What are the main activities and interests of large domestic firms relevant to innovation?

Large firms often play a substantial role in innovation systems. They are frequently important innovators and are often technology leaders in their respective industries. What is more, top leading firms tend to represent substantial shares of overall R&D across many countries. They are major players in international trade and often play an important role in global value chains. In that capacity they can promote the cross-border transmission of knowledge by introducing advanced technologies and management practices that can be subsequently benefit other businesses across the economy. They are major actors when it comes to international co-operation in R&D through open innovation strategies. Among their advantages, they benefit from economies of scale and better access to finance and human capital to engage in innovation activities.

Not all large firms are leading innovators. Their innovation performance differs widely, even if they belong to the same sector. The reasons for this tend to be complex and multiple and often include the following:

• The sector of activity will have some impact on innovation performance: large firms in resource-based and service industries tend to have a rather different innovation profile from those in manufacturing, for example.

• Large firms might operate in an environment where they face relatively limited competition – possibly as market entry costs are significant or because firms benefit from incumbent advantages. Incentives to be innovative and to introduce major innovations might, therefore, be weak. Stimulating competition and avoiding market-capturing behaviour is a necessary step towards stimulating innovation which might be hindered by rent-seeking activities.

• Differences in corporate governance may also exert an important influence on large companies’ innovation performance.

Finally, it should be noted that large domestic firms can take many forms in terms of structure, ownership and governance. Many large domestic firms work predominantly in a single sector while others are conglomerates working in multiple industries. Some are state-owned enterprises, others family-owned businesses or publicly-listed companies. Some large producer domestic firms may have intimate relations with banks while others may have more arms-length relationships with finance through financial markets. This variety likely impacts the innovation activities of large domestic firms, though there are no simplistic causal relationships.

PUBLIC SECTOR RESEARCH

How do the main activities and interests of large domestic firms coincide with public sector research contributing to innovation performance?

Large domestic firms can play a significant role for most activities of public sector research organisations.

• They are potential future purchasers of products and services of technological development and spin-offs, since they tend to have both the capacity and the purchasing power to take up novel products and services. Indeed, as potential purchasers of future products they might be instrumental in incentivating the creation of spin-offs. They become in this way a relevant intermediary for transforming the products of public sector researchers into innovative commercial products.

• For those large firms with capacities to engage in high-tech R&D and opportunities to take on riskier projects, partnering with public research organisations through R&D collaboration can be an attractive possibility. They might also be important clients for advisory and consultancy services.

• To the extent that large firms are more likely to have important R&D laboratories and an interest in the expertise of researchers from the public sector, they can possibly offer opportunities for researchers from the public sector to gain experience in the private sector. They, therefore, constitute a relevant actor when it comes to fostering mobility.

What resources and capabilities do large domestic firms need to productively interact with public sector research?

Large domestic firms will need to have the ‘absorptive capacity’ to benefit from interaction with public research. This typically means having their own research capabilities or at least own innovation capabilities that include abilities to search for and to exploit relevant public sector research. This requires notably having a sufficient set of skilled researchers and/or developers. Moreover, an understanding of the incentives and organisational structures of public sector researchers and their institutions will facilitate establishing working relationships.

Which factors are important in affecting how large domestic firms interact with public sector research?

Several factors condition large domestic firms’ innovation performance. Notably the following are relevant:

• The economic specialisation of an economy will influence whether large firms have the capacities to engage with the outcomes of public sector research and whether they have specialisations that are sufficiently science-based to render cooperation with the public research sector potentially attractive.

• The framework conditions of an economy, translated in its industrial ecology will, moreover, have direct effects on market conditions including notably the competitive environment firms face. 

• Labour market regulation will more or less allow mobility between public sector research public and the private sector.

• IPR regimes are important in shaping the terms and conditions of R&D cooperation and technological development between public sector research and private businesses.

• The scale and scope of open innovation strategies of large firms can influence their interactions with public sector research.

What policies are important for fostering interactions between large domestic firms and public sector research?

Several types of policies can facilitate interactions between public sector research and large domestic firms. Public funding for collaborative R&D programmes connecting private and public sectors can incentivise interactions. Beyond providing direct financial contributions, policies aimed at promoting networking between public research organisations and private firms are common, e.g. through university-industry linkage schemes, cluster policies and technology platforms. Mobility can be further enhanced through inter-sectoral mobility schemes and industry-funded PhD studentships, fellowships and even chairs. Regulation across several areas are also relevant, including labour market regulations – specifically how they shape the career paths of researchers – and IPR.