Innovation in The European Creative Industries A Firm Level Empirical Approach

Industry and Innovation
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Innovation in the European creative industries: a

firm-level empirical approach
Aimilia Protogerou, Alexandra Kontolaimou & Yannis Caloghirou
To cite this article: Aimilia Protogerou, Alexandra Kontolaimou & Yannis Caloghirou (2017)
Innovation in the European creative industries: a firm-level empirical approach, Industry and
Innovation, 24:6, 587-612, DOI: 10.1080/13662716.2016.1263551
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Industry and Innovation, 2017
VOL. 24, NO. 6, 587–612
https://doi.org/10.1080/13662716.2016.1263551
Innovation in the European creative industries: a firm-level

empirical approach
Aimilia Protogeroua, Alexandra Kontolaimoua,b and Yannis Caloghiroua
a
Laboratory of Industrial and Energy Economics, National Technical University of Athens, Athens, Greece;
b
Centre of Planning and Economic Research (KEPE), Athens, Greece
ABSTRACT KEYWORDS
This paper explores the innovative performance of firms active in Creative industries;
the creative industries (CIs). It identifies potential differentials in innovation; firm
various innovation indicators between CI and non-CI young firms and characteristics; founder-
examines drivers of the innovative performance of firms in the creative specific characteristics
sectors. Our findings suggest that firms in the CIs outperform those JEL CLASSIFICATION
in non-CIs both in terms of product innovation and R&D intensity, O31; L80
but not in terms of process and organisational innovation. Empirical
analysis also suggests that the human capital of the founders as well
as specific firm characteristics play a significant role in the innovative
activity of firms in the CIs.
1. Introduction
Contributing to growth, job creation and internationalisation, creative industries (CIs) are
widely recognised as a highly dynamic part of many economies which seems to be more
resilient to economic recessions relevant to other sectors (UNCTAD 2010). Indeed, in
times of financial and economic crisis, these industries become even more attractive as a
source of potential employment and entrepreneurial endeavour (Henry and De Bruin 2011;
Nathan, Pratt, and Rincon-Azner 2015). However, the innovation capacity of the CIs in the
wider economy is only beginning to be fully understood. Innovation can be present in both
creative and non-CIs due to the dispersed nature of the creative talent. This explains in part
the difficulty in capturing ‘creative innovation’ in quantitative terms (De Propris 2013).
Most importantly, existing empirical studies emphasise on the direct as well as on the
indirect contribution of CI firms to innovation, i.e. these firms possess strong innovation
potential themselves (Castañer and Campos 2002; Handke 2004; Miles and Green 2008),
but at the same time they act as an important catalyst for innovations and knowledge-based
growth in numerous other economic fields (Bakhshi and McVittie 2009; Kimpeler and
Georgieff 2009; Müller, Rammer, and Trüby 2009; Chapain et al. 2010). In the latter case,
they seem to work as a cross-cutting sector, affecting the innovation capability of the whole
economy, through processes of sourcing, adoption, imitation and buyer-supplier coopera-
tion (Cooke and De Propris 2011).
CONTACT Aimilia Protogerou protoger@gmail.com, protoger@chemeng.ntua.gr

© 2016 Informa UK Limited, trading as Taylor & Francis Group
588 A. PROTOGEROU ET AL.
Although an increasing number of studies focus on CIs examining definition issues

(Galloway and Dunlop 2007; Flew and Cunningham 2010; Bakhshi, Freeman, and Higgs
2013) as well as organisational, spatial and clustering patterns that apply to creative activi-
ties (Lange et al. 2008; Lazzeretti, Boix, and Capone 2008; Davis, Creutzberg, and Arthurs
2009; Gwee 2009), the empirical evidence on the links between the creative sector and
innovation remains rather limited (Jaaniste 2009, 2014b; Lee and Rodríguez-Pose 2014a).
Moreover, in existing research on the CIs the attention of scholars has been mainly focused
on the macro-level, while there is a need of better understanding of what occurs at the
micro-level and especially for analysing differentiating factors in the performance of CI
firms (Parkman, Holloway, and Sebastiao 2012). In this vein, one question that has been
widely neglected concerns the degree and determinants of innovation in the CIs (Andari,
Bakhshi, and Hutton 2007; Sunley et al. 2008; Camelo-Ordaz et al. 2012). In addition, as
the majority of firms in the CIs are micro businesses (HKU 2010; Protogerou et al. 2016), a
complete understanding of the innovation performance in this sector requires information
about these smaller sized firms (Miles and Green 2008).
The present paper attempts to address this gap by exploring different aspects of the inno-
vative performance of firms in CIs as compared to those in non-CIs, along with potential
determinants of innovation in the CIs utilizing a unique data-set of approximately 4,000
young firms across 10 European countries. A systematic empirical analysis is conducted
in two stages. First, CI firms are compared to non-CI firms in terms of various traditional
innovation indicators such as product, process and organisational innovation, and R&D
intensity. At a second stage, we explore the effect of diverse firm resources and competences
on the innovative performance of firms active in a wide range of creative sectors.
This work makes a number of contributions to the relevant literature. First, it adds to
the empirical research on the CIs which, despite the increasing interest on these sectors,
remains rather limited, especially as concerns the contribution of CIs to innovation. Second,
the large size of our data-set and the extensive coverage of firms in diverse industrial sectors
allow for a comparative analysis of CIs and other industries in a systematic way. What is
more, this paper investigates a series of key innovation determinants that are particularly
important in the context of young small firms in the CIs such as the human capital of
founders and firm-specific characteristics which have been hardly explored in the context
of the creative sectors.
The paper is laid out as follows. Section 2 briefly reviews the literature on innovation in
the CIs and provides the theoretical context of the research. The sampling method, data-set
and variables used in the empirical analysis are described in Section 3. Section 4 presents
and discusses the results of the empirical analysis, while some concluding remarks are
provided in the last section.
2. Theoretical background

2.1. Exploring and measuring innovation in the CIs
Creativity, irrespective of the way it is interpreted, possesses a prominent place among the
key ingredients of innovation, while the interlinkages between creativity and innovation
have been widely pinpointed in theoretical and empirical studies (Lee, Florida, and Gates
2002; Stolarick and Florida 2006; Okpara 2007). This close relationship may be a reason for
INDUSTRY AND INNOVATION 589
a number of studies assuming creative firms, by default, inherently innovative (Camelo-

Ordaz et al. 2012). However, within the literature on CIs, empirical evidence testing related
assumptions is quite limited and fragmented. In this respect, interpretation, definition
and measurement issues referring to innovation in the context of CIs may be particularly
relevant (Miles and Green 2008).
The CIs unlike traditional service industries which provide routine services based on
well-known technologies and extant institutional structures, are ‘by definition involved in
the process of new value creation’ because their business opportunities and value-adding
potential result from the very existence of novelty and innovation in other industries to
which they provide various innovation services. This process-focused innovation view may
be better understood if we approach CIs not just as suppliers but mainly as processors of
creativity (Bakhshi, Freeman, and Higgs 2013). Running through the list of creative sectors,
e.g. architecture, publishing etc., we quickly realise that these industries do not operate in
isolation but they rather interact with other industries in a market-economy context to
solve problems created by technological or socio-cultural changes. Under this assumption
CIs produce greatest value when the economy is evolving. Of course, they would still exist
in a world without innovation, however, their role and impact as value creators would be
enfeebled, i.e. advertising would collapse to packaging, design to engineering efficiency
and so on (Potts 2009).
Following this line of thinking the CIs’ contribution to an innovation system can be
mainly understood through their crucial role in the socio-cultural process of adoption and
retention of new ideas. The significance of CIs in this view is that they are part of the tech-
nology of economic growth and development. Obviously, they also produce entertainment
and employment as an additional benefit. However, they should be basically conceived as
functionaries of knowledge creation along with other elements of the innovation system
(Potts 2009).
Several studies have indicated that the creative economy contributes to the wider econ-
omy’s innovativeness. In particular, drawing on the concept of the creative class (Florida
2002) these studies have examined how CIs contribute to the economy either by offering
creative products to final consumers, or indirectly by affecting other non-CIs through cross
sector innovation and creative knowledge spillovers (De Propris 2013). However, despite
the increasing policy interest in the CIs, the evidence base on the CIs’ innovation and
development is particularly weak (Sunley et al. 2008; Lee and Drever 2013).
The special nature of creative products or services grounded by ‘content’, ‘experience’ and
‘user-centered’ approaches, along with organisational structures related to micro-businesses,
project-work and informal networks are some of the features that particularly apply to
CIs distinguishing them from other traditional industries. Such features have considerable
implications for the innovation process and innovation output within CIs, where apart from
typical forms of innovation in products or processes, new or different types of novelties are
acknowledged (HKU 2010; Miles and Green 2011; Jaw, Chen, and Chen 2012; Stoneman
2015).
Along these lines and based on case-studies in specific creative sectors, Miles and Green
(2008) identify several forms of hidden innovation which cannot be captured by traditional
indicators and are realised in non-scientific and non-technical areas. Such forms usually
refer to changes to business models and organisational set-ups, original combinations
of existing technologies for new purposes, and on-the-job innovation, with recognition
of lower levels of innovation in the distributive phases of production (Brandellero and

