Meeting of Experts on “FDI, Technology and Competitiveness”across national boundaries (Senker...
Transcript of Meeting of Experts on “FDI, Technology and Competitiveness”across national boundaries (Senker...
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CONFÉRENCE DES NATIONS UNIES SUR LE COMMERCE ET LE DÉVELOPPEMENT
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
Meeting of Experts on “FDI, Technology and
Competitiveness”
A conference convened in honour of Sanjaya Lall
UNCTAD, Palais des Nations, Geneva
8-9 March 2007
Technology Alliances in the Korean Biotechnology Industries:
the Missing Link?
Professor Mikyung Yun
This is a draft paper and should not be quoted. The views expressed in this paper are solely those of the author(s) and do not represent those of the United Nations, the University of Oxford or the Asian Development Bank.
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Technology Alliances in the Korean Biotechnology Industries: the Missing Link?
- Preliminary Findings-
Mikyung Yun
The Catholic University of Korea
December 2006.
1. The Technological Capability Approach and the “Global Innovation Network”
Sanjaya Lall has left us with a legacy of analysis on industrial development and
technology capability building in developing countries, especially at the level of the
firm. He showed that conscious effort to build up technological capability1 is an
indispensable factor in determining competitiveness in developing countries. Since
technological innovation and diffusion represents a classic case of market failure, (and
to a greater extent in developing countries), government intervention is not only
justified, but sometimes should be promoted, in a discretionary fashion. Of particular
importance is the development of various “linkages” - between firms, between firms
and the broader market incentive structure, and other institutional factors. The
technological capability thus acquired allows the developing country to access and use
foreign technology (through various means such as FDI, licensing, OEM etc) and
further deepen its technological capability and industrial base (Lall 2001, Lall 2003).
This is the essence of the technological capability approach.
Much of Sanjaya’s conviction is based on his extensive research of technology and
1 Technological capability refer to the “… entire complex of human skills
(entrepreneurial, managerial and technical) needed to set up and operate industries
efficiently overtime.” Acquiring technological capability is a learning process, which
depends on the complexity of the technology, the nature of the learner, including the
initial capabilities, and other various institutional characteristics (Lall 1990: 17).
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industrial development in Korea and other East Asian countries. While his ideas are not
confined to any specific industrial sector, perhaps because of East Asian history of
having acquired technological and industrial competence on the basis of industries such
as automobiles and electronics, much of the references, discussions, and cases studies
have focused on these industries. Thus, empirical focus tended to be more on the
incremental technology upgrading in mechanical industries, building infrastructure for
production, and how to link this with the “global production systems” (Lall 2003, Lall
et al 2004, Lall 1997).
As Mytelka (2004) warns, such a focus might miss the dynamics of competition and
catching up in the “new wave technologies” where the locus of competition is in
innovation (making knowledge) rather than production (using knowledge).
Development of knowledge base in the new wave technologies such as biotechnology is
different from the more traditional, mechanically-based industries. Biotechnology is
driven by science, and the innovation in products and processes are not sequential but
are fused in the laboratory, linking basic research and commercial development closely
from the very beginning. Further, they combine technologies from several different
fields with distinct scientific base, increasing the complexity of the technology and costs
of R&D (Pisano 1998). Mytelka (2004) predicts that this would prevent developing
countries to enter this new growth-leading field at low skill levels, as they were able to
in the more traditional industries and then move up the technology capability ladder
progressively.
However, fragmentation is not only occurring in production systems but also in
innovation systems. It is possible to identify an emerging international division of labor
in R&D. Cross border corporate R&D became significant in the mid-1980s, following
the broader internationalization pattern of manufacturing in the 1970s. This has
expanded into services and R&D activities in the 1990s (Karlsson 2006). In
biotechnology, increasing cost of R&D, increasing application of information
technologies which enables greater global coordination, and diffusion of older
biotechnologies along with simultaneous rapid development in new biotechnologies, all
seem to contribute to this process. The value chain from basic R&D to product
marketing is split up into various components and recombined to be located in regions
where the process can be undertaken most efficiently.
