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The concept of technology specialization and its economic significance in the EU context. It explores various taxonomies of specialization, including scientific knowledge, technologies and innovations, production processes, clusters, and horizontal vs. vertical specialization. The document also highlights the importance of specialization policies and their potential impact on economic and social performance. It emphasizes the need for a comprehensive approach to technology policies that considers the creation of new scientific knowledge, technologies, and innovations, as well as the diffusion of technologies and the capabilities of firms and countries to exploit them.
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(^1) University of Athens, Department of Economics. (^2) Economist. (^3) The views expressed in this paper are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.
5.1. A general view of R&D specialization in the technological advanced E.U. countries
5.2. Technology intensity of trade specialization of 8 E.U. member countries
5.3. The EU R&D regional landscape
5.3.1. R&D intensities on NUTS 1 level and specification patterns 5.3.2. Regional typologies of RIT system 5.3.3. Summary
6. Technological-led specialization as a wider E.U. policy issue
6.1. The issue of appropriate policy mixes 6.2. The risks from neutral policies 6.3. The risks of targeting specialization 6.4. An horizontal issue: Concentration of resources versus decentralization approaches 6.5. Three different strategies 6.5.1. Strategies aiming at the frontier 6.5.2. Preventive strategies to face global risks 6.5.3. The catching-up and the convergence issue
7. A lesson from the financial crisis: The importance of regulating risky innovation-
based specializations
**8. What choices and how to deal with risks?
Specialization by definition has two contrasting aspects: one positive , indicating the areas where a country, a sector and/or a firm exhibits a stronger position than other countries, sectors and/or firms, and one negative , indicating, respectively, the areas of relative weakness. Consequently, technology specialization in its positive sense inherently implies a concentration of capabilities on some areas of knowledge. Inversely, in its negative sense, it implies weak capabilities in other areas when compared to the pole of reference. The very concept of specialization, however, means that it is not conceivable that a country achieves specialization positions in the whole broad spectrum of technologies.
3. Why does specialization matters?
Specialization exerts different effects according to the technological level to which it is associated. A range of taxonomies can be discerned, such as:
These different types of specialization are not only of an analytical nature. From our point of view they raise two questions: At which kind of technological knowledge have specialization policies to focus, to what extent these different levels require differentiated policies and of what type. For example, should technology specialization policies be examined with regard to research, development, innovation, or to clusters, to a mix of them or to other variables? The implications from specialization (as a policy goal or as a state) being localized in the early or the late phases of the R&D chain are very different. In particular, it makes an important difference whether specialization is embodied in production processes, leads to the creation of competitive advantages and affects directly growth, employment, income, welfare and power, or whether it remains at the sphere of scientific knowledge.
In the perspective of this paper, specialization acquires economic importance especially when new knowledge translates to value creation and is associated to the following conditions:
The focus on the interrelationship between technology specialization and the creation of competitive advantages implies that it is not sufficient to examine just the innovative nature
of knowledge. What matters is the ways new knowledge and technical change are integrated and assimilated in productive processes and with what results. Such a view allows a widening of the context in which technology policies are analyzed, that is the creation of new scientific knowledge, new technologies, innovations and the development of new dominant and emerging technology areas. Moreover, it is important to consider that new knowledge and technology are not related to specialization in a linear way, that the possible combinations of knowledge and technologies and their future uses and implications are unpredicted and can lead to competitive advantages of very different nature and in very different environments.
This means that the point at issue is not only technological. It is of a more complex nature, linking effective governance, coordination of research and technology policy, knowledge building and the shaping of productive processes. Specializations are not constructed only from knowledge inputs, related to technological change and innovations, leading to new products and/or processes. Concurrently to these factors, it is important to consider the «classical functions» of production processes, in which technological inputs are associated with very diverse locally available labour, capital, other inputs and, in particular, the prices of these inputs in different combinations. In such a framework, the ‘game’ of who can create competitive positions becomes complicated. The same knowledge permits producing firms to achieve very different combinations of the various elements of the value chain and hence to construct “differences” and competitive advantages through several specialization forms. Early-entrants are often advantaged. However, in the process of time, imitators can also be successful, even vis-a-vis the original innovators, to the extent that through a smart use on the one hand of these new technologies and on the other hand of their production value chain, they succeed to create specific or niche competitive advantages. In such cases, different rational behaviors lead to different efficiencies and might open windows of opportunities resulting to a change of previous hierarchies of competitive advantages.
