REGIONAL INNOVATION:

TRENDS AND POLICY

OPTIONS

Joaquim Oliveira Martins Regional Development Policy Division, OECD Seminar: "Inovácie a výzvy v manažmente regionálneho rozvoja“ 22 February 2017 Bratislava, Slovak Republic

RECAP OF RELEVANT

PRODUCTIVITY/

REGIONAL OUTLOOK

FINDINGS

An increasing gap between firms at the

frontier and the others Labour productivity; index 2001=0

Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy: micro evidence from OECD countries”, OECD. OECD (2015), The Future of Productivity, OECD. 3

Future of productivity: The problem is diffusion

R&D and patents: what is the role in catching-up?

Source: OECD (2016) OECD Regional Outlook 2016: Productive Regions for Inclusive Societies, http://dx.doi.org/10.1787/9789264260245-en

They don’t appear to be as discriminating a factor as the tradable sector in promoting productivity catching up

SOME CONTEXT

FACTS ON SCIENCE,

TECHNOLOGY, AND

INNOVATION

High concentration of many innovation

resources

• Business R&D on the rise, government R&D was hit by budget consolidation

• 250 multinationals accounted for 70% of R&D expenditure, 70% of patents, almost 80% of ICT-related patents, and 44% of trademarks filings

Knowledge-based capital: large share of

business investment in several countries

OECD (2015), Science, Technology and Industry Scoreboard 2015: Innovation for growth and society

An element of knowledge-based capital that can:

• Boost productivity growth – More comprehensive

studies needed to better assess impact on productivity growth

• Contribute to well-being

• Further inclusiveness and development

Data-driven innovation: capturing the benefits

Firms collaborating on innovation with higher education or research institutions, by

firm size, 2010-12

As a percentage of product and/or process-innovating firms in each size category

10 OECD (2015), Science, Technology and Industry Scoreboard 2015: Innovation for growth and society

Collaboration with public/ higher education

for innovation: not always easy to achieve

Challenge to boost international innovation

collaboration of SMEs: Slovak SMEs active

Global value chains intensifying:

Is Slovak Republic adding enough value?

Foreign value-added content of exports by country

As a percent of total exports 1995 and 2009

12

OECD-WTO: Statistics on Trade in Value Added, (database), doi: 10.1787/data-00648-en

Over 40% of export value added of Slovak Republic came from foreign value added

WHY REGIONS

MATTER FOR

INNOVATION, AND

INNOVATION

MATTERS FOR

REGIONS

Develop a policy mix to meet the needs

of the region

Knowledge Generation Knowledge

Diffusion

Knowledge

Exploitation

Traditional

instruments

Technology funds

R&D incentives/supports/

grants

Support to scientific research

and technology centres

Support to infrastructure

development

Human capital for S&T

Science parks

Technology Transfer

Offices and schemes

Technology brokers

Mobility schemes

Talent attraction schemes

Innovation awards

Incubators

Start ups support

innovation services

(business support and

coaching)

Training and awareness-

raising for innovation

Emerging

Instruments

Public private partnerships for

innovation

Research networks/poles

Innovation vouchers

Certifications/

accreditations

Industrial PhDs

Support to creativity

Innovation

benchmarking

Competitiveness poles

Competence centres

New generation of scientific and technological parks and clusters

Venture and seed capital

Guarantee schemes for financing for innovation

Experimental

instruments Cross-border research

centres

Open source-Open science

markets for knowledge

Regional Industrial

Policy

Innovation-oriented

public procurement

Source: OECD (2011) Regions and Innovation Policy, OECD publishing,.

Number of instruments used by level of government

0 5 10 15 20 25 30

Austria

Belgium

Canada

Germany

Mexico

Switzerland

United States

Czech Republic

Denmark

France

Italy

Netherlands

Poland

Spain

Sweden

Finland

Hungary

Korea

Norway

Portugal

United Kingdom (England)

National Regional Common instruments

Notes: National refers to the number of instruments used at national level. Regional refers to instruments reported at regional level. Common instruments refers to the number of instruments reported at both national and regional level, which includes those instruments reported in the count of national and regional instruments. Source: OECD (2011) Regions and Innovation Policy, based on an OECD-GOV Survey.

