Innovations & Innovation Support for SMEs
The Triangle Region of Denmark
by
P.R. Christensen, A. Cornett and K. Philipsen
Centre for Small Business Studies The University of Southern Denmark Engstien 1 DK-6000 Kolding Denmark
Kolding, June 1999
SMEPOL Report No. 2
Funded by the European Community (DG XII) under the Targeted Socio-Economic Research Programme (TSER)
Project no. 1319: SME policy and the regional dimension of innovation
Table of Contents
Foreword
1 Aim of the Danish Study 1
1.1 Economies in transition as a background for the transformation of 2 innovation policies
1.2 Innovation policy in times of transition 2 -
1.3 The basic theoretical foundation 3
1.4 Criterions for the study region selected 5
1.5 The SME sectors selected for the study 6
1.6 The innovation policy tools selected 7
2 The Theoretical Frame of Reference 9
2.1 "The National System of Innovation" 10
2.2 Industrial Districts and Business Development Policy 18
2.3 The Regional Policy perspective 21
2.4 Industrial Districts reconsidered 22
2.5 Implications for the analysis - concluding and methodological remarks 24
3 The Triangle Region 26
3.1 The regional innovation system - theoretical applications 26
3.2 Profile of the Region 29
3.3 The Triangle Region as a regional innovation system 44
3.4 The innovation profile of the Triangle Region in summary 72
4 The National and Regional Support System 78
4.1 Theoretical perspectives taken on the national and regional support system 78
4.2 A general perspective on the regional industrial promotion system 82
in Denmark
4.3 The use of Subsidy Schemes 87
4.4 Technological Information Centres 97
4.5 The Approved Technology Service Institutes 103
4.6 Development Companies and Venture Capital 116
4.7 The Regional Policy Frame 118
5 Summary and Conclusions 126
5.1 The regional context 126
5.2 The industry sample selected 127
5.3 The innovation support system 128
References 132
Appendices
Appendices
Appendix 1 Key information on selected policy instruments
Appendix 2 Questionnaire
Appendix 3 Methodological reflection on the Danish Study
Appendix 4 List of persons, firms and institutions interviewed
Appendix 5 GTS Institutes
Appendix 6 Examples of interview guides
Table of contents (detailed)
1 Aim of the Danish Study 1
2.1 Economies in transition as a background for the transformation of 2 innovation policies
1.2 Innovation policy in times of transition 2
1.3 The basic theoretical foundation 3
1.4 Criterions for the study region selected 5
1.5 The SME sectors selected for the study 6
1.6 The innovation policy tools selected 7
2 The Theoretical Frame of Reference 9
2.1 "The National System of Innovation" 10 2.1.1 The constitution of the "National System of Innovation" 10 2.1.2 Coherence in the National System of Innovation 14 2.1.3 A sectorial and regional application 15
2.2 Industrial Districts and Business Development Policy 18 2.2.1 The Regional Innovation System 19 2.2.2 Innovation Policy Support Paradigms 20
2.3 The Regional Policy perspective 21
2.4 Industrial Districts reconsidered 22
2.5 Implications for the analysis - concluding and methodological remarks 24
3 The Triangle Region 26
3.1 The regional innovation system - theoretical applications 26
3.2 A profile of the Region 29 3.2.1 The Technological profile of the region 30 3.2.2 Supporting institutions and R&D activities in the Region 39 3.2.3 Summary of the Production structure of the Triangle Region 43
3.3. The Triangle Region as a regional innovation system 44 3.3.1 Overall indicators of the innovative activity 45 3.3.2 Innovation in the stainless steel cluster 53 3.3.3 Interactive perspectives on small firms' innovation 63
3.4 The innovation profile of the Triangle Region in summary 72 3.4.1 The generic profile of the region 72 3.4.2 The supporting institutions 74 3.4.3 The innovation patterns of SMEs 74 3.4.4 Innovation patterns in an interactive perspective 75 3.4.5 Challenges for the regional innovation policies 77
4 The National and Regional Support System 78
4.1 Theoretical perspectives taken on the national and regional support system 78 4.1.1 New policy perspectives based on the concept of learning 78 4.1.2 Innovation support focusing on SMEs 80
4.1.3 The regional innovation support system 81
4.2 A general perspective on the regional industrial promotion system in Denmark 82
4.3 The use of Subsidy Schemes 87 4.3.1 SMEs use of support schemes - a general view 87 4.3.2 SMEs use of support schemes - in the case of the Triangle Region 88 4.3.3 Industrial typology and the use of innovation support schemes 91 4.3.4 Four profiles of innovations support 92 4.3.5 Benefits and barriers seen by SMEs in relation to the use of innovations support 93 schemes
4.4 Technological Information Centres 97 4.4.1 The aim and target-clients of the TICs 97 4.4.2 The present organisation and management of TIC 98 4.4.3 The role of the TIC system in the national and the regional innovation system 98 4.4.4 Current resources and finance 99 4.4.5 The future role of the TIC - back to the region? 101 4.4.6 The Technological Information Centre in the Triangle Region 102
4.5 The Approved Technology Service Institutes 103 4.5.1 The history of the GTS 104 4.5.2 The present organisation and management of the GTS 106 5.5.3 The role of the GTS system in the national and the regional innovation system 108 4.5.4 Current resources, finances and activities 110 4.5.5 The future role of the GTS system 111 4.5.6 The regional profile of GTS exemplified - TI Syd 113 4.5.7 Summary and conclusions on GTS 114
4.6 Development Companies and Venture Capital 115
4.7 The Regional Policy Frame 118
5 Summary and Conclusions 126
5.1 The regional context 126
5.2 The industry sample selected 127 5.2.1 Networks as a contextual frame 127 5.2.2 The outcome of the study of innovation patterns 127
5.3 The innovation support system 128 5.3.1 The national innovation support system 128 5.3.2 The regional innovation support system 129 5.3.3 Networks as a policy frame 130
5.3.4 The consultant and knowledge transfer system 130
References 132
Appendices
Appendix 1: Key information on selected policy instruments I
Appendix 2: Questionnaire V
Appendix 3: Methodological reflection on the Danish study XXVI
Appendix 4: List of persons, firms and institutions interviewed XXXIV
Appendix 5: GTS institutes XXXV
Appendix 6: Examples of interview guides XXXVII
Tables
Table 1.1 Classifications of the 4 main categories of enterprises in the study. 6 Table 1.2 Selected Policy Instruments. 8 Table 2.1 Different Business Development Environments. 22 Table 3.1 Employment allocated according to line of industry in 1993 and 1996. Per cent. 31 Table 3.2 Product innovation classified by size of enterprise. 3 years. 1998. No. and per cent. 37 Table 3.3 Number of Foreign Owned Manufacturing Enterprises in the Triangle Region in 38
relation to the number of Manufacturing Enterprises. 1995.
Table 3.4 Collaborative partners involved in product development. Percentage of enterprises. 1998. 41 Table 3.5 Educational levels of the manpower in the Triangle Region, Århus and Denmark. 42
1997. Percent.
Table 3.6 Enterprises engaged in product or process innovations in the last three years. 1988. 46 Table 3.7 Danish product innovation activities: SMEPOL versus DISKO study. 46 Table 3.8 Enterprises engaged in market innovations over the last three years. 1998. 48 Table 3.9 Innovative intensity by firm size. Share of enterprises by per cent. 1998. 48 Table 3.10 Turnover based on New Products in Relation to New Product Spending. 51
Share of enterprises. 1994-1997.
Table 3.11 Types of Product Innovations by Size of Enterprises. Absolute and per cent. 1997. 52 Table 3.12 Drivers to enterprise's start of product development. 55 Table 3.13 Decisive reasons for the enterprise's choice to start process development. 56
The Stainless Steel cluster.
Table 3.14 Barriers to innovation. The Stainless Steel cluster. 1998. 57 Table 3.15 Number of (estimated) years the enterprise has invested in the product and process 61
development projects. The Stainless Steel cluster. Sample Year 1998.
Table 3.16 Contribution from different groups of employees in product and process innovation 62
ranked by importance by management. The Stainless Steel cluster. 1998.
Table 3.17 Current investments in competence building. The Stainless Steel cluster. 1998. 63 Table 3.18 A Typology of firms and innovative activity based on their main activity. 1998. 67 Table 3.19 The enterprise's and the partner's role in product development. 68
The Stainless Steel cluster. 1998.
Table 3.20 Stand-alone or systemic innovations. The Stainless Steel cluster. 1998. 69 Table 3.21 Types of relationships and their importance. The Stainless Steel cluster. 1998. 70 Table 3.22 The geographical distribution of the most important new market and new type 71
of customer. The Stainless Steel cluster. 1998.
Table 4.1 State Budget for Business development in Denmark 1994-1999. (DKK millions, 84
Percentage of total spending.)
Table 4.2 Types of support schemes selected for the study. 90 Table 4.3 Shares of firms using innovation support schemes by the typology of firms. 1998. 82 Table 4.4 Four General Profiles of innovative support. 92 Table 4.5 Barriers envisaged by the enterprises. 94 Table 4.6 Levels of satisfaction with the support system relating to the product innovating 96
activities of 12 firms.
Table 4.7 Distribution of financial support 1995-1998. Shares by contributors. Per cent. 100 Table 4.8 Lending Activities, No. of Projects and Applications. 1993-1997. 117
Figures
Figure 2.1 Determinants of Regional and Sectorial Systems of Innovation. 17 Figure 2.2 Principal Aspects of Innovation Policy Impact. 23 Figure 3.1 Symbolic Relationship between the Study Region, the Industrial District 27
and the Administrative Regions in the Study.
Figure 3.2 Location of the Triangle Region in Europe. 29 Figure 3.3 The Triangle Region in a Danish Context. 29 Figure 3.4 Family tree of the Stainless Steel cluster - Main branches and firms. 33 Figure 3.5 The Stainless Steel cluster - the size distribution of enterprises. 1998. 35 Figure 3.6 Workplace according to number of employees in 1994. Per cent. 36 Figure 3.7 R &D staff-years per 1000 inhabitants in the counties. Year 1991. 40 Figure 3.8 A typology of administrative and entrepreneurial management. 60 Figure 3.9 Principal relationships inside the industrial cluster of the Stainless Steel industry. 65 Figure 3.10 Environmental uncertainty and firms' responses. 73 Figure 4.1 Activities and activity interdependencies in technological services. 105 Figure 4.2 Share of enterprises collaborating with suppliers of technological service in relation 110
to product development. Size distributed by number of employees.
Figure 4.3 Public Funding for technological service 1993-2001 (DKK million - current prices). 111 Figure 4.4 Idealised Organisational Regimes for the management of regional innovation programmes 124
Foreword
This report is the contribution from Centre for Small Business Research (CESFO) on the first phase of the research project “SME Policy and the Regional Dimension of Innovation” (SMEPOL).
The SMEPOL project is financed by the European Commission (DG XII) within the framework of the “Targeted Socio-economic Research Programme”.
This research project is headed and co-ordinated by the STEP-group from Oslo University, Norway. Five other partners are participating in the project. They are: Maastricht Economic Research Institute on Innovation and Technology (Maastricht – The Netherlands); The Centre for Enterprise and Economic Development Research (Middlesex – UK); The Departemento de Estructura Economica y del Desarollo (Madrid – Spain); The Institute for Urban and Regional Studies (Vienna – Austria); The Dipartimento di Economica e Metodi Quantitativi (Pavia – Italy).
This first phase consists of seven country-based studies with a critical focus on innovation policies aiming to stimulate SMEs’ innovative activity. A regional focus is at the centre of the studies. In order to match the conceptualisation of regional innovation systems, a minor region which is functionally defined, has been chosen as the Danish study region.
Out of the seven innovation support schemes, a particular focus has been placed on the study of four schemes. They are: subsidised consultant and advisory services from the GTS Institutes (Government Approved Technological Institutes); free information and consultant service from the TIC (Technological Information Centres) and the provision of financial means through “The Growth fund” and the “Development Companies”.
Poul Rind Christensen, Kristian Philipsen and Andreas Cornett staffed the research project. Ass. professor Per Blenker joined the initial steps of the project. Kristin Balslev Munksgaard and Hanne Dam Jensen have both been attached to the project as research assistants. Jimmy Larsen has been attached as a student assistant.
During the research a huge number of managers and owners of SMEs, as well as people involved in local, regional and national policy programming have been contacted. We would like to thank all those people who gave us their time and energy and shared their visions with us. We would also like to thank colleagues from the SMEPOL team for the stimulating discussions and their willingness to share with us, their knowledge and visions. We wish to give special thanks to our team leaders in Oslo for their pro-active and democratic co-ordination of the whole project.
The SMEPOL project will in the second and final phase conduct an EU-wide study on regional innovation policy programmes aimed at SMEs. This will include comparative studies concerning the policy framework as well as a comparison of instruments. Based on a concept of “policy learning and programming” the SMEPOL project expects to make up recommendations based on cross regional experiences.
Acknowledgements: The Danish country contribution is also part of a research programme on inter- organisational dynamics carried out in “The Danish Research Unit for Industrial Dynamics” (DRUID). Basic empirical research in our study on dynamics in industrial districts has kindly been supported by DRUID.
The authors
1 Aim of the Danish study
The aim of the Danish country study is twofold. As part of a larger European research team, the fundamental aim of the Danish study is to produce a national study inside the overall research agenda of SMEPOL. The question posed by SMEPOL can be summarised as shown below:
“How should regional innovation policies targeted at SMEs be designed and implemented in order to improve their effects in terms of raising the innovative activity in firms as well as in regions?” (Adapted from Nauwelaers, et al.(1998)
Basically the innovation routines of SMEs as well as the practices in innovation policy in Denmark, is key to answering this central question. What is the role of regional authorities and agencies in the framing and implementation of a regionalised innovation policy?
What is the level of awareness among SME managers/owners concerning their support needs and how are these needs articulated? How do the policy instruments meet the needs of SMEs and what is the influence on the performance of the target enterprises as well as the development, in the regional setting.
Since the policy agenda in Denmark is dominated by the national industrial policy programmes including programmes in support of firms’ innovation, the Danish study will focus on how the national innovation policy programmes are delivered to the SMEs in the study region in question.
The focus of interest is how a regional innovation policy can contribute as a lever to the innovative potential of SMEs as well as the performance of the regional economy.
It is a basic proposition in this contribution that no universal best practice can be found in regional innovation policies favouring SMEs. Best practice can be seen as a “vision on the move” – a Weberian ideal. In this study, best practice is seen to be of a particular nature with respect to a contextual as well as a temporal perspective.
Therefore, best practice in this contribution is not perceived only as an optimal state of matters or an optimal package of deliveries. It is, rather, conceived as a process of adaptation among those actors who constitute the innovative system in question. This includes questions concerning co-ordination among those bodies formulating and executing innovative policies and programmes. It also includes the question of policy delivery to target recipients and how the approach of delivery is influencing outcomes.
Recognising that innovation policies are rooted in past practices, accumulated experience and also institutional build up, best practice in regional innovation policy is - by and large - envisaged to be contingent upon the speed of changes that occur in international competitive conditions. Therefore, best practice innovation policy is seen as on the move all the time. This is why best practice is seen as a fundamental issue of how to create institutional flexibility and sustainable learning practices.
1 1.1 Economies in transition as a background for the transformation of innovation policies It is generally recognised that we are in the middle of a period of transformation to an economy of knowledge (See Foray and Lundvall, 1996). From the many contributions on the issue of the new knowledge-based economy it is obvious that this notion is highly ambiguous. It the themes globalisation, flexible production systems, learning, and not least, innovation.
Behind these notions and themes characterising the radical shift in the way production and markets are organised, two themes stand out as central:
• The globalisation of knowledge production • The existence of regional knowledge concentrations – including regional innovation clusters
A few indications may link this aggregated theme to that of changes in the system of industrial production as envisaged in a huge body of research publications:
• The composition of industry is changing rapidly. The service industry is rapidly expanding, • while, at the same time, traditional borders between industrial sectors and firms are blurred. • The new information and communication technologies are widely accepted and embedded in more and more lines of business and products. • The way goods and services are developed, produced and marketed is changing, so that tasks relating to physical production are reduced, while tasks of preparing production and tasks of following up on production are expanding. • Physical, technical and administrative borders in space are changing, involving an expansion of not only international trade but also evolving global production networks as well as networks organising international R&D and innovative collaboration. • Production tends to be organised in flexible ways at the firm level as well as at the level of the national production system. • A trend towards regional clustering of related industries has been identified in a number of studies. • The way innovations are carried through tend to split into different institutional and technological trajectories, so that different innovative regimes governing the balance between competition and collaboration seem to evolve.
Following the changes in the production system, many European governments have also embarked on a change in the industrial policy paradigm. The various programmes complement a major trend away from traditional support to individual enterprises and their R&D activities. Now, a stronger focus is placed on the framing and facilitation of conditions for an enhanced innovative activity.
2 1.2 Innovation policy in times of transition It follows on logically that in periods of systemic transformation, old structures meet new ones. Traditions and unquestioned patterns break up and meet with new activity patterns, new ways of doing things and new structural and institutional features. This is also the case with industrial policies. New agendas meet with old ones, and thus constitute a blurred mix of industrial political practices. Practices, which seem all the time to be underway, i.e. being reshaped and questioned. The quest for change and flexibility in policy programming, as well as in the underlying organisation, tends to collide with the quest for routines and continuity.
Therefore, it is difficult in a period of great transition to spell out what constitutes a best practice in industrial support policy. It is also – as intended in this study – difficult to anticipate what characterises a good innovation support policy meeting the needs of different types of SMEs in a variety of regional settings. It is hard to characterise best practice in static – state of the art – terms, in periods with radical changes, as envisaged in the concept of the knowledge economy.
In this view, the national innovation policy has to be seen as a changing policy agenda, in which processes of learning in and among firms, organisations and policy bodies are of key importance. In the perspective taken here, innovation policy is certainly linked to fuelling the process of learning and the creation of structural flexibility. In this view, the agenda of the innovation policy is one of adaption processes more than optimising. It is thus to be seen as a process of co-ordinating actors thereby facilitating and implementing innovative programmes, so that recipients are reached in the most direct way. In this contribution, we will, therefore, emphasise the concept of learning cycles at several levels.
At the first and basic level, we will focus on learning cycles created among enterprises in the study region as well as with firms and actors outside the region in focus.
At the second level we will focus on those actors with different positions – and thus different outlooks, knowledge and invested interests – forming what we will label “policy creating learning cycles”.
Finally we want to look into the character of the vertical learning cycles linking actors in the regional production system with actors in the regional political system and finally with the national policy formulating system.
The Danish study has been designed and conducted to reflect the important transformation processes outlined above. This is found to be of major importance, since changes in the way the dynamics of the economic system are envisaged, will also lead to changes in the paradigms underlying the industrial support policies.
1.3 The basic theoretical foundation Therefore, this study will take its point of departure in an evolutionary conceptualisation of the innovative activity. As written by Metcalfe (1993, pp. 4) “Firmly rooted in the behavioural science of the firm, its focus is upon decision rules, learning capabilities and adaptive behaviour and the interaction between these behaviours and various economic selection mechanisms”. In the evolutionary perspective innovation processes are, in essence, open-ended and difficult to foresee.
3 In this perspective an interactive conceptualisation of innovation is of central importance, since the knowledge forming the basis for innovation in this view is distributed among actors with different positions in the division of labour. In this way, the innovative activities are seen as the result of knowledge and capabilities embedded in, and combined from, diverse sources. The interactive view also emphasises analyses of new ways of combining knowledge and technologies; innovative linkages in production chains and in industrial clusters or in the meeting of professional cultures. In the understanding of innovations as interactive or interdependent processes, innovations in one place in the system may be seen to lead to innovations in other parts of the system.
Although innovation research is operating with open systems, the systems that foster innovations are seen as networks of distributed knowledge where information flows more freely than in hierarchical systems but more densely than in open market systems. Therefore, the system is in danger of becoming too tight – or closed – leading to situations of lock-in and high path dependencies. On the other hand, the system may run the danger of becoming too open, losing important linkages in the production of valuable knowledge.
From the interactive there view also follows a more systemic view on innovation. In this view, the innovative performance of firms and clusters of firms is determined by the interaction among social, economic and technical institutions at the national level (Freeman, 1987; Lundvall, 1988). Two major variants of the National Innovation System model appeared early in the 1990s.
In the model put forward by Lundvall (1992) emphasis is placed on the national system of innovation as a social system. In this model, evolutionary and institutional theories are combined. Innovation is seen as the outcome of learning processes marked by cumulative causation, which “takes place in connection with routine activities in production, distribution and consumption” (Lundvall, 1992, pp. 9). In this model, innovations are seen as the incremental – and sometimes even accidental – results of everyday life of running production and distribution within enterprises and the business community.
Lundvall and fellow researchers emphasise the role of institutions as a sort of guide post for human interaction, combining tacit and codified knowledge. Semi-codified knowledge may be seen as a resultant outcome. It is codified – even if not free - for actors inside the production network, while it is tacit for actors outside the network. In this way, not only knowledge but also certain learning processes stick to the innovative system in question. This forms an important aspect of a knowledge-based competitive platform.
In the second model, proposed by Nelson (1993) the national system of innovation is mainly seen as a set of institutional arrangements which combine and interact in such ways as to determine the performance of national firms (see also Nelson and Rosenberg, 1993). In this view, institutions are seen as actors – enterprises, labs, government bodies and, say, university institutions. Although the two models share the idea of cumulative causation in learning, Nelson is more preoccupied with the role of dominant institutional actors and their interaction.
In the wake of strong globalisation tendencies, it has been argued that the internationalisation of firms and the evolving global production networks has diminished the importance of the theory of national production systems. However, when globalisation processes lead to a higher level of common codified knowledge, the possession of unique sources of intangible knowledge gains higher values in competitive markets. While this point of view needs to be recognised, it should also be emphasised that the interaction between different “containers” of semi-codified knowledge may expand the number of
4 successful knowledge combinations and thus contribute to raise the innovative level. This argument is, in fact, put forward by Amable, Barré and Boyer (1997). They claim that the heterogeneity of the national innovation systems in Europe raises opportunities as well as challenges for a Community innovation support policy. This proposition has a strong parallel in the relationship between regional innovation systems and national innovation systems.
1.4 Criterions for the study region selected Even in a small open economy such as the Danish one, the territorial industrial foundation is greatly divided. Therefore, it is not expected that generic national innovation programmes can be used to meet needs that are embedded in the rich variety of regional industrial structures. The creation of effective delivery systems able to target specialised regional clusters or lines of industry is therefore of great importance.
However, the dynamics at work in regional industrial systems may vary considerably. In Denmark, these dynamics seldom follow the administrative regional borders created for policy purposes rather than industrial promotion. Hence, in this study, a distinction is made between administrative regions (counties) and the basic functional industrial regions that are divided by the borders, comprising of a coherent labour market hinterland and one or more industrial strongholds co-evolving with the institutions of the labour market.
Accordingly, in the Danish study, we have selected a functional region crossing three counties, forming a coherent labour market hinterland. This region – named The Triangle Region – consists of approximately 215,000 inhabitants in 8 municipalities1. From a European perspective, this represents a small region indeed, but from a Scandinavian perspective, regarded as one of the more densely populated.
The study region selected is characterised by a number of key factors:
• It is an old industrial region • It is a functional region evolving around an industrial cluster of SMEs in the food-process equipment manufacturing industry • The region is dominated by the iron and metal industry • The industrial cluster of small stainless steel enterprises has grown out of a social revolution that took place in Danish co-operative dairy farming in the 1880s • The region contrasts the development in the evolving knowledge-based economy, since it has a lack of knowledge producing institutions like Universities2 and a low level of R&D activities. In many respects it has to be characterised as a low-tech region • The region is one of the most growth oriented regions in Denmark • In a collaboration among the 8 municipalities, a regional development agency has been established. It has no legal status in the physical and urban planning system, nor within the administrative system. On the contrary, the collaboration aims at gaining a legal status as one out of 5 provincial urban planning agglomarations
1 The three major cities (Fredericia, Kolding and Vejle) are located in close proximity and rank third in city size. 2 The Southern Denmark University was formed in 1998.
5 As revealed by the issues listed, the region chosen for an in-depth analysis is, in many respects, marked by developmental paradoxes and tensions. Of high relevance to this study is the paradox of high growth performance in a cluster of low-tech industries. This theme is not only of relevance to the study region in this case, but also with respect to the national agenda, since Denmark may be characterised as a high growth country with a low tech specialisation (OECD, 1995).
1.5 The SME sectors selected for the study The selected industries in the Danish study differ from those in the other country studies for several reasons. In order to reflect the interdependent process of innovation in the production system, a cluster of small and medium sized enterprises (SMEs) have been chosen together with those few LEs located in the region, acting as final producers. They also create access to the global market place. This cluster of industries conforms to major characteristics conceptualising industrial districts.
In this cluster a large number of SMEs operate as sub-contractors to a few large contracting enterprises located in the region. They operate as turn-key dairy producers in the world market. Taken together they control approximately 75 per cent of the world market for dairy projects. They are fierce competitors in the world market since they are each a part of their transnational corporation.
As indicated in Appendix 3 a number of related and interdependent enterprises from mainly 3 sectors in the industrial nomenclature of iron and metal industry is included. The enterprises included in this sample can all be characterised as belonging to the group of medium to low technology manufacturing industries in the OECD classification (OECD, 1997). In should be recalled that the OECD classification is based on a measure of global technological intensity.
In order to include samples from other technology groups and sectors as well, a minor sample of engineering consulting enterprises and a minor group of software producers were included in order to represent enterprises from the service sector. A minor group of enterprises from the sector of electronics was chosen in order to represent enterprises from the OECD group of high technology and medium- high-technology manufacturing industries.
The analyses of the chosen samples were conducted in three steps as revealed in Appendix 3. In the first step, a total overview of the industrial lines was established. In the case of the main sample – the stainless steel industry cluster – a total count has been conducted, so that a basic overview concerning size-distribution, employment, age and ownership is available.
Based on the aggregated data a telephone inquiry was conducted. The response rate obtained was 55.1 per cent. The sample includes 154 enterprises. 97.4 per cent of the enterprises comply to the category of SMEs, while 4 enterprises (2.6 per cent) are registered as LEs. The only reason to keep them in the sample is that these enterprises are regarded as key actors in the interactive dynamics of the stainless steel cluster. Based on the telephone inquiry and the basic innovative classifications derived, intensive interviews were conducted with enterprises from 4 main categories of enterprises. The formation of the categories is done in the intersection of innovative activity of the enterprises and the use of innovation support schemes. The intersection is illustrated below.
6 Table 1.1. Classifications of the 4 main categories of enterprises in the study. Use of innovation support schemes No use of innovation support schemes Firm is innovative 23 enterprises 88 enterprises
Firm is not innovative 4 enterprises 33 enterprises
Source: SMEPOL Denmark: Telephone questionnaire survey, August/September, 1998.
It was not the aim of the interviews to obtain a representative sample, but rather to reveal extreme patterns in innovative activity as well as in the use of support schemes. The aim of these interviews was:
• To trace basic needs and barriers envisaged by the firms • To control and verify critical information obtained in the telephone enquiry • To gain a detailed insight into the dynamics of the innovative activity • To gain an in depth understanding of small firms’ motives and attitudes towards the innovation support system
A main emphasis was, therefore, placed on the segment of enterprises that have used schemes intended to support innovative activity. However, representatives from the non-innovative and the non-user enterprises were approached as well. A list of enterprises is given in Appendix 4.
1.6 The innovation policy tools selected In the selection of policy instruments for in-depth analyses, a few criterions of critical value have been developed. On the one hand the programmes should not be closed down. On the other hand, they should not be so new that enterprises could not be expected to know about them. The programmes ought to have a content and a form, which make them perceptible to regional policy making in the sense that the regional actors can involve themselves in the “regionalisation” of the programme.
First of all it needs to be noted that the Danish innovation policy paradigm has been changing over the years. Those policies aimed directly at specific innovation projects (for example, The Materials Development Programme) have more or less been abolished. Instead, policy tools are developed which support the innovative infrastructure and the framework of enterprises’ innovation. Therefore, programmes reflecting this new line of policy were chosen.
Secondly, in Denmark only a few programmes are directly aimed SMEs. Therefore, programmes considered to be of high value to small firms were chosen.
Thirdly, policy tools supporting the upgrading of knowledge in SMEs were given priority, together with programmes fostering an improved technical knowledge base.
Finally, programmes providing SMEs with venture capital for innovative purposes were chosen.
The 8 programmes chosen are presented in detail in Appendix 1. Below, the 8 programmes are listed with a short note characterising the central feature of the individual programmes in relation to SMEs.
7 Table 1.2 Selected Policy Instruments. Policy Instrument Aim SME profile 1 The Growth Fund Promote development potential SMEs with max. 250 employees. and help overcome barriers to Manufacturing and service SMEs exploiting new knowledge 2 Capital from Development Support SMEs with capital and Newly formed SMEs; Growth- Corporations advice for development projects oriented SMEs and SMEs in crisis 3 Fund support working life… Support HR-development and the SMEs up to 250 employees growth in competence 4 Intro-price to GTS – To stimulate SMEs’ use of the SMEs inside manufacturing, Approved Technological GTS system in order to gain service and trade Institutes access to new knowledge and technology 5 Free advice from Improve access to specialised Entrepreneurs and SMEs Technological Information knowledge and knowledge Centres (TIC) institutions 6 Regional Support to Enhance the use of industrial No target group specified Industrial Design design by SMEs 7 Graduate Mobility Make it feasible to hire an SMEs up to 50/250 employees Programme academically trained person in order to improve competence
8 2 The Theoretical Frame of Reference
In a seminal article about the evolutionary perspectives in the study of national systems of innovation, Freeman (1995) shows that the idea of setting up R&D departments was first introduced in Germany in the 1870s inside the dyestuffs industry. This marked the birth of an intimate relationship between R&D intensities and innovative activity. This relationship became very clear after the Second World War, when the atomic bomb was invented. It was the outcome of a chain of activities - from basic physics over large-scale developments in huge laboratories - to applications and innovations. This formed the platform for the so-called linear model, linking industrial innovation closely to R&D activities.
The focus on this relationship was strengthened by the growth of huge mass-producing corporations in the post-war period. As Freeman points out, the linear model was reinforced by the widespread adaptation of a system of measurement where R&D was seen as a key-factor for product and process innovations.
Based on this evolution, several researchers changed their view on the dynamics of the innovative system. Most famous of all is probably the change in perspective taken by Schumpeter in his shift from a perspective of the entrepreneur to that of the giant corporation as the key actor in technological change. Later on, the writings of Chandler and Galbraith reinforced the corporate, linear model as a dominant conceptualisation of industrial dynamics.
R&D also has a crucial role to play in the innovation systems of today, although the relationship between R&D and the innovative activities at the firm level often are less direct. In fact, the relationship between R&D and innovative activities in the private sector may be regarded as a crucial aspect characterising different national systems of innovation.
According to Winter (1984) we still have to acknowledge the co-existence of the corporate model as well as the entrepreneurial model as two quite different ways of conceptualising the innovative dynamics of society. In some nations (regions) the element of large corporate based enterprises play a crucial role in their influence on public policy and in linking R&D activities with a nations innovative patterns.
In other nations, like Denmark, the small business community is much more prevalent. In Denmark, R&D activities have always tended to log behind that of other OECD-countries, mainly for two reasons. The small size of the country meant having restrictions on the absolute size of publicly funded R&D. The industrial structure, with few LEs in existence at the same time, meant a relatively low R&D effort in the business community.
Therefore, the innovative activity in this community is not so directly and straightforwardly linked to the R&D activities dominated by public sector spending. In spite of that, a strong tradition has evolved, in which the main target groups for the nations R&D policy has been the few, large R&D spending corporations.
But in a Danish context it is difficult to understand the innovative dynamics in terms of a corporate model that conceptualises R&D as a major source of innovation. The entrepreneurial model seems in many aspects to be much more appealing.
9 The following sections will now address this topic approaching it from different points of view. First, a brief theoretical outline of the national system of innovation is provided. The next section discusses the importance of the general business development policy for the regional system of innovation. Section 2.3 and 2.4 focus on the regional perspective. The concluding section summarises the most important results for the empirical analysis in the remaining part of the study.
2.1 “The National System of Innovation” Here it seems to be much more viable to follow a path of explanations in which the innovative activity is linked to a much broader set of sources than indicated in the linear model. In the “National System of Innovation” it is argued that the innovative activity in society is closely influenced by a number of factors, which are context-specific to that society.
The innovative activity is thus seen as an interactive process, where changing needs in one place are closely linked to innovative activities in other positions in the system. Lundvall (1991) talks of organised markets, meaning markets where the classic invisible hand is not totally invisible. It is thus argued that each and every firm’s innovations depend on their relations to other firms, to final users, research institutions and technical laboratories, the educational system of the nation, the labour market and, for example, the evolving legal and cultural institutions. A number of institutions of a national character are seen to have a dominant influence on the level, as well as the direction, of innovative activity .
2.1.1 The constitution of the “National System of Innovation” The key proposition on which the “National System of Innovation” is based, is that historical differences in industrial specialisation evolve in association with differences in national institutions and thus affect the rate and direction of technological change among the nations. Diverse specialisation patterns are thus reinforced by differences in the co-evolution of industry and the supporting institutions (Nelson, 1993, Andersen, 1995).
Freeman (1995) outlines major differences between Japan and the former Soviet Union, based on differences in the way the governments of the two nations framed their industrial policies and, thus, the interaction in the industrial production system. Lundvall (1992) exemplifies national differences evolving from diverse specialisation in the production system even in small nations with similar legal and cultural features. A basic proposition, set forward on the basis of these analyses, is that the long- term pattern of specialisation of nations is “sticky”.
The “National System of Innovation” perspective thus proposes that the specialisation and interaction among enterprises, and at the level of the national production system, tend to produce rather intangible patterns, and that these are difficult to imitate. It also suggests that national differences will explain major differences in the rate of technological change and the rate of growth among nations.
The national innovation systems have to be conceptualised as a way of analysing innovative activity. The concept does not in itself imply some form of superior status, in the sense that some nations have this status others do not. As Freeman (1995) notes, the national system of innovation can be a powerful engine of growth when it is appropriately organised. However, national systems of innovation may also evolve into poorly organised systems, with a lack of coherence and a lack of creative interaction.
