III: Macro-level impacts from micro-level solutions

Emergence of new business areas in regional economies through entrepreneurial discovery processes

о

Seija Virkkala and Age Mariussen

Introduction

This chapter connects the theory of entrepreneurial discovery processes (EDP) with the literature on cluster evolution. This connection is made possible through the notion of emergence, complexity approach and structuration. The chapter provides a ‘stylised story’ of how micro-level entrepreneurial discoveries may transform regional economies by creating emergent clusters. The story of this process is summarised in Figure 9.1, and illustrated by a case (see Box 9.1), which is the emergence of the energy technology cluster in Vaasa, Finland.

In Chapters 5 (Lam, 2019, in this volume) and 8 (Virkkala, 2019, in this volume), hybrid knowledge spaces and connections between knowledge spaces through third space are discussed. In this chapter, we take the next step and look at regional economic systems. They consist of firms, networks between firms and related institutions. A distinction is made between two types of complex regional economic systems: static and dynamic. A complex and static regional economy is characterised by fragmentation between knowledge spaces (see Virkkala, 2019, Chapter 8 in this volume) created by a fixed division of labour between different specialised communities of expertise, firms and helices (universities, industries and public sector institutions), created by a one-sided focus on cost-efficient exploitation of existing knowledge, rather than exploration and ambidexterity (in Chapter 10, Nguyen and Mariussen, 2019). A region with a static system is likely to have a few, highly structured connections to the outside world, say, core companies exporting goods or raw material to a fixed set of customers. A complex and dynamic regional economy is open for new knowledge from outside and new combinations of existing forms of knowledge, through various forms of third space connections. For instance, a key enabling technology such as nanotechnolog)' or biotechnology may be provided through transnational relational knowledge spaces and integrated into the regional domain (see Chapter 11, Mariussen et al., 2019). Entrepreneurial actors may even extend the borders of complex systems, by connecting them to other systems.

Structuration theory and complexity approach explain micro-macro interrelations. A successful micro-level entrepreneurial discover)' creates a bottom—up (or upward) causation, which is emergence of new business areas. The new business area reinforces this micro-level pattern of entrepreneurship and growth through mechanisms of downward causation such as knowledge spillovers, market entry of firms, and subsequent agglomeration. A new cluster is born. The new cluster can grow and transform itself through selection of related industries which fits into its path, and memory of how to make industrial growth. It contributes to increased diversification and complexity in the regional economy. At the same time, dynamic complexity is necessary for the entrepreneurial actors initiating EDP. Dynamic complexity can be increased by exploring the possibilities of transnational networks. In order to achieve dynamic complexity, public sector organisations should destabilise the system and encourage exploration.

The EDP is expected to drive changes of regional development strategies and regional economic structures. These changes involve self-discovery through regional-level analysis and complex micro-level dialogues. According to Aasen (2019) in Chapter 7 in this volume, entrepreneurial discovery involves numerous people being inspired by regional knowledge resources, local characteristics and current trends. During interaction, patterns of discover)' may emerge as recurring themes, and also as negotiations over the meaning of such themes. Emergence is one of the key defining characteristics of complex systems.¹ This chapter complements Aasen’s in offering a macro perspective on the complexity approach and by examining what comes through the process after discovery.

This chapter explores the concepts of system and emergence developed in complexity approaches, and to that end, both the regional economy and the regional development policy will be interpreted as complex systems. The complexity approach and the notion of emergence will bring deeper understanding of the interrelationships between micro and macro levels in the EDP, in particular, how micro-level discoveries may have macro-level impacts and how these macro-level impacts influence the micro level, in a way which results in self-reinforcing causal loops in the regional economy.

The chapter describes a regional economy as an emerging complex system, and the policy of discovery as a policy system which, under certain conditions, may be able to bypass rigidities and create new synergies. EDP should be seen as a general idea that is an integral part of smart specialisation policy, but it can also be interpreted in a more general sense and as part of a policy of discovery and exploration.

In the next section, we discuss relevant concepts of complexity thinking: specifically, those of system and emergence. The third section will interpret EDP as three forms of emergence in the place-based strategy of smart specialisation when discovery is territorially embedded. However, in some cases there is insufficient complexity or dynamics to enable micro-level dialogues to catalyse discoveries, and the fourth section of the chapter addresses a way to create more dynamics. As shown in Chapter 11 (Mariussen et al., 2019), one solution might be scaling up and building transnational networks to create complexities for discoveries and the emergence of new regional and transregional business opportunities (domains). The last section offers some conclusions on the policy implication of the notion of emergence.