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«Heidi Wiig and Michelle Wood R-01 • What Comprises a Regional Innovation System? An 1995 Empirical Study Heidi Wiig and Michelle Wood STEP ...»

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3.6 Role of public support for innovation Lastly, the role of national or regional government49 in supporting innovation in firms is discussed. Overall, firms in Møre and Romsdal see lack of public support as a problem, and a key aspect of this concerns funding particularly for innovation activities. The data shows that this varies with firm size (number of employees) - the smaller the firm the more they see lack of public support as a problem. What is evident from the data is that firms rely mainly on their own sources of funds for technological activities, 63% of firms were 100% self-financed in terms of innovation. The data shows public support is mostly given to firms which have between 10-49 employees. There are also sectoral differences, where 'manufacturing of paper and paper products; printing and publishing' is the highest recipient of public support funding. There is no evidence to suggest that firms which receive public support are more innovative than those which are 100% self-financed, the firms that were self-financing had 25% of their turnover accounted for by innovations, whilst for those firms in receipt of public funding the level was 20%.

Although the difference is not substantial it may suggest that self-financing firms are compelled to be more innovative with their own funds. In fact it appears that lack of finance and investment capital are seen as a restrictive factor on process or product innovation, although there are differences between the localities where the most innovative sub-regions, for example Sunnmøre, look upon lack of finances as less of a problem than the less-innovative regions.

In addition there is not a strong correlation between innovation inputs and innovation output. There are also time-lags between inputs and outputs where innovation is concerned - particularly with small firms who introduce new products only intermittently, we should not necessarily expect a statistical link between innovation costs and innovation outputs in one time-period. Despite this, lack of capital remains an important factor in firms innovation decisions, where over 20% of firms see this as highly restrictive (figure 6), over 40% of the firms sees insufficient government support as most restrictive. This may be partly due to internal lack of funds as well as Wicken O. (1994) op cit.

Callon, M. (1995) ’Recent Trends in French Institutions for Regional Innovation Policies: An Appraisal’ Presentation to NISTEP International Workshop on Regional Science and Technology Policy Research RESTPOR ’95, Feb.13-16th 1995; Higgins (1995) op cit.

22 STEP rapport / report R-01/1995 a shortage of funds from other regional agencies or institutions. There are also different types of innovations costs across different industries and these vary according to size of industries. These factors have been relevant when making public financial support available to firms.

It is recognised that there are other complex mechanisms that have positive effects on innovation besides financial expenditures. Other sources of indirect public support may include particular legislative arrangements, taxes or subsidies and other local economic development strategies. Although the main focus here is on financial support (particularly funding for innovation activities given that it is a key issue for SMEs), firms also emphasised that there is insufficient government support in general and, more specifically, a lack of information regarding research/technology programmes (Figure 6). In general, though, the main finding is that firms lack finance capital, although those that are given public support in the innovation process are not necessarily more innovative than other firms.

4. Summary and conclusions The main aim of this paper was to discuss the possibility of there being a ’regional innovation system' operating within and beyond the Norwegian region of Møre and Romsdal. The findings are based on empirical evidence from a survey focusing on the activities and responses of manufacturing firms, including: their economic and innovation activities, and links both within and beyond the region; the availability of labour, and education and training requirements; the technological infrastructure including links with innovation support organisations; and the role of public bodies in providing support for innovation.

The results show that Møre and Romsdal is an important base for the economic activities of firms located there, where the majority of trade occurs between firms within the region. Additionally, according to our evidence, many firms actually undertake innovation in products and processes. There is a strong regional economic environment, and a specific type of innovation system; the question is, whether it is a dynamic system in terms of user-producer interactions. The existence of strong trade linkages and the presence of a number of firms particularly in the three main industrial sectors, implies some form of 'clustering'. This suggests that benefits may be achieved via collaboration between firms, together with other institutions, for innovation in products and processes, as well as in the provision of trained labour, collaboration for provision of services, and common technological expertise.

However, there is little evidence to suggest interaction between firms for innovation;

in fact the presence of related firms is seen as unimportant to firms' activities, and firms do not see other institutions as valuable sources of information, expertise and support for their innovation activities. In the main, they look to particular regional agencies, such as State Industrial and Regional Fund (SND) or the regional office for industry, for support, primarily in the form of funding, and appear to rely on internal entrepreneurship for their innovation activities. In addition, firms in Møre and Romsdal appear to face particular problems related to a general lack of public support for firms' innovation activities, the availability and retention of skilled labour including training and education (marked by rising unemployment since 1987 - see Table 1) as well as the more general problems SMEs in traditional sectors face in relation to innovation activities. A further difficulty may lie with the locational peripherality of Møre and Romsdal within Norway and Europe, in terms of distance from potentially new markets and suppliers of technologies and equipment, and potential exclusion from other external sources of technological expertise, support and funding (for example, EU-funded projects).





These issues could form a key focus for public sector support and policies. Since there are mainly small firms in the region, these have particular problems related to lack of specialist capacities, 'bounded vision' (for example a lack of awareness of innovation possibilities due to low resource and knowledge bases and limited expertise) and often strong locational dependency. All of these characteristics can affect their approach toward innovation and may affect their attitude toward external sources of technological support. Thus firms may be constrained in their use of external sources of support for innovation due to a lack of awareness about 24 STEP rapport / report R-01/1995 innovations developed in related companies, industries and public institutions.

