Exogenous sources of regional industrial change

Abstract

The role of exogenous sources of new path development has been underplayed in the literature on regional industrial change so far. The aim of this article is to explore in a conceptual way under which conditions and in what ways non-local knowledge can lead to new path development in different regional innovation systems (RISs). We distinguish between organizationally thick and diversified RISs, thick and specialized RISs and thin RISs and argue that these types vary substantially in their needs for exogenous sources as well as in their capacities to attract and absorb knowledge generated elsewhere.

Keywords

diversified metropolitan regions peripheral regions specialized industrial regions non-local knowledge flows new path development regional innovation systems

I Introduction

Recent scholarly work has enhanced our understanding of how regional economies transform over time, providing new insights into the nature and mechanisms of long-term regional industrial change (Boschma and Frenken, 2011; Martin, 2010; Martin and Sunley, 2006). The interest has been focused on conditions that stimulate the renewal of existing regional industries and the creation of new ones. Studies are mainly framed in the evolutionary economic geography (EEG) approach, suggesting that future regional development paths are shaped by the past industrial development in the region (Martin, 2010). Emphasizing the significance of local conditions and processes, such as the existing industrial structure, firms in a region, local knowledge flows, and regional branching (Boschma and Frenken, 2011), EEG studies tend to build on too narrowly conceptualized models of endogenous and firm-driven path development processes.

EEG has been sharply criticized for ignoring exogeneous stimuli and the multi-scalar interrelatedness and embeddedness of firms, neglecting the role of non-firm actors and power, and paying little attention to the importance of (territorial) institutions (MacKinnon et al., 2009; Pike et al., 2009). This critique has led scholars to argue that EEG can be advanced by integrating ideas and insights from institutional and relational economic geography (Hassink et al., 2014) and geographical political economy approaches (Pike et al., 2016).

In this article, our point of departure is the underappreciation of exogenous sources of new path development in EEG models (Binz et al., 2016; Dawley et al., 2015). Little is still known about the ways by which exogenous sources may lead to new path development and to what extent and why such processes differ across different types of regions and innovation systems.

Our aim is to contribute to a better understanding of the importance of exogenous sources for new growth paths and the evolution of regional economies. We advance the argument that the patterns of exogeneously-led path development vary depending on the characteristics of regional innovation systems (RISs). A RIS can be understood as a specific framework in which collective learning, innovation and entrepreneurial activities are shaped by close inter-firm interactions, knowledge and support infrastructures and socio-cultural and institutional configurations (Asheim and Isaksen, 2002; Tödtling and Trippl, 2005). We provide a systematic conceptual analysis of the role exogeneous sources may play for new growth paths in different RIS types. In the succeeding theoretical discussion our main focus is on the density and degree of specialization of the organizational structure of RISs. Adopting the RIS notion enables us to move beyond firm-centred views prevalent in EEG studies. The RIS approach advocates a multi-actor perspective and includes non-firm actors such as research institutes and educational bodies, as well as policy and support organizations, in the analysis of regional industrial path development (Isaksen and Trippl, 2016a).

We distinguish between three different types of RISs, that is, organizationally thick and diversified RISs, organizationally thick and specialized RISs, and organizationally thin RISs. These types can be clearly distinguished from one another and are broad enough to allow coverage of a large variety of areas. We argue that these three RIS types differ substantially in their need for non-local knowledge as well as in their capacities to attract, absorb and transform it into new development paths. Two main forms of new regional industrial path development are considered, namely path branching and path creation (Isaksen, 2015). Path branching denotes the diversification of existing industries into new but related ones, often based on new combinations of existing regional knowledge assets. Path creation is referred to as the rise of entirely new industries in a region, which often stems from commercialization of research results. However, it may also be an outcome of search processes for new business models, user-driven innovation and social innovation.

The remainder of the article is structured as follows: Section II offers a brief discussion of several mechanisms by which non-local knowledge can ‘enter’ the region. Section III introduces the RIS notion and seeks to establish greater clarity and specification of the organizational dimension of RISs. In Sections IV to VI we discuss the need for as well as the capacities to attract and absorb knowledge from exogenous sources for new path development in the three RIS types mentioned above. Finally, Section VII puts our approach into wider debates in economic geography and proposes further studies about RISs, non-local knowledge absorption and path development. Following recent calls in the literature (Hassink et al., 2014; Pike et al., 2016), we discuss how EEG accounts of new path development and the RIS perspective suggested in this article can be further advanced by connecting them to ideas from other sub-fields in economic geography.

II Exogenous sources of new path development

Over the past years, a flourishing body of work on the globalization of production and innovation (Archibugi and Michie, 1997), the importance of non-spatial (Boschma, 2005) and temporary geographical (Torre, 2008) proximity, and the nature of non-local knowledge flows (Bathelt et al., 2004) has emerged. This literature fundamentally challenges EEG accounts of new path development, which focus attention on mainly the regional scale and depict the rise and evolution of new growth paths in regions as the outcome of local knowledge flows, fuelled by permanent geographical proximity between actors.

