Ational Ystems of Nnovation

CHAPTER 8
National Systems of
Innovation
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The previous chapters have concentrated on innovation and technology

management by firms; this chapter places these efforts by companies in
the context of what is called the national innovation system. This term
originated when Christopher Freeman and Bengt-Åke Lundvall worked
together in the late 1980s. Freeman’s (e.g., 1995) research drew heavily on
political economy of Friedrich List (1841), who coined the term national
system first, combined with a historical account of the rise of Japan as
an economic superpower. Lundvall’s (e.g., 1998, 2007) work explored the
important social interactions between suppliers and customers and their
role in encouraging innovation in Denmark. Therefore, the national inno-
vation system entails how firms interact within the setting of a nation, how
they interact with customers, how universities contribute to innovation,
how other actors in a nation contribute to innovation by firms, and how
governments can stimulate innovation. For those who are interested, this
interaction can also possibly be traced back to traditions associated with
science in the development of Islam (Masood 2009), for example, the
translations of works in Baghdad during the Abbasid caliphate (7th and 8th
century, AD), the promotion of science by governors, particularly Caliph
al-Mamum (8th century, AD), and cross-fertilization of cultures in ancient
cities such as Cordoba (Spain). Thus, the renewed attention for collective
building and knowledge for a collective purpose may be embedded in tra-
ditions that precede contemporary manifestations; this collective purpose
implies that many are involved, and also, that it requires many initiatives.
This means that national innovation systems cover how a variety of actors
in a nation work together to achieve innovation using many initiatives.
Copyright 2018. Momentum Press.
This chapter looks at the concept of these national innovation sys-

tems. To this purpose, Section 8.1 starts by defining what the term national
innovation system comprises. This section also discusses the concept of
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256 • Innovation Management and NPD for Engineers
the triple helix, which emphasizes the collaboration between universities,

industry, and government in the context of the national innovation s ystem.
In the context of national systems of innovation, Section 8.2 examines
more specifically university–industry links. The changed view on the role
of university also makes it necessary how its research contributes to eco-
nomic development and which mechanisms can be used to achieve this.
Thereafter, Section 8.3 looks into more detail at a few types of regional
networks. Section 8.4 concludes the chapter about the myopic model ver-
sus the dynamic model in the context of national innovation systems.
8.1 Defining National Innovation Systems
Following the increasing interest into national systems of innovation, sev-

eral definitions of what it comprised have been proposed. Such definitions
give some insights into what a national innovation system is. A number
of these definitions have been captured in Box 8.1. Looking across these
Box 8.1. Definitions of national innovation systems
• ... the network of institutions in the public and private sectors

whose activities and interactions initiate, import, modify and
diffuse new technologies (Freeman 1987, p. 1).
• ... the elements and relationships which interact in the p roduction,
diffusion and use of new, and economically useful, knowledge
... and are either located within or rooted inside the borders of a
nation state (Lundvall 1992, p. 2).
• ... a set of institutions whose interactions determine the innova-
tive performance ... of national firms (Nelson 1993, p. 4).
• ... the national institutions, their incentive structures and their
competencies, that determine the rate and direction of techno-
logical learning (or the volume and composition of change gen-
erating activities) in a country (Patell and Pavit 1994, p. 79).
• ... that set of distinct institutions which jointly and individually
contribute to the development and diffusion of new technolo-
gies and which provides the framework within which govern-
ments form and implement policies to influence the innovation
process. As such it is a system of interconnected institutions
to create, store and transfer the knowledge, skills and artefacts
which define new technologies (Metcalfe 1995, p. 38).
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National Systems of Innovation • 257
d efinitions, it becomes clear that there are a number of core concepts

underpinning national systems of innovation: (i) collective knowledge
creation; (ii) research and development by universities, public research
institutes, and industry; (iii) governments as coordinators; (iv) linkages
and collaboration between actors in the system; and (v) socio-cultural
qualities of national communities. These core concepts are explored in
more detail in the next subsections.
8.1.1 Core Concepts of National

Innovation Systems
The first concept of national innovation systems is collective knowledge

creation. Thus, mostly, and in contrast to the previous chapters, the onus
is on how actors in these systems work together to achieve innovation.
This means that achievements in the creation of knowledge and innova-
tion are not viewed from the individual firm or inventor, but they are seen
as a result of interaction between “customers,” firms, public research insti-
tutes, universities, economic development agencies, and government in a
national context. In this perspective, actions and interventions by one actor,
for example, governmental agencies, may influence the actions by other
actors, such as universities and firms. The collective view of knowledge
and innovation differs from those expressed in economic perspectives that
emphasize the actions of individuals and the free-market economy; see
Freeman (1995, p. 6). Thus, in the view of collective knowledge creation
underpinning innovation systems, the nation is the unit of analysis with
firms embedded in its institutional settings.
The collective knowledge creation also means that a number of
actors are involved in R&D: public research institutes, academia, and
industry. Therefore, innovation as the creation of new processes, prod-
ucts, and services is not restricted to firms or universities. A well-known
example of the public research institutes is the Fraunhofer Society in
Germany. This is a German research organization with 69 institutes
spread throughout Germany and 12 in other countries; each of these
centers focuses on different fields of applied science. Note that, in
Germany, the Max Planck Society for the Advancement of Science,
based in Munich with 83 institutes, primarily works on basic science.
The Fraunhofer Institute employs 24,500 people, mainly scientists and
researchers; some of its funding is provided by the German state, about
30 percent, and the larger part by contract work (the latter is sometimes
also supported by government funding). Notable examples of their out-
put are the MP3 compression algorithm, the metamorphic triple-junction
solar cell, and E-puzzler (a pattern-recognition machine, which can digi-

