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Innovation in low- and medium-technology industries
Research Policy 38 (2009) 441–446
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Introduction
Innovation in low- and medium-technology industries
The role of low- and medium-technology (LMT) firms and industries in modern economies is complex and frequently misunderstood. Significantly, the title of Hatzichronoglou’s (1997) widely used revision of the OECD classification of sectors and products refers explicitly only to high technology. By implication, the remainder of the economy is known by what it is not (high technology) and what it does not do (spend more than five percent of revenues on research and development). Arguably, this has contributed to an unfortunate tendency to understate the importance of technological change outside such R&D-intensive fields as information and communications technology (ICT) and biotechnology (HirschKreinsen et al., 2006). Although their products and production processes may be highly complex and capital intensive, LMT enterprises are often regarded as being somewhat old-fashioned or even passé. In comparison to high-tech industries, their markets are generally mature and may be slow-growing and subject to over-capacity and high levels of price competition. During the globalisation movement of the past few decades, some LMT activities have been prime candidates for relocation from highly industrialised to newly industrialising economies. When they manage to survive in older economies, LMT sectors acquire unfortunate tags such as ‘rust belt’. Nevertheless, LMT sectors are central to economic well-being. Whether measured in terms of output, capital invested or employment, they dominate the economies of highly developed as well as developing nations, providing more than ninety percent of output in the European Union, the USA and Japan.1 For this reason alone, considered as a group, their contribution to aggregate growth is likely to outweigh that of high technology sectors considerably (Sandven et al., 2005); were LMT sectors truly non-innovative and their productivity levels stagnant, overall welfare would be severely diminished. Nor is the importance of LMT sectors likely to decline substantially. Historically, major economic transformations have taken many decades and even then have been incomplete because many LMT sectors provide outputs of enduring importance including food and essential services.2 Furthermore, the composi-
1 General treatments of the role of LMT firms and industries are given in Von Tunzelmann and Acha (2005), Sandven et al. (2005) and Robertson and Patel (2007). Hirsch-Kreinsen et al. (2006) report on a recent European Commission study of LMT sectors. 2 Much of the impact of new systemic technologies has, in fact, been exerted through their influence on older industries. Railways and improved shipping technologies in the nineteenth century, for example, opened up vast tracts of new agricultural land that made it possible for more heavily populated European countries to shift resources into new manufacturing industries.
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tion of the LMT segments of major economies is continually being renewed, as the growth industries and centres of innovation of the past mature and are replaced by other hubs of change. Thus industries such as automobiles and electrical products which provided the impetus for economic and technological change in the wealthier nations following the Second World War have matured and their position as drivers of change has been taken over by sectors such as electronics. There is good reason to believe that today’s electronics sector will follow a similar path – indeed is well along the path already – and will in maturity eventually be supplanted as a source of systemic innovation by other sectors just as cotton textiles, railways, and iron and steel were supplanted in the nineteenth and twentieth centuries. But the argument for the importance of LMT sectors is not based on a simple (and simple-minded) assertion that they always have been and, in all likelihood will remain, statistically dominant. Economic transformation must, by definition, be regarded as a dynamic process in which the roles of high technology and LMT sectors cannot be analysed in isolation because it is their interaction that drives growth and development. With very few, if any, exceptions the outputs of high-tech sectors are only of value when used in conjunction with the outputs of other, less research-intensive, sectors. Conversely, innovation in LMT sectors generally involves the serial incorporation of high-tech components into existing products and production processes. As LMT firms are often major customers of high-tech innovators, a balance of technological change must be achieved among firms of all types: if innovation by-passes older industries, this will stifle the demand for high-tech products and reduce the incentive for R&D activities (Robertson et al., 2003). It is a common error to regard dramatic technological advances such as information and communication technologies or biotechnologies as ‘industries’, tied to particular product ranges. As their names in fact indicate, these are ‘technologies’: they represent high-tech activities that become pervasive in the guise of ‘general purpose technologies’ (GPTs), and their adoption thereby spreads across a wide swathe of user ‘industries’ (Helpman, 1998; Lipsey et al., 2005). Thus biotechnologies developed early on in association with the pharmaceutical industry (so-called ‘red biotechnology’) – where, as it happens, the payoff in terms of new products has to date been quite low despite huge investments (Hopkins et al., 2007) – but were taken up subsequently in food and agriculture (‘green biotech’), industrial processes (‘grey biotech’), environmental services (‘white biotech’), and so on. Any spillovers that arise here come about through upstream developments in science and instrumentation rather than from one product range to another.
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Mechanisms to improve diffusion are therefore a vital aspect of private and public policies to encourage innovation. Clearly, the payoff to innovative activity is only achieved through the use of new products and techniques, not through development per se. The more widespread the adoption of innovations that is achieved across an economy, the greater will be the impact on growth and efficiency, and the greater the incentives for further innovative activity. In this sense, studies of innovation in LMT sectors must concentrate heavily on problems associated with diffusion and on the relationship between high-tech activities and economic activity across a wide front, because faster rates of diffusion should lead to higher rates of investment and innovation in new technologies as well as in lowand medium-technology sectors. Innovation in LMT sectors can be broken down into various subtopics. First, LMT firms do engage in R&D as traditionally defined by Hatzichronoglou (1997). While, by definition, they invest less as a percentage of revenues and are less innovative in other respects than high-technology firms (see the articles by Kirner et al. and Heidenreich in this issue), LMT firms do nevertheless generate new products and, in particular, production processes that have considerable aggregate impact. Sandven et al. (2005, Table 4) have calculated that while high-technology sectors contributed 32.7 percent of all manufacturing growth in a sample of OECD member countries between 1981 and 1998, the combined share of mediumlow and low-tech sectors was 34.8 percent. But these categories are neither analytically nor statistically independent. Low-technology industries correspond largely to Pavitt’s (1984) class of ‘supplier dominated sectors’ that rely heavily on embodied technology for improved productivity. Thus the growth of high-tech sectors is derived at least in part from growth in other parts of the economy that are less R&D-intensive (Hauknes and Knell, 2009; Robertson and Patel, 2007). Moreover, as the paper by Kirner et al. published here demonstrates for the case of Germany, we should not fall into the trap of equating low-technology industries or sectors with low-technology firms. High-, medium- and low-tech firms are spread broadly across high-, medium- and low-tech sectors. We will elaborate further on this important point when we discuss their specific contribution below. Technology diffusion, however, is a complex procedure that is not well understood. The main areas of uncertainty centre on information flow. In a neo-classical world in which everyone is fully and immediately informed of new developments, acrossthe-board diffusion would occur everywhere automatically, but in practice innovation is often a multi-stage process in which an initial insight is intended for a narrow range of purposes. Only subsequently, following further rounds of insight and adaptive R&D, is the full scope of the initial breakthrough realised. Then, perhaps as a result of what Rosenberg (1963, 1976) termed ‘technological convergence’, variations on the original product or process are adopted in other sectors that are not, at first glance, closely related. Although this extension of innovations to multiple uses in multiple sectors has traditionally been regarded as a matter of producers searching for ways of overcoming bottlenecks (Hughes, 1992), this distorts the diffusion process in important ways. In many cases, solutions or near-solutions to bottlenecks may already exist, but there are no obvious channels for communicating this information. Not only are firms with needs (problem holders) unaware of possible solutions in other parts of the economy, but firms that could offer help (solution holders) do not have enough information to be aware that they are in a position to be of use (Robertson, 1998). Better systems are therefore required to speed up information flows and to improve recognition of the importance of new developments for their entire range of possible uses. This can occur on more