Kloosterman 2010). In a quite similar context, Handke (2004) emphasises on content crea-
tivity as a special form of innovation being distinguished from humdrum innovation, which
is mainly related to technological innovation. Therefore, non-formal R&D activities can be
vital factors in explaining a company’s process and product innovation.
However, it should be pointed out that innovation in CIs can be hidden not only because
it primarily lies in creative contents, but also because the technological developments in
these industries may be concealed or covered (Benghozi and Salvador 2016). For example,
CIs like music, film and video, publishing and video games have been transformed by the
impact of digital technologies which have affected profoundly not only the diffusion and
circulation of content but also the ways in which content is selected (Mangematin, Sapsed,
and Schuessler 2014). Yet, insiders in the CIs do not consider investing in R&D to develop
a new technology, they rather focus on adopting technologies and adapting themselves
to technological innovations developed in other sectors outside the CIs. The innovative
use of technology in CIs is important in engaging, communicating and interacting with
customers (e.g. online user engagement) (Rae 2007), however, new tools and technologies
can also change the creative process itself, i.e. the way creators think and make their work
and in consequence the way they conceptualise and generate novelty (Mangematin, Sapsed,
and Schuessler 2014). On the other hand, when R&D activities are carried out by CI firms,
they are rarely defined as effective R&D activities since they are essentially perceived as
investments in projects rather than investments directly related to technologies and design
on processes or infrastructure (Benghozi and Salvador 2016).
Despite the wider paramount importance of innovation for value and meaning in the CIs,
the relevant empirical studies are limited and are primarily based on case studies. In general,
literature review reveals that most empirical works examining innovative activities in CIs
employ standard innovation measures (see Table 1). A number of these studies provide
evidence on the outperformance of CIs over other sectors in terms of innovation (Müller,
Rammer, and Trüby 2009; Chapain et al. 2010). For instance, Chapain et al. (2010) using
Community Innovation Survey (CIS) data for the UK find that CIs are more innovative
than the rest of the economy. Most importantly, CIs are also found to be more innovative
than knowledge-intensive business services and engineering-based manufacturing. Müller,
Rammer, and Trüby (2009) provide evidence that Austrian firms in CIs are frequent product
innovators and among the sectors with the highest percentages of firms engaged in R&D
activities in the country. More specifically, they point out that creative enterprises turn out
to be significantly more innovative than enterprises in other knowledge-intensive sectors
in services and manufacturing.
Yet, Lee and Rodríguez-Pose (2014a) using UK data show that the creative sector is
more innovative only in terms of introducing entirely new products, while they report no
overall link of CI firms with innovation more generally. Lee and Rodríguez-Pose (2014b)
also suggest that firms in the CIs cannot be considered more innovative than other firms.
A similar result is provided by Lee and Drever (2013) who examine the innovative perfor-
mance of creative firms operating in London. Despite the somewhat mixed evidence, the
overall expectation is that firms in the CIs exhibit higher degrees of innovativeness than
other industries. Therefore, our hypothesis can be formed as follows:
H1: Firms in CIs are more innovative than firms in non-creative industries.
2.2. Determinants of innovation in young firms in the CIs

There is a huge body of literature on the determinants of innovative performance of firms,
nevertheless, this is a field in need of more and better data on the range of independent
variables considered, i.e. industry-level variables, firm attributes as well as individual-level
variables (Cohen 2010). In addition, there has been limited evidence on the determinants
of the differential innovative performance of young firms (Arvanitis and Stucki 2012). Most
interestingly, the determinants of firm-level performance heterogeneity and innovation in
the CI have been largely neglected, as relevant studies have been mainly focused on the
macro level on local and regional economies or on the motivations of individual art entre-
preneurs (Camelo-Ordaz et al. 2012; Parkman, Holloway, and Sebastiao 2012). This paper
constitutes an important contribution to this literature as it analyses the determinants of
innovation in young firms in the CI both in terms of firm-specific and founder-specific
characteristics.
Young enterprises suffer from the liability of newness compared to older more estab-
lished firms, a phenomenon which is partially due to skill gaps and information. Founders’
characteristics, including their educational attainment, prior experience and expertise, can
constitute an important strategic asset for such firms because, as they are small, the capa-
bilities of founders themselves can serve as critical resources to the creation of competi-
tive advantage and early growth (Arvanitis and Stucki 2012; Miozzo and DiVito 2016). In
particular, the competitive advantage that a firm holds in the CIs is directly related to the
creative and innovative capacities of its entrepreneur or entrepreneurial team. This is because
these person(s) are not just the founders, they also manage the firm, they represent the firm’s
core resource and at the same time they have a high degree of decision-making authority. In
addition, creative entrepreneurs have a key role in developing the firm’s creative capabilities
since they built collaboration, exploit knowledge and enhance relationships in and out of
an organisation (Napier and Nilsson 2006). Thus, a firm’s founders can be very influential
in stimulating and promoting innovation in the CIs especially in small firms (Castañer and
Campos 2002; Yamada and Yamashita 2006; Camelo-Ordaz et al. 2012).
In addition to the human capital of founders, firms require an adequate stock of
qualified manpower to absorb new technological and market knowledge, as well as
create and transfer new information that may foster innovative activity (Romijn and
Albaladejo 2002). Moreover, although knowledge stock encapsulated in a young firm’s
human capital is crucial for innovative activity, young firms ‘cannot rely only on internal
capabilities; rather they establish formal and informal networks which allow them to
obtain knowledge and expertise’ (Malerba and Torrisi 1992, 50). Innovation in the CIs
depends on the continuous pursuit of novelty, which rarely if ever is the sole act of an
individual genius but rather a dynamic, collective process in which heterogeneous actors
(e.g. firms, individuals, knowledge communities, users) interact in complementary
and mutually beneficial ways (Bach et al. 2010; Jones et al. 2016). For instance, certain
creative sectors such as the software industry and the video-game industry evolved into
experimenting sites involving users and consumers as co-developers of new products,
services and indeed new markets in novel ways (DeFillippi, Grabher, and Jones 2007).
Moreover, project-based organisations in the CIs heavily rely on informal patterns of
networking both in the areas of recruitment and selection of project members and
knowledge sharing (Daskalaki 2010).
592
Table 1. Contribution of CIs to innovation: an overview of the main empirical studies.

