Constructing Regional Advantage: Challenges for Regional Innovation Policy for Small and Medium Enterprises

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Constructing Regional Advantage Challenges for
Regional Innovation Policy for Small and Medium
Enterprises

• Professor Bjørn Asheim, Deputy Director,
• CIRCLE (Centre for Innovation, Research and
  Competence in the Learning Economy),
• Lund University, Sweden.
• Presentation at Knowledge Economy Forum VII
• Technology Absorption by Innovative Small
• and Medium Enterprises
• Ancona, Italy, June 17-19, 2008

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Regional Innovation Policy A Classification of
Policy Instruments
Support Financial and technical Behavioural change Learning to innovate
Financial support Mobility schemes
Firm-focused Brokers
Technology Regional
System-focused centres innovation systems
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What is Regional Innovation Systems (RIS)
narrow definition (human capital strategic)

• A RIS is constituted by two sub-systems and the
  systemic interaction between them (and with
  non-local actors and agencies)
• The knowledge exploration and diffusing
  sub-system (universities, technical colleges, RD
  institutes, technology transfer agencies,
  business associations and finance institutions)
• The knowledge exploitation sub-system (firms in
  regional clusters as well as their support
  industries (customers and suppliers))
• STI (Science, Technology, Innovation) mode of
  innovation high-tech (science push/supply
  driven) radical innovations

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What is a RIS - broad defintion (social capital
strategic)

• A system of organisations and institutions
  supporting learning and organisational
  innovation, and their interactions with local
  firms (learning regions)
• Developmental (creative) learning competence
  building learning work organisation
• Reproductive (adaptive) learning interactive
  learning (user-producer relationships)
  inter-firm networks
• A market/demand/user driven system mostly
  generating incremental innovations
• DUI (Doing, Using, Interacting) mode of
  innovation Competence building and
  organisational innovations market/demand/user
  driven

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Varieties of Regional Innovation Systems (RIS)

• Territorially embedded RIS (grassroots RIS)
  demand/user driven (less systemic
  university-industry relations) broad definition
  of IS (learning regions)
• Regionalised national innovation systems
• (dirigiste RIS) science/supply driven
  narrow definition of IS (technopolis, science
  parks)
• Regional networked innovation systems (network
  RIS) mixed supply/demand interaction (combined
  narrow and broad definition)

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Policy challenges Institutionally thin
(peripheral) and old industrial (lock-in) regions

• Institutionally thin regions
• Less innovative in comparison to more
  agglomerated regions
• Less RD intensity and innovation
• A less developed knowledge infrastructure
  (universities and RD institutions)
• Suffering from institutional thinness

• Lock-in regions
• Overspecialised in mature industries experiencing
  decline (negative lock-in in specialised
  localisation economies)
• Few RD activities, mature technological
  trajectories, cognitive lock-in
• University and public research oriented at
  traditional industries / technologies

Source Tödtling Trippl (2005)
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Policy challenges Fragmented metropolitan and
networked regions

• Fragmented regions
• Many and diverse industries/ business services
• Lack of dynamic clusters of (local) innovative
  firms and knowledge spill-overs (unrelated
  variety of urbanisation economies)
• RD departments and headquarters of large firms
• Many and high quality universities and public
  research organisation but weak industry-university
  links (weak connectivity in RIS)

• Networked regions
• Regions with cutting edge technologies and a high
  level of RD as well as high connectivity in RIS)
• Exposed to new challenges and competition from
  emergent economies
• Diversify into new but related industries
  (related variety/differentiated knowledge bases)
• New ways of continuous innovation support

Source Tödtling Trippl (2005)
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Policy responses to regions and SMEs
innovation problems - RIS with problems of
organisational thinness.