than one level. Firms that are both problem and solution holders need to become more intelligent in their search activities, perhaps by improving their absorptive capacity (Cohen and Levinthal, 1989, 1990). But, because absorptive capacity is expensive to develop and maintain, it is impractical for many firms, especially small- and medium-sized ones, to monitor innovation over a wide area. As a result, there is room for government policies that help to collect and distribute up-to-date information on innovation in forms that the firms can access cheaply and easily. As rapid diffusion is important in raising the payoff to R&D, such policies could be useful adjuncts to more common initiatives that increase investment in R&D directly without giving much thought to the uses of the outcomes. The blindness of economists to these issues is surprising in that they flow directly from the conditions for the division of labour laid down by Smith (1976 [1776]). The same single-minded focus that can enhance mental adeptness may also block recognition of improvements beyond the narrow scope of interest of a specialised firm.3 Beyond diffusion, a second major issue that LMT industries face is adaptation. Firms in LMT industries rely heavily on innovative technology embodied in the equipment that they purchase (Pavitt, 1984), but product and process innovations originally designed for specific purposes are not necessarily suitable for use in other contexts. The problem can be accentuated by the use of legacy technologies by LMT firms. As Patel and Pavitt (1994) have emphasised, innovation rarely implies the replacement of one technological paradigm by another. Even when the adoption of innovations involves only small changes in an existing complex product or process – for example the replacement of one machine tool by a newer model – a wide variety of changes to other components is frequently necessary (Rosenberg, 1963).4 Moreover, as virtually all firms that have been operating for substantial periods have different mixes of existing equipment, it is probable that, if they are to fit in, imported technologies as well as those developed in-house must be customised locally on the basis of learning-by-doing and learning-by-using. Thus it is clear that effective innovation by LMT firms is often not a matter of purchasing turnkey projects but can demand considerable subtlety and ingenuity. Nevertheless, these sorts of ad hoc changes, while essential for innovation, may not fit the definition of R&D that has been formulated for statistical purposes and thus will not always contribute to indices of ‘research intensity’ (Patel and Pavitt, 1994). The extent of innovativeness of LMT firms may also be underestimated as a result of technological expertise that LMT firms buy formally or informally from other firms (Hirsch-Kreinsen et al., 2006). The contribution of ‘lead users’ has been highlighted by Von Hippel (1988, 2005), but even these sophisticated customers may only sketch out rough solutions that manufacturers must then perfect to make them commercially viable. In other cases, LMT customers may work in formal alliances with their suppliers or customers to improve products and processes. When the firms in LMT industries are small, their inputs to innovation – often in the form of ideas and analysis – are likely to be subsumed into formal R&D
3 Management scholars, on the other hand, have recently devoted quite a bit of attention to ‘open innovation’ (Chesbrough, 2003, 2006; Chesbrough et al., 2006) in which firms de-emphasise their own R&D activities and rely more heavily than they (allegedly) do at present on purchasing innovations from other firms, but these writers also gloss over aspects of the role of knowledge in diffusion. 4 Problems of integration increase when the scope of activity of new equipment differs from that of preceding models (Ames and Rosenberg, 1964–65). In particular, new computerised machinery such as that involving CAD–CAM tends to integrate functions that were previously separate, obliging managers to reconfigure both other equipment and the workforce.
Introduction / Research Policy 38 (2009) 441–446
processes by their partners and suppliers rather than recognised independently. In this case, official statistical credit for research intensity is given to the other firms, but the LMT inputs may still be profound and indispensable. Moreover, there are limits to the ability of LMT firms to outsource innovation activity even when formal arrangements are in place, because these firms know their own businesses better than their partners do and they are the ones who will suffer most when problems arise. Firms in LMT industries must, therefore, exert control strong control over development projects to ensure that their partners, or the firms that they hire to supply innovations, deliver outcomes that meet their own needs and mesh as smoothly as possible with their legacy equipment (Brusoni et al., 2001; Brusoni, 2005). Most of the articles in this Special Issue deal with these three topics: the relative importance of LMT sectors and their place in modern industrialised economies; the diffusion of innovation to LMT firms; and the roles played by LMT firms and industries in adapting new technologies to fit into existing technological frameworks. Given restrictions on the size of the Issue, the contributions do not, of course, settle the questions totally, but they do illuminate some of the most important puzzles that have surrounded studies of the innovation process in low- and medium-technology industries. In the first article, ‘Innovation paths and the innovation performance of low-technology firms: an empirical analysis of German industry’, Eva Kirner, Steffen Kinkel and Angela Jaeger provide a thoughtful critique of conventional formats for analysing technological change in low-technology firms. They demonstrate that high-, medium- and low-technology sectors are far from internally homogeneous and that all have substantial proportions of firms that belong in other categories when measured on the basis of R&D intensity, calling into question the value of sectoral innovation analysis. In addition, on the basis of a sample of more than 1600 firms that participated in the 2006 German Manufacturing Survey, Kirner et al. investigate aspects of product and process innovation. They conclude that low-tech firms perform as well as, and perhaps better than, their medium- and high-tech counterparts at process innovation, although they do lag in product and service innovation performance. In their article on ‘Embodied knowledge and sectoral linkages: an input–output approach to the interaction of high- and lowtech industries’, Johan Hauknes and Mark Knell calculate knowledge flows across sectors of varying levels of technology intensity in five OECD countries. They find that, while knowledge is created in all parts of the economy, the major flows are from high-intensity to low-intensity sectors. In contrast to Heidenreich, whose article is discussed below, they contend that lower-tech sectors do benefit very substantially from transferred technology, although they agree that the contribution of new technology to LMT sectors is not as great as in science-based industries. The latter, however, depend more heavily than the rest of the economy on technologies developed in-house. Sandro Mendonc¸a investigates the changing distribution of technologies from a different perspective in ‘Brave old world: accounting for ‘high-tech’ knowledge in ‘low-tech’ industries’. Mendonc¸a uses data from the SPRU (University of Sussex) database on the patenting performance of over 450 large corporations to uncover the technological activities of firms of varying levels of technological intensity in the last two decades of the twentieth century. He finds that, despite a high degree of continuity in their product focus, the patenting performance of all groups of firms broadened considerably over the period and that low-tech firms in fact performed better in terms of growth of patenting activities than their medium-low-tech counterparts in the sample. The trend towards strong increases in patenting activity in high-tech
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areas including ICT, drugs and biotechnology, and new materials was common to all levels of technological intensity including lowtech firms. This expansion of knowledge goes beyond maintaining absorptive capacity to contribute directly to innovation or to the adaptations that LMT firms need for the successful adoption of innovations developed elsewhere. The following article, ‘Innovation patterns and location of European low- and medium-technology industries’ by Martin Heidenreich, uses data from the fourth European Community Innovation Survey (CIS4) and European Union (EU) regional data to explore characteristics that might distinguish LMT sectors from others. He finds that process innovations are more important than product innovations for LMT firms and that embodied technology is of substantial importance to these firms. Both results are consistent with Pavitt’s (1984) conclusions. Heidenreich also concludes, however, that LMT firms (by which he means those in the medium-low and low-technology classes) are less prone than high and medium-high technology (HMHT) firms to engage in partnerships with other firms to promote innovation or to draw on non-R&D sources of knowledge such as patents, training, etc. Finally, through a comparison of the characteristics of regions of the enlarged EU, Heidenreich finds that the growth prospects of a region are negatively affected by the presence of a high concentration of LMT activity relative to the EU taken as a whole. In fact, he finds that manufacturing in general, whether LMT or HMHT, provides a poor platform for growth in comparison to a concentration on sophisticated service sectors. On the other hand, the study does not take account of the relative ability of different platforms to launch growth in diverse environments. It is not altogether clear, for example, that the poorer regions of Eastern Europe ever had a reasonable chance relative to London, Paris or Frankfurt of capturing sophisticated services activities. Therefore, their attempts to promote growth by attracting LMT activities discarded by wealthier regions may have been sensible given their comparative advantage.5 In ‘Search patterns and absorptive capacity: a comparison of low- and high-technology firms from thirteen European countries’, Christoph Grimpe and Wolfgang Sofka use data from the third European Community Innovation Survey (CIS3) to evaluate the sources that firms with varying levels of research intensity target when seeking innovative knowledge. Their hypotheses – that companies classified as low- and medium-low technology will look to customers and competitors for new knowledge, and that companies classified as medium-high and high-technology will concentrate instead on universities and suppliers – are largely confirmed by their statistical results. At first glance, this seems to contradict Pavitt’s hypothesis, which has been confirmed by a number of studies including several in this Special Issue, that the innovation activities of many LMT firms are ‘supplier dominated’ and are driven by purchases of embodied technology. Grimpe and Sofka, however, only investigate product innovations. If process innovation was also investigated, an excellent project for future research, interesting supplementary results could be expected. Lluís Santamaría, María Jesús Nieto and Andrés Barge-Gil explore similar topics using Spanish data. In their article, ‘Beyond formal R&D: taking advantage of other sources of innovation in low and medium technology industries’, they concentrate on the importance of advanced manufacturing technologies (AMT), training and design in generating innovation. They also look at the value for innovation of a number of alternative sources of knowledge
5 It is worth noting that the first stages towards HMHT success in nations such as Japan and Korea were based on firms that learned valuable techniques by acting as suppliers for companies based in more highly developed economies.