tally put back together even the most finely shredded papers). To achieve
these innovations, its institutes maintain links with both firms and uni-
versities. This example of the Fraunhofer Society shows the importance
of complementary research institutes in addition to universities and
R&D departments in firms.
To enhance the R&D in public research institutes, academia, and indus-
try, central or regional governments act as coordinators. To this purpose,
they develop policy instruments, visions, and perspectives for the future.
For example, the British government initiated a white paper (Department
of Trade and Industry 2002) on the future of manufacturing. Subsequently,
this report guided themes for research at the universities through the
EPSRC and fostered collaboration with industries; see Dekkers (2010) for
the evaluation of this Innovative Manufacturing Programme. In addition
to funded research in universities, a government can provide (i) financial
instruments, such as tax relief, loans for research and seed funds; (ii) target
specific sectors for economic development; and (iii) intermediate between
universities, research institutes, and academia; see Rasmussen (2008) for
an overview how the Canadian government has developed its approach.
Another measure is investing in education through training scientists and
engineers (Mowery and Oxley 1995, pp. 82–84). Thus, national govern-
ments, and to a certain extent regional ones, are able to influence research
and development through instruments and interventions, preferably derived
from a vision and perspectives on the future.
In addition to instruments for stimulating R&D, the different actors
involved in innovation must have strong linkages with each other based on
a strong level of trust; governments can promote and activate trust among
the actors in a national innovation system. This means that actors in the
innovation system should be brought together; this can be taking place
through conferences, focus groups, and so on. Moreover, there should be
supporting mechanisms for building trusts and collaboration, for example,
through innovation centers. Often, this is referred to as social capital; it
indicates relationships between actors in which social networks are put
central; transactions between actors are marked by reciprocity, trust, and
cooperation; and market agents produce goods and services not only for
themselves, but also for a common good. This implies that the onus is not
on the innovative firm and stimuli by the government for achieving inno-
vation, but also how firms and a government interact with other actors in
the context of a national innovation system.
Furthermore, this implies that these national systems of innovation
are shaped by distinct socio-cultural qualities of national communities.
Nooteboom (2000) gives an expanded essay on this matter resulting in

noting the difference between the United States and Germany; he (ibid.,
p. 932) concludes that both countries foster innovation in a very differ-
ent way. The national innovation system of the United States gives eas-
ier access to knowledge necessary for inventions to commercialize, has a
flexible approach to labor relations, has a flexible approach to production,
and the need for durable teamwork is low. The opposite seems to be the
case for Germany. Thus, types of innovation, types of industrial sectors
in which innovation takes place, and even how this is achieved are deter-
mined by characteristics of national innovation systems (Section 8.5 goes
into more detail about this comparison).
8.1.2 Triple Helix
In the context of national innovation systems, the concept of the triple

helix of university–industry–government relationships interprets the grad-
ual shift from a dominating industry–government dyad in the industrial
society to a growing triadic relationship between university–industry–
government in the knowledge society (see Figure 8.1); it was conceptu-
alized in the 1990s by Etzkowitz (1993) and Leydesdorff and Etzkowitz
(1996). The core idea is that there is a more prominent role for universi-
ties in the potential for innovation and economic development at the level
of nations. This also means that different formats are sought for gener-
ating, transferring, and applying knowledge. An example is the Scottish
situation in which there are a number of agencies active in this transfer
of knowledge to industry; each has its own mechanisms to achieve this.
Universities
Government Industry
Figure 8.1. Common conceptualization of

the triple helix model of innovation.
The Scottish government has innovation vouchers available up to 5,000

