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Innovation Districts

Article · April 2019

DOI: 10.1002/9781118568446.eurs0162

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Fiorenza Belussi Silvia Rita Sedita

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Belussi F., Sedita S.R. (2019) Innovation districts. In Orum A. M. (ed.) The Wiley-Blackwell
Encyclopedia of Urban and Regional Studies. Chichester, West Sussex: Wiley-Blackwell.

Innovation Districts
Fiorenza Belussi and Silvia Rita Sedita

University of Padua, Italy

Abstract
This entry aims to clarify the origin and development of the notion of innovation
districts. The definition includes the recognition of the debate around two of the most
relevant concepts in the management and economic geography fields: those of industrial
districts and clusters. The content spans from the Marshallian echo to the Porterian
view and up to the most recent conceptualization of territorial agglomerations, which
assigns a crucial role to the complex system of interactions between district firms and
external organizations. Innovation processes in districts are triggered by the
international exposure of local firms, by networking abilities, and by knowledge
recombination, which also allow firms to face periods of global crisis, enhancing the
resilience capacity of innovation districts. Finally, a discussion of the most common
measures of the innovation performance of districts closes the entry.

Keywords: business geography; economic geography; knowledge; networks; regional

development

The origin of the concept of industrial district

Historically, discussion about the benefits of industrial agglomeration can be traced

back to Marshall. In Principles of Economics, he described how an agglomeration of small
and medium-sized specialized firms (called, for the first time in the history of
economics, an industrial district – ID) fosters the development of external economies,
and allows the ID to enjoy the same economies of scale that normally benefit large
companies (Marshall 1920, IV.IX.25). The agglomeration process favors the
concentration of similar industrial activities, and allows for (a) the creation and
deployment of a local pool of skilled workers, (b) the possibility of sharing investments
in new and expensive machinery, and (c) the creation of an “industrial atmosphere” that
enhances knowledge spillovers among workers and entrepreneurs (Marshall 1920,
IV.X.7). The type of knowledge circulating in the Marshallian district is mainly tacit,
rooted in practice, and technical. It is more related to know-how (procedural
knowledge)than to know-what/why (declarative knowledge). Often, the degree of
codification in firms is very low, and the experience of more skilled workers is passed on
to the newer generations through word of mouth or through face-to-face contacts. This
fertile environment for tacit knowledge circulation is referred to as “industrial
atmosphere,” where the mysteries of the trade are “in the air.” Becattini (1990) has the
merit of building on Marshall (1920), opening up a new stream of literature with the ID
as the unit of analysis. Becattini defines an ID as a socio-territorial entity which is
characterised by the active presence of both a community of people and a population of
firms in one naturally and historically bounded area. In the district, unlike in other
environments, such as the manufacturing towns, community and firms tend to merge.
(Becattini 1990, 38)
In his neo-Marshallian perspective, Becattini looks at the ID as a local agglomeration of
small and medium-sized enterprises, all involved in the same productive process, but
where everyone specializes in a particular phase. Everyone is independent of each
other, but participates in a local network of geographic, social, and productive
relationships. As a result, an integrated industrial area arises, which produces
economies that are external to the single firm, but internal to the localized “thickening”
of intra/inter-industrial and social relationships. Thus, the ID is the extreme synthesis of
the social-economic interactions between the mechanism of light industrialization and
flexible production (Piore and Sabel 1984) and the embeddedness of a specific local
production system into a social community. The economic coordination that in the
neoclassical paradigm was organized by impersonal calculative transactions is
transformed into “embedded” transactions in the ID model, influenced by social ties,
variations of self-built trust, reputation, solidarity, norms, habits, and coevolved rules of
conduct. The presence of frequent and entranched socioeconomic relationships favored,
in the ID model, the rise and sedimentation of what has elsewhere been called social
capital (Bourdieu, 1985).