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such as joint ventures, non-equity alliances, the use of consultants and external R&D. Employing probit analysis to calculate marginal effects, they conclude that use of AMT (which captures the value of embodied technology), training and design are all of more importance in generating product innovation for LMT firms than for their high-tech counterparts. Similarly, the use of AMT is of more importance for LMT process innovation but design, although important for all firms, is more significant for high-tech firms. The use of external sources of innovation, such as non-equity alliances (product innovation) and consultants (process innovation), is also of value for LMT companies. In all cases, with the surprising exception of high-tech process innovation, internal R&D is nevertheless vital for the innovation efforts of all firms. In common with Heidenreich, they also conclude that external R&D is not of great importance for LMT firms. The relationship between knowledge acquisition and adaptation is explored in ‘External technology sourcing and innovation performance in LMT sectors: an analysis based on the Taiwanese Technological Innovation Survey’ by Kuen-Hung Tsai and JiannChyuan Wang. Tsai and Wang investigate two major categories of technology acquisition. The first, external market-based acquisition, includes R&D outsourcing and inward technology licensing (ITL), while the second is based on R&D collaboration with suppliers, customers, and competitors. They conclude that ITL does not contribute significantly to innovation performance in LMT firms, which runs counter to their earlier findings for high-tech firms (Tsai and Wang, 2007), perhaps because of difficulties in integrating old and new technologies. R&D outsourcing may also be problematic. In both cases, the use of markets can generate appropriability problems when compared to other types of knowledge acquisition. Knowledge acquired through ITL may be readily available to competitors and R&D outsourcing may even lead to leakages of the purchaser’s own discoveries. On the other hand, R&D collaboration seems to yield better results. In particular, Tsai and Wang conclude that the greater absorptive capacity of firms with higher levels of internal R&D activity allows them to assimilate collaboratively developed innovations more easily than firms that invest less in R&D. These finding are, of course, of greater importance for larger companies that can afford to invest substantially in R&D and absorptive capacity. Liang-Chih Chen investigates many of the same issues as Tsai and Wang but on a micro basis. In ‘Learning through informal local and global linkages: the case of Taiwan’s machine tool industry’, he uses detailed interview data to show both how small- and medium-sized enterprises (SMEs) in one LMT sector uncover innovative knowledge and how they learn to adapt new equipment for their own purposes. In the environment that Chen describes, channels of communication are imperfect, obliging LMT SMEs to work hard and intelligently (even with cunning) to gain access to new knowledge. Far from offering a picture of systematic cooperation among Taiwanese producers, Chen comes close to describing a Marshallian system in which knowledge flows among local machine tool producers are largely informal. Ideas are not just ‘in the air’ (Marshall, 1975: 197), however, but may have been deliberately planted by users who spread knowledge that is meant to be confidential to competing firms in order to encourage the design of equipment that combines the features that they need at low prices. Local tool owners provide both tests of innovative equipment and access to imported equipment that allow Taiwanese producers to keep up to date. In addition, Taiwanese machine tool producers make excellent use of international exhibitions to collect information on competing models directly from foreign competitors and to learn how to adapt equipment to their particular needs. One factor that is emphasised is the importance of trained engineers in the technology transfer process, a variable that is unlikely to be picked up in statistical
studies of diffusion.6 Experienced Taiwanese engineers are able to size up innovations from relatively brief and informal exposure to foreign models and to determine how new developments can be fitted into their own activities. Although the article covers only Taiwanese firms, it is probable that the findings have wider applicability, first because of similarities in activities to those of SMEs elsewhere, and second because much of the technology transfer that Chen describes occurs in international contexts and involves European, North American and Japanese firms.7 While Chen’s study concentrates on the activities of relatively small firms, the article by Vivek Ghosal and Usha Nair-Reichert on ‘Investments in modernization, innovation and gains in productivity: evidence from firms in the global paper industry’ considers change in a sector dominated by large, capital-intensive firms. Ghosal and Nair-Reichert note that, although productivity gains from individual innovative episodes in LMT industries tend to be small, they may cumulate into sizeable gains that confer significant competitive advantages on firms that are consistently more innovative. They therefore measure the marginal effects of innovations involving mechanical technology, measurement and software, and chemical processes in the pulp and paper industry in the USA. They find that the payoff from investments in mechanical technology and measurement devices and software is substantial and has increased significantly. This is largely consistent with Pavitt’s (1984) observations updated to take note of the growing importance of software since Pavitt originally devised his schema. Ghosal and Nair-Reichert, like Chen, also conclude that learning-by-doing is of considerable, even if hard to measure, importance in the highly capital-intensive pulp and paper industry. Daniela Freddi, in her article on ‘The integration of old and new technological paradigms in low and medium tech sectors: the case of mechatronics’, explores much more complicated processes of adaptation involving co-evolution of design. Building on a framework outlined by Kodama (1992a,b), she discusses how LMT firms may need to go well beyond altering components when facing challenges posed by innovation. Freddi’s case study demonstrates that ‘technology fusion’ can overcome adaptation problems by creating a new and distinct merged discipline based on principles of its own to implement change successfully, rather than working around the edges of an established discipline such as mechanical engineering. The final article in the issue makes extensive use of patent data to highlight important aspects of LMT innovation. In ‘The role of corporate technology strategy and patent portfolios in low-, medium-, and high-technology firms’, Ulrich Lichtenthaler uses data from 136 European firms to address hypotheses on technological aggressiveness, technological diversification, patent portfolio size and patent portfolio quality. He finds that the returns to technologically aggressive (or offensive) strategies are directly related to a firm’s technological intensity: medium-tech firms gain less from aggressive strategies than high-tech ones achieve on average, and the returns for low-tech firms, although still positive, are lower still. Furthermore, he concludes that the performance of low-tech firms, as measured by their rates of return on sales, is negatively affected by both high degrees of technological diversification and the generation of a large patent portfolio that emphasises the number of patents filed rather than their quality. Lichtenthaler interprets his results as demonstrating that low-tech companies not only rely heavily on purchases of embodied technology, as Pavitt (1984)
6 See, however, the discussion of the importance of trained personnel for LMT ˝ firms in Schmierl and Kohler (2005). 7 The Handbook of Industrial Districts (Becattini et al., in press) discusses, inter alia, sources of knowledge in LMT SMEs, primarily in Europe.
