RISE Project - Research Institutes in The Service Economy - Wp1 Clusters and Rtos

RISE - RTOs in the service economy
Workpackage synthesis report, wp1
Clusters, innovation and RTOs

Jason Whalley
Department of Management Science,
University of Strathclyde, Glasgow, UK
Pim den Hertog
Dialogic, Utrecht, The Netherlands
Direct line: +31 30 215 0585
Email: denhertog@dialogic.nl
A final report of RISE: RTOs in the service

economy - Knowledge infrastructures,
innovation intermediaries and institutional
change
RISE reports may be downloaded from:
s
http://centrim.bus.brighton.ac.uk/go/rise/
RISE coordinator: Dr Mike Hales

CENTRIM - The Centre for Research in Innovation
Management
Direct line: +44 1273 642190
Email: M.Hales@brighton.ac.uk
This report constitutes a deliverable specified in the

RISE work programme
Contract number: SOE1-CT98-1115
Funded under the TSER programme by the European
Commission, DG Research
Date: November 2000

Clusters, Innovation and RTOs
A synthesis of the findings from the RISE cluster studies
Jason Whalley and Pim den Hertog
29th November 2000

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Jason Whalley and Pim den Hertog Page iv

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A synthesis of the findings from the RISE cluster studies
Jason Whalley1 and Pim den Hertog2
1 Department of Management Science, University of Strathclyde,

Glasgow, UK
2
Dialogic, Utrecht, The Netherlands
Based on contributions by:

Brigitte Preissl (DIW, Germany)
Laura Solimene (Università Cattolica del Sacro Cuore, Italy)
Pim den Hertog, Erik Brouwer & Sven Maltha
(Dialogic, the Netherlands)
Thor Egil Braadland (STEP, Norway)
Margarida Fontes (INETI, Portugal)
Anna Sandström (NUTEK, Sweden)
Jeff Readman (CENTRIM, United Kingdom)
Glasgow / Utrecht, 29th November 2000
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RISE - RTOs in the service economy

Knowledge infrastructures, innovation intermediaries and institutional
change
Workpackage report, Clusters, innovation and RTOs
Contents
Summary ......................................................................................................................................7
1 Introduction: positioning the cluster studies within the RISE project .....................................8
1.1 What is the RISE project?..................................................................................... 8
1.2 Objectives and the structure of the report ............................................................. 8
2 Clusters in the context of RISE ...........................................................................................10
2.1 Introduction........................................................................................................ 10
2.2 What exactly is a cluster? ................................................................................... 10
2.3 What cluster approach was adopted in RISE? ...................................................... 12
2.4 How then were cluster studies performed in the RISE project?............................. 18
3 Findings...............................................................................................................................22
3.1 Actors................................................................................................................. 22
3.2 Structure ............................................................................................................. 24
3.3 Geographical scale............................................................................................... 27
3.4 RTOs in the cluster............................................................................................. 30
4 Conclusion ..........................................................................................................................35
Appendix: Summaries of National Cluster Studies...................................................................37
1 Germany – automobile component manufacturing ....................................................... 37
Cluster approach adopted ..........................................................................37
Characteristics of the automotive component sector in Germany..............37
Cluster configuration.................................................................................38
Functional division of labour in the cluster ................................................42
Cluster policies..........................................................................................42
Conclusions...............................................................................................42
2 The Netherlands – information and communications................................................... 44
Basic characteristics ..................................................................................44
Functioning...............................................................................................44
Performance .............................................................................................45
Structure multimedia cluster.......................................................................46
Industrial dynamics....................................................................................46
Style of innovation ...................................................................................47
Role of RTO, universities and KIBS...........................................................47
Role of demand .........................................................................................48
Innovation performance ...........................................................................50
Bottlenecks and options for improvement ................................................50
3 Italy – telecommunications.......................................................................................... 50
Cluster methodology used..........................................................................51
Basic features of the telecommunications industry.....................................51
Actors within the cluster ...........................................................................53
Innovation regime.....................................................................................55
Drivers of innovation................................................................................56
Conclusions...............................................................................................56
4 UK – printing and publishing........................................................................................ 57
Methodology - value chains as a systemtic framework...............................57
Print and publishing of books in the UK....................................................58
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Production innovation and the drivers of innovation ................................59

Conclusions...............................................................................................61
5 Portugal - biotechnology.............................................................................................. 63
Cluster approach adopted ..........................................................................63
Actors.......................................................................................................63
Innovation dynamics.................................................................................63
Interaction between firms and RTO/KIBS..................................................64
Policy issues..............................................................................................65
Conclusions...............................................................................................65
6 Sweden - biotechnology................................................................................................ 66
Cluster methodology adopted ....................................................................66
Actors.......................................................................................................66
Dynamics within the cluster ......................................................................67
International comparison of the cluster.....................................................67
Geography.................................................................................................68
Large actor stimulus ..................................................................................68
Policy implications ...................................................................................68
7 Norway – agro-food..................................................................................................... 69
The food cluster........................................................................................69
Cluster mapping methodology...................................................................70
Geography.................................................................................................71
Innovation and innovation style ...............................................................71
Policy .......................................................................................................74
Main conclusions.......................................................................................75
References..................................................................................................................................76
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List of tables and figures:

Table 2.1: Some cluster and cluster-related concepts.......................................................10
Table 2.2: Cluster analysis at different levels of analysis.................................................12
Table 2.3: Cluster dimensions, firm strategy and industrial policy: a menu
approach.......................................................................................................13
Table 2.4: Traditional sectoral approach vs. cluster-based approach...............................16
Table 2.5: Ways in which the cluster approach adopted is different from related
concepts .......................................................................................................17
Table 2.6: Guidance issued to national teams for work-package 1 ...................................19
Table 2.7: Two dimensions emphasised most and levels of analysis of the various
cluster studies performed (see also table 2.3)...................................................20
Table 2.8: What research activities were done/approach adopted....................................20
Table 2.9: Some of the lessons learned in RISE & unresolved issues when
performing Cluster studies ..............................................................................21
Table 3.1: Classification of actors within the German automobile component-
manufacturing cluster .....................................................................................24
Table 3.2: Illustrative examples of sub-clusters within cluster studies ..............................25
Figure 3.1 Co-authorship pattern between public research organisations.........................26
Figure3.2: Four segments of the multimedia cluster ........................................................27
Table3.3: Illustrating the geographical dimension of clusters .........................................28
Figure 3.3: Who collaborates with whom in the Swedish biotechnology cluster? ..............29
Figure 3.4: Bridging roles of RTOs ..................................................................................30
Figure 3.5 Domestic technological co-opereation: Share of innovative food
companies reporting technological co-operation with Norwegian
partners the last three years (weighted figures), in Oslo and whole
Norway, compared to national average (circles) .............................................33
Table A.1: Clusters studied as part of the RISE project....................................................37
Figure A.1: The automotive component supplier innovation cluster................................38
Table A.2: Types of co-operation in innovation processes .............................................41
Table A.3: Service Functions and Actors in the Component Supplier Innovation
Cluster ..........................................................................................................41
Figure A.2: The main bottlenecks in the multimedia cluster and their interrelations.........49
Figure A.3 The main options for improvement in the multimedia cluster and their
interrelations ................................................................................................49
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Table A.4: World-wide Telecommunication market (million of EURO at constant

1998 exchange rate).......................................................................................51
Figure A.4: World-wide mobile and fixed subscribers.........................................................52
Table A.5 Italian telecommunications equipment market (billions of Lire) ....................52
Table A.6: Italian telecommunications services market (billions of Lire) ........................53
Table A.7: The wireless market in Italy (millions of subscribers) .....................................53
Table A.8: The actors in the telecommunications cluster................................................53
Table A.9: Major acquisitions of networking firms by telecom producers ........................54
Table A.10: Contrasts between the old and new innovation regimes..................................55
Figure A.5: Drivers of innovation and their impact..........................................................56
Table A.11: Effects of change...........................................................................................57
Table A.12: Innovation Factors and Drivers in the Book Publishing and Printing
Value System.................................................................................................60
Table A.13: Three most dominant industries, corporate structure, markets and
processes of change in the Norwegian food cluster..........................................70
Figure A.6: The Norwegian food cluster system (based on Hauknes 1998, ibid.) ...............71
Figure A.7: Foreign technological co-operation: Share of innovative food
companies reporting technological co-operation with foreign partners
the last three years (weighted figures), compared to national average
(circles)..........................................................................................................73
Figure A.8: Important sources of innovation in the Norwegian food cluster.....................75
Jason Whalley and Pim den Hertog Page ix

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Summary
This paper examines innovation within the service economy. In particular it provides a synthesis
of findings research from the TSER funded project RISE: research and technology organisations in
the service economy (RISE). More broadly, the paper expounds a rationale for the choice of the
cluster approach as a methodology in preference to the others that are available.
A key theme of this paper is the complexity of the relationship between innovation and actors
within the context of clusters. This is demonstrated in various ways. It is argued that although a
variety of cluster approaches exist common to all is the notion of inter-dependencies / inter-
linkages between the plethora of actors identified. However, these inter-linkages are not the same
in all of the clusters studied. They differ in terms of actors, geographical scale as well as structure.
Observations are offered within this paper covering all of these areas. It is also shown that
clusters differ with respect to RTOs in terms of their number, size as well as role in the innovative
process.
A second central theme of this paper is methodological in nature. Through highlighting the
different characteristics of each of the cluster studies the paper highlights the different strengths
and weaknesses of the cluster methodologies adopted in the seven cluster studies. More broadly
than this, the paper provides a detailed rationale for the adoption of the cluster methodology over
the others that are available.
Below are a series of general outcomes or points concerning clusters, cluster analysis and cluster
policy that we wish to draw attention to.
1. Innovation rarely takes place in isolation, but is instead systemic in nature

2. For most companies clusters are a recognisable level of analysis, as it formalises the
environment in which they operate.
3. The production, diffusion and absorption of knowledge is key to the innovative success of
both clusters and cluster actors alike.
4. RTOs and increasingly KIBS provide a wide range of knowledge related services that aim t o
assist actors in the innovation process.
5. As the roles played by RTOs and KIBS differs, and the balance between the two in each of
the clusters are different, no best practice can be identified.
6. The mechanisms and experiences built up by clusters provide a valuable resource that actors
within the cluster can draw upon.
7. Adopting clusters as a policy perspective may result in new forms of governance that are
highly specific to the cluster emerging.
8. As new forms of governance emerge the implementation of these requires new skills on the
part of civil servants.
9. Cluster policy represents a way of customising innovation and other policies towards
specific needs.
10. Cluster studies are one way in which the dialogue between relevant actors involved in the
innovation process can be initiated.
Details of how cluster studies fit into the wider RISE agenda and the structure of this report can be
found in Section 1. Section 2 offers some insight into the ‘why’ and ‘how’ of the cluster
approach adopted in within RISE. Section 3 analyses the cluster study results in a comparative
fashion. Section 4 draws the report together through presenting conclusions in the form of
messages. The appendixes summarises the seven cluster studies performed within RISE.
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1 Introduction: positioning the cluster studies within the RISE project
1.1 What is the RISE project?
This synthesis report presents the main findings of cluster studies performed in Germany, Norway,
Sweden, the United Kingdom, The Netherlands, Portugal and Italy as part of the wider RISE
project. RISE, or RTOs in the Service Economy to give the project its full title, is a two-year
project examining the dynamics of infrastructures of innovation-related services. Although the
emphasis of RISE is in the first placed aimed at mapping these dynamics, the research has policy
relevance for two reasons:
1. Incorporated within advanced industrial economies is a complex infrastructure of research

and technology services. Many of these have traditionally been viewed as ‘public’
institutions, and therefore either included within the government or funded to a lesser or
greater extent by government. RTOs usually significantly feature within this infrastructure.
2. The globalisation of knowledge intensive business services has changed the environment in
which the publicly funded or government funded parts of the infrastructure operate. It is no
longer clear what is, or ought to be, the public component of these institutions, or whether
they will remain a stable part of the national infrastructure that is capable of supporting the
national economy.
The RISE project is divided into six work-packages. Such an approach is advantageous as it allows
for an analysis that is layered in terms of disciplinary specialisation. Moreover, such an approach
facilitates the presentation of results along either analytical lines (tools and measures) or narrative
/ descriptive lines (case studies, historical and institutional ‘stories’). The six work-packages that
constitute the RISE project are outlined forthwith:
• Clusters - Mapping knowledge infrastructures, changes in the institutional landscape and

cluster dynamics.
• Functions - Developing survey instruments for RTOs and their services based on a
typology of innovation-related services and service functions.
• Markets & steering mechanisms - Identifying the economic rationale of innovation-
related policy interventions.
• Policy learning - Identifying national policy institutions and styles, exploring the
presentation of evidence and strategies in policy analysis and identifying vehicles for policy
practice.
• Competences - Studying delivery interactions between suppliers and users of knowledge-
intensive business services, and the form of the service products delivered.
• Synthesis - A policy-oriented perspective on the strategic steering of knowledge
infrastructures.
This report presents a synthesis of the research undertaken as part of the first work-package,
clusters. In doing so it largely excludes research conducted for the other work-packages. However,
it will inevitably touch upon aspects of the RISE project more fully developed elsewhere.
1.2 Objectives and the structure of the report
The aim of this report is to draw together findings from seven cluster studies undertaken as part of
the RISE project. It is not the objective of the report to provide a definitive recounting of all
results within RISE, but instead to synthesis the national reports so that commonalities as well as
differences are identified. Consequently, apart from introducing the cluster perspective and
providing summaries of the seven cluster studies, a thematic approach that draws together findings
around four inter-related areas in a more comparative vein will be adopted.
Jason Whalley and Pim den Hertog Page 8

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With this in mind the report is structured as follows. Chapter 2 outlines the cluster approach and
pays particular attention to the rationale behind the choice of this perspective (where do we need
clusters for? What is the additional value of clusters? Are clusters artificial constructs? How can
we position cluster studies vis-à-vis related concepts and approaches?). In chapter 3 the cluster
study findings are presented along thematic lines in a more comparative vein. The first sub-
section deals with actors whilst the second the structure of the cluster. The third sub-section looks
at the geographical scale of clusters and the fourth at the role of RTOs within clusters. In chapter
4 conclusions are drawn. The appendix presents summaries of each of the seven national cluster
studies. The stance here is not to present detailed studies as these are available elsewhere, but
instead to identify salient features of the study whether these are definitional, methodological or
conclusive in nature.

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2 Clusters in the context of RISE
2.1 Introduction
In this chapter the following questions will be discussed:
1. What exactly is a cluster?

2. What cluster approach was adopted in RISE?
3. How then were cluster studies performed in RISE?
The answers to these questions shed light on the rationale behind the cluster perspective adopted
in RISE, the variety in the seven cluster studies produced and more in general point at what is
thought to be the added value of the various cluster approaches adopted. In the next sections these
questions just mentioned will be addressed subsequently.
2.2 What exactly is a cluster?
Although the dictionary provides a definition of a cluster as “a number of things growing, fastened
or occurring close together; a number of persons or things grouped together” (Collins Concise
Dictionary, 1990: 211), the academic and policy literature does not seem able to agree on what
exactly the term means. The resulting variety of definitions of clusters and related notions is
echoed in the numerous ways that clusters and related concepts are approached within the
literature, a selection of which are shown in the table below. Some of the notions are quite close.
Most notions do complement each other or have a slightly different focus and therefore should
not be considered to be completely different or even competing notions. Even an expert would
have difficulty in indicating where a value chain based cluster definition in the innovation systems
tradition would differ from for example the definition of sectoral systems of innovation and
production as defined by Malerba1. However, most notions have a distinctive characteristic such
as a focus on a particular technology, spatial connotation or competence.
Table 2.1: Some cluster and cluster-related concepts

Concept Definition
Industrial district The development of industrial complexes is explained by the existence of positive
(Marshall) externalities in agglomerations of interrelated firms and industries. These
externalities are caused by three major forces: i) knowledge spillovers between
firms; ii) specialised inputs and services from supporting industries; and iii) a
geographically pooled labour market for specialised skills. Marshall’s cluster
hypothesis basically states the existence of dynamic complementarity within a
system of interdependent economic entities that influences specialisation patterns
in production: for the reasons given above, innovation and growth in one economic
unit can exert positive impulses for innovation and growth in other parts of the
system as well. Therefore, a cluster of industrial complexes is expected to perform
better than the sum of its individual units in a more scattered distribution (Peneder,
1999, p. 340).
Development and The massing of population in a great urban concentration of 10 million or more to
growth poles achieve external economies of scale, with the object of receiving a depressed
(Perroux) region; the establishment of a group of industries which cluster around expanding
industry.
Development blocks Dahmén emphasised that the interdependency between companies and industries
(Dahmen) facilitates the spread of new knowledge and that new commercial activities gain
sustenance in strong networks. The entire network gains strength with the
existence of dominant and internationally successful companies. (NUTEK, 1999, p.
13)
Competence blocs The term competence bloc is used to indicate that there are a number of different
1
There is a major difference in that innovation clusters are mostly focussing at innovation whereas sectoral
systems are also used to characterise production. However, sometimes value chain based cluster notions are used t o
characterise production and competitiveness as well.

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(Eliasson) competences that together help to develop and commercialise a special product.
Human competence capital is important in this approach. … The important actors
in a competence bloc, according to Eliasson, must be found locally and work
together in order for there to be industrial development. This involves competent
customers who make demands, innovators who create, entrepreneurs who identify
interesting innovations that are viable in business terms, and venture capitalists
who discover and finance them, so that they can be trans-formed by industrialists
for production and distribution (NUTEK, 1999, p. 22)
Agglomerations A cluster whose elements share a common regional location, where region is
/regional industry defined as a metropolitan area, labour market, or other functional economic unit.
cluster
Industry cluster A group of business enterprise and non-business organizations for whom
membership within the group is an important element of each member firm’s
individual competitiveness. Binding the cluster together are "buyer-supplier
relationships, or common technologies, common buyers or distribution channels, or
common labour pools (Enright 1997: 191)."
Value chain industry A value chain cluster is an industry cluster identified as an extended input-output
cluster or buyer-supplier chain. It includes final market producers, and first, second and
third tier suppliers that directly and indirectly engage in trade. It is comprised of
multiple sectors or industries.
Networks of production of strongly interdependent firms (including specialised

suppliers) linked to each other in a value-adding production chain. In some cases,
clusters also encompass strategic alliances with universities, research institutes,
knowledge-intensive business services, bridging institutions (brokers, consultants)
and customers (OECD, 1999, p. 9)
Industrial complexes The concept of industrial complexes …is based on the notion that the linkages
between, on the one hand, firms developing new technology expressed in
components, machines and production systems and, on the other hand, firms
using this technology, are at the core of the economic system (Drejer et al., 1999,
p. 295)
Resource areas A resource area consists of a broad range of products or services, which is
relatively stable over time and has a considerable weight or size in the economy. A
resource area is made up of sectors that are mutually interdependent or are in a
common relation due to the requirements to produce the final product or service in
co-operation. The firms in a resource area have the same needs in terms of factor
conditions. There is one or more position of strength measured by trade
performance in a resource area (Drejer et al., 1999, p. 304).
Technological A network or networks of agents interacting in a specific technology area under a
systems particular institutional infrastructure to generate, diffuse and utilize technology.
Technological systems are defined in terms of knowledge or competence flows
rather than flows of ordinary goods and services. They consist of dynamic
knowledge and competence networks…In the presence of an entrepreneur and
sufficient critical mass, such networks can be transformed into development blocs,
i.e., synergistic clusters of firms and technologies within an industry or group of
industries (Carlsson and Stankiewicz (1991) as quoted in Carlsson and Jacobsson,
1997, p. 268)
Sectoral systems of a set of new and established products for specific uses and the set of agents
innovation and carrying out market and non-market interactions for the creation, production and
production sale of those products. A sectoral system has a knowledge base, technologies,
inputs and an (existing and potential) demand. The agents composing the sectoral
system are organizations and individuals (e.g. consumers, entrepreneurs,
scientists). Organizations may be firms (e.g. users, producers and input suppliers)
and non-firm organizations (e.g. universities, financial institutions, government
agencies, trade unions, or technical associations), including sub-units of larger
organizations (e.g. R&D or production departments) and groups of organizations
(e.g. industry associations). Agents are characterized by specific learning
processes, competences, beliefs, objectives, organizational structures and
behaviours. They interact through processes of communication, exchange,
cooperation, competition and command, and their interactions are shaped by
institutions (rules and regulations). A sectoral system undergoes processes of
change and transformation through the co-evolution of its various elements (Brechi
& Malerba, 1997; Malerba, 2000, p. 6/7).
Source: Partly based on Bergman et al, 1999a: Exhibit 2.2
Merely taking stock of the variety in definitions of the notion of cluster and related notions
naturally does not help very much except from illustrating the analytical opaqueness that

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surrounds the notion of clusters. It is even get worse if we further acknowledge that cluster studies
are being performed at various analytical levels as indicated in table 2.2 below.
Table 2.2: Cluster analysis at different levels of analysis

Level of analysis Cluster concept Focus of analysis
National level Industry group linkages in the • Specialisation patterns of a
(macro) economy as a whole national/regional economy
• Need for innovation and upgrading

of products and processes in
mega-clusters
Branch or industry level Inter- and intra-industry- • SWOT and benchmark analysis of
(meso) linkages in the different industries
stages of the production chain
of similar end product(s) • Exploring innovation needs
Firm level Specialised suppliers around • Strategic business development

(micro) one or more core enterprises
(inter-firm linkages) • Chain analysis and chain
management
• Development of collaborative
innovation projects
Source: OECD, 1999: 14
An extra complicating factor is that depending on the actual goal of the cluster study at hand
various cluster dimensions are emphasized. This observation made Jacobs & de Man (1996) decide
that it is better to acknowledge this issue of multidimensionality of the cluster notion and the
various ways in which cluster studies are being used in industrial policies and firm strategy (see
table 2.3). They proposed that every time when a cluster study is performed the choices made
need to be made clear. An act that they compare to choosing from a menu. They have put
forward a menu approach, differentiating between 7 dimensions, including relevant corporate
strategy and policy options
All this is just to remind us that the question ‘what exactly is a cluster?’ cannot be answered in a
satisfactory way immediately. The question has to be answered over and over again and positioned
vis-à-vis related/competing concepts (see section 2.3). It also reminds us that clusters are in a way
artificial constructs and that we have to be clear and open on the choices made when a cluster
perspective is adopted.
2.3 What cluster approach was adopted in RISE?
The aim of this section is twofold, namely:
• Indicate the choices we made regarding cluster studies as performed within RISE;
• Indicate what we see as specific for our cluster approach vis-a-vis related notions.

