RISE Project - Research Institutes in the Service Economy - Wp1 Clusters and Rtos

RISE - RTOs in the service economy

Workpackage synthesis report, wp1

Clusters, innovation and RTOsJason WhalleyDepartment of Management Science,University of Strathclyde, Glasgow, UK

Pim den HertogDialogic, Utrecht, The Netherlands

Direct line: +31 30 215 0585Email: [email protected]

A final report of RISE: RTOs in the serviceeconomy - Knowledge infrastructures,innovation intermediaries and institutionalchangeRISE reports may be downloaded from:http://centrim.bus.brighton.ac.uk/go/rise/

sRISE coordinator: Dr Mike Hales

CENTRIM - The Centre for Research in InnovationManagement

Direct line: +44 1273 642190

Email: [email protected]

This report constitutes a deliverable specified in theRISE work programme

Contract number: SOE1-CT98-1115

Funded under the TSER programme by the EuropeanCommission, DG Research

Date: November 2000

Clusters, Innovation and RTOs

A synthesis of the findings from the RISE cluster studies

Jason Whalley and Pim den Hertog

29th November 2000

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A synthesis of the findings from the RISE cluster studies

Jason Whalley1 and Pim den Hertog2

1 Department of Management Science, University of Strathclyde,Glasgow, UK

2 Dialogic, Utrecht, The Netherlands

Based on contributions by:Brigitte Preissl (DIW, Germany)Laura Solimene (Università Cattolica del Sacro Cuore, Italy)Pim den Hertog, Erik Brouwer & Sven Maltha

(Dialogic, the Netherlands)Thor Egil Braadland (STEP, Norway)Margarida Fontes (INETI, Portugal)Anna Sandström (NUTEK, Sweden)Jeff Readman (CENTRIM, United Kingdom)

Glasgow / Utrecht, 29th November 2000

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RISE - RTOs in the service economyKnowledge infrastructures, innovation intermediaries and institutionalchange

Workpackage report, Clusters, innovation and RTOs

ContentsSummary ......................................................................................................................................7

1 Introduction: positioning the cluster studies within the RISE project .....................................8

1.1 What is the RISE project?..................................................................................... 81.2 Objectives and the structure of the report ............................................................. 8

2 Clusters in the context of RISE ...........................................................................................10

2.1 Introduction........................................................................................................ 102.2 What exactly is a cluster? ................................................................................... 102.3 What cluster approach was adopted in RISE? ...................................................... 122.4 How then were cluster studies performed in the RISE project?............................. 18

3 Findings...............................................................................................................................22

3.1 Actors................................................................................................................. 223.2 Structure ............................................................................................................. 243.3 Geographical scale............................................................................................... 273.4 RTOs in the cluster............................................................................................. 30

4 Conclusion ..........................................................................................................................35

Appendix: Summaries of National Cluster Studies...................................................................37

1 Germany – automobile component manufacturing ....................................................... 37Cluster approach adopted ..........................................................................37Characteristics of the automotive component sector in Germany..............37Cluster configuration.................................................................................38Functional division of labour in the cluster ................................................42Cluster policies..........................................................................................42Conclusions...............................................................................................42

2 The Netherlands – information and communications................................................... 44Basic characteristics ..................................................................................44Functioning...............................................................................................44Performance .............................................................................................45Structure multimedia cluster.......................................................................46Industrial dynamics....................................................................................46Style of innovation ...................................................................................47Role of RTO, universities and KIBS...........................................................47Role of demand .........................................................................................48Innovation performance ...........................................................................50Bottlenecks and options for improvement ................................................50

3 Italy – telecommunications.......................................................................................... 50Cluster methodology used..........................................................................51Basic features of the telecommunications industry.....................................51Actors within the cluster ...........................................................................53Innovation regime.....................................................................................55Drivers of innovation................................................................................56Conclusions...............................................................................................56

4 UK – printing and publishing........................................................................................ 57Methodology - value chains as a systemtic framework...............................57Print and publishing of books in the UK....................................................58

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Production innovation and the drivers of innovation ................................59Conclusions...............................................................................................61

5 Portugal - biotechnology.............................................................................................. 63Cluster approach adopted ..........................................................................63Actors.......................................................................................................63Innovation dynamics.................................................................................63Interaction between firms and RTO/KIBS..................................................64Policy issues..............................................................................................65Conclusions...............................................................................................65

6 Sweden - biotechnology................................................................................................ 66Cluster methodology adopted ....................................................................66Actors.......................................................................................................66Dynamics within the cluster ......................................................................67International comparison of the cluster.....................................................67Geography.................................................................................................68Large actor stimulus ..................................................................................68Policy implications ...................................................................................68

7 Norway – agro-food..................................................................................................... 69The food cluster........................................................................................69Cluster mapping methodology...................................................................70Geography.................................................................................................71Innovation and innovation style ...............................................................71Policy .......................................................................................................74Main conclusions.......................................................................................75

References..................................................................................................................................76

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List of tables and figures:

Table 2.1: Some cluster and cluster-related concepts.......................................................10

Table 2.2: Cluster analysis at different levels of analysis.................................................12

Table 2.3: Cluster dimensions, firm strategy and industrial policy: a menu

approach.......................................................................................................13

Table 2.4: Traditional sectoral approach vs. cluster-based approach...............................16

Table 2.5: Ways in which the cluster approach adopted is different from related

concepts .......................................................................................................17

Table 2.6: Guidance issued to national teams for work-package 1 ...................................19

Table 2.7: Two dimensions emphasised most and levels of analysis of the various

cluster studies performed (see also table 2.3)...................................................20

Table 2.8: What research activities were done/approach adopted....................................20

Table 2.9: Some of the lessons learned in RISE & unresolved issues when

performing Cluster studies ..............................................................................21

Table 3.1: Classification of actors within the German automobile component-

manufacturing cluster .....................................................................................24

Table 3.2: Illustrative examples of sub-clusters within cluster studies ..............................25

Figure 3.1 Co-authorship pattern between public research organisations.........................26

Figure3.2: Four segments of the multimedia cluster ........................................................27

Table3.3: Illustrating the geographical dimension of clusters .........................................28

Figure 3.3: Who collaborates with whom in the Swedish biotechnology cluster? ..............29

Figure 3.4: Bridging roles of RTOs ..................................................................................30

Figure 3.5 Domestic technological co-opereation: Share of innovative food

companies reporting technological co-operation with Norwegian

partners the last three years (weighted figures), in Oslo and whole

Norway, compared to national average (circles) .............................................33

Table A.1: Clusters studied as part of the RISE project....................................................37

Figure A.1: The automotive component supplier innovation cluster................................38

Table A.2: Types of co-operation in innovation processes .............................................41

Table A.3: Service Functions and Actors in the Component Supplier Innovation

Cluster ..........................................................................................................41

Figure A.2: The main bottlenecks in the multimedia cluster and their interrelations.........49

Figure A.3 The main options for improvement in the multimedia cluster and their

interrelations ................................................................................................49

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Table A.4: World-wide Telecommunication market (million of EURO at constant

1998 exchange rate).......................................................................................51

Figure A.4: World-wide mobile and fixed subscribers.........................................................52

Table A.5 Italian telecommunications equipment market (billions of Lire) ....................52

Table A.6: Italian telecommunications services market (billions of Lire) ........................53

Table A.7: The wireless market in Italy (millions of subscribers) .....................................53

Table A.8: The actors in the telecommunications cluster................................................53

Table A.9: Major acquisitions of networking firms by telecom producers ........................54

Table A.10: Contrasts between the old and new innovation regimes..................................55

Figure A.5: Drivers of innovation and their impact..........................................................56

Table A.11: Effects of change...........................................................................................57

Table A.12: Innovation Factors and Drivers in the Book Publishing and Printing

Value System.................................................................................................60

Table A.13: Three most dominant industries, corporate structure, markets and

processes of change in the Norwegian food cluster..........................................70

Figure A.6: The Norwegian food cluster system (based on Hauknes 1998, ibid.) ...............71

Figure A.7: Foreign technological co-operation: Share of innovative food

companies reporting technological co-operation with foreign partners

the last three years (weighted figures), compared to national average

(circles). .........................................................................................................73

Figure A.8: Important sources of innovation in the Norwegian food cluster.....................75

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Summary

This paper examines innovation within the service economy. In particular it provides a synthesisof findings research from the TSER funded project RISE: research and technology organisations inthe service economy (RISE). More broadly, the paper expounds a rationale for the choice of thecluster approach as a methodology in preference to the others that are available.

A key theme of this paper is the complexity of the relationship between innovation and actorswithin the context of clusters. This is demonstrated in various ways. It is argued that although avariety of cluster approaches exist common to all is the notion of inter-dependencies / inter-linkages between the plethora of actors identified. However, these inter-linkages are not the samein all of the clusters studied. They differ in terms of actors, geographical scale as well as structure.Observations are offered within this paper covering all of these areas. It is also shown thatclusters differ with respect to RTOs in terms of their number, size as well as role in the innovativeprocess.

A second central theme of this paper is methodological in nature. Through highlighting thedifferent characteristics of each of the cluster studies the paper highlights the different strengthsand weaknesses of the cluster methodologies adopted in the seven cluster studies. More broadlythan this, the paper provides a detailed rationale for the adoption of the cluster methodology overthe others that are available.

Below are a series of general outcomes or points concerning clusters, cluster analysis and clusterpolicy that we wish to draw attention to.

1. Innovation rarely takes place in isolation, but is instead systemic in nature2. For most companies clusters are a recognisable level of analysis, as it formalises the

environment in which they operate.3. The production, diffusion and absorption of knowledge is key to the innovative success of

both clusters and cluster actors alike.4. RTOs and increasingly KIBS provide a wide range of knowledge related services that aim t o

assist actors in the innovation process.5. As the roles played by RTOs and KIBS differs, and the balance between the two in each of

the clusters are different, no best practice can be identified.6. The mechanisms and experiences built up by clusters provide a valuable resource that actors

within the cluster can draw upon.7. Adopting clusters as a policy perspective may result in new forms of governance that are

highly specific to the cluster emerging.8. As new forms of governance emerge the implementation of these requires new skills on the

part of civil servants.9. Cluster policy represents a way of customising innovation and other policies towards

specific needs.10. Cluster studies are one way in which the dialogue between relevant actors involved in the

innovation process can be initiated.

Details of how cluster studies fit into the wider RISE agenda and the structure of this report can befound in Section 1. Section 2 offers some insight into the ‘why’ and ‘how’ of the clusterapproach adopted in within RISE. Section 3 analyses the cluster study results in a comparativefashion. Section 4 draws the report together through presenting conclusions in the form ofmessages. The appendixes summarises the seven cluster studies performed within RISE.

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1 Introduction: positioning the cluster studies within the RISE project

1.1 What is the RISE project?

This synthesis report presents the main findings of cluster studies performed in Germany, Norway,Sweden, the United Kingdom, The Netherlands, Portugal and Italy as part of the wider RISEproject. RISE, or RTOs in the Service Economy to give the project its full title, is a two-yearproject examining the dynamics of infrastructures of innovation-related services. Although theemphasis of RISE is in the first placed aimed at mapping these dynamics, the research has policyrelevance for two reasons:

1. Incorporated within advanced industrial economies is a complex infrastructure of researchand technology services. Many of these have traditionally been viewed as ‘public’institutions, and therefore either included within the government or funded to a lesser orgreater extent by government. RTOs usually significantly feature within this infrastructure.

2. The globalisation of knowledge intensive business services has changed the environment inwhich the publicly funded or government funded parts of the infrastructure operate. It is nolonger clear what is, or ought to be, the public component of these institutions, or whetherthey will remain a stable part of the national infrastructure that is capable of supporting thenational economy.

The RISE project is divided into six work-packages. Such an approach is advantageous as it allowsfor an analysis that is layered in terms of disciplinary specialisation. Moreover, such an approachfacilitates the presentation of results along either analytical lines (tools and measures) or narrative/ descriptive lines (case studies, historical and institutional ‘stories’). The six work-packages thatconstitute the RISE project are outlined forthwith:

• Clusters - Mapping knowledge infrastructures, changes in the institutional landscape andcluster dynamics.

• Functions - Developing survey instruments for RTOs and their services based on atypology of innovation-related services and service functions.

• Markets & steering mechanisms - Identifying the economic rationale of innovation-related policy interventions.

• Policy learning - Identifying national policy institutions and styles, exploring thepresentation of evidence and strategies in policy analysis and identifying vehicles for policypractice.

• Competences - Studying delivery interactions between suppliers and users of knowledge-intensive business services, and the form of the service products delivered.

• Synthesis - A policy-oriented perspective on the strategic steering of knowledgeinfrastructures.

This report presents a synthesis of the research undertaken as part of the first work-package,clusters. In doing so it largely excludes research conducted for the other work-packages. However,it will inevitably touch upon aspects of the RISE project more fully developed elsewhere.

1.2 Objectives and the structure of the report

The aim of this report is to draw together findings from seven cluster studies undertaken as part ofthe RISE project. It is not the objective of the report to provide a definitive recounting of allresults within RISE, but instead to synthesis the national reports so that commonalities as well asdifferences are identified. Consequently, apart from introducing the cluster perspective andproviding summaries of the seven cluster studies, a thematic approach that draws together findingsaround four inter-related areas in a more comparative vein will be adopted.

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With this in mind the report is structured as follows. Chapter 2 outlines the cluster approach andpays particular attention to the rationale behind the choice of this perspective (where do we needclusters for? What is the additional value of clusters? Are clusters artificial constructs? How canwe position cluster studies vis-à-vis related concepts and approaches?). In chapter 3 the clusterstudy findings are presented along thematic lines in a more comparative vein. The first sub-section deals with actors whilst the second the structure of the cluster. The third sub-section looksat the geographical scale of clusters and the fourth at the role of RTOs within clusters. In chapter4 conclusions are drawn. The appendix presents summaries of each of the seven national clusterstudies. The stance here is not to present detailed studies as these are available elsewhere, butinstead to identify salient features of the study whether these are definitional, methodological orconclusive in nature.

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2 Clusters in the context of RISE

2.1 Introduction

In this chapter the following questions will be discussed:

1. What exactly is a cluster?2. What cluster approach was adopted in RISE?3. How then were cluster studies performed in RISE?

The answers to these questions shed light on the rationale behind the cluster perspective adoptedin RISE, the variety in the seven cluster studies produced and more in general point at what isthought to be the added value of the various cluster approaches adopted. In the next sections thesequestions just mentioned will be addressed subsequently.

2.2 What exactly is a cluster?

Although the dictionary provides a definition of a cluster as “a number of things growing, fastenedor occurring close together; a number of persons or things grouped together” (Collins ConciseDictionary, 1990: 211), the academic and policy literature does not seem able to agree on whatexactly the term means. The resulting variety of definitions of clusters and related notions isechoed in the numerous ways that clusters and related concepts are approached within theliterature, a selection of which are shown in the table below. Some of the notions are quite close.Most notions do complement each other or have a slightly different focus and therefore shouldnot be considered to be completely different or even competing notions. Even an expert wouldhave difficulty in indicating where a value chain based cluster definition in the innovation systemstradition would differ from for example the definition of sectoral systems of innovation andproduction as defined by Malerba1. However, most notions have a distinctive characteristic suchas a focus on a particular technology, spatial connotation or competence.

Table 2.1: Some cluster and cluster-related concepts

Concept DefinitionIndustrial district(Marshall)

The development of industrial complexes is explained by the existence of positiveexternalities in agglomerations of interrelated firms and industries. Theseexternalities are caused by three major forces: i) knowledge spillovers betweenfirms; ii) specialised inputs and services from supporting industries; and iii) ageographically pooled labour market for specialised skills. Marshall’s clusterhypothesis basically states the existence of dynamic complementarity within asystem of interdependent economic entities that influences specialisation patternsin production: for the reasons given above, innovation and growth in one economicunit can exert positive impulses for innovation and growth in other parts of thesystem as well. Therefore, a cluster of industrial complexes is expected to performbetter than the sum of its individual units in a more scattered distribution (Peneder,1999, p. 340).

Development andgrowth poles(Perroux)

The massing of population in a great urban concentration of 10 million or more toachieve external economies of scale, with the object of receiving a depressedregion; the establishment of a group of industries which cluster around expandingindustry.

Development blocks(Dahmen)

Dahmén emphasised that the interdependency between companies and industriesfacilitates the spread of new knowledge and that new commercial activities gainsustenance in strong networks. The entire network gains strength with theexistence of dominant and internationally successful companies. (NUTEK, 1999, p.13)

Competence blocs The term competence bloc is used to indicate that there are a number of different

1 There is a major difference in that innovation clusters are mostly focussing at innovation whereas sectoralsystems are also used to characterise production. However, sometimes value chain based cluster notions are used tocharacterise production and competitiveness as well.

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(Eliasson) competences that together help to develop and commercialise a special product.Human competence capital is important in this approach. … The important actorsin a competence bloc, according to Eliasson, must be found locally and worktogether in order for there to be industrial development. This involves competentcustomers who make demands, innovators who create, entrepreneurs who identifyinteresting innovations that are viable in business terms, and venture capitalistswho discover and finance them, so that they can be trans-formed by industrialistsfor production and distribution (NUTEK, 1999, p. 22)

Agglomerations/regional industrycluster

A cluster whose elements share a common regional location, where region isdefined as a metropolitan area, labour market, or other functional economic unit.

Industry cluster A group of business enterprise and non-business organizations for whommembership within the group is an important element of each member firm’sindividual competitiveness. Binding the cluster together are "buyer-supplierrelationships, or common technologies, common buyers or distribution channels, orcommon labour pools (Enright 1997: 191)."

Value chain industrycluster

A value chain cluster is an industry cluster identified as an extended input-outputor buyer-supplier chain. It includes final market producers, and first, second andthird tier suppliers that directly and indirectly engage in trade. It is comprised ofmultiple sectors or industries.

Networks of production of strongly interdependent firms (including specialisedsuppliers) linked to each other in a value-adding production chain. In some cases,clusters also encompass strategic alliances with universities, research institutes,knowledge-intensive business services, bridging institutions (brokers, consultants)and customers (OECD, 1999, p. 9)

Industrial complexes The concept of industrial complexes …is based on the notion that the linkagesbetween, on the one hand, firms developing new technology expressed incomponents, machines and production systems and, on the other hand, firmsusing this technology, are at the core of the economic system (Drejer et al., 1999,p. 295)

Resource areas A resource area consists of a broad range of products or services, which isrelatively stable over time and has a considerable weight or size in the economy. Aresource area is made up of sectors that are mutually interdependent or are in acommon relation due to the requirements to produce the final product or service inco-operation. The firms in a resource area have the same needs in terms of factorconditions. There is one or more position of strength measured by tradeperformance in a resource area (Drejer et al., 1999, p. 304).

Technologicalsystems

A network or networks of agents interacting in a specific technology area under aparticular institutional infrastructure to generate, diffuse and utilize technology.Technological systems are defined in terms of knowledge or competence flowsrather than flows of ordinary goods and services. They consist of dynamicknowledge and competence networks…In the presence of an entrepreneur andsufficient critical mass, such networks can be transformed into development blocs,i.e., synergistic clusters of firms and technologies within an industry or group ofindustries (Carlsson and Stankiewicz (1991) as quoted in Carlsson and Jacobsson,1997, p. 268)

Sectoral systems ofinnovation andproduction

a set of new and established products for specific uses and the set of agentscarrying out market and non-market interactions for the creation, production andsale of those products. A sectoral system has a knowledge base, technologies,inputs and an (existing and potential) demand. The agents composing the sectoralsystem are organizations and individuals (e.g. consumers, entrepreneurs,scientists). Organizations may be firms (e.g. users, producers and input suppliers)and non-firm organizations (e.g. universities, financial institutions, governmentagencies, trade unions, or technical associations), including sub-units of largerorganizations (e.g. R&D or production departments) and groups of organizations(e.g. industry associations). Agents are characterized by specific learningprocesses, competences, beliefs, objectives, organizational structures andbehaviours. They interact through processes of communication, exchange,cooperation, competition and command, and their interactions are shaped byinstitutions (rules and regulations). A sectoral system undergoes processes ofchange and transformation through the co-evolution of its various elements (Brechi& Malerba, 1997; Malerba, 2000, p. 6/7).

Source: Partly based on Bergman et al, 1999a: Exhibit 2.2

Merely taking stock of the variety in definitions of the notion of cluster and related notionsnaturally does not help very much except from illustrating the analytical opaqueness that

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surrounds the notion of clusters. It is even get worse if we further acknowledge that cluster studiesare being performed at various analytical levels as indicated in table 2.2 below.

Table 2.2: Cluster analysis at different levels of analysis

Level of analysis Cluster concept Focus of analysisNational level(macro)

Industry group linkages in theeconomy as a whole

• Specialisation patterns of anational/regional economy

• Need for innovation and upgradingof products and processes inmega-clusters

Branch or industry level(meso)

Inter- and intra-industry-linkages in the differentstages of the production chainof similar end product(s)

• SWOT and benchmark analysis ofindustries

• Exploring innovation needs

Firm level(micro)

Specialised suppliers aroundone or more core enterprises(inter-firm linkages)

• Strategic business development

• Chain analysis and chainmanagement

• Development of collaborativeinnovation projects

Source: OECD, 1999: 14

An extra complicating factor is that depending on the actual goal of the cluster study at handvarious cluster dimensions are emphasized. This observation made Jacobs & de Man (1996) decidethat it is better to acknowledge this issue of multidimensionality of the cluster notion and thevarious ways in which cluster studies are being used in industrial policies and firm strategy (seetable 2.3). They proposed that every time when a cluster study is performed the choices madeneed to be made clear. An act that they compare to choosing from a menu. They have putforward a menu approach, differentiating between 7 dimensions, including relevant corporatestrategy and policy options

All this is just to remind us that the question ‘what exactly is a cluster?’ cannot be answered in asatisfactory way immediately. The question has to be answered over and over again and positionedvis-à-vis related/competing concepts (see section 2.3). It also reminds us that clusters are in a wayartificial constructs and that we have to be clear and open on the choices made when a clusterperspective is adopted.

2.3 What cluster approach was adopted in RISE?

The aim of this section is twofold, namely:

• Indicate the choices we made regarding cluster studies as performed within RISE;• Indicate what we see as specific for our cluster approach vis-a-vis related notions.

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Table 2.3: Cluster dimensions, firm strategy and industrial policy: a menu approach

DIMENSION STRATEGY TOWARDS OWN & OTHER CLUSTERS RELEVANT POLICY OPTIONSGeographical:The spatial clustering of economic activity

Behave positively in own regional networks (own cluster)Take part in relevant EU programmes (own & other cluster)Tap into foreign clusters (other clusters)

Starting point for deciding on which geographical level acluster is to be supportedRegional scale ideal for diffusion to SMEs and networks ofmain suppliers and specialized jobber

Horizontal:The classical division of sectors on a certainlevel of aggregation/Severalindustries/sectors can be part of a cluster

Strike a balance between cooperation and competition (owncluster)Support sector initiatives in education, environmental andquality policies, internationalisation and market development(own cluster)Learn from foreign competitors (other cluster)International sector initiatives (other cluster)

Sector initiatives e.g. environmental policies. Organisationof strategic conferences.

Vertical:In clusters adjacent phases in the productionprocess can be present (value systems),filieres, network of suppliers). Important iswhich actor is pulling the innovative activities

Organize the user-producer-supplier interaction (owncluster)Exchange staff (own cluster)Co-location in design and production (own cluster)Locate activities near advanced clients and suppliers (otherclusters)Forge relations with clients in other countries in order toupgrade products (other clusters)

Stimulating development of relations between suppliers andcontractors in the direction of co-development, co-makershipWhen shaping policies, take into account which actors inthe network ‘pull’ innovationStrengthen networks of main suppliers and specializedjobbersDirect quality and environmental policies at the whole valuesystem

Lateral:Different sectors with which certaincapabilities can be shared and economies ofscope can be achieved, leading to newcombinations (e.g. multimedia cluster).

