Innovation has long been recognised as a driving

Innovationhas long been recognised as a driving force behind economic development andnational prosperity. It is key to a country’s dynamic competitive advantage,which can be shaped by dedicated policies as well as regulatory andinstitutional framework (Asheim and Coenen, 2006).

Until 1990s innovationpolicy embraced a linear approach by prioritising technology transfer, Rinfrastructure provision and supporting financial instruments (Tödtling andTrippl, 2004). That linear model has subsequently become a subject of sharpcritique. By equating innovative capabilities with R intensity, itneglected a complex interplay of various actors who contributed to rise ofinnovative ecosystems. Since then policy-makers encompassed a holistic, systemwide approach to the formulation of their innovative agenda.

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Nationalinnovation systems (NIS) (Lundvall, 1992) have become a common acknowledgementthat innovations are developed and implemented through a network ofinterdependent actors underpinned by an institutional framework (Asheim andCoenen, 2006). Innovation is seen as an evolutionary, nonlinear and dynamicprocess, based on learning, interaction and collaboration between different firms,institutions and organisations (Edquist, 2001). Firms do not generally innovatein isolation (Edquist, 1997). They are embedded in a broader institutional environment,including public agencies, research institutes, industry associations,financing institutions, standard setting bodies and so forth.  Most public policies designed to foster innovativecapacities at the national level succeed in enhancing interaction amongdifferent players and fixing common market failures, deterring privateinnovation investments. Nevertheless, they lack a differentiated approach whenit comes to a specific region’s setting.

“One size fits all” policies fail toaccount for the fact that regions substantially differ in their innovationpotential, absorptive capacity and strengths. That limitation paved the way tothe emergence of the regional innovation system’s framework (RIS) that promotesspecific targeted policy measures to enhance capabilities and performance inlocal firms, improve their business environment and boost competitive advantageof regions (Doloreux and Parto, 2005). What both approaches share is systemiccharacter of innovation, which presumes that innovation processes increasingly involve sharing work and arebased on the chain-linked innovation model (Sternberg,2007). Though, the concept of a regional innovation systemis based on the assumption that location and spatial proximity matter forinnovation activities (Cooke et al., 1997).  The argument for tailored regional policy isalso premised on innovation as being an inherently geographical process,spatially concentrated and sustained through shared regional knowledge base(Maskell and Malberg, 1999; Asheim and Isaksen, 1997, cited in Doloreux andParto, 2005).  Since 2000s governments across both developed andemerging economies have come to realise that national competitiveness depends on the ability of indigenous companiesto innovate. Measures endorsing development of industrial districts, innovativemilieu and clusters has topped regional policy agendas.

One of the clearestexamples of this approach was Germany, which in 1995 announced the BioRegioinitiative to build and support innovative, regional biotechnology clusters,that eventually helped to drag Germany up from its poor competitive position inbiotechnology commercialisation (Cooke, 2001).  Bothpolicy-makers and academia place greater emphasis on regional dimension ofinnovation processes and its role in national economic growth and development.Region is increasingly the level at which innovation is carried out throughregional networks of innovators, local clusters and research institutes(Lundvall and Borra, 1997, cited in Asheim and Coenen, 2006). Thus, prudent and well-articulated regional policy hasa significant stake in discovering and sustaining endogenous sources ofinnovation. The mere presence of the system of actors and institutions thatembark on and influence innovation activities in the regions is not sufficientto develop commercially viable and successful knowledge-intensive output.

Ratherthe quality of the policies that support production of innovative products andservices play a defining role. There has been important empirical and theoreticalcontribution to the research on RIS. However, the research on the measurementof the quality of RIS demonstrates predominance of empirical studies onlinkages between innovative actors, assessment of observable innovative inputsand outputs such R expenditure, patents and publications. It lacks focuson knowledge creation and entrepreneurial activity. It is argued thatinnovative strength of regions depends on small and medium sized enterprises,entrepreneurs that are willing to invest, and local research and educationinstitutes that provide skilled labour force.

Nevertheless, they remainexcessively untouched by the national STI policies, but also receive inadequateregional support. On the one hand, national STI policies are biased towardsmajor industry players. They allocate R funding and subsidies to ahandful of traditional large corporations. On the other hand, regionaladministrations face budgetary constraints to support local players.