The implication of the emerging division of labor in biotechnology innovation is that
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although acquiring innovation capability would be more difficult and costly than to
acquire production capability, there can be an opportunity for developing countries to
position themselves in the global innovation network according to their comparative
advantages and benefit from global knowledge exchanges. As it is important to develop
linkages with the global production systems to tap into foreign technological resources
in traditional industries, it would be important to link into the global knowledge or
innovation network to keep abreast of scientific and technological developments and
identify niche markets. Further, just as in the global production systems, technology
capability is cumulative and path dependent, so that knowledge centers of the global
innovation network maybe concentrated in few areas. This would make it all the more
important to build up internal technology capabilities, which in turn will enable the
firms or the countries to attract collaboration with foreign entities with strong presence
in the global innovation network, an important source of new knowledge and a new
market for their innovations. Thus the technological capability approach, with its
understanding of firm-to-firm technology learning mechanisms through various
channels and linkages (especially within the developing country context), is well suited
to explain the formation, importance and persistence of technology alliances in
biotechnology. Even though the empirical focus of the technology capability approach
has not been on innovation per se, it is essentially about dynamic learning processes,
and can provide an intellectual basis to understand global innovation network in an
analogous fashion to global production systems.
There are few empirical studies of the global innovation network in general or with
respect to biotechnology. Despite the enormous potential biotechnology offers
developing countries with agricultural base and rich biodiversity, study of knowledge
networks and technology alliances (so critical for knowledge diffusion in
biotechnology) in developing or emerging countries is an under-researched subject.
Where developing countries stand in the “global innovation network” and to what
extent they can exploit the “linkage” with the global innovation network for their
benefit is as yet unclear. The present paper addresses these questions by examining the
development process of biotechnology in Korea, focusing on technological alliances as
an important learning mechanism and a way of linking to the global innovation network.
2. Internationalization of Technology Alliances in Biotechnology
In biotechnology, technology alliances have been particularly important in diffusing
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technology and forming firm-to-firm knowledge linkages. Technology alliances can
take many organizational forms (eg. joint R&D, licensing in and out of technology,
marketing agreements, contracted research) and contractual devices 2 to facilitate
knowledge transfers. Compared to full vertical integration or horizontal M&As, these
are flexible ways to match complementary assets of firms under high levels of
uncertainty and risk. At the same time, they are a more effective means of transferring
tacit technological knowledge than arm’s length transactions. Thus, technological
alliance is a hybrid form of organization designed to meet the market failures in
transaction of knowledge, especially when there is continuous and rapid technological
change.
The biotechnology revolution which disrupted the traditional R&D base (organic
chemistry) required the large, incumbent pharmaceutical firms to seek new technology
from the new dedicated biotechnology firms (DBFs), whereas the DBFs needed
financial assistance and downstream competencies of incumbent firms in clinical testing
and marketing strategies to commercialize their new discoveries. This led to an upsurge
of technological alliance between the incumbents and the DBFs.
In the beginning, it was believed that the surge of technological alliance would slow
down and ultimately stop after the completion of exploitation of products resulting from
these alliances. However, biotechnology proved to be a rapidly developing field. It was
hit by another paradigm shift – the genomics and proteomics revolution at the turn of
the century. The completion of the human gene mapping in 2003 became a land mark,
and the period since then is referred to as the post-genome era. In the post-genome era,
the complexity and combinatorial character of biotechnology have become even more
pronounced and led to the second upsurge in technology alliances. The large
pharmaceutical firms continued to have to depend on the specialized biotech firms,
whereas the specialized biotech firms found it was difficult to integrate general
organizational ability of the large firms. Thus, technological alliance came to be a stable
form of inter-firm knowledge transfer in biotechnology, both within countries and
across national boundaries (Senker 2005, Choi 2005).
There are few empirical studies focusing on international aspects of technological
2 For example, asset purchases, cross-licenses, equity links, licenses, loans, options,
sublicenses, and termination clauses (Filson and Morales 2001).
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alliance.3 Madhok & Osegowitsch (2000) gives some perspective regarding the early
years of biotechnology. Using the database on global transactions in the industry
compiled by the North Carolina Biotechnology Center for years 1981-1992, they show
that most of the cross-border transactions were between the US and the EU. Licensing
and marketing agreements combined are the most prolific forms of international
engagements, ahead of R&D agreements.4
Until the mid 1980s, Europeans were the more dominant licensees and principals in
research agreements. Also, until the 1990s, the European incumbent pharmaceutical
firms bought out the small biotechnology firms in the US but in 1991 and 1992, EU
targets exceeded those of US targets. While no particular trend was discovered with
respect to green field investment, the number of joint ventures fell since the mid-1980s.
