Introduction

International competition, particularly from low-wage, newly industrialising countries (NICs), is forcing many changes on the advanced economies in terms of business strategy. It is becoming increasingly difficult for the latter to compete in international markets, particularly in manufacturing, on the basis of price alone. For them, competitive advantage is to be found more in the quality of their goods and services. Much of this quality is based on sophisticated scientific, technical and managerial knowledge. The transfer of this knowledge into commercial products and services via the crucial process of innovation is therefore becoming one of the main ways for ‘first world’ economies to develop their competitive capabilities in international markets.

Innovation is so important because:

While there is widespread agreement that innovation drives economic growth, there is very little analysis of why this is the case. Thus, one of the key questions of this research was: ‘How does innovation lead to growth?’

For the purposes of this research, innovation was defined as:

The growing importance of innovation is recognised by the fact that it is now monitored on a European-wide basis by the Community Innovation Survey that is conducted every four years. EUROSTAT also compiles the European Trend Chart on Innovation that aims to build a comprehensive picture of innovation and innovation policies across Europe. A picture is emerging from this data of the strengths and weaknesses of different urban regions across Europe with respect to innovation. Low innovation rates are one of the three major weaknesses to be found in a number of European regions.