British pounds to provide funding to small and medium-sized enterprises.
Furthermore, the economic development agency, Scottish Enterprise, pro-
vides support, including financial support, for innovation; this is often tar-
geted at specific sectors. The Scottish Manufacturing Services aims more
at manufacturing companies. Furthermore, regional government agencies,
such as Glasgow City of Science and Innovation and Interface, promote
the interaction between universities, research institutes, firms, entrepre-
neurs, and the public. Other actors provide networks for organizations,
among them the Scottish Chambers of Commerce and the Centre for
Engineering Education and Development; the latter is an active network
of firms and universities arranging clinics on specialized topics and sem-
inars. Also, consultancy companies are active; an example is Targeting
Innovation that provides advisory services to the government, but also
helps firms to develop their capabilities. Moreover, to stimulate the econ-
omy, it should be mentioned that the tuition fees for Scottish residents
are free for undergraduate studies. This non-exhaustive overview of the
Scottish national innovation system shows that a multiple of incentives,
instruments, agencies, and actors form the core of such systems; each of
them fulfills specific roles and are complementary to each other in this
concept of the triple helix.
These efforts for developing national innovation systems can be sub-
scribed to two main approaches: (i) an exogenous approach for attracting
innovative high-tech firms to relocate in the region and (ii) an endogenous
approach for creating an underlying knowledge base, as a mechanism to
jumpstart the formation of firms and creative industries (Etzkowitz and
Ranga 2010; Ranga and Etzkowitz 2013). The first approach—exoge-
nous knowledge-based regional development strategies—is based on the
attraction and relocation of firms from elsewhere, rely on marketing local
advantages, such as trained workforce, access through infrastructure,
and availability of attractive living conditions. This policy could attract
subsidiaries or R&D centers of large multinationals; in turn, these will
have easier access to the local knowledge base, such as universities, but
could also stimulate R&D activities by firms and spin-offs. These external
investments as key inputs for regional development come in response to
improved infrastructure, fiscal incentives, and programs provided by fed-
eral or state governments; these initiatives aim at promoting technology
and high-growth entrepreneurship, for example, through public and pri-
vate partnerships, stimulating growth in a designated region and develop-
ing of high-tech centers or science and technology parks (Malecki 1986).
However, this approach may have only limited effectiveness if the pool
of firms that can be attracted, no matter how good the offer, is reduced by
the decline of many manufacturing industries, and if the local knowledge
assets are not strong enough to sustain the activities of the relocated units.
This attraction strategy is most likely to fail and turn into a “cargo cult
fantasy” (Massey et. al. 1991) if a region does not have a “critical mass” of
activity in a particular sector, so that the attracted units to a region can join
a thriving cluster and relevant other firms. This term cargo cult fantasy
arrives from the analogy with what happened in Melanesia (a subregion
of Oceania) just after the Second World War. With limited awareness of
how goods that were offloaded from planes during the war were produced,
islanders set out stone markers after the war in hopes of calling forth a
new wave of flights. Similarly, according to Massey et al. (ibid.), science
parks were constructed on abandoned airfields in the United Kingdom and
other sites in order to create a high-tech economy, often without sufficient
attention to the endogenous sources of this phenomenon.
The second approach to developing national innovation systems—
endogenous knowledge-based regional development strategies—takes
local factors, such as a strong knowledge base, skilled labor, and proxim-
ity to sources of knowledge and expertise, as starting point. The reason-
ing is that innovative start-ups and smaller firms, having fewer resources
than larger firms, are more dependent on the resources of their local
environments and the related social networks. To this purpose, creating
an infrastructure for local knowledge creation, the formation of knowl-
edge-based firms, and sectoral growth are the essence of an endogenous
high-tech regional development strategy (Feldman and Francis 2004, pp.
135–36). Practice has shown that exogenous and endogenous knowl-
edge-based regional development strategies are not mutually exclusive,
and in fact, can support each other (Etzkowitz and Ranga 2010, p. 22).
Therefore, the promotion of measures that support the formation and
consolidation of the spaces is essential in designing the triple-helix based
regional innovation strategies.
8.2 University–Industry Links
From the writing so far, the prominent role of universities in the national
innovation system has come to the fore. Thus, this section pays attention
to three aspects of what is called the enhanced role of the university in
addition to the points mentioned in Section 4.4; thereafter, subsections
will follow on the specific mechanisms for knowledge transfer: technol-
ogy transfer offices, spin-offs and science parks.
8.2.1 Enhanced Role for Universities
The first aspect of the enhanced role of the university is the contribution to
socio-economic development in addition to the traditional roles of teach-
ing and research; by some, for example, (Etzkowitz 2003), this is called
a “second academic revolution.” To a large extent, this enhancement of
the traditional role of universities is the effect of government policies
to strengthen links between universities and other constituent parts of
society, especially companies. Another factor that stimulates the contri-
bution to socio-economic development is that firms are inclined to use
the universities’ infrastructure for their own R&D objectives, thus indi-
rectly transferring part of their costs to the state, which provides a large
part of university funding (Slaughter and Leslie 1997). This also means
that collaboration with other actors in the national innovation system
enhances the central presence of universities in the generation of scientific
research (Godin and Gingras 2000), disproving former views that increas-
ing diversification of loci would diminish the role of universities in the
knowledge-generation process.
In addition to collaboration with other actors, the second aspect of the
enhanced role of the university concerns the provision of new ideas, skills,
and entrepreneurial talent to students and professionals (and the organi-
zations they work in). In this perspective, students are not only the new
generations of professionals in various scientific disciplines, business, cul-
tures, and so on, but they can also be trained and encouraged to become
entrepreneurs and firm founders, thus contributing to economic growth
and job creation. Examples of these are StartX, Stanford’s student start-up
accelerator, which in less than a year, trained 90 founders and 27 compa-
nies. Another case is point is the Team Academy at the Entrepreneurship
Centre of Excellence of the JAMK University of Applied Sciences in
Jyväskylä, Finland, where students run their own cooperative businesses
based on real-life projects. Furthermore, universities educate organiza-
tions, through entrepreneurship and incubation programs and training
modules interdisciplinary centers, science parks, academic spin-offs, incu-
bators, and venture capital firms (Etzkowitz 2003). This means that the
teaching activities have gone beyond the traditional ones for students and
training of researchers, and include the provision of skill development for
entrepreneurship and management of technology.
The third feature of the enhanced role of universities is the internal
capabilities to produce and formally transfer technologies, rather than
relying solely on informal ties. In this perspective of the enhanced role,
they have transformed from a traditional source of human resources and
knowledge to a new source of technology generation and transfer agent.

