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

Regional Innovation Policy: A Classification of Policy Instruments Support: Financial and technical Behavioural change: Learning to innovate Financial support Mobility schemes Firm-focused Brokers Technology Regional System-focused centres innovation systems Bjørn Asheim, 2008

What is Regional Innovation Systems (RIS) – narrow definition (human capital strategic): A RIS is constituted by two sub-systems and the systemic interaction between them (and with non-local actors and agencies): The knowledge exploration and diffusing sub-system (universities, technical colleges, R&D institutes, technology transfer agencies, business associations and finance institutions) The knowledge exploitation sub-system (firms in regional clusters as well as their support industries (customers and suppliers)) STI (Science, Technology, Innovation) mode of innovation – high-tech (science push/supply driven); radical innovations Bjørn Asheim, 2008

What is a RIS - broad defintion (social capital strategic): A system of organisations and institutions supporting learning and organisational innovation, and their interactions with local firms (learning regions) Developmental (creative) learning: competence building – learning work organisation Reproductive (adaptive) learning: interactive learning (user-producer relationships) – inter-firm networks A market/demand/user driven system mostly generating incremental innovations DUI (Doing, Using, Interacting) mode of innovation – Competence building and organisational innovations – market/demand/user driven Bjørn Asheim, 2008

Varieties of Regional Innovation Systems (RIS) Territorially embedded RIS (’grassroots RIS’) – demand/user driven (less systemic university-industry relations) – broad definition of IS (learning regions) Regionalised national innovation systems (’dirigiste RIS’) – science/supply driven – narrow definition of IS (technopolis, science parks) Regional networked innovation systems (’network RIS’) – mixed supply/demand interaction (combined narrow and broad definition) Bjørn Asheim, 2008

Policy challenges: Institutionally thin (peripheral) and old industrial (lock-in) regions Institutionally thin regions Less innovative in comparison to more agglomerated regions Less R&D intensity and innovation A less developed knowledge infrastructure (universities and R&D institutions) Suffering from institutional thinness Lock-in regions Overspecialised in mature industries experiencing decline (negative lock-in in specialised localisation economies) Few R&D activities, mature technological trajectories, cognitive lock-in University and public research oriented at traditional industries / technologies Bjørn Asheim, 2008 Source: Tödtling & Trippl (2005)

Policy challenges: Fragmented metropolitan and networked regions Fragmented regions Many and diverse industries/ business services Lack of dynamic clusters of (local) innovative firms and knowledge spill-overs (unrelated variety of urbanisation economies) R&D departments and headquarters of large firms Many and high quality universities and public research organisation but weak industry-university links (weak connectivity in RIS) Networked regions Regions with cutting edge technologies and a high level of R&D as well as high connectivity in RIS) Exposed to new challenges and competition from emergent economies Diversify into new but related industries (related variety/differentiated knowledge bases) New ways of continuous innovation support Bjørn Asheim, 2008 Source: Tödtling & Trippl (2005)

Policy responses to regions’ and SMEs’ innovation problems - RIS with problems of organisational thinness. Financial: Attract and retain innovating firms Technological: Link firms with technological resources outside the region – absorptive capacity key resource Human Resources: Attract/retain highly-skilled workers – raise absorptive capacity through mobility schemes Openess and learning attitude: Promotion of networking between firms and clusters at every geographical scale Strategy and Organisation: Support firms in linking to international input and output markets Bjørn Asheim, 2008

Policy responses to regions’ and SMEs’ innovation problems – RIS with lock-in problems Financial: Ensure long-term finance for ’overall’ innovation project and new firms formation Technological: Push firms to seek new technology options using brokers, also through international partnerships Human resources: Develop creative capacities of workers (human capital development; learning work organisation) Openess and learning attitude: Help SMEs evolve towards more creativity and autonomy in production Strategy and organisation: Open windows of opportunities for SMEs; innovation management training Bjørn Asheim, 2008

