3.1 Innovation ecosystems, cooperation and public support programmes
The ecosystems approach to understanding innovation has an affinity with open innovation theory (Chesbrough
2003) in moving beyond individual firm performance to focus on knowledge transfer within cooperative relationships between firms and related institutions (Durst and Poutanen
2013; Oh et al.
2016; Song
2016). However, thinking on ecosystems seems to suggest in addition a cumulative causation effect. On the one hand, cooperation at the micro level is one of two core attributes, along with integrated value chains, of innovation ecosystems (Xu et al.
2018). This is consistent with Song (
2016, p. 14): ‘… multiple organisations … integrate their resources and form an environment that leads to the research and development of new technological applications … and improves the innovation ecosystem’s cooperative performance’. On the other hand, there may be emergent properties at the macro or system level that enhance innovation and enlarge the scope for cooperation at the micro level. For example, the greater the technological diversity of firms’ alliance partners, the greater their ‘exploratory innovation’ (according to Phelps and Paris
2010, cited by Song
2016, p. 14). Yet, from the perspective of the wider innovation ecosystem in which these firms are located, the greater the technological diversity, the greater the opportunities for all firms to cooperate to innovate more complex products that are harder to imitate and thus a source of individual competitive advantage (drawing on Song
2016). In this case, firm-level cooperation for innovation is at the base of an ‘ecosystem’ whose emergent properties give rise to positive feedback on cooperative innovative performance at the firm level … and so on. In this case, estimating the effects of public innovation support programmes on firms’ cooperative behaviour (whether intended or unintended) is a contribution to understanding the role that public policy may play in contributing to the well-functioning of innovation ecosystems. Moreover, a corollary of this potential to propagate innovation via a process of cumulative causation (firm–ecosystem–firm … and so on) is that the effects of public innovation support policies may unfold over time and thus go beyond the immediate and short-run innovation effects—innovation inputs (e.g. R&D expenditure) and outputs (e.g. technological and non-technological innovations)—that dominate the evaluation literature.
In spite of the emphasis on market mechanisms in innovation ecosystems thinking, this emerging literature does embrace the role of public policy.
4 The particular focus of our study is on the effectiveness of public support in promoting firms’ cooperative behaviour, which supports the dynamism of innovation ecosystems. The literature evaluating innovation support programmes has previously highlighted the impact of public support on firms’ cooperative ties, whether through networking or partnerships with other economic agents (Georghiou
2004; Hall and Maffioli
2008; Breschi et al.
2009; Antonioli and Marzucchi
2012). Accordingly, public intervention might enable firms to establish cooperative ties or strengthen existing ones (Aschhoff et al.
2006). In turn, by engaging in external relations, firms acquire and improve knowledge and learning capabilities (Clarysse et al.
2009; Afcha Chàvez
2011).
From different theoretical perspectives, government intervention to promote cooperation for innovation may stem from incomplete appropriation of knowledge spillovers generated through cooperative ties, systemic failures reducing firms’ willingness to cooperate or resource limitations reducing their ability to cooperate. For example, public support might encourage internalisation of knowledge spillovers from cooperation (i.e. learning effects) as a complementary objective to fostering firms’ innovation activities (Autio et al.
2008; Afcha Chàvez
2011). In other words, public intervention might yield ‘a learning-enhancing externality beyond the direct effect of firm-specific R&D subsidy’ (Autio et al.
2008, p. 60).
The literature evaluating innovation support programmes, in particular that part embracing behavioural additionality (influenced by evolutionary thinking), identifies ways in which public support may positively influence cooperative behaviour (Antonioli and Marzucchi
2012; Gӧk and Edler
2012). Buisseret et al. (
1995) introduced the concept of behavioural additionality to describe the change in firms’ behaviour as a consequence of public policy. It refers to knowledge acquisition and developments of learning and R&D management capabilities, competencies and strategies, including cooperation strategies (Antonioli and Marzucchi
2012; Gӧk and Edler
2012; Wanzenbӧck et al.
