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Collaborate across borders to compete globally

There are many reasons why public authorities may seek to collaborate with cross-border neighbours

Cross-border policy efforts have traditionally tackled planning, transport and environmental considerations. Local cross-border spatial planning and transport policy have been the main objectives of many early cross-border partnerships, and remain so today. These are competencies often in the mandate of the local jurisdictions along a border. Environmental considerations, such as the joint management or protection of water resources, are another frequent subject of cross-border intervention.

Over time, other priorities of cross-border co-operation have been added, such as tourism, public service delivery and economic development. Tourism is a popular subject for collaboration, such as for destination branding or shared infrastructure. The Hedmark-Dalarna cross-border area between Norway and Sweden, for example, is focusing its cross-border activity on tourism. Cross-border efforts may involve arrangements to access key infrastructure and public services, such as a shared hospital on the border between southern France and Catalonia, Spain. Economic development, including that which is innovation-driven, has also gained prominence in cross-border co-operation arrangements. Such initiatives often seek to reduce trade barriers, promote labour market integration and achieve greater co-operation for education, research and innovation policy.

There are several rationales for cross-border collaboration related to innovation and economic development. Some seek to address the positive or negative externalities that cross the border, be that the benefits of a science facility for industry in the other region, or tax arrangements to compensate for service use due to cross-border commuting. Another set of rationales helps regions to overcome different forms of peripherally. They want to be more visible to national policy makers as well as globally competitive for firms and talent. For example, the motto of the Bothnian Arc cross-border area in Northern Finland and Sweden is “Together we are more”. Several drivers for cross-border collaboration for innovation policy support such overarching collaboration goals (Table 1.1).

The strongest rationale among case study areas for cross-border innovation policy is that of economies of scale. Regions are collaborating to join forces across a wider territory by better pooling their assets and achieving greater critical mass. This may increase opportunities for firms and workers through a larger labour market, an asset for knowledge-based companies. Access to expanded business and knowledge networks helps firms, particularly small and medium-sized enterprises (SMEs) that may not be able to source globally to the same extent as large firms. Reaching this critical size can increase the visibility of the area as an innovation node in global networks, raising the area’s profile for public and private, as well as national and international innovation-related investments. All the case study regions noted this as a core rationale for collaboration. Economies of scale, beyond critical mass, also have implications for political power and the delivery of specialised services for innovation.

Table 1.1. Rationales for cross-border collaboration for innovation policy

Economic concept

Driver

Explanation

Economies of scale

Critical mass

Access to larger labour markets or wider business and knowledge networks to increase critical mass, characteristics associated with agglomeration economies

Political power

Increase the recognition of areas of strength (or special needs) in regions that are far from capitals to better compete for resources from higher levels of government

Specialised services

Innovation support services can be more specialised and thus of higher quality

Economies of scope

Complementarities

Build on a diversity of assets in terms of research, technology and economic base, also known as “related variety”, as well as supply chain linkages; in some cases, complementarity may also be due to differences in price levels, cost structures or functions

Public and club goods

Regional identity

Increase internal recognition of the cross-border area for greater integration and social capital (including knowledge of the partners on the other side of the border)

Regional branding

Attractiveness and recognition of the area to firms and skilled labour both within the cross-border area and beyond

Specialised

infrastructure

Shared science and technology parks, centres or research facilities reduce financial costs and risks for the regions or countries involved, and allow access to a greater number of researchers and firms

Externalities

Border issues

Address the day-to-day issues associated with flows of people, goods and services (including public services) across the border for both positive and negative spillovers

Raising political power with higher level authorities is important for cross-border regional innovation efforts. There are some cross-border areas that involve capital cities, whereby national policy makers live in the area and are more attuned to their problems and needs. In a couple of the case studies, there are capital cities on one side of the border, where gaining political recognition is less difficult than on the other side. Helsinki-Tallinn is a unique case of national capitals on both sides with important shares of national population and production. However, generally cross-border areas do not involve a capital region; therefore, this rationale is even more relevant for their joint activities.