The authors draw two conclusions from these phenomena. First, as technology diffused
from the US to the EU, the one-way flows of technology from the US to the EU, and the
one-way flow of investment from Europe to the US changed into more complex, bi-
directional flows of technology and investment. Second, international alliance
formations as opposed to hierarchical formations (JV and FDI) remained consistently
high and stable.
Another study that looks at international alliances, though very briefly, is by NSF
(2004). This study, using the MERIT-CATI database casts some light on the extent of
international alliances in biotechnology. The study found six major sectors engaged in
international alliances, especially information technology and
biotechnology/pharmaceuticals. These alliances showed the first increase in 2000 since
1995, recording 483 in 2000 and 602 in 2001. Of these technology alliances world-wide,
80% involved at least 1 US-owned company during 1991-2001. Most international
technological alliances were located in the triad of US, EU and Japan. MNCs’ R&D
links were especially strong between US and EU in pharmaceuticals, computers and
3 It is not only important to understand the forces driving technological learning and
patterns of knowledge accumulation through linkages, but also to understand how to
structure the incentives – who shall control what resources and when in a technology
alliance. It is also vital to find efficient mechanisms to share the benefits flowing from
the innovation, and assign market value to the outcome-uncertain technologies.
Examples of this kind of analyses are Lerner and Merges (1998) and Filson and Morales
(2001). 4 Their categories of transaction are 1) acquisitions, 2) Greenfield subsidiaries (ie, FDI),
3) joint ventures, 4) licensing agreements and marketing agreements, and 5) research
contracts (Madhok and Osegowitsch 2000: 329).
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transport equipment. Two thirds of US MNCs’ overseas R&D were in transport
equipment, computers & electronics, and chemicals (80% of which are pharmaceuticals).
Increasing R&D activity is observed in emerging markets, for example Singapore, Israel,
Ireland, Taiwan, and Korea, mostly in computer & electronics.
Recent media reports and industry press show that there are signs of greater
globalization of biotechnology R&D, even in clinical testing stages, as more sites have
become certified to carry out clinical tests. This has allowed more non-triad countries,
such as India, China, Korea, Singapore and Taiwan to participate in this growing global
network of R&D. At times, specific government FDI policies have been geared to
attracting R&D facilities of MNCs, in exchange for opening up markets.
Apart from case studies of joint development of bio-pharmaceuticals, where the focus is
on intellectual property protection of indigenous knowledge and sharing of benefits
flowing from exploiting this knowledge, most writings on development country
biotechnology are about government promotion policies or an account of status of
biotechnology in these regions. The lack of such studies is probably symptomatic of the
lack of participation by developing countries in global biotechnology alliances.
This “missing link” seems to be only recently being formed, with accumulation of
certain level of biotechnology capability in a number of developing countries. The next
section explores this development in the Korean biotechnology industries. The limited
nature of information about technology alliances and the few numbers of alliances that
have been struck in Korea prevents much of the detailed and quantitative analysis that
theory affords. The aim of this paper is therefore modest, and only tries to grasp the
general characteristics of alliances that have come about so far, focusing on what role
such linkages play in firm level technological learning and their positioning in the
global innovation network.
3. The Korean Biotechnology Industries
1) Linkages with Foreign Firms: The Missing Link?
Korea entered the biotechnology sector from the very beginnings of the emergence of
biotechnology. The R&D activity was led by the Ministry of Science and Technology in
1983 with the establishment of the Biotechnology Promotion Act and the Korea Institute
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of Bioscience and Biotechnology (KRIBB). In 1991, the Bio-industry Association of
Korea was formed with 50 member firms, and biotechnology products began to hit the
market in the 1990s. However, full scale R&D in the sector has its beginnings in the
mid-1990s, with a higher level of government R&D investment under the promotion
plan called “Biotech 2000.”5 By 1990, the bio-industry had a market size of 900 billion
won (Lee 2000, The Bio-industry Association of Korea home page, Ahn et al 1998).
As in the European case, linkages with foreign firms played a crucial role in transferring
technology from the US during these formative years. Between 1982 and 1997, there
were 650 successful innovation cases, and only 1.7% was technology transfer from
domestic research institutes to the bio-industry. Most of the licensing was from foreign
partners. This phase is characterized by relatively easy access to foreign technology and
incumbents undertook to commercialize imported technology (Ahn et al 1998:29-33).
