Regional Innovation Systems - An Analysis of Innovation Policy Instruments

Bison, Michael

Regional Innovation Systems - An Analysis of Innovation Policy Instruments

Geowissenschaften / Geographie - Bevölkerungsgeographie, Stadt- u. Raumplanung

Zusammenfassung

Inhaltsangabe:Abstract:
Innovation is essential for the competitiveness of companies within the globalised knowledge economy. In the actual situation of high unemployment rates in most western countries public economy support works thereby actively on the improvement of innovation activity conditions.
The regional level is for this attempt the most interesting spatial entity because of its high significance in global economic mechanisms. The questions motivating this master thesis are how regional innovation policy can improve a regional innovation system and which of the possible policy instruments the most effective ones are to combat unemployment.
Innovations are the new combination of recent or established knowledge, whose implementation had a noticeable effect on the performance of the organisation, it was implemented in. This includes product, process, organisational and people innovations. Innovations are not anymore an individual effort but a process which involves many actors and institutions. The basis for the exploration of how to support the development and implementation of these innovations is the regional innovation system approach. It divides the innovation process into phases and their linkages and allows identifying analytically the evolved actors and the weaknesses of the innovation process.
The analysis of innovation policy instruments assigns each weakness within the innovation process an instrument which is explained and analysed in detail. The examined instruments are competence centres, start-up centres, science parks, networks, regional knowledge management and diffusion agencies. Each instruments function and its main characteristics get described together with a best practice example, which leads to a conclusion on its effects on innovation and employment.
The result of the analysis is that competence centres, start-up centres and science parks are central instruments and have the highest potential for employment effects. Networks, regional knowledge management and diffusion agencies are more supporting measures that improve the performance of the first three. For the success of all instruments, their combination with each other and the utilisation of synergies and dependencies between them is essential. A holistic concept including all instruments is the most effective way to support regional innovation processes.
These findings get transferred to the case study region Bonn where, as an example for an […]

Leseprobe

Inhaltsverzeichnis

Michael Bison

Regional Innovation Systems - An Analysis of Innovation Policy Instruments

ISBN: 978-3-8366-0142-9

Druck Diplomica® GmbH, Hamburg, 2007

Zugl. Royal Institute of Technology (Kungliga Tekniska Högskolan), KTH, Stockholm,

Schweden, MA-Thesis / Master, 2006

Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte,

insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von

Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der

Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen,

bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung

dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen

der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik

Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich

vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des

Urheberrechtes.

Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in

diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme,

dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei

zu betrachten wären und daher von jedermann benutzt werden dürften.

Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können

Fehler nicht vollständig ausgeschlossen werden, und die Diplomarbeiten Agentur, die

Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine

Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen.

http://www.diplom.de, Hamburg 2007

Printed in Germany

Foreword

This report was written as the Master of Science Thesis in Spatial Planning for the

Royal Institute of Technology in Stockholm. But the real aiming group and

audience are meant to be practical planners in municipalities, cities and regions that

work in the field of economy promotion. This report wants to give these planners

decision support in the field of innovation policy instruments, their functions,

success factors and possible problems. Even though the analysis and descriptions

deal with rather theoretic concepts, like for example regions, clusters or innovation

systems, the hope that lessons for practical planning work can be drawn out of the

results remains.

To be able to draw these lessons easily especially the practical planner should read

this report not chronologically but rather in an interest lead order. Because of the

big volume of this Thesis it could be otherwise difficult to identify the needed

knowledge. The abstract and the summary of the Thesis give a comprehensive

overview of its content and results. The interested reader is then able to decide

which topics are of special interest for him and to read the according chapters for

further theoretical and practical details.

This Thesis could develop in its actual form because of the support and help of

many people, which can not all be named here. But special thanks go to the

supervisor Katarina Larsen, the examiner Lars Orrskog and Thomas Poggenpohl

from the City of Bonn. They were always open for questions and gave useful advice

and constructive criticism.

Regional Innovation Systems

Structure

__________________________________________________________________________________________

iii

Structure

Foreword...ii

Abstract...v

Introduction ... 1

1.1

Background... 1

1.2

Research questions... 2

1.3

Structure of the report...3

1.4

Methodology ... 4

The new economy... 7

2.1 Innovation in the knowledge economy ... 7

2.2 The importance of the regional level ... 12

Innovation ... 16

3.1 Definition... 16

3.2 The innovation process ... 18

3.2.1 Linear models...19

3.2.2 Interactive models... 21

3.2.3 "Weak points"...24

3.3

Innovation systems ...26

3.3.1

Components ... 29

3.3.2

Relations...31

3.3.3

Forms of knowledge transfer ...34

3.4 Innovation and employment ... 39

3.5 Innovation policy ... 43

Innovation policy instruments...47

4.1 Competence centres ... 50

4.1.1

Best practice example: ERVET (Italy)... 56

4.1.2

Conclusion... 59

4.2 Start-up centres ... 61

4.2.1 Best practice example: Triple Z (Germany)... 67

4.2.2 Conclusion... 71

4.3 Science parks ... 73

4.3.1 Best practice example: TechnologiePark Dortmund (Germany) ... 80

4.3.2 Conclusion... 83

4.4 Networks ... 85

4.4.1 Best practice example: BioValley (France, Germany, Switzerland)... 91

4.4.2 Conclusion... 95

4.5 Regional knowledge management ... 97

4.5.1 Best practice example: Hightech Guide Dortmund (Germany) ... 105

4.5.2 Conclusion... 107

Regional Innovation Systems

Structure

__________________________________________________________________________________________

4.6 Diffusion agencies... 109

4.6.1 Best practice example: Diverse approaches... 119

4.6.2 Conclusion... 121

4.7 Dependencies and synergies ... 123

4.8 Holistic concept ...126

Case study region: Bonn ... 128

5.1 Introduction ... 128

5.2 Historical background and development...130

5.3 Organisational structure ...131

5.4 Economic structure... 133

The regional innovation system of the Bonn region ...135

6.1 How to develop a regional innovation system strategy ... 135

6.2 Example for the improvement of a weak point: Knowledge transfer ... 140

6.2.1 Knowledge management and knowledge marketing ... 143

6.2.2 Start-up infrastructure... 152

6.2.3 Conclusion... 159

6.3 Knowledge transfer concept ... 161

6.3.1 Knowledge management... 161

6.3.2 Science marketing ... 165

6.3.3 Start-up infrastructure... 166

Summary...170

List of Figures ... 183

List of Tables...184

List of Shortcuts ... 185

References... 186

Appendix ...198

Regional Innovation Systems

Abstract

__________________________________________________________________________________________

Abstract

Innovation is essential for the competitiveness of companies within the globalised

knowledge economy. In the actual situation of high unemployment rates in most

western countries public economy support works thereby actively on the

improvement of innovation activity conditions. The regional level is for this

attempt the most interesting spatial entity because of its high significance in global

economic mechanisms. The questions motivating this master thesis are how

regional innovation policy can improve a regional innovation system and which of

the possible policy instruments the most effective ones are to combat

unemployment.

Innovations are the new combination of recent or established knowledge, whose

implementation had a noticeable effect on the performance of the organisation, it

was implemented in. This includes product, process, organisational and people

innovations. Innovations are not anymore an individual effort but a process which

involves many actors and institutions. The basis for the exploration of how to

support the development and implementation of these innovations is the regional

innovation system approach. It divides the innovation process into phases and their

linkages and allows identifying analytically the evolved actors and the weaknesses of

the innovation process.

The analysis of innovation policy instruments assigns each weakness within the

innovation process an instrument which is explained and analysed in detail. The

examined instruments are competence centres, start-up centres, science parks,

networks, regional knowledge management and diffusion agencies. Each

instrument's function and its main characteristics get described together with a best

practice example, which leads to a conclusion on its effects on innovation and

employment.

The result of the analysis is that competence centres, start-up centres and science

parks are central instruments and have the highest potential for employment

effects. Networks, regional knowledge management and diffusion agencies are

more supporting measures that improve the performance of the first three. For the

success of all instruments, their combination with each other and the utilisation of

synergies and dependencies between them is essential. A holistic concept including

all instruments is the most effective way to support regional innovation processes.

These findings get transferred to the case study region Bonn where, as an example

for an innovation process weakness, the knowledge transfer from science to

economy is analysed. For the application of each innovation policy instrument is

important to use existing organisations and potentials and work within the grown

regional structures.

Regional Innovation Systems

1. Introduction

__________________________________________________________________________________________

1. Introduction

"Life is pretty simple: You do some stuff. Most fails. Some works. You do more of

what works. If it works big, others quickly copy it. Then you do something else.

The trick is the doing something else."

Leonardo Da Vinci

1.1

Background

"Doing something else", change, invent, innovate. These words are centre pieces of

the modern economy nowadays and at the same time their biggest challenge.

Western economies have to deal with several local and global developments that

endanger their international economic position and the stability of their internal

economies and labour markets. One major aspect is the rising competition from

emerged strong economies in East Asia, China, India and, also more recently, from

eastern countries that emerged from the former Soviet Union. The ongoing

liberalisation of markets, transactions and capital flow, intensifies the competitive

situation and for Western Europe, especially, the eastern expansion of the EU.

