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1 Ahmed irfan January 2014

The state of innovation and entrepreneurship in Sri Lanka- A discussion note

1.0 Purpose

This document attempts to outline the state of innovation along with observations on innovation

centered entrepreneurship in Sri Lanka.

2.0 Background

Innovation is rapidly moving from the realm of the scientist trying to make an impossible idea a

reality, to one that has “emerged to be “the” buzz word amongst Corporates. It promises better

products, improved process, and overall corporate glory, and is now rapidly becoming a rallying

symbol for corporates and government worldwide. More than a decade ago, Economist Jeffrey

Sachs talked about a global ‘innovation divide’, where high-income countries outpaced developing

countries by a wide margin. Since then, some emerging economies have used product and process

innovation to outperform others in economic growth.

A look at the Global Innovation Index (GII) will reveal useful insights on Sri Lanka’s current state of

innovation. For the sake of this discussion, it will also be used to form a framework in which to

present key topics.

3.0 Sri Lanka and the Global Innovation Index (GII)

3.1 Key points on Sri Lanka’s performance in the GII 2013 (www.globalinnovationindex.org)

Sri Lanka was ranked at No 98 among 142 countries, while its rank in 2012 was 94.

In the first ever GII (2007/8), Sri Lanka was placed 71st among 107 nations. Subsequent

positions had been 58th among 130 (the best positioning so far), 79th among 132, 82nd

among 125t and 94th among 144.

Sri Lanka’s research and development (R&D) expenditure as a percentage of GDP is even

below that of a low-income country’s average expenditure of the same. The Sri Lankan

gross expenditure on R&D is 0.1% of GDP.

In GII 2013’s human capital and research cluster, Sri Lanka’s overall rank was 110 out of 142

countries. We are held down by the low current expenditure on education as a percentage

of gross national income, and low public expenditure per pupil (% GDP/cap).

Nevertheless the country has been recognized for being among the “top 3 performers” in

the Central and Southern Asia region.

The country leading this region is India, which is placed 66th in the GII ranking. The second

placed is Kazakhstan, which is in the 84th place. The rest of the countries are Tajikistan,

Islamic Republic of Iran, Kyrgyzstan, Nepal, Bangladesh, Uzbekistan and Pakistan.

Sri Lanka has scored relatively well in GII 2013’s Innovation Output Sub-Index (score of 30.3

and ranked 76) while we have a lower rank in the Innovation Input Sub-Index (score of 30.6

and ranked 118).

GII 2013’s Innovation Efficiency Ratio, ranks Sri Lanka 13 among 142 countries.

On the whole, Sri Lanka has scored better in GII 2013’s clusters on infrastructure,

knowledge and technology outputs; as well as in creative outputs. But these strengths are

undermined by weak fundamentals – such as business sophistication, human capital and

research, and institutions.

GII 2013 has also highlighted Sri Lanka’s relatively impressive performance in a few

indicators. These include: ICT and business model creation; ICT and organizational model

creation; knowledge diffusion and communication, computer and information services

exports.

The recent positioning of Sri Lanka in the World Economic Forum’s Global Network

Readiness Index is important and ICT in Sri Lanka is visible. In the 2013 listing, Sri Lanka is

placed 69th among 144 nations, and is just behind India.

3.2 Insights and observations from Sri Lanka’s performance in the GII

The country’s inherent capability for sustainable economic growth is in question. Science

and technology is not at the forefront as reflected in the low percentage of GDP spend in

Research and Design(R&D).The reality however is

that innovation is not about science and technology

alone. It is driven by advancements in science and

technology but must also adopt a broader

definition. The GRI specifies this definition as per

the Oslo Manual.

Lack of partnership amongst the public sector and

private sector signals the lack of a collaborative

culture within the local economy. Even within the

private sector, it would be the service-based

industries which have adopted innovation the most.

At present very few knowledge intensive companies exist and very little R&D is required

for the innovation that is taking place in the private sector. On the other hand, most of the

R&D undertaken by Sri Lankan scientists end up as mere publications in scientific journals

with very few research outputs yielding commercial value. The most prominent one is the

Sri Lanka Nanotechnology Center (SLINTEC). In its first full year of operations alone, SLINTEC

was able to secure five international patents on nanotechnology products which have not

progressed beyond this step.

The non-existence of a ‘data discipline’ in the economy hampers not just the rankings on

the GRI, but also hampers the availability of published information and statistics which

entrepreneurs can convert to knowledge in the formulation of their ideas.