No. Study Sample Data source/method Innovation measures
1 Müller, Rammer, and Trüby (2009) 2,031 CI firms in Austria Telephone interview survey referring to the Traditional measures of product & process
years 2005–2007 innovation
2 Chapain et al. (2010) 14,870 firms (CI & non-CI) in UK Community Innovation Survey (CIS) for UK Traditional measures of product & process
A. PROTOGEROU ET AL.
Local CIs firms & stakeholders in UK regions (2004–2006) innovation

Case studies on creative clusters Intellectual Output Index
3 Lee and Rodríguez-Pose (2014a) 9,158 SMEs (727 CI) in UK Annual Small Business Survey (ASBS), 2007/8 Traditional measures of product & process
Annual Population Survey (APS) innovation
4 Lee and Rodríguez-Pose (2014b) 1,336 SMEs (CI & non-CI) in UK Small Business Survey 2010 Traditional measures of product & process
innovation
5 Lee and Drever (2013) 2,974 firms (355 CI) in London 2007 LABS (survey by London Development Traditional measures of product & process
Agency)APS innovation
6 Camelo-Ordaz et al. (2012) 80 small CI firms in Iberia Telephone interviews with the founder-director Traditional innovation measures
7 Bakhshi and McVittie (2009) 16,000 firms (CI & non-CI) in UK CIS for UK (2002–2004) Traditional measures of innovation output
Input–output tables published by the Office for and measures of innovation activity
National Statistics
8 Miles and Green (2008) Firms and individuals from 4 CI sectors in UK (ad- Case studies based on desk research, interviews 4 different sorts of hidden innovation
vertising, broadcasting, videogame development, and sector workshops
product design)
9 Handke (2004) 1,013 SMEs from the record industry in Germany German Association of Independent Labels, Humdrum innovation
Publishers and Producers’ (VUT) survey of Content creation
2005
2.2.1. Founder-specific characteristics

The generic human capital of founders in young firms is usually approximated by their
educational attainments and by the years of work experience before establishing the new
firm or simply by the founders’ age. Through formal education people acquire skills that
may help them sense and seize innovative opportunities in the surrounding environment
(Shane 2000; Davidsson and Honig 2003). Recent empirical evidence shows that through
their formal education, founders of young firms in the creative sector have been able to
develop specific creative, artistic and/or technical skills which were decisive in the creation
and survival of their firms (Protogerou, Caloghirou, and Markou 2015).
Work experience supplements the entrepreneur’s education, and is assumed, both in
terms of depth and broadness across markets, to increase human capital (Cooper, Gimeno-
Gascon, and Woo 1994). Through work experience individuals acquire tacit knowledge
and develop skills that assist the formulation of entrepreneurial strategy, the acquisition
of resources and the process of organising. In this way experience increases human capital
and at the same time decreases uncertainty about the value of opportunities. In addition,
breadth in work experience, i.e. participation in more markets, provides access to diverse
types of information required for opportunity identification.
Although both formal education and work experience of founders may be conducive to
innovation, successful recognition and exploitation of opportunities also depends on situ-
ational and individual characteristics which may have a moderating role on human capital
(Shane and Venkataraman 2000). For example, general human capital can spur innovation
if the entrepreneur has the aspirations to expand the business. In addition, founders may
have different performance thresholds which may in turn be dependent on their motivations
(DeTienne, Shepherd, and De Castro 2008).Thus,
H2: Founders’ educational attainment and prior working experience are expected to have a
positive impact on the innovative performance of firms in the creative industries.
Moreover, heterogeneity or variety within a team is considered beneficial for achieving
desirable outcomes (Harrison and Klein 2007). Founding teams with diversity in terms
of knowledge and expertise may increase the information for problem solving, foster the
team’s ability to interpret the new firm’s internal and external environment from different
angles and thus enhance the ability of the group to find effective solutions to problems
and in consequence foster innovative performance (Watson, Kumar, and Michaelsen 1993;
Argote and Ingram 2000).
Within the CIs’ context, entrepreneurs need to develop a mix of creative and business
skills often at different stages of their careers (Leadbeater and Oakley 1999). Their dual
role as an artist and at the same time as an entrepreneur requires creativity skills related to
imagination, divergent thinking and intuition as well as entrepreneurial skills and capacities
on business planning, presentation, communication, management and marketing (Phillips
2010). Entrepreneurs in the CIs require a special set of skills as a consequence of the fact
that they have to interact with different parts of the CIs’ value chain (marketing, distribu-
tion, consumption) in order to ‘sell’ their talent and products. For instance any creative
and cultural production, be it music, video or computer games requires the engagement
of diverse enterprises operating independently and in complex and specialised ways (de
Bruin 2007; Rae 2007). Therefore, the prerequisite for improved management, leadership
and entrepreneurial skills is a sustained feature across CIs and could constitute an obstacle
to growth (Creative & Cultural Skills and Skillset 2011).
Recent empirical evidence suggests that entrepreneurial teams of young ventures in

CIs which combine heterogeneous but complementary expertise and in particular creative
and technical experience with managerial, marketing, finance and sales/business expertise
achieved better outcomes in terms of innovative performance and firm growth (Protogerou,
Caloghirou, and Markou 2015).
Innovation requires long-term investment and pay-offs are not certain at the time the
investment is made. Innovative activity would therefore be influenced by the risk behaviour
of founders. Risk-taking is also associated with gender as women are typically more likely
to be risk averse than men (Eckel and Grossman 2002). Studies on gender diversity at the
top management level have shown that females are less reluctant to undertake high risk
and unpredictable innovation activities compared to their male counterparts (Galasso and
Simcoe 2011; Hirshleifer, Low, and Teoh 2012). However, other empirical studies indicate
that female representation at top management teams increases the range and number of
available ideas and perspectives, promotes creativity and improves board diligence, inde-
pendence and informativeness leading, therefore, to increased innovation performance
(Dezsö and Ross 2012; Chen, Leung, and Evans 2015).
While there is a general perception that the creative and cultural sector is ‘female friendly’,
there is an understanding that women in positions of power and leadership are underrep-
resented (Dodd 2012). One concern related to fewer women in positions of leadership is
that organisations do not receive the benefits from a combination of diverse management
styles that higher female participation would provide such as the greater effectiveness of
balanced decision-making (Dodd 2012).
Hence, the relevant hypothesis to be tested can be formulated as:
H3: Founding team’s diversity in terms of functional expertise and gender are expected to be
positively related to the innovative performance of firms in the creative industries.
2.2.2. Firm-specific characteristics

Among the internal factors conducive to firms’ innovative activities, the literature highlights
the knowledge, skills and expertise brought into the firm by its workforce obtained through
education, training etc. (Al-Laham, Tzabbar, and Amburgey 2011).
A very recent survey conducted in five EU countries among young firms in the CIs shows
that these firms not only have a large share of workforce with a university degree, but also
in disciplines highly related to CIs such as science and engineering, arts and humanities
or design (Protogerou et al. 2016). Moreover, recent case study work in young firms in the
CIs indicates that the creative talent and human capital of employees, whether full-time
or cooperating on a project basis, is essential to the generation of new ideas, designs and
innovative products and eventually to the creation of competitive advantage for firms in
the CIs (Protogerou, Caloghirou, and Markou 2015).
Formal schooling alone is usually not adequate as a means of workforce training. Internal
and external training practices enhance the knowledge level of personnel and allow for a
higher degree of knowledge sharing to be reached. Consequently, better-trained employees
are generally more efficient and develop new skills effectively, thus, contributing to firm-
level innovation (McGuirk, Lenihan, and Hart 2015). Hence,
H4: The skills of workforce of firms in the creative industries are expected to be positively
associated with their innovative performance.
The innovative capability of firms, i.e. the capability to create products or services with
novel characteristics, is also dependent on the effort involving knowledge generated from
internal sources. For instance, the effective combination of technology and business knowl-
edge residing in human capital (founders and workforce) and organisational competences
is essential for young firms to introduce new goods into the market. Therefore,
H5: The effective use of internal knowledge sources is expected to be positively associated with
the innovative performance of firms in the creative industries.
It is essential for young small firms to overcome the liability of newness and smallness by
using external sources of knowledge and networking activities in order to identify innovative
opportunities and complement their limited resource base with additional resources and
new knowledge. In particular, the process of creation in most CIs should not be confined
to the sole role of talented individuals or the strategic vision of firms, as it is only through
complex interactions located outside firms’ frontiers that existing ideas and materials can
be combined to give birth to radically new trends, styles and fashions. Moreover, network-
ing with heterogeneous entities such as individuals, other firms and creative communities
allows new ideas to be continuously shared, reinterpreted, enriched and diffused and thus
may complement the internal innovative efforts of young firms (Bach et al. 2010). Empirical
evidence suggests that young firms in CIs use their networks to contact customers, to recruit
skilled personnel, or to acquire novel ideas in order to develop new products and services
(Protogerou et al. 2016). Networking activity in CIs can also serve for diffusing practical
information that may be extremely helpful to new entrepreneurs who need guidance on
multiple issues including financing, administrative issues and innovation (HKU 2010).
External open sources can be also utilized by firms to obtain specific knowledge required
for the development of innovative ideas and activities. For example, in the CIs an important
open source of knowledge are creative communities, i.e. informal groups of people who
accept to voluntarily exchange ideas on a regular basis in order to create knowledge and as
a result can become the locus of innovative micro-ideas. Therefore, firms should somehow
develop and maintain links with such communities to keep introducing novel products and
services (Bach et al. 2010). Hence, we would expect that:
H6: External networking activities and sources of knowledge have a positive impact on the
innovative performance of firms in the creative industries.
3. Data and variables

