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Advancing knowledge-intensive entrepreneurship and innovation for growth and social well-being in Europe

Final Report Summary - AEGIS (Advancing knowledge-intensive entrepreneurship and innovation for growth and social well-being in Europe)

Executive summary:

AEGIS rationale and objectives

The AEGIS project studied knowledge-intensive entrepreneurship (KIE), its defining characteristics, boundaries, scope and incentives in high-technology as well as in low-technology sectors and in services. It focused on KIE as a necessary mechanism and an agent of change mediating between the creation of knowledge and its transformation into economic activity. KIE is perceived herein as a core interface between two interdependent systems: the knowledge generation and diffusion system, on the one hand, and the productive system, on the other. Both systems shape and are shaped by the broader social context - including customs, culture and institutions - thus also pointing at the linkage of entrepreneurship to that context.

Breaking ranks with the traditional individual-centric literature on entrepreneurship, AEGIS concentrates on organisations and institutions as factors that strongly shape the dynamic organisational capabilities which are the core of KIE. The AEGIS project had three main objectives:

(1) At the micro level, it examined the act of KIE, its defining characteristics, boundaries, scope and incentives in various sectors (high- and low-tech and services). Apart from the supply side, it focuses on the demand side and to the social and cultural dimensions related to KIE.
(2) At the macro level it examined the link between KIE, economic growth and social well-being. Emphasis is placed on the way the socio-economic environment stokes 'animal spirits' and benefits from them in the context of various shades of capitalism in Europe and elsewhere.
(3) At the policy level tried to translate its findings into diagnostics tools for country or sector specific assessment of KIE and provide operational policy recommendations, by taking into account different national / regional and sectoral systems of innovation within the European Union (EU) and some key large fast growing countries (India, China and Russia).

Project context and objectives:

Project methodology and workplan overview

A variety of disciplines and research methodologies is used to analyse KIE and related strategies and policies: economics, organisation theory, strategic management, finance, economic history, economic geography, sociology, science and technology (S&T) studies and policy studies. Moreover, a combination of analytical techniques are employed from qualitative techniques and case studies to modelling and sophisticated statistical and econometric analysis, as well as advanced policy analysis.

An extensive field research (AEGIS survey) and numerous case studies lie at the heart of the empirical work examining in-depth different aspects of KIE. The survey aims at tracing KIE and identifying the factors which enable and / or constrain the development of KIE in different sectors. Moreover, the AEGIS survey will support the empirical investigation of KIE in an attempt to identify motives, characteristics and patterns in the creation and growth of new firms which are based on the intensive use of knowledge. This survey could be considered as a pilot exercise for the design of a new instrument aiming at the monitoring and study of KIE in Europe on a regular basis.

The project work plan is structured into four sets of 'vertical' thematic WPs (WPs) as follows:

(1) The first set of thematic work packages (WPs) (WP 1.1 to WP 1.8) deals with the various aspects of KIE and innovation. In particular, WP 1.1 provides the conceptual framework for KIE. WP 1.2 WP 1.3 and WP 1.4 investigate KIE and the sectoral dimension by analysing KIE in high-tech sectors, low-tech sectors and service sectors respectively. WP 1.5 examines the role of demand and public procurement in stimulating KIE and innovation. WP 1.6 deals with the social and cultural dimension of KIE, while WP 1.7 investigates the organisation of KIE by focusing on networks. Finally, WP 1.8 examines the strategies for KIE.

(2) The second set of thematic WPs (WP2.1 to WP2.4) deals with a framework of KIE, innovation and economic growth, KIE and national systems of innovation, varieties of capitalism in Europe, and the emergence of clusters.

(3) The third set of thematic WPs (WP3.1 and WP3.2) focuses on the effects of newly created knowledge on economic growth and social well-being (theoretical aspects) as well as the social consequences of entrepreneurial activity and opportunities for European knowledge based societies.

(4) The fourth set of thematic WPs (WP4.1 WP4.2 WP5 and WP6) collects, synthesises and interprets the resulting information of the previous work-packages for Europe and compares the dynamics of KIE in Europe with China, India and Russia. Moreover, the project intended to provide policy recommendations to assist in the design and implementation of new/improved policy tools for greater effectiveness in the transformation of knowledge into economic value and social benefits.

In addition to the above, a number of horizontal WPs are involved in the project as follows:

- Data generation WPs (WP 7.1 to WP 7.4) cut across the whole project, dealing with the creation of data to support the analysis in the vertical WPs. The principal data generation tool of the project is a large-scale survey that is being carried out across 10 European countries (in the context of WP7.1).
- Dissemination WP (WP8) dealing with creating awareness on project results and the organisation of project conferences and policy workshops.
- Project management (WP9) that involves the administrative and financial management of the project.