2013). Georghiou (
2002) hypothesised that behavioural additionality can occur as a consequence of public interventions even when input and/or output additionality does not take place, although this is contested by Clarysse et al. (
2009, p. 1524) who argue on both theoretical and empirical grounds that input additionality and behavioural additionality are ‘highly correlated’. Although scarce, most empirical studies on behavioural additionality focus on firms’ cooperation strategies and report positive effects from innovation support programmes (Fier et al.
2006; Busom and Fernández-Ribas
2008; Fernández-Ribas and Shapira
2009). Of these, most report larger additionality effects for public-private partnerships than for cooperation with other businesses (Fier et al.
2006; Busom and Fernández-Ribas
2008). Indeed, Afcha Chàvez (
2011) and Antonioli et al. (
2014) report no innovation policy effects on vertical cooperation (with customers and suppliers), while the latter even found a negative impact of regional policy on horizontal cooperation (with competitors). In summary, most studies report positive effects of innovation support programmes on firms’ cooperation behaviour, but the magnitude and significance vary depending on the type of cooperative partnerships.
Table
7 in the Appendix highlights the main features of the previous empirical studies on behavioural additionality, all of which encompass cooperation, and enumerates the main differences with the present study. Few studies have expressly focussed on behavioural additionality across country boundaries, with a focus on either a single country (Falk
2007; Busom and Fernández-Ribas
2008; Clarysse et al.
2009; Hsu et al.
2009; Afcha Chàvez
2011; Wanzenbӧck et al.
2013) or region (Antonioli et al.
2014). Only one study, with limited coverage, included traditional sectors (Falk
2007), although it reports no specific results for traditional manufacturing. Heterogeneity by firm size was not investigated in any of the studies, with only a few investigating heterogeneity by source of funding: Afcha Chàvez (
2011)—EU funding not separately identified; Wanzenbӧck et al. (
2013)—national funding only; and Antonioli et al. (
2014)—regional funding only. This study makes its particular contribution by drawing upon a cross-country sample, by focussing exclusively upon traditional manufacturing industries (otherwise neglected in the literature, as we argue in Section
2 above), and by investigating policy effects on SME cooperative behaviour with respect both to firm size heterogeneity and to different sources of funding. Accordingly, the present study complements the existing literature.
Innovation support programmes used by SMEs in traditional manufacturing industry mainly target innovation outputs, although some seek to promote cooperative behaviour in particular. However, the literature suggests that innovation support of all kinds tends to promote behavioural change, whether directly or indirectly, including the propensity to cooperate. This perspective informs the present study by suggesting that it is reasonable to analyse the behavioural effects of participation in all types of innovation support programmes. The next section explains how cooperation for innovation informs hypotheses that we can test using our data on SMEs in traditional manufacturing.
3.2 Hypothesis development
The literature identifies many advantages of cooperation for innovation: cost reduction by exploiting economies of scale and scope (Hagedoorn
1993; Teirlinck and Spithoven
2012); sharing risk and uncertainty related to innovation (Hagedoorn
1993; Rese and Baier
2011); and opting to ‘buy’, instead of ‘make’, when transaction costs are low (Williamson
1985). In addition, ‘speed to market’ is particularly important for SMEs—i.e. rapid commercialisation of inventions to capture innovation returns and overcome appropriability issues (Leiponen and Byma
2009; Rese and Baier
2011). Yet Hoffmann and Schlosser (
2001) find that SMEs greatly underestimate some of the critical success factors for successful cooperation, such as partnership governance and professional management, and often lack the managerial skills and experience necessary for developing and maintaining successful cooperative ties. In turn, this suggests a channel through which public support for any type of innovative activity—i.e. by relieving resource constraints—may help to promote cooperative activity.
The literature not only identifies advantages of cooperation but also suggests circumstances that condition firm preferences regarding types of cooperation. We now explain how theory, which relates mainly to firms in general rather than to SMEs in particular; characteristics of SME innovation in traditional manufacturing industry; and the data available for this study together lead us to frame hypotheses regarding SME cooperation with customers and suppliers, competitors, private knowledge providers and public knowledge providers.
Different types of cooperative partner entail different breadth of knowledge base and ease of access (Un et al.