The nationaland regional policy measures are supposed to complement each other, however,there are gaps that need to be fulfilled by either sound reallocation ofresources, diversification of policy tools or shift in responsibilities,conferring more power to regional authorities.Policy-makersat different local and regional levels, being active at formulating regionalSTI strategies, still have to encounter challenges such as limited access tothe full range of innovation policy instruments. The whole idea of developingregional innovation strategies is relatively a new phenomenon, particularly inthe emerging and transition economies.

Some of the regional STI strategies arein their nascent forms yet. There is no solid experience or best practices tolearn from. Due assessment of their progress, thus, will reveal flaws andlimitations    and bring policies back to the righttrajectory. Essentially, it will help local authorities develop focused supportefforts, rather than generic actions. The aim of this paper is to investigateregional policy initiatives and evaluate their effectiveness in unlocking andactivating local innovation potential, particularly in SMEs. It will discussthe following questions: How effective are regional STI policy measures? Why arethere failures? How can the current policy set be further improved? The paperwill analyse policy instruments implemented by regional governance in Germany(Berlin Brandenburg), Russia (Moscow region) and Kazakhstan (Akmola region). Theresearch will take a qualitative approach in order to bring expert opinion anddeeper insight into the issue under study. It will allow interpretation of theresearch problem from the perspective of the regional policy-makers as well asdescribe experiences of individual regions.

Based on three case studies and anumber of interviews with local government officials, it will assess thequality of the STI policy measures by regional governments, discover which policymeasures can be defined as best practices and which need specific alterations. Theoverarching goal of the research is to propose recommendations in order tochange the status quo and lay foundations to a new innovation policy framework.FromWBInnovationpolicy should comprise the core of governmental agenda.Innovatorsare, first and foremost, entrepreneurs (World Bank, 2010). Even though theypossess the skills to introduce new products and processes, they still requirebasic support in their endeavours since innovation is a dynamic andcollaborative phenomenon. An enabling environment that tackles the problem ofunderinvestment into research and innovation, network and cooperation issues, stemmingfrom information asymmetries, among firms, higher education and researchinstitutes, as well as institutional rigidities which stifle entrepreneurialspirits. Large firms have long enjoyed state support, ranging from assistancein precompetitive research to direct support and subsidies. Small and newventures have been deprived of this privilege, left to deal with their sizeconstraints, limited access to input factors and markets on their own.

Whilegovernments used in the past to underestimate the contribution of SMEs toinnovation dynamics, they have revised their priorities in the past decades, bysubstantially raising preferential benefits and support for SMEs in theirprograms (World Bank, 2010). First,innovation is increasingly taking place at a small firm level. SMEs leadinnovations in the major global industries such as biotechnology, ICT, AI andrenewable energy. While not all SMEs are inherently innovative, they are oftenthe primary source of new radical, Schumpeterian ideas. These are vital foreconomic growth and enhanced national well-being, since they can work outsidethe dominating paradigms, take advantage of commercial or technologicalopportunities that have been neglected by more established firms orcommercialise knowledge that would otherwise remain commercialised inuniversities and research institutions (OECD, 2017). For example. SMEs accountfor 20 per cent of patent, one tangible measure of innovative activity, in bio-techrelated fields in EU (Eurostat, 2014).

Second, they also play a major role invalue creation by adopting and adapting innovative solutions created elsewhereto local context through incremental changes or catering to the needs of nichecustomers and serving locations lacking large enough scale to attract largercompanies. Furthermore, the rise of the knowledge based-economy and emergenceof open or network-based types of innovation have also enabled SMEs to increasetheir contribution to innovation (OECD, 2017). Knowledge spillovers, networksand potential partnerships with other industry players, including establishedfirms, play a central role in innovative activities of SMEs. Thus, a keychallenge for them is to detect and partner with the appropriate externalnetworks and knowledge agents at the local, national and global level.

Although,SMEs possess untapped potential for generating innovative solutions, not everysingle one can fully exploit it. On the one hand, many face difficultiesmobilising large-scale resources, lack access to technological expertise,funding, managerial or organizational capabilities to develop or adopt a newtechnology.  On the other hand, for technologyproviders and consultants, the costs of reaching smaller companies andtailoring equipment to their needs are relatively high (World Bank, 2010).

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