CONCLUDING REMARKS

(1) The most important objective of the AEGIS project and its main 'raison d' etre' is to try to translate at the policy level its findings into diagnostics tools for country or sector specific assessment of KIE and provide operational policy recommendations to national governments, businesses, trade unions and civil society actors or international organisations, helping them to implement the most efficient measures to promote entrepreneurship and consequently the economic development.

(2) The context of entrepreneurship relates to a wide variety of economic, social, and cultural factors. This indicates that a system appraisal of entrepreneurship policy should be our focus, especially as it relates to knowledge-intensive ventures. In the policy space, entrepreneurship policies are mainly focused on the first phases of the entrepreneurial process (firm creation) while small and medium-sized enterprises (SMEs) policies emphasise on firm development.

(3) Before presenting some key policy messages deriving from the AEGIS project it is important to stress that:
(a) there are no single recipes;
(b) policy initiatives vary in strategic scope, budget and geography;
(c) a systemic approach based on institutional value chains is needed.

Policies to alleviate systemic risks

Policy intervention should primarily concentrate in assisting young entrepreneurial companies with factors that create systematic risks, i.e. risks that the companies cannot hedge or diversify. In particular, setting up an efficiently functioning financial system that allows young entrepreneurial companies access to various sources and types of financing is key. Moreover, setting in place a transparent and well-functioning intellectual property protection regime is instrumental for knowledge-intensive enterprises.

On the other hand, market risk and competition risk, while also perceived by companies as systematic, do not lend them easily to government intervention. This is because the public sector is usually incapable of assessing the market potential of new products (beyond those that itself utilises such as for defence). It is also difficult to see how the government can alleviate competition risk for a company without falling back into practices of picking winners. Of course, there is a lot of legitimate role for public policy in maintaining well-functioning markets and healthy competition.

Seemingly there is little room for direct government intervention in alleviating technology risk for young KIEs. Such risk appears the easiest for individual companies to deal with: they treat it as unsystematic, manage it actively, and decrease it by networking. The government should also concentrate on the factors underlying recruitment risk, reportedly one of the most important obstacles for our firms' growth. Availability of skilled personnel is the key. This means well-functioning educational systems at all levels, also including vocational and other professional training.

Policies to enhance KIE in low-tech manufacturing sectors

The public policy community should:

- Raise its awareness and generally better understand innovation processes in LMT industries. A fundamental precondition for this is the development of a new and broad understanding of innovation and the insight that one should no longer equate innovative ability only with research and development (R&D) activities.
- Improve the access to general available knowledge and new technologies especially for LMT SMEs with their limited resources as well as improve the transfer processes of the knowledge and new technologies into the LMT sectors and at the level of individual firms.
- Enhance the companies' capabilities to integrate and utilise new technologies and knowledge, e.g. by improving management competences, especially the company capability to cooperate and network with firms and other actors from research-intensive sectors.

Networks should be eased in at least two dimensions:
- Collaboration should be promoted with actors from the trans-sectoral supply side of new knowledge and technologies, i.e. firms from other sectors like suppliers and producers of new technologies and non-firm players like scientific institutions and consultants.
- Opportunities for closer interaction with customers should also be improved as innovation impulses often result from direct customer requests.

Policies to enhance the role of public demand

Public policy lessons that could contribute to the enhancement of the role of public procurement in the innovation production and KIE stimulation at a European level include the following:

(1) Public initiatives supporting / aiming at innovation should provide sufficient incentives for the participation of young (small) knowledge-intensive firms, and not only for established (big) firms. For the first phases of the innovation cycle, pre-commercial procurement practices are more suitable so as to provide adequate incentives to firms and especially to SME / start-ups for R&D activities and development of high innovative solutions. Forward commitment initiatives, could then accompany the previous instrument, by ensuring that the products / services that outreach successfully the pre-commercial stages will be procured by a public organisation.

(2) Market size is one of the main determinants of the involvement of firms in procurement practices, thus, demand aggregation is important, particularly when similar targets (grand challenges) are being addressed by different countries at the same time. It could be expected that the technological (scientific, R&D based) solutions used to mitigate grand challenges may be similar across countries. However, the market opportunities derived from the application of these technological opportunities / solutions may differ across nation states, due to their different institutional contexts and specific demand conditions. Coordinated unbundling of demand may in this regard be a practice that can face efficiently this trade-off.

