LI Reunión Anual Noviembre De 2016

ANALES | ASOCIACION ARGENTINA DE ECONOMIA POLITICA LI Reunión Anual Noviembre de 2016

ISSN 1852-0022 ISBN 978-987-28590-4-6

Local Innovation System: Interactions and Innovation Efforts in the Olive Sector in La Rioja - Argentina.

Starobinsky, Gabriela Navarrete, José “Local Innovation System: Interactions and Innovation Efforts in the Olive Sector in La Rioja - Argentina” Starobinsky Gabriela ψ * Navarrete José Luis φ **

ψ National University of Chilecito, Department of Social and Legal Sciences * E-mail address: [email protected] / [email protected]

φ National University of Chilecito, Department of Social and Legal Sciences ** E-mail address: [email protected]

Abstract The present research studies the role of firms’ interactions within the Local Innovation System (LIS) in relation to their innovation efforts for the olive sector in La Rioja, Argentina. Empirical analysis is based on information gained from a survey conducted by the National University of Chilecito in 2012. Quasi-Poisson and Binomial Logistic regressions are built in order to deal with statistical data. The main findings states that the more interactions firms establish, the more technological efforts they make, as well as the relevance of relationships with S&T organizations. However, heterogeneity amongst firms and LIS weaknesses would limit smaller firms’ performance.

Key words: Innovation Efforts, Interactions, Local Innovation System, Olive Sector JEL Classification: D21, O18, O30, R19

Resumen La presente investigación aborda el rol de las interacciones de las firmas en el Sistema Local de Innovación (SLI) sobre sus esfuerzos innovativos para el sector olivícola de La Rioja, Argentina. El análisis empírico se efectúa en base a una encuesta conducida por la Universidad Nacional de Chilecito en 2012, para cuyo procesamiento se construyen regresiones Quasi-Poisson y Logit Binomial. Los resultados muestran que mayor cantidad de interacciones, en particular con organismos de ciencia y tecnología, promueven mayores esfuerzos tecnológicos. Sin embargo, la heterogeneidad entre las firmas y las debilidades del SLI limitan el desempeño de aquellas de menor tamaño.

Palabras Clave: Esfuerzos Innovativos, Interacciones, Sistema Local de Innovación, Sector Olivícola Clasifiación JEL: D21, O18, O30, R19

Table of Contents I. Introduction ...... - 3 -

II. Background and Theoretical Framework ...... - 4 -

a. Systemic Innovation Approach ...... - 4 - b. Territorial Dimension of Innovation: Local System & Firm’s Interaction ...... - 5 - c. Empirical Evidence: the Role of LIS and Interactions over Innovative Performance. - 8 - d. Local Innovation Systems in Latin America and Argentina ...... - 9 - III. Case Study ...... - 13 -

a. Argentina in the Global Olive Market ...... - 13 - b. Olive Sector in La Rioja Province ...... - 14 - IV. Methodological Approach ...... - 17 -

a. Olive Firms’ Characterization ...... - 18 - b. Qualitative Response Models ...... - 27 - c. Variables Definition ...... - 30 - d. Econometric Results ...... - 32 - V. Final Discussion ...... - 37 -

VI. Conclusion...... - 39 -

VII. Bibliographic References ...... - 41 -

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I. Introduction

Under the new techno-economic paradigm called the “Knowledge Economy”, levels of productivity and competitiveness reached by firms, regions and countries, are strongly related to the technological capacities and efforts needed to achieve innovations. However, less developed regions face specific conditions and obstacles in order to perform those processes. In this sense, the general purpose of the investigation is to contribute to the understanding of local innovation processes in developing regions, where heterogeneous actors coexist and small firms are preponderant. In particular, the present research studies the specificities of innovative processes in the olive sector of La Rioja province, Argentina. According to the evolutionary school of thought, the Local Innovation Systems (LIS) conceptual frame is suitable to inquire about the distinctive features that those processes assume in particular regions. This theoretical approach includes the study of all actors and factors involved in the development, diffusion, use and commercialization of innovations, emphasizing the relations that take place amongst them and their interactive nature. As a consequence, cooperative relationships between firms and other LIS actors are essential to motivate technological behaviours. Thus, the main objective of this research is to analyse the role of firms’ interaction within the Local Innovation System as to their technological behaviour for the olive sector in La Rioja province. Specifically, linkages between firms and scientific institutions allow information and knowledge to flow and technology and know-how to be transferred, stimulate spillovers, and reduce uncertainty. In addition, it is important to identify the intensity of connections, their frequency and number of contacts with the organizations involved and the type of links they maintain. Therefore several background researches present studies of innovative processes in specific regions under a systemic, interactive and territorial approach, such as Camagni and Capello (1997), Asheim and Coenen (2005), Intarakumnerd and Vang (2006), Hassink (2002), Lavía et al. (2011), Fritsch and Franke (2004), Tödtling et al. (2008), amongst others that are presented afterwards. Although developing regions have the possibility to import and imitate available external knowledge and technologies, it is not a trivial process. It requires a set of abilities and competences in order to select, absorb, improve and adapt technologies to local conditions. Therefore, in less developed systems, interactions between firms and science and technology institutions are crucial to develop technological capacity, especially among smaller firms. Also a number of empirical investigations analyse the local dynamic and connections between actors for developing regions as in Jiménez et al. (2011), ALIAS (2011), De Fuentes and Ampudia (2009), and for Argentina’s localities Boscherini et al. (1998), Gennero de Rearte et al. (2006), Yoguel and Boscherini (2000), Yoguel et al. (2006), Robert (2012), Robert (2012), Robert and Yoguel (2013), Yoguel and Erbes (2007), Motta et al. (2010) and Sanchez and Bisang (2011), which have been especially taken into account in this study. Thus, the principal hypotheses that guide the research are “Firms’ interactions within the Local Innovation System motivate them to perform innovative efforts” and “Firms’ interactions within the LIS also increase the probabilities to carry out internal R&D”. The empirical analysis to test these hypotheses is based on statistical information collected through an extensive survey conducted among 91 local olive producers by the National University of Chilecito in 2012. Furthermore, the influence of firms’ characteristics and cooperation linkages on innovative activities is analysed by applying Quasi-Poisson and Binomial Logit regressions. Particularly, Quasi-Poisson regressions are implemented to deal with quantitative variables, such as the number of innovation activities, and Binomial Logistic regressions for dummy variables, whether the firm is making any R&D efforts or not. In both cases, a group of variables representing firms’ characteristics and diversity of interactions (by institutions and types) are taken into account as independent variables. Moreover, the econometric methods are - 3 -

complemented with a thorough characterization of the local olive sector grounded on statistical descriptive analysis. The study is organized as follows: Section II outlines the theoretical framework and the empirical background; Section III includes a description of the case study; Section IV refers to the methodology and data sources used to contrast hypotheses; Section V presents and discusses the main results; and finally, section 6 presents the conclusions.