Rather than only serving as a source of new ideas for existing firms, uni-
versities are combining their research and teaching capabilities in (new)
formats. An example of the interplay between teaching and research is the
postgraduate (master’s) dissertation as industrial placement; these place-
ments facilitate the transfer of knowledge to industry and are commonly
found in European countries, particularly for engineering and science
studies, and business and management studies. This extends to placement
in start-ups and spin-offs. Thus, they become a source of new firm forma-
tion, especially in advanced areas of science and technology. Universities
increasingly become the source of regional economic development and
academic institutions are re-oriented or founded for this purpose.
This view of the entrepreneurial university takes a pro-active stance
in putting knowledge to use and in broadening the input into the creation
of academic knowledge. To this purpose, it engages an interactive manner
with stakeholders, rather than relying on a linear model of innovation.
This interactive model of national innovation systems, in which univer-
sities take on an enhanced role, leads to firms raising their technological
level, and consequently engage in higher levels of training and sharing of
knowledge. This transforms the role of the government from traditional
regulatory role in setting the rules of the game to one that includes also
that of public entrepreneur and venture capitalist. As universities develop
relationships with the other actors in the national innovation system, they
can combine discrete pieces of intellectual property and jointly exploit
them. Innovation has then expanded from an internal process within and
even among firms to an activity that involves institutions not traditionally
thought of as having a direct role in innovation, such as universities.
8.2.2 Technology Transfer Offices
To achieve this active role in the interactive model of innovation, many

universities now have an office of technology transfer (commonly labeled
as technology transfer office; see also Subsection 7.4.4), even though
they may appear under different names; these departments are dedicated
to identifying research that has potential for commercialization and to
ways for exploiting this intellectual property. These offices provide an
interface between the institution and industry. For instance, research may
be of both scientific and commercial interest, but patents are normally
only issued for when applications have been identified; therefore, some-
one—not necessarily the researcher(s)—must come up with a specific
application to claim the intellectual property. In such cases, these offices

will support the filing of a patent application. This indicates that tech-
nology transfer offices have a number of roles, including (i) establishing
relationships with firms and other actors in the community they are based,
(ii) generating funding support from sponsored research or consulting
opportunities, (iii) providing assistance on all areas related to entrepre-
neurship and intellectual property, (iv) facilitating the formation of uni-
versity-connected technology startups and spin-offs, and (v) generating
revenues for the university and its collaborating partners (OECD 2011).
To fulfill these roles, Siegel et al. (2007, p. 655) highlight that, in addi-
tion to having an adequate strategy for the modes of commercialization,
universities also need an appropriate promotion and remuneration sys-
tem for academics so that commercialization is valued, and they should
assure adequate human capital skills to support the commercialization;
these promotion and remuneration systems are not always in place and
may vary across universities and nations. Notwithstanding this barrier,
technology transfer offices serve as an intermediary between universi-
ties and firms and other actors, such as firms, particularly with regard
to facilitating the interactive model of innovation and to find modes for
commercialization of research.
These modes for commercialization of research by technology trans-
fer offices vary widely. They may include licenses, patents, spin-offs,
industry research contracts, and consulting income; it should be noted that
the scope and activities of technology transfer offices may differ across
universities and nations. Normally, it involves licensing agreements based
on patents with the aim of generating royalties (see Subsection 7.3.3) or
trading of patents (see Subsection 7.2.3). However, it could also be more
beneficial setting up joint ventures and partnerships to share both the
risks and rewards of bringing new technologies to market. Other vehicles
for commercialization, for example, spin-offs, are used where the host
organization does not have the necessary resources or skills available to
develop a new technology. Spin-off companies are a popular vehicle for
commercialization of research in Canada, even though the rate of licens-
ing of Canadian university research remains far below that of the United
States (Science, Technology and Innovation Council 2009, p. 7). Often,
these approaches are associated with raising venture capital as a means
of funding the development and commercialization process; this practice
is more common in the United States than in the European Union. When
start-ups and spin-offs are the mode for commercialization, fees are some-
times waived in lieu of an equity stake in the business. As a result of
the potential complexity of the technology transfer process, technology
transfer offices are often multidisciplinary, including economists, engi-

neers, lawyers, marketers, and scientists; in addition, national settings
and specific strategies of universities influence how commercialization of
research takes place.
8.2.3 University Spin-offs
As one of the modes of commercialization, university spin-offs transform

