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WP10

Socio-cultural determinants of

innovation in the food and drinksector

TECHNOPOLIS

Nelly Bruno, Michal Miedzinski

Alasdair Reid, Miriam Ruiz Yaniz

February 2008

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1 INTRODUCTION ........................................................ ........................................................... ....................... 5

1.1 THE FOUR CAPITAL APPROACH OF THE STUDY......................................................... .................................. 51.2 METHODOLOGY ADOPTED ......................................................... ............................................................ .... 71.3 SOCIO-CULTURAL ENVIRONMENT AND INNOVATION: ESTABLISHING A RELATIONSHIP? ............................ 9

2 CULTURAL CAPITAL AND CONSUMER BEHAVIOUR ................................................................... 11

2.1 CULTURAL CAPITAL AT NATIONAL LEVEL ................................................. .............................................. 112.2 CULTURAL CAPITAL IN THE FOOD/DRINK SECTOR................................................ .................................... 132.3 CULTURAL CAPITAL: SURVEY RESULTS ..................................................... .............................................. 162.4 CONCLUDING REMARKS ........................................................ ....................................................... ........... 17

3 HUMAN CAPITAL..................................................... ............................................................. .................... 18

3.1 HUMAN CAPITAL AT NATIONAL LEVEL ...................................................... .............................................. 183.2 HUMAN CAPITAL IN THE FOOD/DRINK SECTOR..................................................... .................................... 203.3 HUMAN CAPITAL: SURVEY RESULTS ................................................ ........................................................ 203.4 CONCLUDING REMARKS ........................................................ ....................................................... ........... 21

4 SOCIAL CAPITAL........................................................... ............................................................. .............. 22

4.1 SOCIAL CAPITAL AT NATIONAL LEVEL....................................................... .............................................. 224.2 SOCIAL CAPITAL IN THE FOOD/DRINK SECTOR ..................................................... .................................... 24

4.3 SOCIAL CAPITAL: SURVEY RESULTS................................................. ........................................................ 244.4 CONCLUDING REMARKS ........................................................ ....................................................... ........... 26

5 ORGANISATIONAL CAPITAL AND ENTREPRENEURSHIP ........................................................... 27

5.1 ORGANISATIONAL CAPITAL AT NATIONAL LEVEL................................................ .................................... 275.2 ORGANISATIONAL CAPITAL IN THE FOOD/DRINK SECTOR ....................................................... ................. 295.3 ORGANISATIONAL CAPITAL: SURVEY RESULTS.................................................... .................................... 295.4 CONCLUDING REMARKS ........................................................ ....................................................... ........... 30

6 CONCLUSIONS ON THE SOCIO-CULTURAL ENVIRONMENT FOR SECTORALINNOVATION ....................................................... ............................................................ ................................. 31

6.1 NATIONAL SOCIO-CULTURAL ENVIRONMENTS AND INNOVATION PERFORMANCE.................................... 316.2 POLICY IMPLICATIONS OF SOCIO-CULTURAL ENVIRONMENT ................................................... ................ 37

ANNEXES................................ ................................................................. .................................................... ....... 38

REFERENCES.......................................................... ........................................................... ............................... 54

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Work package 10 of the SYSTEMATIC project aimed at identifying socio-culturalbarriers and driving forces to innovation across ten sectors: food/drink,

automotive, energy production, biotechnologies, textiles and clothing, chemicals,information and communication technologies, aerospace, machinery and equipment,and eco-innovation. Our work extends the analysis carried out in the previous work-packages on the barriers to innovation and the driving forces, by identifying andanalysing other sector specific characteristics such as for example consumer habits,tradition and culture, organisational rigidities, and mobility of the workforce.

In the literature on innovation, socio-cultural factors are most often used tocharacterise a geographically defined community (e.g. a nation, a region, etc.) ratherthan a sector of economic activity. Nevertheless, management literature and simpleobservation suggests that behaviour is also shaped by factors inherent to belonging

to a professional group (with shared educational, work experience, social networkssuch as engineering associations, etc. trajectories). Equally, the increasinglyintegrated European market with large companies operating across the SingleMarket imposing their management culture on operating divisions and theirstandards and practices on suppliers may also lead to cases where the culture ofinnovation in enterprises diverges from that of their home region or country. Equallyfrom the demand side, we know from economic literature that not all products havethe same inherent characteristics and that they are more or less sensitive toconsumer demand. Sophisticated marketing can change perceptions of a product inwider society but equally interest groups and lobbies and changing social values can

equally undermine a products position or image in the eyes of consumers / buyers.These societal forces, the subtle, or sometimes dramatic, changes in the balance ofmarket power can heavily influence the position of certain sectors more than others(most simply one could imagine that sectors producing essentially final consumergoods, food or automotives for instance, would be more sensitive to such factorsthan sectors producing intermediary goods such as machinery and equipment).

In this respect the analysis of socio-cultural factors goes to the very heart of what theSYSTEMATIC project set out to examine: are there sectoral innovation systemsoperating at national level or even across national boundaries; and if so does thisrequire a distinct policy approach on the part of national or European institutions. Ifthe hypothesis is correct that there are socio-cultural factors which influence

innovation in specific sectors to a greater or lesser extent and that these factorstranscend national boundaries, then the SYSTEMATIC project will have come closerto elucidating the policy issues related to sectoral innovation systems.

In consequence, the approach of the study team was twofold: first, we have analysedsimilarities and differences across national socio-cultural profiles and then we haveexplored socio-cultural factors relevant for each of the specific sectors.

The study was conducted in several steps:

The first step provides a review of academic literature on socio-cultural factorsinfluencing innovation. Based on this literature review a selection was made of

generic socio-cultural factors relevant to innovation. This led us to develop a novelconceptual framework entitled the four capitals approach.

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Following a review of available surveys dealing with relevant socio-cultural aspects(e.g. Eurobarometer, European Social Survey, Community Innovation Survey),relevant indicators were collected with an objective to characterise national socio-

cultural environments. A framework of socio-cultural indicators at country level and adatabase of national data were developed. Presentation and analysis of the data wasundertaken following the four capitals approach.

To gather further sectoral insights, a survey was prepared and submitted to theexperts of the Europe Innova panels and other key sectoral stakeholders.

In parallel socio-cultural characteristics especially relevant for specific sectors werescanned in the literature and strengthened with the views of the experts of theEurope Innova panels1.

All these inputs were consolidated in ten sectoral reports around the four capitals ofour approach.

This report is dedicated to the socio-cultural determinants of innovation in the sectorof food and drink. The food and beverages industry is generally regarded as a low-tech industry based on the OECD classification of industries by level of technology.In 2004, EU15 R&D intensity, expressed as R&D expenditure in the food and drinkindustry as a percentage of industry output, was, on average 0.24%2. However, theempirical results of several studies show that the growth of the food sector dependson its capacity to innovate. Product differentiation as well as packaging associated tomarketing are some of the key components of competitiveness of this sector.

This sector is a relatively fragmented one, with, on the one hand, a few very large,multinational firms competing on the global market with global brands and a largeproduct range (see annex 9), and, on the other hand, smaller enterprises oftenserving local markets concentrating on regional preferences for local specialities.France, Germany, Italy, Spain and the UK are the leading producers of food anddrinks in the EU, accounting for about 70% of total EU turnover3.

1 No panel of expert took place for the following sectors: food and drink, chemicals and machinery and equipment.2

For further information, see http://www.ciaa.be3

See annex 1 for a more complete overview

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1 Introduction

1.1 The four capital approach of the study

Socio-cultural barriers or drivers to innovation are socio-cultural factors that influencesectoral innovativeness. In this study, it is assumed that innovation processes areinfluenced by a range of socio-cultural factors.

Various dimensions can be used to describe the socio-cultural characteristics of acommunity (whether it be geographically or professionally defined). Each of thesedimensions of the socio-cultural value system can be described by (a set of) socio-cultural factors. In this project four dimensions4 are used to identify the socio-culturalcharacteristics of communities relevant to innovation:

cultural capital & consumer behaviour,

human capital,

social capital, and

organisational capital & entrepreneurship.

