48th JSRSAI CONFERENCE
Wakayama, Japan, 8th-10th October, 2011

Regional innovation systems in less developed areas: policy reflections
and challenges for Portugal(Draft version)

Domingos Santos
Assistant Professor - Polytechnic Institute of Castelo Branco
Researcher of the CICS - University of Minho
Email: domingos.santos@ipcb.pt

Maria João Simões
Assistant Professor - University of Beira Interior
Researcher of the CICS – University of Minho
Email: mariajoaosimoes@sapo.pt

AbstractInnovation has moved to the foreground in regional policy in the three last decades.
Public policies have been shaped by “best practice models” derived from high-techareas and successful regions. However, lessons learned from these regions are rarely
replicable elsewhere, in particular to territories where actors strategic to the innovation
process are less capable and diversified. The regional innovation systems in peripheral
regions, and the likelihood of their acting as instruments for territorial competitiveness,have seldom been the subjects of discussion.
The first part of this article examines the concept of regional innovation systems against
the background of modern theories of innovation and regional policies. It is argued thatthe role of localized learning is of strategic importance in the promotion of endogenous
regional development. With reference to current research on regional policy, the authors
also argue that sustainable regional strength is built on a continuously upgradedknowledge base, rather than on general factor endowment.
The authors then discuss the structural barriers and opportunities to promote regionalinnovation strategies in the context of the Portuguese political, economic and social
reality, pointing out some specificities that need to be addressed in the redesign of
public interventions in order to improve regional competitiveness and sustainability.

Keywords: regional innovation systems; innovation; innovation policy; peripheral
regions; territory; Portugal.

1. Introduction
During the last three decades, innovation, understood “in the broad sense to include
product, process and organizational innovation in the firm as well as social andinstitutional innovation at the level of an industry, region and nation” (Morgan, 1997:492), thus surpassing the strictly classical technological dimension, has become a key
focal point on the analysis of territorial dynamics and on modern theories of economic
development.
As innovation processes have intrinsically a strong territorial and social matrix, then it
must be emphasized the increasingly importance that an enlarged set of factors now
assume in the production of knowledge for innovation, namely the informal contacts
and the flows of tacit knowledge amongst the different kind of actors, their acceptedrules, conventions and cultural patterns (Storper and Scott, 1995), their relational capitaland their social capital, on the sense proposed by Putnam (1993: 35): “features of socialorganization, such as networks, norms and trust that facilitate coordination and cooperation for mutual benefit”. Thus, there has been a shift towards the understanding of
the innovation process as a socially constructed mechanism based on the accumulationof knowledge (codified or tacit) through a continuous and interactive learning course(Lawson and Lorenz, 1999; Tura and Harmaakorpi, 2005). Accordingly, Maskell andMalmberg (1999: 20) argue that territorial competitiveness has nowdays, more thanever before, to do “with knowledge creation and with the development of localized
capabilities that promote learning processes”.
In this sense, the innovation dynamics is based on resources that are place-specific, thisis, “it is a localized, and not a placeless process” (Asheim and Isaksen, 1997: 299), so,
regionally based complexes of innovation and production are increasingly the privileged
instruments to harness and recreate knowledge and intelligence across the globe(Koschatzky, 2003).
The accumulated knowledge that production systems develop, because they areincorporated in locally based institutions and in a generally non-mobile workforce, tend
to perpetuate certain competitive advantages but, although proximity matters, whatreally is important for the upgrading of the competitive edge of localized production
systems and resource creation is organizational proximity (Burmeister and ColletisWahl, 1997; Kirat and Lung, 1999; Fujita and Krugman, 2004; Carlsson, 2005). It istherefore important to recognize that “knowledge transmission and collective learningmay be fostered by cultural, institutional and geographical proximities often in
combination” (Keeble and Wilkinson, 1999: 300).
So, on the last three decades, there has clearly been a change of paradigm on theperception of the relation between industrial dynamics and regional development: longterm regional competitiveness and sustainability has less to do with cost-efficiency andmore to do with the ability of firms and institutions to innovate, or, in broader terms, toupgrade their knowledge base (Hallin and Malmberg, 1996).
The theoretical debate about the dialectics innovation-territory remains largely,
however,at

a abstract

and generallevel,

being

necessary an important

operationalization effort of the main concepts to enrich the empirical research. The
implications of this problematic on least favored regions have seldom been analyzed.
Usually, the analysis is focused on urban-metropolitan areas on medium to high-tech
sectors. The regional innovation systems in peripheral regions, and the likelihood of
their acting as instruments for territorial competitiveness, have rarely been the subjectsof discussion. On this article we will concentrate upon the Portuguese reality which has
its own political, institutional, economic, scientific and regional peculiarities, a realitythat is close of the so-called low density territories.

2. Innovation and territory: the analytical framework

In this context, it is argued that the territorial dynamics creates specificinterdependences among the actors and between the actors and the institutions thatevolve into a peculiar industrial and technological trajectory. Several analyticalframeworks share this particular approach, in particular the Industrial District
paradigm, the Innovative Milieu conceptual model, the Learning Region concept andthe Regional Innovation Systems approach. The first tow, they both germinated during
the 80`s as a theoretical answer to the empirical analyses of some restricted territories
whose industrial and spatial dynamics was based on the close links established between
small and medium enterprises, production flexibility, entrepreneurship and external
agglomeration economies. According to Hallin and Malmberg`s opinion (1996: 332),
both models emphasize “the systemic nature of industry; the role of learning andinnovation in industrial dynamics; and the spatially embedded character of industrialchange.”

