CONSTRUCTING REGIONAL ADVANTAGE

principles – perspectives – policies

REPORT
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 EUROPEAN COMMISSION

CONSTRUCTING REGIONAL
ADVANTAGE

principles – perspectives - policies

REPORT prepared by an independent expert group:

Chairman:
Prof. Phil COOKE – Cardiff University – Cardiff - The United Kingdom

Rapporteur:
Prof. Bjørn ASHEIM - Lund University – Lund – Sweden

Prof. Jan ANNERSTEDT – Copenhagen Business School – Frederiksberg – Denmark

Dr Jiří BLAŽEK – Charles University – Praha – Czech Republic
Prof. Ron BOSCHMA – Utrecht University – Utrecht – The Netherlands
Prof. Daneš BRZICA – Institute of Slovak and World Economy – Bratislava – Slovakia
Prof. Asa DAHLSTRAND LINDHOLM – Halmstad University – Halmstad – Sweden
Mr. Jaime DEL CASTILLO HERMOSA – Información y Desarrollo S.L.- Bilbao – Spain
Prof. Philippe LAREDO – Laboratoire Territoires, Techniques, Sociétés - Paris– France
Ms Marina MOULA – Cyclotron Ltd – Athens – Greece
Prof. Andrea PICCALUGA – Scuola Superiore Sant’Anna, IN-SAT Lab – Pisa - Italy

2006 Directorate-General for Research

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 FOREWORD

“We want a Europe (in which) our best and

possibly unique factor of competitiveness
and prosperity (is) the creativity of our
citizens [...]; not only the brains of our elites
but the creativity and participation of all
our citizens...”

Janez Potočnick
Commissioner for Science and Research
(Mid-term Review of Lisbon Strategy- 2004)

Re-launching the Lisbon strategy that European leaders defined in 2000 and re-
invigorating it by focusing on growth and employment in a stronger partnership with
Member States, is one of the major challenges for Europe. Building the
knowledge society and leveraging knowledge for growth is probably the best, and
maybe the only, way to sustain our European model of society.

However, we have to realise that the European Community is investing too little in
research (2% of our GDP). At the European level, Community research funding has a
strong leverage and multiplier effect, both on public research budgets and on private
R&D investments. The Communication “More Research and Innovation –
Investing for Growth and Employment” adopted by the Commission in October
2005 takes a systemic approach by addressing all factors affecting directly and
indirectly the performance of research and innovation systems.

The recently developed Regions of Knowledge scheme aims to help all European
regions - whatever their level of development – move into the knowledge economy by
investing effectively and more in R&D.

European regions need expertise in finding the routes to the knowledge economy.
This report on “Constructing Regional Advantage”, written by a group of
independent experts, provides valuable guidance to the regions for developing their
research and innovation capacity and performance and to boost their knowledge-
based competitiveness.

Isi SARAGOSSI
Director DG RTD-M
Investment in research and links with other policies
3
4
 TABLE OF CONTENTS

Presentation of the CRA Expert Group – Trombinoscope 3

List of Acronyms 8

Executive Summary and Recommendations 10

. The mandate of the ‘Expert Group’ on ‘Constructing Regional Advantage’ 11
. Constructing Regional Advantage (CRA) 12
. Perspectives and methodologies for policies of CRA 13
. Content of policies for constructing regional advantage 14
. ‘Carriers’ of policies for constructing regional advantage 16
. Recommendations 19
. Conclusion 23

Policy challenges in a globalising economy 25

. Box 1: Strengthening innovation in a traditional sector –
The case of Tourism in the Balearic Islands region 26

Why regions? 29
. Definition and rationale 29
. Regionalisation of Innovation Policy 30
. Constructing Regional Advantage (CRA) 31
. Perspective and methodologies for policies of CRA 32

Background and pre-conditions of constructing regional advantage 35

. Regional endowments 35
. Box 2: How to transform an industrial district in crisis
in the periphery of Europe? -
The case of the Barletta footwear district 36
. Box 3: Emerging new multicentre –
Vienna-Bratislava metropolitan area (VBMA) 37
. Box 4: Challenger for regions less successful in innovations –
The case of Prague 38
. Box 5: Promoting Innovation in Less Favoured Regions –
The experience of North Aegean 41
. Evolutionary perspective 42
. Box 6: The experience of Finnish Science 43
. Box 7: Grenoble: Building a world class “pole” 43

5
Content of policies for constructing regional advantage 45
. Related variety 46
. Box 8: The importance of a generic knowledge base –
The case of the Emilia-Romagna region 47
. Differentiated knowledge bases 48
. Distributed knowledge networks 50

Platform vs. Sectorial policies 51

. Box 9: An example of platform strategies 52
. Box 10: Shaping a world class hub –
The evolving healthcare cluster in Shanghai 53

‘Carriers’ of policies for constructing regional advantage 55

. Territorial competence bases 55
. Business climate and People climate 55
. Regional knowledge infrastructure 57
. Box 11: Hub-cities and their regions –
Successful local clusters are globally connected 58
. SME and entrepreneurship policies 59
. Box 12: Austin, Texas – Advantage constructed on a creative ‘Scene’ 61
. Box 13: Knowledge-based entrepreneurship –
The case of technology-based new firms 63
. Upgrading and building regional innovation systems 65
. Box 14: Third Generation Innovation Environments - 66
. Box 15: Building Regional Innovation Systems -
VINNOVA’s VINNVAXT-initiative 67
. Regional Innovation Systems as creative knowledge environments 69

Appendix 1: Conceptual and Theoretical background 71

. Constructed advantage: Definition and concepts 71

Appendix 2: How to characterise regions –

The three industrial knowledge bases 75
. Analytical knowledge base 75
. Synthetical knowledge base 75
. Symbolic knowledge base 76

Appendix 3: Models for constructing regional advantage 79

6
 . Regional Innovation Systems (RIS) 79
. Varieties of Regional Innovation Systems 80
. Can Regional Innovation Systems exist? 82
. Clusters 83
. Knowledge base and institutional framework:
Connecting clusters and regional innovation systems 85
. Learning Regions 86
. The building blocks of the concept of Learning Regions 87
. The Triple Helix 88

References 90

* *
*

Tables and Figures

Table 1 – Meaning of regionalisation 30

Figure 1 – A systemic representation of dynamism in regional systems 39

Table 2 – Knowledge Economies – Index Numbers, European Union (15) 40

Table 3 – The three knowledge bases 49

Figure 2 Knowledge bases and industries: an illustration 49

Figure 3 – Platform policies 52
Figure 4 – Two dimensional classification of main innovation policy 60

Table 4 – Characteristics of institutional and entrepreneurial types of RIS 60

Table 5 – Closed and open innovation 62

Figure 5 – Types of regional Innovation systems and knowledge bases 68

* *
*

7
 ACRONYMS

BRIS – Bohemian Regional Innovation Strategy

CEA – Centre d’Energie Atomique
CRA – Constructing Regional Advantage
CSF - Community Support Framework (Structural Funds)
EC – European Commission
ERA– European Research Area
ERIS – Entrepreneurial Regional Innovation System
ESRF - European synchrotron research facility
EU – European Union
FDI – Foreign Direct Investments
GDP – Gross Domestic Product
GSM - Global System for Mobile
IBIT – Technology Park of the Balearic Islands (Illes Balears Innovació
Tecnológica)
ICT – Information and Communication Technologies
INA – Innovation in North Aegean
INPG - Institut National Polytechnique de Grenoble
IRIS – Institutional Regional Innovation System
ITT – Innovation and Technology Transfer
JAVA-Platform (easy-way computer language for animation and
other multimedia possibilities)
KIBS – Knowledge Intensive Business Services
LETI - Laboratoire d'étude des technologies de l'information
MINERVA Programme - Mobilizácia Inovácií v Národnej Ekonomike a Rozvoj
Vedecko-Vzdelávacích Aktivít (Mobilisation of Innovation in National Economy and
Development of Scientific-Educational Activities) - Slovakia
MINATEC - Micro et Nano Technologies
MNC – Multi National Companies
OLI – Ownership-Location-Investor
PRIME - Network of excellence on Policies for Research and Innovation in
the Move towards the ERA
R&D – Research and Development

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RDTI – Research Development and Technological Innovation
R&T – Research and Technology
RIS – Regional Innovation Systems
RITTS – Regional Innovation and Technology Transfer Strategy
ROP – Regional Operational Programme
SME – Small and Medium Sized Enterprise
SMEPOL – SME policy and the Regional Dimension of Innovation (Research project
under the Targeted Socio-Economic Research programme – 4th Framework Programme –
financed by the European Commission – DG Research
TNC – Trans National Companies
UFJ - Université Joseph Fourier
VBMA – Vienna-Bratislava Metropolitan Area
ZIRS - Zone Industrielle et de Recherche S&T
* *
*

9
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 Constructing Regional Advantage
Executive Summary and Recommendations

Developing the regional dimension of the European Research Area implies developing the
endogenous capacity of the regions to innovate and to capitalise on their strengths to
create wealth and jobs. This approach can be described by the concept of creating a new
competitive advantage in a globalised world. Devising ways to valorise specific
knowledge-assets at regional level proves to be a crucial task and allows regions to
achieve “constructed regional advantage”.

European Commission’s DG Research has taken an initiative to set up an Expert Group

chaired by Professor Phil Cooke (University of Wales, Cardiff), specifically devoted to this
task. On behalf of the Commission services, the Expert Group has been managed by Unit
M3 (Sector on Regional Aspects of Research Policy) under the responsibility of Dr. Dimitri
Corpakis (Head of Sector) and Mr Jean-Marie Rousseau (Policy Officer) who also set the
Terms of Reference for the Group’s work. The Group met eight times from September
2004 to December 2005.

The Expert group on Constructing Regional Advantage devised a methodology as a

flexible tool providing a variety of approaches for delivering guidance and workable
approaches to regional policy makers faced with the challenge of the knowledge based
economy rather than a one-size-fits-all solution. In this respect, the Expert Group had to
define a flexible, yet rigorous and focused process to allow tools and methods to be
transferred to the wider community of European regions. The Expert Group outlined
guidance to help regions help themselves to build their own attractive regional image while
reinforcing the ability of business and research communities to quickly respond to new
scientific and technological opportunities.

The mandate of the ‘Expert Group’ on

‘Constructing Regional Advantage’

In the relevant Terms of Reference, it is stated that:

‘the work of this Expert Group is to be seen fully against the context of
the Barcelona objective, namely achieving average investment in
Research and Development of 3% of the Union’s GDP by 2010.
The 3% Action Plan identified the need for regions to become more
efficient in using their resources for investing in R&D. It also pointed to
the need for setting up learning initiatives for the regions.
The EU needs expertise in finding routes to the knowledge economy
and the contribution of the Expert Group on ‘Constructing Regional
Advantage’ may be instrumental in this respect.’

11
 Constructing Regional Advantage (CRA)

Taking this as a point of departure, the aim of this report is to proceed further in
strengthening this approach by asking how the capacity for knowledge creation and
exploitation in the context of regional innovation systems can be developed as a means of
constructing regional advantage.

This is the result of the increasing global competition from newly industrialised countries
such as Taiwan, South Korea, Singapore, and rapidly catching up countries such as China
and India. The new economic landscape has emphasised the need for firms in Europe to
enhance their competitiveness by combining a focus on product and service
differentiation/innovation with cost efficiency.

Subsequently firms may apply an open innovation model and thus, rely on sourcing –
sometimes globally – for the best talents. Simultaneously, outsourcing or off-shoring of
standardised labour-intensive activities to low-cost countries is increasing. In this vein we
concur that constructed advantage is regarded as the next evolutionary step in regional
economic development.

While the theory of comparative advantage is criticised for ignoring the role of
technological change and innovation, the theory of competitive advantage is also
considered too narrowly market focused.

The theory of constructed advantage allows for more attention to the role and impact of the
public sector in the economy. It also highlights policy support, preferably in public-private
partnerships, by acknowledging to a greater extent the importance of institutional and
economic complementarities in knowledge economies than do theories of comparative and
competitive advantage.

Instead of market failure, the rationale for policy intervention is the reduction of interaction
or connectivity deficits. A regional innovation systems approach, which is key to
constructed advantage, sees such deficits as the core problem of innovation in the EU.

Therefore, it is an important question whether firms can take up this challenge of

strengthening their knowledge bases by themselves. Evidence suggests that rarely on
their own initiative do firms start co-operating with neighbouring firms or co-located
knowledge creating and diffusing organisations.

Accordingly, while changing their behaviour to become more innovative is one option,
another involves more planned and systemic approaches to innovation in a globalising
knowledge economy. In this way, regional advantage may be consciously and pro-actively
constructed. This involves a new and more dynamic role for the public sector, for example
universities, and the wider economic governance system, specifically in interaction with the
private sector.

12
 Perspectives and methodologies
for policies of CRA

Today, social scientists and policy makers highlight regions as key sites of innovation and
competitiveness in the globalising economy. Thus, regional innovation systems (RIS) are
seen as an increasingly important policy framework for implementing long-term, innovation
based regional development strategies, including clusters.

Research shows that the majority of theoretical as well as empirical analyses of innovation
systems have a regional focus. In more and more countries, innovation policies take place
at the regional level.

The regionalisation of innovation policy holds the potential for improved ‘on-the-ground’
policy by developing know-how about specific economy conditions at the regional action
level. Measures can be formulated, implemented and monitored in a more targeted way,
and thus be capable of addressing more precisely what are particular regional firms’
needs. Foremost among these, are deficits concerning innovation, regional proximity and
communicative interaction.

Given the complexity of the challenge, the report offers not ‘one-size-fits-all’ recipes but
rather a policy methodology and perspective. This is appropriate in a Europe characterised
by large scale and developmental diversity.

Past experiences, concrete cases, theories and models represent the background which
policy makers should work with in order to find their own (regional) solution, rather than the
exact replication or ‘cloning’ of more or less successful examples of regional policies from
elsewhere, often from places with very different economic and socio-institutional
environments.

Copying of best practices is almost impossible when it comes to intangible regional assets
(such as particular knowledge bases or institutional settings) that are the results of long
histories in particular regional contexts. Policy makers should therefore reflect on this and
be wary to simply imitate successful models.

Nonetheless, some general perspectives do exist which can be taken into account as
supporting methodologies that policy makers can use to formulate and implement
innovative regional policies. Policy makers are thus responsible for tailoring region-specific
policy. They will seek to support regional strengths through better aligning knowledge
exploration and knowledge exploitation capabilities.

Regional policy in a diversified, globalising economy increasingly works in this way as a

mosaic which has to be built with pieces which are not pre-determined. The mosaic is
composed of elements related to producing coherent policy and development pictures.

Of key importance in this context is the recognition of institutional and governance

capabilities in regions. This should take into account variation in the quali ty of regional
communication infrastructures, understanding the knowledge base advantages of the

13
region, and presuming that true regional innovation system connectivity is not complete in
most regions.

Moreover, regional development must be understood as an evolutionary process, based

on path dependent technological trajectories. According to evolutionary thinking, the
historical trajectory of a region sets serious limits to the windows of opportunity with regard
to relevant policy options as well as to copying an external model that owed its success to
its deep roots in a distinctive environment.

Furthermore, an evolutionary perspective also implies that changes in industrial structure,

capacity to innovate and competitiveness take time. An important aspect of this
perspective is also the lock-in problematic in the context of, for example, old industrial
regions.

Content of policies
for constructing regional advantage

A focus on constructing regional advantage requires an ‘unpacking’ of key elements of the

regional economic and governance mosaic. Much has been discovered recently about
what makes, for example, territorial agglomerations important for innovation and growth.
These include better understanding of distinctive modes in which regional knowledge
creation, innovation and entrepreneurship occur. In the report, such unpacking is
conducted according to the following dimensions:
• related variety,
• differentiated knowledge bases,
• distributed knowledge networks,
• trans-sectorial platform policies.

These ‘unpacking’ efforts improve the capacity of policy makers at different geographical
levels to formulate dedicated and specific innovation support customised to different
regions and sectors. These will be in increasing demand if regions in high-cost countries
are to compete and survive in a globalising knowledge economy. Especially important is
the formation of necessary capabilities in regions to construct regional advantage.

Firstly, the theoretical disagreement between adherents of the opposed views that
sectoral specialisation or differentiation are best for nurturing innovation is resolved
by evidence that growth occurs in contexts of related variety economic platforms.
Related variety allows higher absorptive capacity and more rapid diffusion of
innovations among related user-producer communities.
Think of the many, rapid innovative spill-over adaptations of sensors, software and
digital content. Related variety thus combines the strength of the specialisation of
‘localisation’ economies and the diversity of ‘urbanisation’ economies.

14
 Secondly, differentiating between industrial knowledge bases represents another
dimension of the ‘unpacking’ strategy. The innovation process of firms and industries
is strongly shaped by their specific knowledge base. In this report, we distinguish
between three types of knowledge base: ‘analytical’, ‘synthetic’ and ‘symbolic’.
These types indicate different mixes of tacit and codified knowledge, codification
possibilities and limits, qualifications and skills required by organisations and
institutions involved, as well as specific innovation challenges and pressures.
Crossing such boundaries is the heart of the connectivity problem.

Thirdly, it is important in the discussion of preconditions for constructing regional

advantage to shed light on how knowledge bases of different sectors are changing as
a consequence of globalisation. In order fully to grasp the dynamics of these
changes, a globalisation perspective must explicitly be taken into consideration to
modify the endogenous perspective by introducing a distributed knowledge network
perspective, which more and more are manifested in global value chains organised
by Trans National Companies (TNCs).

Finally, taken together, these three dimensions provide the base for formulating
sectoral transcending platform oriented policies. As noted, a narrow sector
perspective is redundant for constructing regional advantage in a globalising
knowledge economy. The platform concept has so far mostly been used either to
describe generic technologies such as software and biotechnology, that have
potential applications across a wide range of industries, or modular developments in
automotives, where a limited number of platforms can be used to build a large variety
of car models.

One of the consequences of the very fast pace of current technological change is that
innovations are often in general purpose technologies with applications over a range
of services, products and industries. This is the current creative advantage of
advanced economies, since the innovative skill lies not in imitation but innovative
adaptation, including disruptive innovation such as on-line banking, budget airlines,
and digital electronics.

Platform policies articulate support for related variety by integrating differentiated

supports ranging from talent formation to economic aids and environmental
enhancement.

Thus rigid sectoral policies at regional level can be a risk for the following reasons:

First and foremost, there are no policies which are sufficient for the survival of
sectors which have moved to low-cost countries.

Second, if sectors are identified in a too rigid way, scientific and technological
opportunities can emerge at regional levels which cannot be exploited, leading to
inventions being exploited by companies located in other regions.

Third, sectors are in fact a statistical fiction and even more so, frequently an outdated
statistical description, slow to catch up with the emergence of new platform fields. For
example, it is still impossible in many national statistical systems effortlessly to find
biotechnology statistics.

15
This recognises the complexity in contemporary interactions and systems of knowledge,
technologies, and economies, and offers a more effective and efficient way of dealing with
it. Platform policies create more scope and flexibility on the one hand, and the need for
connectivity and the creation of systems on the other.

A platform approach generates a context better equipped to exploit multipurpose and

generic technologies. Therefore, the notion of policy platforms highlights the articulation of
an array of instruments including and integrating key components from several policy
domains.

‘Carriers’ of policies
for constructing regional advantage

In order for platform policies to be initiated, innovated and implemented, various actors,
agencies and structures must exist and be engaged as ‘carriers’ of policies for constructing
regional advantage. This highlights the importance of territorial competence bases
(including people and business climate as well as the regional knowledge infrastructure),
SME and entrepreneurship policies (especially technology-based entrepreneurship), and
governance dimensions of upgrading and building regional innovation systems as creative
knowledge environments.

This emphasises the need for a more platform and system-oriented as well as a more pro-
active innovation based regional policy in order to construct regional advantage. A re-
orientation of what is called the target level of support, changing innovation policies from
being firm-oriented to a (regional) system-oriented perspective has already received
growing attention from researchers and policy makers. To some extent, this has emerged
from experience of pursuing localised cluster building or broader regional innovation
system policy.

However, the second part of the recommendation concerns the form and focus of support.
This implies a change of focus from allocation of resources for innovation to focusing on
innovative learning, aiming for behavioural value-added through pursuing a platform-
oriented perspective. Hitherto, this has not been implemented to the same degree. Of
strategic importance in shaping the conditions for constructing regional advantage is
precisely a need for a more conscious and thoroughly systemic approach to developing
the endogenous capacity of firms and regions to innovate.

