The system of innovation refers to “the determinant of innovation process in all important economic, social, political, organisational, institutional, and other factors that influence the development, diffusion and use of innovations” (Edquist 2005: 182). As Edquist (2005) elaborates, Nelson (1993) places the emphasis on national R&D conducting empirical studies, whereas Lundvall (1992) develops the theoretical foundations of system innovation with a focus on learning and interactions as a new approach and identifies two significant aspects: production structure and institutional foundation.
In system innovation, it is important to identify organisations and institutions as the main components within a certain system (Edquist 2005; Chaminade and Edquist 2006) . Edquist and Johnson (1997) identify organisations as formal entities intentionally designed to implement specific objectives, while they interpreted institutions as sets of behaviours, customs, cognitions, repeated social patterns and approved social rules. Often the following entities are chosen as organisations: governments, universities, firms and public intermediaries with responsibility for regulations and innovation policies (Edquist 1997). Institutions can be like universities and distribute their new knowledge to the industry or specific patent laws affecting inventors’ innovation activities (Edquist 2005).
The literature of system innovation indicates three kinds of learning: innovation in new products and processes, R&D and competence building, such as training and education. Innovation learning can create the “structural capital” of a firm which is organisational learning managed by companies (Edquist 2005). R&D often leads to innovation of science and technology, the driver of manufacturing and other high-value industries. The main players in R&D are universities, national research centres and companies’ research centres. Competence building is related to individual learning through training and education of schools, universities and workplaces. Skilled labour becomes an important contributor to innovation in an organisation (Edquist 2005).