Meeting of Experts on “FDI, Technology and Competitiveness”across national boundaries (Senker 2005, Choi 2005). ... This has allowed more non-triad countries, such as India, China,

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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 .


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%


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%


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


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


service industries 36.83% 82.14% 93.23% 82.70% 58 3

Total

2,534 247


Note: Total sales = domestic sales + exports:.

21

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