Industrial districts as locus of innovation

The emergence of the ID as a locus of innovation is a subsequent step in the evolution of

the concept. The hybridization with other proximate concepts, such as those of
“innovative milieus,” “learning regions,” and “cluster,” shifts the focus from a
“production driven” ID performance to an “innovation driven” one.
The concept of “cluster” (C), promoted during the 1980s in the US by Porter (1998;
2000), became subsequently very influential. It highlighted the importance of
geographically clustered and interconnected firms and institutions that are linked by
commonalities and complementarities and specialize in a particular field. In the theory
of the ID/C, one of the most important unanswered questions concerns the spatial
definition of the geographical borders. Despite the numerous methodologies
implemented (like the analysis of the local labor flows between the place of residence
and work), the subjective interpretation of the researcher cannot be eluded. In addition,
IDs/Cs cannot be identified in their embryonic state, but only once they have developed
a critical mass; thus, it is only the evolutionary dynamics of these systems that allow us
to properly detect them. The evolutionary dynamics of the ID/C are typically based on
the development of local firms’ capabilities and innovation strategies. There is a
fundamental difference between the heterogeneous manufacturing agglomeration
(industrial or urban agglomeration), which benefits from some “location externalities,”
and the advantages of the ID/C, based on “specialization” and diffused creativity and
learning. In the ID/C, firms are sharing specialized activities, skilled workforces,
subcontracting relationships, knowledge infrastructures, and institutions. The
agglomeration per se can be only considered a precondition for the existence of an ID/C.
In the literature, a sharp difference between the more “elusive” concept of “cluster”
(Martin and Sunley 2003) and the “industrial district” conceptualization exists, even if
these two terms are often treated as synonymous (Belussi 2015). Marshallian “trusting
districts” are sector-specific agglomerations that exhibit social embeddedness, trust,
ethics, and commonly shared rules of conduct (Gordon and McCann 2000). This adds an
important characteristic to the district: its ability to promote higher efficiency related to
the presence of cost-saving rules linked to informal arrangements and cooperation, and,
more generally, its propensity to enforce knowledge spillovers, co-located creativity,
and the development of collective innovations (Camuffo and Grandinetti 2011). Clearly,
the argument offered by the theorists of geographical proximity only in part overlap
with the ID/C theorization, because organizational, institutional, and temporary forms
of proximity matter, but they can be complemented by interactions that take place
outside the borders of the local system under investigation (Rallet and Torre 1999). A
dynamic perspective must be adopted.

Evolutionary trajectories of industrial districts: Evidence from Italy

Over time, IDs/Cs can transform themselves into more dense districts or, on the
contrary, into mere indistinguishable spatial agglomerations, following a distinct life
cycle of (a) embryonic formation, (b) takeoff, (c) reaching the maturity stage, and (d)
decline, internal restructuring, or reconversion toward a new path (based on different
products or on related specialization). In Italy, the Marshallian districts have been
generally evolving throughout the consolidation of several highly innovative large
leading firms, which are now “feeding” the industrial district. Small firms and large firms
are now coexisting and characterizing the industrial structure of European and
American IDs. Imitation, learning, and start-up formation have been common processes
in the in the 2010s, and they have generally reduced the level of concentration of
economic activities. IDs are significantly populated by the so-called Schumpeterian
firms, which have the merit of introducing radical innovations. In the USA, high-tech IDs
specializing in electronics and biotech, in Silicon Valley, Boston, and San Diego, have
been the most studied examples of local clustering, while in Europe the literature has
analyzed above all low-tech or medium-tech IDs/Cs.
In a qualitative sample of Italian districts, Belussi (2015) found that radical innovations
introduced since the late 1990s’ by local innovative firms characterized 11 out of a
sample of 22 Italian IDs:

1. the footwear ID of Montebelluna;

2. the fiomedical ID of Mirandola;
3. the tanning and tanning machinery ID of Arzignano;
4. the ceramic titles and ceramic machinery ID of Sassuolo;
5. the stocking ID of Castel Goffredo and stocking machinery of Brescia;
6. the agricultural machinery ID of Reggio Emilia;
7. the packaging machinery of Bologna;
8. the eyeglasses ID of Belluno-Padova;
9. the leather upholstery of Matera-Altamura-Santeramo;
10. the motor valley of Bologna;
11. the microelectronics Etna valley ID of Catania.

In most cases, radical innovations did not just involve the final product but also the
process technology. Over time, local suppliers of machinery became international
leaders, selling their technologies also to competitors outside the ID/C. However, local
firms had the advantage of having been the first in experimenting and adopting the new
machinery. New, radical technological innovations were conceptualized during the
“development stage” or in the “maturity stage.” Product differentiation and new designs
are also frequently cited innovations, which particularly characterize the phase of
maturity. Numerous low-cost sources are typically utilized by local firms in IDs, such as
clients and suppliers. Useful ideas received from these sources could be combined with
their existing internal knowledge, stimulating a low-cost activity of problem-solving.
This diffused creativity is the major source of incremental innovations and product
customization.

