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Ideas for Leaders #689

Geography of Innovation: More Emerging Regions Involved, Advance Economies Still Dominate

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Key Concept

While emerging countries are starting to generate more innovation, most of the world’s innovation continues to be clustered in regions of the advanced economies.

Idea Summary

Where does innovation come from? A new study of the ‘geography of innovation’ indicates that most innovation continues to be generated in the advanced economies of the world. However, emerging countries are starting to make their presence known. And multi-national enterprises (MNE’s) can play a major role in advancing innovation in regions throughout the world.

The study was based on two sets of data: the OECD Regional Innovation Dataset (REGPAT), an OECD database of patents based on designated regions; and the fDi Markets database, produced by Financial Times division fDi Intelligence, which tracks cross-border investments worldwide. The REGPAT data used in the research covered 1,482 regions in 39 countries over a period of 32 years (1980 to 2011). The fDi Markets database covered 110,000 investment projects by MNE’s in 184 different countries.

Analysing this data, researcher Davide Castellani of the University of Reading’s Henley Business School drew the following conclusions:

The number of geographic locations involved in innovation is expanding. The number of countries, and regions within those countries, generating innovations (as measured by the number of patents) is increasing. For example, the number of regions of the world with at least one patent increased from 500 to 1980 to 1500 in 2011. Much of this geographic growth is due to more emerging countries becoming active in innovation. For example, the number of regions in relatively new OECD countries, such as Chile and Poland, that engaged in patenting activity increased by a factor of 10; and in countries outside of the OECD, such as Brazil and China, the growth in the number of patent-producing regions was even greater (from 16 to 178). 

Innovation continues to be concentrated in a few regions of a few countries. Despite the growth in the overall number of regions involved in innovation, as reflected in the REGPAT statistics, innovation continues to be overwhelmingly concentrated in a few regions of the advanced economies. For example, the 10 most active countries in patenting activity accounted for approximately 90% of worldwide patents — with the top three countries (U.S., Japan and Germany) accounting for 60% of patents. And even these numbers don’t reflect the concentration of innovation: drilling down into the regions within these leading countries, the data shows that 12% of regions accounted for 70% of all patenting activity. There’s also heterogeneity in the level of activity: a few regions showed a dramatic increase in patents while other regions stayed stagnant — thus, the increase in overall innovation activity is somewhat misleading since such an increase was not across the board.

‘Local buzz’ plays an important role in innovation activity. The data showed that previous innovation is often a prerequisite for future innovation. This is consistent with the ‘local buzz’ theory that states that innovation emerges with local interactions and exchanges of knowledge among clusters of innovators. For example, most co-inventors, the REGPAT data showed, lived and worked near each other. 

International collaboration is on the rise. While there is no doubt that locally grown innovation dominates, the number of cross-border innovations — that is, involving co-inventors who don’t work in the same region or, sometimes, not even in the same country — is expanding. One reason is the increase of innovations in emerging countries, where cross-border co-operation on innovations is more common. However, even core OECD countries are showing an increase in cross-border innovations. This increase in international collaboration reinforces the ‘global pipelines’ argument, which says that innovation emerges when external knowledge is allowed to complement and inform local knowledge.

MNEs play a role in the global pipelines of innovation. The fDi Markets database shows that 60% of MNE’s R&D centres are located in 5% of the cities in the database — a reflection of the concentration of innovation activity, but also a reflection of the value of MNE R&D centres in sparking local innovation.

Business Application

Innovation continues to emerge from local clusters where collaborators and co-inventors gather around specialized knowledge. Emerging regions can increase their innovation activity by connecting global pipelines of knowledge and seeking cross-border collaborations. 

As for MNEs, they are in a unique position to act as ‘global orchestrators of knowledge,’ with an international presence and capabilities that can connect geographically dispersed clusters. However, such a role requires MNEs to be willing to place their R&D centres in dispersed locations, rather than close to home.

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Authors

Institutions

Source

Idea conceived

  • September 2017

Idea posted

  • January 2018

DOI number

10.13007/689

Subject

Real Time Analytics