Drawing on relational perspectives, much attention has been given to global value chains (Gereffi et al., 2005) and global production networks (Coe et al., 2008) to elucidate the organization of dispersed production and innovation activities on the global scale and the co-creation, exchange and diffusion of knowledge across geographical space. More recently, other forms of knowledge flows that transcend the regional scale, such as the international mobility of skilled people (Saxenian, 2006) and translocal relations facilitated by temporary geographical proximity (Bathelt and Henn, 2014), have also been examined.

The literature on global value chains (Gereffi et al., 2005; Ponte and Sturegon, 2014) and global production networks (GPNs) (Coe et al., 2008; Henderson et al., 2002; Yeung and Coe, 2015) has enhanced our understanding of forms and consequences of regions’ insertion into globally configured connections and inter-dependencies, whereby GPNs place a stronger emphasis on non-firm actors and regional embeddedness. Upgrading of firms depends on the specific global value chains that firms are part of and their role in these (Humphrey and Schmitz, 2004). In some cases lead firms in global value chains assist supplier firms to upgrade products and processes. Similar standpoints are found in the GPN approach. Networks affect regions with diverse internal resources differently, depending on regions’ roles within networks, e.g. whether regions are ‘centres of corporate control’, have lead firms in global networks or branch plant types of firms (MacKinnon, 2012). However, apart from a few notable exceptions (see in particular MacKinnon, 2012, who brings together GPN research and EEG), the contribution of these approaches to the understanding of new regional path development remains vague.

Furthermore, there is a vast literature on the geography of knowledge linkages that suggests that international knowledge sourcing activities and their interplay with local connections are eminently important for innovation (Bunnell and Coe, 2001; Floysand and Jakobsen, 2011). Bathelt et al. (2004) argue that firms in regional clusters, in order to stay dynamic, need to supplement locally available knowledge with bodies of knowledge residing elsewhere, and for that purpose consciously build pipelines to global knowledge sources. Interestingly, this literature has hardly been connected to the work on new regional path development so far. Whilst many studies confirm the positive influence of extra-regional knowledge inputs on innovation, little is said about the impact of these innovations on regional industrial continuity and change. In other words: it remains unclear whether innovations that rest on non-local knowledge sourcing activities promote path creation, path branching or path extension.

The literature on regional path development, on the other hand, has failed to fully account for the potential role of exogenous sources for regional industrial change. As noted above, the position of regions in national and global production and innovation systems (Massey, 1984), the significance of non-spatial forms of proximity (Boschma, 2005) and the multi-scalar interrelatedness and embeddedness of actors (MacKinnon et al., 2009; Pike et al., 2009, 2016) tend to be ignored in EEG studies. With the exception of a few studies (Boschma et al., 2015; Boschma and Iammarino, 2009; Martin and Sunley, 2006), regional structural change is mainly conceptualized as an endogenous phenomenon in EEG models.

Martin and Sunley’s (2006) seminal article on path dependence and regional economic evolution explicitly acknowledges the possibility of exogenous sources of new path development. The authors identify ‘transplantation from elsewhere’ as one of five candidate mechanisms of regional de-locking and new path creation. Transplantation ‘refers to the importation and diffusion of new organisational forms, radical new technologies, industries, firms or institutional arrangements, from outside’ (Martin and Sunley, 2006: 422).

There is consequently a need to better understand how exogenous sources can contribute to new path development. A distinction can be made between the arrival of new actors in the region and knowledge flows through extra-regional linkages. The latter does not require a permanent (or temporary) move of actors while the former can be expected to facilitate in many cases extra-regional knowledge linkages. It would by far exceed the scope of this article to exhaustively cover all literature dealing with the geographical mobility of actors and non-local knowledge linkages. We rather discuss, based on established concepts, why and how i) the arrival of new actors from outside the region and ii) extra-regional knowledge linkages can contribute to new path development.

1 Arrival of new actors from outside the region

New path development can be triggered by the arrival of individual and organizational actors from outside the region. Inflow of new organizations can induce or support new growth paths as they bring new knowledge to the region. A powerful mechanism may include the resettlement of firms and other organizations such as R&D institutes. Neffke et al. (2014) have shown that it is relocating firms and not so much regional start-ups and incumbents that introduce most structural change (creation of new industries that require new capabilities instead of existing capabilities) in Swedish regions. New path development may also originate from the relocation of R&D organizations (Isaksen and Trippl (2016b) and the arrival of foreign direct investment (FDI) (O’Malley and O’Gorman, 2001). Martin and Sunley (2006: 423) note that ‘new knowledge brought into a region by the inward transplantation of firms from elsewhere (through FDI or takeover or merger) may be critical in initiating a new technological or industrial path locally’. MacKinnon (2012) argues that the relation between FDI and regional evolution is complex and path dependent in nature and may differ depending on the type of region under consideration. In particular in non-core regions the link between FDI and regional development can be negative, as

regions can become ‘locked-in’ to external networks…controlled by TNCs [transnational corporations]…as is evident from the experiences of branch-plant regions which became over-reliant on relatively low-value production plants, lacking more advanced functions and high-status employment as a result. (MacKinnon, 2012: 236)

Individual actors are carriers of knowledge, transferring expertise and know-how from one place to another by means of their mobility. Thus, the migration and mobility of highly skilled and resourceful people is a potential source for new path development (Kapur and McHale, 2005). Florida’s (2003) work points in this direction, suggesting that creative people move to places characterized by openness, diversity and tolerance and attract firms which seek ‘to draw from concentrations of talented people who power innovation and economic growth’ (Florida, 2003: 5).

