Comprehensive Innovation

System for Mexico

July 2010

Contents

1. Motivation

2. The Case of Mexico

a) Comprehensive Innovation System

Development

b) Specific results

3. Final remarks

Innovation as a growth engine

Source: OECD

Contribution of innovation: Intangible capital + Multi-factorial productivity

Physical capital

Labor

Contribution of Innovation to GDP Growth (percentage of contributions 1995-2006)

At the international level, a positive link has been observed between innovation and economic growth. In more developed countries, innovation accounts for between two thirds and three quarters of the GDP growth rates observed between 1995 and 2006.

Spain Italy

Germ

any

Fran

ceDe

nmar

k

Aust

riaGre

ece

Finl

and

Unite

d Ki

ngdo

m

U.S.

Swed

enCz

ech

Repu

blic

Ecosystem for Innovation

Ensuring a suitable environment for innovation is complex, since:a) It requires the participation of various actors, which easily leads to problems of

coordination.b) The presence of externalities often creates under-investment in socially profitable

areas.

4

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Successful cases

5

In order to solve coordination problems, successful countries have developed comprehensive strategies to encourage innovation.

CountryComprehensive

Innovation Strategy Development

Economic growth in previous five years*

Economic growth in subsequent five

years*Finland Mid-90’s 1990-1994: -1.2% 1995-1999: 4.5%

Ireland 1997 1992-1996: 5.9% 1997-2001: 9.2%

Singapore Mid-80’s 1981-1985: 6.5% 1986-1990: 8.5%

United States Early 80’s 1978-1982: 1.8% 1983-1987: 4.5%

Source: SE calculations using data from OECD, the World Bank and innovation policy websites in various countries * Average real annual GDP growth in PPP (purchasing power parity)

Contents

1. Motivation

2. The Case of Mexico

a) Comprehensive Innovation System

Development

b) Specific results

3. Final remarks

Development of Comprehensive Innovation System

The Comprehensive Innovation System for Mexico is characterized by:

1. Being a priority for Federal Public Administration2. Focusing efforts on areas with greatest impact3. Establishing coordination mechanisms between the various agents involved

4. Establishing accountability mechanisms including clear, quantifiable goals

7

The strategy adopted has made it possible to strengthen the various features

of the innovation ecosystem.

8

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Development of Comprehensive Innovation System

Regulatory framework

The Law of Science and Technology was reformed in 2009, establishing the basis for

a normative institutional framework that encourages innovation. Among other

elements, this reform establishes:

Innovation as the guiding principle

The creation of an Inter-Sectoral Committee for Innovation

A legal framework for the Creation of Liaison and Knowledge Transfer Units

An incentive for researchers to be able to benefit from intellectual property

royalties

The strategy adopted has made it possible to strengthen the various features

of the innovation ecosystem.

10

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Development of Comprehensive Innovation System

11Source: IMPI

Knowledge creationThe private sector's participation in the financing of research and development activities has increased in recent years. This, together with the availability of top-rate universities and research centers, has led to a significant increase in patent requests by Mexicans in Mexico.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

200300400500600700800900

Patent applications submitted by Mexicans in Mexico

Sources: OECD and CONACYT

The strategy adopted has made it possible to strengthen the various features

of the innovation ecosystem.

12

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Comprehensive Innovation System Development

13

Human resources

* For the United States, only graduates who are citizens and permanent residents are considered.Source: UNESCO, Institute for Statistics.

The availability of qualified human capital has increased, strengthening our

innovative capacity.19

93

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.388364986188362

0.4531354517925330.4655644050299220.503540929705896

0.5814044973039340.5748439491878340.5687232552061760.6156132730424810.638874532715417

0.608094008429761

0.30 0.29 0.27

0.25 0.24 0.23 0.22

0.20 0.20 0.21

0.23 0.23 0.23 0.23 0.22 0.22

Engineering graduates for every thousand inhabitants México EUA *

The strategy adopted has made it possible to strengthen the various features

of the innovation ecosystem.

