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Local and Regional Innovation. OECD Capacity Building Seminar Supporting SMEs in a Time of Crisis Jay Mitra 13 October, 2009. Definitional Issues. Entrepreneurship = new opportunity identification & realisation (for the purpose of this paper ‘E’ = new business creation)

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local and regional innovation

Local and Regional Innovation

OECD Capacity Building Seminar

Supporting SMEs in a Time of Crisis

Jay Mitra

13 October, 2009

definitional issues
Definitional Issues
  • Entrepreneurship = new opportunity identification & realisation
    • (for the purpose of this paper ‘E’ = new business creation)
  • Innovation = successful exploitation of a new idea
  • Culture = a set of attitudes/beliefs common to a group
  • Culture = a set of activities concerned with moral, aesthetic, and intellectual aspects of life (activities include some element of creativity in production, communication of meaning & intellectual property)
  • Culture = a diverse way of life (from beef steak to Beethoven to
  • Eminem)
  • Entrepreneurial Culture = diverse set of attitudes, beliefs, systems, institutions and structures that are connected together with a view to supporting new venture creation, innovation and growth in a particular environment & in regional innovation systems.
why innovation systems
Why Innovation Systems?
  • Innovation is non-linear but involves interaction between many actors
  • Interest resulting from research on the success of the Japanese model (Freeman, 1987)
  • Emergence of “innovation systems” models (Freeman, 1987)
key models of innovation systems
Key Models of Innovation Systems
  • Nationalinnovation systems (Freeman, 1987; Lundvall, 2007)
  • Regional innovation systems (Cooke 1992; Braczyk et al., 1998)
some stylised facts and assumptions
Some Stylised Facts and Assumptions

F/A 1: Innovation = source of economic growth

  • The endogenous model)– critical importance of technological change in economic growth ( total factor productivity accounted for 87.5% of economic growth – Solow, 1957) Romer, 1990, OECD 2003
  • Strong emphasis on role of R&D, skilled labour & knowledge spillovers – greater productivity, product quality dependent on innovation
some stylised facts and assumptions1

F/A 2: Innovation is not evenly spread but spatially concentrated

Well-known concentrations = Oxford; Cambridge; SE, UK; Lombardy; Bangalore, Shanghai

High urban focus – OCED countries

Significant local differences within countries (Camagni & Capello, 1997; Keeble, 1996; Acs, 2002)

Different measures – innovation output (patent applications) & input/output (employment in high technology manufacturing & knowledge-intensive industries)

Some Stylised Facts and Assumptions
slide8

Subnational Variations in Innovation-Related Employment- High Tech Manufacturing , 2003

Source: Eurostat

slide9

Subnational Variations in Innovation-Related Employment –

Knowledge Intensive Industries

Source: Eurostata

* A = Employees In KI services

as % of total employees

some stylised facts and assumptions2
Some Stylised Facts and Assumptions

F/A 3: SMEs participate in innovation process

  • Classic ‘structure-conduct-perfomance’ model = large firms have monopoly positions, commit substantial R&D
  • Alternative model = SMEs have more impact (more radical innovation, Baumol, 2002)
  • Importance of business churning (OECD, 2003) to national productivity
  • Empirical evidence suggests that both small and large firms play a part – dependent on active links to knowledge of market (users) & knowledge of materials & machinery (suppliers) & non-firm organisations
  • Small firms rely heavily on external environment
  • Spatial business clusters – association between spatial concentrations & rates of technological innovation (Baptista and Swann, 1998)
slide11

Frameworks for Analysing Innovation Process in Agglomerations

Source: OECD, 2005ecd

why is a regional innovation system important
Why is a Regional Innovation System important?
  • Innovation = 80% of productivity growth and comparable figure for GDP (Freeman, 1994)
  • Regional disparities in innovation & GDP (Acs, 2002; Cooke et al., 2002)
  • Innovation = higher in regions with more knowledge generation e.g. R&D by firms & institutions (Acs, 2002)
  • Region = new focus of economic policy (Cooke et al. 2003)
why are local regional innovation systems relevant
Why are Local/regional Innovation Systems Relevant?
  • Most processes driving innovation occur locally – knowledge embedded in people ; distance decay effects in rate of knowledge & information links;
  • SMEs have spatially restricted search patterns for collaborative partnerships or technological inputs;
  • Different localities have different sector specialisations & distinct sets of innovation processes;
  • Strong local differences in innovation performance
what is regional innovation system
What is Regional Innovation System?
  • “Regional innovation system consists of interacting
    • knowledge generation
    • and
    • exploitationsub-systems linked to global, national and other regional innovation systems for commercializing new knowledge” (Cooke, 2004 p.3)
    • Emphasis: Firms in interaction with other firms & knowledge infrastructure at regional level.
regional innovation systems ris
Regional Innovation Systems (RIS)