Scholarly work on transnational(izing) entrepreneurship (Yeung, 2009) has sharpened our understanding of entrepreneurs moving across spaces and territories. Drori et al. (2009) find a positive impact of transnational entrepreneurship on the institutional environments of less-developed regions. Saxenian’s (2006) work on the ‘new argonauts’ is one of the few studies that have explicitly explored the link between the inflow of new knowledge through mobile individuals and new path development. Saxenian (2006) shows that the rise of ICT industries in various Asian countries has been triggered by returnees from the Silicon Valley, who transferred technical knowledge and provided advice to policy actors about the establishment of favourable institutional set-ups for new paths in their home countries (Saxenian and Sabel, 2008).

2 Extra-regional knowledge linkages

New development paths may also be supported through extra-regional knowledge linkages. Such linkages come in different forms (Tödtling et al., 2006), ranging from market linkages (buying of knowledge embodied in patents or intermediary goods), to formal (contract-based) networks (R&D and innovation collaboration) and informal linkages. Formal linkages are often labelled as global pipelines (Bathelt et al., 2004). Informal linkages rest on social networks, for instance, between former colleagues or study friends living and working elsewhere (Agrawal et al., 2006). Interactive learning over distance often involves a combination of social and cognitive proximity, as is the case in communities of practice (Wenger, 1998) or epistemic communities (Amin and Roberts, 2008). Attending conferences and trade fairs has also been found to be an important mechanism for knowledge acquisition (Bathelt and Gibson, 2015; Henn and Bathelt, 2015; Power and Jansson, 2008).

In the following sections we explore the nexus between non-local knowledge and regional industrial change. We advance the idea that the opportunities for and challenges of exogeneously-led path development vary between different types of RISs.

III Different types of RISs and their organizational dimension

In this article our main focus is on the organizational aspect of RISs. More precisely, attention is given to the density and degree of specialization of the organizational structure of RISs, that is, the number, variety and ‘quality’ (capabilities and performances) of firms, industries and knowledge and support organizations present in the region. Consequently, emphasis is placed on the extent of organizational thickness (endowment of RISs of a larger or lower number of innovative firms and non-firm actors). For RISs with thick organizational structures a further distinction based on the degree of specialization (presence of actors undertaking similar economic and innovation activities reflecting specialized industrial and support structures versus presence of actors undertaking different economic and innovation activities reflecting diversified industrial and support structures) can be drawn. Accordingly, we distinguish between three different types of RISs (Isaksen and Trippl, 2016a): organizationally thick and diversified RISs, organizationally thick and specialized RISs, and organizationally thin RISs. The core features of these ideal-type RISs can be described as follows (Tödtling and Trippl, 2005; Isaksen and Trippl, 2016a). Organizationally thick and diversified RISs are characterized by the presence of a relatively large number of different firms, a heterogeneous industrial structure and a critical mass of knowledge and supporting organizations that facilitate innovation in a wide range of economic and technological fields. Such configurations often prevail in large core regions like metropolitan areas and advanced technology regions. Organizationally thick and specialized RISs host strong clusters in one or a few industries only. Strong industrial specialization is further reinforced by support structures that are well adapted to the region’s narrow industrial base. Such configurations are typical for old industrial areas, industrial districts or specialized university campus-towns. Organizationally thin RISs have only few knowledge and support organizations and none or only weakly developed clusters. Such characteristics are often found in peripheral regions.

We argue that exogenous sources affect new path development differently in each of the three types of RISs. Our analysis considers three key factors or dimensions that explain the importance and role of exogenous sources for regional industrial change in RISs, namely, the need and attractiveness for exogenous sources as well as the absorptive capacity to turn those into new growth paths. While these factors are often correlated if analysed in their regional context, they constitute distinct analytical categories, which we explore in their own right.

First, RISs vary in their needs to harness exogenous sources in order to set in motion new path development. This is due to differences in the availability of local knowledge and resources. RISs differ strongly in terms of their endowment of local (endogenous) assets (Boschma, 2015). RISs with a limited availability of local assets may face a higher need for exogenous sources of regional industrial change.

Second, regions are also heterogeneous in the degree of attractiveness for non-local knowledge sources. Evidence suggests that the capacity to attract innovative organizations and knowledgeable individuals varies across RIS types. Regions with thick and diversified structures tend to attract a larger number of leading organizations and talented individuals (Florida, 2003; Miguelez and Moreno, 2015; Trippl, 2013) than other RIS types. They may also be more attractive partners in various forms of non-local knowledge linkages (Maggioni and Uberti, 2009).

Third, RISs may differ in their absorption capacities of external knowledge. Arguably, the attraction of knowledge from outside is not enough. In order to benefit from it, RISs need to be able to exploit non-local knowledge, combine it with existing local knowledge and transform it into new development paths. Looking at the inflow of inventors, Crescenzi and Gagliardi (2015: 25), for instance, have shown that

the attraction of highly skilled knowledgeable individuals can boost local innovation only where this is part of a systemic approach to regional innovation that facilitates the inclusion of these inflows into the network structure of the local economy supporting – where necessary – the correction of myopic knowledge search patterns of local firms.

