Innovation Innovation EconomicsEconomics

Class 4Class 4

Technological change – introduction Technological change – introduction of production techniqueof production technique

Innovation – all possible changes in Innovation – all possible changes in the production and organization of the production and organization of the firmthe firm

Inducement mechanisms that lead the firms Inducement mechanisms that lead the firms to introduce new technologiesto introduce new technologies

Localized generaton of general and Localized generaton of general and contingent technologiescontingent technologies

Technology and location interact in many Technology and location interact in many waysways

Performance is influenced by the specific Performance is influenced by the specific characteristcs of the economic systemcharacteristcs of the economic system

Too much emphasis has been put by Too much emphasis has been put by economists on the firm as the single economists on the firm as the single relevent unit of analysisrelevent unit of analysis

More attention given to the environment and More attention given to the environment and the role of economic structurethe role of economic structure

Localized inducement mechanismsLocalized inducement mechanisms Innovation as a result of local search Innovation as a result of local search

induced by divergence between expectations induced by divergence between expectations and factsand facts

Myopic agents affected by bounded Myopic agents affected by bounded rationalityrationality

Cannot calculate all benefits and costs .. Cannot calculate all benefits and costs .. Each firm cannot be analyzed independentlyEach firm cannot be analyzed independently

Reactive and sequential decision makingReactive and sequential decision making

Introduction of new technology requires Introduction of new technology requires investment of resources to conduct investment of resources to conduct research and development, acquire research and development, acquire external knowledge, take advantage of external knowledge, take advantage of technological opportunities, to technological opportunities, to accumulate and articulate the benefits accumulate and articulate the benefits of experience, tacit knowledge..of experience, tacit knowledge..

Unexpected changes in their business Unexpected changes in their business environment.environment.

Four baskets of variablesFour baskets of variables Top down scientific opportunities. Bottom Top down scientific opportunities. Bottom

up technological opportunitiesup technological opportunities Location of the sources of new knowledge Location of the sources of new knowledge

whether they are internal to the economic whether they are internal to the economic system or exernal in other regions and system or exernal in other regions and other countriesother countries

Distinction between learning processes – Distinction between learning processes – learning by doing of learning by interactionlearning by doing of learning by interaction

Role of switching costsRole of switching costs

For a given set of incentives, tech. change For a given set of incentives, tech. change will be general or contingent according to will be general or contingent according to specific values of the parameters.specific values of the parameters.

General tech. change consists of radical General tech. change consists of radical changes and shifts..changes and shifts..

Contingent tech. change is the result of Contingent tech. change is the result of the incremental introduction of a myrid of the incremental introduction of a myrid of small changes after the main shift effect small changes after the main shift effect has been generated. has been generated.

Result of learning processes associated Result of learning processes associated with the use of new radical technologies.with the use of new radical technologies.

Introduction of new technologies Introduction of new technologies concerns not only competitors but also concerns not only competitors but also suppliers and customers.suppliers and customers.

Effects are both horizontal and vertical.Effects are both horizontal and vertical. Horizontal effects: changes in the Horizontal effects: changes in the

competitive advantage associated wih competitive advantage associated wih the intro. of new superior techologies. the intro. of new superior techologies. Barriers to entryBarriers to entry

Further innovations of the firms in the Further innovations of the firms in the same industry same industry

Vertical effectsVertical effects Key industries; downstream industriesKey industries; downstream industries Ex: intro of synthetic fibers – effect on Ex: intro of synthetic fibers – effect on

suppliers of textile industry…suppliers of textile industry… Effect of innovation on the overall Effect of innovation on the overall

systemsystem Related varietyRelated variety Differentiated knowledge basesDifferentiated knowledge bases Distributed knowledge networks.Distributed knowledge networks.

A focus on constructing regional advantage A focus on constructing regional advantage requires an ‘unpacking’ of what makes requires an ‘unpacking’ of what makes territorial agglomerations important for territorial agglomerations important for innovation and growthinnovation and growth

UUnpacking along the following three npacking along the following three dimensions: (1) dimensions: (1) related varietyrelated variety, (2) , (2) differentiated knowledge basesdifferentiated knowledge bases, and (3) , and (3) distributed knowledge networksdistributed knowledge networks, which taken , which taken together provides the fundament for together provides the fundament for formulating sectoral transcending formulating sectoral transcending platformplatform oriented policies. oriented policies.

A A better basis for - and, thus, improve the better basis for - and, thus, improve the capacity of - policy makers on different capacity of - policy makers on different geographical levels to formulate dedicated and geographical levels to formulate dedicated and specific innovation support customized to specific innovation support customized to different regions and sectorsdifferent regions and sectors..

