Successful Innovation Systems

Some regions in the world are more successful at innovation than others. We can learn why by studying the lessons of successful global innovation regions. Ecosystems in different regions around the globe demonstrate diverse development trajectories and properties. Therefore, we take a deeper look into the characteristics and particularities we observe in some of today’s most exciting global innovation regions. The selection of the ecosystems that we study in this book will always be a snapshot of reality—as time passes, new innovative regions will emerge and others will lose their innovative energy. The geographical distribution of global innovation regions and their connections to each other are constantly on the move.

The foundation of every innovation ecosystem is the availability of high-quality human capital. However, we cannot judge an ecosystem merely on its number of people or their qualifications. If managers know of the entrepreneurial mindset of their crowd and its inflow and outflow dynamics, they can design new measures to influence those dynamics, attracting people with the qualifications their institution or region lacks. The seed of an idea is ideally born in the brain of a rebelling intellectual. A rebelling intellectual is a person who has intellect, knowledge, and skills combined with a drive to break off the beaten path. These individuals must have enough energy to lead motivated people along on their new paths.

Capital, understood as nonhuman capital, is a diverse resource with a wide range of subgroups including venture capital, bank loans, research funding, “family, friends and fools,” and more. Money is an enabler, but a bad motivator. Founders believe in their ideas and their potential impact on society. The big difference between a startup with seed capital funding and an established company’s project budget is the perceived ownership of the money. The spirit of innovation is diametrically opposed to the many uncertainties of products and markets. Ecosystems that focus on a conservative view of the market will face growing disadvantages due to changing relationships between markets and demand. Demand is one of the most underestimated drivers for success in many regional innovation systems. The strategy for that is a consequence of policy, and is often our main window into the policies themselves.

Infrastructure includes as all hard and soft facilities used by individuals directly, either for research and innovation or for the mobility of people, assets, or data. Infrastructure enables connections between individuals through communication networks, roads, and community buildings. Innovators in Asia regard their infrastructure much more highly than do their peers in Europe and the USA. Since living conditions in Asia are also improving, the crowd could move from west to east in the next few decades if the others fail to accelerate their investments. There is no shortcut to developing a regional innovation ecosystem, just as there was not in the evolution of intelligent life. The strongest position in a competitive environment is with the organizations that can adapt most quickly to changing conditions. In ecosystem development, first prepare the soil for a fertile environment and then sow the plants.

The management of resources considers all resources from an ecosystem perspective. Regions try to promote their development as innovation leader in three key ways that is first analyzing the status quo, second deciding on a strategy, and third implementing the chosen strategy. Most of the time, regions bite off more strategic objectives than they can chew, and implementation suffers. Many resource control knobs need to be turned simultaneously to be successful, so leaders have to set priorities and invest political energy in often-unpopular areas. The most important task is finding the balance between important ingredients like human capital, financial capital, and infrastructure investments. To make the discussion independent from individual and institutional interests, the chapter focuses on two key dimensions of variation across resources: flexibility and importance. The energy to change the system or its dynamics is limited. Leaders can decide where to start and how much energy to invest in which resources are based on the region’s resource flexibility and importance.

Technology entrepreneurship and startups ecosystems are drawing the attention of policymakers and empirical researchers across the world. In India, Bangalore has been receiving increased global recognition and has turned into an irresistible magnet for tech startups because of its favorable climate, technically skilled talent pool, established private and public research institutions, and proactive government policies. As of now, Bangalore is home to the largest number of tech startups India and third most in the world.

A significant feature behind Bangalore’s status and recognition is the development of a unique entrepreneurial ecosystem that supports and endorses startups. Given this, it is important to understand how a favorable entrepreneurial ecosystem for startups emerged in Bangalore and what its major components are. How mature Bangalore’s ecosystem and how ready is it to nurture the emergence, sustenance, and growth of new startups? This chapter is an attempt to shed light on these facets and attributes of Bangalore.

The Berlin innovation ecosystem is characterized by its highly developed research landscape. Berlin boasts a high density of universities—and their graduates—and numerous well-developed and publicly financed research institutions. At the same time, a lack of large research-active companies and a weakly developed SME sector are major deficits in Berlin’s innovation ecosystem. These shortcomings result in weak privately financed R&D, the pronounced small-scale nature of Berlin’s economy, and rather low patent performance.

What sets Berlin apart as an innovation ecosystem in Germany and throughout Europe is the vibrant startup scene that has developed since the 2000s. Interestingly, the Berlin startup boom is not the result of exceptionally favorable political and administrative conditions or ambitious support programs, but rather of social and cultural factors.