The absorptive capacity of a RIS and its ability to transform knowledge from outside into new path development is not only shaped by firm strategies and the structure of their local networks but also by policy actions, the organizational support structure and the institutional set-up of the region (Binz et al., 2016; Tödtling and Trippl, 2013; Vale and Carvalho, 2013). Thick and diversified RISs have a stronger absorption capacity than their specialized or thin counterparts, because of a larger and more varied set of firms, industries, knowledge organizations, workers’ skills and so on. Particularly sparsely populated and peripheral regions with organizationally thin RISs tend to benefit less from international knowledge flows, ‘as they lack the connections to access them, the capacity to assimilate them and the scale to enable them to function through the formation of local agglomerations’ (Farole et al., 2011a: 1096). However, efforts to create favourable regional environments and to promote localized knowledge links between firm and non-firm actors (Vale and Carvalho, 2013) can lead to a strengthening of the absorption capacity for incoming external knowledge in less-favoured types of RISs.

In Sections IV to VI we provide a more in-depth analysis of the three dimensions outlined above. We explore conceptually in which ways they differ between organizationally thick and diversified, thick and specialized and thin RISs. We also provide a discussion of concrete empirical examples from the extant literature of exogenous sources of new path development in each of the three RIS types. The examples help to generate theoretical interpretations of regional growth paths in different types of RISs (Flyvbjerg, 2006).

IV Organizationally thick and diversified RISs: Metropolitan areas and advanced technology regions

1 Needs and capacities to attract and absorb non-local knowledge

Organizationally thick and diversified RISs are often seen as centres of radical innovations and hot spots of new firm formation (Duranton and Puga, 2002). They are usually well endowed with a variety of different industries, a diverse set of strong research organizations and a diversified support infrastructure. Several mechanisms underlie localized knowledge circulation, in particular movements of skilled workers and face-to-face contacts between economic agents, which are pertinent when information is rapidly changing and knowledge is tacit (Storper and Venables, 2004). Heterogeneity in the industrial and support structures creates a basis for inter-industry crossovers (Asheim et al., 2011), which are seen as conducive to path branching processes (Boschma, 2015). In addition, the presence of strong research organizations and a good entrepreneurial climate offer opportunities for the rise of entirely new growth paths. Thick and diversified RISs are thus characterized by favourable conditions for new path development, not least due to their good endowment of endogenous (local) sources.

At the same time, the economies of thick and diversified RISs are deeply rooted in external knowledge exchange (Scott and Storper, 2015). They function ‘as systems of dense local interactions imbricated in complex long-distance movements of people, goods and information’ (Scott and Storper, 2015: 7). These RISs exhibit a high capacity to attract globally available knowledge. They are the ‘preferred destinations’ of internationally mobile talented individuals and for research and innovation activities in multinational corporations.

The industrial development of thick and diversified RISs must be understood in the context of non-local knowledge exchange, or ‘in the context of distanciated economic flows and networks’ (Amin and Thrift, 2002: 53). Leading firms in these regions organize global production and innovation networks, and firms in some sectors depend on ‘project teams scattered around the world, linked up virtually and through placements’ (Amin and Thrift, 2002: 66). With lead firms in global networks, thick and diversified RISs have strong capacities to absorb knowledge from non-local sources and to exploit both local and non-local knowledge for path branching and new path creation. High absorptive capacity is also due to the presence of knowledge organizations with international links, diversity of industries, occupations and skills, and well-developed support structures with capacities to adapt to the needs of new industrial paths.

2 Arrival of new actors, global knowledge links and new path development

R&D organizations and firms in thick and diversified RISs are in general on the delivering rather than the receiving end of global knowledge pipelines. But as said above, new growth paths in this RIS type can rely on combinations of endogenous and exogenous resources. This is illustrated by the development of the biotech industry in Vienna (Trippl and Tödtling, 2007). The region has a long tradition in (bio-) medicine and a strong knowledge exploration capacity in this field due to an excellent scientific base. Lack of academic entrepreneurship (not least due to negative attitudes of university researchers towards new firm formation and collaboration with industry), prevalence of a bank-dominated landscape adverse to risk-taking, absence of venture capital, and a weakly developed public support infrastructure, however, undermined the capacity of regional actors to reap benefits from locally available scientific knowledge assets (Trippl and Tödtling, 2007), pointing to unbalanced exploration-exploitation capacities in Vienna’s RIS. The emergence of a new growth path around biotech activities was essentially triggered by the arrival of international companies with capabilities to transform the strong local research base into new regional industrial path development. Furthermore, the importation of managerial expertise through international recruitments of highly skilled people and various types of global knowledge linkages such as R&D partnerships have significantly contributed to the emergence of this sector. Regional and national policy interventions have played a major role in enhancing the absorption capacity. Public policy actions have thickened the organizational support structures to provide better conditions for academic spin-offs and to stimulate knowledge exchange between local firms, universities and the foreign-owned companies present in the region. This has become manifest in the creation of an ensemble of specialized organizations such as science parks, academic spin-offs centres, technology lisencing offices, public venture capital providers and cluster organizations facilitating networking activities (Trippl and Tödtling, 2007). This case demonstrates how new development paths in thick and diversified RISs can result from the ‘importation’ of exploitation capacities from outside and how their growth could lead to and be facilitated by a further thickening of RIS structures.