Especially important is, of course, to be able to Especially important is, of course, to be able to formulate and pursue the formation of formulate and pursue the formation of necessary capabilities in regionsnecessary capabilities in regions..Source: DG Research. Constructiong Regional existing existing

capabilities to construct regional advantage. capabilities to construct regional advantage. Final Report. Brussels, 2006.

Knowledge BasesKnowledge BasesAnalytical Synthetic Symbolic

Innovation by creation of new knowledge

Innovation by application or novel combination of existing knowledge

Innovation by recombination of existing knowledge in new ways.

Importance of scientific knowledge often based on deductive processes and formal models

Importance of applied, problem related knowledge (engineering) often through inductive processes

Importance of reusing or challenging existing conventions

Research collaboration between firms (R&D department) and research organizations

Interactive learning with clients and suppliers

Learning through interaction in the professional community, learning from youth/street culture or 'fine' culture and interaction with 'border' professional communities.

Dominance of codified knowledge due to documentation in patents and publications

Dominance of tacit knowledge due to more concrete know-how, craft

and practical skill

Reliance on tacit knowledge, craft and practical skills and search skills

Example:Example:How to transform an industrial district How to transform an industrial district in crisis in the periphery of Europe? The case of in crisis in the periphery of Europe? The case of the Barletta footwear districtthe Barletta footwear district

The evolution of the footwear district of Barletta tells The evolution of the footwear district of Barletta tells a story of an industrial district in crisis in one of the a story of an industrial district in crisis in one of the most peripheral parts of Europe. Located north of most peripheral parts of Europe. Located north of the city of Bari in the South of Italy, the heydays of the city of Bari in the South of Italy, the heydays of this district were in the 1970-1990 period, during this district were in the 1970-1990 period, during which employment growth rates were sky-rocketing. which employment growth rates were sky-rocketing. Since the 1990s, it has been hit hard by a long and Since the 1990s, it has been hit hard by a long and deep economic crisis. As other districts, the Barletta deep economic crisis. As other districts, the Barletta district, which is one of the very few districts in the district, which is one of the very few districts in the South of Italy, has been confronted with increasing South of Italy, has been confronted with increasing competition from low-cost countries like China. Till competition from low-cost countries like China. Till now, it has been unable to respond to the crisis, and now, it has been unable to respond to the crisis, and its future prospects are dim.its future prospects are dim.

The structure of the local knowledge network in the The structure of the local knowledge network in the Barletta region is extremely weak, and many local Barletta region is extremely weak, and many local firms are not connected (Boschma and Ter Wal, firms are not connected (Boschma and Ter Wal, 2005). Firms tend to operate on their own, and they 2005). Firms tend to operate on their own, and they regard their own internal knowledge base as the regard their own internal knowledge base as the most important source of knowledge. Firm-specific most important source of knowledge. Firm-specific features like their absorptive capacity contributed features like their absorptive capacity contributed to the innovative performance of the Barletta to the innovative performance of the Barletta footwear firms, in contrast to external sources of footwear firms, in contrast to external sources of knowledge. This dependence on internal sources of knowledge. This dependence on internal sources of knowledge and the presence of quite weak local knowledge and the presence of quite weak local knowledge relationships may have something to do knowledge relationships may have something to do with a lack of social capital that is often found in with a lack of social capital that is often found in the South of Italy (Evangelista et al., 2002).the South of Italy (Evangelista et al., 2002).

In practice, it has proved difficult in many cases to tackle In practice, it has proved difficult in many cases to tackle this fundamental institutional problem in the South of Italy. this fundamental institutional problem in the South of Italy. This is certainly not something that can be solved in the This is certainly not something that can be solved in the short-term. That may already be too late anyhow for the short-term. That may already be too late anyhow for the majority of footwear firms in the Barletta district. It is majority of footwear firms in the Barletta district. It is expected that only a few large firms will survive, and these expected that only a few large firms will survive, and these firms can only do so through the adoption of an firms can only do so through the adoption of an international strategy in which at least footwear production international strategy in which at least footwear production will move out of the area. The example of the Barletta will move out of the area. The example of the Barletta district suggests how difficult it may be to construct district suggests how difficult it may be to construct regional advantage in such circumstances, and how regional advantage in such circumstances, and how unrealistic it might be to expect that the district model that unrealistic it might be to expect that the district model that worked well in other more favourable parts of Italy is a worked well in other more favourable parts of Italy is a panacea for the development of the South of Italy. However, panacea for the development of the South of Italy. However, this example also shows the strong need of intelligent this example also shows the strong need of intelligent policies in specialized regions that aim at broadening their policies in specialized regions that aim at broadening their regional economic base.regional economic base.

