Interaction between public support and firm innovation process

Section 2.6 concluded with how the innovation process within the firm can take place along with its relationship with the innovation system. Public support to firms aims to remove some barriers in order for this process to take place, or at least accelerate it. Therefore, most innovation policy instruments are also di-rected towards some specific actions within this innovation process. This section describes what aspects of the innovation process within the firm are affected by the instruments categorised into a classification based on supported activities.

In general, it is possible to describe three types of additionality of policy instru-ments - input, output and behavioural additionality (Buisseret et al., 1995). In-vestigations into input additionality examine whether public policy instruments have the effect of generating or increasing inputs to the innovation process, such as R&D expenditure (Czarnitzki and Lopes-Bento, 2013a, 2014). Input addi-tionality evaluates whether policy intervention creates inputs that would no be there otherwise. Output additionality examines whether public policy instruments increase or generate outputs in the innovation process, e.g. increased innova-tiveness (Czarnitzki and Delanote, 2015, 2017; Czarnitzki and Hussinger, 2018).

Measured innovation outputs are generally patents, innovations (products and ser-vices), revenue from innovations, etc.

Behavioural additionality deals with differences in the behaviour of firms after intervention (Buisseret et al., 1995; Falk, 2007). It is not a very specifically defined concept, and it can range from instant on-off changes of behaviour to long-term persistent change in R&D and innovation activities (G¨ok and Edler, 2011). Georghiou and Clarysse (2006) differentiate between strategic and opera-tional behavioural addiopera-tionality. In this thesis, most of the data used is more on the strategic level of innovative activities according to this model, but these levels

13SAPARD - liitumiseelne programm esimese Maaelu Arengukava koostamiseks, j¨argnes Maaelu Arengukava (MAK).

are not differentiated. It would create another layer of complexity to the inves-tigation of dynamics of firm innovation strategies that has limited payoff. G¨ok and Edler (2011) also separate evaluations of behavioural additionality into four categories based on coverage and persistence. The topics covered in this thesis are related most closely to their third category, which covers both R&D activities and innovation activities in general and looks at the persistence of effects.

An overview of results from different OECD countries suggests that there are positive effects to company behaviour after government R&D funding (OECD, 2006). Positive changes include more willingness to collaborate with external partners, changes to commerical strategies, long-term R&D strategy planning and execution, and subsequent and extended innovation activities beyond the initial project.

To describe the possible effects of policy instruments, the concept presented in Chapter 2, Figure 2.1 is used as a basis. Since there are many different types of policy instruments included in the taxonomy created in this chapter, the model is redrawn in a different form to facilitate the addition of policy instruments. The underlying concept is the same but repurposed. The final result is presented in Figure 3.4 on page 83, which shows the possible effect of innovation policy in-struments as a description of inputs, i.e. what type of input the policy instrument is to the innovation process. Further investigation into this process will look at both outputs of this process (Chapter 7) and behavioural changes (Chapters 8 and 9).

There are four major areas of the innovation process in this model which can be influenced by policy instruments. These are within the firm, in interfaces with existing knowledge outside the firm, with the micro-environment and the macro-environment.

Training and skill development and labour support instruments are the only in-struments shown to affect the innovation process solely within the firm. These instruments raise the level of expertise of workers and management for better performance of the innovation process. That is not to say that these instruments cannot have an effect that is also linked with other actors in the end, but rather these instruments train people to perform better themselves. With labour support, it is the reduction of personnel cost that can aid in any within-firm process.

Innovation and R&D, mixed support, and marketing and export promotion instru-ments all influence the firm and the interface at the same time. Mixed support instruments offer both training and skill development type activities, and also link firms with best practices from others. For example, in incubators, firms are taught new skills, but they are also networking with others to gain knowledge about pos-sible paths for growth.

Innovation and R&D and marketing and export promotion instruments are both also on the fringes between a within-firm type of instrument and creating interface links. They are differentiated by what interfaces they operate on, one for external R&D knowledge and the other for marketing knowledge.

Collaboration programmes are an interface promoting instruments mostly in the R&D part. In innovation policies, they aim to bring together industry and academia in general. Business cluster instruments could be operating in more interfaces than R&D, since they aim to enhance co-operation between industry competitors. Pos-sible benefits are also stronger marketing efforts and exchange of best practices.

