Business clusters not a silver bullet for innovation; International links trump local/ national interactions
By Michael Hennigan, Founder and Editor of Finfacts
Mar 20, 2011 - 1:19 PM

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Regional innovation in a global economy presentation

Business clusters are not a silver bullet for innovation according to a recently published study. International partnerships or links are far more important than local or national interactions.

In the paper, When local interaction does not suffice: Sources of firm innovation in urban Norway (pdf), Dr. Rune Dahl Fitjar, senior research scientist, International Research Institute of Stavanger, Norway and Prof. Andrés Rodríguez-Pose, the head of the Department of Geography and Environment at the London School of Economics, say that the geographical sources of innovation of firms have been hotly debated. While the traditional view is that physical proximity within city-regions is key for the innovative capacity of firms, the literature on ‘global pipelines’ has been stressing the importance of establishing communication channels to the outside world.

“We found interaction through pipelines was as much as four times more powerful than local interaction when it came to innovation,” said Dr. Fitjar. “The idea about global pipelines has become quite prominent in research over the past few years but you don’t see much of a policy impact yet. We are mainly relying on cluster policies still. Certainly that’s true in most of Europe.”

The paper uses a specifically tailored survey of the level of innovation of 1,604 firms of more than 10 employees located in the five largest Norwegian city-regions (Oslo, Bergen, Stavanger, Trondheim, and Kristiansand) in order to determine a) the geographical dimension of the sources of innovation and b) the factors behind the propensity to innovate in Norwegian firms.

The results stress that while interaction with a multitude of partners within Norwegian city-regions or with other national partners has a negligible effect on firm innovation, those firms with a greater diversity of international partners tend to innovate more and introduce more radical innovations. The results also highlight that the roots of this greater innovative capacity lie in a combination of firm - - size of firms, share of foreign ownership, and sector - - and cultural - -  the level of open-mindedness of managers - - characteristics.

The authors say the picture which emerges from the analysis does not conform to that generally stemming from the theoretical literature and from case-studies. The starting point is similar: once other characteristics are controlled for, international cooperation appears as the main source of radical product and process innovation. However, pipeline-type interactions are also conducive to incremental product innovation. In contrast to most previous analyses, local and, more specifically for the case of Norway, national interactions do not seem to promote firm-level innovation. They say there is also little evidence of complementarity between global pipelines and local interaction within Norwegian agglomerations.

Firms that develop international partnerships are likely to innovate, firms that rely on national and local interaction are not, meaning that the transfer mechanisms of knowledge and innovation within close geographical proximity are either broken or less prominent than previously thought. Firms can therefore not expect to rely on local interaction for new knowledge. The creation and engagement in pipelines is a must if they are to remain innovative and competitive.

The authors say: "We can only speculate as to why this is the case. Part of the reason may be that frequent and repeated interactions with other socioeconomic actors in relatively small and high trust environments may not yield the expected returns. High cognitive, social, and institutional proximity may end up creating a relatively homogenous environment in which new ideas find it difficult to take hold and diffuse. It may also be the case that firms in the same sector, which by definition are bound to be competitors, may be less prone to interact and collaborate than previously thought.

But what this study has demonstrated is that the attitudes of individual managers play an important part in the innovative capacity of their firms. Open-minded managers without excessive regional orientations are often in charge of firms which develop a greater number of international interactions of the sort that promote greater innovation. In contrast, managers who exhibit a greater regional trust are better at establishing local, regional, and national channels of cooperation which do not necessarily result in greater innovation."

Irish policymakers under the leadership of former Taoiseach Brian Cowen had a dream of creating a European Silicon Valley in Ireland.

In the 1950s, Soviet leader Nikita Khrushchev had a similar dream and most foreign clones of California's so-called Silicon Valley have a record of mixed results.

In 2009, a planned 'Innovation Corridor' linking Trinity College in central Dublin and University College Dublin in the south Dublin suburbs was announced.

Seán Flynn, education editor of The Irish Times, wrote in the newspaper last month that "the success of the Irish higher education system in generating employment is open to question, despite the €1bn investment in the Programme for Research in Third-Level Institutions (PRTLI). The UCD-TCD Innovation Alliance received the lion’s share of funding from the most recent PRTLI cycle, but it has still to achieve the ambitious jobs target rolled out at the launch of the alliance two years ago. At the time, there was giddy talk of a “jobs corridor’’ linking UCD’s campus at Belfield in south Dublin and Trinity’s at College Green in the city centre that would generate 35,000 jobs."

Flynn said last year that concern had been raised about the “failure” of the third-level research programme to generate new jobs despite securing €860m in funding since 1999.

See also, Finfacts article: In Norway, start-ups say ja to 'socialism'- - An American perspective

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