Mahoney et al (2005)’s case study describes how the Hepatitis B vaccine was developed
in Korea. The study compares two companies which acquired the necessary technology
through licensing to one firm which decided to go it alone. The study shows that the
former strategy resulted in rapid launching of newly developed vaccines, while the latter
strategy initially failed, partly due to regulatory reasons. Nevertheless, the go-alone
strategy is expected to have also resulted in a lot of technological learning.
Since then however, focus shifted towards transferring results of basic R&D to industry
domestically. Literature from the late 1990s to date note the lack of technology alliance
formations, and the importance of fostering linkages between public research institutes,
the academia and the industry (eg., Kim et al 2000, Song 2006). However, the trilateral
collaboration in joint R&D and public-to-industry technology transfers is widely
evaluated to be sub-optimal despite increasing frequency. Different authors have
emphasized different possible reasons for this poor performance. Choi & Jung (2003)
points to insufficient development of technology transfer intermediaries. Yun (2005)
argues that there is simply not enough basic scientific research results in stock that is
attractive enough to be transferred from the public sphere to industry. In the same vein,
Ahn et al (1998) and Lim & Bok (2006) point to the need for greater public R&D
investment in basic scientific research in fields of high industry demand, and less in
5 The Korean government R&D in biotechnology grew from 24 million dollars in 1991 to
146 million dollars in 1996 (an average growth rate of 43.5%). Although this is a
miniscule amount compared to R&D investments by the US and Japan in biotechnology,
the growth raised the proportion of biotechnology R&D to total government R&D
investments from 2.5% to 5.1% (Ahn et al 1998: 41)
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commercial application stages. Finally, given the small size of domestic pharmaceutical
firms6, Moon (2006) stresses the need to access complementary assets (marketing,
candidate materials for new drug development) that Korea lacks through collaboration
with global pharmaceutical MNCs.
In contrast to the importance placed on collaborative activities, there seem to be very
little detailed and systematic information available at the sectoral level on the
collaborative activities that do exist. Here, the discussion focuses on three sources of
information that I could find: the KIET annual survey on biotechnology firms (which
started in 2003), a survey by the Korea Pharmaceutical Association, and compilation of
anecdotal evidence that I compiled from industry press and the media reports spanning
the period 2002-2005.
The KIET survey shows that the majority of biotechnology firms already participated in
some sort of collaborative activities in 2003 (see Table 1A). However, there seems to
have been an explosion of collaborative activities within a two-year period, with almost
all the surveyed firms in all biotechnology industry groups participating in collaborative
activities by 2005. In 2003, the surveyed firms had on average 2~9 collaborators and
more than half of the surveyed firms were engaged in government projects.
Of these collaborative efforts, joint R&D was the more popular means of collaboration
than contracting out R&D or licensing-in of technology. At the same time, most of the
firms relied on hiring of biotechnology experts and raising general R&D personnel
levels, indicating that face-to-face contact is the most effective forms of technology
transfer and that internalization of R&D capability goes in tandem with growing
technology alliances (see Table 1B).
The 2003 figures indicate very little involvement of foreign entities in technology
alliance with Korean biotechnology firms. Most of the technology licensing (both
licensing out and licensing in) were undertaken among domestic firms. Almost all of
foreign involvement, and most of the domestic transactions were based on patent
licensing; indicating that intellectual property protection is important for developing
technology alliances (see Table 2A). Neither is the level of foreign investment in 6 Despite rapid growth of biotechnology industries in Korea as seen in sales growth in
Table 5, the size of the industries compared to developed countries is dwarfing. For
example, sales of Amgen, a global pharmaceutical firm is ten times larger than the total
sales of the whole Korean biopharmaceutical sector in 2005 (Moon 2006: 8).
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biotechnology firms very impressive. Only around 12% of the surveyed firms had
foreign equity holdings (see Table 2B). Only the bio-pharmaceutical firms have seen a
sizable foreign investment, but even in pharmaceuticals, foreign direct investment data
shows that after an upsurge in 2004, FDI flow has dropped to a miniscule level. On
cumulative basis, the pharmaceutical sector is one of the least attractive to FDI among
manufacturing industries (see Table 2C). The recent trend is that global MNCs are
withdrawing licenses, closing production facilities and directly marketing their own new
drugs in Korea (Seoul Economic Daily 2006. 3. 7, Jung 2005: 9). Such withdrawal was
not replaced with new investment R&D centers. Global MNCs such as Novatis, located
R&D centers in China and Singapore but has ignored Korea.