An innovation is the implementation of a new or

significantly improved product (good or service), a new process, a new marketing method, or a new

organizational method in business practices, workplace

organization, or external relations.

Sri Lanka’s regional positioning is favourable. It would do well to hitch the proverbial wagon

to India and Kazakhstan and explore a collaborative innovation agenda. This makes even

more sense given the similarities of economic structure and value chain in these markets.

A further point would be to explore collaborations within the entire region within specific

economic segments. This point will be discussed further later on in this note.

A relatively good placement in GII 2013’s Innovation Efficiency Ratio (rank 13 /144) suggests

we are getting more out of less. A national innovation funnel if it exists at all seems to be

able to convert a larger portion of ideas into an output. This efficiency needs to be analyzed

for optimization. The short supply of ‘innovation ideas’ must be addressed.

As per the above observations, Sri Lanka’s current status on innovation could be illustrated

as depicted below.

4.0 Recent developments in innovation- centric enterprenuership

There has been a sudden surge in entrepreneurship that either,

Builds technology

Uses technology better

An audit conducted on Facebook in 2013, reveals over 3,000 part-time entrepreneurs running a

profitable business off Facebook. Larger technology companies are now looking to offer platforms

to these part-time entrepreneurs. An example for this initiative is ‘Get Your Business Online’ run by

Google.

The video inserted below illustrates efforts taken by the largest Sri Lankan e-commerce company

to capitalize on this trend. (CTRL +Click to watch)

.

Technology start-ups are on the rise and some of them are taking to the world stage. The table

below lists ten technology start-ups within the last two years that have now achieved significant

national or global recognition. The links are clickable and will provide you with more information

on each company.

Business Business Focus Impact

Leapset

Leapset.com

Retail point of sale Global

WSO2

Wso2.com

Enterprise middleware Global

Microimage

Microimage.com

Mobile apps and enterprise

solutions

Global

Anything.lk Online retailing National

Yamu.lk Online Foodie site National

Ikman.lk Online Classifieds National

Dawn patrol games

Dawnpatrolgames.com

Gaming and game

development

Global

Trekurious

Trekurious.com

Online Daily Deals National

Incubate Labs

Nawatan.com

Innovation lab

Online accommodation

booking

Global

Sohan Dharmaraja

sundaytimes.lk/121209/plus/coming-

back-home-with-two-wonder-apps-

at-his-fingertips-23473.html

Touch sensitive app for the

blind

Global

5.0 Emerging environment for innovation and entrepreneurship

An enabling environment for entrepreneurship and innovation is a critical national mandate, one

that has now been recognized within certain sections of private and government enterprise. Efforts

are being made to streamline innovation inputs, and expertise is being sought within and outside

the country.

A quick review of progress made to date is presented below using the GII framework.

5.1 Innovaton input

Innovation

Input

Progress to date Potential further

action

Institutions A Coordinating Secretariat for Science, Technology

and Innovation (COSTI) has now been formed and

a blueprint for a Sri Lanka Innovation Index

(SLINDEX) is being drawn up.

http://costisl.wordpress.com/tag/sri-lanka/

The Sri Lanka Nano Technology Institute (SLINTEC),

a government /private sector partnership will now

begin extending its capabilities beyond nano

technology to champion innovation within key

economic segments in the country.

The government is offering a 300% tax write-off

against investment in innovation. This focuses

particularly on export oriented industries.

A national

innovation and

entrepreneurship

audit to gauge

and document

the length and

breadth of

national capacity

for innovation.

Visit slic.gov.lk/

Business registration, legal and all associated red

tape have been eliminated. Government services

for enterpreuners is now online and within reach.

Sri Lanka hosted its first National Innovation

Summit in September 2013, largely with the

participation of the private sector. Plans are

underway to use this forum to collaborate with the

government and other regional markets.

The protection of

IP is a largely

unmet need

amongst

entrepreneurs in

SL.

Human

Capital and

Research

The National Education System began gearing itself

by declaring 2009 the year for ICT and English. This

focus continues today.

The results are visible in the standard of final year

projects that are now coming out of public and

private universities. A significant number of ideas

are moving into incubation programs.

The following institutes are now opening

themselves to external R&D projects

o SLINTEC

o The Arthur C Clarke Institute

o University of Moratuwa

o University of Peradeniya

Can Sri Lanka

develop a skill

matrix that is

innovation-

centric and start

re-designing its

primary and

tertiary

curriculum

towards this

matrix?

