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Instituto Tecnolgico y de Estudios Superiores de Monterrey

Campus Estado de Mxico

Case Study: Regional Innovation Systems
Alejandro Rivero Bravo A01164499



Innovation is increasingly seen as the main source of growth for stronger, cleaner and fairer
economies according with OECD Innovation Strategy and Europes Innovation Union. The
access to external knowledge and collaboration, between public and private entities, has
led to more open forms of innovation.
There is a rising demand for policies to support non-technological innovations. Spillover
from inter-and intra-sectorial linkages support the diffusion of innovation across the
economy. While consumer demand as a driver of prominent innovation. And the availability
of skilled human capital remains a pre-requisite for successful development of innovative
Markets for skilled human resources are increasingly global, require greater fluidity
between public and private sectors, and benefit from lifelong learning educational
The Basque Country has experienced crisis in the 70s and 90s. Suffering a massive
restructuring of the economy in sectors as steel, shipbuilding and machine tools that led to
high unemployment and outmigration.
So the region became a model to restructure industry and make the region competitive
through tailored industrial policies, including the system of technology centres.
That transformation was mainly based on incremental and cost-cutting forms of innovation
among local firms. In order to encourage those innovations, the Basque Country will need
to foster improved conditions for knowledge (including science) as a driver of innovation.
Having an impact on social goals and needs (health, environment, public services, etc.).
Basque Country is situated in the north of Spain. It borders southwest France and several
other Spanish regions.

About some main characteristics of Basque innovation system, we can say the following.

Growing wealth levels (GDP per capita), albeit more in PPP than in EUR. Strong industrial
capacity (notably medium-low and medium-high tech industry), strongly networked society
with regional identity, resilient industrial base that survived transformation, including cooperatives, infrastructure of technology centres and parks, highly positive trend in R&D
intensity, educated labour force, especially in engineering, network of technical colleges,
some business schools, active regional and provincial (sub-regional) governments, due in
part to uniquely strong fiscal decentralization, sustained political commitment to industrialbased competitiveness, effective government-private stakeholder interaction in policy
development process and committed business people entrepreneurs (Innovation, 2011).
Total factor productivity as a driver of growth declined 2000-2004, albeit a more positive
trend observed since 2004 and pre-crisis. Few firms conduct R&D; innovation more for cost
cutting rather than new products and services. Limited scientific capacity (basic research,
scientific publications, public research system, high-tech firms). Inward looking innovation
system. Universities poorly connected. Adapted monitoring and evaluation (but many
assessments). Some fragmentation of innovation support programs with focus on supply to
key innovation system actors. Risk of windfall profits to firms (high share of public financing
of BERD- direct support and via tax incentives). Technology transfer and diffusion too many
SMEs. Financing and management of scientific/research infrastructure. Mechanisms for
inter-departmental planning and co-ordination of STI policy (Innovation, 2011).
Strengthening public & quasi-public research system. Capitalize on new CIC and BERC
innovation actors (talent attraction, new knowledge generation). Innovation beyond
technological focus and for social needs (non-technological forms of innovation, innovation
in public services, etc.). International business and knowledge networks (including Basque
Diaspora). Building a culture of creativity, risk and innovation. Better positioned to exit crisis
than other Spanish regions (keeping jobs instead of shedding). Public procurement and
other tools to spur demand for innovation. Greater involvement of actors less well
represented in innovation policies (Innovation, 2011).
Aging of the population (with limited inward immigration). Path dependency of public policy
in STI. Increasing production sophistication and competition of emerging markets. Growing
competition to attract Spanish and EU funding sources for research and innovation.
Spain has been receiving large sums of immigrants, experiencing massive population
increases 81% annually from 1995-2005). In the case of the Basque Country, the foreign

born population is only 120000 but nevertheless increased from .7% to 5.4% of the
population over the period 1998 to 2008 (Innovation, 2011).
Context of the current crisis and its impact on R&D activities
Financial and economic crises have contrasting effects on innovation as regards business
strategies and government policies.