Equally, they are likely to experience insufficient in-house resources to enable external linkages or may view these with suspicion. In addition, the key sectors in the region are regarded as traditional industries and although there is evidence to show that some firms are actually using new technologies (and possibly ’high’ technologies) whether in products or processes, there is scope to further develop these sectors. For some regions, industrial structure makes them vulnerable to the effects of geographical distance to markets, key suppliers and services, and partners and collaborators. Firms in these regions experience higher barriers to gaining access to information, technology and knowledge that are relevant for their production.

These barriers make it difficult for the firm to participate fully in technological development in the relevant markets because the functionality of various networks and channels are severed.

It is important for national and, more specifically, regional governments to be familiar with the particular needs of the firms in the areas for which they are responsible. It has been argued that "the varying nature of problems facing small firms in different regions and the difficulties of addressing those needs with centralised policies"50 therefore requires a response from regional and local government. In the case of firms in Møre and Romsdal, regional policies should take into account evidence concerning firm's innovation activities, and inadequacies, or perceived unimportance, of the existing technological infrastructure in the region.

Public support must be directed to those aspects of the innovation process in which firms are actually involved i.e. product development and trial production rather that research, and therefore technical and business advice and support may be the most appropriate. This may require the creation of new institutions, such as business support offices or regional technology agencies, or new mechanisms, such as partnerships between firms and other organisations and between government agencies within the region, and out to the national and European or international levels. More importantly, public support should look to the promotion of collaboration between firms and existing, regional institutions, such as colleges and schools. Such a role may lie with local institutions, such as 'Møre and Romsdal firms' counselling' and SND's51 regional office; institutions that firms already recognise and use, albeit minimally. In addition, as different industries and different size of firms have different needs, this presents a potentially important role for sector-specific trade organisations, which work to link customers and suppliers vertically, in contrast to the more general 'horizontal' measures applicable for all industries.

More specifically, policies should address the current problems associated with attracting and retaining skilled labour and training or education of young workers.

At present, there is a tendency for many young people to move to the cities and to study at the universities of Oslo, Bergen and Trondheim, for example. Since these Woodcock, C. (1993) ’A regional problem that needs to be addressed’ The Guardian, Mon. April 5th 1993 SND - The Norwegian Industrial Regional Development Fund - has as its aim to establish a profitable socioeconomic environment for industridevelpment in Norway. SND shall help product development and establisment of new firms, and help modernising and reajust Norwegian industry. Employment in less favoured regions is of great concern to SND. SND gives loans, garanties, economic subsidies.

What Comprises a Regional Innovation System? An Empirical Study 25 cities have a more diversified labour market, they become an increasingly attractive location for higher educated personnel; for a large number of students, obtaining a degree increases the preferential barrier to moving back home. There is an important role for both central and regional government in this, to ensure the forging of links between schools, colleges and firms through, for example, having people from industry on the board of technical colleges. Students must see there are options after ended vocational training, something that will make it more attractive to young people today. The education system must develop a flexible system that makes it possible to combine vocational and higher education, this might attract new students.

Other locational factors that might attract (or retain) a skilled workforce in the region are ’soft’ locality factors such as leisure facilities and housing52. National government, together with public sector in the regions, may aid such a transformation by means of a wide range of initiatives related to the development of knowledge-bases and the acceleration of learning-by-doing.

A key question is raised as to whether such policy should be based on an indigenous growth strategy or alternatively, if there should be increased emphasis on improving external trade and innovation links. If a strategy of improving or strengthening external links is required then there appears to be an important role for firms and regional agencies in attracting finance and investment capital. This implies that if firms want to strengthen their export links or move to new markets (particularly in light of the decision not to join the EU) or if home-based firms want to undertake exports then it seems that there should be methods of collaboration between different types of firms in order to increase awareness as to the possibilities offered by external export markets. Conversely, however, if a strategy of endogenous growth is to be followed then awareness of the possibilities of internal markets in the region and in Norway and possibilities of innovation-led growth may be required. Thus, there are possibilities of focusing on the needs of the region in order to help firms contribute to endogenous growth and technological development.

The location of Møre and Romsdal in Norway is peripheral particularly when considering the location and role of the major cities in Norway. These both attract economic and technological activities and are sites for the main institutions in the national technological infrastructure, such as universities, higher education institutions and research institutions. This fact constrains the more even spread or regionalisation of many science-based activities in regions such as Møre and Romsdal. However, the vulnerability of firms to the effects of geographical distance can be reduced by technological and physical infrastructure in the region that is upto-date and functioning as part of an orchestrated national infrastructure. By creating and developing physical infrastructures, for instance in terms of telecommunications and transport systems which firms rate as highly important, the public sector can reduce some of the drawbacks of being located in a particular region, and by that means augment the advantages of the location. Thus integration of regional infrastructures with national infrastructures has to be an important aspect of a policy having the objective of stimulating sustainable economic growth in the regions.

Despite this, a national technology policy cannot usually take regional problem situations adequately into account, since neither its aims nor its instruments are

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