Measuring Institutional Efficiency for Innovation Efficiency : Case of Industry 4.0 in Korea

Abstract

It is usually assumed that institution determines innovation. The objective of this study is to develop a framework to measure cross-cutting factors influencing institutional and innovation efficiency for the readiness of industry 4.0 and circular economy. Industry 4.0 represents the digital transformation of a country and circular economy is a path leading to the sustainable society. Resource circulation, environment protection and carbon emission reduction are required to make our society sustainable for the long time. The performance of innovative efforts is determined in the context of an institutional environments. Generally, institution environments are made up of formal institutions such as laws and regulations and informal institutions such as culture. These institutions can function as the opportunity, cost or risk for the success of innovative efforts. The cross-cutting factors are devised in two dimensions: country-level and corporate-level. In country-level factors, there are three areas of regulations, economy and industry technology and four factors are suggested in each area. In corporate-level factors, leadership, environment and resources are three areas and four factors are presented in each area. Korea is scored by this model and from the scoring and analysis, some implications were presented. Overall the evaluation result of two Korean experts are shown and the findings from the analysis are summarized. First, the scores of regulation environments and corporate leadership are relatively low. In regulation environments, we measured presidential commitment, political transparency, business regulations and national security. Some obstacles still exist to deter the innovative capabilities of private companies. The corruptions between government officials and large corporations are should be eliminated. Less regulations on business operations and open environments for start-ups are prepared in Korea. Second, the score on the industry technology was analyzed to be higher than other scores. This factor was measured by ICT infra, R&D effort, support for start-ups and competitiveness of manufacturers. Except the support for start-ups, other elements are very good in Korea. Other three factors are seen to be the strength of Korean industries. Third, the scores on national economy, corporate environments and firm resources are modest. These three dimensions are in the similar status. They have been improved significantly and are expected to reach to top-level in the near future. The policy implications drawn from the analysis are about the necessity of political transparency, global competitiveness of domestic firms, performance in the investments for ICT development and proactive attitude to sustainability issues.