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Emerging sectors and industries as important element of regional innovation policy


The idea of emerging sectors and industries is based on the need of long-term changes of the European industrial base including service industries. Europe has to identify and exploit new growth areas and business opportunities in order to restore the economic growth and address the societal challenges. The process of unlocking the growth potential requires relevant policy alignment where the innovation and cluster policies are the key policy instruments to support this.

Written by Pavla Bruskova

Reviewed by David Walburn

 

The concept

How to implement it?

Step in the RIS process

What can be expected?

A quote

References

Experts' comments

 

The concept


Emerging industries and services are broadly understood as entirely new industrial sectors driven by applications of new technologies or other radical innovations or existing economic activities that undergo renewal and transformation, evolving and upgrading and/or merging into new industries.”

New industries and services emerge not only as a result of new technologies and entrepreneurial savvy, but also as a result of the renewal, transformation or intersection of existing economic activities. The evolution of economic activities occurs to take advantage of new opportunities (e.g. technological advances) and address new needs (related to e.g. climate change, energy and public welfare). Emerging industries can thus be grouped into three different types:

  1. Existing knowledge applied in new ways to existing needs;
  2. Existing knowledge applied to new needs; and
  3. New knowledge applied to existing or new needs.

These industries are not captured by statistics, they may be conducted by firms operating in different traditional industries but they are unified by benefiting from the global demand developing around the needs related to the above challenges. They are emerging because in many cases they have not yet significantly performed; they are only being formed / early in the industry lifecycle (see Investopedia).

According to the Investopedia definition[1], emerging industry is a group of companies in a line of business formed around a new product or idea that is in the early stages of development. An emerging industry typically consists of just a few companies and is often centered around a new technology. Barriers to entry in emerging industries can be low because of limited competition, but it may be difficult to secure financing to grow the company. Also, marketing expenses are high, because the product or service for sale is often unproven and companies in an emerging industry must convince both investors and consumers that the product or service they are selling is valuable. Investing in an emerging industry is considered a high-risk strategy, but it can also bring high rewards.

Emerging industries are characterised by a high growth potential rather than by actual high growth: even if they may be growing faster than the overall economy, most of their growth potential has yet to materialise and their growth rates are usually still lower than those of other industries that have already entered their high growth phase. They feature by the following:

  • They are usually formed on the basis of a new product, service or idea and come into being when consumer needs change or when new socio-economic conditions emerge. They are most often driven by KETs[2], new business models, such as innovative service concepts, and by societal challenges that industry must address as a matter of survival (climate, society changes, etc;
  • They tend to be research and knowledge intensive industries, as their emergence and development usually results from applied creativity and disruptive innovation;
  • They typically nurture entrepreneurship and an innovative spirit, entrepreneurs being the essential actors linking the wealth creation, economic growth and jobs;
  • They trigger and enable structural change in the market, giving rise to new suppliers, customer bases, business models, products and services;
  • They are characterised by a state of disequilibria, as their emergence often results from a disruptive idea that impacts value chains, social acceptance and market demand, and triggers, at an aggregate level, a re-allocation of resources from pre-existing activities and companies to new ones;
  • They have a high propensity to cluster, as companies in emerging industries tend to agglomerate and do so geographically.

The following six emerging industries were identified:

  • Eco-industries - cleaner technologies, products and services (pollution control, collection and treatment of waste and sewage, renewable energy, recycling/recycled materials, sustainable water management, and eco-construction);
  • Cultural and Creative industries - creation, production and/or distribution of creative goods and services (printing, publishing, advertising, architecture, art, crafts, design, fashion, film, music, performing arts, R&D, software, toys and games, TV and radio, and video games);
  • Mobility industries - products and services which aim to optimise the mobility of goods and people by combining or connecting different means and modes of transport, by optimising the effectiveness and resource-efficiency or reducing the cost or environmental impact of mobility (use of new materials, new energy sources and grids);
  • Mobile services industries - provision of telecommunication, information, and entertainment services, including voice, internet, SMS, text, and other data services.
  • Experience industries - innovative products and services to provide customers with “experiences” that stimulate emotions and senses, move, entertain and surprise, thrill, enthuse and involve (sectors of tourism, culture, or leisure)
  • New health industries - innovative products and services in the fields of medical technology, medical and surgical equipment and devices, health information technology, health infrastructure and services, clinical trials, preventative healthcare and general well-being.