Within each of these dimensions specific elements can be distinguished that areconsidered relevant to innovation. Cultural capital was defined by Pierre Bourdieu(1981) as the inherited and acquired properties of ones self. Inherited not in thegenetic sense, but more in the sense of time, cultural, and traditions bestowedelements of the embodied state to another usually by the family through socialisation.It is not transmittable instantaneously like a gift. It is strongly linked to one's habitus -

a person's character and way of thinking. The definition refers to the culturalbackground and basic value system that is shared by the individuals in a communityand manifests in their attitudes and habits, including consumption. In this context,demand is composed of individual consumers and firms characterised by differentattributes, knowledge and competencies, and is affected by social factors andinstitutions. The evolution of demand specific to sectoral communities is likely toinfluence sharply the dynamics of sectoral systems (Malerba 2005).

The cultural capital and consumer behaviour category encompasses factorsrepresenting certain basic values, and resulting attitudes, held by societies whichmay influence innovation activity: the interest in and the attitude towards science and

technology, the attitude towards risk from new technologies, the attitude towards thefuture, the attitude of people towards the environment, the attitudes towards othercultures5, the consumers responsiveness to new technologies.

Human capital, a more familiar concept, is defined by the OECD (2005) as theknowledge, skills and attributes derived from education, training and workexperience. The literature on knowledge economics (Cowan, David, Foray, 2000)emphasises the point that knowledge plays a central role in innovation andproduction; while the evolutionary literature (Nelson, 1995) underlines that sectors

4 Three of these dimensions were used previously at European level (Ricardis project, 2006) but in a different context todefine the intellectual capital of a company. To emphasise the importance of individual habits and attitudes, cultural capitaland consumer behaviour were added to the analysis.5 See also for instance the work of Florida R. (2003), who argues that the declared share of homosexuals in the population ofa region can be used as a good proxy for the openness of society.

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and technologies differ greatly in terms of the knowledge base and learningprocesses related to innovation.

Several factors linked to human capital may influence innovation in companies,

namely: the availability of human resources in science and technology (HRST)(national and international resources) and in knowledge-intensive services; theprovision of higher educated people in the country; the job-to-job mobility of HRST.

It is widely acknowledged that firms accumulate knowledge not only by managingknowledge flows from formal institutions through research, educating and training butalso through fostering learning by interacting with other companies and consumers(Schienstock, Hamalainen, 2001). One of the key concepts used to analyse theserelations is social capital. In "The Forms of Capital" (1986) Pierre Bourdieu definessocial capital as "the aggregate of the actual or potential resources which are linkedto possession of a durable network of more or less institutionalized relationships of

mutual acquaintance and recognition." The OECD (2001) defines social capital asnetworks together with shared norms, values and understanding that facilitatecooperation within or among groups. Social capital is therefore about the nature andintensity of relationships. The essential assumption is that social networks havevalue, which means that social contacts affect the productivity of individuals andgroups.

The impact of social capital on innovation can be measured though different aspects:the cooperative behaviour of firms; the main sources of information for innovation;the extent of collaboration with competitors and academia, the level of trust in otherpeople, the importance of informal networks. Our explicit hypothesis is that socialcapital (propensity to network) differs from sector to sector and hence is a more orless important barrier or driver to innovation. This assumption is comforted by arelatively large literature on co-operation and networking of enterprises.

Finally, organisational capital may have an important impact on the innovationcapacity of a company. Organisations resources are not just the obvious ones likecash flow or R&D personnel, but also the companys culture, routines, structure,ethics and management styles. Organisational learning "amplifies the knowledgecreated by individuals and crystallises it as part of the knowledge network of theorganisation"(Nonaka and Takeuchi 1995).

Several aspects may reflect the organisational capital as well as theentrepreneurship dimensions: the attitude towards work of individuals; the relationbetween employers and employees; the attitude towards risk; the extent to whichcompanies implement organisational innovations, the level of organisational rigidities.

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1.2 Methodology adopted

Constructing indices

Available surveys and studies dealing with relevant socio-cultural aspects werescreened in order to collect indicators characterising national profiles with respect tothe four capitals approach adopted. This resulted in a framework with socio-culturalindicators at country level and a corresponding database of national data. Eachcapital is represented by several factors illustrated by a limited number of indicators.A choice was made to retain a limited number of specific indicators for each capital,which best reflect the socio-cultural environment of a country. The choice was madebased on availability of data and also to avoid indicators which were closelycorrelated. Annex 1 provides the full list of selected indicators and their sources.

In order to be able to draw comparisons between national socio-cultural frameworks,

values adopted by each indicator in each country were indexed, with the average forthe EU25 countries as the basis reference (=100). Each country (c) is thereforepositioned in comparison to the EU mean.

Ic/EU25 =100*(Vc

VEU25)

In case values were missing for some countries, the method of regression imputationwas used to compute estimates. Missing values are substituted by the predictedvalues obtained from a regression. The dependent variable of the regression is thesub-indicator hosting the missing value and the regressor is the sub-indicatorshowing the strongest correlation with the dependent variable.

In case of indicators where high values indicated a badly performing country, initialvalues were reversed. Therefore the higher the index, the better the performance ofthe country in comparison to the European mean.

A synthetic index has then been compiled for each factor and each capital. For thedetermination of the human capital index for each country (H), we have:

H= h1;h2;h3;...;h i;...;hk{ } where each elementary index is like: Ic/EU25(h i) =hc

i

hEU25i

*100 .6

We therefore have a range of kelementary indexes that we summarise numerically

with a synthetic index Ic/EU25(H) which is calculated as an arithmetic average of theelementary indexes. The computation of elementary indexes before the one of themean of indexes allows us to suppress the influence of the unit of measurement ofeach indicator. Each indicator was attributed the same weight in the calculation of thesynthetic index.

Ic/EU25(H) = 100*1

n

hci

hEU25i

i=1

n

This procedure was applied to the national data for each capital. As a result eachEU25 country has been positioned against the other countries with respect to its

6 hc1

should be read as : the value of the simple indicator h1, first component ofH, in the country c.

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human, social, cultural and organisational capital (see annex 2 to 5 for the full list ofindexes). A synthetic index called socio-cultural environment index has then beencompiled using the same procedure and giving the same weight to each capital7.

Cluster analysis

A cluster analysis was performed to group information on countries based on theirsimilarity on different sub-indicators. This analysis allows notably disseminatinginformation on the composite indicator without losing that on the dimensions of thesub-indicators. In order to perform the analysis and to avoid results being influencedtoo much by scores of countries over-performing, the dataset was normalised foroutliers scores with the next best values8.

The method of k-means clustering was used for cluster analysis9. This method isuseful when the aim is to divide the sample in k clusters of greatest possible

distinction. The parameter k was decided in advance. The k-means algorithmsupplies kclusters, as distinct as possible, by analysing the variance of each cluster.The aim of the algorithm is to minimise the variance of elements within the clusters,while maximising the variance of the elements outside the clusters.

While acknowledging the limits (data availability, subjective choice of indicators, etc),the results of the analysis provide an interesting and novel overview of thedifferences across the EU member states in terms of the socio-cultural environment,which may in turn influence the sectoral innovativeness of companies.

Survey results

As data allowing a similar analysis for sectors at European level was not available, a

survey was conducted between October and December 2007 in order to gather theopinions of European sectoral experts10 on the relevance of socio-cultural factors forinnovation performance in their sector11. Socio-cultural factors were defined as theelements of the value systems, traditions and habits, norms and institutions that arerelevant for sectoral innovation performance and manifest in the attitudes, behaviourand choices made by individuals, organisations and societies.

Sectoral literature review

An extensive sectoral literature review was conducted in order to collect some moreinformation on the sector specific socio-cultural determinants of innovation.

7It could be presumed that income level is an important economic factor that might influence innovativeness in a country.

The approach of the study has nonetheless been to look at socio-cultural factors shaping innovation and not at the verydiverse factors shaping consumer and entrepreneurs mindsets in general. When looking closer at the relationship betweencultural capital and GDP per capita the relationship is indeed not straightforward (low coefficient of determination, as forsocial capital). Other factors shaping individual mindsets and eventually reflecting in their choices that we decided not toinclude specifically in our analysis could be religious views, the size of the country, the level of public information, etc.These aspects have nevertheless been addressed in the survey conducted in the framework of this study.8 Values representing the mean (100) plus two standards deviations were normalised with the next best value considering that68% of the values drawn from a normal distribution are within one standard deviation > 0 away from the mean ; about95% are within two standard deviations and about 99,7% lie within tree standard deviations9 The analysis conducted with the hierarchical clustering method provides similar results as the k-means analysis.10 Survey respondents were the experts of the Europe Innova Panels and additional experts from the Europe Innova network11A sectoral analysis of the survey results was conducted for the following sectors: automotive, biotechnologies, informationand communication technologies, food/drink, aerospace, textiles and the cross-sectoral issue of eco-innovation. Nonethelessoverall results across sectors include also few replies from the sector of energy production and chemicals.

