Francesco Crespi

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New processes, old patterns. Process vs. product
innovation in Europe

• Francesco Crespi
• University of Roma Tre
• Mario Pianta
• University of Urbino
• ISAE - Monitoring Italy 2007 , Rome 18th October
  2007

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Research questions

• Which are the mechanisms leading to current
  innovative performance in European Industries and
  in Italy?
• How do different innovative strategies affect the
  direction of technological change in terms of new
  products or processes?
• Is there any peculiar innovation pattern in
  Italy?
• Is there any systematic difference between
  manufacturing and service sectors in the way
  different technological strategies affect
  innovation?

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Key concepts I

• The Schumpeterian insight on the variety of
  innovation and business strategies is the
  starting point of this investigation (Schumpeter,
  1934)
• A conceptual distinction can be made between
  product and process innovations (Scherer, 1991
  Cohen and Klepper 1994 Pianta, 2001 Antonucci
  and Pianta, 2002 Edquist, Hommen and McKelvey,
  2001)
• Existence of specific forms of technological
  change, in specific national systems of
  innovation (Lundvall, 1992)
• Sectoral dimension as the most appropriate level
  of investigation, as the technological regime in
  each industry affects the opportunities for
  innovation and the strategies of firms (Malerba,
  2002, 2004)

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Key concepts II

• Pianta (2001) has identified the major
  distinction between a strategy of technological
  competitiveness, and a strategy of active price
  competitiveness.
• A strategy of technological competitiveness is
  associated to a dominance of product innovation,
  requires substantial internal innovative efforts
  (research, development, design, as well as new
  investment), a strong inventive activity
  reflected in patenting, a stream of new products,
  with the objective of increasing market shares
  and opening up new markets.
• A strategy of active price competitiveness,
  rooted in process innovation, focuses on
  increased efficiency achieved through innovation
  in cost-saving processes, introduction of new
  machinery, larger markets associated to a
  decrease in price, with a key relevance of the
  objective of increasing production flexibility.

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Key concepts III

• The distinction between a strategy of
  technological competitiveness, and a strategy of
  active price competitiveness has been applied to
  cross-sectional studies on
• The determinants of innovation Crespi and
  Pianta (2007), Pianta and Vaona (2007)
• The impact of innovation on Employment Antonucci
  and Pianta (2001), Mastrostefano and Pianta
  (2004)
• The impact of innovation on productivity Crespi
  and Pianta (2008 a,b), Vaona and Pianta (2008)
• The impact of innovation on distribution Pianta
  and Tancioni (2008).

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Improvements with respect to previous work

• New original database containing data for
  CIS2-3-4
• Possibility of testing separate models for the
  determinants of product and process innovation
• Possibility of tackling the issue of causal
  relationships between variables
• Possibility of analysing country-case studies.

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Three Models

• General case Explaining the relationships
  between innovation inputs and strategies and
  general innovative performance, with the two
  mechanisms below.
• The model for process innovation explaining
  process innovation through investment in new
  capital equipment and strategies oriented to cost
  competitiveness.
• The model for product innovation explaining
  product innovation through investment in research
  activities and strategies for technological
  competitiveness.

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INijt aMAijt ßRDijt µMKijt ?LBijt?IEij e
ijt
THE GENERAL MODEL

• IN the percentage of firms that have introduced
  product or process innovations as indicator of
  the overall innovation activities.
• MA the percentage of firms acquiring new
  machinery and equipments linked to innovation
• RD the percentage of firms with RD activities
• MK the percentage of firms aiming at opening up
  new markets or increasing market share
• LB the percentage of firms aiming at reducing
  labour costs
• IE individual fixed effect
• e error term t time, i sectors, j countries.  

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THE MODEL FOR PROCESS INNOVATION PCijt
aCOijt µMAijt ?LBijt?IEij e ijt

• PC is the percentage of firms that have
  introduced process innovations
• CO the percentage of firms with cooperation
  arrangements on innovation
• MA the percentage of firms acquiring new
  machinery and equipments linked to innovation
• LB the percentage of firms aiming at reducing
  labour costs
• IE individual fixed effect
• e error term t time, i sectors, j countries.

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THE MODEL FOR PRODUCT INNOVATION PDijt aCOijt
ßRDijt µMKijt UNijt FSijt ?IEij eijt

• PD the percentage of firms that have introduced
  product innovations
• CO the percentage of firms with cooperation
  arrangements on innovation
• RD the percentage of firms with RD activities
• MK the percentage of firms aiming at opening up
  new markets or increasing market share
• UN the percentage of firms acquiring information
  from university
• FS the average firm size measured as the average
  number of employee per firm
• IE individual fixed effect
• e error term t time, i sectors, j countries.

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Data

• Innovation Survey CIS 2(1994-1996), CIS3
  (1998-2000), CIS 4 (2002-2004)
• 22 manuf. sectors, 17 service sectors
• 8 European countries France, Germany, Italy, the
  Netherlands, Portugal, the United Kingdom, Spain,
  Norway

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Econometric methodology

• Hausman Test to check the relevance of individual
  effects
• Fixed Effects to control for unobserved
  heterogeneity
• Robustness checks for endogeneity problems use
  of GMM estimator.

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Results for the general model

• Both strategies of technological and price
  competitiveness appear to play a role in shaping
  industries' share of innovative firms
• Different results when the general model is
  applied to explain product and process
  innovation
• RD and a market oriented strategies are more
  relevant for product innovation
• The acquisition of new machinery and the search
  for lower labour costs are more important for
  process innovation.
• In Italy the acquisition of new machinery and the
  objective or reducing labour costs represent key
  innovative factors
• Need for more specific models.

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Main results and conclusions

• The distinction between the strategies of
  technological competitiveness and active price
  competitiveness helps to interpret the different
  mechanisms leading to product and process
  innovation
• Such a distinction helps to highlight some
  features of the Italian Innovation System
• Italy fits very well with the model of active
  price competitiveness
• Limited difference between manufacturing and
  service industries in the operation of the two
  mechanisms
• The main results are robust to econometric tests
  confirming the identification of causal
  relationships among variables.

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Prospects for future research

• Complementarity test between product and process
  innovation
• Inclusion of variables on Innovation
  Expenditures
• Inclusion of demand variables in order to control
  for the pulling effect of demand on innovation
• More in depth analysis of country cases
• More focus on specific groups of sectors
  following Pavitts taxonomy.
• Use of the database for analysing the impact of
  innovation on performances growth, productivity,
  employment, distribution