The oil and gas industry in Norway also represents a good example of how new growth paths can be initiated and supported by the attraction of non-local knowledge. The industry was transplanted into Norway from outside. Transplantation was required as nearly no knowledge of oil exploration and production existed in Norway when oil reserves were discovered in the North Sea in the late 1960s (Sæther et al., 2011). While the oil and gas industry in Norway started as path transplantation from outside, it continued by path branching through the diversification of ship yards, mechanical engineering and other firms, and it led to path creation when a totally new industry was formed. Inflow of knowledge from foreign sources was instrumental for this achievement.

Absorption capacity was increased through policy interventions. An important instrument in that respect was Goodwill agreements. These included that foreign oil companies got ‘goodwill points’ by contracting with Norwegian firms and research institutes. The amount of ‘goodwill points’ affected the result when concessions for developing new oilfields were passed to oil companies. The Goodwill agreements contributed to the development of a national innovation system with high research capacity and to the fact that the Norwegian oil and gas supplier industry has become globally competitive in a number of niches (Sæther et al., 2011). This example demonstrates the capacity to build new industrial paths on imported knowledge, conditioned on national receiver competence found in diverse industries in many parts of Norway. The growth of the oil and gas industry was accompanied by investments in the knowledge infrastructure in larger cities in Norway, which thus made their RISs thicker.

Examining Oslo’s performance in the path development process outlined above, however, also offers insights into how unbalanced exploration-exploitation capabilities might constrain path development in thick and diversified RISs. The engineering part of the oil and gas sector grew up and was highly concentrated in the Oslo region until the mid-1990s (Isaksen, 2003). The oil engineering sector from then on declined sharply in Oslo while it grew in other parts of Norway. The sector in Oslo faced difficulties in mastering the new technological development of subsea installations as it became locked-in to the ‘old’ technological path of building large, fixed and floating platforms. Oslo lagged behind in the construction of subsea installations because of the absence of advanced manufacturing firms in the region with research-based and non-codified, experience-based knowledge that could contribute to developing subsea technology (Isaksen, 2003). This points to a more general industrial development challenge in Oslo and some other large cities, which relates to little experience-based manufacturing competence necessary for ‘pushing’ and processing new scientific knowledge towards commercial utilization (Manniche, 2012: 1835). Thus, metropolitan areas and advanced technology regions may be thick and diverse with regard to the knowledge infrastructure and the presence of consulting, cultural and other service industries, but may be less well endowed with manufacturing production capacities, revealing unbalanced exploration-exploitation capabilities (Isaksen and Trippl, 2016a). As several scholars remind us, there might also be other constraints to harness endogenous and exogenous sources of path development in this RIS type. These may range from limited knowledge exchange due to cognitive distance resulting from too much diversity (Boschma, 2005) to competition between newly emerging and established paths over public support, human capital, finance and other scarce resources (Miörner and Trippl, 2017).

While exogenous sources potentially contribute in many ways to new industrial path development in thick and diversified RISs, it can be expected that high complementarities exist in particular if external impetus relates to internal knowledge exploitation capacities. These RISs have high capacities in knowledge exploration, and are globally embedded centres for research excellence. A question is then how to make this knowledge economically viable, which can be done through endogenous entrepreneurial experimentation. However, capacities for knowledge exploitation can also be brought in by external actors, who have the necessary absorption capacity, access to global markets and financial resources, either internally or through their network embeddedness. In this case, external actors could contribute to the creation of new paths by exploiting (but also adding to) the strong regional knowledge infrastructure.

V Organizationally thick and specialized RISs: Old industrial areas

1 Needs and capacities to attract and absorb non-local knowledge

Organizationally thick and specialized RISs exhibit a strong economic specialization pattern in only one or a few clusters as well as knowledge and support organizations that are well adapted to the needs of the dominating industries. A high degree of specialization can be positively linked to regional dynamism, particularly in early development phases of an industry or cluster, in which positive externalities and increasing returns fuel regional growth. In later stages, the structures, configurations and practices established in earlier phases may, however, become a source of rigidity, undermining regional development (see, for instance, Grabher, 1993; Martin and Sunley, 2006).

This section focuses on thick and specialized RIS configurations in old industrial areas (OIAs) (Grabher, 1993; Hassink, 2005; Trippl and Otto, 2009). These regions are characterized by a strong specialization in well-established (and often outdated) industrial and technological trajectories. They tend to be ‘myopic’ to opportunities that lay beyond existing growth paths and face challenges to switch to new ones (Grabher, 1993; Maskell and Malmberg, 2007).

Thick and specialized RISs of OIAs lack the internal diversity of industries and supporting organizations that are considered as being critically important for new path development (Asheim et al., 2011; Boschma and Frenken, 2011). Due to the dominance of a few clusters, the degree of intra-regional related variety is low and only few opportunities for combining or recombining diverse knowledge bases at the regional scale exist (Boschma, 2015). In other words: the availability of local assets is lower when compared to diversified RISs and, as a consequence, the need for exogenous sources of path development is more pronounced.

