Universities’ Role in Helping Regions Transition From Legacy Industries Into New Areas

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In a series of blogs, Simon Collinson, Fumi Kitagawa and Tomas Ulrichsen examine the role of universities in regional development.

The blogs are co-authored by the Policy Evidence Unit for University Commercialisation and Innovation (UCI) at the University of Cambridge Institute for Manufacturing (IfM) and the West Midlands Regional Economic Development Institute (WMREDI at City-REDI), University of Birmingham.

In the last piece from this blog series, the authors continue to discuss the role of universities in relation to place-based industrial policies. They are particularly interested in identifying how universities help the region pivot from legacy industries into emerging and new technology areas.

Read the previous blogs from the series:

Place Matters: Universities and Local Innovation Systems

Enhancing University Contributions to Local Growth by Targeting High-Potential Firms and Industries

Unleashing the Regional Innovation Potential of Universities

Regional diversification and the roles of universities

Industrial path development and regional diversification have become a core theme in the regional innovation policy as well as scholarly literature (Grillitsch and Asheim, 2018). Questions are asked: when, how and under which circumstances do new regional economic activities emerge?  There seems to be a consensus that regional industrial path development is place-specific. With industrial and innovation policies like smart specialization which aim at boosting economic growth by diversification towards more complex and higher-value economic activities, the significance of a place in industrial and innovation policy discourse has become increasingly evident (Bailey et al., 2023). However, as Andrew Johnson and his colleagues point out (Johnson et al., 2023), so far, there has been little systematic examination of the roles of universities in place-based industrial strategies and regional diversification.

In this respect, let’s ask further questions: how do universities help new industrial path development for a region? What are the challenges and how can they be overcome? What kind of policy would help such processes? We need to recognise the diversity of places, and heterogeneous nature and different types of universities as part of the possible diversification of local innovation systems. Each university has a unique set of missions, history, capabilities and resources (Kitagawa et al., 2016). Different types of universities play different roles in facilitating innovation-led growth pathways in their regions (Uyarra, 2010). Each region has a different history and socio-political culture, and the roles of the university would depend on which industrial transition pathway is being followed in the specific regional context. We should also remember that the extent to which industrial partners see universities as credible partners substantially varies depending on complex factors, including the nature of industry and complementarity of technologies as well as individual perceptions (Perkmann et al, 2011; Johnson and Huggins, 2018).

Re-visiting Lester’s Four Types of Growth Pathways

As our earlier blog pieces articulated drawing on Lester’s (2005) seminal work, Universities, Innovation, and the Competitiveness of Local Economies, universities can contribute to the local innovation-led growth pathways in a number of ways, summarised as an idealised set of Four Types:

  1. Support for emerging industries (Type 1), through leading science and technology development, technology transfer and licensing, promoting start-ups and spin-outs in emerging sectors etc.
  2. Importation / transplantation of industries (Type 2), through skills development and retention, and technical support for local firms.
  3. Diversification of existing industries into technologically related new ones (Type 3), perhaps using assets and capabilities from mature or legacy industry sectors to create an advantage in new sectors.
  4. Upgrading of existing industries (Type 4), by increasing investment and skills and enhancing innovation-related capabilities to move up the value chain in current industries.

All four Types would matter for a new regional path creation, and they co-exist (as Lester put it: in practice, the distinctions between them are not always clear). At the same time, we need to be aware of the different characteristics of each of the regions and the variety of roles that different types of universities and other innovation actors may play in each of the regional path creation.

Let’s revisit each of these four Types of regional path creation and think about the different roles universities can play. It is generally expected that universities will contribute to innovation-led regional growth through science-based knowledge, R&D and knowledge spillover effects, which is emphasised in a series of industrial strategies in the UK in recent years with a set of priority technologies. These activities tend to facilitate Type 1 pathway, including licensing, spin-off and start-up creation, which may be largely driven by research-intensive universities/technology-focused departments. For Type 2 pathway, which involves “the relocation of industries into the region”, universities need to respond to the needs of the relocating firms by “developing new, customized curricula and continuing education programs”. For Type 3 transitions involving “diversification out of existing local industries into technologically related new ones”, cultivating technological links between disconnected actors is essential including building links to local supplier and sub-contractors. Type 4 activities relate to upgrading of innovation processes, which tend to be led by industry while local universities may contribute to “technical problem-solving through contract research and faculty consulting, develop industry-relevant degree and continuing education programs, create student internship”. In these transition pathways (Type 2, 3 and 4), the roles of less research-intensive and teaching-oriented universities with strong local connections are particularly important, which are less captured in academic literature. A strong alignment between the regional needs and the institutional strategies of less research-intensive universities is noted in some studies (Abreu et al., 2009; Hewitt-Dundas, 2012) with particular evidence among former polytechnics (post-1992 universities) in the UK. Universities also collaborate with other actors, such as Further Education Colleges, and innovation intermediary organisations (e.g. Research and Technology Organisations, Catapult Centres to bridge the gaps in technological support and fill in skill needs. Examples include Catapult Centres in the West Midlands region such as the Manufacturing Technology Centre (MTC)  and WMG, University of Warwick (formerly Warwick Manufacturing Group) (Billing et al., 2023).

