Sustaining Growth for Innovative Enterprises: Transatlantic Comparisons and Implications for the UK

Philip Shapira

Workshop on Innovation and Local Growth

Enterprise Research Centre, Warwick Business School

WBS at the Shard, London

May 28, 2015

1 Email: pshapira@mbs.ac.uk | Twitter: @philipshapira

Sustaining Growth for Innovative Enterprises: Transatlantic Comparisons and Implications for the UK

1. About the project (=1)

2. Methodological innovations (=2)

3. Descriptors (=3)

4. Key findings (=4)

5. Insights and implications (=5)

Download presentation, reports and papers from: http://bit.ly/sustaining-innovation

1. Project - Snapshot

• Probes growth strategies of innovative small and medium-size enterprises (SMEs).

• Focus: emerging green goods firms who manufacture outputs which benefit the environment or conserve natural resources

• International comparative element: UK, US, and China

Enterprise research

focus

• Sustaining Growth in Innovative New Enterprises

• Sponsor: Economic and Social Research Council*

• Innovation Co-Lab: Manchester Institute of Innovation Research, Manchester Business School plus Georgia Institute of Technology (USA) and Beijing Institute of Technology (China)

The project

1. About the Project Sustaining Growth in Innovative Enterprises

*ESRC grant number ES/J008303/1, 2012-2014. Project team includes: P. Shapira, A Harding (Liverpool), M. Sensier, A. Gok, E. Klochikin, A. Waterworth; J. Youtie (GT), S. Arora (GT), Y. Li (GT); J Ren (BIT).

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Two Methodological Innovations 2.1. Key word search strategy: Green goods manufacturing

• 26 green goods sectors under broad categories of environmental, renewable energy, emerging low-carbon, and general

• 100+ search terms, building on BIS sectoral and other related definitions (applied to “line of business” fields)

• Key words for each sector, see example in the Air Pollution sector

2.2 Web mining

• Web mining (UK, US, CN) – current and archived sites

• Topic-based activity keyword search. Groups include: manufacturing strategy, products, R&D (see example), investment & finance, university links, partnerships, policy influence

• Enterprises starting as an SME; founded in or before 2007*

• Combine with structured data on patents, publications, business data (UKFame, Experian; USDun & Bradstreet), government awards (UKTSB, USSAM) & cases (UK)

References: Shapira, Gök, Klochikhin, Sensier (2014). Probing “green” industry enterprises in the UK: A new identification approach, Technological Forecasting and Social Change. Gök, Waterworth, Shapira (2015) Use of web mining in studying innovation, Scientometrics. Arora, Youtie, Shapira, Li. (2015) Using the Wayback Machine to mine websites in the social sciences: A methodological resource, Journal of the American Association for Information Science and Technology

ACTIVITY SEARCH: R&D KEYWORDS (Research and development) AND R&D AND lab* AND scientist* AND research AND researcher AND scientist* AND (product development*) AND (technology development*) AND (development phase) AND (technical development*) AND (development program*) AND (development process*) AND (development project*) AND (development cent*) AND (development facilit*) AND (technological development*) AND (development efforts) AND (development cycle) AND (development research) AND (research & development) AND (development activity)

SECTOR SEARCH: AIR POLLUTION (((air* contr*) OR (dust* contr*) OR (particular* contr*) OR (air* qual*)) AND (pollut*))

*UK: 1995-2007; US: 2003-2007; reference years 2012-2014

2. Methodological Innovations Sustaining Growth in Innovative Enterprises 4

3.1 SME Sample

3. Descriptors Sustaining Growth in Innovative Enterprises

Sectors UK USA

Emerging Low

Carbon

158 52% 94 31%

Renewables 61 20% 28 9%

Environment &

Other

85 28% 178 59%

Total 304 100% 300 100%

Solar PV (US South)

Green Cleaning (US South)

Green Goods Sector Enterprises, UK Sample, 2003-2012 (N=187)

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3.2 Geography

3. Descriptors Sustaining Growth in Innovative Enterprises

UK GGS SMES (N = 304)

US GGS SMEs (N=300)

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3.3 R&D Activities R&D in green goods SMEs • UK firms – more

publications but relatively lower in patenting

• UK firms report more R&D activities on web than would be expected from conventional data sources

• Web-based R&D mentions are frequently downstream (development, trials, test, pilot, demo, etc.)