II. Background and Theoretical Framework

a. Systemic Innovation Approach

The new techno-economic paradigm “the Knowledge Economy” presents a number of opportunities and challenges for developing countries. In this context, knowledge creation and its productive application are essential factors to explain different levels of productivity between countries and firms. In that sense, the evolutionary economics, the school of economic thought, stresses that technological progress plays an essential role on firms’ and regions’ competitiveness and, therefore, on socio-economic development. Thus, the construction of dynamic advantages depends on the adoption and diffusion of technological developments and local innovative capacity. In contrast to neoclassical theories, it proposes a systemic and accumulative conception of innovation, which is not a trivial process based on a mere imitation of available global technologies, but a complex phenomenon that requires collective efforts in order to build endogenous technological capacity (Lundvall 1997; David and Foray 2002) . In particular, within the evolutionary stream, National and Local Innovation System (LIS) conceptual frames are suitable to inquire about the distinctive features that assume those processes in particular regions. The National Innovation System (NIS) analytical framework, which has its roots in Bengt-Åke Lundvall, Richard Nelson and Christopher Freeman ideas, studies innovation as an accumulative, multidimensional and territorial phenomenon. It includes the analysis of all factors and actors that are involved in the development, diffusion, use and commercialization of innovations, remarking the articulation between them and its interactive nature. Innovation is not the result of isolated firms’ actions and efforts, but of a complex scheme of social interactions (Edquist 2001; Lundvall 2007; Soete et al. 2009). This interactive conception of innovation process implies that effective incorporation of new knowledge is not a trivial activity. Firms need to make efforts which require technological and absorptive capacities to identify, select, assimilate, adapt and improve technologies, in order to achieve innovative results. Those abilities are not intrinsic but constructed throughout the learning process and incorporation of tacit and codified knowledge (López 2002). Contrary to neoclassical assumptions, the development of capabilities is not a simple process based on copying available technology, it requires systemic efforts, learning processes such as learning by doing-using-interacting-learning, knowledge accumulation, and technological activities, which are locally and socially embedded, and depends on firms’ linkages within the system (Cimoli and Porcile 2015). Even though the NIS framework results from the experience in developed economies, its postulates are very useful to emerging countries. These emerging economies need, in the first place, to reduce their technological gap by importing, imitating, and adapting available knowledge. In particular, their own market, climate, tastes, input accessibility, resource endowment, and geographic characteristics demand adaptation processes to local conditions (López 2002). In this sense, they require absorptive capacity (Cohen and Levinthal 1990), which includes the abilities to select, incorporate, assimilate and take advantage of knowledge. Firms’ possibilities to identify technological opportunities and exploit them depend on their

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skills, which have an accumulative and interactive character. Afterwards, those capabilities evolve into technological capacity to create and spread innovative developments and new original knowledge.

b. Territorial Dimension of Innovation: Local System & Firm’s Interaction

Innovation system consolidation stimulates cooperation, learning processes and technological transferences that favour capacity building and innovation within a particular territory (Cassiolato and Lastres 2001). In consequence, the LIS framework is more adequate to analyse specificities of the regional sphere than the National Innovation System. The national approach dismisses idiosyncratic, political-institutional, economic, social, environmental and technological divergences present in multinational or federal countries. Then, region delimitation might be smaller if there are local administrations, parliaments, autonomous levels of decision, cultural features and particular norms, as well as economic, social and technological heterogeneous dimensions (López and Lugones 1998; Cooke et al. 1998; Tödtling et al. 2008). Among the main phenomena that occur in local systems, collective synergy and efficiency, agglomeration and association economies, learning by interaction, and uncertainty diminish, can be underlined. Thus, several theoretical conceptions, such as industrial districts, clusters, innovative milieu, and regional and local innovation systems focus on those problems and their role in competitive advantages and economic development (Cassiolato et al. 2003). As knowledge is socially and spatially embedded in a particular environment, construction of technological capacity and innovative results are not only related to firms’ behaviour, but to local characteristics and dynamics. Interactions between firms, S&T organizations, consumers and suppliers allow for knowledge and information flows that are critical to the innovation process. That is why local conditions, like quantity and type of organizations, translator presence, level of knowledge circulation and appropriation, degree of linkage between actors, science, technology and innovation (STI) policies, cooperation networks impact on firms’ possibilities to perform technological efforts, build endogenous competences and improve innovative performance (Cooke et al. 1998; Asheim 2001; Yoguel et al. 2005; Fritsch 2003). Nonetheless, not every system creates a favourable atmosphere for all the firms. In that sense, Boscherini et al. (1997) and Yoguel and Boscherini (2001) consider that, in cases where collective efficiency and learning processes occur, the size of a firm is not a determinant to build capacities and perform innovation activities. On the contrary, in LIS where less interactions and cooperation develop, the minimum level of abilities and size needed to integrate local networks increase; as a result smaller firms are not able to take advantage of local opportunities. Consequently, the interaction between firms and organizations is confined to regional and local territories, and favours learning processes, innovation and competitive advantages generation. On the one hand, maximal externalities and spillovers are developed based on the presence of S&T organizations, strong cooperation amongst actors, adequate technological offer, collective learning and technological transfers, which diminish firms’ inequalities. On the other hand, less developed systems with few actors, weak institutions, limited technological offer, and scarce cooperation, reproduce negative externalities and constrain capacity consolidation. There can be as many types as there are systems in between these extremes. In particular, interaction is relevant in terms of collective learning required to incorporate new knowledge, it allows information to flow, increases local spillovers, favours external economies, reduces transaction costs and uncertainty (Tödtling et al. 2008). That’s why linkages are fundamental to promote technological efforts, capacity building, and innovative performance, as presented in Diagram N°1. - 5 -