Establish new combinations with (elements of) otherclustersLook for inspiration in different (other) clusters (organizespill-over)

Technological synergies between sectors direct choices intechnology policy

Technological:A collection of industries which share a basictechnology (e.g. biotechnology cluster)

Strengthen relation with knowledge infrastructure in ownenvironment (own cluster)Forge relations with foreign top institutes (other clusters)

Enhance interaction between organizations via ‘clusterprojects’Stimulate mobility of staff between the knowledgeinfrastructure and companies

Focal:A cluster of firms around a central actor- afirm, an extended family, a research centre,an educational institute.

Starting point for choices in technology policy, e.g. reardingthe location of top research institutes

Quality of the network:Do firms cooperate and in which way.Sustainable and stimulating networks ordefensive networks or ‘negative’ forms ofnetworking

Strengthen partners’ knowledge (own cluster)Enhance international orientation of cluster (own cluster)Introduction of new coordination mechanisms between firms(own cluster)

Strengthen knowledge on ‘learning to learn’ in networks(network management); diffusion of that knowledgeStimulate the international orientation of that networks.

Source: Jacobs & de Man, 1996: 428-429, 432, 434



The cluster approach as adopted within RISE can be summarised by the following six choices.

1. RISE is about interdependency and linkages2 (instead of similarity) i.e. traded andnon-traded linkages (instead of only traded linkages) and includes actual linkages andpotential linkages (instead of only actual linkages). In these linkages both firm and non-firm organisations can be involved (instead of only firms or economic actors).

Basically two broad schools of thought can be discerned when it comes to how a cluster maybe defined. According to Verbeek (1999: 2) these are those approaches based on similarityand those based on interdependency. He describes the difference between these twoapproaches as follows: “cluster approaches based on similarity start from the assumptionthat economic activity clusters because of its need for equal framework conditions(similarity in research, labour skills, specialised supplies etc. etc.). The approaches based oninterdependency assume that economic activity clusters because dissimilar actors need eachother’s competencies in order to successfully operate and create innovations” (1999, 2). I tis clear that the first approach draws attention to the geographical dimension of clusters.With respect to the RISE project, the second of the two approaches laid out by Verbeek(1999) is more appropriate as RISE is concerned with the role of actors, especially RTOsand KIBS, within the innovation process. Thus, any cluster definition must be broader thangeography alone and be able to include other dimensions as well. In particular, it must takeinto account that actors are somehow bound together through various exchangerelationships and do not necessarily have to be in the same geographical location to interactwith one another. Through focusing on interdependencies RISE recognises that a variety ofdifferent types of (traded and non-traded) relationships are possible within clusters, and thatthese may occur between a quite diverse set of actors. These actors need not be necessarilyfirms as non-firms organisations such as knowledge institutions, non-profit brokerageorganisations and other intermediary type of organisations as well as policy-makersgenerally do play a role in clusters. Ultimately, the economic success of a company is alsodependent on its relationship with those institutions that shape the environment in which itis located, and those that provide intermediate inputs. It should be emphasised that apartfrom actual linkages potential linkages should be included as well. In a perfect cluster worldall links needed to successfully innovate and compete are established, however, in practicein quite a few cases actors that could potentially make a contribution innovation should beincluded. A good criterion therefore if one is to decide whether to include an actor in a RISEstyle cluster study is “those actors (firm and non-firm) actors shaping the space3 whereininnovation can take place4”.

2. RISE is about innovation (instead of the wider notion of competitiveness), i.e.technological and non-technological innovation (instead of only technological innovation)looking particularly at the mix of manufacturing and service functions as to get rid of thetraditional divide between the manufacturing and service activities (instead of treating theseas separate activities).

Especially thanks to the notion of cluster as introduced by Porter a wave of cluster studieshas flooded an increasing number of countries. These analyses and the policy conclusionsderived from them are in the first place about competitiveness. Of course attention is paidto the way clusters are upgraded as one of the main conclusions is that strategies aimed atdifferentiation and upgrading of products is more sustainable as a competitive strategy thanpurely focussing on price. RISE is however mainly interested how innovation comes about.More in particular it is stressed within RISE that both technological and non-technologicalinnovations would have to be included (instead of only focussing on technologicalinnovation). What is more, one of the main reasons to choose for a cluster approach was t oget rid of the traditional divide between the manufacturing and service activities which in

2 This is not to say the clusters studied in RISE do not share certain characteristics such as knowledge base,labour market, client categories or that agglomeration does not play a role. However, when selecting the clustersinterdependency in value chains was dominant.3 Space or environment is not meant here as geographical space!4 Philippe Laredo phrased it this way in the RISE expert meeting.



most sectoral studies are treating as separate activities (almost by definition as you havemanufacturing sectors and service sectors!).

3. RISE focuses on mapping the dynamics of innovation (or innovation styles) and i nparticular the development of the innovation function in relation to RTOs/KIBSand other agents in the knowledge infrastructure.

As was already clear from tables 2.2 and 2.3 cluster studies may serve various goals5.However, within RISE a deliberate choice was made to focus on what drives and whatcharacterises innovation in the various clusters and more specifically the role played byRTOs and other actors, such as KIBS, in the knowledge infrastructure of that cluster. This isnot to say the resulting cluster studies solely focuses on this, but the cluster studies provide acontext and have played a role as mapping devices for some of the other work-packageswithin RISE, most notably work-package 2 on RTOs and innovation related servicefunctions and work-package 5 on competences in innovation service function interactions.

IN WHAT WAY DO CLUSTERS DIFFER FROM (INNOVATION) NETWORKS?

It is clear that networks are essential for the functioning of clusters. These networks could be based on tradelinkages (or industrial relationships) and non-trading linkages, e.g. social networks, innovation networks,technology-based networks, networks of pre-competitive cooperation, etc. Networking and the dynamics ofinteraction between actors are important elements when performing cluster studies. In a cluster most likelyvarious networks are in operation at the same time (‘clusters as network of networks’) and some firmnetworks (which may possibly be referred to as ‘micro-clusters’) may develop into complete clusters.

However, in our view cluster studies in general will not only focus on individual (innovation) networks, but onvarious dimensions which together influence innovativeness of a cluster. Policy lessons derived from clusterstudies may deal with network building and functioning as well with factor conditions, rivalry, quality ofdemand etc. However, within RISE we choose to focus on clusters as a mapping device and to look at theinnovation dynamics in clusters and more particularly the development of innovation related services asprovided by KIBS, RTOs and public knowledge institutes.

4. RISE does not focus on a particular geographical scale.

It is remarkable to see that some complete production clusters are very strongly localised,e.g. dredging in the Netherlands, microelectronics in Silicon Valley or Biotech in Bavaria.However, starting from value chain based clusters one can equally come across cluster thatare functioning at a national or even international scale or where some localisation goeshand in hand with very internationalised links. It may also differ for the various types ofplayers within a cluster. Very localised players that operate in a local setting can be co-located with actors that are almost by definition internationalised and behave accordingly.It is even thinkable to have a local production cluster that is steered (in economic terms, interms of where the technology comes from, in terms of major clients) by foreign players.Within RISE the choice was made not to exclude beforehand these types of internationallinkages.

5. From a methodological point of view RISE emphasises the qualitative case studyapproach and a mix of various types of clusters (instead of a formalised quantitativeapproach)6.

Within RISE cluster studies are mainly used to map innovation styles and identify how theinnovation service function is organised. It was decided that adopting a qualitative case

5 Malerba in a similar vein indicates that “sectoral systems may prove a useful tool in various respects: for adescriptive analysis of sectors, for a full understanding of their working, dynamics and transformation, for theidentification of the factors affecting the performance and competitiveness of firms and countries and finally for thedevelopment of new public policy indications” (2000, p. 26).6 Although some more formalised analyses were part such as use of bibliometric and patent data; analysis ofinnovation survey data.



study approach was most productive as this involves interviewing the cluster actors directlyand learn how they experience the innovation style, innovation mechanisms and roleplayed by specialised innovation service providers. Not in the least as the boundaries ofclusters need often to be defined by those who work in them on a daily basis i.e. the clusteractors themselves. There are of course more formalised way to especially identify clusterssuch as input/output analysis, patent analysis, graph analyses, innovation matrices, etc (foran overview see OECD, 1999), but these still suffer from serious methodological as well asdata availability flaws. Moreover, RISE is not about how to identify clusters precisely, butabout mapping innovation and innovation services provision. This is not to say that noquantitative methods were used. Some clusters were already identified using formalisedquantitative approaches (such as the Norwegian food cluster) or used them to help indelineating the actual cluster (such as the Swedish Biotech cluster). In other clusters thequalitative analysis was supported by various quantitative information derived from regularproduction or innovation statistics or small questionnaires.

6. Ultimately RISE has the ambition to address systemic imperfections and derive atpolicy recommendation.

As the choice for focussing at interdependency and inter-linkages means a systemicapproach towards innovation it allows us to point at systemic imperfections7 whereverpossible and relevant and make suggestions as to what innovation policies would be mostsuited to the cluster at hand or it what respect a cluster approach in innovation policy-making would add. However, as the role-played by KIBS and RTOs and other actors in theknowledge infrastructure and the balance between them appears to be cluster specific we willnot put forward best practices. As innovation styles differs between clusters what works inone cluster, does not automatically work in another cluster or might even be counterproductive. Policy-makers can be sensitive to this and adapt the way they for example steerRTOs in particular clusters.

We feel that the cluster approach mainly is an alternative to the traditional sectoral approach.The differences between a sectoral and (not exclusively focussed on innovation) cluster approachare sketched once more in table 2.4.

Table 2.4: Traditional sectoral approach vs. cluster-based approach

Sectoral approach Cluster-based approach� Groups with similar network positions � Strategic groups with mostly complementary and

dissimilar network positions� Focus on end-product industries � Include customers, suppliers, service providers

and specialised institutions� Focus on direct and indirect competitors � Incorporates the array of interrelated industries

sharing common technology, skills, information,inputs, customers and channels

� Hesitancy to co-operate with rivals � Most participants are not direct competitors butshare common needs and constraints

� Dialogue with government often gravitatestowards subsidies, protection and limitingrivalry

� Wide scope for improvements in areas of commonconcern that will improve productivity and increasecompetition

� A forum for more constructive and efficientbusiness-government dialogue

� Search for diversity in existing trajectories � Search for synergies and new combinationsSource: OECD, 1999: 13

Apart from defining the cluster approach adopted here by indicating the choices the clusterapproach adopted in RISE can be compared with (related) concepts. Table 2.5 lists in whatrespects our cluster approach differs from related concepts.

7 Malerba similarly observes that: “a sectoral system perspective may help in identifying mismatches and blocksthat parts of the system exert on the rest. And may help overcome vicious cycles that block systems in their growth,development and transformation.”(2000, p. 27).



In conclusion the focus on innovation clusters adopted in RISE implies:

• Analysis of artificially constructed clusters, boundaries are decided on mostly together withcluster actors;

• A focus on interdependencies and linkages (traded and non-traded, firm and non-firm, actualand potential, cross sectoral);

• A focus on innovation;• A focus on the way in which the innovation services function in relation to the functioning

of the knowledge infrastructure is made up and changing;• A perspective that might cross various geographical scales;• A mostly qualitative perspective in terms of analysis provided;• Apart from analytical tool also a clear policy-orientation.

Table 2.5: Ways in which the cluster approach adopted is different from related concepts

Related concepts In what respect do they differ from the rise cluster approachIndustrial districts &other agglomeration-based clusterapproaches

These approaches are about geographic proximity and in these geographicallydefined regions similarity > interdependence. Clusters need not to begeographically concentrated.

Development & growthpoles

These approaches are concerned with stages in localised economic growth, andare therefore highly focused around a particular geography. Clusters need not begeographically concentrated.

Development blocks Although similar to clusters as understood in RISE, the notion is in fact closer toeconomic networks as it downplays both the role played by non-company actorsas well as innovation.

Competence blocks This notion displays similarities to innovation clusters, though it focuses on localcapabilities whereas clusters as understood by RISE acknowledge that linkagesmay occur at various geographical scales.

Value chains, supplychains & filieres

These approaches concentrate on traded and production linkages and does notespecially focus on innovation. Potential linkages are not included

Industry cluster Unclear whether similarity (e.g. sharing common factor conditions) orinterdependency (such as buyer-supplier relationships) are leading. No specificinnovation focus.

Industrial complexes &technological systems

Strong technology focus and implicit sectorally based

Resource areas Proven rather than potential strength and certain minimum size required (mega-cluster). Same needs in factor conditions. Quite comparable to Porterian cluster,only bigger. Competitiveness > innovation.

National innovationsystems

The cluster approach shares the systemic approach. The latter, however, is ratherfocussed on R&D actors and institutional dynamics. This perspective highlightsespecially the institutional set-up and broad flows within the economy whilst theinnovation clusters’ approach is focussing more at interdependencies at the mesoand micro levels. In an innovation cluster also less R&D intensive and serviceactors are included. NIS are quite stable and focus on institutional characteristicswhich are largely nationally defined, but NIS does not preclude international orlocal aspects to be included. Innovation clusters are more dynamic, can changemore rapidly, concentrate on a subset of (innovation-related) actors and mightoperate at various scales, including the international scale.

Sectors Clusters, so also innovation clusters almost by definition transcend sectoralboundaries. Sectoral studies are more aimed at describing economic strengths andnot so much innovativeness let alone how interaction with the knowledgeinfrastructure occurs.

Innovation networks Clusters transcend networks and also might include potential linkages betweenactors. A cluster may contain various networks and other sort of linkages. Anetwork can be a nucleus for an emerging cluster.

Sectoral systems ofinnovation andproduction

Quite close to the cluster approach as adopted in RISE although the boundariesare still based on sectors or a group of sectors and the focus is not limited toinnovation, but also includes production.

Having said all this it should be borne in mind that clusters are– although aimed at understandingreal life innovation-related traded and non-traded linkages of a group of actors – still analyticalconstructs as much as industrial sectors, industrial districts and innovation networks are analytical



constructs devised by analysts to understand industrial and innovation dynamics which aresometimes also used to propose firm strategy and policy guidance.

2.4 How then were cluster studies performed in the RISE project?

Cluster studies were chosen as one of the ways to study how the innovation services function andmost notably the position of RTOs and KIBS are changing. More than simple sectoral analysesinnovation cluster studies reveal the real world in which firms and other actors have to operateand innovate on a daily basis. Two questions have to be answered each time a cluster study isplanned:

• How can a cluster be identified in a sensible way?• How can the actual cluster study itself be performed in a proper way?

These two tasks are often confused. The first question mainly deals with differentiation betweenthe various clusters that exist in an economy. This can be done using various formalisedquantitative approaches such as I/O-analyses, estimation of innovation matrices, various forms ofcorrespondence analysis, patent data, value chain analyses, Porterian cluster maps using exportperformance, etc. This is quite a laborious task as overall cluster charts have to be madedemanding a great amount of data. Together Roelandt & den Hertog (1999) and DeBresson & Hu(1999) demonstrate the diversity of methodological approaches that can be used in this context.Each of these approaches has associated with them strengths and weaknesses that determine inwhat circumstances they are appropriate as each focuses analytical attention on different aspectsof the inter-dependencies that are evident within an economy. This latter point is particularlyimportant. Through focusing attention on different aspects of inter-dependencies the variouscluster methodologies are effectively complementary. The broad high-level analysis of input-output techniques determines what inter-dependencies actually occur, whilst the more focused andnarrow micro-level analysis techniques examine in greater depth the nature of these inter-dependencies. How advanced and insightful these methods might be, they are mostly methods t oidentify a cluster in a very partial way. It is only through “standing with your feet in the mud”, i.e.talking to people active in the cluster, that you start to understand the dynamics and logic of acluster and do not have to adapt the cluster boundaries found using one of these quantitativetechniques.

We skipped this phase of making cluster maps and then formally select clusters. The more so ifyou start from the goals of your research and accept that clusters are artificial constructs anyway,you can more or less construct the cluster to be analysed yourself. It is clear that if your focus istechnology based e.g. if you want to see how the introduction of modern biotechnology affectseconomic actors that mainly use and ‘produce’ these technologies your cluster will be differentcompared to the situation in which you start snowballing from one or a few innovative firms t olearn how innovation comes about in the firms and organisations involved in producingautomotive components part. Similarly, a multimedia cluster is very much a potential or emergingcluster that can for example not directly be identified from input/output analyses, still playersfrom various industries as well as many start ups make this cluster a reality.

Having decided that there is no way to optimally identify a cluster we simply made a pragmaticchoice for certain clusters, the boundaries of which we delineated ‘along the way’. The openadvocating of a pragmatic approach is seldom seen among experts and practitioners in the cluster.Other considerations played a role as well. In the first place various co-financing parties had a sayin the cluster studied (Dutch Multimedia cluster, Portuguese and Swedish Biotech clusters).Secondly, we made sure from the beginning that there was a reasonable mix between emerging andmore mature clusters as not to be biased towards either one. An additional reason to include a fewmore mature clusters and in some cases even to include cluster that are generally perceived as ‘lowtech’ was to be able to show that also in these type of cluster very advanced ways of innovationand of providing innovation functions can develop. Finally the knowledge on certain clusterspresent in the various national teams affected the choice for a particular cluster. For some



national teams aggregated statistical data was available, whilst for others it was not. Similarly,some were able to access individual companies and ascertain their sources of innovation whilstother national teams were not.

Consequently, national teams were free to choose whatever cluster methodology was mostappropriate in their case providing that they could answer the questions posed by the work-package co-ordinators (TNO and Dialogic). This can even be interpreted as a consequence of themenu approach mentioned earlier (table 2.3). The central questions of RISE were ‘translated’ intoterms consistent with the focus and scope of work-package 1, and these are shown in a condensedformat in table 2.6 below. These consisted of a series of broad areas that the national teamsshould focus their analysis on. Each of these broad areas was further sub-divided through theprovision of a series of questions that raised areas that ideally would be covered during the courseof the analysis. Thus, what was effectively established was a ‘wish list’ of areas that the nationalteams should include within their cluster analysis. It was, however, recognised that this wish listwas the ideal, and that practical considerations such as access to pertinent information will ensurethat this ideal is detracted from to a lesser or greater degree. The German cluster study explicitlyhighlights the problems caused by inappropriate statistical classificatory schemes that could notprovide the necessary level of detailed information sought (Preissl, 2000).

Table 2.6: Guidance issued to national teams for work-package 1

Broad area of analyticalfocus

Specific questions posed meriting consideration

Structure – actors withinthe cluster

Which industries are present within the cluster?Which actors are present within the cluster?Are actors located in close geographical proximity to one anotherWhat characteristics do the actors display? Is there a diversity of actors?Are they similar in terms of roles, size etc?

Structure – inter-relationships within thecluster

What are the general characteristics of relationships within the cluster?Are some type(s) of actors prone to co-operate more than others?Are actors linked together through value chains?Are certain actors ‘nodes’ within the cluster? Do ‘nodes’ act as regisseurs?What role do governance relationships (ownership and control) play in linkingcompanies together?

Sources of innovation At a cluster level are the sources of innovation characterised by anyparticular pattern?How do actors organise their innovative / R&D activity? Is innovationconducted on a standalone basis, or in partnership with others?Is R&D concentrated in only a few actors, or throughout the cluster?Do certain industries within the cluster have a higher propensity for innovativeactivity than other industries?What factors within the cluster encourage / hinder innovative activity byactors?

RTOs as a source ofinnovation

Do actors use RTOs as a source of innovation?Where are RTOs located? Are RTOs specialists?Do RTOs complement internal sources of innovation?Do actors move between RTOs?If actors do not use RTOs, what are the sources of their innovation?

Not insisting on any one methodology resulted in a variety of approaches used. In table 2.7 thetwo most important dimensions adopted (from the 7 dimensions included in the menu of table2.3) are given as well of the level of analysis of the 7 cluster studies performed.

The diversity of the cluster approaches has much to offer vis-à-vis other analytical frameworks.However, the appropriateness of each of the individual cluster approaches depends on items suchas: existing statistical evidence available (at what cost); whether you are dealing with an emergingor established cluster; whether geography plays a role and at what scale; whether there is apossibility to snowball from a few large players; whether there is some knowledge available on thecluster yet; howfar policy thinking on that particular cluster has progressed; how well established the players andthe relevant knowledge infrastructure is and so on and so forth.



Table 2.7: Two dimensions emphasised most and levels of analysis of the various cluster

studies performed (see also table 2.3)

Cluster study Two dimensions emphasized most Level of analysisAutomotive components cluster(Germany)

Vertical & quality of the network Micro / meso

ICT/Multimedia cluster(Netherlands)

Horizontal (ICT) & lateral(multimedia)

Macro / meso

Telecom cluster (Italy) Technological & vertical Macro / mesoBook printing and publishingcluster (UK)

Vertical (value chains) & Horizontal Meso

Biotechnology cluster (Portugal) Technological (diffusion) & lateral MesoBiotechnology cluster (Sweden) Technological & horizontal (for

policy!)Meso

Food cluster (Norway) Vertical & geographical Macro / meso / micro

Table 2.8: What research activities were done/approach adopted

Cluster study Activities performedAutomotive components cluster (Germany) � Extensive interviewing “Snowballing” from innovative

automotive components suppliers to their sources ofinnovation & (actual and potential) collaborators

� Extensive desk research� Detailed analysis of drivers of innovation and how

innovation function is configured and changing� Workshop and analysis of policy implications

ICT/Multimedia cluster (Netherlands) � Analysis CIS-2 and production statistics for data forIC-industries (group of industries)

� Detailed analysis of competitiveness and innovation(role RTO/KIBS) in multimedia cluster using 9 centraldimension (desk research, interviews, workshops)

� Translation into policy optionsTelecom cluster (Italy) � Detailed analysis of changed telecom landscape

(convergence, technological and service innovation).� Analysis of changed roles RTOs/KIBS on the basis of

interviewsBook printing and publishing cluster (UK) � Adoption of value chain approach to delineate cluster,

and determine inputs into industry.� Analysis of role played by KIBS/RTOs, and discussion

of lack of latter’s participation in cluster.� Extensive overview of industry developments.� Detailed analysis of relationship between innovation,

driving forces of innovations and the associatedorganisations.

Biotechnology cluster (Portugal) � Complete analysis of how biotechnology is developedand especially on how biotechnology is diffused inpharmaceuticals, forestry & pulp, agro-food

� Analysis of role played by KIBS/RTOs� Analysis of current policies and policy options

Biotechnology cluster (Sweden) � Demarcation of cluster analysing patents andpublication patterns

� Identification of relevant firms and institutions� Analysis of firm/RTO/university interfacing and

knowledge transfer� Analysis and policy recommendation esp. in relation to

biotech firms < 250 employeesFood cluster (Norway) � Econometric identification of food cluster

� On the basis of desk research and extensiveinterviews in the cluster description of general clusterdynamics

� Analysis of innovation practices. Apart from R&Dspecial attention is paid to role of suppliers ofmachinery & equipment and consumerrelations/branding

� Analysis of policy implications



Of course, each of the cluster methodologies is not faultless or applicable in all circumstances. Ina particular context some are more appropriate than others. For instance, if the aim is t odetermine broad economic flows between sectors of the economy then input-output analysis,which relies on aggregated economic statistics, is the preferred methodological choice. Similarly,those methodologies that focus attention on micro-level interdependencies, for example, thevalue chain methodology will be preferred when the objective is to see how a given firm relates t oits trading partners and wider environment. We found that a combination of mostly qualitativeapproaches (desk research, serious interview rounds, workshops) and in a few instancesquantitative methods8 (such as analyses of CIS databases at the micro-level; small surveys, patentand citation analysis) was most productive. In a few cases the policy component of the individualcase studies has been considerable, especially if there was an immediate interest from the policyside. In all cases at least policy implications and the usefulness of the cluster approach as aworking tool could be flagged. Table 2.8 provides a summary of the actual research activitiesperformed in the individual case studies. Table 2.9 identifies some of the lessons learnedconcerning the use and usefulness of cluster studies and some of the unresolved issues we bumpedinto.