Such a differentiating attitude allows also a more flexible approach to policy issues regarding leading players and followers. Obviously, technologically leading countries and firms are the environment in which most evolutionary or more radical technical change develop. These actors possess the research capabilities to generate new technology paths and to better benefit from such policies. In contrast, followers and laggards may be disadvantaged in all dominant and emerging technologies. What could be the policy consequence? That the efforts of laggard countries and firms to catch-up in these areas are condemned to lead to inefficiencies and a waste of resources? That there is no scope for policies enhancing advanced technologies in view of catching-up? A positive answer would be very deterministic, and history is plenty of examples of followers who were quite successful in imitation or adaptation strategies. Besides, all the significant efforts of the EU and national governments to diminish the gap to technology leaders in ICT or other areas indicate that specialization policies matter.
Comparisons of specialization patterns and competitive advantages between leaders and laggards need to be regarded from different points of view. For example, even within these two groups very diverse research and technology capabilities and specialization characteristics can be observed. In fact, the EU members, according to their R&D intensity (GERD as % of GDP, 2006) can be classified in four main clusters (or “clubs”):
b) Indices very closely related to the Revealed Comparative Advantage Index of the Trade Theory, taking the form:
j k kj
country k in sector j. Positive values mean that the sector has a higher weight in the portfolio of the country than its weight in the area of comparison (e.g. EU). Negative values indicate specialization below the average.
ij H j H i j j H
∈
∈
ij L j L i j j L
∈
∈
H i i L i
The index shows how much any particular country or region adapts its relative high to low- tech products trade structure to changing patterns of world trade in high and low technology products.
In the above formula i stands for countries (or regions), j stands for SITC products, MS stands for share in the world market, H is the set of high-technology product groups, L is the set of
j. Comparing ITS in different time periods shows how a country’s relative market share in high and low technology change. A value below (above) one indicates that a country’s
(^6) See N. van Zeebrock et al., (2006), Issues in measuring the degree of technological specialization with patent data, Scientometrics, 66, Nr.3, p. 484. 7
8 See Erawatch, (2006), R&D Specialisation. Methodology and Data used. L. Alcorta, W. Peres, (1998), Innovation systems and technological specialization in Latin America and the Caribbean, Research Policy, 26, pp.873.
export share in high technology markets is higher (smaller) than its export share in low technology markets. An increasing (decreasing) value for ITS along time indicates a movement towards a relatively higher (lower) market shares in high technology markets.
All these indices measure if and to what extent the observed country, region, firm or supra- national area exhibits a higher concentration of the chosen variable in areas where they possess a specialization than other competitors. The reasons and the process towards this specialization and the influence of factors such as the public, private or mixed nature of public resources, the role of institutions and other factors cannot be answered by this empirical observation. However, from a policy point of view, it is important to understand how specialization positions could be achieved and what is their specific economic or social impact.
In Τable 1 data are presented on the distribution of R&D expenditures in eleven member countries for the manufacturing sector 9. Manufacturing industries are presented at the 2-
A small number of manufacturing branches attracts the interest of most of the above countries. Pharmaceuticals, Machinery & Equipment, Radio-T/V-Communication Equipment and Motor Vehicles are areas which attract significant shares of R&D expenditure in nearly all eleven countries. This implies that countries (and firms) attempt to gain specialization in established technological areas, in the aim to exploit established competitive positions and windows of opportunities. As a result, national specialization patterns of countries belonging to the same cluster exhibit many similarities when specializations are examined at a general sectoral level. In reality, specializations are much more diversified when one looks at a more disaggregated level within these broader knowledge and technology classifications, implying that in fact national systems create specific and differentiated specialization poles. However, only a limited number of countries seem to specialize in some high tech industries (aircraft, office & computing machinery).
All countries exhibit a very high sectoral concentration of R&D expenditures. In nine countries 2 to 5 sectors concentrate 46% to 77% of total R&D. In four of these countries only 2 or 3 sectors concentrate 55% to 70% of total R&D.