To repeat, this focuses especially on the role of knowledge creation, absorption and
diffusion generally, with R&D and Symbolic Creativity more specifically in a well-structured
and well-designed interplay of local and global knowledge flows.

Regional innovation systems have played and will continue to play a strategic role in
promoting the innovativeness and competitiveness of regions. To achieve this, the RIS
approach has to be strengthened by attention being directed towards the need – perceived

16
by policy makers both at EU and regional levels – of a broader basis of constructing
regional advantage.

Therefore, theoretical and practical advice must be developed partly with respect to how
collaboration between the actors of the so-called Triple-Helix, i.e. the industry, university
and government, should be externally organised. Partly also with respect to how
knowledge creation and innovation oriented work should be organised internally among
the different actors, thus turning the macro-, meso-, and micro-levels of the Triple-Helix
into creative knowledge environments.

Creative knowledge environments in which new knowledge is produced can be found at

macro- (e.g. national or regional innovation systems), meso- (e.g. research institutions and
corporations) as well as micro-levels (i.e. research groups or work teams), and contain
physical, social and cognitive characteristics.

This new focus on creative knowledge environments covers a void in the majority of
innovation studies - primarily focusing on how knowledge is exploited through innovation
and entrepreneurship – by analysing how creation of new knowledge actually occurs as
well as what characterises the environments in which creative knowledge-producing
activities are carried out.

Thus the approach puts clearer focus on actors, agencies and governance forms as well
as their respective environments relevant for constructing regional advantage in a triple-
helix as well as a multi-level perspective.

Today, a major opportunity exists for European public authorities to boost the Lisbon
agenda for competitiveness, while simultaneously improving services and attractiveness.
However, achieving these goals requires changes in the mindset in terms of knowledge
valorisation and specific regional advantages.

* *
*

17
18
 RECOMMENDATIONS
According to the above reflections and witnesses, set out below are key CRA
Commission recommendations:

Recommendation In accordance with the 3% action plan of the Barcelona objective, the
report recommends that regions must become more efficient in using
1 their resources for investing in R&D as well as developing their capacity
for knowledge creation and exploitation as a means to constructing
regional advantage.

Recommendation In order for EU regions to be more competitive, changing firms’

2 behaviour to become more innovative is one option. This suggests a
new and more dynamic role for the public sector (including universities)
generally and government in interaction with the private sector.

Recommendation In order to accomplish constructed regional advantage further theoretical

and practical advice requires development:
3 1) partly with respect to how collaboration between the actors of the
triple-helix (industry, university and government) should be externally
organised, and
2) partly with respect to how knowledge creation and innovation oriented
work should be organised internally among the different actors, thus
turning the macro-, meso-, and micro-levels of RIS into creative
knowledge environments.

Recommendation Since various actors, agencies and structures are required to be

engaged as ‘carriers’ of policies for constructing regional advantage, we
4 must highlight:
1) the importance of territorial competence bases, including people and
business climate as well as the regional knowledge infrastructure,
2) SME and entrepreneurship policies, especially technology-based
entrepreneurship, and
3) governance dimensions of upgrading and building regional innovation
systems as creative knowledge environments.

19
Recommendation The idea that it is possible to design ‘one-size-fits-all’ regional policies is
no longer valid or viable. Copying of best practices is almost impossible
5 when it comes to intangible regional assets that are the results of long
histories in particular regional contexts. Policy makers are advised to be
wary to simply imitate successful models. Therefore, local solutions
have to be inspired by endogenous capacity which needs to evolve
rather than selecting from a portfolio of specific models or recipes.

Recommendation According to evolutionary thinking the historical trajectory of a region

sets serious limits to the windows of opportunity with regard to relevant
6 policy options. Regional policy in a diversified, globalising economy must
be understood as a mosaic that has to be built with pieces which are not
pre-determined. Of key importance in this context is the quality of
regional communication infrastructures, understanding the knowledge
base strengths of the region, as well as evolutionary processes, i.e.
based on path dependent technological trajectories.

20
Recommendation Since focusing on learning aiming for behavioural value-added through a
platform-oriented perspective is of strategic importance, it is worth
7 focusing especially on the role of knowledge creation, absorption and
diffusion generally with R&D. A well-structured and well-designed
interplay of local and global knowledge flows focused on regions as
‘knowledge hubs’ is advocated.

Recommendation Constructing regional advantage requires an identification of the basic

building blocks for developing this approach, by using the following
8 dimensions:

(1) related variety accounting for spill-over effects, and combining

the strength of the specialisation of localisation economies and
the diversity of urbanisation economies;
(2) differentiated knowledge bases (synthetic, analytical,
symbolic), referring to different mixes of tacit and codified
knowledge, codification possibilities and limits, qualifications
and skills as well as specific innovation challenges and
pressures;
(3) distributed knowledge networks, taking into account how
knowledge bases of different sectors are changing as a
consequence of globalisation;
(4) Taken together these provide the foundation for formulating
trans-sectoral platform policies for potential applications across
a wide range of industries.

Recommendation While rigid sectoral policies at regional levels can be at risk in a

globalised competition, a platform approach offers a context better
9 equipped to exploit multipurpose and generic technologies. Therefore,
policy platforms, which help articulate an array of instruments from
several policy domains, will facilitate the formation of necessary
capabilities in regions without existing capabilities to construct regional
advantage.

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 Conclusion

Globalisation is forcing European regions to differentiate and search for

activities that cannot be done cheaper somewhere else. Simultaneously, the
effort towards creating an increasingly knowledge-based competitive
advantage may become the principal force driving globalisation. As
demonstrated in this report, genuine comparisons of case studies may allow
provide a strategic guidance with reference to evolutionary problems faced by:
• Peripheral regions with less R&D intensity and less developed
knowledge infrastructure;
• Old industrial regions characterised by negative lock-in (heavy
dependence and specialisation on mature industrial sectors);
• Fragmented metropolitan regions unable to connect knowledge and
business bodies;
• Regions with cutting technological edge which, so long for granted,
may be slipping and gradually losing ground, due to serious challenge
coming from emergent countries;

For the European regions to become or stay competitive requires a series of

key factors, but creativity and knowledge exploitation capacity are probably
among the most critical. Both affect the regions' capacity to sustain global
competition as active players and influence their capacity for delivering
innovative products or services. To achieve this and reach a stage of
sustainable wealth, dramatic improvements are needed in the effectiveness
and the commitment of regional policies.

The Expert Group has come up with nine key recommendations to policy
makers. However, it has to be stressed that simple imitation of foreign
successful models is highly risky. Therefore, local solutions have always to be
inspired by endogenous capacity which needs to evolve rather than selecting
from a portfolio of specific models or recipes.

The bottom line and the single most critical message of this report is about
people: People essentially matter within the territories and make the
difference among the territories. The way regions cultivate and nurture their
policy on attracting, treating and maintaining creative people generates
innovative, knowledge-based economic activities, and can engender
Constructed Advantage to Regions.

* *
*

23
24
 Policy challenges in
a globalising economy
Globalisation represents serious challenges for the advanced economies of
highly developed countries. Outsourcing/offshoring, delocalisation, FDIs and
globally distributed knowledge bases orchestrated by TNCs often imply
dramatic restructuring of workplaces and employment in traditionally strong
sectors and central regions as well as in peripheral regions. Rapidly growing
third world economies do not only represent strong competition in the
production of standardised, labour intensive and low-skilled production of
goods and services based on cost efficiency (i.e. low wages), but increasingly
also within more knowledge intensive production of both manufacturing goods
and services. The most viable alternative open to high cost nations is to
strengthen their innovation capacity by increasing their knowledge creation
(including R&D), absorptive and diffusion capacity on the one hand as well
knowledge-based entrepreneurship and talent attraction on the other.
There are two paradoxical characteristics of the contemporary global
economy. First, innovative activity is not uniformly or randomly distributed
across the geographical landscape. Indeed, the more knowledge-intensive the
economic activity, the more geographically clustered it tends to be. The best
examples include industries such as biotechnology or financial services,
which have become ever more tightly clustered in a small number of major
centres, despite the attempts of many other places to attract or generate their
own activities in these sectors. Second, this tendency toward spatial
concentration has become more marked over time, not less. This reality
contradicts longstanding predictions that the increasing use of information and
communication technologies would lead to the dispersal of innovative activity
over time. Given these rather striking stylised facts, it would appear that the
process of knowledge production exhibits a very distinctive geography.
Innovation and creative capacity are essential determinants of economic
prosperity in a globalising learning economy, where knowledge has become
the most important production factor. This implies that the capacity for
knowledge creation and exploitation by means of innovation and
entrepreneurship will be of utmost importance for promoting economic growth,
job generation and social cohesion in the EU in the future. Recent work on
innovation systems indicates that the region is a key level at which innovative
capacity is shaped and economic processes coordinated and governed. This
has among other things led to governments and agencies at various
geographical levels looking at regional innovation systems (RIS) as key
elements of their innovation policy.
However, knowledge and innovation should not simply be equated with R&D.
Innovative activities have a much broader knowledge base than just R&D, and
there are many examples of nations and regions demonstrating a rapid
economic growth and a high level of living standard with and industry
competing on the bases of non-R&D based, incremental innovations (e.g.
Denmark and parts of The Third Italy). Thus, a region’s knowledge base is
larger than its science base, implying that maintaining that we experience a
process of the globalising economy becoming increasingly more knowledge

25
intensive does not necessarily mean that innovation and competitiveness will
only depend on R&D. In this context it is important to be reminded of Porter’s
view on competitive advantage of firms and regions being based on the
exploitation of unique resources and competencies, which must be
reproduced through continuous innovation, and, furthermore, that such unique
resources and competencies need not be R&D-based precisely because
knowledge intensity and innovation is more than just R&D. On the other hand,
globalization and codification processes also means a broadening of R&D
activities to encompass activities that earlier was artisan based (e.g. design)
or in sectors which never earlier have acquired input from R&D institutions
(e.g. the tourist sector upgrading to more value-added forms of tourism (e.g.
health, food or activity based, see box 1)).

Box 1
STRENGTHENING INNOVATION IN A TRADITIONAL SECTOR
THE CASE OF TOURISM IN THE BALEARIC ISLANDS REGION
In many regions in Southern Europe, tourism is one of the most important economic
activities with regard to the generation of added value and employment. However, tourism
hardly ever has been one of the priority sectors for regional competitiveness and innovation
policies.
This situation presented an important challenge in the case of the Balearic Islands in Spain,
where the tourism sector is especially relevant to the regional economy, with linkages to
many other productive and service sectors. And this was the reason to focus the Regional
Innovation Strategy on tourism and on this peculiar economic reality.
The first difficulty to be faced was the lack of relevant theoretical references regarding
innovation in the tourism sector or in a tourism-based economy. This could be attributed to
the fact that the development of innovation strategies and policies has been related from the
beginning to industrial activities and, more recently, to advanced services, but not to
(apparently) traditional service sectors like tourism.
The second challenge was the lack of statistical indicators adapted to the area of innovation
in services. So, for example, the Balearic Islands were the least developed Spanish region
with regard to research and development expenditure as part of the regional GDP, however
being the home region of some of the most innovative and international business groups in
the Spanish economy, especially in the area of tourism and hotel business. One of the reasons
of this obvious contradiction is the lacking consideration which is given in traditional
surveys on business innovation and RTDI expenditure to service companies and new
emergent sectors.
Once defined the Regional Innovation Strategy placed a specific focus on the tourism sector
and the need to exploit the demand for innovating, technology-based solutions in the
Balearic Region. The same approach has then been applied during the Innovative Action’s
Programme of the European Commission.
The activities in the framework of the Innovative Action were based in the first place on the
promotion of web-based booking systems and tools for small and medium-sized business in
the hotel and lodging sector. A new reservation system technology called AvantHotel was
developed and launched. The technology was developed by the Balearic Foundation for
Technology IBIT on the base of a JAVA-Platform for the intelligent on-line management,
booking and information offer of accommodation places and related leisure activities,
services and other opportunities. With the collaboration of the hotel business associations of

26
each of the Balearic Islands, the system was promoted and integrated, so that especially
small hotels, apartments, pensions and camping sites could use this tool and compete with
the larger hotel groups and their corporate web sites and reservation systems.
This project was positively received by the regional tourism businesses and presents a good
example for a successful regional public-private partnership. At the same time, it has been
possible to involve and strengthen the regional technology centre IBIT, focussed on the
development of technological and ICT solutions for the tourism sector. Knowledge was
transferred also to other regional companies while using an open-source technology and a
licensing approach for the marketing of the booking system. The experience of AvantHotel
was a rather positive one for the region, because it allowed to integrate a new technology and
to open new markets and forms of promotion for local small and medium-sized enterprises,
without the need to use intermediaries, creating therefore an important added value.
In another action line of the Innovative Action of the Balearic Islands Region, the promotion
of tourism clusters was promoted. In the area of nautical sports and ports, the enterprises of
Mallorca in cooperation with the local Chamber of Commerce started the initiative to co-
operate in common innovating projects and to promote themselves as one business cluster
within the internal market and at international level. Moreover, the clustering of regional
aeronautical firms has been supported. The aeronautical sector becomes more and more
important due to the increasing air traffic and relevance of the airport of Palma de Mallorca,
which is already the third Spanish airport in relation to passenger figures.
Other tourism and leisure-related services sectors which have been promoted within the
Innovative Action are the traditional furniture industry, the plants and gardening sector, as
well as the fitness and wellness sector. These sectors are especially demanded by tourists and
foreign residents on the islands and present important business opportunities. Finally, a
business incubator has been set up in the Technology Park of the Balearic Islands on the
island of Mallorca. The incubator will serve in particular entrepreneurs and new businesses
in the field of ICT and technology-related sectors. Many of the new initiatives are directly
linked to new and arising business needs of tourism and service enterprises.
To sum up, the innovation-oriented policy in the Balearic Islands Region helps not only to
create new added value for existing firms and in “traditional” service sectors, but tries also to
promote new and emergent sectors which are directly or indirectly linked to the tourism and
leisure industry on the Islands. All this helps to improve the competitive capacity of the
regional enterprises and to respond to the increasing international challenges of the tourism
industry and to new competitors from the Mediterranean region and other destinations.

The research reported in Berg Jensen et al. 2005 documents that firms that
have not been using R&D intensively may benefit the most from giving more
attention to R&D, while firms that use R&D intensively may benefit the most
from focusing more on non-R&D forms of learning and competence building
(e.g. learning by doing, using and interacting) (Berg Jensen et al., 2005, 22).
The distinction between these two modes of innovation helps on the one hand
to avoid a too one-sided focus on promoting science-based innovation of
high-technology firms at the expense of the role of learning-based innovation.
On the other hand it also indicates limits of experience-based innovation
strategies by giving more attention to ‘policies that serve to strengthen
linkages to sources of codified knowledge for firms operating in traditional
manufacturing sectors and services more generally’ (Berg Jensen et al., 2005,
23).
Furthermore, as important as research in engineering, medicine and the
natural sciences may be as a basis for many innovations, it is only when such

27
new knowledge is used, exploited and diffused that employment and
economic growth is created. Knowledge that stays unused in the ivory towers
of large firms and universities has practically no effects on welfare, jobs and
other socio-economic variables. It is only through application, diffusion and
commercialization (i.e. innovations) that society can reap the benefits of
inventions and other kinds of knowledge. And these are basically socio-
economic and political processes, which have to be studied from a social
science perspective. In such processes entrepreneurship, social capital and
institutional settings play key roles.

* *
*

28
 Why regions?
Definition and rationale
The concept of ‘region’ has its origin in the Latin region from regere meaning
‘to govern’. In the field of regional development, this is precisely the sense of
‘region’ intended, namely governance of policies to assist processes of
economic development. So, here, the concept ‘region’ as administratively
defined is of primary importance. Moreover, taking the administrative
dimension as prior means in definitional terms, region is an administrative
dimension of a country. The final remaining qualifier is to specify ‘regional’ as
nested territorially beneath the level of the country, but above the local or
municipal level (Cooke, 2005).
Over the past two decades social scientists and policy makes have been
paying more and more attention to regions as designated sites of innovation
and competitiveness in the globalising economy. Thus, regional innovation
systems, learning regions and clusters have been looked upon as policy
frameworks for implementing long-term, innovation based regional
development strategies. In a recent study Carlsson (2005) shows that the
majority of theoretical as well as empirical analyses of innovation systems
have a regional focus.
However, what is the added value of a regionalization of innovation policy?
Even two typical proponents of the national innovation systems approach
‘admit’ that “the region is increasingly the level at which innovation is
produced through regional networks of innovators, local clusters and the
cross-fertilizing effects of research institutions” (Lundvall and Borràs, 1998,
39). Various other empirical studies across a range of industries and regions
observe that both local and distant networks are often needed for successful
cooperative innovation projects (e.g. Cooke et al., 2000; Gertler and Levitte,
2005; Isaksen, 2005).
Thus, even if the strategic importance of the regional level for constructing
regional advantages is underlined, it is still necessary to imply a multi-level
approach to innovation and governance. As such, regional innovation systems
are open, socially constructed and linked to global, national and other regional
systems of innovation within a multilevel governance perspective (Cooke et
al., 2000). In a globalising economy characterised by vertical disintegration
and distributed knowledge bases, the important perspective must be the
interdependences between regions and nations, i.e. implying that non-local
relations can be of equal importance to local conditions and relations,
especially with respect to creating new knowledge to transcend path
dependency and avoid negative lock-in. From a regional perspective what is
important is to keep the location of core activities (and not the whole value
chain as such) within the region, and to promote this activity through building
up systemic relationships with government/governance and the knowledge
infrastructure.

29
 Regionalisation of Innovation Policy
In more and more countries innovation policies take place at the regional
level. The regionalisation of innovation policy holds the potential for improved
‘on-the-ground’ policy by know-how about the specific conditions of the
regional action level. Measures can be formulated, implemented and
monitored in a more targeted way, and, thus, be able of addressing more
precisely what a particular region or firm needs, or what is lacking concerning
innovation, regional proximity and communicative interaction. According to
Fritsch and Stephan (2005), regionalisation of innovation policy can imply a
variety of things, and, thus, it may be productive to distinguish between
different elements of a policy that could be regionalised in some ways (Table
1).

Table 1
Policy element Meaning of regionalisation
Objectives Region-specific objectives vs. nation-wide
Operation In certain regions only vs. nation-wide
Instruments Differentiated by region vs. identical in all regions
Administration Within the regions vs. at a central level
Decision competencies Regional authorities vs. central body
Finance From within the region vs. from central level
(Source: Fritsch and Stephan, 2005, p. 1124)

However, in the context of explicit tendencies of regionalizing innovation

policy it is of vital importance not to forget that in the globalising economy
connectivity to distant networks is becoming more of a priority than it was a
decade or so ago when the idea of regional innovation systems was in its
infancy. Thus, innovation, talent-formation and entrepreneurship have to be
considered in triplicate to construct regional advantage in ways that intersect
profitable with regional, national and global innovation imperatives.

* *
*

30
 Constructing Regional Advantage (CRA)
Taking this as a point of departure the aim of this report is to proceed further
in strengthening this approach by asking how the capacity for knowledge
creation and exploitation in the context of regional innovation systems can be
developed as a means to constructing regional advantage. This is the result of
the increasing global competition from newly industrialised countries such as
Taiwan, South Korea, Singapore, and rapidly catching up countries such as
China and India. The new economic landscape has emphasised the need for
firms in Europe to enhance their competitiveness by combining a focus on
product differentiation/innovation with cost efficiency. Subsequently firms
apply an open innovation model 1 and thus rely on sourcing – sometimes
globally – for the best talents while at the same time outsourcing or offshoring
standardised labour-intensive activities to low-cost countries. In this vein we
concur that constructed advantage is regarded as the next evolutionary step
in regional economic development (Cooke and Leydesdorff, 2006). While the
theory of comparative advantage is criticised for dismissing the role of
technological change and innovation altogether, the theory of competitive
advantage is also considered too narrowly market focused. The theory of
constructed advantage allows for more attention to the role and impact of the
public sector and policy support, preferably in public-private partnerships, by
acknowledging to a greater extent the importance of institutional and
economic complementarities in knowledge economies than theories of
comparative and competitive advantage do. Institutional specificities
constitute the context within which different organisational forms with different
mechanisms for learning, knowledge accumulation and knowledge
appropriation evolve. Instead of market failure, the rationale for policy
intervention is the reduction of interaction or connectivity deficits which lies at
the core of a networked regional innovation systems approach.
However, after years of influential research on the importance of territorial
agglomerations for economic growth there is a need for an ‘unpacking’
strategy to disclose and reveal the contingencies, particularities and
specificities of the various contexts and environments where knowledge
creation, innovation and entrepreneurship take place in order to obtain a
better understanding of factors enabling or impeding these processes, as a
preface for constructing regional advantage. So far, all the way from
Marshall’s writing on industrial districts, it has been assumed that business
interactions (from exploiting localisation economies) and knowledge flows
were co-occurring (and co-located) phenomena (Asheim, 2000). Furthermore,
it has been maintained that local interactions and collective learning
processes, or what is sometimes called ‘local buzz’, largely take care of
themselves by just ‘being there’, while building ‘global pipelines’ to knowledge
providers located outside the local milieu requires institutional and
infrastructure support, as one cannot expect that it occur spontaneously
(Bathelt et al., 2004).