The notion of industrial district, a Marshallian view of the process of overall production
organization, clearly rooted on the studies about the Third Italy and authors like
Bagnasco, Garofoli and Becattini, relates to export-based socio-economic firms, usuallycentered on one industrial branch with a high concentration of horizontally integrated,
specialized and autonomous small firms, each one associated to a single phase of
production. These small firms work interactively to produce a wide range ofdifferentiated goods that are sold on customer-oriented, fragmented and diverse
international markets. The local economies frequently benefit from the informationexchange made possible by the growth of localised producer-user networks, consequent
upon the flattening of vertical integration within firms (Garmise and Rees, 1997).
Specifically, four elements are underlined as the real sources of regional development inthis paradigm, as Capello (1996: 488) refers: “entrepreneurship, production flexibility,
district economies and the presence of some collective agents capable of acting as acatalyst for the mobilization of the indigenous potential (a local bank, wholesalers, local
industrial associations, some enlightened entrepreneur, etc)”. This localized network of
producers are bound together in a social division of labour, in necessary association
with a local labour market and innovation, although important, is not strategicallypursued, it does not constitute a priority purpose. Storper (1995) accentuates the role oflocalised untraded interdependencies (labour market, local conventions, tacitknowledge collectivelly held, etc) between firms and other institutions in promoting
mainly incremental innovation; diversely, the concept of Technological District, as
conceived by Rallet and Torre (1995), constitute a variety of industrial district where theexternal economies lay fundamentally on scientific and technological change andinnovation.
Since 1985, the GREMI (Groupe de Recherche Européen sur les Milieux Innovateurs)
has also developed a theoretical perspective not only based on the reduction oftransaction costs but also on the role of external economies and on the notion of theInnovative Milieu, defined as a local milieu which has a certain socio-economic andcultural cohesion founded on common behavioural practices, as well as a technicalculture. A Milieu is a set of functional interdependences that belong to the same
territorial entity. This concept is then intersected with the notion of Innovation Network
to define an innovative milieu. An innovation network expresses the new context andprofile of technological dynamics and change, i.e. the collective and interactive natureof the innovation process (Rallet and Torre, 1995).

Maillat (1998: 124) establishes a useful distinction: “the innovative milieu is not a
specific category of localized production system but a cognitive set ... (it) corresponds
to a territorialized, outwardly open complex, that is, open to technological and market
environment, which incorporates and masters know-how, rules and relational capital”.
In this theoretical perspective, innovation is seen as the integration by the milieu ofstrategic information and resources (Crevoisier, 1996), thus, largely surpassing thenarrow definition of innovation as a merely technological domain.
This is really the most interesting feature of the innovative milieu model, its valueadded in comparison to the industrial district approach: innovation also encompasses astrong territorial and institutional structure which constitutes an essential instrument on
the process of techno-economic creation, as well as an emphasis on the learning
behaviors. The fostering of territorial synergies is a key matter of the innovative milieu,
by other words, the territory is seen as a cause and a consequence of the actors`
strategies and their collective learning processes (Keeble and Wilkinson, 1999).
Another branch of thought on the subject of innovation and territory has more recently(on the 90`s) appeared and may be called the Learning Region approach. It mainly has
reinforced the organizational-institutional view of the innovative milieu and has also
enlarged its scope to the ICT (information, computer and telecommunications)-relatedparadigm (Asheim, 1996; Asheim and Coenen, 2006). The contemporary economy
based on the acquisition of knowledge and know-how have profoundly reduced the costof storing, handling, transfering and combining information and has also made possible
countless different kinds of networking. This model has been developed mainly by
Scandinavian authors (Lundvall, Asheim, Isaksen) and two authors of the University ofCardiff in Wales, namely Philip Cooke and Kevin Morgan who concentrate theirappreciations on two focal points:- on the one hand, the reinforcement of the associationist vision: an innovation ishighly dependent on information and knowledge; the capacity to innovate implies thenecessity to access such invisible factors through networking capacity, which, at its
most simplistic level, can be seen as the disposition to collaborate to achieve mutual
beneficial ends, a strategy called by Asheim (1996), “learning-by-interacting”;- on the other hand, it emphasizes the growing importance of the formal and informal
mechanisms of information and knowledge production, circulation and consumption; it
is now almost a refrain the very often quoted Lundvall’s (1992) statement that“knowledge is the most fundamental resource and learning the most important process”

and thereby the territory must adopt a context favourable to knowledge creation andcontinuous learning; as Ferrão (1997) suggests, the concept of learning region
reinforces the centrality of the collective learning capability (offensive and defensive) asa key strategy to regional development.
In our opinion, however, the learning region concept constitutes clearly a semantic
declination of the innovative milieu approach that seems more elaborated andstructured. It must be acknowledged that the GREMI and the authors associated to thelearning region model, at least during its initial years, have a clear distinctive cleavage
line, their mother and main scientific language. The most emblematic GREMI
researchers were, at least during its first stages, either french (Aydalot, for instance), or
french speaking from Belgium (Quévit) and Switzerland (Maillat, whereas the best
known authors of the learning region model were north american (Florida) or welsh(Cooke and Morgan). So, our argument is that, besides accomplishing a semantic
declination of the innovative milieu approach, the learning region concept also
encompasses a linguistic derivation, a kind of English version of the francophone milieu
innovateur. That is the reason why on Table 1 we assume no distinction between these
two approaches (Santos, 2009).
Entrepreneurial vitality is nourished in an information-rich environment which gives astrong innovation potential and the need for this information-richness is intensifying as
the industrial economy evolves into the information economy (Tura and Harmaarkorpi,
2005). Yet, it is important to make a clear conceptual and processual distinction
between information and knowledge, as Simmie (1997a: 7) does: “among other
differences, information may be transmitted electronically while knowledge and active
understanding reside in the heads of individuals”. In operational terms, this has very
different consequences for it is not enough to build up territorially embedded
information networks but, fundamentally, it is necessary to use this potential to upgrade
the local knowledge levels.
Thus, innovation is fundamentally dictated by the good management of strategic flows
of information and knowledge creation and, accordingly, some authors (Cooke, 1996;
Morgan, 1997; Cooke et alii, 2005; Cooke, 2008) clearly assume that theimplementation of territorial embedded regional innovation systems could be ofstrategic importance to improve the process of systemic innovation and, therefore,
regional competitiveness. In a knowledge-intensive region, intelligence and intellectual
labour replace physical labour as the fundamental source of value and competitive