The foregoing discussion shows that technology alliances have increased as expected
with the development of the biotechnology industry. However, despite the important
role of foreign biotechnology firms in transferring technology during the initial
formative stage, Korean firms seem to be far from being closely knit within the global
R&D network in the 21st century. It is still in the stage where technology (from abroad
to Korea) and investment flows (from Korea to abroad – mainly in terms of R&D
outposts) are one-sided.
Nevertheless, there are greater signs of vibrant collaboration with foreign partners in
recent cases. Just taking the pharmaceutical sector, 25 pharmaceutical firms carried out
97 research projects in 2005, which is a more than 30% increase from 21 firms carrying
out 72 collaborative research projects in 2001 (Korea Pharmaceutical Association). Of
these projects, 10 were joint research with universities, 3 were with public research
organizations, 50 were with bio-venture firms, and nine were with foreign partners
(12.5%). Of the nine foreign partners, five were with US or Japanese firms, one was
with the firm’s own research outpost in the US, and three cases were with US
universities. That is, firm-to-firm technology alliances were predominant both
domestically and internationally.
The author could identify 29 technology alliances cases from various industry presses
and the media spanning the period 2002-2006, with cases from 2005-2006 dominating.
Some of these cases are announcements, and consummation of MOUs or plans cannot
be assumed. Further, it includes cases where the partners where collaborating over long
periods repeatedly in different research projects, and setting up of research outposts
abroad. The lead partner is not only pharmaceutical firms as in the Korea
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Pharmaceutical Association data above, but consists also of the government, bio-venture
firms, and foreign bio-ventures investing in Korea. This compilation is ad-hoc and is not
in anyway a systematic or complete compilation of technology alliances occurring
during this period. It does show however, the extensive involvement of foreign partners.
Of the 29 cases identified, 18 cases involved foreign partners (62%), including setting
up of research outposts abroad. One case involved establishment of a joint venture firm
by a US bio-venture firm. A global chemical MNC such as BASF is going to market an
incrementally modified drug developed by a biotechnology firm. A global MNC such as
AstraZeneca is funding biotechnology research in cooperation with the Korean
government. Partnerships are struck with South East Asian CROs specializing in
clinical research. M&As are also occurring among small biotechnology firms. This
suggests that previous data collection may underestimate the degree of international
firm-to-firm linkages and the diverse forms these linkages have taken.
As the technology capability approach would predict, technology transfer was initially
made through licensing from foreign sources, consequently there was a period of
conscious effort to build up domestic technological capability, and this further enabled
the Korean biotechnology firms to engage in collaboration at the international level.
Although their connection with the global innovation network seems weak at the
moment, there are promising signs that this will increase in various ways.
2) The Intermediate Player Strategy
In Section 1 of this paper it was argued that emerging division of labor within
biotechnology provides opportunities for developing countries to link on to the global
innovation system according to their relative comparative advantages. Biotechnology as
a whole is science based, complex and combinatorial, making it difficult for firms to
keep competitive positions in all fronts and carry diverse research lines simultaneously,
even for developed country MNCs. Biotechnology is also a heavily regulated sector
requiring local market knowledge. At the same time, product development process is
costly and time consuming. It is therefore increasingly difficult for a single firm to
acquire across the board competencies. As we have seen above, this is why technology
alliances have proliferated in biotechnology.
Among the research fields and within the value chain in product development there are
areas where technological capability is easier to develop than others, and could be
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undertaken in developing countries at lower costs. With respect to drug development,
relocation of clinical testing to developing countries has been significant. Some
techniques such as recombinant DNA and throughput screening are now widely diffused.
In some biotechnology industries such as bio-food (including nutraceuticals), product
development to marketing is relatively easier compared to for example, pharmaceuticals.
For emerging country biotechnology firms with certain level of technological capability,
it would seem particularly important to enter the global innovation network as an
“intermediate player” and move up the technological capability ladder through stages of
learning. Korea seems to be using such an “intermediate player strategy.” We can glean
this partly from export performance of biotechnology industries and management
strategies of some pharmaceutical firms.
