Wharton’s Karl Ulrich: Access to Capital, Better Property Rights, and Stronger Education Needed to Cultivate Middle East Innovation

In his first trip to the Middle East, Karl Ulrich, the school’s Vice Dean of innovation and CIBC professor of entrepreneurship and e-commerce, came to Abu Dhabi to oversee Wharton’s first innovation tournament in the region. Ulrich was impressed by the entries, which focused on sustainability projects, noting that the competitors showed the same aspirations and approach as innovators in Silicon Valley or Philadelphia.

The winner of the competition was Egypt-based KarmSolar, a concept to provide a solar-powered water pumping solution for Egyptian farms in arid areas, which currently rely on diesel generators to pump underground water for irrigation. Even though the team had to present virtually, Ulrich says they managed to persuasively demonstrate the value of their proposal.

Reflecting on the issue of youth unemployment raised by the Arab Spring protests, Ulrich says governments should promote regulation, strong property rights for investors, immigration and travel policies that allow the efficient flow of human resources, and fair protection of intellectual property to bolster innovation in the region. Instead of trying to invest in innovation projects, Ulrich adds, governments in the Middle East would be better off investing in education.

An edited transcript of the conversation follows.

Arabic Knowledge@Wharton: This was the first time Wharton conducted an innovation tournament in the Middle East. It is a new concept in the region, as most local competitions focus on business plans. What are your reflections on the event?

Karl Ulrich: I was pleasantly surprised by the quality of the submissions we received. They were every bit as good as those we have received in response to the global solicitations for entries to our Philadelphia-based tournaments. I was especially impressed by entries from young innovators in developing countries like Pakistan and Bangladesh.

Arabic Knowledge@Wharton: You had an opportunity to be presented with student sustainability solutions from the region, and interact with regional judges. Did you note a regional skew in the ideas presented — in other words, was there a different approach? Does geography and culture affect innovation?

Ulrich: The culture I observed was a culture of innovation, not a regional culture. The aspirations and approach of the participants was very familiar to me, just what I’ve experienced in Silicon Valley, Boston, and Philadelphia. Of course the needs addressed by the innovator vary significantly by region, the approach and attitude does not seem to vary at all.

Arabic Knowledge@Wharton: Due to visa restrictions, the winner of the innovation tournament could not even attend the competition, and virtually presented and interacted from Egypt via Skype videoconferencing. Was that significant in some regard?

Ulrich: The KarmSolar team from Cairo was very impressive even via Skype. Actually doing innovation across boundaries is not as frictionless as it should be, and hopefully government authorities interested in economic development will be responsive to this challenge.

Arabic Knowledge@Wharton: The tournament focused on sustainability, derived from the 10-year development goal set by the Abu Dhabi government. The question that many outside observers have, though, is how does a society that owes nearly all of its wealth to fossil fuels become a sustainable one?

Ulrich: The sustainability challenge will be played out at two levels for Abu Dhabi. First, over some time period — almost certainly much longer than ten years — the economy will have to transition from one based on an endowment of natural resources, to one based on human capital. Second, the lifestyles and modes of doing business in Abu Dhabi will have to become more sustainable, as the cost of energy and the consequences of consuming non-renewable fuels become more severe. These transitions are inevitable. The only questions are, one: Over what time period will the transitions be made? And two, will the transition be made in a smooth and orderly way or will it be a forced transition due to the sudden onset of crisis or disruption.

Arabic Knowledge@Wharton: Is there a particular method or approach to foster innovation in a society? Can wealth itself generate innovation? One of the key challenges teams in the competition said they faced was finding financial support.

Ulrich: I believe that access to capital, reliable property rights, and healthy educational institutions are likely to give rise to innovative activity by young people in a society. Capital readily flows to innovators in stable political environments in which the property rights of investors are protected.

Arabic Knowledge@Wharton: A number of officials here with government-funded entrepreneurship funds say their biggest issue, though, is that would-be entrepreneurs aren’t developing the ‘big ideas’ that they want to support. How is that problem addressed?

Ulrich: The notion of a "big idea" tends to be retrospective assessment based on the outcome. I think it’s hard to know what a big idea is in advance. Who would have predicted the value created around Instagram, Zynga, or Groupon?

Arabic Knowledge@Wharton: You had an opportunity to see the United Arab Emirates. The accelerated establishment of its metropolises of Dubai and Abu Dhabi, despite being in the desert, is hailed as a development success, and a triumph of modern innovation. Would you agree with that claim?

Ulrich: The metropolises are impressive. However, if by development success, we mean economic success, the assessment really requires that the development projects generated more cash than the associated investment. I have not seen such an assessment, and so cannot judge the claim.

Arabic Knowledge@Wharton: Given the challenges raised by the Arab Spring revolutions, primarily youth unemployment, what sort of innovation should governments in the region pursue to tackle that issue?

Ulrich: The role of government in innovation is first and foremost to create a healthy environment for innovation. That means stable regulation, strong property rights for investors, immigration and travel policies that allow the efficient flow of human resources, and fair protection of intellectual property. Next, I believe government should invest in education. I’m less enthusiastic about direct investment in specific innovation projects. I don’t think governments have demonstrated a capability to pick winners at the project or company level.

Arabic Knowledge@Wharton: There is much discussion of an economic shift from the West, particularly to Asia. There are predictions that China’s growth would spur an innovation race with the West. Do you see that evolving, and what impact would such a competition have on innovations to come in the future?

Ulrich: The most significant risk factor in innovation is in understanding the customer or market need. Thus, much of the economic activity associated with innovation must occur close to the customer. As China develops, the economic significance of its consumers will become huge, and thus a lot of innovation will occur within its borders. The technologies associated with innovation will continue to be globally distributed, and will be driven in part by proximity to the customer, but also by where the healthy ecosystems are located.

Arabic Knowledge@Wharton: Another idea gaining prominence here is that of leapfrogging; emerging economies adapting and utilizing technologies in a way that not only allows them to skip developmental steps, but also generate innovation that can serve needs in the West too. Is that a credible trend?

Ulrich: Customers in emerging markets often have quite different needs than those in developed markets. In some cases, innovations that are responsive to those different needs may be valuable in developed markets as well.

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