Specialised innovation services and other supporting conditions can be more efficiently delivered jointly rather than in isolation. Achieving a sufficient level of critical mass of innovation activities is also important for the delivery of specialised and targeted innovation services. Often, such services need a minimum number of beneficiaries or actors to be effective. A sufficient number of actors cannot always be found in a single region. Moreover, services related to specific sectors and technologies need particular capacities that can be sustainable only if the number of recipients is over a certain threshold. For example, business angel networks and venture capital funds need a sufficiently large potential deal flow of firms of a certain field or technology area to make investments profitable and to diversify their portfolios.

Economies of scope, such as complementarities across innovation assets, can be used to create competitive advantages for firms in several aspects. One side of the border may have strong research in a field and another may have a strong industrial base that can use that knowledge. Differences in research specialisations, technological expertise and industrial profiles may be helpful to combine. Many innovations are at the intersection of different research, technology and industrial areas (OECD, 2010b). Such complementarities are what have been termed “related variety” in the sense that the research or technology is different enough to bring a value added, but similar enough to effectively bridge the gaps for being able to combine them. These combinations can then serve to “construct regional advantages” (Asheim et al., 2011). Such conditions also have a positive influence on regions’ capacity to find a new direction for their development and renew their industrial structures, thus avoiding lock-in. This is also one of the rationales that underpins the new efforts to promote “smart specialisation” by the European Commission in the design of regional innovation policies more generally: regions should focus on unique combinations that give them a competitive advantage internationally (European Commission, 2012). For example, the TTR-ELAt (Top Technology Region/Eindhoven-Leuven-Aachen Triangle, at the intersection of the Netherlands, Germany and Belgium) is taking advantage of such complementarities in its cluster-oriented collaboration approach. Helsinki (Finland) and Tallinn (Estonia) have a potential to link different ICT competencies, business environments and public service approaches for creating new products and services. The two main cities in the Bothnian Arc are strong in the ICT sector, building on the heritage of the Nokia R&D Centre in Oulu (Finland) and the forthcoming Facebook data centre in Lulea (Sweden).

Additional drivers for cross-border collaboration are related to the creation of public and club goods, like regional identity. Many of the missed opportunities for the cross-border area are related to a lack of knowledge and understanding of possible employers, businesses or other innovation collaboration partners on the other side.7 Instruments in several case studies were targeted at overcoming this lack of knowledge regarding neighbours, commonly in the form of networking and matchmaking events. In the Oresund, for example, a magazine with relevant socio-economic information on the cross-border area is issued monthly by the Oresund Institute. The provinces constituting the TTR-ELAt have been mapping actors and institutions active in the cross-border area to increase their knowledge of their neighbours. Many initiatives that support internal identity are not focused on innovation per se, as they may address cultural issues, but they are also found to be important in creating a greater sense of social proximity within the cross-border area, which underpins many forms of innovation interactions. Cultural and sporting events were reported as having important symbolic value for creating a sense of regional identity.

Branding for external audiences to attract business and talent is a common public good rationale for collaboration. In regions that are not top global hubs, external branding is particularly important. The efforts to build greater critical mass also strongly support such branding initiatives. Branding strategies therefore involve some presentation of the joint assets in the cross-border area. For example, the TTR-ELAt area seeks a common branding of its network of small and medium-sized cities to better attract and retain international workers and firms. In the Oresund, the branding of the life sciences sector has been internationally successful.

Specialised infrastructure for innovation activities often requires important levels of investments by public authorities. As a consequence, it may be necessary to tap into more funding sources than a particular region. In addition, shared research infrastructure can be used by a higher number of researchers and R&D personnel, thus facilitating the creation of inter-regional innovation networks and avoiding the development of big facilities whose capacity is not sufficiently exploited by local stakeholders. Examples in case study regions include the Chemelot Business Park in the TTR-ELAt area (Chapter 3, Box 3.12) or the European Spallation Source in the Oresund, albeit the latter has a much wider impact than the cross-border region (Chapter 3, Box 3.7).

There are many day-to-day border issues for people and firms that interact across the international border. Cross-border partnerships serve to overcome barriers to cross-border flows. Common problems are related to labour market regulation differences, transport systems, environmental issues, tax systems and other very practical issues. Such considerations are thus tangible to citizens and politicians, particularly at the local level. This rationale is at the core of cross-border regions’ development strategies. Such barriers also hinder economic development and impede the exploitation of innovation opportunities. In some cases, the practical solution of border issues may result in the development of innovations. Sometimes these border issues are actually not costs, but benefits associated with being part of a cross-border area.