Table 2.9: Some of the lessons learned in RISE & unresolved issues when performing Cluster

studies

LESSONS� Even with an admittedly semi standardised approach in terms of a common set of dimensions and

questions the elaboration by the different teams was very different, also because research backgroundand access to data sources varied.

� The cluster approach seems comes much closer to the “relevant context we work in” in comparison withtraditional sectoral analysis.

� Identifying clusters can either be seen as a quite complicated technical exercise or as a practicalquestion that is open for discussion in the beginning of a cluster study and which needs to be resolvedthrough interaction between experts and practitioners drawn from within the cluster.

� Delineating a cluster is, however, is an extremely important issue and needs to be resolved when startingthe analysis. If not, the question will keep reappearing as an item for discussion.

� Starting from a broad set of industries, expert interviews, snowballing from individual firms andinstitutions are all options for looking for the cluster boundaries.

� Some statistical evidence on how the cluster is performing is helpful.� Before the concept of innovation services function in relation to the knowledge infrastructure (mainly

RTO/KIBS) dynamics can be addressed, substantial effort has to be invested in simply mapping clusteractors and cluster structures.

� Performing cluster studies is laborious: qualitative interviews are needed and only a few events to letpeople interact are worth investing in.

� Knowledge infrastructures and balancing of RTOs and KIBS are very different and much more subtle thanRTOs getting more market oriented and KIBS taking over more functions usually associated with RTOs.

� Even within clusters operating at a national or even international scale small geographic nodal points ifactivity could be detected and vice versa (in most local clusters are in need of a few international linksto keep going).

� The act of performing the actual cluster study is an ideal tool for policy-makers for bringing cluster actorstogether and for identifying possible policy options to strengthen the cluster.

UNRESOLVED ISSUES� The lack of statistical material that is suited to cluster needs (or which can be only made available at

great costs) is troubling cluster studies� Discriminating between new, upcoming, established and mature clusters is difficult.� How to deal with clusters that are nascent or almost extinct?� Other ways of knowledge creation and distribution such as mobility of trained people and diffusion of

machinery (and the services that go with it) are hardly touched upon.

8 Provided the results of these could be made available timely and at a reasonable cost.



3 Findings

In this section the principal findings of the cluster studies shall be recounted. In doing so it is ourintention here to move beyond the identification of similarities and differences between theclusters to look for ways in which developments within the cluster can be understood. The firstsub-section below highlights the diversity of actors collectively identified by the cluster studies,whilst the second sub-section focuses on the structure of clusters. The third sub-section isconcerned with the geographical scale of the clusters studied. The fourth and final sub-sectionconcentrates on the role of RTOs within the cluster.

3.1 Actors

Clusters are not homogenous in character. The cluster studies demonstrate that they differ interms of both the diversity and number of actors present within them as well as their structure.Because some of the actors identified interact with some more closely than others, it is possible t oidentify groupings – sub-clusters – within the overall cluster. In other words, these twocharacteristics are intimately related to one another. To aid analytical clarity this section shallfocus on the diversity and number of actors present within the clusters, whilst the followingsection will concentrates on the resulting structures that different types of actors give RISE to.However, as these characteristics are closely related to one another it is inevitably that someoverlap will result.

Our starting point here is to ask what actors can be observed within the clusters? A wide varietyof actors are present within the clusters, and range from companies to domestic or internationallyorientated research institutes to governmental departments. Even though the terminology used inthe different cluster studies does differ at times, the actors identified by the studies fall into one ofthree broad categories:

• Research & education institutions – included within this category are universities, KIBS andRTOs. All three provide research related input into the innovative process. More generalthan this, universities provide an educated workforce that can be used by actors within thecluster.

• Environment shaping actors – actors within this category shape the environment in which

innovation occurs. On the one hand, this occurs through the actions of governmentaldepartments within the host country whilst on the other hand international organisationsmay also have an affect on the environment in which the cluster is located.

• Companies – there are, broadly speaking, two types of company actors within the clusters,

those that are domestic in orientation and those which are multinational enterprises(MNEs). The picture is, however, further complicated when it is realised that somecompanies may provide a range of intermediate inputs to others whilst some may specialise.Moreover, some companies occupy a key position within the cluster because the input(s)they provide to others is unique. Significantly, this is true not only for companies but theother two broad categories of actors identified as well.

The diversity of actors identified quite naturally leads onto the question as to how these may becategorised. It is comparatively straightforward to categorise cluster actors on whether or notthey are research & education orientated, corporate or environment shaping in nature. These are,after all, the three principal types of actors within the economy at large. However, thisclassification does not shed light into the innovative process. Both the German and Portuguesestudies propose classificatory schemes that aim to shed light on the roles performed by actorswithin the cluster, highlighting in the process their contribution to the innovative process.



In the Portuguese classificatory scheme actors fall into one of three categories depending on thedegree to which they incorporate key technologies, biotechnology in this particular case, into themainstream of their economic activities. The three categories of actors are as follows:

• Watchers – in this category companies are not prepared to apply biotechnology directly t otheir business activities. Having said this, these companies are engaged in somebiotechnology related projects so that they can gain an awareness and understanding of itsimplications before incorporation into their business activities.

• Marginal users – companies that fall within this category neither actively adopt nor

incorporate biotechnology into their business activities. Instead such companies take upbiotechnology passively. That is, in response to the stimulus of other actors with whomthey interact.

• Core users – companies here have actively sought to adopt and incorporate biotechnology

into their business activities. As a result biotechnology is central to the main businessactivities of the company, and the success of the company is closely associated with thesuccess of biotechnology.

Such a scheme is of interest because it effectively proposes a classification that is derived fromascertaining how dynamic the actor is relative to others within the cluster. Moreover, the schemealso introduces a dynamic element into the analysis. The most dynamic actors are “core users” ofa particular technology or innovation, whilst the least dynamic are “watchers”. As technology /innovation does not stand still, this same scheme may also be a way through which changes overtime can be tracked.

However attractive the Portuguese classificatory scheme may be, it is not without its faults.Although it alludes to how extensively uptake has occurred, providing a relative indication of this,it does not offer any means of determining this with any degree of precision. In other words, arubric has been proposed but without the accompanying set of criteria that can be objectivelyemployed in another context.

The Dutch study of multi-media cluster offers another insight into actors within the emergingindustry (den Hertog, Brouwer & Maltha, 2000: 10). The cluster is divided into a core and asurrounding rim. Both the core and rim are not homogenous in nature, and are populated by quitedifferent types of actors. The core is populated by between 500 and 1000 companies whoseprincipal activity is the contribution of knowledge to a collective effort that enables content to bedelivered independent of any particular platform. In other words, co-operation occurs becauseeach company provides some specialised form of knowledge.

In contrast are those companies located in the rim of the cluster. These companies are alreadywell established players in one or more of the markets that supply inputs to the multi-mediacluster. For example, supplying inputs from the broadcasting sector are companies like Veronicaand EO whilst KPN Telecom is active in the telecom supply market. Although such companiescannot presently claim to be able to develop all aspects of a multi-media service alone, their moveinto other markets is increasingly taking them towards this goal. One reason why companies havebeen able to move from their traditional market into new ones is that they control some valuableasset that they are leveraging to facilitate this move.

Importantly, the diffuse nature of the inputs required for multi-media development and the lack ofrim companies that are active in all markets ensures that no cluster directors or regisseurs wereidentified. Having said this, developments are such that it is likely that this situation will changein the near future as ‘consolidators’ acquire other actors within the cluster. Acquiring othercluster actors enables companies to gain both mass as well as control over technologies / activitiesthat they consider to be key to their economic survival.

The German study of the automobile component-manufacturing cluster offers an alternative wayto classify actors. The approach adopted by Preissl (1999) places the innovative company at the



centre of a web of inter-relationships that link cluster participants together. In doing so itrecognises the pivotal role played by the innovating company. Significantly, the approach doesnot equate innovation solely with the central innovating company. Instead, the innovatingcompany is the company responsible for initiation the innovation process that involves not onlyitself, but other cluster actors as well. These other cluster actors include its clients, suppliers,RTOs and KIBS. Innovation activity is, therefore, broader than the initiating innovatingcompany.

Table 3.1: Classification of actors within the German automobile component-manufacturing

cluster

Category Salient characteristicsInnovating company Centre of the cluster.

Innovation part of overall product or performance strategyClients in the automobilecompany

Linkage role – between suppliers’ markets and the market for vehicles.Active role in determining course of innovation

Suppliers of parts and rawmaterials

Provision of key elements of the innovation to the central company.Close and Important linkage with manufacturers.

RTOs Provision of specialist technology relevant to the innovation.Closely linked to universities.

KIBS Role of small task sub-contractors within the cluster.Business services Marginal contribution to the innovation.University academics Specialist knowledge contribution from within the university environment.Agents Intermediaries transmitting information between other cluster actors.

Stimulation of innovation through highlighting issues.Source: Preissl, 1999, pg. 31.

This classificatory scheme emphasises that inter-relationships within the cluster are not the same;they differ in terms not only of their strength but also their intensity as well (Preissl, 1999: 36).The classificatory scheme goes further than this however; through highlighting that for any giveninnovation some actors are more important than others. Some actors play an active part in theinnovative process, identifying the need for innovation and then subsequently guiding theinnovation process whilst others funnel information from one party to another. With respect t oR&D, Preissl (1999: 31) distinguishes between those who are ‘R&D active’ and those who are‘R&D passive’.

3.2 Structure

The discussion of actors within the cluster leads quite naturally onto the structure of clusters. It isperhaps not a surprise that the myriad of actors ensures that the clusters are not uniform incharacter. It is clear from the above discussion of the German automobile component-manufacturing cluster that differences do occur within the cluster. Apart from differences in actorinter-relationships along the dimensions of strength and intensity, it is also possible to identifysub-clusters within the overall cluster. (A figure depicting the structure of the German automobilecluster can be found in Appendix 1).

It is possible to divide the clusters studies into two broad categories, firstly, those that actuallyidentify in some explicit manner sub-clusters and secondly, those that allude to the presence ofsub-clusters. The methodologies adopted enables the Dutch, Portuguese and Norwegian clusterstudies to all explicitly define sub-clusters. These are recounted in table 3.2.

The UK cluster study does not explicitly identify sub-clusters within the printing and publishingindustry. This is because the printing and publishing cluster is itself part of the larger, andpresently vaguely defined, content grounded cluster within the UK. Nonetheless, the UK clusterstudy does allude to geographical clustering in London, the SE and around York (Readman, 1999).Geographical clustering also occurs in the Norwegian agro-food cluster as well. Because thegeographical dimension of clusters shall be discussed further in the next section, we shall notpursue it further here.



Table 3.2: Illustrative examples of sub-clusters within cluster studies

Cluster Sub-cluster(s)Dutch ICT • ICT hardware

• Telecom services• IT (information technology) services• Content

Portuguese biotechnology • Agro-forestry• Food processing• Beverages• Pulp and paper• Pharmaceutical

Norwegian agro-food • Fish processing• Meat and meat production• Other food products• Dairy products• Beverages• Fruit and vegetables• Oil and fats• Grain products

Source: Portuguese cluster study (1999); Braadland (1999); Brouwer et al (1999).

In relation to cluster structure the Swedish biotechnology cluster study compiled by Nilsson,Pettersson & Sandstrom (2000) is particularly interesting as the stance that they have adopted issomewhat at odds with those of the other studies. The approach highlights interdependenciesbetween cluster actors along several dimensions, thereby enabling this central tenet of clusteranalysis to be explored from different perspectives. In doing so, Nilsson, Pettersson & Sandstrom(2000) does not divide the cluster into several smaller sub-clusters as in the case or TheNetherlands, Portugal or Norway. Neither does the Swedish study follow the lead of Preissl (2000)or Readman (1999) and focus analytical attention at the micro-level.

In all Nilsson, Pettersson & Sandstrom (2000) highlights four areas of interdependencies withinthe Swedish biotechnology cluster, and these are as follows:

• Between public research organisations.• Between companies and industrial and public research institutes.• Between the two large pharmaceutical companies of Pharmacia and Astra and industrial and

public research institutes as well as other companies.• Between Sweden and other countries.

In each of these areas the Swedish cluster study casts light into the nature of collaboration betweenactors. With respect to collaboration between public research institutions, the analysis shows thatcollaboration is more prevalent between Karolinkska Institute, Stockholm and UppsalaUniversities than between either Linkoping University and the Royal Institute Technology, orbetween Umea University and Chalmers University of Technology (Nutek, 1999: 41). Theuneven nature of collaboration is demonstrated below in figure 3.1.

What is important here is that collaboration is not evenly spread throughout the biotechnologycluster; not only do a handful of actors dominant the collaboration but most are effectivelyrelegated to playing a minor role. This is clearly demonstrated in figure 3.1 (above). A similarpicture of true for the other areas of collaboration mentioned above. In the case of thecollaborative patterns of Pharmacia and Astra, what is interesting is that with a few exceptionsthese do not overlap (Nilsson, Pettersson & Sandstrom, 2000: 25). The obvious reason for this iscommercial sensitivity / exclusivity. However, there is some degree of overlap in terms ofcollaboration with public and private research organisations not least because the uniqueknowledge that these may contain ensures that collaboration within them has to occur. Thus, it ismore accurate to say that both of these companies collaborate with a small number of researchinstitutes but that most of their collaboration network does not overlap with one another.



Figure 3.1: Co-authorship pattern between public research organisations

Note: SMI stands for Swedish Institute for Infectious Disease Control. Source: Nilsson, Pettersson & Sandstrom,2000: 17

Finally, it is necessary to mention that collaboration patterns – as defined by the co-authorship ofpapers between companies, industrial research organisations and public research organisations –has not remained constant over the years. Dividing the period between 1986 and 1997 into threetime periods (1986 – 1989, 1990 – 1993 and 1994 – 1997) the analysis highlights two relatedpoints. Firstly, that the number and type of actors involved in collaboration does not remainconstant. Secondly, the significance of the actors in terms of the number and prominence ofcollaborative links also changes over the period examined. Some actors become more importantover the three time periods whilst others decline in significance. For instance, for all three timeperiods Lund University is an important node in the collaborative network between companiesand research institutions (Nilsson, Pettersson & Sandstrom, 2000: 20 - 24). However, althoughthe university remains an important node in all three periods other actors have risen inprominence. Moreover, the dominance of the link between Lund University and Biocarb AB in1986 – 1989 has declined, so that by 1994 – 1997 it is only one among many collaborativerelationships.

The relationship between actor size and structure is also commented upon in the study of theDutch multi-media cluster. What is of interest here is that this particular cluster studydemonstrates that the lack of ‘directors’ or ‘regisseurs’ it is possible for small emergingcompanies, which often have less than 100 employees, to play a prominent role in thedevelopment of the cluster (den Hertog, Brouwer & Maltha, 2000: 10). These companies arelocated at the core of the cluster, which in figure 3.2 below is shaded grey. In the main thesecompanies operate in niches within the multimedia cluster, providing specialised services / inputsrelating to the development, management, design, building and maintenance of multimediaapplications (den Hertog, Brouwer & Maltha, 2000: 8). One consequence of these companies



being niche players is that in order to provide a comprehensive service they have to collaboratewith others. Figure 3.2: Four segments of the multimedia cluster

Source: den Hertog, Brouwer and Maltha (2000: 10)

The core cluster actors are surrounded by a series of larger established companies. It is argued thatalthough these companies do not fully understand developments within the cluster they are in aposition to influence its developments through the possession of valuable assets such as uniquecontent, control of distribution channels as well as a thorough knowledge of certain markets (denHertog, Brouwer & Maltha, 2000: 9). How the cluster may develop in the future is onlytentatively addressed. Given the present state of affairs, it is stated that the small emergingcompanies at the centre of the multi-media cluster are not in a position to become cluster‘directors’ or ‘regisseurs’ in the immediate future. Furthermore, prominent ring companiesidentified, such as Philips, are for various reasons either unwilling or unable to take on such a role.What may be seen in the future is the development of a series of relationships – bothcollaborative alliances as well as acquisitions – between ring and core companies. In particular,ring companies may form relationships with core companies so that they gain insight into multi-media developments as well as access to some form of unique asset.

3.3 Geographical scale

Although the first section of this paper proposed a definition of clusters that was broader than justgeography, this section shall focus solely on the geographical dimension of clusters. It is clearfrom the studies undertaken that clusters are simultaneously regional, national and international inscale. Importantly, a cluster need not be confined to just one of these scales and may contain

MULTIMEDIAENABLING

E-MARKETING

CONTENTPROVISION

cable

publishing

DirectMarketing

advertising

media inkoopICT & CEhardware

AV

broadcasting

printing

telecom

business consulting

MM production& services

interactivedesign

entertainment

CONTENTDISTRIBUTION

marketingcommunication

IT software

retail

terrestrial core

1e rim



elements that operate at one or more of these three levels. Interaction will occur both betweenand within each of these different scales.Table 3.3: Illustrating the geographical dimension of clusters

Cluster Geographical aggregationSwedish biotechnology Regional – Stockholm & Uppsala

International – co-authorship link between Sweden & US and GermanyUK printing and publishing Regional – London, SE and Yorkshire

International – between UK & Germany / UK & USA / UK & Japan for equipmentNorway agro-food Regional – Oslo for corporate HQ facilities

International – influence of EU food regulationsSource: Braadland, 2000; Nilsson, Pettersson & Sandstrom, 2000; Nutek, 1999; and Readman 1999.

Although each of the clusters does have some form of international dimension, they arepredominantly national in scope. That is, the corporate, education and institutional actors withinthe cluster are in the main indigenous to the country in question. Exceptions such as in the caseof the UK printing and publishing cluster where equipment is sourced from overseas, demonstratethe rule of actors being indigenous. In many respects this should come as no surprise. Eventhough recent decades have witnessed a rapid increase the internationalisation of economicactivity, it remains primarily focused towards, and located in, the national economy.

It is, however, misleading to argue on this basis that clusters are evenly spread throughout thenational market. At its most basic, the cluster will reflect the fact that the population, andtherefore economic activity, is not evenly dispersed. Populations are concentrated inconurbations that in turn are the locus of economic activity. To a lesser or greater degree theclusters studied as part of RISE conform to this in that regional aggregation are clearly evident.For example, the UK printing and publishing cluster displays three geographical concentrations:London, the Southeast and Yorkshire (Readman, 1999: 9).

The Norwegian agro-food study draws attention to the fact that geographical concentrations canoccur for a whole set of different reasons. In other words, it is inappropriate to argue that thesame explanation is relevant in all cases. Thus, although large food companies operate nationallytheir headquarters are to be found within Oslo (Braadland, 2000: 41). However, production ishighly regionalised in nature. On the one hand production may be located near to the sources ofraw materials, whilst on the other hand production may also be located near to larger towns andcities (Braadland, 2000: 48). The former motive explains the location of fish processingindustries whilst the latter is applicable in the case of chocolate.

With the Norwegian cluster study as a guide it is possible to identify several other geographicalaspects that highlight their complexity. The UK printing and publishing demonstrates how thesuppliers of key inputs can determine the geographical scale of the cluster. In this case, thedominance of German machinery companies ensures that in this key area the cluster isinternationalised even though in many other respects the industry is national in scope (Readman,1999: 9). Thus, industry dynamics can also play a role in fashioning the geographical extent ofthe cluster.

This is also evident in the case of the German auto components clusters. A recent trend on thepart of manufacturing companies has been to transfer a greater proportion of the risk associatedwith product development onto component companies (Preissl, 2000). This has led t ocomponent manufacturers internationalising their activities, as had the desire of manufacturingcompanies, who are themselves internationalising, to deal with a reduced number of suppliers on aglobal basis. The resulting suppliers will not only be larger but they will also be international aswell as bearing a greater proportion of the risk inherent to product development.

Notwithstanding the fact that the auto component industry is in the throes of internationalisingthe German cluster remains dominated by indigenous companies. The extent to which foreigncapital has penetrated the cluster is comparatively small (Preissl, 2000: 14). Moreover, thecluster remains largely regional in scope. This demonstrates that the scale of production may notexactly match either the scale of the market or that of the participants within the cluster.



The inclusion of two biotechnology studies – Sweden and Portugal – within RISE provides anopportunity for comparisons to be made. Although the biotechnology clusters in both countrieshave a strong national foundation, the Swedish cluster is more internationalised than itsPortuguese counterpart. Having said this, the same set of explanations is applicable to bothcountries. Namely, that the increasing cost of drug development has encouraged companies t oexpand internationally so that the likelihood that they can recoup their investment costsincreases. In other words, the small home markets are insufficient to generate the necessaryreturns to justify the investment. The need for scope and scale to underpin future drug R&Defforts has also driven the M&A that has recently occurred, with the merger between Astra(Sweden) and Zeneca (UK) being a prime example of this in practice.

The merger between Astra and Zeneca demonstrates the internationalised nature of the Swedishbiotechnology cluster. Interestingly and quite significantly, in the Swedish study internationalcollaboration / internationalisation is skewed in favour of some countries over others. Usingbibliometric data to illustrate the extent to which collaboration has occurred it is shown that thepre-eminent country with which Swedish actors – companies as well as research institutes –collaborate is the United States (Nilsson, Pettersson & Sandstrom, 2000: 29). Less significantinternational collaborators are the United Kingdom and Germany (Nilsson, Pettersson &Sandstrom, 2000: 29).

Figure 3.3: Who collaborates with whom in the Swedish biotechnology cluster?

Source: Nilsson, Pettersson & Sandstrom, 2000: 29

Whilst the United States is the pre-eminent collaborative partner in biotechnology there is nosingle country that can categorically lay claim to the title of being the second most importantcollaborative partner country (Nilsson, Pettersson & Sandstrom, 2000: 30). For example,Germany is the second most favoured collaborative partner of the Karolinska Institute whereas inthe case of Linkoping University it is Denmark (Nilsson, Pettersson & Sandstrom, 2000: 30). Incontrast, for both Astra and Pharmacia the second most favoured collaborative partner country isthe United Kingdom.

The Portuguese cluster is similar in many respects to that of Sweden. The small size of the homemarket places indigenous companies at a disadvantage as it does not encourage investment ininnovative activity because of the limited scope to recoup R&D expenditures. This is borne out



by the fact that several Portuguese pharmaceutical companies do not undertake their own R&Defforts but instead rely on the efforts of others. What is different from the Swedishbiotechnology cluster, however, is the nature and impact of the internationalisation that hasoccurred. Foreign companies have been attracted to the Portuguese biotechnology cluster by thequality and focus of the R&D that has been undertaken. In other words, foreign companies havebeen pulled to Portugal because it possesses a set of unique assets. Once the foreign investor(s)have acquired the Portuguese assets they have moved research, and sometimes other activities,overseas. Consequently, whilst Portugal may develop the resources (assets) they do not enjoy anylong-term benefits.

3.4 RTOs in the cluster

Although RTOs are only one of the many actors within the clusters examined, they are the focusof the RISE project (Hales, Preissl & Hauknes, 2000: 1). As a consequence this section shallexplicitly focus on RTOs, highlighting in the process not only their role (or roles) but alsodifferences in their pervasiveness between countries as well.

Collectively the various clusters studies demonstrate that RTOs are not homogeneous. Preissl(2000: 9) shows how RTOs vary in both size and budget. RTOs within the German autocomponent-manufacturing cluster vary in size, with small RTOs having less than 20 researchersand larger ones between 70 and 100 researchers. Some RTOs are comprised of engineers anduniversity level qualified employees, whilst others are almost all academics. Differences also occurin terms of budget as well. The budget of smaller RTOs falls between 1 and 3 million DM, whilstthat of medium budget RTOs varies between 70 and 100 million DM (Preissl, 2000: 9). Finally,some of the RTOs identified focus their activities on automotive technologies whilst othersspecialise on a particular technology that happens to be applicable to the automotive industry(Preissl, 2000: 32).

