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Innovation in traditional sectors


Innovations have specific features in different sectors in regard to the content, process of development and implementation, determinants, visible and invisible effects. Success factors and drivers of innovative projects and policies affecting them differ, too.
Sectoral differentiation reveals how the participants in the technological chains and sectoral innovation systems interact within the process of creation, integration and deployment of technological, organizational and marketing innovation.

Written by Teodora Georgieva

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


Prioritizing high-tech services while disregarding traditional low-tech sectors1 leads to ignoring factors critical for economic growth and competitiveness of national and regional economies, as well as to missing opportunities for spreading know-how and new technologies created in the country on a broader basis. Encouraging innovation in the traditional sectors creates higher demand for innovation solutions generated by the economic activities related to them. This intensifies the interaction in support of open innovation within the national innovation system.

 

How to implement it?


To achieve an impact on the speed and effect of innovation through national and sector policies (by means of well-considered regulation, educational and scientific technological priorities, fiscal and tax framework, and rules of public-private partnership) it is necessary to understand the mechanism of innovations at company and sectoral level.

The analysis of sectoral innovation systems provides evidence of the essence and significance of innovation activity at the companies, thereby supporting the establishment of sector-based innovation-oriented policies and measures. Devising mechanisms of impact – ones that have not been imposed from without but are instead the result of and have been indicated by the transformation processes in the relevant sectors – ensures a healthier environment for the functioning of the innovation ecosystem as a whole.

Shifting the focus to sectoral innovation systems and the value added chains is more closely related to the concept of open innovation. For this reason, in addition to the familiar indicators of R&D intensity, additional indicators have to be used in order to:

  • measure the contribution of the individual sectors to the development of the national economy;
  • define the specific factors that drive sectoral innovation activity;
  • understand the mechanisms of innovation and the varied forms of manifestation of its expected effect.

Regardless of low investment in R&D and patent activity, the low-tech sectors demonstrate a potential for the introduction of know-how and new technologies generated by them, a strong involvement along the value added chain and considerable organizational and marketing innovations.

Medium and low-tech sectors are a field for the application of technological knowledge from other sectors and thereby act as a driving force behind the research and innovation activity of high-tech activities and science intensive services. In some of the cases, they have a sectoral innovation eco-system with a high intensity of interaction which guarantees the fast dissemination and diffusion of (un)protected and (un)codified new knowledge.

 

Step in the RIS process


1. Analysis of the regional context and potential for innovation

3. Elaboration of an overall vision for the future of the region

4. Identification of priorities

 

What can be expected?


  • Sectoral value chains
  • Innovation hubs
  • Regional/sectoral networks
  • Innovation clusters
  • Increasing traditional sectors’ value added

 

A quote


"Despite the leading status of Israel's advanced technology industry, including information and communications technologies (ICT), and its crucial contribution to improving the balance of payments over the past two decades, the high-tech sector cannot single-handedly maintain the targets for GDP growth and increased employment set by this plan. This is due to the relatively small dimensions of the high-tech sector, and its minor share in employment.

Our vision for traditional and services sectors seeks to achieve their stable, sustainable growth and development and to enable their employees to maintain a high standard of living. The majority of the population is employed in these sectors, for the most part earning low wages. Making changes in these sectors' development, then, will be very significant for the entire economy. Their increased productivity will produce a parallel increase in income and wages, facilitating an increase in employees' standard of living. This is also a significant key to resolving social gaps, as a close relationship exists between economic duality and social duality." from Israel 2028: Vision and Strategy For Economy and Society in a Global World

 

References


 

Mrs Teodora Georgieva


 

Dr. Teodora Georgieva has over 15 year experience in developing and implementing strategic and programme documents at national, regional and business levels in the field of innovation, technology transfer and life-long learning. Relevant experience includes: National Science Scoreboard of Bulgaria; Innovation Promotion Law; Megaprojects in the field of Research Infrastructure; ERAWATCH Baseload Inventory; Annual Innovation.BG reports; Regional Innovation Strategy for the South-West region of Bulgaria; Annual Reports on the Bulgarian National Innovation Policy. She is a member of the Expert Council on Innovation at ARC Fund – an independent advisory group to the national innovation policy and development of the innovation potential. Dr. Georgieva holds a PhD in the field of innovation management. Currently she is a Professor in Innovation, Project and Strategic Management and a vice rector at the International Business School in Botevgrad, Bulgaria. She is IRCA / IATCA Certified Expert and Lead Auditor of QMS.

teodora.marinova@online.bg

 

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 papers 2

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


 1 Distinction between high, medium and low technology sectors according their innovation intensity is based on the latest OECD’s classification of economic activities NACE 2008. 'High-technology' and 'knowledge based services' aggregations based on NACE Rev. 2, http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/Annexes/htec_esms_an3.pdf

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

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