Diagram N°1 Conceptual Framework: Interactions, Technological Efforts and Capabilities

Technological Innovation • Knowledge Flows Efforts • Selection • Technological Transference • Adaptation • Know-How • Embodied Technologies • Improvement • Radical / Incremental • Local spillovers Acquisition • Absorptive • Product, Process, • Collective Learning • R&D • Tecnological Organizational, Commercial • Training • ICTs development / acquisition Linkages Capacity

COLLECTIVE PROCESSES SOCIALLY AND TERRITORIALLY EMBEDDED

LOCAL INNOVATION SYSTEM SUB-NATIONAL LEVELS WITH ITS OWN DISTINCTIVE FEATURES

NATIONAL INNOVATION SYSTEM INSTITUTIONS – PRODUCTIVE STRUCTURE – LEGAL FRAME – SCIENCE, TECHNOLOGY AND INNOVATION POLICY

Source: prepared by the author. - 6 -

The strength of the system not only depends on the individual capacity, but also on the dynamic of interactions, therefore, the simple presence of S&T infrastructure and firms do not assure diffusion and use of knowledge. The study of actors’ characteristics, efforts and behaviour is essential to understand LIS development. Additionally, inquiring about what kind of relationships are established, what organizations are involved, linkages frequency and quantity, and their impact on innovation activities are relevant from a regional perspective (Fritsch 2003; Krätke 2010). As regards interactions, there is a wide diversity of relationships that firms can establish. For example, they can arrange market transactions, R&D joint projects, human resources training, spin-offs, technical assistance, services provision, informal exchange of information, and know-how transference. Market transactions involve acquisition of embodied technology and knowledge, such as purchasing equipment or machines, incorporating information and communication technologies (ICT), or acquiring licences and patents. Then specialised knowledge flows and formal R&D projects prevail amongst linkages with Universities and S&T organizations, which are essential to consolidate local systems and stimulate innovations (Tödtling et al. 2008). In addition, inter-organizational connections can be formal or informal, periodic or sporadic, specific or strategic, interpersonal or institutional. Even though formal and permanent relationships are the most useful in terms of knowledge spillovers and technology transfer, any articulation is relevant to develop learning processes (Krätke 2010). Furthermore, it is important to take into consideration different kinds of actors operating in the local systems, their characteristics and participation in technological advances. On the one hand, universities and S&T centres have a primordial position as they create, transfer and combine new knowledge and applications for the local productive sector. On the other hand, consumers and suppliers also have an important role in information, know-how, new ideas and techniques exchange. Clients are sources of useful information with regard to tastes and trends for new products or services, and suppliers master specific knowledge about materials, productive processes and equipment. Other competitors also have important information that firms can access to via strategic alliances or by monitoring them (Tödtling et al. 2008; Fritsch 2003). Other relevant actors are interphase agencies between firms and S&T organizations in order to promote technological transfer and translate productive sector necessities. In particular, they attempt to match technological demands with available offer capacity. These organizations are especially helpful for small firms whose direct access to knowledge is limited (Kau_eld-Monz and Fritsch 2010). In less developed countries, the innovation process principally involves importing, imitating, improving, adapting and designing activities. Nonetheless, these are not trivial activities; firms require local capacity in order to carry them out successfully. Thus, local efforts are especially relevant to accumulate learning and endogenous capabilities, and Local Innovation Systems consolidation is a key element to strengthen cooperation linkages that stimulate technological activities and innovative results. In particular, those economies are integrated by heterogonous agents and by a great number of small firms that have specific weaknesses, such as restricted access to financial resources, scarce technological capacity, limited possibilities to acquire complementary assets, among others, which represent obstacles to carry out innovative efforts (Dogson et al. 2008). Hence, endogenous capacity generation, network participation, learning process, knowledge incorporation and updating, technical competence development, and permanent training are key factors for small and medium-sized enterprises (SMEs) (Yoguel 2005). Additionally, Anlló et al. (2008) emphasise that SMEs spend scarce resources in R&D activities, carry out discontinuous efforts, implement strategies oriented to embodied technology acquisition, have low density of interactions and establish an individual survival mode and defensive strategies. As a result, innovation promotion is based on traditional

- 7 - factors, such as firm size, source of capital, level of competition, or macroeconomic volatility, rather than on offensive activities and endogenous capacity building. Accordingly, in less developed regions, local systems are characterized by low levels of competences, low qualification of human resources, lack of financial resources, limited access to STI policy, and few interactions and knowledge exchange, all of which affects the system’s dynamic and the chances to innovate. Hence, systemic synergy reinforcement is crucial to overcome SMEs limitations and stimulate technological activities (Cassiolato and Lastres 2001; Giuliani 2005; Boscherini et al. 1997; Yoguel et al. 2009).

c. Empirical Evidence: the Role of LIS and Interactions over Innovative Performance

Over the last two decades, several academic investigations have approached innovation processes from a regional perspective. Pioneer works are those that study the local district and clusters from developed economies and highlight the role of interactions and local synergies on innovative results. Camagni and Capello (1997) explore the dynamic of innovative milieu in Italy, where interpersonal contact, information and knowledge exchange, physical and cultural proximity, uncertainty reduction, and cooperative networks are fundamental to explain technological progress and regional competitiveness. In this sense, the characteristics of the environment are more important than the size of the firm or individual efforts, reinforcing the idea that an innovative process is a collective phenomenon. Likewise, Natário et al. (2012) carried out an investigation on different regions in Portugal based on the Community Innovation Survey Database from 2006. Through a cluster comparative analysis, they found that conformation of networks is as important as firms’ internal activities in relation to cluster performance. Clusters, which are more competitive, gathered a higher number of interactions, S&T organizations and R&D efforts. On their behalf, Asheim and Coenen (2005) inquired about Nordic clusters, such as furniture production, wireless telecommunications, electronics and food industries. In all cases, innovation processes are related to environmental characteristics as tacit knowledge flows, cooperation between actors, articulation with customers and suppliers, common values and norms, and access to scientific knowledge. In addition, the Silicon Valley case is a successful example of local synergies where interdependent networks between autonomous actors promote firms specialization, risk diversification, and new technologies diffusion. Geographic proximity of firms, S&T organizations, suppliers, technological centres, from ICT sector, allow reciprocal relationships based on mutual trust to solve technical problems and adapt to market and technological changes (Saxenian 1991). Moreover, other authors, such as Intarakumnerd and Vang (2006) and Hassink (2002), analyse regions from Southeast Asia where firms build technological capabilities and competences throughout a process of imitation, adaptation and improvement of external technology. These investigations arrive at the conclusion that, in developing regions, technology search and selection, learning by doing-interacting-buying, try and fail processes, technical and commercial interactions with firms, customers, suppliers and S&T organizations, and innovative efforts are essential. In particular, a number of works examine the specific impact of interaction within the local system on technological activities and innovative achievements. Lavía et al. (2011) conducted an investigation for Guipuzccoa region, Basque Country, Spain, with survey information of 147 industrial SMEs. The main results show that geographical proximity, S&T infrastructure and financial instruments facilitate technological cooperation. Inter-firm linkages prevail over S&T organizations, but articulation with these organizations is stronger and they are oriented to carry out joint innovation projects rather than information exchange. As mentioned before, linkages between firms and S&T organizations have a crucial role on local technological