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and others have also found, but that this is a sensible strategy and that they should take greater advantage of opportunities for open innovation in view of their low commitment to R&D. In addition, low-tech firms should aim for deeper strategies of absorptive capacity rather than more diverse ones that they do not have the resources (or at least the commitment) to pursue successfully. When considered together, these articles suggest some interesting avenues for further research. They demonstrate the well-known inconsistency of different innovation indicators (Carroll et al., 2000). The calculations presented by Hauknes and Knell show substantially greater sectoral variations in the generation and use of new knowledge than are implied by Hatzichronoglou’s (1997) OECD classification. The further variations within classes that Kirner et al. have found are not surprising given not only differential access to new knowledge but the different explicit and implicit strategies that firms may follow when not all potential customers derive benefit from particular product innovations, allowing some firms to continue to provide ‘standard’ models while others add new performance features to meet the needs of more demanding customers. These strategic variations are common in industries such as automobiles and machine tools, as well as in more traditional sectors including furniture and even food. (In the case of organic foods, firms that continue to embrace older technologies are perhaps perversely regarded as being more innovative than their competitors.) One possible inference is that the entire high/medium/low technology schema is misleading because firms in all sectors depend on a mix of technologies of many vintages. In particular, the use of embodied technologies is a feature of HMHT firms as well as of LMT ones. Even though inputs of new knowledge flow more commonly from sectors classified as high-tech to those further down the scale, older technologies and older knowledge furnish absolutely vital building blocks for the discoveries of highly innovative firms. These studies also illustrate the problems involved in using different data sources. For example, to what extent is the more generous ability of LMT firms to draw on external sources for innovative knowledge found by Kirner et al. a result of using a more detailed firm-level survey than Heidenreich employed? Access to surveys similar to the German Manufacturing Survey 2006 for a much broader range of countries, using standardised definitions, would certainly help to solve some of the puzzles facing innovation researchers. In the final analysis, however, the gaps in our understanding of innovation, diffusion and adaptation may not be statistical artifacts but result instead from a misconception of the problems surrounding these processes. Most of the papers presented here are based on large-scale cross-sectional studies and, as such, they provide excellent insights into a range of descriptive issues – that is, they increase our understanding of some of the relationships that prevail in modern industrialised economies, or at least in the segments covered by the databases used.8 Unfortunately, they do very little to enhance knowledge of the processes that these outcomes reflect. As the ability of firms to replicate successful outcomes and the ability of governments to implement useful policies are a direct function of their understanding of processes, the importance of this missing link is hard to over-estimate. The urge on the part of positivist scholars to avoid ‘messy’ problems, and the preference of politicians and bureaucrats for ‘one-size-fits-all’ advice, means that case studies of the sorts presented by Chen and Freddi are undervalued. How, critics ask, can the representativeness of a case study be guaranteed? But equally, how can one be sure that statistical findings that
relate large numbers of observations be guaranteed to illuminate the experiences of any one of the events considered? What reason is there to believe that most experiences are accurately reflected by averages? When complex events are under analysis, implicit or explicit simplifying assumptions may lead to clarification of the problems studied. This points to a need for a range of meso-level studies that pay closer attention to the environments of the firms under consideration to show how diffusion and adaptation actually evolve in practice. Certain environmental aspects are clear candidates for deeper investigation. For example, detailed studies of individual sectors can help to sort out the effects in practice of influences that seem important on a priori grounds – variables such as factor costs, access to capital markets, and firm strategies, as well as levels of technological intensity.9 Another obvious variable that has been largely finessed in many studies is firm size. Studies based on patenting data, for instance, are unlikely ever to provide much insight into the behaviour of small firms for the simple reason that they rarely receive patents. As several contributions to this Issue have shown, however, this does not mean that they are not innovative. Nor does the privileged position that writers such as Schumpeter (1950), Chandler (1977, 1990) and Lazonick (1991) accord to large firms justify the neglect of smaller concerns because, through the use of embodied technology and other means, they are essential parts of the system that underpins the success of large innovative firms (Robertson et al., 2003; Robertson and Patel, 2007). To obtain a proper grasp of the innovation processes employed by these firms requires the generation of a large number of detailed studies that approach innovation from diverse angles rather than a reliance on existing data that leads to issues being framed in less than adequate ways for reasons of convenience for researchers.
8 The articles chosen are an accurate reflection of the more than 100 proposals submitted to the editors. Very few of the proposers suggested narrative or processoriented studies.
9 For an interesting and largely neglected attempt to bring a variety of important environmental considerations together in a single model, see the work of Dahmén (1970 [1950], 1989).
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Hauknes, J., Knell, M., 2009. Embodied knowledge and sectoral linkages: an inputoutput approach to the interaction of high- and low-tech industries. Research Policy 38, 459–469. Helpman, E. (Ed.), 1998. General Purpose Technologies and Economic Growth. MIT Press, Cambridge, MA. Hirsch-Kreinsen, H., Jacobson, D., Robertson, P.L., 2006. ‘Low-tech’ industries: innovativeness and development perspectives—a summary of a European research project. Prometheus 24, 3–21. Hopkins, M.M., Martin, P.A., Nightingale, P., Kraft, A., Mahdi, S., 2007. The myth of the biotech revolution: an assessment of technological, clinical and organisational change. Research Policy 36, 566–589. Hughes, T.P., 1992. The dynamics of technological changes: salients, critical problems and industrial revolutions. In: Dosi, G., Giannetti, R., Toninelli, P.A. (Eds.), Technology and Enterprise in a Historical Perspective. Clarendon Press, Oxford. Kodama, F., 1992a. Japan’s unique capability to innovate: technology fusion and its international implications. In: Arrison, T.S., Bergsten, C.F., Graham, E.M., Caldwell Harris, M. (Eds.), Japan’s Growing Technological Capability: Implications for the U.S. Economy. National Academy Press, Washington, pp. 147–164. Kodama, F., 1992b. Technology fusion and the new R&D. Harvard Business Review 70 (4), 70–78. Lazonick, W., 1991. Business Organization and the Myth of the Market Economy. Cambridge University Press, Cambridge. Lipsey, R.G., Carlaw, K.I., Bekar, C.T., 2005. Economic Transformations: General Purpose Technologies and Long Term Economic Growth. Oxford University Press, Oxford. Marshall, A., 1975. In: Whitaker, J.K. (Ed.), The Early Economic Writings of Alfred Marshall 1867–1890. Macmillan, London. Patel, P., Pavitt, K., 1994. The continuing, widespread (and neglected) importance of improvements in mechanical technologies. Research Policy 23, 533–545. Pavitt, K., 1984. Sectoral patterns of technical change: towards a taxonomy and a theory. Research Policy 13, 343–373. Robertson, P.L., 1998. Information, similar and complementary assets, and innovation policy. In: Foss, N.J., Loasby, B.J. (Eds.), Economic Organization, Capabilities and Co-ordination: Essays in Honour of G.B. Richardson. Routledge, London. Robertson, P.L., Patel, P., 2007. New wine in old bottles: technological diffusion in developed economies. Research Policy 36, 708–721. Robertson, P.L., Pol, E., Carroll, P., 2003. Receptive capacity of established industries as a limiting factor in the economy’s rate of innovation. Industry and Innovation 10, 457–474. Rosenberg, N., 1963. Technological change in the machine tool industry, 1840–1910. Journal of Economic History 23, 414–443.
