Speaker: Prof. Luigi Orsenigo Università Commerciale Bocconi – Milan CESPRI Centre of Research on Innovation and Internationalization

Some stylised facts from industrial dynamics 1. Small, new companies have high probabilities to exit markets within two years after entry (more than 50%) 2. Survivors then grow at high but highly variable rates, but it still takes a long time (appr. 10 years) to achieve average performance of the industry 3. Survival is positively correlated to (initial) size and age, but negatively to growth 4. Innovativeness, internationalization, previous experience of founders are positively correlated to survival 5. Spinoffs from (large) efficient firms have higher probabilities to survive and growth

Heterogeneity and its persistence ● Firms differ even within very narrowly defined business lines under most measures of structure and performance: – Size – Growth – Productivity – innovativeness ● These differences tend to persist over long periods of time: no convergence to an average ● The dynamics of an industry is significantly driven by outliers

Taxonomies ● Different taxonomies have been proposed: – Type of firms – Technological regimes – Geographical areas ● Their intersection can be helpful in identifying needs of firms and policies

Taxonomies of firms ● Schumpeterian firms – Based on innovations ● Smithian firms – Exploiting division of labour and specializing in specific stages of the productive/innovative process ● Marshallian firms – Exploiting networks and local externalities ● Marginal firms

Taxonomy of regions ● 1. High-tech clusters ● 2.Metropolitan regions in developed countries ● 3.Diversified and dynamic industrial regions ● 4.Specialized industrial clusters ● 5.Intermediate regions ● 6.Old industrial and re-conversion regions ● 7.Transition economies ● 8.Economic lagging regions ● 9.Metropolitan areas in economic lagging regions/countries ● 10.Border regions ● 11.Internal small rural areas ● 12.Large peripheral areas

Technological Regimes ● Schumpeter Mark I and Schumpeter Mark 2 ● Pavitt's taxonomy ● New taxonomies: – 1. Science Based – 2. Fundamental Processes – 3. Complex knowledge system – 4. Product-engineering – 5. Traditional industries

Some properties of the processes of innovation and internationalisaion ● interactive and continuous learning processes, involving mastery and integration of different knowledge bases and competencies: multitechnology and multicapabilities small firms ● The Chain-linked Model ● Systems of production and innovation – Regional – Sectoral – National

Strategic and organizational trade-offs and firms' capabilities ● exploration and exploitation ● integration and coordination vs. specialization and decentralization ● capabilities of exploration ● Absorptive capacities ● Integrative capacities

The need for policies and intervention ● market failures : – externalities – increasing returns – complementarities – network externalities – positive feedbacks ● agents’ failures, i.e. the “mistakes” and rigidities of particular organisations, (e.g firms, government bodies, public agencies, etc..). ● -“system failures”, i.e. the lack or insufficient development of linkages, relationships, connections and complementarities among agents and fragments of knowledge may hamper technological advance

Range and aims of policies ● Incentives and capabilities ● creation of new technological opportunities ● support to the process of competence creation and development ● policies can be designed to stimulate faster adaptation and strategic/ organisational change ● variety of competencies, efforts and research directions has to be preserved and continuously recreated. ● Public support can be crucial in order to break lock-ins ● development and reconfiguration of the elements of the innovative process as a system and of their relationships In some cases, key elements are simply missing or are underdeveloped. In other cases, the relations among them are weak or – conversely -redundant. ● Support might be necessary to promote and facilitate coordination among agents, like in standard setting.

Requirements and needs of new internationalising firms ● Internal capabilities ● Strategy ● Finance ● Organisation

Internal capabilites ● Technology and products ● State-of-art, innovative technology and products (quality, services, price) ● Skills and training ● Protection of IPRs ● Knowledge of one’s own market and of other potential markets ● Knowledge of foreign languages, cultures, laws, customs, etc..

Strategy ● Commitment to internationalisation: ● owner or entrepreneurs with clear vision on internationalisation his company. ● appointment of an expert inside the company explicitly devoted to internationalisation ● Selectivity – concentrate efforts on core capabilities and products that can gain leading positions in foreign markets – Identifying the appropriate overseas distributor/agent/partner. – customer orientation and awareness of the differences between countries – concentrate efforts in specific countries rather than spreading too thinly ● concentrate efforts on core capabilities and products that can gain leading positions in foreign markets ● Identifying the appropriate overseas distributor/agent/partner. ● customer orientation and awareness of the differences between countries ● concentrate efforts in specific countries rather than spreading too thinly ● - balancing presence between foreign and domestic market: unsuccessful enterprises often try to internationalise when they aren’t able to exploit the domestic market ● - achieving a strong position in domestic markets as a basis for successful internationalisation ● - but do not consider foreign markets as less important than domestic ones ●

Strategy (ctd) ● balanced presence between foreign and domestic market ● - achieving a strong position in domestic markets as a basis for successful internationalisation ● - but do not consider foreign markets as less important than domestic ones

Organisation ● Culture of cooperation inside the company and with other SMEs to present common products or services ● Planning sufficient “time and effort” that are necessary to go for international market ● Networks: ● knowledge of support organisations and access to experienced business experts within the region and abroad ● dense, but open networks ● active participation in networks ● effective organisation and control of overseas operations

Policy instruments ● A variety of support programs and organisations ● Wide differences across regions – local, regional and national level – Public and private ● Chambers of Commerce ● Technology transfer, incubators,.... ● Development agencies ● Trade associations ● Private services, finance,..

Areas of intervention ● Finance ● Marketing support ● Technological support ● Legal support ● Foreign policy ● Specific focus on internationalisation ● Division of labour vs. overlapping of functions,

Problems ● The “organisational deficit” ● Need to strengthen and formalise core capabilities and competitive advantages ● Building dense, open and non -redundant networks ● Integration of measures ● Identifying missing competencies and links ● External support is always complementary to and never a substitute for internal capabilities, strategies and organisation ● Policy making is learned, through experience and interaction