• Financial Attract and retain innovating firms
• Technological Link firms with technological
  resources outside the region absorptive
  capacity key resource
• Human Resources Attract/retain highly-skilled
  workers raise absorptive capacity through
  mobility schemes
• Openess and learning attitude Promotion of
  networking between firms and clusters at every
  geographical scale
• Strategy and Organisation Support firms in
  linking to international input and output markets

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Policy responses to regions and SMEs innovation
problems RIS with lock-in problems

• Financial Ensure long-term finance for overall
  innovation project and new firms formation
• Technological Push firms to seek new technology
  options using brokers, also through international
  partnerships
• Human resources Develop creative capacities of
  workers (human capital development learning work
  organisation)
• Openess and learning attitude Help SMEs evolve
  towards more creativity and autonomy in
  production
• Strategy and organisation Open windows of
  opportunities for SMEs innovation management
  training

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Policy responses to regions and SMEs innovation
problems RIS with fragmentation problems

• Financial Coach firms in linking to finance
  sources
• Technological Provide bridge between firms and
  technological resources by promoting
  university-industry interaction and improving
  connectivity in RIS
• Human resources Foster exchange of codified and
  tacit knowledge (STI and DUI mode of innovation)
• Openess and learning attitude Foster a more
  collaborative spirit and more strategic
  orientation in the regions (learning to innovate)
• Strategy and Organisation Help firms identify,
  articulate and de-bundle their needs

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From competitive to constructed advantage
Regional Policy Challenges in a Globalising
Knowledge Economy

• Imitation and adaptation is not any longer a
  sufficient strategy for regions in the long run
  (cost-based, low road strategy). Unique
  advantages have to be actively constructed
  (innovation-based, high-road strategy). However,
  innovation can build on cost advantages (e.g.
  TATA-Nano car from India).
• Industrial renewal takes place in-between and
  beyond existing sectors need for transcending
  traditional sector policies (platform policy)
• Innovation through combining existing knowledge,
  technologies and competencies with new generic
  technologies (IT, biotech (green and white))
• How to shape conditions for constructing regional
  advantage?

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From competitive to constructed advantage

• Competitive advantage too strong focus on
  markets and rivelry as selection mechanisms as
  well as a too narrow approach to the creation of
  endogenous capacity of regions to learn and
  innovate as primarily being based on co-location
  of firms in clusters and by placing the state in
  the same peripheral position as chance in
  Porters diamond model
• Constructed advantage acknowledges more the
  important interplay between industrial dynamics
  (knowledge bases) and institutional dynamics
  (i.e. different knowledge bases need different
  kinds of institutional support) as well as
  private-public complementarities in policy making
  by a stronger focus on actors, agencies and
  governance forms (addressing system failures
  weak connectivity within and between IS).

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Content of policies for Constructing Regional
Advantage

• Proactive and trans-sectoral, platform oriented
  policies (transcending traditional industry or
  sector specific policies)
• Related variety (spillover effects)
• Differentiated knowledge bases (analytical,
  synthetic and symbolic)
• Distributed knowledge networks

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Platform policies Japans new cluster policy
(2004)

• Ex Strengthening policies for advanced
  component/materials industries

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1) Related variety Agglomeration economies and
optimal cognitive distance absorptive capacity

• Localisation economies sector specialisation
  achieving efficiency? Traditional clusters
• Urbanisation economies diversity promoting
  creativity? However, can knowledge spillover take
  place between sectors that are unrelated
  (portfolio vs. knowledge spillover effects)?
• Trade-off betwen cognitive distance, for the sake
  of novelty, and cognitive proximity, for the sake
  of efficient absorption. Information is useless
  if it is not new, but it is also useless if it is
  so new that it cannot be understood

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Related variety (spillover effects)

• Related variety is defined as sectors that are
  related in terms of shared or complementary
  knowledge bases and competences
• One of the driving forces behind urban and
  regional growth due to knowledge spillover
• Acknowledge that generic technologies have a huge
  impact on economic development (e.g. green and
  white biotech)
• Related variety combines the strength of the
  specialisation of localisation economies and the
  diversity of urbanisation economies

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2) Differentiated knowledge
bases A typology
Analytical (science based) Synthetic (engineering based) Symbolic (artistic based)
Developing new know-ledge about natural systems by applying scientific laws know why Applying or combining existing knowledge in new ways know how Creating meaning, aesthetic qualities, affect, symbols, images know who
Scientific knowledge, models, deductive Problem-solving, custom production, inductive Creative process
Collaboration within and between research units Interactive learning with customers and suppliers Learning-by-doing, in studio, project teams
Strong codified knowledge content, highly abstract, universal Partially codified knowledge, strong tacit component, more context-specific Importance of interpretation, creativity, cultural knowledge, implies very strong context specificity
Meaning relatively constant between places Meaning varies substantially between places Meaning highly variable between place, class and gender
Drug development Mechanical engineering Cultural production
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Differentiated knowledge bases

