Regional Development in the Rhine-Neckar Region. A knowledge-based strategy optimization

Term Paper (Advanced seminar), 2015

20 Pages, Grade: 1,0



List of abbreviations

List of figures and tables

1 Introduction

2 Regional development in a knowledge-based economy and the importance of localized learning

3 The Rhine-Neckar Region (MRN) in view of energy-concerns
3.1 Economic and educational structure
3.2 Energy issues

4 Current regional strategy
4.1 Mission statement on energy policy
4.2 Strategy analysis

5 Further strategy recommendations

6 Discussion and conclusion


List of abbreviations

illustration not visible in this excerpt

List of figures and tables

Figure 1: Communication ecology of local buzz and global pipelines

Figure 2: The Rhine-Neckar Metropolitan Region

Table 1: Interim conclusion on the relation of intra- and inter-regional activities within the MRN

1 Introduction

“The accelerated rhythm of globalization today affects even the smallest and most remote parts of the world: new transportation and communication technologies reduce distances and create a global competition for best locations, young professionals and executives, infrastructure and innovations. Only those, who consistently bundle all regional strengths will survive” (translated from Lowack 2007:130).


“our generation will ultimately be defined by how we live up to the energy challenge” (Armaroli and Balzani 2006:2).

As Lowack states, regional firm agglomerations1 are of great importance within the global economy and knowledge is nowadays considered the most important resource and driving force for regional economic development (Aoyama et al. 2011; Dahlström and James 2012). Development is furthermore inevitably connected to sustainable and efficient energy use, which according to Armaroli and Balzani (2006), defines future economic challenges.

Agglomerations are often seen as an opportunity to bundle regional growth as well as innova- tion processes (Bathelt and Glückler 2012). The concept is frequently integrated in regional and energy-related development programs. Recent approaches on regional economic growth per- ceive production, circulation and transmission of knowledge as key to understanding spatial organization (Dahlström and James 2012). Local specialization processes such as a focus on en- ergy-related developments are associated with knowledge flows, which are spatially differenti- ated and partially unique (Storper 1997). Knowledge cannot easily and completely be codified for distribution throughout space. It is often highly localized and selective in establishing cross- territorial linkages (Bathelt and Glückler 2011). Studies and policies on regional networks and their contribution to economic development often assume that interacting firms automatically gain advantages from networking activities. As a result, networking or co-located structures are seen as a contributing factor to regional development, so that current policy plans focus on strengthening intra-regional interactions (Bathelt and Glückler 2012).

The presented study examines the energy sector in the Rhine-Neckar Metropolitan Region, locat- ed in south-western Germany. Due to its location within the corridor of the European Backbone, it was chosen as a region of global and especially European interest. Global players such as Daimler, John Deere or BASF SE are located within the region as well as several innovative SMEs. The current political agenda aims “to make the MRN known and recognized as one of Europe's most attractive and competitive regions by 2025” (MRN 2015b). To reach this goal, regional de- velopment strategies focus on strengthening the regional energy sector, because it “represents one of the most important industrial sectors worldwide [ǥȐ and Baden-Württemberg is consid- ered Germanys’ pioneer in the field of fuel technology” (Ministry of Finance and Economics - Clusterportal Baden-Württemberg 2014). The regional mission statement on energy policy there- fore defines the goal of strengthening local and regional interactions within the Energy & Envi- ronment Cluster. Reflecting the global importance and the outstanding position the study region holds in this particular field, this sector will be analyzed in the present paper.

It will explore whether the common development plan is suitable to fulfill the regions goal for 2025 and discuss potential changes to improve its success. Problems resulting from energy- related strategies in regional development will be presented and analyzed. Following that, the paper aims to build on existing strategies and attempts to develop them further. For this purpose the study focuses on the application of a knowledge-based agglomeration theory (chapter 2) as introduced by researchers such as Bathelt et al. (2004), Malmberg and Maskell (2002) or Storper and Venables (2004). It is applied to the MRN by determining the Energy & Environment Cluster. After introducing the region (chapter 3), its energy-based strategies, strengths and resulting problems are analyzed in chapter 4. Based on that, the approach of focusing global pipelines to strengthen the regional development is applied to the MRN (chapter 5). The paper concludes by discussing the proposed strategic reorientation regarding possible strengths and weaknesses and stating the most important findings.