Increasing Regional Innovation Capacity

The concept of “innovation capacity” both at the regional and national levels is relevant here, including not only the supply-side of knowledge generation and diffusion but also the demand-side and absorption of knowledge. In terms of regional development and ecosystem management perspective, the knowledge application and exploitation subsystem of private firms and their networks is of vital importance for the performance of any innovation systems (Vallance et al., 2018). Businesses in innovation-prone regions can overcome external shocks by diversification strategies, developing new products, technologies, or services, and fostering more innovative approaches. A critical question is: How would universities in less-innovation prone regions help diversify and develop a new industrial pathway leading to innovation-led regional growth? It is acknowledged that the absorptive capacity of firms in periphery or less innovation-prone regions is seen as a critical factor in the effectiveness of knowledge spillover and commercialisation policies.  This is the case for less innovation-prone regions. Type 4 transition would be of particular importance to the regions with fewer opportunities related to science-based industry formation.

Jennifer Clark argues that for old manufacturing regions, the diversification challenge is increasingly one related to “technology adoption into an incumbent system” rather than the emergence of a wholly new system, which corresponds to Lester’s Type 3 and 4 transitions. Clark points out that there has been too much emphasis on product innovation in “high-tech manufacturing” in the current policy discourse (e.g. start-up firms, technology transfer and entrepreneurship) whilst the emphasis on process innovation is on adaption and “technology uptake” within existing systems rather than disruptive shifts in organisational models and markets. She highlights the role of “regional intermediaries” for manufacturing regions in the US to diversify into a new pathway, addressing interrelated domains of issues such as supply chain, labour market and innovation (Clark, 2014).

Universities and Regional Diversification Pathways

Two recent developments in the UK can be seen as interesting propositions for the future of universities and regional diversification pathways.

First, the UK Government (2023) recently published “Independent Review of University of Spin-Off Companies” recommending universities to work with their local spin-out ecosystems, amongst other recommendations. The creation of university spin-off firms (USOs) has been of growing interest to both policymakers and researchers (e.g., Caputo et al., 2022; NCUB, 2022;  Ulrichsen, Roupakia and Kelleher, 2022). This is because of assumptions about their contributions to the exploitation of academic knowledge and their impact on regional economies, including employment growth, the emergence of new clusters, wider economic impacts and demonstration effects on local businesses and institutions (Type 1). Arguably, by developing USOs and creating a supportive infrastructure for academic entrepreneurship, the university may have an impact on the local innovation and entrepreneurial ecosystem by diversifying into new technologies and capabilities (Benneworth and Charles, 2005). Both USOs and graduate start-up creation may be a strategy for universities in periphery regions. However, the challenge remains in terms of how to retain and scale the venture firms. Much more effort needs to be placed on how the region captures value from these companies – either directly through enabling them to scale locally or by efforts to find ways for the university entrepreneurship activity to catalyse other effects. This may be done through foreign direct investment (FDI) and talent/skills development (Type 2); aligning products/services of academic spinouts/start-ups to the needs of existing firms in the region (Type 4); and helping to create a more entrepreneurial culture so you get more start-ups and seed a new cluster (Type 3). Long-term vision and investment for the local innovation and entrepreneurial ecosystem are needed, and this would take a long time. At the national level, policymakers may consider placing a greater emphasis on building inter-regional networks to partially alleviate the issues faced by peripheral regions without necessary connections to resources in their localities (Prokop and Kitagawa, 2022).

Secondly, more specifically related to Type 2 transition, there are initiatives to help universities contribute to local innovation and diversification by attracting FDI. A pilot project is currently underway in the Midlands where universities are working together to attract FDI – the universities are taking a ‘hunt in packs’ approach, by scaling-up their strengths, ambitions and offer to investors. The Midlands Pilot focuses on sectors where the region’s universities have research and innovation strengths and expertise that, when combined, are genuinely world-leading. These include transport technologies, agri-food, zero-carbon energy, health and life sciences and the creative and digital industries. The ambition is to attract resources to areas outside London and Southeast where currently both public and private R&D funding is concentrated. This is articulated in a recent report: “The role of universities in driving overseas investment into UK Research and Development” (HEPI, 2023).

Towards and beyond place-based strategies

Policymakers at local and regional levels need to develop place-based strategies in relation to the research and innovation resources available in the local innovation ecosystem, where different universities may play a differentiated role. Collaborations between different types of universities in the region need to be encouraged, in terms of innovation skills development, for instance. However, due to the uneven regional distribution of public research funding, there is a danger that “place-based interventions may merely lock in pre-existing inequalities” (Johnson et al., 2023, p. 1084) across and within regions. To avoid such a lock-in situation, policymakers need to enable the “importation and embedding of non-local knowledge” (ibid) by promoting collaborative partnerships for businesses encompassing different spatial scales with different types of universities.

Overall, it is important to remember that the quality of governance matters for innovation-led growth. Place-based industrial policies would connect entrepreneurial opportunities with innovation and restructuring, increase connectivity between actors within the ecosystem, and then, release new opportunities by creative destruction, which will lead to a new ecosystem creation. Universities are important actors for innovation-led growth. Overall, a university’s ability and willingness to engage with the private sector and other stakeholders will condition the outcomes and performance of any innovation systems (Lester, 2005).  However, it is only possible for universities to create value in the local innovation systems by working with other key actors and building networks within and beyond the local ecosystem.

This blog was written by Professor Simon Collinson, Professor Fumi Kitagawa, Chair of Regional Economic Development at City-REDI / WMREDI, University of Birmingham and Tomas Ulrichsen, Director of the University Commercialisation and Innovation (UCI) Policy Evidence Unit at the University of Cambridge.

The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI, WMREDI or the University of Birmingham.

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