14

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Comprehensive Innovation System Development

Demand for Ideas and Solutions

A focalization strategy has been developed to increase the demand for ideas and solutions in areas and sectors with the greatest potential impact, taking advantage of:

15

National challenges and needs

Strengths with the potential to compete or be a leader

I.

II.

Environmental Energy Health Fighting poverty Security

Automotive Aerospace Information technologies …

R&D activities Vaccinations Biotechnology Electronic circuits

…

Source: Análisis BCG

Com

petit

iven

ess

in M

exic

o vs

. ot

her c

ount

ries

Potential Impact for Mexico

Prioritization by competitiveness and potential impact for Mexico

Sectors with high

competitiveness

and high potential impact

Mining

Food industry

Manufacture of machinery and equipment

Manufacture of transport equipment

Business support service Health

services

Tourism

Manufacture of electric and electronic

equipment

Focalization criteria: sectors with high competitiveness and high potential impact for Mexico

1. Evaluation of each sector on the basis of meeting the four goals of developing professionals and entrepreneurs, with equal weight for each objective. 2. Economies of scope. Services with a higher added value which are also complementary to industries with high potential and competitiveness (machinery, automotive, electric equipment, etc.).

Source: Análisis BCG

0 20 40 60 80 1000

20

40

60

80

100

Music, cinema, radio and TV (digital contents)

Engineering and design services

Physical media and software

R&D services

Chem. resins and rubberBasic chemicals

Chem. pharmaceuticals

Messenger serv.

Manuf. clay products

Manuf. glass products

Bev. and tobacco ind.

Manuf. cement prod.

Manuf. metal prod.

Basic metal ind.

{Autotransport

Passenger transp.

Electr. inf. proc.

Manuf. furniture

Livestock raising

Sector with high competitiveness rating and clear regional approach

Agriculture (vegetables, fruit and flowers)

Creation of economies of scope² C

ompe

titiv

enes

s in

Mex

ico

vs.

othe

r cou

ntrie

s

Development Objectives¹

Focalization criteria: key sectors for development of professionals and entrepreneurs

The following sectors have been identified as strategic for the country:

Focalization criteria:

Environmental

Sustainabilit

y(Clean

Technologies)

Sectors with High Competitiveness and Impact(Attract Investment and Develop Industry)

Development of Domestic Market(Continue promoting healthy development)

Development of Professionals and Entrepreneurs (Promotion to encourage creation of new firms)

1. Manufacture of transport equipment2. Manufacture of machinery and equipment3. Manufacture of electric and electronic equipment4. Mining (excluding petroleum and gas)5. Business support services6. Food industry7. Health 8. Tourism

1. Commerce2. Housing3. Financial services

1. Vegetable, fruit and flowers agriculture2. Physical media and software3. R&D services4. Architecture, engineering and design services (R&D)5. Music, cinema, radio and television

Development Platforms(Ensure development of platforms through proper regulation, greater competition and

investment)

1. Infrastructure 2. Telecommunications 3. Education services

19

Manufacture of transport equipment-automotive industry

• The Mexican auto industry has advanced in the value chain, particularly in

innovation and its focus on areas of greater added value such as design.

• Some of the plants located in Mexico are world references:

Ford in Hermosillo, which produces hybrid automobiles

Chrysler in Saltillo, which produces the world-renowned HEMI engine

Nissan in Aguascalientes, which, for the past year, has implemented the

Nissan Green Program, designed to recycle 100% of the waste materials

produced during the manufacturing process. This is the first plant outside

Japan to comply with the program.

20

• Finished goods manufacturers in the auto industry that confirm the trend of this

sector towards activities with greater added value include:

The Chrysler Advanced Engineering and Design Center which carries out

research projects and engineering tests, studies on environmentally friendly raw

materials and emission reductions.

