Maximise the benefits and reduce the costs of collaboration

Favourable conditions within the region for innovation are likely to increase the benefits and reduce the costs of cross-border collaboration in innovation policy. Conditions that provide a more fertile ground for fruitful policy collaboration are related to those that determine the functionality of the area from an innovation perspective (Chapter 1). The discussions of the different forms of proximity for innovation also apply to the conception of collaboration more generally (Box 1.2). Favourable conditions also include proximity from the perspective of governance, in terms of the public administration’s institutional styles, cultural issues for people working on cross-border collaboration and the constitutional frameworks.4 There are ten conditions that are important to consider for cross-border collaboration (Table 0.2 and associated diagnostic questions in Annex I.1). Cultural differences merit special mention because while they can be an asset for innovation, they are also a cost for collaboration. Trust is an important component in innovation co-operation, and cultural barriers impede the development of trust-based relationships.

The calculus of the collaboration is particularly difficult for regional innovation support

Innovation policy, unlike other fields such as transport policy, does not allow for an easy calculation of inputs and outputs. A main challenge is that some of the benefits and costs from cross-border co-operation remain unknown. The innovation process is, by definition, fraught with uncertainty. Many research initiatives can be years away from marketable application and tangible returns in terms of jobs or tax revenue. So while the benefits are far from certain, the costs in terms of government efforts (notably in terms of time or political risk) are highly visible and immediate. The perception of the payoff to each party is therefore often unclear and skewed. And the role of innovation policies themselves, be they regional or cross-regional in scope, is precisely to try to alleviate those barriers by providing incentives or supporting part of the risks involved for those undertaking the innovation.

Public administrations may not collaborate even if the net cost of not collaborating is higher. There is a documented status quo bias in human behaviour that affects the interpretation of costs and benefits associated with any change. However, in many cases, the costs of spatially fragmented policies may be quite high. The problem is that rarely does a public administration conceive of this problem and attempt to quantify it.

The decision to collaborate for joint innovation support presumes a set of understood pay-offs (benefits minus costs) and an alignment of those incentives on all sides. Even if the payoffs were clear, there are not always incentives to collaborate around the same choice.5 When considering the collaboration, it is a useful exercise to think about the incentives not only for oneself, but for the other party, today and in the future. In the context of cross-border collaboration for innovation policy, there may be examples whereby in some projects co-ordination has a recognised payoff, and in others it may not. Actions to promote co-operation will depend on the degree of alignment of objectives as represented by the payoffs recognised by all parties.

In some situations, both regions may have an incentive to collaborate, but they do not get the maximum benefits. For example, the case of Helsinki-Tallinn could be considered in this context. Both regions see an interest in collaborating. They have had some successes in accelerating the discussions on mutual interests in transport, but have not yet fully taken advantage of the opportunities for innovation collaboration that would produce the additional benefits for both parties. Ireland-Northern Ireland (UK) is perhaps another example where there may remain unexploited benefits, but there is nevertheless a high commitment and incentive to co-operate. In both of these cases, there are differences in commitment in the collaboration for historical reasons, reinforced by differences in size and level of economic development. Therefore, both sides recognise that benefits may not be equal between the two partners.

Another scenario is one where the incentives to collaborate are aligned, but depending on the overall approach, or the specifics of a particular issue, one side may benefit a bit more than the other. The case of the Oresund illustrates this point. From a purely income tax perspective, Denmark may gain given the higher number of commuters flowing in that direction, as people pay taxes where they work. For other assets, like the airport and access to a larger labour market, Southern Sweden residents may gain. With respect to the scientific facilities, Southern Sweden may appear to gain more directly since the facilities are located in its jurisdiction. However, in these different elements of the collaboration, there are often forms of compensating payments that help to make the benefits more even. This comes in the form of access to “beam time” by Danish researchers in Swedish facilities, or having a component of the facility be established on the Danish side (such as the data centre for the upcoming European Spallation Source - ESS). In addition, there are actual compensating payments to account for possible free-riding or other externalities, such as co-financing of an airport located on the other side of the border. These arrangements work because there is a long-term relationship and an understanding that perhaps there is an alternation when one side may simply have larger payoffs than the other, while both still benefit, but next time it will be the other side.

In a third scenario, there is a strong disincentive to collaborate since one could benefit more if the other side chooses to co-operate, but not oneself. In other words, there is a strong incentive to free-ride and let others contribute. Within the context of the TTR-ELAt region, the GCS Cross-Border Cluster Stimulation is an interesting illustration of this. The funding scenario by each contributing partner, beyond the common contribution of ETC funds, shows contribution differences ranging from EUR 2 million by the Dutch Ministry of Economic Affairs to EUR 9 000 from a participating sub-region. One explanation for this funding commitment can be due to a high perceived payoff for Dutch firms. Another possible (or partial) explanation is that the contribution is a pilot test to prove to the other partners that such a programme can work so that in a future programme or joint action, the (hopefully) highly positive results of the programme currently in progress will allow longer term co-operative behaviour to take hold.