Differences in employees and budgets reflect the different activities that RTOs perform within theGerman auto component-manufacturing cluster. Some of the RTOs are more research orientatedthan others. The closer the RTOs to a university, the more research that it will undertake(Preissl, 2000: 32). As a consequence, RTOs perform a mediating role in two requests: betweenbasic research and universities on the one hand, and between industry and applied research on theother hand (Preissl, 2000: 42). In other words, RTOs perform a ‘bridging role’ that links togetherresearch activities on the one hand with those who implement them on the other.

Figure 3.4: Bridging roles of RTOs

Innovating firm

Collaborator firms

Competitor firms

Customer firms

Supplier firms

R&D sources

The classic linear role

Diffusion/clarification of new technologies

Pre-competitive collaborationDevelopment alliances (eg supply-chain scenarios involving radical processes or intermediate product-forms

Source: Hales, Preissl & Hauknes, 2000: 16.



Thus, RTOs link industry with academia. One advantage for RTOs of a close link with universitiesis that they may gain access to the latest research. However, the close links with industry thatRTOs enjoy may skew their activities. In particular, the closer link may ‘commercialise’ theactivities of RTOs to the point where research that is not immediately commercial in nature, butcould be in the future, is ignored (Preissl, 2000: 44).

The Swedish biotechnology cluster study also comments on the linking role that RTOs can play.In particular, Backlund, Markusson, Norgen & Sandstrom (2000) draw attention to the role ofRTOs in disseminating information to cluster members. For example, the Swedish Institute forFood and Biotechnology has, at the behest of its owner members, actively sought to disseminateinformation through network based knowledge transfer as well as acting as co-ordinator ofexternal research programmes and the publisher of pertinent journals and newsletters. TheInstitute has endeavoured to strengthen the link between universities and industry basedresearchers by initiating a programme whereby academics work half time as consultants forindustry clients.

In addition, the Swedish study also demonstrates that RTOs are not alone in their attempts t oenhance the number and quality of inter-linkages evident within the cluster. In addition to a seriesof public institutions that are important to the innovation system, for instance, The NationalVeterinary Institute (SVA), there are also bodies like the Technology Link Foundation anduniversity affiliated science parks that aim to foster inter-linkages within the cluster.

Whilst most of these bodies are limited in their scope, one in particular stands out due to its multi-faceted nature. The Swedish National Board for Industrial and Technical Development (NUTEK)undertakes several distinctive though related roles in the cluster. On the one hand, NUTEKundertakes research activities of its own whilst on the other hand it underpins external research intwo ways. Firstly, through establishing 28 competence centres, located in Swedish universities,and which aim to transfer knowledge from academia to industry. Secondly, NUTEK also partiallyfunds the Swedish Institute for Food and Biotechnology.

Another of the distinctive roles that NUTEK undertakes in the cluster is supporting thedevelopment of start-ups within the biotechnology industry. Not only does NUTEK provide seedand start-up financing but it also offers services that include information, advice, brokerage andR&D financing. In recent years NUTEK has increased the amount of seed and start-up capitalthat it has invested in the biotechnology, thereby recognising and reflecting its economicimportance for Sweden. The broad range of activities undertaken by NUTEK is complementaryin nature. The financing of start-ups and the provision of information to them draws on its otherprincipal area of activity, namely research and its dissemination. Together, the outcome is t ostrength the biotechnology clusters through supporting the development of start-ups as well asencouraging collaboration between actors.

In the Portuguese biotech cluster such a central player as NUTEK is clearly not present. The caseillustrates that in Portugal there is a diversity of organisations that conduct R&D in biotechnologyand biotechnology-related fields and offer research and technology services. The origins of mostof these organisations are government laboratories and universities. Several governmentlaboratories can be classified as RTOs. Additionally we find a plethora of semi-privateorganisations, including centres closely associated with the university and centres that have amore private form of governance (usually having a "private non-profit" (PNP) status) and resultfrom partnerships between universities, university centres or laboratories and privateorganisations. Several of these “pro-RTOs” were created at a time when the approach to the roleand form of governance of this type of organisation were changing from a focus on "knowledge-generation/ public funding" to a focus on "knowledge-transfer / public-private funding" (Fontes,2000, p. 3).

As the three biotech sub-clusters studied have quite different characteristics it comes as no surprisethat the role played by RTOs and pro-RTOs is quite different per sub-cluster. In the traditionalagro-food sub-cluster where “watchers” or “marginal users” dominate the scene only a fewcompanies are aware of the potential of biotech and actually use it for product or process



improvement. R&D is rare and relationships with RTOs seem to substitute for it. In theserelationships RTOs have to invest heavily to first gain interest and trust, before a demand in moreadvanced technologies can be expected. Although there are several competent RTOs in the filed,relationships are only slowly developing. In the mature forestry-pulp sub-cluster e.g. R&D isconducted in dedicated private research centres (esp. on eucalyptus tree) in close co-operationwith the RTOs active in this field. The clearly more technology-based pharmaceutical sub-clusteris more internationalised, both in terms of companies’ technological activities and research byRTOs. In this sub-cluster relatively more companies are involved in biotechnology R&Dactivities, although these are predominantly focused on chemical synthesis and are relativelyoften foreign firms. There are RTOs with strong competencies in this application area andcollaborative and contract R&D is taking place.

What is further evident from the Portuguese case is the fact that - although RTOs are in generaloften blamed for the mismatch between R&D developed and the needs of industry - there can be ademand-problem or receptivity problem as well that can frustrate the “ability and motivation ofRTOs to develop research that is relevant for industry” (Fontes, 2000, p. 65). However, it wasobserved that RTOs are becoming more proactive in reaching out to potential users of theirresearch and that some firms equally are starting to more actively search for information on therole biotech could play in their activities. It was noticed that a category of firms – mostlyresearch spin-offs led by highly qualified people - is in the making that provide knowledge-intensive services and may act as technology intermediaries between research groups and theincumbent industry (Fontes, 2000, p. 66). This illustrates the fact that RTOs and KIBS cancomplement and help each other.

The UK printing and publishing study highlights the changing role of RTOs within clusters.According to Readman (1999: 13) the principle RTOs within the cluster – Pira International –has evolved from a co-operative research association, which was funded equally from state andsubscription activities, into a ‘business consultancy’ that offers services for most value addedactivities (Readman, 1999: 13). This has occurred in three different yet complementary ways:

• Through the broadened of the array of services delivered to customers. No longer is PiraInternational an applied research driven RTOs, but through offering consultancy services ithas metamorphosed into a business consultancy company (Readman, 1999: 13).

• Through forming a strategic alliance with the British Print Industries Federation (BPIF).

The BPIF acts as both a lobby organisations for its members as well as disseminatesinformation. In their joint venture, both the BIPF and Pira International share marketintelligence whilst Pira publishes material issued by BIPF (Readman, 1999: 14).

• Pira is now broadening its service base, from a traditional sectoral focus on supporting print,paper and packaging technology to include in-house publishing. This shift in emphasis isdemonstrated by its alliance with the BIPF (noted above), which provides Pira with contentto publish. The shift to content-oriented services (and thus control over intellectualproperty rights or rather copyrights) is a strategic challenge that Pira may be entertainingas an effort to add higher value-added activities to their product/ service portfolio.

Of these it is the former that has altered Pira International the most, as the second and third is anextension, albeit a small one at present, of the former shift in emphasis. The implications of thischange are both obvious and far-reaching. On the one hand Pira International is able to offer itsclients a much broader array of services whilst on the other hand the RTOs is becoming less likewhat is traditionally understood as a RTOs and more like a KIBS.

The changing nature of RTOs is also shown in the Italian telecommunications cluster study. Thisstudy showed that when RTOs seek to expand the scope of their activities they have a broadchoice between two options:

1. RTOs may expand the portfolio of their activities though acquisition. These acquisitionsmay be of other RTOs or of commercial knowledge intensive research organisations.



For example, SIRMI (a private research institute) acquired Crossover to gain specialisedskills in the telecommunications industry.

2. RTOs may also broaden the scope of their portfolios through forming consortia – jointventures and alliances – with other research organisations. Significantly, these researchorganisations can be either commercial or publicly funded.

For instance, SIRMI has entered into collaborative arrangement with Compubase, IstitutoRicerca Internazionale, Pino Venture amongst others.

The motive behind both of these expansionary strategies is the same, namely: to enable the RTOsto expand the range of services / activities that it provides so that it can enhance its marketposition. In other words, the expansion enables the RTOs to better position itself in the marketas the range of services more closely matches those desired by clients. This is clearly important ifthe market is rapidly changing with the consequence that the more established or traditional RTOsare increasingly in the position that their knowledge base does not correspond to large andsignificant parts of the telecommunications industry.

The Norwegian cluster study on the food cluster did not at length specify the various roles playedby RTOs as it in the first place draws the attention to two other important sources of innovationin addition to R&D, namely the role played by:

� suppliers of machinery and equipment;� consumer relations or branding.

The importance of the first in innovation is illustrated in figure 3.5.

Figure 3.5: Domestic technological co-operation: Share of innovative food companies

reporting technological co-operation with Norwegian partners the last three years

(weighted figures), in Oslo and whole Norway, compared to national average

(circles).

0000 %%%% 22220000 %%%% 44440000 %%%% 66660000 %%%%

Other enterpriseswithin the group

Competitors

Clients or customers

Consultancy enterprises

Suppliers of equipment etc.

Universities, HE

Public or private re search institutes

Norway

Oslo

Source: Community Innovation Survey 1997, STEP Group / Statistics Norway

However, also the argument is put forward that the second additional source of innovationmentioned i.e. branding (or consumer relations) is at least as important in the food cluster as



technological innovation. Most important branding activity is marketing, but other examples ofbonding with consumers are e.g. maintaining product quality, distributing free product samples,performing trend analyses, performing polls and pre-manufacturing product tests, etc. (Braadland,2000, p. 20). It is shown that for what may be labelled as the ‘soft side of innovation’ KIBS seemto play a considerable role. RTOs seem to concentrate more on their traditional role of scientificresearch on nutrition, food safety, etc. This role is substantial. However, RTOs seems less inclinedto focus on the non-technological parts of innovation that are increasingly important for firmsactive in the food cluster.

If a RTOs is to maintain, let alone enhance, its position as a provider of knowledge services t oother actors in its cluster, it needs to ensure that the knowledge contained in-house continues t obe relevant to its client base. The Dutch multi-media cluster study, and to a lesser extent the UKand Italian studies as well, intimates one way that the gap can be closed, namely, throughcollaborative relationships that bring together knowledge creators with knowledge deficient RTOs.

In the Dutch case the degree to which the RTOs is interwoven into the fabric of the cluster,through contacts with trade and industry bodies and spins etc, will offset any deficiencies that theRTOs may have in its knowledge base. This enables amongst other things for the largercompanies, which are located in the rim of the cluster, to access external knowledge sources.Having said this, it appeared that research as performed by RTOs and universities in cooperationwith industry tended to be focused on the somewhat longer time horizon, typically 2-5 years andbe mostly aimed at technological innovation and experimentation. Although some exceptionswere observed, these type of cooperations mainly existed between the well established large firmsand RTOs. The new public-private organisational forms that were created such as the TelematicsInstitute have further strengthened this type of co-operation. The number of smaller fast growingfirms with ties to the formal knowledge infrastructure are less common. Typically the mostlyproduct oriented university or RTO spin offs have better access to the knowledge infrastructure,not least as the personal realtionships between research groups and the new firms remain in tact.However, especially the smaller multimedia service firms are typically hardly connected withRTOs and university groups and the research performed. They mostly are oriented towards mainlythe US for new developments, quite often feel an enormous need for developing and marketingnew producs and services. They hardly know what research is going on in RTOs and universitygroups and are weary for the perceived lack of speed. What is remarkable that also the non-technological research e.g. on Internet business models can hardly be traced within the formalknowledge infrastructure. It is especially on the non-technological aspects of innovation thatKIBS and exchange of experiences with other firms seems to be valuable. Smaller multimedia firmsdoubt whether RTOs and university groups will be able to immediately cater for their specificknowledge needs (apart from ‘producing’ a knowledgeable pool of labour).

However, Preissl (2000: 33) demonstrates that institutional factors may in fact be encouragingthe separation of RTOS from KIBS. These institutional factors, namely the bureaucracyassociated with universities as well as RTOs, encourages spin-offs from these two in the form ofKIBS were professors are active participants. Particularly advantageous in this is that comingwith KIBS status is considerable commercial freedom vis-à-vis RTOs and university status. Thisenables, amongst other things, to offer long term contracts to retain staff as well as raise thenecessary capital to invest in machinery. The Italian, Dutch as well as German cluster studiesdemonstrate the pressures that RTOs are placed under, and the challenges that they face, and thatthese are occur in different countries as well as different industries.



4 Conclusion

This report vividly illustrates the complexity of clusters. This complexity is evident not only inthe array of different cluster methodologies that fall within the broad church of approaches, butalso in the interaction between the array of actors located within clusters, the structure of clustersand their scale.

In the course of enquiring into the complexity of the clusters studied the report has stated why thecluster methodology was chosen in preference to the other methodologies that are available. Themethodological strengths of the cluster approach vis-à-vis other methodologies is evidencedthrough the detailed and wide-ranging nature of the insights into both innovation and RTOs thatthe studies generated. The variety of these insights is shown in Section 4 that brought together –synthesised – findings in four themes: actors, structure, geographical scale and RTOs in the cluster.

The undoubted strength of the cluster approach adopted in RISE is its pragmatic nature. Themethodology adopted set the framework for analysis through providing a series of guidingquestions for which answers were sought. A pragmatic approach to cluster methodology allowedfor national studies to be undertaken as circumstances dictated, thereby recognising the fact thatdifferences existed in terms of existing secondary data as well as ability to access actors within thecluster. Such an approach, of course, was not without its problems. For instance, that thenational teams adopted different methodologies as well as industries prevents a comparison acrossboth the same industry and methodology. However, it is felt that this paper clearly demonstratesthe advantages that arise from not mandating either the methodology used or the industryexamined. Instead, the national studies illustrate the wealth of material that can be generatedusing the different methodologies. Moreover, the relative strengths and weaknesses of the clustermethodologies are highlighted in the course of this synthesis report. This enables the report t osuggest circumstances when a particular cluster methodology is appropriate, the type and scale ofresources required and the likely nature of the outcome.

Notwithstanding the fact that the cluster studies are dissimilar, it is possible to identifycommonalities in the four areas that formed Section 4: Findings, namely: actors, structure,geographical scale and RTOs in the cluster. It was shown that a diversity of actors exists, thoughit is possible to generalise and state that actors fall into one of several categories that are domesticand international companies, research organisations, governmental agencies and educationalinstitutions. The structure of the clusters differs between all seven countries, though the presenceof sub-clusters is common to more than one of the studies. Geographically, the clusters reflectthat economic activity is still mainly organised within the national space but they alsodemonstrate the regionalisation and globalisation of economic activity as well. In other words,the use of the cluster approach drew attention to the contradictory centripetal and centrifugalorganisation of economic activity.

Finally, the paper demonstrates that the role undertaken by RTOs in the clusters studied displaysconsiderable differences. In some cases, RTOs are central and integral players within the clusterwhilst in other cases they are comparatively marginalized players. Whether a given RTOs isintegral or marginal to developments within the cluster is determined by the interaction betweenthe knowledge that they possess, the knowledge base of competitors and the demands placed onthem by other cluster participants.

From the analysis it is possible to identify a series of messages relating to clusters, cluster analysisand cluster policy. Whilst it may be tempting to equate these messages with generic conclusions,they should not be interpreted as such. Some of the messages are derived from insights commonto all of the cluster studies, whilst others are based on insights from just a handful of the studies.The ten messages that arise out of RISE are as follows:



1. Innovation seldom takes place in isolation but is systemic i.e. takes place in networks andclusters. The notion of a cluster is cantered around linkages between (firm and non-firm)actors) needed for bringing about innovation.

2. Clusters are a recognisable level of analysis for most firms and also the relevant knowledgeinfrastructure as it formalises the ‘world in which we operate and function’. However, thenotion of a cluster – like the notion of an industry or sector– remains an artificialconstruct.

3. The way knowledge is produced, diffused and absorbed (without implying a linear model ofinnovation here) is key to the success (innovativeness, adaptation capability,competitiveness) of a cluster and most of the time is highly cluster specific. The way clusteractors interact and innovate differs between clusters. Innovation styles/patterns aretherefore different (even if the drivers for innovation are similar). Most successful clustersare capable of putting in place, adapting and fine tuning mechanisms for knowledge creationand knowledge sharing.

4. In quite a number (but not all) clusters RTOs and increasingly KIBS provide all sorts ofknowledge-related service functions that help actors in this cluster to innovate and to adapt.The mix of (knowledge-related) service functions that RTOs and KIBS provide differs percluster as well as the balance between what services are provided by RTOs and what byKIBS. However, as a general trend RTOs tend to move more downstream providing morehands on and implementation like services, whereas KIBS increasingly perform services thatused to be associated with RTOs and HEIs only.

5. As the role-played by KIBS and RTOs in a cluster and the balance between the two differsand the demands of cluster actors might differ per cluster no best practices can be identified.What works in one cluster, does not automatically work in another cluster. This is a processthat cluster actors have to sort out among themselves. Policy-makers should have an openeye for this observation and be sensitive to adapt the way they steer RTOs and promote theuse of services offered by KIBS.

6. The mechanisms and experience built up in clusters – no matter whether these are labelledas high, medium or low tech – are valuable in itself and as long as clusters have built inmechanisms to renew and re-invent themselves in time this is a very precious asset.Therefore, switching at great costs to artificially create new clusters that are en voguemight be a costly strategy from both a policy and industry point of view. It is much easierto build on existing strengths – even if these are in so-called low-tech clusters – than t ocreate new ones from scratch. In practice these mechanisms can be refined and veryknowledge intensive in developed low-tech clusters.

7. Taking clusters as a perspective (pair of spectacles) might also mean new forms ofgovernance (e.g. possibility to create new type of RTOs, let develop specific KIBS services,more room for public/private initiatives) that are again highly cluster specific. In onecluster policy actions can be limited to making sure that competition is sound in otherclusters it might consist of various roles (demanding customer, technology foresight,creating the appropriate knowledge infrastructure, looking after competition practices, IPRproblems etc.).

8. The previous point also implies that capabilities for the civil servants putting clusterpolicies into practice are changing as well. They increasingly need to be able to act assparring partners, organise dialogue etc.

9. Cluster policy then is a way (working tool) of customising innovation and other policiestowards the specific needs (and self organising capability) of a particular cluster.

10. The action of performing cluster studies in itself can be a way of starting or contributing t oa dialogue on how innovation takes place in cluster.



Appendix: Summaries of National Cluster Studies

Each of the national teams undertook a cluster study as part of the RISE project. The table below(table A.1) shows the variety of clusters studied as part of RISE. In this appendix summaries ofeach of the cluster studies are presented.

Table A.1: Clusters studied as part of the RISE project

Country ClusterGermany Automobile component manufacturingItaly TelecommunicationsThe Netherlands Information and communicationsNorway Agro-foodPortugal BiotechnologySweden BiotechnologyUnited Kingdom Printing and publishing

1 Germany – automobile component manufacturing

Cluster approach adopted

This study analyses the innovation cluster of the German automotive components sector andmore specifically how service functions support innovation processes in the automotivecomponent industry are made up and who provide these services. The innovation clustercomprises all actors that contribute to the realisation of innovations in the sector. The criterionfor inclusion in the cluster is that a company, an RTO, a KIBS or any other organisation haveparticipated in (later to be enlarged to ‘contributed to’) innovations (or innovation processes).The actual procedure used provides a bottom-up perspective on innovation, as it starts to analysethe innovating firm and then moves on to other actors that contribute to innovation asmentioned by this firm (snowballing). Hence the cluster represents a potential of competencies t obe used in innovation. Cluster actors may belong to industries and sectors outside the automotivecomponent sector. They may be private, public or semi-public entities, national or foreignorganisations. Clusters have an important role in the transfer of knowledge, the generation of aninnovation-friendly environment and thus, for the efficiency and success of innovation processes.The actual cluster study consisted of desk research, interviews with various firms (innovatingfirms, component manufacturers, suppliers and clients), R&D organisations (RTOs, KIBS, R&Dagents) and industry experts and a workshop in which preliminary results were discussed.

Characteristics of the automotive component sector in Germany

It is explicitly noted that it is hard to characterise the cluster statistically as exact and recentstatistics are missing and the fact that industries which supply goods and services to the carindustry do serve other industries as well. Therefore it is estimated that the cluster containsbetween 2000-4000 component suppliers with 450.000-600.000 employees. It is noted thatduring the 90s turnover, productivity and employment levels have increased drastically, mainlydue to massive organisational changes in the German car manufacturing industry and an increase inoutsourcing of activities their suppliers. Developments such as more high quality ranges and moreluxurious cars; better interior decoration (more comfort); increased attention for vehicle safetyand environmental regulation has led to an increase in demand from the components suppliers. I tis clear that demand-led technological trends such as introduction of ICT, light weightconstruction, environmental concerns and fuel cell technology, safety concerns and use of newmaterials shapes the configuration of the innovation cluster. It pushes some RTOs, KIBS firmsand other technology experts to the cluster margins and places others in the centre.

The relationship between the car manufacturers and component suppliers is central in the cluster.And is characterised by changing supplier-buyer relationships, globalisation, radical cost savings,standardisation and modularity and increasingly: engineering outsourcing and simultaneous



engineering, upscaling of single component suppliers towards system suppliers. Although theautomotive industry still drives the path of development, the atmosphere is increasingly one ofco-operating partners. The dominant characteristic is that very large, globally acting(component) manufacturers exist along with small and medium sized producers in niche markets.While the large suppliers have traditionally had their own R&D departments, medium sized firmsare gradually building up R&D competence, and the smaller companies rely on co-operation.

Cluster configuration

Innovations in the cluster are the result of interaction between groups of actors. In this summarythe analysis focuses especially on the position and functioning of RTOs, KIBS and universities(see figure A.1).

Figure A.1: The automotive component supplier innovation cluster

RTO = Research and Technology Organisation; BS = Business Services; KIBS = Knowledge Intensive BusinessServices; gvmt. = Government; CS = Component Supplier; Auto M = Auto Manufacturer; R&D = Research andDevelpment; agents = VDA, FAT, UBA, BAST, Project Management.

CS

CS

suppliersupplier

KIBS

RTO

RTO (university)

agent

agent

BSfederalgvmt.

regionalgvmt.

RTO/KIBS

university

Auto M

R&D active R&D inactive

Auto M

Source: DIW 1999

Basically two groups of RTOs can be distinguished:

1. Institutes that specialise in automotive technology RTOs. These RTOs cover the wholerange of knowledge required to construct and improve cars and other vehicles. They aremostly attached to universities, and their directors usually hold a chair in the hostingfaculty. Many RTOs are linked with a university through formal agreements concerningfinancial arrangements, the use of office space and equipment, employment contracts andthe transfer of personnel. University faculties include all natural sciences and engineering.

2. Institutes that specialise in certain technological fields relevant in car or componentmanufacturing, such as metal forming, laser technology, microelectronics or plasticmaterials. The dominant institutional form are the Fraunhofer Institutes, which have cross-sectional expertise; they provide specific knowledge which might be adopted in many



different industries. Apart from the RTOs specialised in automotive technology, theseFraunhofer institutes are the main co-operation partners and sources of knowledge ofcomponent suppliers.