10 The “National System of Innovation” approach is thus based on a number of features specifying why the national level of analyses is of importance vis-à-vis the international and the local level. Among those features, a few basic characteristics, found by several researchers to constitute the “National System of Innovation”, are listed below:
1. Specific patterns of interaction in and between dominating lines of industry 2. Co evolution of supporting institutions 3. Evolution of knowledge-building and learning processes 4. The role taken by the public sector in the set-up of different supporting institutions 5. The role of geographical and cultural proximity 6. The openness of the system
(1) More and more innovations are systemic, in the sense that the innovation is delivered by a network of enterprises, which mutually depend on each others’ competence. Cross-skills building on, and combined from competencies in related enterprises, evolve as tacit knowledge embedded in the network of enterprises (Christensen, 1988). In some cases, specific cross-skills have only a temporary relevance, leading to weak linkages in business relationships. In other cases, they are of long-term value. They may thus form the basis for long range and tight coupled relations.
Since the relationship-building and the interaction in the production system is of fundamental importance to our understanding of the innovation process, the variables characterising these features are of prime importance.
The size distribution of firms may differ strongly inside specific lines of industry. Such features may thus be regarded as major indicators of how the production system is organised. However, the social organisation of activities may vary strongly even in firms and lines of industry with similar structural features.
The vertical division of labour is thus an important feature since it is constituted by an activity chain configured by specific managerial traditions. It can be organised in several ways and thus can differ in the way tasks are allocated among the parties joining the chain. It is not only a chain of user-producer relations (down-stream). It is also an interactive information system with vital feedback mechanisms (up-stream).
(2) The national system of innovation is also characterised by the extent to which supporting institutions co- evolve with the growth and specialisation in the industrial activity. A huge number of different institutions may be affected. The most important factor seems to be the educational system, including vocational education; the research and development institutions and the institutions framing competition, public as well as private spending. The more specialised and disintegrated the national production system become, the harder it is to guide or frame institution building on a national level, matching the special regional as well as the sectorial needs.
(3) The national system of innovation may thus be characterised by a set of integrating as well as disintegrating forces. Among the latter, no doubt, global innovation systems of a corporate or a professional character and regional innovation systems are among the most important.
11 (4) Knowledge in vertically divided systems tends to be organised along the lines of the activity chain, implying that competence and knowledge of how-to-do is closely related to those firms and actors performing specific activities. Knowledge distribution thus tends to be a “shadow” of the activity distribution. Changes in task partitioning and the configuration of the activity chain will, therefore, alter knowledge distribution. But this process is seldom free from tensions.
It is seen to be relatively easy to alter when incremental innovations are in focus, while more radical innovations tend to produce greater disturbances in task partitioning and co-ordination of the system. New knowledge may alter the type and number of activities – and of firms – constituting the chain. And it may also change the ambiguity of the system.
Vertical competition is an overlooked phenomenon of critical importance to our understanding of the dynamics of the national innovation system as well as the evolving global production system. On the one hand, the vertical division of labour comprise a crucial perspective in our understanding of innovative dynamics, within an interactive paradigm. The central sources to the company’s innovative activity are seen, both theoretically and empirically, as suppliers and customers. On the other hand, the competition about key positions in value added chains is crucial, in order to understand the accumulation of information and knowledge. Sometimes it evolves into knowledge monopolies that give ground for control and co-ordination mechanisms.
(5) In most contributions on the national system of innovation, the role of the public sector is emphasised. But the role of governmental innovation policy is seldom touched upon. In the conceptualisations suggested by Metcalfe (1993) this important element is expressly mentioned and discussed. Therefore his concept is shown here:
“A national system of innovation is that set of distinct institutions which jointly and individually contribute to the development and diffusion of new technologies and which provides the framework within which governments form and implement policies to influence the innovation process” (Metcalfe, op. cit. p. 20)
The national system of innovation is thus defined by the unique characteristics of the division of labour, involving a huge number of different institutions of a private, public and semi-public nature.
The role adopted by the public sector is influential in several ways. For example in Denmark, public sector policies promoting new types of energy have paved the way for a major innovative activity inside the wind-power industry (Karnøe, 1991). Through restrictive legislation, tax policies and, say, pioneering public demand, the public sector will, intentionally or unintentionally, influence the innovative activity in a nation.
Long traditions and path dependent patterns of public intervention may thus have a strong influence on the national patterns of innovation. Even in a contextual perspective these patterns are not necessarily forming the path to a “best practice” innovation support system. The set-up of supporting institutions may differ strongly with the legal frameworks and cultural traditions. Teece (1989) reports that evolving US anti-trust legislation has a strong negative impact on the prospects of innovative collaboration in the States. Traditions in public intervention are thus through creating differences in managerial behaviour and firms’ strategies.
12 The set-up of supporting institutions may also differ in their ability to adapt to the coherence in the industrial structure in geographical terms, as well as in terms of the sectors. These differences are reflected in the modelling of four major types of national systems of innovation (Amable, Barré and Boyer, 1997).
In this study, it is proposed that the policy agenda, including basic paradigms for innovation support, is formed in a dialogue among actors holding different positions in the political system, the central and local administrative system, the industrial system of interest and organisations and potential users of the schemes. But as indicated above, there is no straightforward relationship between the industrial pattern and the innovation activity on the one hand, and the paradigms and the actors involved in the formulation of innovative policies, on the other hand. Different influential actors with different positions may form competing schemes of interpretation. As is seen from the long use of the linear model, the conceptualisation and theoretical perspectives seen in different scientific communities are influential.
The plurality of the national production system, which is best illustrated through help of a number of structural issues, such as the coherence in the industrial structure, the productive dominance of LEs or SMEs and, for example, State involvement in production, may thus influence the policy agenda. Therefore, policy schemes may be more or less focused on specific sectors and issues and thus differ in their regional impact.
(6) Accordingly, the diversity in the national industrial production system may be so strong that it is quite difficult to combine a specialised focus in the national policy agenda and still keep a strong connectivity to all sectors and production systems in the regions. The size of the national territory and the homogeneity of the population – in terms of language and culture as well as in terms of educational level and welfare – are also factors influencing the functioning of the national systems of innovation.
A high degree of cultural and educational homogeneity is sometimes regarded as supportive to innovative interaction. On the other hand, in a multicultural nation the meeting of different traditions and values often leads to new amalgamated ways of doing and organising things. It has an element of the unexpected and of creative destruction – it tends to create variety.
(7) The national system of innovation (as well as the regional) has always worked as an open system. It is a system engaged in a long-run knowledge competition with other systems. With the current trend of globalisation this competition is reinforced. On the one hand, individual enterprises are involved in a competitive struggle with foreign enterprises. A competition, which increasingly has to be seen as a knowledge-based competition. On the other hand, even small firms are increasingly involved in international collaborative ventures with innovative aims.
Information dissemination and communication is eased tremendously. A whole new industry has emerged, where product development takes place on the Internet.
Actors embedded in the practice of national systems of innovation meet with corporate based production systems. They often meet in global supply chains. Suppliers from different localities are embedded in different industrial innovation systems. They compete for access to these corporate dominated production networks.
13 Due to the increasing vertical co-ordination of technology and activities, the competition between supply chains tends to be more systemic, meaning a competition between whole supply systems, and competition between systems of sub-contractors located in different national and regional systems of innovation.
Through individual actors’ participation in international transactions and networks, obligations and managerial practices meet. In these ways, individual actors as well as the whole system may depend strongly on innovative streams and technological trajectories evolving in other nations and in the global setting of transnational corporations.
This does not necessarily imply that the innovative system and the innovative practices are determined in global space. It may imply through that the innovative agenda is set from outside, with the innovative activities and contributions still regarded as being formed by idiosyncratic technologies and capabilities embedded in the national production system.
2.1.2 Coherence in the National System of Innovation Although the nation is more internationally open than ever, it is proposed that the institutional and cultural differences between nations is not only pervasive, but constitutes a key to the understanding of the global competitive struggle (Porter, 1990; Fagerberg, 1992).
The larger a national territory, and the less coherent its production system is, the less coherent the national system of innovation tends to be. The political environment is also of prime importance in this respect. In Germany and the US for example, the political agenda concerning industrial promotion is very much a matter of each state (Länder) joining the federal republic. In Denmark, industrial policy is basically a matter for the national government, while local and regional policy levels have severe restrictions in their room for action. What they pursue is often labelled as “soft policies”.
The process of globalisation also influences the coherence of the national system of innovation. The global competition triggers the horizontal specialisation (for example, along the SITC classification) and even more so, the vertical specialisation (Lythe, 1998, Andersen and Christensen, 1998). On an international scale, vertical specialisation implies a specialisation along specific tasks in the vertical production and distribution chain inside specific product-groups. The phenomenon of vertical specialisation is most well known from third world countries and their lock-in with specialisation in the production of a limited range of raw-materials (mono-crops). But this phenomenon seems to gain general importance in the global economic production system. The production of microchips is limited to a few places, as is the production of a number of other components and commodities traded on B-to- B markets.
This vertical specialisation, and even the horizontal specialisation, seem to evolve into a systemic specialisation with distinct territorial locations. This is, among other things, reflected in international trade statistics, where specialisation patterns seem to be rather sticky.
14 Figures drawn from the OECD databases of international trade patterns thus shows that Denmark has an extremely high specialisation index in dairy equipment and components. In the years 1965 till 1994 it has grown from 5.335 till 14.6503. The competitor with the nearest index of specialisation is Finland, with an index of 1.213.
The implication seems to be that the national system of innovation has to be seen in a comprehensive and systemic perspective. Any business system depends on internal and external relations, both in a commercial, technological and regulatory perspective. In spite of – or may be even due to – growing external exposure, it seems as if the national system of innovation must be regarded as a rather stable system. For a number of reasons path-dependent traits or traits of “stickiness” of development are very strong. Differences in the institutional configuration (Whitley, 1992) and the long range of dissimilarities in patterns of technological specialisation (Dosi et al., 1988) are some of the reasons behind this phenomena. Actually, one could fear that the strong pattern of path-dependency in national innovation systems might strongly influence vulnerability levels in terms of radical changes in the global production system.
Just as the evolving globalisation is proposed to trigger the specialisation of national innovation systems, there are indications of a trend towards a regional specialisation, meaning that a growing tendency of co-specialised enterprises and lines of industry clustering has been identified (Storper and Walker, 1984). Malmberg and Maskell (1997) thus point to the fact that the growing territorial dispersal of manufacturing industry in the Nordic countries goes hand in hand with a stronger concentration in local and regional clusters of related enterprises. In an overall perspective, this underlines the need for a comprehensive approach when analysing specific lines of industry in a given region.
2.1.3 A sectorial and regional application The crucial problems in analysing any specific innovative system are the variables to be included in the analysis, and the demarcation of the relevant agenda of investigation with regard to sectors, actors, institutions and regions. The relationships and interaction between the actors and institutions constitute the specific innovative system – be it regional or national.
Basically, we have to distinguish between factors of demand (considering the specific needs of the branch or industry) and supply programmes made available to firms from public sector agencies or private consultants, etc. The essential feature of a successful system of innovation is to accomplish a match between the two sides of the system.
Public support has to be in accordance with the needs of the target industries. Since we are more interested in dynamic, as opposed to static industrial communities, it is not only a question of a match between specific programmes offered and specific needs articulated. It is also a match between the system of policy delivery and the absorption capacity of the enterprises.
Furthermore, the match is an institutional match between those actors involved in the development, framing and administration of programmes and those involved in the implementation at the sectorial and regional level as well as in the enterprises. Finally, it is a match between the aims of programmes formulated by the policy system and the aims perceived as relevant by the recipients.
3 An index of 1 and above is a sign of a positive specialisation in the international trade among OECD countries. An index below 1 is a sign of a relatively low specialisation.
15 Figure 2.Fejl! Ukendt argument for parameter. Determinants of Regional and Sectorial Systems of Innovation.
Global industry
International Systems of Innovation
National System of Innovation National Industry industry
National Policy Administration
Regional Policy Administration Regional Regional Innovation System Industry
The main obstacle to achieving such a match are the different points of departure for the policy actors in the arena and the business community. As a rule of thumb, the firm side is mainly oriented towards specific functional needs. The supply-side often offers services and programmes of a general nature, adapted to special requirements. The latter takes place either through private consultants, functional nation-wide organisations like the GTS system (see section 4.5) or on a regional level, by, for example, The Technological Information Centres (TIC) included in this study (See section 4.4), or County Council authorities, or semi-public regional development agencies.
The point of departure in this analysis is to see the regional system of innovation as a specific result of national and functional stimuli (i.e. programmes and advisory bodies) in a regional and sectorial/branch context. It is important to bear in mind that the innovative systems are not physical systems, but manifest themselves in space. They are defined as certain aspects of supply and demand side actors and the systems in which they are embedded. The focal point is basically the functional links, and not the spatial, the technical, the institutional or the sectorial constraints of the process. The innovative systems can be defined as virtual systems with a spatial or sectorial anchor, in our case the stainless steel industry in The Triangle Region in Jutland. In particular the national system seems to be pivotal to innovation for SMEs (see section 2.2 below).
In the following section we will focus on the regional aspects as well as on the innovative aspects of the system.
16 2.2 Industrial Districts and Business Development Policy In Denmark, business development takes place within the triangle of EU-support schemes, national government programmes and local and regional initiatives. From an analytical perspective the policy system can be described as a mixture of bottom-up and top-down features. With respect to the regional aspects, this means that regional decision-making has to take place mainly within the economic and political framework set by higher level actors and the local support provided. The crucial issue in this regard is the fact that pure regional objectives play a rather limited role in national priorities, and regional issues are not really on the agenda in Denmark with regard to industrial development policy.
Business promotion policy within this kind of framework requires a broad framework of instruments, targeting both regional needs and the specific requirements of the industries. Cappellin (1995, pp. 11f) distinguished between three sets of measures:
• Measures concerning internal capacities of firms, such as promoting the founding of new firms, vocational education, applied research and receptivity towards innovation • Measures targeted towards regional networking, namely, sub-contracting, business services, public and private co-operation, etc. • Measures in relation to inter regional network connections, such as export promotion, international co-operation of firms and investment.
Regional policy always has to take place in a specific context, and it has to be based on regional advantages or at least on an explicit strategy to create competitiveness. The crucial problem for regional development is similar to the general problem of industrial policy. Is it possible to point out the winning strategy based on scientific studies and bureaucratic decision making?
In most cases the result is ambiguous. Therefore a narrow-focused policy is postponed, and relatively broad instruments are chosen, which are not designed for the specific needs of a particular industry. Specific programmes are usually developed as a response to sectorial or industrial specialisation, either to promote further growth or to solve structural problems. The former could be addressed as a proactive, the latter as a reactive businesses development policy.
Industrial districts are the most visible signs of regional specialisation and often the nucleus of a system of innovation in the sense specified above. For many years, one of the reasons why industrial districts have drawn the attention of regional scientists, as well as politicians, is that they have performed well with regard to growth and employment, compared to less specialised regions. Probably the most important reason is that the older regions, at least the surviving regions, have also performed well with regard to structural adaptation. In fact, this may be a key to important aspects of the regional innovation system, since structural adaptation involves a number of learning processes at the level of the individual enterprise as well as at the level of the co-specialised cluster and the supporting institutions. Most likely, the crucial point is the ability of the regional actors with different positions in the system to be involved in mutual learning processes that maintain the balance in the co-specialised production structure and reinforce the specialised features of the area.
17 The crucial feature in the latter is the ability to move upwards in the vertical division of labour within the industry considered. A recent study (Illerris 1998) of the Herning-Ikast area (textile industry) provides a good example of how an industrial district shifts from a production based to a knowledge and skill based competitiveness, with significant impacts on traditional employment. On the other hand, evolutionary studies of the Stainless steel district, which is at the centre of this study, have revealed that knowledge and competence that hitherto has been sticky (or localised), can be free from the local embeddedness and thus turn into highly mobile tasks (Christensen and Philipsen, 1997). This issue is touched upon later.
Industrial districts usually develop over a long period of time, and during this period specific skills and sets of knowledge become a characteristic of the area, related to the specific industry. The Bologna region in Italy is a case in point as well as the Herning-Ikast area in Denmark; and, in a particular way, the region analysed in our study.
The collaborative form and patterns may also institutionalise over the years (Nygaard, 1998), so that the way firms co-ordinate activities may differ from that of other areas, sectors or the way co-ordination is performed in corporate systems. Some authors stress that this may even evolve into localised learning systems of a tacit nature (Maskell, 1997). It is important to bear in mind, from a regional development point of view that the specific consulting and advisory bodies often found in these districts, with tight links to the industry mentioned, are developed as a response to the emerging needs of an industry. These advisory bodies were not founded before the industrial district developed.
The advisory bodies should be “demand driven” and not “supply driven”. The latter is usually the case when regional policy is considered. Therefore, the advisory bodies or networks must be regarded as supporting and not initiating instruments of business development policy. This is important to bear in mind when success stories like Silicon Valley and the Boston area are used as models for regional development initiatives.
Therefore supporting measures seem to be more important when dealing with the development of a certain region, i.e. to promote an industrial cluster (a group of firms belonging to different sectors or branches, Braunerhjelm et al. 1998) sometimes emerging into an industrial district (see section 2.4 below). In any event, it has to be questioned whether a regional policy should focus on developing industrial districts or broader clusters of industry.
For the support frameworks needed, the implications of the two policies are different. In both cases, the set-up has to be looked at in a wider policy context.
2.2.1 The Regional Innovation System Although the regional innovation system has similar characteristics to the national system of innovation, it also contains dissimilarities. Most important, is that the regional system is a sub-system of the national system, but not necessarily limited to the national framework. Regional systems can be linked in a unique way to the international system of innovation in a specific sector or profession, i.e. the off-shore sector in Norway or around Esbjerg in Denmark.
The structural and industrial foundation of the regional innovation system may differ strongly from the dominant features of the national system. The sectorial composition; the technological systems dominating and the international markets – and users served – may differ strongly.
18
Therefore other considerations, interests and interactions than those of the region may define the policy agenda of the national system. This may cause the regional system of innovation to drift away from the national system. This will cause a split in the policy agenda:
A. The national policy programme and the building of national support institutions may be lacking in scope because diverse lines of industry have to be served by the same institutions and programmes. The knowledge support infrastructure may lack specialisation and be of a general nature B. National innovation policies directed at the development of specific technologies do not aim at sectors and enterprises dominating the regional production system, therefore, issues supporting and problems blocking an enhanced regional innovation activity are not addressed C. National innovation policies directed at the development of infrastructure that facilitates innovation, may disregard facilities and infrastructural specialisation that is important to support regional innovation
2.2.2 Innovation Policy Support Paradigms Dosi (1982) was the first to formulate the concept of technological paradigms. His point was that if any paradigm is to exist, it is based on a shared cognitive framework of those individual actors, institutions and organisations seeking to advance the technology. A framework of collective imagination thus defines the frameworks for opportunity-seeking and a set of constraints for technological improvements that the actors joining the paradigm envisage.
In the same way, an innovation support paradigm is based on a shared set of visions and a cognitive frame of reference, which defines the policy framework, the political aims to be achieved and accordingly, the options open in the policy agenda and the use of policy instruments.
A number of actors, with different roles and positions vis-à-vis the innovation policy programme, may actually, potentially or ideally be involved in the formulation of support schemes. The actors’ views on innovation support schemes may differ strongly with their position on the innovation system. Realities may thus seem very fragmented, due to the view taken on the functioning of the technological system and its innovative capability. It thus follows that the view on the appropriate – or even best policy practice – is influenced by the particular knowledge and the invested interests of actors holding different positions. The particular knowledge of a SME user of the support system and, for example, a government official in the Ministry of Industry, might differ strongly. None of them are expected to have superior knowledge, but their positions in the system produce different insights and interests in the fundamental functioning of the support schemes.
In the perspective emphasised here, innovation support paradigms are thus produced through the interaction and dialogue of actors with different positions, knowledge, roles and particular interests in the system. The innovation support paradigm may thus be characterised by the degree of continuity of the paradigm; by those actors sharing the paradigm; the basic understanding of the dynamics of the technological system in focus and the shared conceptualisation of the innovative policy agenda.
19 Metcalfe (1993) finds that a central purpose of the innovation policy is to stimulate the creativity of individual firms as well as in the wider institutional context of national production systems. In his mind a major issue is the creation of variation and structural change. In this process the policy makers adapt more than optimise – partly because they have to adapt to imperfect knowledge and partly because the working of the innovation process is of great importance.
Just as the innovation process – in an evolutionary perspective – is seen in an interactive learning perspective (Lundvall, 1991), where learning cycles evolve among actors with different positions in, and knowledge of, the technological system, the process of regional innovation support policies is here viewed as a learning system. It is based on the interaction of actors with different positions in, and knowledge of, the innovation system. These two learning cycles are often interacting.
In the regional innovation system, learning cycles evolving among firms and institutions in regionally defined lines of industry and clusters is open-ended. It will intersect with national systems of learning and, say, with the interaction in corporate organised systems.
When the regional innovation system is drifting away from the national system, then it will be perceived as a lack of interest at the regional level in promoting innovations in the regional production systems. Learning cycles generating relevant innovation policy schemes tend to dissolve.
Regional learning cycles are disconnected – in varying degrees – from the national ones, with the implication that the knowledge and interests embedded in the region are disregarded.
The latter stresses the need to address the regional business system and the role of innovation policy in more detail, according to the framework sketched out in Figure 2.1.
2.3 The Regional Policy perspective Regional policy can be defined in many ways. One concept stresses the policy as a set of instruments to achieve specific objectives in reducing regional unemployment, attaining an efficient geographical distribution of industry and employment. In line with this, the provision of a more equal geographical distribution of income and living conditions are important goals (Armstrong and Taylor 1985, 176-180, Temple 1994, 225ff.). The specific objectives are often pursued by means of direct public job creation and public investment grants or more general business promotion programmes. In a period where national as well as regional economic systems become more open to international competition based on new technology, policies of competence and technology enhancement gain importance in order to sustain these goals.
The crucial issue in regional as in other forms of distribution policy, is to secure funding in a policy environment where public budgets have become more and more tight. Important factors in the policy process are the size and financial condition of the public budgets and the degree of fragmentation, and the degree of decentralisation in the public sector.
Concepts of indigenous development emphasise on the regions’ own potential (See Hahne, U. & K.V. Stackelberg, 1994) and became increasingly popular since they fitted the general trend toward decentralisation, and coincided with budget problems in central government in the aftermath of the first and second oil crises. Regional Innovation Support Systems are noteworthy examples of a policy targeting and reinforcing endogenous potential in a specific location.
20
Shifts in the ruling economic doctrines toward monetarism and neo-classical concepts reinforced this process in the 80’s. Supply side economics also became key concepts in regional development. In Denmark in particular, ways to improve the qualifications of the workforce (the unemployed, as well as parts of the employed) were stressed and supported by government programmes. Improving the framework or environment for business development became a central part of industrial policy, nationally as well as at the local and regional level. Nevertheless, at the national level a number of support programmes for specific sectors survived, i.e. shipbuilding programmes and ad hoc support schemes for industries facing unexpected economic problems. The overall institutional and functional framework for regional development policy, national as well as international, is outlined in Table 2.1.
Table 2.1 Different Business Development Environments. Business Main level of Actors: Development Policy County/Local State/National European Union Sectorial aspects: Participation Top down Mixed: Support - EU and National level - NGO and Private sector
Regional aspects: Bottom up Approval and Mixed: control - Programme approval - National participation - Bottom up
Source: Cornett (1997), “Decentralisation of Business Development Policy: Challenge or New Opportunity”.
2.4 Industrial Districts reconsidered The traditional industrial district literature focuses strongly on the inter-firm networks in a specific sector and area. Traditionally, industrial districts are defined in the intersection between sectorial, geographical and functional criterions. All three criterions have to be fulfilled to a certain degree. In light of the ongoing globalisation of activities, localised industrial districts will be in a much more precarious position in terms of the clustering in global space (Illeriis, 1998). Another alteration of the traditional concept is the inclusion of non-firm actors as consultants and the advisory system in particular where the industrial districts are analysed as innovative systems. At least the latter seems implicit to the aim of newer concepts of industrial policy frameworks introduced by pro- active governmental agencies (Erhvervsministeriet 1999, pp.198-266).
From an analytical point of view, we are dealing with a taxonomy of nodes and links, not always constituting a system or network.
21 The constitutive feature which distinguishes the Regional system of innovation from the Industrial District is that the above-mentioned relations are necessary conditions for the formation of a Regional system of innovation, or for the transformation of an Industrial District into a Regional system of innovation.
The major instruments required in this process are listed on the right hand side of Figure 2.2, and coincides with the most recent Danish Government White Paper on “Business Development Policy” (Erhvervsministeriet, op. cit.).
The main focus in the chapters on “Business Development Policy” is:
• Public regulation • Access to knowledge • Access to financial capital • Public/private sector relations • International competitiveness
In the operational model of innovation policy the measures are the policy input into the “Innovation Machine of Public Policy”. The outcome can either be sectorial, regional or a combination. The latter is the case in Denmark, where no explicit regional innovation policy exists.
Figure 2.Fejl! Ukendt argument for parameter. Principal Aspects of Innovation Policy Impact.
SME & sector focus
Policy Input
Regional focused outcome
The model above could be called a “linear innovation policy model”, since it pictures a direct and straightforward relationship between the policy agenda followed and the outcome in target enterprises, sectors and regions. However, if the model is interpreted in an evolutionary perspective, a relevant focus is on those political path-dependencies, which evolve over time. It is thus proposed that the policy
22 agenda tend to evolve at a slower pace than the industrial community in focus. It may be caused by invested interests based on past industrial strongholds or it may be based on narrow circles in and around central policy actors. On the one hand, different stakeholders compete in order to define the agenda and attract funding. On the other hand, learning processes take place in the system. A key question is how learning cycles are created between the policy producers and the recipients. The following section will address the second and third issue as the constituent features of an Innovation Support System at a more in-depth level, compare Figure 2.1, but a few comments on the other three areas of policy would seem to be useful as an introduction.
The regulative issue is a part of the general institutional set-up of a society, and contains no specific issues relevant for Regional Innovation Systems. A section in “The White Paper” mainly deals with deregulation and the need for regulation in cases of market failure. This is done in a rather traditional way with the purpose of improving public business services, in particular the introduction of electronic means of registration and notification.
2.5 Implications for the analysis - concluding and methodological remarks The conceptual discussion in the previous sections have illuminated the comprehensive task of analysing a regional system of innovation. Explicit with regard to the theoretical issues and implicitly with regard to the methodological requirements of the empirical analysis in this final section, the theoretical issues will be summarised. The chapter will be concluded with a brief outline of the methodological implications for the empirical investigations in the study region.
A regional system of innovation can be seen as a unique combination of demand and supply driven processes in a specific spatial context. The specific context determines how general programmes are transmitted into the regional business system. The regional business and technology transfer agencies are very important players in this game. The crucial issue is how these initiatives are interpreted, integrated and implemented in the regional business community. In short how the matching is undertaken.
From a conceptual point of view, the main obstacles in this matching process are:
• The lack of information about programmes, in the business sector • The different nature of the aims on the demand and supply side. The demand side is mainly functional oriented with regard to specific problems of, for example, technological advice or the need for risk capital. The supply side is often driven by regional responsibilities as, for example, employment • Access to knowledge which is not provided in the region • Last but not least, the character of the regional system of innovation as an intangible body makes it difficult to specify the relevant system of innovation to aim for
From a methodological point of view, the consequence is that our analysis has to be based on an eclectic rather than a comprehensive approach. For the empirical analysis in the following sections, this means an interdisciplinary approach based on quantitative and qualitative analysis depending on the issues investigated. A critical application of a wide range of analytical tools, guided by a specific subject or theme, is probably the best way to characterise the path of analysis followed in this case.
23 3 The Triangle Region
Based on the theoretical framework put forward, the study region selected for the Danish study will be presented in this chapter.
In section 3.1 the basic theoretical applications from chapter 2 are outlined. The territorial delineation of the study region is sketched out. The implications of the interactive perspective for analyses are specified by help of the so-called Scandinavian network model. A few methodological problems in relation to the interactive perspective on innovation are outlined.
In section 3.2 the Triangle Region is presented. This is done with two analytical perspectives in mind. One is to highlight the industrial base of the study region, which is underlying the innovative activity and the innovation support system in the region. Another is to present a paradoxical pattern of the region, in-between high growth performance on the one hand and indicators of low-tech production characteristics on the other hand. A major emphasis is placed on those segments of the industrial structure constituting the dominant industrial clusters conceptualised as the industrial district in the Triangle Region. Emphasis is also placed on the infrastructure and institutions, which are considered to play a key role in the regional innovation system. Institutions are seen to play a crucial role in the knowledge building in the area as well as more specifically in support of the innovative activity of SMEs.
Section 3.3 has its focus on the empirical study and thereby the innovative activity of the SMEs included in our study. The aim is to provide an analytical profile of the innovative patterns in a key cluster of the study region in order to give a basic and detailed profile of the regional innovation system. In section 3.4 the chapter is summarised with respect to the innovative activity and the support structure in the area, which form the basis for the regional innovation policy analyses in chapter 4.
3.1 The regional innovation system – theoretical applications As indicated in section 1 the core of the regional innovation system is conceived as a localised industrial cluster of related enterprises and industries, characterised by some degree of coherence, a specific pattern of international linkages and inter-organisational knowledge as well as a record of growth in employment and value added. A set of supporting institutional and social values, as well as and more or less localised codes of conduct, is seen to be co-evolving.
As shown below in a symbolic way, this cluster of industries is not necessarily demarcated by a regional administrative jurisdiction. On the contrary, in the Danish case – as in probably most cases - the industrial cluster has evolved as an intangible body, almost like an amoeba. The borders of the cluster are ever changing; actors and resources formerly some distance away and unaffected by the cluster, are drawn in and involved. Thus, the dynamics of the cluster and the district of location does not follow static administrative borders.
In this case the industrial district is covered by three policy formulating regional bodies (County Councils) while the region itself only recently formed a joint development agency in a strategic alliance among 8 municipalities. The principal position of the study region vis-á-vis the administrative regions and the national industrial policy programmes is shown in Figure 3.1.
24 Figure 3.Fejl! Ukendt argument for parameter. Symbolic Relationship between the Study Region, the Industrial District and the Administrative Regions in the Study.
Vejle amt
Administrative (county)
Regions – Fyns amt
(county)
Ribe amt Triangle Region (county) – The Regional Innovation System Analysed
Industrial District: Stainless steel industry
In order to structure the analyses of the regional innovation system in the following section, we need to bridge the overall theoretical conceptualisation in chapter 2 with more specific themes, which we intend to analyse in the following sections.
As indicated in chapter 2, two different but highly complementary lines of thought have been used in conceptualising the idea of innovation systems. On the one hand Lundvall et al. (1992) stressed that innovative systems and the differences in their dynamics may be conceptualised as differences in the institutionalisation of interactive regimes. On the other hand (Nelson and Winter, 1982) tend to emphasise the role of supporting institutions and organisations.
Following the basic network model proposed by Ford et al. (1986) the regional innovation system can be analysed from the perspective of how actors, with different roles, positions, interests and images of the system, combine resources and activities. The actors may thus be seen to engage in tight and loose relations involving exchange and mutual adaptation processes, which form the productive fabric of the network. Based on the chains and networks of activity formed, a network of knowledge distribution evolves. It mirrors the division of labour inside the region and with actors outside the area. In this way the exchange and adaptation processes may also be regarded as the core of an interactive learning system, where know-how and know-who are intertwined aspects of knowledge accumulation.
Actors need resources in order to perform their activities. Resources, which they often do not possess. Therefore, the actors of the network also reach out for resources embedded with other actors. Specialised resources embedded with other actors may work as a lever to increase scarce internal resources. They may even be of critical importance in order to extract value out of internal pools of knowledge, technology and competence. In this way, resources embedded with diverse actors may be combined in order to create (new) resources in joint action. Based on the activity network a number of supporting institutions in the area, may evolve, which are more or less dedicated to the needs of the network.
25 It is an important proposition that the ability to combine resources and activities in new ways is a huge source to renew and revitalise the regional industrial heritage. It is thus seen as a fundamental source for growth and prosperity. However, there is no doubt always a huge gap between the potentials of linking resources and activities and those combinations that are realised. Although this gap depends on a number of critical factors inside and outside the region, it is a fundamental phenomenon that new resource and activity combinations shape new resource frontiers and opportunities. These interactive linkages are only vaguely touched upon in traditional sectorial analyses.
The traditions for sectorial analyses are so deeply rooted that empirical materials are fundamentally arranged along the lines of Fischer’s three sector model from the beginning of the century. We will try to mirror the interactive perspective in basic analyses of the main clusters and markets. However, in this respect, the region has to be seen as an extremely open system.
If the “Lundvall” perspective of interactive regimes is combined with the network model on innovation systems, the main focus is the ways in which actors are linked with activities. In this case, innovative activities, which cross the organisational borders and involve different networks of actors, gain analytical importance.
In this study, this is seen as an important perspective. This is partly because of the interactive view taken in the SMEPOL Study and partly because of the evolving global production networks, influencing the Triangle Region as a regional innovation system. Innovative networks cross territorial as well as corporate, national and even professional “containers” of knowledge. This is actually seen as an essential part of learning as well as competition.
If the other – Nelson & Winter – perspective of supporting institutions, is combined with the basic network model, it is useful to link actors with resources, in their professional networks and territorial hinterland. In this perspective we will emphasise the institutional set-up in the region, without forgetting that we are dealing with open systems. What we will look for, is how small innovating firms use, and - through their use - also carry supporting institutions in the area.
However, we do have a basic methodological problem. A problem we share with many other studies. The problem is that while we have an inter-organisational focus as our theoretical frame of reference, it is difficult to match this with empirical methods. It may sound a bit woolly, but it is actually quite simple. The fact is that we have to start with the individual company and the respondents there, in our search for inter-organisational patterns. That is how it is.
The problem, however, is that these cross-frontier activities are perceived in various and different ways – depending on the observer. There is a great difference between the respondents being a small sub- supplier or a large order-placing company. For many reasons, they will perceive the relationships in different ways – the relationships between them play a different role in their strategic development perspective. We can only approach such problems via what we call vertical validation. This implies that through our telephone interviews (the horizontal approach), we are unable to make a thorough validation of a company’s statements on the area.
Therefore we have quite consciously included a small number of large order-placing companies in the subsequent interview rounds. On the one hand, this has contributed to varying our picture of the innovative interplay between international order-placing companies and locally based sub-suppliers.
26 And on the other hand, these interviews have increased our insight into international production networks in many ways having decisive impacts on activities among small sub-suppliers in local areas.
Thus these few interviews of large companies have led to a more varied interpretation of the innovative interplay, be it in a geographical dimension (regionally and globally), in a size dimension (SMEs vs. LEs) or in a management dimension (entrepreneurship aspects vs. administrative aspects).
3.2 A profile of the Region The Triangle is located on an east-west transport axis between Copenhagen (and Sweden) and the Western gateway (Esbjerg) to the United Kingdom at the other end. At the same time a main traffic corridor linking Norway to the continental part of Europe traverses the region. This location at the junction of road, rail and seaway traffic is often seen as a key to the growth in the Triangle Region. The two maps below help to illustrate this position on a macro- as well as a micro-territorial level.
