The New Geography of Innovation

Clusters, Competitiveness and Theory

Xavier Tinguely

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781137367129
• eBook ISBN: 9781137367136
• Topic: Business
• Subtopic: Business General
• Index: Business

Innovation is the main engine of competitiveness. However, in a world in which everything goes faster, the inherent nature of the innovation process has changed. This book assesses both the theoretically and empirically intertwined relationship between innovation, clusters and multinational enterprises in today's economy.

Part I

The Economics of Innovation

Introduction to Part I

As put forward by Fagerberg and Verspagen (2009, p. 218): “Innovation is one of those words that suddenly seem to be on everybody’s lips.” There is not one day that goes by without seeing an article in the press or hearing news that deals with the primacy of innovation in today’s economy. If we “google” the word “innovation,” more than 400 million hits pop up on the subject. During the last decades, firms have increasingly implemented specific innovation strategies, consultancy agencies have published reports on how to manage innovation successfully, and politicians have praised policies that support innovation and placed it at the heart of their competitiveness programs. A similar pattern has been observed in scientific publications. A plethoric literature has recently emerged on many different aspects of the innovation process (Fagerberg, 2005, p. 1). Although this research attention has greatly contributed to a better understanding of the economics of innovation, the study of innovation as an independent field of research is still recent and many researchers are still investigating unexplored features of innovation.

While doing full justice to the many academic contributions to the field would be too ambitious, the aim of this first part is to respond to three main pairs of questions:

•What is innovation and what are the main notions surrounding the concept of innovation?

•What is the role of innovation in economics and what is the relationship between innovation and economic performance?

•How has innovation been assessed and what indicators have been developed to measure it?

In order to answer these questions, this first part has been structured around three main chapters. The first chapter is a preamble to the study of innovation and aims to present the main features of the notion of innovation and to set the necessary theoretical background to a study of innovation. The second chapter focuses on the crucial role of innovation in the enhancement of economic growth and standards of living in the long run. Finally, the third chapter is devoted to the presentation of the main indicators that are currently used to measure innovation, with a special focus on patent data as they are at the core of the empirical analysis conducted in the third part of this thesis.

Two preliminary remarks have to be made. First, measurement issues are addressed after the evaluation of the impact of innovation on economic performance. This structure is justified by the fact that most of the research on the economic significance of innovation (and especially the high-profile literature on growth) was primarily seeking to provide pure theoretical constructs rather than empirical demonstrations (Carter, 2007, p. 15). Second, this first part revisits the relevant existing economic literature on innovation with the purpose of elaborating a progressive framework leading to the theoretical and empirical analysis of the geographical features of innovation in the second and third parts of this book. In a world economy still recovering from one of the worst financial crises since the Great Depression of the 1930s and with many of the world’s most developed countries struggling to keep their finances healthy and facing massive challenges to even sustain growth, recalling and re-centering some key aspects of the economic virtues of innovation may inspire current and future decision-makers in their mission to appropriately support economic development. Emphasizing the primacy of innovation in economics is even more important in today’s damaged world economy, which is still trying to figure out a way to deal with the new imperatives of globalization and the new role of knowledge as a pivotal determinant of competitive advantage.

1

Preamble to the Study of Innovation

Apart from early insights into the economics of innovation by some of the major thinkers of the 18th and 19th centuries such as Smith, Ricardo or Marx, and the groundbreaking contribution of Schumpeter in the early 20th century, innovation did not really arouse the interest of economists before the second half of the 20th century (see Section 2.1). Although scholarly interest in the study of innovation is therefore still relatively recent, research on the role of innovation in economic and social change has flourished over the last five decades in a number of quite disparate economic fields such as macroeconomics (growth theory), industrial organization (organization and strategies of innovative firms), public finance (policies encouraging innovation), and economic development (technology transfer, catching up and innovation system) (Hall and Rosenberg, 2010, p. 3). While only one out of 10,000 social science articles contained the word “innovation” in its title in the 1950s, this increased to almost 20 out of 10,000 in the 2000s (Fagerberg, 2005, p. 2). The multi-disciplinary nature of innovation research and its progressive implementation in mainstream economics have generated a plethora of literature. As underlined by Fagerberg (2005, p. 4), “the literature on innovation is so large and diverse that even keeping up-to-date with one specific field of research is very challenging”. As a consequence, although the knowledge about innovation, its determinants and its social and economic impact has been greatly enhanced, the number of contributions to the field implies a selectivity in presenting research findings.

