Tài liệu OPEN INNOVATION AND NANOTECHNOLOGY - AN OPPORTUNITY FOR TRADITIONAL INDUSTRIES ppt

OPEN INNOVATION AND NANOTECHNOLOGY
- AN OPPORTUNITY FOR
TRADITIONAL INDUSTRIES
Tuomo Nikulainen
M. Sc. in Economics
Etlatieto Ltd. / ETLA (The Research Institute of the Finnish Economy)
Lönnrotinkatu 4 B, 00120 Helsinki, Finland
11.4.2008
TABLE OF CONTENTS
Abstract 1
1. INTRODUCTION 2
2. LIFE CYCLES AND R&D COLLABORATION 4
2.1. Industry life cycles 4
2.2. Technology life cycles 4
2.3. R&D collaboration and absorptive capacity 5
3. THE FINNISH PULP AND PAPER INDUSTRY 7
3.1. Technological change in the paper and pulp industry 8
3.2. Nanotechnology and pulp and paper industry 10
4. DATA AND RESULTS 12
4.1. Technology life cycles 12
4.2. R&D collaboration 13
4.3. Challenges in adopting nanotechnology 16
5. CONCLUSIONS 19
References 21
APPENDIX I – Detailed technology classifications
1
Abstract
This paper focuses on assessing modes of R&D collaboration and technological
lifecycles in the Finnish pulp and paper industry. This traditional and mature industry
is currently going through changes due to market and technological developments.
By observing industrial and technological lifecycles, this paper aims to establish to

what extent these changes affect the R&D collaboration networks in the industry.
The paper also provides insight how the incumbents in this industry change their
innovation activities in the face of new science-based technology – nanotechnology.
The quantitative and qualitative results suggest that the Finnish pulp and paper
industry is adapting to the changing innovation environment by increasing in-ternal
R&D investments, and extending and diversifying their R&D collaboration networks.
The results also indicate that nanotechnology is seen as a potential new source of
business for the pulp and paper industry, but requires investments to absorptive
capacity in order to take advantage of new technologies.
2
1. INTRODUCTION
Every industry goes through a life cycle starting from the emergence phase and
eventually reaches stabiliza-tion stage where the markets are dominated by few
companies. Coinciding with this evolution, which is often cited as the industry life
cycle, is the technological change that affects the industry. These technological
developments and their cyclical nature are referred to as technology life cycles,
which have a significant impact on the different stages of industry life cycles. When
an industry reaches its stabilization stage and the industry becomes more mature,
the innovative capabilities of the incumbent companies start to play an important
role. Mature industry can benefit from the oligopolistic market situation for a while,
but eventually new technologies start to substitute the existing technologies due to
the competence destroying nature of the new innovations. Thus the incumbents
survive through their complementary assets or by adapting the new technologies in
their own products and processes. One potential solution is the adaption of new
technologies by diversifying the innovative activities in the industry.
The Finnish pulp and paper (henceforth P&P) industry is a good example of a sector
that has undergone the whole industry life cycle and is currently in the stabilization
stage. In addition, the industry is a phase of technology life cycle where the existing
technologies develop incrementally and new more radical technologies are seen as a
source of new potentially radical product and process innovations. Although the new

emerging technologies are seen as potential source of industrial renewal for the P&P
industry, the ability of the incumbents to take advantage of these technological
developments is still unclear. One of the potential new science-based technologies is
nanotechnology, which can both provide incremental solutions in short-term and
more radical innovations in long-term for the P&P industry.
This study contributes to the existing knowledge of industrial and technological life
cycles by observing the changes in R&D collaboration networks in different stages of
technology life cycles in a sector specific context and focusing on a traditional and
mature industry. The existing literature on R&D collaboration focuses mostly on
high-tech industries and fails to introduce heterogeneity across different sectors.
This paper brings forth the discussion of sectoral differences in R&D collaboration by
using a traditional ‘low-tech’ industry as an example. In addition the emergence
nanotechnology, which is highly relevant for the P&P industry, is analyzed by
discussing what kind of specific challenges nanotechnology brings to this industry in
utilizing the R&D efforts conducted outside of the company – most notable in the
public R&D sector.
The main research question in this paper focuses on the changes in the P&P industry
towards more open R&D collaboration. Moreover, the current paper aims to address
changes in technology life cycles over time in the industry, nature of the external
R&D collaborations, modes of responses to potential technological changes, and new
challenges that nanotechnology brings to the technology transfer from academia to
the P&P industry.
This paper is organized as follows: Section 2 provides the analytical framework by
discussing the industry and technology life cycles, and R&D collaboration; in Section
3 the Finnish pulp and paper industry is presented to highlight the links between
industry and technology life cycles, and to review the current developments in the
markets and in the related technologies - especially the connection between paper
3
and pulp industry and nanotechnology are discussed; in Section 4 data used in the
analysis and the results are presented; and in Section 5 conclusions are drawn.

