How relevant is R&D spending to innovation development?

Hong Kong’s ability to reinvent itself as an innovation-led economy is in the spotlight again, in the wake of the latest release of the World Economic Forum’s Global Competitiveness Index. There are calls from various quarters that Hong Kong has to increase its spending in research, scientific and technology development (commonly referred to as R&D). 

It should be clearly understood that technology is but one element of innovation. Hong Kong should ride on its unique DNA as a service economy and a trading hub in its pursuit of innovation. Li & Fung, Lan Kwai Fong, HKBN and startups like Go Go Van and Handy are good examples of service, process, customer experience, management and business model innovation. 

Some believe that reindustrialization can help spearhead innovation. The reality is that service inputs make up an increasing proportion of manufacturing activities.  Instead of bringing in more production lines, Hong Kong should continue to offer manufacturing services – albeit with a stronger dose of innovation. This also means that STEM education is important, probably not because we need more engineers but more designers, lawyers, accountants, marketers and business development specialists who can understand and commercialise technology.

If technology is not the only innovation driver, heavier investment in R&D should not be a pre-requisite to innovation development. Creating value in the 21st century is not about ownership but the sharing of knowledge. Countries are trading patents, copyrights and other intellectual property. With the exception of the US, Japan, the UK, Germany, and 
France, all other OECD countries obtain over 90 percent of their productivity growth from ideas that originated abroad. The key to innovation is therefore not so much the amount of R&D spending but the ability to scout for, integrate and commercialise new ideas and inventions. In order to do this, Hong Kong should further enhance its understanding of the global markets and broaden its international network. This is also the most that Hong Kong can contribute to China’s high tech development.

Hong Kong is an ideal test bed for new products and services. 
To catalyse innovation development, we should create demand for innovation to thrive. The government, businesses, universities and foundations should start to create challenge funds, innovation prizes and demonstration projects and seek innovative solutions from around the world. Hong Kong should aspire to become the role model for innovative and sustainable solutions for densely populated cities.