Business R&D declines because it is mainly financed out of cash flow which contracts
in downturns. Banks and institutional or individual investors become more risk
averse, reducing potential flows of external financing.

Small and medium-size innovative enterprises are particularly affected since their
development is very often based on intangible assets and conditioned by the
availability of external capital. Exit rates increase and the number of new entrants

Facing a contracting effective demand, firms generally become more risk averse and
favor low-risk and short-term incremental innovation over higher-risk and longer
term ventures involving higher R&D costs and recruitment of new high-skilled

Negative impact on the job market for highly skilled personnel and risks affecting
the stock and diffusion of knowledge respectively embodied in, and transmitted
through, these human resources.

Brief economic history

In late 1950s the Basque Country became the site for leading iron and steel firms, shipyards,
shipping firms and iron processing as well as electrical, chemical and paper industries.
Making the financial sector becoming the most powerful in Spain. Also they had a
productive specialization due to the intense accumulation of capital during the 1960s and
first years of the 1970s.
But they suffered an economic crisis in the late 1970s and the opening of the economy had
devastating effects, resulting in firm closures and the decline of entire sectors. When the
crisis finally began to recede in1993, when the economy diversified and opened to outside
markets. The restructured industrial sector contributed 29.3% of gross value added (GDP
minus taxes on products) versus services 60.8%, construction 8.9%, and the primary sector
The Basque Country is divided into three historical terirtories or provinces (Alava, Biscay
and Gipuzokoa), 20 counties (comarcas) and 250 municipalities. While the regions largest
city is Bilbao, the political capital is Vitoria-Gasteiz. Here we have the map pf Basque
Country with key sectors (Innovation, 2011).

Innovation and the Basque Innovation

The Basque Country region in Spain is well known for its successful industrial transformation
and high levels of wealth. In the last decade, the Basque Country has maintained strong
GDP per capita levels and growth rates among OECD regions. The region has also performed
better than others in Spain facing the recent financial and economic crisis.
Hence, the question would be if the region is prepared for an innovation-driven growth
model for the future? Now with an ageing population, limited inward migration, and
increasing global competition, the role of innovation will be increasingly important.
For this decade, there is need for an economic transformation which enlarges creativity,
social cohesion and the environment.
General Information
Regional level/Main points
Even though the Basque Country is one of the smallest regions in Spain in terms of surface
area, it makes a larger contribution to the Spanish economy. It covers an area of over 7000
square kilometers (14th in Spain), has a population over 2.1 million (4.7% of Spain), and a
density of around 300 inhabitants per square kilometer (one of the most densely
populated). The regions GDP was around EUR 68 billion in 2008, albeit with a drop of 4% in
current prices to EUR 65.5 billion in 2009 with the crisis.
Despite the drop in GDP, the Basque Country has shown growing labour productivity this
decade (GDP per worker) pre-crisis. The province of Alava registers the highest GDP per
worker in the region. While the province includes rural counties and doesnt have the same
diversification of economic activity as the other regions, the low population levels and some
successful sector contribute to the relatively higher labour productivity values. Alava is

followed by Biscays, which contains the regions largest city of Bilbao, and then Gipuzkoa,
which is slightly below the regional average.
Here we have the GDP per capita: level and annual average growth rate.

The composition of the Basque economy explains in part the regions high labour
productivity levels. In comparison with EU-14, it reveals a higher productivity due to
specialization in sectors of higher productivity (energy, water, health and social work, nonmetal industry, hotels and restaurants, transportation and communications).
In the special case of Basque economy, is more specialized in manufacturing of higher
technology sector relative to the benchmark. But the sector-specific productivity by
industrial branch is actually lower relative to EU-14 countries (Orkestra, 2009).
In terms of GDP per worker relative to the OECD average has diminished over time. But in
general, GDP per worker figures in PPP illustrate the advantage for Spain and the Basque
region with respect to lower living and labour costs as compared to Northern/Western
European locations (Orkestra, 2009)
In long term these advantages seems not to be sustainable. On the other hand, it should be
on mind that price levels in the Basque Country are higher than in Spain generally, in 2008
by almost 6%. Thus the relative advantage in purchasing power parity is lower.