advantage (Florida, 1995). Asheim (1996: 395) conceives this problematic on a quite
wise and interesting way: “learning regions could have the possibilities of transcending
the contradictions between functional and territorial integration through a new,regionalized integration of the traditional, contextual knowledge of industrial districts
and the codified knowledge of the global economy within the framework of territoriality
embedded regional systems of innovation”.
We argue, like Asheim and Dunford (1997), that territorially based complexes ofinnovation and production are increasingly the preferred means to recreate knowledge
and intelligence all over the world and that creative socio-economic interactions areoften played on a regional context.
If we consider a broad definition of an innovation system it involves not only research
centers and institutions but also the productive fabric, its institutional and governancebasis, its financial structure and its educational and training system. The innovation
system articulates all these dimensions, independently of the level of analysis, whichallows for a linear inference to the regional level. Such a system can thus be defined as a
specific form of organization and regulation of the actors’ interactions throughout theinnovation process. Due to the fact that the institutional context of the innovation
dynamics is very much conditioned by strong national characteristics (Lundvall, 1992),
the concept of innovation system was firstly introduced at the national level but theexistence of regional socio-economic and institutional peculiarities influencing theendogenous mechanisms of knowledge incubation, production and diffusion is often
better studied and understood at a regional level. As Howells (1996: 6) indicates:“regions within nations can display distinct or idiosyncratic systems of innovation
which depart from the national norm and in turn be different from other regions”, so,innovation depends to a large extent on local externalities and knowledge spill-overs
and regions differ greatly in their potentials for innovation.
It seems useful, at this stage, to distinguish, analytically and politically, two different
types of regional innovation systems, or to be more accurate, a regionalized nationalinnovation system and a conceptually true regional innovation system as Asheim andIsaksen (1997: 307) suggest: “on the one hand, we find innovation systems that are partsof a regionalized national innovation system, i.e. parts of the production structure andthe institutional infrastructure located in a region but functionally integrated in, or
equivalent to, national (or international) innovation systems, which is based on a topdown, linear model of innovation. On the other hand, we can identify innovation

systems constituted by the parts of the production structure and institutional set-up thatis territorially integrated or embedded within a particular region, and built up by abottom-up, interactive innovation model”.
Non-market, tacit and informal relations, as vehicles to increase the co-operative
dimension, constitute a fundamental axis for the promotion of territorially based
regional systems of innovation instead of regionalized national innovation systems thatcan be well exemplified by the technopolitan fever that still prevails in some European
countries.
It seems important to examine the innovation dynamics through this bottom-up,
territorial methodological angle, as suggested by the innovative milieu and the learning
regions conceptual models (Cooke, Etxebarria and Uranga, 1997) instead of following afunctional and sectoral approach, so that it can be possible to filter the way the different
components of a regional innovation system interact. More specifically, Howells (1996)
refers three dimensions that could serve as guide-lines to investigate the structure andevolution of these innovation complexes: the regional style of government, thespecialization pattern of the productive fabric and core/periphery differences inindustrial structure and innovative performance. Wiig and Wood (1997) enrich thismethodological filter when they point out the following elements: the economic andinnovative activities, the links both within and beyond the region, the availability oflabour, education and training requirements, the technological infrastructure, including
links with innovation support organizations and the role of public bodies in providing
support for innovation.
More profound and lasting effects of increased competitiveness can only be obtained if
innovation becomes systemic in the region, i.e. if it assumes a regional innovation
system configuration, promoting the collective capability of interactive learning among
the actors (firms, institutions and government agencies) which might positively
influence the innovation performance of the regional economy.

Table 1 – Industrial district, innovative millieu/learning region and regionalinnovation system: synoptic comparison.
Industrial District

Emergence
PredominantcultureSpontaneous; as local
productive system
Industrial atmosphere

Innovative

Regional Innovation

Millieu/Learning Region

SystemSpontaneous/Induced; ascognitive entity
Entrepreneuri al culture

Induced; as organizational
entityScinetific andentrepreneurial culture
Industrial and tertiary;
Industrial and tertiary;
diversification of production diversification of production
from the standpoint of intra- from the standpoint of intraindustry division of labor;industry division oflarge and SMEs; quasilabor;large and SMEs;
vertical integration; open
quasi-vertical integration;
open
High intensity of extraHigh intensity of extraproductive exchanges;
productive exchanges;
importance and diversity of importance and diversity of
non-market formal relations non-market formal relations(cooperation networks,(cooperation networks,
strategic partnerships, …)strategic partnerships, …)

Industrial; productive
specialization;
specialization in line with
Productive
a sectoral division ofsystemlabor; SMEs; verticallydisintegrated; selfcenteredHigh intensity of extraNon-mercantile productive exchanges;
informal inter-personal
relationsnetworks of information
among theflows; strong horizontal
firms
and vertical mobility oflabourRelations of theenterprise with Low intensity of contacts; High intensity of contacts;
strategic
the envolving casuistic
institutional
universe
Strong opening to theOpening to the outside
outside; insertion on theExternal
world via suppliers andinternational circuits ofrelationsclients
information and knowledgetransfer
Reticular
structures

LogicsDominant
forms ofHigh intensity of contacts;
strategic

Strong opening to theoutside; insertion on theinternational circuits of
information and knowledgetransfer
networks with pivot
Compacts; networks
Compacts; networks withenterprises or institutions
without a strategic centre leader enterprises or with(university, technologicalpivot enterprises
centre, …)Communitary; of survival; Of partnership; creation of
Of partnership; institutional
to avoid that thecollective learning
architecture as a lever of thelocal/regionaleconomies
mechanisms as vehicles ofentrepreneurail andact as mere spaces of
the competitive renewal of territorial competitiveness;
localization of exogenous the productive basis;promotion of the innovation
investments
promotion of the innovation potential; arquitectura
potential
institucional como alavanca
da competitividade
empresarial e territorial;
fomento do potencial deinovação; affirmation of aregiona innovation strategy
Tacit; contextual

