The Dynamics of localized
technological change
Innovation and Technology Transfer
-José Mangueira
-Rui Martins
-Pedro Nazareth
Antonelli, C. and Calderini, M. (1999) , “The dynamics of Localized
Technological Change”, in The Organization of Economic Innovation in
Europe, eds. A. Gaambardella, and F. Malerba, pp. 158-176, Cambridge
Univ Press
8th of March 2002
Master of Sc. in Eng. Policy and Management of Technology
Presentation Framework
 Introduction
 Skill-intensive Industries
 The dynamics of localized knowledge
 Role of demand-pull forces in the dynamics of
localized technological change
 The author’s approach:
Basic Hypotheses
Empirical Analysis
 Conclusion
Master of Sc. in Eng. Policy and Management of Technology
Introduction
The notion of localized technological change is appropriate for
understanding the dynamics of innovation in most of European industries
Starting Point: R&D intensity and patent-counting fail to appreciate the
innovative capability of most traditional industries
Technological change is mainly based upon learning-by-doing and
tacit knowledge
To appreciate the dynamics of technological change based upon
localized technological knowledge: Skill-intensive industries play a role
mainly for the European industrial
scenario
Continuous introduction of technological and organizational innovations
are (for skill-intensive industries) mainly based upon bottom-up
approaches
Master of Sc. in Eng. Policy and Management of Technology
Skill-intensive Industries
Characteristics:
•The specific nature of the technological change
•The high rate of the total factor productivity (TFP)
•Small sizes of firms
•The high level of regional concentration and wages, and the low level
of capital intensity
•The tight web of cooperative agreements among firms
Sources of technological knowledge and consequently technological change:
•The internal organization: relationship between production departments and
marketing activities
•Internal labor markets and wages structures
•The creative and timely adoption of new capital goods and intermediary inputs.
•The implementations of technological by means of parallel changes in the
organization of the companies
•The close interactions between changes in the process and products in terms
of design
Master of Sc. in Eng. Policy and Management of Technology
The dynamics of localized change
Information differs from Knowledge: Information (treated data) is
an input in the production of knowledge
Technological knowledge is localized in tacit learning processes (largely
excludable)
Technological Change
inherently localized
is
Constraints in its transference and
adaptation
Localized technological change
Tacit knowledge
Generic knowledge
Scientific structured information,
available to everybody at low costs of
acquisition and replication (Public Good)
Highly idiosyncratic, specific to the
business environment and expensive
Master of Sc. in Eng. Policy and Management of Technology
The dynamics of localized change
Standard microeconomics suggests that technological information should be
considered a public good, in that its use is non-excludable and non-rival.
Intellectual property rights can increase appropriability, but reduce the scope for the
socialization of inovation benefits.
The localized character of the technical knowledge increases its appropriability but
reduces its spontaneous circulation in the economic system.
Technological change is inherently localized (firm background).
Firms rely upon varying mixes of tacit and generic knowledge in order to generate
localized technological innovations.
Master of Sc. in Eng. Policy and Management of Technology
The dynamics of localized change
The study of the determinants of the innovation capability of firms, must take into
account the innovation system into which firm is embedded, more specifically
three classes of factors:
• Amount of resources devoted to implementing the accumulation of tacit
knowledge by each agent in the system
• Receptivity to technological knowledge generated by third parties
• Properties of the system in terms of connectivity and distribution of receptive
agents
New technological knowledge emerges also from the daily interactions of learning
firms among themselves and with other scientific institutions. Communication and
trading of information play a major role.
Master of Sc. in Eng. Policy and Management of Technology
Role of demand-pull forces in the
dynamics of localized tech. change
Localized technological change is the endogenous outcome of the
interplay between substitution costs and learning processes.
Changes in demand input costs and relative competitivity for each firm
imply substitution costs of switching sizes and production techniques.
Firms tend to capitalize on their experience acquired by means of
learning-by-doing and learning-by-using, plus R&D.