4
2. LIFE CYCLES AND R&D COLLABORATION
The theoretical framework of the present paper draws upon comes from different,
although related, streams of literature. Industry life cycle is a concept which links the
intensity of competition in a particular industry with the time since the breakthrough
innovation that made that market possible. This cycle is often connected to
technological life cycle which describes the maturity of the technologies employed by
the industry. These life cycles are related to R&D collaboration networks as
companies organize their innovative active differently in each stage of industry and
technology life cycle. Building on conceptual work of the connection between life
cycles and R&D collaboration (Beije and Dittrich 2007), the discussion below will
focus more on mature industries where the technology life cycles play an important
role in industrial renewal.
2.1. Industry life cycles
The discussion of industry life cycles links the competition dynamics of an industry
with the temporal as-pects starting from the emergence of market creating
innovation (Gort and Klepper 1982; Klepper 1996, 1997). Typically an industry life
cycle passes through five distinct stages: 1) a dormant stage with low numbers of
competitors enjoying monopoly profits; 2) an emergence stage with high entry and
low exit from the market; 3) a high turnover stage with many companies entering the
market and leaving it; 4) a volatile stage with mass exit via e.g. mergers and
bankruptcies; and 5) a stabilization stage during which a stable oligopoly emerges.
The different stages of industry life cycle are associated with the technological life
cycles that affect the product and process innovations relevant for the industry.
Although technological life cycles play an important role in evolution of an industry
there are other factors that may launch industry lifecycle include, such as
government intervention (e.g. deregulation), and liberalisation of external trade (Gort
and Klepper 1982). In this paper the focus is on the late stages of industrial life cycle
where the oligopolistic incumbents are threatened by exogenous elements such as
globalization and technological change.

2.2. Technology life cycles
Technology adoption is the most common phenomenon driving the evolution of
industries along the different phases of industry life cycle. Usually a technology life
cycle passes through four different stages: 1) a R&D phase with high investments in
exploration and where the prospects of failure are high; 2) an ascent phase with
technology beginning to gather strength through wider adoption; 3) a maturity
phase with dominant design and high revenues; and 4) a decline with reducing gains
and utility of the technology due to a new technological life cycle. An end of a
technology life cycle can impact an industry to an extend that the industry either
goes to a new stage of industry life cycle or creates totally new industry life cycle.
The reason for the potentially revolutionary impact to industry stems from the
technology in question.
The nature of innovation is an important question for incumbents in the potential
application industry (Teece 1986). Innovations can be divided into incremental and
radical innovations. Incremental innovation builds on existing knowledge and relies
5
on existing competences. Hence incumbent companies are quick to adapt such
innovations. On the other hand radical innovations, which build on new knowledge,
can sometimes be viewed as competence-destroying innovations (Tushman and
Anderson 1986). For these types of innovations incumbents might have difficulty
utilising the full potential of these new technologies as they might fail to have
suitable knowledge in-house to take advantage of the technological opportunities.
Thus depending on the nature of the technology in question the existing literature
takes the view that the role of incumbent companies depends on its complementary
assets (e.g. Teece 1986; Mitchell 1989, 1991; Tripsas 1997; Hill and Rothaermel
2003; Teece 2006). Later in this paper the different technology life cycles affecting
P&P industry are presented.
2.3. R&D collaboration and absorptive capacity
The recently coined term ‘open innovation’ embodies many of the R&D collaboration
related aspects to be discussed in this paper. Discussion of open innovation can be

