 2011 2013 2015

Philippines0.270

Korea, Rep.2.300

Malaysia2.370

Israel3.1103

2

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zFIGURE 17 All three of the countries offered as case studies have significantly greater new business densities than the Philippines, with Israel being a global leader.64

42

Between 1996 and 2015, Malaysia increased its investment in R&D fivefold, from an investment of approximately 0.2% of GDP to nearly 1.3%. At the same time, its GDP per capita increased to over $11K. The country’s commitment to innovation is notable in the jump in R&D investment from 2006 to 2009, in a period of global recession (see Figure 18).

Malaysia chose aerospace as a strategic direction, with the Malaysian Investment Development Authority’s (MIDA) Blueprint 203065 aiming to make Malaysia the leading aerospace nation in Southeast Asia. Currently, R&D aerospace is eligible for (1) income tax exemption of 70%–100% of statutory income for 5–10 years (Pioneer Status); or (2) investment tax allowance of 60%–100% on qualifying capital expenditures incurred within 5–10 years (investment tax allowance). MIDA is driving for aircraft production to reach 38K units, valued at $5.6T over the next 20 years.66 The aerospace sector is currently the single supplier of specific composites parts to Airbus and Boeing. Also, more than 50% of the composite wing parts for Airbus A320 and Boeing B737 are being supplied from Malaysia. International companies are utilizing local Malaysian suppliers for wing components, Safran Landing Systems for carbon brakes, and Honeywell Aerospace Avionic for avionic systems. MIDA’s investments have also accelerated the development of the local supply chain to benefit local companies like CTRM Aero-Composites and SME Aerospace.

The Malaysian government has worked to better collaborate in-country and also with foreign organizations, as represented by the following selected examples: (1) Agensi Inovasi Malaysia (AIM) is a statutory body created to jump-start wealth creation through knowledge, technology, and innovation. It aims to stimulate and develop one innovation ecosystem in Malaysia. (2) Malaysia Digital Economy Corporation (MDEC), a government-owned institution, aims to pursue a digital future for the country. In 2016, it partnered with Palo Alto Research Center (PARC) on a shared R&D program.67 (3) The Malaysia Institute for Supply Chain Innovation (MISI) is the fourth center in the MIT Global Supply Chain and Logistics Excellence (SCALE) Network. 68

65 See:http://www.mida.gov.my/home/3328/news/advancing-the-aerospace-manufacturing-sector-in-malaysia/ 66 See:Information available at: http://www.mida.gov.my/home/frequently-asked-questions-(faqs)/posts/ 67 See:http://innovation.my 68 See:http://scale.mit.edu/centers/malaysia-institute-supply-chain-innovation 69 Based on data from World Bank World Development Indicators

Malaysia

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zFIGURE 18 Malaysia's commitment to innovation is shown via R&D investment, even during global recession.69

43

CHAPTER 7 | Current Government Innovation Programs and Directions

The Philippine government is appropriately aware of the rapid change of technology globally, and the potential benefit that leveraging this change, including solving future needs via innovation, can have for economic growth in the Philippines. Government legislation to support policies and reforms is emerging, as are supporting programs. Key themes related to innovation that are being driven by the government include the following:

• Sustainable economic growth that leverages investments for long-term impact by improving capabilities and support to grow entrepreneurship and investment

• Inclusive innovation with capabilities and engagement across geographies, industries, and socio-economic boundaries

The government is working to implement innovation-related agendas for individuals (e.g., student, entrepreneur, employee), as well as within regional, national, and international contexts. Supporting efforts include the Philippines Development Plan 2017–2022, AmBisyon Natin 2040, and if passed, the Philippine Innovation Act (Senate Bill 1355). The commitment to inter-agency coordination for innovation was highlighted by the signing of a memorandum of agreement (MOA) between DTI and DOST at the Inclusive Innovation Conference (IIC). The MOA will strengthen the collaboration of these two key agencies by formalizing their plan to collectively develop a 5–10 year roadmap with vision, goals, targets, priorities, and strategies.70