There were three potential drivers of growth in gross value added (GVA), that are labour,
capital and total factor productivity (TFP). In which was the main driver of growth between
1986 and 1995. In early 1990s, labour productivity was a positive factor but the employment
rate was a negative factor (due to increases in the employment rate especially in the service
sectors) and passive forms of productivity gains through worker losses (Orkestra, 2012).
More than a half of the regions employment is in small and micro-enterprises. The small
size of Basque firms has been identified as a hindrance to competition in global markets,
therefore a prior study of the region recommended company groups to achieve greater
scale (Orkestra, 2012).
Firm size also has implications for the scale needed to conduct R&D. While only 1.2% of
firms in the Basque Country have more than 50 employees, such firms account for 45.3% of
the regions employment.
N Sociedades Annimas Laborales

C.A. de Euskadi Araba / Alava Bizkaia Gipuzkoa


Eustat/ (2012)

N Sociedades Limitadas Laborales



C.A. de Euskadi Araba / Alava Bizkaia Gipuzkoa


Eustat/ (2012)


In the next table we could see the industry sector in which labor concentration is in the
different regions that make Basque Country.

Gross value added by Economic Sector of Euskadi

Region 1



Region 2

Region 3




Region 4



Eustat/ (2012)


What we conclude of the previous table is the capacity and core activities of the main
regions of the Basque Country. Pointing out the Industrial and Services sectors. Which are
the ones that create the main supply of employments.
Entrepreneurship is another factor considered as integral to the innovation economy. The
region has a tradition of serious entrepreneurs, but shows only average rates with limited
innovation and internationalization profiles (Orkestra, 2008).
The total entrepreneurship activity (TEA) indicator follows a U-shaped function with respect
to wealth levels. The Rate of Basque Country (6.9% in 2008 has been at or below the level
of Spain, rates that are lower than economies such as the United States but higher than
other Western European countries (Magro, 2012).
In terms of barriers to entrepreneurship, social and cultural norms are the most frequently
cited. While in Spain finance is one of the most important challenges, in the Basque Country
it is of only average importance (Competitiveness, 2014). With the crisis, local development
agencies have seen a rise in immigrants and those with a higher level of education seeking
to start businesses.
If we compare the region with the other regions of Spain. We observed that Basque Country
is more specialized in medium-high technology manufacturing and knowledge-intensive
financial services, and has been increasingly so. While the share of high technology
manufacturing is growing, the Basque Country is not specialized relative to Spain overall.
It has been a rise in the level of TEA through a rise in the main characteristics of the new
businesses. In which they have focus on innovative or creative for the society, but also with
a very small competitors in the market whom offers the same product or service
(Innovation, 2011).
And also this have had an impact in the international markets. Despite their limited
organization of this new businesses.

International linkages
Trade occurs mainly with EU countries, as the region has limited presence in Asia, North
America and Eastern Europe. The Basque Country exports 70% of the regional GDP. Exports
predominantly in medium-low to medium-high sectors. Exports in high technology sectors
have fluctuated over the last 15 years but remain low (below 5%), which is considerably
lower than advanced OECD and EU countries. The share in low-technology sectors has
declined somewhat but remains around 8% of exports.
Top exporting sectors include motor vehicles, machinery and mechanical equipment and
metallurgy/iron. The top ten countries for imports and exports account for approximately
two-thirds of volume (Innovation, 2011).
Sectorial dynamics by technology level

A) Education system/Evolution
The Basque Country has a highly educated workforce in national and international terms. It
is the top of Spanish regions, with 48% of its workforce having tertiary educational
attainment. This is a much higher share than Navarre (41%), Madrid (41%) or Catalonia
(31%). This is also well above the OECD regional average of 24%. In spite of the region has
the lowest share of the labour force with only a primary education, with only 30% vs 35%
in Madrid, 38% in Navarre or 42% in Catalonia.