3.1. Defining the CIs
Although several issues regarding the definitional coherence of CIs still remain open, there
is increasing consensus on which sectors should or should not be included in the CI group.
However, some debates still exist about the activities that should be considered to belong in
the ‘core’ of the creative or cultural industries (Flew and Cunningham 2010). In addition,
what is considered a CI changes over time by adding, rather than removing, new industries
such as architecture, fashion, design and more recently video games or haute cuisine food
(Jones et al. 2016). Digital technology has also played a significant role in the debates over
CI classifications. For example, the 1998 DCMS classification included the software indus-
try, which had a large contribution to the overall economic value of the CIs, although this
sector was not considered among these industries before. Later on, some classifications have
withdrawn IT sectors, only to be reintroduced in the most recent NESTA study (Bakhshi,
Freeman, and Higgs 2013). Arguments in favour of the sector’s inclusion emphasise the
growing convergence of creativity and digital technology in sectors of high growth potential
(Mangematin, Sapsed, and Schuessler 2014).
In particular, the latest NESTA study (Bakhshi, Freeman, and Higgs 2013) proposes a
complete methodological framework for the identification of CIs, leading to an industry
classification which is consistent to a large extent with the DCMS model. However, it has
some comparative advantages, such as it takes into account the changes in relevant activi-
ties resulting from the introduction of information and communication technologies. This
methodology uses a creativity indicator, the ‘creative intensity’ index, which is defined as the
proportion of an industry’s workforce that is engaged in creative occupations. In defining
creative occupations five criteria are adopted, which refer to the degree of novelty of the
process, the absence of a mechanical substitute to do the work, the non-repetitiveness or
non-uniform function, the creative contribution to the value-chain, and the requirements in
creative judgement and interpretation. Based on this approach a set of industries defined at
the four-digit SIC level were recognised as intensively creative. Following closely the NESTA
study, we identified 25 industries (at a 4-digit NACE 2 level) in our sample as intensively
creative in which 1,109 firms were classified as presented in Table 2. The sectoral compo-
sition of the rest of our sample is shown in Table A1 in the Appendix.
Table 2. Distribution of CI firms by sector.

NACE Rev. 2
Domain/sector Number of firms Code Description
Publishing 166 58.11 Book publishing
58.13 Publishing of newspapers
58.14 Publishing of journals and periodicals
58.19 Other publishing activities
58.21 Publishing of computer games
58.29 Other software publishing
Computer programming & consultancy 445 62.01 Computer programming activities
62.02 Computer consultancy activities
62.09 Other information technology and comput-
er service activities
Advertising, market research & public 186 73.11 Advertising agencies
relations (PR) 73.12 Media representation
73.20 Market research and public opinion polling
70.21 Public relations and communication
activities
Media, arts & photography 87 18.20 Reproduction of recorded media
59.11 Motion picture, video and television pro-
gramme production activities
59.12 Motion picture, video and television pro-
gramme post-production activities
59.20 Sound recording and music publishing
activities
60.10 Radio broadcasting
60.20 Television programming and broadcasting
activities
90.01 Performing arts
90.03 Artistic creation
74.20 Photographic activities
Architectural activities 61 71.11 Architectural activities
Specialised design & translation 74 74.10 Specialised design activities
activities 74.30 Translation and interpretation activities
Creative industries 1,019
3.2. Data
Our empirical analysis is based on a rich data-set1 which includes information on approxi-
mately 4,000 firms. It was created through a large-scale survey in 2011 aiming at the empir-
ical investigation of knowledge-intensive entrepreneurship in Europe. The survey targeted
a large number of sectors spanning the categories high-tech and low-tech manufacturing
and knowledge-intensive services.
For the purpose of this study we delineated young firms as those founded between 2001
and 2007 i.e. firms that had been established for 10 years or less at the time of the survey
and also had managed to exceed the critical three-year survival threshold. At the time of the
survey, then, the sample firms were between 3 and 10 years old (average firm age 7 years)
and were established in ten European countries: Croatia, Czech Republic, Denmark, France,
Germany, Greece, Italy, Portugal, Sweden and UK. The countries were selected strategically
in order to include the largest four economies and some of the medium and small econo-
mies in Europe belonging into different socio-economic configurations. In order to capture
newly established firms the survey instrument included a set of screening questions to detect
(a) firms that were just legal reincarnations of already existing firms, (b) subsidiaries of
existing companies, and (c) mergers, acquisitions or joint ventures of existing firms. Such
firms were characterised as non-eligible for the survey.
The study’s initial population of companies was drawn from the Amadeus database.
The originally selected population was supplemented from additional data sources such as
Kompass and Dun & Bradstreet to reach the pre-selected targets of sample stratification
per country and sector combination.
The survey questionnaire was filled in during a telephone interview with one of the
firm founders. All interviews were conducted in the 10 corresponding native languages.
The average response rate of the survey was 31.2%, but rates ranged within countries from
19.5% in the UK to 63.9% in Croatia. The majority of our sample firms (63.6%) are micro
businesses i.e. they employ up to nine full-time persons. 88.4% can be qualified as small
firms because they employ less than 50 persons, while at the same time only a tiny share of
them can be regarded as large firms (0.28%).
3.2.1. Innovation performance measures