Internal and external networks for innovation in innovation districts

Specific innovation ecosystems are responsible for the upgrade of (traditional neo-
Marshallian) IDs into (evolutionary post-Marshallian) innovation districts. These
ecosystems are composed of a variety of key actors that heterogeneously shape the
innovative performance of the district. These actors maybe internal or external to the
district, giving birth to local or distant learning mechanisms conducive to innovation:
leading firms, knowledge-intensive business services, professional associations,
universities, public and private research labs, business incubators, science parks,
communities of practice. Together with the number of actors involved in the innovation
process, it is fundamental to acknowledge the complex relational network between
them, which may be of an emergent or a deliberate nature (Belussi and Sedita 2012). A
recent debate started to investigate the relationship between multinational
corporations (MNCs) and innovation districts (Iammarino and McCann 2013), the latter
having the property of attracting foreign direct investment (FDI) from both developed
and emerging market economies, and hosting the so-called pocket multinationals
(developed internally). Innovation districts are generally components of a global value
chain (Belussi and Sammarra 2009). Although the model of the ID/C has been often
described as locally self-contained, various empirical studies have pointed out its
increasing involvement in the process of internationalization. Considering firms’
reaction to global competition, it is notable that during the 2010s, among the 22 IDs
sampled, about half of them adopted offshoring strategies with success, developing
international subcontracting chains. Relocating strategies have involved less strategic
(labor-intensive) phases of the value chain, implying a shift of the activity in low-cost
countries. Entry and acquisition by MNEs were involved in 10 cases out of the 22,
including the massive entry of Chinese clothing firms into the new clothing ID of Prato
(where firms’ main activity moved from textiles to clothing). The formation of
homegrown MNEs in IDs (pocket multinationals) was also significant and involved 12 of
the IDs sampled. The processes of external knowledge exploration and knowledge
reshoring were significant for 12 IDs.

Measuring innovation performance in innovation districts

Another important aspect to be taken into account is that of measuring innovation

performance. Traditionally in the literature, innovation performance is measured
through counts of patents. This method suits high-tech districts very well, but it is less
accurate or not applicable at all in the case of low-tech or medium-tech ones. New ways
of calculating innovation performance must be considered, as a result of a complex
strategy of, for instance, developing handcraft traditional activities through high-tech
solutions – the 3D printers and the long-tail argument proposed by Anderson (2006)
perfectly illustrate the case. Moreover, the combination of differently knowledge-based
activities and the cross-fertilization between related or unrelated ones might crucially
shape the innovation trajectories of industrial districts. Influences from the concepts of
differentiated knowledge bases (Asheim and Gertler 2005) – of synthetic, analytical,
symbolic, and related and unrelated varieties (Frenken, Van Oort, and Verburg 2007;
Frenken and Boschma 2007) – are clearly evident in recent research work on the field.
Recently, special attention from the economic geographers’ community has been given
to the geography of innovation, where aggregate measures of performance are used to
track the performance of regions (in the EU and US) (Rigby 2015; Boschma, Balland, and
Kogler 2014). Again, the main unit of analysis is patent-based, and knowledge flows are
measured through copatenting and coinventorship activities. On a policy level, smart
specialization strategies support innovation at the local level.

SEE ALSO: EURS0003; EURS0263

References
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]x[Further reading
Belussi, F. 2006. “In Search of a Useful Theory of Spatial Clustering.” In Clusters and
Regional Development, edited by B. Asheim, P. Cooke, and R. Martin, 69-89.
Abingdon: Routledge.
Belussi, F. 2009. “Knowledge Dynamics in the Evolution of Italian Industrial Districts.” In
Handbook of Industrial Districts, edited by G. Becattini, M. Bellandi, and L. De
Propris, 457–470. Cheltenham: Edward Elgar.
Belussi F., and L. De Propris. 2013. “They are Industrial Districts, but Not As We Know
Them!” In Handbook of Economic Geography and Industry Studies, edited by Philip
McCann, Frank Giarratani, and Geoff Hewings, 479–492. Cheltenham: Edward
Elgar.
 Hervas-Oliver, Jose-Luis, G. Gonzalez, P. Cajad, and F. Sempere-Ripolla. 2015. “Clusters
and Industrial Districts: Where is the Literature Going? Identifying Emerging Sub-
Fields of Research.” European Planning Studies, 23(9): 1827–1872. DOI:
10.1080/09654313.2015.1021300.
Lazzeretti, L., S. R. Sedita and A. Caloffi. 2014. “Founders and Disseminators of Cluster
Research.” Journal of Economic Geography, 14(1): 21–43.

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