Other keywords like the communications revolution, the emergence of the

knowledge society, the decline of traditional industries, globalisation and

simultaneous regionalisation are examples of processes in which economic actors

operate.

The result is an increased level of unemployment through the whole Europe,

especially concentrated in former industrial areas and within the lower qualified

employee groups. The challenge of high unemployment rates and structural change

are actual points on the agenda of nearly every state, region and city. Every region

tries to benefit most of the new trends, technologies and their specific regional

competences to improve their competitiveness on the national and global scale to

support their companies and secure employment on the long run. The search for

local potentials, specialisation capacities and comparative advantages between the

regions has build up a high competition between them for jobs, investments,

population and support capital.

The economy of the 21

century is characterised by shorter and shorter production

cycles in which the development of a product, its market implementation and its

standardisation get more and more speeded up so that the need for ongoing

development and innovation are the key to improved competitiveness. The main

emphasis and effort is concentrated in the early stages of the production cycle

because development, introduction and growth are the only stages where western

industrial countries still have comparative advantages. Economic success and

employment are closely related to competitiveness and competitiveness is, as it

seems, directly related to the ability to innovate. Fifty years ago the key production

Regional Innovation Systems

1. Introduction

__________________________________________________________________________________________

factors were access to resources, capital and labour force, whereas today knowledge

and capital (because it is necessary to produce and utilise knowledge) are essential

to achieve advantages over one's competitor. The application of knowledge and its

utilisation to generate profit out of it is an innovation. Today the number one

factor for competitive advantages is innovation.

This change in importance of production factors implies the need for change and

adoption within companies and the whole private sector, but also within public

authorities, policies, structures and support strategies.

1.2

Research questions

Unemployment is a big problem since the 1990s in whole Europe. The different

states have chosen different ways to fight this development with mainly two

strategies: On the one side lower wages to create more employment and on the

other side the maintenance of wages and living standards with less employment,

which both had not the wished effects (Kanzenbach 1997). But there is an

alternative, which involves structural change and in particular shifting economic

activity out of traditional moderate-technology industries and into new emerging

knowledge-based industries that are based on innovative capacity.

To fight unemployment need public authorities effective instruments for the

support of innovation activities. Miscellaneous programs, instruments and

approaches to foster innovation have been developed on a municipal, regional,

national and over-national (EU) scale. The problem for decision makers on all

levels is to identify those innovation supporting instruments that really have an

effect on the competitiveness of a region and on the labour market. The need for

effective instruments is highlighted by the critical financial situation of most

communities, which have very limited capital to work with and can not afford to

invest into experimental measures without good reason.

The examination of a selection of those instruments is the aim of this master thesis

to give a piece of advice to all interested regional decision makers and especially to

those of the region Bonn/Rhein-Sieg/Ahrweiler, which is the case study region in

this paper.

Summed up the idea of this paper is based on three assumptions about the working

mechanisms of modern economy:

The capability to innovate is the basic condition to make economies

competitive.

Innovation improves employment.

Regional innovation systems are the most important level for innovation

policy.

Regional Innovation Systems

1. Introduction

__________________________________________________________________________________________

The relevance and truth of these assumptions will be examined during the build up

of the theoretical background of this paper. Assuming they are true is leading to the

conclusion that public economic support should focus on the promotion of

innovation and should do this on the regional level. The question originating next,

is: How?

The research questions that are to be answered by this paper are therefore

formulated as follows:

How can regional innovation policy successfully improve the innovation

activities of a region?

II.

Which policy instruments are the most effective ones to generate employment

growth?

1.3

Structure of the report

The answer to these questions is divided into six parts that form this master thesis.

The first introductory part gives a short picture of the problem situation from

which originates the need for this investigation, the questions that will get

examined and the assumptions behind them. The interested reader may in this part

also get information on the applied methodology of the analysis.

After this a description of the context in which economic systems operate today

follows. This is mainly the concept of the knowledge economy and the effects of

increasing globalisation and regionalisation tendencies. Especially the importance of

the regional level will get shown in detail because of the focus of this report on

regional innovation systems.

The third part introduces the innovation system approach and gives theoretic

background knowledge on innovation, the innovation process and innovation

systems that is needed for later analysis. Also the relation of innovation and

employment is analysed by means of expert literature to ascertain the real effect of

innovation activities on the labour market. The last chapter of this part is dedicated

to innovation policy to give a definition and display its potentials as well as its

limits.

In the next part different instruments of innovation policies are presented and

analysed as starting points to improve regional innovation systems. Six major

instruments or fields of action were identified by the study of expert literature,

actual trends in regional policies and expert interviews. The analysis includes

competence centres, start-up centres, science parks, networks, regional knowledge

management and diffusion agencies. The significance of several connections and

Regional Innovation Systems

1. Introduction

__________________________________________________________________________________________

contextual overlaps of the instruments makes it also necessary to give an at least

short review of their interrelations and possible synergies.

The fifth part has the function to introduce the German case study region

Bonn/Rhein-Sieg/Ahrweiler. Its historical background and more recent

development with a focus on economic issues and the organisational structure of

the region will be shown here to draw a picture of the region and give basic

information for further analysis.

The next part then is the appliance of the results of part four to the case study

region and the attempt to give practical advice for the improvement of knowledge

transfer from science to the economy.

The end builds a summary of the whole thesis, which gives all central information

and research results and answers the formulated research questions.

1.4

Methodology

The methodology of this paper is organised

in four major components (see figure 1.1),

which all build up on the foregoing one.

Basis and starting point are the three

explained assumptions. They get examined in

part three which is the theoretic foundation

of the report and gives the necessary facts,

knowledge and connections on the issue of

innovation and its related fields. This

knowledge is needed in the first place to

identify phases within the innovation process

that are crucial for the innovation systems

performance and fields of innovation policy

that may be effective in influencing them.

The identified phases get connected with

policy instruments in the fourth part so that

those can be examined in detail, which is

done in three steps: First by background

information given by technical literature and

second by the introduction and examination

of a best practice example of this instrument to take out advice for successful

implementation and use. The third step is the appliance of the theoretic knowledge

of part three to control the outcome of the example and its general validity. The

results of this are suggestions for the successful improvement of a regional

innovation system, which get used to form a strategy for the case study region

Bonn/Rhein-Sieg/Ahrweiler in the sixth part.

Regional Innovation Systems

1. Introduction

__________________________________________________________________________________________

Within this general methodology structure are used several methods. Those can be

summarized under two fields of methods: information collection methods and

analysis methods. The information collection was done mainly by reviewing

literature primarily within the field of regional science, innovation policies and

economic science, where it was always an aim and a necessity to use the most actual

literature and as much as possible periodicals with up to date articles. To provide

actual information and to compensate for not available literature were internet

sources of high importance to underline literature statements and give practical

examples. On few topics, especially within the investigation of the empirical

material concerning the best practice examples, interviews with involved actors and

other experts were necessary to get closer insights into internal processes and

functional connections. Those interviews and visits had to be limited out of

restricted time and financial resources of the author even though they are the most

effective and inspiring sort of information acquisition.

The analysis methods were mainly used in

the fifth part to investigate the single

innovation policy instruments. The

structure for this analysis (see figure 1.2) is

for all instruments the same to give a

quicker overview to the reader and easier

access to the important results. First gets

the theoretical background of the

instrument introduced, mainly based on

technical literature, to provide a short

definition and the main coherences,

functions and success factors of the

instrument. With this background it is

then possible to analyse the effects of the

instrument

innovation

and

employment, which is the main issue to determine its effectiveness. This theoretical

and statistical analysis is rather formal and abstract. To be able to develop practical

advice it is useful to look at empirical data to underline the theoretic findings. Best

practice examples of other regions or cities where the appointed instrument has

been used successfully gives this kind of information. The analysis of a thriving

project allows extracting practical recommendation and shows realistic

implementation methods. The combination of both forms the conclusion for this

instrument, where the question if it is effective gets answered and where a summary

of success factors and recommendation is given.

Another methodological issue is the selection of the innovation policy instruments

that should be looked at in more detail. The first step is to accumulate a list of

possible policies. This information were gathered through technical literature on

Regional Innovation Systems

1. Introduction

__________________________________________________________________________________________

innovation policies, information about European and national state programs for

the support of innovation and a collection of the main innovation policy

instruments of several German cities and regions. The choice which instruments to

investigate in detail is dependent on two aspects. The first is that every instrument

has to be related to a problem within the innovation process that gets identified in

part three. Those weak points are the starting points to improve a regional

innovation system. Second has the instrument to have an actual significance in

technical literature as well as in practical field work so that the use of a best practice

example is possible. The best practice example is seen as very important because it

opens the sight for more practical problems theoretical papers would maybe not

realise.