Consultancy instruments are a good example of a policy that promotes the inter-face between the firm and existing knowledge. In Figure 3.4, consultancy instru-ments are duplicated in every interface. There are examples of teaching about best practices for management, marketing, export markets, design, technology, supply chains, etc. In essence, consultants can be used in all possible business areas.

Investments and direct subsidies forge a direct link with the micro-environment by creating incentives to engage with other actors, mostly suppliers of new tech-nology and machinery. These instruments provide new investments to the firm by which the innovation process within the firm also changes. For example, a new machine for production also changes the work process as a result. However, the main link is through relationships with the micro-environment.

Direct subsidies can also have within-firm effects by creating new processes with-out investments, for example, when there are open calls for services which the firm did not offer before. With direct subsidies as a financial incentive, firms can begin to provide these new services to the market without outside assistance.

Financial guarantees are a type of instrument that alleviates market failures within the larger financial system. Therefore, they operate on the boundary of the in-novation process by reducing information asymmetry costs for capital providers.

This is the only type of instrument where firms are direct beneficiaries, but the possible direct effect involves the whole firm. In essence, we have no indication on which part of the innovation process the additional capital has been allocated, but we can only estimate that firms receive financial means that were not available before.

As Figure 3.4 indicates, innovation policy instruments are inputs to the innovation process. With the classification created in this thesis, it is possible to look at the different possible influence mechanisms. However, the link from inputs to outputs is not so clear. For example, which should be the possible outputs from investment instruments? Section 7 provides some insight on the issue.

Finally, the classification created here and the detailed description of the inno-vation process should provide enough understanding of the possible choices for the firm for empirical estimation. Further chapters in this thesis take both of these concepts into account and estimate possible relationships between innovation pol-icy instruments and firm innovation strategies.

Potential market Invention, basicdesign orservice conception

Detailed designor prototyping

Designand demonstration ortestingand productionCommercialisation orimplementation Marketresearchanddesign; withexistingmarketing knowledge

Scientificandtechnological knowledge;withexisting technologicalknowledge Businessmethodsresearch; withexistingorganisational knowledge

Interfaces

Processwithinthe firm

Environments Consultancy

Consultancy

InnovationandR&D

Investments, directsubsidies Marketing &export promotionCollaboration programmes

Financial guarantees

Macroenvironment: finance,regulators,education& trainingsystem,science& technologysystem,etc.

Microenvironment: suppliers,clients,competitors, users,etc. Outputs: product, process, marketing, organisational innovations

Marketing&exportpromotionMixedsupport,laboursupport,training&skilldevelopment,directsubsidies ConsultancyMarketing &export promotion Figure3.4:Possibleeffectsofinnovationpolicyinstrumentsasinputstotheinnovationprocess.Source:Carac¸aetal.(2009)with Author’smodifications.

4. DATA

The data used in this dissertation is gathered from various sources for an in-depth analysis of the complex relationship between innovativeness, business activities and public support. Data about innovative activities comes from the Community Innovation Survey (CIS), data about public support from several public agencies and public registries, data about firm appropriation tactics from the Patent Office, and data about firm fiscal statement from the Business Register. All datasets are matched by their respective firm specific ID. All datasets are discussed in turn;

their caveats, complementarities and benefits. An overview of all datasets and their sources is shown in Table 4.1

Emprical observations in this dissertation cover Estonian firms between 2002 and 2012, both years inclusive. Altogether, 3502 firms are analysed in an unbalanced panel data setting. The core dataset about firm innovativeness has been gathered by Statistics Estonia and is representative of the population of Estonian firms.

Table 4.1: Overview of datasets and their sources used in this thesis

Information Data Period Data source

Policy instrument support full register 2003-2015 Enterprise Estonia Policy instrument support full register 2001-2013 Agricultural

Regis-ters and Information Board

Policy instrument support full register 2004-2015 Structural Funds reg-ister

Policy instrument support full register 2007-2016 State Aid Register Intellectual property rights full register 1993-2015 Estonian Patent

Of-fice Annual report data for firms Annual

reports

1994-2014 Estonian Business Register