0 5 10 15 20 25 30

Austria

Belgium

Canada

Germany

Mexico

Switzerland

United States

Czech Republic

Denmark

France

Italy

Netherlands

Poland

Spain

Sweden

Finland

Hungary

Korea

Norway

Portugal

United Kingdom (England)

National Regional Common instruments

Some instruments are more frequent at regional level, some at national level, and many at both levels.

Instruments reported in common are not necessarily a duplication. They may be complementary:

• Shared financing

•Different target groups and purposes

Multi-level governance of innovation policy

Changing role of regional innovation agencies

Traditional focus New approaches

Place of agency Outside the system Actor in the system

Role Top-down provider of

resources

Facilitator, node in the system

Rationale for intervention Market failures Systems failures, learning

failures

Mission Redistributing funds Identifying and reinforcing

strengths in the system: a

change agent

Instruments Isolated Policy mix

Accountability and control

mechanisms

Administrative and

financial

Strategic, goal-oriented,

additionality

Autonomy Focused on execution Expanded to strategic decisions Source: OECD (2011) Regions and Innovation Policy, OECD Publishing, Paris.

OECD (2011) Regions and Innovation Policy, OECD Publishing, Paris based on Benneworth, P. and A. Dassen (2012), Strengthening Global-Regional Connectivity in Regional Innovation Strategies, Regional Development Working Papers, OECD Publishing, Paris.

Internal and international networks matter In

tern

atio

nal

lin

kage

s

Type of regional innovation system (RIS)

IMPLICATIONS FOR SMART

SPECIALISATION STRATEGIES

• A skilled workforce

• A sound business environment

• A strong and efficient system for knowledge creation and diffusion

• Policies that encourage innovation and entrepreneurial activity

• A strong focus on governance and implementation

Updated OECD Innovation Strategy

• From “picking winners” to facilitating and supporting entrepreneurial self- discovery in regions

• Activities, not sectors per se, are the level for setting priority setting for knowledge investments

– Important role of general purpose technologies

Core elements of a smart

specialisation policy

• Smart specialisation entails strategic and specialised diversification

• Evaluation and monitoring… requires flexibility in policy making to be able to terminate or reallocate public support to R&D and innovation…. so clear benchmarks and criteria for success and failure are needed

• What can help support the tradable sectors

– Challenges to operationalise this

• Focus on the gaps in S&T-intensive indicators (R&D and patents) or productivity and jobs

– What elements have to be IN the region itself and what assets can be sourced from outside the region

• Consider instruments to boost productivity (& jobs)

– While literature documents that reality is not always the linear model from R&D to innovation, policies typically assume it is

• Some actors merit greater attention in these strategies

– Unsung heroes (vocational training)

Common missing elements of smart

specialisation strategies

Universities as actors in developing smart

specialisation strategies: challenges

• Universities should always be “at the table” for strategy development – But with sufficient private sector involvement to keep strategies balanced

and identify the most relevant areas for knowledge transfer

• Examples of an excessive influence that results in strategies focused on science over economic benefits

– In part because universities are a stable partner, sometimes have strong representative groups, are able to attend meetings

• Examples of insufficient university involvement

– Due in part to lower levels of regional engagement by some globally-oriented universities

– And a lack either of an organised strategy or willingness to involve universities in it

22

University-based S&T parks and

incubators

• Regional and national governments often co-finance infrastructure – This is a visible investment for ribbon-cutting, but does the return for

regional economic development always meet expectations?

– Those with special equipment/thematic focus may have greater rationale for public funding

– Everybody wants one—so the spatial distribution most appropriate for firm needs or economic impacts is not always behind the choice

• Many science-based incubators have researchers, but few “entrepreneurs” – Researchers with start-ups report in interviews they have not grown in

size much because they like to do research, not sales

– Some start-ups not based on university research per se, but incubator an attractive environment to help start a firm given special conditions or labelling effect

23

• Non-metro innovation can be any sector, not just the primary sector.

• The potential is particularly great in services – and perhaps especially in logistics and services allied to manufacturing.

• Innovation in low-density environments is more likely to be driven by one person than metro-based innovation.

• Such innovations may lead to patents, but many do not.