ESSENTIAL NOTIONS:

  • Tacit knowledge = Innovation involves face-face interaction between actors due to tacit knowledge e.g. experience (Maskell and Malmberg, 1999)
  • Costs of interaction = Regional level has lower distance, transportation & communication costs (Audretsch, 1998; Krugman, 1991)
  • Local networks = Innovation is higher in regions with local networks of SMEs and R&D(Maskell & Malmberg, 1999; Asheim & Gertler, 2004)
sub systems of ris
Sub-Systems of RIS
  • Knowledge Generation:
      • Public & private research laboratories
      • Universities & Colleges for scientific & technical training
      • Firms thattransfer knowledge
  • Knowledge Exploitation:
      • Firms with regional & global value chain relationships
      • Venture capitalists
      • Consultants

Adapted from: Cooke et. al., (2003)

basic arguments of ris
Basic Arguments of RIS
  • Innovation process is social
  • Innovation = involves face-face interaction between actors internal & external to the firm(Maskell and Malmberg, 1999)
basic arguments of ris1
Basic Arguments of RIS

2. Region facilitates interaction

  • Region = lower distance, transportation & communication costs for interaction (Krugman, 1993)
  • Face-to-face interaction and cooperation are easier at the regional level
basic arguments of ris2
Basic Arguments of RIS

3. Regional concentration of R&D firms & institutions boosts innovation

  • Combination of knowledge generation (e.g. by universities) & exploitation (by SMEs with local networks) boosts innovation
  • Local concentration increases capacity to use external knowledge for innovation

Adapted from: Cooke et al., 2003 ; Asheim & Gertler, 2004

basic arguments of ris3
Basic Arguments of RIS

4. External Links boost innovation

  • Entering global markets
  • Sourcing Knowledge from global sources (e.g. R&D)
links between ris and entrepreneurship
Links between RIS and Entrepreneurship
  • Entrepreneurship – requires knowledge and resource seeking (e.g. technical knowledge, finance, consultancy etc.)
  • Innovative activity of firms and entrepreneurs are largely based on localised resources (Asheim et. al., 2003; Cooke et. al., 2000)
  • RIS provides access to critical resources for entrepreneurship within proximity
ris public governance system
RIS Public Governance System
  • Grass roots – SME dominated or industrial district (less public governance)
  • Networked – Associated between regional governance & industry pronounced
  • Centralist – Governance is strongly centralised

Cooke et. al (2003)

typology of regional innovation systems
Typology of Regional Innovation Systems

Business innovation system

Public Governance System

Source: Braczyk et. al. 1998; Cooke et. al. (2003 p.368)

developing innovation systems
Developing Innovation Systems
  • Identify Strong Sectors/Candidate Clusters
  • Investigate Regional Clusters
  • Identify Competitive Advantage
  • Identify Innovation Practices
  • Cooperative or Individualistic?
  • Innovation Support System
conditions for assessing ris
Conditions for Assessing RIS
  • Infrastructure issues
  • Superstructure
conditions for higher lower ris potential
Infrastructure level

Regional private equity

Policy influence on infrastructure

Regional university-industry strategy

Superstructural level

Institutional dimension

Co-operative culture

Interactive learning

Associative consensus

Organisational Dimension (firms)

Worker mentoring

Externalisation

Interactive innovation

Organisational dimension (policy)

Monitoring

Consultative

Networking

Decentralised spending

National financing organisation

Limited influence on infrastructure

Competitive culture

Individualistic

Institutional dissension

Self acquired skills

Internationalisation

Stand alone R&D

Reacting

Authoritative

Hierarchical

Conditions for Higher & Lower RIS Potential

Higher RIS potential

Lower RIS potential

Adapted from: Cooke et. al. (2001)

regional enterprise support system for innovation
Regional Enterprise Support System for Innovation

National Policy

Information

Legitimation

Ministrics

Assembly

Programme

approval

Information

National Research Institutes

Reporting

National technology agency

Requirement

Advice

Proposals

Information

Strategy

SME Agency Business associates

FDI Agency Training agency

Trade Board Universities

Regional steering Committee

Measures

Coordination

Social partners Research Community

Venture Capitalists Local Cooperative Forum Local Government

Technology Consultants Chambers of commerce

Source: Braczyk, Cooke and Heinreich, eds. (1998)

slide31

Policy Levers to Strengthen Local Innovation Systems

Public investment in technology

development

Creation of S&T parks

Attracting inward investment

Supporting access to finance

Creation & strengthening of

local networks

Encouraging local innovation

collaborations

Creation of bridging institutions

Ensuring openness of local

innovation system to sources of

knowledge outside system

Education & Training of individuals

Advice, training & consultancy to SMEs

Influencing motivation & abilities of universities &

Research organisations in collaborative research with SMEs

problems with public support for ris
Problems with Public Support for RIS
  • RISs are rare and newly discovered
  • Hard to detect systemic regional innovation
  • In Europe = high dependence on public expenditure

