SME modes of innovation in European catching-up countries: The impact of STI and DUI drivers on technological innovation

Highlights

• Innovation systems influence SME innovation.

• Types of technological innovation moderate SMEs innovation modes.

• Returns from STI are different across innovation systems.

• Catching-up countries primarily show DUI modes and process innovation.

• Catching-up countries show limited returns from STI modes.

Abstract

At the intersection of SME innovation and innovation systems, this study investigates the characteristics of SME innovation modes in catching-up European countries (Southern, and Central and Eastern European) and compare it with selected among the most advanced countries in Europe as a mean to show key differences. Distinguishing between STI (Science, Technology and Innovation) and DUI (learning-by-Doing, Using and Interacting) innovation drivers, and analyzing their impact on technological innovation we study 29,834 SMEs innovation in 15 countries. We argue that the most effective SME innovation modes in catching-up countries are peculiar vis-à-vis other types of countries (e.g. advanced economies). Results show how their economic, institutional and innovation context influence SME forms of knowledge and learning. In general, catching-up countries show effective DUI-type collaborations for process innovations, while showing more limited returns than advanced countries from the STI mode of innovation.

Introduction

This study is positioned at the intersection of SME innovation (e.g. Radziwon and Bogers, 2018; Kapetaniou and Lee, 2018; Parrilli and Radicic, 2020) and scholarly work on innovation systems (e.g. Fitjar and Rodríguez-Pose, 2013; Haus-Reve et al., 2019; Jensen et al., 2007; Parrilli and Alcalde Heras, 2016), and directly investigates the differences between SME modes of innovation in advanced and catching-up countries in Europe. By catching-up countries we refer to those from the South, Central and Eastern Europe. Relative to more advanced economies (e.g. Germany or Norway), these countries present medium per capita incomes and thin innovation systems. This research area addresses firms’ modes of innovation through specific innovation drivers made up of internal and external (collaborations) innovation activities and their specific institutional context. In this literature, it is argued that the measurement of innovation requires the study of the firm-level in their spatially-bounded context, that is, how innovation systems and their contextual and spatial specificities shape innovation patterns across countries and regions. From this perspective, our study follows Jensen's et al., (2007) discourse on innovation modes, which distinguishes between STI (internal and external or collaboration Science, Technology and Innovation drivers, primarily R&D and collaboration with universities and research centers) and DUI (internal and collaboration Doing, Using and Interacting drivers, primarily collaboration with value-chain actors) forms of knowledge and learning.

Within this theoretical realm, the literature is limited because the large majority of studies – apart from very recent contributions (Parrilli et al., 2020 on European regions; Parrilli and Radicic, 2020 on SMEs in Europe and the US) - are based on individual countries and their own contextual specificities. This limitation prevents developing cross-country comparisons that can help discovering differences in firms’ innovation modes due to distinctive country patterns that reflect their own innovation and institutional systems. In addition, there is less research on innovation systems in catching-up countries (e.g. Fijałkowska et al., 2018), thus making this study timely.

Upon this theoretical basis, our study offers a characteristic approach. First, we focus on catching-up countries, those in Southern and Eastern Europe (e.g. Apanasovich et al., 2017, 2016; Castellacci and Archibugi, 2008; Szczygielski et al., 2017), which represent a scope that is less researched, thus requiring more thorough understanding (European Commission, 2020). Second, our approach focuses on SMEs as units of analysis. This responds to the fact that small and medium-sized enterprises (SMEs) are pervasive in Europe, constituting around 99% of the total firms in Europe and contributing two-thirds of total employment (e.g. Papadopoulos et al., 2020)¹. In addition, the literature on SMEs research innovation without contextualizing firms within their respective institutional and innovation context. Third, we relate innovation modes with different technological innovations (product and process innovation) in an attempt to find modes of innovation not only based on innovation systems where SMEs are embedded, but that are also moderated by the different types of technological innovation pursued by firms. Fourth, our study builds upon existing debates in the modes of innovation literature, like that on the simultaneous combination of DUI and STI collaborations. According to empirical evidence, firms that combine a strong version of the STI-mode with a strong version of the DUI-mode excel in product innovation, a fact evidenced in studies contextualized in countries such as Denmark (see Jensen et al., 2007), Spain (González-Pernía et al., 2015; Parrilli and Alcalde Heras, 2016), Portugal (Nunes and Lopes, 2015), Belarus (Apanasovich et al., 2016), Norway (Hause-Reve et al., 2019) or Europe as a whole Parrilli et al., 2020). Specifically, this sub-line of inquiry has produced non-conclusive results, showing a substitution (negative) effect that indicates that the above mentioned simultaneous collaboration with STI and DUI external sources of knowledge does not yield multiplicative benefits on innovation performance (Haus-Reve et al., 2019) and, in contrast, pointing out complementary or positive returns (Jensen et al., 2007; Parrilli and Alcalde, 2016, among others). While the direction of the effect is a question mark, whether positive or negative, it seems that the different types of country and their specific innovation and institutional systems might produce divergent outcomes (see Parrilli et al., 2020 for European regions). This study also attempts to resolve this tension of the different direction of the effects of collaboration on innovation (complementarity vs substitution) by comparing groups of countries and controlling for their different innovation and institutional systems in order to decipher whether that effect is country-dependent.

Lastly, this study's insights complement and extend the general SME innovation strand focused only on internal and external innovation drivers but not considering innovation systems where they are embedded (e.g. Radziwon and Bogers, 2018). Overall, we attempt to contribute by presenting findings from a large-scale database covering 29,834 SMEs in 15 countries from the Community Innovation Survey (CIS) 2014, which goes beyond existing evidence on specific/individual countries. We do this by classifying countries according to their different scale of development and degree of integration in the world economy: Northern-Europe (Advanced countries, here Norway and Germany), and more importantly Southern-Europe (Spain, Portugal and Greece, namely SEC), and Central and Eastern Europe Countries (named CEEC). The latter two categories are the center of this analysis as they represent countries that are on a prospective catching-up trajectory, to increase their competitiveness and innovation. The advanced countries (in this case Norway and Germany) are only utilized for benchmark and comparison, but do not constitute this research's main target.

In doing so, our study contributes to the literature on business modes of innovation by: i) analyzing the relationship between technological innovation (product or process innovation) pursued by SMEs and their innovation modes; ii) studying whether scientific and industry collaborations are complementary or substitute, and; iii) aiming to study in more depth how SMEs in European catching-up countries (with their own resources and capabilities) specifically combine STI and DUI drivers and get returns, vis-à-vis advanced countries and among themselves (Central and Eastern European vs Southern European countries). This work delivers special depth to holistic scholarly interpretations of regional innovation systems linked to specific technological and institutional assets (Asheim and Gertler, 2009; Cooke et al., 2004; Isaksen and Trippl, 2016; Parrilli et al., 2016a).

The paper is organized in five sections. In Section Two and Three, we discuss the relevant literature to theorize on the different innovation systems and related business innovation modes in different country contexts, thus setting our research hypotheses. In Section Four, sample, data and variables are presented. Section five shows and discuss the results of the empirical analysis, while Section Six concludes and presents key policy implications.