Knowledge Intensive Business Services and Regional Policy

Knowledge Intensive Business Services and Regional Policy

Jonathan Potter (OECD, France & Birkbeck, University of London, UK) and Cristina Martinez-Fernandez (OECD, France & University of Western Sydney, Australia)
DOI: 10.4018/978-1-4666-8348-8.ch007
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Abstract

The economic importance of the Knowledge Intensive Business Services (KIBS) sector is increasing as its direct share of production grows, and as it increasingly provides knowledge inputs to firms in other sectors within more open innovation strategies. This chapter considers the implications for regional policy. It starts by discussing the nature of KIBS and their role in innovation. It then examines the changing scale of KIBS and the extent to which they are regionally concentrated. Key messages from neoclassical growth theory are then set out on the processes through which KIBS can be expected to contribute to regional economic growth, including discussion of potential cumulative causation processes at regional level. The implications of the theory are drawn out in terms of the types of market failures that policy should seek to address and how it may do so. The question is also posed of whether this is largely a field for regional policy or for national innovation policy. The chapter concludes by identifying some important questions for further research.
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Background

The term KIBS refers to firms supplying certain types of specialised knowledge-intensive services that other firms use in their business processes. KIBS suppliers have been defined as ‘private companies or organisations who rely heavily on professional knowledge and skills, that is knowledge or expertise related to a specific (technical) discipline or (technical) functional domain to supply intermediate products and services that are knowledge based’ (Den Hertog, 2000: 505). Müller & Doloreux (2007) focus attention on three core sectors: computer and related activities, research and development (R&D) and other business services (legal, accounting, market research, business consultancy, architectural and engineering activities, technical testing and analysis and advertising). KIBS are frequently divided into technical KIBS (t-KIBS) such as information technology, engineering and R&D consultancy, and professional KIBS (p-KIBS) such as business and management services, legal and accounting activities and marketing (Müller & Doloreux, 2009; Miles, 1995).

In addition to the sheer scale of their direct employment levels, one of the important characteristics of KIBS is that they are often highly innovative in their own right (Miles, 1995). They tend to innovate more frequently than other service firms. For example, Corrocher, Cusmano & Morrison (2009) found that three-quarters of KIBS firms in Lombardy were heavily involved in innovation. But innovation in KIBS this is not generally based on internal R&D activities as in the manufacturing firm, but rather is strongly associated with organisational change, incremental improvements made by highly-qualified employees and intense collaboration with local customers and suppliers (Müller & Doloreux, 2009; Tether & Hipp, 2002). This type of innovation may be expected to result in relatively well-paid direct jobs and good prospects for further job growth in the regions hosting KIBS firms.

Key Terms in this Chapter

Growth: An increase in an economy’s capacity to produce goods and services, including through innovation and improvements in technology.

Cumulative Causation: A dynamic growth process in which an initial positive or negative impact on growth leads to further positive or negative changes that reinforce the initial change in a self-reinforcing system.

Co-Production of Knowledge: Activity related to the production of new or updated substance by the interaction/collaboration of two or more actors.

Service Activity: Providing assistance to people, firms or other actors, apart from through supply of goods.

KISA: Knowledge Intensive Service Activities. Knowledge-intensive service inputs provided by external KIBS suppliers or public and non-governmental sector service suppliers or by in-house expertise within the firm.

Knowledge: Facts, information and awareness of something acquired through learning.

Innovation: The economic exploitation of novel ideas. This may come in the form of product innovation (a good or service that is new or significantly improved), process innovation (a new or significantly improved production or delivery method), marketing innovation (a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing) or organisational innovation (a new organisational method in business practices, workplace organisation or external relations).

Regional Policy: Policies that are specifically aimed at changing competitiveness across different geographical areas of a country.

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