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1.3 Socio-cultural environment and innovation: establishing arelationship?

According to the results of the survey on socio-cultural determinants of innovation

conducted amongst European key European sectoral stakeholders between Octoberand December 2007, socio-cultural factors are important determinants of sectoralinnovativeness (for 87% of respondents across sectors, 100% for the food/drinksector). Almost three quarters of respondents across sectors believe that their sectorhas its own distinct culture, determining sectoral innovation processes in a differentway than in other sectors. This percentage goes up to 87% for food/drink experts.

Exhibit 1: Do you believe that your sector has its own distinct culture, whichdetermines sectoral innovation processes in a different way than in othersectors (n=76 across sectors out of which 8 for food/drink)?

Experts were asked to rank the different socio-cultural factors in their order ofimportance for innovation performance in their respective sectors. It appears that thecapital having the strongest influence on innovation in the food/drink sector is the

organisational capital/ entrepreneurship followed by cultural capital and humancapital, which are equally ranked. Social capital appears as the least important areainfluencing innovation performance in the sector. When looking at average rankingsacross sectors, human capital appears clearly on first position.

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Exhibit 2: Area of socio-cultural factors which has the strongest influence onthe innovation performance of each sector (Rank from 1 to 4 where 1 is the mostimportant and 4 the least important area (n=69 out of which 8 for food/drink)

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2 Cultural capital and consumer behaviourThe concept cultural capital and consumer behaviour refers to the cultural

background and basic value system that is shared by the individuals in a communityand manifests in their attitudes and habits, including consumption. Demand iscomposed of individual consumers and firms characterised by different attributes,knowledge and competencies, and is affected by social factors and institutions.

2.1 Cultural capital at national level

Results from the analysis of national data indicate that the cultural capital in theNetherlands is by far the most favourable for innovation across the EU25 MemberStates, whereas it appears as a barrier to innovation in comparison for otherEuropean countries especially in Greece and Italy. The result for the Netherlands isstrongly influenced by its score for the attitude of citizen towards the natural

environment, their strong interest in science and technology as well as their positiveattitude towards risky technologies. Across the new Member States, Hungary, Maltaand Cyprus are the only countries with higher than average results.

Exhibit 3: Indicators selected for cultural capital

Capital Indicator SourcesInterest in science

and technology Eurobarometer 224, QA1, interest in new inventions and technologies: veryinterestedAttitude towards

science Eurobarometer 224, QA15b.6, The benefits of science are greater than any

harmful effects it may have: agreeAttitude towards

risk from new

technologiesEurobarometer 224, QA12a.1, If a new technology poses a risk that is not fully

understood, the development of this technology should be stopped even if itoffers clear benefits: disagree

Attitudes towards

future Eurobarometer 225, Q7.2, The next generation will enjoy a better quality oflife than we do now: agreeAttitudes towards

environment Eurobarometer 217, Q11, Categorisation of the attitudes of European citizenstowards the environment: convincedAttitudes towards

other culturesResistance to multicultural society 2003 (index constructed by EUMC based on

Eurobarometer 59.2): "It is a good thing for any society to be made up ofpeople from different races, religions or cultures" and "(country)s diversity in

terms of race, religion or culture adds to its strengths"; reversed values

Cultural

capital

and

consumer

behaviour

Customer

responsivenessEurostat, CIS3, Enterprises reporting the following factor as highly importantin hampering innovation activities, as percentage of all innovative companies:

customer responsiveness, reversed values

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Exhibit 4: Cultural capital across EU25 countries (basis 100: EU25 average)

Cluster analysis

The cluster analysis performed on cultural capital indicators provides an interestingoverview of the differences between countries. The analysis classified EU25countries into four groups, which we have labelled as follows:

Conscious conservatives: these are countries in which citizens show a stronginterest towards science and technology but are not especially open towards novelty,other cultures and who are especially reluctant about the development of new riskytechnologies. Moreover in these countries citizen seem to be less environmentallycommitted.

Passive believers: in these countries citizen show a low interest towards scienceand technology issues but are positive and optimistic about the future and thebenefits of science.

Middle road: these are countries showing average values for all indicators.

Active pessimists: in these countries, citizens are highly open towards novelty,and are ready to take risk. Interest in science and technology is high as well as theenvironmental commitment. Nonetheless, in these countries, citizens seem to bemore pessimistic about the future and about the benefits of science and technology.

Active pessimists cluster groups the countries which all perform above average inthe cultural capital index. These are mostly high income countries which perform wellalso in other capitals.

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Exhibit 5: Typology of EU25 countries for cultural capital

Conscious Conservatives Passive Believers Middle Road Active PessimistsCyprus Czech Republic Austria DenmarkGreece Estonia Spain LuxemburgMalta Poland Ireland The NetherlandsFrance Hungary Italy Belgium

United Kingdom Portugal GermanySlovenia FinlandLithuania Sweden

LatviaSlovakia

2.2 Cultural capital in the food/drink sector

In the food & drink sector, innovation and the success of innovation depends to alarge extent on consumers behaviour. According to Traill (1997), changes in foodconsumption patterns and food-related behaviour very often determine the nature ofinnovation taking place in these industries. Nonetheless, food companies do notjust respond to public taste; they also help shape it through marketing andproduct formulation. By implication, they are a major force in shaping the foodculture (Lang, Rayner, Kaelin, 2006).

Food is a subject dear to most peoples hearts. Eating, shopping for food andcooking are fundamental activities of social and cultural lives. The socio-culturalfactors that influence consumer demand for food and drink products are complex andinclude many questions such as: demographic and socio-economic change;lifestyles; health, nutrition and safety concerns; environmental and ethical concernsand migration and demand for ethnic foods. Socio-cultural pressures appear todiffer between countries, suggesting that national settings are a determinant factor ofinnovativeness of the sector.

Firstly, the consumers willingness to pay for a specific product is of highrelevance for this sector. The role of economic factors is formulated in Engels Law,which states that when income rises, the proportion of expenditures allocated to fooddeclines. According to Eurostat data, in 2005, households spent on average 12.4% oftheir expenditure on food and non-alcoholic beverages12. Over the past 10 years, thispercentage has declined by 2 percentage points, even if consumption per capita

varies substantially in the EU and across the world. These economic trends meanthat the size of the market for food is diminishing relative to other sectors in theeconomy.13 There is, therefore, considerable incentive for farmers as well as foodmanufacturers to add value to their products to increase sales turnover, e.g. breadinstead of flour, a ready prepared meal instead of the raw ingredients. According tothe EFLIW (Future of the food and drink sector, 2004), all actors in the food systemwill tend to move up the food value chain in search of consumers with greaterdisposable income, to segment the market and offer a wider variety of choice throughtargeting new products at adults, teens, children, products aimed specifically forwomen, men, ethnic groups and so on.

12See annex 9 and 10 for a more complete overview

13See annex 11 for a comparison of the old policy to the new one

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Gracia and Albisu (1997, quoted by Avermaete, 2002) provide a summary of theimpact of consumers behaviour on innovation in the food industry:

There are other factors related to consumers behaviour such as: income levels,

socio-demographic characteristics, culture, attitudes and lifestyles, diet and healthconcerns which are also affecting common food patterns. Apart from thesehomogenisation processes, some food consumption differences exist and will existbecause of cultural differences, established preferences, cultural backgrounds andother peculiarities. Everywhere consumers are demanding a larger number of foodproducts with more attributes, including convenience, quality, diversity (frozen, readyto eat, natural, light products) and health. Besides, consumers face a wider range offood products, offered in different new ways as a result of the increasingcompetitiveness in the food retail sector.