As previously discussed, a common way in measuring innovative performance in CIs is
to apply the traditional innovation indicators. The use of standard innovation measures is
particularly advantageous in that it enables comparative analyses between creative and non-
creative sectors (Müller, Rammer, and Trüby 2009). Thus, following the majority of empirical
studies trying to link innovation and CIs, in this paper the definition and measurement of
innovation performance is based on fairly standard variables similar to those employed in
the CIS. Taken together they capture various aspects of innovation performance, including
product, process and organisational innovation and methods of intellectual property (IP)
protection. In doing so we are able to directly compare innovation performance of creative
and non-creative firms.
1
The data-set was developed in the context of the European Community’s Seventh Framework Programme and the AEGIS
(Advancing Knowledge-Intensive Entrepreneurship & Innovation for Economic Growth and Social Well-being in Europe)
project (contract number: 225134).
Before moving on to the specific innovation performance measures used in this survey it is
important to note that there is a need to further explore how innovation in general and product
innovation in particular is understood in the CIs. Taking into consideration that the plethora of
definitions developed by academics (see Section 2.1) may overlap and that each of them focuses
on different and sometimes contradictory interpretations of the term, it is also important to
understand how entrepreneurs themselves perceive innovation in these sectors.
A very recent study (Wijngaarden, Hitters, and Bhansing 2016) among practitioners
in different CIs suggests that in fact many practitioners had a difficulty to come up with
a general definition of innovation in the first place and they also expressed a reluctance
to think about innovation and innovativeness. Continuous renewal, i.e. making some-
thing completely new or changing an object or process is not an ultimate goal but part of
their everyday work because without continuously developing new product and services
they simply cannot survive. However, they have also stressed that these improvements can
hardly be measured and the degree of innovation is merely subjective and only relative to
what is perceived as ‘new’ or ‘better’ within their field or economic network. In addition,
innovativeness, especially in the case of complete new products may be strongly related
to technology or technological development apart from content/design related innovation
aspects (Wijngaarden, Hitters, and Bhansing 2016). For example, Dogruel (2014) suggests
that innovation in media should not only focus on routinely produced media products
such as a new book, a new film or another episode of a TV show, but also focus on those
new products or services that apart from content include considerable changes related to
technology, design, new functions of use modes etc.
In this study we use two variables to measure innovation in goods/services:(i) product
innovation which is a binary variable (yes/no) that indicates whether a firm has introduced
new or significantly improved goods or services in the last three years, and (ii) product
innovation radicalness which is an ordinal variable taking the values of 0 (=no innovation);
1 (=new-to-firm); 2 (=new-to-market); and 3 (=new-to-world product innovation). In spe-
cific, ‘new to the firm’ refers to a product innovation that may have already been imple-
mented by other firms but not by the firm in question. Innovations are new to the market
when the firm is the first to introduce the innovation on the market it refers to. Finally, an
innovation is new to the world when the firm is the first to introduce the innovation for
all markets and industries, domestic and international. Evidently, each category implies a
qualitatively greater degree of novelty than the preceding one.
We also take into consideration firm sales of innovative products, using two continu-
ous variables, i.e. sales of new goods and sales of new services which measure the average
percentage of firm sales of new or significantly improved goods and new or significantly
improved services, respectively, in the last three years.
Process innovation is captured by three items: innovation in manufacturing processes,
innovation in delivery and distribution methods and innovation in supporting activities
for firm processes. It is a binary variable (yes/no) indicating as innovative a firm that has
exhibited at least one of the three above-mentioned processes innovation methods during
the last three years.
Organisational innovation is operationalised using two variables: adoption of improved
management systems and changes in the organisation’s managing structure. It is a binary
variable (yes/no) indicating an organisational innovation when a firm has applied at least
one of the two aforementioned changes in the last three years.
We measured whether the firm utilised various means to protect its intellectual property
rights (IPR) either formal (patents, trademarks, copyrights) or informal (confidentiality
agreements, secrecy and lead-time advantages). Formal IP protection and informal IP pro-
tection are gauged using two binary variables (yes/no) taking the value of 1 when a firm has
applied at least one IPR formal (informal) method in the last three years.
Finally, we also use R&D intensity as a measure covering the input side of the innovation
process. It is gauged using a continuous variable, namely, the average percentage of firm
sales spent on R&D during the last three years.
3.2.2. Determinants of innovative performance

The explanatory variables are classified in two broad categories, namely founder-specific
characteristics and firm-specific characteristics. Sector and country dummies are also used
to test for relevant effects.
3.2.2.1. Founders’ characteristics

Educational attainment: For each individual member of the founding team we measure
educational attainment using an ordinal variable taking the values: 1 – elementary education;
2 – secondary education; 3 – Bachelor’s degree; 4 – Postgraduate degree; 5 – PhD degree. We
average across team members to derive an overall measure of founders’ education.
Professional experience: The years of work experience before establishing the new firm
is proxied by the age of founders at the time of the firm’s founding. Each founder’s age is
measured using four different age groups, namely below 30 years, 30–39, 40–49, and over
50 years of age. We average across age group of team members to obtain an overall measure
of founders’ age.
To examine potential synergistic effect gains that may arise from the moderating impact
of founding motives on general educational attainment and professional experience, we
included two interaction terms in the econometric models. Founding motives variable cap-
tures the founders’ perception of opportunities deriving from technical change and new
market needs (two items) as determinants of the venture’s formation measured on a five-
point Likert scale.
Team diversity in terms of expertise: For each founder we measured main areas of expertise
(i.e. technical/engineering; general management; product design; marketing; finance; and
other). More than one answer was possible for each individual. Because we are interested
in the diversity of experiences among team members, we calculated Blau’s index (1 − pi 2),
∑
where pi is the fraction of team members with experience i.
Team diversity in terms of gender: We measure gender diversity within founding teams
using the Blau’s index (1977). This index takes values between 0 and 1. A higher index
indicates more mixed teams in terms of gender. Taking into consideration that the grand
majority of founding teams in our sample are dominated by male founders, increased gender
heterogeneity indicates the presence of female founders in the team.
3.2.2.2. Firm characteristics. Firm size is measured by the natural logarithm of full-time
employees.
The skills of the workforce are captured by two variables expressing their educational
qualifications and training, respectively. University degree is a continuous variable measur-
ing the percent (over total full-time employment) of employees with a university degree.
Employee training is a binary variable taking the value of 1 when the firm puts emphasis
on systematic, internal and external, personnel training and 0 when no emphasis is put on
training.
To capture the internal technological effort of the firm linked to its innovative activities,
we use the firm’s ability to offer novel products (goods and/or services) measured with a single
item using a five-point Likert scale.
Networking activities and knowledge acquired from external open sources are also exam-
ined as potential sources of innovation external to the firm. To operationalise the different
underlying dimensions of networking, we first used items related to market processes, such as
collecting information about competitors, accessing distribution channels, exploring export
opportunities, advertising and promotion. To capture the technology side of networking
capability, we employed variables assessing networks’ impact on the development of new
products/services, the management of production and operations, as well as on easy access
to skilled personnel. Finally, to grasp the economic and more generic value of networking,
we used variables relating to networks’ help in obtaining business loans, attracting funds
or getting legal support.
Knowledge acquired from external open sources is operationalised using three items:
knowledge sourced from trade fairs, conferences and exhibitions and from scientific journal
and other trade or technical publications. Networking and knowledge obtained from exter-
nal open sources were both measured using multi-item, Likert-type scales. Confirmatory
factor analysis confirmed the uni-dimensionality of each scale.
4. Empirical results

Our empirical analysis unfolds in two stages: first, we explore differentials in the innova-
tion performance of firms in our sample undertaking direct comparisons between CI and
non-CI firms. Then, we perform cluster analysis taking in account complementarities in the
innovation process with the simultaneous use of different innovation indicators. Second,
we investigate the drivers of the innovative performance of young firms in CIs considering
key founders- and firm-specific factors which are included in properly defined econometric
models.
4.1. Innovation performance of firms in CIs

Table 3 presents the comparative descriptive results of various innovation indicators for CI
and non-CI firms. In line with previous empirical evidence (Müller, Rammer, and Trüby
2009; Chapain et al. 2010) our findings suggest that firms in the CIs appear to be more fre-
quent product innovators than their counterparts in other industries. Focusing on measures
of innovative sales, CI firms report a significantly greater share of new services to total sales
comparing to non-CI firms, while no statistically significant difference is identified regarding
sales of new goods. These findings are not surprising given that CIs, as defined in Table 2,
include almost exclusively firms operating in business services. Moreover, although it is
advocated that CIs are typically investing less in R&D compared to other sectors (e.g. Miles
and Green 2008), the CI firms of our sample appear to outperform their non-CI counterparts
in terms of R&D expenses. This, however, corroborates with relevant evidence highlighting
the greater engagement of CI firms in internal R&D activities compared to firms in other
Table 3. Innovation indicators: CI firms vs. non-CI firms.

