Forschungs- & Entwicklungsinformationsdienst der Gemeinschaft - CORDIS

Technological entry - Diversification vs. new innovators: Policy implications

The first policy implications derive from the findings that major differences among technologies exist in the dynamics of transition. These differences are closely related to the main characteristics of technologies or sectors. In certain technologies or sectors, the type of knowledge base and the specific conditions of opportunity, appropriability, and cumulativeness of innovation (the so-called "technological regime") led to a major role played by large firms diversifying into new technologies. In other technologies, new firms and new innovators represented the driving force of change.

Thus policies of support for a rapid transition should take into account these differences. In the first case, policies targeted to support the large established firms in their transition process may be inappropriate because they may run into antitrust and competition problems. Policies of human capital formation or standard setting, however, could be appropriate. On the contrary, in the case of transition with a major role played by new firms, policies that support entry may be appropriate. In this case, however, it has been shown by ISE research that a top policy priority should be to help new innovators to overcome key obstacles after innovative entry has occurred. These obstacles take place during the first years after entry has occurred and are related to problems concerning assets that are complementary to technology and innovation (such as financing, human capital, and management).

Second, the other policy implications derive from the findings of an interaction between technology specific factors ("technological regimes", rather invariant across countries for a specific technology) and national innovation systems (similar for all technologies in a specific country). Here, policy has to assess the specific role of the institutional setting and the national innovation system in the modification of the patterns of sectoral innovative activities (in terms of relevance of new innovators, large established firms, and so on) along the way most adapt and tuned to the specific technological regime. When policy-makers try to modify the patterns of sectoral innovative activities, they need to periodically asses the specific roles of the institutional settings and the national innovations system so that, over time, they adapt and stay tuned to the developments in the different technological regimes.

Third, the existence of strong relationships between technological innovation and industrial dynamics suggests that policies which aim at affecting the birth and mortality rates of firms should take into account the role of technology and innovation in firms' survival. Whenever governments aim to increase the entry rates within a given industry (or to enhance small firms’ survival probabilities), the best policy target is not gross entry rates (which is always very high), but net entry rates (which depend upon new entrants’ survival probabilities in the short run). Since such probabilities are critically affected by firms’ capabilities of developing technologies up to a viable level, a top policy priority should be to help new innovators (e.g. firms which enter the market and soon register a patent) to overcome major obstacles when they try to build upon their initial innovation.

Fourth, some implications also refer to innovation and diffusion policies for SMEs. These policies should recognise that firms are highly heterogeneous, with only a few ones being likely to survive in the medium and long run, as a consequence of their different technological bases and skills. This implies a high degree of heterogeneity in firms’ responsiveness to innovation and diffusion policies. Therefore generalist policies (i.e. policies which aim at increasing the degree of innovativeness or the adoption of new technologies by all firms in a country, region, or industry by means of non-selective mechanisms for financing innovation efforts or providing technical assistance) may end up channelling a large amount of resources towards firms, which would be doomed to fail anyway. Selective policies (i.e. policies which target a small number of beneficiaries) would on the contrary face the problem of selecting a priori the most promising firms (i.e. firms with the better technological capabilities or the most promising growth and survival probabilities). This task, however, would require an advanced level of competence, which rarely can be found in any policy body. Thus, a trade-off between the two kinds of policies can be envisaged. It is very difficult to find ex-ante an effective solution to this trade-off. The variables that the policy-maker should consider include the specific features of the technologies or sectors mostly affected by these policies, the amount of available resources, the age and entry dates of the SMEs, and the competencies of the policy bodies.

Fifth, whenever resource scarcity necessitates a choice between policies aimed at large established innovators -the core- and policies aimed at new innovators - the fringe-, this choice has to consider the specificities of the technology. In fact, the findings of this sub-project have shown that the relative contribution of core and fringe firms to innovation differs widely from technology to technology. If the policy objective is the overall growth of national expertise in a given technology, then the type of firms to support is closely related to the specific features of that technology. On the contrary if the policy objective is to support a specific type of firm (either large established firms -the core- or new entrants -the fringe-) then specific technologies have to be selected. These technologies are the ones where either the importance of the core is great or the survival probabilities of the fringe firms are high.

However, the papers also found that all countries which develop a major international strength in a given technology host a relatively large core of innovators. The opposite happens in countries which are weak in a technology. This observation suggests that technologically weak countries should focus their efforts on building up and consolidating a core of innovators. At the same time however, our research shows that technological and industrial dynamics is to a large extent irreversible: the growth of a core of innovators depends crucially upon the date on which firms started developing competencies in a technology. They show the relevance of policy for the development of a strong technological base (and the growth of two core firms such as Ericsson and Nokia) in the mobile telephone industry in Sweden and Finland. At the same time, though, they show how these efforts occurred very early in the history of the industry, this being a key of their success.

Thus a major policy question is related to the way technologically weak countries should develop their core of innovators in specific technologies. This process being long and cumulative, timing and the amount of resources devoted to this goal are very important. This may be quite difficult for latecomers and small countries.

Sixth, policies aiming to support new innovators - the fringe - should take also into account the specific relationship between large and small firms in different technologies and different countries. Following the above discussion about the interaction between sectoral specificities (cross-countries sectoral invariances due to technological regimes) and national specificities (due to national systems of innovation), this relationship may differ from country to country as a consequence of the characteristics of the industrial structure, the competitiveness of large firms and the institutional setting. For example, given the fact that new innovators are very important in biotechnology, the relationship between new innovators and large firms is quite different in the United States and in Europe, and the policy implications have to take these differences into account.

Moreover, in many cases small innovators do not exit the market because of failure, but because they are acquired by large core innovators. In many cases this is a sign of success. This suggests then that being absorbed by the core innovators may be one of the main long run objectives of a SME. This observation adds further support to selective policies rather than to generalist policies. Selective policies are better equipped to identify the causes of disappearance of individual firms and to take them into account when their purpose is to support small firms’ survival.

Seventh, a final suggestion refers to policy and policy capabilities. The policymaker’s choices and actions to support or direct firms' efforts is characterised by trial-and-error and by success and failure. No public body holds a "superior" knowledge, which may channel firms’ innovation strategies in the “right” direction. False starts and dead ends are common. This implies both the need to evaluate policy results in the long run, and the need to pursue more technological options at once.

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Charles EDQUIST
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