Figure 3.Fejl! Ukendt argument for parameter. Location of the Triangle Region in Europe.
Figure 3.Fejl! Ukendt argument for parameter. The Triangle Region in a Danish Context Sources: www.trekantomraadet.dk
27 In 1998 the total population of the Triangle Region was approximately 220,000 inhabitants, corresponding to a share of the total Danish population of 4.2 per cent. Growth figures since 1990 have been 4.3 per cent, which is above the average national growth (3.6 per cent).
The growth in the area is reflected in the long run growth in employment. Up until 1990 the region experienced a steady growth in employment. The five-year period from 1990 to 1995 was marked by a negative growth in Denmark (index 97.9). At the same time the Triangle Region shows a slight growth in the index (101.1). Since then the index has grown to approximately 107.
The long run growth in employment implies that the Triangle Region never experienced unemployment as severely as Denmark as a whole. Growth in the 1990s has also lead to a reduced level of unemployment, which was approximately 8 per cent in the Triangle Region in contrast to the national average of 10.3 per cent in 1995.
In January 1998 the unemployment rate in the Triangle Region was 6.1 per cent, a little lower than the national rate, namely, 7.6 per cent. Generally, the Danish unemployment rate is lower than the average of the EU.
Finally, the growth characteristics are reflected in the region's value added figures. Figures presented by the secretariat of the Triangle Region Development Agency (1998) indicate that value added per capita is the highest in the country outside the Copenhagen area. The manufacturing industry and the construction sector produce more than 35 per cent of the value added in the region.
3.2.1 The Technological profile of the region The overall growth characteristics outlined above contrast somewhat to the technological profile of the region. This profile is traced and analysed in the following sub-sections under the headings of:
• The industrial profile • The cluster of Stainless Steel industry • Size distribution of enterprises • The international profile of the Region
The industrial profile A major conclusion of a study on the innovative patterns in 5 countries (NL; D; N; IRL; DK) based on figures from the Community Innovation Survey (CIS) is that the industrial composition is of major importance in the explanation of the innovative activity in the nations (Christensen & Kristensen, 1997).
In this light the industrial profile of the region may be seen as a first indication of the innovative orientation as well as the innovative activity of the region. Although the statistical analysis of the industrial composition has to be handled with some caution, it does lend support to the proposition that the Triangle Region is marked by a fundamental structural problem.
The aggregated industrial profile of the Triangle Region is highly concentrated around the manufacturing industry. See Table 3.1 below.
28 Table 3.1 Employment allocated according to line of industry in 1993 and 1996. Per cent.
Agriculture, Manufac- Building andTrade, hotel Transport, Financing, Public and fishing and turing, construction and post and etc., businesspersonal raw materialenergy and activities restaurant, telecom- services services extraction water supply etc. munications
The Triangle 2.8 23.2 6.1 18.7 6.6 9.7 32.9 Region 1993
Denmark 5.0 18.0 5.4 17.0 6.6 11.0 36.9 1993
The Triangle 2.5 23.3 6.6 20.1 6.8 9.5 31.1 Region 1996
Denmark 4.4 17.9 5.8 17.7 6.6 11.6 34.8 1996 Source: Danmarks Statistik, 1995 and Danmarks Statistik, 1998.
As indicated in the table, the occupational structure of the Triangle Region has a stronger concentration around the manufacturing industry than in Denmark as a whole. The table also reveals that there is an over-representation of employment in trade, hotels and restaurants in the Triangle Region. This over- representation is due to the “junction effect” mentioned earlier. What is not directly seen from the table, is that transport employment has a strong position as well. This figure is levelled out by a below average employment rate in telecommunications.
4 A closer look at the manufacturing sector reveals that traditional lines of manufacturing dominate. The lines of moulding, iron and metal – including engineering – take a combined share of more than 35 per cent of employment in manufacturing.
Also the food manufacturing industry is well represented in the area (11 per cent). High tech lines of manufacturing industry, such as electronics, instruments and chemical industry, including medical care, are weakly represented.
The problem is that the industrial composition is more oriented towards past competitive competencies than towards expected competencies needed in order to compete in the knowledge and technology based society. In other words, the overall industrial composition lends support to the proposition that the Triangle Region has a knowledge and competence distribution that tends to favour past competitive profiles of a manufacturing society. Likewise, the region has a deficit in activities favoured in a knowledge based society.
A national survey (Christensen and Kristensen, 1997) shows that the innovative activity of the chemical industry in Denmark represents almost 40 per cent of total private innovative spending in 1992. The spending in electronics and the engineering industry each add to DKK 1.5 billion in 1992 or approximately 13 per cent of total spending that year.
Also, in the private service industry such as business services, technical services and financial services in the Triangle Region are weakly represented occupationally. Not least if compared with other provincial centres such as Aarhus, Aalborg and Odense.
4 Manufacturing figures are taken from Axelsson et al. (1996).
29 The specialisation and agglomeration along specific lines of related activities is more and more apparent in the Triangle Region. In the northern part of the region – around Vejle – a concentration of the food- processing industry is seen. Kolding is a stronghold for stainless steel manufacturers and supporting industries as well. This cluster is currently expanding to also include Fredericia and Vejle.
The harbour in Fredericia in combination with the traditional railway-junction has favoured a stronghold inside transport and logistical services in this area. A low number of heavy mass-producing production facilities have been located in the area due to its geographical position.
In total, three industrial clusters and strongholds are identifiable, namely:
• Food processing industry inside food, soft-drinks, beer and sweets • Iron and metal industry including engineering, specialising in components, equipment, tools and facilities in stainless steel for the food-processing industry • Transport, logistics and distribution
Each of these strongholds have, over the years, tended to breed their own labour markets and – to some extent – basic related facilities for vocational training. At the same time it apparent that the three clusters are mutually related.
The cluster of Stainless Steel industry – an evolutionary perspective The three clusters mentioned above are related in a mutual, supportive, specialisation. Historically, the innovative relationships between the cluster of food-processing industries and the Stainless Steel industries producing process equipment are of key importance.
The cluster of Stainless Steel industries, engaged in the production of mainly equipment and facilities to the dairy and food-flow industry, is by far the largest cluster. It is also the cluster, which is most strongly marked by SMEs.
The Stainless Steel cluster is born out of the agricultural revolution in Denmark in the 1880s. At that time the first modern industrial dairies were established. In the course of a few years (1882-1900) more than 880 dairies were founded. It took more than forty years to erect the remaining 800 until a peak level was reached in the 1940s. Today, less than 30 are left, bearing witness to a huge scaling-up in technology as well as the pressure for international market orientation up through the 1970s and 1980s in respect of dairy contractors.
Based on one pioneering enterprise (DDMM) established in 1882 in the Triangle Region (Kolding) a cluster of co-specialised dairy equipment and component producers has slowly been established in the region.
In the pioneering phase DDMM expanded with a number of related business activities and competencies. The strategy was to integrate as many aspects of dairy technology as was feasible, into one enterprise. However, over the years, dairy technology became more and more complicated and knowledge demanding.
A dairy is a complex product made up from many diverse areas of knowledge and competence. So when the stainless steel was introduced to the industry, a major business formation was triggered. This was, to a very high extent, based on spin-off activities in the area. A stylised picture of the business “family tree” is provided in Figure 3.4.
30 Figure 3.Fejl! Ukendt argument for parameter.. Family tree of the Stainless Steel Cluster – Main branches and firms. Swarfing DDMM a.m.b.a. Thinplate
Kolding Gruppen
LP Damrow Combi Sondex LKM A/S Genodan Elektrogeno Tankvogn Engineering USA e
Combi VSR Montage Rustfri Nis Steffen- sen (NSM)
Jahala JN Stål- Vamdrup montering Rustfri
Nipe Lauenborg Michan Priebes Jørgen Maskin- TM Rustfri Seema Maskinfabri Stainless Maskinfab Wagner fabrik Stål k Steel rik Maskinfab.
Lunderskov LKP Nicrom A/S Farero SRS Activ Rust- Høyer Rustfri Stål Rustfri fri Stål Maskinfab rik
Source: Christensen, Philipsen and Toftild, 1997.
Spin off still plays a major role in the renewal and expansion of the stainless industry. Although many enterprises still are rooted in the family tree pictured above, a majority of the firms are established after 1980 indicating that new company formation – and the closure of outdated units – play a key role in the renewal and growth of the industry.
Enterprises in the cluster have developed and share fundamental social exchange mechanisms specific to the functioning of the cluster. They are positioned in a common technological system (fluid food- process technology) and they join a common destiny based on the evolution that has taken place in global project markets. It is therefore suggested that we define the cluster as an industrial district along the lines, for example, defined by Becattini:
"Industrial Districts are a set of companies located in a relatively small area; .....the companies work, either directly or indirectly for the same market;...... they share a series of values and knowledge so important that they define a cultural environment;...... they are linked to one another by very specific relations in a complex mix of competition and cooperation". (Becattini, 1992)
31 Only a few studies have analysed industrial districts from an evolutionary/temporal perspective. In our study of the Stainless Steel district we make a distinction between three phases in the evolution of the industrial district (Christensen, Philipsen and Toftild, 1997). These three periods are characterised by different patterns of interaction and co-ordination. In short, we find three distinct phases within each of their institutionalised collaborative regimes. The first of these collaborative regimes is conceptualised as ‘the pioneer phase’. In this phase a few pioneers, from the construction as well as the user side, collaborated intensively in order to gain control of basic technology. In this period a dominant design evolved. Although knowledge diffused over wide distances, innovations took place in a distinct localised collaboration. We find that the project maker and the skilled producer are integrated in one enterprise (DDMM).
The second period defined is triggered by the new material introduced, namely stainless steel. The knowledge and competence needed to handle this material is so complex that a major new business formation started, mainly as a spin-off process in the regional hinterland. So the second period is very much characterised by a separation of related skills, not forgetting a separation between project-makers (selling and designing whole dairies) and those SME producers we call ‘skill-containers’5. In this period a dominant technological design at the system level is established.
Today, three transnational corporations have bought their way to the Stainless Steel cluster. These three corporations (GEA; Tetra Laval and APV Baker) have a joint world market share for dairies and related food-processing facilities of more than 75 per cent. They therefore provide a vital access to world markets. It is a period in which the global production network is configured. However, at the same time they install collaborative traditions that differ from the SME-based practices developed in the industrial district. The third phase is thus characterised by a strong international orientation and a new collaborative pattern in which a corporate tradition of co-ordination meet a tradition founded in the district. As will be shown, we make a conceptual distinction between a corporate based “administrative management practice” and a regionally based “entrepreneurial management practice”.
In order to handle this complex interplay a third layer has come in place in the new collaborative regime, so that we operate with three roles in the collaborative regime, namely that of project-makers, system-integrators and skill-containers. The role taken by system integrators is to configure the local SME sub-suppliers to the specific projects.
Today, the industrial district of stainless steel enterprises and related enterprises comprises 172 enterprises and an employment level estimated at well above 5,500 people6. Based on a total count, we find that 24 enterprises work as producers of end products, while 148 enterprises are sub-contractors and co-specialised enterprises in different related lines of business. Twenty-one SMEs operate on materials handed in by their customers, while 10 enterprises are seen to be engineering firms. Although 24 enterprises work as end-producers, three enterprises play a decisive role in access to the dairy project markets as indicated. Two more LEs take a minor, yet important, role in the district. The size distribution is indicated in Figure 3.5 below. Although a major share of enterprises are found in the group of micro enterprises, the major share of employment (65 per cent) is to be found in the group of firms with more than 50 employees.
5 This concept is borrowed from Peer Hull Kristensen: Denmark – An Experimental Laboratory of Industrial Organization, Copenhagen Business School, 1995. 6 Our knowledge of the Stainless steel industry is based on a full scale inquiry comprising not only the total population of the enterprises in the cluster, but also in-depth studies of their role, their age and history. This is based on an inquiry with more than 800 enterprises and actors related to the cluster.
32 Figure 3.Fejl! Ukendt argument for parameter. The Stainless Steel cluster – the size distribution of enterprises. 1998.
70 68 60 50 41 40 30 Number of firms 21 21 Per cent 20 10 6 10 5 0 01 11 26 51 101 > 10 25 50 100 200 200
Source: Database developed at the research group. 1998-1999.
Size distribution of enterprises A number of studies have linked firm size and innovative efficiency to each other, but certainly not with a uniform outcome (Menkveld and Thurik, 1999; Rothwell et al., 1982 and Gjerding, 1998). The element of SMEs in the Triangle Region are therefore of special interest to the innovative analyses in this report. A short overview is provided. As indicated in Figure 3.6 on the number of establishments, the share of small enterprises is lower in the Triangle Region than country wide. In the region, the element of medium-sized enterprises is strong, while the number of LEs is weak. Only a few Danish firms have more than 100 employees. In fact, more than 75 per cent of the Danish manufacturing enterprises have less than 50 employees.
Although the size distribution tends to follow the national pattern rather closely, Figure 3.6 reveals that the Triangle Region has a comparatively large part of small enterprises with 10 to 49 employees. Thus the share of micro-enterprises with less than 10 employees is smaller than in the rest of the country. However, the small scale character of the industrial structure is much more significant when contrasted against the aggregated EU patterns. Although some differences in computation tend to blur the picture, the absence of LEs is very significant. According to EuroStat (1996) Danish LEs (>500) hold a 28 per cent share of employment, while the EU average is more than 40 per cent. In countries like Germany, Sweden and France the share is more than 45 per cent.
33 Figure 3.Fejl! Ukendt argument for parameter. Workplace according to number of employees in 1994. Per cent.
83,9 90 78,9 80 70 60 50 0-9 employees 40 10-49 employees 30 17,3 13,7 50+ employees 20 4 10 3,8 0 The Triangle Region Denmark
Source: Trekantområdet Danmark, 1996.
The size distribution in Denmark, as well as in the Triangle Region, seems to reveal strong indications of innovative patterns and behaviours following the stylised patterns of the entrepreneurial innovation model outlined earlier, and exceeding those of the corporate model. In short the contrasts, which are very often imagined to exist between the entrepreneurial and the corporate model, may be outlined as follows:
• New firm formation has a crucial role to play in the entrepreneurial model • The role of R&D is crucial in the corporate model • Innovative behaviour differs strongly in regard to pre-planning, collaborative ventures and, say, • levels of investment. SMEs tend to be strongly "break-even" oriented and highly focused on specific • businesses • Strong differences in the aggregated articulation of needs in industrial markets characterised by a small enterprise structure and markets featured by corporate demand patterns
First of all, small firms - on the whole - tend to be less active in product innovations than are larger firms. In Denmark this pattern is revealed in the “DISKO” study (1998)7. This study revealed that 54 per cent of the 1,022 enterprises questioned, carried through one or more product developments within the last two years. For small enterprises, DISKO registered the share to be considerably lower, namely, about 40 per cent for those enterprises with less than 20 employees.
7 The DISKO study has been conducted by researchers at Aalborg University (the IKE group). It includes only manufacturing enterprises, while SMEPOL also includes a minor segment of service enterprises. DISKO only includes enterprises over the size of 9 employees.
34 Although the pattern revealed in the sample of enterprises surveyed in the Triangle Region, there are some differences of importance, as shown in the case of enterprises in smaller size groups. In Table 3.2 there is a significant relationship between size category and the share of enterprises involved in product development over the last 3 years. Firms in the group of 10-49 employees are more likely to engage in product innovations than is the case with smaller or larger enterprises.
A similar study on process innovation reveals that the group of enterprises with 50 or more employees is more likely to engage in process innovations than is the case with enterprises in smaller size groups.
As indicated in the table, the share of enterprises engaged in product development is significantly lower in the sample of enterprises collected for the present regional innovation studies. While 54 per cent of the enterprises in the nationwide DISKO sample (Madsen and Kristensen, 1998) were engaged in product innovations over a span of 2 years, only 38 per cent of the enterprises listed here similarly are engaged over a span of 3 years.
However, there are certain interesting parallel patterns. First of all, both studies show that firms in the size group of 10-49 are the most frequent to engage in product development. This point will be elaborated on later in this chapter.
Table 3.2 Product innovation classified by size of enterprise. 3 years. 1998. No. and per cent. Product Innovations Share of firms N=141 No. Share No. Share
No. of employees 1-9 18 68 26 % 48 % 10-49 23 49 47 % 35 % 50 - 11 19 42 % 13 % Total 52 136 38 % 96 % Source: The Danish SMEPOL Database. 1998.
Almost all of the small and medium-sized firms in the DISKO study did indicate that they collaborated with other actors in their product development efforts. However, only few were found to collaborate with research institutions or scientific laboratories. Most of the firms collaborated with suppliers (more than 60 per cent) or customers (more than 50 per cent).
This study thus revealed a general pattern from a number of studies, namely, that the relationship between research and innovative activity is most often of an indirect nature SMEs. First of all, small firms seldom take on internal research or participate in research projects, although a change in this pattern may be anticipated due to the growth in new types of SMEs in new lines of industry (for example, software houses).
35 Secondly, SMEs are seemingly not using research institutions to any significant extent in their search for new product generations of technology. Several respondents from the intensive interviews found that the problems of collaboration in product development can be associated with a) a lack of time for participation and b) a lack of experienced people dedicated to product development. The implication is, among other things, that small firms are less inclined to make contact with, and include research institutions and laboratories, directly in their search for new products - or when production processes are changed or reorganised. This pattern is expected to be even stronger if relevant technical research institutions and universities are not located in the near hinterland of the firms in question.
The international profile of the region The dilemma outlined above seems to materialise in the estimated pattern of trade with foreign countries. The region is thus characterised by its export of manufactured products and the import of services and non-material products (the Triangle Region, 1997). However, in the international trade pattern, the region has, for years, experienced a trade surplus per capita (Trekantområdet Danmark, 1998).
The international profile of the region is also formed by the ownership structures of the enterprises in the region. As indicated earlier on in this section, the dominant share SMEs in the region lends support to the proposition that an entrepreneurial model of innovation would have a good fit, in explaining the innovative behaviour of the enterprises.
On the other hand, the pattern of foreign ownership in the region lends support to the suggestion that the corporate based model of innovation may be more influential than the size structure itself would reveal. The share of foreign owned and controlled manufacturing enterprises is thus as high as 40 per cent on an aggregated level. This pattern is revealed in the table below. It is worth noting that we are referring to enterprises with 20 or more employees.
It is our guess that this pattern of international ownership will be more marked in the years to come. Motives for foreign ownership may vary, but costs of constant product and process innovations are probably among the motives for small business owners to stick to such exit strategies.
Table 3.3 Number of Foreign Owned Manufacturing Enterprises in the Triangle Region in relation to the number of Manufacturing Enterprises. 1995. Foreign Owned Manufacturing Estimated Enterprises Enterprises* share in % Fredericia 18 46 39 Kolding 47 93 51 Lunderskov 1 11 9 Middelfart 5 30 17 Vamdrup 4 19 21 Vejen 15 42 36 Vejle/Børkop 46 89 52 The Triangle Region 127 322 39 Source: Trekantområdet Danmark, (1998). Estimated figures. Note: * Enterprises inside the manufacturing sectors with more than 20 employees.
The significance of the foreign ownership pattern may be interpreted in different ways. On the one hand, foreign ownership may facilitate access to knowledge and financial resources as well as competence bases embedded in the transnational corporation.
36 On the other hand, foreign ownership also implies a smooth transfer of knowledge and competence from one region to another inside the production network of the transnational corporation.
Therefore, the ownership structure revealed above, opens the way up to a new research agenda and themes in the analyses of the regional innovation system. First of all, it confirms the conceptualisation of the regional innovation system as an open system: not only open in relation to the national system of innovation, but also to corporate based innovation systems evolving in the global arena.
A number of themes arise:
• The relevant frame of regional competitive is changing. It is a change from a domestic and foreign market perspective in the 1970s and 1980s, to a perspective of positions in global production networks in the 1990s. These production – and thus also knowledge and innovation – networks are dominated by TNCs (transnational corporations) in many lines of industry, through their ownership structures as well as their strong market control. • Innovation in the individual enterprise may thus be seen through the perspective of the innovative strategies at the corporate level. • One could say that the interactive patterns of innovation institutionalised over the years in the region is confronted with corporate based systems of innovation based on other traditions and values concerning how to interact. An entrepreneurial way of innovative interaction seems to be confronted with a corporate based mode. • Through the competitive struggle between the few large corporate enterprises, a large number of SMEs are involved in a systemic competitive game through their positions as sub-suppliers. This competitive game tends to evolve into a systemic competition among vertical supply chains. • In wider terms this competition also involves the institutional set-up in the region.
3.2.2 Supporting institutions and R&D activities in the Region Denmark has for many years been lagging behind in R&D spending, whether we talk of public or private sector spending. Relatively less funding is invested in research in Denmark than in those EU and other countries, with which Denmark is usually is compared.
On average the EU spent 2 per cent of GNP in 1993 on research and development. In the same year, the Nordic countries spent 2.4 per cent of GNP, while Denmark spent 1.8 per cent of GNP on R&D. Since the R&D expenditure, as a share of GNP, has been decreasing in the EU over the last few years, while increasing in Denmark, there is an ongoing trend of convergence.
The explanation of the relatively low research activity in Denmark compared to other OECD-countries is often related to the fact that, in Denmark, there are relatively few high technology enterprises with a high research intensity, and more low technology enterprises with a low research intensity (OECD, 1995).
As in other European countries, a greater part of Danish research is undertaken in its capital - Copenhagen - i.e. approximately 69 per cent of public research and 65 per cent of private research takes
37 place in Copenhagen (OECD, 1995). With a strong primate city size structure in Denmark, approximately 35 per cent of the population live in the Greater Copenhagen area. So there can be no doubt that the Copenhagen area is a science based growth centre of key importance to the Danish economy in this era of transition to a knowledge based economy. The only issue is whether the role played is dominated by centripetal or centrifugal forces.
From Figure 3.7 below it is clearly shown that the level of R&D in the area around the Triangle Region area is one of the lowest in Denmark. This pattern is due to the simple fact that very few universities or polytechnic institutions are located in the regional hinterland. The Southern Denmark Business School has just recently merged with Odense University into the Southern Denmark University.
The low level of research and research education in the study region tends to confirm the picture of a region with a low level of accumulated knowledge capacity. When it comes to research and research based education attached to the industrial strongholds of the area, this pattern becomes even more clear.
Materials technology research in stainless steel is located outside the region. The State Research Institute at Risø at Zealand and the Danish Technical University in Copenhagen seem to be the only research institutions with some knowledge of the technical design needs for future food-processing.
The Biotechnology Institute in Kolding is an exception. This institute does research in – among other things - hygiene and sanitary problems in processes in the food industry. On the questions concerning the collaborative partners included in product and process innovation, only one larger enterprise from this group of respondents indicated that they had collaborated with the Biotechnological Institute.
Figure 3.7 R&D staff-years per 1000 inhabitants in the counties. Year 1991.
Storstrøm and Bornholm counties 0,5
Copenhagen and Frederiksberg municipalities 11,1
Copenhagen county 13,3
Fredensborg county 3,3
Roskilde county 3,3
Western Zealand county 0,9 Funen county 2,3
Ribe and Southern Jutland counties 2,6 Vejle county 1,5
Århus county 4,9
Ringkøbing county 2,9
Viborg county 2,4
Northern Jutland county 1,8
02468101214 Estimated average
Source: Forskningsministeriet, 1994
38 Note : Ribe is also one of the administrative regions in which the Triangle Region is located.
However, this case is interesting since this firm is one out of three contracting enterprises. The firm indicated that several sub-contractors are involved in product innovation activities. It also came up during the interview that those new features, revealed in collaboration with the Biotechnological Institute, were forwarded to collaborating sub-contractors and would eventually lead to innovative activities in these enterprises as well.
In Table 3.4 below a summary is given as to which types of institutions the product innovation enterprises in the sample collaborated with during their innovative activity.
As indicated in the table only 14 per cent of the enterprises engaged in product innovations are also engaged in collaborations with universities and research institutions in support of their innovation. Although proximity no doubt matters, it would be an overstatement to relate the pattern revealed above too strongly to a lack of proximity. In an analysis of the food-processing industry in Denmark, the need for co-specialised research and research based education was analysed. The conclusions from these analyses were as follows (our interpretation):
Table 3.4 Collaborative partners involved in product development. Percentage of enterprises. 1998. Collaboration Nature of collaboration N=23 Not collaborating: N=54 Customers 70 % Inside and outside the region Suppliers of material and components 62 % Inside and outside the region Suppliers of production equipment 45 % Mainly outside the region Approved technological institutes 35 % Semi-public inside and outside the region Institutes for testing, control, certification and 32 % Outside the region mainly in standardisation Denmark Parent enterprise, subsidiary or sister enterprise 30 % Outside the region, mainly abroad Universities and research institutes 14 % Mainly in Denmark Other foreign enterprises and institutes 22 % Mainly in the EU Other Danish enterprises or institutes 20 % In the region as well as in Denmark
Competitors 13 % A few in Denmark Marketing, management, legal or other private 5 % Negligible in the region consultants Other private technical consulting enterprises or 0 % - consulting laboratories Source: The Danish SMEPOL Database, 1998. Questions 66-77.
39 “The present research based educational system does not consider those fields where Danish enterprises are active and need support. For example no candidates are educated from Danish Universities and other higher educational institutions with a specialisation of food-ware process technology; cold-process technology and the science of additives”.
From: Fødevarer – en erhvervsøkonomisk analyse. Resourceområde analyser. Erhvervsfremme Styrelsen, 1993
Educational levels and facilities The weak position of the Triangle Region in the evolving knowledge-based economy is also indicated in the educational pattern of people joining the regional labour force. This pattern is revealed in an aggregated shares analysis shown in Table 3.5.
The share of unskilled workers (secondary school only) is higher than the national average and much higher than in the university city of Aarhus. Also, the share of skilled workers is high (vocational education). So the region holds a strong position when it comes to manufacturing manpower. But as revealed by the figures in the table, the Triangle Region is highly disfavoured when it comes to knowledge-based manpower, i.e. people with a medium or long-range higher education.
Table 3.5 Educational levels of the manpower in the Triangle Region, Århus and Denmark. 1997. Per cent. Education Second- Gym- Business Vocation- Short Medium- Long range In total ary nasium Gymnasium al higher ranged H. Higher School Education educa- Education Education tion Triangle Region 38.3 3.5 3.1 37.4 6.0 8.8 2.9 100.0 Århus (university 28.9 12.1 3.4 29.3 6.5 11.0 8.9 100.0 city) Denmark 37.5 5.6 2.5 35.3 5.8 8.6 4.8 100.0 Source: Labour market Authorities in Vejle, Fyn and Ribe Counties. Adapted from the Development Agency of the Triangle Region (1998).
The lack of specialised labour with a higher education is no doubt firmly rooted in the lack of educational institutions in the region providing such education.
40 While there are a range of education institutions in the Triangle Region, a profound lack of higher order educational institutions is evident. So while the Triangle Region has a strong educational basis for skilled workers, and to some extent for short advanced studies, there are only few academic educational possibilities in the area and they are not very dedicated to the needs of the industrial strongholds in the region. The newly merged university offers a master in business management and business language. There are no masters offered in technical or natural sciences. Besides these educational offers, a school of arts and crafts is located in Kolding. There is also a school of engineering located in Fredericia.
In conclusion, it is suggested that the Triangle Region face problems of attracting highly-skilled labour with qualifications needed to build knowledge intensive activities on top of those traditional trades and manufacturing skills embedded in the area.
3.2.3 Summary of the Production structure of the Triangle Region It has been a strong line of argument in the first section that the Triangle Region is in a weak position vis á vis the evolving knowledge society. A number of features, such as educational patterns, occupational structure, industrial composition and the absence of knowledge building institutions have sustained this argument.
However, the technological profile of the region stands in contrast to the growth features of the regional industrial base. The region can thus be characterised as a “High-Growth-Low Tech Region” because the growth is based on an industrial composition with a low level of new knowledge. The industrial bases seem to be characterised by a low capacity of renewal. This is confirmed in a number of key indicators given below:
• Lines of manufacturing industry characterised by medium to low technology take a dominant position in the region. In spite of an aggregated low level of employment in these lines of industry in Denmark, it has stabilised and even grown in some lines in the Triangle Region. • The industrial sectors of the economy operating with a high knowledge content or with high-tech firms are weakly represented in the region. • The knowledge base of the region is weak. This is reflected in an almost complete absence of research institutions, the low level of university education and the narrow range of other higher educational institutions in the area. There is also a low level of knowledge and technology supporting institutions and development activities co-specialised with the strongholds of the production base of the region. Public activities as well as private spending on R&D are among the lowest in the country. • The weak knowledge base is reflected in the low level of academic employment in the area and in the migration of young people to other university regions. • The knowledge base of the region is thus heavily biased towards skills of key importance in a manufacturing mass-producing society. • The high number of small enterprises on the one hand, and the large number of foreign owned enterprises on the other hand, marks out the business community. An entrepreneurial pattern of innovation processes is thus confronted with a corporate pattern.
41 3.3 The Triangle Region as a regional innovation system Based on the contradictory picture of the regional production system sketched above, this section takes on the task to describe, analyse and to explain how the Triangle Region functions as a regional innovation system. These aggregated and sketchy analyses will be complemented by detailed analyses on different levels of aggregation in the sections that follow. They are based on the Danish SMEPOL Database established for the purpose of these analyses.
The main focus will be with the innovative activities of the SMEs in the industries selected and with a special focus on the Stainless Steel cluster. In this section, we will also touch upon the firms’ use of the innovation support schemes, but this theme is the subject of a more thorough description and analysis in section 4.4 – 4.6.
In the sections that follow under the heading of 3.3.1 “Overall indicators of the innovative activity in the region”, a number of dimensions of the innovating activity in the sample are evaluated. The themes are as follows:
• Product and process innovations • Market innovations • Innovative intensities • Innovative intensity and turnover based on innovated products • Types of product innovations
In the section to follow – 3.3.2 – thematic studies are carried out in the cluster of Stainless Steel enterprises. In this section, the focus will be on themes and questions under the following themes:
• Drivers and barriers to innovation • Aspects of innovation management
In section 3.3.3 the innovative activity is revealed in an interactive perspective. The population of enterprises is segmented along their position in the value-added chain. The themes for this section will be:
• Systemic perspectives on SMEs innovation • Relationship building in innovation • Geographical patterns of innovation
Several reasons may be given for doing analyses that focus strongly on the Stainless Steel industry, apart from the fact that the Stainless Steel industry constitutes a dominant industrial core in the region. First of all, it is anticipated that the interactive patterns of innovation will be especially strong, when analyses are delimited to a cluster of related enterprises. In this way, the analyses may reveal how integrated the patterns of interaction are. Secondly, analyses of innovation management in individual enterprises may benefit from their joint belonging to the same industrial cluster. The interdependent and relational aspects of innovation management may come through with stronger clarity.
42 The questionnaire survey is given in Appendix 2. The overall response rate was 55.1 per cent and the response rate for the sample of enterprises included in the Stainless Steel industry sample was exactly 50 per cent. The survey was carried out using a telephone-inquiry method and was conducted by a professional market research bureau. Basically, respondents were asked if the enterprise, over the last three years, had engaged in product, process and/or market innovations. Each type of innovation is defined in the questionnaire.
The survey is, in the following sections, referred to as the Danish SMEPOL survey.
3.3.1 Overall indicators of the innovative activity in the region In this first section, data about the innovation activity in the aggregated population of SMEs in the Danish SMEPOL Database are presented. These data are in turn compared with data from the country wide DISKO-Project, in order to compare the overall innovative activities in the Triangle Region with aggregated national patterns as they are found in the DISKO study.
Product and process innovations The first glimpse of the innovation patterns, which was revealed among the responding enterprises, has already been shown in section 3.1. Therefore, this section will limit itself to the details, which support an in-depth evaluation of the innovative performance.
In this study product innovation is defined as: “The development of a new product/service, which in its design, by its contribution or otherwise, is new to the enterprise. Small changes that only relate to the appearance of the products are not included. Neither are cases where a product by routine is adapted to the needs and specifications of a single customer.”.
In a similar way, process innovation has, in the survey, been defined as: “Development of a new technical system or a development in production and working methods, which in design, construction, capacity efficiency or in any other way are new to the enterprise. Purchase of production equipment that will simply replace the existing is not included.”.
This means that in a continuum from radical to incremental innovations the routine based innovations of the incremental type have been excluded from the investigation. Regarding process innovations, even the incremental innovations have been excluded. The focus is on significant process innovations, by excluding those other than “totally new production equipment or production methods”.
Aggregated information about the product and process innovations found in the survey are provided in Table 3.6.
Out of a total number of responding enterprises of 140, 52 enterprises – 37 per cent - have developed one or more new products as defined above. Since the enterprises engaged in the Stainless Steel cluster constitute a dominant segment in the sample, the innovative activity patterns of the SMEs in the Stainless Steel cluster and the whole sample are similar. Out of the 52 innovating enterprises 40 are included in the Stainless Steel cluster. Inside the Stainless Steel cluster the share of innovating enterprises is thus slightly higher, namely, 38.5 per cent.
43 At the same time, 25 enterprises - 18 per cent - have engaged in process innovations as defined above. The figures for process innovation seem to be low compared to the expectation about most enterprises conducting process innovation from, for example, the Danish DISKO-Project. The definition used on process innovation seems to have excluded a number of the more incremental process innovations.
Table 3.6 Enterprises engaged in product or process innovations in the last three years. 1998. One product Two or more Sum of Enterprises Don’t know/ N=140 Or process products or innovating not engaged inNo answer processes enterprises innovations 1 2 1+2
Product innovation Absolute 27 25 52 84 4 % 19 18 37 60 3 Process innovation Absolute 9 16 25 107 8 % 6 11 18 76 6 Source: Based on the Danish SMEPOL Database. Questions 58 and 160. N=140.
As indicated in section 3.1 some fundamental differences appear from the countrywide study (DISKO) although the two studies, for several reasons, can be only cautiously compared. However, in spite of all differences, a comparison leaves no doubt that the innovative engagement among the SMEs studied in the Triangle Region is considerably lower than one would expect from national figures.
This pattern is underlined, when we disregard those enterprises in the SMEPOL enquiry with less than 10 employees, so that the two samples match in the lower end of the size distribution8. In this case the share of innovating enterprises in SMEPOL reach a level of 46 per cent as against the 54 per cent in DISKO. This difference is very well explained by differences in the size structure, sectorial composition and location, while still observing that the DISKO study includes two years of innovation, with SMEPOL covering a period of 3 years. In Table 3.7 the main results from the comparison are revealed.
