Innovation and Change in Baden-Württemberg’s Regional Innovation System

Table of contents

PREFIX

ABSTRACT

ACKNOWLEDGEMENTS

FIGURES, TABLES AND BOXES

LIST OF ABBREVIATIONS, ACRONYMS AND TRANSLATIONS

1. INTRODUCTION
1.1. Purpose and Significance
1.2. Research Scope and Research Question
1.3. Methodology

1.4. Structure of the Thesis

2. CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW
2.1. Introduction
2.2. Regional Innovation Systems (RIS) in the Literature
2.2.1. Introduction
2.2.2. Regional Innovation Systems
2.3. The Concepts of Lock-in and Path-Dependency
2.3.1. Introduction
2.3.2. Lock-in and Path-Dependency at a Glance
2.4. The Concepts of Variety and Specialization
2.4.1. Introduction
2.4.2. Variety vs. Specialization

3. CASE STUDY AND ANALYSIS
3.1. Introduction
3.2. The Region of Baden-Wurttemberg, Germany
3.2.1. BW at a Glance
3.2.2. BW's "traditional" economy
3.2.3. BW's Regional Innovation System
3.2.4. Changing Regions - What happened to BW?

4. CONCLUSION
4.1. Findings
4.2. Limitations
4.3. Further Research

REFERENCE LIST

APPENDIXA.1

APPENDIX A.2

APPENDIX B

Figures, Tables and Boxes

FIGURE 3-1: HIGH-TECH PATENT APPLICATIONS TO THE EPO BY PRIORITY YEAR

FIGURE 3-2: PATENT APPLICATIONS TO THE EPO BY PRIORITY YEAR

FIGURE 3-3: SCHEMATIC ILLUSTRATION OF BW'S RIS

TABLE 3-1: R&D PER GDP IN % IN 2005

TABLE 3-2: PATENT DENSITY IN GERMAN BUNDESLANDER 2007

TABLE 3-3: R&D PERSONNEL IN BW'S ECONOMY IN 2005

TABLE 3-4: CHOSEN COMPANIES INBW- THE PERSPECTIVE OF RECENT YEARS

TABLE 3-5: NUMBER OF BIOTECH COMPANIES IN GERMAN LANDER, TOP6

BOX 3-1: BW GDP GROWTH RATES IN %

List of Abbreviations, Acronyms and Translations

Abbildung in dieser Leseprobe nicht enthalten

Abstract

Globalization pushed regions on the market of global competition. Each of them tries to fulfill the needs of companies, tries to surround all actors with a reliable innovation system, tailored to the needs of their economy. The federal state of Baden-Wurttemberg (BW) in Germany is one of them. BW has been in the focus for its outstanding performance in the sectors of mature industries in the past. Nowadays the former successful region has to adapt to the sectors of high-technologies. Several concepts, such as RIS, lock-in, path- dependency, variety and specialization, are applied to the region to see how it has changed. It is questioned if BW was able to avoid stagnation and lock-in in the past and if it transformed its regional innovation system to a higher level. Surprisingly, the results show that BW was indeed able to fulfill the needs of high-tech sectors to a certain degree by further engaging R&D, and transforming the educational base.

Key Words: Regional Innovation Systems, Baden-Wurttemberg, mature industries, high- technology sectors

Acknowledgements

Special thanks go to my supervisor Olof Ejermo from Lund University, for time and effort you gave to me. Thanks for getting me started. I would also like to thank Carl Magnus Palsson who really was the center and brain of CIRCLE. Thanks for being such a helpful person, thanks for solving all the small things of daily life from day one.

Also, I'd like to thank Birgitte Gregersen from Aalborg University, who made the stay in Denmark a special one. You gave me the opportunity to go to Lund, I'm very thankful for that!

I would like to thank all my friends that accompanied me in Denmark and Sweden for a very special year in my life.

From the bottom of my heart I would like to thank my parents that supported me in every situation, all year long, you deserve special credit.

And to Sarah, who spent this wonderful year with me. Thank you for every single minute!