Rosenberg, N., 1976. Perspectives on Technology. Cambridge University Press, New York. Sandven, T., Smith, K., Kaloudis, A., 2005. Structural change, growth and innovation: the roles of medium and low-tech industries, 1980–2000. In: Hirsch-Kreinsen, H., Jacobson, D., Laestadius, S. (Eds.), Low-Tech Innovation in the Knowledge Economy. Peter Lang, Frankfurt-am-Main, pp. 31–59. ˝ Schmierl, K., Kohler, H.-D., 2005. Organisational learning: knowledge management and training in low-tech and medium low-tech companies. Perspectives on Economic, Political and Social Integration 11, 172–221. Schumpeter, J.A., 1950. Capitalism, Socialism and Democracy, third ed. Harper & Brothers, New York. Smith, A., 1976 [1776]. The Wealth of Nations. Glasgow Edition. Clarendon Press, Oxford. Tsai, K.H., Wang, J.C., 2007. Inward technology licensing and firm performance: a longitudinal study. R&D Management 37 (2), 151–160. Von Hippel, E., 1988. The Sources of Innovation. Oxford University Press, New York. Von Hippel, E., 2005. Democratizing Innovation. MIT Press, Cambridge, MA. Von Tunzelmann, N., Acha, V., 2005. Innovation in ‘low-tech’ industries. In: Fagerberg, J., Mowery, D.C., Nelson, R.R. (Eds.), The Oxford Handbook of Innovation. Oxford University Press, Oxford, pp. 407–432.
Paul Robertson ∗ Keith Smith Australian Innovation Research Centre, University of Tasmania, Private Bag 108, Hobart, Tasmania 7001, Australia Nick von Tunzelmann SPRU (Science and Technology Policy Research), University of Sussex, Freeman Centre, Falmer, Brighton, East Sussex BN1 9QE, United Kingdom ∗ Corresponding
author. E-mail addresses: [email protected] (P. Robertson), [email protected] (K. Smith) Available online 17 December 2008
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Research Policy journal homepage: www.elsevier.com/locate/respol
Introduction
Innovation in low- and medium-technology industries
The role of low- and medium-technology (LMT) firms and industries in modern economies is complex and frequently misunderstood. Significantly, the title of Hatzichronoglou’s (1997) widely used revision of the OECD classification of sectors and products refers explicitly only to high technology. By implication, the remainder of the economy is known by what it is not (high technology) and what it does not do (spend more than five percent of revenues on research and development). Arguably, this has contributed to an unfortunate tendency to understate the importance of technological change outside such R&D-intensive fields as information and communications technology (ICT) and biotechnology (HirschKreinsen et al., 2006). Although their products and production processes may be highly complex and capital intensive, LMT enterprises are often regarded as being somewhat old-fashioned or even passé. In comparison to high-tech industries, their markets are generally mature and may be slow-growing and subject to over-capacity and high levels of price competition. During the globalisation movement of the past few decades, some LMT activities have been prime candidates for relocation from highly industrialised to newly industrialising economies. When they manage to survive in older economies, LMT sectors acquire unfortunate tags such as ‘rust belt’. Nevertheless, LMT sectors are central to economic well-being. Whether measured in terms of output, capital invested or employment, they dominate the economies of highly developed as well as developing nations, providing more than ninety percent of output in the European Union, the USA and Japan.1 For this reason alone, considered as a group, their contribution to aggregate growth is likely to outweigh that of high technology sectors considerably (Sandven et al., 2005); were LMT sectors truly non-innovative and their productivity levels stagnant, overall welfare would be severely diminished. Nor is the importance of LMT sectors likely to decline substantially. Historically, major economic transformations have taken many decades and even then have been incomplete because many LMT sectors provide outputs of enduring importance including food and essential services.2 Furthermore, the composi-
1 General treatments of the role of LMT firms and industries are given in Von Tunzelmann and Acha (2005), Sandven et al. (2005) and Robertson and Patel (2007). Hirsch-Kreinsen et al. (2006) report on a recent European Commission study of LMT sectors. 2 Much of the impact of new systemic technologies has, in fact, been exerted through their influence on older industries. Railways and improved shipping technologies in the nineteenth century, for example, opened up vast tracts of new agricultural land that made it possible for more heavily populated European countries to shift resources into new manufacturing industries.
0048-7333/$ – see front matter © 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.respol.2008.10.019
tion of the LMT segments of major economies is continually being renewed, as the growth industries and centres of innovation of the past mature and are replaced by other hubs of change. Thus industries such as automobiles and electrical products which provided the impetus for economic and technological change in the wealthier nations following the Second World War have matured and their position as drivers of change has been taken over by sectors such as electronics. There is good reason to believe that today’s electronics sector will follow a similar path – indeed is well along the path already – and will in maturity eventually be supplanted as a source of systemic innovation by other sectors just as cotton textiles, railways, and iron and steel were supplanted in the nineteenth and twentieth centuries. But the argument for the importance of LMT sectors is not based on a simple (and simple-minded) assertion that they always have been and, in all likelihood will remain, statistically dominant. Economic transformation must, by definition, be regarded as a dynamic process in which the roles of high technology and LMT sectors cannot be analysed in isolation because it is their interaction that drives growth and development. With very few, if any, exceptions the outputs of high-tech sectors are only of value when used in conjunction with the outputs of other, less research-intensive, sectors. Conversely, innovation in LMT sectors generally involves the serial incorporation of high-tech components into existing products and production processes. As LMT firms are often major customers of high-tech innovators, a balance of technological change must be achieved among firms of all types: if innovation by-passes older industries, this will stifle the demand for high-tech products and reduce the incentive for R&D activities (Robertson et al., 2003). It is a common error to regard dramatic technological advances such as information and communication technologies or biotechnologies as ‘industries’, tied to particular product ranges. As their names in fact indicate, these are ‘technologies’: they represent high-tech activities that become pervasive in the guise of ‘general purpose technologies’ (GPTs), and their adoption thereby spreads across a wide swathe of user ‘industries’ (Helpman, 1998; Lipsey et al., 2005). Thus biotechnologies developed early on in association with the pharmaceutical industry (so-called ‘red biotechnology’) – where, as it happens, the payoff in terms of new products has to date been quite low despite huge investments (Hopkins et al., 2007) – but were taken up subsequently in food and agriculture (‘green biotech’), industrial processes (‘grey biotech’), environmental services (‘white biotech’), and so on. Any spillovers that arise here come about through upstream developments in science and instrumentation rather than from one product range to another.