Of particular relevance are combinations of RTOs and KIBS firms that are located in oneorganisational setting, usually a university. Typically, the KIBS firms are private spin-offs of theRTO; they are sometimes founded by university professors, occasionally, manufacturingcompanies hold shares in the KIBS firm. The main reasons for the separation into twoinstitutional arrangements are independence from university bureaucracy or the straitjacket of thepublic sector which many RTOs have to cope with, tax reasons and the provision of serviceswhich clearly do not belong to the public sector, such as software updating, small scale production,maintenance and routine engineering services. Profit oriented exploitation of existing testing andprototyping equipment, which allows financing of the next generation of machinery, would not bepossible in the strictly non-profit university and RTO environment. Furthermore, employmentcontracts that allow retention of experienced researchers in the unit can only be realised in aprivate spin-off. Providing the necessary capital for major investments in equipment andmachinery also requires the foundation of private entities.

'KIBS' comprise engineering firms, software and IT consultants as well as managementconsultants. They were surprisingly insignificant for most suppliers’ R&D and innovationactivities. They only play a role as contractors for smaller development tasks in construction anddesign, mainly for larger component suppliers. In the smaller ones, they were hired for softwareprogramming and IT implementation. One reason is that most technical consulting firms (KIBS)are not big enough to be able to provide inputs for component suppliers’ research. Small servicefirms cannot afford the necessary testing equipment or engage in huge investments as aprerequisite for gaining a research contract. Co-operation is thus limited to small projects forexample, in software development. In the electronics business not much initial capital isnecessary, therefore small firms face lower barriers to entry. Testing of automotive parts,however, is a capital intensive business. Furthermore, exclusivity and secrecy play a major role. Asmall engineering firm cannot guarantee confidentiality, because it has to use its knowledge inprojects with more than one customer.

'University' is a short form for university chairs, i.e., professors and their assistants who are fullyintegrated in the university without having the status of an RTO. These university researchersspecialise in fuel engine technologies, or other fields relevant for car manufacturing. They havelinks with component producers or automotive companies that are generally based on personalcontacts between the holder of the chair and engineers in the companies. Their contract work forindustry is in most cases combined with the qualification of young researchers, like PhD theses.Services of these institutes are relatively cheap compared with RTOs or KIBS firms. Majordisadvantages are the long duration of R&D projects and the bureaucratic limitations of auniversity administration.

The German system of innovation attributes specific roles to a group of actors called ‘agents’ inthe cluster picture. If they are public organisations, they transmit information andimplementation requirements for policy targets from the political system to the economicsystem. If they are private, they usually are managed by industry associations and serve theinterests of all companies in an industry.

Cluster dynamics and cluster innovation style

The configuration of the cluster is changing with technical progress: new technologies, newmaterials, and more complex component design result in the emergence of new actors, such asRTOs and KIBS firms specialising in IT, manufacturers of plastic fibre material, or firms andRTOs with experience in the development and production of fuel cells. Thus, the cluster is not astable set of actors, but an instrument that reflects the dynamics of technologies and structuralchange in the industry.



Equally important, however, are changes in the interaction between cluster actors. Theacceleration of development procedures induced by IT supported systems, involves intensivecommunication between organisations, but also between different departments in one firm orRTO. Parallel development, construction and design activities shorten development times, butrequire capacities that can only be provided, if part of the task is being outsourced to engineeringfirms or to industrial partners. However, since these streamlined procedures are relatively new, itseems that the innovating component suppliers either do not know firms that they can rely on orthey have no experience in outsourcing substantial innovation functions. Hence, the cluster is inthe process of establishing a new division of labour, in which not only routine functions aredelegated to external KIBS providers, RTOs, or suppliers but also more sophisticated R&D, designor prototyping functions. Competition among RTOs, and between them and KIBS firms increasesas public support for RTOs decreases.

In the component supplier firms types of R&D strategies emerge according to specific patterns ofproduction.

• The larger and the more technology oriented firms have their own R&D laboratories whereresearch is directed towards the preparation of product innovations, the improvement ofprocesses of production and technological assistance for other departments. These firms tendto move from co-operation with external partners to the integration of their researchcapacities and competencies.

• Another group mainly reacts to customer wishes in its R&D strategy. Here innovative productsand processes are conceived, designed and developed according to customer specifications.

• A third group does not have any significant in- house R&D capacity. These firms might referto external research facilities in the context of project-linked co-operations. However, evencompanies without considerable R&D activities do innovate, but innovation usually isincremental and it results from the gradual improvement of existing, well established products.

Research in RTOs that is related to innovation in the automotive component cluster reflects themediating role of RTOs between universities and basic research on the one hand, and industry andapplied research on the other. The closer the RTO is to a university, the higher its shares ofinstitutional funding and grants from science foundations are, the higher is the amount of basicresearch done in the RTO. However, as a rule, basic research is only taken up, if it serves to solvea problem in the area of applied technology. ….. Being accepted by industry clients as a partner isessential for the standing of an RTO even in the research community. Hence, in all RTOs, there isa strong trend towards closer and more intense co-operation with industry, which reflects officialfunding conditions and evaluation criteria.

Co-operation in innovation rarely takes the simple form of an agreement between equal partners.Table A.2 gives an overview of the five types of co-operation patterns that have been identifiedin the case studies. The dominant types seem to be types 3 and (to a lesser extent) 1. Co-operation is usually limited to one project. However, as a rule, new projects follow that involvethe same or a similar group of partners, and thus, rather stable relationships are established.

Co-operation is a mode of explicit interaction in the cluster, another mode, knowledge transfer,often is more implicit or tacit. However, mechanisms of knowledge transfer are extremelyimportant in innovation, although they are often difficult to identify. The transfer of knowledgein the cluster is facilitated by a whole set of instruments and mechanisms: joint research andinnovation projects; the mobility of researchers; working groups and innovation circles; ‘learning’in seminars and at conferences; access to public sources; informal exchange



Table A.2: Types of co-operation in innovation processes

Type 1� The component producer commissions R&D projects to an RTO. The RTO does the research as a

contractor.� All rights remain with the commissioner.� Knowledge is 'bought' and paid for. The knowledge base is enhanced on both sides.� Confidentiality vs. technology transfer. Strong interest in internalising knowledge.

Type 2� The component producer links with other component producers to become a system supplier. Joint

research mostly affects interfaces between the two components.� Learning through exact definition of problems and through product development in each company

separately.� Patents appropriated by all partners. No confidentiality problems.� Co-operation might lead to take-over.

Type 3� The component manufacturer co-operates with his suppliers in the development of new products which

require a certain type of innovative component or material.� Knowledge creation on both sides. Learning through exact definition of product requirements and through

product development in each company separately.� Patents appropriated by all partners. No confidentiality problems.� Co-operation might lead to take-over.

Type 4� The component producer and the RTO work on a joint project (possibly with public R&D or innovation

support).� Knowledge transfer on both sides. Problems of disclosure in application phase.� Rights in research output have to be negotiated.

Type 5� Loose co-operation agreements between component suppliers and universities.� Some transfer of knowledge in both directions.� University graduates gain practical experience, manufacturers use co-operation to recruit personnel

whose quality and reliability are already known.� Problems of knowledge drain from company to university.

Table A.3: Service Functions and Actors in the Component Supplier Innovation Clusterinnova- custo- supplier RTO KIBS agent partner others

basic research ++ o o +++ + o + universitiesapplied research +++ o o +++ o o oInnovation idea +++ +++ + ++ o ++ o productionInformation gathering +++ o o ++ + + oFeasibility studies + + o ++ o + + production/Product development +++ o +++ +++ o + +Process development ++ o + +++ + o + software firmsTechnological advice o + + o o + +Planning + o o o o o oImplementation + o o o + o +Training/HRM + o o ++ + + oquality control + o o o + o o studentsTesting + o o ++ ++ o + studentsPrototypes +++ o + + + o o universitiesDocumentation + o o + + oCertification + + o o o o + o BS, publicMarketing + + o o o + oproject management + o + + + o o BSFinancing ++ + o + + + o government

+++ strong role ++ active role + moderate role o not active in this function



Functional division of labour in the cluster

Table A.3 describes the roles various actors play regarding the various functions that can beidentified in the innovation process.

The actors that are present in most innovation functions are the innovating component suppliersthemselves. RTOs are present in many functions, ranging from the first basic research steps t odocumentation and project management. KIBS are more specialised in functions that occur laterin the innovation process, such as implementation, testing and certification. The division oflabour between RTOs and KIBS firms is strongly related to their institutional characteristics.RTOs are confined to those services for which they have a mission determined by theirconstitutions. They usually operate under the constraints of public service, and they have a shareof public funding, which is declining, but still supports more risky basic research. On the otherhand, KIBS firms can engage in more profitable services, exploit economies of scale, for examplein testing services or in human resource development, and they are not bound by bureaucracy intheir personnel policies. It should be noted, however, that most of the time, the role of KIBS inperforming the function is rather marginal and limited to the execution of exactly prescribedtasks. Hence, the attribution of functions to KIBS firms in table 1 is somewhat deceptive.

Cluster policies

The role of policy makers in the improvement of cluster efficiency and in the transition ofclusters from one technological paradigm to another is quite controversial. Policy makers inGerman ministries as well as experts in the automotive sector held that policy makers should notorchestrate or shape the emergence of clusters. This process is a typical task to be performed bymarkets. However, by designing policy programmes and by determining the conditions ofoperation of publicly supported actors, they already have an active role in cluster dynamics.Characteristic for the policy approach currently adopted is one which concentrates on enablingfirms to engage in co-operations and to stimulate the generation of circles for the exchange ofknowledge. Policy programmes aim at the reduction of risks that companies run in the initialphase of co-operation projects. A strong focus is on initiatives aiming at strengthening thecompetency of firms to build up networks.

A general problem in cluster oriented innovation policy is the identification of clusters that oughtto be supported. Government would not want to intervene in market processes by deciding aboutthe companies and the technological projects that are to be promoted in the formation of a wellfunctioning cluster. However, the cluster perspective offers two advantages:

• Looking at the configuration and mechanisms of interaction of innovation clusters from apolicy perspective, might reveal opportunities for useful policy intervention, for examplein the formulation of support programmes for co-operative projects.

• Another advantage of cluster analysis could be that it improves knowledge on the specificroles of actors in the cluster. It might thus help to define support programmes which areable to assist cluster actors in playing their role effectively, for example with respect t oR&D policies regarding RTOs, their budgets and research orientation, or with respect t ocomplementing SMEs’ research facilities or their system development capabilities.

Conclusions

• The innovation cluster comprises all actors that contribute to the realisation of innovationsin the sector. The criterion for inclusion in the cluster is that a company, an RTO, a KIBSor any other organisation has contributed to innovations (or innovation processes) or hasthe potential to do so. A cluster approach can be used to identify relevant actors ininnovation, their interaction and the emergence of corresponding network structures.



• The central element of the automotive component innovation cluster is the innovatingcomponent supplier; however, the cluster picture also shows the strong dependency on theautomotive industry. Central question in the development of the component suppliers’innovation cluster is how the suppliers cope with the additional functions attributed t othem. They could either try to develop their own R&D capacities, or they could outsourcethis function to service firms. At the moment, it seems that the large suppliers havesufficient resources to take up the challenge themselves, while small and medium-sizedcompanies are still struggling with the changes required.

• The most important partners in co-operation are other suppliers that allow the innovatingcompany to move towards a system supplier status. Another important link exists withsuppliers of the component producers themselves. In the third place we find two types ofRTOs:

(i) Institutes that are specialised in automotive technology; they are allocated in or ‘at’universities with strong links to university chairs; usually they have formed spin-offs ofprivate engineering firms to support activities that are not strictly ‘research’.

(ii) Several Fraunhofer institutes specialised in various technologies, such as development ofnew materials, metal forming, welding or information technologies.

• A significant role is played by ‘agents’, such as technology transfer institutions, federalinstitutes that transfer policy concerns to the research community and to industry, and takeup research results for policy makers.

• The analysis of a functional division of labour within the cluster showed that mostcompanies do not contract out many functions. Exceptions are product development,construction of prototypes and tests, which may be commissioned to RTOs, and softwaredevelopment for which services of software engineering firms are hired. Often, parts of afunction, like the design of a specific element of a new product, or certain test series aredelegated to external service providers, i.e., RTOs or KIBS firms. Many functions, however,are being performed in close co-operation with partners, and it is not possible to attributethem exclusively to one or the other.

• Innovation functions increasingly include non-technological services. RTOs are to a certainextent adapting to this trend. Researchers with degrees in business management are hired,and business process re-engineering becomes a service that complements the traditionaltechnology oriented R&D service. Software development and implementation become moreimportant, and RTOs accompany the process of realisation of an innovation moregenerally. However, often new functions that deviate from the R&D mission stated in theRTOs’ constitutions, are allocated in service spin-offs.

• A general problem in cluster oriented innovation policy is the identification of clusters thatought to be supported. However, the cluster perspective offers two advantages: looking atthe configuration and mechanisms of interaction of innovation clusters from a policyperspective, might reveal opportunities for useful policy intervention (1); anotheradvantage of cluster analysis could be that it improves knowledge on the specific roles ofactors in the cluster. It might thus help to define support programmes that are able to assistcluster actors in playing their role effectively (2).



2 The Netherlands – information and communications

In the Dutch Multimedia cluster study a two-step approach was adopted. First facts and figures onthe basic characteristics, functioning and performance were collected for the wider, statisticallydefined, Information and Communication cluster (IC-cluster). Secondly, a subset of firms thattogether make up the multimedia cluster in the making were analysed qualitatively in more detailand suggestions as how to improve competitiveness and innovation made9. Here we mainly focuson the innovation style of and especially the link between firms and RTO’s and KIBS in theDutch IC and multimedia cluster.

Step 1: General findings Dutch Information and Communication cluster (IC-cluster)

The Cluster Monitor data for the IC-cluster have been broken down mostly into four sub-clusters,namely: ICT Hardware; IT Services; Telecom services and ICT Content. It must be borne in mindthat the analysis mostly pertains to the years 1996 and 1997 and to businesses with 10 (and insome cases, 20) or more workers. The following can be observed for the Dutch IC-cluster

Basic characteristics

• Businesses in the IC sub-cluster – with the exception of businesses in the Content sub-cluster– are on average twice as innovative, and carry out R&D activities on average twice asoften, when compared with the rest of Dutch trade and industry.

• Foreign firms are important in the Dutch IC cluster, both in terms of employees (14,7% ofall employees are employed by foreign companies) and R&D (19,7% of all R&D manyears). In the ICT hardware and telecom sub-clusters ‘foreign firms’ are relatively moreR&D intensive compared to the Dutch firms.

• Businesses in the IC cluster (except firms in the Content sub-cluster) and in particular thetelecom services sub-cluster make more than average use of national and international R&Dnetworks.

Functioning

• The main aspects of innovation expenditure differ from one sub-cluster to another. Arelatively large component of the innovation expenditure of businesses in the ICTHardware cluster is spent on internal research. In the Telecom Services sub-cluster theknowledge embedded in capital goods is again relatively important and in the IT Servicessub-cluster a substantial part of the innovation expenditure is spent on training personnel.Innovation expenditures of businesses in the content sub-cluster are considerably lower.

• Innovative businesses in the IC cluster (except the content sub-cluster) are to a much largerextent than businesses in other clusters engaged in R&D activities on a permanent basis.

• Of note is especially the R&D intensity in the ICT Hardware sub-cluster, the IT Servicessub-cluster, and to a lesser extent the Telecom Services cluster. Because of Philips, the R&Dintensity of the sub-cluster ICT Hardware is very high. The Content sub-cluster scores verylow here.

• The usage of information sources for the purpose of innovation differs per source ofinformation and per sub-cluster. Quite remarkable are the mutual differences in how muchuse is made of the public knowledge infrastructure. In quite a substantial number of cases,consultancy firms and research firms are more often denoted as important sources ofinformation than innovation centres for instance. With the exception of the Content sub-cluster, the IC sub-cluster rates innovative ideas originating from their clients as‘important’ more often than in the average innovative business. An indication that to asignificant extent ICT is also a source of innovation for users, and that a large number ofthe (innovative) businesses innovate together with their clients. If we take a look at the

9 The research for this analysis ran in parallel with the assignment for the Dutch Ministry of Economic Affairsto develop a Cluster Monitor tool. This tool was then applied to the multimedia cluster.



(semi) public research institutes and universities, then it is evident that innovative Contentbusinesses are less likely to indicate these two categories as sources of information.Furthermore, it would seem that the ICT Hardware sub-cluster see these sources relativelymore often as ‘important’. The fact that businesses in the Telecom Services sub-cluster donot seem to use the universities (including their affiliated institutes) as sources ofinformation is quite remarkable.

• Particularly businesses in the ICT Hardware and Telecom Services sub-cluster use externalR&D networks more often.

• Businesses in the IC cluster (with the exception of the Content sub-cluster) make more useof internal and external R&D networks, not only because they engage, on average, moreoften in R&D activities.

• With the exception of firms in the content sub-cluster, firms in the IC cluster use privateand public sources for innovation above average.

• Firms in the ICT hardware, telecom services and IT services sub-clusters seem to be moreoften capable to combine various information sources for innovation (i.e. dispose of morecomplete innovation networks), especially if compared to firms in the content sub-cluster

• An above average number of businesses in the IC cluster (with the exception of the Contentsub-cluster) make use of innovation policy instruments.

Performance

• About 7,5% of turnover (in 1997!) in all firms can be attributed to firms in the IC cluster.• The share of the IC cluster in the gross value added generated by all firms amounts to almost

12%.• The Dutch IC cluster performs above average in terms of exports, partly due to the

relatively low points of departures for the services.• Employment in the IC cluster stands at 400.000 working years in 1998. In the period 1995-

1998 (by 75%) the level of employment grew by 75 %, mainly due to IT Services sub-cluster.

• Although all 4 IC sub-clusters score above average on non-technological innovation, thetelecom services sub-cluster performs particularly well on this indicator.

Step 2: Findings Multimedia cluster study

The multimedia cluster is defined as ‘those businesses and organisations that actively shape onlineand offline information services, communication services, and transaction services forintermediaries and end users, whereby several media are combined and interactivity is one of themain features’. The businesses and organisations selected were mainly those that:

• realise a substantial part of their turnover (>50%) from multimedia products and/or services,or

• play, or will play in the near future, a major role in the cluster on the basis of their strategicpositioning, or

• are recognised and accepted by market parties as belonging to the cluster.

As yet, there is no established multimedia cluster in the Netherlands. It is more a case of adynamic, rapidly growing cluster in its puberty (an adolescent cluster). With regard to multimediaa distinction is made between four types of activity (see figure 3.2), namely:

1. Multimedia enabling activities: the production of ICT hardware and software, consumerelectronics, design and business consulting;

2. Content distribution: distribution via a variety of electronic infrastructures;3. Content provision: broadcasting, entertainment, publishers and associated business activities

such as AV productions and printing;4. E-marketing: advertising, direct marketing, media acquisition and marketing

communication.



Structure multimedia cluster

The core of the cluster (shaded area in figure 3.2) consists of an estimated 500 to 1,000 businesses(freelancers and sole traders excluded), which are to a large extent dependent on giving advice on,contriving, designing, building and maintaining multimedia applications. These are the puremultimedia businesses. Their role consists of manipulating content, refining it and making itsuitable for platform-independent distribution. Especially the innovative players active in thiscore are able to link up the world of multimedia enabling with the worlds of electronicdistribution, content provision and E-marketing. These are often small to medium-sized businessesthat by no means all cases have all the knowledge in house needed to realise full multimediaapplications. In addition to a few product developers that (wish to) market new products, and havethe world market as their frame of reference, these are for the greater part service providers whoon the basis of available technology realise multimedia applications usually for business customers.Among the service providers we now see several – sizeable – businesses presenting themselves asfull service providers, aiming at concluding long-term contracts with major clients. This core isaugmented by parties that aggregate content, package it and are able to make it suitable for a widepublic (end consumers) by, among other things, creating communities. These businesses must alsobe counted among the businesses that operate at the core of the cluster.

A group of businesses operating in a ring immediately surrounding these core businesses focusesmore or less on multimedia and thus contribute towards the production and application thereof.The main difference from the core businesses is that they have a clearly established position inone or several of the supplying disciplines and sectors, and yet have mastered (virtually) alldisciplines, and the ability to link them together, to a lesser extent than the core businesses. Theydo not yet always recognise the omnipresence of the new multimedia products and services andmove towards the core at varying speeds. It is significant that the established ‘ring players’ have avaluable asset at their disposal (unique content, extensive distribution network, thoroughknowledge of an area of application) and often already act as both the supplier and the customerfor the core businesses. Nevertheless, by no means all the businesses in this ring have alreadydeveloped into full providers of or eminent clients for multimedia products and services. They areoften the large to extremely large parties who are themselves considering entering online mediaservices, but who stipulate the aspect of ‘mass’ as a requirement. For instance: they can allowtheir online applications to develop into massive services by using their client base, theirdistribution potential, their public profile or their capital. The players at the core of the clusterare often dependent on these ‘consolidators’ for their economic survival.

There are still no distinct cluster ‘directors’ or ‘regisseurs’. At the core of multimedia productionand services are the first larger companies only just starting to emerge (> 100 employees); thesewill probably serve as role models but will certainly not direct the cluster as yet. There are severalparties in the first ring of (potential) multimedia businesses that could, but do not, act as thedirector. Philips is mainly internationally oriented. The broadcasting companies (apart from a fewexceptions) and publishers fail to fulfil the sort of guide function that they could play on the basisof their position in the world of content. At the distribution end we see that KPN Telecom is amajor player with an involvement in virtually all online media initiatives, and together withaggressive American concerns like UPC, Excite@home, play an important role for example inthe provision of broadband network services.

Industrial dynamics

Dynamism in the multimedia cluster is to a large extent linked to the ease with which the coreplayers and ring players – the (in practice) difficult-to-achieve collaboration between relativelysmall, young and relatively large, established businesses – are able to find one another. Dynamismin the multimedia cluster is also expressed in a different way, i.e. in the exuberant forming ofalliances (1); working together on projects, which is very common among the smaller providers inparticular (2); and kinds of regional network forming (3). Apart from cooperation the dynamicsof the multimedia cluster and hence its innovation climate is fuelled by competition. In a stylisedway we have to differentiate between product firms and multimedia service providers (rather the



two extremes on both ends of a continuum). Multimedia product businesses compete on the worldmarket in terms of quality, speed and participation in standardisation processes. Knowledge andinnovation is essential for these businesses and they generally have a somewhat formalisedinnovation process at their disposition (e.g. a separate software development unit). Multimediaservice providers compete in terms of price, quality (actual interactivity, ease of use, integrationwith existing information systems) and a complete package of services (the full service concept).For these businesses, it is more the case that they work on the basis of internationally availabletools and knowledge. Even the fact of making sure that you are well-informed, and keeping it so,calls for a considerable effort to be made.

Style of innovation

If we look at the style of innovation, then we see that in many multimedia businesses innovationis strongly linked to projects and that different sources of information are used alongside oneanother. One important source of information is obviously the Web. Especially the technicalspecialists make frequent use of this medium to keep themselves informed about new tools, t odiscuss with colleagues, etc. Information, which is important for innovation, also reaches thesebusinesses through (alternating) project partners, through customers, through their own personnel,study tours, suppliers and competitors (what applications are they working on?). In turn, someentrepreneurs stress that in respect of technology the aspect of timing is extremely important.Lagging behind, as well as being too far ahead is risky: the important thing is to make use of just-proven technology. Customers are not always ready for certain technologies or solutions. Someservice providers consequently fail to see an innovation problem, but rather an applicationproblem at their customers.

Nevertheless, it is perceptible that very little formal R&D is carried out by the multimedia serviceproviders. Yet we can ascertain a growing need for knowledge management, especially amonggrowing businesses (> 20 employees). The larger businesses develop some form of knowledgemanagement, and in some cases work with competence centres.

