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«Regional Innovation Systems as Public Goods UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Regional Innovation Systems as Public Goods By Phil ...»

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First is that the concept “regional” is somewhat extended to encompass at least three small nation-States like Denmark, Singapore and Slovenia. It might be useful for MEAOs to recognize this since scale differences mean small countries may not need to consider regional interventions except to seek to ensure that regional disparities are reduced and interventions appropriately orchestrated at central-government level, as in Singapore or Slovenia. Such States clearly have in principle greater power to implement innovation support initiatives than do most regions of larger States. They can pursue sovereign policies that also autonomously favour firms in their jurisdiction. It is of interest that, despite differing levels of autonomy, the direction of innovation system trajectories shows some convergence over time. For example, there is a tendency for business and government to move towards the centre, demonstrating a higher networking propensity. A few regions go against this trend by remaining relatively unchanged


in their business innovation character and their governance of innovation support. In the case of Wales, despite devolution of some powers from the central government to the Welsh Assembly in the 1990s, the new devolved government has centralized all innovation administration to itself.

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Source: Cooke et al., 2004.

Interpretation of these trajectories suggests that the concept of utilizing innovation for business competitiveness and regional constructed advantage has strengthened over the 10 years encompassed in the regions researched. Even Baden-Württemberg, which already had a highly evolved innovation framework, experienced new associative policy input from its Commission of Inquiry, published in 2000. Policies to stimulate diversification of innovation across a range of industries like biotechnology, photonics and new media are a pronounced feature of the policy landscape. This is consequent upon a recognition that the regional economy had become undesirably monocultural around automotives.

A common desire for knowledge-intensive industries

The desire of regional and smaller state innovation policy-makers for a biotechnology presence is marked in the evolution of their innovation focus. It is present from Singapore’s Biopolis to Denmark’s Medicon Valley now linking Copenhagen to the Swedish side of the Øresund bridge. Catalonia, Tampere and Wales are among regions extending or building bioparks and gene parks. With these developments goes a heightened sense of the importance of talent and entrepreneurship within innovation


systems. This is because it is not multinational companies that carry this development impulse but spinout firms from university research centres of excellence. Attracting, recruiting and retaining research talent, on the one hand, and assisting in the formation of entrepreneurs to transform exploration knowledge into exploited commercial innovations, on the other, have become greater imperatives in the past 10 years.

Regionally constructed advantage is now being focused on industries at the heart of the new knowledge economy because the constructed advantage of only a decade ago is swiftly vanishing. Tuscany, Brabant and Wales are paradigmatic cases. Tuscany has numerous, distinctive clusters, more traditionally referred to as industrial districts, in its regional setting, ranging from textiles to leather and furniture. Each of these traditional sectors is facing competition from cheaper goods from, particularly, China.

In Prato, the heart of Tuscany’s woollen fabric industry, the cluster is evolving into a clothing manufacturing centre. The skills needed to, for example, stitch, sew on buttons and make clothing accessories, were not traditional to Prato and, in any case, Italian wages would render such products prohibitively expensive. Remarkably, during the 10 years covered by these regional innovation system case studies, at least 23,000 Chinese workers and entrepreneurs moved to Prato to supply these missing elements in the local division of labour. Numerous other Asian and North African ethnic minority workforces have joined them. One of the Netherlands’ greatest firms, Philips, was headquartered in Eindhoven in the region of Brabant. Philips owes its existence to a decision by the Dutch government in the nineteenth century to suspend international patenting protocols as a means of constructing advantage for what was perceived to be a lagging economy at the time. The Edison light bulb was simply pirated as a consequence. Philips grew to be an almost classic M-form (hierarchically managed) corporation. Nowadays however, recognizing inefficiencies in that standalone corporate structure, it has adopted open innovation, outsourcing R&D to entrepreneurial firms and research institutes within and beyond its region. In this way, knowledge entrepreneurship has been externalized with all the network management skills that are thereby implied being evolved.

Finally, Wales’s innovation system was relatively over-governed, but Japanese and other FDI engineering firms stimulated local entrepreneurship and talent formation as they elaborated regional supply chains. However, by 2005 even one of the first, iconic FDI arrivals, Sony, had almost completely shut, following other plant closures by Hitachi, Panasonic and Korea’s LG. A totally new entrepreneurship and talent-based innovation approach is now painfully and slowly being attempted (Cooke et al., 2004).

Clearly, regional innovation systems are not islands; they are more like icebergs, swiftly affected by their global environment, immediate external conditions and internal dynamics. Increasingly, where policy consciousness and reflexivity involve recognition of the importance of innovation to economic growth and the connected importance of entrepreneurship and talent to innovation, regional firms and policy governance are engaging new challenges in the knowledge economy. This stretches from the widespread embrace of new, thriving but complex sectors like biotechnology to the equivalent organizational complexities of managing open innovation through R&D outsourcing.


The components of public goods innovation support

In summary, the key means by which public goods innovation support has been achieved can be identified. It is principally by stimulating collective entrepreneurship by utilizing and promoting social capital among diverse actors such as those in the private sector, mainly firms, and those in the public sector, such as talent and knowledge formation organizations like universities and other institutions of higher education. The system is completed when regional and local intermediary innovation agencies are introjected. This may be done less centrally by appointing experts in polytechnics as oneperson knowledge transfer agents, as in the Steinbeis Foundation in Germany. Along with these, there are real services units like those in Italian industrial districts to improve skills, plus regional and local business association branches, and provide collective services for firms like payroll and taxation management, common purchasing and networking opportunities. These all assist in promoting collective entrepreneurship.