However, thick and specialized RISs seem to exhibit a rather low capacity to attract knowledge from outside the region. This particularly holds true for internationally-mobile, highly-skilled people such as entrepreneurs, scientists, and other members of the creative class (and to some extent also for firms and other organizations). These actors are usually lured to places characterized by diversity, openness and excellence in emerging fields. Thick and specialized RISs of OIAs hardly offer such assets, and as a consequence their capacity to attract these exogenous sources of new path development is limited. The capacity to absorb knowledge that has been explored elsewhere is also lower in this RIS type when compared with thick and diversified RISs. Absorption capacity is confined to knowledge assets that are similar or closely related to the region’s narrow knowledge base. Due to the strong specialization of industrial and support structures the capacity to absorb and exploit unrelated knowledge for new path development is rather weak.

2 Arrival of new actors, global knowledge links and new path development

The arguments raised above, however, do not imply that this RIS type is cut off from any inflow from people, organizations and knowledge from outside the region. Analyses of OIAs demonstrate that under certain circumstances the entry of people and organizations can induce regional industrial change. Work on the role of FDI in OIAs has shown that the arrival of foreign companies can open up new development paths, if these firms feature high value-added functions and embed themselves in the local economy by forming long-term linkages to regional suppliers and partners. This has been observed in Styria (Austria), where the arrival of MNCs has fuelled the creation of a new path in the automotive industry (Trippl and Tödtling, 2008). However, new path development based on FDI can be vulnerable if the big players decide to leave the region (MacKinnon, 2012). Finally, recent evidence on new path creation processes in the offshore wind industry in the UK regions also suggests that ‘transplantation’ of new knowledge from outside the region has played a major role (Dawley et al., 2015). This holds true in particular for Scotland, where

transplantation is a key mechanism of path creation in the…wind sector, providing some parallels with the development of other recent growth sectors such as electronics and oil and gas, although…transplantation extends to research and development in offshore renewables, in contrast to the branch plant nature of electronics in particular. (Dawley et al., 2015: 11)

Importantly, this case also yields interesting insights into the role of regional, national and supra-national policy actors and influences in new path development. Dawley (2014) and Dawley et al. (2015) show that the interplay of policy interventions at multiple scales, ranging from policies toward attracting firms and investments from elsewhere, to horizontal policies, sector-based vertical policies, and local development initiatives, has essentially shaped path development activities in the Scottish wind sector. Similar findings have been reported for the Styrian automotive industry. Its rise and evolution has been influenced by the attraction of FDIs with the help of public subsidies combined with regional policy measures. The latter included the establishment of a technical college and various research institutes as well as a cluster policy initiative, enhancing collaboration between foreign firms and local suppliers (Trippl and Otto, 2009). The examples discussed above reveal that under certain circumstances new paths can be developed in OIAs, triggered by extra-regional actors and linkages and facilitated by diversification processes of the organizational support structure of the RIS.

Thick and specialized RISs found in OIAs may also benefit from being connected to distant knowledge sources through various types of linkages. It has often been argued that these regions are characterized by inward-looking networks that close them off from extra-regional knowledge and reinforce path extension at the cost of new path development (see, for instance, Grabher’s (1993) seminal contribution on the Ruhr area in Germany). Trippl and Tödtling (2008) claim that new path development in these regions requires the establishment of new networks and socio-cultural shifts. Work on renewal processes in the Styrian metal industry (diversification from mass products towards manufacturing of high-quality forgings for the aviation and space industry, ultra-long weld-free rails) clearly shows that these modernization and branching processes were facilitated by a reconfiguration of local networks and new connections to actors outside the region (Trippl and Otto, 2009). Collaborative linkages in R&D and innovation have been established with distant firms and research institutes to get access to complementary knowledge assets not available in the region. This case offers insights not only into the link between new path development and extra-regional knowledge connections in OIAs but also into policy initiatives and their selective impact. National and regional policy actors have supported the formation of these connections through a variety of initiatives providing incentives for knowledge exchange in formal R&D and innovation projects and collaboration in jointly run competence centres. However, it is important to note that it has first and foremost been larger firms who have established such non-local knowledge connections, whilst smaller ones have been found to be more confined in their capacities to search for and absorb knowledge from distant sources. Policy programmes set up to stimulate path modernization and path branching activities in Styria’s metal industry through non-local knowledge linkages have thus mainly benefitted larger firms (Trippl, 2004).

The empirical examples presented above suggest that new path development in thick and specialized RISs of OIAs often requires the inflow of extra-regional knowledge. In contrast to thick and diversified RISs, there is little potential to combine different types of local knowledge and resources outside the existing specializations. Hence, accessing such knowledge externally will be crucial for new path development. Such processes imply that new non-local knowledge relates to and complements existing industrial specializations and contributes to the diversification of thick and specialized RISs.

VI Organizationally thin RISs: Peripheral regions

1 Needs and capacities to attract and absorb non-local knowledge

Organizationally thin RISs exhibit a lack of organizations with the required knowledge bases and resources to engage in localized learning processes. In contrast to thick RISs, they do not have a critical mass in any specific industry, let alone opportunities to benefit from variety in the regional industrial structure. Arguably, a few strong and innovative firms may exist in thin RISs (Shearmur and Doloreux, 2016); however, they lack local partners with whom to exchange knowledge (Grillitsch and Nilsson, 2015). Often such regions are dominated by SMEs active in traditional and resource-based industries. Innovation activities tend to be low and typically of an incremental type, improving existing processes and products. Furthermore, thin RISs have per definition deficits as regards knowledge and support infrastructures such as universities, R&D institutes, or technology transfer centres. The endogenous potential for new regional industrial path development tends to be low and the need for exogenous sources high when compared to other RIS types.