Apart from demographic changes like the increased participation of women in thepaid labour force, ageing population, increased cultural diversity within the society,

non-economic aspects of food consumption are taking an increasing importancein the global food market (Traill, 1997). Consumers are increasingly concerned withfood quality and safety, the environmental harm caused by the production,animal welfare as well as ethical and moral values, stemming from their cultureand tradition. This pressure is not only put on the product but also on the process. Inresponse to these changes that reflect notably the strengthened regulatoryenvironment covering food safety, food quality and environmental standards, the foodindustry is forced to innovate.

Concerning optimism and pessimism towards new technologies developed in theagricultural sector, 66% of the Europeans (EU25) share the opinion that high-tech

agriculture will have a positive impact on their way of life in the next 20 years.Nevertheless, the French case is noteworthy, since only 36% of people hold thispoint of view.

The application of science and technology to food and agriculture enables producingnovel crops, crops with better yields or particular properties. Food scientists look forways to alter the flavour of foods, extend shelf life or create new products with healthbenefits (EFLIW, Future of the food and drink sector, 2004). The production of novelfoods also includes biotechnology and genetic modification. Demand for geneticallymodified crops and foods is highly shaped by public attitudes and regulation.Following the pressure exerced by several associations, negative public attitudes toGMOs in crops and food are now widespread, although the strength of antagonism

varies from country to country (Senker, Van Zwanenberg et al., 2001). Opinionpolling in 2002 showed that, while Europeans support medical applications ofbiotechnology, they are sceptical about EU agricultural and food-relatedbiotechnology. Depending on the Member States, between 30% and 65% reject allreasons for buying GM foods. On average, 37% of European citizen will never acceptthe development of GMO to increase the variety of regionally grown food. Moreover,according to Eurobarometer (study 224), a majority of Europeans (54% of people inthe EU27) share the idea that food made from genetically modified organisms isdangerous. This percentage is lower in the Nordic countries and in the UK, butsignificantly higher in Greece or in Cyprus. According to the Eurobarometer study(number 217), 40% of Europeans feel they lack of information on the use ofgenetically modified organisms (GMOs) in farming while 29% of Europeans cite

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agricultural pollution amongst the main issues about which they feel they lackinformation.

Nonetheless, as emphasised by Senker et al (2001), the Dutch experience shows

that there is no direct correlation between the degree of public knowledge about andacceptance of biotechnology, implying that mere information campaigns are notsufficient to positively influence public acceptance. The Dutch public is moreknowledgeable about biotechnology than those in other European countries, due tothe long-standing work of non-government organisations. What turned out to be moreimportant in influencing the attitude of the Dutch public towards biotechnologies wasinvolving the public in biotechnology related policy decisions. Dutch citizens report astrong confidence in all actors of the biotechnology system and only 30% of thepopulation consider GMO food as dangerous, which is the lowest rate acrossEurope.

Moreover, international crises like BSE and foot and mouth disease increase publicanxiety about the sector. The constantly changing regulatory environment hasencouraged food retailers and food producers to establish voluntary standards(often set with zero tolerance) and labels relevant for their markets in an attempt togain market share by meeting perceived public demands. This has led to theestablishment of supply chains guaranteeing the absence of products includingGMOs (Senker, Van Zwanenberg et al., 2001). Equally, increasing concern foranimal welfare has forced the European meat industry to re-organise the productionchain (Avermaete, 2002). Nevertheless, it can be noted that worry about animalwelfare does not have an impact on views of GMO: 54% of Europeans will neverapprove the growing of meat from cell cultures so that farm animals do not need to

be slaughtered (Eurobarometer 225).The Eurobarometer study (229) measured the ability to pay an additional premium forfood produced in an animal welfare friendly production system. Even if the majority ofEuropeans (57%) appears to be ready to pay an additional premium for suchproducts, strong differences appear between countries, with a higher readiness topay in the Nordic countries and in the Netherlands and a lower one in Portugal,Lithuania, Hungary and Slovakia.

Lately, literature shows that not all radical innovations are rejected by the food andbeverage market provided that specific conditions are met, such as price, branding,information, and health benefits and sensory qualities of foodstuffs (Van Kleef et al,

2002, Verdurme, Gellynck & Viaene, 2003). Traditional diets are indeed giving way tonew food choices, notably due to increased international integration, which leads toan increase in the demand for variety and year-round availability of fresh product(Schweikhardt and Whipple, 2001), although environmental concerns about forinstance fruit and vegetables transported by airfreight can also reduce such demand.Some of these choices enhance the diet, while others are high in fats, sugar and salt,are more highly processed, and contain higher levels of protein sourced from animalproducts (Eurobarometer 186). In this respect, other researchers analyse the growingmarket for functional foods14 (Mark-Herbert 2003, Menrad, 2003, van Kleef et al,2002, Wilkinson, 2002). Nonetheless this move towards functional food could make

14So called functional foods have ingredients (or nutraceuticals) incorporated within them to give specific medical or

physiological benefits, e.g. spreads that reduce cholesterol or pro-biotic yoghurt drinks

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the food and beverage industry more dependent on the drug, chemicals andbiotechnology industries (Wilkinson, 2002). In addition the shift towards organic foodand regional brands was a great opportunity for SMEs in the sector, which have

reduced the use of chemical inputs, increased the human capital intensity andacquired leadership in niche sectors (PORCH study, 2006).

In addition to this phenomenon, greater time pressure on peoples lives is increasingthe demand for convenience foods and ready meals, snacking and 'snatched' meals,and eating out. This trend towards more informal eating is boosting demand forpackaged and processed foods, and ready meals (Euromonitor, 2002).15

The table in annex 13 from the World Innovation panorama (2005) distinguishesbetween five categories for innovation in Europe: pleasure, health, fitness,convenience and ethics. Amongst these categories, it appears that sophistication,diet and easy to handle issues are the most important ones even if the latter has

losed of importance between 2004 and 2005. Exotism, medical properties,cosmetics, time-saving and ethical issues gained in importance between 2004 and2005 while fun, naturality, vegetarism, nomadism, energy and well-being weredeclining.

It should be emphasised that integration of information systems has a significantpotential to affect the food sector, notably in the sense that it will allow food retailersgathering information about consumer preferences that can be used to determine thekinds of foods that the food manufacturers produce (EMCC, 2004a).

2.3 Cultural capital: survey results

Views of Europeans are divided on whether decisions concerning science andtechnology development should be based more on risks and benefits analysis ratherthan taking into account moral and ethical considerations16. In the framework of thesurvey experts were first requested to assess whether in their sectors decisions aretaken considering risk and benefit analysis or rather moral and ethical considerations.Nearly two thirds of all respondents (63%) considered that while decisions in theirsector are mainly taken considering risk and benefit analysis, moral and ethicalconsiderations are also taken into account, in comparison to 50% for food/drinkexperts (37% ranked both aspects equally). None of the respondents was of theopinion that decisions are influenced by only moral and ethical considerations.

Attitudes towards other cultures can be captured, in part, by opinions on the impactof immigration. The vast majority of respondents (77% in general, 62% for food/drink)agreed that openness towards other cultures creates a more favourable environmentfor innovation in their sectors. According to the third Community Innovation Survey,customer responsiveness is considered as a relevant factor hampering innovationactivity. The vast majority of experts (59% in general, 62% for food/drink) agreed thatcustomer responsiveness to innovative services or products may be explained bycultural factors in their respective sector. Experts were requested to rank 13 factorsinfluencing consumer responsiveness to innovation in their sector in order ofimportance (see annex 6 for a table with results per sector).

15See annex 12 for an overview of the most innovative sub-sectors worldwide

16 Eurobarometer n255

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Exhibit 6: Importance of the factors influencing consumer responsiveness toinnovation in each sector

Nb: 5-rank scale where 5 is the most important and 1 least important (n=73 for all sectors out of which 8 for food/drink

Whereas income level is considered as the most important factor influencingconsumer responsiveness to innovation across sectors, the picture is different for thesector of food and drink where product/ service originality is ranked first followed bythe quality of marketing/advertising. Noticeably the scale of distribution and the placeof residence appear more important in this sector than across the sectors underfocus in this study. On the other hand, income level is less important than in othersectors as well as the availability of information and the attitude towards science.Even if ranked in last position, the ethnic origin of consumer is more important ininfluencing consumer responsiveness to innovation in the sector of food andbeverages than across sectors.

