Barriers and Limitations in the Development of Industrial Innovation in the Region



as a vehicle for disseminating knowledge over space. The element of space can be appreciably
overcome with adequate means of communication. Therefore, advanced means of
communication are a necessary component in the process of regional development and
economic growth (Shefer, 1988, Felsenstein, 1996, Frenkel, 2001).

The precise nature of the process by which innovation procedures diffuse through an
economy, from region to region, and from one economy to another, and through which one
firm learns from another, is very important, because it is a crucial determinant of competitive
advantage.

Technology diffusion is a complex process, involving changes in the behavior of economic
agents. Many studies emphasize the great importance of the technology diffusion process for
market development, but despite this, it is surprising to find that only a few policies are
designed to foster this process. The societal expected return on new technology without the
diffusion process will be insignificant (Metcalfe 1990).

Regional economic competitiveness is directly and strongly dependent on the spatial diffusion
of innovation processes. Evidently innovations, creations and/or adaptations are marked by
pronounced regional spatial variations.

The Innovative milieu

The spatial competition has become a function of the new dynamic of urbanization, with more
intensive and universal character than ever. Cities and region are competing each other in
attracting new investment and preserving their existing economic activities. Porter (1990) and
later Nijkamp and Veleugel (1993) defined five attributes that specify, in analogical terms, the
business milieu of the region. Those are:
1) hardware - including the basic location factors:
labor, the availability of land, infrastructure and capital.
2) software - expressed by the urban
quality of life where residential and employment milieu are determine factors in the locational
choice process.
3) orgware - regards to the management form of the other attributes.       4)

finware - including the business and finance regulation, and 5) ecoware - define the
environmental aspects. Together they determine the sustainable development of the region.

The local innovative milieu is perceived as enhancing the innovative capability of firms. It is
considered a cost-reducing agent/factor that diminishes uncertainty and increases production
efficiencies (Camagni, 1991; Kleinknecht and Poot, 1992). The principle force that foster the
economic growth of the region results from the significant role that agglomeration economies



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