To meet the goals of the Philippine government related to innovation, there will have to be a broad range of supporting policies and programs needed to improve education, entrepreneurship, research and development, technology transfer, product development, commercialization, and competitiveness across a diverse set of agencies. The agencies include: DTI, DOST, CHED, Technical Education and Skills Development Authority, Board of Investment, PEZA, as well as local government agencies where regulations and enforcement will impact business operations. These agencies, and others, will need to consider the innovation-centric challenges and how to enable their policies and programs to have the greatest impact with the least amount of duplication. Innovation must be embedded and integrated across the government and also within industry development strategies and plans. For the high-tech sector, the government should be working with the associations (e.g. SEIPI, EIAPI, etc.) as well as user groups (e.g. IBPAP,71 Data Science Philippines) to best understand the priority needs/gaps and collective efforts that can be driven forward.

Government officials are publicly committing to innovation support for education, entrepreneurship, and strengthening the innovation ecosystem, as illustrated at the 2017 IIC (quotes at right).

70 In reviewing the May version of this report, Asec. Rafelita Aldaba responded, “This, together with the STRIDE paper, serve as vital inputs in the crafting of the innovation roadmap. We very much appreciate all the support that USAID and STRIDE are providing to government and industry as we embark on this competitiveness and innovation journey.”

71 Information Technology and Business Process Association of the Philippines and other user groups could align around government-centric and government-sponsored needs, especially in the area of big data.

44

“An innovation ecosystem rests on three important pillars: the creation of ideas, the translation of ideas into solutions, and connecting the greatest players.”

Secretary Fortunato De La Peña, DOST

“Human capital is central to the process of innovation…it helps raise productivity, increases the economy’s ability to adopt new technologies, and serves as a driver of economic growth and social cohesion.”

Chairperson Patricia Licuanan, CHED

“Innovation is at the heart of entrepreneurship…the coordination and collaboration between and among stakeholders is crucial to sustain innovation.”

Secretary Ramon Lopez, DTI

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The Philippine Development Plan, Chapter 14, Vigorously Advancing Science, Technology, and Innovation, outlines government directions, some of which must consider other related efforts and are working to improve collaboration among government agencies in addressing constraints, maximizing use of scarce resources, and moving in one direction by adopting a unified roadmap. In addition to the Innovation MOA, DTI and DOST have also signed an MOA with the Department of Public Highways to prioritize building of road infrastructure leading to economic zones and industrial activities. The priorities are presented from the plan, with supporting information and caveats offered by the authors.

• Improve commercialization and utilization of technologies from publicly funded R&D.72 The Philippines' need to improve impact from public R&D funding relates directly to the chicken and egg dilemma, because real success with this effort will come when greater volume, and more impactful R&D is being done, and done well. DTI’s 2017 Investment Priority Plan (March 2017) reflects this with priority activities including R&D, innovation ecosystems and infrastructures, and commercialization of government-funded R&D. Thus, programs aimed at improving technology transfer are recognized as important, as is the R&D that enables it. The nascent technology transfer functions at the universities, supported with training by USAID/STRIDE, are working to position the universities for success when the invention pipeline starts to flow at a greater volume driven by numerous government programs. DOST offers programs73 like NICER, RDLead, and CRADLE, which are aimed at higher-education, whereas CRADLE and BIST are aimed at companies.74 CRADLE also offers funding for academia to do R&D for industry and product development with SMEs. Companies are required to contribute at least 20% in cash or in kind. The industry partner must provide a certification related to adoption.75 BIST supports acquisition of technology in the form of funding (70%) for equipment purchase, or acquisition of IP rights, including licensing. To qualify companies have to be 60% Filipino-owned and have been in business longer than 3 years.76