Source: Cooke (2001)

case study silicon valley
Case Study: Silicon Valley
  • A Region of 1500 Square Miles in California, US
  • One of the “most” innovative high-tech regions in the world
  • 1.35 million jobs
  • Headquarters for over 400 public companies
  • Average salary of $65,000
  • Venture Capital Investments of over $8 billion

Source: Stanford University

slide37

“knowledge generation” in Silicon Valley (1)

Past:

  • Linkages to Federal funding agencies and flood of Government Sponsored Research at universities (Cold war effect in1950s)

Present:

  • Cutting-edge education to company employees
  • Small Business Innovation Research (SBIR) grants: Over $2B awarded in U.S. in 2006

Source: Stanford University

slide39

“knowledge Exploitation” in Silicon Valley

  • Stanford graduates, faculty & staff have launched approximately 1200 companies in the last 50 years
  • More than 50% of Silicon Valley product is due to companies started by Stanford alumni

Source: Stanford University

conclusions
Conclusions
  • RIS consists of knowledge generation and exploitation subsystems
  • New focus of economic policy
  • Think local, act global - External links are important for RIS
  • RISs are rare and rely heavily on public expenditure
some preliminary questions
Some Preliminary Questions
  • Can/does higher education make a difference?
  • Does it make a difference by itself or in collaboration with other institutions?
  • Do small businesses interact with this collaborative venture?
  • Does such interaction generate new businesses?
university culture and entrepreneurship
University Culture and Entrepreneurship
  • What unites academics more? Car Parking or intellectual discourse?
  • What price entrepreneurship?
  • “Loosely coupled systems” (Weick 1976)
  • Collegial academy of chaos
  • Four cultures of “collegium”, “bureaucracy”, “corporation” and “enterprise” (McNay, 1995)
some stylised observations 1 2
Some Stylised Observations 1/2
  • Patterns of use of university (especially research) output:
  • Economic stability = pure research; instability = commercialisation
  • But note a few caveats:
    • a) Origins of university activity– industry focused
    • Technische Mittelschulen, Technische Hochschulen, Fachhoschulen in Germany; USA – University of Akron (polymers & elastomers), Cornell’s electrical engineering dept.
    • b) advent of science in engineering with government superseding industry & emergence of divide between corporate and university R&D
some stylised observations 2 2
Some stylised observations 2/2
  • Economic sectors with most rapid growth are closest to science – microelectronics, software, biotech and new materials.
  • Above industries also have high ‘social qualities’ – high wages, good environmental characteristics, low barriers to entry for small firms, relative independence from geographic constraints
  • Universities benefit from government policy to encourage entrepreneurship (licensed inventions from govt. grants (Mowrey, Nelson & Sampat, 1999)
  • Real spur to entrepreneurship in universities = business opportunity from basic science
  • Most revenues from patents of a very basic nature for process or tools & licensed non-exclusively
the forces at work regionalisation
The Forces At Work - Regionalisation
  • New & diverse client bases for teaching & research
  • From traditional relationships with large corporations to regional clusters of firms (not just money but changes in nature & scope of technologies)
  • Regionalisation of regulating institutions leads to regional networking & institutional capacity building
  • Universities as regional intermediaries & commentators
  • Regional networking as institutional survival
  • Ambivalent relationship with territory
the forces at work forms of learning
The Forces at Work – Forms of Learning
  • New mode of learning production from inter-disciplinary research centres & reliance on external funding (Gibbon, 1994)
  • Interactive forms of learning inherently bound in time & space – regional context for learning & knowledge
  • International research transferred to specific localities through universities
forces at work the new culture
Forces at Work – The New Culture
  • The new student – decentred world & multiple lives
  • Diverse forms of preparation
  • Episodic & fragmented engagement not holistic, intense, linear forms of learning
  • Research generated in heterogeneous environments of producers, brokers and users
  • Knowledge is more contextualised & intensely reflexive
  • Communicative culture – from cerebral, objective, codified & symbolic (logos) to visual, intuitive, volatile, subjective
  • Wider social distribution of knowledge generation
  • (source: Scott, 2004)
slide51

The Knowledge Economy Factor

R&D, Universities, Small Firms, Skills Sets and ICT

A Role For Learning, Research

and Higher Education;

Catalysts For An Entrepreneurial Culture?

The East of England