Table 3.7 Danish product innovation activities: SMEPOL versus DISKO study. No One product Several products Total Don’t know innovation DISKO 14 % 40 % 54 % 46 % 0 % SMEPOL 19 % 17 % 36 % 60 % 2 % SMEPOL with 10 or more 27 % 20 % 46 % 49 % 4 % employees*) Source: Based on the Danish SMEPOL Database, Questions 9 and 58 and DISKO data (Madsen and Kristensen, 1998). *) Enterprises from the SMEPOL survey with more than 10 employees
8 While SMEPOL is closed in the upper end (<200) DISKO is open at the upper end.
44 The distribution of firms under the categories “one product” or “several products” also shows a difference. In the DISKO study 40 per cent of the enterprises have engaged in the innovation of two or more products, while half the share of the enterprises in the SMEPOL study have developed several products.
As indicated, the comparative figures revealed have to be interpreted with caution. But they are the only available figures allowing us to estimate differences in innovative patterns. Therefore, with due caution, the following aggregated differences seem to apply to the material:
• The level of product innovative activity is lower among the SMEs in the Triangle Region than with enterprises at a national level. This is mainly caused by differences in size and differences in lines of industry. • It is suggested that the innovative intensity is lower in the SMEs included in the SMEPOL study. This is indicated by the low level of multiproduct innovation in the period revealed.
It is not possible to compare the rate of process and market innovations in the SMEPOL study with data from the DISKO Study.
Market innovations Market innovations are defined as the: “development of a new market (geographically) or obtaining a new type of customer (fulfilling a new need), implying that the firm is dealing with a wholly new customer. The focus is not on the sales of more units, an existing market, or the inclusion of a new customer, looking like the ones the enterprise already have".
Market innovations are the most troublesome to define. Therefore they are the set of data most open to ambiguity. There are, however, several reasons to try and assess the importance of market innovations. First of all, market innovations may be envisaged by management as an alternative to product innovations. On the surface it does not matter whether the existing market is matured, if new markets in need of the product can be found. So it is proposed that in many enterprises, a strategic trade off is seen between the engaging of resources in product development and in the development of new market opportunities (the so-called Ansoff strategic matrices). This trade off – or dilemma – is proposed to be more strongly felt in SMEs than in LEs for the simple reason that SMEs might face resource dilemmas more often than LEs.
In contrast to this view, the distribution of market innovating SMEs in the survey indicates that market innovations and product innovations are more likely to be strategically linked to each other than to be seen as strategic alternatives.
Table 3.8 Enterprises engaged in market innovations over the last three years. 1998. New markets or new No new markets or Don’t know - types of customers new types of No answer customers New markets Absolute 55 82 3 Market % 39.3 58.6 2.1 Innovation New types of Absolute 70 66 4 customers % 50 47.1 2.9 Source: Based on the Danish SMEPOL Database. Questions 242 and 244. N=140.
45
However, while the engagement in new markets seems to be strongly related to the engagement in product innovations, it seems as if the establishment of new customer relationships is seen by many enterprises as a strategic alternative to product innovations. The number of SMEs engaging in new customer relationships over the last three years is considerably higher than those enterprises engaging in product development.
Innovative intensities The share of enterprises innovating is often used as a measure of the innovative intensity in a specific line of industry or a specific size-group of enterprises. A number of arguments have been put forward for the problems connected with this unit of measurement. It does for example have a tendency to underestimate the innovative activity of small firms.
In a comparative study of innovation based on the CIS, Christensen and Kristensen (1997) carry out more thorough analyses of the innovative intensity. First of all their analyses show that in 1992 there was spent twice as much on innovative activities than on R&D in Danish industry. At the same time, on the basis of a five-country study, they also found that there exists a close relationship between R&D spending and the wider spending on innovative activity.
In their study they found a significant relationship between firm size and innovative intensity, i.e. current spending on innovative activities as a share of turnover. They found that small firms (20-49) had an average innovation intensity of 5.1 per cent of turnover, while firms with more than 400 employees had an intensity of 6.3 per cent. Surprisingly, they found that medium-sized firms have an innovative intensity, which was lower than the one in small firms.
In the present material from the Triangle Region there is similar significant relationship between a firm’s size and innovative intensity. This relationship is shown in the table below.
Table 3.9 Innovative intensity by firm size. Share of enterprises by per cent. 1998. Percent of Yearly Turnover used on Innovative Activities. Firm size 1997 1-5 % More than 5 % Total
4 15 19 1-9 21 % 79 % 100 %
10 12 22 10-49 45 % 55 % 100 %
7 2 9 50 - 78 % 22 % 100 %
21 29 50 Total 42 % 58 % 100 % Source: The Danish SMEPOL Database. Question 9 by Question 134.
46
The figures have to be treated cautiously, due to low numbers in two of the cells. However, it is a significant pattern when 58 per cent of all firms use more than 5 per cent of their turnover on innovations, while this is the case for 79 per cent of the micro firms. As indicated, even the group of small firms (10-49) are less prone to spend that much, while the larger ones have far less propensity to do so.
What also interests us here is whether the level of the innovative intensity of the sample selected from the Triangle Region is at a lower level than the one calculated for Denmark as a whole.
Several factors hinder a straightforward comparison. One is difference in size-categories. Another is the different industrial compositions of the two samples. However, with due caution some basic results are available for interpretation.
Bearing in mind that the smallest size-category in the CIS database consists of firms with 20-49 employees and an average innovative activity spending of above 5 per cent of yearly turnover, the larger categories (50-99); (200-399) have intensities that are considerably lower (37 and 36 per cent respectively). Only the LEs with more than 400 employees are registered for higher intensities, namely, 6.3 per cent on average. In this size-category R&D expenditure amounts to a significant share.
So, both the regional and the national data material seem to tell the same story, namely, that small firms do spend relatively large sums on product innovative activities.
The importance of product development for small firms in comparison with larger firms is confirmed by other studies as well. In a recent DISKO study of product innovations (Madsen, 1999) the innovative intensity is measured by the number of products developed in a two-year period. In this study the conclusion is also that although small firms do not innovate as often as larger firms, the innovative intensity is much higher than in firms with more than 50 employees.
In conclusion, those small firms, which are innovating, seem to rely heavily on their product innovation activities. Several factors may explain this pattern.
First of all small (micro) firms are often new firms and founded on a new idea. Their management style is still dominated by entrepreneurial traits. This may imply a current search for new business opportunities, which is mainly carried through with the help of product innovative activities and with the help of the development of new markets and customer relationships.
As a general characteristic it can be assumed that many of these small enterprises have not yet found a market/product basis or they have not yet found a profile which could help in distinguishing their niche in the market. Or they have still not found the strategy of creating a cash cow.
In this view, the innovation of new products and development of new markets are interdependent activities. The development of new markets and customer relationships may very well lead to product innovative activities as well as the other way round.
47 Secondly, in many small firms the stock of knowledge is of a limited size. This is partly because of their young age and thus their limited experience with problem solving, partly because of limited resources available and finally because their learning cycles with customers and suppliers are still to be consolidated.
In this view, they are still in the phase of building up a stable portfolio of customers providing a platform for accumulation of experiences and knowledge of customer specific needs. Their market position is supposedly highly related to a narrow base of competence in which they combine an element of know-how building with an element of know-who building. Therefore it may be assumed that they rely much more on strong relationships with dedicated customers. Through their relationship building and adaptation to customers needs they develop customer tailored products and thus at the same time new and more tight customer relationships.
Innovative intensity and turnover based on innovated products It is part of a basic logic that enterprises are spending time and money on product innovations because they expect the newly developed products to contribute to the renewal of the business and thus want to see new products on the market as soon as possible. This will be reflected in turnover based on new products.
But a high innovation intensity does not by necessity result in a great reliance on new products in the market. Low spending on product innovation may turn out just as productive as large spending, so that the share of turnover based on new products may have a loose relationship with the innovative intensity. It also takes time and marketing efforts to introduce new products to the market. Therefore lead times, before they contribute to a firm's turnover, may differ widely.
However, as Table 3.10 indicates, there is a significant relationship between the share of turnover spent on product-innovation and the share of turnover based on products developed over the last 3 years. Of those – few – firms spending more than 10 per cent on product innovations, almost 55 per cent of the enterprises had more than half of their turnover based on new products in 1997.
What may be even more surprising is that as many as 26 per cent of the enterprises rely on newly developed products for more than half of their turnover in 1994-1997.
Several interpretations seem to be reasonable. No doubt there is an observable difference between different lines of industry, since competition in some lines is sensitive to early production introductions. Also firm size tends to be important.
Due to the timing of the questions, the relationship has to be interpreted in a direction other than that indicated above. Therefore, those firms generating a high turnover on new products in the years 1994- 1997, clearly tend to invest more in product development than those firms not generating a turnover on the basis of new products. They, seemingly, invest in what they consider to be a successful path.
Because of the significant relationship between innovative spending and turnover based on new products, there seems to be major differences in conduct related to past experiences. It is therefore suggested that enterprises tend to follow a positive spiral of learning, so that the successful enterprises in the early introduction of new products, tend to find the product innovative path of business development attractive. Therefore, management of the firm is committed to go for another fast renewal in order to
48 harvest a first mover advantage. In this way, the firm build routines and experiences, which tend to promise a renewed success, although the danger of lock-in is present.
Table 3.10 Turnover based on New Products in Relation to New Product Spending. Share of enterprises. 1994-1997. Spending as a share Turnover based on new products Of turnover in 1997 - Per cent - % 0-10 11-50 >50 Total 11 12 4 27 1-10 % 41 % 44 % 15 %. 100 % 4 1 6 11 11 < % 36 % 9 % 55 % 100 % 15 13 10 38 Total 40 %. 34 % 26 % 100 %
Source: The Danish SMEPOL Database: Questions 134 & Q135. Note: Due to the nature of the interrelated patterns, rough figures only are indicated.
In a similar study by Christensen and Kristensen (1994), it was revealed that on the average almost 60 per cent of a firm's turnover relied on old products (products that were not developed in the period 1990- 1992). Although comparability is not straightforward, it does seem as if product innovation in general has gained importance as a factor of renewal. This trend fits with the growing emphasis placed with innovative competition, which is to a large extent founded on the capacity to develop and launch new product generations.
There is no doubt a great difference between large firms and small firms with regard to the role played by product innovation in the generation of current turnover.
Larger firms are well established in a number of markets. Therefore their product development is probably of a qualitatively different nature than that of most small firms. It is presumably much more based on administrative management and routines, aiming to expand established portfolios of capabilities and businesses. In the case of small firms there is much more focus on how to develop new business opportunities with few or no internal resources.
Due to their firm position in the market, LE product development is supposedly of a more long-range nature. It also has a stronger element of internal resource commitment and pre-planning. In these larger firms, reliance on new products for current turnover is therefore relaxed. It is no doubt different with small firms. They are often said to have a short-run break-even attitude towards new product development as well as the creation of new business ventures. (Brytting, 1991) It is therefore arguable that the innovative management of small and large firms differs strongly. These differences may also influence the way in which they involve or include resources from the regional hinterland in support of their innovative activity. It may also cause differences in the way innovative opportunities are perceived.
49 Types of product innovations The degree of novelty of the innovated product varies. It is of course important that the regional industries have the capability of developing new generations of products, new technologies, but also that the enterprises are capable of introducing technologies that are well-known in the industry or in other relevant sectors or the business community, but new to the firm.
Basically, the distinction between products new to the market and products new to the enterprise are seen as a dividing line between those enterprises that have launched new products, and those enterprises imitating new products. However, in between the two categories, we find another important category, illustrated by the cases where firms learn of new innovations from other lines of industry or other markets and accordingly innovate on the basis of these new ideas in order to introduce them in their own market.
These types of innovations we have labelled “spill-over” innovations, since they are the visible sign of spill-over effects going on between the industry in the region and the outside world of innovators.
As revealed in Table 3.10 the aggregated share of spill-over innovations is remarkably larger than with the other two types. This may indicate that firms in the sample operate in different business segments based on the same technological core. This segmentation of the customer portfolio may be an important element in a small firm's ability to bring learning from one customer relationship to the market. This is reasoned by the simple fact that the implementation of knowledge gained in one relationship is only feasible if done in a non-competitive environment.
It is also of interest to see that more than 90 per cent of the “Spill-over innovations” are to be found among micro and small enterprises. This is only the case for 70 per cent of the enterprises when it comes to “Genuine new innovations” and 55 per cent in the case of “imitations”. As indicated, the joint category of micro and small enterprises comprise 78 per cent of the population.
Table 3.11 Types of Product Innovations by Size of Enterprises. Absolute and Per cent. 1997. N=52 - Typology of product innovations - % New to the New in Denmark or in the New to the Total* World Market line of industry innovating SIZE: enterprise (Genuine/new) (Spill-over innovation) (Imitation) 1-9 7 8 3 18 14% 15% 6% 35% 10-49 5 11 7 23 9% 21% 13% 43% 50-199 3 2 3 8 6% 4% 6% 16% 200- 2 0 1 3 4% 0% 2% 6% Total 17 21 14 52 33% 40% 27% 100% Source: The Danish SMEPOL Database. Questions 9 and 64. Note: Due to small cell numbers, the stated pattern cannot be tested for valid relationships. That does not mean that they do not exist.
50 The micro firms also tend to be relatively less imitative in their choice of product innovations than in the case of the larger enterprises. This pattern is of interest from different points of view.
Imitative capacity of the industry is a disregarded subject, although it is of vital importance to the constant revitalisation of the industrial production system of the region that this capacity is kept intact. Therefore, the pattern should be investigated further on a more in-depth basis than is possible here.
3.3.2 Innovation in the Stainless Steel cluster As indicated in the short historical overview presented in section 3.2.1 the Stainless Steel industry has a strong position in the area. It seems to be unique in Europe in the sense that seemingly nowhere, is there is a similar cluster of Stainless Steel to be found.
The reasons to “limit” analyses to this cluster in the following section are that the Stainless Steel cluster is seen as a core industry of the region. Therefore, the cluster has been allowed to dominate the sample of enterprises comprising the sample for the SMEPOL study. Out of a total of 141 enterprises included in the sample, 104 are taken from the Stainless Steel cluster.
Different sectors have different technological regimes (Pavitt, 1984) just as different positions in value added chains may lead to different managerial perspectives on best practice. However, the primary reason to limit analyses to the Stainless Steel cluster is that in the interactive view taken, it is assumed that a firm’s innovative behaviour and innovation management is strongly influenced by the network of relationships in which the firms are involved.
Through selecting the Stainless Steel cluster for the analyses that follow, we obtain the advantage of contextual embedded analyses, which may contribute to an improved understanding of how innovation is conducted in an interactive setting. This implies analyses inside a specific technological regime; inside a coherent collaborative regime and inside a specific industrial community with a – relatively – coherent and integrated set of values, attitudes and practices in respect of collaboration.
In the section that follows, we start with analyses of the drivers and barriers to innovation as perceived by the enterprises. Conclusions from this section lead directly to our analyses of innovation management questions, which in turn lead to in-depth studies on collaborative patterns in innovation.
Drivers and barriers to innovation Drivers and barriers to a firm’s innovation are of key interest for several reasons. They also show up at different levels of aggregation, i.e. at a political level, at the level of technological advice and at the level of enterprise management.
First of all it is of interest to policy programming to gain an in-depth knowledge of those drivers and barriers influencing a SME's innovative activity, because such a detailed knowledge is a precondition for the formulation of proper innovation support programmes and not least the implementation of proper delivery systems.
Barriers attached to the functioning of the public support programmes has by tradition been a key issue in Denmark. However, the interest in barriers goes far beyond this issue. Failure to understand that drivers and barriers first and foremost are to be found in the individual firm and in the environment in which it works will lead to a political focus on issues out of focus with what drives small firms to innovate.
51 A failure to fully understand the process character of innovation leads to a political practice, which Tidd, Bessant and Pavitt (1997) characterise as one dimensional, because it will only focus on parts of the innovative process. Examples may be a strong focus on knowledge and technology transfer at the expense of market access for new products. Seeing innovations as an event more than a process; viewing innovation exclusively as a lack technological progress, or a lack higher education; seeing innovations as attached to key actors (large firms or new firms) in the economic system alone. A failure to understand that innovative drivers and barriers tend to vary with different technological regimes, industrial clustering and, say, with differences in the market and user context, may also lead to recommendations and policy practices that reflect only a small fraction of the innovative dynamics taking place.
Another reason to focus on drivers and barriers to SME innovation is that an improved understanding of those barriers specific to SMEs may lead to a better guide towards best practice in innovation management. There is almost no easy recipe for good innovation management, since innovation processes are so complex and unforeseeable. When it comes to SMEs there are problems of finding and connecting to new basic knowledge, problems of applying it to new products and processes, the problem of external finance and support, etc.
However, although it might be hard to find patterns and regularities, many researchers claim that there are underlying patterns, which may lead to success (Rothwell, 1992; Cooper and Kleinschmidt, 1990). But successful innovative activities relate to a number of factors in the innovation process, such as the way in which firms manage projects, the way market signals are assessed and the way the enterprise handles relationships with suppliers, customers and supporting actors.
As the above mentioned issues point to, innovation drivers as well as barriers, may be divided into drivers and barriers of an internal and external nature. Internal drivers and barriers relate to the managerial and organisational questions in the enterprise. Issues like managerial commitment to innovations, internal resources and capabilities are of course key issues. But also managerial routines and team building in the enterprise are important.
External barriers and drivers are often pointed to as demand and supply explanations. Often the demand explanations are associated with Schmookler’s (1966) study and later significant corrections to this study (Kleinknecht & Verspagen, 1990). In the demand explanation, input - from the market and customers - is viewed as the most important trigger and source to innovation. These user/producer relationships (Lundvall, 1985 and Von Hippel, 1988) have been subjected to intensive empirical studies.
In this study, the strong orientation towards customer needs, revealed in Table 3.12 below, support the view that the small Stainless Steel enterprises are highly responsive to the customer relationship trigger in their innovative process. The importance placed on suppliers is far less, which leaves us with a first indication of a cluster, which is, to use the terms of Pavitt (1984) highly customer dominated.
52 Table 3.12 Drivers to enterprise’s start of product development. Likert Scale: Product- 1= No importance Innovations 2= Less importance 3= Some importance N=40 4= High importance 5= Crucial importance Mean score
Drivers the firms find of some/high importance: Natural extension of the enterprise’s special knowledge 3.65 New customer needs 3.55 Co-operation with customers 3.28 New technical possibilities 2.93 Ideas from employees 2.75 A wish for a wider product line 2.73 Competing products 2.38 Co-operation with suppliers 2.10
Drivers the firms find of no/ less importance: Change of management/new employees 1.93 Fairs, exhibitions, brochures 1.83 Co-operation with other enterprises/institutes/organisations 1.63 Chance contact 1.63 Subsidy schemes 1.35 New regulations 1.33 Source: Based on the Danish SMEPOL Database. Questions 80-93 for the Stainless Steel cluster.
This pattern of strong user orientation is sustained by the high score (4.05) to the answer “We develop products to keep our customers” when the firms were asked about their basic motives to engage in product development. The motive of sustaining niche production was also re-found here. This is in line with the first priority in Table 3.12 which is placed with a factor of internal strategic nature, namely, the extension of the knowledge of the firm. Importance is, in other words, placed on innovations as a means to expand on the competence and skills characterising the position of the firm.
The supply explanations – on the other hand - are associated with Schumpeter. These explanations emphasise the importance of technological knowledge from either external sources (the young Schumpeter) or internal resources of the firm (the old Schumpeter). In the findings in Table 3.12 supply explanations are only seen as less important as a trigger to innovations. From the perspective of the theory of path dependency in innovations (Dosi, 1982) the patterns revealed above suggest that the end users have a strong influence on the evolution of the interactive regime, which form the innovative activity patterns in the Stainless Steel industry.
Finally, it is also important to note from the table that subsidy schemes and new regulations are seen to be of no importance to the firms. Turning to the drivers indicated by the enterprises, when it comes to process innovations, they are somewhat of another nature. This is revealed in Table 3.13. In this table the Likert scale is the same as the one used in Table 3.12.
53 Table 3.13 Decisive reasons for the enterprise’s choice to start process development. The Stainless Steel cluster.
Likert Scale: N=21 1= No importance 2= Less importance 3= Some importance 4= High importance 5= Crucial importance Mean score Drivers the firms find of some/high importance: Need for increased flexibility 3.62 Need for increased efficiency 3.57 A natural extension of the enterprise’s special knowledge 3.52 New technical opportunities 3.29 Drivers the firms find of no/less importance: A change of management/new employees 1.76 New regulations 1.29 Subsidy schemes 1.10 Source: Based on the Danish SMEPOL Database. Questions 182-195 for the Stainless Steel cluster.
It is extremely interesting that internal drivers such as increased flexibility, efficiency and extension of knowledge are marked as dominant factors explaining the drive to undertake process innovations. The crucial importance of these drivers is underlined by the basic motive to undertake those process innovations, which are indicated most strongly, namely, the drive to cut production costs and prices (value on the Likert scale: 4.10).
This indication is supported by the mature position of the Stainless Steel industry in the product life cycle curve. In turn, this suggests that the cluster may be caught in a severe cost cutting competition in which process innovations, as well as product innovations, tend to focus on cost cutting more than renewal of the industry. This process is no doubt highly systemic.
It is interesting to note that technical opportunities take on a low priority in the minds of SME owners/managers. Again, the public support schemes and regulations are found to be of little importance.
Turning now to the barriers to innovation that are found to be of importance by the SME respondents - Table 3.14 below reveals the most important ones. Again we may make a distinction between factors of external and internal origin.
The results revealed by the table are interesting due to the strong internal orientation they indicate. It is noteworthy that the five most important barriers to innovations are indicated to be of an internal organisational or resource based nature. It is also interesting to note that the so often cited factor in the public debate – namely financial means – is mentioned, but as a factor of third importance.
54 The overwhelming thing is the variety of internal factors, which are stressed by SME managers as substantial barriers to innovation. This suggests that the innovation process management issue is a key to the improvements of innovation practices in the SMEs in this study.
It is also important to find that the most valued external barrier is of a regional nature, namely a lack of qualified staff. This is seemingly in line with the general problems indicated, in which the region seems to lack educational opportunities to match an array of new qualification needs in the transition to knowledge intensive production. The follow up interviews indicated needs to be related to electronic engineering, software computing and, more generally, qualifications in electronics.
Finally, it is of interest to note that while a lack of suitable customers to collaborate with is ranked as causing some difficulties, supplier relationship seem to cause no important barriers to innovation. Again, there is an indication that innovation in the SME cluster of Stainless Steel enterprises depends more on relationships with customers than relationships with suppliers.
Table 3.14 Barriers to innovation. The Stainless Steel cluster. 1998. What can prevent your company from conducting Product innovation Process innovation product and process development? (Rank) Mean score (Rank) Mean score
Barriers found of high importance by the firms: It is too resource demanding (employees, money, 1. 3.36 1. 2.90 investment in new equipment) It demands a lot of time 2. 3.31 3. 2.52 The financing of the development 3. 3.03 6. 2.24 It is too risky 4. 2.97 7. 2.24 The company does not have the necessary expertise 5. 2.67 4. 2.45 It is difficult for the company to find staff for 6. 2.67 2. 2.80 development work Existing subsidy schemes do not match the company’s 7. 2.61 11. 1.50 needs The company lacks knowledge of the market (product 8. 2.59 5. 2.33 development) or technology (process development) It is easy for competitors to plagiarise 9. 2.49 9. 2.10 The company lacks suitable customers to co-operate with 10. 2.38 8. 2.15 Barriers found of low importance by the firms: The company lacks suitable suppliers to co-operate with 11. 2.26 10. 1.95 Source: Based on the Danish SMEPOL Database. Questions 113-123 and 215-225 for the Stainless Steel cluster. For product development: N=40. For process development: N=23.
In summary, the patterns suggest that a stronger emphasis should be placed on internal barriers to innovation, including relationship management. This holds true in terms of the innovation policy agenda as well as when it comes to technological and managerial consulting. In the policy agenda arena it might be of importance to focus more on the innovation processes and the way that SMEs handle different stages and aspects of the innovation process.
55 Aspects of innovation management As the section above indicated, the managerial factor is of key importance. Management attitudes towards innovation are decisive in terms of the way business renewal is conceived. It was found to be important to understand the key managerial aspects of the innovation process, since SME management will always be a target group for the innovation support programmes and for those institutions implementing programmes and schemes.
The attitude of SMEs towards innovation support schemes is, in the end, a result of the managerial focus on innovations and the way ‘appropriate’ innovation processes are perceived in SMEs. This also includes management’s perception of opportunities and obstacles in the environment – including the supportive environment - in which the firm operates. No doubt SMEs find it hard to benefit from innovation support schemes which are based on paradigms that differ strongly from those conceived by themselves.
Several reasons may be given for a study of the managerial traditions and practices evolving around innovative activity in small and medium-sized firms. The way management view their business is a fundamental platform in the way they manage the business and develop routines. Routines are the backbone for learning.
Therefore, routines developed and nurtured by SMEs is a key to our understanding of best practices among SMEs. At the same time, the very same routines are also key to our understanding of barriers to innovation, as the previous section has shown.
Successful management routines leading to high innovation performance are difficult to acquire. This reasoning is based on several observations:
• These routines represent what a firm has learned over time (Tidd, Bessant and Pavitt, 1997) i.e., what a specific team of people have learned and handed over to, and embedded in, the organisation and the wider context • Routines are often developed in interaction with other firms: suppliers, supporting institutions and, not least, lead customers. As such, routines, as well as particular skills of innovation, are embedded in a specific business network. If the network is broken down, routines will be terminated and cross- skills will die. This may explain the long-lasting relationships that dominate among Danish sub- contractors and their customers (Andersen and Christensen, 1998) • In contrast to large firms, most routines in SMEs tend to be tacit, which is basically highly protective in respect of imitation. This protection is probably strongest in routines of the innovation process. They are often based on informal intra-organisational as well as inter-organisational contacts and co- ordination structures.
Routines are the attempts of organisations to act rationally. Often innovations are the result of resisting, disregarding or breaking up existing rationality. This is difficult in large formalised organisations, but may actually take place in small enterprises by sheer “luck”, simply because management did not recognise or implement the existing rationality.
56 Therefore the entrepreneurial management can be seen as conductive for innovation also in a wider perspective than the isolated framework of the firm. It is a characteristic of entrepreneurial management that it disregards routines and the limits of formalised decision making. This is seldom possible to disregard in large organisations. Therefore the entrepreneurial management style of small sub- contractors may be seen as an important creative contribution to administrative managerial traditions, so typical of LEs.
So, in summary, successful innovations are difficult to imitate because they are based on a continuous process of innovation more than separate events. As Tidd, Bessant and Pavitt (1997, pp. 37) note “the real test of innovative activity is not a one-off success in the short-term, but sustained growth through continuous invention and adaptation”.
However, although innovative practice may differ strongly, and successful innovations are highly dependent on contextual matters as well as differences in the technological regime and the market, a huge number of empirical studies does show some general patterns, which are important. In their summary of studies on innovation practices, Tidd. Bessant and Pavitt (1997) emphasise the following issues:
• Innovations need to be managed as a process and not an event • Those factors influencing innovation outcomes can be managed • Management of innovations has to be undertaken in an integrated way
Christensen (1992) stresses that small entrepreneurial enterprises often operate in niche-markets. This is also stressed in this study by the high priority to retain present customers by means of innovative activities. On the other hand, large R&D intensive corporations are often seen to have a quite different behaviour founded on the combination and application of the same grouping of technological competencies to many different markets, being fed, basically, by the same grouping of technologies.
Entrepreneurial innovation management is also seen to operate in early phases of the product cycle while administrative management is seen to be practised in later less turbulent phases of the product life cycle. In the Stainless Steel industry this pattern may be seen if an historical perspective is taken.
In the early phases of modern dairy technology, a few pioneering enterprises interacted intensively with pioneering users (the co-operative dairymen). Today, the whole industry is dominated by a few strongly engineering based corporations like Tetra Laval, APV Baker and GEA, which control a network of production and engineering units with diverse, but related core-competencies.
The process of innovation – if it is truly integrated – demands extensive information sharing and a cross- functional co-ordination of activities. Small firms easily facilitate this, while large firms have to make rules and devise frameworks governing the internal information and resource flow as well as activities crossing departments and divisions.
While small firms typically have few decision rules and informal management centred around the owner/manager, large firms have a functional management hierarchy in which decisions related to innovative activities often have to climb several layers of decisions. In small firms the owner is often enthusiastically engaged in innovative activities her/himself . This is often seen as a highly stimulating factor.
57
Since management is by its very nature partial in its character, the managerial focus on the innovative activity in the enterprise is in no way an issue that automatically gets top priority. Our interviews with SME sub-contractors indicate that priority also depends on the interplay with those customers who have a dominant position in their portfolio.
Diversity is perhaps one of the most important aspects of small businesses. This is the case even inside a minor local area such as the Triangle Region and a cluster of enterprises belonging to the same or related technological regimes as well as dealing with the same – or similar – market perspectives. This diversity is no doubt associated with differences in attitudes, perspectives and managerial style.
Although diversity is strong, there are certain common features across SMEs characterising both their management style in general and their innovation management, as opposed to that found in LEs. (Noteboom, 1994; Rothwell and Zegveld, 1982). For the sake of simplicity we could generalise the managerial patterns of SMEs under the label "entrepreneurial management" and that of large firms under the label "administrative management".
In Figure 3.8 below the principal differences between the two forms is exemplified in a few key features.
Figure 3.Fejl! Ukendt argument for parameter. A typology of administrative and entrepreneurial management.
Administrative Entrepreneurial
Hierarchical –functional division Organic - situation and task oriented
Rule bases – hierarchical dependence Dialogue oriented – social exchange
Established businesses New businesses
Resources seek opportunities Opportunities seek resources
R&D as a separate function R&D embedded with production and daily management
Strong element of preplanning Highly responsive to market situation
Long-term investments in opportunities Short-term break-even oriented
Learning: Learning: Goal oriented Experimental International professional codes of Local technical terms and language based conduct based on manuals, models on demonstration and action and standards Formalised learning Learning by doing and by interaction –
58 informal
In order to illustrate differences in the managerial profile, Table 3.15 below shows the balance between a long-term and a short-term perspective taken by management in the enterprises, when it comes to investment in innovation. As the table reveals, the average investment horizon is approximately 1.5 years, if we make a correction for one very long-term oriented investor.
In spite of a lack of material to use for comparative purposes, it is suggested that the patterns of investment horizons expose an entrepreneurial profile in which a short-term orientation dominates.
Table 3.15 Number of (estimated) years the enterprise has invested in the product and process development projects. The Stainless Steel cluster. Sample Year 1998. Product Process Year(s) Innovation Innovation 0 – 1 15 11 1 – 2 16 6 2 – 5 3 1 5 – 10 3 1 10 – 20 1 1 Don’t know 2 2 Total N=40 N=23 Average year per project 2.0 year 1.7 year Average year per project minus 1.7 year 1.1 year (10-20 years)
Source: Based on the Danish SMEPOL Database. Questions 62 and 164. *) The mean figure of the interval has been used, for example, the value “1.5” in the interval 1 – 2.
59 In addition to the figures shown, it is interesting to note that the investment horizon of the enterprises in several interviews has been touched upon. It is thus stated that the payback schedules calculated in process innovations were so short that public funding was ‘too slow’ (two small enterprises). "The bureaucratic routines of the corporation are not in harmony with bureaucratic routines of the public support system", was a comment made by another enterprise (medium-sized end producer owned by international corporation). By this is meant that sometimes application lead times fail to coincide with internal approval dates. When approval is made internally, there is no time to wait for public approval. It is ‘go’ right away. So, what the investment horizons showed, and the interviews tend to suggest, is that the short-term perspective taken by management on investments in innovation has to be respected if innovation support is to work properly.
The way management perceives the innovative process may also be informed by the emphasis placed on contributions from different functional groups in the firm. In this case it should be kept in mind that successful innovation management is considered to be one in which contributions from diverse functions in the firm are integrated. It is for example seen to be strongly dependent on how contributions and experiences from different projects are integrated into the process and how the firm links up with suppliers in positions of critical technology and knowledge and, not least, lead customers. In other words, it is not enough that the firm is able to develop capabilities of relevance to innovation in each and every function. Internal and external integrative management is of central importance See Tidd, Bessant and Pavitt, 1997 for an overview and assessment of the arguments (pp. 37-49).
However, an ongoing dilemma exists between the need for an integrated innovation management and the fundamental partial nature of management. This dilemma may be attacked along different lines by management. It is suggested that the attempts to bridge this gap will take place along a proposed dichotomy of managerial practices. In Table 3.16 below a picture is sketched of the way management in SMEs emphasise the role of different innovative activity functions. What is interesting, is the tendency to isolate innovative contributions to central management and to the function of product development. Note especially, the relatively low value placed on supply management and on service and repair, even in process development processes.
Table 3.16 Contribution from different groups of employees in product and process innovation ranked by importance by management. The Stainless Steel cluster. 1998. Likert scale: Product Process 1 = No importance Innovation Innovation 2 = Less importance 3 = Some importance 4 = Great importance (Rank) Mean score (Rank) Mean score 5 = Crucial importance 1 Management 1. 3.50 1. 3.19 2 Product development 2. 3.28 7. 1.71 3 Owner(s) 3. 2.90 2. 2.86 4 Production 4. 2.88 3. 2.52 5 Sales and marketing 5. 2.85 4. 2.10 6 Service and repair 6. 2.08 5. 1.90 7 Administration 7. 1.65 8. 1.52 8 Purchasing 8. 1.65 6. 1.81 Source: Based on the Danish SMEPOL Database. Questions 96-103 and 197-204 for the Stainless Steel cluster.
60 Product development: N=40. Process development: N=21.
Even "sales and marketing" is in the category just above less important. This is even the case for production when it comes to process innovation. These patterns do indicate that management of SMEs does not take an integrative view on how to manage innovations. This is actually in contrast with the flexible way in which SMEs are often seen to manage across functions. So models and empirical evidence is not without its contradictions.
However, there is reason to believe that the way small firms innovate is much more bound up with daily activities than in LEs. Therefore, the integrative style of management may be performed in quite other fashions than in the case of large functional divisional enterprises. The entrepreneurial approach taken in many of the enterprises seems to be particularly indicted by the high emphasis placed on central management and with the owner.
The contribution to product and process development from the internal sources of the enterprise is listed in Table 3.16. The most important source for both product innovation (3.50) and process innovation (3.19) is "management". For product development the contribution from the product development department is also significant (3.28).
