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This is a preprint version of the article presented at the International Conference on Business & Economics of the Hellenic
Open University 2020 at June 27, 2020
Local development approaches and the ILDI mechanism
Dimos Chatzinikolaou
Department of Economics,
Democritus University of Thrace,
Komotini, Greece
Email: dimchatz@econ.duth.gr
Charis Vlados
Department of Economics,
Democritus University of Thrace,
Komotini, Greece
Email: cvlados@econ.duth.gr
Abstract
It seems that the past paradigm of regional analysis gives its place progressively to the
approach of the dynamics of local development since the evolving localities constitute the
development motor behind innovation and the overall national competitiveness. This study aims
to analyze recent theoretical perspectives of clusters and business ecosystems and their relation to
policies promoting local entrepreneurship and innovation. The “Local Development and
Innovation Institutes” are a business ecosystem policy that aims to enhance the “Stra.Tech.Man
physiology” and, thus, the potential of innovation for the entire socio-economic system. The
Stra.Tech.Man approach suggests that every socio-economic organization articulates its
competitive survival by the way it manages to synthesize the inner spheres of strategy,
technology, and management.
Keywords
Local development; Clusters; Business ecosystems; Local Development and Innovation
Institutes; Stra.Tech.Man physiology
JEL codes: R11, D21
1. Introduction
The current phase of crisis and restructuring of globalization brings various transformations
both in our social symbiosis and the instruments social sciences use to interpret the reality
(Laudicina & Peterson, 2016; Rodrik, 2011; Vlados et al., 2018). One area of research in which
there is scientific rejuvenation is the broader context of socio-economic spatial sciences
(Boschma & Frenken, 2006). The developments in the field of economic geography cause a
profound reorientation in the traditional ways of economic thought applied to regional economics
since it seems that almost a “new paradigm” emerges in Kuhnian terms (Kuhn, 1962).
This article aims to review recent local development approaches, such as clusters and business
ecosystems, which seem to fit better in the emerging multidisciplinary and complex paradigm of
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This is a preprint version of the article presented at the International Conference on Business & Economics of the Hellenic
Open University 2020 at June 27, 2020
social sciences. The next section presents approaches of local dynamics, by emphasizing the role
of clusters and local business ecosystems while the subsequent section discusses the policy
implications of local dynamics approaches by attempting a synthesis in the form of a local
development policy proposal.
2. Modern evolutionary approaches of local development: clusters and business
ecosystems
In terms of understanding how local dynamics work, a gradual shift appears to be underway.
The development from the “bottom” that reproduces its potential in an integrated and multi-level
way into the socio-economic system constitutes a profound analytical transformation (Benko &
Lipietz, 2000). From this point of view, development initiates mostly at the local level and
expands to the other levels of the socio-economic system.
Development at the local level is also the result of unequal progress between different actors
(Pike et al., 2007). There are differences in competitiveness, that is, exploitation of economies of
scale and innovation, which cause specific areas to concentrate economic activities and create
“winners” and “losers” among localities. Therefore, there are inherent forces of inequality on a
local scale, and the remedy is successful government intervention—or market dynamics, in some
cases (Araujo et al., 2008; Tomaskovic-Devey & Roscigno, 1997; Vlados & Chatzinikolaou,
2019d). Therefore, a “spatially-oriented” governmental intervention can have various effects on
the different social groups since it can both favor them and marginalize them. To this end,
ideology and politics are crucial to legitimize any spatial intervention (Hadjimichalis & Hudson,
2014).
Recent contributions seem to enrich the theoretical view of local development and innovation
and the local innovation environment or ecosystem (Audretsch & Lehmann, 2005; Aydalot, 1984;
Balland et al., 2015). Most importantly, the analytical classes of clusters and business ecosystems
seem to emerge as fertile elements of local development theories.
Concerning the history of the clusters concept, the Marshallian notion of “industrial districts”
constitutes their theoretical predecessor (Becattini, 1990). The analysis of industrial districts
(clusters) suggests that institutional boundaries exist across different spaces (Markusen, 1996). In
the “standard” Porterian perspective, clusters are geographical arrays of interconnected industries
and firms, which involve specialized knowledge among the companies and their customers
(Porter, 1998, 2000). These firms undertake similar innovative activities since they compete and
cooperate in the same locations, which are mostly high-cost urban centers (Malmberg & Maskell,
2002; Storper & Venables, 2004). More recently, the growing literature on clusters suggests a
multi-disciplinary perception of the phenomenon (Lazzeretti et al., 2014). There is also a growing
tendency to observe the cluster of firms from a micro-level perspective, meaning that firm
innovation is the central actor of the system (Caloffi et al., 2018; Hervas-Oliver et al., 2015).
From the perspective of business ecosystems, these constitute a metaphor from biology to
interpret the behavior of the socio-economic actors (Moore, 1993; Nelson et al., 2018). The
business ecosystem metaphor suggests that the agglomerations of firms are not industry-specific
since the actors co-evolve their capabilities and innovative potential (Fragidis et al., 2007;
Peltoniemi & Vuori, 2004). The business ecosystem concept is primarily a strategic notion
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This is a preprint version of the article presented at the International Conference on Business & Economics of the Hellenic
Open University 2020 at June 27, 2020
(Iansiti & Levien, 2004; Li, 2009), in the sense that the survivability of the firm and the
ecosystem as a whole come in a mutual relationship. The co-evolution of the elements of the
business ecosystem is the main idea, in the sense that, despite referring to social organizations,
there are specific environmental limitations in socio-economic development (Alvedalen &
Boschma, 2017; Cavallo et al., 2018; Rong & Shi, 2015).