2010). With respect to vertical cooperation with customers and suppliers, cooperation with suppliers is characterised by a limited scope of knowledge breadth, because often the focal firm and its suppliers operate in similar industries, but the focal firm can access that knowledge more easily than when cooperating with customers. On the other hand, cooperation with customers provides firms with broader knowledge but more limited access (Un et al.
2010).
Following the resource-based theory of the firm, in cooperating for innovation, firms can seek to access either complementary or similar resources (Arranz and de Arroyabe
2008; Chun and Mun
2012). The main reason for vertical cooperation on innovation is that firms gain access to complementary resources and capabilities (Arranz and de Arroyabe
2008; Un et al.
2010). By providing technological knowledge, suppliers usually help firms to improve their current products, introduce new products and/or reduce costs through process innovation (Belderbos et al.
2004; Un et al.
2010), while cooperation with customers is particularly relevant in the commercialisation phase of innovation (Von Hippel
1988; Belderbos et al.
2004; Arranz and de Arroyabe
2008). In industries with a mature technological level, such as traditional manufacturing, firms cooperate with customers to exploit and optimise existing technologies (Faems et al.
2005). Moreover, the importance of ‘speed to market’ for SMEs (noted above) may apply with particular force to traditional sector SMEs; because they seldom register patents or engage in other formal ways of protecting intellectual property rights (Leiponen and Byma
2009), cooperation to secure deliveries from suppliers and/or sales to existing customers may be a particular priority. In line with this discussion, we investigate
Hypothesis 1: The impact of public support has a positive impact on vertical cooperation with customers and suppliers.
Mutual trust between partners is often identified as a key success factor in collaborative relationships (Barge-Gil
2010; Lee et al.
2010). As a potential partner can behave opportunistically and obtain information about new technologies without paying for them, firms may lack incentives to reveal their internal inventions. Accordingly, empirical studies regularly report that weak appropriability has a negative effect on cooperation for innovation (Lhuillery and Pfister
2009). Barge-Gil (
2010) concludes that forcing firms to collaborate can be counterproductive and creates a climate of mistrust, while Lee et al. (
2010) discuss potential negative effects of cooperation in the context of small and medium-sized firms. Conversely, public support measures might help firms to overcome barriers to cooperation as well as to mitigate cooperation failure (Busom and Fernández-Ribas
2008).
Cooperation failure refers to reduced effort in cooperative partnerships when cooperating firms do not clearly specify which partner will be assigned exclusive property rights (Dhont-Peltrault and Pfister
2011). In particular, SMEs might face a higher risk of cooperation failure in cooperating with competitors (Lhuillery and Pfister
2009). Competing firms could try to capture the other firm’s knowledge (i.e. to maximise incoming spillovers) while, at the same time, trying to minimise the transfer of their own knowledge to the other firm (to minimise outgoing spillovers) (Belderbos et al.
2004).
With respect to knowledge breadth and its accessibility, cooperation with competitors is an extreme case, as it provides rather limited knowledge breadth accompanied by difficulties in accessing it (Un et al.
2010). The resource-based theory of the firm suggests that firms cooperate with competitors to gain access to similar knowledge bases and resources (Arranz and de Arroyabe
2008; Un et al.
2010). The main motive for collaborating with competitors is risk and cost sharing in innovation projects by pooling similar resources (Miotti and Sachwald
2003; Arranz and de Arroyabe
2008; van Beers and Zand
2014).
Cooperation with competitors is particularly pertinent to firms in high-tech industries, which are more likely to cooperate with their rivals to pool costs and risks and increase the speed to new markets (Arranz and de Arroyabe
2008). Conversely, the cost and risk drivers may be less compelling and speed to market more compelling for firms in traditional manufacturing, which are low- and medium-tech. Responses from the surveyed firms in our sample are consistent with this conjecture, as the smallest number of firms (27 or 9%) cooperate with competitors, while the largest number engage in vertical cooperation with customers and suppliers (see Section
5.1), which is common with respect to cooperation for innovation (Lhuillery and Pfister
2009). Moreover, a low proportion of firms cooperating with competitors may be taken as an indicator of the difficulties of managing this type of relationship.