- 8 - advances. However they find that SMEs achieve less innovative results and have lower levels of interaction. Amongst the principal obstacles to establish relationships, firms state lack of trust, communicational problems, rigid organizational culture, and high costs and risks. Taking into account information from the European Regional Innovation Survey, Koschatzky and Zenker (1999) analyse the behaviour of 572 firms from the German regions Baden and Saxony. As well as Lavía et al. (2011), authors remark the distinction between smaller firms and those of larger scale. The last group concentrates cooperative relationships and technological developments, which are associated with better economic outcomes. In addition, Fritsch and Franke (2004) study a sample of 1800 firms from Baden, Hannover and Saxony, through Qualitative Response Models, such as Binomial Logistic and Negative Binomial Regressions. Amongst the principal conclusions, they highlight that variables representing geographical location in Baden, R&D internal expenditure, knowledge spillovers (measured by other actors’ R&D expenditure), and interactions with S&T organizations are associated to positive and significant statistical coefficients, so they exert influence over the firm’s probability to patent and increase the number of obtained patents. These results confirm that internal efforts, cooperative relationships and local synergies are relevant to innovative performance. As for Fritsch (2001), he shows that the number of linkages established by firms are related to the technological activity rather than the simple fact of articulating with, at least, one actor. Furthermore, Fritsch (2002) studies interregional divergences of eleven European regions (Barcelona, South-Holland, Stockholm, Vienna, Saxony, Slovenia, Baden, Hanover, Alsace, Gironde, and South-Wales) based on a survey conducted among 4300 firms between 1995 and 1998. The author uses a Binomial Logistic Regression to prove the influence of firms’ characteristics over the probability to interact with other actors, and a Negative Binomial Regression for the number of linkages. The conclusions of the study are that firm size and number of human resources focused on R&D activities have a positive impact over cooperative relationships, and that regions where there are more interactions have better innovative results. Another important research analyses innovative behaviour in relation to firms’ cooperative linkage through Binomial Logistic Regressions for 1200 firms of different productive sectors of Austria. The principal findings confirm that R&D efforts, ownership of patents, and relationships with S&T organizations and universities are relevant to obtain radical or incremental innovations for the market (Tödtling et al. 2008). Likewise, Kaufman and Tödtling (2000) use information from Regional innovation systems: Designing for the future project for Wales (United Kingdom), Wallonia (Belgium), Baden- Württemberg (Germany), Styria (Austria), the Basque Country (Spain), Aveiro (Portugal), and Tampere (Finland). Results based on Logistic Regressions show that firm’s characteristics as size and industry do not influence the probability of obtaining radical innovation, while Baden (a developed region with major S&T infrastructure and cooperative culture) presents a positive and significant coefficient. Also the interaction with Universities and suppliers has a great impact on innovative results as well as on R&D efforts. Finally, main limitations to interact are lack of S&T institutes, firm’s technological demand and offer mismatch, communication barriers, dissimilar interests and rules, and firms being reluctant to cooperate. In this sense, authors propose to strengthen translation mechanisms, communication and common rules.

d. Local Innovation Systems in Latin America and Argentina

The Local Innovation System study is not a developed field in Latin America or Argentina. There is little research that analyse the dynamic and interactive nature of the innovation process in specific regions. However, there are relevant investigations of diverse localities that can serve as useful backgrounds. For Latin America Jiménez et al. (2011) research stands out, in which they analyse several cases from Brazil, Mexico, Colombia and Chile. In the case

- 9 - of Brazil, the authors take into account Santa Catarina and Ceara States. Findings show that, although Santa Catarina has a great S&T infrastructure, its interaction with firms is weak, focused on scientific and academic development rather than on technology transfer. As for the Ceara State, it presents a less diversified productive structure and reciprocal relationships. In particular, SMEs in both regions have more limitations and face more obstacles to build linkages, perform technological efforts and incorporate new knowledge. As regards Chilean LIS Araucania, Los Rios and Los Lagos regions are explored. Araucania presents an increasing technological development in tourism and fishery where several linkages between firms and other actors take place and specific interphase organizations and STI programs promote innovative activities. In Los Lagos, the Austral University of Chile has an active role in productive development through oriented research projects. On the contrary, Los Rios is a less developed region where technological progress is weak and there are scarce articulations between actors. In general, smaller firms have weak technological capacity and fewer connections within LIS across all regions (Jiménez et al. 2011; ALIAS 2011). In Colombian localities (Del Cauca and Antioquia Valleys), authors find a larger number of linkages between firms and the S&T organizations, and better innovative results than in Brazil and Chile. Particularly, they observe that intermediary organizations and regional oriented S&T policies have a central role in stimulating cooperation along with technology and innovation promotion (Jiménez et al. 2011). Lastly, in the Mexican State of Guanajuato, services and technical assistance interactions among firms predominate, but more complex relationships, such as R&D projects, are scarce. In Mexico, transnational corporations demand technological products and resources to local firms and have a major technological dynamic. Yet SMEs face serious limitations to articulate with S&T organizations or other firms, and to access to promotional instruments. Additionally, STI policy has a national and horizontal character so local particularities and heterogeneity are not contemplated (Jiménez et al. 2011; De Fuentes and Ampudia 2009). In the Latin America LIS studies, the following main findings stand out: the presence of heterogeneous conditions between regions and within them, the existence of an S&T infrastructure relatively isolated from the productive sector, interactions orientated to services provision and information exchange, technological linkages and capacity concentration in larger firms, and centralization of innovative results in more developed regions. Then for Argentina one of the principal case study is Rafaela city in the Santa Fe province. Rafaela is an industrial district with competitive firms immersed in a dense and articulated institutional frame. Boscherini et al. (1998) present a thorough analysis based on surveys and interviews to different LIS actors. They show that firms’ technological achievements are not only the result of their own behaviour but also of the local environment, where public and private organizations interact with firms for knowledge and technology exchange, skilled human resources are available, an entrepreneur spirit prevails, externalities and synergies are generated, and cooperative networks development creates a favourable industrial atmosphere for innovation. Thus, in the Rafaela LIS, there is a great interconnection among firms, universities and S&T organizations that conduct joint R&D projects, and that get together in specific public-private organizations. In particular, based on empirical evidence, authors demonstrate that a major number of interactions positively influences the firm’s technological capacity. Another interesting conclusion is that, in Rafaela, small firms are engaged in technological activities and local networks (Boscherini et al. 1998). Furthermore, Gennero de Rearte et al. (2006) present a similar study for Mar del Plata city based on a sample of 117 firms of different sectors and sizes. Specifically they inquire about the influence of environmental characteristics and interactions over firms’ innovative capacity. Although cooperative relationships are not widespread within the LIS and they are not complex nor frequent, firms involved with other actors consider that relationships have a relevant impact