3. Local Development and Innovation Institutes
It seems that today a profound change of scope in local development takes place. The methods
of intervention to enhance the competitiveness of local socio-economic systems face a transition
from traditional regional policy instruments to more sophisticated and integrated approaches.
From the perspective of OECD (2009), a change of paradigm in regional policy is underway.
In the old paradigm, the “objectives” used to focus on subsidizing disadvantaged regions directly,
the “unit of the intervention” was the “strictly-defined” administrative unit, the strategy employed
was sectoral, and the primary policy agent was the central government. Nowadays, in the
emerging “new paradigm,” the objective is to foster regional competitiveness, the unit of
intervention is the functional socio-economic space the strategy is multi-level and integrated, and
the intervening actors come from both the different governmental levels and the private sector,
and the civil society.
Therefore, the prevailing philosophy of intervention changes direction and scope. According
to Vlados et al. (2019), instead of “pushing” businesses to invest in specific spaces, the goal is for
the locations to attract investment. Instead of focusing on direct and short-term quantitative
business benefits, the goal is to provide indirect and medium-term qualitative benefits. Instead of
employing a concentrative logic of regional development, the goal is decentralization. This new
philosophy, instead of attributing weight to control mechanisms, it focuses on creating knowledge
diffusion and creativity instruments. Finally, instead of creating conditions for stabilization and
reproduction of existing balances, it should venture on creating a dynamically evolving
innovation environment.
One such policy proposal to support local development is the Local Development and
Innovation Institutes (ILDIs). Initially, this mechanism could aim to diagnose and enhance the
“physiology” of the socio-economic organization in “Stra.Tech.Man” terms (Figure 1). The
“Stra.Tech.Man physiology” approach (Vlados, 2004) suggests that each socio-economic actor
articulates its innovative potential based on the “idiosyncratic” way it manages to synthesize the
distinct (but also co-evolving) internal spheres of strategy, technology, and management.
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This is a preprint version of the article presented at the International Conference on Business & Economics of the Hellenic
Open University 2020 at June 27, 2020
Figure 1: The Stra.Tech.Man approach of the socio-economic organization, based on Vlados (2004)
Each of the spheres corresponds to a set of dialectical questions, which in their composition
determine the evolutionary dynamics of the firm (Chatzinikolaou & Vlados, 2019a). The strategic
questions correspond to “where am I, where am I going, how do I go there, and why.” The
technological questions point to “how do I design, create, synthesize, spread and reproduce the
means of my work and expertise, and why.” Finally, the managerial questions address the
problem of “how do I use my available resources, and why.” The Stra.Tech.Man dynamics
represent the unique ways in which the firm can “think” and “act” innovatively within the hosting
environment (industry, economic system, and social system).
This “biology-engineered” approach to business behavior means that innovation diffuses its
dynamics in the local system and, consequently, transforms the “higher” levels of the system (the
innovation environment). In this sense, the internal and external organizational environment are
two “co-evolving realities” and not two separate analytical spheres (Vlados & Chatzinikolaou,
2019b). In simple words, the business firm shapes its internal and external environment
simultaneously.
Nowadays, the business ecosystem concept uses this “biological pattern of the firm”
(Chatzinikolaou & Vlados, 2019b; Geus, 2002; Nelson & Winter, 1982; Penrose, 1952; Rinkinen
& Harmaakorpi, 2018). Local Development and Innovation Institutes are a “business ecosystems
policy,” in the sense that they target the fostering of local entrepreneurship by diagnosing the
potential for innovation in Stra.Tech.Man terms (Figure 2).
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This is a preprint version of the article presented at the International Conference on Business & Economics of the Hellenic
Open University 2020 at June 27, 2020
Figure 2: Local Development and Innovation Institutes, based on Vlados and Chatzinikolaou (2019a)
Vlados and Chatzinikolaou (2019a) suggest the establishment of this policy in the Greek
regions since it can enhance the innovative potential of the Stra.Tech.Man physiology of the
firms of a (mostly less developed) local business ecosystem. This policy has three essential
analytical components to achieve the goal of boosting entrepreneurship at the local level:
Firstly, it recognizes the need to enhance the evolutionary interconnection between the
triple helix actors, that is, the co-evolution between the local institutions of industry,
government, and university (Vlados & Chatzinikolaou, 2019c).
Secondly, it builds a continuous mechanism for fostering the entrepreneurship potential
consisting of successive steps:
oIt initially scans and detects the “environmental potential.”
oIt analyzes the available data and information.
oIt aims to diffuse the existing expertise locally.
oIt targets the creation of innovation and the upgrading of local firms.
oIt finally builds a development observatory that gathers the results of the
mechanism and starts over.
Finally, the ILDI approach assumes that socio-economic development at the global level
begins now form the locality and its innovation. Local innovation is the primary force of socio-
economic development that evolutionarily connects the levels of space in today’s analysis of
economic geography (firm, locality, nation, region, and globalization).
Acknowledgment
We would like to express our gratitude to Dr. Andreas Andrikopoulos, Associate Professor at
the Department of Business Administration of the University of the Aegean, who provided useful
comments during the writing of this manuscript.
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This is a preprint version of the article presented at the International Conference on Business & Economics of the Hellenic
Open University 2020 at June 27, 2020
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