Division of Labor within Biotechnology
In Korea, biotechnology industries are classified into 8 categories, as seen in Table 3.
The biopharmaceutical industry is consistently the largest industry group, as in most
other countries. In 2005, bio-food also formed a quite large portion. Biotechnology
firms tend to be small, with only around 10% of the surveyed firms having more than
500 employees. The sales of bio-industry firms grew by more than 41% from 2003 to
2005, attesting to the fact that this is a rapidly growing sector. Trade in this sector is also
growing at impressive rates, with trade volume growing by more than 31% from 2003
to 2005. In terms of trade balance, bio-food, bioenvironmental, bioelectronics and
“bioassay, bioinformatics & R&D service” industries are strong performers. On the
other hand, bio-chemicals, “bioprocess and equipment,” “bio-energy and bio-resources”
and especially, biopharmaceuticals show a large trade deficit. Evidently, Korean
biotechnology firms have found it easier to develop internationally competitive
positions in some biotechnologies than in others (see Table 4).
The degree of R&D and technology capability can be gleaned from the amount of R&D,
size of R&D personnel, and number of patent holdings in Table 5. In some
biotechnology industries, R&D to sales ratio fell from 2003 to 2005, notably
biopharmaceuticals, bioenvironmental, and bio-energy industries. While it may be
possible that these sectors are showing increasing sales after the R&D phase, it is
interesting to note that those biotechnology industries with higher R&D to sales revenue
tend to be better export performers.
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It is also curious that those sectors showing lower R&D to sales ratio, and even a fall in
this ratio over 2003~2005 period, tend have greater stock of patent holdings. This
indicates that it is difficult to commercialize marketable products in these industries. It
seems that generating revenue from those industries where technological capability is
easier to acquire and channeling this into industries requiring long gestation periods (but
with greater knowledge spillovers) due to requirement of higher levels of technological
capability or difficult commercializing processes, is a rational catch-up strategy for an
emerging country. This is a strategy that is not unlike the one found in the more
traditional industries that technology capability approach had focused on.
Division of Labor within New Drug Development
Even within pharmaceuticals, there are various levels of technology. The lowest level is
generic drug production which only involves application of already known technology
used for existing drugs. The intermediate level is the production of what is known as the
“incrementally modified drug (IMD)”, which needs capabilities to improve existing
drugs (enhanced effect, improved delivery systems etc). The highest level of technology
is of course the ability to introduce new drugs based on new active ingredient. Most
pharmaceutical firms in Korea are generics based. They enjoy stable profit levels and
lack neither the capability nor the incentive to develop new drugs. Only a handful has
technological capability to undertake R&D for new drugs, but even these face
difficulties in carrying through to the final stages of drug development due to the sheer
investment outlays required.
However, Hanmi Pharmaceuticals Co. Ltd pursued the “IMD & and First-Generics
Strategy” to great effect. During the 1980s Hanmi was a small firm, with annual sales of
around 10 billion won. By 2006, it came to rank among the top three domestic
pharmaceutical firms with sales of more than 300 billion won in mid-2006. It set up an
IMD R&D Team in 2002, and was able to market its first IMD based on amlodipine
camsylate in 2004. The growth of its sales is a direct effect of this hugely successful
IMD (<www.hanmi.co.kr>, Korea Drug Research Association 2003). Likewise, LG
Life Sciences Ltd., the first and so far the only Korean firm with a US FDA approved
new drug FACTIVE (a quinolone antibacterial agent), set up an IMD R&D team in
February 2006, as an intermediate revenue-generating strategy while continuing with
new drug development (Dong-Ah Daily, 2006. 2.28).
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There are many advantages to IMD strategy for Korean firms with a certain level of
technological capability but lack financial scale and downstream competencies.
Incrementally modified drugs can be protected by own patents, and can yield as much
profits as a new drug, but require much shorter development time and R&D cost levels.
A survey of R&D activities of 33 R&D oriented Korean pharmaceutical firms shows
that new drug development requires on average around 9 years and 10.6 billion won
whereas an IMD takes on average 2.2 years (but with a high variance of 2~8 years
depending on the technology) with R&D costs of 1 to 1.5 billion won. Moreover,
market entry opportunities for IMD seem to be growing. US FDA approval of IMD
increased from 53% of total approved drugs to more than 60% in 2004, and total value
of products going off the patent between 2006-2010 is expected to be around 62 billion
dollars (Lee 2006).