For example in case of PhDs the region has noted a shortage between this and PhD students.
In terms of those with some secondary education, there is a high share of personas who do
not go beyond lower secondary and a low share of the population with higher secondary
education. Of the total with a secondary education, 37% have had further professional
training in comparison with only 25% for Spain overall (Vasco S. E., 2014).
Among current students in higher education, many are enrolled in fields of direct relevance
to local firms. The students enrolled in fields of direct relevance to local firms. The students
enrolled in tertiary education as a share of the population (3.7%) is near the top of Spanish
regions and a little below the OECD regional average.
The learning outcomes for 15-year olds, as measured through the OECD Program for
International Student Assessment (PISA) scores, are one indication. Taking the last survey
made, PISA 2012, show a very contrasting situation. In which the education is analyzed in
two groups. Native students and immigrants students in which different groups obtain very
disperse results. Having one of the higher differences of the OECD. That in a long term could
be a constraint for the right develop of the human capital of the region (OCDE, 2012).
Comparing the results of the PISA 212 survey with the rest of the OECD, it shows the next.
The medium yield en Math area shows that Basque Country students obtain 516 points
thats relative higher with rest of the OECD students (500 points). Also this yield take in
account the performance of immigrant students of the region.
In general students of the Basque Country had obtained a better results than in previous
PISA surveys. This could be a fact that could encourage or maintain developed and growth
in economy of the region. Because the results of this survey shows they have had a well
education system.
Despite this cultural factors in which the educative system have to teach to native students
that know euskara and spanish and immigrants students whose only know spanish. The
basic education system is based in 3 models supported on the language of the classes.
Giving to students the opportunity of learning spanish, euskara and english (Vasco G. ,
B) R&D Infrastructure: Research Centres
The region has a high share of R&D personnel and a positive growth trend, with the majority
in engineering fields. The ratio in the Basque Country is 15.0 R&D personnel per 1000 active
population as compared to an EU average of 10.4 and Spain 10.5. The Basque Country is
also strong with respect to the rate of researchers per 1000 active population, a subset of
R&D personnel.
In total, there are over 14,400 FTE R&D personnel, and over 9200 FTE researchers. In which
of all R&D personnel, 64% were researchers, although that share was much higher in
universities at 87.5% than tax-exempt firm R&D units at 65.6% (those registered in the

regions STI network) or 52.2% among firms (for-profit entities). The low share of nonresearch R&D personnel in universities is a common challenge for efficiency of research
spending given the lack of funding streams to finance technicians and other non-research
Basque Country R&D personnel are heavily concentrated in engineering at 71% of all R&D
staff (64.3% of researchers: 82.3% of technicians and auxiliaries).
The share of PhDs among R&D staff, one indicator of R&D personnel quality, is highest
among academic researchers, followed by public administration and then firms. Firms
account for more than 46% of all R&D staff in firms. There is also a low number of PhDqualified research staff in firms. The cost per R&D personnel (in FTE) is approximately onethird lower in the Basque Country than in the EU-14.
And the R&D spending per researcher for the region overall is almost twice that of the
spending per researcher in universities, that account for 28% of FTE researcher but only
15% of R&D performance.
One indication of the relevance of PhDs for firms is the take-up of a Spanish program for
hiring such gradates. The region is in second position, just after Catalonia with 22.9% and
before Madrid with 10.1% (Cooperative, 2014).
C) Output: Number of patents
The Basque Country published the 4.6% of Scientifics works produced in all Spain. Fact that
make it the 7th community in that classification. (El Pais, 2010)
In the Basque Country is patented significantly less than it should in relation to their
percentage of investment in R&D over GDP. Only 4% of Basque companies patenting has
raised result of an R&D.
Approximately 40% of R&D on own products in the Basque Country provides results that
can be patented. Considering only those companies that develop R&D on an own product,
the percentage who have arisen to patent increased to 20%.
The cost of investment in R&D per patent filed by a Basque company amounted to 5.85
million euros. This exceeds average of 4.17 billion euros of Spain and looks set overtaken
by 5.99 million euros from the Balearic companies.
Linking the population, GDP and investment in R&D in the Basque Country, the patentability
of Basque companies is far from what would correspond countries compared to the size of
Belgium or Finland (Group, 2013).