• Continue to strengthen intellectual property management by educating researchers and businesses on the value of protecting IP, enabling smart decisions on when to invest in filing (or not if trade secret protection is appropriate, or licensing is a better alternative). The Philippine Technology Transfer Act of 2009 is being institutionalized in directions including ownership and revenue sharing. WIPO is also working with the Philippines to help with education and system-level improvements. It is imperative that patenting be encouraged where it is economically appropriate, and not as “patenting for patents.” Protecting and maintaining patents is an expense that should be seen as strategic, and although the patent system needs to be strengthened, it is important that it is not done at the expense of the limited investment resources of entrepreneurs. DOST offers technical and funding assistance in securing IP protection of R&D projects generated/funded by Filipino public and private researchers, innovators, and technologists with its IPR Assistance Program.77

72 The government has recently been planning to implement elements of the US iCorps program to enable entrepreneurs to successfully take research of value to the market as start-ups. More information on ICorpsTM is available at: https://www.nsf.gov/news/special_reports/i-corps/

73 See: http://region5.dost.gov.ph/archives/171-dost-emboldens-programs-under-the-science-for-change-s4c-program 74 From the latest call for proposals, 50 CRADLE and 12 BIST proposals are under review and evaluation. 75 The government believes that since the companies formulated the research problem in CRADLE, it is expected that they will adopt the resulting

technology from the CRADLE R&D. This may not be the case, as not all companies have the full capacity for commercialization, and partnerships may be needed.

76 During our primary research we specifically asked about awareness and willingness to participate in these programs by industry. The overwhelming answer was that they either were not aware, or were not willing to risk government changes that could later imply some wrong-doing by having used government funding. Thus, the programs may have a greater challenge driving participation.

77 For more information: http://techtrans.gov.ph/how-we-serve/service-sample-6/ 46

• Create an investment environment with private sector participation. In terms of our innovation performance, one of the weaknesses of the Philippines in the investment environment area is starting a business. The government recognizes and is working to deepen government efforts to improve the regulatory framework, streamline regulations, and reduce bureaucracy. There is now a public-private sector task force to improve competitiveness through the National Competitiveness Council, where private sector initiatives in support of public policies are implemented.

• Support start-ups and SMEs with policy and regulatory environments including incubators, linkages to higher-ed, connections to available technologies, access to finance/credit, shared service facilities, access to IT infrastructure, consulting, and mentoring. The Start-Up Economic Development Program is being pursued to create a start-up economic zone to link to MNCs and markets. DTI is working to have this effort link to the passing of the Philippine Innovation Act, which seeks the creation of the NIC’s Innovation Fund, as well as the Start-Up Business Bill (Senate Bill 2217) to reduce duplication going forward. This direction may also benefit from the Balik Scientist Program78 and the drive to better leverage video-based communication79 with overseas Filipinos and other global experts.

• Support the Harmonized National R&D Agenda, which will focus on basic research, health, agriculture/aquatic/natural resources, industry/energy/technology, and disaster risk/climate change. The CHED Research and Innovation Grants-in-Aid program is an example of where the harmonized research agenda is defining focus areas for funding. Also visible in the request for proposals is the link to government goals including sustainable development.80

• Support innovation hubs and infrastructure, which should be done in line with the “tri-partite collaboration” goal by including university, industry, and government. With the emergence of new technologies like artificial intelligence, automation, IoT, big data, etc. the government is linking IT services with manufacturing by connecting design and production, for instance; at the same time the government is also linking manufacturing with agriculture to enable innovation. These innovation hubs and shared facilities, some of which already exist,81 are where the government needs to be intentional on how use is not only enabled, but encouraged. There are many issues with existing facilities that offer lessons learned for future facilities.

• Recognize manufacturing is a key driver for economic growth, and work to keep the Philippines a target for investment. The Arangkada82 policy note (March 2017) highlights key directions to support manufacturing job growth, including streamlining regulations and tax credits to let MNCs invest in new technology in the Philippines, bolstering the supply chain with support of MNCs, including product testing.