CIs (n = 1,019) Non-CIs (n = 2,980) χ2 statistic
Product innovation 68.5a 61.9a 14.084***
(0.000)
Process innovation 62.5a 67.6a 8.622***
(0.000)
Organisational innovation 56.3a 59.6a 3.416
(0.065)
Formal IP protection 44.5a 31.4a 56.698***
(0.000)
Informal IP protection 59.4a 49.9a 27.506***
(0.000)
t-statistic
Sales of new goods 27.4b 28.8b −1.066
(0.286)
Sales of new services 34.6b 26.4b 6.724***
(0.000)
R&D intensity 15.4b 11.5b 5.495***
(0.000)
Note: p-values are reported in parentheses.
a
Shares of firms (%) in the total number of firms in each group.
b
Average values for each group of firms.
***
There is a statistically significant difference between the two groups of firms at 1% level of significance.
industries (Chapain et al. 2010), and, in particular, firms in knowledge-intensive industries

(Kimpeler and Georgieff 2009; Müller, Rammer, and Trüby 2009).
The difference in innovative performance between the two firm groups appears to be even
larger in terms of IP protection methods, suggesting that a significantly larger proportion
of firms in CIs protect their IP using either formal or informal methods. Even though some
studies argue on the relatively limited use of IP protection methods in creative sectors (e.g.
Miles and Green 2008; HKU 2010), our study is in line with Chapain et al. (2010) who
provide evidence on considerably greater use of formal and informal such methods in CIs
compared to other industries. On the other hand, our descriptive results, in accordance
with empirical evidence offered by Lee and Rodríguez-Pose (2014a, 2014b) and Lee and
Drever (2013), also suggest that the sample firms active in the CIs appear to be less frequent
process and organisational innovators than firms in other sectors.
To further explore differentials in innovation patterns of firms in our sample taking at
the same time into account possible complementarities in the innovation process, we addi-
tionally performed K-means cluster analysis2 using STATA 14 software. The issue of comple-
mentarities and/or substitutions in the innovation process has been discussed and explored
in the innovation literature (e.g. Battisti and Stoneman 2010). For reasons of comparability,
in the cluster analysis we used the variables referring to innovation indicators presented in
Table 3. In cases of continuous variables (i.e. sales of new goods, sales of new services and
R&D intensity), we had to transform the corresponding variables into binary ones given
that clustering algorithms require all variables to be in the same metric.3 To decide on the
number of groups that is ‘best’ for our data, we applied the Calinski-Harabasz pseudo-F
2
We thank an anonymous referee for providing us with helpful suggestions that motivated the conduction of the cluster
analysis in the first stage of our research.
3
In these cases, the new dichotomous variable was constructed taking the value of one for non-zero values of the original
variable (and zero otherwise).
index as a stopping rule. Among the cases of two, three and four clusters we examined, the
pseudo-F index favoured the two-cluster solution.
The two clusters formed by the firms of our sample exhibit distinct innovation charac-
teristics as shown in Table 4. The first cluster which is the most highly populated (i.e. 2,858
firms) appears to be significantly innovative in terms of the majority of the examined inno-
vation indicators and particularly with respect to product innovation, R&D and informal
IP protection. In specific, about 88% of firms in this group report having introduced new
products/services in the last three years, almost 68% report R&D expenditures and 73%
state that they protect their IP using informal protection methods. On the other hand, a
smaller number of firms (i.e. 1,141) form the less innovative cluster 2. Firms in this group
report zero sales of new goods or new services and absence of any protection methods of
their IPRs. However, quite significant shares (61%-68%) of firms in cluster 2 seem to be
engaged in some form of R&D and introduce process or organisational innovations.
Focusing on firms operating in CIs, we first observe that they are highly concentrated
in cluster 1, namely the most innovative one. In specific, 770 CI firms, that is 75.6% of the
total CI firms in our sample belong to cluster 1, with the remaining 249 firms being placed
in cluster 2. The analysis within cluster 1 (Table 5) reveals that significant shares of CI firms
appear to be product innovators (90.1%), protect their IP using informal methods (78.6%),
be engaged in R&D activities (72.2%) and sale new services (70.1%). The respective figures
concerning different innovation indicators are lower in the case of non-CI firms with the
exceptions of sales of new goods, process and organisational innovation. Thus, the findings
of the cluster analysis are largely in agreement with those obtained from the direct statis-
tical comparisons of the two groups of firms, i.e. CIs and non-CIs (presented in Table 3).
Table 4. Innovation performance characteristics of the clusters.

Cluster 1 Cluster 2
Product innovation 88.4% 1.5%
R&D 67.7% 64.4%
Sales of new goods 57.7% 0.0%
Sales of new services 61.7% 0.0%
Process innovation 65.5% 68.3%
Organisational innovation 57.9% 61.1%
Formal IP protection 48.6% 0.0%
Informal IP protection 73.2% 0.0%
Number of firms 2,858 1,141
Note: Figures show percentages of firms within cluster 1 and cluster 2 which report innovation activity based on specific
innovation indicators.
Table 5. Innovation performance characteristics of firms in CIs and non-CIs within cluster 1.
CIs Non-CIs
Product innovation 90.1% 87.8%
R&D 72.2% 66.0%
Sales of new goods 53.8% 59.1%
Sales of new services 70.1% 58.5%
Process innovation 62.3% 66.6%
Organisational innovation 57.7% 58.0%
Formal IP protection 58.8% 44.9%
Informal IP protection 78.6% 71.2%
Number of firms 770 2,158
Note: Figures show percentages of CI and non-CI firms within cluster 1 which report innovation activity based on specific
innovation indicators.
Overall, our results indicate that firms in CIs are mostly involved in innovation activities
outperforming non-CI firms in terms of product innovation measures and R&D intensity
but not as regards process or organisational innovation. Hence, it can be argued that our
findings provide partial support to our main hypothesis (H1) stating that CI firms are more
innovative than their counterparts in non-CIs.
4.2. Determinants of innovation in CIs

Table 6 presents the results of the econometric analysis intended to identify potential
determinants of the innovative activity of young firms in CIs. In empirical studies of firm
Table 6. Determinants of innovative performance in CI firms.

Product innovation radicalness R&D intensity (tobit)
(ordered probit)
Model 1 Model 2 Model 3 Model 4
Founders’ characteristics
Educational attainment −0.004 0.015* −0.130 2.519**
(0.012) (0.009) (1.254) (0.996)
Professional experience −0.008 −0.029** −2.057** −4.840***
(0.010) (0.014) (1.084) (1.460)
Educational attainment × Founding 0.007** 0.890***
motives
(0.003) (0.285)
Professional experience × Founding 0.007** 0.943***
motives
(0.003) (0.311)
Team diversity in gender −0.070* −0.069* 0.709 0.952
(0.041) (0.041) (4.401) (4.404)
Team diversity in expertise 0.108*** 0.110*** −3.772 −3.574
(0.028) (0.029) (2.989) (2.995)
Firm characteristics
Size 0.024** 0.024** 1.661 1.707
(0.012) (0.012) (1.219) (1.220)
Employees’ university degree 0.002* 0.002* 0.013 0.012
(0.001) (0.001) (0.117) (0.117)
Employee training 0.026 0.026 0.696 0.685
(0.017) (0.017) (1.785) (1.787)
Ability to produce novel products 0.029*** 0.029*** 1.356 1.383
(0.008) (0.008) (0.871) (0.872)
Networking activities 0.027** 0.028** 3.906*** 4.012***
(0.011) (0.011) (1.175) (1.170)
Knowledge from open sources 0.023 0.023 4.801** 4.836**
(0.019) (0.019) (2.061) (2.062)
Publishing 0.144*** 0.144*** 0.677 0.657
(0.042) (0.042) (4.106) (4.111)
Computer programming 0.167*** 0.167*** 8.151** 8.178**
(0.038) (0.038) (3.658) (3.662)
Advertising, market research & PR 0.121*** 0.120*** −6.830 −6.885*
(0.040) (0.040) (3.994) (3.999)
Media, arts & photography 0.112** 0.111** −4.387 −4.489
(0.047) (0.047) (4.775) (4.783)
Specialised design & translation 0.112** 0.113** −3.956 −3.854
(0.047) (0.047) (4.844) (4.852)
Log likelihood −1,126.056 −1,126.080 −3,188.466 −3,188.731
LR test (X2) 181.96*** 181.91*** 159.76*** 159.23***
No of obs 901 901 901 901
Notes: Average marginal effects are reported in ordered probit estimations; standard errors in parentheses; country dum-
mies are included in all models.
***
p < 0.01; **p < 0.05; *p < 0.1.
innovation, regardless of the series of well articulated problems, it is a common practice to

