The Concept of the Innovative Milieu

In order to understand the importance of regional innovation in the West of England and the Singapore-Johor cross-border area, it will be necessary to present the latest theoretical concepts found in economic and management disciplines. It should be pointed out that no major new theories on innovation and entrepreneurship have been developed since those of early economists such as Adam Smith, David Ricardo, Alfred Marshall and Joseph Schumpeter. Perhaps Galar’s reminder of the ancient dictum natura horret vacuum – that there are no empty places waiting for new theories to be nested (2000, p. 288) – is appropriate in this context. However, during the last fifteen years, two concepts complementing the theories have emerged.3 These concentrate respectively on the innovative milieu (innovative environment), and on technological change.

In the late 1980s and early 1990s, a number of European economists4, mainly from Italy, Switzerland, France and the UK, and known as the GREMI group (Groupement Européen des Milieux Innovateurs), elaborated on the theories of innovation and entrepreneurship and introduced the concept of the innovative milieu (milieu innovateur)- The central theoretical assumption of the milieu approach is that the innovative milieu – that is, the socio-economic environment of a region – is produced by the interactions of firms, institutions and labour. The GREMI group introduced the concept of the collective learning process5, which increases the creativity and continuous innovation of firms belonging to that milieu (Camagni, 1991; 1995), although the concept has only recently been fully developed (Rabellotti, 1997; Bramanti and Ratti, 1997; Keeble et al,

1997 and 1999; Camagni and Rabellotti, 1997; Capello, 1999; Lawson and Lorenz, 1999, Helmsing, 2001). In the milieu, the process of learning is brought about by the activity of participating actors, the mobility of labour, and the interconnections between suppliers, customers and subcontractors. It is greatly assisted by face-to-face contacts between actors, and these are facilitated by geographical proximity.

Some fifty years ago, Alfred Marshall commented on the importance of such proximity for the steel industry in the ‘industrial district’ of Sheffield. However, the GREMI group points to different stages of development and different typologies of districts. They suggest that the evolution from clustering through to industrial districts and then towards milieux requires particular pre-conditions (Capello, 1999). The process of collective learning in an innovative milieu is attributed to the mobility of the local labour market, with the market supplying its own knowledge. Local cumulative knowledge may be grasped by local actors (particularly SMEs) and is the source of a dynamic comparative advantage. If these pre-conditions do not exist, what we have is simply a traditional, static Marshallian industrial district (Camagni and Rabellotti, 1997, p. 139). As Capello points out, when the local actors grasp collective learning and turn it into profits, then, and only then, does an innovative milieu emerge. The profits will partly remunerate the risks for innovation and uncertainty (Capello, 1999, p. 357).

The GREMI group attempts to explain the reasons why firms try to exploit this collective learning. This may depend on the willingness and capacity of local SMEs to absorb it, as well as on the awareness that such learning exists. In addition, the exploitation of collective learning is inversely related to the size of the firm (Capello, 1999, pp. 357-358).

In this respect, the collective learning process is seen to generate radical rather than incremental innovation. The firm’s ability to produce a radical or breakthrough innovation is based on new knowledge, and scientific and managerial expertise, which stems from the historical process of cumulative know-how and learning processes (Rabellotti, 1997, p. 165; Gregersen and Johnson, 1997, p. 486). Once a firm needs to achieve a radical product innovation, it is more likely to exploit the existence of a large pool of skilled local labour, which brings with it accumulated knowledge. Process innovation requires incremental changes, and is the outcome of internal knowledge within each firm (Konstadakopulos, 1997). The same analogy applies to the size of the firm for the exploitation of collective learning (Rabellotti, 1997; Capello, 1999). A large and rather secretive firm is likely to exploit its internal resources, and most unlikely to participate in the socialisation process of creative knowledge. A small firm is more likely to tap into the region’s collective learning and adapt it to its potentially different needs once the externality is present. According to recent findings in the Italian high- tech milieux, such firms are likely to be found in a high-technology milieu, characterised by the creation of new firms in which research ideas and technological innovations are shared and diffused (Capello, 1999; Bellandi, 2002). This process reduces the uncertainty inherent in technological innovation, and may allow the smaller firms to survive.

However, the capacity of local firms to exploit collective learning materialises when they can turn knowledge into a business idea (Capello, 1999, p. 357). Thus, either an emerging group of local entrepreneurs may willingly share this knowledge among themselves, or a local/regional institution could codify and diffuse such knowledge (Teubal, 1997, p. 1170; Helmsing, 2001, p. 303). 