The functional focus on product development at the expense of an integrated – or organic – view on the innovation process is confirmed by figures showing the pattern that SME managers – on an aggregated level – tend to invest in competence building (see Table 3.17). The high focus on product development and production does, on the one hand, indicate that the parameter of product and process innovations is emphasised. On the other hand, it does also – again – confirm the impression of a functional focus more than an integrated focus. It is, though, apparent that competence building in relation to established customers is considered to be of importance, while investments in support of cross-competence building in relation to suppliers seem to be considered of much less importance.
Table 3.17 Current investments in competence building. The Stainless Steel cluster. 1998. Functions: Mean score 1 Product development 2.77 2 Production 2.64 3 Customers 2.59 4 Sales and marketing 2.33 5 Service and repair 2.33 6 Suppliers 2.22 7 Administration 1.98 8 Management 1.95 Source: Based on the Danish SMEPOL Database. Questions 258-266 for the Stainless Steel cluster. N=104. *) Calculation of a mean score, see table 3.15.
Again, the empirical study material seems to support the pattern that the enterprises are oriented towards knowledge and activities located down-stream with their customers, more than up-stream with their suppliers. At least investments in competence building with suppliers seem to be much less emphasised than investments in customer relationships when it comes to innovation.
61 This pattern may be caused by the strong dominance of a few large-scale customers in the network leading to a down-stream focus in the cluster, but it may also be caused by other factors. It natural to suggest that the innovation management perspective tends to neglect competence and knowledge embedded in suppliers. This pattern is confirmed by a larger study on Danish sub-contractors (Andersen and Christensen, 1998).
This study also supports the idea of a cross-functional innovation management perspective involving a relationship management with suppliers as well as customers.
3.3.3 Interactive perspectives on small firms’ innovation Since the interactive perspective is emphasised in this study, a few words of introduction will link the empirical studies to some of the basic themes we find are of key importance in this study. Then some results will be introduced, which are based on the aggregated sample. In the end, interactive patterns in the Stainless Steel cluster is brought into focus.
Small firm innovative activity is increasingly looked upon from the perspective of the production network where they take part. From this interactive perspective a collaborative perspective stands out as central. Among several initial contributors to this perspective it is worth mentioning Rothwell and Zegveld (1982) who were early contributors who advanced a small business perspective.
Empirically, this has led to a much wider search for the sources of innovation than those looked for in the so-called linear model. In Danish as well as in many European studies this interactive perspective has led to the search for external sources triggering and supporting innovative activities of the small firm.
In many of these studies the focus is concentrated mainly on exchange patterns with suppliers and customers. This perspective is triggered by the works of Von Hippel (1988) and Lundvall (1992) on the role of lead users and user-producer interaction in product as well as process innovations.
In other studies the main focus is on the institutions supporting the innovative activity of the small firms. These studies also seem to have a supply perspective on small firm innovation.
Yet other studies follow the tradition of Pavitt’s taxonomy (1984) of innovative firms (supplier dominated/scale-intensive/science-intensive, etc.) and their major source of innovation.
In this study we do not want to disregard these approaches and their conceptualisations of interactive innovations. On the contrary, we will also study here the patterns of interaction and external resources sought by small firms in their innovative process. But we do find a tendency of neglecting several themes and perspectives in the studies performed until now. In short they are outlined here.
In the interactive perspective and perhaps especially in the so-called network perspective, there is a tendency to study relationship management in business networks as a sequence of exchange and adaptation processes, but neglecting those different managerial perspectives met at the outset. This is suggested to influence the exchange and adaptation processes fundamentally, so the entrepreneurial element placed with SMEs tends to be dominated by strong administrative traditions embedded with corporate partners in the network.
62 This aspect feeds directly into the other perspective we find of importance. This is the co-evolution of SMEs with a larger production system in which they are embedded. Within this perspective small firms are seen to constitute a dynamic entrepreneurial element, which is needed for the long run efficient reproduction of the system. They often provide the ‘corporate’ dominated system with new products and processes, which are based on opportunities often left open by the ongoing specialisation or by the inflexibility of the established network. What they provide is basically a structural flexibility to the network in which they take part. This may be brought about in several ways of which the important ones will be outlined shortly.
In a regional setting much of the renewal of the industrial structure is provided by new businesses. Through new business formation a test-ground for new ideas and concepts to work with is provided. Selection mechanisms are embedded in the functioning of the production network. The less flexibly and learning oriented the established network of enterprises performs, the brighter are the opportunities for new enterprises to establish themselves.
Small firms provide opportunities for the building of loosely related combinations of skills, which vary with the change in ongoing projects and business ventures. Therefore the right mixture of small firms and large firms seems to be of importance in order to combine scale with scope and the pooling of resources with flexibility.
SMEs' innovation patterns are therefore to be seen as a part of a larger “patchwork” of innovative activities. The implication is that small firm innovation interferes with the innovative activity in several other ways than as a supplier of new products/services, or inputting new knowledge, from a range of sources.
The competition tends to be more systemic. It has to be conceptualised as a competitive struggle between integrated supply chains more than between individual enterprises. Therefore small firms' innovations have to be seen as a source for large firms innovative potential just as much as a large firm may be a key source for the innovative activities of a small firm.
The systemic character of evolving innovations implies that innovative activity cannot be analysed exclusively at the level of the enterprise, even from an interactive perspective. Innovative activities in the system tend to feed each other, so that innovations in one place of the activity chain feed the need and opportunity for new innovations in other places and in other firms. In this way new rounds of innovations evolve. Therefore, when Kline and Rosenberg (1986), for example, in their chain-link model propose an iterative process running along several pathways, then they implicitly propose not only a dynamic interface of activities and functions inside the firm, but also at the same time a dynamic interaction among a number of enterprises.
As indicated, the role of small firms in this dynamic process may take several forms. Their role may also differ with changes in the product cycle. They may be centrally positioned in different phases of the innovation process and they may combine in ways, which form part of innovation systems of a systemic nature. From such a systemic perspective the individual actors can be non-innovative and yet the system will have an innovative outcome due to the changing combination of contributions from individual enterprises.
63 It has been one of the aims of this country study to provide a systemic perspective on small firms’ innovation. This has been carefully pre-planned through the inclusion of a number of related and specialised enterprises forming a cluster of stainless steel producers, as revealed in section 3.3.2. They are linked to a common world-wide project market of dairies, dairy equipment and similar food-process facilities. But our knowledge of the dynamics of their exchange system and of how they are mutually linked is limited.
Based on the sample of enterprises selected in the study, the ideal (in a Weber sense) network of relationships among the individual actors are visualised below in Figure 3.9.
64 Figure 3.Fejl! Ukendt argument for parameter. Principal relationships inside the industrial cluster of Stainless Industry
Contract- producers
Producers of nd rd 2 -3 tier sub- 1st tier sub-suppliers Products for final
supplier markets
Advisory Services (engineering)
The systemic character of the innovative system stems among other things from changes in demand – implying:
• Strong horizontal competition among the – often few - dominant players in the end market • Highly intensified vertical competition based on different ways of administering the competitive element, i.e. different collaborative regimes. • Strong spill-over to other users inside the same line of business and especially to users inside other lines of industry where the technology base is applicable • Strong technological trajectory inside stainless steel competence building
Viewed within the perspective of the value-added chain, the cluster consists of a number of final producers, a few contract producers9 and a number of sub-contractors, as shown before. In the illustration given above, the service enterprises included in the sample are pictured as supporting industries.
The overall pattern revealed of SMEs interaction in relation to innovation is that almost half of the product innovating enterprises (19/40) indicate that they have established important relationships with enterprises or organisations in relation to the product innovation undertaken in the last three years. When it comes to process innovations, a little less than half of the enterprises (10/23) indicate important collaborative relationships.
This pattern indicates that many small enterprises for different reasons do not utilise the knowledge and resources embedded with actors related to their business activities. This may be reasoned by a strong internal focus in innovative activities. It can also be reasoned by strategic interplay’s, which hinder the utilisation of resources and knowledge embedded with related or supportive actors.
9 Contract producers are characterised by their production of final or semi-final products, produced under contract with a final producer.
65 Small firms are involved in value-added chains, which compete with each other. They have different positions in these value-added chains. The performance as well as the competition among contributing enterprises is highly managed by the collaborative perspectives seen by their – most often – large contractors (Andersen and Christensen, 1998).
The co-ordinators of these value-added chains cross several national and regional borders in their search for efficient contributions to the competitiveness of the system. At the same time each and every enterprise depends on context specific contributions.
In order to gain further insight into the dynamic character of the innovative system, the enterprises included in the sample are listed according to their role in the system. Their role is identified by means of classifying their dominant activities. Firms without a dominant activity of 50 per cent or more of turnover, are not classified (20 enterprises). It should be born in mind that the Stainless Steel industry includes 104 enterprises out of the 154 in the total sample.
As visualised in Table 3.18, each type of enterprise may be tied to a pattern of innovative patterns which seem to dominate that type. Due to their small number it has no meaning to link the contract producers with such patterns. The number problem of small firms is faced by services and engineering.
Table 3.18 A Typology of firms and innovative activity based on their main activity. 1998. Dominant Number of Share of Share of Innovation Dominant Innovation Share of firms activity Firms firms in innovators in Intensities (1) Profile (2) with 50%+ of the the group (%) A B Share of enterprises in export N=154 sample 6%+ 1-5% group (%) A B C Producers for final markets 65 50.0 55.4 29.2 23.1 27.7 10.8 12.3 21.5 Contract producers 3 2.3 33.3 0.0 33.3 0.0 33.3 0.0 0.0 Sub-contractors 50 38.5 40.0 10.0 12.0 14.0 6.0 6.0 14.0 Advisory services 9 6.9 44.4 22.2 11.1 22.2 0.0 11.1 0.0 (engineering) Services 7 5.4 28.6 28.6 0.0 14.3 0.0 14.3 0.0 (software)
Total 134 100.0 Source: Based on the Danish SMEPOL Database. Notes: (1) Innovation intensities stand for share of turnover in 1997 spent on innovation activities. Share of firms classified as A 6%+ of turnover or B: 1-5% or more per cent of turnover. (2) Dominant innovation profile is based on whether the enterprise product innovation is a) New to the market b) Spill-over innovators, i.e. innovators adapting new ideas from other lines of industry or other territorial production systems c) Imitators, which have made product innovations new to the enterprise
Starting with the minor group of enterprises in software-services, the share of innovating firms tends to be low, while the innovation intensities are high. The group is split up equally into innovations new to the market and imitative innovations. The firms in this group are highly oriented towards the domestic market. The problem of small numbers makes interpretation difficult.
66 This is also the case for engineering services. The engineering service enterprises have an average share of innovating enterprises. As far as it is possible to interpret, their innovative activity is marked by the absence of spill-over innovations. They are highly oriented towards the nearby regional markets.
For both of the two groups it is interesting to note that process innovations in these service firms is most often considered to be product-development. This is caused simply by the nature of much of the service industry in which processes are often the products marketed.
The group of sub-contractors is of interest from the perspective of the final producers they serve and the role they play in the system as such. First of all, the share of innovative enterprises is lower than with the end producers. Secondly, only a few of the sub-contractors are found in the group with high innovation intensities. Thirdly, the share of sub-contractors strongly engaged in exports is higher than might be expected from a traditional perspective on the ‘nature’ of subcontracting, i.e. as being embedded in regional and national production networks. The growing international orientation is confirmed and discussed in (Andersen and Christensen, 1997).
Looking at Table 3.18 the first noticeable thing is the leading position taken in overall innovative activity by those enterprises serving final markets. They have the largest share of innovating enterprises and their share of high innovative intensities is also relatively high. It is also remarkable that this group is dominated by enterprises with genuinely new innovations. Finally, this group is characterised by a high percentage of enterprises where foreign markets dominate.
From the figures above it is difficult to assess the interactive patterns among small sub-contractors and the populations of producers serving final markets. However, from the “follow up interviews” with a few of the enterprises (see Appendix 3) it became evident that these firms often involve sub-contractors in pre-competitive phases of their product development and that some sub-contractors are closely involved in process re-engineering projects. It was also found that the project ideas of large global users inside the dairy sector often were developed and constructed by contract producers in the Triangle Region. These projects are often innovative in character and demand a tight collaboration with a number of specialised sub-contractors. They play an important role in the developing of feasible designs and solutions.
Based on the interviews and the patterns of innovation revealed above, it is suggested that small sub- contractors interact with their contracting customers – and eventually also suppliers – in other ways than normally envisaged. Instead of innovative collaboration organised in joint innovation projects, the inclusion of sub-contractors seems to take place as part of current production activities.
On an aggregated level the role of interaction played in different phases of the process of product innovation is showed in Table 3.19 as is the role seen to be taken by innovative partners in the process.
67 Table 3.19 The enterprise’s and the partner's role in product development. The Stainless Steel cluster. 1998. Enterprise’s role in Partners’ role in Contributed to: co-operation Co-operation Absolute % Absolute % Preliminary research and development 10 52.6 7 36.8 Development of product idea 11 57.9 8 42.1 Development of prototype 14 73.7 7 36.8 Development of drafts, plans, pre-test, test 13 68.4 8 42.1 Development of production plans 13 68.4 5 26.3 Development of product and process testing 14 73.7 6 31.6 (At) production 10 52.6 5 26.3 Process adjustments 12 63.2 6 31.6 The drawing up of marketing plan and/or 11 57.9 4 21.1 business plan Launch of the product/service 11 57.9 3 15.8 Other 1 5.3 2 10.5 Source: Based on the Danish SMEPOL Database. Questions 65 and 78-79 for the Stainless Steel cluster. N=19 out of N=40 enterprises, which have developed a new product, Questions 58 and 59.
Although the enterprises questioned, as well as their collaborative partners, at first glance seem to participate in all phases of the innovation process, it is revealed that the interactive relationships tend to crowd around ‘the development of product ideas’ and ‘the development of prototypes’. The SME enterprises in question also tend to participate at a high rate in preparative activities for the launch of production.
Systemic perspectives on SME innovation Another perspective on product and process development is to investigate whether they are of a stand- alone type or a systemic type (Teece, 1988). By stand-alone is meant an innovation, which does not affect the customer or user side, according to Teece (1988). We have extended the understanding of systemic to also include the supply side or innovation process, which takes place before launch and thus includes, for example, the suppliers (Christensen, 1992).
The question of whether the innovative activities are dominated by stand-alone or systemic innovations may be assessed in different ways. In this study the enterprises have been asked whether the product or process development is due to/or has caused major changes at the customer or supplier level (see Table 3.20).
On an aggregated level 55 per cent of the enterprises’ product development may be characterised as the stand-alone type and 45 per cent of the systemic type. The systemic type is divided into 27.5 per cent of SMEs that indicate that their innovations are related to changes with the customer, 15 per cent indicating changes related to the supplier, and 2.5 per cent indicating changes with both customers and suppliers. A similar pattern is revealed in process innovations.
68 A minor part of the innovative activities are conceived as extensive systemic innovations, which include changes both at the customer as well as at the supplier level. They are more often seen in process innovation (17.4 per cent) than in with product innovation (2.5 per cent). The indication seems to be that while self-contained production modules may work as buffers in product innovations, process innovations are highly integrated ands tend to cross organisational borders to a much higher extent. This pattern tends to complement nicely widespread hypotheses that state production networks are becoming technologically integrated to a higher extent. Paradoxically, at the same time, ownership control is becoming more fragmented.
Table 3.20 Stand-alone or systemic innovations. The Stainless Steel cluster. 1998. Is the product/process development due to/or does Product Process it cause major changes at the customer or supplier Innovation Innovation level? Absolute % Absolute % Yes, with both customers and suppliers 1 2.5 4 17.4 Yes, with the customer 11 27.5 5 21.8 Yes, with the supplier 6 15.0 - - No, neither with customer nor supplier 22 55.0 13 56.5 Don’t know/missing - - 1 4.3 Total 40 100.0 23 100.0 Source: Based on the Danish SMEPOL Database. Questions 63 and 165 for the Stainless Steel cluster.
The systemic product and process innovations point to the importance of understanding innovation in a broader context. When around half of the innovations are of the systemic type they both influence and are influenced by actions taking place in other enterprises or a network of enterprises.
Relationship building in innovation When it comes to social factors of importance to relationship building and co-operations in the Stainless Steel industry, three social factors seem to take on prime importance, namely, (1) social bonds (2) a shared experience in the line of business and (3) a shared professional background. It is also worth noting that the custom of informal co-operation is considered important by the enterprises (see Table 3.21).
All of these factors paint a picture similar to that found in other studies of “industrial districts”, namely, that social exchange takes on a key role in explaining the efficiency of the system (see for example Pyke et al., 1992). Although still considered of some importance it is, however, interesting to note that the matter of proximity is seen to be of lesser relevance in the functioning of co-operative relationships.
69 Table 3.21 Types of relationships and their importance. The Stainless Steel cluster. 1998. Importance to the co-operative ventures of the firm: Mean score Previous relationships 3.32 Common experience in the business 3.23 Common professional background 3.11 Our employees co-operate informally 3.05 We have personal contacts in each others enterprises 2.89 We are situated near each other geographically 2.67 Daily communication 2.64 We have solved conflicts/crisis together 2.63 We also meet in more informal connections 2.13 We participate in common association work 1.48 Source: Based on the Danish SMEPOL Database. Questions 47-57 for the Stainless Steel cluster. N=104. *) To calculate a mean score “no importance” was given the value 1, “less importance” the value 2, etc. to “crucial importance” given the value 5.
Although SME managers indicated social bonds and shared professions and trades do play a crucial role, it is remarkable that the responding managers play down the feature of participation in common associations.
The indications given above are seen to be of importance in the assessment of a delivery system that is built in order to implement innovation support schemes. It is thus anticipated to be of importance that some continuity in the service and advisory system is established in order to accomplish effective support deliveries.
Geographical patterns of innovation The development of new markets and of new customer-relationships leaves indications of new trends in the dynamics of the regional innovation system. New markets and customers often alter the relationship building of SMEs. This is, not least, the case where new markets and customers alter the established network of production. New customer-relationships may take the of market innovations have been revealed. The overall pattern is displayed in Table lead for a renewal of product innovations. Therefore the geographical patterns 3.22 below.
Table 3.22 below shows the distribution of new markets and new types of customer. Considering the small size of the region in question, it may be of surprise that more than 20 per cent of the new customers are located in the Triangle area. However, it may be one of the best indications of a ‘division of labour’ between a few end-producers linked up to global markets and a widespread cluster of interrelated SME suppliers linked to the few corporate players.
The key importance of the SME sub-contractors for integrating the industrial district does, in this case, seem to go far beyond their role as innovating units. A similar picture is revealed by another Danish study on sub-contractors’ internationalisation. Although manufacturing sub-contractors are becoming more oriented to international business opportunities, partly because of their contractors’ international orientation, the study mentioned does reveal that a key role still lies with ‘integrating domestic industries’ (Andersen and Christensen, 1998).
70
Although the Triangle Region does hold an important position in respect of the Stainless Steel cluster, the figures also reveal that the domestic market in its entirety plays a key role in the formation of new markets. This indicates that the Stainless Steel industry cluster is part of a larger industry related to a Danish specialisation in food processing equipment.
The difference indicated in new markets and new customers should be noted. New markets are much more likely to be developed outside the region, while new customers are much more likely to be found in the region.
Table 3.22 The geographical distribution of the most important new market and new type of customer. The Stainless Steel cluster. 1998. New market New type of customer Geographical market Absolute % Absolute % The Triangle Region 8 17.7 12 22.6 The rest of Denmark (except the Triangle Region) 12 26.7 25 47.2 The EU (except Denmark) 11 24.4 6 11.3 Abroad (except EU) 11 24.4 7 13.2 Don’t know 3 6.7 3 5.7 In total 45 99.9 53 100.0 Source: Based on the Danish SMEPOL Database. Questions 242-245 for the Stainless Steel cluster.
Since SME sub-contractors dominate the picture of the Stainless Steel industry, the implication seems to be that potentially new relationships in stimulating product innovation, to an overwhelming degree, take place in the regional and the national setting.
The geographical patterns of market and co-operative relationships may not only indicate some key trends of the industrial cluster as in the case of new markets developed. It may also reveal patterns of integration and disintegration in the regional production and innovation system and even patterns of lock-in and stickiness in the innovative system. Patterns of co-operative relationships with to supporting institutions may also provide some indications of the types of access to external knowledge institutions and the ability to overcome distance. On the whole the pattern is not very surprising in the context of other similar studies. Dominant shares of co-operative relationships are established with supporting institutions that lie outside of the region.
However, when it comes to supporting institutions the general picture drawn is that there are no supporting relationships established in the region, except two contacts with an approved technological institute. It is, of course, not possible to conclude that the lack of proximity to supporting institutions cause a low level of use. There are certainly other reasons as well. The problem is, rather, that the low level of use is caused by a number of coinciding factors, with a few showing similar patterns in the empirical data. A joint lack of personal, professional bonds may, for example, coincide with lack of proximity. This may turn into a major hindrance for an in-depth co-specialised service aiming especially at the region’s industrial strongholds.
71 3.4 The innovation profile of the Triangle Region in summary In the summary of the production structure (see 3.2.3.) provided on the basis of chapter 3, the profile of the regional innovation system is sketched out. The intention is to outline those key elements characterising the innovative profile of the region. This profile forms the basis of our analyses that appear in section 4. The summary is built on 5 interrelated themes. They are: 1) A rough, aggregated profile of the region, 2) a short profile of the supporting institutions in the region, 3) innovation patterns among SMEs in the region, 4) interactive patterns of innovation and finally, 5) a few challenges for the regional innovation policies.
3.4.1 The generic profile of the region The Triangle Region is a functional region in the sense that it has a coherent labour market and an well- integrated business community. An industrial district makes up a core of the region. The system of dairy process technologies and a cluster of related industries located in the region define the district. It is not an administrative region, but crosses three counties and includes eight municipalities. The region has gained its identity over the years through the close location of three larger cities (Fredericia, Kolding and Vejle) matching second and third rank cities in the country. The establishing of a regional development agency promoting the area has reinforced its identity as a region.
As indicated the region is generally characterised by a high growth rate in relation to Danish society. At the same time the regional production structure is, on the whole, characterised by a low-tech profile founded firmly on a strong basis of manufacturing industries inside traditional “Fordist” lines of industry. In the industries characterised by a medium to low level of technology, employment has been growing in spite of a fall in Denmark as a whole. The industrial sectors operating with a high knowledge content or with a high element of high-tech enterprises are weakly represented.
Using a schematic representation from Tidd, Bessant, Pavitt (1997), the aggregated profile of the region is sketched in Figure 3.10 below. This is based on the lines of industry included in the analyses. While the Stainless Steel cluster constitutes a strong element in the industrial composition, the other lines included are weakly represented.
72 Figure 3.Fejl! Ukendt argument for parameter. Environmental uncertainty and firms’ responses. New response is needed
New entrants may alter the game. Major restructurings take place.
Technological renewal needed Innovations are essential.
Advisory service inside Software producers Engineering Manufacturers of electronics
Environmental uncertainty Uncertanty is low. is high Stainless Steel Cluster Related electronic manufactures Static environments.
Radical innovations and Fast changing environments. organisations may change Old players with proven responses the rules dominate.
Old response is appropriate
The conclusion is that the industrial innovation pattern of the region can be basically characterised as “An old response regime governed by stable market conditions”. In this regime the innovation climate is dominated by small incremental innovations of an almost routine-character. One of the major changes confronting the system seems to be those changes in rules that follow from foreign ownership and management styles.
The impression from interviews is that the owners of small enterprises inside the Stainless Steel cluster find that the future is busy and bright. Generally, they do not fear for new entrants or innovations that might alter their position. Due to a heavy daily workload they find it hard to work with new developments. Innovations are generally developed through daily activities.
Relationships with customers are on the whole stable and tight. A few customers generate the major part of turnover. Strategic dependencies are high, i.e. the industry tends to be customer dominated.
At the same time major parts of the regional production system is focused on production activities, while activities of production planning (design, construction, prototyping, etc.) and following up (marketing, after sales service, etc.) tend to be located outside the region. These activity types are growing while production activities are in decline.
Although the region is highly dominated by SMEs, the ownership structure is characterised by a strong element of direct foreign investments in the area. Global corporations own the three dominant dairy producers. They share 75 per cent of the world market for dairies and related types of process facilities.
73 3.4.2 The supporting institutions Generally, the SMEs included in the sample of enterprises have a low use of institutions supporting the innovative activities. This pattern seems to be shared with SMEs from other studies (see, for example, Hassink, 1996). To some extent it may also be attached to the weak knowledge base in the region. This is reflected by the absence of research institutions, the low level of university education offered and the narrow range of other higher educational institutions. There is also a limited number of other related supporting institutions and generally the institutional build up is characterised by a low level of dedication to the strongholds in the industrial structure.
No wonder then that the collaborative pattern reveals a very open innovation system. Most collaborative ventures are with enterprises and institutions outside the region. This indicates an interactive pattern where thresholds for institution building around the innovative basis are growing to very high levels.
The weak knowledge base in the region is reflected in the low level of academic employment in the region and the out-migration of young people studying in university cities outside the region. The knowledge base of the region is thus biased towards skills of key importance in the manufacturing mass- producing – Fordist - society.
3.4.3 The innovation patterns of SMEs Compared with other Danish studies of product innovations, the sample of enterprises engaged in product innovations over the last 3 years is significantly lower. Frequency of product innovation is the highest in the size class of 10-49 employees.
While the frequency of SMEs engaged in product innovations is low, innovation intensities are high for SMEs compared to larger enterprises. They also seem to be high compared with to similar studies carried out through on an aggregated level in Denmark (Christensen and Kristensen, 1994). Due to temporal differences these results have to be interpreted with care. Differences may be caused by a general rise in the innovative level.
The few service enterprises included have a different innovation pattern. The engineering service enterprises almost solely concentrate on process innovation – for them it is a “product”. This is pointing at a future pattern, which may be of importance. Namely that in service enterprises, the innovation of process and product and even organisational renewal tend to integrate with each other. We find that this pattern will be significant in the future, since the border between service and manufacturing also tends to blur.
The high number of small enterprises on the one hand and the large number of foreign owned enterprises on the other hand marks out the business community. An entrepreneurial conceptualisation of the innovation process is thus confronted with a corporate conceptualisation.
Pre-planning is much lower in small owner based enterprises. While corporate enterprises tend to base their innovative activity on administrative management, small firms tend to have a short-term view on innovations. They are much more break-even oriented and oriented to current business opportunities. In short we find that a corporate based administrative oriented style meets an entrepreneurial style in the management of innovations. This is found to be of importance for the interactive perspective on innovation.
74 The share of enterprises with spill-over innovations is now dominant. They are new in Denmark or in the line of industry. It is no doubt that their importance is related to the systemic nature of the Stainless Steel cluster studied. Innovations are often highly customer specific. More than 90 per cent of the enterprises with spill-over innovations are small and micro enterprises. The imitative innovators are mostly found among the larger enterprises.
The systemic nature of innovations in the cluster of stainless steel is also demonstrated by the prime motive to innovate, which is “we develop products in order to keep our customers”. Classical motives like “our product is outdated” rank much lower.
The classification of the industrial cluster outlined above is revealed by the main motive to do process innovations, namely “to achieve lower prices”, a motive traditionally taken by lines of industry in the mature phases of the PLC Curve.
Main barriers to innovation – product as well as process innovations – are seen to be internal resources (“it is too resource demanding”). Time demands are also an important factor, while external barriers tend to be considered of a much lower importance. Together these internal factors are suggested to sum up to a major barrier of innovation related to the managerial factor.
3.4.4 Innovation patterns in an interactive perspective In general the study has shown that SMEs are highly interactive in product as well as in process innovating activities. But there is major resource and knowledge potential that is not being utilised, partly due to the managerial perspectives taken on innovation management and partly because of strategic interplay in the network of relationships. Knowledge institutions are of only remote importance to SME innovation. The most important collaborator is the customer enterprise, but suppliers are also indicated as important sources.
The study has revealed that those enterprises engaged in final markets are more innovative than sub- contractors. Their innovative intensities are also higher. However, our interviews have revealed that sub- contractors often are involved in their innovative activity. Major innovative signals are tightly related to the interaction in daily operations.
“These small sub-contractors are the legs and the arms of our production.”. It was with these words that the role of the subcontracting system was characterised by one of the major contracting enterprises in the Stainless Steel industry. This stresses the informal way in which innovative interaction is performed. It most often takes place with daily production matters and evolves into new product or process ventures. Only seldom are formalised innovation projects launched.
They do not innovate on their own, but they do innovate in two ways. “They provide our engineers and designers with valuable information about practical solutions to problems we often do not see on the drawing table or which we actually created on the drawing table” (interview with contracting engineering enterprise). Sometimes these sub-contractors think of solutions that cut across all the rules of design and construction.
75 The corporate and entrepreneurial way of engaging in innovations will also influence the interactive patterns of innovation. They are, so to speak, in a battle of how to conceive innovation management. This is most clearly spelled out in the interviews. An example is the following, taken from a small stainless steel plate producer:
“In general product development is important. But our enterprise is not based on product development. We give proposals and some new ideas to our customers. Therefore we have not carried through product development on our own. All the time we do product development activities for our customers, in the way that our people react on the specifications sent to us by our customers. Those drawings, specifications or those units our customers deliver are often very bad. We cannot make it in a solid, cheap or nice way in the manner stipulated. Therefore we propose new ways of doing things”. (Manager/owner of a small sub-contracting firm in the stainless steel industry)
The entrepreneurial mode of innovation management is informal in character and triggered by specific problems and situations confronted. It is cross-functional in the sense that those who are capable will contribute.
The roles taken in the collaborative venture around innovations differ. Most often the SME takes the role either as a contributor to prototyping, or in the drafting and planning processes. More seldomly, they contribute to preliminary research. Two interview extracts illustrate the role often taken:
“In our enterprise product development is carried out with our left hand on the sideline of our daily production. My people in production come and tell me: “This and this is stupid”. Then we make a proposal or a prototype and show it to our customer”. (Owner of a small stainless steel sub-contracting firm in the stainless steel industry)
“Some of our customers have a patent on some of the items we have joined in on in the development. In all circumstances we do not utilise knowledge gained by one customer directly with another … we would never tell and we are very careful about it”. (Owner of a small sub-contracting enterprise)
The questionnaire has revealed that it is more common to co-ordinate with outsiders around process innovations than around product innovations. This pattern is no doubt caused by the more and more integrative nature of production processes taking place in manufacturing industry. At the same time complex products are, to a growing extent, composed of standard modules.
The interactive character of innovations is also underlined by structural features. In some cases innovations have been generated through new combinations of suppliers. In such cases the core of the innovative process is actually that of collaborative management. So innovations may occur in cases as a new way of combining existing components.
76 The study from the Stainless Steel cluster reveals a structure in which the few final producers configure the cluster of sub-contractors lower down in the production chain. A few systems suppliers are in direct touch with the final producers and take on the task of co-ordinating the secondary tiers of sub- contractors.
According to the study, this pattern is, among other things, characterised by higher export rates for the final producers.
On the whole the engineering consultants and the software producers seemingly have no exports, but are related to customers in the Triangle Region and in the rest of Denmark.
3.4.5 Challenges for regional innovation policies • Targeting SMEs’ needs, behaviour and conditions directly • Targeting the innovative “logic” of the industrial cluster. What is the key to raise the innovative activity of SMEs in the cluster? • Raising awareness of innovations and knowledge building as a competitive parameter • Handling different types of barriers – sectorial, institutional, mental and last but not least managerial barriers • Improving understanding of the entrepreneurial mode of management dominating in SMEs • Promoting innovations management as an integrative and interactive process • Improving the insight into systemic innovation patterns in the industrial district • Promoting collaborative practices in support of innovation in vertical supply chains. • Promoting understanding of SMEs’ sub-suppliers’ positions • Improving the knowledge based supporting activities in the region • Promoting institution building in support of the knowledge base of the region • Tailoring institution building to the needs of industrial strongholds in the region, including the Stainless Steel cluster
77 4 The National and Regional Support System
4.1 Theoretical perspectives taken on the national and regional support system The importance attached to SMEs as innovating and job creating enterprises is closely related to the ongoing changes of the global production system. A dominant Fordist production system is converted into a post Fordist knowledge based system, where the production of new knowledge combinations is of prime importance in the competitive game.
This sweeping process of transition produces a need for renewal of the industrial support system, which is felt more and more strongly (see for example OECD 1996; European Commission, 1997; Anselin and Rey, 1997). A number of themes pop up on the agenda:
• A change in the focus of the policy agenda from a price competitive focus to a focus on new technology and innovations as a key force in international competition • A move away from the strong focus on large scale corporations as the only engines of growth and renewal, to a stronger focus on the SME role and potential in forming viable learning systems • A move away from an R&D based linear conceptualisation to a more interactive conceptualisation • A change in the sectorial focus • A change in the balance between regional, national and supranational systems of innovation support
A number of successful regions and industrial districts have demonstrated that learning systems may evolve in the interaction among small firms. They are localised in the same labour market and share a common cultural heritage and a common destiny (see, for example, Pyke, Becattini and Sengenberger, 1992).
Based on these experiences taken from successful districts and regions, a number of lessons have been drawn with implications for changes in the industrial policy (see, for example, OECD, 1996; Storper and Scott, 1995; Maskell et al. 1998 and Lapriore, 1997). Indeed, some writers are still comparing the superiority of small local learning systems and global corporate learning networks (Amin and Cohendet, 1999) while the interesting issue is to see how they are intertwined and shape new syntheses. Thus, although important strong changes are seen with respect to the role of small enterprises and with respect to the role of innovation as a competitive parameter, the mental maps and attitudes adopted taken in the formulation of industrial policy guidelines are still mixed. We are far from talking of a new mainstream policy agenda, which has crystallised on the basis of a radical change in the underlying industrial production systems.
Top-down policies are still seen to favour those sectors and industries, which have already proved their success. Policy makers are caught in the dilemma of framing policy which favours on-going specialisation and clustering in the industrial structure, and -on the other hand - the obligation to stick to supporting arrangements that do not favour individuals (Armstrong, 1996).
4.1.1 New policy perspectives based on the concept of learning However, in an evolutionary interpretation, the policy agenda is basically changing. Not only because we operate in a changing world, which must be matched by a flexible policy agenda, but also because, as Metcalfe (1993) notes, the evolutionary view differs from the traditional welfare view on industrial policy.
78 While the traditional concern by has been to optimise behaviour in relation to a more or less specified state of equilibrium, the concern of the innovation policy agenda, from the perspective of the evolutionary agenda, is to stimulate innovative processes and those institutions reinforcing the dynamics of innovation. In this view, efficiency is a contrast to creativity. These processes are seen as open ended, since there is a strong element of discovery in the working of the market process (Metcalfe, op. cit. p. 5).
Uncertainty is thus not seen as an imperfection but, rather, a result of the ongoing dynamics in the innovation system. These forms of dynamics cause difficulties in respect of traditional types of innovation management in firms as well as with traditional innovation policies at societal level.