Policies to enhance KIE in clusters

The main policy implications from the assessment on the interplay between KIE, clusters and the subsequent economic performance of these clusters are as follows:

(1) Entrepreneurial activities can be important for generating new clusters and are more likely to occur in areas with higher levels of entrepreneurial culture. This implies that in regions characterised by high levels of entrepreneurial culture, policy makers should make sure that barriers to entrepreneurship remain low, allow the market mechanisms to be run while being alert at possible breakthroughs. In areas with limited entrepreneurial culture, more selective and active policies appreciating the regional externalities may be more successful. Improving the entrepreneurial culture (e.g. by role model mechanisms- positive examples in a region may lead to additional entrepreneurial activity, particularly in regions with a strong presence of networking). Enhancing labour mobility and new migration to the country in particular, may also be important for further development of the cluster.

(2) When assessing entrepreneurial activity in clusters, it is important that policy makers examine the entire regional ecosystem, including interactions between new, knowledge-based firms and the already existing larger and established firms that may function as 'anchors' or 'gatekeepers' for the smaller local firms.

(3) Ideally, cluster associations should monitor the extent of entry and exit and maybe signal an apparent slow down and then policy could focus on how new entry could be stimulated. However, if the slowdown is caused by bad market conditions or a decline in the underlying industrial life cycle then a policy promoting entrepreneurship could simply lead to start-ups without a future.

(4) Policy actions that have been implemented with the best intention can turn out to be rather poor when embracing a top-down approach, with only minor effort to identify some embryonic networks already in place that could be upgraded into clusters.

Potential impact:

AEGIS expected final results and potential impact

The AEGIS project produced over 80 scientific papers examining various aspects of KIE both within Europe and in comparison with key global actors (China, India, Russia).

A key outcome of the project was the results of a survey that was carried out across ten European countries examining the relationship between knowledge, innovation and growth within recently established firms.

Moreover, a second key result of AEGIS is the development of recommendations for a diverse set of policies addressing supply, demand and system features. Such policies relate to research and development, human resources, innovation, public and private consumption, institutions, and regulation at the national and supranational levels. Advancing KIE is an inherently systemic policy issue. Policy instruments which affect KIE will certainly reflect both the supply side - related to S&T, education, industry structure, risk finance, and the like - and the demand side - lead markets, public procurement, etc. It must be stressed that it is strongly expected that the relative effects of both demand- and supply-side policy instruments will differ across different socio-techno-economic environments (sectoral / national / regional innovation systems).

The AEGIS project concentrated on one of the most pressing issues that will critically affect Europe's ability to maintain and enhance economic growth as well as its diverse, but distinct, socio-economic models. In terms of the key emerging messages relevant for policy makers, the following can be drawn:

- Systems: KIE is an inherently systemic policy issue that must be tackled from various angles simultaneously for long-term results. Single policy fixes will work for a short time but will not change attitudes for the long haul.

- Socio-economic incentives: The simplistic view of the rugged individualist entrepreneur who takes uncalculated risks and single-handedly builds great companies is far from reality. Builders of KIE respond to economic and social incentives that can be influenced to a significant extent by policy.
- Competence building: The issue at hand - the building of new activities and new structures - invariably depends on achieving 'new combinations' of capabilities and competence building.
- Knowledge application: KIE is about the application of knowledge to new activities. Policies need to focus on application rather than on the creation of new knowledge.

The project created new knowledge and brought significant European added value. In addition to the traditional, person-centred view of entrepreneurship AEGIS introduced an organisation-centred and network-centred view, emphasis on the link between micro and macro phenomena, concentration on both high and low-tech sectors, analysis in the context of various socio-economic models and systems of regional / national innovation in Europe, comparison of European patterns with those of other economies such as Russia, China and India, a systemic view of the phenomenon and the relevant policy implications.

List of websites: http://www.aegis-fp7.eu/
Project coordinator PLANET S.A. Greece
Scientific coordinator Università Commerciale 'Luigi Bocconi', KITes, Italy

Consortium
- National Technical University of Athens, LIEE, Greece
- Institute for Management of Innovation and Technology, Sweden
- Max Planck Society for the Advancement of Science, Germany
- Lunds Universitet, Sweden
- Universiteit Utrecht, the Netherlands
- Technische Universität Dortmund, Germany
- Universite de Strasbourg, France
- University College London, United Kingdom
- UECE, Research Unit on Complexity and Economics, Portugal
- University of Aalborg, Denmark
- University of Sussex, United Kingdom
- Maastricht University, The Netherlands
- Institute of Economics, Hungarian Academy of Sciences, Hungary
- Centre for Economic Studies, Czech Republic
- Croatian Employers' Association, Croatia
- Center for Social and Economic Research, Poland
- Finansoviy Universitet Pri Pravitelstve Rossiyskoy Federacii, Russian Federation
- Zhejiang University, China
- Centre for Development Studies, India
- Global Data Collection Company, the Netherlands.

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