(^9) The data refer to the EU-15. The countries not presented are Austria, Greece, Luxembourg and Portugal.
Second, while the three Mediterranean countries are all characterised by similar weak competitiveness with regard to the medium to high-tech industries, there are large divergencies regarding the competitive performance of the most advanced countries.
Third, as a result of teir weak position in medium and high tech industries, the technological less advanced countries suffer from overall trade deficits, since their technological disadvantages cannot be counterbalanced by stronger competitive positions in the technological less intensive export categories.
Table 2: Technology intensity of the export structure (2006)
Products Greece Spain Portugal Ireland Germany France UK Netherlands
Agricultural products & Raw material
10,8% 6,6% 5,9% 9,0% 4,4% 7,6% 3,9% 12,3%
Low technology 24,3%^ 19,9%^ 24,4%^ 8,8%^ 11,9%^ 15,3%^ 11,6%^ 13,6% Low- Medium technology
40,3% 23,5% 30,1% 2,6% 17,5% 17,7% 21,9% 23,9%
Medium- High Technology
14,1% 42,3% 31,3% 42,4% 53,3% 47,9% 35,7% 27,8%
High Technology 7,9%^ 6,5%^ 6,0%^ 33,6%^ 9,7%^ 9,8%^ 22,9%^ 17,7% TOTAL 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%
Source: T. Giannitsis et al., Competitiveness and Technology in Greece (2008, in Greek),
Calculations based on Eurostat data.
Table 3: Technology intensity of the import structure (2006)
Products Greece Spain Portugal Ireland Germany France UK Netherlands
Agricultural products & Raw material
8,9% 9,2% 10,3% 6,6% 7,1% 6,3% 6,4% 9,1%
Low technology
14,6% 12,5% 16,2% 14,3% 13,2% 14,6% 14,9% 13,2%
Low- Medium technology
34,6% 31,1% 31,4% 18,6% 28,3% 30,6% 22,6% 30,5%
Medium- High Technology
30,4% 37,1% 32,1% 30,5% 37,1% 37,1% 29,7% 26,4%
Source: As in Table 2.
Table 4 : The Balassa Index of Specialization by technology groups for EU countries, 2006
Products Greece Spain Portu- gal
Ireland Germa- ny
France UK Nether -lands
Sweden
Agricultural products & Raw material
-0,428 -0,366 -0,455 0,360 -0,142 0,046 -0,377 0,203 -0,
Low technology
-0,291 0,015 -0,010 -0,025 0,048 -0,024 -0,264 0,070 0,
Low- Medium technology
-0,443 -0,342 -0,232 -0,639 - 0,140 -0,311 -0,159 -0,065 -0,
Medium- High Technology
-0,734 -0,149 -0,223 0,366 0,274 0,080 -0,055 0,080 0,
High Technology -0,619^ -0,388^ -0,391^ 0,377^ -0,026^ -0,100^ 0,073^ -0,005^ 0,
TOTAL -0,502 -0,213 -0,211 0,215 0,099 -0,048 -0,145 0,055 0,
Source: As in table 2.
Scientific publications can be seen as a mirror of the scientific expenditure priorities of an entity, region, or country. Scientific publication activities of the Member States can be characterized as follows:
The regional distribution of scientific publication seem to be more influenced by the local presence of academic centers, and shows a different geographical pattern and is less concentrated than business R&D expenditure. It includes peripheral regions like Scotland, coming down via Paris and the Benelux to Baden Würtenberg and up again via Berlin to Sweden and Finland.
With respect to field specialization most of the countries show a positive specialization in fields like Chemistry, Mathematics and Physics, while a negative one must be recorded in fields like basic Life Science, Biomedical Science, Clinical Medicine, Earth and environment.
The regional data about patenting are - not surprising – very similar to GERD and BERD expenditures. Sweden and Bayern are in the TOP group, as well as Brabant (Philips), Ile de France, Zuid NL, South East UK, Baden- Würtenberg, Berlin.
(^13) Specification indices referred here inform us about relative specification, i.e. to the countries (EU or world) average; it does
not consider the absolute levels or the industrial structure of a region.