2.4 Concluding remarks

Countries especially active in the sector of food and beverages (France, Germany,United Kingdom, Spain, Italy) are present in each of the clusters for cultural capitaland perform differently. Policies targeting cultural capital would therefore be moreefficient at national level than at European or sectoral level. In this sector with strongcompetition, originality of the product and marketing campaigns are the mostimportant factors influencing the consumers readiness to pay for new products.Since non-economic aspects are increasingly decisive for consumers choice (e.g. forethical, organic, functional, convenience food), producers have to move-up the valuechain and rely increasingly on voluntary standards and labels to differentiate their

products.

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3 Human capitalHuman capital refers to the knowledge, skills and attributes derived from education,

training and work experience. The literature on the knowledge economy emphasisesthat knowledge plays a central role in innovation and production. According to theresults of third Community Innovation Survey17 the lack of qualified personnel wasindeed one of the most important factors hampering innovation activities.Evolutionary literature underlines nonetheless that sectors and technologies differgreatly in terms of the knowledge base and learning processes related to innovation.

3.1 Human capital at national level

With respect to human capital, the best environment is found Luxembourg, which hasa particularly high share of foreign-born human resources in science and technology(46,2%). This result should be interpreted with caution since this small country is

performing relatively poorly in terms of people active in knowledge-intensive services.The good relative results of Denmark and Spain are partly due to a high share of thepopulation involved in life-long learning; whereas the performance of Poland,Slovenia and Slovakia is weak in terms of the diversity of nationalities in HRST.Portugal performs well below the EU25 average for all indicators of human capital.

Exhibit 7: Indicators selected for human capital

Capital Indicator SourcesHuman resources in

science andtechnology

Eurostat, HRST statistics 2005, Human resources in science and technology

as a share of labour force, Total

Nationality of HRST Eurostat HRST database, Share of non-national human resources in scienceand technology (HRST), aged 25-64 years

Higher education

(provision of higher

educated people)Eurostat Labour Force Survey Percentage of people with tertiary education

qualifications (ISCED 5 and 6) in the population aged 25-64, 2006

Human resources in

knowledge-intensive

servicesEurostat HRST database, Share of total employment in knowledge-intensive

service sectors, 2005

Job-to-job mobility

of employed HRST Eurostat HRST database, 2006 / job-to-job mobility of employed HRST in %Participation in life-

long learning Eurostat, Labour Force Survey, Population participating in life-long learningaged 25-74, 2006

Human

capital

Availability of

qualified personnelEurostat, CIS3, Enterprises reporting the following factor as highly important

in hampering innovation activities, as percentage of all innovativecompanies: lack of qualified personnel, reversed values

17 Eurostat, Community innovation survey, Third Wave, 2000-2001

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Exhibit 8: Human capital across EU25 countries (basis 100: EU25 average)

Cluster analysis

The cluster analysis on EU25 countries led to the following four groups:

Rigid labour market: in these countries, the provision of higher educated is low aswell as the share of human resources in science and technology. The workforce isparticularly immobile and less involved in life-long learning. In this country, the shareof non-national human resources in science and technology is also particularly low.

Middle road: this group of countries share an average performance for allindicators of human capital in comparison to the EU25.

Open labour market: these countries show a particularly high share of non-nationals in their human resources in science and technology. These are typicallysmall EU countries, clearly dependent on temporary or permanent immigration ofskilled labour if they are to compete globally.

Strong human capital: These countries perform well in terms of availability ofhuman resources in science and technology, the provision of highly educated peopleand score particularly well on the mobility of the workforce and the share ofindividuals involved in life-long learning.

Exhibit 9: Typology of EU25 countries for human capital

Rigid labour market Middle road Open labour market Strong human capitalCzech Republic Austria Cyprus Denmark

Germany Belgium Estonia SpainFrance Greece Ireland Sweden

Hungary Finland Luxembourg United KingdomItaly Lithuania

Malta LatviaPoland The Netherlands

Portugal

SloveniaSlovakia

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3.2 Human capital in the food/drink sector

Among food & drink companies that carry out product and process innovation (85%of all firms), at least 40% do not have a department dedicated formally to R&D.

Instead the decisive factor is the percentage of qualified personnel (Lang, Rayner,Kaelin, 2006). The share of employees with higher education within the sector is farbelow the manufacturing average, but the share of firms that use training is higher.

Despite the low share of employees with higher education, firms considercontinuous improvement of the workforce skills as important . Studies of Irishand Polish regions carried out in the framework of the Innovaloc project (Mahon,Pitts, 2003 and Wigier and Szczepaniak, 2003) show that staff training and thepercentage of turnover spent on staff training (especially concerning work safety,technical issues and computing technologies) are indeed significantly correlated toinnovation. Furthermore, despite the average percentage of qualified technical staff

to total workforce being as low as 5.4%, the variable proved to be significantly relatedto innovation. Romijn and Albaladejo (2002), on the contrary, found no relationshipbetween the proportion of technicians in the firms workforce and the propensity toinnovate.

According to Eurostat data, compared with the total manufacturing sector, the food,beverages and tobacco sector presents unusual characteristics concerningemployment. These are the higher presence of women and the greater recourseto part-time work. In 2002, 38.5% of personnel working in the EU15 food beveragesand tobacco sector were women, 10% points above the share for total manufacturing(28.3%). The largest differences at national level were found in Luxembourg, Finlandand Germany. In 2002, 11.7% of employees of the sector were in part-time work,which is 4.1 percent points higher than the manufacturing average (7.6%). In thecase of countries like Germany and Finland, the proportion of part-time workers iseven twice as high as the rate presented for manufacturing as a whole.

3.3 Human capital: survey results

In the framework of the Innovation Watch survey, respondents were requested torank the reasons explaining the lack of qualified personnel in innovation activities intheir sector in their order of importance.

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Exhibit 10: Most important reasons explaining the lack of qualified personnelinvolved in innovation activity in each sector

Nb: 5-rank scale where 5 is very important and 1-least important (n=72 for all sectors out of which 8 for food/drink)

The results indicate that across sectors the most important reason explaining the lackof qualified personnel is the limited supply of highly specialised labour followed by thelack of people with interdisciplinary skills. For the food and beverages sector, the

results are slightly different with the lack of appropriate professional training being thesecond most important reason (average value of 3.7 in comparison to 3 acrosssectors). The low job-to-job mobility is also particularly more important in the sectorthan across all the sectors under focus in this study. One other noticeable result isthe low ranking attributed to the low number of students and graduates in therelevant disciplines in comparison to the results across sectors. On the three lastpositions come difficult working conditions, the unattractive image of the sector andthe inappropriate gender balance, which are higher weighted than across sectors.

3.4 Concluding remarks

Countries in which the sector of food and beverages is particularly strong areperforming differently in terms of human capital in comparison to the Europeanaverage. This is not surprising since labour and education policies are typically ofnational competences. Nonetheless most of them belong to the same cluster, namelyrigid labour market.

The food/drink sector has a specific profile in comparison to other manufacturingsectors with a lower than average share of higher educated personnel and a betterthan average implementation of training. According to the results of the survey itwould be especially lacking in highly specialised labour. Continuous improvement ofthe workforce skills is particularly important in the sector.

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4 Social capitalSocial capital in the context of this study is the capacity to network and collaborate

between individuals and companies facilitating the generation and accumulation ofknowledge and innovation activity. Generation and accumulation of social capital isbased on trust and made possible as actors share common norms, values andunderstanding.

4.1 Social capital at national level

With respect to social capital, the most favourable environment seems to be inFinland, where companies are highly open to collaboration, be it with competitors oracademics. Customers are an important source of information, the corruption level islow and the level of trust between people is fairly high. The Baltic countries areperforming relatively well for the indicators related to the cooperation of companies

with competitors. The situation of Italy with a very low openness to the external worldand a high level of corruption is noteworthy.