Can a detailed

research and

knowledge-share

network be built

linking every

area and type of

research? For

example, a

The diaspora engaged in tech R&D are also starting

to open up research and prototyping options from

top global innovation labs.

Chamath Palihapitiya.

http://en.wikipedia.org/wiki/Chamath_Palihapitiya

Punsri Abeywickrama

http://www.linkedin.com/in/punsri

National

Research Grid

that links the Tea

Research

Institute to

SLINTEC which is

in turn linked to

Forestry and

Ayurveda

research.

Infrastructure 100% mobile penetration, 47% internet

penetration, development of communication as

well as parallel platforms such as mobile payments,

mobile commerce , mobile health are all signs of an

economy with progressive infrastructure for

innovation and entrepreneurship.

Market

sophistication The cost of borrowing is unbearable for a start-up.

The options to finance a venture or fund an

innovation are still at a nascent stage

There has been a recent development in venture

capital and angel investing.

Business

sophistication The lack of a measurement discipline in most

organizations results in the lack of knowledge being

distributed. Most organizations are just sitting on

big data without the ability to convert it to

knowledge.

An example could be found in any of the 27 banks

in operation in Sri Lanka. Not one of them has a

data scientist (knowledge worker) that can dissect

and interpret data.

A significant

portion of the

market includes

multinationals

who could act as

a conduit to

disperse

innovation within

global markets

and Sri Lanka.

5.2 Innovation output

Innovation

output

Current developments Potential future

action

Knowledge and

technology

output

Probably where we are strongest. Link local

knowledge

management to

regional and

expert think tanks

to drive further

diffusion of

knowledge.

Creative output

Over 200 internet businesses have now gone live

since June 2012.

The networks are collaborating with consumers to

create new online and on-net business ideas. They

are even opening APIs which could be viewed as a

significant vote of confidence in entrepreneurship.

Visit ideamart.lk

MIT is now in the third year of its global startup

labs program and will now run a 7-month long

start-up lab every year for the next five years. The

goal is to reach 1,000 start-ups by 2021.

http://www.brandix.com/news/brandix_mit_global_star

tup_labs.php

The Lanka Angel Network has now been set up as

Sri Lanka’s premier venture capital/angel

investment option for start-ups.

.

5.4 Current actors in the innovation and entrepreneurship eco system

The table below lists a macro view of the type of “actors” currently in the eco-system. An exhaustive

list can be developed as a follow up.

6.0 Initial ideas on way forward

The momentum is gathering and it is vital that all actors in the eco-system start opening up to each

other and not run a ‘closeted innovation program’. Collaboration will add impetus and efficiency

and must be part of the agenda. Listed below are thoughts on how innovation and

entrepreneurship could be further enhanced.

6.1 Conduct a national innovation audit

Identify in every nook and corner any potential innovation and entrepreunership activity to create

a national innovation and entrepreneurship register. This register will over time record the national

capacity for innovation which will also highlight gaps that need to be fixed as well as the potential

for collaboration by the actors in the innovation eco-system.

6.2 Build a national research grid

Bring an ‘R&D on demand’ feature to the economy and all actors by linking and instilling knowledge

share among every type of research and academic function in the country. The conversion of

knowledge to entrepreneurship and innovation will be that much more potent within the endless

combinations that may exist.

6.3 Drive a national economic agenda for innovation and entrepreneurship

Can innovation improve the value chain for domestic consumption? Below would be the top focus

areas. This would be ideal proving ground for driving export value through innovation and

entrepreneurship.

6.4 Eliminate tolerance for incremental improvement in the private sector

Most private sector companies need to start seeking their fortunes beyond investing in incremental

improvements which is often touted as innovation. Business today must think about moving on to

disruption and possibly a blue ocean. The future will most probably belong to innovation rich and

not cash rich companies and the change must happen now. The image below illustrates a proposed

approach.

IP credit: analogypartners.com

Incremental improvement will continue to occur since businesses persist in placing importance on

the ‘atoms’ or physical state of its product or service. More focus on technology and business

model innovation is needed to create disruption and capture a blue ocean.

Business Model innovation = much higher ROI

Atoms innovation alone

= less value

IT

Web

7.0. Conclusion

It is hoped that this note will incite a larger discussion on innovation and entrepreneurship.

The observations and corresponding suggestions are not meant to be conclusive but more

to trigger further thought, and to initiate early action. To start somewhere would be more

important.

The basis for innovation and entrepreneurship exists. It is largely dependent on the

collaboration within the government and private sector.