The momentum toward innovation by both individuals and agencies in the Philippines is notable. There is passion and progress, with the government working hard to support and drive the momentum. Government is looking to encourage industry to be better connected to academia and to take more risks with investment. Academia is working to realign curricula toward manufacturing, and universities are enabling relevant research. The intentions are good, and the execution is a work in progress. There are many excellent ideas and programs, and the next step is to think about how to increase and enable use by the kinds of organizations that can impact real change. The efforts towards innovation hubs appear to be headed in the right direction and help to think big in terms of big problems, risky solutions, and cross-discipline and multi-organization teams working to make real impact from innovation for the benefit of the Philippines.78 For more information: http://bsp.dost.gov.ph 79 The success of the National Broadband Program (approved March 2017) is critical to success in enabling virtual mentoring, including connection to

overseas Filipinos as expert advisors.80 See: http://ovcre.uplb.edu.ph/press/announcements/item/440-2017-call-for-proposals-cycle-01-under-the-ched-grants-in-aid-gia-program 81 For example: http://www.admatel.com/base/ 82 For more information: http://www.investphilippines.info/arangkada/ 47

CHAPTER 8 | Stakeholders’ Recommended Next Steps After completion of primary research with industry and academia, and follow-on discussions with government, a draft report was released in May 2017 at the Inclusive Innovation Conference. The draft was shared broadly with 300 hundred copies being distributed with the specific intent of soliciting reactions and feedback. The input received from various stakeholders was limited, but insightful. To augment this commentary, several workshops were held. One was facilitated by the authors to focus on the high-tech industry, to add first-step tactical recommendations to this final report. Other, regional workshops were hosted by DTI.

High-Tech Stakeholders Workshop The workshop intended to support this report was help in September 2017 and aimed to bring together targeted stakeholders as participants at an event titled, Industry Innovation Needs: Call to Action Workshop. Specifically, the workshop participants were asked to collectively consider the results of the Innovation Needs Assessment and work together in thinking about tactical steps related to future policies, programs, actions, and commitments. Workshop participants included high-tech industry, academia, and associations in approximately equal proportions.

The workshop was organized to begin by aligning the thinking of the participants in terms of objectives, and the four key needs identified during the assessment.

The first working session asked the participants to consider a vision of how “impactful R&D” might be enabled in the Philippines. Thus, participants were asked to consider “How might we build a successful future, driven by innovation?” Their thinking was prompted by reminding them of the four main needs from the assessment.

Prompting also reminded them to consider various perspectives and potential mechanisms, as follows:

Who By Leveraging or Improving

• Government • Places

• MNCs • People

• Filippino-owned companies • Capabilities

• Start-ups • Funding

• Academia • Networks

• Collaborative efforts • What else?

Specifically, the facilitator challenged the participants by asking “Who should do what?” and encouraging them to think about what their own organization could do, as well as what other organizations might do. This thinking was followed by the question “How might innovation be driven?” with prompts related to known innovation drivers like capable human resources, improved connectivity, and financial support.

The workshop organizers then took the ideas of the participants and clustered them, to highlight key themes. These key themes were then considered comparatively by participants, with voting on which were priorities for themselves as individuals, for their organizations, and also overall for the benefit of the Philippines.

Priority topics were selected based on the voting for working groups to consider and drive to tactics and actions. The participants self-selected which issue they wanted to help frame and think through, although in a few cases the groups were modified slightly to balance out industry, academia, and association participation. Results of the working groups are summarized in Figure 19.

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Regional Workshops Hosted By DTIBesides the workshop that was held September 2017 specifically for this report, DTI has also been running a series of regional workshops titled “Gearing Up the Regions for Industry 4.0.” These workshops are mainly intended to gather input and validation from government, academic, and industry stakeholders towards a planned “Inclusive Innovation and Entrepreneurship Roadmap” to be written in the first quarter of 2018.83 The key needs identified in this report were used as a framework for participants to provide specific requirements to spur innovation in the context of their own region and sector. With the workshops conducted as of this writing, there is a general validation of the pre-identified key needs, with only a few inputs falling outside these major themes. There are already numerous inputs gathered from these workshops that provide more details and proposed solutions beyond the needs heard in our primary and secondary research. Some commonly observed themes include:

• Innovation efforts are needed for a wide span of industries depending on the regions where workshops are held. Though Industry 4.0 and high-tech type sectors were the focus, many examples cited were of food and agribusiness.