Finally, skills and talent formation services are an important complement, so agencies or experts able to assist intermediation in matching skills needs to capabilities are necessary. The Danish networking programme offered subsidized brokerage terms to appropriate individuals for securing these and other services. The service was a public good, state-subsidized programme, open to all with the appropriate qualifying attributes (e.g.

SME, looking to export, seeking support services, etc).

4. Policy recommendations from the successful services RIS are a powerful instrument for obtaining economic growth. In line with new economic growth theory, they rest fundamentally upon the notion of public goods provision where market failure to support innovation is evident. They involve collective entrepreneurship, exploitation of social capital advantages where these exist and building networks where they do not, specialist, small-scale enterprise and innovation support services (real services or Steinbeis centres), regional financing and investment vehicles and labour market adjustment services. Producing innovation combines a threeway relationship between innovation, entrepreneurship and talent formation interacting systemically over time, evolving as local and global conditions dictate. Underpinning all three there need to be financial resources sufficient to make a difference to the status quo and stimulate a process of change for the better.

Box 4. The South African Innovation Survey

South Africa has adopted an explicit innovation systems policy, but it is national not regional. However, it involves a process of performance benchmarking against countries like Australia, Republic of Korea and Viet Nam. The South African Innovation Survey (SAIS) is modelled upon that of the EU Community Innovation Survey (Rooks & Oerlemans, 2005). The first SAIS showed 44 per cent of firms had innovated new technological products or services in the previous three years, comparable to the EU average; 49 per cent invested in R&D which was considerably more than the EU average (36 per cent), though the magnitude of investment was considerably lower. In Thailand and Viet Nam, for example the ASEAN Agricultural Innovation System policy is being implemented, integrating more tightly the fragmentary innovation arrangements of both countries. (Chairatana & Sinh, 2003).

Innovation support services Innovation is the commercialization of new knowledge. Unless that knowledge is generated inside a large firm or SME it is likely to be knowledge subject to exploration inside a public goods organization practising open science such as a university or major public research institute. Under the latter circumstances, exploitation of the discovery or invention follows an intensive period of application of examination knowledge such


as a patent application to release intellectual property rights (IPR) by licensing, trade sale or formation of a spinout company. These types of knowledge integration are fundamental to an increasing amount of what is nowadays called open innovation and offer opportunities to suitably innovative developing-country firms. Other examination knowledge opportunities arise through clinical trials and patient testing of candidate products like new drugs that may be outsourced to developing countries like India or China with large and varied populations.

For reasons of public goods efficiencies and effectiveness public research institutes are being transformed both in terms of direction of research and proximity to social needs.

Under such circumstances, certain key policy instruments become crucial (see box 5).

The success of the Brazilian incubator programme is well-known (Etzkowitz et al., 2005).

Incubation is extremely important in nurturing new businesses in technology as in other sectors. As table 2 shows, there are distinctive incubator programmes and types in Brazil. Yet, the technological incubatees are the most numerous. This suggests that the policy of formalizing university or research institute academic entrepreneurship links through students graduating their firm has been a rather useful approach to innovation.

Box 5. Transformation and reinvention of a public goods research institute The nuclear and energy research institute of Brazil (IPEN) in São Paulo lost its mission in the mid-1990s with a change of government policy. IPEN had to become more market-oriented if its commitments to 1,000 staff and 5,500 students were to survive. Funding from international programmes had to be sought and co-evolution with social needs addressed. This also involved engagement with the metropolitan São Paulo programmes for technology parks and business incubators. IPEN changed the direction of its research from a nuclear to a healthcare focus.

Networking and partnership had to be taken on board. Becoming more market facing meant also management retraining, so an ISO 9000 training programme in modern management for nuclear medicinal products was accessed and utilized.

This led to failure and a rethink towards learning by following a Brazilian quality management programme with inbuilt monitoring and evaluation standards appropriate for the chosen field. Later, ISO 9000 was resumed successfully. Subsequently, other standards have also been pursued as IPEN changed its face from energy towards improving the quality of life for Brazilian citizens. These include joining a Technology Excellence Research Project run by ABIPTI, the Brazilian Technological Research Association, to improve the management practices of its members. Thus IPEN was seeking to be market-facing but also to raise its standards of research and innovation excellence substantially. The reference is the Brazilian National Quality Award. In 1998, it opened an incubator, CIETEC, thus completing moves through the exploration to exploitation knowledge value chain, and the learning deficit to quality achievement standards using Balanced Score Card (BSC) techniques. Publications dropped by 23 per cent between 2003 and 2004 but technologies increased by 21 per cent, recognition of the shift from “ivory tower” to academic entrepreneurship.

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Source: Etzkowitz et al., 2005.

Argentina’s experience with incubators as instruments for assisting new firm formation based on knowledge entrepreneurship is less successful. Argentina’s incubators were first instituted in 1995. International programmes had proposed university incubators even in the early 1990s but they were slow to develop. By 2005, there were 50 incubator projects and 16 functioning incubators with companies operating in them.

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