It is important to sustain variety and conditions favouring variety both at the level of the enterprises and at the institutional level. Variety fosters innovations just as innovative activity is variety producing. In this way change is not seen solely as a response to changes in the external environment, but also as a result of interrelated changes in activity chains or in the behaviour of enterprises and other actors in the system.
The innovation policy agenda is thus preoccupied with the creativity of enterprises and those forces that may stimulate the innovative and creative capabilities of the industrial system. New business formations and learning processes have a central position in this view. The less learning oriented the existing actors are, the more importance must be placed on the formation of new businesses. The learning ability of individual actors,, as well as at the level of the innovation system, is thus seen to interact strongly with selection mechanisms. The implication is that improper learning inevitably leads to the out-competing of enterprises or business systems.
Learning is thus seen as a result of interactive processes involving social and economic exchange processes as well as adaptation processes. Learning can be seen as the attempt of existing actors to adapt to upcoming novelties, which eventually may emerge into patterns of change. In this view innovation policy has to do with the handling of ongoing processes of renewal and revitalisation. It has to handle the paradox of a system intertwined with corporate and entrepreneurial innovation processes. It has to cope with paradoxes of the global-local dichotomy and it has to cope with paradoxes embedded in the industrial structure, say, in terms of the high-tech low-tech dichotomy.
It is a process in which there is no optimal policy route, but in which the innovation policy agenda in itself is a process, where continuity is in a constant balance with renewal. Learning cycles among actors with different positions in the innovation support system - and thus also different knowledge, awareness and outlook - are of central importance to the performance of the system.
Just as actors and firms participate in loosely coupled production and business systems, which evolve in dynamic but unpredictable ways, the actors involved in the framing and implementation of innovation policy schemes tend to be coupled in loose systems. These policy framing and implementing systems need to be organised in flexible ways matching the changing state of the clients and their networks.
79 Since it is a key issue of the innovation policy to facilitate and enhance learning processes, it is also important to emphasise that learning fundamentally is related to the distribution of knowledge: knowledge embedded in the market or in the technological system inside which the enterprises in focus work. The stimulation and facilitation of learning processes are thus intimately related to the diversity of learning mechanisms at work in the industrial network. The capability of learning hinges not only on the absorptive capacity of individual enterprises, but also on the capacity of the network.
While a number of researchers have focused on the tacit element of knowledge, it seems of equal importance to notice the tacit elements in learning. They are rooted in evolving routines and practices that have been adapted by individual actors and by network of actors inside specific technological systems. Johannisson (1998) has thus emphasised how learning processes, in the context of the industrial district, are characterised by entrepreneurial features, such as the integration of learning and practice and the perpetuation of idiosyncratic and localised knowledge. Peer guidance and social learning are also considered to be very important in contrast to the formal learning systems.
These systems, contained by the national system of innovation, may be highly diversified and therefore out of reach except by way of highly generic policy programmes. Even the science base of the national system of innovation cannot possibly cope with all the facets and technological trajectories followed by individual enterprises, in different lines of industry and localised clusters.
4.1.2 Innovation support focusing on SMEs One of the reasons to focus on regional systems of innovation is the need to create a highly focused support programme by way of a diversified policy delivery system and a system of implementation tailored to meet the needs of SMEs.
In most literature on industrial districts and small business clusters it is, at the outset, assumed that small enterprises are embedded in the local/regional setting. However, small firms often have to find a balance between the different ways of conducting business and the different interactive rules and routines. This is, for example, the case when small enterprises take part in supply chains dominated by large international corporations or when they are owned by LEs.
The capacity to deliver programmes specified to meet the needs of SMEs and industrial clusters of importance in the regions, therefore, hinges very much on the ability to engage the regional institutions in the formulation of innovation strategies and programmes for the region.
When we focus on SME innovative activities, the national system of innovation may lack the necessary interface around which the innovation policies can be integrated. Small firms do not interact very much with the science system and their needs are often articulated in the local environment.
Therefore, a number of issues come up when the innovation support system focuses on SMEs:
• The clustering of SMEs and the role and position of SMEs in different value added chains • Small firms’ strategic approaches to innovation and the management of innovation • The delivery systems surrounding SMEs in the area • The institutions framing SMEs’ innovative activities
80 All of the elements may contribute to perceptions about innovation in small firms. It is important to note that small firms, in contrast to most large firms, are most often mono-local. Therefore, their sense of what is going on is very much embedded in the local industrial environment in which they are embedded. A small firm’s sense of the urgency in respect of innovation is thus influenced by its customers and the feeling of what is going on “next door”.
The influence of small firms’ management is thus a key issue. It is very much linked to the routines small firms develop in the intertwined process of production and innovation management. Tidd, Bessant and Pavitt (1997) view this as an iterative process of learning in which specific innovation routines develop. In addition, it is important to stress that images of innovation as well as the innovation support system influence the innovative behaviour of management.
The point of specifying these managerial aspects is to draw attention to key factors at the level of the enterprise, which are decisive in influencing innovation support policy for SMEs. They form intricate elements in the learning and adaptation process of existing SMEs.
4.1.3 The regional innovation support system Over the past few years a number of suggestions have been put forward to help conceptualise the regional support system. In most cases it is conceptualised as a “regionalisation” of the national support system. In some cases it involves a regional policy dimension of framing the national and international programmes to meet the needs of the “development strategies” proposed in the region. In other cases, the regional policy support system is conceptualised as a delivery system, where decentralised agencies and semi-public service institutions are involved in tailoring national and international support schemes to meet the needs of regional actors. In this case, one could see the regional innovation support system as the final delivery point for supranational and national innovation schemes.
However, in this study the regional innovation policy system is conceptualised as a policy of embedding the national and international innovation policy schemes and tools in the regional industrial system. Regional policy bodies, semi-public agencies and enterprises are of key importance to the composition of the system.
Based on the analytical framework outlined above, the regional support-system can be identified with regard to organisational placement, but also some of the policy options are sketched out, i.e. regional or sectorial targets.
The most important implication is the focus on the links with the outside world, both nationally and internationally. It is important to stress that the local systems are not only sub-systems of the national one, but can also contain unique features in the production system, as well as in the policy-system.
From the perspective of decentralisation and the “bottom-up” processes, the most important feature is that the process of decentralisation, as mentioned earlier, explains only half of the truth.
81 In response to the many European Union programme initiatives, the reduced role placed on regional policy at the national level and the changing industrial landscape in the region, a large number of bottom-up initiatives have developed over the last decade or so (Armstrong, 1996). All over Europe there has been a rise in the number of regional development agencies (RDA) operating at the regional level. Halkier et al. (1998) denote these development agencies as semi-autonomous institutions vis á vis the sponsoring political body. They mainly support enterprises in their surrounding areas by means of soft policy instruments and they use an implementation methodology which draws on a broad range of policy instruments.
While these RDAs can be seen as a regional response to the rise in support programming at the European level, they can, in addition, be seen as a rejuvenation of the regional administrative system. In some cases this is in competition with the traditional policy bodies – County Councils, provincial bodies, etc. - operating along administrative regional borders, which may be superseded by the ongoing industrial development. In other cases – like for example in the case of ERVET in Italy – they may be seen as a way of supporting the regional strategy in terms of which resources are integrated and combined to meet the specific needs of regional industrial clusters.
Regional Development Agencies can thus be seen as a rejuvenation of regional industrial policy programming as well as a strengthening of the regional framework for national and international delivery systems.
However, in reality a regional innovation strategy is seldom formalised (Markusen, 1996). In Denmark this is partly caused by the fact that none of the 15 County Councils have specified visions, goals and policies attached to the innovation theme. It is, however, also caused by the fact that a number of governmental bodies, together with municipalities and semi-public regional and private operators, are operating in each and every region, on top of which, several EU-programmes are also in force. The collaborative and competitive patterns they form in their efforts to promote their agenda are highly regionalised.
4.2 A general perspective on the regional industrial promotion system in Denmark This small section has as its main purpose to introduce the tradition of regional industrial promotion in Denmark – the evolutionary perspective – and to provide an overview of the national and regional institutions involved in the formulation, dissemination and implementation of regional innovation programmes.
As a general assumption touched upon in the previous section, it is worth mentioning that, seemingly, the political administrative system, not least at the regional level, has an inertia in relation to those strong changes taking place in the regional business systems during these past few years. In Denmark this inertia shows up in the seemingly endless discussion on territorial administrative reforms.
82 A short historical review The first industrial policy initiatives in Denmark were launched in 1958, actually as a result of a regional pressure to initiate a regional development programme in order to fight growing regional employment disparities. The regional development act was in force until the early 1980s. The regional development policy covered major parts of the southern and western parts of Jutland. It led to keen competition among the municipalities in the area of support. In order to lift the application capacity in the municipalities a tradition developed where they joined forces with the local business communities in order to set up a local development office.
This tradition with local industrial offices has spread all over the country, so that almost every municipality has an industrial office today. The trend is to rationalise the system by joining forces in local areas so that the same office serves a number of municipalities. The local industrial offices often work as the “de facto” policy-formulating unit at the local level, i.e. they often conceptualise the strategic platform as well as the detailed policy agenda on which local industrial promotion programmes are built.
From the mid-1970s the number of national industrial promotion programme has been growing. In 1977 a product development programme was established. It was renewed a number of times until its termination in the late 1980s. A number of programmes covering specific problem-areas are also launched. One is, for example, the energy research programme, which is expanded within the in jurisdiction of the Ministry of Energy. A number of programmes supporting environmental protection have also been launched under the headings “clean technology”.
In the beginning of the 1980s a number of industrial programmes were initiated, mainly in order to revitalise the manufacturing industry. The Ministry of Industry launched 52 sub-programmes at that time. A major part of these programmes had specific aims to support research and development activities in the enterprises. The idea of these programmes was adopted by other ministries, like the Ministry of Agriculture and the Ministry of Fisheries. They have both launched programmes for product development. In the middle of the 1980s these programmes grew and they were monitored across several ministries.
In 1985 a major “Technological Development Programme” (TUP) was launched and monitored solely by the Ministry of Industry. The main target was LEs. The aim was to increase the use of IT in production. It was stopped one year before its scheduled completion date and was active for only three years. One of the points of criticism was, according to the OECD (1995, p. 60) that “the programme caused enterprises to overestimate the possibilities of information technology”.
However, a number of programmes were developed and monitored by cross-departmental committees during these years. The Biotechnological Programme ran from 1987-1990 and was meant to support new business formation, amongst other things. FØTEK (food-technology programme) I and II ran from 1990 to 1997 and was monitored across three ministries. The Materials Technology Programme I and II ran from 1988-1997 and was co-ordinated across two ministries and two research councils.
The present government agenda Today the national promotional system is roughly divided into three categories: Science, Technology and Innovation Support. Major parts of the technology and science budgets are run via spending ministries. The Ministry of Industry runs major parts of the innovation support programmes including programmes for entrepreneurial support.
83
In Table 4.1 below a short overview of the present national budgets for R&D and innovation support programmes is given.
Table 4.1 State Budget for Business development in Denmark 1994 –1999. (DKK millions, Percentage of total spending)
1994 1995 1996 1997 1998 1999 1. Support to specific industries 19.0 26.3 34.5 35.7 30.5 31.0 2. Support to industries in crisis 26.3 6.5 0.9 1.3 1.1 0.8 3. R & D support 25.4 32.1 29.1 28.5 28.9 27.8 4. General Investment promotion 0.2 0.4 0.3 0.3 0.5 0.5 5. SME 0.9 2.5 2.3 1.6 2.7 2.5 6. Regional Development 1.9 1.4 0.3 -0.9 2.3 1.9 7. Employment and vocational training 0.9 1.1 0.8 0.6 1.0 1.2 8. Export promotion 14.5 14.6 16.4 15.1 13.9 12.2 9. Energy subsidies 0.0 0.0 0.0 0.0 0.0 0.0 10. Environmental support 10.9 15.2 15.4 17.8 19.0 22.2 Total in % 100.0 100.0 100.0 100.0 100.0 100.0 Total in DKK millions 8402.9 7578.9 8159.2 8875.7 10597.1 10966.2 Source: Erhvervsministeriet 1998, pp. 239-50.
In a five-year period the State budget for business development has grown by more than 30 per cent. As the table shows, growth has been highest in environmental support and in support to specific industries.
The share of dedicated support to SMEs is only a small fraction (2.5 per cent), while support dedicated to R&D is large and growing. It is also worth noting the low budget for regional support, which is in contrast to earlier decades.
The support paradigm surrounding the industrial programmes is also changing. It is moving away from reactive support to industries in crisis, towards an offensive agenda, in which stronger emphasis is placed on the improvement of contextual conditions or societal parameters attached to anticipated future demands, such as environmental safety.
As touched upon, it is also slowly changing towards an agenda of enhancing knowledge, away from a price and cost competitive agenda. This was made clear in the 1998 edition of the yearly industrial White Paper (Erhvervsministeriet, 1998, pp. 206-215). According to this, the key elements in the creation of a Danish innovation system is to create a working system of knowledge transformation:
• The provision of transformation facilities to make sure that new knowledge from the R&D sector is transmitted into the business sector. Both sectorial and regional agencies are involved • Co-operation with private sector firms in the area of innovation and development • A similar proposal dealing with managerial and organisational issues • To find a feasible solution to the core problem of innovation policy in order to resolve the contradiction between microeconomic (firm) interest in exclusive use of new technology (patent- protection) and the macroeconomic (societal) interest in rapid dissemination of new technology
84 The last issue is probably the crucial point in any public innovation policy aiming to bridge the gap between publicly financed (university) research and private sector research and development. Only time can prove whether or not the solution suggested in The White Paper will work out. Briefly summarised, the principle is to grant exclusive rights to the firm involved (for specific applications) and to ensure that information about the invention is published. The idea is that other firms in the industry can base their own research on the latest results in order to speed up the overall process of innovation.
Organisational matters As indicated, the national promotion system runs across several ministries and involves a number of departments and committees. The growth in the system has probably never been part of a co-ordinated plan. It has evolved in this way in the light of interdepartmental and political rivalry. It is thus interesting to note that support programmes have slowly evolved into ministries. The lobby and interest organisations also have a role to play.
The way the State organises industrial promotion initiatives is a result of many diversified initiatives, mutations and spin-offs. This has caused a lack of common principles for the distribution of budgets and for monitoring programmes. However, in spite of several attempts to simplify the system, there are still many examples of criticisms about the lack of inter-ministerial and sectorial co-ordination (Christiansen, 1992).
The system is characterised as complex, with many different rules, principles of support and procedures for application. This makes it costly and difficult for users to orient themselves. It can be a direct barrier to an efficient use of the potential of the system (Christiansen, op. cit.).
Although a number of committees and representative bodies have been established, the system runs the danger of administrative lock-in, meaning that misallocations and barriers to improving performance are not addressed. As indicated earlier, this danger grows if there is a lack of coherence in the industrial structure.
The regional actors There are a variety of actors at the regional level. Besides the County Councils, a number of State bodies (the labour market authorities for example) the municipalities and semi-public regional development agencies – such as the Triangle Region, along with State programmes - as well as EU programmes - operate at the regional administrative level.
The most important regional actors are the County Councils, even though their primary tasks lie within education, roads and hospitals. Formally speaking, it is the County Councils that define the regional innovation policy – whether it is explicitly or implicitly articulated – as part of the legal regional planning system.
After the regional development act came to an end, a number of regional development initiatives have grown from the regional level. An example is the County of Southern Jutland. It was, for many years, considered a peripheral region in Denmark. A long tradition of being part of Danish regional development programmes was established. Since formal regional policy-making in Denmark tailed off in the 1980s, more responsibility was taken on by the counties, a recent manifestation of this being the foundation of the Southern Jutland Business Centre (SEC- Sønderjyllands Erhvervs Center).
85 The main purposes of the SEC according to the statute of the centre are:
• To implement business promotion policy • To promote the transformation of knowledge and to provide a service to relevant actors in the region • To promote and maintain the dialogue between the private sector and public authorities
These three main functions coincide very well with the position the centre claims to hold – seeing itself as being at the centre of the regional hub of business promotion with co-operative links to other regional bodies, the local level of municipalities and local business cores (Erhvervsknudepunkter) as well as “up- stream” toward the national system of business-promotion and the European Union.
In the same way, a number of Regional Development Agencies have flourished since the middle of the 1980s. As quasi-public institutions they offer a variety of soft support programmes to businesses. Some of them promote co-ordinated industrial development programmes and try to integrate resources and initiatives from a number of sources, including the EU programmes.
Regional Development Agencies are often the result of a collaborative venture among a number of municipalities. The aim is most often to promote industrial development in the area. The area/region covered often cross county borders. In this way, they also cross regional industrial policy borders. See Halkier et al. (1998) for further details.
Besides the Regional Development Agencies a number of intermediary institutions have been initiated. Among these, the Technological Information Centres, the export promotion officers, and the many private consultancies serving the regional/local area, ought to be mentioned.
There is a strong competitive edge between the municipalities and the counties. Regional and local development policy programmes therefore tend to be promoted in loosely formed coalitions of actors. These coalitions shift according to the purpose and the aim of the programme.
Therefore, the regional arena for policy making runs the danger of “crowding” more than networking: a phenomenon also seen in other countries (Hassink, 1996). Political agendas tend to overlap each other in an uncoordinated way.
Although a basically structural flexibility is provided, this structural flexibility also creates a system marked by a lack of transparency. With this, come problems of matching the needs of small enterprises (Hassink, 1996) while also making sure that programme quality is at an appropriate level.
In small, thinly populated, regions the capability of integrating and co-ordinating resources seems even more important. This may also underline the importance of promoting innovation policy, dedicated to meeting regional needs, at the national level.
In general the resulting regional policy agenda for industrial promotion – including regional innovation programmes – is often weakly co-ordinated, invisible or counter productive.
86 A few key issues can be raised, based on the huge number of actors operating at the regional level:
• How can scale (national level) and scope (regional level) meet? • To what extent is the local and regional set up of industrial promotion, a barrier to the development of coherent innovative policies at the regional level? • What is the future key role of regional programming when it comes to the formulation of regional innovation policies? • Can the regional level promote transparency and integration in the delivery system? • Can regional innovation policies strengthen the dialogue with actors in the business community • How can the process of adaptation and learning be sustained?
4.3 The use of Subsidy Schemes Innovation policies and subsidy schemes have been the target of numerous evaluations and assessments. Most often they have been carried out as part of a more comprehensive policy and programme evaluation exercise, for example the OECD review on Science, Technology and Innovation Policies in Denmark (1995).
However, very few empirical studies have been done in a regional setting. Actually this is surprising, since the debate on industrial districts and their growth potential has been extensive. The regional context for innovations must be considered to be a key issue in these discussions. A few contributions are worthy of mention, namely, the study by Hull and Hjern (1987).
In the following discussion, SMEs’ use of subsidy schemes is treated in a series of small thematic sections. As the reader will recall eight subsidy schemes were included in the Danish study. Since only three of them have been used to any significant level, these three are described in section 4.4 – 4.6. In this section, all of the eight schemes are reintroduced.
It should be recalled, however, that the Danish support policy framing the schemes analysed has generally changed its character. Basically, support is no longer provided for individual innovation projects in individual enterprises. Support programmes are much more oriented towards the revitalisation of frameworks which are conducive to company growth.
Section 4.3.1 below contains a general and fundamental discussion of the role of support schemes followed by a basic review of the use of innovation support schemes in the Triangle Region (section 4.3.2). In section 4.3.3 there follows a presentation of the intersection of the industrial typology and the subsidy schemes. In addition to this an outline is given in section 4.3.4 of the four principal support groups and their profile of support orientation, followed by a short review of the benefits and barriers found in the use of policy instruments envisaged by the firms in the sample (sections 4.3.5 and 4.3.6). Section 4.3 ends with a section summing up the results and patterns of small firms’ use of support schemes.
4.3.1 SMEs use of support schemes – a general view The role of support schemes among SMEs is well documented from a number of studies in general as well as in a Danish context (see for example J.F. Christensen et al., 1990 or OECD, 1995).
87 There seems to be agreement that the initiation of innovations in small firms, as well as in larger ones, is, in general, initiated by a combination of pull and push factors and that the initiation of innovation is the initiation of a process, more than of an event.
Christensen (1992) establishes, on the basis of an assessment of several studies, a basic typology of factors. In this typology two major categories of push factors are outlined, namely 1) science discoveries and 2) technology discoveries. Also, two categories of pull factors are outlined: 1) customer needs and 2) management objectives. However, several studies have revealed that it is difficult to sort out the actual causes that trigger the initiation of innovations. Christensen (op. cit.) found that it is very often a combination of the two sets of factors that trigger innovative processes.
From a cognitive perspective it does seem that management’s perception of market opportunities, as well as prospects related to new technologies, is of key importance.
This does not necessarily imply that management from the outset imagines new innovations as a sort of fantasy project detached from current business and production. On the contrary, several studies have documented that innovative activity evolves from current competencies, businesses and relationships developed in enterprises studied.
Therefore no doubt the imagination of the outcomes from innovations most often has to be viewed as an integrated element of running daily business relationships. Against this background, management’s perception of support schemes and how they can be of help in the innovation process is of key importance. The way management value support schemes may be looked at in two different ways. A specific evaluation, which is done in relation to the innovative activities and an ideological evaluation, which is undertaken on the basis of the general view on public support policies and the public sector in general.
The use of support schemes by small firms and the evaluation of their use has to be assessed on the basis of how small firms’ management construct their view on the functioning of the public sector and, thus, the specific usefulness of public support.
4.3.2 SMEs’ use of support schemes – in the case of the Triangle Region Small and medium sized enterprises in the Triangle Region are extremely selective in their use of support schemes – within the context of the support schemes studied.
Out of 85 enterprises involved in product and/or process innovations over the last three years, 19 enterprises have used innovation support schemes in connection with product development while only 3 enterprises have indicated that they used support schemes for their process innovations.
By and large, this means that approximately 27 per cent of enterprises in the target group of this study - namely innovating enterprises – have used the support schemes. Since most of the schemes included are not especially targeted at innovative firms, but rather towards a broad stimulation of growth processes, it is relevant to include the sample of enterprises in total. In this context the rate of users is less than 15 per cent.
88 Approximately 37 per cent of the enterprises have been involved in product innovations over the last three years. Only 12 per cent of these enterprises have made use of support schemes. For those firms involved in process innovations the same shares are 18 and 3 per cent respectively.
There is also a significant difference in how firms use support schemes by size of enterprise. While the medium and large-sized firms represent 10 per cent of survey respondents, their share of supported enterprises in the total sample population is 35 per cent. In the group of enterprises with between 10 and 49 employees, there is a balance between their share of population and supported enterprises (35 per cent). That leaves the micro-enterprises in a situation with 54 per cent of the population and only 30 per cent of the supported enterprises.
Taken all together, the impression is that the use of support schemes indicate the same pattern as that revealed in other studies of business support schemes. However, in the case of innovation support, it should be emphasised that small enterprises ought to be considered as a key segment for support for several reasons:
• The small micro firms are often newcomers and thus represent a renewal of the production base as well as the knowledge base of the region
• Small firms’ innovation patterns are not yet fully understood. Therefore they may represent open-end innovations adding to the variety and indeterminate character of the innovation system, breaking with well established incremental technological trajectories. They may thus prevent lock in within established networks
These points are supported by the results reached in earlier sections. In section 3.3 it was revealed that the micro firms formed a leading segment of innovators in genuine product innovation (42 per cent of all genuine innovators) and in the case of “spill-over” innovations (37.5 per cent). Together with the segment of small enterprises (10-49) they represent more than 90 per cent of the “spill-over” type of innovations.
Although these results should be handled with care due to the problem of small numbers and the nature of the sample, they do point towards a basic support issue facing innovation support policies more than business support programmes in general. Namely, the problem that although small firms may not be those with the highest innovation potential in terms of in-house resources and acquired human skills, they are often founded on innovations with a high potential for contributing to structural renewal. They are thus contributing to raise the technical efficiency of the region.
89 Table 4.2 Types of support schemes selected for the study. No. of enterprises For product & process innovations* Product Process The Growth Fund (5) and Capital from 9 0 ; Development-Companies (4) Fund for Better Working Life and Growth 2 0
Approved Technological Institutes (GTS) 3 1 ; Introduction price offer Technological Information Centres Advisory scheme 5 2 ; Regional support to industrial design 0 0
Graduate Mobility Programme Environmentalists (1) 2 0 Industrial designers (1)
Others 3 0
Total 24 3
Source: The Danish SMEPOL Database, 1998: Questions 147+ and 229+. Note: The number of SMEs shown is not limited to those indicating use within three years. ; Indicates those support schemes which have been selected for an in-depth analysis.
The type of innovation support schemes used are revealed in short in Table 4.2. As shown, we are experiencing some problems due to the small numbers involved, in terms of revealing statistically significant results. However, the purpose of revealing the distribution of programmes involves the task of identifying the crude distribution of the take up of support schemes.
As indicated in the table, several schemes are not used by firms in the sample. Others have a limited use. This is found, for example, in the case of The Growth Fund, where a few enterprises indicate that they have asked for advice and nothing more.
It is noteworthy that those programmes aiming to link unemployment benefit with an incentive to develop small firms’ human skill bases – the Graduate Mobility Programme - is not very successful – in the study region.
As mentioned earlier on, there is no reason to expect the innovation support schemes to take an active part in the initiation of innovative activities. It is confirmed by the data, since more than 75 per cent of the enterprises found that support played no part in the initiation of the product innovation activity. In the case of process innovations the pattern is even more extreme, namely, more than 90 per cent of the enterprises.
90 4.3.3 Industrial typology and the use of innovation support schemes The firms belonging to the electronics industry invest more in product development than those firms belonging to the Stainless Steel industry. The opposite is the case when it comes to the use of support schemes. Here, the Stainless Steel industry is using the support schemes more frequently than the electronics industry. On the other hand, firms in the Stainless Steel industry are more prone to invest in process innovations than firms in the electronics industry. In this case there are no significant differences in the support profiles.
Looking vertically along the typology of firms classified according to their position in the value added chain, a rough picture begins to form. This is shown in Table 4.33.
As revealed in Table 4.33 the problem of small numbers makes the pattern meaningless in a number of cases. However, what the table does reveal is that while final producers tend to have a high share of innovating enterprises, the use of support schemes is far less significant. On the other hand, there is - surprisingly - a nice match between innovating and using the support schemes among sub-contractors.
Table 4.3 Shares of firms using innovation support schemes by the typology of firms. 1998. Dominant activity Share of Share of Share of firms firms innovators Using one or more (N=130) In the group Support schemes Per cent Per cent Per cent Producers for final markets 50.0 (65) 55.4 13.8 Contracts producers 2.3 (3) 33.3 33.3
Sub-contractors 38.5 (50) 40.0 44.0 Advisory services (engineering) 6.9 (9) 44.4 22.2 Services (software) 5.4 (7) 28.6 14.2
Total 100.1 Source: The Danish SMEPOL Database, 1998.
4.3.4 Four profiles of innovations support As indicated, four principal segments of enterprises can be constructed in order to detail the profile of the innovation support schemes. As revealed in the table below, four types of firms can be identified according to their combined position vis á vis the innovations activity and the support taken.
91 Table 4.4. Four General Profiles of innovation support User of support schemes Non user of support schemes
The enterprises have used 1 or more The enterprises have not used 1 or of the 8 support schemes included in more of the 8 support schemes the study included in the study Actively innovating 23 enterprises 88 enterprises Interesting because they may Interesting because they manage The enterprises have been involved exemplify a successful innovation without support. Could they have in Product or Process programme. been more successful if supported? Innovations over the last 3 years Would they have been innovative without support? 12 Not actively innovating 43 4 enterprises 33 enterprises The enterprises have not been These firms may suggest a mis- The question is - are they of interest involved in Product or Process allocation of resources. at all? That depends on the overall Innovations over the last 3 years Or they are signalling that the innovation support policy. programming scope is too broad? Source: The Danish SMEPOL Database, 1998. Note: 6 enterprises do not fit into the segments
Group 1: Active innovating firms using support This group of firms is dominated by limited owned companies. Most firms are subsidiary companies or – eventually – parent companies in Danish corporations. They are subsidiaries in foreign corporations to a far lesser degree.
Most of the firms are in the size group 10-49 or more than 250 employees. Only a few are below 10 employees. It is a general market-profile feature of the firms that their main market is in Denmark, outside the Triangle Region, and in the EU.
Group 2: Active innovators not using support This group of enterprises is dominant in the whole sample. Therefore it has a profile very close to the whole sample population. Concerning corporate form and size of enterprise, there is no significant difference from the sample as a whole. In this group there is an over-representation of firms focusing on the Danish market outside the Triangle Region.
Group 3: Firms with no innovation and no support The firms in this group are mainly subsidiaries and to a lesser extent owner-managed. In this group there is an over-representation of enterprises with 10-49 employees and 150-199 employees. The group is difficult to position concerning sales. A majority in the group are from the electronics industry. Only a few enterprises are from the Stainless Steel sector.
Group 4: Firms with no innovation but using support Here, all of the 4 firms are stainless steel enterprises. Most of them are in the size classification of 10-49 and they all have their main markets in Denmark including the Triangle Region.
92 As an overview of the four groups’ profiles, the following key-indicators for innovative support recipients can be summarised:
The characteristic target enterprise using support schemes is:
• A subsidiary company of a firm located outside the region • Between 10-49 employees or more than 250 • An enterprise with markets in Denmark - outside the Triangle Region - or in the EU • From the Stainless Steel industry with few exceptions • A high probability that the firm uses more than one scheme • The firm is most probably involved in several innovative projects at the same time • The firm will most probably use one scheme • Knowledge of Gradual Mobility Schemes is very low
4.3.5 Benefits and barriers seen by SMEs in relation to the use of innovation support schemes A number of barriers for utilising the support schemes have been spotted. Some of these barriers are envisaged as external barriers, while others are seen as internal. The internal barriers mainly came up during intensive interviews with key persons from the management of the firms selected for interview. Below in Table 4.5 is the list of barriers based on the questionnaire.
While statement (e) is naturally answered by firms not involved in current innovations, statement (f) is predominantly answered by enterprises with high spending in product innovations (>10 per cent of turnover). Behind a number of these statements and answers from the firms a basic issue turns up. It is the lack of time to utilise the innovation support schemes. In many firms the search for suitable support schemes is considered to be a distraction in relation to the business of the firm. As some phrased it: “You are either profit-seeking or subsidy seeking”.
Table 4.5 Barriers envisaged by the enterprises. Support related to product Support related to process N=141 innovations innovations a. Do not know the support schemes in question 24 21 b. Do not know the demands for an application to go through 16 15 the system c. Support schemes are not understandable 14 7 d. Too demanding to ask for Support 19 8 e. Our firm does not need to Innovate 23 30 f. The support schemes do not match our needs 14 10 g. Other matters 14 14 Source: The Danish SMEPOL Database. Questions 159 and 241.
93 From the interviews with key persons in the enterprises from group 1, 2 and 3, taken from the profile groups mentioned above, a number of managerial barriers for the use of support schemes were touched upon. From the most prominent statements on this issue, a few themes have crystallised:
• Lead-times for new product innovations are very short. Therefore the time used for seeking and applying for support is extremely short. The enterprises do not feel they can wait for approval of applications. (Medium-sized enterprise profile)
• The world of subsidies is a world far away from daily life in a small manufacturing enterprise. Owners seldom wonder if they could or should apply for any support. (Micro/small enterprise profiles)
• In most of the firms, product development is project based. Some support schemes are missed simply because they only take interest if a number of projects together take interest. (Medium sized enterprise profiles – knowledge intensive)
• In a number of firms, management representatives found that there ought to be no support schemes at all. They find that public intervention is reminiscent of a central plan-economy. (Subsidiary Company profiles)
• The administrative rules and routines of our parent company are not compatible with those routines, time schedules and demands set up by supporting authorities. (Medium-sized Subsidiary Company profile – foreign owned)
• It is too bureaucratic to gain support. It takes too long time and documentation demands are endless. It is impossible for SMEs to live up to. (Small enterprise profiles - service)
When asked where they would turn, if they wanted to gain further knowledge of support schemes, a number of respondents did not actually have a ready answer at hand, although a number mentioned the Technological Information Centre in the region.
The follow-up interviews with 12 innovating enterprises using innovation support schemes has been summarised in order to gain an overview of main-stream attitudes on a few key issues inside the theme of regional innovation support. In spite of the barriers indicated above, the overall impression is an acceptance of the need of support systems and institutions.
Out of 12 respondents 10 found that innovation support programmes and schemes were necessary. Nine out of 12 found that the efforts of the Triangle Development Agency were satisfactory and 10 out of 12 enterprises found that the TIC had done a fine job.
94 Table 4.6 Levels of satisfaction with the support system relating to the product innovating activities of 12 firms
1 2 3 4 5 Do not Total Of no use at Not really Useful Very useful Indispensable know all Useful TIC/ 1 1 6 3 1 12 GTS 2 2 General assessment of 1 1 3 3 3 1 12 the industrial support system aimed at firms The efforts of The 3 4 4 1 12 Triangle RDA Total response 2 5 13 10 7 1 Source: Telephone inquiry with 12 innovative enterprises using innovation support schemes. Carried out in February 1999.
A few quotations help to flesh out the picture given above:
• “Industrial support systems are of no use at all. They unavoidably develop administrative routines that are far too heavy and inflexible. The support schemes are too loose and unspecified” • “Industrial support systems are indispensable because they can help small firms carry out some of the unique ideas developed in small firms” • “”TIC does not actually have anything concrete in their programme. They can only guide us to others”” • “We have not used TIC very much, but our experience with them is that they are very professional and deliver a solid service”” • “TIC is useful and near at hand, when we need them”
4.3.6 Regional benefits from the support schemes included It is difficult to find any significant relationship between a firm’s use of support schemes and its innovative activity. Thus, there is no sign of any relationship between firms’ investments in product innovations and their use of support schemes. It is hard to find any relationship between process development and the use of innovative support schemes.
While there is a significant relationship between line of industry and process innovations, showing that old industrial lines are inclined to process innovation, with new lines of industry, like data service, being more oriented towards product innovations, this is not reflected in the support schemes used.
The innovating firms tend to have a positive attitude towards innovation support schemes. The regional TIC is well known and as a regional player it has a solid reputation in the region.
4.3.7 Summing up on the provision and use of innovation support schemes In summary, five major perspectives evolve when the innovation support system is viewed from a regional perspective.