1
The central idea behind open innovation is that in a world of widely distributed knowledge,
companies cannot afford to rely entirely on their own research, but should instead source knowledge
ideas from other companies or research organisations (Chesborough, 2003).

31
It is this idea of an almost automatic shaping of endogenous learning and
innovation capacity by just being co-located in an agglomerated environment,
which also lies behind Porter’s understanding of how competitive advantage is
created (Porter, 1990). However, lately it has been shown empirically that
there exists an uneven distribution of knowledge and selective inter-firm
learning due to the heterogeneity of firms’ knowledge bases, which cannot be
fully compensated by regional universities or other parts of a region’s
‘collective absorptive capacity’ (Giuliani and Bell, 2005).
Therefore, it is an important question if firms can take up this challenge of
strengthening their knowledge bases by themselves. Can they just on their
own initiative start cooperating with neighbouring firms and knowledge
creating and diffusing organizations co-located in clusters? Accordingly,
changing their behaviour to become more innovative is one option, but more
planned and systemic approaches are another in a globalising knowledge
economy in order for regional advantage to be deliberately constructed. This
argument is grounded in the observations that in the contemporary globalising
economy simply leaving the question of how competitive advantage is
achieved just to the market or the ‘territory’ in the Marshallian way is not
enough. The idea, then, that in the future it will not be sufficient to rely on
competitive advantage just to be created but that it needs consciously and
pro-actively to be constructed, has the understanding of the challenge the EU
faces in a globalising economy as the point of departure. This point to a new
and more dynamic role for the public sector (including universities) generally
and government and governance specifically in interaction with the private
sector (see appendix for a more elaborated discussion).

Perspectives and methodologies for policies of CRA

Given this context as well as challenges it is not the aim of this report to offer
precise or specific recipes for the process of planning and implementation of
regional policies for R&D and innovation. More precisely, a wide variety of
case studies are available about (mostly) successful and (more rarely)
unsuccessful regional cases (see text boxes). Also several theoretical and
empirical contributions exist, which aim at providing insights, guidelines and/or
indicators to policy makers (see appendix). Most of these contributions are
surely useful, but it is the view of this report that the planning and
implementation of regional policies for R&D and innovation is an activity which
should be based on a more general framework of perspectives and
methodologies rather than on precise and rigid technical schemes. The idea
that it is possible to design ‘one size fits all’ regional policies is neither
supported by theory nor by empirical analyses, and is, thus, rather difficult to
entertain in a Europe characterised by large scale and developmental
diversity. Past experiences, concrete cases, theories and models represent
the background which policy makers should work with in order to find their
own (regional) solution, rather than the exact replication or ‘cloning’ of more or
less successful examples of regional policies from elsewhere, often from
places with very different economic and socio-institutional environments.
Copying of best practices is almost impossible when it comes to intangible
regional assets (such as particular knowledge bases or institutional settings)
that are the results of long histories in particular regional contexts. Policy

32
makers should therefore be reflective upon this and reluctant to simply imitate
successful models.2
Nonetheless, some general perspectives do exist which should be taken into
account as supporting substantiation of methodologies that policy makers can
make use of to formulate and implement the new type of regional policies as
well as to influence their outcome. There is no widespread knowledge and
absorption of such a general framework of perspectives and methodologies,
and it is therefore the intention and aim of this report to make a contribution to
policy makers by identifying and describing these ideas rather than trying to
provide specific and elaborated recipes. On the contrary, we would rather
make policy maker’s job more challenging by making them responsible for
finding their own way, rather than asking them to choose from a portfolio of
specific models or recipes. Regional policy in a diversified, globalising
economy does not work in this way; it is rather a mosaic which has to be built
with pieces which are not pre-determined. Of key importance in this context is
the recognition of institutional and governance capabilities in regions, taking
into account variation in the quality of regional communication infrastructures,
understanding the knowledge base strengths of the region, and presuming
that true regional innovation system connectivity is not complete in most
regions.

* *
*

2
By this we of course do not mean that studying and benchmarking other regions have no value in a
policy making process.

33
34
 Background and pre-conditions
for constructing regional advantage
Regional endowments
The reference to regional endowments covers the historical and geographical
background as well as contemporary economic and socio-institutional and
political conditions, which taken together represent important factors
explaining regional diversity among EU regions today. A region’s access to
natural resources, the degree of centrality and connectiveness with respect to
its geographical location and the size of its population represent important
pre-conditions for economic and social development. However, without
historically and culturally conducive structures as well as a stable socio-
political environment and sufficient developed knowledge infrastructures and
institutional density or thickness, a consistent and progressive development
process will not appear.
Thus, any regional development process can be considered as a combined
outcome of interrelations of new spatial structures, as a result of technological
development and intensified competition, with the accumulated results of the
old and existing regional structures, with each side of the process affecting
the other. Such development processes produce regions with varied and
diversified characteristics, which can be described using the following
typology (based on Tödtling and Trippl, 2005):
• Peripheral regions are characterised by being less innovative in
comparison to more central and agglomerated regions; they have less
R&D intensity and innovation, and have a less developed knowledge
infrastructure (universities and R&D institutions) as well as suffer from
organizational thinness (see box 2);
• Old industrial regions represent another type of problem region
characterised by negative lock-in due to a heavy dependence and
specialisation on mature industrial sectors. If knowledge infrastructure
exists, it is often also strongly specialized in training and research
activities in support of the dominating industrial structure. The
innovative activity of these regions is primarily concentrated on process
innovations, and there is a lack of product innovations as well as
entrepreneurship;
• Fragmented metropolitan regions. Metropolitan regions are normally
regarded as centres of innovation with the presence of R&D
organizations and universities, business services, as well as
headquarters of international firms. As a consequence, R&D activities
are usually above average. However, some metropolitan regions are
lacking dynamic clusters of innovative firms due to the problem of
fragmentation, i.e. the lack of innovative networks and interaction
between universities-firms as well as among local companies. Such
regions display an industrial structure characterised by so called
‘unrelated variety’, i.e. by having a diversity of sectors which do not
complement each other, and, thus, do not produce knowledge
spillovers. This may represent an important innovation barrier in such

35
 regions resulting in the development of new technologies and the
formation of new firms often being below expectations.
• Innovative regions. Regions with cutting edge technologies and a high
level of R&D which, however, in increasing degree are exposed to
challenges and competition from emergent economies (especially from
Asia). Such regions have the best conditions for constructing regional
advantage, but in order to do this efficiently they will have to diversify
into new but related sectors as well as avoid negative lock-in in existing
sectors by securing their competitiveness through continuous
innovation supported by clusters and regional innovation systems.

Box 2
How to transform an industrial district in crisis
in the periphery of Europe?
The case of the Barletta footwear district
The evolution of the footwear district of Barletta tells a story of an industrial district in crisis
in one of the most peripheral parts of Europe. Located north of the city of Bari in the South
of Italy, the heydays of this district were in the 1970-1990 period, during which employment
growth rates were sky-rocketing. Since the 1990s, it has been hit hard by a long and deep
economic crisis. As other districts, the Barletta district, which is one of the very few districts
in the South of Italy, has been confronted with increasing competition from low-cost
countries like China. Till now, it has been unable to respond to the crisis, and its future
prospects are dim.
The structure of the local knowledge network in the Barletta region is extremely weak, and
many local firms are not connected (Boschma and Ter Wal, 2005). Firms tend to operate on
their own, and they regard their own internal knowledge base as the most important source of
knowledge. Firm-specific features like their absorptive capacity contributed to the innovative
performance of the Barletta footwear firms, in contrast to external sources of knowledge.
This dependence on internal sources of knowledge and the presence of quite weak local
knowledge relationships may have something to do with a lack of social capital that is often
found in the South of Italy (Evangelista et al., 2002). In practice, it has proved difficult in
many cases to tackle this fundamental institutional problem in the South of Italy. This is
certainly not something that can be solved in the short-term. That may already be too late
anyhow for the majority of footwear firms in the Barletta district. It is expected that only a
few large firms will survive, and these firms can only do so through the adoption of an
international strategy in which at least footwear production will move out of the area. The
example of the Barletta district suggests how difficult it may be to construct regional
advantage in such circumstances, and how unrealistic it might be to expect that the district
model that worked well in other more favourable parts of Italy is a panacea for the
development of the South of Italy. However, this example also shows the strong need of
intelligent policies in specialized regions that aim at broadening their regional economic
base.
Sources: Boschma, R.A. and A.L.J. ter Wal (2005); Evangelista, R., Iammarino, S.,
Mastrostefano, V. and Silvani, A. (2002).

36
Often combinations of the above categories of regions will exist, e.g. that old
industrial regions end up as peripheral regions and that fragmented
metropolitan regions basically are old industrial regions. However, the point
here is that these types of regions represent different problems and
challenges, and, thus, require specific and individual approaches to innovation
policies in order to correct problems and promote economic and social
development (see boxes 3 and 4). (For an illustration of dynamism in different
regional systems see figure 1).

Box 3
Emerging new multicentre
Vienna-Bratislava metropolitan area (VBMA)
Creating regional advantage had for a long time not been any urgent policy issue in Slovakia.
Starting reforms after 1989 and increasing competition in pre-accession period has gradually
attracted attention of politicians to look at more complex economic issues. This relates to
economic competitiveness at national, regional and corporate levels. After a decade of
transition reforms focused on privatisation, employment, macroeconomic stability and
enterprise restructuring, more importance has started to be given to building of regional
identity and competitiveness and fostering cross-border cooperation.
Nowadays Slovakia represents a country with high regional economic and social disparities.
Therefore, only limited opportunities exist to equally develop each region. So far it is evident
that the country’s conditions favour its asymmetric development. Thus more dynamic
development is reported in the Western part of Slovakia, especially around capital Bratislava.
However, the government try to implement and develop nation-wide policy aimed at
improvement of innovative capacity of business/non-business actors through, e.g., MINERVA
programme, which represents a national form of Lisbon programme.
As it involves a higher concentration of business/non-business actors, activities and
competition, Bratislava has begun to cooperate within a two country area (Vienna - Bratislava
metropolitan area –VBMA). This generates both potential challenges as well as threats. Such
changes can bring numerous opportunities for future progress (more innovative activities), but
on the other hand the cross-border metropolitan area actors have a problem, how to
effectively govern and formulate joint strategies and how to balance competitive and
cooperative elements of their activities. It requires intensive and complex negotiations
between different international actors.
Twin city Vienna-Bratislava is clearly at the start of emergence of such changes. To be
successful in its way to CRA, it requires from policymakers to use R&T policies to generate:
(a) critical mass of institutional density (as an additional factor to the OLI factors); (b) critical
mass of institutional flexibility; (c) critical mass of technical infrastructure; (d) critical mass
of educated workforce with tacit knowledge.
To increase dynamics of structural changes, however, the economy needs to generate these
competitive features permanently to attract high-technology firms. In this context, the
economy should act as a hub for coordinating research activities; initiate and develop leading
edge research facilities; increase public investment in education; and continue to change
regulation to meet international competitive criteria. The government has to ensure that
managing of such changes is efficient, rapid and flexible. It can encounter many problems in
their implementation but need to be successful for VBMA to be able to compete/cooperate
with others. In this process parameters of national economy/policy play only limited role and
the process should be put in a more open and flexible context.

37
With EU integration, competition may bring about greater pressure for innovativeness and
flexibility. In this situation networking and clustering is currently presented as a way for
improvement of R&T and knowledge capability in Slovakia/VBMA. Without changes of their
reluctance to intensive cooperation, also the position of Slovak firms can worsen and lead to
the position of a supplier of simple parts with low value added. Abroad, such firms operate in
specialized clusters of SMEs, which governmental and regional programs support. A failure
to enhance new approach to innovation and governance can increase the probability that firms
would not innovate enough to become competitive.

* *
*

Box 4
Challenges for regions less successful in innovations
The case of Prague
Prague is a city-region which concentrates about half of the potential of R&D and innovation
of the Czech Republic, but this potential is not fully exploited. In 2005, the first innovation
strategy of this city called “Bohemian Regional Innovation Strategy” (BRIS) has been
adopted. The key weaknesses and challenges of Prague in this sphere will be elaborated.
The key problems that have until recently hindered the development of coherent innovation
policy at the regional level are: (i) Lack of sufficiently strong regional actors competent and
qualified to design and deliver innovation policy; (ii) Lack of genuine partnership in defining
development priorities that should be based on mutual respect among the key players and
should reflect longer term development ambitions and needs of the business sector; (iii) Lack
of awareness on the side of policy makers of the importance of research and innovation for
long-term development of the region. General obstacle to enhancing innovation culture at the
regional level is a wide-spread lack of trust, co-operation and a weak application of the
principle of partnership. Moreover, the culture of efficient usage of strategic/programming
documents for steering the development of Czech regions is still in its infancy and strategic
documents are still often considered by many actors as a mere exercise without practical
relevance.
The key challenges for enhancing innovation potential in Prague can be structured into two
groups according to the level from which they should be predominately addressed (i.e.
national versus regional level). The main themes to be addressed from the national level are
the general legislative environment for business, an introduction of sound evaluation criteria
for public research institutes with implications for their financing, marketing of innovations,
patents but also of National Innovation Policy itself, strengthening the financial mechanisms
for innovations (“seed” capital, venture capital etc.) and elimination/moderation of current
de-motivating working conditions for R&D employees, especially the young ones.
At the regional level, the key challenges are: an establishment of the links between
innovating multinationals located in Prague and the endogenous firms as 60% of R&D
private expenditures are provided by foreign firms in the Czech Republic; strengthening of
the links between the public research institutions, private firms and other actors relevant for
innovations; shifting of a focus of public support from the institutions to the projects aiming
at delivering of needed changes (the existing policies and strategies are often mixing up the
objectives and tools. Public support is often oriented to institutions with ‘correct’ name such
as ‘Science and Technology Park’ or ‘SMEs incubator’ instead of on support of desirable
activities leading to measurable changes). Finally, there is need to more active marketing of

38
both BRIS and innovations created in Prague.
When assessing the document “Bohemian Regional Innovation Strategy”, several key
weaknesses can be identified: 1) analytical part is rather of traditional nature without
focusing on softer issues like analysis of interactions among the subjects including their
types and ways of measurements, identification of potential leaders, why some existing
bodies are not functioning properly, what are the routines that prevent standard support
mechanism from functioning effectively etc.), 2) not sufficient effort to identify sectors with
the largest innovation potential, 3) missing clear priorities, the strategy is “to improve
everything”, 4) missing link to budget of City of Prague, 5) missing clear responsibility (and
time-schedule) for implementation of actions, 6) insufficient political backing and
commitment from the elected regional representatives.
A major recent positive development is an effort to integrate BRIS into city Strategic Plan. If
BRIS is incorporated into Strategic Plan as envisaged, several of the above mentioned
weaknesses would be eliminated as issues of innovation would be put into the mainstream
policy and as such regularly monitored. However, the real impacts of these emerging
activities are inevitably of medium- or even of a long-term nature and require a steady
political commitment without disturbances related to political cycle. (For more see
www.bris.cz)

Figure 1: A synthetic representation of dynamism in regional systems

Source: Lazzeroni, M. (2001)

Such differences in regional endowments also become manifest as variations

in regional knowledge economies (which is most relevant for the focus of this
report, and measured as share of employees in high-tech industries and
knowledge intensive business services (KIBS)). Regions in EU span from top
ranking metropolitan areas such as Stockholm and London with an index
around 170 (EU average is 100) to peripheral regions in Greece slightly above
35, based on EU 15 (see Table 2):

39
High Index Low Index

Stockholm (S) 169.5 Notio Aigaio (Gr) 36.7

London (UK) 166.8 Sterea Ellada (Gr) 38.4
West Sweden (S) 155.2 Peloponnissos (Gr) 43.9
Surrey & Sussex (UK) 153.6 Anat-Maked-Thraki (Gr) 46.4
Brabant Wallonie (BE) 152.4 Norte (P) 50.2
London O. (UK) 151.6 Dytiki Ellada (Gr) 50.9
Piemonte (I) 150.7 Kriti (Gr) 50.9
Ostra Mellan Sweden (S) 150.0 Centro (P) 51.1
Berkshire-Oxford (UK) 149.0 Dytiki Makedonia(Gr) 51.6
Bedford-Hertford (UK) 148.9 Alentejo (P) 53.8
Uusima (Helsinki) (Fi) 148.8 Ionia Nissia (Gr) 53.9
Ovre Norrland (S) 148.4 Algarve (P) 54.7
South Sweden (S) 148.1 Thessalia (Gr) 55.2
Mellan Norrland (S) 147.6 Ipeiros (Gr) 59.6
Brussels (BE) 145.0 Castilla la Mancha (ES) 60.6
Paris (F) 144.9 Voreio Aigaio (Gr) 62.3
Norra Mellan (S) 143.3 Kentriki Makedonia (Gr) 62.7
Hampshire (UK) 141.6 Murcia (ES) 64.1
Stuttgart (G) 141.1 Estremadura (ES) 64.9
West Midlands (UK) 140.1 Balearics (ES) 65.3
EU 100.0
Table 2: Knowledge Economies Index Numbers, European Union (15)
(Source: Cooke and De Laurentis, 2002)

According to Cooke and De Laurentis (2002) cities on average are twice as

advantaged by their knowledge intensity over towns and rural areas compared to their
already existing advantages from agglomeration economies. Thus if a city scores 50%
above the mean in GDP per capita it is likely to score 100% above it in terms of its
knowledge-based industry. Thus there is more chance of knowledge economy
employment in the city than the country, a major contributory factor in the renewed
migration of young people from rural to urban areas in many European countries,
making the knowledge economy uneven geographically distributed and knowledge
poverty a new kind of locational disadvantage (Cooke and De Laurentis, 2002) (see
box 5).