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

2. The new economy

"Knowledge is power. "

Sir Francis Bacon

The new economy emerged within the 1990s and shaped substantially economic

activities all over the globe. Today the number one factor for competitive

advantages is innovation. With the change brought about in global economic

relations by the rise to importance of the East Asian economies and the demise of

Fordism as a model of industrial and wider societal regulation, new approaches to

shaping competitive advantage from innovative capacities have merged. Amongst

the most challenging of these are the efforts to build systems of innovation in

support of business competitiveness on a regional scale (Cooke et al. 2004). The

following two chapters have the aim to sketch the most striking issues within the

new economy and give a picture of their connectivity and importance. The two

main topics are the role of innovation activities and the significance of the regional

level.

2.1 Innovation in the knowledge economy

Why should it be interesting to examine innovation? Why is innovation important

for economic activities? For many centuries have economic actors or companies

made successful business without the conscious concentration on innovation

activities. The following chapter will explain why and how innovation got more

important for economic activities to justify the intense effort of this paper to

improve the creation of innovation.

The root for the increasing importance of knowledge and innovation (the

application of new knowledge) for economic activities lies within two major

developments that affect more or less the whole globe and all economic fields: The

development of the Knowledge-Economy and the trend of Globalisation.

Development of the Knowledge-Economy

Innovation is an effort for an economic actor. It affords investments like personal

capacity, time, money or other resources. From an economical point of view is it

thereby not reasonable to innovate until these investments pay back and are really

necessary. The necessity to innovate is dependent on the sort of economic system

the actors operate in. With economic system is meant which production sector is

dominating the system. Following will those time periods be described as separated

time blocks to ease the explanation of why innovations got more important. But

one should be conscious that those phases changed slowly and with different speed

in different areas. Some countries are still today agricultural or developing an

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

industrial structure. The following description is mainly oriented on the western

economies.

Until the end of the 18

century were economic activities concentrated on

agricultural production, which was not innovation oriented. Farming and handcraft

methods and techniques changed very slowly over time because the markets for

agricultural and hand-made goods were local and thereby the competition and

necessity to innovate low. With the start of the industrialisation in England

changed that by the invention of the steam engine. By using steam power to

mechanise production was it possible to lower production costs and raise outputs

drastically, like for example in the English cloth industry that could outplay their

competitors by mechanising the hand loom and replacing sheep wool by cotton.

This innovation period heralded the industrial age, where industrial production

developed to be the most important production sector (see figure 2. 1).

The need to innovate increased because the advantages lie within industrial

production within the production methods and techniques. For example the big

scale use of the assembly line concept by Henry Ford gave his car factories a clear

cost advantage because it was possible to produce in bigger scale and his workers

worked more time efficient (the negative health effects of monotone assembly line

work may not be forgotten). This way of production (economies of scale) was very

characteristic for the industrial area which thereby also is called Fordism. The most

important production factors were working force and natural resources. Other

factors, explicitly knowledge played only a minor role for decision processes and

the whole wealth-creation process.

The mass production of the Fordism time produced very high outputs and reduced

costs of many standard products so they got affordable for a majority of society

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

(car, TV, radio etc.). In the situation that the majority of society was provided with

those mainstream goods, developed a need for more differentiated goods to

separate the single individual from the mass. This trend was by a big extend

supported and artificially created by advertisement. The production of mass goods

was no longer that lucrative, but the individualised, specialised production of

personal goods was. Together with an ongoing more and more improved

mechanisation of mass production lost industrial production its leading economic

rank and the individual Post-Fordism age started, dominated by services that could

not be mechanised and were necessary to fulfil the individual needs of the

customers. The former minor production areas of design, maintenance, repair,

financing and continuous need for training of manpower was gaining more and

more importance (Plougmann 1994). Within the service economy grew the

importance of the production factors financial and human capital.

The last step in the gross economic structure started with the end of the 20

century where the service economy developed into the direction of a knowledge

economy. Information and knowledge are the most crucial economic goods

because knowledge intensive industries (high-tech industries) developed to be the

dominating. Acs groups the high technology industries into six sectors:

biotechnology and biomedical, defence and aerospace, information technology,

energy and chemicals, high technology machinery and instruments, and high

technology research (Acs 2002). The main production factor for those industries is

one's capacity for learning and innovation and not anymore capital because their

whole production is very knowledge intensive and requires a high number of

knowledge inputs and the ability to innovate.

With the change of traditional Fordism industrial economy towards post-Fordism

service economy and later the knowledge economy changed the circumstances of

production and the whole concept of economic success that was dominating the

economy for more than a century. "The key to success in the old economy was

'costs' and `scale'. In the new economy the organisation of production is becoming

more flexible, products are becoming weightless and 'non-cost' factor competition

is essential. 'Intangibles' such as speed of response to market demands, innovation,

reductions

the

life

cycle

products,

quality,

design,

differentiation/customisation of products to niche markets, after sales servicing,

new management methods and business organisation, the capacity to cooperate in

inter-firm business networks are the key to firms competitiveness in the global

economy" (Directorate General for Regional Policy 2002, p.7). This quotation

shows pretty much the changed importance of production factors. Traditional

"hard" production factors are not irrelevant for modern economy, but their weight

is reduced in comparison to the new "soft" production factors. One of those

factors to achieve comparative advantages is the ability to create new production

methods, organisation models, products or designs in order to outplay the

competing actors. Innovation has become a key process to gain market, cost or

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

time advantages. The wealth creation process has become increasingly

dematerialized as its mainsprings ceased to be natural resources and material

production and became knowledge and information activities (Acs 2002).

So with the change of the economic system has continuously raised the importance

of knowledge and technology as a production factor and thereby also the necessity

for innovation. The other big boost for the importance of innovation originates

from the globalisation of economy.

Globalisation

One major aspect of globalisation (see Excursus 2.2) is the high accessibility of the

global market or in other words the extremely low transportation costs for goods,

persons and information. Together with intense deregulation and liberalisation of

national markets creates this a level of competition like never before. Companies

compete not longer only with companies on a regional or national scale, but with

firms from all other the world. Figure 2.2

shows that with the change of

economical system also steadily increased the market area and thereby naturally the

number of competitors and the pressure of competition. The market area before

1800 was local because the transportation techniques (horse, coach, sailing-ship)

were slow and expensive. In industrial times increased the possible market-area

with the invention and implementation of the steam engine, railroads and cars

drastically.

Even though was transportation on trans-national scale still expensive and time

costing also because of border controls and regulations. After World War II started

the first slow process of liberalisation of cross-border transfer. Big steps for this

development were the formation of the EEC (European Economic Community) in

1957 and the opening of the eastern European countries after the collapse of the

UDSSR in 1991. With the simplification of cross-border transactions (capital,

persons, goods) went the development towards bigger markets on an international

scale. At the end of the 20

century came together with these liberalisation

processes the communication revolution which brought new communication

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

possibilities to be connected to the communication network everywhere on the

globe 24 hours a day. The spread of internet connections and the omnipresent use

of cell phones are just the most striking examples for this revolution that made it

possible to access communication and information everywhere. This is the basis for

the development of the knowledge economy which is dependent on the fast and

easy transmission of information and knowledge. With the huge range of

information that is accessible increased the market area again because now it is

even easier to access markets.

Excursus 2.2: Globalisation

The process of globalisation is a term without clear definition.

Many experts see it as "a primarily economic phenomenon,

involving the increasing interaction, or integration, of national

economic systems through the growth in international trade,

investment and capital flows" (Website Globalisation).

However not only economic changes but also a rapid increase

in cross-border social, cultural and technological exchange is

part of the phenomenon of globalisation. The described

progression in global exchange activities is not a phenomenon

of modern times, but started already with the colonization and

expansion in world trade in the 16

century. But has the speed

of globalisation increased rapidly since the industrial

revolution.

Main developments that enforce the process of globalisation are

The communication revolution. Innovations in the fields of micro electronics,

telecommunication and opto-electronics made communication possibilities faster,

cheaper and more global accessible, which increased other processes like opening of

markets or capital transfers.

New transport technologies. With the possibilities of modern transport networks

and vehicles went the transportation costs for goods and persons down as never

before. This is the basis for global trade and exchange and gave the motivation for

intensive liberalisation processes.

Liberalisation of trade. After 1945 started the process of intense trade liberalisation

which follows the theories of David Ricardo who stated that international trade

increases welfare for all. The reduction of national customs was and is organised

within national trade organisations (GATT, WTO, Commonwealth of Nations,

EWG, COMECON etc).

Deregulation. National regulations that organised national economics and

supported specific branches or groups are taken apart to allow international investors

to bring their capital in the national economies. This process supports the

development of international companies (global players).

(Bundeszentrale für politische Bildung 2003)

Globalisation has supporters as well as opponents. The main argument of the supporters is

the improved economic possibilities and increased welfare, while the opponents (most

known is the organisation Attac) criticise the increased social disparities between poor and

rich countries (Bundeszentrale für politische Bildung 2003).