Many respondents in the (technology-oriented) knowledge infrastructure particularly stress theimportance of a thorough knowledge of at least the technological basis or the most crucial field oftechnology or knowledge (e.g. a knowledge of server technology, content management systems, astandard) for the current, and particularly the future innovative strength of the businesses in themultimedia cluster. A large number of parties are able to enter the market at the present time onthe basis of high expectations and the immaturity of the market. It must be stated that the partiesthat will be capable of maintaining themselves in the longer term (also internationally) will bethose parties that have a thorough knowledge of the ‘underlying technology’ and are able t oexploit that knowledge in the commercial sense. In this context we first think of the ‘real productbusinesses’, which generally have a more formal innovation process (often a softwaredevelopment unit), sometimes run independently, and are engaged in product development.

Role of RTO, universities and KIBS

There are various differing opinions as to whether there really is a gap between the knowledgeinfrastructure and the business community. On the one hand it would seem that particularly themultimedia service providers operating at the core of the sector do not have the means, or theknow-how, or the willingness to spend time on closing that gap. Not in the last place because ofthe completely different planning horizon. The, often extremely, market-driven businesses havetheir hands full in the actual running of their businesses, ensuring of growth, and in carrying outassignments. Businesses themselves say that they are hardly aware of what knowledge can beobtained from the knowledge institutions, and do not always believe that these institutions havethe sort of knowledge that is relevant in their particular case, and take very little time to find out.The pressure of projects is often heavy, and the planning horizon is frequently limited to a periodof three months due to the quickly changing technology and markets. They are worlds apart. Thisis only partly true for the typical product businesses, sometimes because they have stemmed froma knowledge institute or because they have a deeper need for technological knowledge in order t o



succeed on the world market. On the other hand, a number of institutes do have good contact withtrade and industry, and not in the last place thanks to spin-offs, practical training agencies,working with lecturers who are also engaged in the practical side of business, and the growth ofbusiness centres in the vicinity of the knowledge institutes. The established, larger (ring) businessesdo find their way to the knowledge institutes.

Just the same, laying more stress on a knowledge of the changes that take place in the Interneteconomy and the Internet community, changing business models, changing life styles, distributionpatterns, and a knowledge of electronic markets as well as the didactic and educational side ofmultimedia applications, might possibly narrow the gap mentioned above between the knowledgeinstitutes and the multimedia service providers. This non-technological multimedia knowledge is,if present, currently difficult to track down in the knowledge infrastructure.

Role of demand

Opinions differ with regard to the quality of demand, an aspect that can contribute towardsrealising innovative-oriented collaboration, particularly concerning the quality of the demandamong business users. The producers of multimedia products say that they do not attach all thatmuch importance to the quality of the Dutch market. Their frame of reference is first andforemost the world market, not in the last place because the limited size of the Dutch marketoffers insufficient support for the development of products primarily intended for sale on theDutch market.

Various opinions are expressed among the service businesses operating at the core. There areseveral providers who complain about the fact that the demand for multimedia services is badlyspecified (clearly indicative of a me too market) and that customers often need educating.Customers are said to have difficulty in articulating their demand and often fail to fully realise thatthe introduction of multimedia services also has consequences for the organisation of internalbusiness processes. All the same, correctly advising those same customers as to the possibilities ofmultimedia and online business is a significantly lucrative source of income, also for thosebusinesses that claim to prefer developing and building.

However, there are more differentiating stories to be heard. The quality of the demand is onaverage not thought to be exceptional, and yet a differentiation is made between those customers‘that have and those that have not understood’. Several customers have even invested in order t ogain knowledge about interactive media (these are in fact the most important rivals of themultimedia providers!) and are now able to formulate the demand better. It is quite remarkablethat some publishers and businesses in the financial services and agro-food industry are consideredrelatively advanced. It is also remarkable to see that because the demand for the provision ofmultimedia services exceeds the demand in several segments, some providers make a deliberatechoice in terms of the parties for whom they wish to work. A choice is made for repeat businessamong customers they want to work for (because it is pleasant work, because we hit it offtogether, because they make product innovation possible) and the addition of several newaccounts on an annual basis.

For that matter, many multimedia businesses do not always work direct for their clients in thelong run. Especially smaller businesses make a contribution on the basis of their specialism to amuch larger project delivered to the client by the general contractor. It is also remarkable to seethat the large, established IT service providers and business consultants must be counted amongthe clients of multimedia businesses. They are not always capable of, or have insufficient capacityto elaborate or actually build the web-based systems or interactive concepts for E-commerceapplications, for instance.



Figure A.2: The main bottlenecks in the multimedia cluster and their interrelations

Items underlined indicate a possible role for the government

Limited transparancy& limited view on economic

importance clusterLacking statistical index

(Structure)

Low level of industrial organisation

Links between regional MM clusters underdeveloped

Labour shortages(Framework cond.)

New international entrants

Markets & networks service firms mainly locally oriented

(Internationalcontext)

Co-operation core and ‘rim’ players

could be better (Cluster dynamics)

Perception required speed differs

Balance formal/informal Timely investments new knowl.

Interface knowl. infrastruct. (Innovationstyle)

‘Educating’ clients Accomodating needs of demanding customers

(Quality of demand)

ambiguous imago Dutch MM clusterExportstrategy is lacking

(Economic performance)

Productinnovation limited to few players

Service firms innovate on the basis of existing tools

(Innovationsuccess)

InternExtern

InternExtern

Quality of regular and knowledge management in

fast growing SMEs(Adaptation capability)

Characteristics Functioning Performance

Figure A.3: The main options for improvement in the multimedia cluster and theirinterrelationsItems underlined indicate a possible role for the government

Invest in statistical index

Make economic importance cluster visible

(Structure)

Improve industrial organisation

Link regional spec. clusters Improve MM component in

education & training(Framework cond.)

Integrate foreign players in national clusterImprove export orientation

(International context)

(Cluster dynamics)

Match knowledgesupply/-demand

Improve (flex.) forms of knowledgetransfer between

firms & universities(Innovationstyle)

Help clients innovate with multimedia

Government as a lead user(Quality of demand)

Unambiguous imago & exportstrategy

for Dutch multimedia cluster(Economic performance)

(Innovation success)

InternExtern

InternExtern

Professionalize regular and knowledge manage-ment fast growing SMEs

(Adaptation capability)

Characteristics Functioning Performance



Innovation performance

The absolute innovation performance would not seem to be exceptional. It is true that newproducts and services are inherent in this cluster but it is apparent that they do not always go handin hand with sufficient attention to the innovative process in services and future-oriented R&D.The latter is restricted to a few of the larger market players and players in the public (mainlytechnical) knowledge infrastructure. Nevertheless, in addition to innovation, the adaptationcapability (here meaning the ‘timely anticipation’ rather than the ‘passive reaction’) is at leastequally as important. The adaptation capability in the multimedia cluster means first and foremostspeed. The willingness to invest in knowledge innovation in good time, in probing new fields ofknowledge and business models, or the ability to work out an idea within the space of a few weeksand market a product (first mover advantages). In the second place, adaptation capability meanshaving a knowledge of client groups, and the building up and obtaining a commitment fromcommunities. The third important aspect of adaptation capability in the multimedia cluster is thefundamental willingness to continue investing in knowledge upgrading and multi-disciplinarity incombination with a constant urge to experiment with new products, tools, infrastructures andapplications. To this end it will frequently be essential to look beyond the borders of one’s ownbusiness and branch of industry and to invest in teamwork with parties alien to the branch ofindustry, with players who have complementary knowledge. And last of all, adaptation capabilityin the multimedia cluster means the timely professionalisation of business processes (regularmanagement, knowledge management) and the professionalisation of matters that transcendbeyond the level of one’s own business. The latter implies that in addition to carrying outprojects, investments will also need to be made in matters that facilitate the functioning of themultimedia cluster as a whole. For instance: drawing up an agenda for the bottlenecks in the senseof limiting conditions for the government (labour market, training, the problem of rights,innovation incentives, telecom infrastructure specifications), and, for instance, the optimisationof knowledge transfer with the relevant knowledge infrastructure, the joining together of regionalmultimedia specialisms or the formulation of an export strategy. It will be clear that theadaptation capability of the ring players in the multimedia cluster in particular is currently beingput to the test.

Bottlenecks and options for improvement

The main bottlenecks that will need to be overcome to allow this Dutch multimedia cluster t ogrow into a flexible, pro-active, recognisable and competitive cluster which constantly innovatesand adapts itself have been discussed in the above, and their interrelation is summarised again infigure A.2. In a similar fashion, the main options for improvement are set out in figure A.3.



3 Italy – telecommunications

Cluster methodology used

This study seeks to identify and then examine sources of innovation within the Italiantelecommunications industry. More specifically, it seeks to illuminate the role(s) performed byresearch and technology organisations.

A cluster methodology was used because this reflects the fact that innovation within thetelecommunications industry is not limited to one readily and easily discernable set of actors.Instead, innovation is the end product of the complex interaction between many different sets ofactors. One reason for this complexity is that modern forms of economic activity transcendtraditional industry boundaries, and the distinction between services and goods is subject t ochallenge. Thus, there are likely to be a series of linkages that transcend these distinctions butwhich shape developments within the telecommunications industry.

Basic features of the telecommunications industry

The telecommunications industry is experiencing considerable change. New digital technologieshave reshaped the industry, allowing new services to be developed that transgress the traditionalboundaries between industries. New technologies are also giving rise to entirely new industries suchas electronic commerce.

Within this rapid change several aspects require highlighting, not least because they set thecontext for future comments.

• As shown in Table A.4 (below) the United States is the largest single telecommunicationsmarket. However, of late Europe has enjoyed significant growth so that the gap betweenthe two markets is closing. Moreover, for 1999 European growth at 12% was higher thanthat of the United States (8.1%).

Table A.4: World-wide Telecommunication market (million of EURO at constant 1998 exchange

rate)

1997 1998 1999 2000** 2001**

Europe* 208,855(31.2%)

235,402(32.3%)

266,671(33.4%)

296,104(33.9%)

321,194(34.1%)

US 187,100(27.9%)

200,054(27.5%)

213,458(26.7%)

226,906(26.0%)

240,293(25.5%)

Japan 75,879(11.%3)

73,910(10.2%)

76,719(9.6%)

81,782(9.3%)

86,771(9.2%)

Rest of World 197,853(29.6%)

218,034(30.0%)

241,949(30.3%)

269,047(30.8%)

294,694(31.2%)

Total 669,687(100%)

727,401(100%)

798,796(100%)

873,840(100%

942,953(100%)

Notes: * Incl. Eastern Europe: Czech Republic, Estonia, Hungary, Poland, Russia, Slovakia, Slovenia. ** Estimates.Source: EITO (2000).

• The growth of the telecommunications equipment market is outpacing that of services.However, the market for services remains considerably larger than that fortelecommunications equipment. Between 1998 and 1999 the telecommunications servicesmarket grew at 11.2% to $798.3bn, whereas the equipment market grew 14.4% t o$284.9bn.

• Prominent within this growth is the role-played by mobile communication. Both in servicesand equipment the fastest portion of the market is that for mobile. The worldwide mobileequipment market grew 23.9% between 1998 and 1999 to $63.7bn whilst over the same



period the market for fixed network equipment grew 7.2% to $80.8bn. Similarly, growth of24.2% between 1998 and 1999 allowed the mobile communication services market to jumpto $201.8bn. For the same period fixed network services grew just 7.1% but the overallmarket was substantially larger at $545.7bn.

• Fuelling the rapid and substantial growth in mobile communications markets, bothequipment and services, has been the dramatic rise in mobile subscribers worldwide. This isshown in the figure below, which projects that wireless subscribers will surpass the total forfixed networks somewhere around 2008.

Figure A.4: World-wide mobile and fixed subscribers

Source: Assinform (2000)

The Italian telecommunications industry echoes developments within the industry worldwide.The industry has undergone a series of changes that have fundamentally altered its nature. Thesechanges are shown below in the three tables (Tables A.5, A.6 and A.7) and are:

• A shift in investment activity away from fixed networks towards mobile networks. This istrue not only for infrastructure but also of handsets as well.

• Mobile services have enjoyed spectacular growth vis-à-vis fixed communication services.However, in percentage terms the largest growth can be seen in new services such as thoseassociated with the Internet. Call centre / contract centre services have also enjoyedsubstantial growth, albeit from a small base.

• The mobile market has been driven by the usage of pre-paid cards rather than contracts.This has only been made possible through the recent development of these technologies.

Table A.5: Italian telecommunications equipment market (billions of Lire)

1998 1999 98/99Fixed network 3,790 3,660 -3.4%Mobile network 2,500 3,620 44.8%Cables 1,780 1,830 2.8%Other 330 590 78.8%Total infrastructure 8,400 9,700 15.5%Networking equipment 1,595 2,045 28.2%Mobile Phone Sets 3,800 4,100 7.9%Other 1,525 1,415 -7.2%Total systems and handsets 6,920 7,560 9.2%TOTAL EQUIPMENT 15,320 17,260 12.7%

Source: Assinform (2000).

24270

890

1500

2800

576846

13001500

1750

0500

10001500200025003000

1992 1998 2005 2008 2011

Mobile Fixed



Table A.6: Italian telecommunications services market (billions of Lire)

1998 1999 98/99Fixed communications 23,600 23,770 0.7%Mobile communications 12,800 17,460 36.4%Networking 2,300 2,510 9.1%Total transport services 38,700 43,740 13.0%Internet service 380 1,270 234.2%Call Center/Contact Center 90 165 83.3%Other 760 855 12.5%Total value added services 1,230 2,290 86.2%TOTAL SERVICES 39,930 46,030 15.3%


Table A.7: The wireless market in Italy (millions of subscribers)

1996 1997 1998 1999Contracts 5,845 6,439 7,099 7,995Pre-paid cards 570 5,300 13,400 22,300TOTAL CUSTOMER 6,415 11,739 20,499 30,295


Actors within the cluster

The starting point for the determination of actors within the cluster is that innovation seldomtakes place in isolation. Consequently, all of the relationships, partnerships and networksgenerated by the innovative phenomenon need to be identified. The range of actors within theItalian telecommunications cluster includes not only suppliers and service firms but also public andprivate research institutes or technology transfer agents. The diversity of actors is illustrated inthe table below (Table A.8)

Table A.8: The actors in the telecommunications cluster

Institutionalbodies

Suppliers TelecommunicationsManufacturing

TelecommunicationsOperators

Customers andusers

Regulatoryauthority

Standardisation institutions

Basic technologies:• Microelectronic

s• Radio• Signals• Software

Switching

Transmission

Cable

Other transmissionapparatus

Networkingequipment

Consumer electronics

Incumbentoperators

New entrants

Mobile operators

Resellers

Services /applicationsproviders (incl.VAS)

Internet providers

Residential

Business

Public sector:• Health• Defence• Education

Organisations

• Institutional bodies: Public institutions play an important role within the cluster. Not onlydo public institutions shape liberalisation and competition but they also affect technologicalchange that occurs within the cluster.

Standards are mainly set through co-operation between would be competitors such asmanufacturing companies. Examples include the establishment of standards for successivegenerations of mobile communications.

• Telecommunications equipment manufacturing companies: There are two distinctive typesof telecommunications equipment manufacturing company within the cluster. Firstly, thetraditional equipment companies that have long established relationships with service



providers such as Telecom Italia. Secondly, the cluster is also populated with newer actorssuch as Cisco and 3Com that manufacture network equipment in general and Internetrelated equipment in particular. This latter group of companies are at the forefront oftechnological developments within the industry.

Specialist manufacturing companies like Cisco have impacted on the telecommunicationscluster in several related ways. They have developed specialist technologies that haveencouraged, and are encouraged by convergence. Moreover, these new technologies like IPhave led to the advent of new markets where none previously existed. Through thedevelopment of new technologies these companies have enjoyed substantial revenue andmarket capitalisation growth. Cisco has grown from revenues of just $69min 1990 t o$12.2bn by the end of 1999, and was briefly the largest company in the world by marketcapitalisation in 2000.

Network based equipment manufacturing companies have partially fuelled their growththrough acquisition. Cisco alone has acquired more than thirty companies, and illustrationsof the acquisitions that have occurred are shown below in table A.9.

Table A.9: Major acquisitions of networking firms by telecom producers

Acquiring firm Acquired firm Acquired firm coreBusiness

Ericsson TorrentACC

TouchWavePacketWave

Edge ATM/IP switchRemote Access andInternet-workimgIP telephonyIP PBX

Lucent AscendAgile NetworkLanNetLivingstone EnterprisesYurie Systems

MassMediaNexabitKeenan Systems

Switch/Access WanLAN switchingATM switchingRemote accessATM access anddata/voce/networkingSW for new generation networksCore RoutingBilling Technology

Nokia InTalkDiamond LaneNetwork Alchemy

Wireless LAN AccessXDSL technologyInternet provider

Nortel Bay NetworksShasta NetworksCambrian SystemsQtera

Networking, IP technologiesEdge IP GatewayDWDM technologiesFibre optics technologies

• Users: there has been a shift from a telecommunications industry where customers had nochoice to an industry that is increasingly driven by customer requirements:

• Technological competition have given way to other forms of competition / ways t o

attract and retain users. These new ways are better customer care, the quality of theservice delivered and a better understanding of what customers actually want.

• More power has been placed in the hands of users with the consequence that thebalance of power has shifted towards the demand side and away from the supply side.

• Entertainment rather than utility is driving home based customers.

• Research organisations: these are public, semi-public and private research and technologyorganisations. Research organisations within Italy include:

• A centre run by Alcatel at Vimercate focusing on the development and managementof SHD networks.

• Ericsson employees 600 staff at centres in Milan, Bologna, Pagani and Rome.• The Motorola Technology Centre is located at Turin and closely collaborates with

the city polytechnic.



• Nokia operates two research centres in Italy; one is located close to Milan and theother in Catania.

• CSELT is operated by Telecom Italia and is tasked with the development andintegration of innovative solutions for new information, communication andtechnology services for both group companies and final customers. The organisationfrequently collaborates with universities, polytechnics and manufacturers.

As the market has changed research organisations within Italy have also changed. Not onlyhave they developed new services to complement those already existing, but they have alsoentered into collaborative arrangements with other research organisations as well. Changeis being driven by:

1. On the supply side, by an increasing demand of consulting services and marketanalysis deriving from the liberalisation, the convergence process and the new areasof activity daily emerging in the field.

2. On the demand side, by the needs of assistance due to the uncertainty about thetechnology options available, a strategic consultancy in evaluating the differentsuppliers and proposals, in addition with the evaluation of the project of outsourcingsome activities.

The research organisations perform different task depending on who the main client is.They accompany the manufacturing firms and the operators in their research efforts, butthe bulk of the research is mainly done directly by the specialist suppliers. Otherorganisations offer consulting services both to vendors and intermediate or final users.Finally, customers cannot considered anymore as silent and passive recipients of theproducts or services provided by the other players, they, as active users, can providefeedbacks to suppliers and their demand can directly shape the changes.

Innovation regime

Within telecommunications the innovation regime has experienced change in recent years. Thetraditional innovation regime within telecommunications was the product of a monopolisticindustry organised along national lines where operating companies were frequently within thesame economic group as equipment manufacturing companies. For example, within Italy Stet (theholding company of IRI with responsibility for telecommunications) controlled Sip (operatingcompany) but also Itatel (switching and transmission equipment manufacturing). In other words,vertical integration between the different parts of the telecommunications occurred.

Within this regime the engine of innovation was located within the internal research laboratoriesof the monopoly telecommunications companies such as AT&T and BT, as well as thelaboratories of some of the larger equipment companies. The resulting characteristics of theinnovation regime are detailed below in the left-hand column of table A.10.

Table A.10: Contrasts between the old and new innovation regimes

Old innovation regime New innovation regimeClosed innovation system with highbarriers to entry.

An open innovation system

Few innovators Low barriers to entrySlow and sequential innovation process. Many innovatorsFragmented knowledge base Common knowledge baseMedium powered incentives. High-powered incentives

Rapid and concurrent innovations.

Changes to the telecommunications industry have undermined the above innovation regime. Onebroad generalisation is that as a result actors are no longer passive but instead are active in theiractivities and relationships within the telecommunications cluster. Another broad generalisationis that the telecommunications industry has become more diverse, with a seemingly ever larger



array of actors fragmenting the once integrated industry. The main characteristics of theemerging innovation regime are detailed above in the right-hand column of table A.10.

Drivers of innovation

Change within the Italian telecommunications cluster is the end result of innovation. Thisinnovation is driven by three sets of drivers that are inter-related to one another. These aretechnological, institutional and market demand, and their inter-relationship are shown below inFigure A.5.

A major finding of the Italian telecommunications study is that the drivers of innovation aremulti-dimensional in nature. That is, they are broad headings for a series of drivers that interactwith one another in a complex manner. For example, into the technological drivers ofinnovation category falls changes that include developments in the areas of switching, groundtransmission and airwave transmission technologies. Moreover, as the figure below clearlyillustrates these drivers interact with one another to shape the landscape of the Italiantelecommunications cluster.

Also highlighted in the study is the positive feedback nature of the relationship between drivers ofinnovation and their impact. New demands by users led to the development of new services,which in turn required an enhanced network. Consequently, research efforts by service andequipment providers resulted in technological advances. An improving network increasedcustomer expectations, leading to them demanding better services. In such a manner a positivefeedback loop was instituted, thereby linking drivers and their impact together.

Figure A.5: Drivers of innovation and their impact

DRIVERS IMPACT

Technological

Institutional

Market Demand

• no more relevance of natural monopoly,

introduction of competition

• privatisation of the operators

• re-regulation

• blurring of the distinction between:

public and private networks

fixed and mobile networks

local and geographic networks

• re-design of competencies between

traditional and new actors

• convergence among telecommunications

computer, and broadcasting

• new products/services

Conclusions

The table below offers a summary of the main conclusions of the analysis. These conclusionscorrespond to the main changes that have been observed within the cluster, and fall into one of



three broad areas: market, innovation and prices. The market has become competitive, customerdriven and displaying an ever-wider array of products.

Table A.11: Effects of change

From To

Market

Monopoly CompetitionProduct driven Customer driven

Limited product choice Unlimited product choice

Innovation

Technological and service innovationby operators

Manufacturing firms:-outsourcing of hardware-concentration on software innovation

Networking firms:

Operators:-concentrated on service innovation

Long life cycles Short life cyclesStandard quality of services Quality choice of the service

Prices

Standard prices Tailored prices

Innovation has become more diverse. It is no longer the case that innovation occurs within theconfines of a closed relationship between telecommunications providers and the larger equipmentmanufacturers. Instead, innovation now occurs within a complex environment shaped by theinteraction by a larger number of actors that include not only the two aforementioned but alsonew actors such as network companies and new entrants. Moreover, innovation has been drivenby the increasing focus on services as well. Finally, prices are now tailored to meeting the needsof users.

4 UK – printing and publishing

Methodology - value chains as a systemtic framework

Value chains relay input/ output information of an economic activity. Typically, a firm adds valueto a good or service through a number of activities after subtracting the costs (inputs). Inputsinclude labour and material costs, which are derived, usually, from another value chain. In theory,one can decompose any value system until one returns to the value chain that entails rawmaterials extraction. Although input/ output analysis details explicit and measurable outcomes, i.e.financial values, value systems can also provide insights into three other concepts:

• Value system analysis looks beyond traditional sector classifications (i.e. agriculture, miningand manufacturing) by exploring the connectivity of different agents, industries and sectors.This framework can draw attention to the different stages involved in any process beforethe final supply of goods and services to consumers. A value system includes interactionamong entities through out-sourcing and sub-contracting activities and intermediatetransactions such as the supply of inputs and semi-finished goods for any production and



innovation process. A value chain model (as described by Porter10) can also depict intra-firm activities.

• If the right questions are asked, value chains can highlight flows of information as well asthe flow of objects. Knowledge ‘stickiness’ can relate not only to proprietary technology inthe form of competences but also to activity management and knowledge co-ordination.Such managerial knowledge draws upon a set of competences and incentives that has adirect relation to specific technological and business assets but also calls upon a deepmanagement competence. For instance, publishers co-ordinate many activities requiringknowledge of the publishing industry while utilising specialised project management tools(such as Gantt Charts, time management, etc.), which can, in theory, be applied to otherindustries. Other forms of analysis (particularly econometric types) cannot capture such‘people’ variables.