2 Regional development in a knowledge-based economy and the im- portance of localized learning

Regional agglomerations can be defined as geographic concentrations of economic activities and are traditionally understood as “outcomes of the economic savings made possible through re- ductions in the average costs of production or service provision due to spatial proximity” (Ayoama et al. 2011:85), also known as external economies of scale or positive externalities. Clas- sical literature distinguishes two types of agglomeration (Ayoama et al. 2011). So called localiza- tion economies result in agglomerations, which benefit from specializing in one industrial sector, whereas urbanization economies refer to the advantage of being located in an urban area with large and heterogeneous markets.

The advantages of regional agglomeration were initially focal points of research on industrial districts and innovative or creative milieus. Based on Porters work (e.g. 1998), the research on agglomeration processes evolved as a central object in economic geography (Bathelt and Glück- ler 2012). In traditional perceptions, agglomeration processes emphasize regional transaction links and associated cost-advantages as well as innovation, resulting from personal supplier- relationships (Aoyama et al. 2011; Bathelt and Glückler 2011). For example, Marshall (1920) focused on the benefits of sharing common pools of factor inputs such as land, labor, capital, energy or transportation and co-operation in demand-pull production. Along the same lines, Porter (1998) assumes that the firm’s competitiveness does not result from internal core com- petencies and skills, but from the ability to adopt and absorb local spillover-effects and to take advantages of other agglomeration structures.

Several critiques however result from classical cluster approaches which oppose the benefits of increasing innovation, growth, productivity, profitability, competitiveness and new firm for- mations (Martin and Sunley 2003). As an example, it is mentioned that agglomerations do not always result in economic growth or technical innovation. They can also result in lock-ins and face decline (Porter 1998). As Martin (2013:1419) puts it, “actors must [alsoȐ be able to adopt and make use of the knowledge available in their surroundings” to gain success through spatial advantages. It is also known as a common problem that the current debate on agglomeration and cluster advantages results in different definitions of the terms and its usage. Occasionally firms are defined as part of an agglomeration without showing any spatial dimension of the val- ue chain (Martin and Sunley 2003). That gives a hint to the universal use of the agglomeration concept, which is applied independently on sectorial, regional or organizational occurrences. Besides spatial proximity, cognitive, organizational, social or institutional proximities are also required to benefit from agglomerations (Boschma 2005). Another frequently raised question is whether a specialization is advantageous for a region in the long run (Motoyama 2008). Accord- ing to Martin and Sunley (2003) there is little evidence to suggest that highly specialized regions have consistently higher rates of innovation and economic growth than less specialized regions. In the long run, an agglomeration must develop different mainstays in order to avoid an overre- liance on a specific sector (Motoyama 2008). Additionally, further disadvantages of agglomerat- ing, such as technological isomorphism and over-specialization or the inflation of land, housing and labor costs, are widely discussed in literature (e.g. Martin and Sunley 2003). Furthermore, as seen in the MRN (chapter 3), it is often assumed that significant input-output-relations devel- op through agglomerating. The majority of current literature focuses almost exclusively on local relations and networks. However, there are few case studies verifying the assumption on input- output relations. On the contrary, even within successful agglomerations most economic trans- actions seem to rely on external actors (Bathelt and Glückler 2012), raising the question regard- ing the importance of exclusively localized processes. If, however, local transactions cannot be seen as the nucleus of successful agglomeration, it is inevitable to think about widening the in- troduced perspective on a more knowledge-based understanding. Knowledge can be generated through codified information or as tacit resource bound to agglomerations and people. Addition- ally extra-local flows of knowledge can “play a pivotal role in injecting new knowledge to local routines, and thereby raise the innovative capacities of firms” (Aoyama et al. 2011:91).