The capacity to attract external knowledge is rather constrained in such regions. Investments in thin RISs often relate to natural resources, or cheap labour and land. However, resource-seeking investments do not require embedding in the local milieu and exchanging knowledge with local actors (Dunning and Lundan, 2008). Moreover, path dependencies in global production networks may generate lock-ins in peripheral regions (MacKinnon, 2012). Typically, the relationships are highly asymmetrical where regions offer rather ubiquitous resources such as low-skilled labour and consequently have limited bargaining power vis-à-vis the multinational enterprise investing in the region. The exploitation of global knowledge linkages tends to be hampered due to the strength of bonding social capital and the relative homogenous knowledge bases and worldviews (Westlund and Kobayashi, 2013). Too much bonding social capital and region-mindedness lower the likelihood for actors to search for complementary knowledge globally (Fitjar and Rodríguez-Pose, 2011; Malecki, 2011).

Organizationally thin RISs are thus characterized by a high need for exogenous sources but low capacities to attract and absorb knowledge generated elsewhere. However, this does not imply that new path development is impossible in this RIS type. Empirical studies provide evidence for path creation in peripheral areas, arguing that the absence of a critical mass of strong actors may offer geographical niches for new paths and room for experimentation (Simmie, 2012) and underlining the importance of exogenous stimuli (Varis et al., 2014; Virkkala, 2007; Isaksen and Trippl, 2016b). The questions are then how exogenous knowledge could be attracted to thin RISs and why such RISs could simultaneously build up the regional knowledge bases and absorption capacity that would allow for the emergence of new paths and the transition from a thin to a thicker and specialized RIS.

2 Arrival of new actors, global knowledge links and new path development

Mudambi and Santangelo (2016) study the arrival of MNEs in peripheral regions and highlight the importance of building up local knowledge bases over time. Their starting point is that even in the periphery some untapped knowledge resources may exist, typically bundled within a strong organization. The first MNE to move to a specific peripheral region typically acquires a strong local firm and thereby gains control over the most attractive local resources. The first mover provides legitimacy to the location. However, as the resource pool is shallow and the most attractive resources bound by the first mover, the location’s knowledge pool becomes less attractive for second movers. Second movers may still consider it valuable to enter the peripheral region, e.g. in order not to miss out on opportunities to supply to the first mover. The investments of the first and second movers, spillovers between them and potentially few local firms, combined with public investments in the knowledge and support infrastructure, may increase the attractiveness of the location over time and thereby lead to the emergence of a new regional growth path related to the industry of the first mover (and acquired firm). This would then correspond to a transition from a thin RIS to a thicker (and specialized) one.

Isaksen and Trippl (2016b) also show that the arrival of new actors can be essential for new path creation in peripheral regions. In Mühlviertel, one of the least developed regions in Upper Austria, the settlement of research institutes has over time led to spin-offs, the attraction of other research centres and firms, as well as the establishment of publicly-funded support infrastructure. In Arendal-Grimstad, located in the southern part of Norway, two pioneering firms in the electronics sector were established in the early 1960s. Starting with simple contract production, these firms transformed and upgraded over time to automated production lines and advanced software production. The key firms went through merger and acquisition processes, as well as downscaling of foreign-owned subsidiaries. Against the backdrop of these dynamics, a supporting infrastructure was established which included new study programmes, a technology park and an incubator, which created a favourable environment for spin-offs. The two cases illustrate how new growth paths emerge in peripheral regions, which over time change the character of the RIS, i.e. thicken it in terms of the knowledge and support infrastructure and industrial dynamics.

As regards the arrival of individual actors, scholarly work largely ignores thin RISs. According to Florida (2003), highly-qualified individuals tend to cluster in metropolitan areas. However, creative class does not only exist in thick and diversified RISs (Petrov, 2007). Literature on transnational diaspora entrepreneurs illustrates that mobility of individuals can lead to new industrial path development in emerging markets (Riddle et al., 2010; Saxenian and Sabel, 2008). Such entrepreneurs bring not only knowledge to the region but are also embedded in global networks that facilitate, for instance, access to venture capital or access to global markets.

As regards informal networks, Saxenian and Sabel (2008) highlight the importance of social ties to emigrants. While traditionally often regretted as braindrain, the authors attribute the development of Taiwan into a global leader in technological entrepreneurship focused on semi-conductor and computer-related firms largely to the sourcing of knowledge from expatriates, in particular the Taiwanese diaspora in the US. Accordingly, knowledge exchange through these informal linkages was instrumental for informing the responsible government officials about the venture capital industry and supporting the establishment of such an industry. This created a favourable environment for technological entrepreneurship, also attracting finance, FDI and return migration of qualified individuals. This example unveils how informal and formal networks and the arrival of external actors, together with strong government intervention, were fundamental for transforming a thin RIS into a thicker one.