• Products and services, technology, and market conditions, at any one stage and at any onemoment in time, are endogenously determined rather than exogenously given, providing anorganisation with a history. This dynamic perspective characteristics firms as pathdependent. However, an evolutionary path does not automatically lead to a predicablefuture. The very nature of the firm and its internal pursuit to adapt and adopt (andinnovate) technology and processes also includes a propensity to seek and interact withexternal forces. Both internal and external developments can break any projected path.

• Information flows, competences and path dependencies requires one to move away fromstandard statistics and move into the realm of actual firms and actual interactions. Expertinterviews, market intelligence and case study methodologies may be used to capture suchdynamics.

It is also possible to use value chains to aid in the formation of policy. The term ‘value’ in valuechain attributes something substantive and measurable. Economic worth is often translated intoprices but it can also be characterised in terms of material well-being and quality of life. Thequestion for the RISE project was not to evaluate or identify the value of any one chain (cluster)but to highlight the innovative stages and agents (particularly service agents). For example,research and development viewed either as a function or as a service, is readily recognised as a keyinput for many science-based industries. Even in the RISE project, we often claim this servicefunction is a factor for knowledge generation, keeping abreast of the latest technological advancesand for training labour. But can we really make such claims if we do not use an evaluation tool?Other activities such as distribution and marketing contribute more to a firm’s prices and profitsthan many research and development activities. At the national level, such services on the wholemay also contribute more to national employment than the entire research and developmentsector. By not evaluating the different stages, activities or interactions, formulating concretepolicy recommendations is not possible.

Print and publishing of books in the UK

‘Printing and publishing' activities are categorised as a manufacturing industry by nationalaccounting practices but consists, in fact, of many services and project co-ordination activities ofwhich, manufacturing - the printing and binding of book - is only one stage. The book productionvalue chain can be depicted as a complex project management exercise with publishers acting asoverseers of the entire system. Our notion of innovation functions should include a dynamicelement of how innovation is implemented: outcomes such as product and process innovationcannot be accomplished without managerial co-ordination.

• Governance over the publishing value chain: The ownership or contractual renting ofintellectual property rights is the core business advantage publishers have over other agents

10 Porter, M.E. (1985): Competitive Advantage, The Free Press, New York. Porter depicts value chains as the differentactivities within a firm and that value systems are the inter-connectivity of firms at various stages flowing from rawmaterials to the finished product.



in this value system. This legal construct differs from patent protection as it rests withcopyright law, which can be renewed indefinitely. The pre-production stages are often out-sourced to other publishing service agents within a contractual and closely monitoredrelationship. The primary goal of these stages is to get a creative piece of work ready forprint. The production stage is sub-contracted to printers: contracts are assigned to outputspecifications but the actual manufacturing process is outside the publisher’s tight projectmanagement control. The publisher resumes control of the process once the manufacturingstages have been completed. The inventory and distribution functions come under thepublishers’ domain.

• The automation of manufacturing - the printing value chain: What was once a craftindustry is now becoming a highly automated process, with many areas of printcompetences becoming embedded in capital equipment and the associated software. Therelationship between the publisher and printer can be described as long standing butcontractual. Publishers will offer long-term contracts based on a number of print runs,which are time bound, and cost based. The latter production stages remain labour intensive,and are, in effect, assembly-like activities and include bookbinding, gluing and filling orders.

• Publishing and production services: As stated above, most publishing activities are services.Publishing services fall under three categories: i) getting the product ready for print, ii) legalservices to protect and exploit intellectual property rights, and iii) distributing and after-sales services to the retailer. Production services include equipment servicing andmaintenance. These technical services can be provided by the equipment manufacturer orby stand-alone print service firms. Price will be the determining factor: printing equipmenttends to be recycled over time and the expiry of any warranty opens the door for servicecompanies to compete.

It is also worth commenting on the mergers and acquisition within publishing in the UK.Capturing intellectual property rights is driving change in the publishing industry. From 1991 t o1995, 58 mergers and acquisitions in the UK printing and publishing sectors took place averaging£30 million per transaction. Industry deregulation was identified as the most important reasonwhy these transactions took place. Ensuring industry growth by acquiring or merging with likefirm (horizontally along the supply chain) was also cited as another important reason. Theattractive assets in these acquisitions are the publisher’s’ assets: the back catalogues and otherintellectual property rights.

The value of a publishing company is not based on land, equipment, buildings or employeecompetencies. A company’s assets are weighed by the availability of their content; this wouldinclude contracted authors, back catalogues and other copyright residual revenues. Owning theright to potentially publish a book is becoming equally as important as current publicationrevenues. Digital technology now provides publishers flexibility in the quantities they can orderper print run and in what they hold as inventory. This notion can also be express in another way:why have publishers not moved vertically along the supply chain in their mergers and acquisitionactivities? In the UK, only one large book publisher also owns a printing firm. Publishers see morevalue in content ownership than in production.

Production innovation and the drivers of innovation

The perspective of innovation we used comes from the point of view of the production agents.This means we are identifying the changes to the way printers and publishers produce a book. Theinnovation cluster is defined as a number of driving forces, which can be partially represented interms of value chains and partially by other economic models.11

11 Value chains can represent inter and intra organisational and functional relationships and are quite useful forillustrating production processes. Once we consider non-linear innovation processes, the value system model loses itsrigour. Messy interactions that flow in many directions are difficult to map and probably have to be mapped in smallerchunks or left in a descriptive form.



The book printing and publishing industries have been greatly influenced by technological andorganisation change in the past 10 years. Our research identified four issues that are drivingchange in book production: i) the advances in digital print technology, ii) changes to how work isperformed, iii) electronic publishing and iv) ownership of different activities and functions. TableA.12 characterises these issues and the key actors and the forces shaping them.

Table A.12: Innovation Factors and Drivers in the Book Publishing and Printing Value System

Innovating factor Key organisations Driving forcesDigital Technology Print Machine Firms

Digital and imaging FirmsSoftware Firms

In-house R&DStrategic AlliancesMergers and Acquisitions

Work Flows Software FirmsManagement Consultants

Desk top publishing technologyDigital TechnologyDemand for process improvement in costs,quality and speed

Electronic Publishing Software firmsManagement ConsultantsGovernment/ Industry Assoc. forsetting standards

World Wide WebE-commerceIPR and back catalogues

Changing ownership ofdistribution and retailing

Printers and publishers – vyingfor closer links to retail agentsare attempting reconfigure thedistribution function

Digital technology is allowing for books-on-demand which removes the dependency forlarge inventories.

1. Capital equipment innovation

Most of technological expertise in digital technology and hybrid printing technology (traditionalplate technology using digital components) rests outside the UK, primarily in the USA, Germanyand Japan. Print technology companies remain at the technological frontier by following threebusiness strategies:

• Companies have built up substantial R&D capabilities and devote significant resourcesdeveloping new products;

• Companies accelerate their own technological learning by forming commercial allianceswith companies that have a complimentary technology;

• Firms are merging and acquiring holdings not only to become bigger, but also to capturetechnological assets.

Printers make many incremental innovations on the job. Some of these advances are passed backto the equipment manufacturers, i.e. changes will be incorporated into later versions of equipmentand made available to competitors. Some changes are seen as a competitive advantage t oindividual printers and sharing them with the equipment manufacturers will diffuse them and dilutesuch advantages over time; if possible such changes are kept confidential by printers within theprinting firm. Perhaps this explains the expansion of after-sales services, which equipmentmanufacturers now bundle with their products. Not only does their revenue base increase byoffering a wide product/service portfolio, but also print equipment manufacturers can also takeadvantage of advances in any ‘learning by doing’ process that take place in customer companies.

2. Process and work flow innovation

Work flows through a print plant just like other manufacturing processes. The inputs are text andgraphics, and the output is finished print. The faster the workflows, the more the system will haveto cope with at any one time. Bottlenecks are costly. Printers have long recognised that newtechnology requires change to process and have continuously adjusted their production flows.Publishers, traditionally not active users of technology, are now taking on more pre-pressresponsibilities as desktop technology provides more flexibility and capabilities. To justify the



costs of the technology and to capitalise on possible efficiencies, both printing and publishingcompanies are seeking new work processes. Workflow services and consultancy consist ofsoftware programmes for work-in-progress, technical advice for adapting presses, and changes t oroutines and procedures. KIBS and the UK print RTO offer these services but they are competingagainst the large print technology manufacturers who now deliver not only equipment but alsotechnical and management after-sale services.

3. Electronic publishing

Electronic publishing encompasses the delivery of books (e-commerce and the correspondinginfrastructure) and the material form of book (digital or e-books). These new developments can beexploited separately and in various combinations by a host of companies. Publishers see electronicpublishing as a revenue generator and cost cutting endeavour.

The public accepted e-commerce as a viable and socially acceptable form of retailing without anyrisk being borne by the publishing sector. Publishers will probably move into this field eitherthrough a partnership with a retailing arm or by offering material directly using their own brand-name. Publishers hold the intellectual property rights to vast back catalogues, which does notrequire pre-press investments. Publishing small batches of new books and accessing back cataloguesfor one-off prints will now be affordable using digital print technology.

4. Moving along the value chain

Technology and organisational changes are affecting other parts of the book production valuechain, notably in distribution and warehousing activities. Large inventories will no longer beneeded because: i) book catalogues can be stored on CD-ROM in a digital format, and ii) digitalprint technology allows companies to print small batches of books competitively (in fact, digitalprinting is more cost effective when used for low batch runs while traditional lithographictechnology is better suited for very large print runs). The combination of digital storage anddigital print (in conjunction with the soon-to- be agreed international standards for objectidentifier) will allow individual customers to configure unique and one-off products. Customers cannow purchase a product that contains different chapters, illustrations and pages from differentholders of intellectual property rights.

Print-on-demand will make cumbersome distribution and warehousing infrastructures obsolete. Asthe communication network among consumers to retailers to publishers and/or printers develops,print runs will become shorter, diminishing the need for large inventories. Who will own thedistribution function is now wide open. Traditionally held by publishers (who also bore the risks ofholding large stocks), printers and retailers are forming distribution alliances. Publishers may stillown the intellectual property rights but printers believe that knowing how to digitalise books witha proprietary software code will give them a competitive advantage.

As printing companies move closer to the end user, publishers are forming alliances with printtechnology companies. Publishers are supporting the effort to embed more and more printcompetence into new technology. Publishers are already under-taking pre-press activities and havesome in-house knowledge of the print function (most large publishers have a technical divisionwhich liases with printing companies). Printing a book, i.e. manufacturing, may become asimplified function which can be serviced by non-specialised companies and placed anywhere alongthe production chain.

Conclusions

The cluster study undertaken enabled conclusions to be reached in four areas: firstly, demand forservices; secondly, the generalised nature of innovation patterns; thirdly, cluster based policies;and fourthly, production policies.

1. Demand for services



Services – particularly innovation supporting services - remain an elusive entity in this cluster.Firstly, most publishing activities are services. A publishing sub-contractor without any directinput from the governing publisher may take on board innovation. Secondly, equipmentmanufacturers are offering bundled product/ services to companies. Customers (printing andpublishing firms) benefit as trust and long-standing relationships develop with technologysuppliers. Independent service suppliers are at a disadvantage: not only do these firms have t okeep abreast of new technological developments occurring in other firms but they also have t obreak into established supply networks. The independent service provider, however, can offercustomers hybrid systems since they are not tied to any technology, i.e. they can mix differentservices and technologies. Finally, perhaps we should consider the demand for services (and thecorresponding functions) by the user rather then seeking out what service suppliers provide. Doesit matter who supplies the service so long as the demand is being met? And, does it matter if thereare (public or commercial) services available, if there is no articulated demand?

2. Generalising innovation patterns

The UK cluster study incorporated several value system frameworks to uncover innovationdrivers, key organisations and trends in the book printing and publishing sector. Our analysiscentred on organisations interacting at the sector or meso level: through a series of expertinterviews, mini case studies and industry analysis, we synthesised specific inter-firm interactionsto form composite or representative value chains. We believe that this analysis is a fair reflectionof what takes place in the production of book publishing and printing.

Innovation processes however are not as systematic and cannot be so easily stylised. Firms do notinnovate with the same partners even if they are performing the same activities; and even whenorganisations follow a similar pattern, outcomes are never the same. Patterns may emerge ifsignificant and noticeable changes occur (for instance, most printing companies have nowexplored the option of using new digital technology). However, these occurrences cannot be takenfor granted and may overlook other, harder to capture, innovating events. Important incrementalinnovations - improvements or upgrading products and processes during the production process–are difficult to capture even at the case level and are lost when extrapolated to the cluster level.It is these small, but never the less, crucial innovating interactions, which give companies acompetitive advantage. Unearthing this type of innovation should be paramount and supported inany policy dialogue.

3. Cluster based policies

Determining any policies based on the following cluster references is not a priority forgovernment or players in these industries:

i. Size references: The print and publishing cluster is made up of large and medium size firms.Large publishers will use small printers and large printers work with small publishers. Noclear pattern emerges.

ii. Regional and national references: Most UK publishing companies are based in south-eastEngland that is not a priority area for the current government. Printers operate throughoutthe country and no geographic locus emerges.

iii. Competence and capability references: The two main operations in this cluster, printingand publishing tend to operate quite differently. Publishers can operate throughout the worldinternational as the enforcement of intellectual copyright falls under, for the most part, anagreed global convention Out-sourcing and sub-contracting production and innovationactivities are managed as projects. Printing, however, remains a nationally basedmanufacturing activity.

iv. Innovation references: Innovation activities are driven by private market players such ascapital equipment suppliers, most of who operate outside the UK. Incubating an infantindustry would be costly and not be supported by the users: the UK did have a print



technology industry up until the late 1980’s but firms were either taken over by non UKcompanies or went bankrupt.

4. Production policies

What is of interest to publishers and printers are supporting policies that improve productionactivities. Particular areas include improving supply chain management skills and processes andfacilitating web-based standards,

5 Portugal - biotechnology

Cluster approach adopted

The "biotechnology cluster" is a technology-based cluster (shared knowledge base). Cluster actorsare active in similar knowledge fields, but may be developing and applying that knowledge in adiversity of areas and to varied sets of products. Hence, their behaviour regarding biotechnologyproduction and diffusion differs. To capture these differences three sub-clusters were identified andanalysed in detail: health-pharmaceuticals; agro-food; forestry-pulp. This enabled an investigationof the role of biotechnology as an instrument that assists the upgrading of traditional industriesand the improvement of efficiency in mature industries, and not only as a generator of new "high-tech" industries.

The focus of the analysis was the process of diffusion and adoption of biotechnology in a contextof strong unbalance between the level of scientific accumulation in biotechnology and the level ofindustrial involvement in its downstream application. Cluster analysis was regarded as a valuableinstrument, since it enabled the consideration of relationships whose focus is mainly theproduction and use of biotechnology-related knowledge. These linkages between between actorsare not necessarily traded input-output type of linkages. It also allowed a comparison between theconditions for biotechnology diffusion/adoption along a variety of "industries" with distinctstructures and innovation dynamics.

Actors

Two main types of actors compose the cluster: (a) private companies with some involvement inbiotechnology, including both dedicated biotechnology firms (basically new firms –NewBiotechnology Firms (NBF), some of which can be described as KIBS) and firms from a variety ofindustries for which biotechnology is (or is becoming) part of the knowledge base; (b) RTOs andother types of research organisations more deeply involved in industry-oriented biotechnologyresearch, in particular one group of organisations we regard as "connecting institutions" in thecluster. A further group of "intermediaries" - e.g. equipment suppliers, business consultants, etc, -was also considered, but their activity and role in biotechnology were minimal.

Innovation dynamics

The cluster approach allowed us to consider the relative impact of technology determinants(associated with their perception of the role of biotechnology) and industry and marketdeterminants (associated with their production/market positioning). The latter had a strongerdifferentiating impact upon private actors, since the sectoral dynamics strongly influenced therole of biotechnology as source of knowledge and driver of innovation. Public research actors weremore influenced by technological determinants (e.g. areas of scientific specialisation) althoughthey often had to adjust their behaviour to the characteristics of the industrial partner. Newbiotechnology companies were closer to research organisations in this respect, but the finaloutcome was strongly conditioned by market determinants: the area(s) of application/market(s)they ultimately targeted. NBFs were often in a mid-position between (semi) public researchorganisations and incumbent companies, developing activities that overlapped with those of eachgroup and providing both with knowledge intensive services. But technology determinants also



influenced the conduct of private actors, leading to behaviours, as regard levels of involvement/degree of competencies in biotechnology, that were consistent across sub-clusters. These can becategorised as:

1. Core user (biotechnology is a basic component of the knowledge base and applied indevelopment activities);

2. Marginal user (biotechnology is applied, even if only occasionally, in combination with thecurrent core technology, or in activities upstream or downstream to the core business); and,

3. Watcher (biotechnology is not being applied, but companies are starting to learn about it).

The cluster and sub-cluster analysis led to the identification of three distinct "innovationpatterns":

• Technology-based industries (health-pharmaceutical): biotechnology is a core technologyand thus scientific knowledge and development competencies in this field are a driver ofinnovation; exhibit the greater dynamics of adoption, the greater number of "core users"and a small but active group of NBFs, some of which acting as knowledge intensiveintermediaries; but investment in biotechnology still falls much behind other economies,raising competitiveness problems and calling for strategic re-orientations;

• Traditional industries (agro-food): biotechnology can be relevant source of innovation, butadoption is slow, since incumbent companies are still unaware of its potential (a few arebasically marginal users or watchers); some lack of alignment between RTO research andareas of potential industrial application; difficulties in establishing RTO-industryrelationships, the initiative usually resting with the former; adoption can be enhanced bytargeting areas that are drivers of innovation (e.g.: process improvement and qualitycontrol; quality of raw materials; exploration of uniqueness of regional products; demand fornew products with particular attributes) and by achieving the involvement of users, RTOsand eventually NBFs or other KIBS in processes of "phased adoption"; need for theacquisition of generic business competencies that promote the development of strategic andmanagerial capabilities; public intervention critical;

• Mature industries (pulp): biotechnology is not core technology, impacting upon areas thatare marginal to core business; dynamics of adoption associated with growing perception ofmarginal areas as factors of differentiation / competitiveness, i.e. as drivers of innovation;its potential to give rise to more fundamental changes in the future being closely monitored;technologically competent companies and close relationships with RTOs facilitate the on-going process of acquisition and development of competencies.

Interaction between firms and RTO/KIBS

Although interaction between industrial firms and RTOs is sometimes troublesome (mainly intraditional industries), it should not be concluded that there is a divorce between researchorganisations and industry. Rather it was observed that several companies and RTOs were able t oestablish a variety of relationships, some of them longstanding, which led to mutual learning and,namely, enabled RTOs to define research directions more on line with industry needs. Researchorganisations are becoming more proactive in the search for potential applications for theiraccumulated knowledge and for ways of reaching its potential users. Similarly, a growing number ofcompanies, both in traditional and technology intensive industries, are starting a process of searchfor information on the opportunities open by biotechnology and/or gaining competencies in thistechnology, even if these efforts are sometimes very incipient and do not always involve a realcommitment.

Regarding the development of biotech related KIBS it should be noted that, along with theactivities that involve existing companies, there is also the emergence of new entrepreneurialinitiatives, which frequently assume the form of research spin-offs, led by highly qualified young



people. The incidence of this movement is still limited, constrained by the low domestic demandfor biotechnology products and services and the lack of venture capital that could supportinternationalisation efforts. But their advent demonstrates the viability of turning biotechnologyresearch results into marketable products and processes, thus leading the way to other potentialentrepreneurs and "source organisations". Because several NBFs are indeed targeting the localindustry and the majority is - by choice or by necessity - providing a range of knowledge-intensiveservices, they are frequently acting as technology intermediaries between the research sector andthe incumbent industry, thus contributing to the dissemination of the new knowledge.

Policy issues

There is a growing dynamic in the Portuguese biotechnology cluster. However, it should beacknowledged that the degree of industrial involvement and technological accumulation inbiotechnology is still insufficient, particularly in traditional industries. Further evolution willrequire greater focus on demand-oriented policies. That is, policies that motivate companies t orecognise the need for the technology and to create internal conditions for its adoption. This mayrequire the development of competencies that are not exclusively technological, but complementthem, such as:

(i) Strategic capabilities to devise a correct technological and market positioning;

(ii) Market intelligence to match technological opportunities to market opportunities;

(iii) Marketing competencies to commercialise products that are new or at least exploit somedifferentiating attributes in relation to the ones available in the market;

(iv) Financial competencies, to identify and search for resources and to negotiate with theirproviders, sometimes in conditions of uncertainty regarding the final product;

(v) Negotiation and partnership management competencies for the establishment of alliancesand protection firm interests;

(vi) Knowledge about IPR issues (including patent negotiation) and regulatory issues.

Despite the identification, since the early 80s, of biotechnology as a priority for S&Tdevelopment at country level, there was a continued absence of a clear strategy concerningbiotechnology that could lead to a co-ordinated policy, producing more efficient - becausetargeted - policy mechanisms. These mechanisms should aim at: (i) raising the industry demandfor applications of biotechnology; (ii) focussing the public research efforts on problems withindustrial application, thus matching public research with industrial needs and interests.

A cluster approach can be proposed as a basis for customising policy programmes and mechanismsto the specific needs of the cluster's development. It will allow to go beyond a simple programmefor the "development of a biotechnology industry", since it opens the way to explore the fullpotential of this technology in inducing structural changes throughout the economy.

Conclusions

1. The Portuguese biotech cluster as defined and analysed here shares a specific knowledge baseand consists of actors involved in the development, diffusion and use of biotechnologyknowledge. The cluster perspective revealed not only the importance of traded and non-traded relationships, but also emphasised that (in this case) biotechnology is notsynonymous with "high-tech". Biotechnology also has a role to play in assisting theupgrading of and innovation in the so-called "traditional industries" and to improve theefficiency of “mature industries”.

The integration of biotechnology is country-specific in the sense that it has to be brought



in line/integrated with the current country's industrial structure and capabilities. This allowsthe development of consistent clusters of development and can lead to the creation of apool of distinctive competencies.

2. The analysis of innovation patterns in the three sub-clusters identified show specificcharacteristics in terms of technological and non-technological competencies, mix ofcompetencies in biotechnology (i.e. mix of core users, marginal users, watchers),importance and type of role played by RTOs-KIBS/NBFs, etc. However, in terms of degreesof competencies in biotechnology three distinct basic roles (‘core user’, ‘marginal user’ or‘watcher’) can be found – although in various mixes – in all three biotech sub-clusters.

3. RTOs are relatively stronger driven by technology determinants whereas private actors aremore driven by industry and market determinants. NBFs have a mid-position, allowing themto service both with knowledge intensive services. Both RTOs and KIBS/NBFs may establisha variety of relationships with their client firms allowing for mutual learning and knowledgetransfer. More pro-active RTOs and the development of a new category of biotech relatedKIBS (largely research spin offs) help to improve the exchange of knowledge and establishprocesses of mutual learning and innovation.

4. Need for demand-oriented policies motivating companies to use biotechnology anddevelopment of the required technological and non-technological competencies. A clusterapproach can be proposed as a basis for customising policy programmes and mechanisms t othe specific needs of the cluster’s development.

6 Sweden - biotechnology

Cluster methodology adopted

A cluster can be defined on several grounds: technology clusters, supply chain clusters, regionalclusters and so forth. The definition of the biotechnology cluster adopted here is technologicaland incorporates those organisations that are active in the biotechnological domain:

Actors that develop, produce, analyse or use biological systems on a micro-, cellular ormolecular level and the public and private institutions that affect their behaviour.