Sources: Boschma, R.A. and A.L.J. ter Wal (2005); Evangelista, Sources: Boschma, R.A. and A.L.J. ter Wal (2005); Evangelista, R., Iammarino, S., Mastrostefano, V. and Silvani, A. (2002).R., Iammarino, S., Mastrostefano, V. and Silvani, A. (2002).

Trends in Industry Trends in Industry ConcentrationConcentration

Pattern of specialization across Pattern of specialization across industrialized world:industrialized world: Europe: Specialize in traditional Europe: Specialize in traditional

industries,industries, Japan and US: Specialize in technology Japan and US: Specialize in technology

oriented industriesoriented industries

ClustersClusters

Industry cluster policies are a current Industry cluster policies are a current trend in planning for economic trend in planning for economic development.development.

The focus of cluster policies is based on The focus of cluster policies is based on the recognition that firms and the recognition that firms and industries are interrelated.industries are interrelated.

The idea is that ties among firms within The idea is that ties among firms within clusters might be turned into clusters might be turned into competitive advantage for the region.competitive advantage for the region.

Cluster Number of Firms (1996)

Change in Number of Firms (1996-2000)

Employment (1996)

Change in Employment (1996-2000)

Engineering 3195 8,4 288534 10,8

Production and Processing of Field Crops

1093 -3,1 127881 -3,6

Stone Based Industry 1165 6,3 104104 7,9

Packaged foods and beverages

1286 -5,6 114507 0,6

Textile 3668 6,1 400747 10,3

Media and Communication

709 8,2 87302 9,8

Furniture 618 12,6 44864 26,2

Total 11734 5,1 1167939 8,3

Source: Akgungor, S. (2006). Geographic Concentrations in Turkey’s Manufacturing Industry”. Europen Planning Studies, vol 14, no.2.

Industries With Close I-O Relationships in Turkey (Cluster Templates)

Engineering ClusterEngineering Cluster

Primary IndustriesPrimary Industries Mining of metal oresMining of metal ores Manufacture of ceramic productsManufacture of ceramic products Manufacture of basic iron and steelManufacture of basic iron and steel Manufacture of basic precious and non-ferrous metalsManufacture of basic precious and non-ferrous metals Casting of metalsCasting of metals Manufacture of fabricated metal products, tanks, reservoirs and steam generatorsManufacture of fabricated metal products, tanks, reservoirs and steam generators Manufacture of other fabricated metal products; metal working service activitiesManufacture of other fabricated metal products; metal working service activities Manufacture of general purpose machineryManufacture of general purpose machinery Manufacture of special purpose machineryManufacture of special purpose machinery Manufacture of domestic appliances n.e.c.Manufacture of domestic appliances n.e.c. Manufacture of electrical machinery and apparatus n.e.c.Manufacture of electrical machinery and apparatus n.e.c. Manufacture of motor vehicles, trailers and semi-trailersManufacture of motor vehicles, trailers and semi-trailersSecondary IndustriesSecondary Industries Extraction of crude petroleum and natural gasExtraction of crude petroleum and natural gas Manufacture of medical, precision and optical instruments, watches and clocksManufacture of medical, precision and optical instruments, watches and clocks Building and repairing of ships, pleasure and sporting boatsBuilding and repairing of ships, pleasure and sporting boats Manufacture of transport equipment n.e.c.Manufacture of transport equipment n.e.c. Manufacturing n.e.c.Manufacturing n.e.c.

Production and Production and Processing of Field CropsProcessing of Field CropsPrimary IndustriesPrimary Industries Growing of cereals and other crops n.e.c.Growing of cereals and other crops n.e.c. Farming of animalsFarming of animals Agricultural and animal husbandry service activities, except veterinary Agricultural and animal husbandry service activities, except veterinary

activitiesactivities Manufacture of vegetable and animal oils and fatsManufacture of vegetable and animal oils and fats Manufacture of grain mill products, starches and starch productsManufacture of grain mill products, starches and starch products Manufacture of preparad animal feedsManufacture of preparad animal feeds Manufacture of sugarManufacture of sugar Manufacture of cocoa, chocolate, sugar confertionery and other food Manufacture of cocoa, chocolate, sugar confertionery and other food

products n.e.c.products n.e.c. Manufacture of tobacco productsManufacture of tobacco products Manufacture of fertilizers and nitrogen compoundsManufacture of fertilizers and nitrogen compoundsSecondary IndustriesSecondary Industries Manufacture of alcoholic beveragesManufacture of alcoholic beverages Manufacture of pesticides, other agro-chemicals and paints, varnishesManufacture of pesticides, other agro-chemicals and paints, varnishes Manufacture of rubber productsManufacture of rubber products