technological inventions developed from university research. According
to Shane (2004), there is likelihood that these inventions would have
remained unexploited otherwise. In most countries, universities can claim
the intellectual property rights on technologies developed in their labo-
ratories. This intellectual property is typically protected by patents, or in
exceptional cases, copyrights. Therefore, the process of establishing the
spin-off as a new corporation involves transferring these rights to the new
company or giving the latter a license. Prominent examples of university
spin-offs are Genentech, Crucell, Lycos, and Plastic Logic. Some univer-
sities generate substantially higher numbers of spin-offs than others (see
Di Gregorio and Shane 2004; Klofsten and Jones-Evans 2000). Those uni-
versities that have a high numbers of successful spin-offs (Clarysse et al.
2005; van Burg et al. 2008; Wright et al. 2007) draw on university-wide
awareness of entrepreneurial opportunities; alternatively, they may benefit
from a strong entrepreneurship culture at the national or regional level.
Moreover, they have developed a university culture that thrives on entre-
preneurial role models among their alumni and academic staff, as well
as successful spin-offs that serve as inspiring examples (e.g., Lycos at
Carnegie Mellon University). And, they actively stimulate the develop-
ment of entrepreneurial talent and help founders of spin-offs obtain access
to investors, consultants, and other forms of support; these activities are
particularly critical in countries, for example, continental Europe, that
have a weaker entrepreneurial culture than elsewhere (e.g., United States).
The latter is quite important, because a report by Targeting Innovation
(2008) highlights the importance of managerial skills in relation to the
success of spin-offs. Examples of successful spin-off models in Russia
are those developed from the Institutes of the Academy of Science and
Svetlana; QinetiQ is an example of a spin-off in the United Kingdom.
These examples show that universities not only need to raise awareness
for the commercialization of inventions and research, but that they also
play a crucial role in stimulating entrepreneurship, albeit that its mecha-
nisms are also dependent on national settings.
8.2.4 Science Parks
Another way of commercializing research by universities is the cre-

ation of science parks. A science park, also sometimes called a univer-
sity research park or a science and technology park, is a strategically
planned, purpose-built work environment aiming at high-technology
industries. To this purpose, they are normally found in close physical
proximity to universities, government and private research bodies and
are focused on specific industrial sectors. This allows knowledge to be
shared, innovation to be promoted, and research outcomes to be pro-
gressed to viable commercial products and services. A famous example
is Hsinchu Science Park, known for its semiconductor manufacturing,
industrial and computer technology development; see Box 8.2. This
and other science parks provide locations that foster innovation and
the development and commercialization of technology and also spaces
Box 8.2. Hsinchu Science Park
Hsinchu Science Park is an industrial park established by the

government of the Republic of China (Taiwan) in 1980 to foster
cutting-edge state-of-the-art scientific and technological innovation. It
straddles Hsinchu City and Hsinchu County in Taiwan. The idea of
the establishment of Hsinchu Science Park was first proposed by Shu
Shien-Siu, the former President of National Tsing Hua University and
Minister of Science and Technology. After Shu became the Minister
of Science and Technology in 1973, he travelled to the United States,
Europe, Japan, and South Korea to learn and study their conditions
of the development of science and technology. In 1976, Shu came
up with the idea of building a science and technology park similar
to Silicon Valley. President Chiang Ching-kuo proposed to build the
park in Longtan District because of the potential future benefits that
could be drawn from the National Chung-Shan Institute of Science and
Technology and the military. However, Shu argued that the technology
and science park should not be close to the military as the primary goal
of the founding of the park is to expand the size of private economy and
creative vitality of Taiwan. Shu’s idea was to build the park in Hsinchu
next to the National Tsing Hua University and National Chiao Tung
University, akin to the location of Silicon Valley, which is adjacent to
Stanford University and University of California, Berkeley. Shu’s idea
was ultimately approved by Chiang, and the park was opened in 1980
in Hsinchu.
After the original idea of the establishment of the science park

and the location of the park were settled, Chiang Ching-kuo assigned
the task of constructing the Hsinchu Science Park. Kwoh-Ting Li,
former Finance Minister of the Republic of China, was among those
who significantly contributed to the founding of the park, as ordered
by Chiang. Inspired by Silicon Valley, Li consulted Frederick Terman
on how Taiwan could follow its example. From there, Li convinced
talents who had gone abroad to build companies in this new Silicon
Valley in Taiwan. Among those who returned is Morris Chang, who
later led the Industrial Technology Research Institute and founded the
Taiwan Semiconductor Manufacturing Company. Li also introduced
the concept of venture capital to the country to attract funds to finance
high-tech startups in Taiwan.
Today, Hsinchu Science Park is known as the Silicon Valley of
Asia. Hsinchu Science Park is now one of the world’s most sig-
nificant centers for semiconductor manufacturing, industrial and
computer technology development. More than 400 high-tech com-
panies, mainly in the semiconductor, computer, telecommunica-
tion, and optoelectronics industries, have been established in the
park since the end of December 2003. Its 400 technology compa-
nies accounted for 10 percent of Taiwan’s gross domestic product
in 2007. It is home to the world’s top two semiconductor found-
ries, Taiwan Semiconductor Manufacturing Company and United
Microelectronics Corporation, both of which were established at the
nearby Industrial Technology Research Institute. Taiwan is the only
country that possesses a professional division-of-labor system in the
semiconductor industry and also has the highest density of 12-inch
wafer-producing fabs, most of which are based in the park. Next
door to the science park are two of Taiwan’s science and engineering
education institutes, National Chiao Tung University and National
Tsing Hua University, and the National Space Organization, the
Taiwanese space agency, is located in the park.
Source: Wikipedia (20 May, 2017), URL: https://en.wikipedia.org/wiki/Hsinchu_