Exhibit 11: Indicators selected for social capital

Capital Indicator SourcesCooperation with

competitorsEurostat, CIS4, 81/2007, Different types of cooperation partners of enterprises

by country, as a percentage of innovative enterprises: Competitors or otherenterprises of the same sector

Cooperation with

the academicworldEurostat, CIS4, 81/2007, Different types of cooperation partners of enterprises

by country, as a percentage of innovative enterprises: Universities or other highereducation institutions

Customer as a

source of

informationEurostat, CIS4, 81/2007, Highly important sources of information for innovation

by country, as a percentage of innovative enterprises: clients or customers

Trust Eurobarometer 225, QB8, In general, would you say that you trust other peoplealmost always, often, only sometimes, rarely, or almost never?Total answer Trust

Social

capital

Corruption Transparency international, CPI 2006, Corruption Perceptions Index EU-27(from 10=clean to 0=highly corrupt)

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Exhibit 12: Social capital across EU25 countries (basis 100: EU25 average)

Cluster analysis

A cluster analysis was again performed on indicators of social capital and EU25countries can be classified into four groups:

Closed networks: countries in this group share in general a low level of trust anda high level of corruption. Cooperation with academia is as well particularly low.

Weak business links: in these countries, cooperation of companies with otheractors along the value chain is especially low, especially with competitors.

Strong business links: countries in this group share a high level of cooperationwith competitors, and tend to consider the customer as an important source ofinformation for innovation.

High performance networks: in these countries, cooperation of companies withacademics is highly developed, customers are considered as a particularly importantsource of information for innovation and cooperation with competitors is also fairlyhigh. Trust between actors is particularly high and corruption is not an issue.

Exhibit 13: Typology of EU25 countries for social capital

Closed networks Weak business links Strong business links High performance networks

Cyprus Austria Czech Republic DenmarkGreece Germany Estonia FinlandPoland Malta France The Netherlands

Spain Lithuania SwedenPortugal LuxemburgIreland LatviaItaly Slovenia

SlovakiaUnited Kingdom

BelgiumHungary

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4.2 Social capital in the food/drink sector

As was noted by Avermaete (2002), small food firms in Europe rely heavily on co-operation with research organisations to carry out R&D. They need external

sources of knowledge to complement the internal knowledge, mainly for quality andsafety control but also for the development of new products and optimisation ofexisting processes. Nevertheless, the results of the study done by Avermaete et al. in2003 show that co-operation with other sites within the group, customers andresearch institutes tend to be positively associated with more radical innovations andthat geographic proximity to research institutes is particularly important in this regard.The results of studies carried out on Irish and Polish regions (Mahon, Pitts, 2003 andWigier and Szczepaniak, 2003) show empirically that there is a strong correlationbetween external cooperation (suppliers of equipment, customers, similarenterprises and contract R&D/research institutions/universities) andinnovation in the food sector.

According to the Know survey (2006), firms in the food and beverages sectorregularly seek to obtain ideas for innovation by attending trade fairs and conferencesand by reading scientific or business journals. The most important contributors to theoriginal idea for their most important innovation were the customers, followed by thesuppliers and the competitors. Competitors appear to be more important partners inthe other sectors under review (namely chemicals, telecom equipment and ICT) in allanalysed countries, whereas in Greece, Italy and the UK, the food sector is the onerelying the most on suppliers as the primary source of innovation. External sourcesprovide mainly technical and scientific knowledge as well as knowledge related tomarket introduction. External knowledge is mainly acquired through informal personal

contacts, often following previous experience and to a lesser extent through researchcollaborations.

The study of Avermaete (2002) also shows that small food firms tend not to introduceinnovations that would have major organisational consequences without firstconsulting their largest customers. Small food firms producing for local marketstended to have regular face-to-face contacts with their local customers and, as aresult, were well aware of new market opportunities which was a potential source of acompetitive advantage.

The great investment that firms of the sector have to make in advertising andmarketing and the huge cost that represents the launch of a new product in a

successful way, act as impediment to smaller firms from undertaking productinnovation. Firms in the industry require a minimum size if they want to aim atlaunching new products successfully (Galizzi and Venturini in Von Tunzelmann andRama).

4.3 Social capital: survey results

In line with what might be expected, the vast majority of survey respondents (91.5%across sectors, 87% for the food/drink sector) agreed that trust is an important factordetermining collaborative innovation activity in their respective sectors of expertise.

Comparing the level of trust between key sectoral stakeholders, the level of trust

between companies is considered as low by 50% of food/drink experts (25% acrosssectors) and medium by 37% (38% across sectors). Trust between companies andresearch organisations was also ranked at a low level by 50% of food/drink experts

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(17% across sectors) and at medium levels by 37% (50% across sectors). The levelof trust between companies and government is significantly lower ranked for thesector of food and beverages than across sectors (75% for low, very low or no trust

for food/drink experts, 48% across sectors). Only for the level of trust betweenresearch organisations is the result positive with 50% considering it as high.

Sectoral experts were requested to rank a set of factors driving innovationcollaboration in order of their importance. As in the sector of food and beverages,previous collaborations and/or shared experience was considered as the mostimportant factor across sectors followed by the existence of funding opportunities forcollaborative projects. Interestingly, the sharing of the same language/nationalitycomes on third position and is much more important than in across the sectors underfocus in this study (9th position across sectors). Belonging to the same sector andlabour mobility are both regarded as a much more important drivers of innovationcollaboration in the food/drink sector than across sectors. The participation to

conferences and seminars is noticeably ranked lower by food/drink experts. The leastimportant factors appear to be being member of formal associations as across allsectors. Annex 8 provides a rapid overview of differences per sector.

Exhibit 14: Main drivers of innovation collaboration

Nb: 5-rank scale where 5 is very important and 1-least important (n=71 for all sectors out of which 8 for food/drink)

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5 Organisational capital and entrepreneurshipOrganisational capital includes companys culture, routines, structure, ethics and

management styles. It determines the organisations ability to deal with risks anduncertainty, to unlearn (lock-in phenomenon) as well as remain open for change.

5.1 Organisational capital at national level

With respect to organisational capital, the best innovation environment are found inIreland and Denmark. Ireland demonstrates particularly strong entrepreneurialattitudes in comparison to other EU Member States. The number of SMEsintroducing organisational innovation is particularly high in Ireland as well as inDenmark, Luxemburg and Germany, whereas the performance of Slovakia for thisindicator is well below the EU average. Empowerment of employees by managementis especially high in Sweden and low in the Mediterranean countries. The relationship

between employers and employees appears to be particularly confrontational inFrance in contrast to Denmark.

Exhibit 15: Indicators selected for organisational capital

Capital Indicator SourcesInitiative at work European Value Study.- Here are some more aspects of a job that people sayare important. Please look at them and tell me which ones you personally think

are important in a job?Q.13H An opportunity to use initiative, mentioned, in%

Enpowerment WEF, Readiness of the management to delegate decisions to subordinates islow (=1) (the management takes all decisions by itself) to 7=high (a lot ofdecisions are taken by domains and respective levels)

Relation between

employers and

employeesWEF, Labor-employer relations in your country are 1=generally

confrontational to 7= generally cooperative

Risk

aversion/entrepren

eurshipEurobarometer Flash 160 Q12: one should not start a business if there is a risk

it might fail: disagree

SMEs which

introduced an

organisational

innovation

CIS3, Number of SMEs who have either introduced new or significantlyimproved knowledge management systems, a major change to the

organisation of work within their enterprise or new or significant changes intheir relations with other firms or public institutions

Organisat

ional

capital

and

entrepren

eurship

Organisationalrigidities Eurostat, CIS3, Enterprises reporting the following factor as highly importantfor innovation activities, as percentage of all innovative companies:

organisational rigidities, reversed values

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Exhibit 16: Organisational capital in EU25 countries (basis 100: EU25 average)

Cluster analysis

The cluster analysis performed on indicators of organisational capital provides aninteresting overview of the differences between countries. Based on this analysisEU25 countries can be classified into four groups:

Rigid organisations: this group gathers countries in which the level of

empowerment of employees by employers is low. Individuals appear particularlyadverse to risk even if they demonstrate a high importance given to initiative at work.

Low personal engagement: these countries share a particularly low level ofimportance given to initiative at work by individuals.

New ventures: in this group of countries individuals tend to be particularly open tostart a business even if there is a risk of failure and the relationship betweenemployers and employees is particularly confrontational.

Flexible organisations: these countries share a high level of empowerment, havein general particularly collaborative relations between employers and employees aswell as a high share of SMEs introducing organisational innovations.