- 10 - on their capacity. In addition, innovative capacity is not associated to firm size, meaning that the local atmosphere helps smaller firms to overcome their technological limitations. Likewise Yoguel and Boscherini (2000) compare local systems from Mar del Plata, Rafaela, the Metropolitan area of the Buenos Aires province and the Tres de Febrero district taking into account a 245 firms sample. As mentioned before, Mar del Plata and Rafela concentrate firms with more advanced technological capabalities and better economic performance than the other regions. On the contrary, the Metropolitan area of the Buenos Aires province and Tres de Febrero present lower levels of mutual cooperation, technological efforts and capacity, which influence negatively over economic results. In that sense, in those regions, there is a correlation between firm size, technological capacity, number of interactions and innovative results, which indicates that smaller firms have less probabilities to conduct innovative activities in less developed systems. Also a relevant work of Yoguel et al. (2006) characterize and contrast diverse LISs of Cordoba, Rafaela, Rosario, Tucumán, Salta and Jujuy, all of them Argentine provinces. Above all they find dense S&T infrastructure in Cordoba, Rafaela and Rosario, and several examples of public-private associations and cooperation experiences as well as firms with a high degree of technological capabilities. However, in the cases of Cordoba and Rosario those characteristics are not widespread as in Rafaela, but are included in specific sectors, such as ICT, medical equipment, automotive industry, refrigeration and food industry machinery, package and furniture. Except for those sectors where cooperative relationships prevail, interactions are insufficient and mainly based on information exchange. The principal LIS limitations include deficient financial resources, low SMEs articulation, divergence between technological offer and demand, lack of program and local policy coordination. In particular, articulation with universities and S&T centres focuses on human resources training and specific service demands rather than on R&D projects, representing an important weakness. Also promotional policy insturments have a general and horizontal orientation and are of dificult access for SMEs. Therefore, in Rosario and Cordoba, the firm size is related to the innovative capacity and performance; smaller firms have less access to financing, local networks and consequently they lag behind. In these sense, local conditions reinforce opportunities for larger firms of specific sectors instead of increasing possibilities for SMEs to improve their technological capacity (Yoguel et al. 2006). Lastly, authors analyse three local systems of relatively less developed regions (Tucumán, Salta and Jujuy), where they find limited productive and S&T structures, scarce interactions among actors, lack of coordination of cooperative and technological efforts, deficient CTI instruments, and weak technological capacity. Unlike what happens with the above mentioned localities, less developed regions present incipient LIS which do not promote favourable public space (Yoguel et al. 2006). Additionally, a number of researches study innovative dynamic inside different regions and economic sectors. Robert’s (2012) presents a thorough analysis of firms’ technological performance in relation to their efforts, interactions and local conditions. With micro panel data from 1200 SMEs, several econometric models are built. Amongst the principal conclusions, the author shows the existence of virtuous circles between absorptive capacities, interactions with other LIS actors, and firm size. It is highlighted a great sectorial and regional heterogeneity which is reinforced by firms and the local dynamic. Also evidence demonstrates that innovation process is not an individual but a systemic and collective phenomenon, and that knowledge appropriation requires efforts and capabilities from all actors involved (Robert 2012). In regard to interactions, it is observed that they are generally scarce and informal, oriented to training and consultancy. Although the firm’s low technological capacity limits interactions with S&T organizations, other kind of linkages are established, such as information exchange, technical assistance or service provision, which stimulate knowledge circulation, learning processes and capacity building. As in previous cases, more dynamic sectors (software,

