Intellectual Capital Flight

Intellectual Capital Flight

Saudi Arabia’s King Abdullah University of Science & Technology is a world-class research and education institution generating globally competitive, cutting-edge technologies. At the same time, KAUST has a strong focus on economic development.

Given this focus, we’re looking first to transfer technology within the Kingdom. Licensing technologies to the highest bidder abroad won’t benefit the economy or people of Saudi Arabia. Instead, it leads to what I like to call intellectual capital flight.

Capital flight is when money or other assets leave a country to the detriment of its economy. The technology goes abroad, adding value to a finished product that is subsequently imported back into the Kingdom.

I argue that intangible assets such as intellectual capital should be retained as much as possible in Kingdom. This lets us maximize the local benefits of innovation coming out of entrepreneurial universities like KAUST. Retaining intellectual capital domestically leads to increased value creation and knowledge-based employment opportunities.

A Model for an Innovation-Driven Growth Strategy

The Saudi economy is transitioning from a natural resource-based market structure to a knowledge-based structure. And technology transfer’s role in promoting this economic development mandate may seem difficult.

Scholars often point to industry’s lack of absorptive capacity, the ability to adopt and commercialize new technologies, as a barrier to technology transfer outside of the most industrialized nations. A common indicator of robust absorptive capacity is the presence of well-developed internal R&D functions within individual companies.

However, having a robust internal research function is not a necessary prerequisite for a company to transition to an innovation-driven growth strategy.

Moving from Importing to Innovation

For example, I worked closely with a company that sought to establish itself as a major player in the Eurasian biotechnology market.

At first, the company simply imported, re-branded, and re-packaged pharmaceuticals, not a high value-added activity. However, this strategy enabled the company to establish distribution networks. Soon thereafter, it went up the value chain to build regulatory approval capacity by importing active substances, reformulating drugs, and gaining regulatory approval for them. This enabled the company to then identify new market opportunities through its interactions with prescribing physicians.

It later extended its capabilities to take advantage of niche market needs and price differentials discovered via its distribution networks. In parallel, it slowly built up its internal R&D. The major success factor was a commitment to evolving toward an innovation-driven business model.

This company went on to develop some of the first biosimilars to U.S. blockbuster biopharmaceutical products as they went off patent. And this leap involved bringing in new technologies and hiring researchers. As a result, the company became a well-established global biopharmaceutical firm serving major markets in Russia, Central Asia, China, India, and Latin America.

In transition economies and emerging markets, it is a well-known pathway for high-technology sector development to progress from import substitution (generics or biosimilars in the case of biologics), to innovative “next in class” drugs and products, to “first in class” pioneering products.

My point is that companies can evolve toward an innovation-driven business model. Such companies bring exactly what early-stage technologies need: knowledge of the market.

A Pathway for Commercialization

Our vision at KAUST is to build an innovation ecosystem that creates a pathway for commercialization. Local small and medium enterprises (SMEs), like the one above, have market access and know-how that are instrumental in launching new product and service offerings. TTI wants to partner with such companies in the Region that are interested in innovation, to commercialize KAUST technologies, in the region and globally.

Instead of looking west toward the example of North American university technology transfer, it is instructive to examine the operations of successful entrepreneurial universities in the Far East, as discussed in Academic Entrepreneurship in Asia:

• National University of Singapore: …the lower ability of local firms to engage in knowledge commercialization means that universities in Singapore need to take a more direct role in commercializing their inventions…leading to a somewhat different commercialization model from the USA, for example, where technology licensing is emphasized more heavily. (p. 188)

The message for KAUST in the NUS experience is that technology transfer requires a more intensive and proactive approach to working with local firms. TTI, itself, has to innovate, going beyond traditional licensing-driven models of university technology transfer, to market development.

• Hong Kong University of Science and Technology …has sought to intensify the university’s efforts to develop sustainable routes for commercialization of the technology … Taking a more proactive approach, the center has been developing a new framework for the adoption of technology by industry that moves beyond the simple model of creating spin-offs. (p. 150)

The message from HKUST’s experience is that there is a third pathway. The dichotomy many Western technology transfer offices face is license to an established company or a start-up. The third pathway is a hybrid of those two, involving early engagement and close collaboration with domestic firms and on-going interactions with TTI and KAUST researchers. The anticipated outcome is new product development or service offerings. These may involve bringing in other commercial partners to deploy integrated system solutions.

While this level of effort is resource intensive, it is worth it because of KAUST’s economic development mandate. For us, technology transfer focuses on making innovations available to domestic firms to enable effective development processes. This strategy acknowledges the trade-off between short-term revenue maximization and deliberate economic development.

Licensing a technology to a foreign multinational may net more money in the short term than working with a Saudi Arabian SME. But working with Saudi companies will provide more long-term economic benefit to our region and a stronger innovation ecosystem.

Innovation and good ideas now come from everywhere. We can be part of the solution for Saudi businesses looking to leverage market opportunities with early-stage technologies.

Reblog of my original work entitled, “Intellectual Capital Flight: Economic Development and Revenue Tradeoffs.” Used with the permission of King Abdullah University of Science and Technology http://www.innovation.kaust.edu.sa