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Regional Innovation Systems - An Analysis of Innovation Policy Instruments

©2006 Masterarbeit 227 Seiten


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 […]



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
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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
Introduction ... 1
Background... 1
Research questions... 2
Structure of the report...3
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
Innovation systems ...26
Components ... 29
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
Best practice example: ERVET (Italy)... 56
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
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
List of Figures ... 183
List of Tables...184
List of Shortcuts ... 185
References... 186
Appendix ...198

Regional Innovation Systems
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
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
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
"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
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.
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
Innovation improves employment.
Regional innovation systems are the most important level for innovation

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?
Which policy instruments are the most effective ones to generate employment
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
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.
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
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

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
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
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,
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.
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
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
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,
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
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
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.
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
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
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

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.
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
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
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
approach, will not be
examined separately because
they are seen as integrated in
relationships that have each
special characteristic. Figure
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

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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
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
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

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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
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

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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.


ISBN (eBook)
ISBN (Paperback)
2.6 MB
Institution / Hochschule
KTH Royal Institute of Technology – Department of Urban Planning and Environment, Division of Urban Planning
2007 (Februar)
wirtschaftsförderung wirtschaftsgeographie technologietransfer bonn innovation

Titel: Regional Innovation Systems - An Analysis of Innovation Policy Instruments
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227 Seiten