4. Conclusion
This paper explored development of biotechnology in Korea with a focus on technology
alliances as a learning mechanism and a link to the emerging global innovation network,
from the technology capability perspective. The empirical focus of the technology
capability approach has typically been on the process of technological learning in
traditional industries and the role of global production systems. This paper argued that
the approach can be applied to the emerging global innovation network in the “new
wave technologies” such as biotechnology.
As the technology capability approach would predict, conscious efforts to learn and
various forms of firm level linkages (technology alliances) have contributed to
accumulation of technological learning. The acquisition of certain level of own
technological capability enables the firms to more effectively tap into the global
network of knowledge, and find new markets for their own innovations, leading to
greater deepening of technological and industrial base. Further, the fragmentation of the
global innovation network in biotechnology has allowed Korean biotechnology firms to
pursue the intermediate player strategy to enter the global innovation network, as they
have done in the more traditional industries through various forms of firm level linkages
such as subcontracting and OEM.
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Table 1 Extent and Patterns of Collaboration
A) Extent of Collaborative Activities <Unit: number of firms>
Participation in
Collaboration
Government
Project
Average No.
collaborators
2003 2005 2003
Biopharmaceutical industry 57.22% 97.84% 42.27% 5.24
Biochemical industry 66.67% 100.00% 50.00% 7.78
Biofood industry 68.71% 96.77% 40.14% 6.54
Bioenvironmental industry 51.35% 94.59% 40.54% 3.38
Bioelectronics industry 56.25% 100.00% 50.00% 2.44
Bioprocess and equipment industry 71.43% 100.00% 100.00% 9.60
Bioenergy and bioresource industry 44.07% 100.00% 33.90% 8.73
Bioassay, bioinformatics & R&D service
indsutries 76.67% 97.22% 66.67% 4.57
B) Means of Technology Transfer <Unit: number of firms>
No.
Responding
Firms
In-House
R&D
Team
Hire of
Biotechnology
Expert
Hire of
R&D
Personnel
(general)
Joint R&D
w/ other
firms or
Institutes
Contracting
Out R&D/
Licensing-in
Total 497 497 383 201 236 118
Biopharmaceutical industry 162 162 129 48 82 58
Biochemical industry 74 74 54 33 31 18
Biofood industry 91 91 74 53 35 12
Bioenvironmental industry 75 75 49 40 34 3
Bioelectronics industry 10 10 10 3 8 2
Bioprocess and equipment
industry 33 33 19 12 12 11
Bio-energy and bio-
resource industry 14 14 14 4 7 1
Bioassay, bioinformatics &
R&D service industries 38 38 34 8 27 13
Source: KIET Survey of Biotechnology Firms 2003, 2006.
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Table 2 Foreign Participation
A) Technology Licensing
<Unit: number of firms>
Licensing-out
(Domestic)
Licensing-out
(Foreign)
Licensing-in
(Domestic)
Licensing-in
(Foreign)
Total 40 4 39 5
Trade secret or
know-how 9 . 6 1
Patent 30 4 32 4
Farmer’s Rights . . . .
Others 1 . 1 .
B) Foreign Equity Holdings
<Unit: number of firms>
No.
Responding
Firm
Private Venture
Capital
Domestic
firm or
Institution
Foreign
firm or
Institution
Others
Biopharmaceutical industry 214 212 82 114 49 .
Biochemical industry 93 93 42 27 11 .
Biof-ood industry 142 142 47 54 10 1
Bioenvironmental industry 90 90 24 20 2 .
Bioelectronics industry 14 14 6 2 . .
Bioprocess and equipment industry 54 54 18 20 8 .
Bio-energy and bio-resource
industry 23 23 9 9 1 .
Bioassay, bioinformatics & R&D
service industries 39 39 21 12 3 .
Source: KIET Survey of Biotechnology Firms 2003, 2006.