The aim of this chapter is therefore to introduce the main characteristics of innovation and to set an appropriate basis for moving on to the rest of the study. This chapter is divided into two sections. Section 1.1 focuses on the main concepts and definitions surrounding the notion of innovation. It carefully defines innovation, explores the distinction between innovation and invention, and introduces the different types of innovation. Section 1.2 then investigates the main actors in the implementation process of innovation. As business enterprises play a key role in the development of innovation, the organization of their internal structure is particularly important in the success of the innovation process. In order to assess the internal structure of firms, the concept of the value chain will be introduced and used as a guiding analytical framework throughout.

1.1 Main concepts and definitions

Innovation is defined by the OECD (2005, p. 46) as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations”. Although this broad definition does not (and does not aim to) capture all the subtleties of the cognitive nature of innovation, it pinpoints some crucial aspects that will help us build our analysis.

First, the OECD’s definition rightly emphasizes the importance of novelty. Innovation is about newness and the minimum requirement is that an innovation must be new (Schumpeter, 1939; SPRU, 1972; Kamien and Schwartz, 1982; Dorfman, 1987). Although newness is a fundamental characteristic of innovation, the notion of novelty may nevertheless be ambiguous. For example, if an agent “X” introduces an innovation for the first time in one context and an agent “Y” then introduces the same innovation in another context at a later date, to what extent would the latter be considered an innovator? Although the answer to this question is a matter of convention, Schumpeter’s pioneering work offers some possible answers (Fagerberg, 2005, p. 8).¹ In his classical theory of the business cycle, Schumpeter identified the entrepreneur as the only agent of economic change and defined him as the individual who carries out innovation by implementing “new combinations” of factors (Schumpeter, 1939, p. 102ss.; Hagedoorn, 1996, p. 885). In a certain way, Schumpeter considered the entrepreneur as a personification of innovation (as the innovator) (De Vecchio, 1995, p. 16; Hagedoorn, 1996, p. 888ss). Innovation, or the ability and initiative of entrepreneurs, creates new opportunities for profits, which in turn attracts a “swarm” of imitators and improvers to exploit new openings (Freeman and Soete, 1997, p. 18). Based on Schumpeter’s view, agent “X” would therefore be considered as the innovator (he is the first to introduce the innovation), while agent “Y” would be either the imitator or the improver. Nevertheless, in both cases it would be consistent to call “Y” innovator as well, since he introduces the innovation for the first time in a new context (Fagerberg, 2005, p. 8).²

This finding is in line with the influential research conducted by Kline and Rosenberg (1986) on the innovation process. Many innovations occur while a product or process is diffusing (Rogers, 1995, p. 10). This issue has been concretely observed in these last decades with the emergence of new countries on the international economic stage. In an article investigating the extent of innovation in the electronic industry of the newly industrializing economies of east and southeast Asia, Hobday (2000, p. 163) emphasized that, from a remote latecomer starting position, these firms have become highly competitive in several key electronics fields by implementing and adapting innovations new to the company, although not new to the world. These firms have defied conventional product life cycle theories of how to compete in electronics by continuously repeating a successful “behind-the-frontier” catch-up innovation cycle. Because many innovations occur from behind the technology frontier, innovation could be defined as a product or process newer to the firm than to the world or marketplace (Schmookler, 1966; Myers and Marquis, 1969; Nelson and Rosenberg, 1993; Kim, 1997).

In his classical work on “Invention and Economic Growth,” Schmookler (1966, p. 10) confirmed this statement by defining invention as a new combination of pre-existing knowledge. Hobday (2000, p. 131) therefore draws the conclusion that viewing innovation solely as the successful introduction of a new or improved product (or process) to the marketplace fails to capture the very important transformations that occur in firms. Introducing an innovation in a new context often implies considerable adaptation, and subsequent innovations that may significantly increase productivity and competitiveness (Fagerberg and Godinho, 2005, p. 518). This issue has been extensively discussed in the international business literature under the motto “think globally, act locally” (Pearce, 1990; Casson, 1991; Rugman and Hodgetts, 2001; Criscuolo, 2004; Rugman and Verbeke, 2004a; Verbeke, 2009). For example, food products primarily destined to meet the tastes of German households will not necessary satisfy those of American or Japanese consumers. As underlined by Dunning and Lundan (2008, p. 368ss), multinational enterprises have to adapt their products to meet local needs and this adaptation process may lead to new innovations.