Exhibit 17: Typology of EU25 countries for organisational capital

Rigid organisations Low personal engagement New ventures Flexible organisationsHungary Czech Republic Belgium Austria

Malta Estonia Cyprus GermanySlovenia Spain Greece Denmark

Lithuania United Kingdom LuxemburgLatvia France Slovenia

Portugal The Netherlands FinlandSlovakia Italy Ireland

Sweden

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5.2 Organisational capital in the food/drink sector

The food sector is generally considered a traditional and low-tech industry.Nevertheless the Fraunhofer Institute (2006) underlines that organisational

innovation can play an important role in this industry. Knowledge creation in smallfood firms is not based on R&D (see for example the results of the study of Giuletti etal., 2004), even if the decision-making process heavily relies on tacit knowledge.According to the Fraunhofer Institute (2006), R&D in the food sector is mainlyconcentrated in large firms and organisational changes directed to improve theseactivities are likely to be of little relevance to SMEs.

SMEs make up 99.1% of the food and drink business population and account forabout 50% of the turnover.18 These firms are often family-run enterprises, withknowledge transferred and translated from generation to generation. Thereforebackground and experiencerather than theory make up the knowledge base.

Indeed, according to a study carried out in English, Irish, French and Polish regions,the majority of managers in the food industry do not have higher degrees ofeducation (Avermaete et al., 2002). However the results of this study shows thatmore than half of the entrepreneurs with a degree in engineering introduced aproduct innovation with a major impact on the firms turnover (over 10 percent).

It has to be further emphasised that, according to this study, the number of years ofactivity of the entrepreneur in the firm and the years active as top-manager werenegatively correlated with the impact of innovations. In this respect, entrepreneursthat had more recently entered the firm were more likely to introduce innovation witha high impact on the firms turnover. It could be argued that younger managers bringnew ideas to the firm and therefore inspire a greater number of innovations.

In contrast, past experience of working in a similar business showed a significantlypositive correlation with radical innovation. The authors of this study explain thisphenomenon by the fact that most entrepreneurs that worked in the food sectorpreviously came from large enterprises that generally had more innovation projectsand more experience with respect to safety controls. Entrepreneurs with suchbackgrounds would tend to be more capable of tackling the challenges of the tightregulation and would be at an advantage in estimating the risks, costs and profits ofinnovations as compared to other entrepreneurs.

5.3 Organisational capital: survey results

The aim of the last set of questions of the survey was to gather experts views onorganisational rigidities, economic risk and corporate culture as factors influencinginnovation in their sector. Views on how well companies in each sector adapt tochallenges accompanying innovation activities in terms of organisation andmanagement are widely spread. While 40% of respondents across sectors were ofthe opinion that companies adapt well (25% for food/drink), 28% disagreed with thisstatement (25% for food/drink) and 31% neither agreed nor disagreed (62% forfood/drink). The same spread across sectors arises for the question on whethermanagers in each sector are open to taking risk and pursuing new risky projects.

Moreover more than half of the experts (55%) evaluated that in their sectors

18See http://www.ciaa.be: These 282,600 companies generate 47.8% of food and drink turnover and employ 61.3% of the

sectoral workforce.

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individuals are in general ready to establish a new business even if there is a risk offailure. This result is lower for the food/drink sector with only 50% of experts sharingthis opinion while 37% neither agreed nor disagreed.

Sectoral experts were finally asked whether they agree that corporate culture (e.g.internal code of conduct, corporate social responsibility, environmental statements,etc.) of the companies in their sector is a key factor influencing innovationperformance. Amongst food/drink experts 87% agreed with this statement (79%across sectors).

5.4 Concluding remarks

Organisational capital is considered as the most important socio-cultural factorinfluencing innovation activity in the food/drink sector. Countries in which the sectorof food and beverages is particularly strong (France, Italy, United Kingdom, Spain,

Germany) are performing differently in terms of organisational capital in comparisonto the European average; these countries mainly belong to the new venturescluster.

From the analysis it can be highlighted that corporate culture is an important shapinginnovation performance in the food/drink sector. The sector is made of many smallcompanies, often family-run, where background and experience creates theknowledge base rather than theory. Nonetheless, young managers with engineeringskills or similar experience in other bigger companies could have a positive impact onthe innovativeness of the sector.

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6 Conclusions on the socio-cultural environment forsectoral innovation

6.1 National socio-cultural environments and innovationperformance

The aggregated results for each country across all capitals allows for an overview ofthe general socio-cultural environment, which has an impact on the innovativeness ofcompanies. The variances of indexes of cultural and organisational capitals appearsmaller across EU countries than for social and human capitals.

Exhibit 18: The four socio-cultural capitals across EU25 countries (basis 100:EU25 mean)

Finland, Denmark, Luxemburg, Sweden and the Netherlands have the mostfavourable socio-cultural environments for innovative activities when compared to all

EU25 Member States. At the other extreme, Italy, Portugal, Poland, Malta andGreece have the least favourable socio-cultural environments for innovation.

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Exhibit 19: Typology of EU25 countries for socio-cultural environment

Rigid socio-cultural

environmentClosed socio-cultural

environmentStrong socio-cultural

environment

Czech Republic Austria BelgiumFrance Cyprus Denmark

Hungary Germany EstoniaLithuania Greece Finland

Latvia Spain IrelandPortugal Italy LuxembourgSlovakia Malta The Netherlands

Poland SwedenSlovenia

United KingdomIn order to examine if the differences visible in different socio-cultural capitals has animpact on innovation performance, the following charts19 provide an overview of therelationship between several performance indicators, namely labour productivity20,EPO patents21 and business expenditures in research and development22 and thefour capitals of this study23. For the sake of this exercise, normalised values wereused, in order for the results not to be influenced by the performance of outliers24.

Socio-cultural environment and labour productivity

Organisational capital has the strongest correlation with labour productivity (see chartbelow). Ireland is the highest performing country for organisational capital and thesecond, after Luxembourg, for labour productivity; whereas Lithuania performs worstfor both aspects.

19 The red line in each graph represents the linear regression line, when the indicator of innovation performance is consideredas the dependent variable and the capital under focus as the independent variable. The R square value (coefficient ofdetermination) displayed on each graph represents the part of the variance of the dependent variable that can be explained bythe linear regression. The closer R square from 1, the best suited is the linear relation for describing the dataset. It appearsthat relations between each capital and each output indicator seem to be positive.20 GDP per person employed, US$ EKS, Total Economy Database, Conference Board, 200721 European Patent Office (EPO) patents per million population, Eurostat, 200322

Business expenditures in research and development, Eurostat, 200523 Since the social capital appears to have a very weak correlation with each of these indicators, charts for this capital are notdisplayed here.24 For details on the normalisation method used, see methodological part

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Exhibit 20: Labour productivity and organisational capital

When considering the socio-cultural environment as a whole, a slightly positiverelation with the labour productivity is apparent.

Exhibit 21: Socio-cultural environment and labour productivity

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Socio-cultural environment and EPO patents

When considering the relation between EPO patents and cultural and organisationalcapitals, the picture appears rather clear, with the Nordic countries (plus Luxembourg

and Germany) performing well in terms of both capitals and having a high share ofEPO patents per million population.

Exhibit 22: Cultural capital and EPO patents

Exhibit 23: Organisational capital and EPO patents

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At the aggregated level of the socio-cultural environment as a whole, the relationshipwith the number of EPO patents per country is even clearer. The weaker the socio-cultural environment, the lower the number of EPO patents per million population.

Exhibit 24: Socio-cultural environment and EPO patents

Socio-cultural environment and BERD

Organisational capital shows the strongest relation with BERD. The Nordic countries

are the best performer for both aspects. Ireland is an interesting case where the levelof organisational capital is relatively high but the level of BERD low.

Exhibit 25: BERD and organisational capital

Looking at the correlation between cultural capital and BERD, the picture thatemerges is also interesting even if the relation is weaker than with organisational

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capital: a group of countries perform particularly well in both aspects namelySweden, Finland, Denmark, Luxembourg, Germany and the Netherlands.

Exhibit 26: BERD and cultural capital

As a whole, socio-cultural environment and the level of BERD is positively correlated.Sweden and Denmark in particular show high levels of BERD associated to strong

scores for socio-cultural environment; Germany and Austria on the other handperform very well in terms of BERD while the index of socio-cultural environment isjust below the European average. This could indicate that the sectoral composition ofan economy can compensate for weaknesses in socio-cultural characteristics.