95 • The low level of use of innovation support schemes • The question of support deliveries and the regionalisation of the support and delivery system • The question of the support profile vis á vis the profile of the industrial structure • The question of globalisation of recipients of support • The question of systemic competition and inter-organisational elements in innovative activity
4.4 Technological Information centres The Technological Information Centres (TIC) comprise a network of regionally based advisory-centres. The Technological Information Centres were established more than 25 years ago in order to deliver information services to small manufacturing enterprises and to help small firms in their search for specialised technical consultant advice. The basic idea was to overcome barriers to information flows in order to support technological development and renewal in this segment of enterprises. Over time, the geographical coverage as well as the services provided has expanded.
The TIC network was, for many years,, a part of The Danish Technological Institute (DTI). It was not until the beginning of 1996 that the TIC system acquired a separate legal and economic status in the national industrial support system.
4.4.1 The aim and target-clients of the TICs Today the overall aim of the Technological Information Centres is to support industrial development in Denmark through activities in the 15 regional centres. Basically, this is done by acting as a broker between enterprises and a variety of technical and managerial consultants, experts, laboratories and research institutions of relevance to small enterprises. In addition to this broker function the Technological Information Centres have, over the last 3-5 years, expanded their services into the area of generic advice in a few fields of importance to small firms.
The target group of the TIC network is especially small firms inside manufacturing, with a primary focus on technology-oriented manufacturers and knowledge based service enterprises. Entrepreneurs are targeted as well. Although, generally, the target-group is characterised by small owner-managed firms, a detailed targeting of enterprises and of primary support activities is done by TIC Denmark as well as in each of the regional TI-Centres.
In summary, the activities of the TIC can be characterised as information, advisory and reference tasks of the type indicated below.
1. Information dissemination on matters matching the needs of small-firm development 2. Coaching small firms in the specification and delimitation of problems suitable for technical or managerial advice and support 3. Introductory advice on a few selected issues not handled by other advisors 4. Contributions to regional co-ordination among actors in the consultant and advisory system
The profile on each of the 15 regional centres is jointly formed by the strategic path laid down in the national guidelines decided by “TIC Denmark” and the regional themes, these being decided by each of the regional committees attached to each of the 15 regional centres.
96 The aim of these activities is to 1) expand the level of knowledge in SMEs, 2) to help qualify the management and organisation in SMEs and 3) to foster more efficient production processes.
4.4.2 The present organisation and management of TIC Today the 15 regional TIC Centres, each located in their respective counties, are managed under a joint centre called TIC Denmark. TIC Denmark constitutes the national policy implementing body of the TIC network. The lead is taken by a national council and a board on which industrial trade organisations are represented. TIC Denmark is said to be the “Corporate Management” of the system and is as such responsible for formulating the overall national strategic framework implemented at the 15 regional offices.
A centre manager and a regionally based Centre-committee head the 15 regional centres. The head of each Centre-committee is also a member of the national council attached to TIC Denmark. TIC Denmark is thus concerned with policy negotiations with the national government administration and the development of efficient internal administrative routines and co-ordination inside the network of Technological Information Centres. The TIC network has, thus, a national as well as a regional role to play in the support system (Erhvervsfremme Styrelsen, 1998). It is the task of TIC Denmark to balance national with regional interests in the system.
4.4.3 The role of the TIC system in the national and the regional innovation system The Ministry of Industry has, in a recent report on the future of the TIC network, pointed to four basic roles at the national level (Erhvervsfremme Styrelsen, 1998). They are 1) to act as a general broker of knowledge, 2) to operate national initiatives implemented regionally, 3) to ensure linkage between the national and the regional industrial initiatives and finally 4) to be a unit that gathers regional needs and experiences.
However, this is actually a formalisation of a process in which the role of the TIC system has gradually changed over the years. While the knowledge broker role has been of key importance for many years, a few advisory activities have been added since the TIC became an independent body in 1996. At present the TIC system seems to articulate the need for further self-contained activities.
A recent evaluation has indicated significant variations between the region concerning the scope and level of activities at the Centres. These differences are caused by different regional needs and, not least, by variations in the articulation of these needs (Erhvervsfremme Styrelsen, Evaluation Report, 1998).
Based on an assessment of the performance of the TIC system, it is argued in this evaluation that it might have a positive effect if the number of targeted lines of industries were expanded. It might also have positive outcomes if the number of service tasks provided to the small business community were expanded.
However, the expansion of activities ought to be evaluated not only in relation to needs identified in the national innovation support system, but also in relation to available financial resources and the availability of important free resources needed for tasks specified at the regional level.
97 Therefore, the internal emphasis in the TIC system – as it is articulated by TIC Denmark – of expanding the advisory activities, is basically in conflict with the idea that the regional TICs should concentrate on the dissemination of technological information. The TIC should be responsive to the needs articulated in the small business community regionally and refer to other specialised institutions and agents.
This initiative of expanding activities to new areas of competence has been met with critical comments by the network of local industrial officers interviewed (see interview list in Appendix 4). Their criticisms can be summarised in a short quotation from the chairman of the industrial officers’ joint council:
“Although several analyses have shown that TIC still fails to reach its target group with the basic technological services, TIC is expanding step by step into markets unknown to TIC” (Jørgensen, Børsen, 11.1.99).
There are a variety of actors at the regional level, besides the County Councils, the State, as well as the EU and the municipalities and semi-public regional development agencies – such as the Triangle Region – that operate at the regional administrative level. Formally speaking it is the County Councils that define regional innovation policy – whether it is explicitly or implicitly articulated – as part of the legal regional planning system.
Therefore, the regional position of the Technology Information Centres differs strongly. In some cases the regional centre is a key unit in the regional industrial policy agenda. In other cases major differences are seen among the regions concerning the current use of the TIC system. In counties like Viborg and Sønderjylland the TICs are heavily involved in the implementation of their regional industrial policy launched by the County Council. That means that a number of regional industrial development activities, decided upon in the region, have been out-sourced to the regional TICs.
On the other hand, the counties of Århus and Ribe tend to view the TICs’ support systems as being in competition to activities set up by the counties. The County Council of Århus has, thus, decided not to fund any share of the yearly basic budget for the regional TIC.
These differences indicate strong variations in the level of co-ordination in the regional industrial support system. It also indicates wide differences in knowledge sharing and learning cycles created across public institutions involved in the promotion of regional industrial development.
4.4.4 Current resources and finance In the first phase of the TIC system the individual centres evolved into autonomous units, which were considered to be too strong. There was a lack of joint marketing of the services offered as well as a lack of joint sharing of knowledge and expertise. Therefore, TIC Denmark has been set up in order to facilitate a stronger co-ordination of activities across the regional Centres. The introduction of TIC Denmark has, thus, reinforced the overall strategic planning of the network as well as the profile of the national support system.
98 Table 4.7 Distribution of financial support 1995 – 1998. Shares by contributors. Per cent. 1995 1996 1997 1998 Government 80 81 78 77 Counties 15 15 18 20 Municipalities 03 03 03 02 Users 02 01 01 01 In total 100 100 100 100
Source: Erhvervsfremme Styrelsen, Fremtidens TIC, www.efs.dk
As Table 4.7 indicates the State is a major budget contributor, leaving the County Councils in a secondary and, more often than not, less committed position. At the same time, a review of the TIC system has revealed a shortage of resources. This shortage is anticipated to be stronger if recommendations for a broadening of activities are followed.
As indicated the share paid by the counties differs strongly from region to region.
The support capacity of the TIC network also depends on the financial support provided. As indicated in the table below, government funds dominate in the overall financial composition, which also comprises of funds provided by municipalities and counties, and payments made by users.
In 1998 the TIC network employed a staff of approximately 75 distributed over 15 centres. In 1997 the TIC system was in contact with approximately 6,400 enterprises. This indicates that the TIC system serves in the neighbourhood of 50 per cent of its target-group of enterprises. At the same time a recent evaluation report (Erhvervsfremme Styrelsen, 1998) has stated that the local TICs often are short of resources, in view of the tasks they have in front of them.
This pattern of resource shortage is underlined by the variations in the number of firms inside the target group in the different regions, as indicated in the following figures.
Number of firms Highest: Copenhagen + Frederiksberg (2) 509 per. TIC advisor Vejle county 267 - - Århus county 313 - - Lowest: Bornholm 38 - - DK average 182 - -
So, the service provided is, on the one hand, shaped by the staff at each of the centres - and the population of enterprises in the target group. On the other hand, the territorial size, the industrial composition and, not least, the level of co-ordination activity in the region, influence the service provided.
99 In the Evaluation report (Erhversfremme Styrelsen, 1998) a major emphasis is placed on the lack of human resources at the centres. It is noted that this limits the expansion of the system and the improvements of productivity. Those Centres that want to specialise their services, will therefore find that it takes place at the expense of the diversity of services provided.
4.4.5 The future role of the TIC – back to the region? As a result of the evaluation mentioned, it is advocated that the TIC system expands the group of small firms targeted as well as the type of services provided. In the evaluation it was, however, forcefully argued that the TIC system should not expand its activities unless more financial resources were added.
At the same time it has been advocated that the regional flexibility is reinforced, so that the services of the regional centres can be seen as a part of, or continuation of, the industrial policy of the County Council. Negotiations carried out between the Ministry of Industry and the Union of County Councils concerning the future organisational structure and the financial foundation of the TIC system was concluded in February 1999.
The agreement is that the counties and the State should volunteer to share out the costs of the regional centres on a fifty-fifty basis. The counties have a choice between two models (Erhvervsministeriet, 1999). One is where the regional TIC is contractually associated with the support activities of the County Council. Another model sees the TIC operating as an independent agent as usual, but with a fifty-fifty sharing out of the financial costs. While the focus has been on an increase in resources, the opposite may very well turn out to be the reality. A lowering or even levelling out of the contribution from the county in effect means a lowering of government sponsorship. Basically, this concept signals a change in direction, with the State moving from a pro-active role to a re-active role.
Against this background, there is reason to expect a huge change in the activity profile among the 15 regional TICs in the near future. Some of the regional centres will be integrated on a contractual basis into the County Council agenda, others will continue to have a sort of free hand status, while yet others will experience large cuts in their budgets. The regional centre-committees will probably gain influence, while it is envisaged that the strategic role of TIC Denmark will tend towards crumbling away.
However, opinions are divided in the TIC system as to what is going to happen. Some members of staff believe that TIC Denmark will hold onto a strong role as co-ordinator of joint strategic action of the centres, even though TIC Denmark is not very old. Others find that differences in the programmes and tasks among the regional centres will soon be so divisive that any perspectives of joint strategic action could easily vanish.
No doubt strong changes will take place regarding the learning cycles institutionalised in the TIC system and the way knowledge sharing is handled in the TIC network.
However, the key issue in relation to this study is that while the TIC system, which has been in the second phase since 1996, has been strongly focused on a national coherent strategy, strong incentives now favour a diversified strategic approach as to the role of the regional TICs. Co-ordination across the centres will be weakened because of a diversification in aims and activities. Each centre will be much more responsive to regional support policies and strategies than to national guidelines.
100 TIC Denmark has been a key actor in the promotion of joint action and, not least, in the mutual sharing of concepts and tools in the support work, since 1996. Now the regional centres will be much more oriented to knowledge sharing inside the regional support system. This will also imply a stronger interregional competitive element, although this point may very well be over-stated.
4.4.6 The Technological Information Centre in the Triangle Region The activities given priority at the Technological Information Centre in Vejle, gives priority to those activities which are at the core of the TIC system. TIC Vejle serves major parts of the Triangle Region.
While 55 per cent of the small firms in the target group have used the TIC system once or several times a year, this share is even higher for those enterprises located in Vejle County, according to the national evaluation carried out in 1998 (Erhvervsfremme Styrelsen, 1998). Among the enterprises that participated in the questionnaire survey for this study, only 8 per cent used the TIC, while 40 per cent knew about it. In addition, 12 per cent have entered into a dialogue with the TIC.
Although the difference is highly significant, an interview with members of staff from the Vejle TIC Office reveals that a number of factors do explain major trends in the pattern shown above. The Vejle office has faced a lack of resources in recent years. At the same time, the regional collaboration focus, on how to co-ordinate the industrial support schemes, has suffered from the establishment of two major strategic development alliances in the region. They are the East-Jutland Development Corridor in the northern part of Vejle County and the Triangle Region in the southern part of the county. Both of these regional alliances may be labelled regional development agencies created in collaboration between municipalities inside and on the fringe of the Vejle County. The creation of these alliances has had the effect that the regional dialogue formerly co-ordinated at the County Council level has vanished.
TIC Vejle has focused heavily on the traditional technological services provided by the TIC system. TIC Vejle wants to be a partner in technology knowledge for the small manufacturing enterprises in the region. The primary target group is enterprises between 0 and 200 employees.
Although TIC Vejle does take a departure in the industrial development perspective programme for Vejle County, it is regarded to be of limited value, since it is not a very accurate platform for promotional programmes. However, in this way, TIC Vejle find that they are linked to the industrial development strategy provided by the region.
It is still not clear how the changing financial platform will influence the activities of TIC Vejle. However, it is important to keep existing ties with the national TIC network intact, partly because these ties are essential in order to foster new programmes and tools and partly because the national network is of importance in the efforts to profile the competence of the TIC system. Finally, it is decisive because the national support system is highly complex and sectorially divided. It is impossible for the small regional offices to keep in touch with the many different ministries involved in diverse support schemes.
Also, the discontinuity of government programmes is felt to be high, especially the programmes from the Ministry of Industry, which are changing all the time. One of the bigger, old, schemes was “The Product Development Scheme”. While the Ministry of Industry axed the programme, the idea behind it has been taken up by the Ministry of Agriculture, which still supports product development as well as development of new types of equipment.
101 4.5 The Approved Technology Service Institutes The Approved Technology Service Institutes (GTS) is an amalgamation10 of a huge number of formerly independent research and industrial institutes of service. These institutes still operate as independent “business units” (independent institutions). Following a major period of restructuring there are 14 institutes left today. An overview is presented in Appendix 5.
As a network of public service providers the GTS Institutes and network form an important part of the Danish innovation support system, and, on a wider basis, form an important element in the national innovation system of Denmark. Basically, the GTS Institutes are to be seen as suppliers of knowledge to the Danish business community, i.e. they are essentially seen as transmitting units between the research community and the business community.
However, as indicated in Appendix 5, the GTS Institutes can be roughly divided into two categories, founded on two distinct lines of technology policy.
On the one hand, the development-oriented policy has a major focus on the development of new technologies. On the other hand, the diffusion-oriented policy is preoccupied with the dissemination of technical know-how from domestic and international centres of excellence to relevant segments of users (Chiang, 1991; Christensen, J.F. et al., 1996).
The GTS Institutes are basically private business enterprises with business goals of their own, but at the same time they are seen as public service providers to the business community. It is for this role that they obtain basic funding from the State. This leaves the GTS Institutes – and the whole network as well – with a fundamental dilemma between operating along straightforward business-like terms and their role as public service providers. On the one hand, the Ministry does not want the GTS to earn profits. On the other hand, the GTS Institutes are not allowed to have budget deficits.
Although, as indicated in Appendix 5, the network of institutes provides a wide range of activities, it is not self-evident as to what could be identified as a common denominator for their combined public service function. In the words of Christensen, J. F. (op.cit. p. 10):
“It is not at all obvious that a country should have such institutes. Actually it is only a few countries, which have a similar structure with a network of institutes, which are neither purely market-based nor massively funded by the state.”
Therefore the rationality behind the running of the GTS network has to be found not only in pure economic or institutional arguments, but also in an historical reasoning based on an evolving institutional set-up of a national innovation system.
On the other hand, it has been argued by the OECD (1993/94) that if the government wanted to stick to the public utility function as well as the industrial policy role of the institutes, then the government had to change the balance between public based contributions and commercially based turnover.
10 “Strategic alliance” may be at better term, since these institutes still operate as independent business units. The primary reason why they have created a common strategic ‘umbrella’ was a rising demand from the political system, which provides not only basic funding, but also major shares of the project and programme based funding.
102 4.5.1 The history of the GTS The two different types of institutes, namely, the so-called ATV Institutes and the DTI Institutes, which dominate the GTS system today, have deep roots in the Danish industrial support infrastructure. One type is based on the public research institutions while the other is based on the industrial associations and trade organisations that were newly founded around the turn of the century.
Thus, the ATV Institutes (Academy of Technical Science institutes) gave rise to the Danish Technical University (DTU) in the 1930s in order to provide application-oriented research to the benefit of Danish industry. These institutes were seen as a bridge for the common good between basic theoretical research institutes and commercial interests in new knowledge. As early as in 1946 it was concluded that it was a common task of society to run these ATV Institutes. Therefore, the post-war government concluded the debate by establishing a publicly financed Technical-Scientific Council. Although the activities were most often privately financed through client fees and private funding, the latter was slowly taken over by the State.
In contrast to the ATV Institutes which were born in a supply-push manner, the Danish Technological Institutes (DTI) arose out of needs articulated by the industrial trade organisations and craft guilds at the beginning of this century. The Technological Institute (TI) was born in 1906, while the Jutland Technological Institute (JTI) came into being in 1943. For many years, they were financed wholly by the founding trade organisations and their member-enterprises.
The Technological Institutes were seen as in-service training centres for the skilled labour and technicians, so that major parts of the activities were training and in-service courses. Gradually, more related service and advisory, as well as test and control, activities were added.
Historically, public involvement in the technical institutes may be divided into two phases. From 1946 and onwards the State expanded the amount of financial support it provided. In the beginning of the 1970s the public contribution was between half and two-thirds of the turnover of the institutes (Christensen, J.F. et al., 1996, pp. 33).
From 1973 and onwards the State has taken a major interest in:
A. The co-ordination of the technology institutes and their activities B. The integration of the activity profile of the institutes into the industrial policy of the State and, finally, C. Bringing about a structural rationalisation of the system in order to make it more visible, more responsive and involving the creation of more powerful units
103 Later on in the 1980s a majority of the institutes have demonstrated a growth in their commercial activities: a growth, which without doubt, is linked to a fall in public funding. So, although the GTS network is still characterised by two basic types of institutes, namely, those institutes that are primarily oriented to applied research and those mainly dedicated to diffusion of knowledge, there is reason to make a distinction among a wide variety of tasks. The institutes are modelled in terms of four major types (Figure 4.1) where the different activities and tasks are shown so that their inter-linked character is visible. The links between related activities is a mean of gaining access to clients and to generate new technological service business with established clients. Testing and controlling activities tend to foster advisory as well as education tasks. On the other hand, advisory tasks may also foster standardisation, as well as test and controlling activities. In turn, these activities may also foster applied research, but it is open to discussion as to what extent that it is likely to happen in reality.
In their assessment of the GTS system Christensen, J.F. et al. (1996) envisage a tendency of convergence in the sense that the DTI institute has taken on a technological advice role, which to a large extent has superseded the original in-service training activities. Also, applied research has been added.
At the same time the ATV Institutes no longer have such tight linkages to ground research in their former mother-institutes. They have slowly oriented their activities towards applied research and development as well as technical advice related to these areas of key competence.
One could argue that this tendency to convergence – as far as it has gone – is strongly influenced by Danish traditions.
Figure 4.Fejl! Ukendt argument for parameter. Activities and activity interdependencies in technological services.
Activities with a bridge to
Applied Science Research & Dev.
Test Advisory & & Control Education
Standar- disation
Source: Based on Christensen, J.F. et al. (1996).
104
In Denmark the technology policy has by tradition been highly oriented towards diffusion of knowledge. This is no doubt explained by the strong element of small enterprises – or rather the lack of large scale conglomerates. Therefore the GTS network is often seen as having a semi-public staff function, which is mending the organisational failures of a small enterprise structure. This line of argument is often supplemented by the so-called small country squeeze argument: an argument where a small open nation, such as Denmark, has some fundamental competitive disadvantages related to commercial thresholds in the provision of specialised technological services on a commercial basis.
Therefore, it is argued that we need a system built on a mix of market incentives and public regulation. However, the way the GTS network is run leaves it with some overall dilemmas in relation to the support of the innovative potential of the small business community envisaged. These dilemmas may be summarised in the following points:
• The tension between a public service oriented focus on small business needs and commercial interests mainly sustained by LEs • Competitive distortion fostered by public funding and publicly formulated supply constraints • The balance between technology development and technology diffusion • The question of primary target groups based on market and public service rationales • The interplay between the GTS Institutes and the research institutions • Small clients in a small market versus foreign activity expansion based on public funding
4.5.2 The present organisation and management of the GTS The OECD evaluated Danish research and innovation systems in 1994. Based on this evaluation, the course of the technological service system was altered. The OECD examiners pointed to the vital function of disseminating new technology to SMEs. Following OECD advice the public funding of the GTS system was expanded. The aim is to level out at 20 per cent of the turnover of the GTS system (Erhvervsfremme Styrelsen, 1998).
Secondly, a new legislative basis for technological service was established with effect from 1996. Since 1996, a Council for Technology Services has headed the institutes. The council includes government officials, representatives from user-organisations and the institutes. The role of this council is – by and large – to monitor State funding, implement external evaluations and to serve as a strategic guide based on the public service functions ascribed. It was not until 1998 that the council launched a strategy for technological service (1998-2001) and its co-ordination.
This strategic proposal is built on a vision that enterprises in Denmark shall have access to a technological service system that is among the best in the world by the beginning of year 2000. This includes the following critical issues:
• A high level of relevant competencies • Effective communication of knowledge • Clarity and easy access for the users • Effective management and use of resources
105 Based on such general points of benchmarking, the strategic action is stated as follows:
• GTS as a focal point in the knowledge system in Denmark • Greater dynamics in the technological service • Focus on the needs of SMEs • More resources for technological service • Increased prioritisation of technologies • Increased focus on internationalisation in the GTS network
Although small firms are in focus in the stated strategic proposal, no suggestions for strategic action are outlined. It is recognised that access to technological service is of importance to small firms in order to safeguard their technological competitiveness. It is also recognised that the GTS network will seldomly be a prime service-partner for innovations in small firms. The GTS network is rather seen as a supplier of technological service for the process of renewal in products and processes in small firms.
A target group selection seems to be implied in these formulations, namely, that the prime target group of small firms will be those small firms actively engaged in innovative activities. On the other hand, it is recognised that barriers exist inside the GTS network as well as in small firms for the use of technological services.
On the GTS side, barriers exist because the GTS Institutes see larger firms as more profitable clients than small firms. On the other hand, explanations given for the SMEs’ barriers evidently tend to be repetitive. The major barriers outlined are:
• Small firms’ poor ability to utilise technological services • Small firms find that the transaction costs connected to the utilisation of technical services are high • Prices for technological services are considered too high
To this list, a few tentative suggestions founded in the theoretical perspective adopted here, may be added:
• Small firms’ owners do not have – for many reasons – a friendly attitude to the public sector. This general antagonistic attitude may also influence the attitude towards technological services • Small firms need a high level of trust with people from other professions. Therefore, it is of critical importance that technological services for SMEs are based in close proximity. In addition, the building of personal relationships between the consultant and the owner is often of prime importance. This is indicated by the high level of second order consultant services provided to small firms • Small firms are often based on values and life styles, which differ strongly from those in the sphere of the public sector or the corporate culture. Small firms’ management often live in another world of problems than those touched upon by the system of consultancy. For example, a world where time is a more critical issue than money. Daily matters are prohibitive for long range strategic action. The way of thinking is often closely linked to daily business matters.
106 4.5.3 The role of the GTS system in the national and the regional innovation system As indicated, the institutions in the GTS system are old actors in the national innovation system. As such, they also form an integrated part of the “national system of innovation” in Denmark. The dilemmas touched upon above are not new – although they have been more visible. But through their general activity record they have also institutionalised the way in which technological service is organised in Denmark.
It is reasonable to make a distinction between the role attached to the GTS Institutes by the national political system, the regional policy system and the images provided by the institutes and the role implemented through their activity patterns. The role of the GTS network is predominantly seen in a national innovation system perspective – although there is a tendency to focus on the international profile and activities. Seemingly, scale of economics in consultant services is seen to be of importance.
There is a need for a differentiated strategy of internationalisation, since highly specialised services – not least those involved in the development of new knowledge – are anticipated to face severe thresholds for survival in Denmark alone. However, this is not necessarily the case for generalist services crossing several lines of business. Since these types of services also seem to be of importance, especially for SMEs, it is found of critical importance to open up the domestic market for such services.
The role of the GTS Institutes in the years to come is treated in a strategic white paper (Erhvervsfremme Styrelsen, 1998). The role of the GTS Institutes and their envisaged strategic action for the next 3 years (1998-2001) is based on an assessment of the challenges currently faced by the national production system. This assessment is intimately linked to anticipated trends in the international production environment. It can be summarised in four basic points:
• A change in the manufacturing industry is still underway. It is a trend towards a high technology and knowledge intensive production • The information and communication technologies are in a phase of remarkable growth. They are embedded in more and more sectors of the economy • The service sector is still a high growth sector. It is in a process of rapid changes • Globalisation. Physical, technical and administrative barriers for international interaction are removed
Based on this it is argued that the focus of industrial policy is changing, because it is seen to be important to improve the national system of innovation. Denmark is seen to be one of the first countries opening up this perspective in national industrial policy. Access to knowledge is regarded as a key policy area of prime importance. This is seen to be the basic agenda facilitating the key importance attached to the technological service system.
“Knowledge based” competition is seen to be key in national competitiveness in the years to come. The implication is an upgraded ability to create new knowledge; a strong ability to promote new knowledge and the ability to implement new knowledge in the enterprises.
On the other hand, the Council for Technological Service envisage two scenarios for the technological service system in Denmark.
107 In the first scenario, an “unintended liberalisation” will take place. In this scenario it is anticipated that a radical reduction in public support will take place. The resulting outcome is that the smaller and weaker institutes may close down. Others may have to focus on extremely short-run commercial opportunities. Larger institutes may find it opportune to break out from the network. In most countries in Europe technological institutes are included in the national system of innovation.
In the second scenario, a deliberate liberalisation is seen to take place. The amount of public support is reduced. Therefore the benefits from this support are ceasing to be in equilibrium with the obligations. Therefore, the institutes are being hampered in their commercial activities by the public utility demands forced on them. The growing commercial orientation may undermine the basic rationale behind the GTS network.
Based on these two scenarios a third one is proposed. Here, the intention is not to remove dilemmas and contradictions built into the system. The plan is, rather, to manage them and to foster a more viable vision for the system. The vision is that Danish enterprises shall have access to a technological service structure among the best in the world by the year 2000. The role envisaged is that the specialised fund of technological competencies possessed by the GTS Institutes will, in the future, also form a bridge between research undertaken at universities and technical universities on the one hand and the business community on the other. Only a few firms are capable of using new research results directly. Therefore, the GTS is regarded as a fundamental unit in the Danish innovation system.
The Council for Technological Service envisages 6 strategic areas of effort:
• Position the GTS Institutes as cornerstones in the Danish knowledge system • Enhance dynamics in technological service • Focus on SMEs • Increase resources for technological service • Give a stronger priority to new technologies • Focus more strongly on the internationalisation of the GTS network
Source: Erhvervsfremme Styrelsen, 1998.
Although the present focus on SMEs may seem new, this focus is actually a basic part of the “institutional heritage” of most of the GTS Institutes, not least, the Danish Technological Institutes, since State support – and thus the public service element - evolved in the post-war period.
Over the years a huge number of evaluations and assessments have been undertaken, documenting barriers in reaching SMEs with technological services and providing solutions to the public service gap. See, for example, evaluation reports from Hassink (1996) and OECD (1993).
A recent study of the collaborative pattern of innovative enterprises (Madsen 1999) has indicated that almost all enterprises engage in collaboration in support of their product development. However, when it comes to a firm’s collaboration with technological service institutions, then the study shows that small firms collaborate far less than do larger firms.
108 Figure 4.Fejl! Ukendt argument for parameter.. Share of enterprises collaborating with suppliers of technological service in relation to product development. Size distributed
109 by number of employees.
Source: Erhvervsfremme Styrelsen (1998): Strategy for Technological Service, Council for Technological Service, 1998-2000, pp. 17.
In the latest evaluation from 1998 (Erhvervsfremme Styrelsen, 1998) it is noted that firms’ knowledge of the GTS Institutes varies substantially. The TI is known by more than 90 per cent of the enterprises, while the majority of the institutes are known by less than 40 per cent of the enterprises questioned.
Based on data in this evaluation, the Council for Technological Service plans to focus on SME access to the network. A number of empirical studies are planned in order to clarify the barriers preventing a proper use of the network and to see if the services supplied are satisfactory in relation to the claims imposed on the technological service.
A number of strategic points of measurement have been proposed. They range between: 1. Assessments of the enterprise satisfaction levels with the technological services and the service system 2. The number of service collaborations carried out inside the scheme of reduced introductory prices 3. The share of turnover generated by SME clients 4. The number of new SME customers per year
4.5.4 Current resources, finances and activities In 1997 the total staffing level of the GTS network was approximately 3,000 employees. In the same year, 62 per cent of the turnover in the GTS network was generated through clients and projects in Denmark, while 25 per cent was generated through clients and projects abroad. The remaining 13 per cent came from basic public funding. Partly as a result of the OECD assessment in 1993/94, a major expansion of public spending was granted in 1995 and the years following. It was provided partly in the form of basic funding and partly via subsidy schemes, directly focused on two of the strategic issues listed above.
Figure 4.3 Public Funding for technological service 1993 – 2001 (DKK mill. - current prices)
110
Source: Erhvervsfremme Styrelsen , 1998, pp. 21.
The funding of centre contracts is a new instrument with the aim of fostering a tighter collaboration between research, advisory and client enterprises (the strategic issue of position in the knowledge producting system). In 1997 a new, lower, tariff was provided, acting as a refund for introductory services to SMEs (the strategic issue focused on SMEs). An overview is provided in Figure 4.3
As indicated, the level of yearly basic funding has been between approximately DKK 250-300 millions in the years 1995 - 1998. This level of funding is related to an aggregated turnover for the entire GTS network of DKK 1.8 billion per year.
As the figure reveals, cuts in public funding are again part of the policy agenda from the fiscal year 1998. The composition has also changed, so that basic funding is substituted with performance oriented funding.
4.5.5 The future role of the GTS system
111 Basically, the GTS network is seen to be in a key position in the Danish national innovation system. This position is linked to the importance attached to the knowledge competitive economy and thus the growing importance placed on the application-oriented linkages between research institutions and the business community. The growth in the level of research is also fostering a growth in the need for institutions capable of diffusing and transforming this knowledge to meet the needs of the business community. It is regarded as an important issue to bridge the gap between the research community and the business community. This is not least the case for SMEs.
The ability to serve the small business community with technological services is thus a key to the future for the GTS network. The issue has been put at the centre of the strategic agenda, and at the same time public spending seems to be tied up very tightly to this issue in the years to come.
However, as the previous sections have indicated, the GTS network also has a severe and seemingly persistent problem of promoting their technological services to the small business community.
As illustrated, the Council for Technological Service envisages a number of issues in this respect. Among the issues addressed are barriers in the individual enterprises for the use of services and barriers related to price and knowledge of the services provided.
The barriers faced in reaching small enterprises with technological services are a persistent problem. Several solutions have been proposed over the years. None of them seem to have helped solving the problem in a sustainable manner.
Therefore, from the perspective of the conceptualisation of innovation put forward in this research, a number of additional issues raise concern about the way the small business community is approached.
• The technological services tend to be understood within a linear perspective, in which the GTS institutions transform research into practical development contributions, and thus feed the innovative activity of the individual enterprise in the business community. • Therefore the practice of technological services may benefit from assessments of how to approach firms linked in their innovation process through local clusters, value added chains or networks. In some cases, innovation in SMEs is strongly related to the innovative activity of suppliers of equipment and tools, or components, or related services such as design, software, etc. Very often innovative activity is embedded in specific projects and the enterprises joining the project. In other cases, small firm innovation is highly related to that of customers, whether small or large. • Small firm use of service and advice is in general influenced by the proximity of those delivering the services. Relationships based on personal contact and a tacit network of recommendations and warnings in the business community must be considered to be of importance. • It is thus remarkable that the Council for Technological Services has not in any instance addressed a number of issues related to the functioning of the regional innovation system. • While the TIC system is caught in a dilemma of regional versus national programme co-ordination, the GTS system is much more caught in the dilemma of small firms’ needs and the market-based turnover from large clients, i.e. a position between a market actor among others and a public service organ. • Therefore the national/international client issue tends to overshadow the issue of a regionalised technological service system. Most respondents approached tend to disregard the regional issue as a relevant issue with the argument that the service units will be too small. If every region is going to have a service-centre then the GTS system will lose economies of scale as well as of scope.
112 • However, the policy of institute location in relation to strongholds and clusters of relevant client enterprises seems to be absent. It seems to be of major importance to assess how a stronger co- location with relevant clusters of lead-users may influence not only the use of technological services but also influence the development of services as well as the service profile of the relevant GTS.
4.5.6 The regional profile of GTS exemplified – TI Syd In order to study the role of the GTS Institutes in the study region, the Technological Institute in Vejen (TI-SYD) has been chosen for in-depth interviews11.
The establishment of a Technological Institute in Vejen – one of the eight municipalities joining the Triangle Region – is seen as an exception to the mainstream policy realised by the TI, namely, to concentrate divisions and activities on the two major urban areas (Copenhagen and Aarhus). DTI-Syd in Vejen was founded in 1989 as a result of strong lobbying from the County Council of Ribe and the Municipality of Vejen in collaboration with a newly established semi-public natural-gas supply corporation established in the area at that time.
For many years the initiative was considered to be of a temporary nature. Thus, every year TI-SYD had to prove that they could contribute with positive results to the TI corporation. It was not until 1998 TI- SYD was accepted as a business unit in line with the other ones in Copenhagen and in Århus. The implication is that TI-SYD now gains a share of the basic funding provided by the government every year.
TI-Syd is a unit in the division called “Business and Enterprise Development”. TI-Syd has tried to create an independent profile inside the DTI as well as in the division. This profile is based on the image as a regional player.
TI-Syd consider themselves as a window for the DTI to the southern region. They are highly focused on SMEs, which stems from the high number of SMEs in the region. The primary target group of enterprises is defined as “SME manufacturing enterprises and technology based enterprises in the service-sector” (Dansk Teknologisk Institut, 1997).
In 1998, the TI-Syd had a turnover of DKK 13.5 millions of which 21 per cent came from basic funding. Out of the remaining 79 per cent of turnover, 80 per cent was generated by SME clients. More than 60 per cent of the SME clients are located in the Triangle Region.
The aim is to keep a high level of customer-awareness inside the primary target group of enterprises in the targeted regional market area (the 3 counties: Ribe, Vejle and Sønderjylland). A market analysis carried out in 1997 indicated an awareness level of 55 per cent growing from 46 per cent in 1996. Training and education seem to be activities of high value to awareness.
