Towards a Québec Innovation Policy Innovation: A Sectoral Outlook (Aerospace, Pharmaceuticals, Forest Products) Advisory report of the Conseil de la science et de la technologie Summary Innovation in Québec The Three Levels of Innovation In its Rapport de conjoncture 1998, Pour une politique québécoise de l'innovation (1998 Status Report, Towards a Québec Innovation Policy), the Conseil de la science et de la technologie took a first look at the innovation system in Québec. The model it applied put business at the heart of Québec's National Innovation System (NIS) and had three different levels: Innovating companies that devote in-house resources to innovation: R&D, technology acquisition, scientific and technical personnel, marketing, export, etc. The immediate environment of innovating companies where external resources improve their ability to innovate: business networks, university research centers, government agencies and laboratories, financial institutions, etc. The global environment of companies where various factors have a strong impact on their ability to innovate: legislative and regulatory framework, scientific research base, educational system, scientific and technical culture, etc. Towards a Québec Innovation Policy Using this model, the Status Report drew a general portrait of Québec's NIS and offered an evaluation of Québec's overall performance in terms of innovation. Further to this analysis, the Council recommended that the Government of Québec adopt an innovation policy designed to modulate its responsibilities with respect to the three levels of innovation. A Sectoral Approach to Innovation The Goals of This Advisory Report This advisory report builds on the work of the 1998 Status Report and constitutes another step in the examination of the innovation system in Québec. It looks at factors influencing innovation activities in three industrial sectors-aerospace, pharmaceuticals and forest products-in order to determine strengths and weaknesses, and assess the
consequences for government actions. Using the innovation model from the Status Report, it has sought to offer a specific response to three main objectives: Illustrate the unique aspects to innovation in each of the three industrial sectors analyzed Assess the importance and role of the factors or conditions that determine the ability to innovate in each sector Bring to the fore for each sector the interplay and degree of cooperation between companies and the various stakeholders involved in the innovation process Factors Influencing Innovation In Three Industrial Sectors Limits of the Study The innovation model is an analytical framework which clearly is not a tool for measuring the industrial performance of a given sector. However, the use of innovation factors drawn from the model allows identification of the characteristic features of innovation in each of the sectors studied and, based on the main findings, suggests conclusions to guide government action. Main Findings of the Sectoral Analysis Among the main findings of the sectoral analysis, the following deserve special mention: Aerospace Industry At the level of innovating companies, the aerospace sector employs a much higher proportion of scientific and technical personnel than most other industries. R&D expenditures (R&D/GDP ratio) place this sector ahead of the pack in Québec, but below the average of major OECD countries. Export sales are very high, and currently account for over 70% of total production. At the level of the immediate environment, this industry has a long and rich history of synergy and interdependence mainly based on hierarchical relations between the main manufacturers and a multitude of subcontractors. On the other hand, horizontal networking is much less well developed (intersectoral partnerships) and companies in this sector have little contact with government agencies and laboratories, while their relations with universities are almost nonexistent. At the level of the global environment, government R&D support programs are felt to be too small in number and severely underfunded. On the other hand, the educational system seems well equipped to meet industry requirements thanks notably to CAMAQ, an organization responsible for determining human resource and training requirements for Québec's aerospace industry.
Pharmaceutical Industry At the level of innovating companies, the pharmaceutical industry is characterized by a high percentage of scientific personnel, especially in the biopharmaceutical sector where nearly 65% of employees are involved in research and over one-third have PhDs. Although R&D activity is much more intense than in other industrial sectors in Québec, investment by the pharmaceutical industry is below the average of major OECD countries. Exports by pharmaceutical companies are relatively meager (15% of sales), notably because of territorial limits imposed on subsidiaries of foreign companies that set up shop in Québec. At the level of the immediate environment, alliances are currently an essential condition for the success of pharmaceutical companies, particularly for small and medium-sized companies in the biopharmaceutical sector, which have reached numerous partnership agreements in recent years, especially in the areas of R&D and marketing. Cooperation between the pharmaceutical sector and universities is by far the most intense and diversified (46% of all industrial funding of university research in Québec). Cooperation with government agencies is more or less limited to a single agency, the Biotechnology Research Institute (BRI), a federal laboratory under the jurisdiction of the National Research Council of Canada. Relations with venture capital companies are also highly developed, especially in biotechnology, which attracts nearly 30% of the venture capital invested in high technology. At the level of the global environment, the support of both levels of government is essential for preserving the quality of university research in the health sciences, but since the early '90s, there has been a significant decrease in support from funding agencies for this type of research. Overall, training programs seem well adapted to industry expectations, except in biopharmaceuticals where certain difficulties in recruiting personnel can be anticipated. The protection of intellectual property (patents) is of capital importance for companies in this sector, but provisions in Canada are less favorable than in major competing countries. Forest Products Industry At the level of innovating companies, R&D investment by the forest products industry falls well short of other industrial sectors in Québec and of main foreign competitors. The proportion of scientific and technical personnel is also much lower than in other industrial sectors. On the other hand, Québec companies, like those in other Canadian provinces, export much of their production (50% of sales). Canada has long been the largest forest products exporter in the world. At the level of the immediate environment, there is a long tradition of cooperation in this sector between companies and government agencies since the State is de jure the main manager of Québec's forests. Business-to-business cooperation in the sector is mainly channeled through three industrial research consortia (FERIC, FORINTEK and PAPRICAN). The industry also maintains relatively strong ties with universities, and especially with collegial centers for technology transfer,