40
 Box 5
Promoting Innovation in Less Favoured Regions
The experience of North Aegean
The region of North Aegean, despite significant progress made during the 90s, was still one
of the poorest regions in EU-15 at the end of the century (with regional GDP per head
amounting to 92% of the national and 60% of the European average). The physical
infrastructure had improved considerably during the 1994-99 planning period (as for the
majority of all Greek regions), whereas intangible (soft actions) and environmental
protection was significantly lagging behind. The region’s geomorphology (big islands distant
from the mainland as well as one from the other) and subsequent administrative organisation
(one main administrative centre with insufficient communication throughout the islands)
leaves limited room for the design of a successful development strategy for the region as a
whole and an innovation strategy in particular. The lack of a Regional Innovation System
and the size of the SMEs of the region (normally quite small–staff average of 4 persons) that
suffer from its insular and double (both national and European) border character, with high
transport and communication costs and limited access to information as main disadvantages,
had discouraged innovative behaviour and had not created the necessary environment for the
effective offer of technology services.
The Region of North Aegean (Regional Authority) took the initiative (in the framework of
the RITTS Programme) to assess the available technology transfer support infrastructure and
promote the development of an Innovation and Technology Transfer (ITT) strategy in the
region, aiming to find out what type of innovation support the region’s enterprises need, gain
a better insight in the economic structure of the region and focus regional innovation policy
in targeted areas (e.g. waste management of olive oil production, an important economic
activity of the region).
The RITTS – Innovation in North Aegean (INA) Programme, through systematic publicity
actions and a series of technical meetings, reached a sufficient level of consensus and
concluded with the formulation of the Region’s Innovation Technology Transfer Strategy &
Action Plan. In its framework, significant involvement of local actors was achieved that led
to the establishment of a network of effective partnership among key regional stakeholders.
What is most important, the RITTS – INA Programme did not result simply to regional
innovation strategy formulation, but managed to incorporate its Action Plan into the main
strategic and financial tool of the region for the current programming period, the Regional
Operational Programme (ROP) of the Region of North Aegean 2000-2006 (3rd CSF),
addressing a broad range of issues, which include, among others, SMEs support actions,
innovation promotion, human resources, protection of the environment, telematic
applications as well as research and production linkage.
Although this exercise could be considered successful and the leading role of the regional
government was found critical for its success, the challenge of continuity of the above effort
still remains, both for the regional authority (dependent to the central Government on policy
issues, as applies for all regions in Greece) to prove its ability to support innovative
behaviour and facilitate the increase of the absorptive capacity of the region as well as for the
regional stakeholders to show commitment in adopting innovative approaches in their
organizational /entrepreneurial operations and eventually taking investment decisions to
innovate.
Source: Cyclotron Ltd, Consulting Engineers, www.cyclotron.gr

41
 Evolutionary perspectives
Regional development must be understood as an evolutionary process, i.e. as
being based on path dependent technological trajectories: Boschma and
Lambooy (1999); Boschma (2004; 2005a); and Boschma and Frenken (2006).
According to evolutionary thinking the historical trajectory of a region sets
serious limits to the windows of opportunity with regard to relevant policy
options as well as to copying an external model that owed its success to its
deep roots in an alien environment. Furthermore, an evolutionary perspective
also implies that changes in industrial structure, innovativeness and
competitiveness take time. An important aspect of this perspective is also the
lock-in problematic, which was discussed in the context of old industrial
regions.
If the scope is widened to take into account the formation of broader socio-
institutional factors, such as the building of social capital and similar
institutions such as trust, conducive to the promotion of innovativeness in an
economy, the time perspective is even more emphasised. Social capital refers
to various ‘soft’ but fundamental features of the organisation of firms and
regions such as shared norms and values that facilitate coordination and co-
operation among individuals, firms and sectors to their mutual advantage.
When innovation is understood as based on interactive learning,
organisational innovations on different levels in society (micro, meso and
macro) that promotes cooperation, will potentially contribute to more
interaction and, consequently, more innovation. The presence of social capital
is seen as an important facilitator of implementing such organisational
innovations leading to increased cooperation and interaction. Social capital
can either be of the ‘bonding’ type, rooted in the civil society, or of the
‘bridging’ type, which refers to social capital being created or built as a
consequence of collective social and political actions resulting in
organisational and institutional innovations. Examples of such ‘building’
processes is various networks programmes directed towards SMEs on the
meso level, and collaboration between trade unions and confederation of
industries on the macro level, which e.g. underpins the well-functioning Nordic
labour markets. In the context of constructing regional advantage the latter
type of social capital is most relevant, as it can be created or achieved, while
the former type only can be built on if it already exists in a region. However,
building such social capital is indeed a time-consuming process, which has to
be deeply contextualised in the individual region, and cannot rely on straight
forward recipes.
An illustrating example of the evolutionary aspects of a successful innovation
policy is the Finnish example. Another example of an evolutionary
development process could be Grenoble (see boxes 6 and 7).

* *
*

42
 Box 6
The experience of Finnish science and innovation policy
In the last decade, the Finnish economy has shown an unprecedented recovery, after being
hit by a deep crisis in the early 1990s. This is attributable to a considerable degree to a rapid
development in the ICT sector. What makes Finland an interesting case from a policy point
of view is that it has been able to break out to a new path and dissociate itself from its
previous path, from its strong dependence upon raw-material driven production and export.
Although the rapid pace of the restructuring of the Finnish economy might suggest a break
with the past, this remarkable recovery was firmly rooted in its economic history. The
foundations for the emergence of the ICT sector were laid down throughout the last century.
Early and strong competition (including from foreign companies like Ericsson and Siemens),
demanding customers (especially network operators), early standardization (such as the
Nordic Mobile Telephone Standard and the GSM system), and a culture open to the adoption
of new technologies contributed significantly to the growth of the ICT industries.
In addition, Finnish public policy played its role in turning Finland into a knowledge
economy. Although a master plan for the Finnish economy was lacking, many policies
worked out quite well together over an extended period. Public involvement started already
many decades ago. Since the 1960s, education policy was already focused on securing a
sufficient supply of specialized skills in ICT. Building on education, research and technology
policy initiatives were taken in the 1970s and 1980s: national technology programs, among
other things, were set up, and technology transfer and commercialization of research became
key objectives. Finally, the deep economic crisis in the early 1990s paved the way for new
policy directions, with its focus on network and cluster-facilitating innovation policies. The
concept of national innovation system was introduced as a framework for science and
technology policies to accentuate the systemic nature of innovation.
What the Finnish case has demonstrated is that policies should be firmly embedded in
national and regional strengths, rather than being swayed by wishful thinking and popular
world-wide buzzword chase. It is also clear that innovation policy ought to have a long-term
strategic perspective. Hence, policies must be consistent in the long run, and should not be
dictated by short-term cyclical or political considerations. The chances of being successful
most likely increase when policies aimed at stimulating new growth paths build on economic
and institutional structures laid down in the past. For the remaining, a bit of luck is needed.
Source: Boschma, R.A. and M. Sotarauta (forthcoming).

Box 7
Grenoble: Building a world class “pole”
Grenoble has a long history of industry, training and research associated to the development
of electricity. It benefited after the second world war of the development in high energy
physics with the location of large instruments culminating with the ESRF synchrotron
radiation facility. Grenoble was also the location of the microelectronics labs developed by
the French Atomic Energy Commission (CEA), LETI. It generated one of the first start-ups in
the 1970s, now at the heart of ST-Microelectronics. The creation and development of high
technology firms was boosted by the first French “technopole” (the ZIRST de Meylan was
developed before the name was created). All this made the area very attractive for students
(with both one of the French largest engineering ‘schools’, INPG, and with a well known
research university, UJF) and it turned into one of the biggest agglomeration of start-up

43
firms mostly focused on ICT, with incubating facilities, large presence of seed and venture
capital and very active support from the local development agency.
Though it was very successful, some local actors felt that it was endangered by both the
changing world landscape and the advent of nanoelectronics. Three aspects were put on the
forefront: the size of facilities needed, the breadth of competences required (far broader than
engineering and computer sciences) and the changing innovation process (with the need of
new types of research and new types of centres). As early as 2000, two major public actors
(LETI and INPG) proposed a radical shift gathering into one new space their teaching and
research facilities while including in the same space, facilities for industry research labs as
well as a “house for micro and nanotechnologies”. The concept of MINATEC was born.
Within two years, the city, the district, the department and the region allied to support the
project and provide 90% of required support driving to a 142 million euro investment (the
new facilities will be fully operational in September 2006 and should house 3500 students
and researchers).
This triggered the credibility of the area in term of world level public capabilities and was
critical in the development of the “alliance” between ST-Microelectronics, Philips and
Flextronics around the Crolle 2 “lab-fab”, a 2.8 billion euros investment over a 6 year
period. Here national policies were instrumental in accompanying the location of research
facilities of world players.
The third layer of initiatives dealt with “related variety”, and the articulation of
nanoelectronics with telecommunications, energy, multimedia and biotechnology. The
nanobio platform articulates all the public facilities from Grenoble, it is also the home of one
of the two nanobio EC “networks of excellence”, Nanotolife.
All these initiatives are now articulated in the new Minalogic pole which gathers local
authorities with firms and public research and teaching capabilities. This was an answer to
the new approach proposed by the French national government about “Poles de
compétitivité”, a competition launched in 2005 open to all areas and sectors with selection
criteria based upon the articulation of actors for the promotion of the international
competitiveness of firms.
For further information, see research work developed by the Nanodistrict project within the
PRIME Network of excellence (www.prime-noe.org and www.nanodistrict.org)

The history of Grenoble in the making highlights three major aspects:

(1) the importance of multiple levels of intervention and their articulation. It is
not only a story of regional, national and European public policies, it is also,
and probably even more important, a story of coordinated public local
interventions (here 4 layers from the city to the region).
(2) It also shows that crystallisation might be short (here just over 5 years) but
that this was achieved on 30 years of previous policies and a well developed
infrastructure where tools to support entrepreneurship have been long rooted
in the landscape.
(3) This is also a story on policies that to a limited extent has addressed the
citizens and their questions about ethics and risks, leaving room for very
strong (even if marginal) opposition. Promoting a creative and receptive space
also requires addressing these issues, at least in European societies.
* *
*

44
 Content of policies
for constructing regional advantage
Proactive and system/platform oriented policies: Requirements for
constructing regional advantage
A focus on constructing regional advantage requires an ‘unpacking’ of what
makes territorial agglomerations important for innovation and growth by
disclosing and revealing the various contexts and environments where
knowledge creation, innovation and entrepreneurship take place. In this report
we propose to carry out such unpacking along the following three dimensions:
(1) related variety,
(2) differentiated knowledge bases, and
(3) distributed knowledge networks, which taken together provides the
fundament for formulating sectoral transcending platform oriented policies.
Moreover, in order to have an improved understanding of how different
regions and sectors are coping with globalisation the institutional framework
also needs to be taken into consideration. Lam (2000) underlines that learning
and innovation cannot be separated from broader supporting institutional and
regulatory framework. However, as the focus of this report is on regions, and
such frameworks typically are national and/or supra national, they are not
explicitly dealt with in the report (see Asheim and Coenen, 2006, for such an
analysis).
First, the traditional dichotomy between specialised localisation economies
and diversified urbanisation economies ought to be further developed by
introducing a distinction between related variety (accounting for spill-over
effects) and unrelated variety (covering the portfolio effect), because they
mean different things, and they have impacts on different performance
indicators. Related variety in many ways combines the strength of the
specialisation of localisation economies and the diversity of urbanisation
economies.
Secondly, differentiating between industrial knowledge bases represents
another dimension of such an ‘unpacking’ strategy (Asheim and Gertler, 2005;
Asheim and Coenen, 2005). We argue that the innovation process of firms
and industries is strongly shaped by their specific knowledge base. In this
report, we distinguish between three types of knowledge base: ‘analytical’,
‘synthetic’ and ‘symbolic’. These types indicate different mixes of tacit and
codified knowledge, codification possibilities and limits, qualifications and
skills required by organisations and institutions involved, as well as specific
innovation challenges and pressures (Laestadius, 1998).
Thirdly, it is important in the discussion of preconditions for constructing
regional advantage to shed light on how knowledge bases of different sectors
are changing as a consequence of globalisation. In order to fully grasp the
dynamics of these changes a globalisation perspective must explicitly be
taken into consideration to modify the endogenous perspective, which has
dominated the research on clusters and RIS so far, by introducing a

45
distributed knowledge network perspective, which more and more are
manifested in global value chains organised by TNCs.
These ‘unpacking’ efforts will provide a better basis for - and, thus, improve
the capacity of - policy makers on different geographical levels to formulate
dedicated and specific innovation support customised to different regions and
sectors, which will be in increasing demand if regions in high-cost countries
shall be able to compete and survive in a globalising learning economy.
Especially important is, of course, to be able to formulate and pursue the
formation of necessary capabilities in regions without existing capabilities to
construct regional advantage.

Related variety
Since Jane Jacobs diversity in urban or regional economies is regarded as
one of the driving forces of economic growth. It stimulates new ideas and
creativity, it gives access to complementary resources that might be essential
for innovation processes, and it reduces the risk for a sector specific shock
harming the whole of local economies. However, a distinction can be made
between related variety (accounting for spill-over effects) and unrelated
variety (covering the portfolio effect), because they mean different things, and
they have impacts on different performance indicators. Unrelated variety is
defined as a diversity of sectors in a region that do not complement each
other. As such, it is expected to protect a region from an external shock (e.g.
fall in demand in one particular sector). This risk-spreading effect (or portfolio
effect) of regional diversity dampens regional unemployment. Instead, related
variety is expected to have a positive effect on regional development,
because knowledge is likely to spill over between complementary sectors.
That is, their co-location may provide an extra source of knowledge spillovers
and innovation, and thus, cause additional economic growth.
When constructing regional advantage a policy framework that is based on a
related variety approach may be highly relevant. Firstly, studies (Frenken, Van
Oort, Verburg and Boschma, 2004) have demonstrated that it is actually one
of the driving forces behind urban and regional growth. Secondly, the risk of
selecting wrong activities is reduced when the region-specific context is taken
as a point of departure. This would mean that regional competences are used
as building blocks for the purpose of broadening the economic base of a
region. Thirdly, such policies acknowledge the fact that generic technologies
(like ICT) may have a huge and pervasive impact on economic development,
due to the many potential fields of application, such as giving birth to many
new sectors (creating new related variety). In other words, constructing
regional advantage based on related variety may combine the advantages of
regional specialization in complementary sectors (including knowledge
spillovers) with the advantages of regional diversity, dampening the risk of
sector-specific shocks (see box 8): Boschma (2005b).

46
 Box 8
The importance of a generic knowledge base
The case of the Emilia Romagna region
The Emilia Romagna region in Italy is one of the wealthiest places in Europe, and it is home
of many successful industrial districts. Its recent economic history tends to give witness to
the economic significance of related variety at the regional level. Already for many decades,
Emilia Romagna is endowed with a diffuse knowledge base in engineering. After the Second
World War, new sectors emerged out of this pervasive knowledge base one after the other.
An expanding ceramic tile sector in the Sassuolo area mushroomed on its foundations, which
was soon followed by the rise of specialized producers of machinery for ceramic tile
production that employed about 7.000 people alone in the 1990s. Luxury car manufacturers
(like Maserati and Ferrari) built on it, robotics became a successful new application in the
region, and the packaging industry in Bologna drew heavily on it, as producers in
agricultural machinery, among other sectors. These new sectors not only built on this
extensive regional knowledge base, they also renewed and extended it, further broadening
the regional structure.
The Emilia Romagna experience tends to suggest how a generic knowledge base may have a
huge and pervasive impact on economic development, due to the many potential fields of
application, such as the giving birth to many new sectors. Although in the Emilia Romagna
case, policy making was certainly not the driver of this process (for sure, there was no master
plan and no top-down policy model involved), its experience may shed light on how policies
aimed at creating new ‘related variety’ may work in practice. Constructing regional
advantage based on related variety may lead to more sustainable regional development. For
instance, it combines the advantages of regional specialisation in complementary sectors,
which induces inter-sectoral knowledge spillovers at the regional level, with the advantages
of regional diversity that may dampen the economic consequences of a sector-specific crisis
in the region. Another advantage of such policy objective is that the region-specific context
is taken as a point of departure. This means that regional competences are used as building
blocks for the purpose of broadening the economic base of a region.

* *
*

47
 Differentiated knowledge bases
Regions in EU display, as seen above, a large diversity when it comes to
industrial structure, innovative capacity, competitiveness and economic
growth with severe consequences for the level of living standard of their
population as well as impact on social cohesion. One way of analysing
regional diversity with regard to its implication for regional economic
development is to apply an industrial knowledge base approach. The
knowledge creation and innovation processes have become increasingly
complex in recent years. There is a larger variety of knowledge sources and
inputs to be used by organisations and firms and there is more
interdependence and division of labour among actors (individuals, companies,
and other organisations). Following Archibugi and Lundvall, (2001) we
recognise the increased importance of knowledge creation in all segments of
society and economy, including traditional industries, services, and emerging
sectors such as creative industries. But this does not mean that R&D and the
level of technological complexity are the only indicators of knowledge intensity
and innovativeness. All economic activities are based on knowledge and
learning, also the ones commonly referred to as low-tech (Smith, 2005).
Nonaka and Takeuchi (1995) as well as Lundvall and Borrás (1998) have
pointed out that the process of knowledge generation and exploitation
requires a dynamic interplay and transformation of tacit and codified forms of
knowledge as well as a strong interaction of people within organisations and
among them. Thus, the knowledge creation process becomes increasingly
inserted into various forms of networks (at regional, national and international
levels). Gibbons et al. (1994) have been arguing that the process of
knowledge production is moving from the traditional disciplinary and
Newtonian model (Mode 1) towards a new mode (Mode 2) which is described
as knowledge production in the context of application, marked by
transdisciplinarity and heterogeneity.
Despite the generic trend towards increased diversity and interdependence in
the knowledge process, we argue that the innovation process of firms and
industries differ substantially between various sectors, whose activities require
specific ‘knowledge bases’ (Asheim and Gertler, 2005). In this study we
distinguish between three knowledge bases (and related activities):
‘analytical’, ‘synthetic’ and ‘symbolic’. This typology encompasses and
acknowledges the diversity of professional and occupational groups and
competences involved in the production of various types of knowledge. As an
ideal type, a synthetic knowledge base is critical for activities where
innovation takes place through the novel combination of existing knowledge.
Therefore a common social and institutional context is considered as a
prerequisite for interactive learning processes. The main rationale for
knowledge creation is the construction and improvement of a functional
system that works as a solution to a practical problem. An analytical
knowledge base is critical for activities where knowledge creation is based on
formal and codified scientific models. The main rationale for knowledge
creation is to understand and explain features of the universe. Activities that
draw on a symbolic knowledge base are more directly dependent on informal
interpersonal interaction in the professional community. Main rationale of
these activities is creation of alternative realities and expression of cultural

48
meaning by provoking reactions in the minds of consumers through
transmission in an affecting sensuous medium (see appendix for more
detailed explanations).
Table 3 provides a summary of the main differences between the knowledge
bases. But as this threefold distinction refers to ideal-types, most industries
are in practice comprised of all three types of knowledge creating activities.
The degree to which certain activities dominate, is however different and
contingent on the characteristics of the industry (see figure 1 for an
illustration).

Table 3: The three knowledge bases

Figure 2: Knowledge bases and industries: an illustration

49
 Distributed knowledge networks
Another policy challenge is represented by the transition from an internal
knowledge base of firms to (more and more) open and globally ‘distributed
knowledge networks’ (e.g. as part of global value chains organised by
Transnational Companies (TNCs) or globally dispersed epistemic
communities of scientists (Amin and Cohendet, 2003)). This is accompanying
the characteristic feature of the globalising, post-Fordist economy of
outsourcing and offshoring the production of goods and services to
subcontractors and suppliers as a result of the development from vertical
integration to vertical disintegration in the organisation of production. The
concept of globally distributed knowledge networks is understood as “a
systemically coherent set of knowledges, maintained across an economically
and/or socially integrated set of agents and institutions” (Smith, 2000, p. 19).
Much of the knowledge intensity enters as embodied knowledge incorporated
into machinery and equipment, or as intermediate inputs (components and
materials) into production processes. More importantly, knowledge flows can
take place between industries with very different degrees of R&D-intensity
and different knowledge base characteristics, e.g. when food and beverages
firms (predominantly drawing on a synthetic knowledge base) produce
functional food based on inputs from biotech firms (predominantly drawing on
an analytical knowledge base). This also weakens the importance of the
distinction between high-tech and low-tech industries, which may have strong
implications for constructing regional advantage and, thus, for regional
innovation policies, and demonstrates that “the relevant knowledge base for
many industries is not internal to the industry, but is distributed across a range
of technologies, actors and industries” (Smith, 2000, p.19).
The importance of distributed knowledge networks hints at the tendency that
especially codified knowledge is becoming a more and more ubiquitous
resource. However, it is still worth making a distinction between
locally/regionally versus globally distributed knowledge networks. Access to
tacit, experience based as well as disembodied codified knowledge is still
important in case production is based on historical, technological trajectories,
especially in sectors of high-quality and high-value added (luxury) products
(e.g. production of highly sophisticated hi-fi equipment in Germany). Similarly,
when products and services are customised and proximity to markets and
customers (and thus logistics) matters, knowledge exchange can be facilitated
by face-to-face co-ordination (e.g. customised business solutions where user-
producer relationships are required versus general software development
which can be supplied by order). This makes such production relatively more
sticky and dependent on localised knowledge and learning and, thus, it will
tend to draw more on local and regional distributed knowledge networks and
to a lesser extent on global.
* *
*

50
 Platform vs. Sectoral policies
The previous sections on related variety, differentiated knowledge bases and
distributed knowledge networks clearly suggest that a traditional, narrow
sector perspective has to be transcended when constructing regional
advantage in a globalising knowledge economy. The platform concept has so
far mostly been used either to describe generic technologies such as software
and biotech, that have potential applications across a wide range of
industries, or the new developments in the automotive industries, where a
limited number of platforms can be used to build a large variety of car models.
One of the consequences of the very fast pace of current technological
change is that innovations often generate multipurpose technologies which
can lead to applications in a number of products and industries. Therefore,
rigid sectoral policies at regional levels can be at risk for several reasons.
First, unfortunately, in certain cases there are no policies which are sufficient
for the survival of sectors which have moved to low-cost countries. Second, if
sectors are identified in a too rigid way, scientific and technological
opportunities can emerge at regional levels which cannot be exploited,
leading to inventions being exploited by companies located in other regions.
The platform concept is now also used by the American writer Thomas
Friedman in his new book on the contemporary globalised world (The world is
flat: A brief history of the globalised world in the 21 st Century), when
describing the impact of the rapid development of new and cheaper
technology on everything from companies, foreign policy and terrorism: ‘What
is the new platform that foreign policy is on? To understand that platform,
you’ve got to understand the technology of it, you’ve got to understand the
economics of it and you also have to understand who is driving it forward,
because it’s not static’ (Financial Times, November 29th 2005). All these
different uses point in a direction of more complicated and complex
interactions and systems of knowledge, technologies, and economies, which
create more scope and flexibility on the one hand, and are in more need for
connectivity and systemicness on the other. A platform approach rather then a
sectoral one might generate a context better equipped to exploit multipurpose
and generic technologies.
Therefore, the notion of policy platforms that builds on an array of instruments
including and integrating key components from several policy domains -
appropriate to constructing regional advantage by enabling firms to be highly
knowledgeable and with global connectivity - is unavoidable. Thus, the
approach for constructing regional advantage must include a variety of
ingredients making up a regional platform policy (see boxes on Japan (box 9)
and China (Shanghai) (box 10)).