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Table 2.3: Cluster dimensions, firm strategy and industrial policy: a menu approach
DIMENSION STRATEGY TOWARDS OWN & OTHER CLUSTERS RELEVANT POLICY OPTIONS
Geographical: Behave positively in own regional networks (own cluster) Starting point for deciding on which geographical level a
The spatial clustering of economic activity Take part in relevant EU programmes (own & other cluster) cluster is to be supported
Tap into foreign clusters (other clusters) Regional scale ideal for diffusion to SMEs and networks of
main suppliers and specialized jobber
Horizontal: Strike a balance between cooperation and competition (own Sector initiatives e.g. environmental policies. Organisation
The classical division of sectors on a certain cluster) of strategic conferences.
level of aggregation/Several Support sector initiatives in education, environmental and
industries/sectors can be part of a cluster quality policies, internationalisation and market development
(own cluster)
Learn from foreign competitors (other cluster)
International sector initiatives (other cluster)
Vertical: Organize the user-producer-supplier interaction (own Stimulating development of relations between suppliers and
In clusters adjacent phases in the production cluster) contractors in the direction of co-development, co-
process can be present (value systems), Exchange staff (own cluster) makership
filieres, network of suppliers). Important is Co-location in design and production (own cluster) When shaping policies, take into account which actors in
which actor is pulling the innovative activities Locate activities near advanced clients and suppliers (other the network ‘pull’ innovation
clusters) Strengthen networks of main suppliers and specialized
Forge relations with clients in other countries in order to jobbers
upgrade products (other clusters) Direct quality and environmental policies at the whole value
system
Lateral: Establish new combinations with (elements of) other Technological synergies between sectors direct choices in
Different sectors with which certain clusters technology policy
capabilities can be shared and economies of Look for inspiration in different (other) clusters (organize
scope can be achieved, leading to new spill-over)
combinations (e.g. multimedia cluster).
Technological: Strengthen relation with knowledge infrastructure in own Enhance interaction between organizations via ‘cluster
A collection of industries which share a basic environment (own cluster) projects’
technology (e.g. biotechnology cluster) Forge relations with foreign top institutes (other clusters) Stimulate mobility of staff between the knowledge
infrastructure and companies
Focal: Starting point for choices in technology policy, e.g. rearding
A cluster of firms around a central actor- a the location of top research institutes
firm, an extended family, a research centre,
an educational institute.
Quality of the network: Strengthen partners’ knowledge (own cluster) Strengthen knowledge on ‘learning to learn’ in networks
Do firms cooperate and in which way. Enhance international orientation of cluster (own cluster) (network management); diffusion of that knowledge
Sustainable and stimulating networks or Introduction of new coordination mechanisms between firms Stimulate the international orientation of that networks.
defensive networks or ‘negative’ forms of (own cluster)
networking
Source: Jacobs & de Man, 1996: 428-429, 432, 434

The cluster approach as adopted within RISE can be summarised by the following six choices.
1. RISE is about interdependency and linkages2 (instead of similarity) i.e. traded and
non-traded linkages (instead of only traded linkages) and includes actual linkages and
potential linkages (instead of only actual linkages). In these linkages both firm and non-
firm organisations can be involved (instead of only firms or economic actors).
Basically two broad schools of thought can be discerned when it comes to how a cluster may
be defined. According to Verbeek (1999: 2) these are those approaches based on similarity
and those based on interdependency. He describes the difference between these two
approaches as follows: “cluster approaches based on similarity start from the assumption
that economic activity clusters because of its need for equal framework conditions
(similarity in research, labour skills, specialised supplies etc. etc.). The approaches based on
interdependency assume that economic activity clusters because dissimilar actors need each
other’s competencies in order to successfully operate and create innovations” (1999, 2). I t
is clear that the first approach draws attention to the geographical dimension of clusters.
With respect to the RISE project, the second of the two approaches laid out by Verbeek
(1999) is more appropriate as RISE is concerned with the role of actors, especially RTOs
and KIBS, within the innovation process. Thus, any cluster definition must be broader than
geography alone and be able to include other dimensions as well. In particular, it must take
into account that actors are somehow bound together through various exchange
relationships and do not necessarily have to be in the same geographical location to interact
with one another. Through focusing on interdependencies RISE recognises that a variety of
different types of (traded and non-traded) relationships are possible within clusters, and that
these may occur between a quite diverse set of actors. These actors need not be necessarily
firms as non-firms organisations such as knowledge institutions, non-profit brokerage
organisations and other intermediary type of organisations as well as policy-makers
generally do play a role in clusters. Ultimately, the economic success of a company is also
dependent on its relationship with those institutions that shape the environment in which it
is located, and those that provide intermediate inputs. It should be emphasised that apart
from actual linkages potential linkages should be included as well. In a perfect cluster world
all links needed to successfully innovate and compete are established, however, in practice
in quite a few cases actors that could potentially make a contribution innovation should be
included. A good criterion therefore if one is to decide whether to include an actor in a RISE
style cluster study is “those actors (firm and non-firm) actors shaping the space3 wherein
innovation can take place4 ”.
2. RISE is about innovation (instead of the wider notion of competitiveness), i.e.

technological and non-technological innovation (instead of only technological innovation)
looking particularly at the mix of manufacturing and service functions as to get rid of the
traditional divide between the manufacturing and service activities (instead of treating these
as separate activities).
Especially thanks to the notion of cluster as introduced by Porter a wave of cluster studies
has flooded an increasing number of countries. These analyses and the policy conclusions
derived from them are in the first place about competitiveness. Of course attention is paid
to the way clusters are upgraded as one of the main conclusions is that strategies aimed at
differentiation and upgrading of products is more sustainable as a competitive strategy than
purely focussing on price. RISE is however mainly interested how innovation comes about.
More in particular it is stressed within RISE that both technological and non-technological
innovations would have to be included (instead of only focussing on technological
innovation). What is more, one of the main reasons to choose for a cluster approach was t o
get rid of the traditional divide between the manufacturing and service activities which in
2
This is not to say the clusters studied in RISE do not share certain characteristics such as knowledge base,
labour market, client categories or that agglomeration does not play a role. However, when selecting the clusters
interdependency in value chains was dominant.
3
Space or environment is not meant here as geographical space!
4
Philippe Laredo phrased it this way in the RISE expert meeting.

most sectoral studies are treating as separate activities (almost by definition as you have
manufacturing sectors and service sectors!).
3. RISE focuses on mapping the dynamics of innovation (or innovation styles) and i n
particular the development of the innovation function in relation to RTOs/KIBS
and other agents in the knowledge infrastructure.
As was already clear from tables 2.2 and 2.3 cluster studies may serve various goals5 .
However, within RISE a deliberate choice was made to focus on what drives and what
characterises innovation in the various clusters and more specifically the role played by
RTOs and other actors, such as KIBS, in the knowledge infrastructure of that cluster. This is
not to say the resulting cluster studies solely focuses on this, but the cluster studies provide a
context and have played a role as mapping devices for some of the other work-packages
within RISE, most notably work-package 2 on RTOs and innovation related service
functions and work-package 5 on competences in innovation service function interactions.
IN WHAT WAY DO CLUSTERS DIFFER FROM (INNOVATION) NETWORKS?
It is clear that networks are essential for the functioning of clusters. These networks could be based on trade
linkages (or industrial relationships) and non-trading linkages, e.g. social networks, innovation networks,
technology-based networks, networks of pre-competitive cooperation, etc. Networking and the dynamics of
interaction between actors are important elements when performing cluster studies. In a cluster most likely
various networks are in operation at the same time (‘clusters as network of networks’) and some firm
networks (which may possibly be referred to as ‘micro-clusters’) may develop into complete clusters.
However, in our view cluster studies in general will not only focus on individual (innovation) networks, but on
various dimensions which together influence innovativeness of a cluster. Policy lessons derived from cluster
studies may deal with network building and functioning as well with factor conditions, rivalry, quality of
demand etc. However, within RISE we choose to focus on clusters as a mapping device and to look at the
innovation dynamics in clusters and more particularly the development of innovation related services as
provided by KIBS, RTOs and public knowledge institutes.
4. RISE does not focus on a particular geographical scale.
It is remarkable to see that some complete production clusters are very strongly localised,
e.g. dredging in the Netherlands, microelectronics in Silicon Valley or Biotech in Bavaria.
However, starting from value chain based clusters one can equally come across cluster that
are functioning at a national or even international scale or where some localisation goes
hand in hand with very internationalised links. It may also differ for the various types of
players within a cluster. Very localised players that operate in a local setting can be co-
located with actors that are almost by definition internationalised and behave accordingly.
It is even thinkable to have a local production cluster that is steered (in economic terms, in
terms of where the technology comes from, in terms of major clients) by foreign players.
Within RISE the choice was made not to exclude beforehand these types of international
linkages.
5. From a methodological point of view RISE emphasises the qualitative case study
approach and a mix of various types of clusters (instead of a formalised quantitative
approach)6.
Within RISE cluster studies are mainly used to map innovation styles and identify how the
innovation service function is organised. It was decided that adopting a qualitative case
5
Malerba in a similar vein indicates that “sectoral systems may prove a useful tool in various respects: for a
descriptive analysis of sectors, for a full understanding of their working, dynamics and transformation, for the
identification of the factors affecting the performance and competitiveness of firms and countries and finally for the
development of new public policy indications” (2000, p. 26).
6
Although some more formalised analyses were part such as use of bibliometric and patent data; analysis of
innovation survey data.

study approach was most productive as this involves interviewing the cluster actors directly
and learn how they experience the innovation style, innovation mechanisms and role
played by specialised innovation service providers. Not in the least as the boundaries of
clusters need often to be defined by those who work in them on a daily basis i.e. the cluster
actors themselves. There are of course more formalised way to especially identify clusters
such as input/output analysis, patent analysis, graph analyses, innovation matrices, etc (for
an overview see OECD, 1999), but these still suffer from serious methodological as well as
data availability flaws. Moreover, RISE is not about how to identify clusters precisely, but
about mapping innovation and innovation services provision. This is not to say that no
quantitative methods were used. Some clusters were already identified using formalised
quantitative approaches (such as the Norwegian food cluster) or used them to help in
delineating the actual cluster (such as the Swedish Biotech cluster). In other clusters the
qualitative analysis was supported by various quantitative information derived from regular
production or innovation statistics or small questionnaires.
6. Ultimately RISE has the ambition to address systemic imperfections and derive at
policy recommendation.
As the choice for focussing at interdependency and inter-linkages means a systemic

approach towards innovation it allows us to point at systemic imperfections7 wherever
possible and relevant and make suggestions as to what innovation policies would be most
suited to the cluster at hand or it what respect a cluster approach in innovation policy-
making would add. However, as the role-played by KIBS and RTOs and other actors in the
knowledge infrastructure and the balance between them appears to be cluster specific we will
not put forward best practices. As innovation styles differs between clusters what works in
one cluster, does not automatically work in another cluster or might even be counter
productive. Policy-makers can be sensitive to this and adapt the way they for example steer
RTOs in particular clusters.
We feel that the cluster approach mainly is an alternative to the traditional sectoral approach.
The differences between a sectoral and (not exclusively focussed on innovation) cluster approach
are sketched once more in table 2.4.
Table 2.4: Traditional sectoral approach vs. cluster-based approach

Sectoral approach Cluster-based approach
Groups with similar network positions Strategic groups with mostly complementary and
dissimilar network positions
Focus on end-product industries Include customers, suppliers, service providers
and specialised institutions
Focus on direct and indirect competitors Incorporates the array of interrelated industries
sharing common technology, skills, information,
inputs, customers and channels
Hesitancy to co-operate with rivals Most participants are not direct competitors but
share common needs and constraints
Dialogue with government often gravitates Wide scope for improvements in areas of common
towards subsidies, protection and limiting concern that will improve productivity and increase
rivalry competition
A forum for more constructive and efficient
business-government dialogue
Search for diversity in existing trajectories Search for synergies and new combinations
Source: OECD, 1999: 13
Apart from defining the cluster approach adopted here by indicating the choices the cluster
approach adopted in RISE can be compared with (related) concepts. Table 2.5 lists in what
respects our cluster approach differs from related concepts.
7
Malerba similarly observes that: “a sectoral system perspective may help in identifying mismatches and blocks
that parts of the system exert on the rest. And may help overcome vicious cycles that block systems in their growth,
development and transformation.”(2000, p. 27).

In conclusion the focus on innovation clusters adopted in RISE implies:
• Analysis of artificially constructed clusters, boundaries are decided on mostly together with
cluster actors;
• A focus on interdependencies and linkages (traded and non-traded, firm and non-firm, actual
and potential, cross sectoral);
• A focus on innovation;
• A focus on the way in which the innovation services function in relation to the functioning
of the knowledge infrastructure is made up and changing;
• A perspective that might cross various geographical scales;
• A mostly qualitative perspective in terms of analysis provided;
• Apart from analytical tool also a clear policy-orientation.
Table 2.5: Ways in which the cluster approach adopted is different from related concepts
Related concepts In what respect do they differ from the rise cluster approach
Industrial districts & These approaches are about geographic proximity and in these geographically
other agglomeration- defined regions similarity > interdependence. Clusters need not to be
based cluster geographically concentrated.
approaches
Development & growth These approaches are concerned with stages in localised economic growth, and
poles are therefore highly focused around a particular geography. Clusters need not be
geographically concentrated.
Development blocks Although similar to clusters as understood in RISE, the notion is in fact closer to
economic networks as it downplays both the role played by non-company actors
as well as innovation.
Competence blocks This notion displays similarities to innovation clusters, though it focuses on local
capabilities whereas clusters as understood by RISE acknowledge that linkages
may occur at various geographical scales.
Value chains, supply These approaches concentrate on traded and production linkages and does not
chains & filieres especially focus on innovation. Potential linkages are not included
Industry cluster Unclear whether similarity (e.g. sharing common factor conditions) or
interdependency (such as buyer-supplier relationships) are leading. No specific
innovation focus.
Industrial complexes & Strong technology focus and implicit sectorally based
technological systems
Resource areas Proven rather than potential strength and certain minimum size required (mega-
cluster). Same needs in factor conditions. Quite comparable to Porterian cluster,
only bigger. Competitiveness > innovation.
National innovation The cluster approach shares the systemic approach. The latter, however, is rather
systems focussed on R&D actors and institutional dynamics. This perspective highlights
especially the institutional set-up and broad flows within the economy whilst the
innovation clusters’ approach is focussing more at interdependencies at the meso
and micro levels. In an innovation cluster also less R&D intensive and service
actors are included. NIS are quite stable and focus on institutional characteristics
which are largely nationally defined, but NIS does not preclude international or
local aspects to be included. Innovation clusters are more dynamic, can change
more rapidly, concentrate on a subset of (innovation-related) actors and might
operate at various scales, including the international scale.
Sectors Clusters, so also innovation clusters almost by definition transcend sectoral
boundaries. Sectoral studies are more aimed at describing economic strengths and
not so much innovativeness let alone how interaction with the knowledge
infrastructure occurs.
Innovation networks Clusters transcend networks and also might include potential linkages between
actors. A cluster may contain various networks and other sort of linkages. A
network can be a nucleus for an emerging cluster.
Sectoral systems of Quite close to the cluster approach as adopted in RISE although the boundaries
innovation and are still based on sectors or a group of sectors and the focus is not limited to
production innovation, but also includes production.
Having said all this it should be borne in mind that clusters are– although aimed at understanding
real life innovation-related traded and non-traded linkages of a group of actors – still analytical
constructs as much as industrial sectors, industrial districts and innovation networks are analytical

constructs devised by analysts to understand industrial and innovation dynamics which are
sometimes also used to propose firm strategy and policy guidance.
2.4 How then were cluster studies performed in the RISE project?
Cluster studies were chosen as one of the ways to study how the innovation services function and
most notably the position of RTOs and KIBS are changing. More than simple sectoral analyses
innovation cluster studies reveal the real world in which firms and other actors have to operate
and innovate on a daily basis. Two questions have to be answered each time a cluster study is
planned:
• How can a cluster be identified in a sensible way?

• How can the actual cluster study itself be performed in a proper way?
These two tasks are often confused. The first question mainly deals with differentiation between
the various clusters that exist in an economy. This can be done using various formalised
quantitative approaches such as I/O-analyses, estimation of innovation matrices, various forms of
correspondence analysis, patent data, value chain analyses, Porterian cluster maps using export
performance, etc. This is quite a laborious task as overall cluster charts have to be made
demanding a great amount of data. Together Roelandt & den Hertog (1999) and DeBresson & Hu
(1999) demonstrate the diversity of methodological approaches that can be used in this context.
Each of these approaches has associated with them strengths and weaknesses that determine in
what circumstances they are appropriate as each focuses analytical attention on different aspects
of the inter-dependencies that are evident within an economy. This latter point is particularly
important. Through focusing attention on different aspects of inter-dependencies the various
cluster methodologies are effectively complementary. The broad high-level analysis of input-
output techniques determines what inter-dependencies actually occur, whilst the more focused and
narrow micro-level analysis techniques examine in greater depth the nature of these inter-
dependencies. How advanced and insightful these methods might be, they are mostly methods t o
identify a cluster in a very partial way. It is only through “standing with your feet in the mud”, i.e.
talking to people active in the cluster, that you start to understand the dynamics and logic of a
cluster and do not have to adapt the cluster boundaries found using one of these quantitative
techniques.
We skipped this phase of making cluster maps and then formally select clusters. The more so if
you start from the goals of your research and accept that clusters are artificial constructs anyway,
you can more or less construct the cluster to be analysed yourself. It is clear that if your focus is
technology based e.g. if you want to see how the introduction of modern biotechnology affects
economic actors that mainly use and ‘produce’ these technologies your cluster will be different
compared to the situation in which you start snowballing from one or a few innovative firms t o
learn how innovation comes about in the firms and organisations involved in producing
automotive components part. Similarly, a multimedia cluster is very much a potential or emerging
cluster that can for example not directly be identified from input/output analyses, still players
from various industries as well as many start ups make this cluster a reality.
Having decided that there is no way to optimally identify a cluster we simply made a pragmatic
choice for certain clusters, the boundaries of which we delineated ‘along the way’. The open
advocating of a pragmatic approach is seldom seen among experts and practitioners in the cluster.
Other considerations played a role as well. In the first place various co-financing parties had a say
in the cluster studied (Dutch Multimedia cluster, Portuguese and Swedish Biotech clusters).
Secondly, we made sure from the beginning that there was a reasonable mix between emerging and
more mature clusters as not to be biased towards either one. An additional reason to include a few
more mature clusters and in some cases even to include cluster that are generally perceived as ‘low
tech’ was to be able to show that also in these type of cluster very advanced ways of innovation
and of providing innovation functions can develop. Finally the knowledge on certain clusters
present in the various national teams affected the choice for a particular cluster. For some

national teams aggregated statistical data was available, whilst for others it was not. Similarly,
some were able to access individual companies and ascertain their sources of innovation whilst
other national teams were not.
Consequently, national teams were free to choose whatever cluster methodology was most
appropriate in their case providing that they could answer the questions posed by the work-
package co-ordinators (TNO and Dialogic). This can even be interpreted as a consequence of the
menu approach mentioned earlier (table 2.3). The central questions of RISE were ‘translated’ into
terms consistent with the focus and scope of work-package 1, and these are shown in a condensed
format in table 2.6 below. These consisted of a series of broad areas that the national teams
should focus their analysis on. Each of these broad areas was further sub-divided through the
provision of a series of questions that raised areas that ideally would be covered during the course
of the analysis. Thus, what was effectively established was a ‘wish list’ of areas that the national
teams should include within their cluster analysis. It was, however, recognised that this wish list
was the ideal, and that practical considerations such as access to pertinent information will ensure
that this ideal is detracted from to a lesser or greater degree. The German cluster study explicitly
highlights the problems caused by inappropriate statistical classificatory schemes that could not
provide the necessary level of detailed information sought (Preissl, 2000).
Table 2.6: Guidance issued to national teams for work-package 1

Broad area of analytical Specific questions posed meriting consideration
focus
Structure – actors within Which industries are present within the cluster?
the cluster Which actors are present within the cluster?
Are actors located in close geographical proximity to one another
What characteristics do the actors display? Is there a diversity of actors?
Are they similar in terms of roles, size etc?
Structure – inter- What are the general characteristics of relationships within the cluster?
relationships within the Are some type(s) of actors prone to co-operate more than others?
cluster Are actors linked together through value chains?
Are certain actors ‘nodes’ within the cluster? Do ‘nodes’ act as regisseurs?
What role do governance relationships (ownership and control) play in linking
companies together?
Sources of innovation At a cluster level are the sources of innovation characterised by any
particular pattern?
How do actors organise their innovative / R&D activity? Is innovation
conducted on a standalone basis, or in partnership with others?
Is R&D concentrated in only a few actors, or throughout the cluster?
Do certain industries within the cluster have a higher propensity for innovative
activity than other industries?
What factors within the cluster encourage / hinder innovative activity by
actors?
RTOs as a source of Do actors use RTOs as a source of innovation?
innovation Where are RTOs located? Are RTOs specialists?
Do RTOs complement internal sources of innovation?
Do actors move between RTOs?
If actors do not use RTOs, what are the sources of their innovation?
Not insisting on any one methodology resulted in a variety of approaches used. In table 2.7 the
two most important dimensions adopted (from the 7 dimensions included in the menu of table
2.3) are given as well of the level of analysis of the 7 cluster studies performed.
The diversity of the cluster approaches has much to offer vis-à-vis other analytical frameworks.
However, the appropriateness of each of the individual cluster approaches depends on items such
as: existing statistical evidence available (at what cost); whether you are dealing with an emerging
or established cluster; whether geography plays a role and at what scale; whether there is a
possibility to snowball from a few large players; whether there is some knowledge available on the
cluster yet; how
far policy thinking on that particular cluster has progressed; how well established the players and
the relevant knowledge infrastructure is and so on and so forth.

Table 2.7: Two dimensions emphasised most and levels of analysis of the various cluster
studies performed (see also table 2.3)
Cluster study Two dimensions emphasized most Level of analysis
Automotive components cluster Vertical & quality of the network Micro / meso
(Germany)
ICT/Multimedia cluster Horizontal (ICT) & lateral Macro / meso
(Netherlands) (multimedia)
Telecom cluster (Italy) Technological & vertical Macro / meso
Book printing and publishing Vertical (value chains) & Horizontal Meso
cluster (UK)
Biotechnology cluster (Portugal) Technological (diffusion) & lateral Meso
Biotechnology cluster (Sweden) Technological & horizontal (for Meso
policy!)
Food cluster (Norway) Vertical & geographical Macro / meso / micro
Table 2.8: What research activities were done/approach adopted

Cluster study Activities performed
Automotive components cluster (Germany) Extensive interviewing “Snowballing” from innovative
automotive components suppliers to their sources of
innovation & (actual and potential) collaborators
Extensive desk research
Detailed analysis of drivers of innovation and how
innovation function is configured and changing
Workshop and analysis of policy implications
ICT/Multimedia cluster (Netherlands) Analysis CIS-2 and production statistics for data for
IC-industries (group of industries)
Detailed analysis of competitiveness and innovation
(role RTO/KIBS) in multimedia cluster using 9 central
dimension (desk research, interviews, workshops)
Translation into policy options
Telecom cluster (Italy) Detailed analysis of changed telecom landscape
(convergence, technological and service innovation).
Analysis of changed roles RTOs/KIBS on the basis of
interviews
Book printing and publishing cluster (UK) Adoption of value chain approach to delineate cluster,
and determine inputs into industry.
Analysis of role played by KIBS/RTOs, and discussion
of lack of latter’s participation in cluster.
Extensive overview of industry developments.
Detailed analysis of relationship between innovation,
driving forces of innovations and the associated
organisations.
Biotechnology cluster (Portugal) Complete analysis of how biotechnology is developed
and especially on how biotechnology is diffused in
pharmaceuticals, forestry & pulp, agro-food
Analysis of role played by KIBS/RTOs
Analysis of current policies and policy options
Biotechnology cluster (Sweden) Demarcation of cluster analysing patents and
publication patterns
Identification of relevant firms and institutions
Analysis of firm/RTO/university interfacing and
knowledge transfer
Analysis and policy recommendation esp. in relation to
biotech firms < 250 employees
Food cluster (Norway) Econometric identification of food cluster
On the basis of desk research and extensive
interviews in the cluster description of general cluster
dynamics
Analysis of innovation practices. Apart from R&D
special attention is paid to role of suppliers of
machinery & equipment and consumer
relations/branding
Analysis of policy implications

Of course, each of the cluster methodologies is not faultless or applicable in all circumstances. In
a particular context some are more appropriate than others. For instance, if the aim is t o
determine broad economic flows between sectors of the economy then input-output analysis,
which relies on aggregated economic statistics, is the preferred methodological choice. Similarly,
those methodologies that focus attention on micro-level interdependencies, for example, the
value chain methodology will be preferred when the objective is to see how a given firm relates t o
its trading partners and wider environment. We found that a combination of mostly qualitative
approaches (desk research, serious interview rounds, workshops) and in a few instances
quantitative methods8 (such as analyses of CIS databases at the micro-level; small surveys, patent
and citation analysis) was most productive. In a few cases the policy component of the individual
case studies has been considerable, especially if there was an immediate interest from the policy
side. In all cases at least policy implications and the usefulness of the cluster approach as a
working tool could be flagged. Table 2.8 provides a summary of the actual research activities
performed in the individual case studies. Table 2.9 identifies some of the lessons learned
concerning the use and usefulness of cluster studies and some of the unresolved issues we bumped
into.
Table 2.9: Some of the lessons learned in RISE & unresolved issues when performing Cluster
studies
LESSONS
Even with an admittedly semi standardised approach in terms of a common set of dimensions and
questions the elaboration by the different teams was very different, also because research background
and access to data sources varied.
The cluster approach seems comes much closer to the “relevant context we work in” in comparison with
traditional sectoral analysis.
Identifying clusters can either be seen as a quite complicated technical exercise or as a practical
question that is open for discussion in the beginning of a cluster study and which needs to be resolved
through interaction between experts and practitioners drawn from within the cluster.
Delineating a cluster is, however, is an extremely important issue and needs to be resolved when starting
the analysis. If not, the question will keep reappearing as an item for discussion.
Starting from a broad set of industries, expert interviews, snowballing from individual firms and
institutions are all options for looking for the cluster boundaries.
Some statistical evidence on how the cluster is performing is helpful.
Before the concept of innovation services function in relation to the knowledge infrastructure (mainly
RTO/KIBS) dynamics can be addressed, substantial effort has to be invested in simply mapping cluster
actors and cluster structures.
Performing cluster studies is laborious: qualitative interviews are needed and only a few events to let
people interact are worth investing in.
Knowledge infrastructures and balancing of RTOs and KIBS are very different and much more subtle than
RTOs getting more market oriented and KIBS taking over more functions usually associated with RTOs.
Even within clusters operating at a national or even international scale small geographic nodal points if
activity could be detected and vice versa (in most local clusters are in need of a few international links
to keep going).
The act of performing the actual cluster study is an ideal tool for policy-makers for bringing cluster actors
together and for identifying possible policy options to strengthen the cluster.
UNRESOLVED ISSUES
The lack of statistical material that is suited to cluster needs (or which can be only made available at
great costs) is troubling cluster studies
Discriminating between new, upcoming, established and mature clusters is difficult.
How to deal with clusters that are nascent or almost extinct?
Other ways of knowledge creation and distribution such as mobility of trained people and diffusion of
machinery (and the services that go with it) are hardly touched upon.
8
Provided the results of these could be made available timely and at a reasonable cost.