Innovative startups that align with Berlin’s strength in publicly financed R&D generate positive long-term effects: They encourage large, well-established companies to invest in the city. These investments are no longer merely incubators and showrooms but, increasingly, R&D centers and—like in Tesla’s case—production facilities. Thus, science and innovation are making a decisive contribution to turning a poor and structurally weak city back into an attractive location for business and industry.

Innovation for Medellín is synonymous with competitiveness, differentiation, and economic development. Innovation can improve citizens’ quality by generating knowledge-based jobs through the support of intercompany projects, universities, entrepreneurs, investors, government, and other stakeholders.

This chapter shows how the innovation ecosystem works in the city, focusing on the public policies that promote Science, Technology and innovation (STi), the actors that support and promote businesses based on STi, and the establishment of University-State Business Committees that facilitate synergies among businesspeople, university delegates, unions, and the National Government. We also describe public investments into institutions promoting innovation and entrepreneurship. Finally, we show how two plans from Medellín’s Mayoralty intend to support and promote the development of STi for the economic and social benefit of the city. Specifically, these are the Development Plan Medellín Future 2020–2023 and the Strategic Plan for Science, Technology, and Innovation of Medellín 2011–2021.

Russia, and the Moscow region specifically, are very promising sources for innovative solutions and companies. Moscow has shown stable growth even during the financial crisis at an average pace of 10% per year. The region doubled its GDP in 10 years and managed to attract an impressive concentration of research institutes, universities, researchers, solid infrastructure, and a variety of other resources. The region has many highly educated citizens and boasts strong roots and tradition in science, making it very promising for high-tech industries. There are obviously local weaknesses, which are discussed in the chapter, but these weaknesses create the potential for innovative transformation in the future. The Russian Federation in general and Moscow specifically is very different from the rest of the world, and this makes it very appealing to study its approach to the innovation economy and derive new lessons.

Africa, especially the sub-Saharan region, is a hot spot of “frugal innovation,” which focuses on technology that meets the market’s needs. While this sounds trivial, frugal technology’s precise alignment to specific needs is unlike industrialized Western nations, where products come with hundreds of surplus features that consumers will never be able to use. As an illustrative example of this overfeaturing, it would clearly be overkill for a consumer intending to get some fresh milk from the farmer around the corner to buy a Ferrari to drive there.

The high-speed undersea Internet cable arrived in Kenya in 2009 and, combined with increasingly affordable mobile phones, meant that ordinary Kenyans had consistent access to high-speed Internet on mobile devices. This access drove the demand for the applications and infrastructure development that connected Kenyans to the rest of the world. Companies like Safaricom, Jamii Telecommunications, and Zuku have joined the government in efforts to spread fiber connectivity. Companies like Fireside Communications bring last-mile connectivity to Kenyans across the country.

New York City (NYC) has transformed itself from military port to manufacturing hub to financial epicenter and now takes center stage in the creative and applied tech sectors. Driving over USD70 billion in startup valuation and exits every year, holding more risk capital than any other city in the world, and with an inherent culture of openness, diversity, and excellence, NYC has had a meteoric rise to its current position in the top two innovation ecosystems globally.

This chapter explores the government initiatives, digital infrastructure, and research institutions that helped harness NYC’s assets and allowed it to develop as the world’s second largest startup and venture ecosystem. Given that capital is required for innovation to take off, NYC’s proximity to capital is a strength few ecosystems can match. Waves of IPOs from 2019 to present will only boost innovation as talent from companies become new founders and investors bolstering the NYC ecosystem. New York City will continue to strengthen its position as a leader in the innovation space.

Shanghai is not just a large city with around 23 million inhabitants; it is also one of the world’s largest trade hubs. As a cultural melting pot, Shanghai is a hot spot of knowledge and technology development. Shanghai’s Yangpu District hosts more than one-third of the colleges and universities. Learn about the core of the strength of this region with its creation of virtuous circles and the flexibility of incubation mechanism. The three main points for Shanghai’s success compared to other innovation regions are discussed as the degree of linkage across systems, the education level of the population, and the degree of spatial integration. In future, especially Yangpu District will be setting up special plans to attract social institutions to participate in investments. It is also supporting university science and technology parks to establish joint guiding funds for project equity investment in order to enhance the parks’ ability to cultivate high-quality early stage projects.