D) Interaction RIS- Economic tissue/Sectors

The region has had a long-standing policy to promote clusters and cluster associations. The
automotive cluster, the largest, has maintained employment while increasing productivity.
Clusters illustrating the highest increases in both turnover and employment include metal
and energy, as well as the smaller clusters of electronics driven in part by the (Mondragon
Corporation), aerospace and environment.
In contrast those clusters that present the low levels of growth include paper (productivity
gains with restructuring), chemical (low productivity gains), maritime/shipbuilding
(productivity gains due to specialization in higher value-added niches), machine tools
(stable) and hand tools (negative trends in employment and turnover) (Farias et al., 2009).
In the case of co-operatives, there is the case of an important group that is Mondragon
Corporation located in the Gipuzkoa province. Which is the seventh largest business group
in Spain. For example in 2008 Mondragon alone accounted for 3.6% of the Basque Countrys
GDP (6.6% of industrial GDP). The group also plays a significant role in the innovation system
in terms of investments in the region and linkages around the world. In 2009, Mondragon
invested over EUR 394 million in R&D and innovation and participated in 70 projects in Spain
and internationally. And 20% of sales from industry-related co-operatives is generated by
new products and services developed over the prior five years. Mondragons technology
centres and R&D units (spin-off research entities with private non-profit status) had a
combined budget of almost EUR 16,524 million with 73,985 employees. They count with 14
technological centres and R&D units, accounting a total of 1,742 persons working in
research and developed in those centres (Mondragon, 2014).
The Basque Country faces challenges with respect to knowledge infrastructures as it has
built a complex but powerful knowledge system. In specific the Basque Innovation System
has been conceived very different comparing to other regions and countries. While in others
regions have followed the classic model in which science and technology policy is oriented
through universities. In the Basque Country the orientation is directed to Technology
Adding also a variety of knowledge actors in the region is one of distinctive characteristics
of the region. Highlighting the role of infrastructures conducting applied research and the
low weight of public research institutions.
One important characteristic is that Basque Region is a very industrialized region and
Industrial Policy has played an important role in economic development. Due to the
industrial specialization, the Basque Government adapted its Science and Technology Policy
to the industrial needs, promoting and funding a scientific and knowledge infrastructure
linked to those needs (Magro, 2012).

Main knowledge infrastructures in Basque Innovation System:

Technology Centres: They are the cornerstone of the Basque Innovation System. Which
have been formed in recent years by two corporations: Tecnalia and IK4.

Universities: In the Basque Country there are three universities: one large and public one,
spread in all the regional territory (UPV). And two privates, the first one linked to
Mondragon Co-operative and its industry (University of Mondragon). The second one is
located in two of the three regional provinces and socially and business oriented (University
of Deusto).
Public Institutions and Excellence Centres: Public institutions have had a very limited
weight. Basque Excellence Centres have been constituted based on the existing critical mass
in the Public University for improving the scientific and research foundations of the
innovation system.
Centres of Competence: In the last decade Cooperative Research Centres were fostered to
support strategic sectors that played an important role in economic development or those
sectors or technologies that the government seeks to promote (Magro, 2012).

