FDI-Based Innovation: A Priority for Arab Countries

FDI-Based Innovation: A Priority for Arab Countries
By Abdul Kader Kamli
President of Madar Research
It is always a possibility that an Arab country may succeed in putting together the right combination of resources and planning to create a research environment capable of yielding new knowledge and products that can make tangible contribution to the economy. Such products may also be good enough to increase the competitiveness of the economy in a world that is becoming increasingly dependent on knowledge. The chances for such a success would naturally be higher if the chosen areas for research were those of high relevance to the environment, socio-economic needs and available talents in the country.

Another approach to build a knowledge base of economic value is to foster, facilitate and promote innovation. In the simplest terms, innovation may be defined as the process of building on, or making new uses or applications of, existing knowledge. In other words, innovation is generating new knowledge from existing knowledge - technological or non-technological knowledge. To drive innovation on a country level, a national innovation system (NIS) has to be built. In the words of Phillip Griffiths, director of the Institute for Advanced Studies at Princeton University, innovation is “the process by which new products or new methods of production are introduced, including all the steps from invention to development to pilot production to marketing to productions.” He also defines NIS as “a system that supports the ability/capacity of a country to innovate - especially to adapt and create science and technologies for economic and societal use.” The ingredients in an NIS are people, institutions, infrastructure, policy environment and political will, according to Griffith.

However, similar to building a productive research environment, building such a system, can only produce tangible results in the long term - maybe in a decade, two or more. While the time factor should not be a reason for an Arab country not to work hard towards both ends and in parallel, what might be described as a short cut for an Arab country to acquire and assimilate knowledge and kick start innovation is to become an attractive host for foreign direct investment (FDI), especially from international companies that are specialized in areas of knowledge most suitable for the host country, whether because of the availability of homegrown talents in these areas, relevance to local industries or other reasons.

At a time where proprietors of knowledge tend to lock up their knowledge due to competitiveness, illegal use or other reasons, the best shot for knowledge transfer to take place is through FDI. While the FDI approach may not lead to full acquisition or transfer of knowledge, there is always a certain level or amount of knowledge transfer involved due to interaction with the local environment and the knowledge gained through exposure or training of local staff. This kind of knowledge transfer, whether technological, organizational or other, can only increase with time, and as it gradually becomes assimilated by local communities it can be used for problem solving and improvements, and eventually can lead to innovation and the creation of new knowledge.

In fact, the greatest immediate benefit that could be gained by many local companies from close interaction with their multinational counterparts across the board is in e area of adopting tacit knowledge flowing from these company’s process or organizational operations and applying the same into their own operations to achieve cost efficiencies and thereby contribute to the country’s economic development. The presence of a dynamic and research-orientated academic community can optimize the opportunities of innovation built on knowledge transfer from FDIs.

Arab governments have the primary responsibility to find means of attracting FDI and to encourage the local private sector to partner with them.

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