Codified; global

Codified; global

knowledge
Dominant
forms oflearning
Dominant
modalities ofinnovation

By doing, by using, byinteracting
Incremental; adaptative;of the product ando of theprocess

By doing, by interacting, by
networking
Incremental and radical first of its kind; of the
product, of the process andorgaizational
Competition-cooperation;induced by the activation of
the information andknowledge flows;
entrepreneurial risk
institutionally supported

By searching, by networking

Incremental and radical first of its kind; of the
product, of the process andorgaizational
Competititon-emulationCross-fertilization; highly
cooperation; based on na
induced by the instituional
enlarged social
universe; dynamic
Growthmobilization;
adjustment between the
dynamics
entrepreneural risk
entreprenural end thesocially supported
institutional spheres;
entrepreneurial risk
institutionally supported
Socio-technological lock- Technological and relational Technological and relationalin; barriers to the entrance lock-in; exit barriers
lock-in; exit barriers:of new players and to
instituional sclerosis
Potential risks information access;growth of firm
hierarquization
phenomenons; deviant
behaviors

The regional innovation system concept presents, in our perspective, some features thatclearly allow differentiating it from the concepts, even though similar, of the innovative
milieu and of the learning region, being the industrial district approach largely afounding and more mature path of this analytical trajectory. In fact, the promotion ofadjusted institutional architectures to the respective productive fabrics accomplishes, on
the regional innovation system approach, the real lever of the territorial andentrepreneurial competitiveness, conferring this paradigm a clear operational dimension
we do not find on other paradigms.

3. The promotion of systemic regional innovation in the least favored regions ofPortugal

3.1. Innovation and territory on peripheral regions: the core of the discussion

On this part of the article, we concentrate the analysis on the problems faced byperipheral, least-favored regions in overcoming their comparative disadvantages with

respect to innovation capacities and on the public policies that can be developed toreduce their handicaps. We will base the analysis and discussion on the Portuguese
reality.
Until the beginning of this decade, innovation policy in peripheral areas was often
simply equated as a supply-side problem, accordingly with the dominant paradigm thenaccepted of the linear model of innovation. Government policies have usually been
designed to support knowledge production, for example through incentives to R&D
activities, rather than knowledge utilization (Gregersen and Johnson, 1997). It is now
widely accepted that the promotion of the innovation capability in least favoured
regions also as to be addressed as a demand-side problem, the constraints to theinnovation dynamics being not so much the production of strategic information andknowledge but, instead, its diffusion and appropriation by the regional actors.
Garmise and Rees (1997: 2) underline that: “for the less favored areas of Europe andelsewhere, their relative absence of economic dynamics is rooted in the very limited
learning capacities of their innovative systems”. The main focus of public intervention
on this ambit now relies on the promotion of interactive learning-oriented processes forthe whole of the territorial agents. Networking, design of value-added dialogue
platforms and the opening up of new interfaces between innovation support
infrastructures and industry, such supply aspects should therefore be fostered,particularly between private and public spheres. Nevertheless, as emphasized above, asystemic approach also implies to take into consideration in a more pro-active way theneeds of the main actors of innovation, i.e. firms and, consequently, to adapt the supplyof services and their respective structures. In particular, innovation support should meet
more intensely the SMEs needs and expectations, thus being more responsive to thecomposition of the productive fabric. The aim is that this systemic and bottom-up
approach favors cooperation and leads to a better regional embeddedness of the system,a particular challenge being the promotion of the endogenous innovative capability ofSME-based productive fabric.
This new approach to regional development in peripheral areas tries to redesign theregional innovation architecture, but building upon pre-existent structures and seeking
to modify their static, task specific competences into a system of flows and processes
based on the network paradigm (Cooke, 1996). Corroborating this assertion, Morgan(1997: 501) concludes: “I would suggest that this is precisely what innovating in the
periphery means: working with what exists, however inauspicious, in an effort to breakthe traditional institutional inertia in the public and private sectors, fostering interfirm
networks which engage in interactive learning, nurturing trust”.
Thus, a regionally differentiated strategy becomes fundamental to make better use ofsuch specific territorial resources, like, for instance, the existing knowledge base thatshould serve as a base-line for new trajectories of upgrading and diversification or the
existing technology transfer system that should be improved with respect to the specificneeds of small- and medium-sized lower-tech firms, for they need know-how which
often is not offered by traditional technology transfer institutions. Considerable
attention must be paid to the profile of the regional production fabric because it
conditions all the techno-organizational changes and may determine different
development trajectories.
Some authors (Storper and Scott, 1995; Asheim and Isaksen, 1997; Quévit and Van
Doren, 1997; Tödtling. and Trippl, 2005; Hauser et alii, 2007) are consequently
underlining regional policy approaches that are context-sensitive, production-systems
oriented rather than firm-oriented and focusing on the continuous structural adaptationof the regional institutional and economic set.

3.2. The Portuguese context

Some research studies conducted in different areas of Portugal, such as the Península of
Setúbal (Almeida, 1994), the district of Aveiro (CEC, 1997), Alcanena (Nicolau, 1999;
2001), the Northern region, including Oporto (Mota Campos, 1997), the Urban Arch of
the Interior Centre of Portugal (an area involving the municipalities of Castelo Branco,Fundão, Covilhã and Belmonte) (Santos, 2002) and on different digital regions (Simões,2008) emphasized the very fragile basis of interactiveness among the regionalinnovation actors, a situation that refrains profoundly the capacity to foster a regionallybased innovation system. All those studies stressed the individualistic behavior of thefirms and their lack of co-operation culture, their human, technological and financial
chronic handicaps, namely the predominance of non-qualified labour pools, the absenceof science-based industries, the lack of investments in R&D and other intangible
factors, the low density and quality of the innovation infrastructures and the thin
institutional basis, and not a situation of institutional thickness (Amin and Thrift, 1994),

these are all key constraints for the accomplishment of a broad process of regionalinnovation.