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

Conclusion

Competitiveness is the major aim of all economic actors. In industrial times was the

key to that a better allocation of the production factors labour and raw materials by

mechanisation and the exploitation of scale economies, but in the knowledge

economy are knowledge management and innovativeness required. "The firm must

be competitive to survive and being competitive requires that it is also innovative"

(Braczyk et al. 1998). The consensus of all reviewed technical literature is that the

capability to innovate is the basic condition to be competitive, which approves the

first hypothesis and opens the way to further investigation on the support of

innovation.

2.2 The importance of the regional level

Why is this paper examining innovation activities especially on the regional level?

And what are regions? The following part tries to help answer these questions, but

can not give universal answers because the topic allows only situation related

solutions and explanations.

Regionalisation

The regional level has come more and more into focus of political, economic and

social discussions during the last decades. The effects of global, technological and

social change ask for local solutions. At the same time cities and municipalities

realise more and more, that isolated, on the municipal borders ending solutions can

not be successful. Issues like spatial planning, environment protection, traffic,

supply and disposal, cultural and educational policies and also economy and

employment support need the development of effective forms of cooperation and

the use of synergies on the regional level to be able to improve living conditions

(Adamaschek 2003). On this political field is a clear regionalisation process going

on that is impressively shown by development of a high number of regional

cooperation within Germany. In 1997 were 110 regional development strategies

(Regionale Entwicklungskonzepte) finished, which can be seen as an indication of

increased regional cooperation (Hellmer et al. 1999). Regional policies on the issue

of economic support are in the focus of this paper. They gain increasing attention

on the municipal level because municipalities and cities realise that they can not

compete with each other for economic investors without problems for all of them.

Economic support develops more and more towards a regional task (Schneider

2005). Forms of regional cooperation on the administrative political level are also

enforced by the loss of steering abilities of national policies (Plougmann 1994).

Next to this political regionalisation the economic regionalisation is even more

striking. The focus in this master thesis will be on these economic and economy

related aspects.

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

The two main reasons for regionalisation lie, just like for innovation, in the

processes of globalisation and the structural change towards the knowledge

economy and their interrelation.

"A rich literature has grown up around the concept of the rise in the importance of

regions in the global economic system. According to this view global trade has the

form of interaction between functional regions, rather than between countries. As

the vision has evolved, empirical observations suggest that global and national

economic change should be understood as a process, which is dependent on local

dynamics operating on the regional level" (Johansson et al. 2001, p. 3). Johansson

et al. declare that regions got more important because they are the geographic unit

where global economic activities concretise themselves. With the ongoing process

of globalisation (see excursus 2.2) has the regionalisation got more intense than

ever, which sounds paradox. In a more global market with more global connections

and links are economic activities expected to be footloose. So why becomes the

regional level the most important level of economic activities? The reasons for this

paradox lie in the globalisation aspects of the knowledge economy, which is

"characterised on the one hand by the disappearance of boundaries and the

worldwide integration of commodity and factor markets ("globalisation") and on

the other hand by a regionalisation of specialised production clusters" (Blotevogel

2000). These production clusters on the regional level are the spatial concretisation

of the global knowledge economy. Regional production worlds evolve because

even though the economy thinks global, production and especially the production

of knowledge happens regional. ,,One key result of recent empirical research is, that

in a number of countries innovation of a certain kind or in a certain sector is

concentrated in specific locations or regions" (Audretsch and Thurik 1999, p. 159).

The socio-economic net of relationships and institutional nearness of agencies

needs spatial proximity and is essential for the development of knowledge and

innovation (see chapter 3). Face-to-face communication is still not substitutable

with modern media techniques when it comes to the transmission of knowledge,

especially tacit knowledge. ,,Sub-national areas have proved to be better loci of

"conversations" likely to foster fast learning. Indeed, it is argued by the defenders

of the notion of local systems of innovation that such sub-national areas are a more

supportive underground for the development of multi-stakeholder networks and

new forms of cooperation and relation exchange" (Acs 2002, p.171). These are the

reasons for the emergence of regional production worlds.

What is a region?

The big challenge in operating on the regional level is that regions are unlike

nations and municipalities not clearly spatially defined. The borders of a region are

not set in advance and do not have to correspond with administrative entities. So

how are the borders of regions drawn?

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

Regions are geographic units that are characterized by specific criteria or that

separate themselves from their surroundings by them. I.e. regions can be defined in

a positive or negative way. But in any case are the criteria that are used to set the

borders for the region dependent on the purpose of the regions formation, which

can be divided into two main kinds of purposes.

First the information or knowledge seeking purpose in which analytical aims or for

example the examination of spatial correlations are done. The regions are in this

case build on homogenously criteria (natural reserve areas) or based on functional

relations (market areas). The two criteria can also be used combined, for example in

the determination of city regions where commuting areas as well as settlement

density play a major role.

Second purpose is to fulfil planning-, program-, or measure-related aims, where

political, economic or social measures are taken. Criteria are here the spatial extent

of a certain problem situation (program for the reduction of industrial pollution),

the spatial borders of responsibilities (plans for sectoral issues) and political

development aims (interregional cohesion goals). The aspect of borders of

responsibilities has an especially high significance, which is mostly the main criteria

for the demarcation of regions because every intervention of any kind needs actors,

an authority or steering group that initiates, co-ordinates and simply administrates

the intervention.

In the case of Germany with its federal system is the level of the region situated

somewhere between the federal states (Bundesländer) and the municipality

(Gemeinde). The advantage of this level is that it can cover problem issues that go

often beyond the municipal borders and are closer to the problem than the higher

federal state level. The existing administrative units between those two differ from

federal state to federal state and do not have to be equal to the regional borders.

But the use of existing administrative units like rural districts (Kreise) or regional

districts (Regierungsbezirke) is offering itself to be used for policy related actions

out of practical matters.

Summarized should the formation of a region be oriented on four issues:

The spatial structure should be corresponding to the spatial problem field.

The size of the area should secure an appropriate closeness to the location

and the problem.

The spatial demarcation should facilitate the cooperation between

participating institutions.

The spatial demarcation should render possible and ease procedures of

political legitimating.

(Schoof 1999)

Regional Innovation Systems

2. The new economy

__________________________________________________________________________________________

Conclusion

The high significance of the regional level for modern economic activities that are

dominated by information and knowledge transfer seems to be proved. The spatial

unit of a region is at the same time small enough to allow personal contacts, face-

to-face interactions and to a certain extent the exploitation of localisation and

urbanisation economies and big enough to provide the necessary range of firms,

associations and institutions that generate the necessary input for flourishing

innovation based activities. Within this picture should not be forgotten, that the

size and appearance of regions can be very different to fulfil the mentioned criteria,

which are also dependent on the industry and activity in focus.

Regions can be seen as the spatial level with most economic significance, but is the

region also the best place to implement innovation policies to support these

economic activities? The success of a region usually does not have one single cause,

but is based on the coincidence of many hard and soft factors. Only some of these

factors can be influenced by politics and planning, and this mostly only over long

periods of time (Blotevogel 2000). The drawback for regional policies is that

regions normally do not have a legitimated governance or administration. Only in

special cases is a regional unit at the same time also an administrative one. Are

regional policies then possible at all? The answer is yes, first because policies do not

have to originate from one public authority and second because policies do not

have to be politics always. The concept of regional governance allows a region to

combine the authorities within its borders and also include important regional

actors and associations. Regional economic development needs leader organisations

with power and competence. Together with the ability to listen to all actors of the

region this is an effective governance system that can adjust quickly to relatively

rapid change (Johansson et al. 2001). The regional governance approach can here

not be addressed in all facets it has because it would go over the volume of this

paper to do so. Another aspect favouring the innovation policies on the regional

level is that the main aiming group of innovation policies are SMEs, which are

located on a certain locality. The needs of the addressees can thereby be found and

identified on the closest level to them (Feldmann 1999). So innovation policies on

the regional level would be the most important ones because of the regional

production worlds within global markets and it is also possible to introduce and

apply these policies through the regional governance approach.

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

3. Innovation

"Creativity can solve almost any problem. The creative act, the defeat of habit by

originality, overcomes everything."

George Lois

3.1 Definition

The word innovation is used and defined in literature in many different ways and

the different definitions tend to cover very different contexts (Siegle 1995). The

expression innovation means etymologic "renewal", which is leading to a sense of

new development or new structuring. In economical science the term "innovation"

was first introduced by Schumpeter who defined it as the "implementation of new

combinations" (Schumpeter 1964, p.100). Since this early definition had the

expression got various interpretations. In general innovations can also be described

as improvements that are fulfilled or reached first time in a system (Hagemeister

1988).

We are meeting and implementing innovations in all sectors of our every day life as

for example changed organisational structures, the use of different products or new

ways of using them. Buying a new kind of washing powder is for a private

household as much an innovation as a new form paper in a city administration

represents an innovation. Innovations are taking place all the time and everywhere.

