Innovation in Extremadura: Opportunity for Companies or Obstacle for their Development?

Innovation in Extremadura: Opportunity for Companies or Obstacle for their Development?

Beatriz Corchuelo (University of Extremadura, Spain) and Francisco J. Mesías (University of Extremadura, Spain)
DOI: 10.4018/978-1-4666-9567-2.ch016
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The main objective of this chapter is to analyze which are the barriers perceived by Extremaduran firms and how these barriers affect their willingness to perform innovative activities or to be innovative firms. We have used data collected in 2013 from an ad hoc survey. Results show that, firstly, there are differences in the perception of the barriers especially in young and exporter firms that detect more barriers although they have a strong willingness to innovate. Secondly, even if innovation is considered an essential source of competitiveness, there is an important unwillingness to innovate in non-innovative firms. This behaviour is especially due to barriers related with high costs and financial restrictions to innovate. These barriers also reduce the likelihood of the firms to innovate. Both innovative and non-innovative firms detect the presence of barriers to innovation highlighting the perceived lack of support from government.
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In recent years, the economists have devoted much of their time to analyze the factors that contribute to economic growth. In this process there has been a shift from the classical pessimistic point of view that considered it was difficult to keep the growth to a recent and more optimistic vision which considers important possibilities of future growth, which can be greatly attributed to the effects of technological progress.

It is widely accepted today that economic growth allows the improvement of living standards and the access to more and better goods and services. It can also generate more jobs and improve income distribution (thus enabling the resolution of social conflicts) being innovation and technological progress, in all of these processes, the key macro and microeconomic factors.

At the macroeconomic level, the innovations produced in a sector increase other sectors’ productivity (technological spillovers) and allow the creation of international comparative advantages, so that the general welfare of economies increases. At the micro level, growth resulting from innovation leads to an increase in national income that allows increasing investment, boosting firms’ productivity and competitiveness. All this entails creating higher value products, with a decrease in the prices of goods and services and increasing customer satisfaction.

In the present context of globalization, an economy based on innovation and knowledge gets further developed through the ideas that become innovations and increase production, that generating growth. Innovation is generally characterized by changes in a complex and interrelated system between product/service, market, knowledge, actors and society.

Innovation is also an important source of economic growth and a key to the competitiveness of enterprises, which are the main agents of innovation systems. Nevertheless, the current innovation models also pay attention to informal activities as sources of new knowledge and innovative processes.

Innovation depends as well on the relationships and interactions between the different actors, the creation of networks, learning and dissemination of these processes and, for these reasons, it is essential to recognize the cultural role that defines us as a society (Delucchi, 2006). In this sense, innovation establishes a close link between the legal and the social context in which it develops and that implies to make an effort to determine its role in the economy without overlooking the geographical environment in which it operates. In this sense, there is agreement between scientists about the key role that innovation plays in the competitiveness of business and territories both in the medium and long term (Porter, 1990; Castillo & Crespo, 2011). The proximity (geographical, institutional, cultural, etc.) between actors of innovation in a country facilitates the establishment of close relationships (interpersonal, inter-firm and intersectoral) which lead to the creation, acquisition, accumulation and application of knowledge (González-Pernia, Martiarena, Navarro, & Peña, 2009; Asheim & Isaksen, 2002; Lundvall, 1992). Spanish regions have recently recognized the importance of managing their innovation systems and the allocation of resources to stimulate innovation capacity (Asheim & Coenen, 2006; Lundvall & Borrás, 1997).

Notwithstanding the significant benefits it brings, knowledge generated by innovation presents certain characteristics of a public good (Arrow, 1962; Nelson, 1959) which implies that investment in innovation will face some major obstacles: lack of appropriability benefits (Geroski, 1995), high costs (sunk cost), uncertainty and high risk that make the returns achieved by private investment firms to be lower than those socially desired. This creates market failures (of goods, capitals and financial) that economically justify government intervention through the development of appropriate science and technology policies that promote research and development (R&D) in order to enhance the innovation potential of companies. Government intervention is also justified by the positive role and increased welfare that the current economy based on knowledge and innovation provides to the society.

Key Terms in this Chapter

Structural Capital: “It is the skeleton and the adhesive of the organization, which strengthens the company and creates a strong and consistent relationship between individuals and their processes” (Brooking, 1997 AU106: The in-text citation "Brooking, 1997" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. , p. 81). More specifically, it can be considered as the set of intangible elements integrated in the domestic sphere of the organization.

R&D Fiscal Incentives: They are financial public tools to incentive innovation. They show a horizontal character because they can be used by all firms performing R&D activities according to fiscal regulations. Fiscal incentives differ among the countries where they are applied.

Innovation Systems: Group of elements that, in the national, regional or local environment, act to favor of any creation process, diffusion or use of economically useful knowledge.

R&D Subsidies: They are financial public tools to incentive innovation. They can be requested by those firms that develop innovative projects. These tools present a concrete character, because they are oriented to stimulate R&D activities of certain areas or sectors where the gap among the private and social profitability is higher.

Intellectual Capital: Can be defined as the difference between a firm’s market value and the cost of replacing its assets. Components of intellectual capital consist of human capital (HC), structural capital (SC) and relational (external) capital (RC).

Barriers to Innovation: Obstacles that face firms to perform innovation. If barriers offer sufficient resistance, then innovations are not likely to be adopted or implemented. A deeper understanding of these obstacles can help to keep a great innovation alive and ensure its full value is realized.

Organizational Innovation: Is the implementation of a new organizational method in the firms business, workplace organization and external relations.

Human Capital: Covers all intangible elements associated with company personnel, such as their skills, motivation, experience, commitment, etc.

Market Failures: They occur when freely-functioning markets fail to deliver an efficient allocation of resources. The result is a loss of economic and social welfare. Market failure exists when the competitive outcome of markets is not efficient from the point of view of society as a whole. This is usually because the benefits that the free-market confers on individuals or businesses carrying out a particular activity diverge from the benefits to society as a whole. In the case of innovation, the existence of some sources of market failure as appropriability, financial restriction or high costs and uncertainty make that firms do not provide the level of innovation investment that it is socially optimal which justify, from an economic point of view, the government intervention to boost this type of activities in the market.

Marketing Innovation: Is the implementation of a new marketing method involving significant changes in product design, or packing, product placement product promotion or prices.

Process Innovation: Is the implementation of a new or a significantly improved production or delivery method. This includes significant changes in technique, equipment or software.

Innovation: This term comes from the Latin word innovare that, in turn, comes from novus that means new . The Oslo Manual (2005) AU105: The in-text citation "Oslo Manual (2005)" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. defines innovation as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations”. This definition means that we can distinguish four types of innovation.

Product Innovation: Is the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness and other functional characteristics.

Relational Capital: It is originated in the commercial relations of any business and is formed by the set of intangibles arising from such activity.

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