Considering these insights, clusters and regional agglomerations must consequently be seen as spatially agglomerated (Malmberg and Power 2006) networks of knowledge transfer, interactive learning and as the result of progressive knowledge development (Martin 2013). Knowledge is furthermore acquired through trans-local interactions involving market and technology linkages (Bathelt et al. 2004; Malmberg and Maskell 2002; Storper and Venables 2004). All activities are linked by local interdependencies regarding collaboration and competition (Bathelt and Glückler 2012). Traded interdependencies such as price determined transactions are as important as the untraded interdependencies of trust and institutional arrangements (Bathelt and Taylor 2002). Social embeddedness lowers transaction costs through developing trust among all co-localized firms (Tallman et al. 2004). Additionally self-awareness and joint policy interaction exists among all co-located actors (Malmberg and Power 2006). To summarize, from this perspective agglom- erations are built around technological know-how of a localized value chain or parts thereof and need to be extended by inter-regional inputs.

Analyzing the success of spatial agglomerations from such a perspective, two main components need to be considered in local policies. As Bathelt and Glückler (2011) describe, only the combination of local buzz and global pipelines (figure 1) generate dynamic knowledge spillovers and provide the possibility of enhanced learning and further economic growth.

illustration not visible in this excerpt

Figure 1: Communication ecology of local buzz and global pipelines (Wilbrand 2015, based on Bathelt and Glückler 2011)

Intra-regional Activities - Local buzz. The British economist Marshall (1927) defined an indus- trial atmosphere, which exists within local agglomerations and described advantages resulting from face-to-face interactions of co-located actors. These days, this phenomenon is referred to as buzz (Storper and Venables 2004) or noise (Grabher 2002). It “consists of specific and continu- ously updated information, intended and unintended learning processes in both organized and accidental meetings, the application of shared interpretative schemes, common understandings of new knowledge and technologies, as well as shared cultural traditions within a particular technology field” (Bathelt and Glückler 2011:132). Specific investments are not required in or- der to participate in an agglomerations buzz. Actors receive new information, rumors, gossip and trade folklore virtually by just being there. At least, tacit and codified knowledge circulates through the contact with suppliers, phone calls during office hours or lunch with colleagues. Ettlinger (2003) points out that all individuals act within their own networks however these networks can overlap and consequently stimulate each other. The local buzz also includes “a universe of planned and scheduled meetings, sometimes with rigidly planned agendas” (Bathelt and Glückler 2011:134). Most possibilities for knowledge exchange are based on spatial proxim- ity and a common institutional cohesion. Localized activities, such as intensive monitoring or observation, result in some kind of rivalry and stimulate imitation, product differentiation and other innovative processes (Malmberg and Maskell 2002). The institutional surrounding and possible co-operation can develop professional trust and result in valuable localized capabilities which stimulate further economic growth (Maskell and Malmberg 1999).

However, not every localized knowledge-transfer necessarily results in an effective application of useful information and the access to new markets. The success of a firm still depends on its ability to translate new knowledge into individual solutions. Additionally, not all agglomerations create the same kind of buzz and its existence and quality is not a direct consequence of co- location. While talking about the co-location of firms, it is a difficult task to identify the geo- graphical boundary of the local buzz (Motoyama 2008), which “are defined by the linkages and complementarities across industries and institutions that are most important to competition” (Porter 1998:79). As a result, the regional demarcation has to be drawn on a case-to-case basis. Gaining localized competitive advantages could result in lock-ins if innovative changes in global market and production processes are not adopted in time (Malmberg and Maskell 2006). Fur- thermore an over-embeddedness might also contribute to blind confidence and gullibility. Con- trasting the introduced perspective on buzz and noise, Asheim et al. (2007:658) suggest that buzz “can be transmitted both electronically and face-to-face, and can therefore be both local and global”, which might result in the perception of making a distinction between intra- and inter- regional activities and knowledge flows ambiguous or even redundant.

