GRM 2010 GRM 2011

Abstract Details

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Building Absorptive Capacity and Catalyzing Business Model Innovation in Saudi SMEs to Achieve Economic Diversification
Paper Proposal Text :
King Abdullah University of Science & Technology (KAUST) was established with a three-fold mission: education, research and economic development, by integrating, “research and education, leveraging the interconnectedness of science and engineering, and works to catalyze the diversification of the Saudi economy through economic and technology development.” KAUST has built a critical mass of pioneering scientists and engineers conducting innovative research yielding breakthrough technologies. At the same time, KAUST is surrounded by a macroeconomic environment, in which the private sector has uneven levels of absorptive capacity which inhibits their ability to recognize and transform cutting-edge technologies into innovation-intensive products and services.
Noted economist and industrial policy professor Howard Pack in his 2008 article, “Asian Successes vs. Middle Eastern Failures: The Role of Technology Transfer in Economic Development,” examined macroeconomic data and looking for dependent variables to account for the differentials in Asian and Middle Eastern countries’ economic performance. He examined Asian countries that had achieved economic success since the 1960s: China, Korea, Indonesia, Malaysia, Taiwan, Thailand, and Singapore and compared them to representative MENA economies. Pack’s assertion was that the Far East’s systems that enhanced technology transfer were what differentiated those countries from the Middle East, enabling them to achieve real success where the MENA region lagged behind. Indeed, a review of IMF and World Bank statistics show marked growth in indicators such as royalty and license fee remittances for intellectual property for Asia and the Pacific, while MENA remains flat.
However, global efforts – exemplified by the KAUST experience – aim to grow domestic scientific capacity. This represents a game changer for technology-driven economic development, and renders Pack’s technology haves/have-nots dichotomy immaterial. KAUST and similar institutions represent a growing trend in higher education, establishing a new breed of differentiated research universities. This trend was recognized by the Times Higher Education’s new 100 Under 50 university rankings, referring to academic institutions established in the last 50 years. This Top 100 list includes institutions from 30 different countries, including many in the Middle and Far East. In contrast, THE’s overall Top 200 list includes institutions from only 26 countries and is dominated by Anglo-American institutions. These newer universities are building in their own ecosystems while generating cutting-edge research results.
For this new breed of universities, the prevailing model of technology-driven economic development, which is characterized by sponsored research and licensing to major corporations and fostering entrepreneurship does not full address the issue of disparity between the nation’s growing research capacity and the surrounding private sector’s absorptive capacity. KAUST-ED has observed that much of Saudi industry lacks absorptive capacity and IP-based business model know-how, severely hampering technology-driven economic development.
Economic diversification - building a “knowledge economy,” requires moving from a consumer/importation to a technology-developer, innovator paradigm. One means of accomplishing this is fostering entrepreneurship. Saudi Arabia has only a nascent startup culture and expertise, and dearth of early-stage venture capital funding. Great strides have been made on encouraging a startup culture throughout the region, but this approach, alone, is insufficient to fully realize the potential benefits of growing domestic research capacity on technology-driven economic growth. The Saudi market for KAUST technology would be extremely small if limited to a trickle of entrepreneurs spinning-out companies and the Saudi majors. ED must look beyond these two small markets, regardless of the challenge this represents. The only other alternative is allow the majority results of KAUST research to go abroad, which is counter to the KAUST’s mission. ED has found that there are myriad Saudi companies interested in moving toward an innovation paradigm – adopting a business model based upon developing technology-based products. The problem is that they do not know how.
The peer-reviewed literature on technology-driven economic development does not offer much in terms of guidance for practitioners in KAUST’s situation, where building research and absorptive capacities from within is both possible and preferred. Therefore, Economic Development at KAUST is experimenting with various techniques to achieve success, essentially creating new models that are relevant for our situation and that of other MENA universities.
Small and medium sized enterprises play a critical role in this process. Across the globe, about 80% of all industrial production comes from small and medium enterprises (SMEs). In Saudi Arabia, however, only 14% does (Bowden, 2013). ED argues that this imbalance represents a tremendous opportunity. Investing in SMEs has a job-creation multiplier effect: according to Mohamed Ramady, “for every one million Saudi Riyal invested in large companies, one additional job was created, while a similar amount invested in SMEs created around 28 new jobs.” In other words, a strong SME network has far-reaching benefits—and is crucial for a thriving innovation ecosystem.
KAUST-ED’s strategy involves helping existing, well-run Saudi SMEs move further up the value chain in the technology/product development process to become more innovative. These SMEs may lack absorptive capacity, to recognize the value of new knowledge, assimilate it, and apply it to achieving their business goals. In the Kingdom, such companies may be more accustomed to importing high-tech products and tailoring them to specific applications; for example, integrating components into a system, and then deploying and servicing it. If there is no real alternative to engaging and building Saudi firms’ absorptive capacity, the question that follows is how to do it.
The answer is that KAUST goes farther in advancing technology along the development curve to validate the value proposition it represents, and engages deeply with the Saudi partner.
The first challenge is engaging Saudi firms, which are likely not currently able to recognize the value of new knowledge. KAUST accomplishes this through robust Proof-of-Concept funding through which, ED advances a technology’s readiness level beyond that typically associated with academic, early-stage research results. ED plays an active role in furthering technology development, having a unit in-house dedicated to this endeavor. By engaging Saudi companies early on in pilot-scale projects and scale-up / scale-out efforts, ED advances both the technology and develops the market. When the technical success is coupled with a demonstration of market need, the Saudi firm is more likely to find the risk-vs-reward proposition acceptable. Instead of waiting for a mature technology embodied in a product to be brought in from abroad, domestic firms can adopt new technologies and create value in the Kingdom. By employing this approach, KAUST-ED has already been successful at securing Saudi firms’ commitment to developing a new product or service offering based upon new technology.
The second step is engaging Saudi firms through joint commercialization teams to cooperatively identify a ‘best-fit’ market need and move from a technology development effort to a product development effort. The partner company makes commitments of in-kind and in-cash resources to the effort at this stage; reciprocal commitments are required from KAUST. This is a work in progress, and the author looks forward to presenting case studies of the effectiveness of this approach, should this paper be accepted for presentation.

This abstract contains content adapted from the author’s blog at