Innovation systems in Metropolitan Regions of developing countries

During 2015 Frank Waeltring and I were commissioned by the GIZ Sector Project “Sustainable Development of Metropolitan Regions” (on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), Division 312 – Water, Urban Development, Transport) to write a discussion paper about a hands-on approach to innovation systems promotion in metropolitan regions in developing countries. The discussion paper can be found here.

Frank (left) and Shawn (right) in front of the Berlin Wall Memorial

This assignment was a great opportunity for us to reflect on Frank’s experience on structural change in territorial economic development and my experience on industrialization and innovation systems in developing countries. We also had to think hard about some of the challenges of using a bottom up innovation systems logic in developing countries, as such an approach would rely heavily on the ability of local public management to coordinate strategic activities aimed to improve the dynamics between various public and private stakeholders. It was great to reflect on our past Local Economic Development experience and our more recent work on innovation systems, industrial upgrading and complexity thinking.

A key aspect of this discussion document was to think long and hard about where to start. We know many economic development practitioners in cities are often overrun by demands from both politicians and industries for support. We also know that by selecting promising sectors based on past data and assumptions about job and wealth creation often end in little impact and much frustration. We agreed that an innovation systems approach must be aimed at stimulating the innovative use of knowledge, so we decided to not start with a demand focus (assuming the officials are already responding to some of the demand) or with statistics but a knowledge application focus. The use, generation and recombination of knowledge is central to the technological upgrading of regions, industries, institutions and societies. From our experience in promoting innovation systems and our recent research into non-consensus based decision making (this is where you do not select target sectors based on consensus or assumptions about growth potential, but you look at emergent properties in the system) we decided to start with three questions to understand the dynamics of knowledge flows in the region:

1. Which enterprises, organisations and even individuals are using knowledge in an innovative way? Obviously this question is not simple and can only be answered by reaching out in the local economy to institutions, firms and individuals.
2. Which stakeholders are actively accumulating knowledge from local or external sources? Again, this is an exploration.
3. Who are individuals or organisations that know something about unique problems (challenges, demands, constraints) in the region? These could be buyers, supply chain development officials, public officials, engineers or even politicians that are willing to articulate unique demands on the regional economy that might not have been responded on by local (or external) enterprises.

These three questions are treated as an exploration that will most likely be most intensive at the start. In our experience economic development practitioners should constantly be asking themselves these questions when working on any form of private sector upgrading.

A second dimension is about assessing the interplay between institutions and industries and its effect on innovative behavior within regions. Who is working with whom on what? Why? What are the characteristics of the life cycles or maturity of various kinds of stakeholders in the region? Thus we are trying to understand how knowledge “flows” or is disseminated in the region. While some knowledge flows are obvious, perhaps even formal, some knowledge flows could be more tacit and informal. For instance, while knowledge flows from education is quite formal, the informal knowledge exchange that takes place at social events is much more informal, yet very important.

Apart from the identification of the dynamics and interrelations between the industries and the different locations, one other key factor is to identify the drivers of change who want to develop the competitive advantages of the region.

We also present our technological capability upgrading approach as six lines of inquiry, some of which have been covered in earlier posts on this weblog:

1. The company-level innovation capability and the incentives of firms to innovate, compete, collaborate and improve, in other words the firm-level factors affecting the performance of firms and their net-works of customers and suppliers. These include attempts within firms to become more competitive and also attempts between firms to cooperate on issues such as skills development, R&D, etc.
2. The macroeconomic, regulatory, political and other framework conditions that shape the incentives of enterprises and institutions to develop technological capability and to be innovative.
3. Investigation of the technological institutions that disseminate knowledge.
4. The responsiveness and contribution of training and education organisations in building the capacity of industry, employees and society at large.
5. Investigation not only of the interaction and dynamics between individual elements in the system, but of the whole system.
6. Exploring poorly articulated needs or unmet demands that are not visibly pursued by the innovation system.

We, and of course our GIZ colleagues of the Sector Project Sustainable Development of Metropolitan Regions, are very keen to engage with the readers on these ideas? Please post your comments, questions to this weblog so that we can have a discussion.

Best wishes, Shawn and Frank (Mesopartner)