Birmingham Business School Msc International Business Essay

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Using either the Varieties of Capitalism or the National Systems of Innovation approach compare and contrast the national business or innovation systems of two countries of your choice. Discuss some of the practical implications for international business practitioners of these national differences.


The concept of National Systems of Innovation (NSI) has been gaining importance in past few decades owing to its close connectivity with the intellectual and practical applications. One of important international organization – OECD (Organization for Economic Cooperation and Development) has recognized and adopted this conception and encouraged further research and study for the benefit of nations. In the recent years the NSI has attracted the attention of the developing countries to address certain serious economic problems. Various economists treat this as having potential to highlight the root causes for the difference in economic development. They also believe that this would also serve as a powerful framework that can reveal new policies and create institutions that are capable of bridging these differences.

What is a National Innovation System?

The answer to the question can be partly derived from the very term “National Innovation Systems”. Innovation is seen as the creation of new processes, products or services based on the advances in technology, change in market demand or a combination of the two (Pavitt, 1994). These new processes, products or services once commercialized aids in economic growth. Therefore it becomes obvious that nations are interested in utilizing the opportunity to build an approach (system) through innovation that causes economic growth. This innovation is made possible through research and interactions. The inclusion of interactions is important as innovation is considered as a social process rather than a process that happens only in research labs. The idea of interactions triggers other aspects of social systems such as national institutions, universities, business firms, government policies, laws and regulations which greatly influence these interactions. To be precise the National Innovation Systems focuses on the flow of technology and information through the social systems such as firms, institutions and people. The complex set of relationships between the actors of these social systems results in innovation and technological development. Therefore identification and understanding the nature of these linkages is important to build a framework. Here much emphasis is given to the determinants and organization of innovation action

Figure 1 : Significance of NIS for economic success

Various theories have been published by a number of authors, who tried to explain NSI focusing on various aspects of innovation. Some of the widely noted and accepted definitions are given below.


“… The network of institutions in the public- and private-sectors whose activities and interactions initiate, import, modify and diffuse new technologies” (Freeman, 1987) His definition of NSI focuses on the importance of networks of relationships that is essential for any firm to innovate and develop. His core argument is that the national educational institutions, industrial relationships, technical and scientific institutions,

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