Through supplementing the technological perspective with the supply chain perspective oncluster definition makes it possible to subdivide the biotechnological cluster into sub-clusters.During the course of the study it became clear that the technology-based definition preferredshould be complemented with a “sectorial” division of sub-clusters in order to draw policyconclusions. As a consequence of adopting such a stance, the policy conclusions are, in a fewcases general to the whole technological cluster, whilst some are specific to the individual sub-clusters. Focusing on the sub-clusters was also advantageous as it became clear that the roles ofthe companies between the different sub-clusters differ since they have different lines of business,products and clients. Therefore, their driving forces and obstacles to growth as well as thedynamics of the sub-clusters vary. These differences are also found within a specific sub-clusterwhen it comes to sub-clusters including big multinational corporations as well as very smallcompanies. The analysis and policy conclusions therefore focus on the small and medium sizecompanies with up to 250 employees.

Actors

The 130 biotechnology SMEs (with employees in 1998 and having activities according to ourchosen definition) that have been identified have thus been divided into sub-clusters. They werecategorised into the following categories:

• Pharmaceuticals and medicine (drug development, diagnostics etc);



• Agro-biotechnology (GMO, biological plant protection etc);• Environmental biotechnology (bioremediation, waste treatment);• Biotechnology supplies (processes, equipment and instruments for biotechnological use);• Functional food (mainly pro-biotics) and• Bio-production (bio-molecular or micro-organism production).

The SMEs (<250 employees) had about 2000 employees in 1998 and all the sub-clusters hadincreased the number of employees between 1996 and 1998. Furthermore, since 1998 about 20new companies have appeared within the cluster. The employees in all the sub-clusters have a higheducational level and 10-20 per cent of the employees have PhDs.

The companies are very often suppliers of knowledge, services and product embryos to largercompanies like, for instance, international pharmaceutical companies or larger Swedish companiesin the food sector. The “products” that these SMEs sell can be potential drugs or the ability t omaintain strong networks with academia so that they are able to identify ‘cutting edge’ researchprone to commercialisation. To the food sector, the SMEs can sell micro-organisms, orknowledge about micro-organisms, that have a beneficial influence on health and that can used in,for example, dairy products. Some companies are developing products themselves and bringingthem to market. This is particular true for SMEs within the Biotechnology supply,Environmental, and Agrobiotechnology sub-clusters.

Dynamics within the cluster

The dynamics and development of the cluster is heavily dependent on research findings thatoriginate in universities. Thus, a bibliometric approach can be used to identify some cluster actors,collaboration patterns and the performance of Swedish research internationally gauged. Ananalysis of Swedish publication patterns in relevant biotechnology related journal categories, aswell as an international comparison of the publication volume was therefore made.

The dominance of the universities was clear from the data, with university researcherscontributing to 95 per cent of the publications identified. In particular, researchers from theKarolinska Institutet have contributed to 36 per cent of the total number of publications whilstthe contribution of researchers from the universities of Lund, Gothenburg and Uppsala varies frombetween 13 to 18 per cent of the total. In comparison, companies have contributed to 7 per centof the publications and of these Astra and Pharmacia (presently AstraZeneca and PharmaciaCorporation respectively) have authored 75 per cent.

The number of companies involved in publishing scientific papers is increasing but the totalnumber of articles by companies is decreasing and so is the number of articles co-authored withpublic research organisations. This is largely due to a decrease in publishing by the twoaforementioned pharmaceutical companies. The collaboration pattern points to the strongdependence on university research that biotechnology companies have, since 65 per cent of theirpublications were co-authored with university groups.

International comparison of the cluster

There is no obvious trend regarding the volume of Swedish publications or the quality ofpublications in biotechnology related sciences internationally. Each of the scientific fieldsidentified display their own particular trends. However, more changes are negative rather thanpositive when it comes to quality as measured by citation levels. In relation to population theSwedish publication volumes are largest in the world in Neuroscience and Immunology, secondafter Switzerland in Molecular biology and genetics, Microbiology, Biochemistry and biophysics,Cell-and developmental biology and third after Switzerland and Denmark in Biotechnology andapplied microbiology.

The Swedish patenting in the US patent system, which was also analysed, is less impressive. Evenwhen all fields are combined, the share for Swedish inventors of the total patenting volumeamounts to one per cent. The share in Biotechnology was 0.5-1 per cent between 1984-1998.



Patenting volumes are much larger in drugs, medical electronics and medical equipment that arerelated fields. The patenting statistics also indicates the strong dominance of Pharmacia and Astrain this field. Of the 784 patents in biotechnology and biotechnology related fields with a Swedishactor involved that were identified, 30 per cent were assigned to one of these two companies.Almost 10 per cent of the patents had all foreign inventors but a Swedish assignee. This can betaken as a sign of the Swedish ability to ”import” innovations. Swedish companies also seem to begood at keeping Swedish inventions since approximately the same share of the patents haveSwedish inventors and Swedish assignees (65 per cent). By combining the patent statistics with thebibliometric data it was found that about 30 per cent of the companies found in the patentingstatistics had published at least one scientific paper, and 25 per cent had co-authored papers with apublic research organisation.

Geography

Geographically the companies are mostly found in the metropolitan areas, mainly in cities withlarge universities that undertake a substantial amount of medical research. About as manycompanies are found in the Lund/Malmö area as in the Stockholm area. Next in importance arethe Gothenburg and Uppsala areas with about half the number of companies each. The fifth andfinal region identified with more than five biotechnology companies is Umeå.

However, it is difficult to find an all-Swedish cluster in biotechnology. Companies, researchinstitutes, universities and other actors are extensively involved in international networks andinternational collaboration.

In the publishing statistics it was found that almost a third of all Swedish publications are co-authored with scientists from other countries, and in the inventor field in the patenting statisticsalmost a third of the patents had co-inventors from more than one country. It was also observedthat it is common for the assignee to be from a country other than that of the inventor.

Large actor stimulus

The substantial presence of Astra and Pharmacia has already been mentioned above in respect t othe co-authorship of articles as well as patenting of inventions. Their influence goes further thanthese two areas. The presence of Astra and Pharmacia has stimulated the growth of Swedishbiotechnology. There influence is not limited to just the pharmaceutical and medical sub-clusters,but it also extends to the biotechnology supply sub-cluster as well. The two companies havecollaborated with Swedish academic groups thereby providing financing of research and anawareness of industrial problems. Furthermore, Astra and Pharmacia have been the source ofrecruitment of competent personnel to new companies and many of the new companies havebeen spun-off by them.

Policy implications

As the driving forces and barriers to innovation and growth differ between each of the sub-clusters,so will the policy conclusions that can be drawn. For instance, it is often claimed by scientists andindustrialists that the major driving force for innovations in the pharmaceutical companies is thenew knowledge that is produced in genomics and functional genomics research. There is,therefore, a need for continued commitment to education and research within these and relatedfields. However, there is also a need to stimulate clinical medicine and not only molecularmedicine and biomedicine. With respect to functional food, the required research ismultidisciplinary as it combines knowledge from the fields of nutritional, medical and foodtechnology research.

More generally, there is increased demand for multidisciplinary research to stimulate thecommercialisation of the incredibly fast growing body of knowledge located within the field of lifesciences. In particular, combining of information technology, engineering and electronics on theone hand and biotechnology, biology, chemistry and medicine on the other should be prioritised.



Also, it is often said, by both academic researchers and entrepreneurs, that investments would bemost effective if the already successful university environments are stimulated. Efforts shouldalso be made to attract leading foreign scientists and to avoid loosing the best Swedish academicsto other countries by providing better terms for them within Sweden.

The need for a better functioning technology transfer and knowledge exchange between industryand academia is often pointed out by academic researchers with a commercial idea and byentrepreneurs in start-up companies as being very important for the future growth of Swedishbiotechnology. It is often said that there are too many initiatives, with little in the way ofresources and with insufficient co-ordination between them. The present initiatives are, however,focusing on the right issues such as help with patenting, business plans for start-ups, finding earlystage financing, rules and regulations etc.

Among the other initiatives that are desired is a better functioning liaison office at universitiesthat can help companies find relevant scientists and easily accessible information about theresearch that is being performed at the universities. There should, perhaps, be less effort aimed atturning academics into entrepreneurs although the initiatives with both undergraduate and graduatecourses in entrepreneurship are often praised.

Another suggestion that has been made is that more effort should be placed into putting the rightpeople with industrial experience together to form a new company around the innovation whilstthe scientist can opt to stay at the university and collaborate with the new company. Thescientist could else be helped to identify and to write up an agreement with an establishedcompany that commercialises the idea. Company incubators in environments close to academiccentres are also said to stimulate growth. In addition, more flexible programs that supportcollaborative projects between companies and university groups are requested. The new programsshould have fewer restrictions regarding the number of participants, the length of the project etc.Industry – academia collaboration should also not hamper the prospects of the project obtainingpublic research if a university group collaborates and receives financing from a company.

Besides efforts to commercialise research there should be more initiatives and channels forknowledge and competence exchange between academia and industry. Increased mobility of peoplebetween industry and academia would increase the knowledge exchange and the academicawareness of industrial problems and project management in industry. One obstacle that stands inthe way of this is rigid nature of the academic qualification system, especially at medical andnatural science faculties. There is especially a lack of knowledge exchange between life sciencescientists and companies in sectors that today use little biotechnology such as those in the pulpand paper industry and the food industry.

There is much more venture capital available today in Sweden than there used to be. There is,however, a lack of capital for very early phases in a company’s development. An increase inpublic financing of very early company development is often mentioned as a tool that wouldstimulate the commercialisation of biotechnological innovations in Sweden.

7 Norway – agro-food

The food cluster

The Norwegian food system is the largest economic cluster in the country today, with about170.000 employees (about 9 % of total Norwegian employment). The food system centres aroundthe food industry, with an annual turnover close to 125 million Euros and more than 50.000employees. The Norwegian food industry consists of companies that turn raw materials intoprocessed goods, like fish products, chocolate, meat products, bottled milk, pizzas, beverages etc.A large proportion of the raw materials to these industries are supplied by domestic farmers orfishermen. This production system is again part of a larger system, where machinery suppliers,retail chains, consumers, research environments and public governance play important roles.



Technologically, the food cluster seems to be of less importance to the rest of the economy thanother Norwegian clusters are, as there exist fewer links to units outside the system than in otherclusters. On the other hand there is a much more close and mutual relationship between unitsinside the food cluster.

Within the food cluster three independent sub clusters were identified; agro based food production,producing dairy products, mill products, fruits, meat and grain-based fodder; marine based foodcompanies, like producers of fish products and fish-based fodder; and, companies producingbeverages (see also table A.13). These sub-clusters are also mirrored in the institutional setting, allthree e.g. have specific knowledge suppliers). Other important characteristics affecting the currentdynamics of the Norwegian food cluster include:

• Relative dominance of Norwegian food cluster within the national economy as a whole• Role played by private and public agro-food cooperatives/hegemonies;• Tradition of public intervention in the food cluster;• Increased internationalisation of what used to be a sheltered cluster;• Increased importance of food regulation and international trade regulation;• Increased power of fewer, bur larger retail chains.

Table A.13: Three most dominant industries, corporate structure, markets and processes ofchange in the Norwegian food cluster.

Corporate structure Markets Processes of change

Fish processing Dual structure; some largeinternational companiesdominating; Nutreco, Nestlé andAker RGI; and a broad range offamily-owned companies.

International Increasing outlooks to profits forfish processing. Increased interestby large companies. Rapid stockvalue increase (Pan Fish). Increasedoffshore processing of fish. Fewerand larger entities, larger fishingboats, deregulation.

Meat and meatproducts

Three large companies: Marketdomination by co-operativeNorsk Kjøtt, increasinglycompetition from two privategroups of meat producers

Domestic Co-operative faces increasedcompetition from domestic suppliers.Chains negative to co-operative.Branding important counter-force forco-operatives, building long-termcontracts to retail chains importantfor independent producers..

Other foodproducts

Dominated by corporations; Freiaowned by General Kraft Foods,Nidar and Bakers owned byOrkla, Minde owned by Rieber &Søn.

Domestic,increasinglyNordic andinternational

Branding important as means tomaintain consumer interest andthereby to maintain relations to retailstores. Nordic countries increasinglybecoming one market

Three categories of firms that make up the central part of the cluster i.e. the food industry are thefollowing:

i) Corporations, include those companies belonging to national or international groupscontrolling multiple daughter companies. This group include almost all the largestcompanies and cover the five largest Norwegian food companies. These companies arevertically integrated in processing, marketing and sales activities, and recognised by atraditional strong market orientation and they were all early to develop brand-names.There are few international companies located in Norway.

ii) Companies belonging to a co-operative structure, covering producer-owned, regionallylocated production-companies, joining in a common national distribution, and marketingand sales organisation. These are strongly vertically integrated companies, with strongvertical links to producers of raw material (fruit, vegetables, meat, milk, grain, eggs andpoultry) in one case to suppliers of machinery. Companies belonging to this structure are



large. The co-operatives have increasingly emphasised brand-naming the last decades. Theco-operative’s relations to retail stores vary, but are mostly market based.

iii) Independent producers, mostly small, autonomous family-owned companies. These arecompanies with weak vertical integration both upstream and downstream. Owners areoften participating in the day-to-day production.

Cluster mapping methodology

Various methods were used to map the cluster as well as the innovation style adopted within theNorwegian cluster. The first method is I/O-analysis (see Hauknes, 1998). On the basis of 1993I/O-tables Hauknes mapped how different industries are linked to one another throughintermediate transactions (see figure A.612 below). He distinguished six Norwegian clusters whereofone is the agro-food cluster. The advantage of Hauknes’ cluster mapping methodology is how iteloquently captures the broad picture of the food cluster. It provides a general description of thewhole range of food related activities, from production of fishing boats, via fishing, agriculture andindustrialised manufacturing of food to hotels and restaurants, and shows the link between them.The disadvantage of the result also lies in the very nature of the methodology. As the methodprovides an overview of the large volumes of intra-industrial trade of intermediate goods on anindustrial level, the mapping ignores lines of communication and co-operation both within theindividual industries in the cluster, and between central cluster units and knowledge providers,innovation partners, suppliers of machinery etc. Therefore two supplementary methods t odescribe the cluster were adopted:

• Qualitative information collection using existing literature, the internet and interviews;• Use of statistical data (Norwegian Innovation Survey 1993 and 1998) on innovation,

providing a more detailed overview of innovation dynamics dynamic interactivity withinthe cluster.

Geography

The geography of the food industry is of particular interest, in three ways. Firstly, foodemployment in general plays a dominant role in almost all Norwegian counties. Secondly, theindividual food industries are marked by a regional division of labour. Thirdly, there is a pattern interms of how different activities, like manufacturing, marketing and R&D activities in largecompanies are localised. For large companies like Maarud, Mills, Frionor, Nestlé/Findus, Fjordland,TINE and Norsk Kjøtt, we find that production is regionalised, while market divisions, researchand head office is located in the Oslo region.

Innovation and innovation style

The food industry is an example of an industry where direct R&D expenditures have never beendominant innovation expenditures. Still, compared to other industries, the Norwegian foodindustry is fairly innovative. In a Norwegian all-industry survey from 1997, 45 % of the foodcompanies said they had performed an innovation the last three years. Average share ofinnovative companies for Norway as a whole was 46,2 percent. The food industry on average isneither more innovative nor particularly less innovative compared to other Norwegian industries.The fact that R&D is not dominantly important to food innovation at the same time as foodcompanies do innovate, points towards the fact that food companies have other importantsources of innovation including size (the fact that food production is often a scale-intensiveactivity, and processes that development of large units can be seen as an innovation efforts inthemselves); branding (to maintain or develop market share for already established products) andrelated innovations (such as in transports and logistics). Below we focus on three important“knowledge suppliers” or sources of innovation that affect innovation in the food cluster and the

1. Thickness of the arrow reflects the magnitude of the interrelatedness between the different activities. The sizeof the circles reflects number of employees in the industry. The shaded circles represent the food processing industry(NACE 15).



description of which helps in understanding the innovation style of the food cluster. These aresuppliers of machinery, internal and external suppliers of R&D (including RTOs and KIBS) andconsumer relations (including consulting companies supplying consumer information, likesuppliers of trend analysis and market surveillance).

Figure A.6: The Norwegian food cluster system (based on Hauknes 1998, ibid.)

Fodder

Hotels anda ccomo-dation

E xtract ion ofcrude oil and

gas

Fertili sers

Oils and fats

i cultureusbandryrvices

Fishfarming

Fruit andv egetables

Beverages

Other f oodproducts

Agri culture

Fishing

Restaurants,catering

Mill product s,starches

Fishproducts

Meat andmeat

pro ducts

D airyproducts

Cl uster employment

A. Suppliers of machinery and equipment

The food industry innovates dominantly through implementing new and advanced machinery.However, the notion of ‘technology user’ seems a little too passive to describe the food industry,echoing that the industry is passively implementing technology developed elsewhere, and thatthere is a seemingly dependency relationship to these suppliers. In reality the relationship is moreinteractive, and the development of machinery is often performed in collaboration between foodcompanies and machinery suppliers. New machinery and equipment is the single largestinnovation cost for Norwegian food companies, if we judge by 1993-statistics. Investment costsrepresent about 50 percent of total innovation costs, a higher share than what we find in heavymachinery-based industries like pulp and paper and metal production. Relations between theindustry and suppliers of machinery are predominantly market-based. In some cases, however,food companies and independent machinery suppliers collaborate in developing technologicalsolutions. During the 1993-1996 period, almost 50 percent of all food companies reported theyhad performed at least one such collaboration with machinery suppliers. If we ask Norwegian foodprocessing companies how often they undertake technological development projects withdifferent partners, one of the most used partners are suppliers of machinery and equipment.

Figure 3.5 already showed the share of innovative food companies reporting different types ofdomestic technological collaborators in the period of 1995 to 1997. Suppliers of machinery andequipment are found to be the second most important domestic partners for both groups ofcompanies, and such collaboration is much more frequent than for other industries. For foreignpartners (figure A.8), suppliers of equipment and machinery are the most frequent used partners.



The figures also show that enterprises within the group are also very important partners intechnological development collaborations.

Figure A.7: Foreign technological co-operation: Share of innovative food companies reporting

technological co-operation with foreign partners the last three years (weighted

figures), compared to national average (circles).

0,00 % 20,00 % 40,00 % 60,00 %

Other enterp riseswithin the group

Competitors

Clients o r customers

Consultancyenterp rises

Suppliers ofequipment etc.

Universities, HEI

Public or p rivateresearch institutes

Norway

Oslo

Source: Community Innovation Survey 1997, STEP Group / Statistics Norway

Figure 3.5 and figure A.8 further demonstrate that the food industry draws upon knowledge from awide array of internal and external knowledge suppliers. Between 10 and 20 percent of thecompanies reported they had had collaboration with competitors and consultancy firms the lastthree years. More important, however, is the role of enterprises within the corporation andNorwegian research institutions, like universities and research institutes. If we look only at co-operation with Norwegian partners, about 40 percent of the firms had collaboratedtechnologically with at least one of these three kinds of partners. Customers are also important:about 25% of the firms had collaborated with customers (e.g. retail chains). However, the share ismuch lower than for other Norwegian industries. Seemingly, there exists strong receivercapabilities for knowledge from scientific suppliers, for new machinery and for ideas stemmingfrom within the group.

B R&D

R&D investments by food companies are - compared to other industries - rather low. While thefood industry represents about 20 percent of manufacturing employment, the share of Norwegianmanufacturing industries’ total R&D is only about 3 percent. , it looks like if the industry spendsfew resources on R&D. This is, however, a statement that needs some modification. First of all,the food industry has other, important ways to innovate, like acquisition of machinery andbuilding of consumer relations. Secondly, the size of the industry makes the R&D activitiesundertaken or financed in sum very large. An illustrating example is the fact that the foodindustry spent in 1997 as much as 282 million NOKs on R&D, which is three times higher thantotal Norwegian R&D expenditures in the ICT industry. Thirdly, there is also a broad array ofgovernmental financed research on food going on. Most of this research is basic research aimed atdeveloping or monitoring raw materials, like Jordforsk, Planteforsk, Havforskningsinstituttet andLandbrukets Forsøksringer. The total number of research man-years performed in these institutesis at least 1.100, most probably around 1.500. Of these, about five percent is paid for by privateindustry.



Different levels of formalisation of innovation processes

There are basically three types of food companies; small family-owned companies, corporatecompanies and companies belonging to a co-operative. The difference between formal andinformal innovations seems basically to vary with company size. Large companies, both thecorporate controlled and the companies belonging to a co-operative structure tend to formaliseproduct development through use of market divisions, research divisions, external and internalmarket analysts and external research suppliers. This is an indication not only of a formalisationof the innovation process; it is also a sign of a highly professionalised innovation process. At theother end of the scale, we find small companies with rather informal innovation processes.

C Consumer relations

Another dominant way of innovation in the food industry is building relationships withconsumers. This is a core driver being innovation in the food industry today. Building of suchrelationship is also termed branding. Most important branding activity is marketing and marketanalysis aimed at understanding trends, needs and taste. We must understand the dynamic of theindustry not only as a user of machinery and imported technology, but also as a responsive andmarket conscious manufacturer, in which the food industry is a thorough listener to input signalsfrom market patterns, tastes, changes in consumption, new sociological and economical settingsetc. Other examples of bonding with consumers are for example maintaining product quality,distributing free product samples, performing trend analyses, performing polls and pre-manufacturing product tests etc.

Example of an innovation by TINE: Ox

TINE's latest and biggest product innovation was introducing Ox, a milk-based drink in a fancy,magazine-inspired wrapping (including news text, brief information, colourful pictures, cooldesign) and with unusual tastes (like milk with liquorice taste), aimed at adolescents. TINE’sfieldwork was impressive. Both TINE’s market division and research division were involved indeveloping the different tastes and visual shaping of the product. People from the public relationcompany Bates Group was hired in to develop the basic design of the container. A separate website was established for the product (http://www.ox.no). An external editor company regularlychanged the container magazine. The trend consulting company Magic Hat supplied TINE withtrend analysis, and external consultancies performed youth panel tests and analyses.

Policy

An innovation policy aimed at the food cluster should start from the mutual dependency of clusteractors. It has been argued that the food industry is too little innovative and resistant to change. Ifa defined policy target is to develop better or more products, such a policy would have to gatherrepresentatives from all important sources of innovation in the food cluster. In addition to foodcompanies, also machinery suppliers, market pollsters, retail chains and R&D environments areintegral parts of the food industry innovation system. The dominant agents in the food clusterinnovation system - and important types of agents – are presented in the figure below.



Figure A.8: Important sources of innovation in the Norwegian food cluster

Main conclusions

1. The Norwegian food cluster consists of three sub-clusters (agro based food; marine basedfood and beverages) with specific institutional set up and a specific base of knowledgesuppliers.

2. Using only level of R&D the food cluster should be categorised as ‘low tech’. However, theNorwegian food cluster shows rather advanced ways of innovation. Apart from usingexternal R&D inputs, two other sources of innovation stand out. Firms in the food clusterare firstly advanced users of machinery and equipment in the development of which theynot seldom play a role. Secondly building consumer relations (branding in its widest sense) isan increasingly important way of innovation. Non-technological innovations like brandingand consumer-relations (for example in terms of product quality and hygiene) are thereforeequally important features to maintain or increase profitability as development of newproducts or processes.

3. Whereas government funded research in food in RTOs and other publicly financedinstitutions aims at generating basic (technological) knowledge and monitoring of rawmaterials increasingly non-technological knowledge related to branding and consumerrelations in its widest sense is provided by specialised, knowledge-intensive service firms.

Innovatingfoodcompany

R&D

Consulting services

Colleges anduniversities

Design

Customers/consumers

Suppliers

Competitors

Suppliers of machinery

Consumer trends, marketing,branding, pre-manufacturingproduct testing, retail chains

Inhouse R&D,market divisions,reserarchinstitutes



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RISE Project - Research Institutes in the Service Economy - Wp1 Clusters and Rtos