1. Introduction

1.1. Purpose and Significance

Every system of innovation reaches a point where decision makers have to think about further improvement. The fear of regions would be to fall behind in the globalized market; others might have cheaper ways of producing (wages and workforce) or a better infrastructure. What regions have been setting their focus on lately is the production and maximization of their innovative output. Who innovates, sets new standards, new trends and optimizes the own product. As product life cycles have been shrinking in many sectors, the ability to innovate gets more and more into the focus of decision makers. Every region faces problems that have to be addressed and solved to further optimize products and to stay ahead. Some regions managed to lift their production to a higher and more innovative level. Baden-Wurttemberg in Germany is one example. Outstanding R&D expenditures in the last couple of years show that there is a willingness to invest and to innovate. But even a well organized and structured region like BW faces problems that need to be taken into account. Their regional system of innovation has been analyzed from the firm and industry perspective and critics pointed out several weaknesses of the region.

This thesis will try to use a flexible approach, combining the concepts of regional innovation systems, lock-in, path-dependency, variety and specialization. The concepts will be applied to Baden-Wurttemberg to see what effects they had and still have and what needs to be done to optimize the region.

The German federal state of Baden-Wurttemberg has been seen as a role model economy, regarding its strong performance in the last decades. The whole system worked out well, regarding its support for the companies in the German region. Though, this system has been criticized for its strong relation and support of its three main technology sectors - automobiles, engineering and electronics^[1] - leaving aside high-technology sectors. Its structure was mainly benchmarked as one of the advantages of the region, since the whole RIS focused on the three sectors. However, after the boom times of the 1980s and the following decline in these three sectors, Baden-Wurttemberg's policy makers started to analyze their own system in a different way: The so called Future Commission 2000 concluded that policy makers should focus more on high-tech, in order to become more open to globalization and find solutions for global competition. (Landesregierung von Baden-Wurttemberg 1993) The awareness of losing track in several other branches, while leading in 'only' three others, was existent. This thesis focuses on Baden-Wurttemberg's 'double burden' that consists out of the transformation of the 'traditional' sectors and the needed investment towards new high-tech sectors. It will be highlighted how BW managed to change the innovation system and opened up towards new technologies.

The concepts of regional systems of innovation, lock-in, path-dependency, variety and specialization will be highlighted to see how regional development is influenced in the case of Baden-Wurttemberg. It is assumed that BW faces drastic problems today due to lock-in and path-dependency. However, the results show a different, more positive, picture.

1.2. Research Scope and Research Question

The thesis analyzes the region of Baden-Wurttemberg and identifies reasons how and why change towards high-tech industries is possible. In perspective of the above mentioned concepts and theories, the region of BW is highlighted in a case study, presenting regional structures and actors of the innovation system. Therefore, the thesis addresses the following question:

How did Baden-Wurttemberg change its innovation system towards high-tech services?

1.3. Methodology

The case study method was used for this thesis to gain further insights to the regional innovation system of Baden-Wurttemberg. Within the case study BW's actors are analyzed and a successful type of regional development could be identified.

The overall research was mainly carried out as desk research. It included several databases that can be found at the websites of the regional or national statistical institutes in Germany, partly at OECD and Eurostat. The case study is mainly build on former research that has been undertaken in the area of regional innovation systems, policy documents form officials of Baden-Wurttemberg and the local statistical office.

1.4. Structure of the Thesis

The following chapter, chapter 2, is concerned with the conceptual framework of the thesis and explains different theories and concepts. The concepts used for the purpose of the case study are the regional systems of innovation approach, the theories of lock-in and path- dependency, as well as the concepts of variety and specialization. These will later on be used to analyze Baden-Wurttemberg's regional innovation system.

Chapter 3 is devoted to the case study of Baden-Wurttemberg, whereas a brief introduction to the region is given in the first part. The second part deals with the 'traditional economy' that is in the focus of the thesis. The third and last part is concerned with the changes that happened in BW and the lessons that can be drawn from it.

The conclusion of the thesis is that BW managed to bypass lock-in and path- dependency effects because of its special regional setup and diversity.

2. Conceptual Framework and Literature Review

2.1. Introduction

The following chapter is concerned with the conceptual framework of the thesis. Different concepts and theories about regions and their structure are presented to capture the important aspects of regional structures, to understand structures and the problems that have to be faced in the case study and following analysis about the region of Baden- Wurttemberg (Chapter 3). The conceptual framework deals with the concepts of regional innovation systems (RIS), the phenomena of lock-in and path-dependency, as well as the concepts of variety and specialization. The Regional System of Innovation approach opens the box of regional analysis and helps to give insight to regional structures and analysis. Lock-in and path-dependency are problems that have to be addressed by regions in the globalized world of today, because of rapidly changing product life cycles and working conditions, outsourcing and the changing role of knowledge production. It is essential for regions to have a certain flexibility, to adapt to new products or technologies. That is why lock-in and path-dependency still play a crucial role in regions nowadays. These two concepts will be highlighted in section 2.3.2. The focus lies on different phenomena in the mirror of possible lock-in effects, whereas path-dependency is mentioned briefly, yet to remind the reader of the broad perspective that is taken towards the region of Baden- Wurttemberg. Questions that will to be answered: How are regions affected by lock-in and path-dependency? How can regions get around them?