The debate on the subtleties of the notion of newness allows us to seize the opportunity to continue our analysis by stating that innovation is not a new phenomenon. Since the dawn of civilization, men have always tried to develop new or better ways of doing things and to apply them in practice (Fagerberg, 2005, p. 1). Among a countless number of examples are the invention of tools carved in stone in the Paleolithic and early Stone Age, which reflected the need of hunter-gatherers to rely on tools that were more solid than those which came readily to hand (such as broken bones, cleft sticks or sharp stones) (Williams, 2000, p. 15). Similarly, the sedentariness of populations and the related intercommunity trade that grew triggered the invention of the wheel around 3,500 BC, which in turn set off all the subsequent innovations we know today (Williams, 2000, p. 45). More recently, after having shaken up the computer industry with its MacBook, the music industry with its iPod (and iTunes), the mobile phone industry with its iPhone, Apple, one of the most innovative companies of the last decade, has recently revolutionized the way in which digital media are consumed with the release of its iPad (The Economist, 2010, Internet source). Similarly, by surfing on the “green wave” and all the recent innovations aimed at promoting the consumption of environmentally friendly energy, the project “Solar Impulse” pushed technological barriers by developing the first solar aircraft (Solar Impulse, 2010, Internet source). The aim of these few simple examples is to emphasize that innovation is a perpetual phenomenon strongly anchored in human nature. As postulated by classical writers such as Aristophanes, “necessity is the mother of invention”. Although invention and innovation (nowadays) go far beyond the simple satisfaction of human needs, this quote reflects the desire of man to constantly challenge the current state of knowledge and technology.³

An important distinction has to be made between invention and innovation.⁴ According to Fagerberg (2005, p. 4), invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out into practice. In other words, before an invention can become an innovation, further entrepreneurial efforts are required to develop, manufacture and market it (OECD, 2009b, p. 12). A patent, for example, is an indicator of invention. Additional developments are necessary before it becomes an innovation (OECD, 2009b, p. 12). Together with the notion of newness presented above, this distinction is critical in practice and emphasizes the relevance of the OECD’s definition. For example, the Swiss Federal Institute of Intellectual Property (2013a, Internet source) defines invention (in its definition of patents) as “(in the legal sense,) a solution to a technical problem. Inventions include products (e.g., heatable ski boots, or chemical compounds such as aspirin) and processes (e.g., a process for freeze-drying coffee). If an invention is novel, non-obvious to a person skilled in the art and can be commercially applied (useful) it is patentable”.⁵

Schumpeter was the first to argue that innovation needs to be distinguished from invention, which he defined as discovery (Schumpeter, 1939, p. 6ss; Freeman and Soete, 1997, p. 6). He justified this distinction by the fact that he saw innovation as a specific social activity carried out within the economic sphere (mainly the firm) and with commercial purpose, while inventions, in principle, can be carried out everywhere (Fagerberg, 2003, p. 131). With regard to Schumpeter’s theory, the role of the inventor and the innovator (as the entrepreneur) may be quite different and it is well known that some highly potential inventions failed to become successful innovations because they did not get the necessary entrepreneurial support and belief, which would have helped them to be implemented and to penetrate the market. One of the most interesting examples has been exposed by Rogers (1995, pp. 8–10) and is presented in Box 1.1.

Box 1.1 Nondiffusion of the Dvorak Keyboard

Although a large majority of people are now familiar with the use of computers most of them do not realize that our fingers tap out words on a keyboard that is called “QWERTY” (or “QWERTZ” according to the country), named after the first six keys on the upper row of letters. The inefficiency and awkwardness of this keyboard is nevertheless widely acknowledged (think about the learning process). In 1932, August Dvorak, a professor at the University of Washington, developed a much more efficient keyboard arrangement (using time-and-motion studies). The “Dvorak keyboard” has the most frequently used letters across the home row of the keyboard and the less frequently used ones on the upper and lower rows. Furthermore, the amount of work assigned to each finger is proportionate to its skill and strength. While a finger on one hand is stroking a key, a finger on the other hand can be moving into position to hit the next k...

Table of contents

• Cover
• Title
• Introduction
• Part I   The Economics of Innovation
• Part II   The Nature of the Innovation Process and the New Geography of Innovation
• Part III   The Distribution of Inventive Activity – Evidence from Patent Data in Switzerland and Focus on the Basel Pharmaceutical Cluster
• General Conclusion
• Notes
• References
• Appendices
• Index