The Nissan Center for Modeling Automobile Design Prototypes in Mexicali,

which began operating in January 2010 and performs world design operations

using computer assisted stations.

The General Motors Regional Engineering Center, which forms part of the

General Motors Global Engineering and Manufacturing Platform, which conducts

research and development of engineering with an environmental impact.

Manufacture of transport equipment-auto industry

Source: Estudio de Competitividad de Clusters, 2008

Specific Progress – Information Technology and Related Services Sector

Web and multimedia applications

Business applications and IT services

Specialized consultancy and consultancy for quality IT systems

Software factories for outsourcing and

offshoreSoftware tests and embedded systems

Software development and related services

Interactive mediaBusiness Process

ManagementQuality modelsIT consultancyData analysis

Innovation promotion

Design, development and production of packaged

softwareCustomized software

developmentDesign, modification, testing

and implementation of specific applications

System integratorsComplete solution planning

and design (software, hardware y communications)

Associated Associated AssociatedJalisco Federal DistrictNuevo Leon

35 21 18

The IT and related services sector has grown significantly in recent years, due mainly to the development of clusters that have permanent liaison programs with academic and research institutes and the public sector.

TDCOM

ASCI

ST

Liaisons and mergers have enabled small Mexican firms to produce large projects.

TDCOM was taken over by Intel in 2000

HP Global gave Asci exclusive rights to offer its product worldwide

SOLUCIONES TECNOLÓGICAS has an

Electronic Vehicle Technology Center

Intellectual property development in integrated

circuit test engineering

4 International Patents

Use of Mexican technology in VW, Audi, GM and Ford

vehicles

Physical media and software – Information Technology and Related Services Sector

INNOVAMÉDICA

Manufacture of machinery and equipment-medical equipment

INNOVAMEDICA is a Mexican firm that was established in 2009 and that researches, designs and develops new medical products. It has an interdisciplinary group of engineers, designers, scientists and doctors that provide a full range of services including market studies, patentability analyses, industrial and electrical design, and quick prototype construction.

Its developments include:

1. Impedance Spectroscopy System. A monitoring probe for intensive therapy patients

2. Artificial heart. A project that began in 2002 with the participation of 10 institutions (4 in the U.S. and 6 in Mexico). To date, over 24 million pesos have been invested in the development stage.

INNOVAMEDICA has obtained 7 patents and has submitted 18 applications for regular patents for various projects for medical equipment development.

The strategy adopted has made it possible to strengthen the various features

of the innovation ecosystem.

24

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Development of Comprehensive Innovation System

Financing programs for firms and projects

Researchers

Young firm (<2 years)

Mature firm (>2 years)

New entrepreneurs

Capital funds

Commercial-ization

Basic research Applied researchTechnological Development

Development for Commercialization

Production Commercial expansion

Research Centers

25

Skills Development

Students

Supported Activities

Supported agentsOperating Programs Programs under development

The strategy adopted has made it possible to strengthen the various features

of the innovation ecosystem.

26

Knowledge creation

Demand for ideas and solutions

National and international

market

Project and company financing

Human resources

Regulatory framework

Development of Comprehensive Innovation System

27

High technology exports are products with a high intensity of R&D, such as in the aerospace sector, computers, pharmaceutical products, scientific instruments and electric machinery. Source: United Nations, Comtrade database.

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0%

5%

10%

15%

20%

25%

Exports of high technology products as proportion of total exports (%)

BrasilCanadáChileMéxico

Specific progress

Our productive and export activity has significantly advanced in the value

chain.

Contents

1. Motivation

2. The Case of Mexico

a) Development of Comprehensive Innovation

System

b) Specific results

3. Final remarks

29

• Innovation is a necessary condition for boosting Mexico’s Productivity

• The Federal Government is therefore working together with the private and

academic sectors on the design and implementation of a Comprehensive

Innovation System characterized by:

Being a national rather than a government policy

Having a long-term vision

Final remarks