International experience shows the importance of different rationales for cross-border efforts

Nordic countries established a political co-operation framework after World War II, but in recent years innovation policy has risen on the agenda.8 Some elements for a favourable environment for cross-border collaboration include a shared value system as well as cultural and geographic affinities. The goal of removing obstacles for the free movement of goods, services, people and capital is high on the agenda. Since 2005, there has been a particular focus on the development of synergies in the field of innovation. The Nordic Regional Innovation Policy Programme 2009-2012 includes cross-border integration among its three main goals: sharing experiences and knowledge building; globalisation and cross-border collaboration; and third-generation regional policy. Cross-border areas have been formed and supported by Nordic Council funds. Financial and symbolic support from the Nordic Council of Ministers plays a vital role in the cross-border collaborations. This funding source has evolved since 2009, when subsidies for cross-border collaborations began to be allocated on a competitive basis (Lindqvist, 2010).

The European Union (EU) instruments under its Cohesion Policy have been a driving force for the development of cross-border areas in the EU. The goal of creating a borderless economic space has stimulated cross-border co-operation in many parts of the continent. Progressive harmonisation of the regulatory framework provides a more favourable context for these co-operations. Several cross-border co-operations have been initiated by European Territorial Co-operation, such as the first Interreg I programme (1990-93), which has supported the emergence of cross-border structures, the so-called “Euroregions” in the old core of Europe (Benelux, France, Germany and other central areas of the European Union). Subsequent Interreg programmes have provided support to different forms and spatial scales of cross-border co-operation arrangements, and injected funding sources to kick-start cross-border partnerships (Box 2.6). More recent examples of cross-border collaboration with new member states builds on the unbalanced level of economic development, bringing together “catching up” regions with strong but slower-growing regions from old member states.

In North America, cross-border efforts are more bottom-up, but are increasingly hampered by security concerns. The co-operations tend to have a pragmatic and focused rationale, aiming to resolve issues arising from cross-border relationships, and driven more by public sector initiative and local governments than by higher level public authorities (OECD, 2003). Many collaborations therefore remain bottom-up.9 Typical issues for cross-border co-operation initiatives between countries are: water resources management; environmental protection; public health; and fiscal/regulation issues in areas with large cross-border commuting patterns.10 Governance structures tend to be domain-specific rather than overarching structures covering many regional development issues at the same time, albeit there are several large areas of co-operation with several states or provinces that have more multi-purpose collaboration agendas, such as the Pacific Northwest Economic Region (Canada and the United States) and the Conference of Border Governors (Mexico and the United States).11 Since 2001, tighter border controls have increased the significance of borders in North America.

In South America, and beyond trade agreements, cross-border co-operations are more rare and informal. The cross-border area around Iguazu Falls in Argentina, Brazil and Paraguay is an exception (Iguazu-Foz de Iguaqu - Ciudad del Este). There has been, however, a recent increase in collaboration among cross-border regions on the continent (Association of European Border Regions, 2010). Local and regional authorities, as well as the economic sector and non-governmental organisations (NGOs), are playing a growing role in many cross-border fields in this part of the world, but the co-operations are still informal and not well structured. Regionalisation and cross-border co-operation are increasingly present on the political agendas of all Mercosur member states (particularly in Argentina, Brazil, Paraguay and Uruguay).12

In Asia, the cross-border efforts can take the form of a “growth triangle” where the focus is on taking advantage of imbalances in levels of economic development and innovation potential. These areas are an international zone of adjacent regions from different countries - or very often, regions that are neighbours, but separated by a sea. The specificity of Asian growth triangles is that they are based on complementarities, such as the exploitation of different economic specialisations and competitive advantages, most frequently in the form of different levels of development and thus price and wage levels, across the cross-border area. The public sector is often an initiator or major funder, but with the goal of attracting foreign investment. The first growth triangle was the SiJoRi triangle between regions from Singapore, Malaysia and Indonesia, initiated in 1989, formally established in 1995, and extended in geographical scope over time. The uneven level of development has changed the organisation of production in the triangle.13 Attracted by low labour costs in Batam (Riau Archipelago, Indonesia) and a relatively skilled workforce in Johor (Malaysia), industrial production has moved out of Singapore where, nevertheless, planning, marketing and distribution have remained (Kivikari, 2001).