For this master thesis is a special kind of innovation of interest: Innovations

influencing economic development. The main actors in the local, regional and

international economy (not considering the concept of planed economy) are private

companies. How are innovations on the company level defined? Innovations within

firms were uniformly defined in 1997 by the so called Oslo-Manual. The

Organisation for Economic Cooperation and Development (OECD) and Eurostat

agreed in this document on a consistent definition of innovation, to simplify

European and international statistical surveys and to establish a comparability of

the innovation activities between different countries and regions. The Oslo-Manual

focuses in its definition on three aspects of innovation:

It has to be based on new (technological) knowledge,

has to be introduced as a product innovation to a market or as a process

innovation to a firm and

Has to comprehend a novelty or a noticeable improvement from the point

of view of the firm (Janz and Licht 2003).

Those are the characteristics of innovation, but what in concrete is an Innovation?

In a contribution to the innovation literature it is expressed in following way:

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

"Innovation materializes in new products, new production technologies, or in a

new organisation of working procedures. The place of innovation, thus, is basically

in the private enterprise" (Hilbert 1991, p. 38). So Innovations can appear in

different forms. Hagemeister distinguishes four kinds of innovations:

Product or service innovation

Production-process innovation

Organisational-structure innovation

People innovation

(Hagemeister 1988)

All four kinds of innovation play a role for the improvement of the competitive

situation of a firm. Product and service innovations are the development of new or

improved products or services, with which new markets can be opened up.

Production-process innovations are aiming at the improvement of production

processes to lower costs and time of production. This can be done for example by

mechanization, new technologies or the reorganisation of flows and ways.

Organisational-structure innovations are changes in for example the division of

labour, the authority relations or the payment system within an organisation. The

so called people innovations characterize the development of the human capital in

a firm, which is the composition of the employers and the level and quality of their

skills. The four kinds of innovation are not to be seen isolated from each other

because they are to a high degree interdependent. For example a production-

process innovation may initiate organisational innovations, which again may require

the improvement of the human capital of the firm. It is not easy to identify one

kind of innovation as the primary or other as secondary innovations (Hagemeister

1988). But the focus in other innovation literature is mainly on product and process

innovation because they are seen as the main reason for significant changes in

company structures and because they are the main aim of the companies

themselves. Nether the less should also organisational-structure innovations and

people innovations be examined because they also have a significant effect on

productivity, competitiveness and employment. Examples for this are Japanese and

US auto assembly plants both in the USA, where the Japanese plants are more

productive than their US counterparts because of organisational differences

(Freeman et al. 1982).

For the following explanations and analyses will the term innovation be treated as

the new combination of recent or established knowledge, whose implementation

had a noticeable effect on the performance of the organisation, it was implemented

in. The factor that the innovation needs to have a noticeable effect on the

performance of an organisation is important because if an innovation brings no

benefit to an organisation it is not reasonable and necessary to support its

implementation.

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

The focus of this master thesis is the strategic support of innovation activities in

the private economy, i.e. the centre are technological innovations. ,,Technological

Innovation is a matter of producing new knowledge or combining existing

knowledge in new ways, and of transforming this into economically significant

products and processes" (Acs 2002, p. 179).

The crucial point is to use innovations economically, to capitalize them. The aim to

work out proposals for innovation policies on how to improve the innovation

activities in a region, is pointing towards innovations within companies that

improve the companies competitiveness.

Another important distinction can be made in the grade of novelty of the

innovation. Innovations do not have to be macro-economic innovations, which

mean completely new inventions. They can also be (and are in most cases) slight

modifications in already existing technologies and methods to improve their

performance or quality. One can distinguish four grades of innovations.

Imitation

Adoption

Improvement

Basis innovation

Imitation is the use of already existing methods in a new company (micro-

economic innovation). Adaptation is the change of some parameters according to

wishes or problems of customers. Improvement is the general upgrading of quality

standards and only the last grade, basis innovation, is really the development of

completely new knowledge, products or concepts and then can be called a macro-

economic innovation (Website Hilpert).

To be able to influence the innovation activities of companies it is needed to know

why innovations evolve and which path they go through. It is necessary to examine

the innovation process and its single phases and interfaces to get to know where

can be most effectively intervened.

3.2 The innovation process

After clearing up what is an innovation, now the question arises how innovations

evolve. If innovation policy is aiming at supporting the introduction of innovations

should be clear what circumstances cause innovations. How do innovations evolve?

Which circumstances provoke pressure to innovate?

Demand-pull and technology push

According to literature innovation activities can be caused through two processes:

demand-pull or technology push.

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

One reason for the need to innovate is the change of demand structures.

Customers may call for new problem solving approaches or new application

possibilities. For example if the demand for a product strongly decreases, has the

product to be modernized or improved, has to get new applications or the prize

needs to be set down. All these modifications necessitate product- or process-

innovations, which in turn may trigger changes in the coordination system or the

human capital of the company. The necessity for innovation is here induced by the

demand side, which is pulling the companies with its needs to change. This is why

this process is called demand-pull (Hagemeister 1988).

The other possibility to initiate innovation is caused by the supply side.

Technological research as the most important production factor in the knowledge

economy (see chapter 2.1) is an ongoing process and produces more and more new

knowledge, which is calling to get utilized. This new created technological potential

with new products, new organisational concepts or production methods is

producing pressure to use it. This induction of innovation by research activities is

called technology-push (Hagemeister 1988).

But for the successful implementation of an innovation are both factors important:

the demand and the supply side. A new developed product can not be brought to

market without a corresponding demand and also even gigantic demands can only

be satisfied with the corresponding technology. Both factors are until a certain

degree interdependent.

Those are the triggers for innovation, but interesting to perform innovation policies

are not only the causing factors, but especially the path of implementation and how

this path can get optimized. The innovation process from the opening until the

introduction of the innovation is to be examined. Innovation research generally

distinguishes two models: the classical linear model of the innovation process and

the more recent interactive model.

3.2.1 Linear models

Innovations are not developing by their own and the development and

implementation of a novelty can get divided into a process with different phases.

According to Hagemeister are those

Problem formulation

Problem analysis

Development of ideas and solution proposals

innovation assessment and acceptance and

implementation of the innovation and acceptance assessment

(Hagemeister 1988).

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

This general chain of phases can be applied to all kinds of innovation, even though

this approach goes more into the direction of demand-pull. The problem

formulation can be seen equal to a changed demand situation.

The approach chosen by Deilmann (1995) is more dedicated to the technology-

push approach because his origin for innovation is not a new problem situation,

but always basic research (see figure 3.1). This very common approach (Cooke and

Morgan 1998) assumes that the development of new research results automatically

initiates the innovation process because of the innovation pressure to utilize the

new possibilities. The linear innovation model is described in different variations

through the innovation literature. As an example will the model of Deilmann be

presented, which shows also five phases in the innovation process. The first two

phases, basic research and applied research are assigned to public and private

research institutions, like universities and research and development (R&D)

facilities. The last three phases are taking place in the private sector only. In the

development departments, plants, offices and service agencies of the industry

innovation is brought from experimental development over the production to the

final phase of diffusion (Deilmann 1995). This linear innovation process even

though sometimes slightly modified is the focal point of many innovation related

literature (Feldmann 1999).

The basis for linear models of the innovation process is that only one way leads to

the implementation of innovation, starting only from research over development to

production. Another assumption is that all steps on this path are necessary and that

there are no feedbacks between them (Deilmann 1995).

These linear models are simplifying the innovation process and mirroring reality

only in very special cases (Behrendt 1996). The linear approach focuses much on

the technology-push and demand-pull approach, which is an extreme and atypical

view of the linkages between science, technology and the marketplace (Rothwell

1992). Even though innovation scientists are aware of this problem they did and do

often abstain from more realistic models to secure the matter of clearness. This is a

reason why innovation policies in most industrial countries were and are adjusted

towards the exclusive promotion of basic science because it was seen as the

automatic guarantee for more innovation (Behrendt 1996, Cooke and Morgan

1998, Deilmann 1995).

But the linear approach has some significant weaknesses: "[...] it exaggerates the

role of basic science, it invokes an unwarranted hierarchy of knowledge, in which

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

"pure" scientific knowledge is ranked above "applied" technical and engineering

knowledge, and it fails to appreciate the need for continuous interaction and

feedback" (Cooke and Morgan 1998, p.12). The first weakness is the high

importance of basic research and second is that theoretic knowledge is seen as

more important than applied knowledge, which both lead to aberrations in research

policies during the last decades. The third point is that the necessity of feedback

and ongoing knowledge transmission during the innovation process is totally

neglected. Because of these problems will now the interactive approach be

presented who tries to work out these weaknesses.

3.2.2 Interactive models

Other models of the innovation process are increasingly showing complex

interaction within innovation processes. In contrast to the linear model are the

interactive or network models showing and emphasizing the interactions and

feedbacks between the elements and phases of the innovation process. The strait

"one-way street" character of the innovation process is annihilated because the

awareness that new innovations can result out of feedbacks from other phases has

established itself. Innovation activities can as well be triggered by the feed back of

e.g. customers which is more oriented to the demand-pull approach (Feldmann

1999). Also the key function of basic research like it is so strongly emphasized in

the linear model is much levelled of. Basic and applied research is still playing a role

for the initiation of innovation, but other triggers for innovation activities are now

also introduced.