3.2.1. A highly concentrated national innovation system

The Portuguese scientific and technological system is relatively weak in comparative
terms and scale of the OECD countries. The proportion of R&D expenditure in GDP in2009 was only 1.66%, the expenditure being accomplished mostly by universities andother public research institutions (51.9%). The industry has been increasing its role very
rapidly, although this is limited to a participation in a narrow field of technologicalactivities, the bulk of R&D expenditures at this level being concentrated in a small
number of sectors and companies.
Table 2 – Portuguese S&T system: main indicators.

Portugal
EU 27

Researchanddevelopment
expenditure,by sectors of
performance(% of GDP,
2009)

Gross
domestic
expenditure
on R&D(GERD) by
source offunds(% of total
GERD
Businessenterprise
sector, 2008)

Researchanddevelopment
personnel,
by sectors of
performance
Head count(% of thelabour force,
all sectors,
2009)

Employment
in high- andmediumhightechnology
manufacturi
ng sectors(Share oftotal
employment,%, 2007)

1.66
2.01

48.1
54.7

0.94
1.07

3.45
6.69

Patentapplications
to theEuropean
PatentOffice(EPO)(number ofapplications
per million
inhabitants,
2008)

Human
resources inscience andtechnology asa share oflabour force Total(%, total)

13.59
23.5
119.5
40.1
Source: Eurostat (2010)

There is a large number of research institutions, some of them with a good scientificreputation and staffed with highly qualified researchers, nevertheless, the processes oftechnology transfer to industry are still inadequate, although this situation tends toimprove recently due to policies oriented towards the creation of transfer mechanisms,
the pressure on public institutions to self-finance their activities and the increased
technological awareness of industry.
It is worth adding that along these characteristics, the national S&T system isgeographically very unbalanced, since there is a phenomenon of excessive
concentration in the metropolitan areas, with a particular focus on the Lisbon region

(Table 3). The Lisbon region is responsible for nearly half of the total public and private
expenditure in R&D and about the same proportion of the total human resources
dedicated to these activities.
Table 3 – S&T indicators by NUTS 2.

Norte
CentroLisboaAlentejo
AlgarveHuman
resources inscience andtechnology(HRST), by
NUTS 2 region(% of
economically
activepopulation,
2009)

Employment inhigh-tech sectors(high-tech
manufacturingand high-techknowledgeintensive
services), by
NUTS 2 region(% of total
employment,
2008)

Patentapplications to
the EPO bypriority year, by
NUTS 2 region(number ofapplications per
million of
inhabitants,
2007)

18.4
15.7
33.7
19.8
21.6

1.53
1.32
4.18
2.39
-

4.626
3.634
8.249
1.308
4.745

Total
intramural
R&D
expenditure(GERD), by
NUTS 2 region(% of GDP,
2008)

Researchers,
all sectors,
by NUTS 2
regions(% of total
employment,
2008)

1.22
0.58
1.22
0.58
2.26
1.46
0.90
0.46
0.37
0.44
Source: Eurostat (2010)

It must be added that Portuguese R&D policy, as is centrally defined and implemented,
is specially targeted to the preparation of the economic fabric to the globalization
process although, paradoxically, in overall terms, is not very market-oriented. Being
mainly directed at national level, this policy reinforces vertical hierarchical linkages andcentralization, instead of promoting a regionally based innovation dynamics. In
Portugal, there is no regional innovation policies formulated in a regional basis andthere is neither an innovation regional policy, territorially based. The innovation policy,
designed and implemented on a national level, is, in fact, promoting increasing
disparities among the Portuguese regions, due to a logics that is based on what we could
call the dictatorship of a real and qualified entrepreneurial demand that favors
particularly the most dynamic regions of Lisbon and Oporto.
Nevertheless, it should also be noticed that the spatial distribution of the S&T
organizations (public laboratories, research centers, …), under the influence of theuniversities of Porto, Minho (Braga and Guimarães), Aveiro and Coimbra, is a strong
facilitation factor for implementing a regional innovation system policy. The mappingof the localizations and of the research locus of these interfaces between University andindustry shows a significant concentration in the more developed and higher density
territories of North and Centre regions and should constitute an asset on the formulationof regional innovation strategies.