which meet the special requirements of the main subsectors (wood, pulp & paper, logging). At the level of the global environment, it is felt that government R&D support programs are generally well adapted to the requirements of the industry, particularly those that involve companies directly in the management and funding of R&D projects (partnership programs). As a general rule, apart from certain problems of adjustment, Québec's educational system seems well equipped to provide the new skills required by the industry. Environmental regulations have a significant impact on the competitiveness of the sector and require governments to pursue their efforts to promote the adoption of internationally recognized standards. Recommendations To Better Understand the Sectoral Dimension of Innovation And Offer A Flexible Framework for Action The 1998 Status Report presented a general picture of the state of the innovation system in Québec. Based on the same NIS model, but with the focus on three industrial sectors, what emerges here above all else is that these sectors have widely diverse approaches to innovation. This diversity requires that government actions be adapted to the reality of each industrial sector. The adoption of a sectoral approach must, however, take into account limitations imposed by new international trade rules ("Agreement on Subsidies and Countervailing Measures" of the World Trade Organization). While acting within these limits, the government must draw up a sectoral framework that reflects the sectoral constraints and assets for innovation and renders its actions more effective. We therefore recommend- Recommendation 1 That the Government of Québec, through its innovation policy 1, assure the means to analyze and adjust for the sectoral dimensions of innovation. A sectoral approach is required to provide sufficiently detailed information to understand the innovation dynamics in any given industry or group of industrial sectors. In addition to the general systemic approach to innovation, which remains essential for measuring and comparing the "ability to innovate," certain complementary measures must be implemented to obtain more accurate information on the sectoral aspects of innovation. To date, the following means have been identified:
Mandate the Conseil de la science et de la technologie to provide an analytical framework and appropriate indicators to gather information on innovation in Québec's major industrial sectors, thus following the recommendation of the 1998 Status Report to assign it the role of coordinating studies on changes in the innovation system (Recommendation 5C). Mandate the Minister responsible for Research, Science and Technology to draw up, in conjunction with sectoral ministries, a portrait of the strengths and weaknesses of Québec's "industrial and company innovation clusters." This work should seek inspiration in both the innovation model put forward by the Conseil de la science et de la technologie and the work that led to the mapping of Québec's industrial clusters. Recommendation 2 That the Government of Québec, through its innovation policy, adopt a flexible framework for action adapted to the innovation realities in each sector. In recent years, special support measures and programs have often been dropped in favor of more homogeneous, generic approaches that, by definition, rarely make allowance for sectoral differences. Yet the diversity observed in the sectoral analysis suggests that a sector-by-sector approach would be advisable. Such an approach should be used to guide and define the government's actions with regard to the principal components or factors making up the three levels of the innovation model. Some means of implementing such an approach are suggested: In the global environment, with regard to the mechanisms for matching labor supply to demand, the government could use the CAMAQ model to develop and implement similar measures in a number of industrial sectors. In the immediate environment of companies, the government must play more of a "facilitator" role to foster cooperation between institutional players (universities, research centers, government agencies) and the various business groups (boards of trade, industrial clusters, sectoral and/or regional associations) in order to draw up common sectoral strategies in a number of areas: R&D, technology acquisition, marketing and exporting, human resource development. As for in-house company resources, the government must first and foremost favor the most appropriate means for each sector in order to optimize its support for improving the ability of companies to innovate.
Recommendation 3 That the Government of Québec, through its innovation policy, require all its sectoral ministries to draw up and implement science, technology and innovation action plans, And that the Minister responsible for Research, Science and Technology be charged with coordinating all sectoral action plans. Government ministries with sectoral responsibilities are the most knowledgeable about sectoral realities. They manage the programs, possess the know-how unique to their sectors, and work most closely with industry stakeholders. They must be at the forefront of establishing sectoral orientations and priorities for innovation. Such an initiative presupposes- Drawing up sectoral action plans which take into account the objectives of the general framework recommended by the Conseil de la science et de la technologie regarding the adoption by the Government of Québec of an innovation policy (1998 Status Report, Towards a Québec Innovation Policy) Applying and, as needed, adjusting the innovation model of the Conseil de la science et de la technologie to the sectoral realities of each ministry Developing sectoral action plans from the perspective of an "innovating industrial and company clusters" strategy Defining what is expected from ministries responsible for sectoral action plans and periodically evaluating the results obtained, in light of these expectations Recommendation 4 That the Government of Québec, based on the actions recommended in this advisory report, implement measures to stimulate innovation in the aerospace, pharmaceutical and forest products sectors.
Further to the main findings of the sectoral analysis and the recommended actions, the Ministère de l'industrie et du Commerce, the Ministère des Ressources naturelles and other sectoral ministries can take immediate action to adopt or improve certain measures to strengthen the innovation capabilities of companies in the three industrial sectors. Among the various proposed courses of action, certain should be considered priorities: In the aerospace sector, the government must quickly adopt measures to provide competitive R&D support (increase the budget for the Aerospace Industry Investment Fund). In the pharmaceutical sector, the government must first act to increase support for basic research (increase budgets for funding agencies) and make the system of intellectual property protection more competitive. In the forest products sector, programs aimed directly at encouraging companies to increase investment in R&D (partnership programs and structures) and measures designed to orient their efforts at developing new, value-added products appear to be two essential conditions for innovation to occur. 1. The adoption of a policy on innovation was the first recommendation by the Conseil de la science et de la technologie in its 1998 Status Report, For a Québec Policy on Innovation. [Return to the Summary.]