In all of these scenarios, what is important is that the collaboration is a long-term situation which implies the building up of trust. In the case study examples, those most advanced were generally those that had over 20 years of experience already in some form of formal collaboration, such as the TTR-ELAt and the Oresund. The case of Ireland- Northern Ireland (UK) is perhaps different, in the sense that the high level of political commitment has led to a stronger institutionalisation than time alone would have implied. The costs of building the relationships and trust to work together may be higher upfront, but the expectation is that over time those costs decline, which, all else being equal, raises the net benefits for participating jurisdictions. Given that the upfront costs are more visible, considering this long-term dimension is important. That investment is made through the dedication of professionals in their daily work.

Collaborations that focus on creating economic and social benefit may involve “co-optition” (co-operation for competition)

The concept of collaborative advantage as found for firms bears lessons for collaboration across public administrations that seek to support firms. For firms, collaborative advantages must yield benefits and open the doors to unforeseen opportunities. It is about collaboration (creating new value) and not mere exchange. And it is based on a dense set of interpersonal connections, not simply formal systems (Kanter, 1994, Box 2.7). Firms that compete may find value in successful business alliances, therefore, in this analogy, public administrations that compete may also have opportunities to gain by working together. The jurisdictions can engage in co-operative competition, or “co-optition” once they recognise that the real competition is not the neighbour, it is the rest of the world.

The arguments about juste retour, or getting back what one puts in, are often focused on the individual “deal”, or in this case project. If collaboration requires considerable negotiations for an equal return on every project, the transaction costs are high for all. However, since many of the costs and benefits are perceived and/or realised to occur under different time horizons, the deal-based calculation instead of the long-term calculation becomes more cumbersome to manage, increasing collaboration costs. This longer time horizon can change the calculation of expected benefits since often there is a short-term focus on the returns.

Innovation policy has the potential for creating economic and social value through greater knowledge of opportunities across the border. Within the case study areas, one of the most commonly reported challenges is having information available on firms, research institutes, technology centres, etc. on the other side of the border. These opportunities for innovation system actors are therefore discovered over time and are likely to increase in the benefits, which consequently serves as greater justification for joint policies.

Science, technology and innovation policy is a field where complementary action can be taken over time to increase economic returns. For example, in the Oresund, two large scientific facilities are under construction. To get greater value for the regions with that facility, complementary programmes have been put in place. The Cluster for Accelerator Technology (CATE) is helping local firms develop skills for such advanced and specific knowledge so as to be qualified to participate in the building of the facility, starting with an existing market, CERN in Switzerland (Chapter 3, Box 3.7). This complementary action was therefore put in place jointly to increase the economic benefits locally (and on both sides of the border). Once the facility is built, other complementary actions will likely be considered to increase the value of this asset both within the region where it is located, but also in the neighbouring region across the border.

Box 2.7. Collaborative advantage: The art of alliances

Kanter (1994) conducted a study in the mid-1990s on the different ways business organisations form partnerships and alliances. The research was based on more than 500 interviews with leaders and staff of 37 companies located in 11 locations (Canada; France; Germany; Hong Kong, China; Indonesia; Japan; the Netherlands; the People’s Republic of China; Turkey; the United Kingdom; the United States). Those interviewed covered large and small companies in both the manufacturing and service industries, involved in different kinds of partnerships and alliances. Several kinds of business relationships were covered: from those more than 20 years old to those formed more recently due to industrial and globalisation changes.

The research has shown that alliances between companies are a well-established feature of business organisation (already in the mid-1990s). Being a good and attractive partner has become an important corporate asset, which can be defined as collaborative advantage. With globalisation, companies’ ability to establish and maintain fruitful collaborations is one of their strategic resources. Active collaboration takes place when companies develop mechanisms, structures and skills that allow the bridging of organisational and interpersonal differences between business organisations.

The author identified three fundamental aspects of successful business alliances:

  • • Alliances must bring benefits to partners, but they are more than just a deal. They change and evolve according to mutual possibilities, future and sometimes even unforeseen business opportunities.
  • • Alliances involve collaboration (i.e. creating new value together) rather than simple exchange. Partners benefit from the different complementary skills that each brings to the alliance.
  • • Alliances cannot be controlled in a formal way, but rather they require a dense and pervasive network of interpersonal contacts as well as internal infrastructure promoting mutual learning.

Successful alliances are also characterised by the “8 Is”: individual excellence of both partners, importance of the partnership, interdependence (namely the mutual need for the alliance), investment (when both partners invest in the other company, not necessarily financially), information (mutual exchanges and open communication), integration (by developing linkages and common operations), institutionalisation (by giving a formal status to the collaboration), and integrity (mutual trust).

In addition, the author observed different behaviours according to business cultures in different geographical areas. North American companies have the tendency to adopt a narrow and opportunistic idea of business relationships, by emphasising the financial aspects of such partnerships. They hence tend to neglect the political, cultural, organisational and human aspects of the partnership. Asian companies tend to exploit and establish alliances having a broader meaning and European companies exhibit intermediate behaviours with respect to both the Asian and North American paradigm.

Source: Kanter, R. Moss (1994), “Collaborative advantage: The art of alliances”, Harvard Business Review, pp. 96-108.

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