Innovation and business performance - a provisional multi-regional analysis

Although much attention has focussed on the determinants of firms' innovation performance, the relationship between innovation and business performance is less well defined. In this paper we use data from identical plant level surveys conducted in six regions of the UK, Germany and Ireland to examine this relationship and identify some of the implications for regional innovation initiatives. The survey data used was collected by postal survey during 1999 and 2000. In all over 2000 plants responded to the surveys which provide regionally representative information about innovation activity, IT adoption and a number of indicators of business performance. Four main indicators of business performance are examined here: sales and employment growth, export performance, profitability and productivity (value added per employee). The analysis is based on a simultaneous econometric model explaining plants' innovation activity and business performance. Discussion focuses on a number of key themes. First, core-periphery differences are explored by contrasting analytical results for peripheral (Northern Ireland, Scotland) and 'core' regions (Bavaria, Baden-Wurttemberg) within the sample. Second, attention is focussed on the performance effects of firms, different innovation profiles relating to product and process development but also radical and more incremental innovation activity. Thirdly, contrasts between small and larger businesses are considered and the sensitivity of firms, innovation and performance to their operating environment is explored. The paper concludes with an assessment of the implications of the analysis for regional innovation initiatives and their potential impact on business development.