Variables UK US China Green Goods SMEs 2004-2012 2008-2010 2002-2014

Publications 15% 10% 1% Patents 5% 19% 19% R&D spend 17% R&D employees 92% TSB awards 22% US contract registration 48% R&D web mentions 68% 66% 97% N (companies) 296 271 300

Publications in Web of Science; Patents in Derwent patents; UK R&D spend from FAME; TSB = UK Technology Strategy Board; US active contract registrations with Sam.Gov; R&D web mentions (UK, US) & R&D employees (CN, N=213 in 2014) from web-mining.

3. Descriptors Sustaining Growth in Innovative Enterprises 7

4.1 Growth in UK GGS Enterprises

UK key finding:

Higher growth is found in UK

green goods sector firms that

engage in R&D activities;

are in receipt of government

grants; and

are aware of regulation / product

standards.

i.e. access to knowledge combined

with funding is important

4. Selected Key Findings Sustaining Growth in Innovative Enterprises

Growth Rate % >0 >5 >10 >20

EMPL_LAGGED -ve*** -ve*** -ve*** -ve***

R&D_REP (lag) +ve* +ve* +ve*** +ve***

GLOBAL_LINKS +ve +ve +ve +ve

R&D_WEB -ve -ve -ve -ve***

PUBFUNDS -ve -ve -ve -ve

R&D_WEB x PUBFUNDS

+ve +ve*** +ve*** +ve***

Growth Rate % >0 >5 >10 >20

EMPL_LAGGED -ve*** -ve*** -ve*** -ve*** R&D_REP (lag) +ve +ve +ve*** +ve** GRANTS (lag) +ve +ve +ve +ve*** GLOBAL_LINKS +ve +ve +ve* +ve

PRODUCT STANDARDS

-ve -ve* -ve -ve**

PARTNERSHIPS -ve* -ve* -ve -ve

PRODUCT STANDARDS x PARTNERSHIPS

+ve**

+ve***

+ve***

+ve***

Note: All UK firms, 829 pooled observations. Dependent variable is 1 when growth is greater than zero, 5%, 10% or 20%. The sign of coefficient and significance is p>0.01 (***), is p>0.05 (**) and is p>0.1 (*). GGS = Green Goods Sector.

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4.2 Growth in US GGS Enterprises

US key finding

In the US green goods SME sector, linkages with two or more triple helix sectors increases the rate of growth and local links are more effective than national links

These productive mixes of linkages may include: – Research commercialization assisted by

government programs (links with university and government)

– Coordination across all three sectors (links with university, government and industry)

Government links have a particularly large contribution to the effectiveness of overall mixes of linkages

4. Selected Key Findings Sustaining Growth in Innovative Enterprises

Linkage variables: US

University -ve** Government +ve Industry +ve Uni x Govt +ve**

Uni x Industry +ve*

Govt x Industry -ve

Uni x Govt x Ind(a) +ve* (45% more

growth)

Local links +ve***

National regional +ve

N = 271 US-based green goods sector (GGS) enterprises. Triple Helix = industry-university-government partnerships

For full details, see: Li, Y., Arora, S., Youtie, J. and Shapira, P. (2014). Micro-Level Relationships of Innovative Firm Growth: Exploring the Mix of Links

Underlying the Growth of Small and Mid-Size Enterprises in Green Goods Sectors. Working Paper: Sustaining Growth for Innovative New Enterprises Project.

Note: Hausman-Taylor Model with first difference of log of sales. Sign of coefficient and significance if p< 0.1 (*), p < 0.05 (**); p < 0.01***. (a). Based on total

marginal effects.