Nevertheless country specifics can be derived. Even most of the countries are above the world average in the technology sectors, like transport, special machinery, which are congruent with the findings of the scientific specialization index, a few countries show a different specialization pattern. Finland shows a positive specialization only in two segments (Telecommunications and measurement system), Sweden in Medical equipment and machine tools, while Germany is not specialized in high tech industries at a country level, but focuses on medium high tech segments, like mechanical engineering and transports.
The figures show that for industries, like Electrical Engineering, Instruments, Communication Technologies and Biotechnology positive specialization is concentrated to a few regions, while for the bulk of industries the majority of regions show a positive specialization index. For example, within the sample of first 100 regions (listed according GERD), 81 regions show a positive specialization index for Mechanical Engineering, 63 for Chemistry, 73 for Transport, while the number for Electrical Engineering and ICT is 33 for each, for instruments 34 and biotechnology 44.
On a regional level there is much evidence that the positive specialization in high tech industries is concentrated in Scandinavia, South Netherlands, East UK and some regions n Germany.
These regional results are mirrored in the overall specialization index of the EU, which shows a broad specification in mid-tech industries, while the specification index is negative in segments like Pharmaceuticals, Medical Instruments, Media Equipment, Optical Instruments.
The key aim of this clustering is to distinguish:
The question of whether the regional research system plays a role with regard to the national innovation system is material to understand its function in the ERA system.
The following typologies can be distinguished:
Outliers: high R&D intensity, very high BERD/ GERD ratio, patent intensive; R&D activities dominated by large companies. R&D expenditures in all 6 “outlier” regions are dominated by large corporations ( VW, Philips, Nokia); outlier regions are situated in Germany, Finland, Sweden and the Netherlands.
Type 1a: Broadly based R&D driven regions. Moderately high publishing and very high patent intensity: German Cities, the capital regions of Vienna and Ile de France as well as regions
Regional differences in R&D intensities in Europe are mainly influenced by BERD expenditure. Only in a few of the TOP R&D performing regions public sector expenditure is high enough to influence the overall GERD significantly (for example: Berlin).
(^14) Unweighted means.
There are only a minority of regions which can be classified as R&D driven (27 out of 190) and only in a few of them is the public sector expenditure an important source.
Scientific specialization seems to be more influenced by public expenditure (influence of large regional universities) than other indicators.
Regions lagging behind have a lack of academic institutions and of higher education which diminishes also their ability to absorb knowledge from abroad and to improve innovation significantly. This is true for most of the Type 4 regions.
At the country level, the figures suggest that the Nordic countries are those which have the highest specialization in high tech industries. For example Finland shows a positive technological specification in two high tech industries, namely Telecommunication and Measurement Control, and a negative specification in 8 (low and mid tech) industries. Denmark shows a positive specialization in Pharmaceutical Industry and Consumer Industries, Sweden in Medical Equipment and Machinery Tools, while the Netherlands is strong in Audio-visual Electronics, Telecommunications, Optics. In the contrary Germany seems to be very strong in the medium-tech industry 15.
Cities with large u5 niversities or other excellent R&D infrastructure seem to have an advantage in attracting R&D personnel as well as R&D funds. (“Hot spot”: Berlin).
Not surprising that a number of metropolitan areas are quite successful (Paris, London, Berlin, Brussels). This raises the question how much agglomeration counts for R&D; agglomeration does not necessarily mean concentration to one field of science or to one specific industry but can also be seen as a horizontal approach ( “Related varieties” : many of the high tech clusters focus on several research fields; for example the Helsinki region is focusing on nine technology fields 16.
At both the E.U. and the national level the question of specialization policy cannot be answered generally 17. The E.U.-27 consists of divergent national and regional situations, which very often make necessary differentiated policy answers even for apparently similar problems. In addition to these internal disparities the E.U. is disadvantaged because of its laggard position in a range of high-tech/core technology areas vis-à-vis world leaders, with adverse consequences in terms of productivity, growth, market positions and business strengths. One of the visible weaknesses of the E.U. is its difficulty to be path-creating or early entrant in a range of new technologies, to make more efficient use of some of these technologies, to achieve similar productivity results, to diffuse sufficiently such new technologies inside its space and to create a culture of technology and knowledge widely spread in the member states.