• Policy and program needs are seemingly preferred to be driven by regional offices of government agencies along with local government units. This may indicate policy requirements and local difficulties that may not be addressed by national efforts.

• There is a strong demand for shared services facilities or innovation hubs for ICT-type activities, along with agricultural products predominant in the region.

• Human capital development needs for innovation are commonly expressed, with a seemingly systemic lack of training programs and facilities along with academic research in most sectors represented.

These regional workshops will continue to raise awareness about innovation needs and government programs and should ultimately provide varied perspectives from different industries and geographies. The insights can be used to develop holistic programs and policies that can still address the unique challenges and situations in the diverse Philippine economic landscape.

As would be expected in a tactical workshop, the ideas selected were either

• “low hanging fruit” as they are easier, can move quickly, and have almost immediate impact (better support for researchers in the form of administrative help, leverage existing statistics/organizations to drive investment in supply chain gaps), or

• “have momentum” because they are ongoing, or are building on existing efforts related to innovation (Open Innovation Hub, xGovernment Innovation).

Seeing these types of items selected is a good sign as stakeholders are being pushed to think about how they can be involved and accountable in a real way, not as a hypothetical exercise. The participants were reminded that people, not needs or philosophy, drive change.

“Never underestimate the power of a small group of committed people to change the world. In fact, it is the only thing that ever has.”

Margaret Mead

83 These workshops and the proposed roadmap contribute to the Inclusive Innovation Industrial Strategy (I3S) of DTI. Workshops have been held in Manila (August 15, 2017), Cagayan de Oro (October 11, 2017), Cebu (October 25, 2017), and planned for Davao (November 21, 2017).

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Improve R&D Capabilities and Impact at Universities

There is a need to improve the administrative support at universities so that researchers can be focused on research. One way to drive this is to enable research support as a career path. The role would include elements of research management including: adherence to government/sponsor requirements, rules, and regulations; financial management; procurement and sub-contracting. The ultimate goal is to increase the impact of research for innovation with the first step being to give researchers more time to do the technical work they excel at. A longer-term secondary goal would be to give professors a career path focused on research (vs. teaching) with appropriate flexibility and incentives. It is believed that this improvement will have cascading effects on use of resources, efficiency, and impact.Priority Stakeholders

• CHED

• DOST

• Public and private university associations, such as PASUC and PACU

• Senior university personnel with roles related to R&D (e.g., Vice Chancellor for R&D, Dean of R&D)

Proposed Champion

• CHED

Immediate Goal Short-term Goal First-year Goal

Plan for a whitepaper that demonstrates the need and frames the hypothesis of the potential solution. The paper would document the current state of research administration in the Philippines and contrast it to global best practices, which might include University of California Berkeley Electronic Research and Service Organization (ERSO) model. Post comparison, the identified gap could help to focus efforts on needs related to university resources, processes, and timelines that impact the execution of globally relevant research. This effort might build on work done at University of the Philippines Manila (UPM) with Philippine-California Advanced Research Institutes (PCARI) Information Session on Research Administration and Support Organizations (PIRASO).

Launch the research with a survey to generate real data. Universities with research funds would be targeted (i.e., ERDT, Accelerated Science and Technology Human Resource Development - the national science consortium).

Build a proposal for funds to strengthen research support based on documented gaps and areas for improvement and impact. Funding might be requested from CHED and/or DOST. This might also lead to developing a Professional Science Masters (PSM) to develop professionals capable of the role.

Operationalize Government Support for Local Innovation Supply ChainThere is a need to improve the local supply chain that supports innovation. The idea is to help operationalize government support by way of a combined public and private effort to understand gaps and then enable investment to fill them. Priority Stakeholders

• MSME Bureau (DTI)

• BOI – because supply chain gaps are magnets for investment

• PEZA – access to markets

• Companies – SMEs and MNCs

• Academia – to study the feasibility of materials and processes needed to fill gaps

Proposed Champion

• DTI

• DOST

• Associations

• Industry


• DTI and DOST form a technical working group (TWG).

• TWG connects with MNCs and trade associations to identify products and services needed to be sourced locally.