In sum, following Lhuillery and Pfister (
2009), the risk of cooperation failure is of high importance when a firm decides whether to cooperate for innovation with a particular partner, and this may apply with particular force to traditional sector SMEs that tend not to use formal means to protect intellectual property. Very few empirical studies report behavioural additionality with respect to cooperation with competitors. Indeed, Antonioli et al. (
2014) found a negative impact of regional policy on this type of cooperation. Therefore, we posit
Hypothesis 2: The impact of public support on cooperation with competitors will yield a smaller treatment effect than will other forms of cooperation, given the likelihood of cooperation failure due to mistrust and opportunistic behaviour.
Theoretical and empirical studies on the role of consultants and other private sector knowledge providers in ‘systems of innovation’ are rather scarce (Tether and Tajar
2008). With respect to specialist knowledge providers, Tether and Tajar (
2008) argue that they are complements rather than substitutes in firms’ innovation activities. This argument is in line with the open innovation model, in which firms explore a broad range of external knowledge sources. In addition, Tether and Tajar (
2008) found that similar factors determine relationships between firms and either specialist knowledge providers or public research organisations. In particular, they report that firms with limited investment in R&D are more prone to cooperating with consultants than with other private or public knowledge providers, an argument that may be particularly relevant to traditional sector SMEs whose intellectual property is more typically tacit than the product of formal R&D. This is partially reflected in our data, whereby a larger portion of firms cooperate with consultants than with government institutions and public research institutions; see Table
8 in the Appendix. (Higher education institutions—HEIs—are an exception, but that is understandable given the increased pressure on universities to collaborate more closely with industry.) In the absence of theory and empirical study of the public support effects on SME cooperation with private sector consultants, we conjecture that these are similar to support effects on public-private partnerships. Moreover, if these effects are different, they are likely to be smaller if private sector consultants are less trusted than public sector bodies with knowledge leakage. Accordingly, we frame
Hypothesis 3: The impact of public support on partnerships with private sector consultants is positive, and the magnitude of treatment effects is equal to or less than the impact of public-private partnerships.
The main motive for cooperation with public institutions, such as HEIs and research institutes, is access to basic knowledge, which might lead to entering new markets (Belderbos et al.
2004; Faems et al.
2005). This might also apply with particular force to firms with limited investment in R&D, which includes traditional sector SMEs. Other arguments from the literature are likewise particularly relevant to traditional sector SMEs. Concerning knowledge breadth, cooperating with public institutions provides firms with the broadest knowledge base (Un et al.
2010). Moreover, this mode of cooperation entails the greatest ease of access, compared to vertical and horizontal cooperation, as well as low risk of knowledge leakage and opportunistic behaviour. Cooperation with public institutions will be particularly prominent in firms further away from the technological frontier, as their technological and financial resources are rather limited (Miotti and Sachwald
2003; Faems et al.
2005). The confirmation of this argument can be observed in our sample; namely, descriptive statistics indicate that one third of SMEs cooperate with HEIs, which is a similar proportion to the number of firms engaged in vertical cooperation with customers and suppliers (see Appendix Table
8). This finding is further in line with the argument that universities provide the largest knowledge base relative to any other cooperative partner (Un et al.
2010; Foreman-Peck
2013).
Finally, given the prominent role of trust in cooperative innovation, firms are least likely to trust their competitors and most likely to trust government institutions, which are willing to share knowledge with enterprise while posing no commercial threat. Thus, appropriability issues and mistrust are least likely to occur in public-private partnerships, which may be particularly important for traditional sector SMEs that may not engage in formal protection of intellectual property. Furthermore, Cassiman and Veugelers (
2002) report that incoming spillovers (using external knowledge sources) are an important factor in private-public partnerships. Conversely, the presence of technological information reduces the probability of vertical cooperation with customers and suppliers. Therefore, we formulate
Hypothesis 4: The impact of public support on public-private partnerships (cooperation with HEIs, government institutions and public research centres) is positive, and the magnitude of treatment effects is the largest relative to other types of cooperation.