One of those is the stock of knowledge already inherited by society, which has

importance for the innovation capacity. I.e. not only new research results can

nurture new innovation, but also the new combination of already existing

knowledge (see the definition of knowledge already by Schumpeter). Furthermore

empirical studies show that the significance of basic research for product

innovations is relatively low and that to solve a problem in development or design

the first sources to use are own know-how, technical literature, co-workers or

external experts. Real need for basic research emerges only, if those sources are not

delivering the needed results (Deilmann 1995).

The stock of knowledge can be subdivided into regionally existing knowledge and

external knowledge, which first needs to get "imported" to be used. This aspect of

"knowledge-import" is gaining high importance because the development measures

especially in high-tech branches are highly specialised and the necessary technology

capacities in the particular field are in most cases not found in the closer spatial

surrounding because they are so specialised. In this model are feedbacks between

the different phases accentuated, which shows that innovation does not have to

develop in a straight line. Responses and interaction between the actors and phases

of the innovation process are possible and necessary. "Innovation is first and

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

foremost a continual, interactive process in which success requires an ongoing

synthesis of changing information from a variety of sources, including potential

buyers" (Cooke and Morgan 1998, p.13). Ongoing modifications and

improvements of the innovation are required in order not to get into an

"innovation dead-end", which is in need for knowledge inputs from the

downstream elements of the system about the weaknesses and potentials of the

innovation. For example a firm that builds production machinery develops a new

production method and integrates it into a prototype machine. The feedback of the

first customer using this machine is essential for ongoing improvements and

optimisations. Honest responses of the customer and also suppliers can even

trigger a completely new series of innovative machine designs, which is better

aligned with the customer's needs.

Innovation processes can be described to have four main elements: Knowledge,

invention, innovation and diffusion. Knowledge is the basis for new combinations

and is leading to inventions, which are new ideas for products or services, a better

production method etc. This invention is purely theoretical and has to get

capitalised to bring an actual benefit, i.e. the invention gets applied and marked and

develops by this to an innovation. After the establishment of the innovation on the

market or in the company the dispersal of the innovation starts consciously or

unconsciously. The new knowledge is diffused into other parts of the economy

where it can be imitated, combined or modified or also start again new innovations.

Within the linear model of the innovation process is R&D the only origin of

knowledge. In the interactive innovation process, which is the foundation of the

concept of this report (see figure 3.2), this origin is extended by regional knowledge

and external knowledge. The former representing the existing knowledge base

within the direct surroundings of the innovation system, whereas the latter is

implementing the possibility (and necessity) of knowledge import. ,,Global

technological opportunities are practical unlimited [...] the main focus is on how

well the system can identify absorb and exploit global technological opportunities"

(Carlsson et al. 2002, p. 237). R&D is in this process accredited to the public sector,

what is in reality not completely true, but is showing the main picture. On the

foundation of this knowledge pool consisting of regional knowledge, external

knowledge and R&D inventions are being created as well in the private as in the

public sector. In both sectors are inventions theoretical ideas, which may be some

more practical oriented in the private sector but still represent just theories, models

and concepts. Those ideas can only be put into practical use in the private sector,

which is then called the innovation in its closer meaning. For example the

realisation of a product idea into a marketable product is only taking place in a

private company and improves by this the competitive position of this company.

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

After implementing the innovation the new created knowledge gets spread. It is

diffused in rather a direct way, or cross path costumer and supply firms within the

private sector. Through the diffusion the new knowledge is added in various ways

to the stock of knowledge, i.e. the knowledge is added to the regional knowledge,

gets exported and joins the external knowledge stock or it may be integrated in

R&D activities and trigger new inventions in this area. The same may happen if

through diffusion mechanisms other companies get the innovative knowledge and

use it or use it to innovate themselves. And also the correlation between firms and

their customers and suppliers can help the companies by their feedback to innovate

more. In a perfect case a self strengthening circle of innovation activities evolves.

The aim of this description is to illustrate that innovations can be triggered by

inputs of various areas and that because of that all areas and their networks with

each other have to be examined to understand the innovation process. "Buyer-

supplier linkages are important, the more so the more technical information is

transmitted along with the transaction and sell so, the more commodity-like the

transactions are. Sometimes the most important technical information comes from

sources (e.g. universities and research institutes) separate from buyers and sellers.

Sometimes the informal, mostly personal, networks established through

professional conferences, meetings, publications, etc. are important channels of

information gathering and sharing" (Carlsson et al. 2002, p. 237).

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

3.2.3 "Weak Points"

The foregoing description of the innovation process is now the basis for an analysis

of itself to identify the stages of the process that are necessary to improve or that

can be optimized through innovation policies.

The first starting point to improve innovation activities is the improvement of

knowledge use. Knowledge is the basis for innovation and thereby needs first to be

found and then utilized by the economic actors. "It is one thing for opportunities

to exist, but an entirely different matter for them to be discovered and exploited"

(Acs 2002, p.12). This apparent coherence is a main obstacle for more innovations.

The improvement of information about actual knowledge and possible potentials

should be the start for innovation policies. This stage within the innovation process

is highlighted in figure 3.3 in blue.

The acquisition of knowledge includes the acquisition of region external

knowledge, which is important to keep the regional innovation system "up to date"

and avoid unnecessary investments in R&D. The global technological opportunities

are practical unlimited and so is it crucial how well the system can identify, absorb

and exploit global technological opportunities. I.e. that it may be more important to

raise absorptive capacity than to create new technology (Carlsson et al. 2002,

Freeman et al. 1982). The German economy especially is unassertive and little

effective in combining knowledge that originates from outside of traditional grown

production milieus (Henning et al. 2003). The improvement of the identification

and absorption process for external knowledge should thereby also be addressed by

innovation policies. It is marked orange in figure 3.3.

Doloreux (2004) agrees in the point that global connections are vital. But he also

states that the connections to local or regional customers and suppliers are

necessary and that their feedback should be used to increase the innovative

potential. These cooperative structures within an industry and between different

industries have a high potential for synergies and the exploitation of urbanisation

and localisation economies. A problem that asks for a solution is the different

rhythm and speed of innovative activities within the different phases of the

innovation process. The discrepancies generate adjustment problems within the

whole innovation process but mainly for the companies. They look for closer

cooperation and coordination to overcome these issues (Henning et al. 2003). This

field includes mainly actors of the private economy, companies, their suppliers and

customers and related firms. Sometimes public institutions and research facilities

are also part of such cooperative structures. The connections within the innovation

process (figure 3.3) that include these actors are shown by a green border.

The more companies participate within such cooperation, the more potential

knowledge is present. More companies widen the knowledge stock and also the

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

innovation potential of a region. The general aim to get more companies in the

region is also consistent with the politics aims of more employment and

competitiveness. Audretsch and Thurik found empirical results that a policy of

stimulating small firms, or more generally entrepreneurship, may be an effective

way of combating the current decrease of competitiveness of European industry

(Audretsch and Thurik 1999). The concrete effect of entrepreneurship is the

foundation of new companies by incorporators out of the private or public sector.

To support such efforts should be a clear aim of innovation policies. Figure 3.3

shows this step within the innovation process in red.

As the interactive model of the innovation process has shown feedback

mechanisms are an important cause for continuous innovation activities. Those

feedbacks occur mainly through diffusion mechanisms, which are not the normal

task of companies because they do not pay off directly. Thereby the support of the

large-scale diffusion of innovations is a major task of any innovation policy

(Freeman et al. 1982). The phase of diffusion is circled yellow in figure 3.3.

Of course every regional innovation process has different characteristics and also

different problematic phases. The identified five weak points are a general picture

that needs to be examined always in detail for every region. Figure 3.3 shows the

weak points of an innovation process. They are

the identification and utilization of existing knowledge and research results,

the acquisition of external knowledge,

cooperation within and between industries,

the support of start-up companies and

diffusion mechanisms.

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

Chapter four addresses the improvement of the weaknesses and how innovation

policies can react to these failures within the system.

However the innovation process is seen or illustrated, it shows in any case that

"Like production processes, most innovation activities are characterized by a

significant division of labour between organisations" (Audretsch and Thurik 1999,

p. 158). This division of labour into the different elements of the innovation

process requires some kind of organisation or pattern how to work together. One

approach to understand these interrelated structures is the innovation system

approach.

3.3 Innovation systems

To clarify what is an innovation system, the term innovation and the system

approach have to be explained. Chapter 3.2 described the concept of innovation

and made clear that in the focus of this report, innovations are changes in the

processes, organisation or human capital of a firm with the aim to improve the

competitive situation of this firm. The system approach will be explained in the

following.

We are meeting systems more or less consciously all the time in our professional or

every-day life. We are all parts of political, social, technical and ecological systems.

But what characterises a system? A system is, in a general sense, a collection of

components that work together to fulfil a certain task (Microsoft Encarta 2003).