17
C) Foreign Direct Investment in the Pharmaceutical Industry
<Unit: million US$>
Industry 2002 2003 2004 2005 1962~
2005
Manufacturing 2,336 1,697 6,211 3,075 49,010
Food 48 42 118 325 4,109
Textiles & Apparel 56 15 7 29 903
Paper & Wood Products 52 36 20 85 2,621
Chemicals 141 689 1,377 278 8,607
Pharmaceuticals 45 16 167 8 973
Non-metal products 65 41 116 376 2,398
Metal products 507 150 105 29 2,333
Machinery & Equipment 220 241 357 127 4,497
Electric & Electronics 517 298 2,944 1,041 16,054
Transportation Equipment 588 121 907 706 5,640
Other Manufacturing 96 47 91 72 874
Services 5,132 4,132 6,141 8,301 60,471
Total 9,102 6,469 12,786 11,562 115,438
Source: Ministry of Commerce, Industry and Energy.
18
Table 3. Number and Size Distribution of Biotechnology Firms
Biotechnology Industries Number of Firms/ Sector Proportion to Total No. of Firms Percentage of Firms with > 501
Employees
2003 2004 2005 2003 2005
Biopharmaceutical industry 194 32.07% 234 6.12% 232 32.77% 7.22% 10.33%
Biochemical industry 78 12.89% 146 7.22% 95 13.42% 7.69% 6.45%
Bio-food industry 147 24.30% 133 7.69% 151 21.33% 8.16% 7.75%
Bioenvironmental industry 74 12.23% 102 8.16% 96 13.56% 4.05% 3.33%
Bioelectronics industry 16 2.64% 33 4.05% 15 2.12% 6.25% 0.00%
Bioprocess and equipment industry 7 1.16% 67 10.67% 54 7.63% 0.00% 1.85%
Bio-energy and bio-resource
industry
59 9.75% 52 8.28% 23
3.25% 1.69% 4.35%
Bioassay, bioinformatics & R&D
service industries
30 4.96% 57 9.58% 42
5.93% 0.00% 0.00%
Total number of responding firms 605 628 708 6.12% 6.59%
Source: KIET Survey of Biotechnology Firms 2003, 2006.
19
Table 4 International Competitiveness by Biotechnology Industries
<Unit: million won>
Biotechnology Industries Domestic Sales Exports Imports
2003 2004 2005 2003 2004 2005 2003 2004 2005
Biopharmaceutical industry 653,635 696,244 802,051 206,320 276,832 313,012 320,244 473,760 573,027
Biochemical industry 78,652 117,964 149,747 21,714 25,065 34,852 41,512 47,797 51,629
Bio-food industry 177,036 250,789 297,055 742,012 805,284 848,204 1,468 5,092 7,752
Bioenvironmental industry 91,057 111,573 138,985 1,077 1,298 5,388 210 2,000 2,370
Bioelectronics industry 5,712 9,065 10,472 1,610 7,087 8,509 414 171 700
Bioprocess and equipment
industry 31,759 33,448 43,914 11,376 12,186 12,540 146,785 141,542 152,781
Bio-energy and bio-
resource industry 12,959 8,217 14,705 481 674 756 2,137 2,600 2,880
Bioassay, bioinformatics &
R&D service industries 34,412 58,122 83,387 9,258 6,079 7,809 456 15 20
Total 1,085,222 1,285,422 1,540,316 993,848 1,134,505 1,231,070 513,226 672,977 791,159
Source: KIET Survey of Biotechnology Firms 2003, 2006.
20
Table 5 R&D Intensity and Patent Holdings in Biotechnology Firms
<Unit: %. No of patents>
Biotechnology Industries Proportion of R&D to Total
Sales
Proportion of Biotechnology
R&D Personnel Total
Employee (%)
Patent Holdings
2003 2005 2003 2005 Korean US
Biopharmaceutical industry 19.91% 17.13% 57.22% 54.29% 632 68
Biochemical industry 49.10% 21.74% 58.54% 59.75% 738 87
Biofood industry 7.01% 32.13% 35.74% 43.49% 579 28
Bioenvironmental industry 14.41% 8.50% 53.96% 50.80% 281 13
Bioelectronics industry 171.31% 17.81% 57.82% 63.89% 60 30
Bioprocess and equipment industry 5.95% 25.60% 68.75% 54.77% 26 6
Bioenergy and bioresource industry 92.60% 22.29% 55.15% 55.14% 160 12
Bioassay, bioinformatics & R&D
service industries 36.83% 82.14% 93.23% 82.70% 58 3
Total
2,534 247
Source: KIET Survey of Biotechnology Firms 2003, 2006.
Note: Total sales = domestic sales + exports:.
21
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