4.1.1. Innovation inputs

As we can see in Table 13, the firm performance indicators available at a regional level are very limited and are limited to performance relating to R&D, on both personnel and expenditure, as well as the weight of patent applications by firms within all patent applications by regional stakeholders. Additionally, although not exclusively related to the realm of business, this section includes performance with regard to patent co-invention.

Table 13. Status of the Basque Country in terms of the firm performance indicators
Table 13. Status of the Basque Country in terms of the firm performance indicators. FTE R&D personnel of firms
Table 13. Status of the Basque Country in terms of the firm performance indicators. R&D expenditure of firms
Table 13. Status of the Basque Country in terms of the firm performance indicators. PCT patent co-invention
Table 13. Status of the Basque Country in terms of the firm performance indicators. Percentage of PCT patents: Foreign collaboration
Source: Eurostat, Eustat (Basque Statistics Office) and OECD REGPAT. Compiled by authors
NB: Except when no data were available, the rankings have been compiled based on 218 European regions (in blue), the Basque Country and the group of 30 comparable regions (in green), and the 19 Spanish autonomous communities and cities (in red).

The Basque Country is in a strong position in the ranking for both business R&D personnel and expenditure, although expenditure has stagnated in recent years and is a considerable distance behind Germany

As regards to performance in the area of R&D, the Basque Country ranks very well in all areas, both personnel and expenditure. As mentioned in previous reports, this aspect requires clarification, because it is necessary to take into account that these figures include R&D personnel and expenditure at technology centres and CRCs, meaning that the comparison is slightly distorted. Even so, as we can see in Graph 12, expenditure levels are quite a bit lower than the German average. What is comparable is the trend in the value of these indicators. In the case of the R&D personnel indicator, which had dropped in 2015 and 2016, it went up again in 2017, which is also the case of the European average and in Germany. Business R&D expenditure, however, stagnated in the last two years, and with the decline in previous years, it is now on par with the EU-28 average, above the value for Spain, but a considerable distance from Germany, which has followed an upward trend in recent years.

Graph 12. Variation in firm performance indicators
Graph 12. Variation in firm performance indicators. R&D personnel of firms
Graph 12. Variation in firm performance indicators. R&D expenditure of firms
Graph 12. Variation in firm performance indicators. PCT patent co-invention
Graph 12. Variation in firm performance indicators. PCT patents: Foreign collaboration
Graph 12. Variation in firm performance indicators. Legend
Source: Eurostat, Eustat y OECD REGPAT. Elaboración propia.

As last year’s competitiveness report showed, with regard to indicators related to patents, the Basque Country is not as well positioned, in middle to low positions in the rankings. This is also reflected in the trend graphs, where we can see that the levels of patent co-invention and patents with foreign collaboration (which reflect the ability to take advantage of knowledge located abroad, overcoming the limitations of being based solely on own knowledge) are lower than other territories in recent years. However, it is worth noting the positive trend in the most recent year available (which, in the case of patents is 2015). This upward trend is not seen in the percentage of patent applications by firms, which dropped in that last year.

The percentage of enterprises with 10 or more employees that do some type of innovation is lower than in other comparable territories, especially among smaller firms

To better understand business performance in terms of innovation, the comparative data at the regional level are supplemented by analysis of the innovation survey conducted by Eustat (Basque Statistics Office), whose results are compared with data for Spain, Germany and the EU-28 average as published by Eurostat. Table 14 shows that a little over 44% of enterprises with 10 or more employees carry out some sort of innovation. This percentage, although higher than Spain for firms (37%), is lower than that of the EU (51%) and Germany (64%). The Basque Country faces a significant challenge in this respect. Given that innovation performance is different in industry and services, and also depending on firm size, the data have been broken down based on these characteristics. We find that the disadvantage in comparison with the EU-28 and Germany appears in both industry and services, but is especially concentrated in small firms. However, although large and medium-sized firms do not reach German levels, the percentage of innovative Basque firms is above the EU average.

Table 14. Percentages of firms with 10 or more employees that innovate, by type of innovation (Basque Country, 2017; remainder, 2016)
Table 14. Percentages of firms with 10 or more employees that innovate, by type of innovation (Basque Country, 2017; remainder, 2016)
Source: Eustat (Basque Statistics Office), Eurostat.
Nota: The percentages are calculated out of total firms with 10 or more employees, except for the last box (% with technological and non-technological innovation), which is calculated out of all innovative firms.

The relative strength of the Basque Country in technological innovation lies primarily in process innovation, including among small firms

Moving on to the analysis by type of innovation, technological innovation is also higher among industrial firms than among those in services, and higher among larger firms than smaller ones. The Basque Country ranks better in terms of this type of innovation: its rate is almost double that of Spain, tops that of the EU-28, and is closing in on Germany. Ratios of technological innovators in the Basque Country are particularly high in larger firms, where they even top German rates. The relative strength of the Basque Country in technological innovation rests primarily on process innovation (in which even small Basque firms surpass German ones in percentage of innovation) and its position is weaker in product innovation (a type of innovation more closely linked to greater autonomy and decision-making power at firms).