Shenzhen is one of the fastest-growing cities in human history. In 40 years, Shenzhen has grown from a rural village to a major metropolis and innovation hub. This chapter explores Shenzhen’s innovation ecosystem, infrastructure, policies, and strategies. The examination suggests that the special economic zone is an effective strategy, experimenting with regulations and bypassing bureaucracy to create a space for smart people with great ideas.

Importantly, Shenzhen first achieved modern industrialization and then transformed into an innovation hub. Its industrial power enabled Shenzhen to achieve “Shenzhen speed”: If you have a smart idea in the morning, you are likely to have a prototype in your hands in the evening. This speed separates Shenzhen from other global innovation hubs.

Today, Shenzhen is keen to create an academic environment where knowledge owners are encouraged to translate their knowledge into business ventures. Shenzhen is also the base of many major venture capitalists. Shenzhen has demonstrated that advanced industry plus knowledge owners plus venture capitalists can achieve great results in innovation.

Silicon Valley plays a key role in developing innovative technologies and paving the way for new global trends. The region remains, for now, the undisputed leader of the global startup and innovation scenes. So how did this special innovation ecosystem develop, and which factors were at play in turning Silicon Valley into the epicenter of startups and new technologies? Who are the main actors in the region, and how do they contribute to fueling innovation and entrepreneurship?

This chapter aims to shed light on Silicon Valley’s unique history and its central role in the global technology community. A special focus is given to cultural characteristics fostering collaboration and experimentation, as well as the social networks that underline the emergence and development of startups and new technologies. The SWOT analysis assesses the region’s strengths and weaknesses in a structured way and discusses the opportunities and threats that could fuel or jeopardize Silicon Valley’s leading role in global innovation. The lessons learned highlight some of the phenomena that underlie the regions entrepreneurial strengths and provide ideas for unlocking similar innovative potential in other regions around the world.

Bulgaria’s innovation performance has been distinctly positive since 2015, driven by remarkable innovation efficiency. Much of this dynamism is attributable to the country’s capital, Sofia, and its bubbling innovation and entrepreneurial ecosystem. EU funding has been one of the drivers for this process, but, unlike elsewhere in the region, the Sofia experiment has been very successful from its very first iteration.

Sofia’s strongest areas are its increasing employment in fast-growing innovative companies and its number of design and trademark applications. These achievements cannot offset its systemic challenges, the most urgent of which are related to the country’s demographic crisis, low total early stage entrepreneurial activity, small national and regional markets, and low buyer sophistication. The local ecosystem needs to broaden its entrepreneurial community, build collaboration at home and internationally—with the Bulgarian diaspora in particular—and implement a more soundly articulated national strategy for smart growth as part of the global knowledge economy.

The Tel Aviv ecosystem is one of the most vibrant innovation ecosystems in the world. It is fast, dynamic, direct, and—most of all—extraordinarily successful. This chapter dives into some of the elements that make it so successful, as well as the lessons one can take from Tel Aviv and implement in other ecosystems.

Even though the Tel Aviv ecosystem relies almost entirely on private capital, the market picture is quite different when the scope is limited to seed-level venture capital. The Israeli government has managed to attract foreign capital into the ecosystem through a combination of financial incentives, lax labor laws, and a policy of keeping its regulatory power away from the innovation markets. That governance style was not a product of design, but rather of necessity. Culturally, Tel Aviv’s emphasis is on abstract thinking throughout life and its no-barrier culture has assisted in making this ecosystem into a software powerhouse.

A SWOT analysis of the ecosystem provides key factors in a format easily comparable with other surveyed ecosystems. This analysis is expected to be valuable to ecosystem designers, investors looking to expand their reach, and entrepreneurs looking for the ideal ecosystem for their enterprise.

The Zurich region frequently ranks among the top innovative and competitive regions in the world. This chapter explores the drivers of Zurich’s unique interplay of high competitiveness and innovativeness, distilling the important components of this far-reaching innovation ecosystem. The analysis not only evaluates the relative strengths of resources for economic activities, but also includes the institutional, political, and social characteristics of the Zurich region ecosystem.

The key factors of Zurich’s regional innovation ecosystem are its strong research and university systems, its strong private sector with high levels of private investments in R&D and innovation activities, and its flexible and stable innovation and labor regulations. In Switzerland, the institutional system supports the generation and dissemination of knowledge with its transparent structure and public funding dedicated to the research institutions, which provides them with a strong position and high-class infrastructure to produce scientific outcomes. However, policymakers pay less attention to the dissemination of the knowledge and technologies generated by scientific institutions into the private economy and among private enterprises. The appropriation and implementation of newly generated knowledge haves been, in large part, delegated to companies—improving their competitive position on the market.