Geographical proximity also helps the establishment of horizontal linkages and activities between economic actors (particularly between SMEs) across sectors and technologies (Kirat and Lung, 1999, p. 30). However, it is also appropriate to mention here that the collective learning process involves not only technology but many other externalities derived from experience in joint marketing, project generation, management and organisation (Teubal, 1997, pp. 1183-4). Kamann effectively describes the intra-actor organisation and behaviour pattern at the milieu level:

The more activities actors transfer to other actors, the more activity chains of actors are interwoven and become interdependent; the more relationships are embedded into a distinctly homogeneous cognitive set of the network, the more synergy accrues, the more the network is entitled to bear the name ‘innovative’. The more the territorial is prominent – both in the production links, the selection environment and cognitive embeddedness – the more pronounced the role of the particular milieux will be.

(Kamann, 1997, pp. 376-377)

The socialisation of managers of SMEs is quite important here. This socialisation is known as the cafeteria effect, and is an important element in building a local entrepreneurial capacity. Interpersonal linkages through professional associations, clubs, families and other social organisations are vital channels for sharing and diffusing research ideas, technological innovations and expertise within the region.

The examples of Italian innovative milieux indicate that, after the establishment of the milieu, ‘a positive feedback effect arises which reinforces the elements of continuity (stable labour market, stable inter-SMEs’ linkages) and of dynamic synergies (interactive mechanisms leading to innovation)’ (Capello, 1999). Stable labour relations mean that, although there is an apparent labour mobility within the milieu, there is hardly any inflow or outflow of skilled workforce that may destabilise it.

As noted earlier, the innovative milieu approach has incorporated and improved the Marshallian concept of the industrial district, but also parallels other recent theorisation and research traditions within the framework of the endogenous growth approach, such as local production systems and Post-Fordist flexible production specialisation6. Moreover, the milieu approach puts forward two more elements that distinguish it from the above approaches: the collective learning process that enhances local creativity, and the reduction of the elements of uncertainty that are inherent in technological development and the innovative process (Camagni, 1991, p. 3).

So far, the GREMI group has not been able to define exactly what are the overall necessary conditions that make up an innovative milieu. For some time now, questions have been raised on how innovative milieux come into being (i.e. whether through luck or historical accident) and whether they represent a general model of regional development or a specialised model suited to highly unique circumstances (Bergman, 1991, p. 284). The above uncertainty has apparently led some of the GREMI researchers to attempt to distinguish between the endogenous, exogenous and techno-metropolitèn milieu. They argue that the endogenous milieu arises around territorial networks of SMEs whose ‘economic relations are rooted in history’, under favourable cultural conditions. The exogenous innovative milieu arises from the establishment of subsidiaries of large companies in the area, while the third type of milieu arises from the proximity of metropolitan agglomerations and urbanisation effects (Kamann, 1997, pp. 380-381). One criticism of the innovative milieu concept is that it has only been used in high-technology areas, implying erroneously that innovativeness and high technology are the same thing (Lawson, 1997, pp. 11-12). Sternberg in particular has argued that the innovative milieu approach lacks operational feasibility, but the evidence to support this has been limited (Sternberg, 1996a, pp. 533-4). Storper argues that the GREMI group has never been able to specify the potential mechanism and process by which such milieux function, nor the economic rationalism by which milieux foster innovation. A tautology is apparent in that ‘there is a circularity: innovation occurs because of a milieu, and a milieu is what exists in regions where there is innovation’ (Storper, 1995, p. 203).

An examination of the literature also reveals that so far there are very few cases of regional agglomerations explained by the innovative milieu approach (Sternberg, 1996a, p. 533). However, it is important to point out that innovative milieux grow very slowly. Moreover, existing case studies undertaken by the GREMI group focus mainly on regions or agglomerations that are situated in the centre of Europe (Pad and Usai, 2000), and that are innovative and performing well. But the group has little to say about non-innovative milieux and what distinguishes them from innovative milieux, although more recently Capello has highlighted the importance of local pre-conditions that facilitate the exploitation of collective learning (Capello, 1999). Further criticisms concern the precise contribution that networks will eventually make to our understanding of regions (Bergman, 1991, p. 286), and the inadequate integration of the theory of networks into the region-oriented innovative milieu approach (Sternberg, 1996a, p. 532). The reason for such poor integration is that the innovative milieu approach is biased too heavily towards small firms and the incubator role of the milieu for innovation to be supported; it neglects some aspects of reality.

Notwithstanding the above criticisms, the GREMI group economists contribute substantially to our understanding of the process of regional development. They argue that the economic process is fundamentally about the creation of knowledge and resources. Both derive from the process of creativity of economic actors who are – at least in part – dependent on their milieu (Storper, 1995, pp. 203-204). Undoubtedly the innovative milieu approach has policy implications, given its capacity to enable decisions-makers to adopt measures that could create, duplicate or stimulate innovative milieux. Finally, the GREMI group links the concept of both the innovative milieu and the innovative network with the evolutionary theory of technological change proposed by Nelson, Winter, Freeman and Dosi, which acknowledges fully the importance of the learning process (Camagni, 1991, pp. 10-11; Capello, 1999).

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