3 Findings
In this section the principal findings of the cluster studies shall be recounted. In doing so it is our
intention here to move beyond the identification of similarities and differences between the
clusters to look for ways in which developments within the cluster can be understood. The first
sub-section below highlights the diversity of actors collectively identified by the cluster studies,
whilst the second sub-section focuses on the structure of clusters. The third sub-section is
concerned with the geographical scale of the clusters studied. The fourth and final sub-section
concentrates on the role of RTOs within the cluster.
3.1 Actors
Clusters are not homogenous in character. The cluster studies demonstrate that they differ in
terms of both the diversity and number of actors present within them as well as their structure.
Because some of the actors identified interact with some more closely than others, it is possible t o
identify groupings – sub-clusters – within the overall cluster. In other words, these two
characteristics are intimately related to one another. To aid analytical clarity this section shall
focus on the diversity and number of actors present within the clusters, whilst the following
section will concentrates on the resulting structures that different types of actors give RISE to.
However, as these characteristics are closely related to one another it is inevitably that some
overlap will result.
Our starting point here is to ask what actors can be observed within the clusters? A wide variety
of actors are present within the clusters, and range from companies to domestic or internationally
orientated research institutes to governmental departments. Even though the terminology used in
the different cluster studies does differ at times, the actors identified by the studies fall into one of
three broad categories:
• Research & education institutions – included within this category are universities, KIBS and
RTOs. All three provide research related input into the innovative process. More general
than this, universities provide an educated workforce that can be used by actors within the
cluster.
• Environment shaping actors – actors within this category shape the environment in which
innovation occurs. On the one hand, this occurs through the actions of governmental
departments within the host country whilst on the other hand international organisations
may also have an affect on the environment in which the cluster is located.
• Companies – there are, broadly speaking, two types of company actors within the clusters,
those that are domestic in orientation and those which are multinational enterprises
(MNEs). The picture is, however, further complicated when it is realised that some
companies may provide a range of intermediate inputs to others whilst some may specialise.
Moreover, some companies occupy a key position within the cluster because the input(s)
they provide to others is unique. Significantly, this is true not only for companies but the
other two broad categories of actors identified as well.
The diversity of actors identified quite naturally leads onto the question as to how these may be
categorised. It is comparatively straightforward to categorise cluster actors on whether or not
they are research & education orientated, corporate or environment shaping in nature. These are,
after all, the three principal types of actors within the economy at large. However, this
classification does not shed light into the innovative process. Both the German and Portuguese
studies propose classificatory schemes that aim to shed light on the roles performed by actors
within the cluster, highlighting in the process their contribution to the innovative process.

In the Portuguese classificatory scheme actors fall into one of three categories depending on the
degree to which they incorporate key technologies, biotechnology in this particular case, into the
mainstream of their economic activities. The three categories of actors are as follows:
• Watchers – in this category companies are not prepared to apply biotechnology directly t o
their business activities. Having said this, these companies are engaged in some
biotechnology related projects so that they can gain an awareness and understanding of its
implications before incorporation into their business activities.
• Marginal users – companies that fall within this category neither actively adopt nor
incorporate biotechnology into their business activities. Instead such companies take up
biotechnology passively. That is, in response to the stimulus of other actors with whom
they interact.
• Core users – companies here have actively sought to adopt and incorporate biotechnology
into their business activities. As a result biotechnology is central to the main business
activities of the company, and the success of the company is closely associated with the
success of biotechnology.
Such a scheme is of interest because it effectively proposes a classification that is derived from
ascertaining how dynamic the actor is relative to others within the cluster. Moreover, the scheme
also introduces a dynamic element into the analysis. The most dynamic actors are “core users” of
a particular technology or innovation, whilst the least dynamic are “watchers”. As technology /
innovation does not stand still, this same scheme may also be a way through which changes over
time can be tracked.
However attractive the Portuguese classificatory scheme may be, it is not without its faults.
Although it alludes to how extensively uptake has occurred, providing a relative indication of this,
it does not offer any means of determining this with any degree of precision. In other words, a
rubric has been proposed but without the accompanying set of criteria that can be objectively
employed in another context.
The Dutch study of multi-media cluster offers another insight into actors within the emerging
industry (den Hertog, Brouwer & Maltha, 2000: 10). The cluster is divided into a core and a
surrounding rim. Both the core and rim are not homogenous in nature, and are populated by quite
different types of actors. The core is populated by between 500 and 1000 companies whose
principal activity is the contribution of knowledge to a collective effort that enables content to be
delivered independent of any particular platform. In other words, co-operation occurs because
each company provides some specialised form of knowledge.
In contrast are those companies located in the rim of the cluster. These companies are already
well established players in one or more of the markets that supply inputs to the multi-media
cluster. For example, supplying inputs from the broadcasting sector are companies like Veronica
and EO whilst KPN Telecom is active in the telecom supply market. Although such companies
cannot presently claim to be able to develop all aspects of a multi-media service alone, their move
into other markets is increasingly taking them towards this goal. One reason why companies have
been able to move from their traditional market into new ones is that they control some valuable
asset that they are leveraging to facilitate this move.
Importantly, the diffuse nature of the inputs required for multi-media development and the lack of
rim companies that are active in all markets ensures that no cluster directors or regisseurs were
identified. Having said this, developments are such that it is likely that this situation will change
in the near future as ‘consolidators’ acquire other actors within the cluster. Acquiring other
cluster actors enables companies to gain both mass as well as control over technologies / activities
that they consider to be key to their economic survival.
The German study of the automobile component-manufacturing cluster offers an alternative way
to classify actors. The approach adopted by Preissl (1999) places the innovative company at the

centre of a web of inter-relationships that link cluster participants together. In doing so it

recognises the pivotal role played by the innovating company. Significantly, the approach does
not equate innovation solely with the central innovating company. Instead, the innovating
company is the company responsible for initiation the innovation process that involves not only
itself, but other cluster actors as well. These other cluster actors include its clients, suppliers,
RTOs and KIBS. Innovation activity is, therefore, broader than the initiating innovating
company.
Table 3.1: Classification of actors within the German automobile component-manufacturing

cluster
Category Salient characteristics
Innovating company Centre of the cluster.
Innovation part of overall product or performance strategy
Clients in the automobile Linkage role – between suppliers’ markets and the market for vehicles.
company Active role in determining course of innovation
Suppliers of parts and raw Provision of key elements of the innovation to the central company.
materials Close and Important linkage with manufacturers.
RTOs Provision of specialist technology relevant to the innovation.
Closely linked to universities.
KIBS Role of small task sub-contractors within the cluster.
Business services Marginal contribution to the innovation.
University academics Specialist knowledge contribution from within the university environment.
Agents Intermediaries transmitting information between other cluster actors.
Stimulation of innovation through highlighting issues.
Source: Preissl, 1999, pg. 31.
This classificatory scheme emphasises that inter-relationships within the cluster are not the same;
they differ in terms not only of their strength but also their intensity as well (Preissl, 1999: 36).
The classificatory scheme goes further than this however; through highlighting that for any given
innovation some actors are more important than others. Some actors play an active part in the
innovative process, identifying the need for innovation and then subsequently guiding the
innovation process whilst others funnel information from one party to another. With respect t o
R&D, Preissl (1999: 31) distinguishes between those who are ‘R&D active’ and those who are
‘R&D passive’.
3.2 Structure
The discussion of actors within the cluster leads quite naturally onto the structure of clusters. It is
perhaps not a surprise that the myriad of actors ensures that the clusters are not uniform in
character. It is clear from the above discussion of the German automobile component-
manufacturing cluster that differences do occur within the cluster. Apart from differences in actor
inter-relationships along the dimensions of strength and intensity, it is also possible to identify
sub-clusters within the overall cluster. (A figure depicting the structure of the German automobile
cluster can be found in Appendix 1).
It is possible to divide the clusters studies into two broad categories, firstly, those that actually
identify in some explicit manner sub-clusters and secondly, those that allude to the presence of
sub-clusters. The methodologies adopted enables the Dutch, Portuguese and Norwegian cluster
studies to all explicitly define sub-clusters. These are recounted in table 3.2.
The UK cluster study does not explicitly identify sub-clusters within the printing and publishing
industry. This is because the printing and publishing cluster is itself part of the larger, and
presently vaguely defined, content grounded cluster within the UK. Nonetheless, the UK cluster
study does allude to geographical clustering in London, the SE and around York (Readman, 1999).
Geographical clustering also occurs in the Norwegian agro-food cluster as well. Because the
geographical dimension of clusters shall be discussed further in the next section, we shall not
pursue it further here.

Table 3.2: Illustrative examples of sub-clusters within cluster studies

Cluster Sub-cluster(s)
Dutch ICT • ICT hardware
• Telecom services
• IT (information technology) services
• Content
Portuguese biotechnology • Agro-forestry
• Food processing
• Beverages
• Pulp and paper
• Pharmaceutical
Norwegian agro-food • Fish processing
• Meat and meat production
• Other food products
• Dairy products
• Beverages
• Fruit and vegetables
• Oil and fats
• Grain products
Source: Portuguese cluster study (1999); Braadland (1999); Brouwer et al (1999).
In relation to cluster structure the Swedish biotechnology cluster study compiled by Nilsson,
Pettersson & Sandstrom (2000) is particularly interesting as the stance that they have adopted is
somewhat at odds with those of the other studies. The approach highlights interdependencies
between cluster actors along several dimensions, thereby enabling this central tenet of cluster
analysis to be explored from different perspectives. In doing so, Nilsson, Pettersson & Sandstrom
(2000) does not divide the cluster into several smaller sub-clusters as in the case or The
Netherlands, Portugal or Norway. Neither does the Swedish study follow the lead of Preissl (2000)
or Readman (1999) and focus analytical attention at the micro-level.
In all Nilsson, Pettersson & Sandstrom (2000) highlights four areas of interdependencies within
the Swedish biotechnology cluster, and these are as follows:
• Between public research organisations.

• Between companies and industrial and public research institutes.
• Between the two large pharmaceutical companies of Pharmacia and Astra and industrial and
public research institutes as well as other companies.
• Between Sweden and other countries.
In each of these areas the Swedish cluster study casts light into the nature of collaboration between
actors. With respect to collaboration between public research institutions, the analysis shows that
collaboration is more prevalent between Karolinkska Institute, Stockholm and Uppsala
Universities than between either Linkoping University and the Royal Institute Technology, or
between Umea University and Chalmers University of Technology (Nutek, 1999: 41). The
uneven nature of collaboration is demonstrated below in figure 3.1.
What is important here is that collaboration is not evenly spread throughout the biotechnology
cluster; not only do a handful of actors dominant the collaboration but most are effectively
relegated to playing a minor role. This is clearly demonstrated in figure 3.1 (above). A similar
picture of true for the other areas of collaboration mentioned above. In the case of the
collaborative patterns of Pharmacia and Astra, what is interesting is that with a few exceptions
these do not overlap (Nilsson, Pettersson & Sandstrom, 2000: 25). The obvious reason for this is
commercial sensitivity / exclusivity. However, there is some degree of overlap in terms of
collaboration with public and private research organisations not least because the unique
knowledge that these may contain ensures that collaboration within them has to occur. Thus, it is
more accurate to say that both of these companies collaborate with a small number of research
institutes but that most of their collaboration network does not overlap with one another.

Figure 3.1: Co-authorship pattern between public research organisations
Note: SMI stands for Swedish Institute for Infectious Disease Control. Source: Nilsson, Pettersson & Sandstrom,
2000: 17
Finally, it is necessary to mention that collaboration patterns – as defined by the co-authorship of

papers between companies, industrial research organisations and public research organisations –
has not remained constant over the years. Dividing the period between 1986 and 1997 into three
time periods (1986 – 1989, 1990 – 1993 and 1994 – 1997) the analysis highlights two related
points. Firstly, that the number and type of actors involved in collaboration does not remain
constant. Secondly, the significance of the actors in terms of the number and prominence of
collaborative links also changes over the period examined. Some actors become more important
over the three time periods whilst others decline in significance. For instance, for all three time
periods Lund University is an important node in the collaborative network between companies
and research institutions (Nilsson, Pettersson & Sandstrom, 2000: 20 - 24). However, although
the university remains an important node in all three periods other actors have risen in
prominence. Moreover, the dominance of the link between Lund University and Biocarb AB in
1986 – 1989 has declined, so that by 1994 – 1997 it is only one among many collaborative
relationships.
The relationship between actor size and structure is also commented upon in the study of the
Dutch multi-media cluster. What is of interest here is that this particular cluster study
demonstrates that the lack of ‘directors’ or ‘regisseurs’ it is possible for small emerging
companies, which often have less than 100 employees, to play a prominent role in the
development of the cluster (den Hertog, Brouwer & Maltha, 2000: 10). These companies are
located at the core of the cluster, which in figure 3.2 below is shaded grey. In the main these
companies operate in niches within the multimedia cluster, providing specialised services / inputs
relating to the development, management, design, building and maintenance of multimedia
applications (den Hertog, Brouwer & Maltha, 2000: 8). One consequence of these companies

being niche players is that in order to provide a comprehensive service they have to collaborate
with others.
Figure 3.2: Four segments of the multimedia cluster
terrestrial AV core
cable broadcasting
telecom entertainment
1e rim
CONTENT CONTENT publishing
retail DISTRIBUTION PROVISION
printing
MM production
ICT & CE & services media inkoop
hardware MULTIMEDIA E-MARKETING Direct
ENABLING Marketing
IT software
advertising
interactive
design marketing
business communication
consulting
Source: den Hertog, Brouwer and Maltha (2000: 10)
The core cluster actors are surrounded by a series of larger established companies. It is argued that
although these companies do not fully understand developments within the cluster they are in a
position to influence its developments through the possession of valuable assets such as unique
content, control of distribution channels as well as a thorough knowledge of certain markets (den
Hertog, Brouwer & Maltha, 2000: 9). How the cluster may develop in the future is only
tentatively addressed. Given the present state of affairs, it is stated that the small emerging
companies at the centre of the multi-media cluster are not in a position to become cluster
‘directors’ or ‘regisseurs’ in the immediate future. Furthermore, prominent ring companies
identified, such as Philips, are for various reasons either unwilling or unable to take on such a role.
What may be seen in the future is the development of a series of relationships – both
collaborative alliances as well as acquisitions – between ring and core companies. In particular,
ring companies may form relationships with core companies so that they gain insight into multi-
media developments as well as access to some form of unique asset.
3.3 Geographical scale
Although the first section of this paper proposed a definition of clusters that was broader than just
geography, this section shall focus solely on the geographical dimension of clusters. It is clear
from the studies undertaken that clusters are simultaneously regional, national and international in
scale. Importantly, a cluster need not be confined to just one of these scales and may contain

elements that operate at one or more of these three levels. Interaction will occur both between
and within each of these different scales.
Table 3.3: Illustrating the geographical dimension of clusters
Cluster Geographical aggregation
Swedish biotechnology Regional – Stockholm & Uppsala
International – co-authorship link between Sweden & US and Germany
UK printing and publishing Regional – London, SE and Yorkshire
International – between UK & Germany / UK & USA / UK & Japan for equipment
Norway agro-food Regional – Oslo for corporate HQ facilities
International – influence of EU food regulations
Source: Braadland, 2000; Nilsson, Pettersson & Sandstrom, 2000; Nutek, 1999; and Readman 1999.
Although each of the clusters does have some form of international dimension, they are
predominantly national in scope. That is, the corporate, education and institutional actors within
the cluster are in the main indigenous to the country in question. Exceptions such as in the case
of the UK printing and publishing cluster where equipment is sourced from overseas, demonstrate
the rule of actors being indigenous. In many respects this should come as no surprise. Even
though recent decades have witnessed a rapid increase the internationalisation of economic
activity, it remains primarily focused towards, and located in, the national economy.
It is, however, misleading to argue on this basis that clusters are evenly spread throughout the
national market. At its most basic, the cluster will reflect the fact that the population, and
therefore economic activity, is not evenly dispersed. Populations are concentrated in
conurbations that in turn are the locus of economic activity. To a lesser or greater degree the
clusters studied as part of RISE conform to this in that regional aggregation are clearly evident.
For example, the UK printing and publishing cluster displays three geographical concentrations:
London, the Southeast and Yorkshire (Readman, 1999: 9).
The Norwegian agro-food study draws attention to the fact that geographical concentrations can
occur for a whole set of different reasons. In other words, it is inappropriate to argue that the
same explanation is relevant in all cases. Thus, although large food companies operate nationally
their headquarters are to be found within Oslo (Braadland, 2000: 41). However, production is
highly regionalised in nature. On the one hand production may be located near to the sources of
raw materials, whilst on the other hand production may also be located near to larger towns and
cities (Braadland, 2000: 48). The former motive explains the location of fish processing
industries whilst the latter is applicable in the case of chocolate.
With the Norwegian cluster study as a guide it is possible to identify several other geographical
aspects that highlight their complexity. The UK printing and publishing demonstrates how the
suppliers of key inputs can determine the geographical scale of the cluster. In this case, the
dominance of German machinery companies ensures that in this key area the cluster is
internationalised even though in many other respects the industry is national in scope (Readman,
1999: 9). Thus, industry dynamics can also play a role in fashioning the geographical extent of
the cluster.
This is also evident in the case of the German auto components clusters. A recent trend on the
part of manufacturing companies has been to transfer a greater proportion of the risk associated
with product development onto component companies (Preissl, 2000). This has led t o
component manufacturers internationalising their activities, as had the desire of manufacturing
companies, who are themselves internationalising, to deal with a reduced number of suppliers on a
global basis. The resulting suppliers will not only be larger but they will also be international as
well as bearing a greater proportion of the risk inherent to product development.
Notwithstanding the fact that the auto component industry is in the throes of internationalising
the German cluster remains dominated by indigenous companies. The extent to which foreign
capital has penetrated the cluster is comparatively small (Preissl, 2000: 14). Moreover, the
cluster remains largely regional in scope. This demonstrates that the scale of production may not
exactly match either the scale of the market or that of the participants within the cluster.

The inclusion of two biotechnology studies – Sweden and Portugal – within RISE provides an
opportunity for comparisons to be made. Although the biotechnology clusters in both countries
have a strong national foundation, the Swedish cluster is more internationalised than its
Portuguese counterpart. Having said this, the same set of explanations is applicable to both
countries. Namely, that the increasing cost of drug development has encouraged companies t o
expand internationally so that the likelihood that they can recoup their investment costs
increases. In other words, the small home markets are insufficient to generate the necessary
returns to justify the investment. The need for scope and scale to underpin future drug R&D
efforts has also driven the M&A that has recently occurred, with the merger between Astra
(Sweden) and Zeneca (UK) being a prime example of this in practice.
The merger between Astra and Zeneca demonstrates the internationalised nature of the Swedish
biotechnology cluster. Interestingly and quite significantly, in the Swedish study international
collaboration / internationalisation is skewed in favour of some countries over others. Using
bibliometric data to illustrate the extent to which collaboration has occurred it is shown that the
pre-eminent country with which Swedish actors – companies as well as research institutes –
collaborate is the United States (Nilsson, Pettersson & Sandstrom, 2000: 29). Less significant
international collaborators are the United Kingdom and Germany (Nilsson, Pettersson &
Sandstrom, 2000: 29).
Figure 3.3: Who collaborates with whom in the Swedish biotechnology cluster?
Source: Nilsson, Pettersson & Sandstrom, 2000: 29
Whilst the United States is the pre-eminent collaborative partner in biotechnology there is no
single country that can categorically lay claim to the title of being the second most important
collaborative partner country (Nilsson, Pettersson & Sandstrom, 2000: 30). For example,
Germany is the second most favoured collaborative partner of the Karolinska Institute whereas in
the case of Linkoping University it is Denmark (Nilsson, Pettersson & Sandstrom, 2000: 30). In
contrast, for both Astra and Pharmacia the second most favoured collaborative partner country is
the United Kingdom.
The Portuguese cluster is similar in many respects to that of Sweden. The small size of the home
market places indigenous companies at a disadvantage as it does not encourage investment in
innovative activity because of the limited scope to recoup R&D expenditures. This is borne out

by the fact that several Portuguese pharmaceutical companies do not undertake their own R&D
efforts but instead rely on the efforts of others. What is different from the Swedish
biotechnology cluster, however, is the nature and impact of the internationalisation that has
occurred. Foreign companies have been attracted to the Portuguese biotechnology cluster by the
quality and focus of the R&D that has been undertaken. In other words, foreign companies have
been pulled to Portugal because it possesses a set of unique assets. Once the foreign investor(s)
have acquired the Portuguese assets they have moved research, and sometimes other activities,
overseas. Consequently, whilst Portugal may develop the resources (assets) they do not enjoy any
long-term benefits.
3.4 RTOs in the cluster
Although RTOs are only one of the many actors within the clusters examined, they are the focus
of the RISE project (Hales, Preissl & Hauknes, 2000: 1). As a consequence this section shall
explicitly focus on RTOs, highlighting in the process not only their role (or roles) but also
differences in their pervasiveness between countries as well.
Collectively the various clusters studies demonstrate that RTOs are not homogeneous. Preissl
(2000: 9) shows how RTOs vary in both size and budget. RTOs within the German auto
component-manufacturing cluster vary in size, with small RTOs having less than 20 researchers
and larger ones between 70 and 100 researchers. Some RTOs are comprised of engineers and
university level qualified employees, whilst others are almost all academics. Differences also occur
in terms of budget as well. The budget of smaller RTOs falls between 1 and 3 million DM, whilst
that of medium budget RTOs varies between 70 and 100 million DM (Preissl, 2000: 9). Finally,
some of the RTOs identified focus their activities on automotive technologies whilst others
specialise on a particular technology that happens to be applicable to the automotive industry
(Preissl, 2000: 32).
Differences in employees and budgets reflect the different activities that RTOs perform within the
German auto component-manufacturing cluster. Some of the RTOs are more research orientated
than others. The closer the RTOs to a university, the more research that it will undertake
(Preissl, 2000: 32). As a consequence, RTOs perform a mediating role in two requests: between
basic research and universities on the one hand, and between industry and applied research on the
other hand (Preissl, 2000: 42). In other words, RTOs perform a ‘bridging role’ that links together
research activities on the one hand with those who implement them on the other.
Figure 3.4: Bridging roles of RTOs
Diffusion/clarification of new
technologies
The classic linear role
Pre-competitive collaboration
R&D sources
Development alliances (eg
supply-chain scenarios involving
radical processes or
intermediate product-forms
Supplier Innovating Customer

firms firm firms
Competitor Collaborator
firms firms
Source: Hales, Preissl & Hauknes, 2000: 16.