51
 Box 9
An example of platform strategies
An example of platform strategies being implemented can be found in Japan’s ‘New industry
promotion strategy’ which is part of the National basic plan for S&T. The strategy is part of
Japan’s catching-up attempts of correcting the flaws in Japan’s industrial model of a strong
focus on perfection, on refining and mass-producing other people’s inventions, and on a
teamwork approach to steady incremental innovations in manufacturing processes, leading to
a neglect of product breakthroughs. It was just these qualities that powered the industry’s
ascent, but also led to its downfall. The new strategy aims to realize a competitive and
sustainable industrial structure for the next 20-30 years by:
• Revitalize strong manufacturing industries
• Develop the service industries that meet the arising needs of the society
• Form industrial clusters to end the regional economic stagnation
In the evolution of cross-sectional priority policies (or a platform based policy) the focus has
been on innovative S&T (Life science, IT, environmental science, nanotech/materials) as
well as on human resources, IP management etc.
In the updated version of the new industry promotion strategy from June 2005, specific
attention is paid on policies for advanced components/materials industries. The figure below
describes the content of this policy, and also provides an excellent illustration of what could
be understood with platform policies (Figure 3):

Figure 3: Platform policies

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 Box 10
Shaping a world-class hub
The evolving healthcare cluster in Shanghai
In healthcare, modern China faces two critical challenges: 1. A system capable of providing
healthcare to the more than 1000 million currently un-served citizens; 2. Exponential growth
of the urban population and related problems of life-styles and the environment. Healthcare
supply of such monumental proportions requires radical change in organization and
technology, which offers sizeable market opportunities to drive innovation. The city-region of
Shanghai tries to address both challenges in an unusually inventive mode of combining old
and constructing new capabilities.
In early 2004, the city-region of Shanghai decided to construct a nationally significant
biomedical centre in the Fenglin area (within the historic Xuhui district) and to enlarge its
capabilities into a resource-rich health cluster of some ten hospitals, the medical faculties of
two universities, facilities of the Chinese Academy of Sciences, Institut Pasteur and Max-
Planck Gesellschaft. Within 5-7 years, the resources of some thirty already locally operating
institutions and many more business firms are to be combined into one of the world’s leading
clusters of biomedical R&D, medical drugs and devices, medical care and related service
provision. With the available resources well connected, Fenglin is considered a very
resourceful healthcare cluster.
Scientific discovery is part of Fenglin’s comprehensive value-chain. A prime objective is to
move fast from scientific advancements to bed-side products, calling for unusually close
institutional collaboration, instigated by new economic and organisational means. For
example, seamless mobility of specialists between scientific laboratories, hospital clinics and
business incubators is enabled by a range of means and incentives. Business incubators, linked
to R&D as well as to the clinical environments, provide the expertise necessary to initiate and
manage the processes of commercialisation of technology and related know-how.
An inclusive, visionary governance model is tailored to build confidence among local and
national institutions, potential investors and those international partners who can offer locally
unavailable world-class competences.
An urban upgrade, extended throughout Fenglin, should enforce the emerging socio-economic
opportunities. Already branded as Shanghai’s Healthy District, Fenglin should serve as an
environmentally sustainable model for metropolitan living and working in all city-regions of
China, attracting foreign talent and investments.
In October 2004 European experts facilitated a roundtable on the Fenglin design and strategy,
involving 17 internationally leading healthcare businesses and biomedical institutions. It was a
proposition attractive to both sides: local decision-makers gained validation of plans by
potential investors; international leaders valued the early opportunity to shape their future
investment environment.
The Fenglin implementation strategy is based, in part, on comparative studies of 20
biomedical clusters in city-regions of Europe, Asia and North America. In a few years time
only, Shanghai may be well-known as a significant healthcare hub because of its well-
orchestrated biomedical and related competences and its fully-fledged urban integration,
complemented by internationally networked regional resources.
Source: Interlace-Invent, a European research-based consultancy. www.interlace-invent.com

* *
*

53
54
 ‘Carriers’ of policies
for constructing regional advantage
In order for platform policies to be initiated, innovated and implemented
various actors, agencies and structures must exist and be engaged as
‘carriers’ of policies for constructing regional advantage. In the following we
will highlight the importance of territorial competence bases (including people
and business climate as well as the regional knowledge infrastructure), SME
and entrepreneurship policies, and governance dimensions of upgrading and
building regional innovation systems as creative knowledge environments.

Territorial competence bases

There is a need to take a closer look at the importance of territorial
competence bases both with respect to the presence of human capital and
talents in a region (Florida, 2002) and the region’s knowledge infrastructure
(universities and public R&D institutes). Giuliani and Bell (2005) have shown
that the absorptive capacity with respect to the acquisition of exogenous or
extra-cluster knowledge as well as the diffusion of this knowledge within a
cluster is dependent on the level of knowledge of the firms. Thus, the
knowledge and competence bases of firms and regions are important
determining factors for the distribution of knowledge as well as for inter-firm
learning in the region. A region’s level of absorptive capacity is of strategic
importance for creating and sustaining a knowledge economy, especially with
respect to appropriation of non-local knowledge. The building-up of absorptive
capacity is highly dependent on the stock of human capital in the region, thus,
underlining the role of local universities of producing human capital.

Business climate and people climate

In a knowledge-based economy, the ability to produce, attract and retain
highly skilled labour is crucial to the current and future prosperity of city-
regions as well as entire nations. Thus, the people who play the lead role in
knowledge-intensive production and innovation – who provide the ideas,
know-how, creativity and imagination, are becoming a distinct advantage for
economic success. Because value creation in many sectors of the economy
rests increasingly on non-tangible assets, the locational constraints of earlier
eras – for example, the access to good natural harbours or proximity to raw
materials and cheap energy sources – no longer exert the same pull they
once did. Instead, what matters most now are those attributes and
characteristics of particular places that make them attractive to potentially
mobile, much sought-after talent. A key reason for believing that a significant
shift has occurred taking us into a knowledge economy is that data suggest
this to be true. Thus the book value of intangible assets compared to raw
materials has shifted from 20:80 in the 1950s to 70:30 in the 1990s (Cooke
and De Laurentis, 2002). Consequently, the distribution of talent, or human
capital, is an important factor in economic geography, as talent is a key
intermediate variable in attracting high-technology industries and generating
higher regional incomes. This makes it an important research task to explore

55
factors that attract talent and its effects on high-technology industry and
regional incomes (Florida, 2002).
The replacement of raw materials or natural harbours with human capital and
creativity as the crucial wellspring of economic growth means that in order to
be successfully in the emerging creative age of the knowledge economy,
regions must develop, attract and retain talented and creative people who
generate innovations, develop technology intensive industries and power
economic growth. Such talented people are not spread equally across nations
or places, but tend to concentrate within particular city-regions. The most
successful city-regions are the ones that have a social environment that is
open to creativity of all sorts. This, together with other factors such as labour
markets characterised by high demand for qualified personnel, cultural
diversity and tolerance, low entry barriers and high levels of urban service,
largely determine the economic geography of talent and of creativity. The
ability to attract creative people in arts and culture fields and to be open to
diverse groups of people of different ethnicity, race and lifestyles provides
distinct advantages to regions in generating innovations, growing and
attracting high-technology industries, and spurring economic growth.
Thus, it is not enough to attract firms: the ‘right’ people also need to be
attracted. Richard Florida calls for complementing policies for attracting firms
with policies for attracting people, which means addressing issues of ‘people’s
climate’ as well as of ‘business climate’ (Florida 2002). Indeed, the former is
seen as basic to the latter, in that the presence of human capital and talent is
essential for attracting and developing high-tech industries and consequently
for the economic growth of cities, a diversification relationship, exploiting
urbanization economies, pointed out by Jacobs (1969) decades ago. This
suggests that the attention of politicians and planners should be directed
towards people, not companies, i.e. away for business attraction to talent
attraction and quality of place (Florida, 2002).
While we concur with the need for paying more attention to the role of talents
as a source of developing innovative industries and regions, there is a need
for unpacking Florida’s general claims and contextualise them to the
particularities of the knowledge bases which different industries draw upon.
Unless this activity is undertaken, causal mechanisms and hence regional
policy recommendations are likely to be misleading. Thus we suggest that the
creative class approach could gain from adding a distinction between
knowledge bases - acknowledging that different knowledge bases ask for
different political actions and depend on different types of talent in different
parts of the innovation process (Kalsø Hansen et al., 2005).
When the creative class, as defined by Florida, in most developed OECD
countries contains between 30-40% of the employment, these talents are
employed in industries drawing on all the three knowledge bases. These
various groups of talents will clearly have different preferences and trade-offs
between firms, occupations, life-styles and place. An engineer working in an
industry making packaging machines or automotives based on a synthetic
knowledge base will normally have different preferences than an art director in
an advertisement agency (based on a symbolic knowledge base) or a
researcher in a biotech firm (based on an analytical knowledge base).

56
Innovation policies for constructing regional advantage must, thus, reflect the
particularities of requirements of industries based on different knowledge
bases for talents, institutional support, and so forth when promoting the
business climate of regions, as well as recognising the varying preferences of
the creative class or talents depending on the knowledge bases of the
industries they are employed in when improving the people climate.

Regional knowledge infrastructure

In addition to the presence of human capital in a region, highly affected by the
people climate and the quality of place, the territorial competence base is also
constituted by the region’s knowledge infrastructure. As the learning economy
becomes increasingly prevalent, tertiary education becomes essential as it
gives access to codified knowledge that is needed to obtain various skills to
be competitive on labour markets and in work life. However, the role of human
capital as a contribution of universities to regional development appears to be
understudied (Hommen and Doloreux, 2004; Lawton Smith, 2003).
Nonetheless, providing for local highly-skilled labour markets and keeping the
skills of the local workforce of firms up-to-date through education and training
programs can be considered as a critical contribution in enhancing the
regional innovative capacity (Hortz-Hart, 2000). Concrete examples of human
capital inputs are placing and connecting students within local companies and
programs of continuative professional development to enhance the skills of
local managers. Traditionally, universities have been mainly concerned with
delivering graduates for a national labour market dominated by large
employers. Little attention was paid to graduate retention in local labour
markets but this situation seems to be changing not the least through a strong
regional policy push (Chatterton and Goddard, 2003; Charles, 2003).
Nowadays various universities have responded increasingly to signals within
the regional economy and are working with industry to establish degree
courses dedicated to providing specialist skills (Lawton Smith, 2003).
In addition universities play an important role as actors in the knowledge
generation subsystem of the RIS. This refers traditionally to processes of
technology transfer, creation of knowledge-intensive spin-off companies, and
the establishment of science parks and incubators (Jones-Evans et al., 2001).
Access to knowledge produced through research at the regional university
thus serves as a locational advantage for firms in the region, especially in the
context of SMEs. When constructing regional advantage, regional innovation
performance may thus be strengthened by regional firms tapping into the
knowledge reservoir of the local university against relatively few costs (see
box 11).

57
 Box 11
Hub-cities and their regions
Successful local clusters are globally connected
Most definitions of ‘clusters of competencies’ recognise the spatial limitations to the cluster.
Clusters are seen as regional or local. Yet, evidence is increasing that the knowledge-base of
specialized agglomerations of business firms and supporting institutions will never remain
exclusively local. Technologically advanced clusters seem to be more successful, when they
are linked functionally across wider spaces through firms and institutions. Mega-clusters -
such as Silicon Valley’s concentration of electronics and IT industries – reach out to similarly
specialised clusters in Europe, Japan, India and China as nodes in transcontinental innovation
networks. Booming city-regions seem to operate less as self-contained units and more as
nodes in global networks.
Many of Europe’s large corporations – and some of its small and medium-sized enterprises –
are embedded in specialised ‘clusters of competencies’ in city-regions across Europe and
even around the globe. More importantly, both types of firms can benefit also from being
present not just in one, but in several city-regions to access specialised bodies of knowledge,
created by the local R&D institutions, or to tap into particular skill-sets or unique blends of
technical know-how among cluster-related firms.
For example, Europe’s medical device industry is a highly-competitive global business and,
yet, an industry that relies on only a limited number of advanced, highly-specialised hub-
cities, known for their original designs of world-class hospital and health care products and
related services.
Europe’s design hubs for textiles and garment, furniture and household equipment tend to
operate as ‘coupled innovation environments'. Similar hub-city patterns appear in industries
like pharmaceuticals, autos, aero-space, advanced business services, etc. Such cross-border
patterns of city-regional specialisation is sometime enforced by institutions: Cities with well-
developed training programs for young designers and with effective branding through design
fairs, exhibitions and other similar events, will attract more design professionals, design
studios as well as companies looking for design services. It tends to be a cumulative effect
due to such visibility and ‘clustering of competencies’.
Advanced hub-cities serve companies and institutions both locally and by helping to bridge
the local innovation environments and the global economic marketplace. Accordingly,
specialised hub-cities tend to have the best-in-class institutional setups for knowledge-
intensive innovation aimed also at the global marketplace. In addition, by place branding
initiatives, these city-regions can position themselves more strategically as Design Hubs,
Biomedical Hubs, Financial Services Hubs, Multimedia Hubs, etc., thereby creating virtual
circles that positively influence their global visibility, improve communications and attract
investors.
Source: Annerstedt, J. (2006)
.
* *
*

58
 SME and entrepreneurship policies
The distinction between businesses vs. people climate could also be used to
highlight the difference between policy in support of SMEs and
entrepreneurship policy. While the SME innovation policy is a question of
improving the business climate through financial support, use of brokers,
mobility schemes, establishment of technology centres as well as clusters and
RIS policies, entrepreneurship policy – especially directed towards
technology-based entrepreneurship – must in addition contain strategies to
improve the people climate, as this indirectly will create an environment
conducive for creativity and risk taking by increasing the level of tolerance and
reducing threshold levels for taking various initiatives as well as lowering entry
barriers facing newcomers, which imply that people from different
backgrounds can easily fit in.
Concerning policy towards SMEs recent research carried out in the SMEPOL
project - SME policy and the regional dimension of innovation (Asheim et al.
2003) - demonstrated the need for a more system-oriented as well as a more
pro-active innovation based regional policy. In the project, SME innovation
policy tools were classified in two dimensions, resulting in a four quadrants
table (Figure 4). The table distinguishes between two main aims of the
support tools. Some tools aim at giving firms access to resources that they
lack to carry out innovation projects, i.e. to increase the innovation capacity of
firms by making the necessary resource inputs available, such as financial
support for product development, help to contact relevant knowledge
organisations or assistance in solving specific technological problems. The
other type of instruments have a larger focus on learning, trying to change
behavioural aspects, such as the innovation strategy, management, mentality
or the level of awareness in firms.
An appropriate way to design and implement an instrument aimed at
assigning lacking resources to firms (following an evolutionary approach to
policy) is, thus, to do it according to a learning-to-innovate framework. In line
with this perspective the objective of policy instruments is not solely to provide
scarce resources (such as financial assistance) to innovating firms per se but
also to promote learning about R&D and innovation and the acquisition of new
routines within firms. Lack of demand is often a bottleneck for financial
incentives to innovation activity, i.e. that firms initially do not see the need to
innovate, or alternatively, that firms do not have the capability to articulate
their need for innovation. Some policy instruments should, therefore, also
attempt to enhance demand for initial innovation activity of firms (i.e. apply a
learning perspective), and, thus, must include an explicit behavioural aspect
with an ultimate policy target of promoting the indogenisation of innovation
activity of enterprises.
The other dimension includes the target group of instruments. Some tools
focus on innovation and learning within firms, to lower the innovation barriers
of firms, such as lack of capital or technological competence. Other
instruments to a larger extent have regional production and innovation
systems as their target group, aiming at achieving externalities or synergies
from complementarities within the regions. The barriers may for example be

59
lack of user-producer interaction or lack of relevant competence in the
regional knowledge organisations to support innovation projects.

Figure 4: Two-dimensional classification of main innovation policy instruments

(from Asheim et al., 2003)

According to Cooke (2001) the new type of regional innovation systems,

which he calls ERIS (Entrepreneurial Regional Innovation Systems), move, in
contrast to the old type of regional innovation systems, IRIS (Institutional
Regional Innovation System), from knowledge scale to scope, from closed to
open innovation, and from reliance on corporate hierarchies to
entrepreneurship (see box 12).
_________________________________________________________________
Institutional RIS (IRIS) Entrepreneurial RIS (ERIS)
___________________________________________________________________
Research & Development Driven Venture Capital Driven
User-Producer Relations Serial Start-ups
Technology-Focused Market-Focused
Incremental Innovation Incremental & Disruptive
Bank Borrowing Initial Public Offerings
External Supply-Chain Networks Internal EcoNets*
Science Park Incubators
___________________________________________________________________
Table 4: Characteristics of institutional and entrepreneurial types of RIS
(from Cooke, 2001)
* Venture capital cross-holdings in portfolio firms among whom outsourcing is promoted.

60
The key point regarding the (somewhat artificially opposed) sides of Table 4 is
that ERIS is rooted in entrepreneurship and talent formation that is largely
outside the corporate hierarchies presumed to be the drivers of innovation in
(some) IRIS set-ups (what are called the ‘dirigiste’ type, while the ‘grassroot’
type is dominated by SMEs).
Such large institutions showed during the 1990s that they experienced
difficulties in many sectors in bringing forth innovations. Essentially, these
large corporations have outsourced R&D almost completely to ‘problem-
solving’ companies like Halliburton and Schlumberger who, in turn, operate
their own knowledge supply chains. It is inside such supply chains among
entrepreneurial firms that R&D is principally conducted.

Box 12
Austin, Texas
Advantage Constructed on a Creative 'Scene'
When the system into which a learning and change disposition is to be integrated is
an externalised inter-organisational one rather than a corporation, the task is more
difficult. Some attention is therefore devoted first to US practices in building
'economic communities'. Henton et al. (1997) argue for strong leadership to
maximise, for profit, social capital effects and cite cases like the latest revival in
Silicon Valley's fortunes through the association called Joint Venture Silicon Valley,
the revival of Cleveland and the transformation of Austin, Texas. Austin's evolution
from sleepy campus and government town to one of America's leading New
Economy clusters is presented, as are the others, as cases of learning clusters based
on cooperative advantage. The New York Times eulogised the place in January 1999
as:
at once the least Texan and the most Texan of cities, with a burgeoning hi-tech
industry, a University population of over 50,000, the endless carnival of Texas
statehouse politics, and a music and restaurant scene that would be envied by a city
twice Austin's size. Austin is one of those cities like Seattle and Santa Fe that gets so
much praise you wish you could hate it.
Economic growth was running at 9-10 per cent annually in the 1990s and 30,000 new
jobs were being added each year, some 200 start-up technology companies were
founded there each year and it had a relatively recently established specialist business
support system, largely private in origin. This was propelled forward by the actions
of community entrepreneurs, particularly George Kozmetsky, founder of the Austin
economic model, known subsequently as the 'triple helix' of government, industry
and university interaction (Etzkowitz and Leydesdorff, 1997). This led to a
successful cluster policy in which all three actors connected also to entrepreneurs,
sources of technology, venture capital and an innovation infrastructure of lawyers,
accountants and business incubators. The policy key is leadership on each part of a
strategy to retain and attract existing business and to grow new ones, and each leader
is drawn from the 'economic community'. Luck plays a part, but even bad luck can be
parlayed into future benefits. Thus the University of Texas at Austin is the second
richest after Harvard in the USA, hence the world. But it started with a handicap in
that it could not be a federal land grant university as Texas contained no federal land
in the 1870s when it was established. Instead it received 5,000 acres of cotton and
forest property, plus building plots. So successful was the cotton crop in the first year
that the South Texas legislature re-appropriated the land and gave the university in
perpetuity 2.2 million acres of wasteland in exchange. Not very auspicious starts,

61
 except that beneath the wasteland were discovered enormous resources of oil. Now
the University of Texas' endowment stands at $7 billion. Some of this windfall was
used to attract 'anchor' projects like the semiconductor research consortia Sematech
and MCC, which gave Austin a local high technology edge. This attracted 3M, Dell,
IBM and Motorola to set up applied research facilities. Dell's just-in-time production
system means that, as well as its 20,000 Austin employees, it sustains an equivalent
number in its co-located supply chain. But New Economy clusters are not immunized
against economic downturns as Dell's cut of 1,500 jobs in 2000, and lower rates of
city job growth 2000-2002, down to 3.7 per cent from 5.2 per cent signify.
Source: Cooke, P. (2002), pp. 14-15.