Inter-regional Activities - Global pipelines. If firms exclusively rely on internal markets and knowledge circulation through local buzz, agglomerations cannot realize its true growth poten- tials (Amin and Cohendet 1999). As Storper (1997:44) states “the status of the region is [..] not merely a locus of true pecuniary externalities, but—for the lucky regions—as a site of important stocks or relational assets”. Based on the assumptions stated above and Uzzi’s work (1997) on the textile industry, it can be shown that close intra-regional relations only cause economic growth to a certain extend. Beyond that point the firm’s embeddedness increases the likelihood of failure. That’s why the importance of external market relations is continuously acknowledged and many researchers conclude that competitive advantages in a KBE can no longer exclusively be realized on regional scale. Arguing against Martin (2013:1432) who claims that “the im- portance of tacit knowledge and interactive learning implies that relatively little collaboration takes place across greater geographical distances”, Owen-Smith and Powell (2004) introduced the term pipeline to describe the importance of trans-local or global interactions. Global pipelines create access to external knowledge pools and are embedded in a variety of different industry settings and regions. Malmberg and Maskell (2006:11) argue that “the ability to build well- functioning network relations - pipelines - to knowledge sources around the globe is in itself perhaps one of the most important localized capabilities”. In contrast to the local buzz, trans- regional pipelines are targeting towards certain goals and are often planned in advance. They do not occur automatically or from spontaneous interaction. Instead, they require risk and invest- ments into linkages to other firms (Bathelt et al. 2004). Unlike with interaction between spatially co-located firms, there is basically no trust established that new partners could benefit from (Maskell and Malmberg 1999). Firms must rather develop joint interpretative schemes and common institutions to facilitate successful co-operation. To achieve this goal the ability to as- similate incoming information and to apply them to the international work processes - often referred to as absorptive capacity is an important precondition. Benefits result from the large variety of different ideas and the exchange of variable explicit and tacit knowledge which is transferred back into the region (Bathelt 2011).

However, Nooteboom (2006) discusses difficulties in maintaining a balance between having too little or too much relational embeddedness within the region. Furthermore, the pipeline approach has to be criticized for not differentiating among various non-local spatial scales. In addition, Trippl et al. (2009:448) point out that “the channels or mechanisms by which actors in agglom- erations gain access to knowledge at different spatial scales, as well as their relative importance, remain obscure [and] no distinction is made between the transfer of “existing knowledge” and the creation of new knowledge by means of joint efforts and interaction”. Despite all existing criticism, the combination of an inter- and intra-regional perspective on ag- glomeration still provides new dynamic development potential. It “is especially relevant for [ǥȐ knowledge driven industries” (Bathelt and Glückler 2011:135) such as the MRNs energy sector, which was subsidized as Energy & Environment Cluster by the EU. Since knowledge is seen as the most valuable resource today, learning becomes a vital process for a region’s competitiveness (Moulaert and Sekia 2003). For those reasons an application of the concept to the MRNs energy- related development will benefit from widening its strategy in terms of a knowledge-based fo- cus.

3 The Rhine-Neckar Region (MRN) in view of energy-concerns

The MRN (figure 2) is a polycentric planning-region, located in south western Germany (Sar- cinelli et al. 2009). Since 2005, it is officially classified as one of eleven European Metropolitan Areas in Germany (Lowack 2007). The political aim of Metropolitan Areas is to contribute to Eu- rope’s sustainable and balanced development. Therefore Metropolitan regions in Germany aim to strengthen the country’s competitive advantages as wells as to build up networks of cooperating cities (Egeln et al. 2009). Since finding solutions to energy-related challenges “will lead to abun- dant positive outcomes in other fields” (Armaroli and Balzani 2006:2), regional economic ad- vantages can be built by focusing on energy-related topics. Reaching that regional goal of global importance is supported by European programs such as Spatial Planning and Energy for Com- munities in all Landscapes and COOPENERGY.

Florida (1995) already mentions the crucial role of regions instead of countries which are seen as competitors in today’s economy. As in many other urban areas, it is the MRNs explicit goal to be recognized as one of the most attractive European regions by 2025. Economic, scientific and energy-related developments should be globally recognized as innovative and business start-ups and internationalization should be supported (Ministry of Finance and Economics - Clusterpor- tal Baden-Württemberg 2014).

However the German concept of European Metropolitan Areas might be criticized for defining too many Metropolitan regions, compared to other European nations such as UK or France. This is caused by the federal system existing in Germany.


1 Note: In the current discussion on agglomeration and cluster, both terms are not clearly distinguished in literature. For that reason the term agglomeration is predominantly used within this paper but also contributes to the cluster phenomenon.

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Regional Development in the Rhine-Neckar Region. A knowledge-based strategy optimization
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Hanna Wilbrand (Author), 2015, Regional Development in the Rhine-Neckar Region. A knowledge-based strategy optimization, Munich, GRIN Verlag,


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