Policy responses to regions’ and SMEs’ innovation problems – RIS with fragmentation problems Financial: Coach firms in linking to finance sources Technological: Provide bridge between firms and technological resources by promoting university-industry interaction and improving connectivity in RIS Human resources: Foster exchange of codified and tacit knowledge (STI and DUI mode of innovation) Openess and learning attitude: Foster a more collaborative spirit and more strategic orientation in the regions (learning to innovate) Strategy and Organisation: Help firms identify, articulate and ’de-bundle’ their needs Bjørn Asheim, 2008

From competitive to constructed advantage: Regional Policy Challenges in a Globalising Knowledge Economy Imitation and adaptation is not any longer a sufficient strategy for regions in the long run (cost-based, low road strategy). Unique advantages have to be actively constructed (innovation-based, high-road strategy). However, innovation can build on cost advantages (e.g. TATA-Nano car from India). Industrial renewal takes place in-between and beyond existing sectors – need for transcending traditional sector policies (platform policy) Innovation through combining existing knowledge, technologies and competencies with new generic technologies (IT, biotech (green and white)) How to shape conditions for constructing regional advantage? Bjørn Asheim, 2008

From competitive to constructed advantage Competitive advantage: too strong focus on markets and rivelry as selection mechanisms as well as a too narrow approach to the creation of endogenous capacity of regions to learn and innovate as primarily being based on co-location of firms in clusters and by placing the state in the same peripheral position as ’chance’ in Porter’s diamond model Constructed advantage: acknowledges more the important interplay between industrial dynamics (knowledge bases) and institutional dynamics (i.e. different knowledge bases need different kinds of institutional support) as well as private-public complementarities in policy making by a stronger focus on actors, agencies and governance forms (addressing system failures – weak connectivity within and between IS). Bjørn Asheim, 2008

Content of policies for Constructing Regional Advantage Proactive and trans-sectoral, platform oriented policies (transcending traditional industry or sector specific policies): Related variety (spillover effects) Differentiated knowledge bases (analytical, synthetic and symbolic) Distributed knowledge networks Bjørn Asheim, 2008

Platform policies – Japan’s new cluster policy (2004): Ex: Strengthening policies for advanced component/materials industries Bjørn Asheim, 2008

1) Related variety: Agglomeration economies and optimal cognitive distance – absorptive capacity Localisation economies – sector specialisation achieving efficiency? – Traditional clusters Urbanisation economies – diversity promoting creativity? However, can knowledge spillover take place between sectors that are unrelated (portfolio vs. knowledge spillover effects)? Trade-off betwen cognitive distance, for the sake of novelty, and cognitive proximity, for the sake of efficient absorption. Information is useless if it is not new, but it is also useless if it is so new that it cannot be understood Bjørn Asheim, 2008

Related variety (spillover effects) Related variety is defined as sectors that are related in terms of shared or complementary knowledge bases and competences One of the driving forces behind urban and regional growth due to knowledge spillover Acknowledge that generic technologies have a huge impact on economic development (e.g. green and white biotech) Related variety combines the strength of the specialisation of localisation economies and the diversity of urbanisation economies Bjørn Asheim, 2008

2) Differentiated knowledge bases: A typology Analytical (science based) Synthetic (engineering based) Symbolic (artistic based) Developing new know-ledge about natural systems by applying scientific laws; know why Applying or combining existing knowledge in new ways; know how Creating meaning, aesthetic qualities, affect, symbols, images; know who Scientific knowledge, models, deductive Problem-solving, custom production, inductive Creative process Collaboration within and between research units Interactive learning with customers and suppliers Learning-by-doing, in studio, project teams Strong codified knowledge content, highly abstract, universal Partially codified knowledge, strong tacit component, more context-specific Importance of interpretation, creativity, cultural knowledge, implies very strong context specificity Meaning relatively constant between places Meaning varies substantially between places Meaning highly variable between place, class and gender Drug development Mechanical engineering Cultural production Bjørn Asheim, 2008