3.2.2. The mismatch between the knowledge production sphere and the economic
sphereOne of the traits that best characterizes the regional innovation system is undoubtedly amarked separation between the sphere of knowledge production, namely the S&T
system, and the productive sphere. The S&T infrastructure, specially the academia, hasbeen living according to a logic that does not intercept the real demands of the
productive universe – they have not been talking the same language. It is no wonder that
this situation is deeply installed and is quite difficult to alter: the large majority of thesmall and medium entrepreneurs possess no more than the basic education and this S&T
infrastructure seems too far away from their needs and expectations. On the other hand,most companies do not have qualified human resources to enable them to assimilate
these cognitive resources and gain competitive advantage. This should put, in our pointof view, the recruitment of middle and senior staff among the main sources ofcompetitive advantage of companies.
The reduced entrepreneurial demand for dynamic competitiveness factors (productengineering, process and organizational design, marketing, quality, …) is also not
unconnected with the predominance of traditional and low-technology industries, low
knowledge-intensive, a situation that embodies a fragile demand-pull. The factors
underlying the dynamics of innovation that has been diagnosed are basically those thatare transmitted via the market vertically along the value chain, resulting often of
informal contacts with customers and suppliers. In fact, it appears that the importanceattached to institutional channels is quite small.
The existing technology transfer system needs to be improved with respect to thespecific needs of small and medium-sized lower tech firms that, usually, account for thevast majority of the regional productive universe (in some regions, up to 99% of theenterprises belong to this dimensional group). They have a specific kind of demand thatneeds to become explicit so that the innovation support infrastructures can comply with
their requirements: most SMEs usually need know-how which is often below thescientific and technological levels of universities, technological centers or other public
or private innovation support institutions. These needs are not only technology-related
but also organizational, and besides there is a lack of institutions and services in marketoriented activities like market-monitoring, export and internationalization. It must also
be emphasized that non innovative SMEs, that is the larger part of the Portuguese
productive fabric, are seldom taken as a priority and a primary target by thoseinnovation support infrastructures.
As mentioned above, the reality of demand-pull factors of innovation is quite modest.
Three programming periods of the co-funded EU assistance, already involving
competitiveness and innovation goals, produced practically no organizational learning
results in targeted Objective 1 territories (Figueiredo, 2007). The centralizedarchitecture of the Portuguese innovation system did not succeed in establishing acommon culture of proximity to firms. The locus of organizational learning is nowhere.
The succession of governments produced unstable pattern of decision-making and ofstrategizing including the Agency for Development and Innovation (AdI), which inprinciple would be the decisive factor of continuity
In an attempt to close the gap between university and industry a number of interface
institutions, such as the AdI, an innovation relay centre promoted under the frameworkof the STRIDE Program), were created in a context of central government initiatives.
The objective of these institutions is to serve as intermediaries between theuniversities/research laboratories and the industrial fabric, and hence to encourage thediffusion of the technologies being developed, namely through co-operative projects,
contract research and technical support. However, the majority of these institutions thatprovide support to innovation and entrepreneurship belong to the national innovation
system which happens to be a vertical and highly hierarchical structure that prevents thepromotion of horizontal co-operative behaviors among the regional actors and the full
exploitation of local synergies.

3.2.3. A narrow concept of innovation

According to the referred studies, innovations predominantly follow prevailingtechnological trajectories, based on already existing knowledge and being on theirmajority of the incremental type. Basically, companies are bound by market pressures,to take a competitive position that passes mainly by the systematic and gradual renewal
production processes (gradual and partial automation of production lines, etc..) with theaim, in the first instance, to increasing productivity, improving delivery times (quick
response) and reducing the need for labor. Following fordist strategies, they rely on
scale and volume: that is the reason why other critical modalities of innovation are
insufficiently treated, little attention being paid to the intangible dimensions ofinnovation, such as organizational or commercial. This seems a consequence of apredominance of a very restrictive notion of innovation among the vast majority ofPortuguese entrepreneurs as they confuse modernization strategies based on the renewalof physical capital goods with innovation.
Although some new conditions in terms of industrial and R&D policies led a number ofPortuguese firms to try to improve their technological level and their capacity to adapt
to a changing environment, namely adopting a more innovative posture, the Portuguese
industrial pattern, is still vertebrate by non-skilled manpower intensive sectors with alow qualified workforce, and manufacturing low technology and low quality products,
the dominant sectors being the traditional filières of textiles, footwear andwood/furniture. This is the overall picture but there are also excellent examples of
traditional firms on all those sectors that have successfully accomplished competitive
restructuring processes.
So, there is an increased awareness about the need to change the basis for thecompetitive advantage of Portuguese less favored regions. On one hand, a vast majorityof the research capabilities still lacks interaction with firms and the intensity oftechnological start-up’s is still low. On the other hand, research capabilities oriented
towards the incorporation of knowledge in the valorization of endogenous resources are
incipient, not well targeted and with no continuous interaction with the less developed
and low density territories of the two most dynamic regions of Lisbon and Oporto.
In a convergent way, we argue, based on the analysis of the Portuguese Digital Cities
and Regions Program (Simões, 2008; Simões and Santos, 2008), that the recent revivalof interest in the “digital” in Portugal has been constructed around a rather narrow set of
empirical and theoretical issues concerning mainly to technological innovation,neglecting other strategic political areas, such as the politics of governance and social
innovation, the role of democracy and citizenship in city-regions politics, and tensions
around social reproduction and sustainability across the city-regions.

3.2.4. A deficit of regionally rooted innovation networks

In general, too, the business partners along the value chain are not located in these
territorial spaces and, consequently, the dynamics of innovation is not regionally rooted.
Moreover, a large share of the regional business community, including the vast numberof SMEs that vertebrate the regional economies, remain unaware of the mechanisms of
information transfer and knowledge in place, not being part of the local/regionalinnovation systems, either because they are practically non-existent at a regional level
either because the national innovation system is too far away from the real needs of thiswide range of companies. Technical knowledge is socialized on the basis of informal
locally-based networks, in which information circulates and is shared. The firms’
partners along the value chain are usually not in the regions and the innovation
dynamics is not regionally embedded. This seems true for large firms and the mostdynamic group of SMEs, for the vast majority of the productive fabric seldom
establishes other links outside the commercial partners of suppliers and clients.
So, besides their dimensional handicap, as the vast majority of the Portuguese
enterprises are small to medium-sizes, the true critical bottleneck is their isolation, notto be connected to the information and knowledge flows, to the global world, the socalled loneliness syndrome.
In fact, the different studies that have been developed about this subject have obtained
empirical results showing that geographical proximity is not enough to promote any
territorial innovation dynamic and the inquired firms prove to have a somehow
anonymous relationship with their respective territorial setting.
It has very low expression of the existence of cooperation networks strongly rooted
territorially, promoting innovative projects, which is, as we know, the essential
distinguishing feature of the presence of an innovative environment. Similarly, it is notinstitutionalized what might be called a collective learning process, since although there
exists an entrepreneurial culture based on empirical knowledge accumulated overgenerations, companies and institutional actors ultimately follow individualistic paths
that do not enrich cognitively the local and regional environments in which they
operate. It is not regionally established what might be called a true culture of contact,
this situation encompassing a vacuum and a relational deficit that is a major obstacle tothe establishment of cooperative relations that are vital for the competitiveness ofenterprises and obtain collective gains.