In other industries, notably pharmaceuticals, which have a globally high

expenditure on R&D at some 18% of revenue, much of this (up to 50%) is
outsourced to knowledgeable biotechnology and pharmaceuticals knowledge
suppliers, and universities and other research institutes. Chesbrough (2003)
shows this to be common also in the ICT and electronics industries (e.g. in
Philips). Hence this large scale of externalisation of knowledge exploration,
examination and exploitation to knowledge entrepreneurs of a public or
private kind, including in universities sometimes both, creates a new
knowledge and innovation landscape for regional governances to grapple
with. In Table 5 the firm-level shifts towards management of open innovation
compared to the tradition of more ‘closed innovation’ are summarised.
___________________________________________________________
Closed innovation Open innovation
____________________________________________________________
Strategic R&D – core business strategy Firms select desired technologies
Firms perform R&D in-house Technology acquisition
Firms put technologies in products Firms market products
Product revenues fund additional R&D R&D Outsourcing
Globalisation (1) adjusts Globalisation (2) taps
products to markets global talent pools
______________________________________________________________
Table 5: Closed and Open Innovation (from Chesbrough, 2003)

The latter was conducted in-house by dedicated R&D departments of the kind
that firms like General Electric, Dupont and AT&T pioneered, but which the
last two at least have largely divested, decentralised or externalised. It is
evident that, to the extent such R&D, along with other, outsourcing has
progressed to the point where the likes of Indian and Chinese knowledge and
services suppliers are well-integrated in the knowledge value chains of
Western companies.
Globalisation itself is in transition to a new economic geography in which the
‘constructed advantage’ of possessing regional talent pools of global
significance now dictates locational decision-making of multinationals in ways
that were not so determinate when largely ubiquitous cheap manufacturing
labour was available in many global locations, as it still is.

62
We term this a transition from Globalisation (1) and the quest for cheap
routine labour to Globalisation (2) and the magnet of regional talent pools of
global significance (Cooke, 2005). Technology-based entrepreneurship is a
phenomenon that has become increasingly important during the last decades.
One of the most important reasons for this is the role played for industrial
renewal and economic growth.
While many traditional, heavy industrial sectors have witnessed a declining
importance, new emerging creative and knowledge-based technological
sectors have instead been expanding rapidly (see box 13).

Box 13
Knowledge-based entrepreneurship
The case of technology-based new firms
Technology-based new firms are a special category of knowledge-based firms. Knowledge-
based entrepreneurship – as well as technology-based entrepreneurship - is a phenomenon
that is growing in importance. The transformation from heavy industry to creative and
knowledge-based activities is sometimes argued to be as great as the industrial revolution.
The location of new technology-based industries depends greatly on access to knowledge and
different learning processes. Entrepreneurs tend to set up new technology-based firms where
they have a personal network of contacts, mostly where they already live and work. Thus,
new technology-based firms tend to spin-off from and cluster around universities, research
organisations and existing firms. Small and new firms are also often depending on
externalities, and for technology-based entrepreneurial firms it is usually critical to have
access to, for example: skilled labour, specialised inputs, capital, knowledge spillovers, and
local customers. As a result, there is a natural tendency towards a substantial and probably
growing disparity between regions that already possess indigenous high-technology activities,
and those that do not. This means that substantial regional disparities are to be expected.
The two main sources of new technology-based firms are universities and existing private
companies; few new technology-based firms are based on independent inventions. It is
common that the main share of knowledge workers are employed in private industry, and,
thus, that a large part of the new technology-based firms is created as spin-offs from the
existing industry. In the university-sector, creating and exploiting new commercial ideas are
not part of the traditional core operations. Even so, a substantial part of the new technology-
based firms is linked to university activities. A small share of the new technology-based firms
are created by university researchers themselves, i.e. direct university spin-offs, others by
external entrepreneurs exploiting university research made by others. Also some new firms
are created as indirect university spin-offs in that they are based on university research, but
not established until the founder(s) have gained additional working experience in a private
employment. Thus, existing organisations and corporations have a critical role to fulfil as a
training ground for future technology entrepreneurs within a regional innovation system.
Thus, even though large corporations recruit a substantial part of the university graduates,
these graduates may very well in the future continue to contribute to the technology-based
entrepreneurship in a region.
To construct regional advantage from knowledge-based entrepreneurship will – at least –
require a combination of entrepreneurship-, SME- innovation-, university- and regional
policies. While, for example, SME policies are often developed to help and assist the growth
of small firms, entrepreneurship policies are instead often focusing individuals and their
entrepreneurial capacity (skills and motivation). University policy is important since
universities are responsible for both the education of a large part of future key personnel, and

63
for a substantial part of the advancement of science, technology and innovation. Thus, the
technological/knowledge profile and responsiveness of a (strong) university will influence the
technological entrepreneurship and profile of a dynamic region. Innovation policy must, of
course, include aspects linked to universities, but it must also deal with the interdependence
between large and new/small firms. The recipe for constructing regional advantage must
include a variety of ingredients making up a regional platform policy.

In the perspective of the rise of the creative class it is important to consider

the interaction of stocks of talent, entrepreneurship, and networking in
regional development. As argued by Cooke (2005, p. 6) ‘innovation and
entrepreneurship requires ‘talent’ and crucially the means for producing
talent’. What is meant by talent is not always clear. Talking about technology-
based entrepreneurship it is usually assumed that some technical-, marketing-
, and business knowledge is normally required in connection with certain
entrepreneurial characteristics. Often education and work experience are
pointed out as means to acquire different kinds of knowledge. Lawton Smith
et al. (2005) argues that it should not be overlooked that the quality of the
social networks of entrepreneurship and innovation ‘is dependent on the
quality or talent of individuals who have initiated particular developments’
(Lawton Smith et al., 2005, 1). Using Oxfordshire as a case study she
demonstrates ‘how the expertise of talented individuals has been translated in
the fastest growing high-tech economy in the UK’ (Lawton Smith et al., 2005,
1). It can be argued that many European countries have a relatively high
share of technology-based entrepreneurship, both as spin-offs from private
industry and from universities. However, it is less clear whether this
technology-based entrepreneurship is of a magnitude large enough to make
an important contribution to economic growth. To fulfil this role, it is important
that the entrepreneurial activities of a region or nation are big enough. With a
low entrepreneurial activity, it might not be enough to have a high share of
knowledge- and or technology-based entrepreneurship. To design a policy
encouraging knowledge- and/or technology-based entrepreneurship, as well
as creating new high growth technology-based firms (i.e. sometimes called a
‘picking-the-winners’ SME policy) might also prove problematic if the intention
is to encourage economic development and growth. However, these
dilemmas underline the need of seeing modern knowledge-based
entrepreneurship in an innovation system perspective.
As an outcome of the regionalisation of innovation policy we might find that
within a country with a dominating type of capitalism (either a coordinated or a
liberal market economy (Hall and Soskice, 2001)) it will be more common to
find a ‘US/European blend’ when it comes to types of innovation support
pursued. This could on the one hand be the result of the specific industry to
be supported, i.e. if the aim is to upgrade an existing, traditional industry
based on a synthetic knowledge base an IRIS-type of policy would be most
relevant, in contrast to stimulating the commercialisation of new knowledge
drawing on an analytical knowledge base, which might be more efficient if
pursuing an ERIS-type of policy. On the other hand, in cases with industries
drawing on the same knowledge base, it might be an outcome of the
ideological and political platform of the regional government, i.e. the regional
authorities in Veneto would tend to prefer an ERIS-strategy, while in Emilia-
Romagna an IRIS-strategy would tend to be supported.

64
 Upgrading and building regional innovation systems
As already emphasised, regional innovation systems have played and will
continue to play a strategic role in promoting the innovativeness and
competitiveness of regions. To achieve this, the RIS approach has to be
strengthened by attention being directed towards the need – perceived by
policy makers both at EU and regional levels – of constructing regional
advantage. The regional innovation system can be thought of as the
knowledge infrastructure supporting innovation in interaction with the
production structure of a region. Thus, when the following two subsystems of
actors are systematically engaged in interactive learning (Cooke et al., 1998)
it can be argued that a regional innovation system is in place: (1) The regional
production structure or knowledge exploitation subsystem which consists
mainly of firms, often displaying clustering tendencies, and (2) The regional
supportive infrastructure or knowledge generation subsystem which consists
of public and private research laboratories, universities and colleges,
technology transfer agencies, vocational training organisations, etc. The
interacting knowledge generation and exploitation subsystems of a RIS is,
moreover, linked to global, national and other regional systems (Cooke,
2004). From this follows that clusters and RIS can (and often do) co-exist in
the same territory. But whereas the regional innovation system by definition
hosts several clusters, a cluster is not part and parcel of a RIS. Furthermore,
Cooke et al. (1998) emphasise the role of the informal institutional context (i.e.
norms, trust and routines) in which such interactive learning takes place. This
dynamic and complex interaction constitutes what is commonly labelled
systems of innovation (Lundvall, 1997; Edquist, 1997), i.e. systems
understood as interaction networks (Kaufmann and Tödtling, 2001).
The ‘innovation system’ concept can be understood in both a narrow as well
as a broad sense. A narrow definition of the innovation system primarily
incorporates the R&D functions of universities, public and private research
institutes and corporations, reflecting a top-down model of innovation. Such
constellations traditionally resulted in regionalised national innovation
systems, which constitute a supply (science push) driven model (see box 14).
A broader conception of the innovation systems includes ‘all parts and
aspects of the economic structure and the institutional set-up affecting
learning as well as searching and exploring’ (Lundvall, 1992, 12), and, thus,
has a weaker system character. This broad definition incorporates the
elements of a bottom-up, interactive innovation model which is referred to as
territorially embedded regional innovation systems (or learning regions). This
type basically represents a market-driven model, where demand factors
determine the rate and direction of innovation. A combination of these two
types of RIS is called regionally networked innovation system (Asheim and
Isaksen, 2002). The networked system is commonly regarded as the ideal-
type of RIS: a regional cluster of firms surrounded by a regional supporting
institutional infrastructure. These systems have a more planned character
than the territorially embedded systems involving public-private co-operation,
and a stronger, more developed role for regionally based R&D institutes,
vocational training organisations and other local organisations involved in
firms’ innovation processes (see box 15). (For a more elaborated description,
see appendix).

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 Box 14
Third Generation Innovation Environments
The ‘urbanised’ science park
In its modern form, the science park experience has a history of some 50 years. Without
major exceptions, all European city-regions have science parks or, as they are called,
Technology Parks, High-Tech Centres, Research Parks or Technopoles. Science Park is the
generic term for “an organisation managed by specialised professionals, whose main aim is to
increase the wealth of its community by promoting the culture of innovation and the
competitiveness of its associated businesses and knowledge-based institutions.” (International
Association of Science Parks, 2002.) Other science park definitions emphasise the link to a
university or R&D facility.
The first wave of investments into science parks and high-tech business areas reached
European regions in the early 1960s. Science parks were still conceived as suburban high-tech
zones and it would take 30 years before science parks would start to ‘go urban’ and move
closer to the socio-economic fabric of city-regions, while developing new varieties of
innovation support services. The European versions of the US Science Park model were first
tested in the UK. The most recognised European pioneer is Sophia-Antipolis of France
(1969). Sophia remains Europe’s biggest science park (2,300 hectares) with 24,500 persons
employed in its companies and institutions.
The innovation philosophy of a First Generation Science Park is ‘science push’. Scientific
findings are simply raw material for academic entrepreneurship or innovative business
activities. It is a ‘linear approach’ to innovation.
Second Generation Science Parks typically remain an extension of a university (or other
R&D facility) into a dedicated high-tech zone. Nonetheless, the park could also be a separate
entity, located far from an R&D centre. The drive and the decisive energy come from
business firms, interested in innovative products and services. The innovation philosophy is
more of ‘market pull’. A study in 2004 of Germany’s 440 municipalities showed that they are
home to 362 science and technology parks (broadly defined). Yet, for the majority of these
parks the research base is very limited. They are driven by business or by public-private
partnerships.
The innovation philosophy of a Third Generation Science Park is both ‘science push’ and
‘market pull'. It departs from the ‘linear model’ of innovation into ‘interactive’ innovation.
Embedded in the urban environment with ever-changing varieties of demand, innovations
appear as continuous outcomes of more functional interactions.
Third Generation Science Parks are more complicated to govern. The blurring of borders
between activities that take place inside and outside of a park, which is well-integrated into
the city-region, will cause complexities for the park's management. Involving new
stakeholders and recognising wider stakeholder communities (such as pioneering user groups)
require new methods of leadership and a broader culture of entrepreneurship in order to foster
the growth of knowledge-intensive business firms. However, constructing and facilitating
such comprehensive capabilities in support of innovation could become very rewarding for
the business firms involved as well as for the wider society.
Source: Interlace-Invent, a European research-based consultancy. www.interlace-invent.com

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 Box 15
Building Regional Innovation Systems
VINNOVA’s VINNVÄXT-initiative
‘Innovation i Gränsland’ (Food Innovation at Interfaces) has been granted funding as a
VINNVÄXT program in 2003. The application was written by the network organization
‘Skånes Livsmedelsakademi’ (Scania’s food and beverages academy) whose members are
from the triple helix of business, research organisations and regional public administration.
The application builds on the shared strategic vision to increase the added value of the
region’s food industry’s products and services. It intends to do so through a focus on multi-
disciplinary innovation projects in the borderland between different knowledge bases. The
project builds on the recognition that the Swedish food industry as well as important related
areas such as logistics and machinery is heavily concentrated in the country’s most Southern
region Scania. The total growth of the cluster is however low as parts of the sector are
dominated by typically Fordist bulk production aimed at price competition and economies of
scale. The programme acknowledges that this is not an economically sustainable situation
and, hence, aims to access new, more specialised and knowledge-intensive segments of the
market such as high-quality niche products, convenience foods, ecological foods and
functional foods (defined as artificially developed food with added ingredients that
demonstrate scientific evidence of positive health-related effects). To make this shift,
companies need to collaborate more actively with the existing knowledge infrastructure
found in Scania. Both Lund University and the Swedish Agricultural University in Alnarp
(located between Lund and Malmö) have indeed aligned parts of their education and research
activities to the historical presence of the food industry in Scania. For example, already early
in the 20th century firms and organisations in the regional farming community as well as the
Swedish state supported and collaborated with scientists in plant breeding through the Svalöf
Institute (which was part of Lund University) to develop better seeds for the agricultural
conditions prevalent in Sweden. Within ‘Food Innovation at Interfaces’ triple helix
collaboration is organised both on a strategic and operational level. The board of the program
consists of representatives from the regional food industry, universities as well as regional
government and serves as a reference group for the program as a whole. On an operational
level, the program is divided in four main project areas: Food and Health - Functional Foods,
International Consumer Marketing, Good and Convenient Food on a Large Scale,
Innovations in Theory and Practice. These project areas reflect the broad scope of activities
that the program aims to cover, targeting analytic knowledge-based innovation (e.g. in Food
and Health - Functional Foods) as well as synthetic knowledge-based innovation (e.g. in
Good and Convenient Food on a Large Scale). Within these project areas, various projects
are carried out drawing on collaboration in a public-private or triple helix context
coordinated by project managers which often are affiliated with organizations that have
substantial previous experience with such collaboration.

However, there are different logics behind constructing regional innovation

systems contingent on the knowledge base of the industry it addresses as
well as on the regional knowledge infrastructure which is accessible. In a
territorially embedded regional innovation system, the emphasis lies on the
localised, path-dependent inter-firm learning processes often involving
innovation based on synthetic knowledge. The role of the regional knowledge
infrastructure is therefore mainly directed to industry-specific, hands-on
services and concrete, short-term problem solving, i.e. ex-post support to the
cluster. In a regionalised national innovation system, R&D and scientific

67
research take a much more prominent position. Innovation builds primarily on
analytic knowledge. Linkages between existing local industry and the
knowledge infrastructure are however weakly developed. Instead it holds the
potential to promote new industries at the start of their industrial and
technological life cycle. In this, the role of the regional(ised) knowledge
infrastructure is a very central one as it provides the cornerstone for cluster
development (through the precarious task of commercialising science) and
can thus be called ex-ante cluster support.
Similar to the regionalised national innovation system, in the regionally
networked innovation system the knowledge infrastructure plays an
indispensable role, however more territorially embedded. But in contrast to it,
the cluster is not wholly science-driven but represents a combination of a
science and market-driven model. In comparison to the territorially embedded
regional innovation system, the networked RIS often involves more advanced
technologies combining analytic and synthetic knowledge as well as having
better developed and more systemic linkages between universities and local
industry. While territorially embedded RIS are often found in mature industries
and regionalised national innovation systems found in emergent industries,
networked regional innovation systems can typically support various types of
industries in different life cycle phases. Firms and knowledge infrastructure
form a dynamic ensemble, combining ex-post support for incremental
problem-solving and ex-ante support to counter technological and cognitive
lock-ins. Figure 5 shows combinations of different types of regional innovation
systems and knowledge bases.