Science_and_Industrial_Park
where governments, universities, and private companies may collabo-

rate. Science parks may also offer a number of shared resources, such
as incubators, programs, and collaboration activities, uninterruptible
power supply, telecommunications hubs, reception and security, man-
agement offices, bank offices, convention center, parking, and internal
transportation. They can be attractive to university students who may

interact with prospective employers and encourage students to remain
in the local area.
8.3 Regional Networks
Another manner in which firms and universities supported by govern-

mental policies may collaborate is through regional networks. Dekkers
and Bennett (2009) have identified the intense cooperation and collab-
oration between, often smaller, firms as actors in the social structure of
networks as one of the main drivers for the rise of industrial networks; see
Figure 8.2. In this figure, there are two dimensions. The vertical dimen-
sion is the degree of ownership, which varies from hardly integrated
between firms to full ownership; examples of the latter are the holding
company in which subsidiaries are more or less independent and so-called
Chandlerian firms in which companies own the whole supply chain. The
horizontal dimension is the degree of coordination between the entities in
the network; in the Chandlerian firms, the coordination is fully integrated,
whereas holding companies hardly exert any influence on the companies
they own. Because how companies internally innovate and develop new
products and service in Chandlerian firms, and because collaboration as
Holding Chandlerian
company firm
Degree of ownership integration
Japanese
kaisha network
Venture capital
network
Marshallian ‘Third italian’

district district
Degree of coordination integration

Figure 8.2. Archetypes of industrial networks mapped
on ownership and integration.
Source: Robertson and Langlois (1995, p. 548).
topic has already appeared in Chapters 4 and 5, this section will discuss
two main types of industrial districts (Marshallian industrial districts and
“Third Italy”) in the next subsection; the subsection thereafter will look at
business clusters.
8.3.1 Industrial Districts
The first type of industrial district—Marshallian industrial district—

was based on a pattern of organization that was common in late 19th
century Great Britain in which firms concentrating on the manufac-
ture of certain products were geographically clustered (Marshall 1890,
Chapter X). The two dominant characteristics of a Marshallian industrial
district are its high degrees of specialization of firms and its very heavy
reliance on market mechanisms for exchange. In addition, the firms in
these districts tend to be small and focus on a single function in the
production chain. Therefore, firms located in these industrial districts
are highly competitive in an economic sense, because, in many cases,
there is little differentiation between the products of these firms, making
them sensitive to pricing and economic cycles. The major advantages
of Marshallian industrial districts arise from simple proximity of firms
to each other, which allows easier recruitment of skilled labor and rapid
exchanges of commercial and technical information through informal
channels. An example of how a Marshallian industrial district evolved
into becoming renowned for innovation is Silicon Valley, a nickname
for the southern portion of the San Francisco Bay Area, in the north-
ern part of the U.S. state of California. The word “silicon” originally
referred to the large number of silicon chip innovators and manufactur-
ers in the region, but the area is now the home to many of the world’s
largest high-tech corporations, such as Apple, Google, and Tesla, and
thousands of start-up companies. It also accounts for one-third of all of
the venture capital investment in the United States, which has helped it
to become a leading hub and start-up ecosystem for high-tech innova-
tion and scientific development. This example of Silicon Valley shows
how a particular region or district can become leading in innovation
based on the proximity of firms and specialization of these firms on
specific products and services.
Another type of industrial districts is called the “Third Italy” district;
see Figure 8.2. This is named after the central and northeast regions in
Italy, where clusters of small firms and workshops developed in the 1970s
and 1980s. Biggiero (1999, p. 78) identifies 238 “Third Italy” districts1;
examples include Emilia-Romagna, Friuli, Marche, Trentino-Alto Adige/
Südtirol, Tuscany, Umbria, and Veneto. Each of these regions specializes
in a range of loosely related products, and each workshop in these regions,
usually has 5 to 50 workers, more often even less than 10. Additionally,
these workshops are known for producing high-quality products and
employing highly skilled, well-paid workers. The workshops were very
design-oriented and multidisciplinary, involving collaboration between
entrepreneurs, designers, engineers, and employees. A typical example
of this cooperation (Dekkers et al. 2014, p. 12) can be found in the tex-
tile industry in Emilia Romagna. In this district, different organizations,
such as private artisan associations, the national chambers of commerce,
industrial associations, and the Emilia-Romagna Economic Development
Agency, formed CITeR (Centro Informazione Tessile Emilia Romagna);
its aim is to assist small businesses within the textile industry with inno-
vative, development and marketing activities (Clara 1999). This institute
together with the Italian Commission for Nuclear and Alternative Energy
developed a computer-aided design application that enhances design
capabilities by providing fashion designers with access to a databank of
stitches styles and fabrics stored on video disk (Bellini et al. 1990). This
innovation based on cooperation reduces the time from design to produc-
tion, thus reducing cost and providing a competitive advantage against
overseas imitators. Hence, the industrial districts foster entrepreneurial
behavior while taking advantage from economies of scale for innovation
through regional collaboration.
8.3.2 Business Clusters
The term business cluster—aka industry cluster, competitive cluster or