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4.3 US GGS Enterprises – Returns to Pivoting Strategic pivoting increases probability of positive sales growth

Predicted probabilities for each category of the ordinal dependent variable, sales growth, as a function of dpq and dpqsq, holding all continuous variables at their means and application area as environmental. Underlying regression model dependent variable: sales growth (2010 to 2012) collapsed on negative, zero, and positive values, ordinal logit model, growth = f(pivoting, website variables, controls). N = 198 US green goods panel firms. Source: Arora, S., Youtie, J., Yin. L., Shapira, P. (2015). Does "Pivoting" Matter for Entrepreneurship? Using Web Mining to Explore Strategic Business Changes and Growth of Startups in US Green Goods Manufacturing, Working Paper: Sustaining Growth for Innovative New Enterprises Project

4. Selected Key Findings Sustaining Growth in Innovative Enterprises

Pro

bab

ility

dpq (measure of distance between topics)

Business line change

Churning Too rapid change limits scale up, exploiting innovations

The strategic pivot

Timely response to technology and market changes

Lock-in Too little change leads to inertia

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Strategies of growing UK GGS businesses

Most are active exporters, some mainly operate in global markets.

Despite economic downturn, many of these firms have grown successfully by:

Product, market and technology diversification

Business model innovation

Servitisation of manufacturing

Access to finance remains a major issue for many firms, followed by access to skills.

Energy (S England). Est. early 2000s. Approx. 65 employees. Manufacturer of exhaust energy recovery technology. Sales in Germany and Brazil. Diversified from transport (heavy vehicles) to stationary power generation sector.

Biofuels (SE England) – Est. 1990s. Approx. 200 employees. Leading supplier of biofuels, mainly in UK. Investment in inventory control, back-office, IT, as well as transport and logistics to improve efficiencies and economies of scale.

Fuel Cell (S England) – Est. mid 2000s. Approx. 45 employees. Exporting to Korea. Developer of alkaline fuel cell systems for industrial markets Business model innovation (selling power rather than fuel cells)

Boiler (N England) Est. late 1990s. Approx.100 employees. Diversified from an energy technology business to an energy supply business. Electricity-generating gas boiler offered via an innovative finance deal.

4. Selected Key Findings Sustaining Growth in Innovative Enterprises

4.4 UK GGS business model innovation

Source: UK interviews with 26 green goods manufacturing SMEs (from study panel) & 14 policy organizations and experts, 2013-14. About one third are fast growing firms

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5.1 Green Goods Manufacturing Shared Transatlantic Perspectives

• Green goods sectors are important in sustainable economic growth, job creation, & exports, and addressing global challenges

Green economic development

• Green goods sectors can boost manufacturing (vis-à-vis services) and narrow regional divides Rebalancing

• Green goods sectors can exploit public R&D: new knowledge and technology development in renewables, low carbon, and environmental technologies

Exploiting R&D

• SMEs can pioneer new innovations and business models SMEs as innovation

catalysts

• Policy frameworks are important in growing and scaling up green goods sectors Policy

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5.2 UK and US green goods sectors: Knowledge, linkages, and growth

UK Green Goods SMEs

• Challenges of scale-up by SMEs…

• … Higher growth in sales associated with reported R&D and government grants, and with:

• Interactions of Web mentions of R&D and public support, and awareness of product standards and partnerships

US Green Goods SMEs

• Hyped expectations of green goods versus modest outcomes - at the micro level, while about half the green goods firms added sales, the other half did not and many relied on public funding…

• …Where there is higher growth in sales, this is associated with linkages with two or more triple helix sectors

• Local links are more effective than national links

• Government links have a particularly large contribution to the effectiveness of overall mixes of linkages

5. Insights and Implications Sustaining Growth in Innovative Enterprises 13

5.3 Business and collaboration strategies of growing UK green goods firms

Strategy and markets

• Role of pivoting – reorienting products, business model innovation, value-added services