Regional innovation systems in Portugal are thus, in practice, non-existent or, not being
so pessimistic, embryonic. We have the pieces of the game but we are not playing – wedo have entrepreneurial and institutional actors, we have institutional thickness in thisfield but we lack a strategy and dynamics.

3.3. Policy implications

It seems that the base-line for Portuguese least favored regions is very low in terms of
their innovative capabilities and potential, in their pre-conditions to follow up a
traditional innovation-led regional development trajectory. So, unlike the nucleus of the
discussion that on the scope of the GREMI and of the learning region approach iscentered on the functioning of innovative regions, the debate for Portuguese regional
development purposes must be arguably centered on the promotion of the necessary
conditions that must be fulfilled to initiate a learning and innovative process (Ferrão,1997 and 2002; Simões, 2003; Simões and Santos, 2008).
The low performance of the Portuguese regional innovation systems is mainly due toproblems of interaction between players (organizations). Universities and other higher
education organizations, R&D and technology centers, development and technology
agencies, inter-faces between universities and firms, entrepreneurial associations,leading firms, venture capital and the different platforms available for fostering
entrepreneurial start-up’s tend to develop a low level of interaction. We may say that theabsence of market-oriented players of the brokers type explains part of the problem. We
would have in this case an organizational failure due to difficulties in the social divisionof roles and responsibilities. But in our view there are institutional and governanceproblems as well (Simões and Santos, 2008). There is a diversified set of rules of thegame that, on one hand, tend to inhibit the cooperative pattern of behavior between theplayers and, on the other hand, to disseminate within organizations patterns of behavior
contrary to innovation.
This situation prevents the creation of an economy based on networking, and this seems
to be the key-issue of territorial development in this Portuguese periphery. We believethat the promotion of the so-called social capital should, as far as possible, anticipate theimplementation of policies aiming at enhancing the technological and organizational

potential of a given region – to conjugate these two intervention dimensions seems
unquestionably to be the greatest challenge of a territorial innovation policy.
We have seen that innovation is, above all, the resultant of a learning process that needs
know-how accumulation, technical qualifications, interaction and experience. Thislearning dynamics depends as much of supply-side actors as of demand-side actors.
Nevertheless, it seems that, at the enterprise level, the efforts of public support should
focus on the local SMEs of mostly traditional sectors that haven’t yet understood theneed to innovate - in this sense the regionally based innovation policy in least favored
areas must have, as Quévit and Van Doren (1997) point out, a pedagogical dimension.
A clear operational objective, thus, should be the increasing of the capability and of thecompetence of the public administration to interact with an enlarged set of actors of theinnovation process, to deepen its awareness concerning the demands of the firms and tobuild up broker organizations that could: “assist firms in analyzing their situations ...
and define their particular needs in relation to the innovation process” (Asheim andIsaksen, 1997: 321).
An important operational axis of the whole innovation policy should lie on theorganizational capabilities of the networks of relationship that can become a crucial
determinant of the entire institutional architecture of the regional innovation system. It
should be an important aim to involve SMEs as much as possible on all the ongoing,
evolving process, to make sure that their long term needs are duly taken into
consideration.
Anyway, SMEs usually face particular problems that hamper their effective
participation on the innovative dynamics, such as a difficult access to information, lackof qualified labour force, financial and administrative constraints, etc. It is undeniable,
at least in the Portuguese context, that this dimensional group of enterprises may require
specific assistance and there is a need for additional empirical evidence of the capacitiesof the different categories of SMEs so that a more pragmatic appreciation of this sector
will be gained which will be essential to formulate targeted policy-measures aimed at
stimulating greater SME participation, a sine qua non condition for the achievement ofa systemic innovation process on a territorial basis. It seems important to promoteconsistent efforts to strengthen the technology absorption capacity of SMEs which may
involve facilitating the processes of learning and accumulating knowledge andstrengthening skills in the firms. The regional innovation support services that now only
serve a minimal part of the firms’ universe, and therefore aren`t promoting innovation inthe regions as efficiently as they should, must be able to answer not only the specificdemands of traditional innovators but rather to be concentrated on the promotion of aco-operation culture and interaction amongst the elements of the territorial innovationarchitecture.
The studies that we have mentioned demonstrated clearly that the weaknesses of thosePortuguese regional innovation systems are the result of either a political andinstitutional dependency of central administration or the unwillingness of the regional
actors to increase the coordination roles in order to introduce rationality in what is now
a set of incoherent actions. In Portugal, at a regional level, it can be said that many ofthe elements that can constitute the core of an orthodox regional innovation systemalready exist, such as universities, technological centers, interface institutions, training
centers, industrial associations, etc. Nevertheless, because of a lack of a co-operation
culture and an absence of networking structure, the different agents act on the basis of aset of individual strategies developed internally by each sector, which constitute themajor limitation of the regional institutional fabric. In other words, we may say that thepresent architecture of the Portuguese innovation system is unable to generate marketoriented and interactive organizational learning and knowledge.
Some authors (CEC, 1997: 15) argue that these Portuguese weaknesses “can only beovercome if inter- and intra-regional co-operative relations were reinforced and if
regional institutions can improve their ability to create and diffuse technology, as wellas to improve their capacity to adapt national innovation policies to the local context”. It
seems clear that the fundamental policy imperative in Portuguese less favored regions is
to strengthen these network relationships which leverage the innovative capability of thefirms.