Stone-Based IndustryStone-Based IndustryPrimary Industries Primary Industries Mining of coal and ligniteMining of coal and lignite Extraction of crude petroleum and natural gasExtraction of crude petroleum and natural gas Quarrying of stone, sand and clayQuarrying of stone, sand and clay Mining and quarrying n.e.c.Mining and quarrying n.e.c. Manufacture of pesticides, other agro-chemicals and paints, varnishesManufacture of pesticides, other agro-chemicals and paints, varnishes Manufacture of glass and glass productsManufacture of glass and glass products Manufacture of ceramic productsManufacture of ceramic products Manufacture of cement, lime and plaster related articles these itemsManufacture of cement, lime and plaster related articles these items Cutting and finishing of stone and man. of other non-metallic mineral products Cutting and finishing of stone and man. of other non-metallic mineral products

n.e.c.n.e.c.Secondary IndustriesSecondary Industries Forestry, logging and related service activitiesForestry, logging and related service activities FishingFishing Mining of metal oresMining of metal ores Manufacture of basic chemicals, plastics in primary forms and os synthetics Manufacture of basic chemicals, plastics in primary forms and os synthetics

rubberrubber Manufacture of rubber productsManufacture of rubber products Building and repairing of ships, pleasure and sporting boatsBuilding and repairing of ships, pleasure and sporting boats

Packaged Food Products Packaged Food Products and Beveragesand Beverages

Primary IndustriesPrimary Industries FishingFishing Production, processing and preserving of meat and meat Production, processing and preserving of meat and meat

productsproducts Processing and preserving of fruit and vegetablesProcessing and preserving of fruit and vegetables Manufacture of dairy productsManufacture of dairy products Manufacture of bakery productsManufacture of bakery products Manufacture of alcoholic beveragesManufacture of alcoholic beverages Manufacture of soft drinks; production of mineral watersManufacture of soft drinks; production of mineral watersSecondary IndustriesSecondary Industries Growing of vegetables, horticultural specialties and nursery Growing of vegetables, horticultural specialties and nursery

productsproducts Processing and preserving of fish and fish productsProcessing and preserving of fish and fish products Manufacture of cocoa, chocolate, sugar confertionery and other Manufacture of cocoa, chocolate, sugar confertionery and other

food products n.e.c.food products n.e.c. PublishinPublishingg

TextileTextile

Primary IndustriesPrimary Industries Manufacture of textilesManufacture of textiles Manufacture of other textilesManufacture of other textiles Manufacture of knitted and crocheted fabrics and articlesManufacture of knitted and crocheted fabrics and articles Manufacture of wearing apperel, except fur apparelManufacture of wearing apperel, except fur apparel Manufacture of basic chemicals, plastics in primary forms Manufacture of basic chemicals, plastics in primary forms

and of synthetic rubberand of synthetic rubber Manufacture of cleaning materials, cosmetics and other Manufacture of cleaning materials, cosmetics and other

chemicals and man-made fibreschemicals and man-made fibresSecondary IndustriesSecondary Industries Agricultural and animal husbandry service activities, Agricultural and animal husbandry service activities,

except veterinary activitiesexcept veterinary activities Manufacture of plastic productsManufacture of plastic products Manufacture of glass and glass productsManufacture of glass and glass products

FurnitureFurniture

Primary IndustriesPrimary Industries Forestry, logging and related service activitiesForestry, logging and related service activities Sawmilling and planing of woodSawmilling and planing of wood Manufacture of wood and of products of wood Manufacture of wood and of products of wood

and corkand cork Manufacture of furnitureManufacture of furnitureSecondary IndustriesSecondary Industries Manufacture of cocoa, chocolate, sugar Manufacture of cocoa, chocolate, sugar

confertionery and other food products n.e.c.confertionery and other food products n.e.c. Manufacture of coke, refined petroleum Manufacture of coke, refined petroleum

produtcsprodutcs Manufacture of rubber productsManufacture of rubber products

Regional SpecialisationsRegional Specialisationsİstanbul -

İzmir Stone-based industry

Çukurova Textile

Ankara and Kırıkkale

EngineeringFurniture

Ankara Region Production and processing of field cropsStone-based industry

Kayseri Furniture

Gaziantep Textile

Konya EngineeringProduction and processing of field crops

Samsun Production and processing of field crops

Eskişehir EngineeringStone-based industryPackaged food and beverages

Figure 6.2  Diamond framework of competitive advantageSource: Adapted from Porter (1990), figure 3.1, p. 72.