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Mechanisms to improve diffusion are therefore a vital aspect of private and public policies to encourage innovation. Clearly, the payoff to innovative activity is only achieved through the use of new products and techniques, not through development per se. The more widespread the adoption of innovations that is achieved across an economy, the greater will be the impact on growth and efficiency, and the greater the incentives for further innovative activity. In this sense, studies of innovation in LMT sectors must concentrate heavily on problems associated with diffusion and on the relationship between high-tech activities and economic activity across a wide front, because faster rates of diffusion should lead to higher rates of investment and innovation in new technologies as well as in lowand medium-technology sectors. Innovation in LMT sectors can be broken down into various subtopics. First, LMT firms do engage in R&D as traditionally defined by Hatzichronoglou (1997). While, by definition, they invest less as a percentage of revenues and are less innovative in other respects than high-technology firms (see the articles by Kirner et al. and Heidenreich in this issue), LMT firms do nevertheless generate new products and, in particular, production processes that have considerable aggregate impact. Sandven et al. (2005, Table 4) have calculated that while high-technology sectors contributed 32.7 percent of all manufacturing growth in a sample of OECD member countries between 1981 and 1998, the combined share of mediumlow and low-tech sectors was 34.8 percent. But these categories are neither analytically nor statistically independent. Low-technology industries correspond largely to Pavitt’s (1984) class of ‘supplier dominated sectors’ that rely heavily on embodied technology for improved productivity. Thus the growth of high-tech sectors is derived at least in part from growth in other parts of the economy that are less R&D-intensive (Hauknes and Knell, 2009; Robertson and Patel, 2007). Moreover, as the paper by Kirner et al. published here demonstrates for the case of Germany, we should not fall into the trap of equating low-technology industries or sectors with low-technology firms. High-, medium- and low-tech firms are spread broadly across high-, medium- and low-tech sectors. We will elaborate further on this important point when we discuss their specific contribution below. Technology diffusion, however, is a complex procedure that is not well understood. The main areas of uncertainty centre on information flow. In a neo-classical world in which everyone is fully and immediately informed of new developments, acrossthe-board diffusion would occur everywhere automatically, but in practice innovation is often a multi-stage process in which an initial insight is intended for a narrow range of purposes. Only subsequently, following further rounds of insight and adaptive R&D, is the full scope of the initial breakthrough realised. Then, perhaps as a result of what Rosenberg (1963, 1976) termed ‘technological convergence’, variations on the original product or process are adopted in other sectors that are not, at first glance, closely related. Although this extension of innovations to multiple uses in multiple sectors has traditionally been regarded as a matter of producers searching for ways of overcoming bottlenecks (Hughes, 1992), this distorts the diffusion process in important ways. In many cases, solutions or near-solutions to bottlenecks may already exist, but there are no obvious channels for communicating this information. Not only are firms with needs (problem holders) unaware of possible solutions in other parts of the economy, but firms that could offer help (solution holders) do not have enough information to be aware that they are in a position to be of use (Robertson, 1998). Better systems are therefore required to speed up information flows and to improve recognition of the importance of new developments for their entire range of possible uses. This can occur on more
than one level. Firms that are both problem and solution holders need to become more intelligent in their search activities, perhaps by improving their absorptive capacity (Cohen and Levinthal, 1989, 1990). But, because absorptive capacity is expensive to develop and maintain, it is impractical for many firms, especially small- and medium-sized ones, to monitor innovation over a wide area. As a result, there is room for government policies that help to collect and distribute up-to-date information on innovation in forms that the firms can access cheaply and easily. As rapid diffusion is important in raising the payoff to R&D, such policies could be useful adjuncts to more common initiatives that increase investment in R&D directly without giving much thought to the uses of the outcomes. The blindness of economists to these issues is surprising in that they flow directly from the conditions for the division of labour laid down by Smith (1976 [1776]). The same single-minded focus that can enhance mental adeptness may also block recognition of improvements beyond the narrow scope of interest of a specialised firm.3 Beyond diffusion, a second major issue that LMT industries face is adaptation. Firms in LMT industries rely heavily on innovative technology embodied in the equipment that they purchase (Pavitt, 1984), but product and process innovations originally designed for specific purposes are not necessarily suitable for use in other contexts. The problem can be accentuated by the use of legacy technologies by LMT firms. As Patel and Pavitt (1994) have emphasised, innovation rarely implies the replacement of one technological paradigm by another. Even when the adoption of innovations involves only small changes in an existing complex product or process – for example the replacement of one machine tool by a newer model – a wide variety of changes to other components is frequently necessary (Rosenberg, 1963).4 Moreover, as virtually all firms that have been operating for substantial periods have different mixes of existing equipment, it is probable that, if they are to fit in, imported technologies as well as those developed in-house must be customised locally on the basis of learning-by-doing and learning-by-using. Thus it is clear that effective innovation by LMT firms is often not a matter of purchasing turnkey projects but can demand considerable subtlety and ingenuity. Nevertheless, these sorts of ad hoc changes, while essential for innovation, may not fit the definition of R&D that has been formulated for statistical purposes and thus will not always contribute to indices of ‘research intensity’ (Patel and Pavitt, 1994). The extent of innovativeness of LMT firms may also be underestimated as a result of technological expertise that LMT firms buy formally or informally from other firms (Hirsch-Kreinsen et al., 2006). The contribution of ‘lead users’ has been highlighted by Von Hippel (1988, 2005), but even these sophisticated customers may only sketch out rough solutions that manufacturers must then perfect to make them commercially viable. In other cases, LMT customers may work in formal alliances with their suppliers or customers to improve products and processes. When the firms in LMT industries are small, their inputs to innovation – often in the form of ideas and analysis – are likely to be subsumed into formal R&D
3 Management scholars, on the other hand, have recently devoted quite a bit of attention to ‘open innovation’ (Chesbrough, 2003, 2006; Chesbrough et al., 2006) in which firms de-emphasise their own R&D activities and rely more heavily than they (allegedly) do at present on purchasing innovations from other firms, but these writers also gloss over aspects of the role of knowledge in diffusion. 4 Problems of integration increase when the scope of activity of new equipment differs from that of preceding models (Ames and Rosenberg, 1964–65). In particular, new computerised machinery such as that involving CAD–CAM tends to integrate functions that were previously separate, obliging managers to reconfigure both other equipment and the workforce.