New dialogue channels among entrepreneurial and institutional actors areurgently needed – more formal or more informal, these arenas for the creation ofrelational capital are absolutely vital steps in order to, from a bottom-up perspective,
generate pivotal institutions and assume common strategies of action.
Anyway, in Portugal it must be taken into consideration that some specific institutions(e.g. technological centers, industrial associations, ...), that nowadays vertebrate lessfavored regions, are privileged actors that are able to play a stronger role on thecreation, the dissemination and, mainly, the adoption of new forms of knowledge
establishing new and vital bridges between the globally codified knowledge and tacitknowledge locally available. We, therefore, argue that this bottom-up approach, whose
strategy implies to deepen the networking among the regional actors, is essential topromote successfully the upgrading of the Portuguese regional innovation profile. But
to implement the regional innovation systems as a policy tool we need powerful
catalysers of the strategy. These catalysers should be selected among the nationalinnovation system players which are closer to firms, knowing better their needs andbeing more receptive to market-oriented incentives and less risk-averse. Among theseveral organizations evolving in the national innovation system, the interfaces between
University and industry are non-profit research organizations which have in generalhigher levels of proximity, credit and involvement with firms.
On this context, a simplistic approach, based on the linear model of innovation, should
also be avoided, not over-investing in university science projects, assuming that thiswould automatically feed through into the industrial environment (Henderson andCooke, 1999; Kautonen and Sotarauta, 2005), although, at the same time, it should be
expected that Portuguese higher education institutions that are located on less developed
areas of the country can exteriorize all their potentialities and adopt a behavior that
surpasses the sphere of mere instruments of the educational system. The existence ofknowledge providers is not, nevertheless, a sufficient condition for a successful regionalinnovation process. The systemic approach to innovation underlines the importance ofinteraction and collaboration between knowledge providers and the business sector.
Regional policy makers should therefore try to set up networks between research
universities and firms, and also try to integrate the local/regional public sector in theinnovation process.
Public intervention should be closer to SMEs, thus reinforcing the territorial dimensionof innovation. As problems to recruit qualified personnel seem to hamper the regionalinnovation systems in many small and medium-sized regions, special measures may beneeded to facilitate the recruitment of qualified personnel. The viability of theseembryonic regional innovation systems must not rest on external constraints but on
local capabilities and resource creation processes in which the role of SMEs and verysmall firms seems pivotal in the context of Portuguese less favored regions.
It seems clear that for regional innovation policies to be meaningful the regions inquestion must already have either one or several clusters of SMEs or one or several
larger leading companies surrounded by clusters of suppliers and/or customers. On theother hand, since most small and medium-sized regions do not have public research
institutions, developing strong links to research infrastructures in other regions are ofparamount importance. It is needed urgently that several locus of organizational

learning must be created to counterbalance the intensive process of internationalizationof the national scientific and technological system determined by government priorities.
These locus should absolutely involve demand pull concrete innovation needs which arelocated in firms and in the different regional territories, although sharing in some casesa global perspective of the market. It is rather a complementary agenda and surely acrucial opportunity to avoid the detachment of the national scientific and technologicalsystem from the regional productive structures. The spatial distribution of R&D centersand of inter-faces university-industry combined with the entrepreneurial and productive
culture prevailing in each of the Portuguese regions should be understood as targeted
locus for implementing regional innovation strategies.
The philosophy of the planning approach has, consequently, to change radically(Morgan, 1997): the question isn’t any longer of planning for the regional community (firms and institutions) but, instead, of planning with them and, besides, due to the factthat it involves mainly changing social and institutional inertias, results should only beapprehended on a medium to long-term basis. We are not talking about the simple reequipment and technological upgrading of firms, we are dealing with a whole set ofincremental changes on the behavioral patterns of regional actors, each one of them with
its specific logics and rationalities. The regional innovation system approach aims atleast with engaging with the right targets, namely the institutionalized inertia whichcharacterizes so many less favored regions. Definitely, a territorial innovation policy
does not consist of casuistic attempts of technology transfer but on the stimulation of
the whole regional milieu. In this way, a regional innovation system can be seen as an
instrument of establishing a learning framework for all partners involved in theconstruction of the socio-economic trajectory of the territory. This really seems to be thechallenge for almost all the Portuguese regions and a critical assessment must be doneto the implementation of ready-made recipes.

5. Conclusion

The subject of innovation is nowadays central to modern theories of regional
development; innovation, broadly defined to include not only product or processupgrading but principally organizational and institutional rearrangements, is vital forregions to obtain competitive advantages.
An understanding of the mechanisms and of the extent in which innovation is assessedas an interactive and systemic process constitutes a means to study in depth the structure
and performance of regional innovation in least favored areas (Landabaso, 2002;
Rosenfeld, 2002).
We have seen that the current architecture of the national innovation system has been
unable to generate market-oriented and interactive organizational learning andknowledge. And besides, due to the fact that in Portugal there is neither a consistentregionalized innovation policy nor an innovation regional policy, territorially based(Santos, 2003), the problematic of long-term regional competitiveness is becoming a
critical issue, mainly now that the rhythm of structural change imposed by the global
economy is dictating new patterns of regional behavior and competition. That is why,
arguably, the promotion of territorially embedded regional innovation systems in
Portugal seems a fundamental and coherent strategy to face contemporary regional
development challenges, as long-term regional competitiveness and sustainability hasless to do with cost-efficiency and more to do with the ability of firms and institutions
to innovate, i.e. to improve their knowledge base (Cooke, 2007).
Finally, it is argued that special attention should be paid to the design of the intervention
policy, trying to avoid the classical functional top-down and supply-side approach, theclassical repertoire of some innovation policies; innovation-led regional policies mustbasically address the questions of enhancing the territorial capabilities to foster
interactiveness among the regional actors, of engaging the actors in processes ofcollective learning and of producing strategic knowledge or, more synthetically, toincrease the stock of social capital in the Portuguese least favored regions, territories
where there is a clear deficit of these invisible assets.

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