Differentiated knowledge bases Characterise the nature of the critical knowledge which the innovation activity cannot do without (hence the term ’knowledge base’ understood as an ideal type) Makes it wrong to classify some types of knowledge as more advanced, complex, and sophisticated than other knowledge (e.g. to consider science based (analytical knowledge) as more important for innovation and competitiveness of firms and regions than engineering based (synthetic) knowledge or artistic based (symbolic) knowledge). Different knowledge bases should rather be looked upon as complementary assets (STI vs. DUI) Bjørn Asheim, 2008

3) Distributed knowledge networks – open innovation More and more highly complicated combinations of different knowledge types, e.g. codified and experience based, tacit knowledge, as well as synthetic/analytical/symbolic knowledge bases As a result of the increasing complexity and diversity of knowledge creation and innovation processes, firms need to acquire new, external knowledge to supplement their internal, core knowledge base(s) Transition from internal knowledge base(s) within firms to distributed knowledge networks across a range of firms, industries and sectors locally and globally Bjørn Asheim, 2008

Clusters and distributed knowledge networks – absorptive capacity The structure of knowledge networks is not symmetrical within a region – heterogeneous distribution of firms’ competence bases (human capital and R&D) generates an uneven distribution of knowledge and selective inter-firm learning (extra-local absorptive capacity as well as intra-regional diffusion capacity). Differentiated along knowledge bases. This requires more systemic approaches both with respect to local ’buzz’ and global ’pipelines’ (RIS) Regional advantages must be proactively constructed by a stronger focus on actors, agencies and governance forms in a multi-level perspective Bjørn Asheim, 2008

What can be achieved at the regional level – the role of RIS (narrow def.) Competitive research and innovation environments (e.g. Centres of Expertise) can only be established in a limited number of regions Such regions must have strong research centres/large universities, competitive industries and proactive regional governments and governance building RIS These regions will be able to serve R&D intensive domestic industry as well as to attract TNC’s R&D Similar industry in other regions must rely on the national and international levels (in addition to the strong regions) – multi-level approach Bjørn Asheim, 2008

What about the ordinary industries in the ordinary regions – the role of RIS (broad def.) RIS have other tasks than only to support R&D intensive industries, as regions have other types of industries that are in need of innovation support from RIS Knowledge creation and innovation in all types of industries with different knowledge bases Optimal combinations of R&D and user driven innovation (STI (Science, Technology, Innovation) and DUI (Doing, Using, Interacting) modes of innovation) on the level of firms and regions Look to Finland – the new innovation policy is extended to deal with user driven innovation in addition to R&D. Increased focus on less R&D intensive industries as well as services. Building on the STI – DUI framework Bjørn Asheim, 2008

RIS TYPOLOGY Type of Analytical/ science based Synthetic/ knowledge Type of RIS Analytical/ science based Synthetic/ engineering based Symbolic/ artistic based Territorially embedded (grassroots RIS) IDs in Emilia-Romagna (machinery) ’Advertising village’ – Soho (London) Networked (network RIS) Regional clusters – regional university (wireless in Aalborg) Regional clusters – regional technical university (mechanical in Baden-Württemberg) Barcelona as the design city Regionalised national (dirigiste RIS) Science parks/ technopolis (biotech, IT) Large industrial complex (Norwegian oil and gas related industry) Bjørn Asheim, 2008

RIS in developing economies From endogenous to exogenous perspectives. Relying more on: External capital Transnational knowledge sources TNC’s and FDIs Thus, non-local (extra-national) factors often more important than local (national) in moving up the value chain from competing on cost to competing on knowledge creation and innovation Bjørn Asheim, 2008

RIS in developing economies Developing firms’ and regions’ absorptive capacity by human capital development and improving R&D Embedding TNCs and FDs in the region The formation of RIS, clusters and technology transfer agencies as well as the promotion of soft knowledge infrastructure are important parts of regional policies for attaining these goals Bjørn Asheim, 2008