• Many such innovations are likely to have a niche market, primarily significant in a particular place, but some have global effects.

• It may take time for such innovations to exhibit their full value, so they tend not to attract venture capital. 24

Observations on innovation in regions

that are not large metro areas

25

Policies to promote innovation outside

of leading regions

Source: OECD (2016) OECD Regional Outlook 2016: Productive Regions for Inclusive Societies,

http://dx.doi.org/10.1787/9789264260245-en

A few learning points from OECD regional

innovation reviews (1/2)

• Expectations for knowledge transfer to be matched with regional context – Regional growth model, regional innovation system, type of university, etc.

• Research and curricula relevant for the existing firm base may have greater economic impact – Even if there is a bias in regional approaches towards patents and start-ups

as indicators of “third mission” engagement

– And timing delays in updating curricula are a recurring complaint of firms seeking knowledge transfer in the form of educated workers

• Mapping university offer and ensuring brokers to reach SMEs is costly – And cost not easily borne by universities themselves

26

A few learning points from OECD regional

innovation reviews (2/2)

• Quality of technology transfer offices a consideration – So merging of offices across universities has been one way to improve

quality and efficiency

• In-firm placement of university PhDs/recent graduates can be helpful – But in some cultural contexts, firms resistant to this form of knowledge

transfer

• Universities can play a key “hub” role in the region and “gateway” role to the world to bring knowledge to the region’s firms – As evidenced in co-patenting data and other analyses

27

SPECIAL CASE OF

REGIONAL

INNOVATION

POLICY IN CROSS-

BORDER AREAS

Ten conditions favourable to

cross-border collaboration for innovation

Framework conditions 1. Geographic accessibility

2. Socio-cultural proximity

3. Institutional context conditions

4. Cross-border integration

Innovation system conditions 5. Economic specialisation

6. Business innovation model

7. Knowledge infrastructure

8. Innovation system interactions

Governance and policy context 9. Governance

10. Policy mix

29 Source: OECD (2013); inspired and adapted from Trippl (2009)

Defining the “functional” cross-border area for

innovation support can differ from other functions

Narrow border area All-island definition (international border denoted by gray line)

Note: These maps are for illustrative purposes and

are without prejudice to the status of or sovereignty

over any territory covered by these maps.

Source: Special EU Programmes Body.

Source: Irish Academy of

Engineering & InterTradeIreland (2010), Infrastructure

for an Island Population of 8 Million.

30

High-tech systems

Life sciences

Source: Competitiveness Indices: BAK Basel Economics, 2012

31

Generally seems to work

• Attempts to allow funds from one country go to another (some exceptions)

• Certain innovation projects in highly regulated sectors (health, energy)

• International branding

efforts often caught up in political sensibilities

Mixed results depending on the cross-border region

Particularly difficult

• Cross-border linkages of firms with providers (e.g., innovation vouchers)

• Cluster-related support for areas of common competencies

• Joint prioritised research

• Access to shared S&T parks, scientific installations, joint centres

• Broad university collaborations; collaboration in specific fields easier • Researchers look for

excellence over proximity

• Students need right framework conditions (diploma recognition, financing, etc.)

• Firm networking and matchmaking; leading to collaboration?

Experiences using different instruments on a

cross-border basis show…

32

Innovating beyond borders

Defining the functional area

• Devote more efforts to strategy development and policy intelligence

• Mainstream the cross-

border element, and if not, align or allow for programme flexibility

• Make greater use of opportunities created by the border

• Publicize success stories

of cross-border instruments

Governing cross-border collaboration

Aligning incentives and working together

Making cross-border instruments work

Learning from international lessons

• Look at what the data says, but don’t wait to start

• Only pursue the cross-border element when it makes sense

• Allow flexibility in the area definition so as to not create unhelpful new borders

• Don’t under-estimate the importance of other “hard” and “soft” factors beyond innovation

• Give politicians a reason to care about the issue

• Identify for supra/national governments where they can help local/regional efforts

• Understand different costs and benefits, and their alignment, for a long-term, trust-based collaboration

• Engage non-public actors in governance, with some form of secretariat

Overview of recommendations for promoting

regional innovation strategies cross-border

THANK YOU!