Figure 5: Types of regional innovation systems and knowledge bases

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 Regional Innovation Systems
as Creative Knowledge Environments
In this report we have emphasized the need for a more platform and system-
oriented as well as a more pro-active innovation based regional policy in order
to construct regional advantage. A re-orientation of what is called the target
level of support, changing innovation policies from being firm-oriented to a
(regional) system-oriented perspective has already gained a growing attention
among researchers and policy makers by pursuing a cluster and regional
innovation system based policy. However, the second part of the
recommendation concerning the form and focus of support implying a change
of focus from allocation of resources for innovation to focusing on learning
aiming for behavioural value-added as well as pursuing a platform-oriented
perspective has not been implemented to the same degree (Asheim et al.,
2003). These recommendations, which is considered to be of strategic
importance in shaping the conditions for constructing regional advantage,
emphasise precisely a need for a more conscious and thorough systemic
approach to developing the endogenous capacity of firms and regions to
innovate, focusing especially on the role of knowledge creation, absorption
and diffusion generally and R&D more specifically in a well-structured and
well-designed interplay of local and non-local knowledge flows in an
increasingly more knowledge intensive, globalising economy. This implies that
the view that ‘local buzz’ in a cluster is generated by just ‘being there’ in an
agglomerated environment is not any longer considered to be sufficient. On
the contrary, it is argued that the promotion of ‘local buzz’, understood as the
development of endogenous capacity of regions to innovate, requires as
much proactive planning as the establishment of ‘global pipelines’ to generate
non-local knowledge flows. Consequently, it has been argued that it is more
likely to enhance clusters’ learning and innovation capacity by strengthening
firms’ knowledge bases rather than by pooling firms together in the same
agglomeration (Giuliani, 2005).
One important type of connectivity in a regional economy is what potentially
takes place when constructing RIS in a triple-helix context. In the terms of
reference paper from DG Research for the work of this Expert group a Triple
Helix approach is used to present what is considered to be the necessary
background for constructing regional advantage, i.e. (i) the existence of a
knowledge infrastructure (universities, public research centres etc.) producing
human capital and new knowledge, (ii) industry, i.e. the regional economic
sector and its non-local links, and (iii) governance, i.e. regional government
and governance structures and their potentials for giving policy support to
industry. The key point with this approach is, however, how to make a Triple
Helix (or a RIS) constellation operate so that systematic interaction between
the various partners constructs regional advantage. This perspective has
been given an increased attention among policy makers as well as
researchers within innovation research. However, so far this perspective has
been applied in a rather static way, more like a heuristic device than as a
basis for actual policy formulations. This is also the weakness of the
approach, as it does not give much guidance concerning how a triple-helix
based collaboration could be functional, operational and implemented in
concrete policy settings in order to contribute to constructing regional

69
advantage. In order to achieve this, theoretical and practical advice must be
developed partly with respect to how collaboration between the three actors of
the triple-helix, i.e. the industry, university and government, should be
externally organised, and partly with respect to how knowledge creation and
innovation oriented work should be organised internally among the different
actors, thus turning the macro-, meso-, and micro-levels of the Triple Helix
into creative knowledge environments. Creative knowledge environments are
‘environments in which new knowledge is produced by people, especially in
their work settings’ (Hemlin et al., 2004, 2). Such creative knowledge
environments can be found at macro- (e.g. national or regional innovation
systems), meso- (e.g. research institutions and corporations) as well as micro-
levels (i.e. research groups or work teams), and contain physical, social and
cognitive characteristics. This new focus on creative knowledge environments
covers a void in the majority of innovation studies - primarily focusing on how
knowledge are exploited through innovations and entrepreneurship – by
analyzing how creation of new knowledge actually occurs as well as what
characterize the environments in which creative knowledge-producing
activities are carried out. This approach, thus, put stronger focus on the
actors, agencies and governance forms as well as their respective
environments relevant for constructing regional advantage in a triple-helix as
well as a multi-level perspective.
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 Appendix 1:
Conceptual and theoretical background
Constructed advantage: Definition and concepts
‘Constructed advantage’ has lately turned up in the literature discussing how
to achieve and promote regional competitiveness. So far, this discussion has
not clearly and convincingly been able to explain in what ways ‘constructed
advantage’ differ from ‘competitive advantage’. Porter (1990) introduced the
concept ‘competitive advantage’ as an answer to what he considered was
shortcomings with the Ricardian concept of ‘comparative advantage’, which
had dominated the discourse and informed policy concerning trade and
competition for nearly one and a half century. According to the principle of
comparative advantage goods were traded on the competitive bases of using
the lowest relative input costs in the production, i.e. the ‘natural’ production
factors (including labour) each country had the relative best and/or affluent
access to and most efficient use of. In this 1990 book Porter argues strongly
for the need to come up with a new theory of competitive advantage, as the
old Ricardian approach was not fully able to explain trade patterns and firms’,
regions’ and nations’ competitiveness in the contemporary globalising
economy. First of all, a globalising economy needed a more dynamic principle
of competitive advantage, resting on ‘making more productive use of inputs,
which requires continual innovation’ (Porter, 1998, p. 78). This more dynamic
perspective emphasised that competitive advantage can be influenced by
innovation policies and supporting regulatory and institutional frameworks. In
this way innovation plays a central role in attaining and sustaining competitive
advantage, explaining partly why firms from particular nations choose better
strategies than firms from other nations competing in the same industries, and
partly why firms from certain nations gain competitive advantages beyond the
limited scope of the factor-based comparative advantages to include
competitive advantages based on innovations nurtured by segmented
markets, differentiated products, technology differences etc. This linking of
competitiveness and innovation is of strategic importance as it represents the
high road to economic development and the strong way of competing (in
contrast to the weak way or the low road based on squeezing costs -low
wages).
Secondly, Porter stressed the increased importance of the nation state as a
home base for successful global competition in particular industries even in a
globalising economy. He argued that ‘competitive advantage is created and
sustained through a highly localised process. Differences in national
economic structures, values, cultures, institutions, and histories contribute
profoundly to competitive success’ (Porter, 1990, p. 19). This extension of the
notion of competitiveness from firms to regions and nations is important as it
incorporates the view of an economy as embedded in social structures as well
as of the competitiveness and performance of an economy as being strongly
interlinked with and dependent upon the broader societal and institutional
framework of nations (Hall and Soskice, 2001).

71
Then, what is new with ‘constructing’ advantages (CA) compared to Porter’s
view of ‘creating’ such competitive advantages? In the terms of the reference
paper for the Expert Group’s work the CA approach is presented in the
following way: ‘Developing the regional dimension of the ERA (European
Research Area), implies developing the endogenous capacity of the region to
innovate, capitalising on their strengths to create wealth and jobs. This
approach can be described by the concept of creating a ‘new competitive
advantage’ that highlights (in terms of regional development economics), the
benefits of a so-called ‘constructive advantage’’. However, this specification
does not really provide any full disclosure of the differences between the
concepts. The formulation ‘creating a ‘new competitive advantage’ is also
used by Porter already in his 1990 book. Thus, there is an obvi ous need of
reflecting over the differences between ‘creating’ and ‘constructing’ in order to
understand what should be meant with constructing and constructed
advantages.
The key to solving this question has far older roots than Porter’s work. Once
again going back to the writings of Alfred Marshall on industrial districts can
be quite illuminating. In discussing how the exploitation of localisation
economies of industrial districts can secure the competitiveness of SMEs
against the internal economies of scale-based competitive strength of large
firms he assumed that business interactions (from exploiting localisation
economies) and knowledge flows were co-occurring phenomena (Giuliani,
2005) by arguing for a ‘fusion’ of the economy and society (Piore and Sabel,
1984) and introducing the concept of ‘Marshallian agglomeration economies’.
In contrast to traditional regional economics, Marshall attaches a more
independent role to agglomeration economies as the specific territorial
aspects of a geographical agglomeration of industrial production. Marshall
focuses on traditional socio-cultural factors, which concern the quality of the
social milieu of industrial districts, and which only indirectly affect the profits of
firms. Among such factors Marshall emphasizes in particular the mutual
knowledge and trust that reduces transaction cost in the local production
system; the industrial atmosphere which facilities the generation and transfer
of skills and qualifications of the workforce required by local industry; and the
effect of both these aspects in promoting (incremental) innovations and
innovation diffusion among small firms in industrial districts (Asheim, 2000).
The view of these territorial-based mechanisms as ‘favouring inter-firm
diffusion of knowledge and collective learning, among them: the turn-over of
skilled labour force, the intensive client-supplier interactions, the inter-firm
transfer of knowledge and the proliferation of spin-off firms’ (Giuliani, 2005, p.
4) has in many years of research on clusters and innovation been considered
nearly as a fact, and has been reproduced over and over again. Malmberg
(2003, p. 157), for example, maintains that local interactions are characterised
not just by being unstructured and unplanned, but also relatively broad and
diffuse, sometimes unwanted and often seemingly of little immediate use’. In
another paper looking at the relations between collective learning processes
taking place in a community by just being there, which is called ‘local buzz’,
and building ‘global pipelines’ to knowledge providers located outside the local
milieu, it is argued that while ‘local buzz is certainly dependent on particular
local institutional preconditions … the important point is that it largely takes

72
care of itself. If a number of actors are placed within a region some sort of
buzz will automatically result’, while ‘in contrast, it is especially the
development of global pipelines which requires institutional and infrastructure
support’ (Bathelt et al., 2004).
It is this idea of an almost ‘automatic’ shaping of learning and innovation
creating competitive advantages by just ‘being there’, co-located in an
agglomerated environment, that also lies behind Porter’s understanding of
how competitive advantage is created. He writes that ‘firms create competitive
advantage by perceiving or discovering new and better ways to compete in an
industry and bringing them to the market, which is ultimately an act of
innovation’ (Porter, 1990, p. 45). However, in the context of Italian industrial
districts I argued nearly 10 years (Asheim, 1996, repeated and developed in
Asheim, 2000) that one of the constraining factors with respect to their
innovative capacity (i.e. moving beyond the domination of incremental
innovations) is the fierce competition between small subcontractors
specializing in the same products or phases of production, and vertically
linked to the commissioning firms. This promotes cost efficiency but do not
represent a very innovative milieu. Also recently, several observers have
questioned ‘the widely accepted view of cluster learning as being a pervasive
and ‘collective’ process (Giuliani, 2005, p. 2) only conditioned by territorial
agglomeration as such. Giuliani (2005) argues and shows empirically that ‘the
structure of the knowledge network in a cluster is related with the
heterogeneous distribution of firms’ ‘knowledge bases’ implying that this
‘heterogeneity of firms’ knowledge bases generates uneven distribution of
knowledge and selective inter-firm learning’ (Giuliani, 2005, p. 1). She
concludes by arguing that ‘cluster’s innovation is more likely to be enhanced
by strengthening firms’ knowledge bases rather than by pooling firms together
in the same geographical area’ (Giuliani, 2005, p. 17).
However, it is an important question if firms can take up this challenge of
strengthening their knowledge bases (or competence level, which is what
Giuliani in facts refer to) by themselves and just on their own initiative start
cooperating with neighbouring firms and knowledge creating and diffusing
organizations co-located in clusters, thus, consequently, changing their
behaviour to become more innovative, along with the view of Bathelt et al. and
Porter referred to above, or if more planned and systemic approaches are
needed in a globalising knowledge economy in order for regional advantages
to be deliberately constructed. This argument is grounded in the observations
that in the contemporary globalising economy characterised by
outsourcing/offshoring, delocalization, FDIs, distributed knowledge bases,
open innovation, dominating TNCs, and intensified competition from
developing countries of which China and India are the ‘star’ examples, based
on cost efficiency (i.e. low wages) as well as a rapid increasing knowledge
intensity in the production of both manufacturing goods and services, simply
leaving the question of how competitive advantages are achieved just to the
market or the ‘territory’ in the Marshallian way, is not enough. The idea, then,
that in the future it will not be sufficient to rely on competitive advantage just to
be created but that they need consciously and pro-actively to be constructed
has this understanding of the challenges EU faces in a globalising economy
as its point of departure. This point to a new and more dynamic role of the

73
public sector (including universities) generally and government and
governance specifically. Typically, when Porter discusses if government
should be viewed as the fifth determinant of competitive advantage, he
concludes that the ‘most useful way to understand governments role … in
national competitive advantage is in influencing the four determinants’ (Porter,
1990, pp. 126-27). On the other hand he underlines the importance of being
able to explain ‘the role of the nation in the innovation process. … The
question is how a nation provides an environment in which its firms are able to
improve and innovate faster than foreign rivals in a particular industry’ (Porter,
1990, p. 20).

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 Appendix 2:
How to characterise regions
The three industrial knowledge bases
In this section one of the dimensions discussed in section 2, industrial
knowledge bases, will be further elaborated and developed in order to
become useful in understanding the diversity of regions.

Analytical knowledge base

This refers to industrial settings where scientific knowledge is highly
important, and where knowledge creation is often based on cognitive and
rational processes or on formal models. Examples are biotechnology and
nanotechnology. Both basic and applied research as well as systematic
development of products and processes is relevant activities. Companies
typically have their own R&D departments but they also rely on the research
results of universities and other research organisations in their innovation
process. University-industry links and respective networks, thus, are important
and more frequent than in the other types of knowledge base.
Knowledge inputs and outputs are in this type of knowledge base more often
codified than in the other types. This does not imply that tacit knowledge is
irrelevant, since there are always both kinds of knowledge involved and
needed in the process of knowledge creation and innovation (Nonaka et al.,
2000, Johnson et al., 2002). The fact that codification is more frequent is due
to several reasons: knowledge inputs are often based on reviews of existing
studies, knowledge generation is based on the application of scientific
principles and methods, knowledge processes are more formally organised
(e.g. in R&D departments) and outcomes tend to be documented in reports,
electronic files or patent descriptions. These activities require specific
qualifications and capabilities of the people involved. In particular analytical
skills, abstraction, theory building and testing are more often needed than in
the other knowledge types. The work-force, as a consequence, needs more
often some research experience or university training. Knowledge creation in
the form of scientific discoveries and technological inventions is more
important than in the other knowledge types. Partly these inventions lead to
patents and licensing activities. Knowledge application is in the form of new
products or processes, and there are more radical innovations than in the
other knowledge types. An important route of knowledge application is new
firms and spin-off companies which are occasionally formed on the basis of
radically new inventions or products.

Synthetic knowledge base

This refers to industrial settings, where the innovation takes place mainly
through the application of existing knowledge or through the new combination
of knowledge. Often this occurs in response to the need to solve specific
problems coming up in the interaction with clients and suppliers. Industry
examples include plant engineering, specialised advanced industrial

75
machinery and production systems, and shipbuilding. Products are often ‘one-
off’ or produced in small series. R&D is in general less important than in the
first type. If so, it takes the form of applied research, but more often it is in the
form of product or process development. University-industry links are relevant,
but they are clearly more in the field of applied research and development
than in basic research. Knowledge is created less in a deductive process or
through abstraction, but more often in an inductive process of testing,
experimentation, computer-based simulation or through practical work.
Knowledge embodied in the respective technical solution or engineering work
is at least partially codified. However, tacit knowledge seems to be more
important than in the first type, in particular due to the fact that knowledge
often results from experience gained at the workplace, and through learning
by doing, using and interacting. Compared to the first knowledge type, there is
more concrete know-how, craft and practical skill required in the knowledge
production and circulation process. These are often provided by professional
and polytechnic schools, or by on-the-job training.
The innovation process is often oriented towards the efficiency and reliability
of new solutions, or the practical utility and user-friendliness of products from
the perspective of the customers. Overall, this leads to a rather incremental
way of innovation, dominated by the modification of existing products and
processes. Since these types of innovation are less disruptive to existing
routines and organisations, most of them take place in existing firms, whereas
spin-offs are relatively less frequent.

Symbolic knowledge base

This knowledge is related to the aesthetic attributes of products, to the
creation of designs and images and the economic use of various forms of
cultural artefacts. The increasing significance of this type of knowledge is
indicated by the dynamic development of cultural industries such as media
(film making, publishing, and music), advertising, design or fashion (Scott
1997; 1998). These industries are innovation- and design-intensive since a
crucial share of work is dedicated to the ‘creation’ of new ideas and images
and less to the actual physical production process. Competition thus
increasingly shifts from the ‘use-value’ of products to the ‘sign-value’ of
brands (Lash and Urry 1994, p. 122). In the cultural industries in particular the
input is aesthetic rather than cognitive in quality. This demands rather
specialized abilities in symbol interpretation than mere information processing.
Symptomatically, the knowledge involved is incorporated and transmitted in
aesthetic symbols, images, (de)signs, artefacts, sounds and narratives. This
type of knowledge is strongly tied to a deep understanding of the habits and
norms and ‘everyday culture’ of specific social groupings. Due to the cultural
embeddedness of interpretations this type of knowledge base is characterised
by a strong tacit component. The acquisition of essential creative, imaginative
and interpretive skills is less tied to formal qualifications and university
degrees than to practice in various stages of the creative process. The
process of socialisation (rather than formal education) in the trade is not only
important with regard to training ‘know how’, but also for acquiring ‘know who’,
that is knowledge of potential collaborators with complementary specialisation
(Christopherson, 2002).

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The latter is essential since production quite typically is organised in
temporary projects (Grabher, 2002). In fact, cultural industries, like film
production, are emblematic project settings (see, for example, DeFillippi and
Arthur, 1998; Starkey, Barnatt and Tempest, 2000; Sydow and Staber, 2002).
More generally, the project provides an organisational arena in which a
diverse spectrum of professional cultures that ranges from the artistic world to
the commercial world of business services is brought together for a limited
period of time. Projects in the symbolic knowledge base, however, are not
necessarily aimed at bridging or minimising such diversity in a straightforward
fashion. They also are seen as arenas of productive tensions and creative
conflicts that trigger innovation.
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78
 Appendix 3: Models
for constructing regional advantage
Regional innovation systems (RIS)
The regional innovation system can be thought of as the institutional
infrastructure supporting innovation within the production structure of a region.
Thus, in case the following two subsystems of actors are systematically
engaged in interactive learning (Cooke et al., 1998) it can be argued that a
regional innovation system is in place. (1) The regional production structure or
knowledge exploitation subsystem which consists mainly of firms, often
displaying clustering tendencies. (2) The regional supportive infrastructure or
knowledge generation subsystem which consists of public and private
research laboratories, universities and colleges, technology transfer agencies,
vocational training organisations, etc. From this follows that clusters (see
below in point d)) and RIS can (and often do) co-exist in the same territory.
But whereas the regional innovation system by definition hosts several
clusters, a cluster is not part and parcel of a RIS. Furthermore, Cooke et al.
(1998) emphasise the mainly informal institutional context (i.e. norms, trust
and routines) in which such interactive learning takes place. This dynamic and
complex interaction constitutes what is commonly labelled systems of
innovation (Edquist, 1997), i.e. systems understood as interaction networks
(Kaufmann and Tödtling, 2001).
Taking each element of the term in turn (Asheim and Cooke, 1999), the
concept of region highlights an important level of governance of economic
processes between the national level and the level above the local or
municipal level (Cooke and Leydesdorff, 2006). Regions are important bases
of economic coordination at the meso-level, although the level of regional
administration can differ quite a lot across various countries. In varying
degrees, regional governance is expressed in both private representative
organisations such as branches of industry associations and chambers of
commerce, and public organisations such as regional agencies with powers
devolved from the national (or, within the European Union, supranational)
level to promote enterprise and innovation support (Asheim et al., 2003;
Cooke et al., 2000).
The systemic dimension of the RIS derives in part from the associational
character of innovation networks (Cooke and Morgan, 1998). Such
relationships, to be systemic, must involve some degree of inter-dependence,
though to varying degrees. Likewise, not all such systemic relations need to
be regionally contained, but many are. As the interactive mode of innovation
grows in importance, these relations are more likely to become regionally
contained, for example in the case of specialised suppliers with a specific
technology or knowledge base. Such suppliers often depend on tacit
knowledge, face-to-face interaction and trust-based relations and, thus,
benefit from co-operation with customers in regional clusters, while capacity
subcontractors are increasingly sourced globally. Further reinforcing the
systemic character of the RIS is the prevalence of a set of attitudes, values,
norms, routines and expectations – described by some as a distinctive
‘regional culture’ – that influences the practices of firms in the region. It is this

79
common regional culture – itself the product of commonly experienced
institutional forces – that shapes the way that firms interact with one another
in the regional economy.

Varieties of regional innovation systems

The ‘innovation system’ concept can be understood in both a narrow as well
as a broad sense. A narrow definition of the innovation system primarily
incorporates the R&D functions of universities, public and private research
institutes and corporations, reflecting a top-down model of innovation. A
broader conception of the innovation systems includes ‘all parts and aspects
of the economic structure and the institutional set-up affecting learning as well
as searching and exploring’ (Lundvall, 1992, p. 12), and, thus, has a very
weak system character. This broad definition incorporates the elements of a
bottom-up, interactive innovation model which alternatively could be called
‘learning regions’ (Asheim, 2001).
In order to reflect the conceptual variety and empirical richness of the
relationships linking the production structure to the ‘institutional set-up’ in a
region, Asheim (1998) distinguishes between three types of RISs (see also
Cooke, 1998; Asheim and Isaksen, 2002). The first type may be denoted as
territorially embedded regional innovation systems, where firms (primarily
those employing synthetic knowledge) base their innovation activity mainly on
localised, inter-firm learning processes stimulated by the conjunction of
geographical and relational proximity without much direct interaction with
knowledge generating organisations (i.e. R&D institutes and universities). This
type represents basically a market-driven model, where demand factors
determine the rate and direction of innovation, and implies the broad definition
of innovation systems described by Lundvall (1992) above. Cooke (1998)
calls this type ‘grassroots RIS’.
The best examples of territorially embedded regional innovation systems are
networks of SMEs in industrial districts. Thus in Italy’s Emilia-Romagna, for
example, the innovation system can be described as territorially embedded
within that particular region (Granovetter, 1985). These territorially embedded
systems provide bottom-up, network-based support through, for example,
technology centres, innovation networks, or centres for real service providing
market research and intelligence services, to promote the ‘adaptive
technological and organisational learning in territorial context’ (Storper and
Scott, 1995, p. 513).
Another type of RIS is the regionally networked innovation system. The firms
and organisations are also embedded in a specific region and characterised
by localised, interactive learning. However, through the intentional
strengthening of the region’s institutional infrastructure – for example, through
a stronger, more developed role for regionally based R&D institutes,
vocational training organisations and other local organisations involved in
firms’ innovation processes these systems have a more planned character
involving public-private co-operation. The networked system is commonly
regarded as the ideal-type of RIS: a regional cluster of firms surrounded by a
regional ‘supporting’ institutional infrastructure. Cooke (1998) also calls this

80
type ‘network RIS’. The network approach is most typical of Germany, Austria
and the Nordic countries.
The regionally networked innovation system is a result of policy intervention to
increase innovation capacity and collaboration. SMEs, for example, may have
to supplement their informal knowledge (characterised by a high tacit
component) with competence arising from more systematic research and
development in order to carry out more radical innovations. In the long run,
most firms cannot rely exclusively on informal localised learning, but must
also gain access to wider pools of both analytical and synthetic knowledge on
a national and global basis. The creation of regionally networked innovation
systems through increased cooperation with local universities and R&D
institutes, or through the establishment of technology transfer agencies, may
provide access to knowledge and competence that supplements firms’ locally
derived competence. This not only increases their collective innovative
capacity, but may also serve to counteract technological ‘lock-in’ (the inability
to deviate from an established but outmoded technological trajectory) within
regional clusters of firms.
The third main type of RIS, the regionalised national innovation system, differs
from the two preceding types in several ways. First, parts of industry and the
institutional infrastructure are more functionally integrated into national or
international innovation systems – i.e. innovation activity takes place primarily
in cooperation with actors outside the region. Thus, this represents a
development model in which exogenous actors and relationships play a larger
role. Cooke (1998) describes this type as ‘dirigiste RIS’, reflecting a narrower
definition of an innovation system incorporating mainly the R&D functions of
universities, research institutes and corporations. Second, the collaboration
between organisations within this type of RIS conforms more closely to the
linear model, as the co-operation primarily involves specific projects to
develop more radical innovations based on formal analytical-scientific
knowledge. Within such systems, cooperation is most likely to arise between
people with the same occupational or educational background (e.g. among
scientists). This functional similarity facilitates the circulation and sharing of
knowledge through ‘epistemic communities’, whose membership may cross
inter-regional and even international boundaries (Amin and Cohendet, 2003;
Coenen et al., forthcoming).
One special example of a regionalised national innovation system is the
clustering of R&D laboratories of large firms and/or governmental research
institutes in planned ‘science parks’ and ‘technopoles’, normally located in
close proximity to universities and technical colleges, but, according to
evidence, typically having limited linkages to local industry (Asheim, 1995).
Science parks are, thus, an example of a planned innovative milieu comprised
of firms with a high level of internal resources and competence, situated within
weak local cooperative environments. These parks have generally failed to
develop innovative networks based on inter-firm cooperation and interactive
learning within the science parks themselves (Asheim and Cooke, 1998;
Henry et al., 1995). Technopoles, as developed in countries such as France,
Japan, and Taiwan, are also characterised by a limited degree of innovative
interaction between firms within the pole, and by vertical subcontracting
relationships with non-local external firms. In those rare cases where local

81
innovative networks arise, they have normally been orchestrated by deliberate
public sector intervention at the national level. These characteristics imply a
lack of local and regional embeddedness, and lead us to question the
capability of science parks and technopoles to promote innovativeness and
competitiveness more widely within local industries (especially SMEs) as a
prerequisite for endogenous regional development (Asheim and Cooke, 1998;
and Longhi and Quére, 1993).