• Export markets important for many UK firms - UKTI valued

Innovation value chains

• Innovation networks are mainly with customers and suppliers – importance of value-chain collaboration

University collaborations

• Fast growing firms tend to actively engage with universities, mainly on testing, one-off consultancies; student projects, sponsor PhD, KTPs; and research and European projects

• Some research links are local but in general fast growing UK GGS firms benefit from varied non-local research links with UK and global universities

5. Insights and Implications Sustaining Growth in Innovative Enterprises

Reference: Uyarra, E., Shapira, P., Harding, A. (2015) Low carbon innovation and enterprise growth in the UK: Challenges of a place-blind policy mix. Working Paper: Sustaining Growth for Innovative New Enterprises Project.

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5.4 Location strategies and regional frameworks – UK green goods firms

Locational path dependency

• Location in certain clusters generated as a result of spin-off processes, deregulation of energy sector or diversification processes from traditional manufacturing sectors.

• They tend to exhibit strong locational inertia. Main locational advantages (or reasons for not relocating) linked to people retention/availability of skills

Weak regional clustering

• Other locational advantages (e.g. access to markets, local supply chain, availability of research infrastructure) not very important.

• Decreasing role of local supply chain links: “We used to have our suppliers located nearby us in the past, now we are finding ourselves having to go further afield.”

RDAs to LEPs

• Missing-middle in industrial policy between the ‘national’ and the ‘local’.

• RDAs to LEPs loss of regional sectoral/ supply chain expertise in areas such as offshore wind.

5. Insights and Implications Sustaining Growth in Innovative Enterprises

Reference: Uyarra, E., et al. (2015).

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5.5 UK funding & policy landscape not perceived by business as helpful

Finance

• Difficulties in accessing finance in intermediate stages of the innovation phase (valley of death), particularly in sectors with greater technological risk and high capital intensity.

• Insufficient visibility of funding opportunities Low-Carbon Funding Landscape Navigator useful but still low awareness.

Innovation support landscape

• Perceived fragmentation of innovation support landscape. “It is very hard for a reasonably well-informed outsider to understand how this fits together, let alone the small businesses.”

• Business value long-term stability of incentive frameworks, which they perceive is insufficient in the UK. “For our particular type of application, feed-in-tariffs around landfill gas, the government is only really now starting to put in place what they are and we haven’t had much continuity or stability in terms of those regimes”.

• Need for greater alignment / greater public shaping influence. “The UK does not compare well with other countries”. More attractive regulatory regimes overseas driving exports: “for our particular type of application, we haven’t had much continuity or stability, hence we have no customers in the UK.”

5. Insights and Implications Sustaining Growth in Innovative Enterprises

Reference: Uyarra, E., et al. (2015).

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Concluding Observations

•Contributing (albeit perhaps modestly) to rebalancing and sustainability

•Most vibrant companies innovate, pivot, and export

UK base of SMEs in green goods sectors

• In UK, Triple Helix is also important but possibly less powerful

Triple Helix relationships are important in US

•Effective (“joined-up”) government policy is an underpinning of broad success in Green Goods manufacturing sectors

•Strategic pivoting aided by long-term frameworks for skills, financing, and technology and business support

In most green goods sectors, relationships with government are particularly important

Sustaining Growth in Innovative Enterprises 17

The Manchester Institute of Innovation Research (MIOIR) is the research centre of excellence in the Manchester Business School (MBS) and the University of Manchester in the field of innovation and science studies. With more than 50 full members and a range of associated academics, the Institute is among Europe’s largest and one of the World’s leading research centres in management and policy for innovation and science.

Manchester Institute of Innovation Research

Manchester Business School University of Manchester, UK

Sustaining Growth for Innovative Enterprises: Green Goods Sectors Download reports and papers from: http://bit.ly/sustaining-innovation Contact: pshapira@mbs.ac.uk Twitter: @philipshapira