The Basque Country has scope for improvement in non-technological innovation and in the ability to combine technological and non-technological innovation

In non-technological innovation, service firms usually report percentages of innovation greater than or equal to industrial ones (Germany being the exception to this rule). The Basque Country makes a poorer showing than the other territories subject to comparison (including Spain), especially for medium-sized firms, and most of all, small firms. Additionally, this weakness of Basque firms in non-technological innovation can be found in both organisational and marketing innovation.

Lastly, the literature has shown that significant competitive advantage derives from combining different types of innovation. In this regard, the bottom box of Table 14 shows that Basque firms are ahead of Spanish ones (except for industrial firms), but behind the EU and Germany.

Table 15 shows that the Basque Country has developed a considerable culture of cooperation on technological innovation. Consequently, in this area it ranks ahead of not only Spain, but also the EU-28 and Germany, for all firm types. However, small firms, which are those that would need it the most, engage in this to a lesser extent than do large ones. What is more, although the majority of cooperation on technological innovation takes place with partners from the same country, Basque firms (especially those in services) are more open to cooperation with other EU countries than are firms in Spain and Germany, and the EU average.

Table 15. Percentages of firms with 10 or more employees that cooperate in technological innovation (Basque Country, 2014–17; remainder, 2016)
Table 15. Percentages of firms with 10 or more employees that cooperate in technological innovation (Basque Country, 2014–17; remainder, 2016)
Source: Eustat (Basque Statistics Office) and Eurostat.
NB: The Eustat indicator only takes cooperation with partners in other EU countries into account, while the EU survey also includes those in EFTA countries and EU partner countries.

The intensity of innovation expenditure and innovation expenditure on R&D stands out as quite positive in the Basque Country

Lastly, the intensity of innovation expenditure in the Basque Country is significant: double that of Spain and higher than the EU average, although it lags behind Germany. Unlike in other places, in the Basque Country it is higher in the services sector than in industry, due to the significant weight of bodies such as technology centres and separate company R&D units in Basque services. Furthermore, it is generally large firms that allocate a higher percentage of their turnover to innovation expenditure. However, in the Basque Country mediumsized firms account for a larger share than large ones, due to the numbers reported by that segment for a good portion of the bodies mentioned above. By type of expenditure, acquisition of machinery and equipment requires the least differentiating capabilities of firms and can be most easily copied by competitors. For this reason, it is usually more accessible for small firms, despite the fact that these are usually less capital-intensive in nature. However, this is not the case with Spanish and Basque firms. As regards to innovation expenditure on R&D (both internally and contracted out to other firms), the Basque Country stands out quite positively, even almost catching up with Germany. The difference between the Basque and German models is that in the Basque Country, the highest rates are found among service and mid-sized firms, due to the numbers reported by bodies such as technology centres and business R&D units in that category.

Table 16. Innovation expenditure of firms with 10 or more employees (% of turnover; Basque Country, 2014–17; remainder, 2016)
Tabla 16. Innovation expenditure of firms with 10 or more employees (% of turnover; Basque Country, 2014–17; remainder, 2016)
Source: Eustat (Basque Statistics Office) and Eurostat.

BOX 1 Firm digitisation

Another aspect of note as regards to business performance is the digitisation of firms, which is a broader process than simply incorporating technology and has an impact on their competitiveness and sustainability. According to the digital maturity study of 427 Basque SMEs, their capabilities are increasing in the ability to identify, detect and build digital growth opportunities, demonstrating that they are preparing themselves for the years to come. Therefore, firms have been progressively incorporating digitisation as a lever for growth into their corporate strategies. However, we can observe certain limitations as regards to leadership that views digitisation as a competitive advantage beyond mere technology, as well as in the digital empowerment of employees.

Although firms are increasingly more aware of the importance of digital channels, there are still only limited experiences of an advanced presence in new digital markets. Digitisation processes are primarily being carried out without agile frameworks and methodologies, which could be suitable for this type of digital transformation process. Basque firms have mainly continued to incorporate technology into existing processes, but they are not yet tackling innovation in their business models on a mass scale. For this reason, thus far they have been focusing primarily on improving security conditions, customer relations or the services they provide, as well as marketing and advertising. They are currently planning activities aimed at training their workforce, improving sales and analysing products and services. However, around 40% of firms have not even planned actions to analyse products and services, deliver and/or develop new products, retrain their workforce or better understand their customers. Given the complexity of digital transformation, it is necessary to overcome the low levels of collaboration among SMEs, increasing collaborations with third parties, so that open digital innovation will provide them with better conditions in which to compete.

Source: Zubillaga Rego, A., Aramburu Goya, N., Lorenzo Ochoa, O., North, K. y Peletier Espiga, C. (2019), «Madurez digital de la PYME vasca», Cuadernos Orkestra 56/2019