capture innovation using either input or output measures (for details see e.g. Tether 2003;
Cohen 2010). In view of the complexity of the innovation process characterised by several
stages before market introduction, an approach relying on a single measure may leave
out important relationships and produce results that are not robust (see e.g. Rogers 1998;
Kleinknecht, van Montfort, and Brouwer 2002).
In this study we use two innovation indicators covering both the output and input side of
the innovation process. Our output innovation measure captures the introduction (or not)
of any innovation in goods or services as well as the degree of novelty encompassed in the
relevant new product. With this measure, though we cannot address the problem of different
‘qualities’ or ‘quantities’ of innovation in a satisfactory way, we at least take into account an
important aspect of innovation by discriminating between different degrees of novelty (we
consider ‘new-to-firm’ option as incremental innovation, while the new-to-world option is
considered as radical innovation). This strategy has been followed by a number of studies
focusing on firm innovation (e.g. Romijn and Albaladejo 2002; Koch and Strotmann 2008).
Our input innovation measure captures the share of R&D expenditures in turnover. Despite
the fact that better measurement of innovative activity is needed in terms of R&D activity,
this is a widely used measure in relevant studies (e.g. see Cohen 2010).
Since product innovation is gauged using a categorical ordinal variable, as described in
the data section, an ordered probit model is employed to estimate the effects of predictor var-
iables on the probability to produce product innovation of different degrees of radicalness.4
For innovation input (R&D intensity) we apply a tobit regression model. Tobit regression
applies to regression models in which the range of the dependent variable is censored in
some way, meaning that values tend to be concentrated either at the higher or the lower
limit of the data. The R&D intensity data are left censored with a clustering at zero, reflecting
that a considerable number of firms in our sample do not report R&D expenditures. Sector
dummies are included in our models with Architecture assumed to be the reference sector.
Finally, to control for country effects, country dummies are also included.5
Contrary to expectations, the education level of firm founders appears to have a quite
small impact on product innovation (model 2), however, it seems to exert a positively signifi-
cant effect on R&D intensity (model 4). The extent of prior work experience as approximated
by the average age of the founding team members is found to have negatively significant
effect on both product innovation radicalness (model 2) and R&D input (models 3 and 4)
suggesting that the negative part of this relationship can result from overconfidence from
experienced entrepreneurs regarding their skills and knowledge which inhibits them from
gathering information that can improve their business decisions. It can also result from more
experienced entrepreneurs being older, as founders’ age is found to be inhibiting innovation
of small firms (e.g. Kangasharju 2000; Alasadi and Abdelrahim 2008) and more specifically
of small firms in the CIs (Camelo-Ordaz et al. 2012).
Yet, moving to the impact of the interaction effect arising from general education
and founders’ motives for setting up the firm appears to have a strong positive effect on
both innovation measures (models 1 and 3). Most interestingly, the interaction effect
4
For the purposes of our research only average marginal effects for the most radical form of product innovation (new-to-the
world) are reported.
5
The relevant results are omitted in the tables for presentation reasons.
resulting from general professional experience and founding motivation also seems to
have a strong positive impact on both the output and input innovation measures (models
2 and 4). These findings suggest the moderator approach to human capital in line with
Shane and Venkataraman (2000) who argued that successful opportunity realisation and
exploitation and, in consequence innovative activity, depends on individual and situational
characteristics.
In particular, taking into consideration that people have different performance thresh-
olds, founders’ formal education or professional experience can only result in superior
innovative performance if the entrepreneur is, for instance, motivated by certain market or
technological opportunities that guide and or strengthen his/her decision to innovate. In
addition, taking into account that the creation and development of creative firms respond in
many cases to necessity factors rather than a real intention or inclination towards starting a
business or innovating, our findings suggest that the general education and working experi-
ence of founders should be also supported/enhanced by their individual motives. Therefore,
our results seem to provide some support to the general human capital hypothesis (H2).
The effect of diversity in terms of expertise is also found positive and highly significant
for product innovation radicallness. This finding highlights the importance of team heter-
ogeneity in terms of knowledge, skills and expertise for firms’ growth and innovative per-
formance in the CIs, where the challenge to manage successfully both the production and
market introduction of the creative product requires not only sector specific creative and
technical knowledge, but also a range of managerial, financial and marketing skills. On the
other hand, team diversity in terms of gender appear to have a marginal but negative impact
on product innovation suggesting that women representation in the entrepreneurial teams
appears to introduce increased risk aversion (e.g. Eckel and Grossman 2002) which may
hinder innovation. Contrary to product innovation results, diversity measures of founders’
expertise and gender do not seem to matter for the R&D activities undertaken by CI firms,
therefore, hypothesis H3 is only partially confirmed.
Focusing on firm-specific data, the workforce skills obtained from university studies have
a positive but marginal effect only on product innovation, while training skills appear to
be positive but insignificant for both innovation performance measures. Thus, in general,
hypothesis H4 cannot be supported by our data. This may be related to the fact that at this
stage of the firm’s life cycle, the human capital of founders is much more decisive in shaping
its innovative capability. Moreover, resources devoted to training may not always translate
in higher innovative performance, as its purpose would also be to improve managerial or
secretarial functions. In addition, workforce formal education and training measures based
on full-time employees may not fully capture their actual skills and knowledge as firms in
the CIs also rely on networks of freelancers employed on a project basis.
A firm’s internal effort to produce novel products/services increases the likelihood for
a firm in the creative sector to introduce radical product innovations, while it does not
seem to exert a significant effect on R&D intensity, thereby, providing partial support for
hypothesis H5. As regards external sources of innovation, being in the same line with exist-
ing evidence (Müller, Rammer, and Trüby 2009), CI firms which are drastically involved
in various networking activities are found to be more likely to introduce a radical product
innovation. Moreover, knowledge acquired from external open sources seems to exert a
positive significant effect on R&D intensity. Hence, our findings support the hypothesis
(H6) that the ability of a young firm to interact and access external knowledge sources
has an important effect on its innovative activity. In addition, our findings also highlight
that efforts for establishing interaction mechanisms and openness to knowledge sharing
should complement internal efforts for a balanced and more efficient approach to innovation
(Caloghirou, Kastelli, and Tsakanikas 2004).
Last but not least, our empirical results highlight the significance of sectoral diversity in
innovating within CIs, emphasising at the same time the substantial heterogeneity that the
creative sector is frequently reported to exhibit (e.g. Henry and De Bruin 2011). In particular,
we find that moving from Architecture (which is set to be the reference sector) to any other
creative sector increases the probability to produce a radical product innovation. Being
consistent with existing empirical evidence (Müller, Rammer, and Trüby 2009), firms in
Architecture seem to lag behind in terms of product innovation in comparison with other
creative sectors. Interestingly, Computer Programming appears to have the highest marginal
effect on the probability to radically innovate followed by Publishing, and Advertising.
The results referring to R&D intensity seem to be quite different as suggested by the neg-
ative marginal effects (though not statistically significant) corresponding to all sectors apart
from Computer Programming and Publishing. Given the size and the statistical significance
of the marginal effect corresponding to Computer Programming, our findings imply that
firms being engaged in computer programming may invest a relatively high percentage of
their sales on R&D activities.
5. Concluding remarks