 

How to implement it?


The emerging industries mapping is the basic methodology for RIS to identify the hot-spots and hubs of emerging industries for the targeted policy support within a region, however:

  1. A little or no homogenous statistical data are available about emerging industries on regional and national levels;
  2. The instances of emerging alliances or isolated activities are unlikely to be in volumes (when compared to regional economic structures) that we can recognize as critical mass;
  3. The level of how the trends/challenges penetrate traditional industries and become integral to strategies of firms and knowledge institutions in different regions can vary significantly.

The desk research should focus on identifying key firms, knowledge institutions and intermediary organisations (including clusters) that play a role in regional competitiveness.

The interview-based qualitative research will generate unique knowledge about the key regional actors and the type of emerging sectors or industries to be included in the regional innovation support strategies.

The analytical work will code and analyze the results of the researches and generate recommendations for policy changes to help the regions, their firms and knowledge institutions achieve better alignment with global demand trends. Whenever possible and realistic the analysis should utilize the cluster infrastructure as delivery mechanism for the redesigned policy. Clusters in how they have been operating in Europe have a considerable potential for performance improvement and new tools to achieve this are being explored[3].

 

Step in the RIS process


Step 1. Identification of emerging industries should take place within the analysis of the regional context and potential for innovation to understand which opportunities materialised through which actors are available and should be fostered in the region.

 

What can be expected?


  • The mobilisation of policy makers for the conscious and proactive growth support measures once the emerging industries research outputs are incorporated in the RIS.
  • Implementing policies that will help support the regional development and optimise economic benefits in terms of competitiveness, growth and wealth creation, as well as societal benefits.
  • Future returns on intervention investments, wealth generation and retention functions of regions and countries are high once the focus of interventionist policies is on this phase of industry formation as it happens right before a significant expected growth phase (the way to maturity).
  • Better cluster-specific conditions to facilitate the emergence of new industries through clusters in the context of the smart specialisation strategy; strengthening local and international cluster cooperation to create new competitive advantages in particular for addressing emerging industries.

 

A quote


“Unlike in the case of traditional industries, the rationale for policy intervention in emerging sectors goes beyond market and system failure arguments and is rather based on technology and market opportunities and challenges.

Policy makers use other policy approaches, in addition to cluster policies, to stimulate new growth areas and align other policy instruments ... direct grants, technical support through dedicated services and projects, public procurement of pre-commercial solutions and facilitating access to private investors.” - from the TACTICS publication

 

References


  • Using clusters to address emerging industries and services, working paper, TACTICS – October 2012 – based on TACTICS Reflection Group, Task Force on Using Excellent Clusters to Address Emerging Industries (and Services), Input Paper for Task Force Workshop, Warsaw, 12-13 May 2011

 

Mrs Pavla Bruskova


 

President of the National Cluster Association, Czech Republic

With a rich background in industry restructuring and regional development, Pavla Bruskova has been involved in the cluster concept development in the Czech Republic since its beginning in 2002. Based on the pilot cluster study carried out in the Moravian-Silesian Region she launched the first Czech cluster organisation in the engineering sector in 2003; took part in the preparation of the National Cluster Strategy 2005-2008; carried out cluster mapping and facilitation of several cluster organisations incl. the first cluster organisation in the service sector (KLACR – Moravian-Silesian Tourism Cluster, 2008) and creative industries (Zlin Audiovisual Cluster, 2013). As the CEO of the Regional Development Agency in Ostrava she managed the preparation and implementation of the Regional Innovation Strategy in the Moravian-Silesian Region in 2009-2010. Since 2010 she has been the President of the National Cluster Association and since 2011 the member of a research team at the Centre for Applied Economic Research, Faculty of Management and Economics at the Tomas Bata University in Zlin. She takes part in a number of European cluster and innovation projects, currently the OP CENTRAL “CluStrat”.

bruskova@nca.cz  

 

Experts' comments


An important piece of research was carried out in the USA in 2008 by the Small Business Administration of the Federal Government which has particular relevance to this paper.[4]