Exhibit 27: BERD and the socio-cultural environment

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6.2 Policy implications of the socio-cultural environment

Organisational capital is considered as the most important socio-cultural factorinfluencing innovation activity in the food/drink sector. Countries in which the sector

of food and beverages is particularly strong (France, Italy, United Kingdom, Spain,Germany) are performing differently in terms of organisational capital in comparisonto the European average. Nonetheless these countries mainly belong to the newventures cluster.

From the previous analysis it can be highlighted that the corporate culture is animportant shaping innovation performance in the food/drink sector. The sector ismade of many small companies, often family-run, where background and experienceare making the knowledge base rather than theory. Nonetheless, young managerswith engineering skills or similar experience in other bigger companies could have apositive impact on the innovativeness of the sector.

In terms of cultural capital, countries with a strong food/drink are present in each ofthe clusters for cultural capital and are performing differently for this indicator.Policies targeting cultural capital would therefore be more efficient at national levelthan at European or sectoral level since national profiles are very different.

Food and beverages being part of the commodities, consumer responsiveness toinnovative products is less influenced by the income level than in other sectors. Inthis sector with strong competition, originality of the product and marketingcampaigns would be the most important factors influencing the consumer's readinessto pay for new products. Since non-economic aspects are increasingly decisive forconsumer's choice (e.g. for ethical, organic, functional, convenience food), producers

have to move-up the value chain and rely increasingly on voluntary standards andlabels to differentiate their products.

With respect to human capital countries in which the sector is particularly strong areperforming differently in comparison to the European average. This is not surprisingsince labour and education policies are typically of national competences.Nonetheless most of them belong to the same cluster of our analysis, namely rigidlabour market.

The food/drink sector has a specific profile in comparison to other manufacturingsectors with a lower than average share of higher educated personnel and a betterthan average implementation of training. According to the results of the survey it

would be especially lacking of highly specialised labour. Continuous improvement ofthe workforce skills is particularly important in the sector.

Regarding social capital, national profiles of good performers in the sector arediffering. Nonetheless most of the strongest countries in the sector belong to thesame cluster of our analysis, namely weak business links. Results of the surveyreveal indeed a low level of trust between actors of the innovation system, exceptbetween research organisations even if, as in other sectors, trust is regarded as animportant factor shaping collaboration activities in the sector.

Collaboration in the sector with suppliers and research institutes is common and isoften based on previous experience or on the existence of funding opportunities for

collaborative projects. Nonetheless, it is often determined by sharing of the samenationality/language and by belonging to the same sector.

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Annexes

Annex 1: Data sources for each indicator in each capital

Capital Indicator SourcesInterest in science

and technology Eurobarometer 224, QA1, interest in new inventions and technologies: veryinterestedAttitude towards

science Eurobarometer 224, QA15b.6, The benefits of science are greater than anyharmful effects it may have: agreeAttitude towards risk

from new

technologiesEurobarometer 224, QA12a.1, If a new technology poses a risk that is not

fully understood, the development of this technology should be stopped evenif it offers clear benefits: disagree

Attitudes towards

future Eurobarometer 225, Q7.2, The next generation will enjoy a better quality oflife than we do now: agreeAttitudes towards

environment Eurobarometer 217, Q11, Categorisation of the attitudes of European citizenstowards the environment: convincedAttitudes towards

other culturesResistance to multicultural society 2003 (index constructed by EUMC basedon Eurobarometer 59.2): "It is a good thing for any society to be made up of

people from different races, religions or cultures" and "(COUNTRY)sdiversity in terms of race, religion or culture adds to its strengths" ; reversed

values

Cultural

capital

andconsumer

behaviour

Customer

responsivenessEurostat, CIS3, Enterprises reporting the following factor as highly important

in hampering innovation activities, as percentage of all innovativecompanies: customer responsiveness, reversed values

Human resources in

science andtechnologyEurostat, HRST statistics 2005, Human resources in science and technology

as a share of labour force , Total

Nationality of HRST Eurostat HRST database, Share of non-national human resources in scienceand technology (HRST), aged 25-64 years

Higher education

(provision of higher

educated people)Eurostat Labour Force Survey Percentage of people with tertiary education

qualifications (ISCED 5 and 6) in the population aged 25-64, 2006

Human resources in

knowledge-intensive

servicesEurostat HRST database, Share of total employment in knowledge-intensive

service sectors, 2005

Job-to-job mobility

of employed HRST Eurostat HRST database, 2006 / job-to-job mobility of employed HRST in %Participation in life-

long learning Eurostat, Labour Force Survey, Population participating in life-long learningaged 25-74, 2006

Human

capital

Availability of

qualified personnelEurostat, CIS3, Enterprises reporting the following factor as highly important

in hampering innovation activities, as percentage of all innovativecompanies: lack of qualified personnel, reversed values

Cooperation with

competitorsEurostat, CIS4, 81/2007, Different types of cooperation partners of

enterprises by country, as a percentage of innovative enterprises: Competitorsor other enterprises of the same sector

Cooperation with the

academic worldEurostat, CIS4, 81/2007, Different types of cooperation partners of

enterprises by country, as a percentage of innovative enterprises: Universitiesor other higher education institutions

Social

capital

Customer as a

source of

informationEurostat, CIS4, 81/2007, Highly important sources of information for

innovation by country, as a percentage of innovative enterprises: clients orcustomers

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Trust Eurobarometer 225, QB8, In general, would you say that you trust otherpeople almost always, often, only sometimes, rarely, or almost never?Totalanswer Trust

Corruption Transparency international, CPI 2006, Corruption Perceptions Index EU-27

(from 10=clean to 0=highly corrupt)

Initiative at workEuropean Value Study.- Here are some more aspects of a job that people say

are important. Please look at them and tell me which ones you personallythink are important in a job?Q.13H An opportunity to use initiative,

mentioned, in%

Enpowerment WEF, Readiness of the management to delegate decisions to subordinates islow (=1) (the management takes all decisions by itself) to 7=high (a lot ofdecisions are taken by domains and respective levels)

Relation between

employers and

employeesWEF, Labor-employer relations in your country are 1=generally

confrontational to 7= generally cooperative

Risk

aversion/entreprene

urship Eurobarometer Flash 160 Q12: one should not start a business if there is arisk it might fail: disagreeSMEs which

introduced an

organisational

innovation

CIS3, Number of SMEs who have either introduced new or significantlyimproved knowledge management systems, a major change to the

organisation of work within their enterprise or new or significant changesin their relations with other firms or public institutions

Organisat

ional

capital

andentrepren

eurship

Organisational

rigiditiesEurostat, CIS3, Enterprises reporting the following factor as highly important

for innovation activities, as percentage of all innovative companies:organisational rigidities, reversed values

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Annex 2: Cultural capital and consumer behaviour, indexes (Basis 100 =European mean)

Cultural

capital andconsumer

behaviour

Interest in

scienceand

technologyOptimismtowards

science

Attitude

towards riskfrom new

technologiesAttitudetowards

futureAttitudetowards

environment

Attitude

towardsother

culturesCustomerresponsive

nessCulturalcapital

index

AT 77 93 85 88 135 100 102 97BE 112 103 113 76 117 86 102 101CY 173 107 80 105 70 83 101 103CZ 77 85 174 111 35 74 103 94DE 118 89 108 80 170 90 100 108DK 109 101 155 76 147 115 107 116EE 90 112 113 136 59 61 97 95EL 131 93 47 91 53 50 97 80ES 86 111 56 118 117 121 95 101FI 96 97 117 93 158 112 104 111FR 128 97 80 56 70 112 105 93HU 109 122 122 125 70 113 90 107IE 86 97 80 115 94 122 95 98IT 51 111 61 116 41 104 101 84LT 45 122 85 144 94 92 101 98LU 131 95 160 61 153 119 102 117LV 83 81 66 129 88 71 102 89MT 147 103 66 111 76 102 102 101NL 134 76 193 58 229 110 104 129PL 67 126 103 125 59 103 99 97PT 58 116 61 120 129 111 99 99SE 125 99 136 70 112 117 102 109SI 83 78 38 75 117 119 100 87SK 77 91 66 123 53 99 97 86UK 106 95 136 98 53 115 92 99

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Annex 3: Human capital, indexes (Basis 100 = European mean)

Human

capital

Human

resourcesin science

and

technologyNationa

lity of

HRST

Higher

education

(provisionof higher

educated

people)

Human

resources inknowledge-

intensive

services

Jo