• Characterise the nature of the critical knowledge
  which the innovation activity cannot do without
  (hence the term knowledge base understood as an
  ideal type)
• Makes it wrong to classify some types of
  knowledge as more advanced, complex, and
  sophisticated than other knowledge (e.g. to
  consider science based (analytical knowledge) as
  more important for innovation and competitiveness
  of firms and regions than engineering based
  (synthetic) knowledge or artistic based
  (symbolic) knowledge). Different knowledge bases
  should rather be looked upon as complementary
  assets (STI vs. DUI)

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3) Distributed knowledge networks
open innovation

• More and more highly complicated combinations of
  different knowledge types, e.g. codified and
  experience based, tacit knowledge, as well as
  synthetic/analytical/symbolic knowledge bases
• As a result of the increasing complexity and
  diversity of knowledge creation and innovation
  processes, firms need to acquire new, external
  knowledge to supplement their internal, core
  knowledge base(s)
• Transition from internal knowledge base(s) within
  firms to distributed knowledge networks across a
  range of firms, industries and sectors locally
  and globally

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Clusters and distributed knowledge networks
absorptive capacity

• The structure of knowledge networks is not
  symmetrical within a region heterogeneous
  distribution of firms competence bases (human
  capital and RD) generates an uneven distribution
  of knowledge and selective inter-firm learning
  (extra-local absorptive capacity as well as
  intra-regional diffusion capacity).
  Differentiated along knowledge bases.
• This requires more systemic approaches both with
  respect to local buzz and global pipelines
  (RIS)
• Regional advantages must be proactively
  constructed by a stronger focus on actors,
  agencies and governance forms in a multi-level
  perspective

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What can be achieved at the regional level the
role of RIS (narrow def.)

• Competitive research and innovation environments
  (e.g. Centres of Expertise) can only be
  established in a limited number of regions
• Such regions must have strong research
  centres/large universities, competitive
  industries and proactive regional governments and
  governance building RIS
• These regions will be able to serve RD intensive
  domestic industry as well as to attract TNCs RD
• Similar industry in other regions must rely on
  the national and international levels (in
  addition to the strong regions) multi-level
  approach

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What about the ordinary industries in the
ordinary regions the role of RIS (broad def.)

• RIS have other tasks than only to support RD
  intensive industries, as regions have other types
  of industries that are in need of innovation
  support from RIS
• Knowledge creation and innovation in all types of
  industries with different knowledge bases
• Optimal combinations of RD and user driven
  innovation (STI (Science, Technology, Innovation)
  and DUI (Doing, Using, Interacting) modes of
  innovation) on the level of firms and regions
• Look to Finland the new innovation policy is
  extended to deal with user driven innovation in
  addition to RD. Increased focus on less RD
  intensive industries as well as services.
  Building on the STI DUI framework

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RIS TYPOLOGY
Type of knowledge Type of RIS Analytical/ science based Synthetic/ engineering based Symbolic/ artistic based
Territorially embedded (grassroots RIS) IDs in Emilia-Romagna (machinery) Advertising village Soho (London)
Networked (network RIS) Regional clusters regional university (wireless in Aalborg) Regional clusters regional technical university (mechanical in Baden-Württemberg) Barcelona as the design city
Regionalised national (dirigiste RIS) Science parks/ technopolis (biotech, IT) Large industrial complex (Norwegian oil and gas related industry)
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RIS in developing economies

• From endogenous to exogenous perspectives.
  Relying more on
• External capital
• Transnational knowledge sources
• TNCs and FDIs
• Thus, non-local (extra-national) factors often
  more important than local (national) in moving up
  the value chain from competing on cost to
  competing on knowledge creation and innovation

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RIS in developing economies

• Developing firms and regions absorptive
  capacity by human capital development and
  improving RD
• Embedding TNCs and FDs in the region
• The formation of RIS, clusters and technology
  transfer agencies as well as the promotion of
  soft knowledge infrastructure are important parts
  of regional policies for attaining these goals