Regional Innovation Systems

1. Regional Innovation Systems Dr. Lisa De Propris Birmingham Business School Institute for Economic Development Policy

2. Content • Sources of competitiveness • What in innovation? • Definition • Types of innovation processes • Features of innovation • Regional innovation system • Cambridge: a successful case • Birmingham: a RIS in the making

3. Levels of competitiveness • National • Macro-economic indicators (trade advantages, employment (GDP per capita) and productivity) • Social, political, administrative and legal framework • Local/ regional • Firm

4. Definition EU infrastructure Competitivenesshuman capital innovation Business competitiveness: “capacity of a regional economy to generate, diffuse and utilise knowledge and so maintain an effective regional innovation system; a business culture which encourages entrepreneurship and the existence of cooperation networks and clusters of particulars activities” Third Cohesion Report, 2004:37

5. Definition Porter “Competitive strategy is the search for a favourable competitive position in an industry, the fundamental arena in which competition occurs …. aims to establish a profitable and sustainable position against the forces that determine industry competition” (Porter, 1985:1) Competitive advantage = diamond therefore, clustering of competitive industries or interrelationships among related businesses Porter (1990)

6. Sources of regional competitiveness • Trade advantage / productivity • price competition • non-price competition: quality, variety and novelty innovation and productivity Only innovative firms/regions can be competitive

7. What is innovation? Innovation is: “The search for, and the discovery, experimentation, development, imitation and adoption of new products, new production processes and new organisational set-ups”. Dosi et al (1988), Technological Change and Economic Theory Product innovation Technology pull innovation Demand push innovation Process innovation Cost savings Increase productivity Radical innovation & incremental innovation

8. Innovation process: linear model BASIC RESEARCH  APPLIED RESEARCH  DEVELOPMENT  ADOPTION  DIFFUSION

9. Innovation process: circular model

10. Features of innovation • R&D is risky, uncertain and expensive • Innovation = information= knowledge (tacit vs. codified) • Innovation depends of human, social and relational capital • Innovation is cumulative and partly immobile • Innovation is learning (by doing, by using and by interacting) Camagni (2002) technical progress is not a public good; it is not perfectly mobile and accessible to everybody

11. Therefore, the innovation process is not mobile but embedded systemic innovation capacity The competitive advantage of regions/localities depends on the immobility of some production factors: knowledge and innovation Three models: Innovative milieux, RIS and industrial district

12. Regional innovation system PROXIMITY: face-to-face contacts create informal, trustworthy and long term networking NATURE OF LINKAGES BETWEEN FIRMS: • Cooperation over innovation: JV, joint projects, joint training • Horizontal and vertical cooperation over innovation between firms (supply chain) • Linkages between firms and knowledge centres and business support organisations LEARING AND KNOWLEDGE SHARING HUMAN CAPITAL: Knowledge is embodied in human capital APPROPRIABILITY Withdraw innovation from competitors to appropriate the full returns VS. DIFFUSION: cost of being first-mover; if technology –pushed innovation, need to create demand and to set new standards; and need for diffusion DEVELOPMENT PATTERN: spontaneous or exogenously driven Institutional RIS vs. Entrepreneurship RIS

13. EU Study on Factors of Competitiveness , Martin

14. Why policy matters? • INNOVATION PROCESSES ARE IMMOBILE • core – periphery divide • SYSTEMIC INNOVATION CAPACITY • The attractiveness and competitiveness of localities depend on macro context and local HC, SC and RC determine the learning capacity of the system • PICKING WINNERS or HORIZONTAL SUPPORT? Krugman is critical of Govt’s ability to choose ‘strategic sectors’, however support can be horizontal through ‘real services’

15. Innovation policy Barcelona European Council 2002 Objectives: • Increase R&D investment to 3% of GDP by 2010 • Encourage investment in human capital and intangible assets • Create and support innovative clusters and networks • Create and support regional innovation systems

16. Employmenthi-tech 2002 < 7.45 < 7.45 – 9.55 < 9.55 – 11.65 11.65 – 13.75 >= 13.75 No data Average = 10.6Standard Deviation = 4.30 Sources: Eurostat

17. Cambridge innovation system • Bottom up development (human capital from Cam Uni, business community and support infrastructure) • Born in 1960, 350 firms in 1985, 2000 in 2000 and 3500 in 2003 • Information tech, biotech, nano tech/materials • Great transport and comms infrastructure • Institutional infrastructure • 6 UniCam research centres • Cam-MIT link • 11 regional agencies (e.g. GOE, EEDA, chamber of commerce) • Local venture capital network (17 funds) • 9 science parks • 3 incubators • Business support firms (law, accounting, patent, consulting, banks) • 14 initial companies  attraction of big players (e.g Hitachi, Microsoft, Toshiba and GSK) • Massive govt funding via the Cam Entrepreneurship Centre

22. Birmingham innovation system • Bham in not a RIS • Transitional economy from manufacturing to knowledge intensive activities/services • Institutional infrastructure: 6 Universities, about 50 colleges, chamber of commerce, many sector associations, RDA • POLICY is focusing on cluster development but: • Too many clusters • Clusters chosen because ‘fashionable’ • Still embryonic • It will take time

23. Sector make up • High-value added consumer products (jewellery, china, clothing) • Screen image and sound • Environmental technologies • Building technologies • Transports • Business services • Food and drink • Tourism and leisure • Manufacturing • ICT • Medical technologies

24. Sector make up • High-value added consumer products (jewellery, china, clothing) DOWN • Screen image and sound EMBRYONIC • Environmental technologies UP • Building technologies UP • Transports DOWN • Business services EMBRYONIC • Food and drink EMBRYONIC • Tourism and leisure EMBRYONIC • Manufacturing DOWN • ICT EMBRYONIC • Medical technologies EMBRYONIC

25. Reading list Core Becattini, G., Bellandi, M., Dei Ottati, G. and Sforzi, F. (2003) From Industrial Districts to Local Development, Cheltenham, Edward Elgar – ch 9 R. Camagni, (2002) On the concept of territorial competitiveness: sound or mis-leading? Urban Studies, Vo. 39, No. 13. P.Cooke, M. Gomez Uranga and G. Etxebarria (1997) Regional Innovation Systems: Institutional and Organisational dimensions, Regional Policy, No 26 M.E. Porter (2001) Regions and the New Competition, in A.J. Scott, Global City-Regions. Trends, Theory and Policy, OUP, Oxford. Additional R. Camagni (1993) Inter-firm Industrial Networks. The Costs and Benefits of Cooperative Behaviours, Journal of Industry Studies, Vol.1 No. 1 P.Cooke, M. Heidenreich and H. Braczyk (2004) Regional innovation systems, Routledge, London, -Introduction pp.1-18 and conclusion pp.363-389 P.Cooke (2001) Regional Innovation Systems, Clusters and the Knowledge Economy, Industrial and Corporate Change, Vol 10 No. 4. L. De Propris, N. Driffield and S. Menghinello (2005) Local Industrial Systems and the Location of FDI in Italy, International Journal of the Economics of Business, Vol. 12, No.1 S. Meghinello (2004) Local Engines of Global Trade: The case of Italian industrial districts, in G. Cainelli and R. Zoboli (Ed.) The evolution of industrial districts, Physica-Verlag OECD (2001) Innovative clusters: drivers of NIS