11 An interview was conducted with a chief consultant and the managing director of the TI-SYD in Vejen.
113 Their services range from “Human Resource Development”(HRD), technology management services, quality management and assessments, certification projects, and technology management through to individual development projects tailored to meet the needs of a single, a few or a group of enterprises. TI-SYD also refers to other more technical units located elsewhere within the TI Corporation.
In order to serve SMEs in an economical feasible way and in a solid competent way, the TI-SYD often joins forces with other regional players, so that projects and services serve “two or even three masters”. In this way, TI-SYD weaves national and international programmes with the policy agendas’ of different regional actors.
It is thus key to the strategy of TI-Syd to integrate resources from different regional, national and EU partners in order to meet the needs articulated in the region. Often these needs are also integrated. A case in point is when local labour market authorities want to train the unemployed and SMEs are in need of specially trained employees.
In order to work as an integrating service institution as outlined, TI-Syd is eager to mobilise and serve the regional County Councils along their regional business policy lines. But this has been shown to be a difficult task. Several reasons are given for this:
• Political priorities in the three County Councils in case (Ribe, Vejle and Sønderjylland) are highly diversified • The County Councils have different strategies, which is measured by manpower and money set aside • Finally, the counties differ in their approach to the out-sourcing of activities and thus the attitude towards “strategic alliances” in the execution of regional development policies
The “STAR project”12 is seen as a good example of an ambitious attempt to integrate regional actors and mobilise resources in the regions to the benefit of regional business development. In STAR the concept is to activate financial resources in the possession of large institutional investors and combine these resources with a professional board and management competence. A third element is the consultancy- based management coaching of SMEs tendering to join STAR. The idea was to coach SMEs with a growth potential. It was not possible to come through with the concept of STAR, seemingly because the counties did not want to leave the initiative to external agents. The County Councils tend to be on guard towards each other when it comes to collaborative ventures.
TI-Syd collaborates extensively with the Technological Information Centres in the regions and also with, for example, the regional labour market authorities.
4.5.7 Summary and conclusions on GTS The GTS system is a cornerstone of the Danish innovation system, due to its broad range of services and its capacity to transfer basic research into applied consulting and technological services. The GTS network has for many years experienced problems with gaining access to SMEs.
As pointed out in former sections, proximity between executing support institutions and client enterprises is regarded as important for different reasons.
12 STAR stands for Strengthening of Regional Development (Sydjysk Teknologisk, 1994).
114 The most prominent (i.e. most cited) and continuously seen arguments for proximity, is that small firms’ use of knowledge and support institutions is closely linked to the local presence of the service system13. A countervailing argument put forward is that it is not possible to locate institutes in all regions and that there is an in-build dilemma between proximity on one hand and size and economies of scale and specialisation on the other hand.
This argument seems to contain the point of view that the technological service system stands outside the regional innovation system more than being an active part in the profiling of the system. However, the proximity argument runs much further than that of individual SME managers’ ability to overcome distance. Along an interactive exchange perspective it becomes obvious that the presence of technological service is not just a question of proximity to individual enterprises. It also has to be looked upon in a wider perspective, as a way of embedding the service-system in the local business community through exchange processes and thus shaping it to meet the needs articulated in the regional hinterland. Just as there is a heavy element of tacit knowledge in the competence building of individual enterprises, there is a strong tacit element in the creation of, and the implementation of, technological services.
Technological services to SMEs are not just a question of delivering a pre-produced package. It is a result of an iterative process of mutual learning. Virtually speaking the service product is produced in interaction with the client. The client is a co-producer. .
GTS staff learn about the tacit needs in the system of SMEs and the potential client enterprise learns about the elements constituting different types of services. The activities of TI-Syd located in the Triangle Region provides a good example of the dilemmas and the attempts to overcome them.
This study has thus revealed that the relevance of proximity seems to be a more wide-ranging concept than reflected in known traditional conceptualisations.
Reasons for proximity emerge as:
• The service institution gets a feeling that “it is in the air”, i.e. a feeling of what is going on inside the technological as well as the collaborative regime (or regimes) institutionalised in the area • Smooth interaction with local enterprises holding different positions in the regional production system and also with other supporting institutions, actors and regional development agencies as well as regional policy systems of relevance to the formulation of innovative policies • Joining the building of social capital around specific areas of competence • Repeated exchange and adaptation processes lead to a learning process between the network of clients and the service institute. This is part of what some authors label localised learning (see, for example, Malmberg and Maskell, 1997)
13 An experiment and an assessment in the region of North Jutland carried out as early as in 1979 showed that awareness and use of the technological service system could be improved significantly if proximity was provided for (RINA: Regional Indsats i Nordjyllands Amt. Erhvervspædagogik, DTI, København, 1979).
115 4.6 Development Companies and Venture Capital The main point of departure for the Danish government’s policy, with regard to the provision of capital, is that all firms should have access to the required financial resources, irrespective of the stage of development of the individual firm (Erhvervsministeriet 1998, p. 215). The crucial problem in Denmark is very often that capital is averse to risk-taking, and that market failure in capital markets prevents risk- willing investors from finding the businesses and industries with innovative potential. Three barriers are identified (Erhvervsministeriet 1998, p.216):
• Weak competence of investors with risk capital • High information and searching costs for investors • Lack of openness (low-information culture) in firms
In this field the main purpose of public policy is to help to overcome the above mentioned barriers without creating new sticky structures preventing future flexibility. With regard to competence and information, the public sector involvement has to be limited in time to create a sustainable system of innovation and development.
Public involvement in the provision of risk capital has been based on the Development Corporations (Udviklingsselskaber) and The Growth Fund (Vækstfonden). The last instrument is the so-called “Mezzanin-capital” framework, aiming to provide reasonable loans without having influence on business policy. The goals for all three programmes are to increase the availability of venture capital in the innovative sectors. The first two funds are operating in the same area.
The main purpose of The Growth Fund14 is to support development proposals in the fields of:
• Research and Development Project loans with up to 45 per cent of the project costs • Competence Development within the Firm loans • Market development support, i.e. loans for international export promotion
Other areas of action are subsidies for pre-feasibility studies and projects, guarantees for development projects (only used to a rather limited extent, since the loan facilities mentioned above are more popular) and, finally, managerial advice (Erhvervsministeriet, 1996).
The OECD review from 1995 reported that in the summer of 1993 the Fund had already supported more than 100 projects and 107 enterprises. In that year 49 per cent of the financial support was given to SMEs with less than 50 employees. It has not been possible to gain accurate information in order to make a similar assessment for 1997 or 1998.
However, Table 4.8 shows a time series of key indicators from the ordinary activities of The Growth Fund.
14 The Growth Fond was established in 1992, because The Market Development Scheme, The Product Development Scheme and The Industrial Research and Development Fund all were closed down in 1990. A funding vacuum was the result (OECD, 1995).
116 Table 4.8 Lending Activities, No. of Projects and Applications. 1993 – 1997.
Total 1997 1996 1995 1994 1993 Approved projects, No. 786 116 144 139 208 179 Utilised projects, No. 683 100 122 122 181 158 Projects refused, No. 116 23 16 25 11 41 Approved projects, DKK mill. 1,573.0 259.1 361.2 327.4 292.9 332.4 Utilised project, DKK mill. 1,409.5 246.9 337.8 319.2 227.2 278.4 Projects refused, DKK mill. 219.8 131.3 20.2 14.0 10.9 43.4 Incoming Quick Contacts, No. 2,694 446 452 480 497 819 No. of applications 1,585 228 232 307 369 449 Source: Taken from: The Yearly Record and statement of account for The Growth Fund, 1998 (www.efs.dk).
As Table 4.8 reveals, the number of applications have decreased, as has the number of incoming contacts to The Growth Fund. Also, the number of projects approved have decreased over the years as have the number of refused projects.
All in all the figures give the impression that The Growth Fund has more equity funding than new ideas and clients. Seemingly, it is a persistent problem, since the same point had already been made by the OECD Commission in 1994. In this report the respondents are “indirectly” prompted to question the need for new funding facilities such as the development institutions proposed in 1993 (OECD, 1995, pp. 93).
It is no doubt against this background that a reaching-out project was initiated under the name “The Regional Window of the Growth Fund”. In this pilot project two advisors visit high technology SMEs with risk-oriented projects.
The primary aim of the Development Corporations is to promote growth and development in SMEs, by helping them access to competence, responsible and risk-sharing capital to the benefit of employment and a sustainable development of society.
Today 19 Development Corporations are at work. Some of them have taken on a regional profile as “The Storstrøms Regionale Udviklingsselskab A/S” and “Midtjysk Udviklingsselskab”. Others have taken a sectorial profile, focusing their insight, expertise and financial capital on specific lines of industry. Yet others are more general in character.
The development corporations are to a certain extent covering the same area as The Growth Fund. Therefore, the Danish Ministry of Trade and Industry has announced a merging together of The Growth Fund programme and the first one. The main difference until now was that the Development Corporations were active investors participating in the day to day management of the firms. This is considered to be mainly an advantage (providing access to network and knowledge for new or innovative firms). But very often this active involvement is received with some reluctance too, since the entrepreneurs fear losing influence on their own businesses. The latter problem is, to some extent, solved by the provision of the so-called “Mezzanin loans”, not requiring direct influence on business policy and with an interest burden linked to the earnings of the firm.
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All three measures are characterised by a significant level of public involvement with regard to covering commercial risks. In this respect the so-called benefits - or expected positive externalities - are the driving force of the programme rather than commercial profits. Public involvement is also the main difference compared to the emerging private venture capital industry in Denmark. The managerial and economic engagement is, in many respects, of a similar character as the activities of the Development Corporations (in casu membership in the board and shareholder in the firms). The latter has of course a wider commercial perspective, but still some – if not most - have explicit technological and innovative preferences in their investment policy (interview with Thyge Korsgaard, Dansk Erhvervsinvestering, February 1999).
Seen in relation to the regional innovation system of the Triangle Region two major problems seem to dominate. The first problem is that none of the Development Corporations have chosen to locate in the area or to include the area in their profile of the Corporation. The second problem is that none of the interviews with the regional policy and advisory system nor the interviewed development agencies or local industrial offices seem to have any tight collaborative bonds or initiatives with any of the Development Corporations.
4.7 The Regional Policy Frame In this section a short complementary overview is provided on those regional actors taking responsibility for the formulation of regional industrial policy programmes. Information is based on written programmes provided as well as talks with staff from relevant organisations.
The aim of the regional innovation policy focusing on SMEs is to frame all those parameters in and outside the region that promote or stimulate the innovation of SMEs.
A number of actors on the regional stage are in a position to influence regional innovation policy. Therefore the co-ordination of action and of institution building and practices is of central importance. It is not possible – like in normal policy making – to point out only one instance of policy making. Regional innovation policy, and thus the system, has to be seen as evolving through an interplay of more or less influential actors. The regional innovation support system is thus shaped by regional innovation policies – their degree of integration and the degree to which they are antagonistic.
Although many actors have influence on policy, the County Councils are in a central position, since they are the formal administrative units. As indicated in former sections, the Triangle Region crosses three administrative regions, namely, the counties of Vejle, Fyn and Ribe. Therefore three regional industrial development programme areas cover the region. At the same time the Regional Development Agency called “Trekantområdet Danmark” has launched a programme. This programme was created to make a strategic alliance between the 8 municipalities forming the RDA.
Below, these programmes and the strategies behind them will shortly be commented upon. The aim is to provide a short overview of the following basic issues:
118 • How are the innovative activities of SMEs addressed? • How is the strategic role seen and taken to be in respect of the formation of a regional innovation support system? • To what extent do the regional actors address the strengths and weaknesses in the regional production system in the light of the evolving knowledge society? • How is the co-ordination of support activities organised among regional actors?
Regional industrial development programmes of the County Councils The County Council of Fyn and the County Council of Ribe each comprise one of the municipalities joining the “Trekantområdet Danmark”. The County Council of Vejle comprises 6 municipalities.
While the County Council of Vejle has launched plans aimed at promoting industrial development, this is not the case in the County Council of Ribe and Fyn.
In the case of Ribe, interviews revealed that no industrial development strategy has been drawn up and that the activity of industrial promotion and development is not considered as a first priority on the agenda of the County Council15. This is reflected in the organising of activities, since responsibility for, as well as the implementation of, activities has been placed with the Technological Information Centre in the county.
Against this background it is fair to say that the issue of SME innovation and knowledge building is not addressed in the activities of the County Council of Ribe.
In a similar way, the County Council of Fyn has out-sourced the monitoring and execution of industrial development and promotion activities. In this case the task has been out-sourced to the Industrial Council of Fyn, which is a semi-public development agency. The Industrial Council of Fyn has launched a “Vision 2000 – I and II” programme. Vision 2000 consists of two short pamphlets. In Vision 2000 I (p. 6) the strategic situation is sketched out. In Vision 2000 II the different activities are briefly outlined (p.7).
In Fyn a programme of co-ordination among local industrial offices is sketched out. Vision II also sketches out a plan to support collaboration among a number of small consultant enterprises in order to make their services more visible to other SMEs in the region.
The County Council of Vejle has placed industrial development activities in the hands of the central administration of the County Council. It is headed and monitored by representatives from municipalities, industrial offices, educational institutions and the two wings of the labour-market: the enterprises and the labour unions. Also a number of State institutions are represented.
A yearly strategic plan framing the industrial promotion activities of Vejle County Council has been available since 1996. The yearly plan for 1997 and 1998 consists of two sections.
15 Interview with Karsten Lund, Ribe County Council.
119 A short overview of the basic conditions and the strategic intent is provided. It is emphasised that the framing policy is to co-ordinate the activities of the County Council so as to contribute to the development of the private business sector. It is emphasised that the task is to improve the interplay between public County Councils and the private sector.
The strategy is built around four basic themes: 1) Ordinary activities - designed to promote industrial development in the region. 2) Initiatives promoting collaboration between third party actors. 3) Supporting industrial service activities like TIC, Industrial Design Forum and the EU co-ordinator. 4) Promotion of methodologies and activities inside the County Council that will help promote industry. In respect to the themes discussed in this evaluation, theme 2 and 3 are the central ones.
In both 1997 and 1998 a theme was selected as the central focus of the programme. In 1997 it was the theme of entrepreneurship. In 1998 it was the theme of industrial design. In both cases a number of seminars, workshops and training activities were supported.
In addition to these themes a number of programmes and projects of relevance to SMEs and their innovative activities are sketched out below:
• European Union Advisory Service helping firms to find relevant projects and support. Complementary to similar activities at TIC and industrial offices • Consulting network. A network of small knowledge based advisory enterprises in the region. The intention is to promote the use of experts in the region • Collaboration between research institutes and enterprises. Thematic seminars and workshops • Regional forum of inspiration – a meeting point for firms and educational institutions • Regional collaboration on HRD and training in SMEs. Collaborative venture, which builds on resources from a national programme. A network of SMEs will define the types of training to be designed in order to meet their needs • Ecological Food-processing. A network based initiative on product development
As this list demonstrates the County Council of Vejle has launched a number of activities and projects with the aim of promoting SME knowledge acquisition and to promote innovative activity in the region.
First of all the implicit strategy is to support indigenous enterprises by means of “soft” policy instruments. Also the interaction and collaboration among actors in different knowledge and resource positions are promoted.
Although a number of initiatives address the issue of innovation and knowledge building in SMEs, a regular strategy for innovation support activities is missing in the yearly plans for 1997 and 1998. Therefore, any influence on the regional innovation support system tends to be fragmented.
The lack of strategic focus may be illustrated by looking at the programme for promoting a network of independent, freelance consultants. In this programme consultants of all types and with varying attributes are invited. Bessant and Rush (1995) make references to such initiatives in other countries. They note that is important to realise that a selective process is needed in order to match consultants and users so that they can advise on, say, new technologies. Consultant training is needed, because many consultants are not used to advising SMEs.
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The lack of focus is also reflected in the sectorial strategy. In the written plan there is no discussion of the sectorial strengths and weaknesses in relation to the approaching knowledge society. There is no discussion about which sectors or enterprises get – or do not get – priority. Therefore, the issue of promoting new lines of industry or where to rejuvenate existing lines of industry is not touched upon. The promotion system seems to favour the support of SMEs, but nowhere is it stated how to promote the existing SMEs in the region.
The policy can be said to be integrative, i.e. it draws on a broad range of policy instruments. However, it is not integrative in the sense that there is a comprehensive policy for the integration of external resources and projects – national and EU - around selected focus points/activities in the region. Such policy initiatives could be key to the expansion of resources.
The issue of a bridging institution in the transfer of new technology ought to be addressed in a regional context. Although The TIC Office in Vejle was in support of it, it is not mentioned in this connection. An important aim in the regional innovation support programme ought to be the provision of stable and well-established relationships between small firm owners and consultants in new technology. It is important that this encourages learning processes in the SMEs so that they gradually improve their way of selecting, negotiating, implementing and following up on new technology projects.
The development of management practices in SMEs related to the introduction and use of new technology is key to releasing their innovative potential. The issue is relevant in the context of improving a user’s capability to utilise the innovation support system.
As touched upon, the regionalisation of the TIC offices was agreed upon recently. The implication is two-sided. One aspect is that the centre-council and the County Council will gain influence on the activity profile of the TIC. The other aspect is that the County Councils have to pay more money in order to balance State funding.
However, interviews with staff from Vejle County Council’s Development Council, as well as with staff from Ribe County, have revealed that the influence on the County Council co-financing is unpredictable16.
Ribe County Council has decided to close down co-financing, which will result in a close down of the Technological Information Centre in the county of Ribe. The result in Ribe county is thus directly against the intentions behind the agreement reached between the Ministry of Industry and the Union of County Councils in Denmark, as mentioned in section 4.4.
The regionalisation of the TIC is seemingly also influencing the level of activity in Vejle TIC, which covers the Triangle Region (6 out of 8 municipalities). The guess is that the activities will expand, to the level justified by the number of SMEs in the region.
16 Telephone interview with Dorthe Kusk, Vejle Development Council and Carsten Lund, Ribe County Council.
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The Triangle Region’s Development Agency The Industrial Development Programme of “Trekantområdet Danmark” is produced by a group of industrial officers from the municipalities of the Triangle Region. It consists of a detailed analysis of the regional industrial structure. The focus is on 7 areas of priority. Included, are 4 sectorial strongholds; a priority area concerning SMEs; a marketing and image effort for the region and a collaborative scheme for the industrial offices.
The four industrial strongholds analysed are: Transport and distribution; Food-processing; Food- processing technology (iron and metal industry) and IT-industry. The last one is included not for its strong position, but in order to promote the potentialities in this line of industry.
Concerning the food-processing industry the importance of the Biotechnological Institute in the region is appreciated. Co-ordinated development plans with the Vejle County Council are suggested.
The lack of innovative initiatives in the food-processing technology industry is commented upon. It is suggested that ties with the national GTS network, and especially the FORCE institutes, are expanded.
The small business initiative is a theme crossing all the industrial sector themes. The basic idea in this initiative is to co-ordinate service provision to small businesses and entrepreneurs, so that the services are co-ordinated and more strongly profiled in the minds of small-business owners. The TIC and the GTS system as well as private consultants are invited to take part. The aim is to support competence development in SMEs by way of a joint effort.
The strategic focus is made visible and does of course match the Triangle Region area. The integration of resources and capabilities from external partners is also spelled out. In any event, the outline action plan still needs to be spelled out in two areas, when it comes to addressing regional innovation support to SMEs. But as one of the industrial officers said during the round table discussion: “We tend to think of traditional enterprises found in the area instead of focusing on the type of innovative enterprises not found. We have a lot of enterprises with new technology, but they produce crap….Their products cannot be sold in the market. At this point we do not know what to do in the system….” (quotation from: Manager of the Industrial Office in Vejle).
The technology and innovation support efforts are not spelled out in an implementation-oriented fashion. This may be because knowledge about innovation management is lacking. It is spelled out that the aim is to remove barriers to SME growth processes. A strategic plan of action is still to be published.
Since the measure is to co-ordinate activities in a number of co-specialised knowledge institutions and advisory bodies, it is important that guidelines - giving a focus to the activities - are drawn up. The way knowledge transfer is addressed is rather static. It seems important to create bridging institutions that act as stable frameworks for interaction between SMEs and the knowledge system.
It is also important to address the systemic character of innovations in the Stainless Steel cluster. The on-going pilot project developing “supplier associations” may lead in that direction.
Finally it is important to address the lack of knowledge institutions complementary to the manufacturing strongholds of the region. This issue is only briefly touched upon.
122
Organising for resource mobilisation The way different key actors organise and integrate resources with the aim of industrial promotion in general, and innovation support in particular, differs. In Figure 4.4 four “ideal” managerial regimes are outlined and discussed.
As figure 4.4 indirectly indicates, there is a balance to keep between the internal resources committed to the activity of regional innovation support and the ability to commit external actors and guide their activities in a co-ordinated way. At the outset there is also an interorganisational problem of matching the organisational and strategic set up with the different actors involved.
The interconnected problem of resources and governance of activities is highly visible in the case of the TIC. Their lack of resources has lead to the County Councils taking on a more active role and thus, also, to the issue in the counties of what strategy to choose. As indicated it might easily lead to a “no strategy” strategy.
Figure 4.Fejl! Ukendt argument for parameter.. Idealised Organisational Regimes for the management of regional innovation programmes - In House Activity Level - Large Small
Networking Sleeping Partner Many partners organisation and management Many activities resource management
Outsourced 1 2 Activities 3 4 Few partners Little activity Dendritic management Out of Focus
Organisational redundancy or barriers As mentioned a large number of actors are involved in forming the region’s innovation policy. It is, so to speak, evolving from their strategic interplay and also the organisational forms they deploy. It is, however, a general impression that although a number of organisations are involved, there is a lack of resources. Partly because the issue is new and has not yet gained the attention it deserves and partly because the interplay of many actors often leads to the “use of the left hand” implying that only scant resources and time are devoted to the issue.
123 So the overall conclusion on the capability to frame a coherent innovation policy is that a lack of resources and knowledge about innovation management at the regional level constitute a major barrier. This is to some extent in contrast to the often stated problem of organisational redundancy (see, for example, Hull and Hjern, 1987; Hassink, 1996).
The number of actors – crowding or networking At lower levels the number of actors in and around the Triangle Region taking interest in the support of SMEs and the transfer of technical knowledge are huge. At these levels the question of crowding or networking is highly relevant.
In the Triangle Region it seems obvious that crowding is a more appropriate name than networking. This may be explained by a number of institutions competing to set the agenda. But it is at least to some degree also the result of a lack of resources at the top-level of co-ordination. It may be seen as a result of a sort of sleeping partner management.
The creation of a transfer infrastructure The creation of transfer infrastructures continuously working with SMEs in order to install learning routines in favour of technological renewal and innovation management is a key issue.
The only actor in the region who has tried to promote a collaborative programme in which institutional funding was also involved, is the TI-Syd. Their Star Programme aimed, among other things, at installing a learning cycle between the consultant system and the SMEs.
A point of importance in the building of a regional innovation consultant system seems to be the need for the training and education of consultants taking an interest in the matter. Many of them are used to serving LEs. Others, seemingly, build on the static conceptualisation that new knowledge is a one-off delivery package. What is needed is continuity in the relationship between consultant and enterprise in order to create learning cycles following the process of innovation and in order to gain trust in the relationship. In this respect proximity is important, but that does not necessarily mean geographical proximity.
124 5 Summary and Conclusions The Post-Fordist or the Post-industrial society we are approaching brings new dynamics in the process of transition. In this context, transitional dynamics innovations gain a high momentum. The innovative activity of SMEs seems to be of key importance in this period of transformation. They work not only as innovation “scouts”, i.e. new entrepreneurial enterprises testing out new ideas in the market, or as the entrepreneurial image, counter-balancing that of a corporate based innovation system. The role of SMEs is to be regarded much more as a cog in a system of innovation, where the small firms, in several ways, provide flexibility to the regional production system.
5.1 The regional context The Triangle Region was chosen as a study region because the 8 municipalities included comprise a coherent regional business community and a labour market centred in the area. This is contrasted by the traditional administrative regions, which were developed for other purposes and comprise business communities and labour markets, which are fractionalised. This is one of the reasons behind the growth we have witnessed in the number of alliances being firmed between municipalities that cross traditional regional administrative borders. This is also the case with the Triangle Region. A collaborative venture has been set up running a regional development agency “Trekantområdet Danmark”.
The Triangle Region can be labelled as a functional industrial region. Three administrative regional bodies (County Councils) cross it. From the outset, this enabled the study to illustrate how regional administrative authorities deal with evolving industrial clusters and labour markets evolving across their borders.
In the case of the Triangle Region only, the municipalities in question have been involved in addressing the issue of industrial promotion.
In the Triangle Region, there is a long tradition for food processing and the production of food- processing equipment as well as whole process facilities. In this sense, the region is dominated by a technological system of food processing. However, the building of co-specialised knowledge institutions in the region is weak.
The food-processing equipment industry, which is the most important manufacturing stronghold in the region, has a very high export specialisation index. In spite of this historically high level of international competitive strength, the process equipment industry, as a cluster, has not been specifically targeted in the national industrial promotion policies over the years.
The following features characterise the study region:
• A strong element of SMEs • Strong manufacturing base; weak base in knowledge intensive businesses • Net export of manufactured commodities, net import of services • A weak knowledge base (lack of higher education and research institutions. Low R&D base) • A weak co-specialised base of supporting infrastructures • Old manufacturing region with stable market conditions • High growth in employment as well as in value added • Low incentives to strategies of industrial shift
125 5.2 The industry sample selected The enterprises sampled for this study were specifically chosen to give a strong focus on the stainless steel industry. The reasoning behind this focus, stems from the interactive perspective taken on small business innovation.
As a control group of enterprises, a sample of engineering consulting enterprises and software producers was selected to represent the service industry. The enterprises belonging to the stainless steel cluster, are classified as medium to low technology firms. A minor sample of SMEs from the electronics was, therefore, chosen to represent high technology enterprises.
5.2.1 Networks as a contextual frame The interactive perspective opens the way for an interpretation in which SMEs’ innovation have several sources and an interpretation in which SMEs’ innovative activities are an exchange and adaptation process among enterprises and other actors with relevant knowledge and competence. The interactive nature of small firms’ innovation is not only a case of seeing a more varied array of sources to innovation, but also to see innovations feeding each other, so that innovations may be predisposed to cluster – in space as well as in time.
The stainless steel industry is a clear case of such a clustering. It is fundamentally based on radical innovations practised for more than a century – the heat-exchanger, and not least, the centrifuge. New materials, new processes and new functions, as well as areas of application, have evolved. All of it has triggered new innovations.
5.2.2 The outcome of the study of innovation patterns The outcome of the study of the innovative patterns among these SMEs can be briefly summarised in the following points:
• The number of SMEs engaged in innovative activity over the last three years is low • The highest frequency is reached in size classification 10-49 employees • While the frequency of innovation is relatively low, innovation intensities are high • The systemic nature of innovation is indicated by the prime motivation: “to keep customers” and by the interactive patterns revealed • An entrepreneurial mode of innovation is seen to be present. It is based on interactive traditions, local competition and the social capital in the region • The element of young enterprises is high. Therefore the entrepreneurial mode of innovation management is strong • Opposed to this pattern, a corporate based mode of innovation has evolved over the last two decades. It is based on the growing number of enterprises owned by foreign corporations • Their managerial traditions for organising innovative activities and for interaction is seen to differ strongly from the indigenous forms evolved. An experimental form evolving from daily production practice is thus confronted with an engineering-based corporate form for innovation, which is much more focused on the design of whole technical systems
126 • Triggers and sources to innovation are dominated by external sources, but also internal and co- operative sources are important • The number of spill over innovations is high, while the imitative innovations seem to be low • A few final contractors born in the area belong to global operators inside the food-process industry. They configure major parts of the stainless steel cluster • Producers of products and services to final markets are more innovative than firms operating at intermediary markets. But there is a tacit element of innovative activity embedded with SME sub- contractors • The level of awareness with, and use of, innovation support schemes, is low • No significant relationships were found between the use of innovation support schemes and the innovative activity, i.e. those firms indicating that they have used one or more of the stipulated support schemes • Innovation barriers are mainly to be seen as internal. Management attitudes, for several reasons, are of key importance.
5.3 The innovation support system The low level of firms engaged in innovative activities may be linked to several factors. Combined with the low use of innovation support schemes it does pose a challenge to the national innovation support system and the way national schemes are framed and delivered to regional clients in the business community.
5.3.1 The national innovation support system The national industrial policy agenda is quickly changing, away from traditional support paradigms. It is realised that innovation and learning is a new competitive key. It is also moving away from direct support to a framework-oriented and knowledge infrastructure providing agenda. A slow change of focus towards SMEs is also seen. This is, among other things, in recognition of the fact that SMEs are not direct users of university-led R&D. Therefore, transformation mechanisms from the knowledge producing science community and the enterprise community has to be established.
There are also several indications of a stronger interactive and learning oriented view on the stimulation of knowledge building. Programmes that link research, GTS Consultant Institutes and enterprises together.
More and more programmes are initiated across ministries and diverse central administrations. A case in point is the so-called LOK programme, standing for Management, Organisation and Competence. It is a programme aiming to raise competence in the business community. Four ministries jointly launched it (1998). This and other programmes also demonstrate that the issue of reorienting management toward knowledge building and innovation is coming up as a key issue. But still, a strong focus on SMEs’ management traditions and conditions is missing.
127 The regional transfer and consultant actors as well as the regional development agencies all complain that the national support programmes has a lack of continuity. Time for building experiences and thus also routines of transfer are severely limited by the short programme periods and the steady change in programmes.
Although a shift to a new support paradigm is seen, the two programmes included in this study – the GTS programme of “SME discount” and the TIC programme of “free of charge” - still rest on the assumption that low costs are the main competitive factor. SMEs are seen to respond directly to the cost signal. Therefore, SMEs are envisaged to be cost oriented more than knowledge oriented.
The innovative activity is often embedded within a strong technical culture, which is embedded in clusters of enterprises. There is a clear trend towards a localised clustering of industry. It is difficult to tailor national innovation support schemes to interactive patterns embedded in specific technological networks and clusters. Technology transfer institutions as well as national knowledge producing institutions could enhance their utility and their interactive knowledge if they were located and embedded in the social exchange network in innovative clusters. The key role of delivery systems and location is not reflected in the national policy agenda.
The role and aim attached to The Technological Information Centres are changing. The role as a knowledge and information providing institution is changed, so that the TIC will have their own fields of advisory services. At the same time, their activities are regionalised. In this case, regionalisation may imply that they simply become units to which County Councils out-source service tasks. In this way, their role as units of information promoters and diffusion agents is altered.
5.3.2 The regional innovation support system The basic need felt at the local and regional level for a tailor made bottom-up approach to the development of the industrial base of the area in focus is demonstrated by the many regional and local actors and “resource centres” established. Some are created in order to promote policies through the integration of national and international schemes for the area, while others are concerned with the development of efficient transfer mechanisms.
But, on the whole, the innovation support agenda, including the strong focus on the building of links for mutual learning among relevant institutions and the business community of SMEs is not yet really in evidence. At the same time, this study seems to reveal that the County Counties are latecomers in regional industrial development policy. They have a lack of tradition and a lack of resources dedicated to the task of framing and directing a regional innovation support strategy.
None of the actors have made strategy and action oriented links between the forthcoming knowledge- based economy and the attempt to formulate a coherent learning and innovation programme. Most initiatives are of a single programme nature. A stimulating strategy trying to integrate and co-ordinate diverse innovation schemes is lacking.
There is a low level of integration with the innovation support schemes. It is noteworthy that the STAR Programme was not approved by the County Council of Vejle. It is also noteworthy, that the regional County Councils around the Triangle Region have no contact on the issue of industrial promotion.
128 The establishment of the Regional Development Agency for the Triangle Region may be seen as a rejuvenation of the regional industrial policy system in the area. But a regional innovation strategy for the coherent industrial area of the Triangle Region in which the Regional Development Agency – Trekantområdet Danmark – is still needed.
The Regional Development Agency of the Triangle Region has taken steps to formulate action programmes for the major industrial strongholds and for the community of SMEs. Initiatives that integrate programmes and actors are yet to be seen.
In conclusion, the impression is that the regional level – in spite of the initiatives taken by the Regional Development Agency of the Triangle Region – is a constraint of strategic importance for the framing, integration and efficient delivery of innovation programmes targeting SMEs. In this way, the regional policy level can be seen as a constraint for the formulation of a regional innovation strategy.
5.3.3 Networks as a policy frame It is appealing to conceptualise innovative networks as the innovative ‘black box’ of our times. In fact, diverse management practices meet in these networks. That is also the case when it comes to innovation management. SMEs from different professional lines of industry may be related through innovations or they may collaborate in order to innovate. Large firms’ managerial practices may meet with those of small firms i.e. the entrepreneurial way of innovation may meet with the administrative way of LEs.
A key policy area is the promotion of stable innovative linkages among SME sub-contractors and their large contracting corporations. It is a matter of bridging managerial cultures and different traditions of collaboration. Supply chain management paradigms tend to dominate the field.
Pilot projects with innovative projects crossing the borders of small and LEs seem to be of importance, since they also cross the borders of an entrepreneurial and a corporate innovation management logic. Experiments with Supplier Association or similar inter-organisational measures, meant to install a collaborative venture alongside daily production, may be a way to initiate boundary-spanning schemes in support of this.
5.3.4 The consultant and knowledge transfer system The local level has many actors – they actually tend to crowd each other out, rather than engage in networking at the level of consultants. At this level, there is a need to co-ordinate or orchestrate activities through dialogue and networking. This need arises as a matter of course, through the absence of a regional innovation strategy.
The importance of the consultant system in the area is not just a question of proximity to SME clients. It is also a question of being embedded in exchange and adaptation processes in the industrial cluster. This is of importance in the creation of services to match the needs of SMEs, as SMEs often have difficulty in articulating their needs. Networking may be seen as a way of internalising problems of efficient transition of knowledge. It is a problem of building social and personal contacts with SME owners. In the GTS system, such considerations are not found at the strategic level. But they are strongly incorporated in the operations of TIC-Syd.
129 There is every reason to focus on the absorptive capacity of SMEs, when it comes to the implementation of new technology or attitudes to new knowledge and innovation. However, this focus should not overshadow the focus on the absorptive capacity of the consultant systems. There seems to be a need of the advisory system to focus on innovation management and to gain insights into the process of innovation in small firms. It is simply not possible to guide learning processes attached to innovation unless the management of innovations is understood. Therefore, there seems to be a need for innovation consultants specialising in the issue of coaching SMEs in innovative processes.
There is also a need for “patient” knowledge delivery programmes, where SMEs, running through different phases of the innovation process, can be followed and supervised.
This may feed the idea of SME oriented small scale innovation centres located in the centre of technology related clusters or cross skill based enterprises. These centres may also serve clients outside the cluster.
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