Thus, RTOs link industry with academia. One advantage for RTOs of a close link with universities
is that they may gain access to the latest research. However, the close links with industry that
RTOs enjoy may skew their activities. In particular, the closer link may ‘commercialise’ the
activities of RTOs to the point where research that is not immediately commercial in nature, but
could be in the future, is ignored (Preissl, 2000: 44).
The Swedish biotechnology cluster study also comments on the linking role that RTOs can play.
In particular, Backlund, Markusson, Norgen & Sandstrom (2000) draw attention to the role of
RTOs in disseminating information to cluster members. For example, the Swedish Institute for
Food and Biotechnology has, at the behest of its owner members, actively sought to disseminate
information through network based knowledge transfer as well as acting as co-ordinator of
external research programmes and the publisher of pertinent journals and newsletters. The
Institute has endeavoured to strengthen the link between universities and industry based
researchers by initiating a programme whereby academics work half time as consultants for
industry clients.
In addition, the Swedish study also demonstrates that RTOs are not alone in their attempts t o
enhance the number and quality of inter-linkages evident within the cluster. In addition to a series
of public institutions that are important to the innovation system, for instance, The National
Veterinary Institute (SVA), there are also bodies like the Technology Link Foundation and
university affiliated science parks that aim to foster inter-linkages within the cluster.
Whilst most of these bodies are limited in their scope, one in particular stands out due to its multi-
faceted nature. The Swedish National Board for Industrial and Technical Development (NUTEK)
undertakes several distinctive though related roles in the cluster. On the one hand, NUTEK
undertakes research activities of its own whilst on the other hand it underpins external research in
two ways. Firstly, through establishing 28 competence centres, located in Swedish universities,
and which aim to transfer knowledge from academia to industry. Secondly, NUTEK also partially
funds the Swedish Institute for Food and Biotechnology.
Another of the distinctive roles that NUTEK undertakes in the cluster is supporting the
development of start-ups within the biotechnology industry. Not only does NUTEK provide seed
and start-up financing but it also offers services that include information, advice, brokerage and
R&D financing. In recent years NUTEK has increased the amount of seed and start-up capital
that it has invested in the biotechnology, thereby recognising and reflecting its economic
importance for Sweden. The broad range of activities undertaken by NUTEK is complementary
in nature. The financing of start-ups and the provision of information to them draws on its other
principal area of activity, namely research and its dissemination. Together, the outcome is t o
strength the biotechnology clusters through supporting the development of start-ups as well as
encouraging collaboration between actors.
In the Portuguese biotech cluster such a central player as NUTEK is clearly not present. The case
illustrates that in Portugal there is a diversity of organisations that conduct R&D in biotechnology
and biotechnology-related fields and offer research and technology services. The origins of most
of these organisations are government laboratories and universities. Several government
laboratories can be classified as RTOs. Additionally we find a plethora of semi-private
organisations, including centres closely associated with the university and centres that have a
more private form of governance (usually having a "private non-profit" (PNP) status) and result
from partnerships between universities, university centres or laboratories and private
organisations. Several of these “pro-RTOs” were created at a time when the approach to the role
and form of governance of this type of organisation were changing from a focus on "knowledge-
generation/ public funding" to a focus on "knowledge-transfer / public-private funding" (Fontes,
2000, p. 3).
As the three biotech sub-clusters studied have quite different characteristics it comes as no surprise
that the role played by RTOs and pro-RTOs is quite different per sub-cluster. In the traditional
agro-food sub-cluster where “watchers” or “marginal users” dominate the scene only a few
companies are aware of the potential of biotech and actually use it for product or process

improvement. R&D is rare and relationships with RTOs seem to substitute for it. In these
relationships RTOs have to invest heavily to first gain interest and trust, before a demand in more
advanced technologies can be expected. Although there are several competent RTOs in the filed,
relationships are only slowly developing. In the mature forestry-pulp sub-cluster e.g. R&D is
conducted in dedicated private research centres (esp. on eucalyptus tree) in close co-operation
with the RTOs active in this field. The clearly more technology-based pharmaceutical sub-cluster
is more internationalised, both in terms of companies’ technological activities and research by
RTOs. In this sub-cluster relatively more companies are involved in biotechnology R&D
activities, although these are predominantly focused on chemical synthesis and are relatively
often foreign firms. There are RTOs with strong competencies in this application area and
collaborative and contract R&D is taking place.
What is further evident from the Portuguese case is the fact that - although RTOs are in general
often blamed for the mismatch between R&D developed and the needs of industry - there can be a
demand-problem or receptivity problem as well that can frustrate the “ability and motivation of
RTOs to develop research that is relevant for industry” (Fontes, 2000, p. 65). However, it was
observed that RTOs are becoming more proactive in reaching out to potential users of their
research and that some firms equally are starting to more actively search for information on the
role biotech could play in their activities. It was noticed that a category of firms – mostly
research spin-offs led by highly qualified people - is in the making that provide knowledge-
intensive services and may act as technology intermediaries between research groups and the
incumbent industry (Fontes, 2000, p. 66). This illustrates the fact that RTOs and KIBS can
complement and help each other.
The UK printing and publishing study highlights the changing role of RTOs within clusters.
According to Readman (1999: 13) the principle RTOs within the cluster – Pira International –
has evolved from a co-operative research association, which was funded equally from state and
subscription activities, into a ‘business consultancy’ that offers services for most value added
activities (Readman, 1999: 13). This has occurred in three different yet complementary ways:
• Through the broadened of the array of services delivered to customers. No longer is Pira
International an applied research driven RTOs, but through offering consultancy services it
has metamorphosed into a business consultancy company (Readman, 1999: 13).
• Through forming a strategic alliance with the British Print Industries Federation (BPIF).
The BPIF acts as both a lobby organisations for its members as well as disseminates
information. In their joint venture, both the BIPF and Pira International share market
intelligence whilst Pira publishes material issued by BIPF (Readman, 1999: 14).
• Pira is now broadening its service base, from a traditional sectoral focus on supporting print,
paper and packaging technology to include in-house publishing. This shift in emphasis is
demonstrated by its alliance with the BIPF (noted above), which provides Pira with content
to publish. The shift to content-oriented services (and thus control over intellectual
property rights or rather copyrights) is a strategic challenge that Pira may be entertaining
as an effort to add higher value-added activities to their product/ service portfolio.
Of these it is the former that has altered Pira International the most, as the second and third is an
extension, albeit a small one at present, of the former shift in emphasis. The implications of this
change are both obvious and far-reaching. On the one hand Pira International is able to offer its
clients a much broader array of services whilst on the other hand the RTOs is becoming less like
what is traditionally understood as a RTOs and more like a KIBS.
The changing nature of RTOs is also shown in the Italian telecommunications cluster study. This
study showed that when RTOs seek to expand the scope of their activities they have a broad
choice between two options:
1. RTOs may expand the portfolio of their activities though acquisition. These acquisitions
may be of other RTOs or of commercial knowledge intensive research organisations.

For example, SIRMI (a private research institute) acquired Crossover to gain specialised
skills in the telecommunications industry.
2. RTOs may also broaden the scope of their portfolios through forming consortia – joint
ventures and alliances – with other research organisations. Significantly, these research
organisations can be either commercial or publicly funded.
For instance, SIRMI has entered into collaborative arrangement with Compubase, Istituto
Ricerca Internazionale, Pino Venture amongst others.
The motive behind both of these expansionary strategies is the same, namely: to enable the RTOs
to expand the range of services / activities that it provides so that it can enhance its market
position. In other words, the expansion enables the RTOs to better position itself in the market
as the range of services more closely matches those desired by clients. This is clearly important if
the market is rapidly changing with the consequence that the more established or traditional RTOs
are increasingly in the position that their knowledge base does not correspond to large and
significant parts of the telecommunications industry.
The Norwegian cluster study on the food cluster did not at length specify the various roles played
by RTOs as it in the first place draws the attention to two other important sources of innovation
in addition to R&D, namely the role played by:
suppliers of machinery and equipment;

consumer relations or branding.
The importance of the first in innovation is illustrated in figure 3.5.
Figure 3.5: Domestic technological co-operation: Share of innovative food companies

reporting technological co-operation with Norwegian partners the last three years
(weighted figures), in Oslo and whole Norway, compared to national average
(circles).
Pu blic or privat e
re search institutes
Universities, HE
Suppliers of
equipment etc.
Consultancy
enterprises
Norway
Clients or
customers
Oslo
Competitors
Other enterprises
within the group
0% 20 % 40 % 60 %
Source: Community Innovation Survey 1997, STEP Group / Statistics Norway
However, also the argument is put forward that the second additional source of innovation
mentioned i.e. branding (or consumer relations) is at least as important in the food cluster as

technological innovation. Most important branding activity is marketing, but other examples of
bonding with consumers are e.g. maintaining product quality, distributing free product samples,
performing trend analyses, performing polls and pre-manufacturing product tests, etc. (Braadland,
2000, p. 20). It is shown that for what may be labelled as the ‘soft side of innovation’ KIBS seem
to play a considerable role. RTOs seem to concentrate more on their traditional role of scientific
research on nutrition, food safety, etc. This role is substantial. However, RTOs seems less inclined
to focus on the non-technological parts of innovation that are increasingly important for firms
active in the food cluster.
If a RTOs is to maintain, let alone enhance, its position as a provider of knowledge services t o
other actors in its cluster, it needs to ensure that the knowledge contained in-house continues t o
be relevant to its client base. The Dutch multi-media cluster study, and to a lesser extent the UK
and Italian studies as well, intimates one way that the gap can be closed, namely, through
collaborative relationships that bring together knowledge creators with knowledge deficient RTOs.
In the Dutch case the degree to which the RTOs is interwoven into the fabric of the cluster,
through contacts with trade and industry bodies and spins etc, will offset any deficiencies that the
RTOs may have in its knowledge base. This enables amongst other things for the larger
companies, which are located in the rim of the cluster, to access external knowledge sources.
Having said this, it appeared that research as performed by RTOs and universities in cooperation
with industry tended to be focused on the somewhat longer time horizon, typically 2-5 years and
be mostly aimed at technological innovation and experimentation. Although some exceptions
were observed, these type of cooperations mainly existed between the well established large firms
and RTOs. The new public-private organisational forms that were created such as the Telematics
Institute have further strengthened this type of co-operation. The number of smaller fast growing
firms with ties to the formal knowledge infrastructure are less common. Typically the mostly
product oriented university or RTO spin offs have better access to the knowledge infrastructure,
not least as the personal realtionships between research groups and the new firms remain in tact.
However, especially the smaller multimedia service firms are typically hardly connected with
RTOs and university groups and the research performed. They mostly are oriented towards mainly
the US for new developments, quite often feel an enormous need for developing and marketing
new producs and services. They hardly know what research is going on in RTOs and university
groups and are weary for the perceived lack of speed. What is remarkable that also the non-
technological research e.g. on Internet business models can hardly be traced within the formal
knowledge infrastructure. It is especially on the non-technological aspects of innovation that
KIBS and exchange of experiences with other firms seems to be valuable. Smaller multimedia firms
doubt whether RTOs and university groups will be able to immediately cater for their specific
knowledge needs (apart from ‘producing’ a knowledgeable pool of labour).
However, Preissl (2000: 33) demonstrates that institutional factors may in fact be encouraging
the separation of RTOS from KIBS. These institutional factors, namely the bureaucracy
associated with universities as well as RTOs, encourages spin-offs from these two in the form of
KIBS were professors are active participants. Particularly advantageous in this is that coming
with KIBS status is considerable commercial freedom vis-à-vis RTOs and university status. This
enables, amongst other things, to offer long term contracts to retain staff as well as raise the
necessary capital to invest in machinery. The Italian, Dutch as well as German cluster studies
demonstrate the pressures that RTOs are placed under, and the challenges that they face, and that
these are occur in different countries as well as different industries.

4 Conclusion
This report vividly illustrates the complexity of clusters. This complexity is evident not only in
the array of different cluster methodologies that fall within the broad church of approaches, but
also in the interaction between the array of actors located within clusters, the structure of clusters
and their scale.
In the course of enquiring into the complexity of the clusters studied the report has stated why the
cluster methodology was chosen in preference to the other methodologies that are available. The
methodological strengths of the cluster approach vis-à-vis other methodologies is evidenced
through the detailed and wide-ranging nature of the insights into both innovation and RTOs that
the studies generated. The variety of these insights is shown in Section 4 that brought together –
synthesised – findings in four themes: actors, structure, geographical scale and RTOs in the cluster.
The undoubted strength of the cluster approach adopted in RISE is its pragmatic nature. The
methodology adopted set the framework for analysis through providing a series of guiding
questions for which answers were sought. A pragmatic approach to cluster methodology allowed
for national studies to be undertaken as circumstances dictated, thereby recognising the fact that
differences existed in terms of existing secondary data as well as ability to access actors within the
cluster. Such an approach, of course, was not without its problems. For instance, that the
national teams adopted different methodologies as well as industries prevents a comparison across
both the same industry and methodology. However, it is felt that this paper clearly demonstrates
the advantages that arise from not mandating either the methodology used or the industry
examined. Instead, the national studies illustrate the wealth of material that can be generated
using the different methodologies. Moreover, the relative strengths and weaknesses of the cluster
methodologies are highlighted in the course of this synthesis report. This enables the report t o
suggest circumstances when a particular cluster methodology is appropriate, the type and scale of
resources required and the likely nature of the outcome.
Notwithstanding the fact that the cluster studies are dissimilar, it is possible to identify
commonalities in the four areas that formed Section 4: Findings, namely: actors, structure,
geographical scale and RTOs in the cluster. It was shown that a diversity of actors exists, though
it is possible to generalise and state that actors fall into one of several categories that are domestic
and international companies, research organisations, governmental agencies and educational
institutions. The structure of the clusters differs between all seven countries, though the presence
of sub-clusters is common to more than one of the studies. Geographically, the clusters reflect
that economic activity is still mainly organised within the national space but they also
demonstrate the regionalisation and globalisation of economic activity as well. In other words,
the use of the cluster approach drew attention to the contradictory centripetal and centrifugal
organisation of economic activity.
Finally, the paper demonstrates that the role undertaken by RTOs in the clusters studied displays
considerable differences. In some cases, RTOs are central and integral players within the cluster
whilst in other cases they are comparatively marginalized players. Whether a given RTOs is
integral or marginal to developments within the cluster is determined by the interaction between
the knowledge that they possess, the knowledge base of competitors and the demands placed on
them by other cluster participants.
From the analysis it is possible to identify a series of messages relating to clusters, cluster analysis
and cluster policy. Whilst it may be tempting to equate these messages with generic conclusions,
they should not be interpreted as such. Some of the messages are derived from insights common
to all of the cluster studies, whilst others are based on insights from just a handful of the studies.
The ten messages that arise out of RISE are as follows:

1. Innovation seldom takes place in isolation but is systemic i.e. takes place in networks and
clusters. The notion of a cluster is cantered around linkages between (firm and non-firm)
actors) needed for bringing about innovation.
2. Clusters are a recognisable level of analysis for most firms and also the relevant knowledge
infrastructure as it formalises the ‘world in which we operate and function’. However, the
notion of a cluster – like the notion of an industry or sector– remains an artificial
construct.
3. The way knowledge is produced, diffused and absorbed (without implying a linear model of
innovation here) is key to the success (innovativeness, adaptation capability,
competitiveness) of a cluster and most of the time is highly cluster specific. The way cluster
actors interact and innovate differs between clusters. Innovation styles/patterns are
therefore different (even if the drivers for innovation are similar). Most successful clusters
are capable of putting in place, adapting and fine tuning mechanisms for knowledge creation
and knowledge sharing.
4. In quite a number (but not all) clusters RTOs and increasingly KIBS provide all sorts of
knowledge-related service functions that help actors in this cluster to innovate and to adapt.
The mix of (knowledge-related) service functions that RTOs and KIBS provide differs per
cluster as well as the balance between what services are provided by RTOs and what by
KIBS. However, as a general trend RTOs tend to move more downstream providing more
hands on and implementation like services, whereas KIBS increasingly perform services that
used to be associated with RTOs and HEIs only.
5. As the role-played by KIBS and RTOs in a cluster and the balance between the two differs
and the demands of cluster actors might differ per cluster no best practices can be identified.
What works in one cluster, does not automatically work in another cluster. This is a process
that cluster actors have to sort out among themselves. Policy-makers should have an open
eye for this observation and be sensitive to adapt the way they steer RTOs and promote the
use of services offered by KIBS.
6. The mechanisms and experience built up in clusters – no matter whether these are labelled
as high, medium or low tech – are valuable in itself and as long as clusters have built in
mechanisms to renew and re-invent themselves in time this is a very precious asset.
Therefore, switching at great costs to artificially create new clusters that are en vogue
might be a costly strategy from both a policy and industry point of view. It is much easier
to build on existing strengths – even if these are in so-called low-tech clusters – than t o
create new ones from scratch. In practice these mechanisms can be refined and very
knowledge intensive in developed low-tech clusters.
7. Taking clusters as a perspective (pair of spectacles) might also mean new forms of
governance (e.g. possibility to create new type of RTOs, let develop specific KIBS services,
more room for public/private initiatives) that are again highly cluster specific. In one
cluster policy actions can be limited to making sure that competition is sound in other
clusters it might consist of various roles (demanding customer, technology foresight,
creating the appropriate knowledge infrastructure, looking after competition practices, IPR
problems etc.).
8. The previous point also implies that capabilities for the civil servants putting cluster
policies into practice are changing as well. They increasingly need to be able to act as
sparring partners, organise dialogue etc.
9. Cluster policy then is a way (working tool) of customising innovation and other policies
towards the specific needs (and self organising capability) of a particular cluster.
10. The action of performing cluster studies in itself can be a way of starting or contributing t o
a dialogue on how innovation takes place in cluster.

Appendix: Summaries of National Cluster Studies
Each of the national teams undertook a cluster study as part of the RISE project. The table below
(table A.1) shows the variety of clusters studied as part of RISE. In this appendix summaries of
each of the cluster studies are presented.
Table A.1: Clusters studied as part of the RISE project

Country Cluster
Germany Automobile component manufacturing
Italy Telecommunications
The Netherlands Information and communications
Norway Agro-food
Portugal Biotechnology
Sweden Biotechnology
United Kingdom Printing and publishing
1 Germany – automobile component manufacturing
Cluster approach adopted
This study analyses the innovation cluster of the German automotive components sector and
more specifically how service functions support innovation processes in the automotive
component industry are made up and who provide these services. The innovation cluster
comprises all actors that contribute to the realisation of innovations in the sector. The criterion
for inclusion in the cluster is that a company, an RTO, a KIBS or any other organisation have
participated in (later to be enlarged to ‘contributed to’) innovations (or innovation processes).
The actual procedure used provides a bottom-up perspective on innovation, as it starts to analyse
the innovating firm and then moves on to other actors that contribute to innovation as
mentioned by this firm (snowballing). Hence the cluster represents a potential of competencies t o
be used in innovation. Cluster actors may belong to industries and sectors outside the automotive
component sector. They may be private, public or semi-public entities, national or foreign
organisations. Clusters have an important role in the transfer of knowledge, the generation of an
innovation-friendly environment and thus, for the efficiency and success of innovation processes.
The actual cluster study consisted of desk research, interviews with various firms (innovating
firms, component manufacturers, suppliers and clients), R&D organisations (RTOs, KIBS, R&D
agents) and industry experts and a workshop in which preliminary results were discussed.
Characteristics of the automotive component sector in Germany
It is explicitly noted that it is hard to characterise the cluster statistically as exact and recent
statistics are missing and the fact that industries which supply goods and services to the car
industry do serve other industries as well. Therefore it is estimated that the cluster contains
between 2000-4000 component suppliers with 450.000-600.000 employees. It is noted that
during the 90s turnover, productivity and employment levels have increased drastically, mainly
due to massive organisational changes in the German car manufacturing industry and an increase in
outsourcing of activities their suppliers. Developments such as more high quality ranges and more
luxurious cars; better interior decoration (more comfort); increased attention for vehicle safety
and environmental regulation has led to an increase in demand from the components suppliers. I t
is clear that demand-led technological trends such as introduction of ICT, light weight
construction, environmental concerns and fuel cell technology, safety concerns and use of new
materials shapes the configuration of the innovation cluster. It pushes some RTOs, KIBS firms
and other technology experts to the cluster margins and places others in the centre.
The relationship between the car manufacturers and component suppliers is central in the cluster.
And is characterised by changing supplier-buyer relationships, globalisation, radical cost savings,
standardisation and modularity and increasingly: engineering outsourcing and simultaneous

engineering, upscaling of single component suppliers towards system suppliers. Although the
automotive industry still drives the path of development, the atmosphere is increasingly one of
co-operating partners. The dominant characteristic is that very large, globally acting
(component) manufacturers exist along with small and medium sized producers in niche markets.
While the large suppliers have traditionally had their own R&D departments, medium sized firms
are gradually building up R&D competence, and the smaller companies rely on co-operation.
Cluster configuration
Innovations in the cluster are the result of interaction between groups of actors. In this summary
the analysis focuses especially on the position and functioning of RTOs, KIBS and universities
(see figure A.1).
Figure A.1: The automotive component supplier innovation cluster
Auto M Auto M
RTO (university) university

RTO/KIBS
agent RTO
federal
gvmt. BS
CS
CS
regional
gvmt.
KIBS
supplier supplier agent
R&D active R&D inactive
RTO = Research and Technology Organisation; BS = Business Services; KIBS = Knowledge Intensive Business
Services; gvmt. = Government; CS = Component Supplier; Auto M = Auto Manufacturer; R&D = Research and
Develpment; agents = VDA, FAT, UBA, BAST, Project Management.
Source: DIW 1999
Basically two groups of RTOs can be distinguished:
1. Institutes that specialise in automotive technology RTOs. These RTOs cover the whole
range of knowledge required to construct and improve cars and other vehicles. They are
mostly attached to universities, and their directors usually hold a chair in the hosting
faculty. Many RTOs are linked with a university through formal agreements concerning
financial arrangements, the use of office space and equipment, employment contracts and
the transfer of personnel. University faculties include all natural sciences and engineering.
2. Institutes that specialise in certain technological fields relevant in car or component

manufacturing, such as metal forming, laser technology, microelectronics or plastic
materials. The dominant institutional form are the Fraunhofer Institutes, which have cross-
sectional expertise; they provide specific knowledge which might be adopted in many

different industries. Apart from the RTOs specialised in automotive technology, these
Fraunhofer institutes are the main co-operation partners and sources of knowledge of
component suppliers.
Of particular relevance are combinations of RTOs and KIBS firms that are located in one
organisational setting, usually a university. Typically, the KIBS firms are private spin-offs of the
RTO; they are sometimes founded by university professors, occasionally, manufacturing
companies hold shares in the KIBS firm. The main reasons for the separation into two
institutional arrangements are independence from university bureaucracy or the straitjacket of the
public sector which many RTOs have to cope with, tax reasons and the provision of services
which clearly do not belong to the public sector, such as software updating, small scale production,
maintenance and routine engineering services. Profit oriented exploitation of existing testing and
prototyping equipment, which allows financing of the next generation of machinery, would not be
possible in the strictly non-profit university and RTO environment. Furthermore, employment
contracts that allow retention of experienced researchers in the unit can only be realised in a
private spin-off. Providing the necessary capital for major investments in equipment and
machinery also requires the foundation of private entities.
'KIBS' comprise engineering firms, software and IT consultants as well as management

consultants. They were surprisingly insignificant for most suppliers’ R&D and innovation
activities. They only play a role as contractors for smaller development tasks in construction and
design, mainly for larger component suppliers. In the smaller ones, they were hired for software
programming and IT implementation. One reason is that most technical consulting firms (KIBS)
are not big enough to be able to provide inputs for component suppliers’ research. Small service
firms cannot afford the necessary testing equipment or engage in huge investments as a
prerequisite for gaining a research contract. Co-operation is thus limited to small projects for
example, in software development. In the electronics business not much initial capital is
necessary, therefore small firms face lower barriers to entry. Testing of automotive parts,
however, is a capital intensive business. Furthermore, exclusivity and secrecy play a major role. A
small engineering firm cannot guarantee confidentiality, because it has to use its knowledge in
projects with more than one customer.
'University' is a short form for university chairs, i.e., professors and their assistants who are fully
integrated in the university without having the status of an RTO. These university researchers
specialise in fuel engine technologies, or other fields relevant for car manufacturing. They have
links with component producers or automotive companies that are generally based on personal
contacts between the holder of the chair and engineers in the companies. Their contract work for
industry is in most cases combined with the qualification of young researchers, like PhD theses.
Services of these institutes are relatively cheap compared with RTOs or KIBS firms. Major
disadvantages are the long duration of R&D projects and the bureaucratic limitations of a
university administration.
The German system of innovation attributes specific roles to a group of actors called ‘agents’ in
the cluster picture. If they are public organisations, they transmit information and
implementation requirements for policy targets from the political system to the economic
system. If they are private, they usually are managed by industry associations and serve the
interests of all companies in an industry.
Cluster dynamics and cluster innovation style
The configuration of the cluster is changing with technical progress: new technologies, new
materials, and more complex component design result in the emergence of new actors, such as
RTOs and KIBS firms specialising in IT, manufacturers of plastic fibre material, or firms and
RTOs with experience in the development and production of fuel cells. Thus, the cluster is not a
stable set of actors, but an instrument that reflects the dynamics of technologies and structural
change in the industry.