Porterian cluster—was popularized by Porter (1990). It builds on the
importance of economic geography, or more correctly geographical eco-
nomics, which was also brought anew to attention by Krugman (1991).
Cluster development has since become a focus for many government
programs. The underlying concept, which economists have referred to
as agglomeration economies, dates back to the work of Marshall (1890).
Porter (1990) claims that clusters have the potential to affect competition
1
The term “First Italy” refers to the areas of large-scale mass production, such as
Turin, Milan, and Genoa, and “Second Italy” to the economically less-developed
South.
in three ways: (i) by increasing the productivity of the companies in the

cluster, (ii) by driving innovation in the field, and (iii) by stimulating new
businesses in the field. The thought is that, in the modern global economy,
comparative advantage—how certain locations have special endowments
(i.e., labor, logistic facilities, etc.) to overcome higher costs of materi-
als—is less relevant; rather, competitive advantage—how companies
make productive use of inputs, requiring continual innovation—is more
relevant. Thus, the argument goes that economic activities are embed-
ded in social activities; that “social glue binds clusters together.” This is
supported by recent research showing that particularly in regional and
rural areas; significantly more innovation takes place in communities that
have stronger inter-personal networks (Wear 2008). Put in another way,
a business cluster is a geographical location where enough resources and
competences amass and reach a critical threshold, giving it a key position
in a given economic branch of activity, and with a decisive sustainable
competitive advantage over other places, or even a world supremacy
in its field (e.g., Silicon Valley and Hollywood). However, this concept
resembles Marshallian industrial district, but places more emphasis on
the advantages for individual firms.
8.4 Anglo–Saxon and Nippon–

Rhineland Model
To demonstrate the impact of national contexts, this section discusses

one common comparison: the Anglo–Saxon model versus the Nippon–
Rhineland model; see Table 8.1. Originally, the term “Rhineland model”
was used to describe the principles of the economic model and of soci-
ety in Germany and the countries around Germany; it was called so
because Germany and France, two of its practitioners, lie on either side
of the Rhine. Apart from (Western) Germany, this model has been asso-
ciated with other Northern European economies, such as Austria, the
Netherlands, the Scandinavian countries, and Switzerland. In addition,
it has been used to characterize Japan’s economy; hence, it is called the
Nippon–Rhineland model. The Nippon–Rhineland model is character-
ized by sharing of information and building consensus among stake-
holders, then taking coordinated action in pursuit of long-term economic
and social goals. In this model, companies are work communities that
only can exist when a permanent value is added. Required capital comes
from private investors and bankers with knowledge of the products and
markets. A small independent group of regulators forces management to
Table 8.1. Comparison between the Anglo–Saxon and Nippon–

Rhineland models
Anglo–Saxon model Nippon–Rhineland model
National Minimal government Tripartite agreements
context control on society. (firms, trade unions,
government).
Labor relations seen as Labor relations are more
“conflictual.” “co-operative”; shared
values by most managers
and employees regarding
equality and solidarity.
Flexible approach to Employees stay longer
employment (hiring in same firm and have
and firing). Employees higher loyalty toward
stay shorter in same company they work for.
firm.
Companies Most companies Large number of
financed by shares that companies financed by
are sold via the stock family capital or banks.
exchange.
Focus on shareholder Focus on stakeholder
value and short-term value and mid- and long-
profits. Most power term policy; business
resides with the continuity and labor
shareholders. relations more important
than achieving short-term
profits.
Orientation on results. Long-lasting discussions
with all stakeholders to
achieve outcomes.
Efficiency of economic Efficiency of social
structures. Focus on structures. Focus on
effective management effective leadership.
and human resource Planning and
management. organization.
Management Control mechanisms Focus on employees’
style by higher-level own responsibilities and
management personal initiatives from
and reduction of employees on operational
personal initiative level.
by employees on
operational level.
Anglo–Saxon model Nippon–Rhineland model

Prominent role for risk Little attention to risk
management. management.
Project success as a Participation to project
result of methods and teams “principle based.”
(control) instruments. Project success result
Participation to project of competent team
teams “rule based.” members.
Focus on contract. Focus on contact and trust
in (business) relations.
optimize the free cash flow from existing operations and renewing the
range of activities. The Anglo–Saxon or Anglo-American model (mostly
associated with the United States and United Kingdom) is characterized
by individuals and firms pursuing their interests, ideally with minimal
government interference. In this system, the interests of labor and other
stakeholders are subordinate to the interests of shareholders and manage-
ment, asymmetric information is a source of speculation and profits, and
macro policy is focused on managing the short-run business cycle. In this
model, the companies receive their capital through the stock exchange.
This means that a rising share price is seen as the key determinant of
success. In the governance structure of companies in this approach, the
shareholders entrust their interests to a chief executive officer (CEO).
Thus, the CEO is a powerful leader with a short-term goal whose
compensation largely depends on the realized return-on-investment for
shareholders. Thus, cost savings, mergers and acquisitions, and repur-
chase of shares are among the instruments to increase the earnings. In
economics, the differences between the two models are used to describe
coordinated market economies as opposed to liberal market economies;
both approaches represent fundamentally different approaches to how
companies are governed and managed.
This difference in models is sometimes placed in the context of inno-
vation management. For example, Pavit and Patell (1994, p. 91) call it a
difference between myopic national systems of innovation and dynamic
national systems of innovation. According to them, the myopic national
innovation systems—akin to the Anglo–Saxon model—treat investments
in technological activities just like any other conventional investment;
these technological activities are undertaken as a response to market
demand, and thus incorporate risk and the temporal dimension. This
could mean that technological investments do not compare favorably with
conventional investments due to their duration to completion and the risks