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processes by their partners and suppliers rather than recognised independently. In this case, official statistical credit for research intensity is given to the other firms, but the LMT inputs may still be profound and indispensable. Moreover, there are limits to the ability of LMT firms to outsource innovation activity even when formal arrangements are in place, because these firms know their own businesses better than their partners do and they are the ones who will suffer most when problems arise. Firms in LMT industries must, therefore, exert control strong control over development projects to ensure that their partners, or the firms that they hire to supply innovations, deliver outcomes that meet their own needs and mesh as smoothly as possible with their legacy equipment (Brusoni et al., 2001; Brusoni, 2005). Most of the articles in this Special Issue deal with these three topics: the relative importance of LMT sectors and their place in modern industrialised economies; the diffusion of innovation to LMT firms; and the roles played by LMT firms and industries in adapting new technologies to fit into existing technological frameworks. Given restrictions on the size of the Issue, the contributions do not, of course, settle the questions totally, but they do illuminate some of the most important puzzles that have surrounded studies of the innovation process in low- and medium-technology industries. In the first article, ‘Innovation paths and the innovation performance of low-technology firms: an empirical analysis of German industry’, Eva Kirner, Steffen Kinkel and Angela Jaeger provide a thoughtful critique of conventional formats for analysing technological change in low-technology firms. They demonstrate that high-, medium- and low-technology sectors are far from internally homogeneous and that all have substantial proportions of firms that belong in other categories when measured on the basis of R&D intensity, calling into question the value of sectoral innovation analysis. In addition, on the basis of a sample of more than 1600 firms that participated in the 2006 German Manufacturing Survey, Kirner et al. investigate aspects of product and process innovation. They conclude that low-tech firms perform as well as, and perhaps better than, their medium- and high-tech counterparts at process innovation, although they do lag in product and service innovation performance. In their article on ‘Embodied knowledge and sectoral linkages: an input–output approach to the interaction of high- and lowtech industries’, Johan Hauknes and Mark Knell calculate knowledge flows across sectors of varying levels of technology intensity in five OECD countries. They find that, while knowledge is created in all parts of the economy, the major flows are from high-intensity to low-intensity sectors. In contrast to Heidenreich, whose article is discussed below, they contend that lower-tech sectors do benefit very substantially from transferred technology, although they agree that the contribution of new technology to LMT sectors is not as great as in science-based industries. The latter, however, depend more heavily than the rest of the economy on technologies developed in-house. Sandro Mendonc¸a investigates the changing distribution of technologies from a different perspective in ‘Brave old world: accounting for ‘high-tech’ knowledge in ‘low-tech’ industries’. Mendonc¸a uses data from the SPRU (University of Sussex) database on the patenting performance of over 450 large corporations to uncover the technological activities of firms of varying levels of technological intensity in the last two decades of the twentieth century. He finds that, despite a high degree of continuity in their product focus, the patenting performance of all groups of firms broadened considerably over the period and that low-tech firms in fact performed better in terms of growth of patenting activities than their medium-low-tech counterparts in the sample. The trend towards strong increases in patenting activity in high-tech
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areas including ICT, drugs and biotechnology, and new materials was common to all levels of technological intensity including lowtech firms. This expansion of knowledge goes beyond maintaining absorptive capacity to contribute directly to innovation or to the adaptations that LMT firms need for the successful adoption of innovations developed elsewhere. The following article, ‘Innovation patterns and location of European low- and medium-technology industries’ by Martin Heidenreich, uses data from the fourth European Community Innovation Survey (CIS4) and European Union (EU) regional data to explore characteristics that might distinguish LMT sectors from others. He finds that process innovations are more important than product innovations for LMT firms and that embodied technology is of substantial importance to these firms. Both results are consistent with Pavitt’s (1984) conclusions. Heidenreich also concludes, however, that LMT firms (by which he means those in the medium-low and low-technology classes) are less prone than high and medium-high technology (HMHT) firms to engage in partnerships with other firms to promote innovation or to draw on non-R&D sources of knowledge such as patents, training, etc. Finally, through a comparison of the characteristics of regions of the enlarged EU, Heidenreich finds that the growth prospects of a region are negatively affected by the presence of a high concentration of LMT activity relative to the EU taken as a whole. In fact, he finds that manufacturing in general, whether LMT or HMHT, provides a poor platform for growth in comparison to a concentration on sophisticated service sectors. On the other hand, the study does not take account of the relative ability of different platforms to launch growth in diverse environments. It is not altogether clear, for example, that the poorer regions of Eastern Europe ever had a reasonable chance relative to London, Paris or Frankfurt of capturing sophisticated services activities. Therefore, their attempts to promote growth by attracting LMT activities discarded by wealthier regions may have been sensible given their comparative advantage.5 In ‘Search patterns and absorptive capacity: a comparison of low- and high-technology firms from thirteen European countries’, Christoph Grimpe and Wolfgang Sofka use data from the third European Community Innovation Survey (CIS3) to evaluate the sources that firms with varying levels of research intensity target when seeking innovative knowledge. Their hypotheses – that companies classified as low- and medium-low technology will look to customers and competitors for new knowledge, and that companies classified as medium-high and high-technology will concentrate instead on universities and suppliers – are largely confirmed by their statistical results. At first glance, this seems to contradict Pavitt’s hypothesis, which has been confirmed by a number of studies including several in this Special Issue, that the innovation activities of many LMT firms are ‘supplier dominated’ and are driven by purchases of embodied technology. Grimpe and Sofka, however, only investigate product innovations. If process innovation was also investigated, an excellent project for future research, interesting supplementary results could be expected. Lluís Santamaría, María Jesús Nieto and Andrés Barge-Gil explore similar topics using Spanish data. In their article, ‘Beyond formal R&D: taking advantage of other sources of innovation in low and medium technology industries’, they concentrate on the importance of advanced manufacturing technologies (AMT), training and design in generating innovation. They also look at the value for innovation of a number of alternative sources of knowledge
5 It is worth noting that the first stages towards HMHT success in nations such as Japan and Korea were based on firms that learned valuable techniques by acting as suppliers for companies based in more highly developed economies.
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such as joint ventures, non-equity alliances, the use of consultants and external R&D. Employing probit analysis to calculate marginal effects, they conclude that use of AMT (which captures the value of embodied technology), training and design are all of more importance in generating product innovation for LMT firms than for their high-tech counterparts. Similarly, the use of AMT is of more importance for LMT process innovation but design, although important for all firms, is more significant for high-tech firms. The use of external sources of innovation, such as non-equity alliances (product innovation) and consultants (process innovation), is also of value for LMT companies. In all cases, with the surprising exception of high-tech process innovation, internal R&D is nevertheless vital for the innovation efforts of all firms. In common with Heidenreich, they also conclude that external R&D is not of great importance for LMT firms. The relationship between knowledge acquisition and adaptation is explored in ‘External technology sourcing and innovation performance in LMT sectors: an analysis based on the Taiwanese Technological Innovation Survey’ by Kuen-Hung Tsai and JiannChyuan Wang. Tsai and Wang investigate two major categories of technology acquisition. The first, external market-based acquisition, includes R&D outsourcing and inward technology licensing (ITL), while the second is based on R&D collaboration with suppliers, customers, and competitors. They conclude that ITL does not contribute significantly to innovation performance in LMT firms, which runs counter to their earlier findings for high-tech firms (Tsai and Wang, 2007), perhaps because of difficulties in integrating old and new technologies. R&D outsourcing may also be problematic. In both cases, the use of markets can generate appropriability problems when compared to other types of knowledge acquisition. Knowledge acquired through ITL may be readily available to competitors and R&D outsourcing may even lead to leakages of the purchaser’s own discoveries. On the other hand, R&D collaboration seems to yield better results. In particular, Tsai and Wang conclude that the greater absorptive capacity of firms with higher levels of internal R&D activity allows them to assimilate collaboratively developed innovations more easily than firms that invest less in R&D. These finding are, of course, of greater importance for larger companies that can afford to invest substantially in R&D and absorptive capacity. Liang-Chih Chen investigates many of the same issues as Tsai and Wang but on a micro basis. In ‘Learning through informal local and global linkages: the case of Taiwan’s machine tool industry’, he uses detailed interview data to show both how small- and medium-sized enterprises (SMEs) in one LMT sector uncover innovative knowledge and how they learn to adapt new equipment for their own purposes. In the environment that Chen describes, channels of communication are imperfect, obliging LMT SMEs to work hard and intelligently (even with cunning) to gain access to new knowledge. Far from offering a picture of systematic cooperation among Taiwanese producers, Chen comes close to describing a Marshallian system in which knowledge flows among local machine tool producers are largely informal. Ideas are not just ‘in the air’ (Marshall, 1975: 197), however, but may have been deliberately planted by users who spread knowledge that is meant to be confidential to competing firms in order to encourage the design of equipment that combines the features that they need at low prices. Local tool owners provide both tests of innovative equipment and access to imported equipment that allow Taiwanese producers to keep up to date. In addition, Taiwanese machine tool producers make excellent use of international exhibitions to collect information on competing models directly from foreign competitors and to learn how to adapt equipment to their particular needs. One factor that is emphasised is the importance of trained engineers in the technology transfer process, a variable that is unlikely to be picked up in statistical