Equally important, however, are changes in the interaction between cluster actors. The
acceleration of development procedures induced by IT supported systems, involves intensive
communication between organisations, but also between different departments in one firm or
RTO. Parallel development, construction and design activities shorten development times, but
require capacities that can only be provided, if part of the task is being outsourced to engineering
firms or to industrial partners. However, since these streamlined procedures are relatively new, it
seems that the innovating component suppliers either do not know firms that they can rely on or
they have no experience in outsourcing substantial innovation functions. Hence, the cluster is in
the process of establishing a new division of labour, in which not only routine functions are
delegated to external KIBS providers, RTOs, or suppliers but also more sophisticated R&D, design
or prototyping functions. Competition among RTOs, and between them and KIBS firms increases
as public support for RTOs decreases.
In the component supplier firms types of R&D strategies emerge according to specific patterns of
production.
• The larger and the more technology oriented firms have their own R&D laboratories where
research is directed towards the preparation of product innovations, the improvement of
processes of production and technological assistance for other departments. These firms tend
to move from co-operation with external partners to the integration of their research
capacities and competencies.
• Another group mainly reacts to customer wishes in its R&D strategy. Here innovative products
and processes are conceived, designed and developed according to customer specifications.
• A third group does not have any significant in- house R&D capacity. These firms might refer
to external research facilities in the context of project-linked co-operations. However, even
companies without considerable R&D activities do innovate, but innovation usually is
incremental and it results from the gradual improvement of existing, well established products.
Research in RTOs that is related to innovation in the automotive component cluster reflects the
mediating role of RTOs between universities and basic research on the one hand, and industry and
applied research on the other. The closer the RTO is to a university, the higher its shares of
institutional funding and grants from science foundations are, the higher is the amount of basic
research done in the RTO. However, as a rule, basic research is only taken up, if it serves to solve
a problem in the area of applied technology. ….. Being accepted by industry clients as a partner is
essential for the standing of an RTO even in the research community. Hence, in all RTOs, there is
a strong trend towards closer and more intense co-operation with industry, which reflects official
funding conditions and evaluation criteria.
Co-operation in innovation rarely takes the simple form of an agreement between equal partners.
Table A.2 gives an overview of the five types of co-operation patterns that have been identified
in the case studies. The dominant types seem to be types 3 and (to a lesser extent) 1. Co-
operation is usually limited to one project. However, as a rule, new projects follow that involve
the same or a similar group of partners, and thus, rather stable relationships are established.
Co-operation is a mode of explicit interaction in the cluster, another mode, knowledge transfer,
often is more implicit or tacit. However, mechanisms of knowledge transfer are extremely
important in innovation, although they are often difficult to identify. The transfer of knowledge
in the cluster is facilitated by a whole set of instruments and mechanisms: joint research and
innovation projects; the mobility of researchers; working groups and innovation circles; ‘learning’
in seminars and at conferences; access to public sources; informal exchange

Table A.2: Types of co-operation in innovation processes
Type 1
The component producer commissions R&D projects to an RTO. The RTO does the research as a
contractor.
All rights remain with the commissioner.
Knowledge is 'bought' and paid for. The knowledge base is enhanced on both sides.
Confidentiality vs. technology transfer. Strong interest in internalising knowledge.
Type 2
The component producer links with other component producers to become a system supplier. Joint
research mostly affects interfaces between the two components.
Learning through exact definition of problems and through product development in each company
separately.
Patents appropriated by all partners. No confidentiality problems.
Co-operation might lead to take-over.
Type 3
The component manufacturer co-operates with his suppliers in the development of new products which
require a certain type of innovative component or material.
Knowledge creation on both sides. Learning through exact definition of product requirements and through
product development in each company separately.
Patents appropriated by all partners. No confidentiality problems.
Co-operation might lead to take-over.
Type 4
The component producer and the RTO work on a joint project (possibly with public R&D or innovation
support).
Knowledge transfer on both sides. Problems of disclosure in application phase.
Rights in research output have to be negotiated.
Type 5
Loose co-operation agreements between component suppliers and universities.
Some transfer of knowledge in both directions.
University graduates gain practical experience, manufacturers use co-operation to recruit personnel
whose quality and reliability are already known.
Problems of knowledge drain from company to university.
Table A.3: Service Functions and Actors in the Component Supplier Innovation Cluster
innova- custo- supplier RTO KIBS agent partner others
basic research ++ o o +++ + o + universities
applied research +++ o o +++ o o o
Innovation idea +++ +++ + ++ o ++ o production
Information gathering +++ o o ++ + + o
Feasibility studies + + o ++ o + + production/
Product development +++ o +++ +++ o + +
Process development ++ o + +++ + o + software firms
Technological advice o + + o o + +
Planning + o o o o o o
Implementation + o o o + o +
Training/HRM + o o ++ + + o
quality control + o o o + o o students
Testing + o o ++ ++ o + students
Prototypes +++ o + + + o o universities
Documentation + o o + + o
Certification ++ o o o o + o BS, public
Marketing + + o o o + o
project management + o + + + o o BS
Financing ++ + o + + + o government
+++ strong role ++ active role + moderate role o not active in this function

Functional division of labour in the cluster
Table A.3 describes the roles various actors play regarding the various functions that can be
identified in the innovation process.
The actors that are present in most innovation functions are the innovating component suppliers
themselves. RTOs are present in many functions, ranging from the first basic research steps t o
documentation and project management. KIBS are more specialised in functions that occur later
in the innovation process, such as implementation, testing and certification. The division of
labour between RTOs and KIBS firms is strongly related to their institutional characteristics.
RTOs are confined to those services for which they have a mission determined by their
constitutions. They usually operate under the constraints of public service, and they have a share
of public funding, which is declining, but still supports more risky basic research. On the other
hand, KIBS firms can engage in more profitable services, exploit economies of scale, for example
in testing services or in human resource development, and they are not bound by bureaucracy in
their personnel policies. It should be noted, however, that most of the time, the role of KIBS in
performing the function is rather marginal and limited to the execution of exactly prescribed
tasks. Hence, the attribution of functions to KIBS firms in table 1 is somewhat deceptive.
Cluster policies
The role of policy makers in the improvement of cluster efficiency and in the transition of
clusters from one technological paradigm to another is quite controversial. Policy makers in
German ministries as well as experts in the automotive sector held that policy makers should not
orchestrate or shape the emergence of clusters. This process is a typical task to be performed by
markets. However, by designing policy programmes and by determining the conditions of
operation of publicly supported actors, they already have an active role in cluster dynamics.
Characteristic for the policy approach currently adopted is one which concentrates on enabling
firms to engage in co-operations and to stimulate the generation of circles for the exchange of
knowledge. Policy programmes aim at the reduction of risks that companies run in the initial
phase of co-operation projects. A strong focus is on initiatives aiming at strengthening the
competency of firms to build up networks.
A general problem in cluster oriented innovation policy is the identification of clusters that ought
to be supported. Government would not want to intervene in market processes by deciding about
the companies and the technological projects that are to be promoted in the formation of a well
functioning cluster. However, the cluster perspective offers two advantages:
• Looking at the configuration and mechanisms of interaction of innovation clusters from a

policy perspective, might reveal opportunities for useful policy intervention, for example
in the formulation of support programmes for co-operative projects.
• Another advantage of cluster analysis could be that it improves knowledge on the specific
roles of actors in the cluster. It might thus help to define support programmes which are
able to assist cluster actors in playing their role effectively, for example with respect t o
R&D policies regarding RTOs, their budgets and research orientation, or with respect t o
complementing SMEs’ research facilities or their system development capabilities.
Conclusions
• The innovation cluster comprises all actors that contribute to the realisation of innovations
in the sector. The criterion for inclusion in the cluster is that a company, an RTO, a KIBS
or any other organisation has contributed to innovations (or innovation processes) or has
the potential to do so. A cluster approach can be used to identify relevant actors in
innovation, their interaction and the emergence of corresponding network structures.

• The central element of the automotive component innovation cluster is the innovating
component supplier; however, the cluster picture also shows the strong dependency on the
automotive industry. Central question in the development of the component suppliers’
innovation cluster is how the suppliers cope with the additional functions attributed t o
them. They could either try to develop their own R&D capacities, or they could outsource
this function to service firms. At the moment, it seems that the large suppliers have
sufficient resources to take up the challenge themselves, while small and medium-sized
companies are still struggling with the changes required.
• The most important partners in co-operation are other suppliers that allow the innovating
company to move towards a system supplier status. Another important link exists with
suppliers of the component producers themselves. In the third place we find two types of
RTOs:
(i) Institutes that are specialised in automotive technology; they are allocated in or ‘at’
universities with strong links to university chairs; usually they have formed spin-offs of
private engineering firms to support activities that are not strictly ‘research’.
(ii) Several Fraunhofer institutes specialised in various technologies, such as development of

new materials, metal forming, welding or information technologies.
• A significant role is played by ‘agents’, such as technology transfer institutions, federal

institutes that transfer policy concerns to the research community and to industry, and take
up research results for policy makers.
• The analysis of a functional division of labour within the cluster showed that most
companies do not contract out many functions. Exceptions are product development,
construction of prototypes and tests, which may be commissioned to RTOs, and software
development for which services of software engineering firms are hired. Often, parts of a
function, like the design of a specific element of a new product, or certain test series are
delegated to external service providers, i.e., RTOs or KIBS firms. Many functions, however,
are being performed in close co-operation with partners, and it is not possible to attribute
them exclusively to one or the other.
• Innovation functions increasingly include non-technological services. RTOs are to a certain

extent adapting to this trend. Researchers with degrees in business management are hired,
and business process re-engineering becomes a service that complements the traditional
technology oriented R&D service. Software development and implementation become more
important, and RTOs accompany the process of realisation of an innovation more
generally. However, often new functions that deviate from the R&D mission stated in the
RTOs’ constitutions, are allocated in service spin-offs.
• A general problem in cluster oriented innovation policy is the identification of clusters that
ought to be supported. However, the cluster perspective offers two advantages: looking at
the configuration and mechanisms of interaction of innovation clusters from a policy
perspective, might reveal opportunities for useful policy intervention (1); another
advantage of cluster analysis could be that it improves knowledge on the specific roles of
actors in the cluster. It might thus help to define support programmes that are able to assist
cluster actors in playing their role effectively (2).

2 The Netherlands – information and communications
In the Dutch Multimedia cluster study a two-step approach was adopted. First facts and figures on
the basic characteristics, functioning and performance were collected for the wider, statistically
defined, Information and Communication cluster (IC-cluster). Secondly, a subset of firms that
together make up the multimedia cluster in the making were analysed qualitatively in more detail
and suggestions as how to improve competitiveness and innovation made9 . Here we mainly focus
on the innovation style of and especially the link between firms and RTO’s and KIBS in the
Dutch IC and multimedia cluster.
Step 1: General findings Dutch Information and Communication cluster (IC-cluster)
The Cluster Monitor data for the IC-cluster have been broken down mostly into four sub-clusters,
namely: ICT Hardware; IT Services; Telecom services and ICT Content. It must be borne in mind
that the analysis mostly pertains to the years 1996 and 1997 and to businesses with 10 (and in
some cases, 20) or more workers. The following can be observed for the Dutch IC-cluster
Basic characteristics
• Businesses in the IC sub-cluster – with the exception of businesses in the Content sub-cluster
– are on average twice as innovative, and carry out R&D activities on average twice as
often, when compared with the rest of Dutch trade and industry.
• Foreign firms are important in the Dutch IC cluster, both in terms of employees (14,7% of
all employees are employed by foreign companies) and R&D (19,7% of all R&D man
years). In the ICT hardware and telecom sub-clusters ‘foreign firms’ are relatively more
R&D intensive compared to the Dutch firms.
• Businesses in the IC cluster (except firms in the Content sub-cluster) and in particular the
telecom services sub-cluster make more than average use of national and international R&D
networks.
Functioning
• The main aspects of innovation expenditure differ from one sub-cluster to another. A
relatively large component of the innovation expenditure of businesses in the ICT
Hardware cluster is spent on internal research. In the Telecom Services sub-cluster the
knowledge embedded in capital goods is again relatively important and in the IT Services
sub-cluster a substantial part of the innovation expenditure is spent on training personnel.
Innovation expenditures of businesses in the content sub-cluster are considerably lower.
• Innovative businesses in the IC cluster (except the content sub-cluster) are to a much larger
extent than businesses in other clusters engaged in R&D activities on a permanent basis.
• Of note is especially the R&D intensity in the ICT Hardware sub-cluster, the IT Services
sub-cluster, and to a lesser extent the Telecom Services cluster. Because of Philips, the R&D
intensity of the sub-cluster ICT Hardware is very high. The Content sub-cluster scores very
low here.
• The usage of information sources for the purpose of innovation differs per source of
information and per sub-cluster. Quite remarkable are the mutual differences in how much
use is made of the public knowledge infrastructure. In quite a substantial number of cases,
consultancy firms and research firms are more often denoted as important sources of
information than innovation centres for instance. With the exception of the Content sub-
cluster, the IC sub-cluster rates innovative ideas originating from their clients as
‘important’ more often than in the average innovative business. An indication that to a
significant extent ICT is also a source of innovation for users, and that a large number of
the (innovative) businesses innovate together with their clients. If we take a look at the
9
The research for this analysis ran in parallel with the assignment for the Dutch Ministry of Economic Affairs
to develop a Cluster Monitor tool. This tool was then applied to the multimedia cluster.

(semi) public research institutes and universities, then it is evident that innovative Content
businesses are less likely to indicate these two categories as sources of information.
Furthermore, it would seem that the ICT Hardware sub-cluster see these sources relatively
more often as ‘important’. The fact that businesses in the Telecom Services sub-cluster do
not seem to use the universities (including their affiliated institutes) as sources of
information is quite remarkable.
• Particularly businesses in the ICT Hardware and Telecom Services sub-cluster use external
R&D networks more often.
• Businesses in the IC cluster (with the exception of the Content sub-cluster) make more use
of internal and external R&D networks, not only because they engage, on average, more
often in R&D activities.
• With the exception of firms in the content sub-cluster, firms in the IC cluster use private
and public sources for innovation above average.
• Firms in the ICT hardware, telecom services and IT services sub-clusters seem to be more
often capable to combine various information sources for innovation (i.e. dispose of more
complete innovation networks), especially if compared to firms in the content sub-cluster
• An above average number of businesses in the IC cluster (with the exception of the Content
sub-cluster) make use of innovation policy instruments.
Performance
• About 7,5% of turnover (in 1997!) in all firms can be attributed to firms in the IC cluster.
• The share of the IC cluster in the gross value added generated by all firms amounts to almost
12%.
• The Dutch IC cluster performs above average in terms of exports, partly due to the
relatively low points of departures for the services.
• Employment in the IC cluster stands at 400.000 working years in 1998. In the period 1995-
1998 (by 75%) the level of employment grew by 75 %, mainly due to IT Services sub-
cluster.
• Although all 4 IC sub-clusters score above average on non-technological innovation, the
telecom services sub-cluster performs particularly well on this indicator.
Step 2: Findings Multimedia cluster study
The multimedia cluster is defined as ‘those businesses and organisations that actively shape online
and offline information services, communication services, and transaction services for
intermediaries and end users, whereby several media are combined and interactivity is one of the
main features’. The businesses and organisations selected were mainly those that:
• realise a substantial part of their turnover (>50%) from multimedia products and/or services,
or
• play, or will play in the near future, a major role in the cluster on the basis of their strategic
positioning, or
• are recognised and accepted by market parties as belonging to the cluster.
As yet, there is no established multimedia cluster in the Netherlands. It is more a case of a

dynamic, rapidly growing cluster in its puberty (an adolescent cluster). With regard to multimedia
a distinction is made between four types of activity (see figure 3.2), namely:
1. Multimedia enabling activities: the production of ICT hardware and software, consumer
electronics, design and business consulting;
2. Content distribution: distribution via a variety of electronic infrastructures;
3. Content provision: broadcasting, entertainment, publishers and associated business activities
such as AV productions and printing;
4. E-marketing: advertising, direct marketing, media acquisition and marketing
communication.

Structure multimedia cluster
The core of the cluster (shaded area in figure 3.2) consists of an estimated 500 to 1,000 businesses
(freelancers and sole traders excluded), which are to a large extent dependent on giving advice on,
contriving, designing, building and maintaining multimedia applications. These are the pure
multimedia businesses. Their role consists of manipulating content, refining it and making it
suitable for platform-independent distribution. Especially the innovative players active in this
core are able to link up the world of multimedia enabling with the worlds of electronic
distribution, content provision and E-marketing. These are often small to medium-sized businesses
that by no means all cases have all the knowledge in house needed to realise full multimedia
applications. In addition to a few product developers that (wish to) market new products, and have
the world market as their frame of reference, these are for the greater part service providers who
on the basis of available technology realise multimedia applications usually for business customers.
Among the service providers we now see several – sizeable – businesses presenting themselves as
full service providers, aiming at concluding long-term contracts with major clients. This core is
augmented by parties that aggregate content, package it and are able to make it suitable for a wide
public (end consumers) by, among other things, creating communities. These businesses must also
be counted among the businesses that operate at the core of the cluster.
A group of businesses operating in a ring immediately surrounding these core businesses focuses
more or less on multimedia and thus contribute towards the production and application thereof.
The main difference from the core businesses is that they have a clearly established position in
one or several of the supplying disciplines and sectors, and yet have mastered (virtually) all
disciplines, and the ability to link them together, to a lesser extent than the core businesses. They
do not yet always recognise the omnipresence of the new multimedia products and services and
move towards the core at varying speeds. It is significant that the established ‘ring players’ have a
valuable asset at their disposal (unique content, extensive distribution network, thorough
knowledge of an area of application) and often already act as both the supplier and the customer
for the core businesses. Nevertheless, by no means all the businesses in this ring have already
developed into full providers of or eminent clients for multimedia products and services. They are
often the large to extremely large parties who are themselves considering entering online media
services, but who stipulate the aspect of ‘mass’ as a requirement. For instance: they can allow
their online applications to develop into massive services by using their client base, their
distribution potential, their public profile or their capital. The players at the core of the cluster
are often dependent on these ‘consolidators’ for their economic survival.
There are still no distinct cluster ‘directors’ or ‘regisseurs’. At the core of multimedia production
and services are the first larger companies only just starting to emerge (> 100 employees); these
will probably serve as role models but will certainly not direct the cluster as yet. There are several
parties in the first ring of (potential) multimedia businesses that could, but do not, act as the
director. Philips is mainly internationally oriented. The broadcasting companies (apart from a few
exceptions) and publishers fail to fulfil the sort of guide function that they could play on the basis
of their position in the world of content. At the distribution end we see that KPN Telecom is a
major player with an involvement in virtually all online media initiatives, and together with
aggressive American concerns like UPC, Excite@home, play an important role for example in
the provision of broadband network services.
Industrial dynamics
Dynamism in the multimedia cluster is to a large extent linked to the ease with which the core
players and ring players – the (in practice) difficult-to-achieve collaboration between relatively
small, young and relatively large, established businesses – are able to find one another. Dynamism
in the multimedia cluster is also expressed in a different way, i.e. in the exuberant forming of
alliances (1); working together on projects, which is very common among the smaller providers in
particular (2); and kinds of regional network forming (3). Apart from cooperation the dynamics
of the multimedia cluster and hence its innovation climate is fuelled by competition. In a stylised
way we have to differentiate between product firms and multimedia service providers (rather the

two extremes on both ends of a continuum). Multimedia product businesses compete on the world
market in terms of quality, speed and participation in standardisation processes. Knowledge and
innovation is essential for these businesses and they generally have a somewhat formalised
innovation process at their disposition (e.g. a separate software development unit). Multimedia
service providers compete in terms of price, quality (actual interactivity, ease of use, integration
with existing information systems) and a complete package of services (the full service concept).
For these businesses, it is more the case that they work on the basis of internationally available
tools and knowledge. Even the fact of making sure that you are well-informed, and keeping it so,
calls for a considerable effort to be made.
Style of innovation
If we look at the style of innovation, then we see that in many multimedia businesses innovation
is strongly linked to projects and that different sources of information are used alongside one
another. One important source of information is obviously the Web. Especially the technical
specialists make frequent use of this medium to keep themselves informed about new tools, t o
discuss with colleagues, etc. Information, which is important for innovation, also reaches these
businesses through (alternating) project partners, through customers, through their own personnel,
study tours, suppliers and competitors (what applications are they working on?). In turn, some
entrepreneurs stress that in respect of technology the aspect of timing is extremely important.
Lagging behind, as well as being too far ahead is risky: the important thing is to make use of just-
proven technology. Customers are not always ready for certain technologies or solutions. Some
service providers consequently fail to see an innovation problem, but rather an application
problem at their customers.
Nevertheless, it is perceptible that very little formal R&D is carried out by the multimedia service
providers. Yet we can ascertain a growing need for knowledge management, especially among
growing businesses (> 20 employees). The larger businesses develop some form of knowledge
management, and in some cases work with competence centres.
Many respondents in the (technology-oriented) knowledge infrastructure particularly stress the

importance of a thorough knowledge of at least the technological basis or the most crucial field of
technology or knowledge (e.g. a knowledge of server technology, content management systems, a
standard) for the current, and particularly the future innovative strength of the businesses in the
multimedia cluster. A large number of parties are able to enter the market at the present time on
the basis of high expectations and the immaturity of the market. It must be stated that the parties
that will be capable of maintaining themselves in the longer term (also internationally) will be
those parties that have a thorough knowledge of the ‘underlying technology’ and are able t o
exploit that knowledge in the commercial sense. In this context we first think of the ‘real product
businesses’, which generally have a more formal innovation process (often a software
development unit), sometimes run independently, and are engaged in product development.
Role of RTO, universities and KIBS
There are various differing opinions as to whether there really is a gap between the knowledge
infrastructure and the business community. On the one hand it would seem that particularly the
multimedia service providers operating at the core of the sector do not have the means, or the
know-how, or the willingness to spend time on closing that gap. Not in the last place because of
the completely different planning horizon. The, often extremely, market-driven businesses have
their hands full in the actual running of their businesses, ensuring of growth, and in carrying out
assignments. Businesses themselves say that they are hardly aware of what knowledge can be
obtained from the knowledge institutions, and do not always believe that these institutions have
the sort of knowledge that is relevant in their particular case, and take very little time to find out.
The pressure of projects is often heavy, and the planning horizon is frequently limited to a period
of three months due to the quickly changing technology and markets. They are worlds apart. This
is only partly true for the typical product businesses, sometimes because they have stemmed from
a knowledge institute or because they have a deeper need for technological knowledge in order t o

succeed on the world market. On the other hand, a number of institutes do have good contact with
trade and industry, and not in the last place thanks to spin-offs, practical training agencies,
working with lecturers who are also engaged in the practical side of business, and the growth of
business centres in the vicinity of the knowledge institutes. The established, larger (ring) businesses
do find their way to the knowledge institutes.
Just the same, laying more stress on a knowledge of the changes that take place in the Internet
economy and the Internet community, changing business models, changing life styles, distribution
patterns, and a knowledge of electronic markets as well as the didactic and educational side of
multimedia applications, might possibly narrow the gap mentioned above between the knowledge
institutes and the multimedia service providers. This non-technological multimedia knowledge is,
if present, currently difficult to track down in the knowledge infrastructure.
Role of demand
Opinions differ with regard to the quality of demand, an aspect that can contribute towards
realising innovative-oriented collaboration, particularly concerning the quality of the demand
among business users. The producers of multimedia products say that they do not attach all that
much importance to the quality of the Dutch market. Their frame of reference is first and
foremost the world market, not in the last place because the limited size of the Dutch market
offers insufficient support for the development of products primarily intended for sale on the
Dutch market.
Various opinions are expressed among the service businesses operating at the core. There are
several providers who complain about the fact that the demand for multimedia services is badly
specified (clearly indicative of a me too market) and that customers often need educating.
Customers are said to have difficulty in articulating their demand and often fail to fully realise that
the introduction of multimedia services also has consequences for the organisation of internal
business processes. All the same, correctly advising those same customers as to the possibilities of
multimedia and online business is a significantly lucrative source of income, also for those
businesses that claim to prefer developing and building.
However, there are more differentiating stories to be heard. The quality of the demand is on
average not thought to be exceptional, and yet a differentiation is made between those customers
‘that have and those that have not understood’. Several customers have even invested in order t o
gain knowledge about interactive media (these are in fact the most important rivals of the
multimedia providers!) and are now able to formulate the demand better. It is quite remarkable
that some publishers and businesses in the financial services and agro-food industry are considered
relatively advanced. It is also remarkable to see that because the demand for the provision of
multimedia services exceeds the demand in several segments, some providers make a deliberate
choice in terms of the parties for whom they wish to work. A choice is made for repeat business
among customers they want to work for (because it is pleasant work, because we hit it off
together, because they make product innovation possible) and the addition of several new
accounts on an annual basis.
For that matter, many multimedia businesses do not always work direct for their clients in the
long run. Especially smaller businesses make a contribution on the basis of their specialism to a
much larger project delivered to the client by the general contractor. It is also remarkable to see
that the large, established IT service providers and business consultants must be counted among
the clients of multimedia businesses. They are not always capable of, or have insufficient capacity
to elaborate or actually build the web-based systems or interactive concepts for E-commerce
applications, for instance.