In some cases, not collaborating may make more sense

A neighbouring region may not be the best partner for different types of regional innovation collaboration. Regional innovation strategies need to reveal the reasons why the neighbouring area is a good partner for collaboration in this field, whether due to complementarities in areas of specialisation, cost differentials in labour or land markets, common interests in branding, etc. However, if there are few opportunities for firms to collaborate with other firms, universities or technology transfer offices on the other side of the border, then forcing collaboration will only waste resources. InterTradeIreland performs regular studies and surveys to identify policy targets where the cross-border approach can be useful (Box 1.4). In the North of England, within-country cross-regional efforts sought to build greater critical mass and political power. However, individual regions in the North of England were more likely to co-patent with the London area than with their neighbours, as that is where the most relevant collaboration partners were located (OECD, 2008).

In areas where international excellence is required, partners elsewhere in the world may be more relevant. Academic co-operation is often looking to international partners on the basis of the specific domain of strength in research rather than physical proximity. University researchers are evaluated by publication quality and research excellence, which requires that they focus on the best knowledge anywhere in the world. The international mobility of research staff facilitates this global reach, as both professors and graduate students are generally highly mobile in their careers and can organise long-term visiting periods in other institutions. Multinationals are very strategic in their location decisions, particularly for tapping into a knowledge-intensive region elsewhere in the world. The same is not always true for many SMEs that lack the same capacity or benefit from a global partner search as a large multinational.

Box 1.4. Cross-border economic and innovation relationships: InterTradelreland analyses

An InterTradeIreland survey highlights a positive relationship between innovation and export orientation, where firms who export off the island of Ireland display a higher level of innovation activity compared to non-exporters. This positive influence is evident to a lesser degree for cross-border traders, which could signify benefits to businesses of accessing diverse knowledge inputs at the cross-border level. Larger firms (55%) are more likely to be partnering for innovation than smaller firms (36%), while the same holds for exporters (58%) and cross-border traders (53%) compared to domestic firms (31%).

The survey also shows the link between export orientation and firm growth as more international exporters (19%) and cross-border traders (15%) reported themselves in a growing or expansion mode than businesses focused on the domestic market (9%). Exporters have a systematically higher rating in all kinds of business innovation attributes than cross-border traders, while the latter display higher ratings than domestic firms.

A fifth (19%) of innovators are working with cross-border innovation partners. These relationships are focused heavily on clients/customers and suppliers, with collaboration generally much less widespread for other partners.

A quarter (24%) of innovators have international partners. Overall, international partnerships are more widely reported than cross-border relationships for links with suppliers, higher education institutes, intermediaries and business services.

Source: InterTradeIreland (2012), Leveraging the Innovation Ecosystem for Business Advantage: A Cross-Border Study, InterTradeIreland, December.

Regions often compete and collaborate at the same time, particularly if in close proximity. In presentations of the foreign investment agencies of the case study regions, often common information on size and unique assets in the whole cross-border area are part of the sales pitch. These are the public agencies generally most keenly focused on competition to bring a win to their jurisdiction. They reported that if for any reason they cannot win for their jurisdiction, it is better for them to have a nearby jurisdiction win than to have a firm or investment occur farther away. In the Helsinki-Tallinn area, the competition is often with Stockholm, therefore recognition of Tallinn is more relevant for their efforts. This same principle has been applied by inter-regional collaboration within the same country as well, as evidenced in the greater Chicago metropolitan area. The Milwaukee Seven is a label that brands the seven counties to attract business and talent together. In contrast, competition takes place between neighbouring Indiana with Illinois, playing on tax differentials that result in no net gains for the region overall (OECD,

2012b). Multinationals such as Philips also collaborate and compete in these cross-border areas. Today, a pervasive network of linkages exists between Philips with private organisations (SMEs and multinationals) and research and academic institutions across the three countries of the TTR-ELAt (Belgium, Germany, the Netherlands).

 
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