Copernicus Institute of Sustainable Development

Cross-specialization: A rationale and policy options for linking unrelated industries

Matthijs Janssen & Koen Frenken

How to enhance competiveness by capitalizing

on economic strenghts?

Revival of industrial policy (Rodrik, 2004; Foray 2009):

What is smart industrial policy?

Support strong industries(Lazzarini 2015; Porter 1986)

Related variety for incremental innovation(Hidalgo et al. 2007; Frenken et al. 2007; Boschma et al. 2009)

Unrelated variety for breakthroughs(Castaldi et al. 2015; Kaplan & Vakili 2015; Arts & Veugelers 2015)

Cross-specialisation

Cross-specialisation

• Recombining unfamiliar knowledge components is risky. Breakthroughs stem from recombining well-used components. (Fleming, 2001)

• Combining unrelated knowledge holds a breakthrough potential. (Weisberg, 1999; Castaldi et al., 2015; Balland et al., 2018)

‘Double-edged sword’ of combining unrelated but deep knowledge (Kaplan & Vakili, 2015; Arts & Veugelers, 2015)

Rationale for cross-specialisation policy

• Pairs of unrelated industries are less common than pairs of related industries Long-lasting competitive advantage

• Unrelated knowledge flows rarely occur spontaneously Additionality

Where to look?

Top downCross-over industries:e.g. subsidizing cross-

over innovation projects

Bottom upFacilitate exploration of

potential linkages

How: Bridging cognitive distance

Industry a Industry b

Form

Technology Topic

Cross-specialization

Policy for convergence

Form

Technology Topic

Form:Platforms / intermediairesResearch / production facilitiesKnowledge / training centersCommunity management

Topic:Global challengesSmart cityEnergy / SustainabilitySocial innovationSharing economySecurity

Technology:Quantum computingNano- & bio-techInternet-of-ThingsBig dataRobotics3D-printingAI…

Development mechanisms

A

B

C

Industry 1 Industry 2

?

Lateral interface(societal challenge, horizontal technology)

C

BExisting economic

activity

New economic activity

Knowledge flows(policy-supported?)

Policy for convergence (2)

Stronghold industry a

Strongholdindustry b

New GPT

Traditional Industry

New GPT

Diversification

Diversification

Improvement of GPT

Smart Specialization Cross-specialization

Case illustration• Dutch national R&D&I strategy:

The Topsector approach (2012 – now)

• 9 Topsectors with triple helix Topteams• Topconsortia for Knowledge & Innovation• R&D, human capital, export, regulation, …

• Essentially: Modern industrial policySee: CID paper 69, Harvard Kennedy School

TKI fundingTKI surcharge MIT funds

Topteam+

Topconsortia (TKI)

Min. of Economic Affairs

Min. of Education, Culture & Science Research

Businesses

Human Capital

Other ministries

e.g. Regulation

Topsector approach policy mix (direct)

Topsector approach policy mix (indirect)

Topsector

TKI funding

Delegates

Delegates

Delegates

Dutch Topsector industry space

Cross-over industries: Index

i

∗ ,

Summary

Making unrelated strengths related• Fixed: (un)relatedness • Local: economic strengths

Top down and bottom up possibilities

Potential to combine with societal challenges / make part of other instruments

DiscussionA. Cross-over industries and development

B. How do services affect the evolution of industry space?

C. How can policy makers governcross-specialization?

Cross-over industries and development