E) Evolution and new projects/ Public Policy suggestion/proposal

The Basque Country is a leading region (top or among the top) in Spain with respect to
several innovation-related indicators. They include: the labour force with tertiary
education: the share of employment in high and medium-high technology industries and
KIS, and GDP per worker.
Business R&D intensity is also reported at the top for Spain. Given the lack of public research
facilities in the region, and the more limited higher education research capacity, the figures
for government and higher education R&D are lower than Spanish and OECD medians.
Within the OECD, the Basque Country is generally at or below the OECD median on several
variables, although the skill level of the labour force stands out as high in international
Below we can see per economic sector the number of businesses related with R&D
activities with their amount of internal expenditure in euros.

Companies that perform R&D in the Basque Country by branch of activity

Economic Sectors
N. Businesses Average employment E.D
Internal expenditure
% of own funds
85 13.439,5 1.041.198
Agrolivestock and fishing, mining and energy
158 265,3
19.629 92,0
Chemistries and oil refining
49 250,6
19.075 87,5
Rubber and plastic
108 270,8
21.25 78,8
Non metal industry
109 69,8
6.965 87,3
239 273,9
24.212 76,0
Metal articles
87 660,9
49.086 85,1
Tool machine
89 364,7
29.307 73,5
Domestic devices
579 344,8
34.875 89,1
Other machinery
100 911,8
67.663 89,2
Electrical material
116 535,3
44.331 83,3
Electronic material
82 345,6
19.876 62,8
Precision material
53 349,8
22.131 74,7
Transport material
295 822,9
93.105 88,4
Other manufacturing
55 271,6
17.259 74,9
64 167,0
9.816 68,9
Computer activities
41 858,7
42.904 67,3
R+D activities
37 4.685,6
375.619 21,8
Other business services
26 1.391,6
101.409 67,1
Other services
133 598,8
42.686 61,3

% of funds from outside source(1)


*Source: EUSTAT. Statistics on scientific research and technological development activities

The government, in specific the entity of Economic Development and Competitiveness, has
encourage Integral plans for temporal work. Reducing transaction costs, better conditions
for workers and offering available workers for the needs of the Basque industry (Eustat,

F) Conclusions
Knowledge infrastructures play an important role in Regional Innovation Systems (RIS) as
they form part of the knowledge generation subsystem and therefore constitute a key
element for innovation
Innovation is conceived as a social process in which factors as industry and knowledge
infrastructures establish links and relationships. I consider the case of the Basque Country
could help as an example for the innovation models of the rest of Spain.
In which government through public policy encouraging private initiative or entrepreneurs
to create or try out new things. In order to provide a higher value added to the economy
resulting in greater benefits for the society.
The case of the Basque Country results a strange case, due to the fact that is formed by
persons that know euskera and spanish and those who only know spanish. And by the few
inference of the government and public policy in the R&D activities, in which private
initiative plays the major role in those activities.

Also the case of Basque Country could be used for Mexico to see how innovation activities
encourage the economic development. But this because of a well-designed education
system and public policies for industrial sectors.

Competitiveness, B. I. (2014). Basque Institute of Competitiveness. Obtenido de
Cooperative, M. (2014). Mondragon. Obtenido de
Eustat. (2012). Departamento de Empleo y Polticas Sociales. Obtenido de
Group, B. (2013). Patentabilidad de la Empresa Vasca. Obtenido de
Magro, E. (2012). The Role of Knowledge Infrastructures in Regional Innovation Systems: the Case
of the Basque Country. Obtenido de
OCDE. (2012). PISA 2012 Euskadi. Obtenido de
Orkestra. (2012). Global Entrepreneruship Monitor Comunidad del Pas Vasco. Obtenido de
Vasco, G. (2012). Planificacin de la accin de Gobierno y Evaluacin de Polticas Pblicas.
Obtenido de
Vasco, S. E. (2014). Informacin para los inmigrantes sobre el Sistema. Obtenido de
Aranguren, M.J., M. Larrea, and J. Wilson (2010), Learning from the

Local: Governance of Networks for Innovation in the Basque Country,

European Planning Studies, 18:1, pp. 47-65.