- 11 - machinery and equipment, chemical, automotive, beverages and food) and more advanced industrial regions (City of Buenos Aires, Cordoba, Rosario, and Mendoza) gathered a larger number of interactions and cooperative relationships between firms and S&T organizations, higher technological capacity, and better innovative and economic performance (Robert 2012; Robert and Yoguel 2013). Finally, some other studies present sectorial and regional investigations about firm’s capacity and interactions with S&T organizations, such as McDermott et al. (2006) for wine sector in Mendoza and San Juan provinces, Yoguel and Erbes (2007) and Motta et al. (2010) for the automotive industry, and Sanchez and Bisang (2011) for agrifood sector. The wine sector analysis shows that specific policies, programs and organizations are very useful to network conformation, and to promote product and process innovations. In Mendoza, articulation between actors and cooperative relationships facilitate knowledge incorporation, technological upgrading, adaptation to customers’ tastes, and incremental product improvements, even among smaller firms. Oriented policies and institutions allow for knowledge exchange, collective learning, synergic interactions, local externalities and spillovers. On the contrary, in San Juan, policies focus on tax reduction rather than stimulating networks (McDermott et al. 2006). Motta et al. (2010) and Yoguel and Erbes (2007) inquire about the firm’s technological capacity and efforts in the automotive sector in the city of Buenos Aires, Greater Buenos Aires, Cordoba and Rafaela. Based on a sample of 89 firms, they conducted a Multinomial Logistic regression to analyse the relation between innovative capacity and knowledge connections. Then main findings reinforce the idea that firms with higher capacity establish more interactions and achieve better economic results. Therefore the sectorial environment is not developed enough to stimulate capacity building amongst smaller firms. In the agrifood sector, Sanchez and Bisang (2011) highlight heterogeneous situations, more developed sub-sectors as winery in Mendoza and the milk industry in Santa Fe have more S&T organizations involved in productive processes, such as universities (University of Litoral and of Cuyo, National Technological University), national technology institutes (National Institute of Industrial Technology -INTI-, National Institute of Agricultural Technology -INTA-) and scientific centres (National Scientific and Technical Research Council -CONICET-). Authors identify that these institutions play a relevant role in the innovative process because they spread knowledge. On the contrary, in less advanced regions, the rice production in Entre Rios and the olive sector in La Rioja, organizations provide social and technical support for smaller producers. Thus Argentine LISs present diverse levels of development; on the one hand, Rafaela and Mar del Plata constitute synergic environments where interactions and cooperation allow for technological progress, competitiveness increases, capacity consolidation, and SMEs integration. On the other hand, localities with less articulation amongst actors concentrate firms with lower capabilities, technological efforts and innovative performance. Principally smaller firms establish a fewer number of interactions and face more limitations in order to build technological capacity. However, some common aspects from Argentine local systems can be mentioned, such as insufficient interactions, lack of translation mechanisms between the productive sector and S&T organizations, limited capabilities amongst SMEs, difficulties in getting financial assistance, and scarce knowledge exchange and technological transfer (Yoguel et al. 2009). Thus, LIS exploration sheds light on local distinctive features of the relational framework between firms and other actors. As a result, policy design should be orientated to strengthen both individual and collective capacity promoting technological efforts and system connectivity. Particularly, cooperative networks consolidation, technological manager formation, along with interphase organizations creation could be relevant tools to stimulate local innovative processes (Yoguel et al. 2006).

- 12 - Empirical research background corroborates the analytical evolutionary framework, within cooperative and synergic environments where connections between firms and S&T organizations prevail, technological activities and innovative results are favoured. Thus, a larger number of interactions and more complex articulations increase firms’ probability to achieve innovations. However, several works show that it is not a trivial process and that SMEs face more obstacles to make technological efforts and establish cooperative relationships. Therefore interactions acquire major relevance in less advanced regions where SMEs need to build absorptive capacity in order to encourage innovative activities.

III. Case Study

a. Argentina in the Global Olive Market

Argentina has a major position in the olive by-products global market, such as table olives and olive oil. In 2013, Argentina was ranked tenth in the olive oil production and sixth in exports (3% of global exports). For table olives, it was the fifth producer and third exporting country, concentrating 11% of the total. The main producers are Spain (22%), Turkey (16%), Egypt (15%), and Algeria (8%) for table olives, and Spain (55%), Italy (14%), Syria (6%) and Turkey (4%) for olive oil. Then for table olive exports, major countries are Spain (31%), Morocco (14%), Argentina (11%) and Turkey (11%), and for oil are Spain (37%), Italy (30%), Tunisia (7%) and Portugal (7%) (Table N°1).

Table N°1 Principal Table Olive and Oil Producers and Exporters 2013/2014 Campaign Production (Thousands of Tonnes) Exports (Thousands of Tonnes)

Ranking Table Olives Olive Oil Table Olives Olive Oil

1° Spain (572,2) Spain (1781,5) Spain (195,2) Spain (289,7) 2° Turkey (430) Italy (463,7) Morocco (87) Italy (233,3) 3° Egypt (400) Syria (180) Argentina (72) Tunisia (58) 4° Algeria (208) Turkey (135) Turkey (70,5) Portugal (53,8) 5° Argentina (140) Greece (132) Egypt (65) Turkey (35) 6° Greece (130) Morocco (130) Greece (55,5) Argentina (21,5) 7° Morocco (120) Portugal (91,6) Peru (32) Greece (15,7) 8° Syria (120) Tunisia (70) Portugal (12,6) Syria (10) 9° Peru (110) Algeria (44) United States (8) Chile (10) 10° United States (82,5) Argentina (30) Italy (7,5) Morocco (9,5) Total World (2660,5) Word (3252) Word (638) World(785) Source: prepared by the author, based on the International Olive Council (IOC) statistics.

The international commercialization of olive by-products presents an increasing tendency over last decade. Table olive imports show an average annual growth of 4.45% between 2004/05 and 2013/14 campaigns, and olive oil a 2% average increase. The principal importers are the United States, Brazil, Canada, Japan, Russia, China and Saudi Arabia. Even though, in 2008,

- 13 - both levels of imports had dropped as a consequence of the world crisis, but they recovered afterwards (Graph N°1).

Source: prepared by the author, based on the International Olive Council (IOC) statistics.

Taking into account national production and exports evolution throughout 2004-2013, it is observed an increasing but discontinue tendency for both by-products. In particular, table olives show a 26% average annual growth rate, and 22% for the oil, with a total increase of 133% and 67% in the whole period respectively. Also exports present a favourable evolution, table olive commercialization increases at an annual average rate of 8% and olive oil at 27%, while total raise in exports reach 44% and 58% respectively.

b. Olive Sector in La Rioja Province

La Rioja is one of the most important olive producer provinces in Argentina, it is ranked first with 33% of total raw material production (100,000 tonnes approximately), and second in planted hectares (has.), and it is the first exporter of olive oil (27% of Argentine olive oil exports) and the second one of table olives (39%) (Day 2013; PROSAP 2014). Likewise, the olive sector represents a major activity in La Rioja’s productive structure. Agricultural activity and the production of manufactured by-products concentrate 30% of the gross geographic product (GGP) and 50% of provincial exports for 2012. Also olive growing is the main agricultural activity, last available data (2008) show that it occupied 60% of the total planted area and concentrated most of the production value, surpassing other relevant local activities, such as viticulture and nut production (DNRP 2015; INTA 2012). The main use of the provincial olive production is local manufacturing, which has an exporter profile, 70% of table olives and 90% of oil production are internationally traded (Cáceres et al. 2009). Olive complex represent 20.2% of total provincial exports (14.4% table olives and 5.8%