Figure A.2: The main bottlenecks in the multimedia cluster and their interrelations
Items underlined indicate a possible role for the government
Limited transparancy ambiguous

& limited view on economic Co-operation imago Dutch MM cluster
importance cluster core and ‘rim’ players Exportstrategy is lacking
Lacking statistical index could be better
(Structure) (Cluster dynamics) (Economic performance)
Intern
Extern
Low level of Perception
industrial organisation Productinnovation
required speed differs
Links between regional MM limited to few players
Balance formal/informal
clusters underdeveloped Service firms innovate on
Timely investments new knowl.
Labour shortages the basis of existing tools
Interface knowl. infrastruct.
(Innovationsuccess)
(Framework cond.) (Innovationstyle)
Intern
Extern
New
international entrants ‘Educating’ clients Quality of regular
Markets & networks service Accomodating needs of and know ledge
firms mainly locally oriented demanding customers management in
(International (Quality of demand) fast growing SMEs
context)
(Adaptation
capability)
Characteristics Functioning Performance
Figure A.3: The main options for improvement in the multimedia cluster and their
interrelations
Items underlined indicate a possible role for the government
Invest in
statistical index Unambiguous
Make economic importance imago & exportstrategy
cluster visible for Dutch multimedia cluster
(Cluster dynamics)
(Structure) (Economic performance)
Intern
Extern
Improve
Match knowledge
industrial organisation
supply/-demand
Link regional spec. clusters
Improve (flex.) forms of
Improve MM component in
knowledgetransfer between (Innovation success)
education & training
firms & universities
(Framew ork cond.)
(Innovationstyle)
Intern
Extern
Integrate foreign
players in national cluster H elp clients
Improve export orientation innovate with multimedia Professionalize regular
(International context) Government as a lead user and know ledge manage-
(Quality of demand) ment fast growing SMEs
(Adaptation capability)
Characteristics Functioning Performance

Innovation performance
The absolute innovation performance would not seem to be exceptional. It is true that new
products and services are inherent in this cluster but it is apparent that they do not always go hand
in hand with sufficient attention to the innovative process in services and future-oriented R&D.
The latter is restricted to a few of the larger market players and players in the public (mainly
technical) knowledge infrastructure. Nevertheless, in addition to innovation, the adaptation
capability (here meaning the ‘timely anticipation’ rather than the ‘passive reaction’) is at least
equally as important. The adaptation capability in the multimedia cluster means first and foremost
speed. The willingness to invest in knowledge innovation in good time, in probing new fields of
knowledge and business models, or the ability to work out an idea within the space of a few weeks
and market a product (first mover advantages). In the second place, adaptation capability means
having a knowledge of client groups, and the building up and obtaining a commitment from
communities. The third important aspect of adaptation capability in the multimedia cluster is the
fundamental willingness to continue investing in knowledge upgrading and multi-disciplinarity in
combination with a constant urge to experiment with new products, tools, infrastructures and
applications. To this end it will frequently be essential to look beyond the borders of one’s own
business and branch of industry and to invest in teamwork with parties alien to the branch of
industry, with players who have complementary knowledge. And last of all, adaptation capability
in the multimedia cluster means the timely professionalisation of business processes (regular
management, knowledge management) and the professionalisation of matters that transcend
beyond the level of one’s own business. The latter implies that in addition to carrying out
projects, investments will also need to be made in matters that facilitate the functioning of the
multimedia cluster as a whole. For instance: drawing up an agenda for the bottlenecks in the sense
of limiting conditions for the government (labour market, training, the problem of rights,
innovation incentives, telecom infrastructure specifications), and, for instance, the optimisation
of knowledge transfer with the relevant knowledge infrastructure, the joining together of regional
multimedia specialisms or the formulation of an export strategy. It will be clear that the
adaptation capability of the ring players in the multimedia cluster in particular is currently being
put to the test.
Bottlenecks and options for improvement
The main bottlenecks that will need to be overcome to allow this Dutch multimedia cluster t o
grow into a flexible, pro-active, recognisable and competitive cluster which constantly innovates
and adapts itself have been discussed in the above, and their interrelation is summarised again in
figure A.2. In a similar fashion, the main options for improvement are set out in figure A.3.

3 Italy – telecommunications
Cluster methodology used
This study seeks to identify and then examine sources of innovation within the Italian
telecommunications industry. More specifically, it seeks to illuminate the role(s) performed by
research and technology organisations.
A cluster methodology was used because this reflects the fact that innovation within the
telecommunications industry is not limited to one readily and easily discernable set of actors.
Instead, innovation is the end product of the complex interaction between many different sets of
actors. One reason for this complexity is that modern forms of economic activity transcend
traditional industry boundaries, and the distinction between services and goods is subject t o
challenge. Thus, there are likely to be a series of linkages that transcend these distinctions but
which shape developments within the telecommunications industry.
Basic features of the telecommunications industry
The telecommunications industry is experiencing considerable change. New digital technologies

have reshaped the industry, allowing new services to be developed that transgress the traditional
boundaries between industries. New technologies are also giving rise to entirely new industries such
as electronic commerce.
Within this rapid change several aspects require highlighting, not least because they set the
context for future comments.
• As shown in Table A.4 (below) the United States is the largest single telecommunications
market. However, of late Europe has enjoyed significant growth so that the gap between
the two markets is closing. Moreover, for 1999 European growth at 12% was higher than
that of the United States (8.1%).
Table A.4: World-wide Telecommunication market (million of EURO at constant 1998 exchange
rate)
1997 1998 1999 2000** 2001**
208,855 235,402 266,671 296,104 321,194
Europe*
(31.2%) (32.3%) (33.4%) (33.9%) (34.1%)
187,100 200,054 213,458 226,906 240,293
US
(27.9%) (27.5%) (26.7%) (26.0%) (25.5%)
75,879 73,910 76,719 81,782 86,771
Japan
(11.%3) (10.2%) (9.6%) (9.3%) (9.2%)
197,853 218,034 241,949 269,047 294,694
Rest of World
(29.6%) (30.0%) (30.3%) (30.8%) (31.2%)
669,687 727,401 798,796 873,840 942,953
Total
(100%) (100%) (100%) (100% (100%)
Notes: * Incl. Eastern Europe: Czech Republic, Estonia, Hungary, Poland, Russia, Slovakia, Slovenia. ** Estimates.
Source: EITO (2000).
• The growth of the telecommunications equipment market is outpacing that of services.

However, the market for services remains considerably larger than that for
telecommunications equipment. Between 1998 and 1999 the telecommunications services
market grew at 11.2% to $798.3bn, whereas the equipment market grew 14.4% t o
$284.9bn.
• Prominent within this growth is the role-played by mobile communication. Both in services
and equipment the fastest portion of the market is that for mobile. The worldwide mobile
equipment market grew 23.9% between 1998 and 1999 to $63.7bn whilst over the same

period the market for fixed network equipment grew 7.2% to $80.8bn. Similarly, growth of
24.2% between 1998 and 1999 allowed the mobile communication services market to jump
to $201.8bn. For the same period fixed network services grew just 7.1% but the overall
market was substantially larger at $545.7bn.
• Fuelling the rapid and substantial growth in mobile communications markets, both
equipment and services, has been the dramatic rise in mobile subscribers worldwide. This is
shown in the figure below, which projects that wireless subscribers will surpass the total for
fixed networks somewhere around 2008.
Figure A.4: World-wide mobile and fixed subscribers
3000 2800
2500
2000
1750
1500 1300
1500
1000 846 890
500 576
270
0 24
1992 1998 2005 2008 2011
Mobile Fixed
Source: Assinform (2000)
The Italian telecommunications industry echoes developments within the industry worldwide.
The industry has undergone a series of changes that have fundamentally altered its nature. These
changes are shown below in the three tables (Tables A.5, A.6 and A.7) and are:
• A shift in investment activity away from fixed networks towards mobile networks. This is
true not only for infrastructure but also of handsets as well.
• Mobile services have enjoyed spectacular growth vis-à-vis fixed communication services.
However, in percentage terms the largest growth can be seen in new services such as those
associated with the Internet. Call centre / contract centre services have also enjoyed
substantial growth, albeit from a small base.
• The mobile market has been driven by the usage of pre-paid cards rather than contracts.
This has only been made possible through the recent development of these technologies.
Table A.5: Italian telecommunications equipment market (billions of Lire)

1998 1999 98/99
Fixed network 3,790 3,660 -3.4%
Mobile network 2,500 3,620 44.8%
Cables 1,780 1,830 2.8%
Other 330 590 78.8%
Total infrastructure 8,400 9,700 15.5%
Networking equipment 1,595 2,045 28.2%
Mobile Phone Sets 3,800 4,100 7.9%
Other 1,525 1,415 -7.2%
Total systems and handsets 6,920 7,560 9.2%
TOTAL EQUIPMENT 15,320 17,260 12.7%
Source: Assinform (2000).

Table A.6: Italian telecommunications services market (billions of Lire)

1998 1999 98/99
Fixed communications 23,600 23,770 0.7%
Mobile communications 12,800 17,460 36.4%
Networking 2,300 2,510 9.1%
Total transport services 38,700 43,740 13.0%
Internet service 380 1,270 234.2%
Call Center/Contact Center 90 165 83.3%
Other 760 855 12.5%
Total value added services 1,230 2,290 86.2%
TOTAL SERVICES 39,930 46,030 15.3%
Table A.7: The wireless market in Italy (millions of subscribers)

1996 1997 1998 1999
Contracts 5,845 6,439 7,099 7,995
Pre-paid cards 570 5,300 13,400 22,300
TOTAL CUSTOMER 6,415 11,739 20,499 30,295
Actors within the cluster
The starting point for the determination of actors within the cluster is that innovation seldom
takes place in isolation. Consequently, all of the relationships, partnerships and networks
generated by the innovative phenomenon need to be identified. The range of actors within the
Italian telecommunications cluster includes not only suppliers and service firms but also public and
private research institutes or technology transfer agents. The diversity of actors is illustrated in
the table below (Table A.8)
Table A.8: The actors in the telecommunications cluster

Institutional Suppliers Telecommunications Telecommunication Customers and
bodies Manufacturing s users
Operators
Regulatory Basic technologies: Switching Incumbent Residential
authority • Microelectronic operators
s Transmission Business
Standardisatio • Radio New entrants
n institutions Cable Public sector:
• Signals Mobile operators • Health
• Software Other transmission • Defence
apparatus Resellers
• Education
Networking Services /
equipment Organisations
applications
Consumer electronics providers (incl.
VAS)
Internet providers
• Institutional bodies: Public institutions play an important role within the cluster. Not only
do public institutions shape liberalisation and competition but they also affect technological
change that occurs within the cluster.
Standards are mainly set through co-operation between would be competitors such as
manufacturing companies. Examples include the establishment of standards for successive
generations of mobile communications.
• Telecommunications equipment manufacturing companies: There are two distinctive types

of telecommunications equipment manufacturing company within the cluster. Firstly, the
traditional equipment companies that have long established relationships with service

providers such as Telecom Italia. Secondly, the cluster is also populated with newer actors
such as Cisco and 3Com that manufacture network equipment in general and Internet
related equipment in particular. This latter group of companies are at the forefront of
technological developments within the industry.
Specialist manufacturing companies like Cisco have impacted on the telecommunications

cluster in several related ways. They have developed specialist technologies that have
encouraged, and are encouraged by convergence. Moreover, these new technologies like I P
have led to the advent of new markets where none previously existed. Through the
development of new technologies these companies have enjoyed substantial revenue and
market capitalisation growth. Cisco has grown from revenues of just $69min 1990 t o
$12.2bn by the end of 1999, and was briefly the largest company in the world by market
capitalisation in 2000.
Network based equipment manufacturing companies have partially fuelled their growth
through acquisition. Cisco alone has acquired more than thirty companies, and illustrations
of the acquisitions that have occurred are shown below in table A.9.
Table A.9: Major acquisitions of networking firms by telecom producers

Acquiring firm Acquired firm Acquired firm core
Business
Ericsson Torrent Edge ATM/IP switch
ACC Remote Access and
Internet-workimg
TouchWave IP telephony
PacketWave IP PBX
Lucent Ascend Switch/Access Wan
Agile Network LAN switching
LanNet ATM switching
Livingstone Enterprises Remote access
Yurie Systems ATM access and
data/voce/networking
MassMedia SW for new generation networks
Nexabit Core Routing
Keenan Systems Billing Technology
Nokia InTalk Wireless LAN Access
Diamond Lane XDSL technology
Network Alchemy Internet provider
Nortel Bay Networks Networking, IP technologies
Shasta Networks Edge IP Gateway
Cambrian Systems DWDM technologies
Qtera Fibre optics technologies
• Users: there has been a shift from a telecommunications industry where customers had no
choice to an industry that is increasingly driven by customer requirements:
• Technological competition have given way to other forms of competition / ways t o

attract and retain users. These new ways are better customer care, the quality of the
service delivered and a better understanding of what customers actually want.
• More power has been placed in the hands of users with the consequence that the
balance of power has shifted towards the demand side and away from the supply side.
• Entertainment rather than utility is driving home based customers.
• Research organisations: these are public, semi-public and private research and technology
organisations. Research organisations within Italy include:
• A centre run by Alcatel at Vimercate focusing on the development and management

of SHD networks.
• Ericsson employees 600 staff at centres in Milan, Bologna, Pagani and Rome.
• The Motorola Technology Centre is located at Turin and closely collaborates with
the city polytechnic.

• Nokia operates two research centres in Italy; one is located close to Milan and the
other in Catania.
• CSELT is operated by Telecom Italia and is tasked with the development and
integration of innovative solutions for new information, communication and
technology services for both group companies and final customers. The organisation
frequently collaborates with universities, polytechnics and manufacturers.
As the market has changed research organisations within Italy have also changed. Not only
have they developed new services to complement those already existing, but they have also
entered into collaborative arrangements with other research organisations as well. Change
is being driven by:
1. On the supply side, by an increasing demand of consulting services and market

analysis deriving from the liberalisation, the convergence process and the new areas
of activity daily emerging in the field.
2. On the demand side, by the needs of assistance due to the uncertainty about the
technology options available, a strategic consultancy in evaluating the different
suppliers and proposals, in addition with the evaluation of the project of outsourcing
some activities.
The research organisations perform different task depending on who the main client is.
They accompany the manufacturing firms and the operators in their research efforts, but
the bulk of the research is mainly done directly by the specialist suppliers. Other
organisations offer consulting services both to vendors and intermediate or final users.
Finally, customers cannot considered anymore as silent and passive recipients of the
products or services provided by the other players, they, as active users, can provide
feedbacks to suppliers and their demand can directly shape the changes.
Innovation regime
Within telecommunications the innovation regime has experienced change in recent years. The
traditional innovation regime within telecommunications was the product of a monopolistic
industry organised along national lines where operating companies were frequently within the
same economic group as equipment manufacturing companies. For example, within Italy Stet (the
holding company of IRI with responsibility for telecommunications) controlled Sip (operating
company) but also Itatel (switching and transmission equipment manufacturing). In other words,
vertical integration between the different parts of the telecommunications occurred.
Within this regime the engine of innovation was located within the internal research laboratories
of the monopoly telecommunications companies such as AT&T and BT, as well as the
laboratories of some of the larger equipment companies. The resulting characteristics of the
innovation regime are detailed below in the left-hand column of table A.10.
Table A.10: Contrasts between the old and new innovation regimes
Old innovation regime New innovation regime
Closed innovation system with high An open innovation system
barriers to entry.
Few innovators Low barriers to entry
Slow and sequential innovation process. Many innovators
Fragmented knowledge base Common knowledge base
Medium powered incentives. High-powered incentives
Rapid and concurrent innovations.
Changes to the telecommunications industry have undermined the above innovation regime. One
broad generalisation is that as a result actors are no longer passive but instead are active in their
activities and relationships within the telecommunications cluster. Another broad generalisation
is that the telecommunications industry has become more diverse, with a seemingly ever larger

array of actors fragmenting the once integrated industry. The main characteristics of the
emerging innovation regime are detailed above in the right-hand column of table A.10.
Drivers of innovation
Change within the Italian telecommunications cluster is the end result of innovation. This
innovation is driven by three sets of drivers that are inter-related to one another. These are
technological, institutional and market demand, and their inter-relationship are shown below in
Figure A.5.
A major finding of the Italian telecommunications study is that the drivers of innovation are
multi-dimensional in nature. That is, they are broad headings for a series of drivers that interact
with one another in a complex manner. For example, into the technological drivers of
innovation category falls changes that include developments in the areas of switching, ground
transmission and airwave transmission technologies. Moreover, as the figure below clearly
illustrates these drivers interact with one another to shape the landscape of the Italian
telecommunications cluster.
Also highlighted in the study is the positive feedback nature of the relationship between drivers of
innovation and their impact. New demands by users led to the development of new services,
which in turn required an enhanced network. Consequently, research efforts by service and
equipment providers resulted in technological advances. An improving network increased
customer expectations, leading to them demanding better services. In such a manner a positive
feedback loop was instituted, thereby linking drivers and their impact together.
Figure A.5: Drivers of innovation and their impact
DRIVERS IMPACT
• no more relevance of natural monopoly,

introduction of competition
• privatisation of the operators
Technological • re-regulation
• blurring of the distinction between:
public and private networks
fixed and mobile networks
Institutional local and geographic networks
• re-design of competencies between
traditional and new actors
• convergence among telecommunications
Market Demand computer, and broadcasting
• new products/services
Conclusions
The table below offers a summary of the main conclusions of the analysis. These conclusions
correspond to the main changes that have been observed within the cluster, and fall into one of

three broad areas: market, innovation and prices. The market has become competitive, customer
driven and displaying an ever-wider array of products.
Table A.11: Effects of change

From To
Market
Monopoly Competition
Product driven Customer driven
Limited product choice Unlimited product choice
Innovation
Technological and service innovation Manufacturing firms:
by operators -outsourcing of hardware
-concentration on software innovation
Networking firms:
Operators:
-concentrated on service innovation
Long life cycles Short life cycles

Standard quality of services Quality choice of the service
Prices
Standard prices Tailored prices
Innovation has become more diverse. It is no longer the case that innovation occurs within the
confines of a closed relationship between telecommunications providers and the larger equipment
manufacturers. Instead, innovation now occurs within a complex environment shaped by the
interaction by a larger number of actors that include not only the two aforementioned but also
new actors such as network companies and new entrants. Moreover, innovation has been driven
by the increasing focus on services as well. Finally, prices are now tailored to meeting the needs
of users.
4 UK – printing and publishing
Methodology - value chains as a systemtic framework
Value chains relay input/ output information of an economic activity. Typically, a firm adds value
to a good or service through a number of activities after subtracting the costs (inputs). Inputs
include labour and material costs, which are derived, usually, from another value chain. In theory,
one can decompose any value system until one returns to the value chain that entails raw
materials extraction. Although input/ output analysis details explicit and measurable outcomes, i.e.
financial values, value systems can also provide insights into three other concepts:
• Value system analysis looks beyond traditional sector classifications (i.e. agriculture, mining
and manufacturing) by exploring the connectivity of different agents, industries and sectors.
This framework can draw attention to the different stages involved in any process before
the final supply of goods and services to consumers. A value system includes interaction
among entities through out-sourcing and sub-contracting activities and intermediate
transactions such as the supply of inputs and semi-finished goods for any production and

innovation process. A value chain model (as described by Porter10) can also depict intra-
firm activities.
• If the right questions are asked, value chains can highlight flows of information as well as
the flow of objects. Knowledge ‘stickiness’ can relate not only to proprietary technology in
the form of competences but also to activity management and knowledge co-ordination.
Such managerial knowledge draws upon a set of competences and incentives that has a
direct relation to specific technological and business assets but also calls upon a deep
management competence. For instance, publishers co-ordinate many activities requiring
knowledge of the publishing industry while utilising specialised project management tools
(such as Gantt Charts, time management, etc.), which can, in theory, be applied to other
industries. Other forms of analysis (particularly econometric types) cannot capture such
‘people’ variables.
• Products and services, technology, and market conditions, at any one stage and at any one
moment in time, are endogenously determined rather than exogenously given, providing an
organisation with a history. This dynamic perspective characteristics firms as path
dependent. However, an evolutionary path does not automatically lead to a predicable
future. The very nature of the firm and its internal pursuit to adapt and adopt (and
innovate) technology and processes also includes a propensity to seek and interact with
external forces. Both internal and external developments can break any projected path.
• Information flows, competences and path dependencies requires one to move away from
standard statistics and move into the realm of actual firms and actual interactions. Expert
interviews, market intelligence and case study methodologies may be used to capture such
dynamics.
It is also possible to use value chains to aid in the formation of policy. The term ‘value’ in value
chain attributes something substantive and measurable. Economic worth is often translated into
prices but it can also be characterised in terms of material well-being and quality of life. The
question for the RISE project was not to evaluate or identify the value of any one chain (cluster)
but to highlight the innovative stages and agents (particularly service agents). For example,
research and development viewed either as a function or as a service, is readily recognised as a key
input for many science-based industries. Even in the RISE project, we often claim this service
function is a factor for knowledge generation, keeping abreast of the latest technological advances
and for training labour. But can we really make such claims if we do not use an evaluation tool?
Other activities such as distribution and marketing contribute more to a firm’s prices and profits
than many research and development activities. At the national level, such services on the whole
may also contribute more to national employment than the entire research and development
sector. By not evaluating the different stages, activities or interactions, formulating concrete
policy recommendations is not possible.
Print and publishing of books in the UK
‘Printing and publishing' activities are categorised as a manufacturing industry by national

accounting practices but consists, in fact, of many services and project co-ordination activities of
which, manufacturing - the printing and binding of book - is only one stage. The book production
value chain can be depicted as a complex project management exercise with publishers acting as
overseers of the entire system. Our notion of innovation functions should include a dynamic
element of how innovation is implemented: outcomes such as product and process innovation
cannot be accomplished without managerial co-ordination.
• Governance over the publishing value chain: The ownership or contractual renting of
intellectual property rights is the core business advantage publishers have over other agents
10
Porter, M.E. (1985): Competitive Advantage, The Free Press, New York. Porter depicts value chains as the different
activities within a firm and that value systems are the inter-connectivity of firms at various stages flowing from raw
materials to the finished product.

in this value system. This legal construct differs from patent protection as it rests with
copyright law, which can be renewed indefinitely. The pre-production stages are often out-
sourced to other publishing service agents within a contractual and closely monitored
relationship. The primary goal of these stages is to get a creative piece of work ready for
print. The production stage is sub-contracted to printers: contracts are assigned to output
specifications but the actual manufacturing process is outside the publisher’s tight project
management control. The publisher resumes control of the process once the manufacturing
stages have been completed. The inventory and distribution functions come under the
publishers’ domain.
• The automation of manufacturing - the printing value chain: What was once a craft
industry is now becoming a highly automated process, with many areas of print
competences becoming embedded in capital equipment and the associated software. The
relationship between the publisher and printer can be described as long standing but
contractual. Publishers will offer long-term contracts based on a number of print runs,
which are time bound, and cost based. The latter production stages remain labour intensive,
and are, in effect, assembly-like activities and include bookbinding, gluing and filling orders.
• Publishing and production services: As stated above, most publishing activities are services.
Publishing services fall under three categories: i) getting the product ready for print, ii) legal
services to protect and exploit intellectual property rights, and iii) distributing and after-
sales services to the retailer. Production services include equipment servicing and
maintenance. These technical services can be provided by the equipment manufacturer or
by stand-alone print service firms. Price will be the determining factor: printing equipment
tends to be recycled over time and the expiry of any warranty opens the door for service
companies to compete.
It is also worth commenting on the mergers and acquisition within publishing in the UK.
Capturing intellectual property rights is driving change in the publishing industry. From 1991 t o
1995, 58 mergers and acquisitions in the UK printing and publishing sectors took place averaging
£30 million per transaction. Industry deregulation was identified as the most important reason
why these transactions took place. Ensuring industry growth by acquiring or merging with like
firm (horizontally along the supply chain) was also cited as another important reason. The
attractive assets in these acquisitions are the publisher’s’ assets: the back catalogues and other
intellectual property rights.
The value of a publishing company is not based on land, equipment, buildings or employee
competencies. A company’s assets are weighed by the availability of their content; this would
include contracted authors, back catalogues and other copyright residual revenues. Owning the
right to potentially publish a book is becoming equally as important as current publication
revenues. Digital technology now provides publishers flexibility in the quantities they can order
per print run and in what they hold as inventory. This notion can also be express in another way:
why have publishers not moved vertically along the supply chain in their mergers and acquisition
activities? In the UK, only one large book publisher also owns a printing firm. Publishers see more
value in content ownership than in production.
Production innovation and the drivers of innovation
The perspective of innovation we used comes from the point of view of the production agents.
This means we are identifying the changes to the way printers and publishers produce a book. The
innovation cluster is defined as a number of driving forces, which can be partially represented in
terms of value chains and partially by other economic models.11
11
Value chains can represent inter and intra organisational and functional relationships and are quite useful for
illustrating production processes. Once we consider non-linear innovation processes, the value system model loses its
rigour. Messy interactions that flow in many directions are difficult to map and probably have to be mapped in smaller
chunks or left in a descriptive form.