Can regional innovation systems exist?

Bathelt (2003) argues that ‘it seems questionable that region-specific
innovation and production processes are typically associated with the
existence of regional innovation systems. To assume that such small-scale
systems exist bears the risk of underestimating the importance of those
institutions which are negotiated and defined at the level of the nation state. In
reality, however, regional and national innovation contexts are fundamentally
different. Regional production configurations are often dependent on
structures and developments which are shaped and take place outside the
region (Bathelt, 2003, p. 797).3
The key to the disagreement lies in the application by Bathelt of social
systems theory, which replaces the element/relation dichotomy of the
innovation systems approach with a system/environment dichotomy
(Kaufmann and Tödtling, 2001). This leads Bathelt to believe that one of the
core problems of the regional innovation system is ‘that it portrays the region
as an entity which hosts a large part of an economic value chain and has a
governance structure of its own, independent from its environment’ (Bathelt,
2003, p. 796). Aside from the formal systems theoretical arguments, there is
no substantial theory to corroborate this statement. Empirically it may be
shown that regions can in fact contain large parts of a value chain (e.g. Italian
industrial districts) as well as having a relative autonomous government
structure (e.g. regions in federal countries such as Baden-Württemberg in
Germany and Catalonia and the Basque country in Spain). Furthermore, in a
globalising economy characterised by vertical disintegration and distributed
knowledge bases, the important perspective ought to be the
interdependences between regions and nations, where the deciding criteria
must be the location of core activities (and not the whole value chain as such)
and the relative importance of their connections to regional knowledge
infrastructures. With the possibly exception of the US, the argument that
‘production configurations are often dependent on structures and
developments which are shaped and take place outside’ of the actual territory
could as easily apply to most small and medium-sized countries as to regions,
especially if being members of supra-national organisations such as the EU,
‘in which ‘region formation’ has and continues to be evolved apace’ (Cooke,
forthcoming). Cooke (forthcoming) refers to Bathelt’s position as Listian
‘writing that only nations (presumably meaning states since there are many
3
In a more recent article Bathelt (2005) once more underlines his position by arguing that ‘at this
geographical level (i.e. a region, my addition), it is unlikely that a self-referential system can develop
because regions are strongly dependent on national institutions and other external influences and lack
important political decision-making competencies. … Regional production configurations hardly have
the potential to gain and retain structural independence and reproduce their basic structure.’

82
nations without full economic governance powers) have specificity and that
they may also be closed systems’.
Yet it is essential to recognise the, by inference, interlocked character of a
region in a wider geographical context (Howells, 1999). But even if research
has revealed that the regional level is neither always nor even normally
sufficient for firms to stay innovative and competitive (Isaksen, 1999), and that
the learning process becomes increasingly inserted into various forms of
networks and innovation systems (at regional, national and international
levels), the continuous importance of the regional level is confirmed by results
from a European comparative cluster survey (Isaksen, 2005). This study
shows that regional resources and collaboration are of major importance in
stimulating economic activity in the clusters. However, the survey found an
increased presence of MNCs in many clusters, and also that firms in the
clusters increasingly source major components and perform assembly
manufacturing outside of the clusters (Isaksen, 2005). Also Tödtling and Trippl
(2005) found empirical support for clustering because of the importance of
social interaction, trust and local institutions. Yet they also note that both local
and distant networks are often needed for successful cooperative projects, in
particular for projects of innovation and product development when it is
usually necessary to combine both local and non-local skills and competences
in order to go beyond the limits of the region (see also Asheim and Herstad,
2003; Bathelt et al., 2004; Cooke et al., 2000).

Clusters
In recent years the cluster concept has become somewhat of a catchword in
academic circles as well as in policy discussions on regional economic
development. Thus, what is a cluster? In a recent article Porter defines
clusters as ‘geographic concentrations of interconnected companies and
institutions in a particular field. Clusters encompass an array of linked
industries and other entities important to competition. They include, for
example, suppliers of specialised inputs such as components, machinery, and
services, and providers of specialized infrastructure. Clusters also often
extend downstream to channels and customers and laterally to manufacturers
of complementary products and to companies in industries related by skills,
technologies, or common inputs. Finally, many clusters include governmental
and other institutions – such as universities, standards-setting agencies, think
tanks, vocational training providers, and trade associations – that provide
specialised training, education, information, research, and technical support’
(Porter 1998, p. 78).
As a contrast, Porter's original cluster concept was basically an economic
concept indicating that ‘a nation's successful industries are usually linked
through vertical (buyer/supplier) or horizontal (common customers, technology
etc.) relationships’ (Porter 1990, p. 149). These ideas are more or less the
same as the ones Perroux presented in the early 1950s. Perroux argued that
it was possible to talk about ‘growth poles’ (or ‘development poles’ at a later
stage in his writing) in ‘abstract economic spaces’ defined as the vertical
relationships of a production system as well as the horizontal relationships of
a branch, where firms were linked together by an innovative ‘key industry’ to

83
form an industrial complex. According to Perroux, the growth potential and
competitiveness of growth poles can be intensified by territorial agglomeration
(Haraldsen, 1994; Perroux, 1970). However, even in 1990 Porter argued
along the same lines as Perroux by emphasising that ‘the process of
clustering, and the interchange among industries in the cluster, also works
best when the industries involved are geographically concentrated’ (Porter
1990, p. 157).
Porter has often been criticised for lack of academic rigour with regard to his
approach to the study of as well as definition of clusters. Martin and Sunley
(2003), for example, identify a major source of confusion in Porter´s work of
defining and studying the existence of clusters and the effects of cluster
dynamics. They identify two major definitional problems in the writings of
Porters. The first major problem lies in the delimitation of the clusters, spatially
as well as sectorially. Sectorially, it is a difficult question how to delimit the
cluster with respect to the range of activities included and the links between
them, as well as the requirements to the degree of sectoral specialisation.
Spatially, it seems highly unclear within which boundaries ‘real’ cluster
dynamics, for example spill-over effects, can arise and operate. Second, they
point to the fact that the social dimension, considered so important in
facilitating cluster dynamics, is insufficiently theoretically defined and
developed in his cluster thinking.
Malmberg (2003) attributes much of the conceptual confusion concerning
clusters to the fact that clusters can be seen as both industrial and spatial
phenomena, i.e. either confined to industrial systems defined from a functional
(national) perspective, or defined by geographical (regional) boundaries. But
instead of regarding these multiple definitions of clusters as problematical,
Malmberg seems to accept the possibilities of using both definitions. Here I
agree with Malmberg’s view of the need to operate with both
conceptualisations of clusters, as it is a quite normal situation to find
(geographical) clusters of specialised branches being part of a national
(economic) cluster of the same branches.
Porter (2000) argues that the existence of a cluster has positive effects on the
competitive advantage of firms in a number of ways, one of them being a
positive impact on the innovation capabilities of the cluster firms. According to
Porter “untangling the paradox of location in a global economy reveals a
number of key insights about how companies continually create competitive
advantage. What happens inside companies is important, but clusters reveal
that the immediate business environment outside companies play a vital role
as well” (Porter 1998, p. 78). The pressure to innovate is promoted through
local rivalry, increasing the necessity to be innovative among firms in the
cluster. Moreover, co-location and proximity further facilitates learning through
close collaboration and interaction with other firms stimulating innovative
activities. The co-location within a cluster, thus, enables strong relationships
between producers and suppliers, integrating local suppliers in the innovation
process. Furthermore, the specialised labour market is one of the more
important components in this respect, providing firms in the cluster with skilled
labour, which is necessary in order to enhance the innovative performance of
the cluster (see Porter, 2000). Thus, Porter consequently argues that “a
vibrant cluster can help any company in any industry compete in the most

84
sophisticated ways, using the most advanced, relevant skills and
technologies” (Porter 1998, p. 86).
What Porter’s extension of the definition of the cluster concept also to
incorporate public agencies and knowledge infrastructures indicates is a
deepening and widening of the degree and form of co-operation taking place
in a cluster. The original and simplest form of co-operation within a cluster can
often be described as a territorial integrated input-output (value chain)
relations, which could be supported by informal, social networking, but which
could also take the form of arms-length market transactions between a
capacity subcontractor and the client firm. The next step of formally
establishing inter-firm networks is represented by a purposeful, functional
integration of value chain collaboration as well as building up a competence
network between the collaborating firms. A distinction between clusters
defined as input-output relations and networks is that proximity is the most
important constituting variable in the first case, while networking represents a
step towards more systemic (i.e. planned) forms of co-operation, as well as a
development from vertical to horizontal forms of co-operation, which more
efficiently promotes learning and innovation in the systems. The development
towards more systemic forms of co-operation is taken a step forward by
establishing systems in the form of production and innovation systems, which
are characterised by system integration.

Knowledge base and institutional framework:

Connecting clusters and regional innovation systems
An explicit conceptual clarification of the linkage between on the one hand
clusters and on the other regional innovation systems has so far received
relatively little attention in the literature. Notwithstanding Porter’s (2000)
extension of the cluster concept which more or less eliminates the differences
between clusters and regional innovation systems, by distinguishing between
the cluster’s knowledge base and the extent of loose/tight linkage with the
regional innovation system, the different industrial development paths of ‘pure’
clusters where regional innovation systems are build in order to support
innovation in already established industries, and the formation of relations
between clusters and regional innovation system from the emergence of the
cluster, could be explained in a more systematic way. In traditional cluster-
regional innovation system relations, based on industries with a synthetic
knowledge base, the logic behind building regional innovation system is to
support and strengthen localised learning of an existing industrial
specialisation, i.e. to promote historical technological trajectories based on
‘sticky’ knowledge. In contexts of a regional innovation system as a necessary
part of the cluster development, it is a question of promoting new economic
activity based on industries with an analytical knowledge base, requiring close
and systemic industry-university cooperation and interaction in the context of
e.g. science parks, located in proximity of knowledge creating organisations
(e.g. (technical) universities). In this case a narrow definition of regional
innovation systems will normally be applied (i.e. incorporating relationships
between R&D functions of universities, public and private research institutes
and corporations), while in the first case it is more often a question of
exploiting the resources and capabilities of a regional innovation system

85
broadly defined. In both of these cases it is a question of regional clusters
exploiting localisation economies (e.g. industrially specialised clusters).
Regional innovation systems are also found in regions exploiting urbanisation
economies. In such regions, which by definition, are constituted by an urban
agglomeration, the regional innovation system is normally characterised by a
diversified industrial base in contrast to the specialised base of typical
regional clusters (e.g. industrial districts), and where different historical and
emerging technological trajectories co-exist. Thus, within such urban
agglomerations it is possible to identify the existence of relations between
clusters and regional innovation systems as a necessary condition for cluster
development as well as traditional clusters which established links with
regional innovation systems at a later stage in their life cycle. It could,
however, be argued that the diversity of urbanisation economies is especially
important in the promotion of radical innovations, and, consequently, of great
significance for industries based on an analytical knowledge base. The co-
existence of many intra-regional clusters with various knowledge bases and
different relations to the regional innovation system will require more
developed governance structures in order to secure a planned and systematic
co-ordination between industry and knowledge creating and diffusing
organisations, which, consequently, may imply an innovation system of a
‘triple-helix’ character.

Learning regions
Learning regions should be looked upon as a policy framework or strategy for
formulations of long term partnership-based development strategies initiating
learning-based processes of innovation, change and improvement. In the
promotion of such innovation supportive regions the inter-linking of co-
operative partnerships ranging from work organisations inside firms via inter-
firm networks to different actors of the community, understood as “regional
development coalitions”, will be of strategic importance. By the concept
“development coalition” is meant a bottom-up, horizontally based co-operation
between different actors in a local or regional setting, based on a socially
broad mobilisation and participation of human agency. (Ennals and
Gustavsen, 1999). The attractiveness of the concept of learning regions to
planners and politicians is to be found in the fact that it at one and the same
time promises economic growth and job generation as well as social
cohesion. As such, learning regions must be analysed as an answer and
challenge at the regional level especially for regions with weak territorial
competence bases to contemporary changes in the global economy,
underlining the strategic role played by social capital’s emphasis on the social
and cultural aspects “encompassing the norms and networks facilitating
collective action for mutual benefit” (Woolcock, 1998, p. 155).

* *
*

86
 The building blocks of the concept of learning regions
The concept of “learning regions” has been used in at least three different
contexts. The concept was first introduced by economic geographers in 1995
(Florida 1995), when they used it to emphasise the role played by co-
operation and collective learning in regional clusters and networks in order to
promote the innovativeness and competitiveness of firms and regions in the
globalising learning economy (Asheim 1996; 1997; Morgan 1997). This
approach was clearly inspired by the rapid economic development in the
“Third Italy”, which drew the attention towards the importance of co-operation
between SMEs in industrial districts and between firms and local authorities at
the regional level in achieving international competitiveness (Asheim 2000).
The second approach expressing (more indirectly) the idea of learning regions
originates from the writings of new evolutionary and institutional economics on
the knowledge and learning based economy, where knowledge is considered
the most fundamental resource and learning the most important process
(Lundvall 1992), thus making the learning capacity of an economy of strategic
importance to its innovativeness and competitiveness. Lundvall and Johnson
use the concept of «learning economy» when referring to the contemporary
post-Fordist economy dominated by the ICT-related (information, computer
and telecommunication) techno-economic paradigm in combination with
flexible production methods and reflexive work organisations (i.e. learning
organisations and functional flexible workers) (Lundvall and Johnson 1994). In
addition the learning economy is firmly based on «innovation as a crucial
means of competition» (Lundvall and Johnson 1994, p. 26), where innovation
is understood as interactive learning in contrast to the previous hegemonic
linear model of innovation.
The third approach, which conceptualises learning regions as regionally
based development coalitions, has lately been applied by representatives of
action oriented organisational research taking their knowledge of how to form
intra- and inter-firm learning organisations based on broad participation out of
the firm context and using it to establish learning organisations at the regional
level (Ennals and Gustavsen 1999).
This strategy builds on Scandinavian experiences,4 which have shown that
flat and egalitarian organisations have the best prerequisites of being flexible
and learning organisations, and that industrial relations characterised by
strong involvement of functional flexible, central workers is important in order
to have a working "learning organisation". Such organisations will also result
in well functioning industrial relations, where all the employees (i.e. the (skil-
led) workers as well as the managers) will have a certain degree of loyalty
towards the firm. Also Lundvall and Johnson argue that "the firm's capability
to learn reflects the way it is organised. There is a movement away from tall
hierarchies with vertical flows of information towards more flat organisations
with horizontal flows of information which is one aspect of the learning
economy" (Lundvall and Johnson 1994, p. 39).

4
Referred to as, for example, "Kalmarism" in contrast to "Fordism", "Neo-Taylorism" and "Toyotism"
in the international academic literature (Leborgne and Lipietz, 1992).

87
 The Triple Helix
The Triple Helix perspective has achieved a big attention among policy
makers as well as researchers within innovation research (Etzkowitz and
Leydesdorff, 2000). It underscores the increased interaction and
interdependence between universities – industry – government in modern,
knowledge-based economies by acclaiming the transformation of the
entrepreneurial university. However, so far this perspective has been applied
in a rather static way, more like a heuristic device than as a basis for actual
policy formulations. This is also the weakness of the approach, as it does not
give much guidance concerning how a Triple Helix-based collaboration could
be functional, operational and implemented in concrete policy settings. In
order to achieve this, theoretical and practical advice must be developed
partly with respect to how collaboration between the three actors of the Triple
Helix should be externally organised, and partly how innovation oriented work
should be organised internally among the different actors.
The ‘Triple-Helix’ approach maintains that in a swiftly emerging knowledge
economy those places with entrepreneurial universities would increasingly
see growing demand for knowledge transfer to industry and, through
government, to society. Moreover, the spread of universities is less
asymmetric over space than R&D. In this perspective it is proposed that
industry and government will be prepared to pay more for privileged access to
knowledge-based growth opportunities by funding more research, stimulating
closer interactions among the three institutional partners, subsidising
infrastructure (e.g. incubators and science parks) and stimulating academic
entrepreneurship skills and funding. The exemplar par excellence of this
phenomenon is MIT, which is to say the least, a successful case. However,
not surprisingly, research has found that a model design based on MIT
worked poorly in different contexts with more average universities and regions
(e.g. Australia and Sweden). This is a classic instance of the asymmetric
knowledge problem that Triple Helix proponents overlook. Thus while the
abstract principles of Triple Helix rapprochement hold in general among such
distinct ‘epistemic communities’ as the three implied, the boundary-crossing
effort required can in reality defeat the unwary (Cooke, 2005).
As part of the specific triple-helix context policies have been formulated and
implemented promoting SME’s contacts with R&D institutes and more
frequent use of R&D, while universities at least in Finland and Sweden for
some years have been given a so called ‘third role’, i.e. to cooperate
externally with the surrounding society in addition to doing research and
teaching. However, so far little or nothing has been done concerning changing
behaviour of the third actor of the triple-helix, i.e. the government, as well as
with the Triple Helix system as a whole. And as the Triple Helix perspective as
already emphasised is extensively used in the construction of regional
advantages an improved knowledge of how to make the system functional
would be an efficient strategy of optimising private-public interaction.
An important part of this is to develop a more innovation oriented public
sector, which means focusing on learning aiming for behavioural value-added
at both universities and government at different geographical levels (national,
regional and local), in addition to doing the same with the private sector.

88
However, so far Triple Helix thinking draws attention only to possible but
weakly generalisable broad outlines of important contemporary innovation
interactions.

* *
*

89
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European Commission

CONSTRUCTING REGIONAL ADVANTAGE – FULL REPORT

principles – perspectives - policies

Belgium: EC

2006 — 104 pp. — 21.0 x 29.7 cm

The current report has been prepared by an independent expert group throughout
the year 2005.

The work of this Expert Group is to be seen fully against the context of the
Barcelona objective, namely achieving average investment in Research and
Development of 3% of the Union’s GDP by 2010.

The 3% Action Plan identified the need for regions to become more efficient in
using their resources for investing in R&D. It also pointed to the need of setting up
learning initiatives for the regions.

EU needs expertise in finding their routes to the knowledge economy and the
contribution of the Expert Group on ‘Constructing Regional Advantage’ has
revealed important in this respect.

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