High growth small firms have been recognised as the main providers of new jobs in advanced western economies since the 1980s when David Birch coined the term “Gazelles” to describe them. They were characterised as firms like Microsoft, Google, Dell and all the other well-known names which came to prominence in various high tech sectors in recent years. The research aimed to find out more about the firms which had both grown commercially and had been responsible for the major creation of new jobs. 376,605 firms were identified which fulfilled these growth criteria between 2002 and 2006 in the US. They represented between 2% and 3% of all firms, and they accounted for almost all the private sector employment and revenue growth in the US economy. They were termed “high-impact firms”.

The findings of the research were surprising to those who had assumed that such companies were mostly newly-formed and in high-tech sectors:

  1. High impact firms were found to be on average 25 years old, though they were younger than the majority of low impact firms
  2. They existed in a wide range of sectors and were not limited to high-technology industries
  3. They had a wide geographical distribution and were not limited to metropolitan areas.

 

The researchers concluded that:

“local economic development officials would benefit from recognising the value of cultivating high growth firms versus trying to increase entrepreneurship overall or trying to attract relocating companies”.

Unfortunately this research has not been replicated in Europe, but it seems reasonable to assume with such a large sample used in the US study, that a similar pattern of high impact companies will exist on this side of the Atlantic. Let us proceed on this assumption.

The finding that high impact firms came from all sectors strongly supports the importance of what Theodora Georgieva terms “traditional sectors” and their importance in regional economic development. If the average age of high impact firms is 25 years, a large number must develop within well-established sectors. Maybe growth is sparked off by a market or technical innovation in an existing business, or as a result of external factors affecting the business- or perhaps there is a change in management, possibly as one generation takes over from another.  The results of the research also indicate that almost any region can produce high impact firms.

Turning to the paper from Pavla Bruskova, the age profile of many high impact firms suggests that “emerging sectors and industries” must in many cases develop within already established businesses. It would be wrong to suggest that new growth must mean new firms. Indeed, growth through new firms may be the exception – we know that start-up firms are at a high risk of failure even when their technologies are ultimately commercial winners. For example, clustering initiatives within existing sectors may well result in growth-generating innovation within the already established firms involved.

It is also important to note that the more we know about the characteristics of the high growth firms, the more likely it is that they might be identified by regional development agencies, and thus be brought into programmes to further assist their growth . In any particular region, a brief to identify the 2%/3% of firms which might have the capacity to grow according to a set of criteria which have been shown to indicate such a possibility could of great use. The difficulty of targeting programmes of support is a continuing problem for development agencies, leading a waste of resources, and many firms missing out on support which could be beneficial.

The conclusion to be drawn here is that more analysis is needed into high impact firms in regions so as to equip development agencies to respond more effectively to the growth opportunities in traditional sectors, and those in emerging sector too. This is of course a plea to have a better segmentation of the enterprise population based on their potential and capacity to grow.

 

Mr David Walburn


After a career in business David Walburn joined Greater London Enterprise in 1986 where he was responsible for venture capital and other small business support, before becoming Chief Executive of the organisation. He was the Chair of the London Business Angels Network and played a key role in the setting up of the European Business Angels Network. He has worked with the UK government and the European Commission on developing public policy initiatives to improve the financing of small and medium-sized enterprises. He was the Chair of Capital Enterprise, the umbrella body for organisations supporting micro business development in London, until 2012.

For the last ten years he has been a Visiting Professor at London South Bank University where he headed the Local Economy Policy Unit and was the managing editor of the journal Local Economy.

He has served as President of EURADA, and been a member of a number of advisory bodies of the European Commission.  He has been an active member of the International Economic Development Council in Washington DC and has a wide range of international contacts with economic development organisations.

He continues to write and lecture on small business finance and regional economic development.

davidwalburn@london.com



[2]  KETs - Key enabling technologies include advanced materials, nanotechnology, micro- and nano-electronics including semiconductors, biotechnology and photonics.

[3] www.clustrat.eu

[4] Acs, Parsons and Tracey: High Impact Firms : Gazelles Revisited. Small Business Administration, Washington DC. 2008

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