• Have identified and encouraged government and private resources to support gaps, including start-ups

• Consider incentives to help drive interest and success

• Consider government resource reorganization (technical and management)

• Leverage academia as think tank resource

50zFIGURE 19 Workshop participants considered various steps to take to drive innovation, and prioritized recommendations on the four needs, including goals to be completed immediately, soon, and within a year.

Accelerate Cross-Government Workings on InnovationThere is a need to confirm the shared vision (e.g., Dept. of Innovation) and define within government who does what to drive improvement, and to move toward coordinated initiatives and funding.Priority Stakeholders

• Government: DOST, DIG, NEDA, DBM, CHED and appropriate senators and congressmen

• Industry: SEIPI, EAPI, SPIK, EVAP, PCCI, AMCHAM, etc.

• Academia: UP, PASUC, private

• Start-up community: 2BO, VCs, co-working

Proposed Champion

• DTI


• Build team and begin discussion

• Refine and confirm the shared vision, which has been evolving

• Agree on strengths, priority needs, and metrics to drive change

• Have a funding agreement in place for top priority area (e.g., US SBIR program at the top level of needs)

• Create action plans for priorities with responsibilities allocated, including funding

• Start planning for priority area #2

84 Asec. Fita Aldaba highlighted for the group the efforts of the Citris and Banatao Institute.

Open Innovation Hub84

Create a center to enable collaboration around strategic needs that can be implemented as designs and products for future commercialization and mass production. The effort should be linked to a grand challenge of relevance to the Philippines and globally. Priority Stakeholders

• IT-BPM

• SEIPI

Proposed Champion

• DTI

• DOST


• MOU among champions and stakeholders

• Universities

• Prioritization of strategic areas for innovation (e.g., health, traffic, etc.)

• Define the legal entity that is the “hub”

• Solicit wider support for the center (e.g., private, government)

• Put out a call for solutions

• Identify associated infrastructure needs

At the time of writing this report, this initiative has already started, with increased collaboration between DTI and DOST.

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CHAPTER 9 | Conclusions This report builds on significant interactions with key stakeholders in the Philippines and brings forward for consideration foundational needs that must be addressed to improve innovation. These needs are best understood within the framework of an innovation ecosystem that illustrates the inter-relationships of education, research and development, policy, and investment with successful innovation and economic development (see Chapter 2). As would be expected, there are naturally some gaps in the Philippines regarding what is necessary for a robust and effective ecosystem. These gaps (see Chapter 4) include

Limited R&D investment, especially in industry-centric R&D with the potential to solve the Philippines’ and world’s toughest challenges

Missing resources and capabilities to enable R&D, including materials, testing, and skills within a local supply chain or shared facilities

Inadequate history with high-tech start-ups and investment, including limited professional support (market analysis, operations strategy, and finance), including mentors, for the next generation of business leaders

The insights and outcomes of this report are offered as background and pointers to drive preliminary and essential actions; however, in many areas the report touches on aspects just beyond the scope of the work executed for the original innovation assessment. These aspects emerge based on the authors’ extensive knowledge of innovation-led economic growth—and also of the Philippine innovation ecosystem. Most of the issues coalesce around the core of the ecosystem being education and human capital. Ultimately, there must be a recognition of these key elements as fundamental components of the emerging Philippines’ innovation road map. In order of priority, we recommend the following:

• Significantly boosting the number of researchers at universities with further decentralization/regionalization of innovation-related resources. There are pockets of good practice in innovation and research across the Philippines, but these are largely concentrated in or around Metro Manila. The Philippines is a dispersed nation, and thus it is appropriate to have excellence at a higher level that is distributed more broadly. To be effective, these researchers need to understand, and focus on, challenges of value to the Philippines and beyond (see Chapter 5), as well as be enabled and incentivized. The Philippine government will have to play a key role to ramp up research and the associated knowledge transfer and commercialization in an organized way. The Philippines current number of researchers per million people is significantly below the levels that global innovation economies leverage. The Philippines must rapidly increase research capacity and aim for a level beyond the UNESCO target for aspiring middle-income countries. Any delay in building research puts the Philippines farther behind and exacerbates the problem. The current efforts are good (see

1

2

3

52

Chapter 7), but must be more ambitious to accelerate to a rate that might enable long-term economic success.