The number, kind and organisation of those components and their interaction are

mainly dependent on the task the system is aiming to fulfil. For example, a system

with the task to provide every day fresh vegetables on a market has completely

different technical, organisational and human components than a system who aims

to develop new medicines for a certain disease.

Components can be individuals or organisations and companies, as well as

institutions or public agencies and also technical components like vehicles,

production facilities, natural resources or communication infrastructure. Another

form of components is not touchable. Framing conditions like social norms,

traditions, laws or codex of behaviour are influencing essentially the performance

of a system and can thereby also be seen as components (Carlsson et al. 2002).

In a system analytical view it is visible that systems do not only consist of their

components, but also of the relations between them and the characteristics of the

components and relations. "Systems are made up of components, relationships,

and attributes" (Carlsson et al. 2002, p.234). The relation between the components

should not be neglected because the difference between a group of single actors

and a system of components is the relations between the components (Freeman et

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

al. 1982). They make the whole more than the sum of its parts (Carlsson et al.

2002). Only by implementing and using relationships between the single

components they get closer to reaching their aim. The characteristics (or attributes)

of a system describe the capabilities and qualities of the components and their

relations. In the following

description the attributes, in

contrast

Carlson's

approach, will not be

examined separately because

they are seen as integrated in

the

components

relationships that have each

special characteristic. Figure

3.4

illustrates

these

differences by the differing

shapes and kinds of lines.

But what are now the components and relations forming an innovation system and

how should those attributes are like, to create an effective innovation system? Like

it was described before, it is first necessary to be sure of the purpose, the task of a

system before it is possible to identify its elements. So first question to be answered

is: What is the function of an innovation system?

,,The function of an innovation system is to generate, diffuse, and utilize

technology" (Carlsson et al. 2002, p.235). The function and aim of an innovation

system is the support of innovation activities, which includes the creation, the

exploitation and the diffusion of the innovation. This means the whole innovation

process (see chapter 3.2). The chain of the innovation process first should be

possible and second get eased and fastened. It is also important to nurture its

capacity for further development and improvement so the system stays dynamic,

which is a key feature to keep an innovation system and its participants successful

(Carlsson et al. 2002).

To identify the components and relations of an innovation system one should

name the actors, which fulfil the tasks of the single building stones of the

innovation process. This assignment is easy to formulate but very difficult to

accomplish in reality. All innovation systems are built up different, depending on a

set of various parameters: the spatial or geographic focus, the time of description

and if there is a certain thematic focal point (branch, product, technology, group of

firms, research field etc.) (Carlsson et al. 2002).

On which geographic level is the innovation system? National, local or regional?

The choice of spatial focus is influencing heavily the number of actors, their

relationships and the kind of interactions that is possible. The national level is often

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

the chosen area of analysis in the innovation literature because national states are

seen as cultural, lingual, administrative and legislative entities in which the framing

conditions for innovation activities are everywhere homogenous. Examples for that

are society norms, traditions, the educational system or economic support

regulations (Lundvall et al. 2002). This approach has been leading to a wide

collection of literature concerning "national systems of innovation" (Nelson 1988,

1993, Freeman 1988, Lundvall 1988). But there is also evidence that innovation

systems are not oriented on national borders anymore and that cross-border

cooperation and networks are the rule (Carlsson et al. 2002, Audretsch and Thurik

1999).

The local level is lending itself for analysis activities because it is represented by

cities or municipalities also an administrative unit, what simplifies the inquiry and

use of statistical data a lot. But this small sized spatial focus has the disadvantage

that it can only include a very limited number and variety of actors, which leads to a

very wide range of system-external actors.

Regions are the level in between national states and local authorities and have been

proved within the increasing development towards globalisation economies to be

the most important level of economic activity on an international market (see

chapter 1.1). "Finally, the existing literature of the historical and case-study variety

shows that indeed innovation systems have blossomed locally"(Acs 2002, p. 175)

and not on the national level. Problems of the regional level are at first already the

setting of the region's borders because regions are in the least cases equal to

administrative units. This leads to the disadvantage that it may be very difficult to

find statistic data for such a regional entity.

The matter of time is also affecting the appearance of an innovation system

because innovation systems are not static. Through their build-in feedback

mechanisms do they include an ongoing dynamic, which modifies number and kind

of actors und their relations to each other with time. Also the social norms, moral

concepts and legislative conditions that are components of the system change with

the development of society and political culture. It should always be clear that the

analysis of an innovation system is always a snap-shot of a certain situation in a

certain moment (Carlsson et al. 2002).

The thematic focus manipulates just like the spatial level the choice of components

and relations of an innovation system. Some examples should explain this

coherence best. If the topic is the innovation system around a certain product, so

will only firms and research institutions be viewed that are in connection with this

product. But if the focus is the innovation activities in a certain branch or research

field like the wood industry or wooden materials, widens the focus and all actors

from this economic or scientific field are potential components of the system. If

the focus is laid on a certain group of firms or a cluster is the range of actors again

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

much more narrow and is limited to a system with these firms in the centre

(Carlsson et al. 2002).

The combination of those three parameters, the geographic focus, the time of

description and the thematic focus sets the frame in which the components and

relations of the innovation system may lay. In chapter six this approach will be used

to examine the innovation system with the thematic focus of knowledge transfer

form science to the economy in the region Bonn/Rhein-Sieg/Ahrweiler in the time

of spring 2005.

3.3.1 Components

Following will be described which kinds of components are important for an

innovation system, apart from the geographic or thematic focus, and which kinds

of relation are possible in which situation. The advantages and weaknesses of the

different possibilities will be explained together with some examples to give a rough

picture.

In the beginning of innovation research only economic actors were seen as relevant

components of the innovation process. Freeman described an innovation system as

"The network of institutions in the public and private sectors whose activities and

interactions initiate, import, modify and diffuse new technologies" (Freeman 1987,

p. 1). He is solely pointing at physical actors to fulfil the functions of the

innovation process and does not follow a system approach.

"The system approach allows for the inclusion not only of economic factors

influencing innovation but also of institutional, organisational, social and political

factors" (Acs 2002, p. 179). Through the view of innovation activities as a system

dilates the bandwidth of relevant factors and aspects, which come from all areas of

society. It can be seen as scientific consensus that in addition to physical, "hard"

components, also "soft" components influence the innovation process (Hübner et

al. 1995, Cooke and Morgan 1998). Some speak about the summary of these

components as an institutional milieu. "This institutional milieu is to be understood

in a dual sense, consisting of both "hard" institutions (the ensemble of

organisations, like government agencies, banks, universities, training institutes,

trade associations, etc., which have a bearing on economic development) and

"soft" institutions (the social norms, habits, and conventions which influence the

ways in which people and organisations interact)" (Cooke and Morgan 1998: p.9).

Hard components

These physical components can be classified into three categories:

"Producers" of knowledge

"User" of knowledge

"Distributor" of knowledge

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

Within the first category are mainly public and private R&D-facilities, e.g. R&D-

departments of large (mainly global acting) companies as well as universities and

research laboratories. Yet also small and medium-sized enterprises (SME) without

their own research department are producers of knowledge and new technologies

(Acs und Audretsch 1992).

The users of knowledge are those economic actors that accomplish the innovation

in its closer meaning: big and small private companies. They are the core of the

innovation system because the aim of the system is not to innovate just for the

innovation itself, but to give these firms a better competitive position in the global

economy. Though not only the innovating companies themselves are benefiting

form their innovation activities but also their costumers and supply firms because

they indirectly feel affects of the innovations and they also influence the

innovations by feedback and cooperation.

Distributors of knowledge are all kinds of private and public agencies that improve

the accessibility and diffusion of knowledge, meaning both old knowledge and

recent one. Examples are technology transfer departments in universities that try to

make research results more transparent and accessible for the economy, patent

bureaus, fairs and exhibitions, education and training facilities, libraries, private and

public institutions for economic support etc.

Soft components

The abstract part of an innovation system are not physical, but rather social frame

conditions (also called social capital or social institutions), that are influencing the

innovation process. ,,Institutions understood as norms, habits and rules are deeply

ingrained in society and they play a major role in determining how people relate to

each other and how they learn and use their knowledge" (Lundvall et al. 2002,

p.220). To achieve an overview of the soft components, it makes sense to

summarize and explain them under three headwords:

legislative conditions

traditions

social norms

(Carlsson et al. 2002).

Legislative conditions are first of all the foundation for every economic activity

because without for example regulations of property rights, boundaries for

monopolies, contracting laws or simply constitutional legality would the macro-

economic situation be much more unstable and risky. This would cause

uncertainty, which again is retarding innovation activities (Cooke and Morgan

2003). Additional to these general economic conditions, are also some specific

policy fields influencing innovation systems. The most important are the fields of

social policies, labour market, education and training, industry, energy, environment

and of course R&D and technology policies (Lundvall et al. 2002). The latter is

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

especially of importance because of its fiscal appeal systems. This whole area of

legislative conditions is not easily but definitely possible to influence and change

through political channels in which the competence for this is in most cases at the

national state level. This is one of the main arguments for the intensive analysis of

national systems of innovation because the representatives of the national level see

the legislative conditions as very essential (Lundvall et al. 2002). An argument

against this is again that the competences concerning these policy fields are more

and more transferred form the national to the regional level and the national state

keeps just the role of a competence distributor (Acs 2002).