- 14 - olive oil). The principal markets are the United States, Brazil and Mercosur countries (DNRP 2015). The development of the local olive sector is directly associated to the Tax Deferments Law in the 1990s, which promotes agricultural activity in less favourable regions, such as La Rioja, San Juan and Catamarca provinces. Hence, tax benefits allow new olive establishments to set up and important primary and secondary production increases. Particularly, extra-local national capitals establish large and medium-sized enterprises, while local small producers don’t have the financial capacity to make new investments (Matías et al. 2012). Consequently, its implementation resulted in the reorganization of the olive sector, that implies a large average size of firms, diffusion of new technologies and cultural labours, and better average productivity. However, the olive sector is characterized by the existence of different productive units that operate in heterogeneous conditions, like scale production, technological practices, and yields (UIA 2004). There are around 3000 agricultural establishments growing olives; on the one hand, there are several small traditional producers with less than 50 hectares employing family workforce, with a low level of technical development, wide plantation schemes (more than six metres between plants), scarce use of fertilizers and agrochemicals, applying surface flood irrigation, and manual harvesting methods. On the other hand, medium and large firms employ salaried workforce, narrower distance between plants (six to two metres), use drip irrigation systems, intensive practise of cultural labours, and mechanical harvesting. While the first ones have a production yield between two and five tonnes per hectare, larger firms obtains in average up to eight tonnes/hectare (Vita Serma y Matías 2013). As regards technological developments involved in the production of olives, there is a large variety of techniques and knowledge for the primary sector, manufacturing and commercializing table olives and oil. In that sense, the sector has a wide technological offer and innovation opportunities from plant genetic, harvest and irrigation technologies, pruning, fertilization, transport, processing, storage, to commercialization (Diagram N°2). Even though olive production is not a technological complex sector, the implementation of modern techniques is fundamental to reach international competitiveness given the increasing demands for quality, innocuousness and tradability from global food markets. Likewise, its adoption is relevant for the resolution of specific local difficulties, like scarce and inefficient use of water, presence of plagues and diseases, lack of oil classification, and low value added and quality. Thus, specific regional conditions and problems require local adaptation of imported technologies based on endogenous research and technological efforts (Sánches 2013). In particular, the olive sector in La Rioja faces a technological gap compared to the main producing countries, such as Spain and Italy. Concerning the primary sector, there are several catching up opportunities such as extending the implementation of drip and automated irrigation systems; diffusion of mechanical harvesting; also pruning, fertilization and plagues and diseases control techniques could improve. While these technological practices and cultural labours are widespread amongst main producing countries, in Argentina and in La Rioja province, a large number of firms pay slight attention to genetic varieties, plants shape, efficiency in agrochemicals application, irrigation and harvesting methods. Therefore, importing, adapting and improving modern technology are central challenges for the regional sector in order to gain competitiveness. Relevant results such as productivity increases, economic and productive efficiency, labour costs reduction, raw material quality improvement, activity sustainability, and superior yields, could be achieved if new technology is implemented. However, as exposed before, these are not trivial or individual activities, but firms need to conduct learning processes, build technological and absorptive capacity and interact to other actors involved.

- 15 -

Diagram N°2 Olive Value Chain and Related Actors

Primary Sector Industry Commercialization SECTOR Table Olive - Plant Variety Selection - Quality Certification - Reception, cleaning and - Soil preparation - Origin Denomination classification - Cultivation - Marketing - Cook / Fermentation - Advertising - Selection - Packaging - Irrigation - Cultural Labours (pruning, Olive Oil - Direct Sales fertilization, weed, plagues and - Reception and cleaning - Wholesale diseases control) - Milling and Mixing - Bulk Sales - Harvest - Compressed / Centrifuged - Internal Market - Transport - Storage - External Market - Strain, Fraction and Packaging

PROCESSACTIVITY/

QUALITY CONTROL

- Equipment & Machinery - Nurseries - Supplies & Materials - Machinery Services - Prov. containers - Agrochemicals & Fertilisers - Prov. labels

SUPPLIERS - Equipment & Machinery

National Institute of Agricultural Technology

Universities and other S&T organizations S&T

ORGANIZATIONS National Institute of Industrial Technology

Wholesales / Industrial Chambers / Firms Associations / Cooperatives Customers

OTHER OTHER FIRMS

CLIENTS & Source: prepared by the author based on Sánches (2013) and UIA (2004).

- 16 - As it happens in the primary sector, there are advanced technologies for industrial processing of table olives and olive oil, such as automated and continuous equipment and machines, quality control techniques, biotechnological supplies and processes (new plant varieties, biofertilizer, residual treatments), and ICTs applied to production and management. Specifically, for local table olives manufacturing scarce diffusion of automation of raw material selection, automatic tank filling for fermentation, and of table olive preparation (slices, without pit, paste), results in a lower position in the world for competitiveness. Also insufficient quality control along the value chain has a critical impact on the final product quality. Although larger firms implement some of these technologies, they are not widespread in the local sector (Sánches 2013). Regarding olive oil production, the most efficient method of two phases is not extended amongst regional producers, only larger firms have adopted it. On the contrary, in Spain and Italy more than 80% of olive oil manufacturers employ modern systems. Additionally, limited use of stainless steel mills and presses, antioxidant nitrogen injection, and neutralization, decolouration and deodorisation techniques, and partial temperature, oxygen, chemical, sensorial and quality controls detriment the possibilities of differentiation and standards certification. There are also catching up opportunities to improve and automate packaging and labelling processes and to treat and reuse residuals for sub-products, such as biofertilizers. While in principal olive countries those are regular practices, they are not common in Argentina (Sánches 2013). Thus, weaknesses related to quality control, lack of tradability systems integrated all along the value chain, principally amongst smaller firms, restrict standards certification and origin denomination, limiting competitiveness and access to new markets. In this way, the technological gap in the local sector in all productive phases along with firms’ heterogeneity, implies productivity problems in comparison to olive principal producers, such as Spain and Italy. In that sense, the olive sector faces technological upgrading and modernizing challenges to improve competitiveness (Gómez del Campo et al. 2010; Sánches 2013).