• De-mystifying and incentivizing university-industry collaboration to unlock the intellectual capability in universities and link them to industry. This requires a significant change in the way university performance is assessed and in the way universities operate. Extensive programs are needed to build confidence and capability based on training and incentives for university faculty. Incentives should be aimed at fostering collaboration across technical disciplines within a given institution, across institutions, and with industry. Programs should be structured to enable early successes with industry to build relationships and experience so that industry will seek future interactions, including joint-sponsored research, and commercialization.

• De-regulation of universities to encourage more competition and drive innovation. This must include mechanisms for accessing university expertise and for managing university-industry collaboration, as well as investment in, and improved access to, shared facilities. De-regulation, accompanied by robust quality control processes, encourages innovation and competition, which then leads to improvement across the board.

These issues are broad, yet best practices exist that can be emulated (see Chapter 6); efforts are gaining momentum, yet can be amplified. To drive to more tactical thinking the authors worked with stakeholders in a workshop setting, to bring forward example steps to be taken. The results of the workshop (see Chapter 8), captured in Figure 19, are a snapshot of the preferences and opinions of the stakeholders, based on direction given by the original research informing the May 2017 draft report. The resulting suggested activities are indicative of what is seen as needed by the stakeholders and are truly just illustrative. As such, they should be revisited, revalidated, and broadened to greater depth of thinking, and additional topics. It is interesting to note that the outcomes of the final workshop point largely to university-centric solutions. This is, perhaps, not entirely surprising but it points towards the need for a cross-government solution to improve the contribution of the university sector to the innovation ecosystem. There will be additional, maybe even more appropriate, activities or more refined versions of those suggested that will strengthen the direction and momentum of innovation-related efforts. Such refined activities must be part of a larger spectrum of coordinated activity aimed at developing the innovation ecosystem so that it generates innovation-led economic growth (see Figure 20). These findings, recommendations, and first steps should be key elements in the already-planned road map envisaged by the DTI, supplying some, but not all, of the necessary milestones.

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Socia

l C

apital > Trust > Information Sharing

COLLABORATION

Knowledge Transfer

Licensing and Commercialization

Startups and

SpinoffsUniversity - Industry

Bas

ic

> A

pplied > Translational R&

D

Rese

arch and Knowledge Creation

Education and Human Capital

Sustainability

Next-GenerationBPO

Digitization & Big Data

Materials &Manufacturing

Health & Medicine

Philippine Government

Academia

PRODUCTS ADDRESSING GLOBAL CHALLENGES

ENABLING PEOPLE and INNOVATION with POLICIES



Aerospace


zFIGURE 20 Coordination of policies, curricula, research, and investment will strengthen the direction and momentum of innovation and resulting economic growth.

FUTURE PHILIPPINES’ TECHNOLOGY SECTOR INNOVATION ECOSYSTEM

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QUOTES FROM INTERVIEWS WITH INDUSTRY

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“Open innovation does exist in the supply chain (where relationships exist), but is not typically with academe.”

“Government, universities, and the private sector need a common definition, language, framework, and vision for innovation.”

“Experience in innovation-related deals flow is lacking. This flow could be generated at the universities, but leadership must commit to driving needs-based R&D. Companies need to learn how to take technology out of the universities too.”

For questions or feedback regarding the Innovation Needs Assessment research or report, please contact:

Molly O’Donovan Dix Director, Strategy and Innovation RTI International [email protected] Tel +1-603-672-9051 Mob +1-603-566-8578

Dr. David Hall Chief of Party USAID Science Technology Research and Innovation for Development (STRIDE) Program [email protected] Tel 02 843 0787 x101 Mob +63 (0) 998 972 4165

Mir Shariff C. Tillah Senior Education Advisor USAID/Philippines/Office of Education [email protected] Tel +632 301 6678