On the contrary to this traditions and social norms are very difficult to change or

modify. Traditions mean in this context two things: traditional ways of behaviour

and attitude, and traditional activities and structures. The behaviour and attitude of

an area is influencing the willingness to found a new company, the attitude towards

learning and training within the population and not the least the ways of interaction

between people, which all have big influence on the performance of an innovation

system. For example a long tradition in a certain handcraft may create together with

a high willingness for learning a very high innovative potential. The traditional

structures like festivities, parades, presentations and competitions may also be

positive for the innovative potential of a region. Traditions are very inflexible and

difficult to regulate or organize artificially.

Social norms are similar to traditions in the way that they also develop over time

and are difficult to influence. Examples for social norms are reliability, sense of

justice, politeness, openness for novelties, hospitality or the working attitude. These

aspects are important issues in the performance of companies and the quality of the

human capital in a region and with this also of its innovation activities.

3.3.2 Relations

The relations or connections between components can be designed in various

ways, depending on their purpose, which is mainly to transfer information or

knowledge. There are different possibilities for transfer, depending on the

components and the kind of knowledge that should be transferred.

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

One has to distinguish between information and knowledge. In general information

is understood as data or facts. For the preparation of effective action is it necessary

to have knowledge; information is the basis for knowledge. The more knowledge

about alternatives decision makers have, the better will be the chosen action in

order to reach a certain aim. So knowledge is purpose oriented; it has the purpose

to design actions optimal (Pfohl 1997). Information like the price of oil in the USA

or the stock exchange value of a certain share can be easily encoded and have only

one single content, which can not be misinterpreted. Because of that is it possible

to transfer information with the modern media like e-mail, internet, fax, post or the

phone without the loss of any detail. Thanks to the communications revolution of

the last century information can be transmitted with virtually no costs around the

globe (Audretsch and Thurik 1999).

This is not possible with knowledge because it is more vague and because of that

difficult to decode. Also the meaning of knowledge is depending on the context it

is used in. For example the transfer of knowledge about the working mechanisms

and details of a new production process can be transmitted by mail or phone, but

to apply this knowledge to a new context and bring it to practical use may trigger

many problems and uncertainties because some "tacit" knowledge about the

machine was not transmitted with the information. To transfer this tacit knowledge

like personal experience requires face-to-face contact which raises the costs for the

transfer of knowledge proportional to the geographic distance. Knowledge transfer

necessitates spatial proximity, which is a main aspect of the cluster theory (Acs

2002). "New technological knowledge (the most valuable type of knowledge in

innovation) is usually in such a tacit form that its accessibility is bounded by

geographic proximity [...]" (Acs 2002, p.10).

The described differences between the transmission of information and knowledge

have long reaching effects on the organisation of the relations between the

components of an innovation system. On the one hand is it possible to use the

global information pool with very low transaction costs, without any effect of the

choice of location of the components in the innovation system. On the other hand

is the conduction of knowledge strongly linked with face-to-face contacts and

therefore with spatial proximity. In an innovation system are both information and

knowledge of significance, but mainly theoretical and practical knowledge is

essential for the development of innovations. From this follows that the spatial

organisation of an innovation system should arrange a high spatial density of

components to foster knowledge transfer between them. The use of information

from any source is not negatively influenced by that.

"But since working conversations that create new knowledge can only emerge

where there is trust and proximity, these have proved to be essential inputs" (Acs

2002, p.169). Spatial proximity alone is not a guarantee for working connections

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

and knowledge flows. Another prerequisite is a minimum of trust between the

actors, which is sometimes difficult to generate in an economic context.

Attributes of relations

Attributes of relations or transactions between components of an innovation

system that are influencing its performance and efficiency are according to Cooke

and Morgan (1998) trust, loyalty and what they call "voice".

The latter means the capability of actors, especially in power constellations, like

hierarchies or buyer supplier relations, to articulate problems, ideas, critic and

proposals, so that improvement potentials can be identified. Without this ability is

the system more unstable because the single actors will not try to solve occurring

problems, but they will solve it by exiting the system (Cooke and Morgan 1998).

This also means a big loss of improvement potential and less dynamic in the

system. Of course requires the capability of articulating a problem also the

willingness and capability to absorb the "voice" and utilize its content.

Trust and loyalty are prerequisites for the use of "voice". Loyalty will here not be

looked upon in detail because it is seen as a part of trust and develops parallel with

it. Trust as a factor for economic development was examined in a wide scientific

literature (Arrow 1974, Luhmann 1979, Sako 1992, Loose/Sydow 1994, Messner

1995), which found, that trust can be a crucial economic advantage within business

relations. "Trust - the confidence that parties will work for mutual gain and refrain

from opportunistic behaviour - can be an important economic asset if it can be

secured" (Cooke and Morgan 1998, p. 30). Trust between actors lowers the

financial and time transaction costs because the partners can rely on the statements

of the other party, what reduces the uncertainties in a transaction and produces

higher capacities for learning on all sides. A strong trust basis within a company

reduces control and regulation efforts, makes shorter decision processes possible

and increases the motivation of all employees (Website Hilpert). But trust can not

like other economic factors be bought, which does not mean it is for free. It has to

be developed and actors have to invest both time and money to build it up. Trust is

growing through learning effects that result of successful cooperation, in which the

parties recognize the other as trustworthy and the cooperation as beneficial. But

this presumes an initial cooperation to build up on later. Why should economic

actors cooperate in the first place? One reason can be a good reputation of the

actors or the essential pressure to cooperate out of an extreme situation. Other

helping factors can be traditions and social norms of the society that lay a trusting

base in general. Cooperation should always be started with easy, small tasks that

have a high possibility for success so positive results lay a basis of trust (Cooke and

Morgan 1998). But the creation of trust-based business relations is not an aim in it

self and does not apply to all kinds of transactions or cooperation because the high

costs have to be justified by the outcome. For example for the one way purchase of

information is a quite low level of trust sufficient, where in contrast the exchange

Regional Innovation Systems

3. Innovation

__________________________________________________________________________________________

of knowledge needs a high trust relation because knowledge transactions deal with

complex issues and are often necessary to be maintained over long-time, so

feedbacks are possible. Because of the high importance of knowledge transfer

within innovation systems an atmosphere of trust should be created to ease and

foster knowledge flows within the system.

3.3.3 Forms of knowledge transfer

Following will the forms of relations that transport information or knowledge be

divided into formal and informal forms (O`Sullivan 2003). Formal means that the

transactions are organised consciously and that they thereby follow rules and paths.

Informal transactions describe more unconscious coincidental knowledge flows

that were not planed in advance. Foregoing it was stated that innovation systems

are mainly dependent on the transfer of knowledge and that information transfer is

rather uncomplicated because it does not involve a complex content, a long term

relation or trust. Because of this, the following explanations will focus on the

transfer of knowledge.

Formal knowledge transfer

Formal transfers of knowledge are transactions within the knowledge market, i.e.

knowledge is treated like any other good and is sold and bought. This can be in the

form of a research assignment of a company for a research institute, the purchase

of patent rights or in form of a take-over of one firm and its knowledge pool by

another. The difficulty with formal knowledge acquisitions is to find the wanted or

needed knowledge, or better the actor that owns it. This process can be very

complex because in contrast to the theories of economic science exists in reality no

perfect information about the market, not even on the knowledge market. The use

of inter-mediators, facilitators or other agents is helpful in such a situation.

Especially with knowledge transfers that request spatial proximity plays this an

important role because it is not only necessary to find the right actor, but also to

find one, that is not too far away or to arrange personal contacts. Often companies

do not know the knowledge potential of their own region or city and acquire

knowledge from external sources, which is unnecessary expensive.

A different formulation for a formal relation is cooperation between actors. Within

cooperation is not so much the customer and supplier aspect emphasized as more

the aspect of mutual gain. The participating parties contribute to the cooperation

out of their resources and gain out of the resources of the others. Capital transfers

do not have to be involved because cooperation gains are often intangible, like an

image improvement, the sharing of contacts or an exchange of experience.

Details

Seiten
Erscheinungsform: Originalausgabe
Jahr: 2006
ISBN (eBook): 9783956361760
ISBN (Paperback): 9783836601429
Dateigröße: 2.6 MB
Sprache: Englisch
Institution / Hochschule: KTH Royal Institute of Technology – Department of Urban Planning and Environment, Division of Urban Planning
Erscheinungsdatum: 2007 (Februar)
Schlagworte: wirtschaftsförderung wirtschaftsgeographie technologietransfer bonn innovation

Autor

Michael Bison (Autor:in)

Regional Innovation Systems - An Analysis of Innovation Policy Instruments

Zusammenfassung

Leseprobe

Inhaltsverzeichnis

Details

Autor

Michael Bison (Autor:in)