The book printing and publishing industries have been greatly influenced by technological and
organisation change in the past 10 years. Our research identified four issues that are driving
change in book production: i) the advances in digital print technology, ii) changes to how work is
performed, iii) electronic publishing and iv) ownership of different activities and functions. Table
A.12 characterises these issues and the key actors and the forces shaping them.
Table A.12: Innovation Factors and Drivers in the Book Publishing and Printing Value System
Innovating factor Key organisations Driving forces
Digital Technology Print Machine Firms In-house R&D
Digital and imaging Firms Strategic Alliances
Software Firms Mergers and Acquisitions
Work Flows Software Firms Desk top publishing technology
Management Consultants Digital Technology
Demand for process improvement in costs,
quality and speed
Electronic Publishing Software firms World Wide Web
Management Consultants E-commerce
Government/ Industry Assoc. for IPR and back catalogues
setting standards
Changing ownership of Printers and publishers – vying Digital technology is allowing for books-on-
distribution and retailing for closer links to retail agents demand which removes the dependency for
are attempting reconfigure the large inventories.
distribution function
1. Capital equipment innovation
Most of technological expertise in digital technology and hybrid printing technology (traditional
plate technology using digital components) rests outside the UK, primarily in the USA, Germany
and Japan. Print technology companies remain at the technological frontier by following three
business strategies:
• Companies have built up substantial R&D capabilities and devote significant resources
developing new products;
• Companies accelerate their own technological learning by forming commercial alliances

with companies that have a complimentary technology;
• Firms are merging and acquiring holdings not only to become bigger, but also to capture
technological assets.
Printers make many incremental innovations on the job. Some of these advances are passed back
to the equipment manufacturers, i.e. changes will be incorporated into later versions of equipment
and made available to competitors. Some changes are seen as a competitive advantage t o
individual printers and sharing them with the equipment manufacturers will diffuse them and dilute
such advantages over time; if possible such changes are kept confidential by printers within the
printing firm. Perhaps this explains the expansion of after-sales services, which equipment
manufacturers now bundle with their products. Not only does their revenue base increase by
offering a wide product/service portfolio, but also print equipment manufacturers can also take
advantage of advances in any ‘learning by doing’ process that take place in customer companies.
2. Process and work flow innovation
Work flows through a print plant just like other manufacturing processes. The inputs are text and
graphics, and the output is finished print. The faster the workflows, the more the system will have
to cope with at any one time. Bottlenecks are costly. Printers have long recognised that new
technology requires change to process and have continuously adjusted their production flows.
Publishers, traditionally not active users of technology, are now taking on more pre-press
responsibilities as desktop technology provides more flexibility and capabilities. To justify the

costs of the technology and to capitalise on possible efficiencies, both printing and publishing
companies are seeking new work processes. Workflow services and consultancy consist of
software programmes for work-in-progress, technical advice for adapting presses, and changes t o
routines and procedures. KIBS and the UK print RTO offer these services but they are competing
against the large print technology manufacturers who now deliver not only equipment but also
technical and management after-sale services.
3. Electronic publishing
Electronic publishing encompasses the delivery of books (e-commerce and the corresponding
infrastructure) and the material form of book (digital or e-books). These new developments can be
exploited separately and in various combinations by a host of companies. Publishers see electronic
publishing as a revenue generator and cost cutting endeavour.
The public accepted e-commerce as a viable and socially acceptable form of retailing without any
risk being borne by the publishing sector. Publishers will probably move into this field either
through a partnership with a retailing arm or by offering material directly using their own brand-
name. Publishers hold the intellectual property rights to vast back catalogues, which does not
require pre-press investments. Publishing small batches of new books and accessing back catalogues
for one-off prints will now be affordable using digital print technology.
4. Moving along the value chain
Technology and organisational changes are affecting other parts of the book production value
chain, notably in distribution and warehousing activities. Large inventories will no longer be
needed because: i) book catalogues can be stored on CD-ROM in a digital format, and ii) digital
print technology allows companies to print small batches of books competitively (in fact, digital
printing is more cost effective when used for low batch runs while traditional lithographic
technology is better suited for very large print runs). The combination of digital storage and
digital print (in conjunction with the soon-to- be agreed international standards for object
identifier) will allow individual customers to configure unique and one-off products. Customers can
now purchase a product that contains different chapters, illustrations and pages from different
holders of intellectual property rights.
Print-on-demand will make cumbersome distribution and warehousing infrastructures obsolete. As

the communication network among consumers to retailers to publishers and/or printers develops,
print runs will become shorter, diminishing the need for large inventories. Who will own the
distribution function is now wide open. Traditionally held by publishers (who also bore the risks of
holding large stocks), printers and retailers are forming distribution alliances. Publishers may still
own the intellectual property rights but printers believe that knowing how to digitalise books with
a proprietary software code will give them a competitive advantage.
As printing companies move closer to the end user, publishers are forming alliances with print
technology companies. Publishers are supporting the effort to embed more and more print
competence into new technology. Publishers are already under-taking pre-press activities and have
some in-house knowledge of the print function (most large publishers have a technical division
which liases with printing companies). Printing a book, i.e. manufacturing, may become a
simplified function which can be serviced by non-specialised companies and placed anywhere along
the production chain.
Conclusions
The cluster study undertaken enabled conclusions to be reached in four areas: firstly, demand for
services; secondly, the generalised nature of innovation patterns; thirdly, cluster based policies;
and fourthly, production policies.
1. Demand for services

Services – particularly innovation supporting services - remain an elusive entity in this cluster.
Firstly, most publishing activities are services. A publishing sub-contractor without any direct
input from the governing publisher may take on board innovation. Secondly, equipment
manufacturers are offering bundled product/ services to companies. Customers (printing and
publishing firms) benefit as trust and long-standing relationships develop with technology
suppliers. Independent service suppliers are at a disadvantage: not only do these firms have t o
keep abreast of new technological developments occurring in other firms but they also have t o
break into established supply networks. The independent service provider, however, can offer
customers hybrid systems since they are not tied to any technology, i.e. they can mix different
services and technologies. Finally, perhaps we should consider the demand for services (and the
corresponding functions) by the user rather then seeking out what service suppliers provide. Does
it matter who supplies the service so long as the demand is being met? And, does it matter if there
are (public or commercial) services available, if there is no articulated demand?
2. Generalising innovation patterns
The UK cluster study incorporated several value system frameworks to uncover innovation
drivers, key organisations and trends in the book printing and publishing sector. Our analysis
centred on organisations interacting at the sector or meso level: through a series of expert
interviews, mini case studies and industry analysis, we synthesised specific inter-firm interactions
to form composite or representative value chains. We believe that this analysis is a fair reflection
of what takes place in the production of book publishing and printing.
Innovation processes however are not as systematic and cannot be so easily stylised. Firms do not
innovate with the same partners even if they are performing the same activities; and even when
organisations follow a similar pattern, outcomes are never the same. Patterns may emerge if
significant and noticeable changes occur (for instance, most printing companies have now
explored the option of using new digital technology). However, these occurrences cannot be taken
for granted and may overlook other, harder to capture, innovating events. Important incremental
innovations - improvements or upgrading products and processes during the production process
–are difficult to capture even at the case level and are lost when extrapolated to the cluster level.
It is these small, but never the less, crucial innovating interactions, which give companies a
competitive advantage. Unearthing this type of innovation should be paramount and supported in
any policy dialogue.
3. Cluster based policies
Determining any policies based on the following cluster references is not a priority for
government or players in these industries:
i. Size references: The print and publishing cluster is made up of large and medium size firms.
Large publishers will use small printers and large printers work with small publishers. No
clear pattern emerges.
ii. Regional and national references: Most UK publishing companies are based in south-east
England that is not a priority area for the current government. Printers operate throughout
the country and no geographic locus emerges.
iii. Competence and capability references: The two main operations in this cluster, printing
and publishing tend to operate quite differently. Publishers can operate throughout the world
international as the enforcement of intellectual copyright falls under, for the most part, an
agreed global convention Out-sourcing and sub-contracting production and innovation
activities are managed as projects. Printing, however, remains a nationally based
manufacturing activity.
iv. Innovation references: Innovation activities are driven by private market players such as
capital equipment suppliers, most of who operate outside the UK. Incubating an infant
industry would be costly and not be supported by the users: the UK did have a print

technology industry up until the late 1980’s but firms were either taken over by non UK
companies or went bankrupt.
4. Production policies
What is of interest to publishers and printers are supporting policies that improve production
activities. Particular areas include improving supply chain management skills and processes and
facilitating web-based standards,
5 Portugal - biotechnology
Cluster approach adopted
The "biotechnology cluster" is a technology-based cluster (shared knowledge base). Cluster actors
are active in similar knowledge fields, but may be developing and applying that knowledge in a
diversity of areas and to varied sets of products. Hence, their behaviour regarding biotechnology
production and diffusion differs. To capture these differences three sub-clusters were identified and
analysed in detail: health-pharmaceuticals; agro-food; forestry-pulp. This enabled an investigation
of the role of biotechnology as an instrument that assists the upgrading of traditional industries
and the improvement of efficiency in mature industries, and not only as a generator of new "high-
tech" industries.
The focus of the analysis was the process of diffusion and adoption of biotechnology in a context
of strong unbalance between the level of scientific accumulation in biotechnology and the level of
industrial involvement in its downstream application. Cluster analysis was regarded as a valuable
instrument, since it enabled the consideration of relationships whose focus is mainly the
production and use of biotechnology-related knowledge. These linkages between between actors
are not necessarily traded input-output type of linkages. It also allowed a comparison between the
conditions for biotechnology diffusion/adoption along a variety of "industries" with distinct
structures and innovation dynamics.
Actors
Two main types of actors compose the cluster: (a) private companies with some involvement in
biotechnology, including both dedicated biotechnology firms (basically new firms –New
Biotechnology Firms (NBF), some of which can be described as KIBS) and firms from a variety of
industries for which biotechnology is (or is becoming) part of the knowledge base; (b) RTOs and
other types of research organisations more deeply involved in industry-oriented biotechnology
research, in particular one group of organisations we regard as "connecting institutions" in the
cluster. A further group of "intermediaries" - e.g. equipment suppliers, business consultants, etc, -
was also considered, but their activity and role in biotechnology were minimal.
Innovation dynamics
The cluster approach allowed us to consider the relative impact of technology determinants
(associated with their perception of the role of biotechnology) and industry and market
determinants (associated with their production/market positioning). The latter had a stronger
differentiating impact upon private actors, since the sectoral dynamics strongly influenced the
role of biotechnology as source of knowledge and driver of innovation. Public research actors were
more influenced by technological determinants (e.g. areas of scientific specialisation) although
they often had to adjust their behaviour to the characteristics of the industrial partner. New
biotechnology companies were closer to research organisations in this respect, but the final
outcome was strongly conditioned by market determinants: the area(s) of application/market(s)
they ultimately targeted. NBFs were often in a mid-position between (semi) public research
organisations and incumbent companies, developing activities that overlapped with those of each
group and providing both with knowledge intensive services. But technology determinants also

influenced the conduct of private actors, leading to behaviours, as regard levels of involvement/
degree of competencies in biotechnology, that were consistent across sub-clusters. These can be
categorised as:
1. Core user (biotechnology is a basic component of the knowledge base and applied in
development activities);
2. Marginal user (biotechnology is applied, even if only occasionally, in combination with the
current core technology, or in activities upstream or downstream to the core business); and,
3. Watcher (biotechnology is not being applied, but companies are starting to learn about it).
The cluster and sub-cluster analysis led to the identification of three distinct "innovation
patterns":
• Technology-based industries (health-pharmaceutical): biotechnology is a core technology

and thus scientific knowledge and development competencies in this field are a driver of
innovation; exhibit the greater dynamics of adoption, the greater number of "core users"
and a small but active group of NBFs, some of which acting as knowledge intensive
intermediaries; but investment in biotechnology still falls much behind other economies,
raising competitiveness problems and calling for strategic re-orientations;
• Traditional industries (agro-food): biotechnology can be relevant source of innovation, but

adoption is slow, since incumbent companies are still unaware of its potential (a few are
basically marginal users or watchers); some lack of alignment between RTO research and
areas of potential industrial application; difficulties in establishing RTO-industry
relationships, the initiative usually resting with the former; adoption can be enhanced by
targeting areas that are drivers of innovation (e.g.: process improvement and quality
control; quality of raw materials; exploration of uniqueness of regional products; demand for
new products with particular attributes) and by achieving the involvement of users, RTOs
and eventually NBFs or other KIBS in processes of "phased adoption"; need for the
acquisition of generic business competencies that promote the development of strategic and
managerial capabilities; public intervention critical;
• Mature industries (pulp): biotechnology is not core technology, impacting upon areas that
are marginal to core business; dynamics of adoption associated with growing perception of
marginal areas as factors of differentiation / competitiveness, i.e. as drivers of innovation;
its potential to give rise to more fundamental changes in the future being closely monitored;
technologically competent companies and close relationships with RTOs facilitate the on-
going process of acquisition and development of competencies.
Interaction between firms and RTO/KIBS
Although interaction between industrial firms and RTOs is sometimes troublesome (mainly in
traditional industries), it should not be concluded that there is a divorce between research
organisations and industry. Rather it was observed that several companies and RTOs were able t o
establish a variety of relationships, some of them longstanding, which led to mutual learning and,
namely, enabled RTOs to define research directions more on line with industry needs. Research
organisations are becoming more proactive in the search for potential applications for their
accumulated knowledge and for ways of reaching its potential users. Similarly, a growing number of
companies, both in traditional and technology intensive industries, are starting a process of search
for information on the opportunities open by biotechnology and/or gaining competencies in this
technology, even if these efforts are sometimes very incipient and do not always involve a real
commitment.
Regarding the development of biotech related KIBS it should be noted that, along with the
activities that involve existing companies, there is also the emergence of new entrepreneurial
initiatives, which frequently assume the form of research spin-offs, led by highly qualified young

people. The incidence of this movement is still limited, constrained by the low domestic demand
for biotechnology products and services and the lack of venture capital that could support
internationalisation efforts. But their advent demonstrates the viability of turning biotechnology
research results into marketable products and processes, thus leading the way to other potential
entrepreneurs and "source organisations". Because several NBFs are indeed targeting the local
industry and the majority is - by choice or by necessity - providing a range of knowledge-intensive
services, they are frequently acting as technology intermediaries between the research sector and
the incumbent industry, thus contributing to the dissemination of the new knowledge.
Policy issues
There is a growing dynamic in the Portuguese biotechnology cluster. However, it should be

acknowledged that the degree of industrial involvement and technological accumulation in
biotechnology is still insufficient, particularly in traditional industries. Further evolution will
require greater focus on demand-oriented policies. That is, policies that motivate companies t o
recognise the need for the technology and to create internal conditions for its adoption. This may
require the development of competencies that are not exclusively technological, but complement
them, such as:
(i) Strategic capabilities to devise a correct technological and market positioning;
(ii) Market intelligence to match technological opportunities to market opportunities;
(iii) Marketing competencies to commercialise products that are new or at least exploit some
differentiating attributes in relation to the ones available in the market;
(iv) Financial competencies, to identify and search for resources and to negotiate with their
providers, sometimes in conditions of uncertainty regarding the final product;
(v) Negotiation and partnership management competencies for the establishment of alliances
and protection firm interests;
(vi) Knowledge about IPR issues (including patent negotiation) and regulatory issues.
Despite the identification, since the early 80s, of biotechnology as a priority for S&T
development at country level, there was a continued absence of a clear strategy concerning
biotechnology that could lead to a co-ordinated policy, producing more efficient - because
targeted - policy mechanisms. These mechanisms should aim at: (i) raising the industry demand
for applications of biotechnology; (ii) focussing the public research efforts on problems with
industrial application, thus matching public research with industrial needs and interests.
A cluster approach can be proposed as a basis for customising policy programmes and mechanisms
to the specific needs of the cluster's development. It will allow to go beyond a simple programme
for the "development of a biotechnology industry", since it opens the way to explore the full
potential of this technology in inducing structural changes throughout the economy.
Conclusions
1. The Portuguese biotech cluster as defined and analysed here shares a specific knowledge base
and consists of actors involved in the development, diffusion and use of biotechnology
knowledge. The cluster perspective revealed not only the importance of traded and non-
traded relationships, but also emphasised that (in this case) biotechnology is not
synonymous with "high-tech". Biotechnology also has a role to play in assisting the
upgrading of and innovation in the so-called "traditional industries" and to improve the
efficiency of “mature industries”.
The integration of biotechnology is country-specific in the sense that it has to be brought

in line/integrated with the current country's industrial structure and capabilities. This allows
the development of consistent clusters of development and can lead to the creation of a
pool of distinctive competencies.
2. The analysis of innovation patterns in the three sub-clusters identified show specific
characteristics in terms of technological and non-technological competencies, mix of
competencies in biotechnology (i.e. mix of core users, marginal users, watchers),
importance and type of role played by RTOs-KIBS/NBFs, etc. However, in terms of degrees
of competencies in biotechnology three distinct basic roles (‘core user’, ‘marginal user’ or
‘watcher’) can be found – although in various mixes – in all three biotech sub-clusters.
3. RTOs are relatively stronger driven by technology determinants whereas private actors are
more driven by industry and market determinants. NBFs have a mid-position, allowing them
to service both with knowledge intensive services. Both RTOs and KIBS/NBFs may establish
a variety of relationships with their client firms allowing for mutual learning and knowledge
transfer. More pro-active RTOs and the development of a new category of biotech related
KIBS (largely research spin offs) help to improve the exchange of knowledge and establish
processes of mutual learning and innovation.
4. Need for demand-oriented policies motivating companies to use biotechnology and

development of the required technological and non-technological competencies. A cluster
approach can be proposed as a basis for customising policy programmes and mechanisms t o
the specific needs of the cluster’s development.
6 Sweden - biotechnology
Cluster methodology adopted
A cluster can be defined on several grounds: technology clusters, supply chain clusters, regional
clusters and so forth. The definition of the biotechnology cluster adopted here is technological
and incorporates those organisations that are active in the biotechnological domain:
Actors that develop, produce, analyse or use biological systems on a micro-, cellular or
molecular level and the public and private institutions that affect their behaviour.
Through supplementing the technological perspective with the supply chain perspective on
cluster definition makes it possible to subdivide the biotechnological cluster into sub-clusters.
During the course of the study it became clear that the technology-based definition preferred
should be complemented with a “sectorial” division of sub-clusters in order to draw policy
conclusions. As a consequence of adopting such a stance, the policy conclusions are, in a few
cases general to the whole technological cluster, whilst some are specific to the individual sub-
clusters. Focusing on the sub-clusters was also advantageous as it became clear that the roles of
the companies between the different sub-clusters differ since they have different lines of business,
products and clients. Therefore, their driving forces and obstacles to growth as well as the
dynamics of the sub-clusters vary. These differences are also found within a specific sub-cluster
when it comes to sub-clusters including big multinational corporations as well as very small
companies. The analysis and policy conclusions therefore focus on the small and medium size
companies with up to 250 employees.
Actors
The 130 biotechnology SMEs (with employees in 1998 and having activities according to our
chosen definition) that have been identified have thus been divided into sub-clusters. They were
categorised into the following categories:
• Pharmaceuticals and medicine (drug development, diagnostics etc);

• Agro-biotechnology (GMO, biological plant protection etc);

• Environmental biotechnology (bioremediation, waste treatment);
• Biotechnology supplies (processes, equipment and instruments for biotechnological use);
• Functional food (mainly pro-biotics) and
• Bio-production (bio-molecular or micro-organism production).
The SMEs (<250 employees) had about 2000 employees in 1998 and all the sub-clusters had
increased the number of employees between 1996 and 1998. Furthermore, since 1998 about 20
new companies have appeared within the cluster. The employees in all the sub-clusters have a high
educational level and 10-20 per cent of the employees have PhDs.
The companies are very often suppliers of knowledge, services and product embryos to larger
companies like, for instance, international pharmaceutical companies or larger Swedish companies
in the food sector. The “products” that these SMEs sell can be potential drugs or the ability t o
maintain strong networks with academia so that they are able to identify ‘cutting edge’ research
prone to commercialisation. To the food sector, the SMEs can sell micro-organisms, or
knowledge about micro-organisms, that have a beneficial influence on health and that can used in,
for example, dairy products. Some companies are developing products themselves and bringing
them to market. This is particular true for SMEs within the Biotechnology supply,
Environmental, and Agrobiotechnology sub-clusters.
Dynamics within the cluster
The dynamics and development of the cluster is heavily dependent on research findings that
originate in universities. Thus, a bibliometric approach can be used to identify some cluster actors,
collaboration patterns and the performance of Swedish research internationally gauged. An
analysis of Swedish publication patterns in relevant biotechnology related journal categories, as
well as an international comparison of the publication volume was therefore made.
The dominance of the universities was clear from the data, with university researchers
contributing to 95 per cent of the publications identified. In particular, researchers from the
Karolinska Institutet have contributed to 36 per cent of the total number of publications whilst
the contribution of researchers from the universities of Lund, Gothenburg and Uppsala varies from
between 13 to 18 per cent of the total. In comparison, companies have contributed to 7 per cent
of the publications and of these Astra and Pharmacia (presently AstraZeneca and Pharmacia
Corporation respectively) have authored 75 per cent.
The number of companies involved in publishing scientific papers is increasing but the total
number of articles by companies is decreasing and so is the number of articles co-authored with
public research organisations. This is largely due to a decrease in publishing by the two
aforementioned pharmaceutical companies. The collaboration pattern points to the strong
dependence on university research that biotechnology companies have, since 65 per cent of their
publications were co-authored with university groups.
International comparison of the cluster
There is no obvious trend regarding the volume of Swedish publications or the quality of
publications in biotechnology related sciences internationally. Each of the scientific fields
identified display their own particular trends. However, more changes are negative rather than
positive when it comes to quality as measured by citation levels. In relation to population the
Swedish publication volumes are largest in the world in Neuroscience and Immunology, second
after Switzerland in Molecular biology and genetics, Microbiology, Biochemistry and biophysics,
Cell-and developmental biology and third after Switzerland and Denmark in Biotechnology and
applied microbiology.
The Swedish patenting in the US patent system, which was also analysed, is less impressive. Even
when all fields are combined, the share for Swedish inventors of the total patenting volume
amounts to one per cent. The share in Biotechnology was 0.5-1 per cent between 1984-1998.