associated with it. Contrastingly in their view, dynamic national innova-
tion systems recognize that technological activities are not the same as any
other investment. In addition to new processes, products, and services, they
also entail the accumulation of important intangible assets; these appear
in the form of irreversible processes of technological, organizational, and
market learning that enable subsequent technological activities; this cre-
ates a perpetual cycle of innovation and development of markets. In this
context of national innovation systems, Dekkers and Morel (2016) inves-
tigate the differences between French and Scottish companies. They find
that French companies engage in a more active way with universities and
other sources of ideas and inventions; this possibly indicates an embedded
approach to collaboration, rather than one based on benefits of singular
firms only in the French context. Furthermore, during this chapter, it has
become clear that the entrepreneurial activity in the United States and the
availability of venture capital set its national innovation system apart from
those in continental Europe; in the latter, the collaboration between uni-
versities, industry, and government is approached in a more integrated
manner. Note that these differences also appear in how economists look at
national innovation systems. The Nippon–Rhineland model can be asso-
ciated with List (1841), whereas the Anglo–Saxon model is embedded
in the work of Schumpeter (1911; 1954) and Smith (1776). This implies
that the national innovation system is not just a matter of doing business
and managing organizations differently, but also affects how innovation is
governed and managed.
8.5 Key Points
• The conceptualization of national innovation systems originates in

attempts to view economics from a national economic and geo-
graphical point of view. This means that the onus of innovation is
not only inventors and firms, but a complex of actors; these actors
include universities, other research institutes, national (or regional)
development agencies, and other intermediaries.
• The triple helix model innovation stresses particularly the interac-
tion between government, industry, and universities. This model
differs across nations. Particularly, in the United States, there is
more emphasis on entrepreneurship, encouraged by the a vailability
of venture capital and flexible policies toward employment. In
continental Europe, there is more emphasis on the collaborative
development of knowledge and its exploitation for the common

good. In this regard, it is important to distinguish between two dif-
ferent approaches to the economic model for societies:
 Anglo–Saxon model.
 Nippon–Rhineland model.
• In this concept of interaction, it is the role of universities that has
changed. Not only are they seen as educators, but also seen as
stimulating academics and students to commercialize ideas and
inventions being outcomes of research and as encouraging entre-
preneurship. The mechanisms used by universities for commercial-
ization in collaboration with government and industry comprise:
 Technology transfer offices,
 Spin-offs,
 Science parks, and
 Venture capital.
• Related to the geographical aspects of economics and national
innovation systems are regional networks; these can be distin-
guished as:
 Marshallian industrial districts,
 “Third Italy districts,” and
 Business clusters.
8.6 References
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CHAPTER 8

The previous chapters have concentrated on innovation and technology

This chapter looks at the concept of these national innovation sys-

the triple helix, which emphasizes the collaboration between universities,

8.1 Defining National Innovation Systems

Following the increasing interest into national systems of innovation, sev-

Box 8.1. Definitions of national innovation systems

• ... the network of institutions in the public and private sectors

d­ efinitions, it becomes clear that there are a number of core concepts

8.1.1 Core Concepts of National

The first concept of national innovation systems is collective knowledge

solar cell, and E-puzzler (a pattern-recognition machine, which can digi-

Nooteboom (2000) gives an expanded essay on this matter resulting in

In the context of national innovation systems, the concept of the triple

Figure 8.1. Common conceptualization of

The Scottish government has innovation vouchers available up to 5,000

8.2.1 Enhanced Role for Universities

knowledge to a new source of technology generation and transfer agent.

8.2.2 Technology Transfer Offices

To achieve this active role in the interactive model of innovation, many

application to claim the intellectual property. In such cases, these offices

transfer offices are often multidisciplinary, including economists, engi-

As one of the modes of commercialization, university spin-offs transform

Another way of commercializing research by universities is the cre-

Box 8.2. Hsinchu Science Park

Hsinchu Science Park is an industrial park established by the

After the original idea of the establishment of the science park

Source: Wikipedia (20 May, 2017), URL: https://en.wikipedia.org/wiki/Hsinchu_

where governments, universities, and private companies may collabo-

transportation. They can be attractive to university students who may

Another manner in which firms and universities supported by govern-

Marshallian ‘Third italian’

Degree of coordination integration

The first type of industrial district—Marshallian industrial district—

The term business cluster—aka industry cluster, competitive cluster or

in three ways: (i) by increasing the productivity of the companies in the

8.4 Anglo–Saxon and Nippon–

To demonstrate the impact of national contexts, this section discusses

Table 8.1. Comparison between the Anglo–Saxon and Nippon–

Anglo–Saxon model Nippon–Rhineland model

conventional investments due to their duration to completion and the risks

• The conceptualization of national innovation systems originates in

development of knowledge and its exploitation for the common

Lundvall, B.-Å. 1992. National Systems of Innovation: Towards a Theory of Inno-

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8.1 Defining National Innovation Systems

d efinitions, it becomes clear that there are a number of core concepts

8.1.1 Core Concepts of National

8.2.1 Enhanced Role for Universities

8.2.2 Technology Transfer Offices

8.4 Anglo–Saxon and Nippon–