The last section of the Conceptual Framework deals with the concepts of variety and specialization. All regions are, to a certain degree, shaped and affected by these two concepts and their importance for regional economies will be highlighted. Because of time and space limitations of this thesis and due to the broad variety these five concepts bring along, not every single aspect could be reviewed in a broader context.

2.2. Regional Innovation Systems (RIS) in the Literature

2.2.1. Introduction

The following section is contributed to the Regional Systems of Innovation approach by Asheim and Cooke (1999). Globalization is one of the main factors that have been named to explain why national borders seem less important for the economy and, on the other hand, regions pressure forward into the newly created vacuum. The environment a region has to offer seems to play a greater role on daily globalized competition. Direct connections between the single actors, such as the institutions, organizations and companies, play a crucial role, as companies profit from knowledge transfer and the direct proximity a region creates. Braczyk et al (2004) understand the concept of Regional Innovation Systems (RIS) as the key to understand regional development. Parts of the concept will be explained in the following section, starting with a definition of regions itself, continuing with the theory of RIS and additional thoughts by analysts that have been involved to the RIS concept.

2.2.2. Regional Innovation Systems

Regions are understood as territories which are governed by political institutions at subnational levels, and as an important platform to generate innovations. While innovations are seen as a key to economic development, the importance of promoting processes of innovation lies at hand (Prange 2008). The question has been raised why regions matter and an introduction to the theory of regional innovation systems is at need to clarify it. (Laursen et al. 2000)

In the last few years, regions itself have been more and more in the focus of scholars. They have been recognized as "the most important platform to generate innovations" Prange (2008) for the creation of economic development (Braczyk and Heidenreich 1998; European Commission 2001). Acknowledging the importance of regions, the theory of regional innovation systems (RIS) has been settled after a rapid development over the past ten years (Asheim 1998; Cooke and Morgan 1998; Asheim and Gertler 2005). Asheim and Cooke (1999) define regional innovation systems as "the institutional infrastructure supporting innovation within the production structure of a region". Asheim and Gertler (2005) differentiate between three kinds of regional innovation systems:

(1) regionally networked
(2) regionalized
(3) territoriallyembedded

Of particular interest for the thesis research are regionally networked innovation systems. They are to be seen as the "ideal type of RIS" since a regional cluster of firms is surrounded by a "regional 'supporting' institutional infrastructure" (Asheim and Gertler 2005). Cooke (1998) points out that they can be found in Austria, Germany^[2] and the Nordic Countries - Baden-Wurttemberg can be seen as an example, which we will focus on later. On a broader stage Lundvall and Borras (1999) show why regions have become more important: Regions are the level at which innovation is more and more produced through regional networks of innovators, local clusters and effects of (research) institutions. The interplay between different actors^[3] seems to be an important aspect in this case and will be analyzed more closely in Figure 3-3.

Taking the last section into account, many regions were analyzed to generalize and compare different setups and (regional) innovation systems. According to Cooke and Morgan (1998) there only exist three "true" regional innovation systems: Baden-Wurttemberg (Germany), Emilia-Romagna (Italy), and Silicon Valley (USA), due to size, companies and infrastructure of the region. 'True' in a sense that these regions have intensive interaction and dynamic actors when it comes to innovation strategies of its actors.

This insight from Cooke and Morgan initiated many scholars to take a closer look into the mentioned regions. Especially Baden-Wurttemberg (BW) was in the focus and its RIS has been analyzed intensively. One of the reasons to be mentioned here is that BW can be seen as a "model economy" (Cooke 1997) not only regarding its level of unemployment, industrial investment, exports and incomes, but furthermore the outstanding level of creating competitive advantage. This is what Cooke (1997) calls the "capacity to innovate" (376). Due to globalization and its effects of an increasing global completion, western regions have to rethink their strategies, given the high production and labor costs (Heidenreich and Krauss 2004). This also means that regional authorities have to be more alerted to the needs and requirements of firms, to create a firm friendly environment (Cooke et al. 2000).