studies of diffusion.6 Experienced Taiwanese engineers are able to size up innovations from relatively brief and informal exposure to foreign models and to determine how new developments can be fitted into their own activities. Although the article covers only Taiwanese firms, it is probable that the findings have wider applicability, first because of similarities in activities to those of SMEs elsewhere, and second because much of the technology transfer that Chen describes occurs in international contexts and involves European, North American and Japanese firms.7 While Chen’s study concentrates on the activities of relatively small firms, the article by Vivek Ghosal and Usha Nair-Reichert on ‘Investments in modernization, innovation and gains in productivity: evidence from firms in the global paper industry’ considers change in a sector dominated by large, capital-intensive firms. Ghosal and Nair-Reichert note that, although productivity gains from individual innovative episodes in LMT industries tend to be small, they may cumulate into sizeable gains that confer significant competitive advantages on firms that are consistently more innovative. They therefore measure the marginal effects of innovations involving mechanical technology, measurement and software, and chemical processes in the pulp and paper industry in the USA. They find that the payoff from investments in mechanical technology and measurement devices and software is substantial and has increased significantly. This is largely consistent with Pavitt’s (1984) observations updated to take note of the growing importance of software since Pavitt originally devised his schema. Ghosal and Nair-Reichert, like Chen, also conclude that learning-by-doing is of considerable, even if hard to measure, importance in the highly capital-intensive pulp and paper industry. Daniela Freddi, in her article on ‘The integration of old and new technological paradigms in low and medium tech sectors: the case of mechatronics’, explores much more complicated processes of adaptation involving co-evolution of design. Building on a framework outlined by Kodama (1992a,b), she discusses how LMT firms may need to go well beyond altering components when facing challenges posed by innovation. Freddi’s case study demonstrates that ‘technology fusion’ can overcome adaptation problems by creating a new and distinct merged discipline based on principles of its own to implement change successfully, rather than working around the edges of an established discipline such as mechanical engineering. The final article in the issue makes extensive use of patent data to highlight important aspects of LMT innovation. In ‘The role of corporate technology strategy and patent portfolios in low-, medium-, and high-technology firms’, Ulrich Lichtenthaler uses data from 136 European firms to address hypotheses on technological aggressiveness, technological diversification, patent portfolio size and patent portfolio quality. He finds that the returns to technologically aggressive (or offensive) strategies are directly related to a firm’s technological intensity: medium-tech firms gain less from aggressive strategies than high-tech ones achieve on average, and the returns for low-tech firms, although still positive, are lower still. Furthermore, he concludes that the performance of low-tech firms, as measured by their rates of return on sales, is negatively affected by both high degrees of technological diversification and the generation of a large patent portfolio that emphasises the number of patents filed rather than their quality. Lichtenthaler interprets his results as demonstrating that low-tech companies not only rely heavily on purchases of embodied technology, as Pavitt (1984)
6 See, however, the discussion of the importance of trained personnel for LMT ˝ firms in Schmierl and Kohler (2005). 7 The Handbook of Industrial Districts (Becattini et al., in press) discusses, inter alia, sources of knowledge in LMT SMEs, primarily in Europe.
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and others have also found, but that this is a sensible strategy and that they should take greater advantage of opportunities for open innovation in view of their low commitment to R&D. In addition, low-tech firms should aim for deeper strategies of absorptive capacity rather than more diverse ones that they do not have the resources (or at least the commitment) to pursue successfully. When considered together, these articles suggest some interesting avenues for further research. They demonstrate the well-known inconsistency of different innovation indicators (Carroll et al., 2000). The calculations presented by Hauknes and Knell show substantially greater sectoral variations in the generation and use of new knowledge than are implied by Hatzichronoglou’s (1997) OECD classification. The further variations within classes that Kirner et al. have found are not surprising given not only differential access to new knowledge but the different explicit and implicit strategies that firms may follow when not all potential customers derive benefit from particular product innovations, allowing some firms to continue to provide ‘standard’ models while others add new performance features to meet the needs of more demanding customers. These strategic variations are common in industries such as automobiles and machine tools, as well as in more traditional sectors including furniture and even food. (In the case of organic foods, firms that continue to embrace older technologies are perhaps perversely regarded as being more innovative than their competitors.) One possible inference is that the entire high/medium/low technology schema is misleading because firms in all sectors depend on a mix of technologies of many vintages. In particular, the use of embodied technologies is a feature of HMHT firms as well as of LMT ones. Even though inputs of new knowledge flow more commonly from sectors classified as high-tech to those further down the scale, older technologies and older knowledge furnish absolutely vital building blocks for the discoveries of highly innovative firms. These studies also illustrate the problems involved in using different data sources. For example, to what extent is the more generous ability of LMT firms to draw on external sources for innovative knowledge found by Kirner et al. a result of using a more detailed firm-level survey than Heidenreich employed? Access to surveys similar to the German Manufacturing Survey 2006 for a much broader range of countries, using standardised definitions, would certainly help to solve some of the puzzles facing innovation researchers. In the final analysis, however, the gaps in our understanding of innovation, diffusion and adaptation may not be statistical artifacts but result instead from a misconception of the problems surrounding these processes. Most of the papers presented here are based on large-scale cross-sectional studies and, as such, they provide excellent insights into a range of descriptive issues – that is, they increase our understanding of some of the relationships that prevail in modern industrialised economies, or at least in the segments covered by the databases used.8 Unfortunately, they do very little to enhance knowledge of the processes that these outcomes reflect. As the ability of firms to replicate successful outcomes and the ability of governments to implement useful policies are a direct function of their understanding of processes, the importance of this missing link is hard to over-estimate. The urge on the part of positivist scholars to avoid ‘messy’ problems, and the preference of politicians and bureaucrats for ‘one-size-fits-all’ advice, means that case studies of the sorts presented by Chen and Freddi are undervalued. How, critics ask, can the representativeness of a case study be guaranteed? But equally, how can one be sure that statistical findings that
relate large numbers of observations be guaranteed to illuminate the experiences of any one of the events considered? What reason is there to believe that most experiences are accurately reflected by averages? When complex events are under analysis, implicit or explicit simplifying assumptions may lead to clarification of the problems studied. This points to a need for a range of meso-level studies that pay closer attention to the environments of the firms under consideration to show how diffusion and adaptation actually evolve in practice. Certain environmental aspects are clear candidates for deeper investigation. For example, detailed studies of individual sectors can help to sort out the effects in practice of influences that seem important on a priori grounds – variables such as factor costs, access to capital markets, and firm strategies, as well as levels of technological intensity.9 Another obvious variable that has been largely finessed in many studies is firm size. Studies based on patenting data, for instance, are unlikely ever to provide much insight into the behaviour of small firms for the simple reason that they rarely receive patents. As several contributions to this Issue have shown, however, this does not mean that they are not innovative. Nor does the privileged position that writers such as Schumpeter (1950), Chandler (1977, 1990) and Lazonick (1991) accord to large firms justify the neglect of smaller concerns because, through the use of embodied technology and other means, they are essential parts of the system that underpins the success of large innovative firms (Robertson et al., 2003; Robertson and Patel, 2007). To obtain a proper grasp of the innovation processes employed by these firms requires the generation of a large number of detailed studies that approach innovation from diverse angles rather than a reliance on existing data that leads to issues being framed in less than adequate ways for reasons of convenience for researchers.
8 The articles chosen are an accurate reflection of the more than 100 proposals submitted to the editors. Very few of the proposers suggested narrative or processoriented studies.
9 For an interesting and largely neglected attempt to bring a variety of important environmental considerations together in a single model, see the work of Dahmén (1970 [1950], 1989).
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Paul Robertson ∗ Keith Smith Australian Innovation Research Centre, University of Tasmania, Private Bag 108, Hobart, Tasmania 7001, Australia Nick von Tunzelmann SPRU (Science and Technology Policy Research), University of Sussex, Freeman Centre, Falmer, Brighton, East Sussex BN1 9QE, United Kingdom ∗ Corresponding
author. E-mail addresses: [email protected] (P. Robertson), [email protected] (K. Smith) Available online 17 December 2008