IV. Methodological Approach

The main purpose of this research is to inquire about firms’ technological behaviour and interaction particularities in La Rioja olive sector, in order to contribute to the understanding of local innovation processes in less developed regions. Particularly, the relation between firms’ characteristics, articulations with S&T organizations and their innovative efforts is analysed. The main hypotheses that guide the research are: H1 - Firms’ interactions within the Local Innovation System motivate them to perform innovative efforts. H2 - Firms’ interactions within the LIS also increase the probabilities to carry out internal R&D. Besides, to specifically study the role of interactions in technological efforts, a number of secondary hypotheses are presented: H1.1 – Firms which interact with at least one actor have better probabilities of performing a larger quantity of innovative activities. H1.2 – The more interactions firms establish, the more number of technological efforts they conduct. H1.3 – When firms interact with more different actors, they tend to carry out more innovative activities. H1.4 – Linkages with S&T organizations influence positively on the efforts firms carry out.

- 17 - H1.5 – More complex interactions such as R&D and Technical Assistance improve the possibility of performing a larger number of innovative activities.

H2.1 – Firms which interact with at least one actor have better probabilities of performing R&D activities. H2.2 – The more interactions firms establish, the higher the likelihood to conduct R&D. H2.3 – When firms interact with more different actors, they tend to engage in R&D projects. H2.4 – Linkages with S&T organizations influence positively on the probability of carrying out R&D efforts. H2.5 – More complex interactions, such as R&D and Technical Assistance, improve the possibility of performing R&D activities.

Empirical analysis is based on statistical information collected through an extensive survey conducted to 91 olive local producers by the National University of Chilecito in 2012 “Technological Demand for Olive Sector from La Rioja Province”. Specifically, the survey contains information about productive and innovative firms’ characteristics and about their relationships with other LIS actors. The selection of observations is based on a probabilistic and stratified sample classified by department including 91 producers of different sizes, which allows to make population inferences. The methodology is developed in two senses: on the one hand, a general sector characterization is presented through descriptive statistical analyses. On the other hand, a number of regression models (Qualitative Response Models) are constructed to contrast the relations postulated in work hypotheses. Particularly, Quasi-Poisson regressions are implemented to deal with quantitative variables, like the number of innovation activities, and Binomial Logistic regressions for dummy variables, like whether the firm performed R&D efforts or not. In both cases a group of variables representing firms’ characteristics and diversity of interactions (institutions and types) are considered as independent variables.

a. Olive Firms’ Characterization

Productive and Technological Outline The survey comprises 91 olive producers distributed in three local departments: Capital (20%), Arauco (37%), and Chilecito (43%), main areas of La Rioja dedicated to olive exploitation. In particular, 66% of them only produce raw material (olives), 31% are involved in secondary activity (eight firms elaborate table olives, six produce olive oil, and fourteen operate in both segments), and the remaining 3% work only in table olive production. Although, all firms are SMEs because none exceeds 100 employees, they can be sub- classified by size taking into account occupation sections. Thus, in relation to the number of workers, microenterprises with less than 6 employees represent 52% of the sample, 15% correspond to small firms between 6 to 10 persons, 25% are medium-sized firms which employ from 11 to 50 people, and only 8% are larger firms with more than 50 employees. As regards its distribution amongst departments, Chilecito and Arauco concentrate a major number of small and micro firms (82% and 71% respectively), while Capital department gathers larger firms (72% are large or medium-sized firms). Additionally, as a consequence of the Tax Deferment Law, strong presence of extra-local investments, which represent 52% of olive producers, is worth noting. In particular, in Capital department, 94% are firms from national investments and that 86% of local firms are micro or small firms (Table N°2).

- 18 - Table N°2 Olive Firms by Size, Department and Investment Origin Chilecito Arauco Capital Total Provincial Investments 26 17 1 44 Microenterprise up to 5 employees 22 12 0 34 Small more than 5 to 10 employees 3 1 0 4 Medium-sized more than 10 to 50 employees 1 3 1 5 Large more than 50 employees 0 1 0 1 National Investments 13 17 17 47 Microenterprise up to 5 employees 3 8 2 13 Small more than 5 to 10 employees 4 3 3 10 Medium-sized more than 10 to 50 employees 3 6 9 18 Large more than 50 employees 3 0 3 6 Total 39 34 18 91 Source: prepared by the author, based on “Technological Demand for Olive Sector from La Rioja Province” survey.

Taking into account production and implanted area (64 observations with affirmative answers), a great concentration is distinguished. While smallholdings (up to 5 hectares) represent only 0.4% from the total production, small ones (more than 5 to 50 has.) accumulate 4.1%; medium- sized ones (more than 50 to 500 has.) represent 56.5% and large ones (more than 500 hectares) concentrate 39% (Graph N°2).

Source: prepared by the author, based on “Technological Demand for Olive Sector from La Rioja Province” survey. In general terms, the local olive sector presents a weak diffusion of best technological practises in primary sector characterized by manual harvest and pruning, partial adoption of drip irrigation systems, and insufficient pest control and fertilizer use. However, the adoption of

- 19 - modern techniques differs amongst firms: those larger firms from national investment have a superior technological development such as mechanic harvest, pruning, and cultural labour implementation, while, smaller firms show low levels of technical practises. As regards productive models implemented, traditional plantations and modern schemes can be identified. On the one hand, there are 22 firms with less than 200 plants per hectare, which represent traditional models, and mainly small or microenterprises located in Arauco (86%). They predominantly implement surface irrigation, manual harvest and pruning, low use of fertilizer or agrochemicals, and insufficient pest and disease control. Therefore, productive yields are under the normal average between 3 and 5 tonnes/ha. On the other hand, there are generalized modern plantations of low density (between 200 and 400 plants/hectare) in Chilecito and Capital departments, principally from national investments. These ones adopt advanced techniques, such as drip irrigation systems, chemical weed and pest control, and in some cases mechanical harvest. Average yields for this group reach between 5 to 7 tonnes/ha. Lastly, high and super-high density schemes are scarcely widespread in the province. Only seven producers with more than 350 plants per hectare are found within the sample, all of them from extra-local capitals. These firms operate on the technological frontier and show an average yield of 9 tn/ha.

Innovative Efforts and Results Heterogeneity amongst local olive firms influences their innovative profile and technological behaviour. It can be underlined that 62% of the sample -56 observations- perform at least one innovative activity (IA), and that in the case of larger and extra-local firms, such proportion increases (Graph N°3).