Patenting volumes are much larger in drugs, medical electronics and medical equipment that are
related fields. The patenting statistics also indicates the strong dominance of Pharmacia and Astra
in this field. Of the 784 patents in biotechnology and biotechnology related fields with a Swedish
actor involved that were identified, 30 per cent were assigned to one of these two companies.
Almost 10 per cent of the patents had all foreign inventors but a Swedish assignee. This can be
taken as a sign of the Swedish ability to ”import” innovations. Swedish companies also seem to be
good at keeping Swedish inventions since approximately the same share of the patents have
Swedish inventors and Swedish assignees (65 per cent). By combining the patent statistics with the
bibliometric data it was found that about 30 per cent of the companies found in the patenting
statistics had published at least one scientific paper, and 25 per cent had co-authored papers with a
public research organisation.
Geography
Geographically the companies are mostly found in the metropolitan areas, mainly in cities with
large universities that undertake a substantial amount of medical research. About as many
companies are found in the Lund/Malmö area as in the Stockholm area. Next in importance are
the Gothenburg and Uppsala areas with about half the number of companies each. The fifth and
final region identified with more than five biotechnology companies is Umeå.
However, it is difficult to find an all-Swedish cluster in biotechnology. Companies, research

institutes, universities and other actors are extensively involved in international networks and
international collaboration.
In the publishing statistics it was found that almost a third of all Swedish publications are co-
authored with scientists from other countries, and in the inventor field in the patenting statistics
almost a third of the patents had co-inventors from more than one country. It was also observed
that it is common for the assignee to be from a country other than that of the inventor.
Large actor stimulus
The substantial presence of Astra and Pharmacia has already been mentioned above in respect t o
the co-authorship of articles as well as patenting of inventions. Their influence goes further than
these two areas. The presence of Astra and Pharmacia has stimulated the growth of Swedish
biotechnology. There influence is not limited to just the pharmaceutical and medical sub-clusters,
but it also extends to the biotechnology supply sub-cluster as well. The two companies have
collaborated with Swedish academic groups thereby providing financing of research and an
awareness of industrial problems. Furthermore, Astra and Pharmacia have been the source of
recruitment of competent personnel to new companies and many of the new companies have
been spun-off by them.
Policy implications
As the driving forces and barriers to innovation and growth differ between each of the sub-clusters,
so will the policy conclusions that can be drawn. For instance, it is often claimed by scientists and
industrialists that the major driving force for innovations in the pharmaceutical companies is the
new knowledge that is produced in genomics and functional genomics research. There is,
therefore, a need for continued commitment to education and research within these and related
fields. However, there is also a need to stimulate clinical medicine and not only molecular
medicine and biomedicine. With respect to functional food, the required research is
multidisciplinary as it combines knowledge from the fields of nutritional, medical and food
technology research.
More generally, there is increased demand for multidisciplinary research to stimulate the
commercialisation of the incredibly fast growing body of knowledge located within the field of life
sciences. In particular, combining of information technology, engineering and electronics on the
one hand and biotechnology, biology, chemistry and medicine on the other should be prioritised.

Also, it is often said, by both academic researchers and entrepreneurs, that investments would be
most effective if the already successful university environments are stimulated. Efforts should
also be made to attract leading foreign scientists and to avoid loosing the best Swedish academics
to other countries by providing better terms for them within Sweden.
The need for a better functioning technology transfer and knowledge exchange between industry
and academia is often pointed out by academic researchers with a commercial idea and by
entrepreneurs in start-up companies as being very important for the future growth of Swedish
biotechnology. It is often said that there are too many initiatives, with little in the way of
resources and with insufficient co-ordination between them. The present initiatives are, however,
focusing on the right issues such as help with patenting, business plans for start-ups, finding early
stage financing, rules and regulations etc.
Among the other initiatives that are desired is a better functioning liaison office at universities
that can help companies find relevant scientists and easily accessible information about the
research that is being performed at the universities. There should, perhaps, be less effort aimed at
turning academics into entrepreneurs although the initiatives with both undergraduate and graduate
courses in entrepreneurship are often praised.
Another suggestion that has been made is that more effort should be placed into putting the right
people with industrial experience together to form a new company around the innovation whilst
the scientist can opt to stay at the university and collaborate with the new company. The
scientist could else be helped to identify and to write up an agreement with an established
company that commercialises the idea. Company incubators in environments close to academic
centres are also said to stimulate growth. In addition, more flexible programs that support
collaborative projects between companies and university groups are requested. The new programs
should have fewer restrictions regarding the number of participants, the length of the project etc.
Industry – academia collaboration should also not hamper the prospects of the project obtaining
public research if a university group collaborates and receives financing from a company.
Besides efforts to commercialise research there should be more initiatives and channels for
knowledge and competence exchange between academia and industry. Increased mobility of people
between industry and academia would increase the knowledge exchange and the academic
awareness of industrial problems and project management in industry. One obstacle that stands in
the way of this is rigid nature of the academic qualification system, especially at medical and
natural science faculties. There is especially a lack of knowledge exchange between life science
scientists and companies in sectors that today use little biotechnology such as those in the pulp
and paper industry and the food industry.
There is much more venture capital available today in Sweden than there used to be. There is,
however, a lack of capital for very early phases in a company’s development. An increase in
public financing of very early company development is often mentioned as a tool that would
stimulate the commercialisation of biotechnological innovations in Sweden.
7 Norway – agro-food
The food cluster
The Norwegian food system is the largest economic cluster in the country today, with about
170.000 employees (about 9 % of total Norwegian employment). The food system centres around
the food industry, with an annual turnover close to 125 million Euros and more than 50.000
employees. The Norwegian food industry consists of companies that turn raw materials into
processed goods, like fish products, chocolate, meat products, bottled milk, pizzas, beverages etc.
A large proportion of the raw materials to these industries are supplied by domestic farmers or
fishermen. This production system is again part of a larger system, where machinery suppliers,
retail chains, consumers, research environments and public governance play important roles.

Technologically, the food cluster seems to be of less importance to the rest of the economy than
other Norwegian clusters are, as there exist fewer links to units outside the system than in other
clusters. On the other hand there is a much more close and mutual relationship between units
inside the food cluster.
Within the food cluster three independent sub clusters were identified; agro based food production,
producing dairy products, mill products, fruits, meat and grain-based fodder; marine based food
companies, like producers of fish products and fish-based fodder; and, companies producing
beverages (see also table A.13). These sub-clusters are also mirrored in the institutional setting, all
three e.g. have specific knowledge suppliers). Other important characteristics affecting the current
dynamics of the Norwegian food cluster include:
• Relative dominance of Norwegian food cluster within the national economy as a whole
• Role played by private and public agro-food cooperatives/hegemonies;
• Tradition of public intervention in the food cluster;
• Increased internationalisation of what used to be a sheltered cluster;
• Increased importance of food regulation and international trade regulation;
• Increased power of fewer, bur larger retail chains.
Table A.13: Three most dominant industries, corporate structure, markets and processes of
change in the Norwegian food cluster.
Corporate structure Markets Processes of change
Fish processing Dual structure; some large International Increasing outlooks to profits for
international companies fish processing. Increased interest
dominating; Nutreco, Nestlé and by large companies. Rapid stock
Aker RGI; and a broad range of value increase (Pan Fish). Increased
family-owned companies. offshore processing of fish. Fewer
and larger entities, larger fishing
boats, deregulation.
Meat and meat Three large companies: Market Domestic Co-operative faces increased
products domination by co-operative competition from domestic suppliers.
Norsk Kjøtt, increasingly Chains negative to co-operative.
competition from two private Branding important counter-force for
groups of meat producers co-operatives, building long-term
contracts to retail chains important
for independent producers.
.
Other food Dominated by corporations; Freia Domestic, Branding important as means to
products owned by General Kraft Foods, increasingly maintain consumer interest and
Nidar and Bakers owned by Nordic and thereby to maintain relations to retail
Orkla, Minde owned by Rieber & international stores. Nordic countries increasingly
Søn. becoming one market
Three categories of firms that make up the central part of the cluster i.e. the food industry are the
following:
i) Corporations, include those companies belonging to national or international groups

controlling multiple daughter companies. This group include almost all the largest
companies and cover the five largest Norwegian food companies. These companies are
vertically integrated in processing, marketing and sales activities, and recognised by a
traditional strong market orientation and they were all early to develop brand-names.
There are few international companies located in Norway.
ii) Companies belonging to a co-operative structure, covering producer-owned, regionally

located production-companies, joining in a common national distribution, and marketing
and sales organisation. These are strongly vertically integrated companies, with strong
vertical links to producers of raw material (fruit, vegetables, meat, milk, grain, eggs and
poultry) in one case to suppliers of machinery. Companies belonging to this structure are

large. The co-operatives have increasingly emphasised brand-naming the last decades. The
co-operative’s relations to retail stores vary, but are mostly market based.
iii) Independent producers, mostly small, autonomous family-owned companies. These are
companies with weak vertical integration both upstream and downstream. Owners are
often participating in the day-to-day production.
Cluster mapping methodology
Various methods were used to map the cluster as well as the innovation style adopted within the
Norwegian cluster. The first method is I/O-analysis (see Hauknes, 1998). On the basis of 1993
I/O-tables Hauknes mapped how different industries are linked to one another through
intermediate transactions (see figure A.612 below). He distinguished six Norwegian clusters whereof
one is the agro-food cluster. The advantage of Hauknes’ cluster mapping methodology is how it
eloquently captures the broad picture of the food cluster. It provides a general description of the
whole range of food related activities, from production of fishing boats, via fishing, agriculture and
industrialised manufacturing of food to hotels and restaurants, and shows the link between them.
The disadvantage of the result also lies in the very nature of the methodology. As the method
provides an overview of the large volumes of intra-industrial trade of intermediate goods on an
industrial level, the mapping ignores lines of communication and co-operation both within the
individual industries in the cluster, and between central cluster units and knowledge providers,
innovation partners, suppliers of machinery etc. Therefore two supplementary methods t o
describe the cluster were adopted:
• Qualitative information collection using existing literature, the internet and interviews;
• Use of statistical data (Norwegian Innovation Survey 1993 and 1998) on innovation,
providing a more detailed overview of innovation dynamics dynamic interactivity within
the cluster.
Geography
The geography of the food industry is of particular interest, in three ways. Firstly, food
employment in general plays a dominant role in almost all Norwegian counties. Secondly, the
individual food industries are marked by a regional division of labour. Thirdly, there is a pattern in
terms of how different activities, like manufacturing, marketing and R&D activities in large
companies are localised. For large companies like Maarud, Mills, Frionor, Nestlé/Findus, Fjordland,
TINE and Norsk Kjøtt, we find that production is regionalised, while market divisions, research
and head office is located in the Oslo region.
Innovation and innovation style
The food industry is an example of an industry where direct R&D expenditures have never been
dominant innovation expenditures. Still, compared to other industries, the Norwegian food
industry is fairly innovative. In a Norwegian all-industry survey from 1997, 45 % of the food
companies said they had performed an innovation the last three years. Average share of
innovative companies for Norway as a whole was 46,2 percent. The food industry on average is
neither more innovative nor particularly less innovative compared to other Norwegian industries.
The fact that R&D is not dominantly important to food innovation at the same time as food
companies do innovate, points towards the fact that food companies have other important
sources of innovation including size (the fact that food production is often a scale-intensive
activity, and processes that development of large units can be seen as an innovation efforts in
themselves); branding (to maintain or develop market share for already established products) and
related innovations (such as in transports and logistics). Below we focus on three important
“knowledge suppliers” or sources of innovation that affect innovation in the food cluster and the
1. Thickness of the arrow reflects the magnitude of the interrelatedness between the different activities. The size
of the circles reflects number of employees in the industry. The shaded circles represent the food processing industry
(NACE 15).

description of which helps in understanding the innovation style of the food cluster. These are
suppliers of machinery, internal and external suppliers of R&D (including RTOs and KIBS) and
consumer relations (including consulting companies supplying consumer information, like
suppliers of trend analysis and market surveillance).
Figure A.6: The Norwegian food cluster system (based on Hauknes 1998, ibid.)
Restaurants,
Mea t and catering
meat
pro ducts
Fertili sers
Hotels and
a ccomo-dation
Fruit and
Agri cult ure v egetables
D airy
i culture product s
u sbandry Mill product s,
rvices starches Other f ood
p roducts
Fodder
Beverage s
Fishing Oils and f ats
Cl uster employment
E xtract ion of
crude oil and
Fish gas
p rodu cts
Fish
farming
A. Suppliers of machinery and equipment
The food industry innovates dominantly through implementing new and advanced machinery.
However, the notion of ‘technology user’ seems a little too passive to describe the food industry,
echoing that the industry is passively implementing technology developed elsewhere, and that
there is a seemingly dependency relationship to these suppliers. In reality the relationship is more
interactive, and the development of machinery is often performed in collaboration between food
companies and machinery suppliers. New machinery and equipment is the single largest
innovation cost for Norwegian food companies, if we judge by 1993-statistics. Investment costs
represent about 50 percent of total innovation costs, a higher share than what we find in heavy
machinery-based industries like pulp and paper and metal production. Relations between the
industry and suppliers of machinery are predominantly market-based. In some cases, however,
food companies and independent machinery suppliers collaborate in developing technological
solutions. During the 1993-1996 period, almost 50 percent of all food companies reported they
had performed at least one such collaboration with machinery suppliers. If we ask Norwegian food
processing companies how often they undertake technological development projects with
different partners, one of the most used partners are suppliers of machinery and equipment.
Figure 3.5 already showed the share of innovative food companies reporting different types of
domestic technological collaborators in the period of 1995 to 1997. Suppliers of machinery and
equipment are found to be the second most important domestic partners for both groups of
companies, and such collaboration is much more frequent than for other industries. For foreign
partners (figure A.8), suppliers of equipment and machinery are the most frequent used partners.

The figures also show that enterprises within the group are also very important partners in
technological development collaborations.
Figure A.7: Foreign technological co-operation: Share of innovative food companies reporting
technological co-operation with foreign partners the last three years (weighted
figures), compared to national average (circles).
Public or p rivate
resear ch institutes
Universities, HEI
Suppliers o
f
equipmentetc .
Consultan cy
enterp rises
Norway
Clients o r customers
Oslo
Compet
i tors
Oth erente rp rises

within the grou p
0,00 % 20,00% 40,00 % 60,00%
Source: Community Innovation Survey 1997, STEP Group / Statistics Norway
Figure 3.5 and figure A.8 further demonstrate that the food industry draws upon knowledge from a
wide array of internal and external knowledge suppliers. Between 10 and 20 percent of the
companies reported they had had collaboration with competitors and consultancy firms the last
three years. More important, however, is the role of enterprises within the corporation and
Norwegian research institutions, like universities and research institutes. If we look only at co-
operation with Norwegian partners, about 40 percent of the firms had collaborated
technologically with at least one of these three kinds of partners. Customers are also important:
about 25% of the firms had collaborated with customers (e.g. retail chains). However, the share is
much lower than for other Norwegian industries. Seemingly, there exists strong receiver
capabilities for knowledge from scientific suppliers, for new machinery and for ideas stemming
from within the group.
B R&D
R&D investments by food companies are - compared to other industries - rather low. While the
food industry represents about 20 percent of manufacturing employment, the share of Norwegian
manufacturing industries’ total R&D is only about 3 percent. , it looks like if the industry spends
few resources on R&D. This is, however, a statement that needs some modification. First of all,
the food industry has other, important ways to innovate, like acquisition of machinery and
building of consumer relations. Secondly, the size of the industry makes the R&D activities
undertaken or financed in sum very large. An illustrating example is the fact that the food
industry spent in 1997 as much as 282 million NOKs on R&D, which is three times higher than
total Norwegian R&D expenditures in the ICT industry. Thirdly, there is also a broad array of
governmental financed research on food going on. Most of this research is basic research aimed at
developing or monitoring raw materials, like Jordforsk, Planteforsk, Havforskningsinstituttet and
Landbrukets Forsøksringer. The total number of research man-years performed in these institutes
is at least 1.100, most probably around 1.500. Of these, about five percent is paid for by private
industry.

Different levels of formalisation of innovation processes
There are basically three types of food companies; small family-owned companies, corporate
companies and companies belonging to a co-operative. The difference between formal and
informal innovations seems basically to vary with company size. Large companies, both the
corporate controlled and the companies belonging to a co-operative structure tend to formalise
product development through use of market divisions, research divisions, external and internal
market analysts and external research suppliers. This is an indication not only of a formalisation
of the innovation process; it is also a sign of a highly professionalised innovation process. At the
other end of the scale, we find small companies with rather informal innovation processes.
C Consumer relations
Another dominant way of innovation in the food industry is building relationships with
consumers. This is a core driver being innovation in the food industry today. Building of such
relationship is also termed branding. Most important branding activity is marketing and market
analysis aimed at understanding trends, needs and taste. We must understand the dynamic of the
industry not only as a user of machinery and imported technology, but also as a responsive and
market conscious manufacturer, in which the food industry is a thorough listener to input signals
from market patterns, tastes, changes in consumption, new sociological and economical settings
etc. Other examples of bonding with consumers are for example maintaining product quality,
distributing free product samples, performing trend analyses, performing polls and pre-
manufacturing product tests etc.
Example of an innovation by TINE: Ox
TINE's latest and biggest product innovation was introducing Ox, a milk-based drink in a fancy,
magazine-inspired wrapping (including news text, brief information, colourful pictures, cool
design) and with unusual tastes (like milk with liquorice taste), aimed at adolescents. TINE’s
fieldwork was impressive. Both TINE’s market division and research division were involved in
developing the different tastes and visual shaping of the product. People from the public relation
company Bates Group was hired in to develop the basic design of the container. A separate web
site was established for the product (http://www.ox.no). An external editor company regularly
changed the container magazine. The trend consulting company Magic Hat supplied TINE with
trend analysis, and external consultancies performed youth panel tests and analyses.
Policy
An innovation policy aimed at the food cluster should start from the mutual dependency of cluster
actors. It has been argued that the food industry is too little innovative and resistant to change. If
a defined policy target is to develop better or more products, such a policy would have to gather
representatives from all important sources of innovation in the food cluster. In addition to food
companies, also machinery suppliers, market pollsters, retail chains and R&D environments are
integral parts of the food industry innovation system. The dominant agents in the food cluster
innovation system - and important types of agents – are presented in the figure below.

Figure A.8: Important sources of innovation in the Norwegian food cluster
Suppliers of machinery
Suppliers
Design
Inhouse R&D,
market divisions, Colleges and
reserarch universities
institutes Innovating
R&D food
company
Consulting
services
Competitors
Customers/
consumers
Consumer trends, marketing,

branding, pre-manufacturing
product testing, retail chains
Main conclusions
1. The Norwegian food cluster consists of three sub-clusters (agro based food; marine based
food and beverages) with specific institutional set up and a specific base of knowledge
suppliers.
2. Using only level of R&D the food cluster should be categorised as ‘low tech’. However, the
Norwegian food cluster shows rather advanced ways of innovation. Apart from using
external R&D inputs, two other sources of innovation stand out. Firms in the food cluster
are firstly advanced users of machinery and equipment in the development of which they
not seldom play a role. Secondly building consumer relations (branding in its widest sense) is
an increasingly important way of innovation. Non-technological innovations like branding
and consumer-relations (for example in terms of product quality and hygiene) are therefore
equally important features to maintain or increase profitability as development of new
products or processes.
3. Whereas government funded research in food in RTOs and other publicly financed
institutions aims at generating basic (technological) knowledge and monitoring of raw
materials increasingly non-technological knowledge related to branding and consumer
relations in its widest sense is provided by specialised, knowledge-intensive service firms.

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RISE Project - Research Institutes in The Service Economy - Wp1 Clusters and Rtos

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RISE - RTOs in the service economy

Workpackage synthesis report, wp1

Clusters, innovation and RTOs

A final report of RISE: RTOs in the service

RISE coordinator: Dr Mike Hales

This report constitutes a deliverable specified in the

Date: November 2000

A synthesis of the findings from the RISE cluster studies

Jason Whalley and Pim den Hertog

29th November 2000

Jason Whalley and Pim den Hertog Page iv

Clusters, Innovation and RTOs

A synthesis of the findings from the RISE cluster studies

Jason Whalley1 and Pim den Hertog2

1 Department of Management Science, University of Strathclyde,

Based on contributions by:

Glasgow / Utrecht, 29th November 2000

Jason Whalley and Pim den Hertog Page v

RISE - RTOs in the service economy

Workpackage report, Clusters, innovation and RTOs

Jason Whalley and Pim den Hertog Page vi

Production innovation and the drivers of innovation ................................59

Jason Whalley and Pim den Hertog Page vii

List of tables and figures:

Jason Whalley and Pim den Hertog Page viii

Table A.4: World-wide Telecommunication market (million of EURO at constant

Jason Whalley and Pim den Hertog Page ix

1. Innovation rarely takes place in isolation, but is instead systemic in nature

1 Introduction: positioning the cluster studies within the RISE project

1.1 What is the RISE project?

1. Incorporated within advanced industrial economies is a complex infrastructure of research

• Clusters - Mapping knowledge infrastructures, changes in the institutional landscape and

1.2 Objectives and the structure of the report

Jason Whalley and Pim den Hertog Page 8

Jason Whalley and Pim den Hertog Page 9

2 Clusters in the context of RISE

In this chapter the following questions will be discussed:

1. What exactly is a cluster?

2.2 What exactly is a cluster?

Table 2.1: Some cluster and cluster-related concepts

Jason Whalley and Pim den Hertog Page 10

Networks of production of strongly interdependent firms (including specialised

Jason Whalley and Pim den Hertog Page 11

Table 2.2: Cluster analysis at different levels of analysis

• Need for innovation and upgrading

Firm level Specialised suppliers around • Strategic business development

Source: OECD, 1999: 14

2.3 What cluster approach was adopted in RISE?

The aim of this section is twofold, namely:

Jason Whalley and Pim den Hertog Page 12

Jason Whalley and Pim den Hertog Page 13

2. RISE is about innovation (instead of the wider notion of competitiveness), i.e.

Jason Whalley and Pim den Hertog Page 14

IN WHAT WAY DO CLUSTERS DIFFER FROM (INNOVATION) NETWORKS?

4. RISE does not focus on a particular geographical scale.

Jason Whalley and Pim den Hertog Page 15

As the choice for focussing at interdependency and inter-linkages means a systemic

Table 2.4: Traditional sectoral approach vs. cluster-based approach

Jason Whalley and Pim den Hertog Page 16

In conclusion the focus on innovation clusters adopted in RISE implies:

Jason Whalley and Pim den Hertog Page 17

• How can a cluster be identified in a sensible way?

Jason Whalley and Pim den Hertog Page 18