In summary, organizationally thin RISs in general are characterized by the highest need and the lowest attractiveness and absorptive capacity of all three RIS types. However, the stylized facts ignore the heterogeneity of regions and lack a dynamic perspective that highlights the upgrading of the knowledge base in peripheral regions. Such a dynamic perspective allows for the possibility that thin RISs become thicker over time and transform into dynamic places for particular industries. The seeds for the creation of new industrial paths in thin RISs are often found within one or few strong organizations with global knowledge linkages. Furthermore, the arrival of external actors can be the nucleus for a new path. However, new path development also requires building regional absorption capacity over time. This encompasses upgrading the local knowledge and support infrastructure with strong policy support.

VII Summary and conclusions

Recent EEG contributions have increased our understanding of forms and determinants of new path development across regions. Regional industrial change, however, has thus far largely been conceptualized as an endogenous phenomenon, underplaying exogenously-driven forms of path development. As a consequence, the nexus between the inflow of non-local knowledge and new growth paths in regions is still poorly understood. This article sought to contribute to the current debate on regional industrial path development by exploring conceptually the role that exogenous sources can play in path branching and path creation.

As the patterns of exogenously-led path development vary substantially depending on the regional context, we developed the argument that regions differ not only in their need for non-local knowledge but also in their capacities to attract, absorb and transform it into new path development. This was conceptualized by drawing on a typology of RISs that foregrounds the organizational dimension of these systems. In that way, this article moves beyond firm-centred views dominating in EEG studies and adopts a multi-actor approach that is better suited to capture the various sources that may contribute to new path development and the evolution of regional economies.

Our focus on how RISs with different organizational set-ups are able to utilize non-local knowledge for new path development contributes first of all to debates in EEG. This branch has been criticized for relegating the role of institutions and having an under-conceptualized notion of social agency and power (MacKinnon et al., 2009; Pike et al., 2009). This critique causes Hassink et al. (2014: 1296) to argue ‘that EEG can be advanced by including ideas derived from institutional and relational economic geography (REG)’. The RIS approach covers an institutional dimension that includes ‘formal regulations, legislation, and economic systems as well as informal societal norms’ (Gertler, 2004: 7). Protagonists of institutional economic geography claim that local distinctive institutions influence the evolutionary trajectories of regional economies (Gertler, 2010). There are strong reasons to argue that place-specific institutional set-ups affect the capacity of RISs to attract (Grillitsch, 2015) and absorb non-local knowledge and to shape new path development and regional transformation (Rodriguez-Pose, 2013). A similar view is offered by REG, which stresses the embeddedness of actors in networks of social relations and institutions at various spatial scales (Bathelt and Glückler, 2003) and ‘considers formal and informal institutions as central influences on the evolution of industries and the development of regional economies’ (Hassink et al., 2014: 1302).

Future studies of new path development should thus complement the EEG approach by bringing into play key insights provided by institutional and relational EG. Due attention needs to be devoted to institutional conditions and constraints for new growth paths and how they vary across different types of regions (Farole et al., 2011a, 2011b; Grillitsch, 2016). In particular, future research should study how human agency, affected by region-specific institutions (and their interplay with institutions at other spatial scales), promotes or impedes new path development, and how firm and non-firm actors influence the working of institutions. As ‘informal institutions are context and geography specific’ (Rodriguez-Pose, 2013: 1040), they will certainly vary between (and within) the three types of RISs considered in this article. Furthermore, future work could inquire what types of institutions at higher spatial scales (together with local ones) influence the capability of actors to absorb and exploit non-local knowledge. Finally, it would be intriguing to examine which forms and directions of institutional change facilitate or co-evolve with exogenously-driven path development and the transformation of organizational RISs structures in different types of regions.

Another key theme relates to the impact of policy interventions. As noted above, EEG conceptualizations of new path development pay little attention to the role of the state and deliberative social action (MacKinnon et al., 2009; Pike et al., 2009). The RIS approach explicitly considers policy influences but focuses strongly on what Dawley et al. (2015) call ‘regional development initiatives’ and what Isaksen and Trippl (2016b) refer to as ‘RIS policies’, that is, policy actions and initiatives to strengthen RISs.

Drawing on geographical political economy (GPE) approaches could help to redress the neglect of the role of the state in EEG and to offer a broader view on policy actions and influences than those covered by the notion of RIS policies. From a GPE perspective, analyses of new path development should account for state interventions on multiple scales (Dawley, 2014). In addition to RIS policies, initiatives by local, regional and national authorities to attract firms, organizations and investments from elsewhere, and the construction and reconstruction of national institutional infrastructure and market opportunities through horizontal (R&D, regulatory frameworks, markets, infrastructure) and sector-based vertical policies, need to be taken into consideration (see, for instance, Dawley, 2015). Future research might explore how new development paths in different regions are shaped by the interplay of the above-mentioned policy areas, how and why regions differ in their capacities to exploit nation-state-led growth impulses brought about by horizontal and vertical policies, and how RIS policies back up FDI policies to shape regional assets to match the strategic needs of external investors.

Footnotes

Acknowledgements

The authors are grateful to Christian Berndt and three anonymous reviewers for their very valuable comments on earlier versions of the article.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

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