Despite the fact that CIs have been attracting lots of attention among scholars in recent years,
existing studies exploring the nature and sources of innovation in CIs are rather scarce. Most
interestingly, the determinants of firm-level performance heterogeneity and innovation in
these industries have been largely neglected, as relevant studies have been mainly focused on
the macro level on local and regional economies. This paper is a significant contribution to
this literature as it analyses the determinants of innovation in CI young firms both in terms
of firm-specific and founder-specific characteristics. In addition, to the best of our knowl-
edge, existing research effort on CIs is primarily grounded on case study work in specific
creative sectors, studies on specific countries and small-scale surveys. This research uses a
particularly rich data-set of approximately 4,000 young firms across 10 European countries
with different institutional contexts ensuring a wide generalisability of our findings.
The current study, in line with previous empirical research, provides evidence that CI
firms outperform non-CI firms in terms of product innovation and R&D intensity. These
findings may be related to the fact that product novelty is of paramount importance to the
CIs. CI products must be distinctive and comprehensible, meaning that products that simply
replicate and reproduce are at high risk of being ‘boring and featureless’ (Becker 1982, 63),
therefore continuous innovation is a prerequisite for adding meaning and customer value
to such products (Jones et al. 2016). In addition, although investment in R&D in CIs is pri-
marily considered as a non-relevant asset, our findings suggest that a better understanding
of R&D expenditures in the CIs is needed. First, R&D activity may be carried out in CI firms
without formally corresponding to effective R&D activities. However, the content, design,
and artistic improvements of products may be key innovations, and although not officially
defined as R&D, they may be considered more important than technological innovations
by firm founders with substantial cost implications for the young firms. Second, one should
take into account that technology developments in these industries may be concealed or
covered (Benghozi and Salvador 2016). Therefore, considerable investments may be related
to adapting to or adopting new technologies developed in other sectors of economic activity
(e.g. digital technologies) or they may involve R&D activities in specific projects, which
nevertheless are vital for their survival and growth.
In addition, our findings on the determinants of innovation of young firms in the CIs
highlight the important role of founders’ human capital and external networking activities.
Specifically, increased team diversity in terms of heterogeneous but complementary knowl-
edge and expertise affects significantly product innovation performance indicating that the
challenge to manage successfully both production and market introduction does not only
require sector specific creative and technical knowledge, but also a range of managerial,
financial and marketing skills. In addition, taking into consideration that people have differ-
ent performance thresholds, founders’ formal education or professional experience can only
result in superior innovative performance if they are complemented by the entrepreneurs’
intrinsic motivations which may strengthen their decision to innovate.
Last but not least, our results suggest that the capability of young firm to interact and
access external knowledge sources has an important effect on its innovative activity, sug-
gesting that the pursuit of novelty is an organised activity that takes on different collab-
orative forms (with heterogeneous entities such as individuals, other firms and creative
communities) and allows for existing and new ideas and materials to be combined so as to
give birth to radically new trends, styles and fashions. Moreover, networking with various
partners allows new ideas to be continuously shared, reinterpreted, enriched and diffused
and thus may complement the internal innovative efforts of young firms for a more balanced
approach to innovation.
Our empirical analysis is based on standard measures of innovation to enable consistent
comparisons between firms in creative and non-CIs, which is a primary objective of this
study. Although traditional measures are used extensively to capture innovation in the
CIs, it is also widely acknowledged that there are important innovation forms which may
not be captured by standard measures of product or process innovation (Miles and Green
2008; HKU 2010; Stoneman 2011). In many CIs, product innovation is multidimensional
and cannot be limited to either new technical or content-related elements, instead, it can
be better understood as an interaction between intangible (aesthetic/creative) and techno-
logical or organisational aspects of innovation. In the publishing sector, the introduction
of E-book mixes intangible and technological innovation. Moreover, new forms of digital
content creation in journalism can serve as examples of interaction of new forms of content
distribution (e.g. apps, new technological devices), new forms of organising the production
and delivery of products and new forms of revenue models (e.g. crowdfunding, personalised
advertising etc.) (Dogruel 2014).
In addition, while in non-CIs innovation follows a clear-cut distinction between product
and process innovation, this may not be the case in the CIs where an overlap between prod-
uct and process innovation may occur. For example, music streaming platforms constitute
a product innovation from a media consumer’s perspective but they also represent process
innovation from the music industry’s perspective in terms of offering new transmission
channels and business models (Dogruel 2014). Last but not least, innovation in the CIs
may contribute to both economic and social change processes. Thus, the development
of goods’ and services’ design and function may not be exclusively oriented at economic
exploitation but may also have a wider social or societal effect, in terms of having an impact
on the generation of a stronger community, a better society, a sustainable environment and
an overall improvement of life (Dogruel 2014; Protogerou, Caloghirou, and Markou 2015;
Wijngaarden, Hitters, and Bhansing 2016). For example, the creative development of a new
chair design may be rendered meaningless if no one wants to sit on it, so the aim is not just
to develop a new product but mostly to make ‘nice things for the people’ (Wijngaarden,
Hitters, and Bhansing 2016).
Therefore, a more holistic view where innovation is not just creativity or successful
implementation of novel ideas or products, but openness to the environment and utilis-
ing or creating new methods that increase or deliver high-quality outputs would perhaps
be more appropriate in order to better understand and measure product innovation in
the CIs (Wijngaarden, Hitters, and Bhansing 2016). In any case, it would be interesting
for future research to develop and empirically test new measures capturing the different
dimensions innovation in CIs refers to, such as technological, functional/organisational,
content/design-oriented as well as social innovation aspects that will better inform and
guide policy initiatives (Jaaniste 2009).
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This work was supported by the European Community’s Seventh Framework Programme [grant
agreement CRE8TV.EU-320203].
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Appendix
Table A1. Distribution of firms in non-CIs by sector.
Number
Sector groups NACE Rev. 2 codes of firms
Manufacturing 1,604
Machinery and equipment (computer products, electronics, electrical equipment, 26, 27, 28, 32, 33 379
medical and dental instruments)
Chemicals and pharmaceuticals 20, 21 53
Basic metals and fabricated metal products 24, 25 269
Food products and beverages 10, 11 295
Textiles, clothing and related products 13, 14, 15 206
Wood and furniture 16, 31 237
Paper and related products; printing 17, 18 165
Services 1,376
Business and other management consultancy activities; activities of head offices 70.22, 70.1 437
Engineering activities and related technical consultancy; technical testing and 71.12, 71.20 266
analysis
Legal and accounting activities 69 148
Administrative and support service activities; education 77, 78, 79, 80, 81, 160
82, 85
Financial and insurance activities 64, 65, 66 52
Scientific research and development; other professional, scientific and technical 72, 74.9 89
activities
Telecommunications and information service activities; repair of computers and 61, 63, 95 91
communication equipment
Business support service activities n.e.c. 82.9 133
Total 2,980

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ISSN: 1366-2716 (Print) 1469-8390 (Online) Journal homepage: https://www.tandfonline.com/loi/ciai20

Innovation in the European creative industries: a

Aimilia Protogerou, Alexandra Kontolaimou & Yannis Caloghirou

To link to this article: https://doi.org/10.1080/13662716.2016.1263551

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Innovation in the European creative industries: a firm-level

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Although an increasing number of studies focus on CIs examining definition issues

2. Theoretical background

a number of studies assuming creative firms, by default, inherently innovative (Camelo-

of lower levels of innovation in the distributive phases of production (Brandellero and

2.2. Determinants of innovation in young firms in the CIs

Table 1. Contribution of CIs to innovation: an overview of the main empirical studies.

Local CIs firms & stakeholders in UK regions (2004–2006) innovation

2.2.1. Founder-specific characteristics

Recent empirical evidence suggests that entrepreneurial teams of young ventures in

2.2.2. Firm-specific characteristics

3. Data and variables

Table 2. Distribution of CI firms by sector.

3.2.1. Innovation performance measures

3.2.2. Determinants of innovative performance

3.2.2.1. Founders’ characteristics

4. Empirical results

4.1. Innovation performance of firms in CIs

Table 3. Innovation indicators: CI firms vs. non-CI firms.

industries (Chapain et al. 2010), and, in particular, firms in knowledge-intensive industries

Table 4. Innovation performance characteristics of the clusters.

4.2. Determinants of innovation in CIs

Table 6. Determinants of innovative performance in CI firms.

innovation, regardless of the series of well articulated problems, it is a common practice to

5. Concluding remarks

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