2.3. The Concepts of Lock-in and Path-Dependency

2.3.1. Introduction

This section will take a closer look at lock-in effects and path-dependency as both concepts play a crucial role in regional systems of innovation. BW has formerly been criticized as a region that could be affected by these concepts in the near future. In a first step the genesis of both concepts will be mapped and in a second step the modifications that have been implemented by other authors will be added to the concept, and further clarification is needed as both concepts are partly interwoven. As a forecast, BW has been highly criticized throughout the 1990s for a strong focus on automotives, engineering and electronics, thereby neglecting new sectors in the high-technology branches (at that time upcoming ICT, bio-technology) From today's perspective it will be asked if BW managed to restructure their support towards high-technology services and therefore avoided (further) lock-in and path-dependency.

2.3.2. Lock-in and Path-Dependency at a Glance

When analyzing regional innovation systems that have a strong focus on only a few industrial sectors it becomes necessary to mention lock-in effects and path-dependency. One of the first to define lock-in effects was Grabher (1993). Grabher differentiates between functional, cognitive and political lock-in phenomena. (1) A functional lock-in hampers co­operation with other regions because of (too) close and intense co-operations within networks. Therefore, future trends, which might occur outside given networks or clusters, might be overseen. (2) Cognitive lock-in caused by personal relations lead to "shared common ideas, feelings and beliefs that prevent the adoption of new ideas" (ibid. 262). Rothwell and Zegveld (1985) illustrate how companies can be affected by cognitive lock-in:

[I]t illustrates how established companies can become locked into existing technological trajectories. Rather than attempting to capitalize on the possibilities offered by the emergence of a superior new substitute technology, they vigorously defend their position through the accelerated improvement of the old technology.

Rothwell and Zegveld (1985: 43), in: Grabher (1993: 263)

(3) Political lock-in is referred to as a situation where historical paths of development are maintained by cooperative relations between (regional) actors. These actors are then unable to adopt new ways of thinking and policymaking (Grabher 1993). Additionally, the thoughts of lock-in phenomena were formulated by Arthur (1989:116) saying that there are cases "where an early-established technology becomes dominant, so that later, superior alternatives cannot gain a footing". Meaning, a region that based its support mainly on one technology or industry can have problems restructuring and redirecting financial aid for new ideas and sectors. Especially if a sector has been successful for a long period of time and then suddenly declined due to exogenous factors. Todtling and Trippl (2005: 1206) stress the importance of cooperation and organizations (further analyzed in chapter 3.1.3) in regional economies and conclude:

[B]oth the lack of organisations (in the fields of research, education, technology transfer) as well as a too strong orientation of existing institutions on traditional economic and technological structures may lead to serious innovation problems. (...) [T]oo strong ties between innovation relevant organisations can lead to serious lock-in effects undermining the innovation capabilities of regional economies.

As we have seen, functional as well as political and cognitive lock-ins can maneuver regions into situations of stagnation. Even though further incentives and support is given into certain sectors, they do not develop future solutions to upgrade the region as a whole. Lock- in phenomena mostly display failed interaction patterns between actors. It could be shown that too close connections in networks can bind the region to itself, while cooperation with other regions might be more fruitful for new ideas. Strong personal ties can also result in a "one-way-thinking" where new input is lacking. And last, we have pointed out the problem of lacking flexibility within institutions in charge of policy-making once a technology-path has been chosen.

These thoughts lead us to the problem of path-dependency. The roots of the concept of path-dependency point back to Nelson and Winter (1977), whereas they wrote about evolutionary theory and gave a base for Dosi (1982) and his thoughts about technological trajectories. David (1985) and his example of "QWERTY" are often mentioned as one of the first examples of path-dependency. A recent perspective on path-dependency is given by

[...]

^[1] This sector has been described and named differently throughout the literature. The so called sector of electronics here includes the manufacturing of office equipment, electrical engineering, precision engineering and optics. It should be kept in mind that this sector includes a variety of engineering branches, including companies like Alcatel, Bosch, IBM, and Hewlett Packard. The sector is closely connected with the sector of automobiles and belongs to the top group of employers in BW. (Fuchs and Wassermann 2005)

^[2] He particularly analyzed Baden-Wurttemberg in his studies about different types of RIS.

^[3] The interplay between Government, Industry and Universities is analyzed in the Triple-Helix Model and can be found in Etzkowitz & Leydesdorff (1997).