Both these types of divergence are at the origin of many policy concerns at both the E.U. and the national level, such as:
(^15) Attention should be drawn to the fact that technological specification as calculated by ISI strongly reflects the influence of the industrial structure; further the application for patents is not independent from the specific industry. 16
17 “Forschungsstandort Österreich”, Comparison of high tech. regions. A question of different nature concerns the distinction of national and EU competences in the area of RIT policies. The analysis here is focusing on the normative aspects of policy, making abstraction of existing institutional limitations.
A range of contributions have shown the possibility (and the need) of plural and diversified approaches on specialization. Two debates merit a detailed consideration: the questions of neutral vs. targeted policies and of concentration vs. decentralization (or networking) of resources.
Neutral or horizontal policies are supposed to create general favorable conditions for market initiatives without discriminating and/or selecting between sectors or firms. They can be contrasted to pro-active or targeted policies, which follow more explicit, broader or narrower, objectives and, therefore, comprise some selection mechanisms. No-policy could be considered as a particular category, meaning the absence of any kind of policy action, although one could argue, that inaction is also a policy choice. In fact, to some extent, the absence of distinctive actions to tackle a specific problem, comes closer to the concept of neutral than to targeted policies.
Pro-active R&D and technological specialization policies are considered with skepticism because of two major policy drawbacks:
a) the failures of past interventionist industrial policies, and
b) the risks associated with pro-active policies in general and even more so in the case of
research and technology policies.
As against these experiences, there are other elements which make necessary a reconsideration of the issue :
Regarding the types of policy interventions today, the debate on neutral vs. selective or targeted policies appears quite simplistic. Many types of policies at all levels explicitly or implicitly are envisaging the development of specific areas of research, technology and innovation. Even when public policies come to supplement the self-organising private initiatives, selectivity is often very present, although it is different if we refer to sectors, products, activities or firms 18. On the issue we are faced with a big paradox and a dichotomy between theoretical approaches and widespread policies, because, in fact, all possible forms of policy –neutral, interventionist, horizontal, targeted- have experienced a broad mix of both successes and failures.
(^18) Ch. Edquisit, Cr. Chaminade (2006), Industrial policy from a systems-of-innovation perspective (EIB papers).
Specialization policies either for strengthening existing industrial structures or for catching- up to technological leaders, but in particular for promoting emerging technological fields, are associated with risks of failure. This is half of the reality. The other half is that in absence of any action, risks are equally present. Inaction and/or neutrality can also have risks and costs. The difference to pro-active policies is of political, not economic, character. In cases of inaction failure cannot be directly attributed to no-policy. Hence, it takes not the form of a visible political cost, although it can have a high economic or social cost. To the extent that the speed with which the support of appropriate technologies can contribute to answering the global issues is of high importance, the rapidity of policy-making has a social value. In this case, what matters, is not only to avoid repeating the experience with ICT or other technologies, but to produce timely research results meeting extremely important global needs.
For many authors, the capability to organize and to manage technological change and innovation is inherent to the above policy questions. Baumol 19 writes that innovation is “the recognition of opportunities for profitable change and the pursuit of those opportunities all the way through to their adoption in practice”, while Drucker 20 argues that “innovation ..is the only way to convert change into opportunities. This requires that innovation itself be organized as a systematic activity”.
While this type of management concerns mainly the business sector, public policies cannot escape the necessity to manage successfully technological and specialization activities. Often the policy rationale is structured around the concept of market failures and/or externalities. The following specific aspects need to be considered:
a) The sectoral nature of many types of technical change and innovations, b) The objective to facilitate new technology paths and/or to replace repeated specializations by a specialization breakthrough, which can create significant competitive advantages, c) The importance to enter early into a new technological area, d) The timely development of capabilities in the aim not to be outstripped by competitors, e) The acceleration of emerging evolutionary processes, f) The enhancement of appropriate institutions, infrastructures, interactions, networks, g) The presence of spillovers when an invention/innovation has a higher social than market (individual) value, h) The public good aspects of certain R&D activities.
(^19) W.J. Baumol (2002), The free-market innovation machine: analyzing the growth miracle of capitalism (Princeton University Press). 20 P. Drucker (1994), Innovation and entrepreneurship (New York, 1994).