Changes in demand imply that firms are induced to make efforts to cope
with the in(de)creased levels of their output by in(de)creasing the levels of
their inputs; This however push firms to mobilize all their learning
capabilities so as to capitalize on the experience acquired and hence
introduce innovations that make it possible to adjust output to the desired
levels without changing their input levels.
Master of Sc. in Eng. Policy and Management of Technology
Role of demand-pull forces in the
dynamics of localized tech. change
The literature on demand-pull assumes that firms are pushed to introduce
technological innovations by the pressure of demand.
In fast-growing markets the rates of return to innovation are larger so as to
trigger accrued innovative efforts of firms and independent inventors that
eventually lead to the generation of faster rates of innovation.
Recent developments in evolutionary theory show that cumulative
causation and path dependency of economic processes not only apply to
firms or industries, but they are also at the core of selection mechanisms
between competitive firms and technologies.
Dynamic economies accumulate knowledge and experience the firm has
acquired over the years.
Master of Sc. in Eng. Policy and Management of Technology
Role of demand-pull forces in the
dynamics of localized tech. change
In the Shumpeterian literature the basic incentive to innovate is provided
by market entropy.
The larger the time variance in the market shares, the larger the efforts of
firms to introduce innovations. This is due to two contrasting and yet
complementary reasons:
Fast-growing firms that have increasing market share, larger levels of
output, mark-ups and cash flows, retain larger shares of them to fund
internally risky projects, so invest more on R&D.
Declining firms, that see both their market shares, profits and output
shrinking, are now induced by the emerging failure to fund R&D activities
aggressively in order to survive and meet the adversity of introduction of
both product and process innovations.
Because of the attention paid to the variance in market shares the
Schumpeterian literature stresses also the role of demand at the firm level
in assessing the amount of incentives for firms to introduce technological
innovation.
Master of Sc. in Eng. Policy and Management of Technology
Basic Hypotheses
New levels of demand (aggregate
changes or increased share of a
given market
Firms have to accomodate
their size to the new levels of
their demand
Increasing size:
Extensive growth (increase in the level of input) or
Intensive growth (increase in the levels of efficiency)
Demand-pulled localized technological change will be larger the larger
is the increase in the demand levels, the larger the dimensional
switching costs, and the larger the opportunities to generate
innovations based upon experience and local knowledge acquired by
means of learning-by-doing and learning-by-using and R&D activities
Master of Sc. in Eng. Policy and Management of Technology
Empirical Analysis
Based upon evidence about the mechanical engineering industry,
with a data set of 136 firms in a time span of six years (19881994)
Technological change is characterized by the relevance of the
learning process (internal and external)
Computer Integrated Manufacturing: Implementing such a system is
a largely empirical and trial-and-error process, where firms are
forced to rely on their own knowledge, resources and experience
The non-availability of formalized knowledge discourages imitative
behaviours and patterns of inovation
Shifts in the demand curves of mechanical engineering firms have
triggered innovation processes characterized by localized knowledge,
learning by doing, learning by using, and tacit knowledge
Master of Sc. in Eng. Policy and Management of Technology
Conclusion
Technological knowledge is considered as a high impure public good, which
relies upon a continuum of specifications of different forms of knowledge: at
one extreme generic and scientific knowledge and at another, tacit
knowledge
In the generation of localized technological change firms rely on both tacit
and generic knowledge:
“The generation of localized technological knowledge can therefore be
viewed as the product of a systemic bottom-up process of induction from
actual experience, which integrates a top-down process of deduction from
general scientific principles on which generic knowledge is built”
Importance of
Receptivity
the
communication
channels: Connectivity and
Master of Sc. in Eng. Policy and Management of Technology
Conclusion
Too much importance has been paid by European innovation economics
and policies to R&D activities as if they were the unique source of
knowledge for firms:
Many small firms rely almost exclusively on tacit localized
knowledge and yet are able to generate important
innovations
Suggestions:
An innovation policy should push the innovative
capability of skill-intensive firms by paying attention to
feeding all the processes of learning and implementing
technological cooperation
Creation of industrial technological centers specifically
designed to sustain the localized processes of
technological change so as to socialise the technological
know-how
Master of Sc. in Eng. Policy and Management of Technology