seen as a synthesis of research on external R&D collaboration and organization of
R&D activities within companies. It is a business model where the key notion is to
create value through innovation and capture a portion of that value (Chesbrough
2003; Chesbrough et al. 2006; Chesbrough 2007). Although open innovation is a
business model which takes a more holistic view on corporate activities such as role
of R&D collaboration, corporate venturing and use of IPR‘s to generate additional
revenue, the current paper focuses mostly on the first topic. The other aspects of
open innovation are left outside the main research scope of this paper, but are
discussed briefly to provide overall picture of the relevance of open innovation in the
Finnish P&P industry.
In the existing literature on open innovation and R&D collaboration the focus has
been more on industries with high R&D intensity. These studies have overshadowed
the more traditional industries where R&D intensity is often low. Therefore it would
be useful to discuss the differences of open innovation in different sectors in
different stages of industry and technology life cycles. Beije and Dittrich (2007)
divide the different modes of R&D collaboration by taking into account the sectoral
and cyclical differences (see also Pavitt 1984; Audretsch and Feldman 1996). Beije
and Dittrich (2007) discuss the different stages of technology life cycles and R&D
collaboration as follows: 1) an exploration phase with various modes of collaboration
to co-develop and gain access to potential new technologies; 2) a fluid phase with
collaboration aimed towards specific application areas; 3) a transitional phase with
emergence of dominant designs and standards; and 4) a specific phase with variety
of collaborative modes. During the emergence of a new technology (exploration
phase and fluid phase) the incumbents collaborate through various modes of to co-
develop or get access to technology. Once the potential technologies are identified,
the incumbents collaborate to enter specific regions with own technology or to co-
develop ‘extra’ designs. When the industry specificities are taken into account, the
potential actions of the incumbents are more detailed. In a single product industry,
such as P&P, the incumbents’ access the new technologies through the most
advanced suppliers of the ‘old’ dominant design. In addition, they co-development

various designs, depending on the breadth of the supply network (in addition to
other alliances). Beije and Dittrich (2007) also take into account the different types of
technologies in question, and this aspect will be discussed in greater detail when the
P&P industry related technologies are discussed.
6
Before going into the discussion of the P&P industry and the role of R&D
collaboration in its innovative process, it is useful to take a glance why companies
engage in this type of activity. R&D related co-operation outside the company
boundaries can be divided into two types: exploitation and exploration (March 1991).
Exploitation is co-operation where a company aims to acquire knowledge that is use
in its existing operations. Thus it is drawing on a similar knowledge base that the
company has and hence this knowledge is more easily adapted to the existing R&D
activities. Exploration is based on scanning the environment for new potential
technological solutions that might have significance for the company, but direct link
to existing operations is looser than in the exploitation type of co-operation. This
discussion of exploitation versus exploration is very closely linked to the discussion
of the role of incumbent’s complementary assets in technology life cycles. There is
also empirical evidence of the optimal form of collaborating in R&D (Laursen and
Salter 2006). They observed that the use of different sources of knowledge and
importance of these sources in order to analyze how open innovation and open
search strategies, in terms of depth and breath, are affecting innovative
performance. They found that searching widely and deeply is curvilinearly (taking an
inverted U-shape) related to performance. This finding indicates that very low or very
high involvement in R&D collaboration fails to yield results that can be achieved by
finding the right balance between the depth and the breath of collaboration.
The discussion of R&D collaboration is also related to the ability of companies to use
the information acquired from the collaboration. The term ‘absorptive capacity’ has
been coined to illustrate the capabilities of companies in the acquisition and
utilisation of external knowledge (Cohen and Levinthal 1989). It measures a
company’s ability to value, assimilate and apply new knowledge. Absorptive capacity

is one of the reasons companies invest in internal R&D instead of simply buying the
results (e.g. patents) (Cohen and Levinthal 1990). To enhance internal absorptive
capacity, companies resort to a variety of activities. As the incumbent identifies an
interesting new technology and begins to explore its potential uses in-house, the
project management aspect within companies comes into play. The main problem in
finding the right projects which yield to most value are difficult to identify. The
discussion of false positives and false negatives becomes important (Chesbrough
2004). As company tries to identify the most important projects it might reject useful
ideas or proceed with ideas that eventually yield to direct benefit to the company.
This increases the significance of in-house competences in identifying ‘right’
projects. Another aspect that has an impact on using external sources of knowledge
is the ‘not invented here’ - syndrome (Katz and Allen 1985; Rosenberg and
Steinmueller 1988).
By reviewing some of the relevant contributions in the literature, this paper provides
the framework where the Finnish P&P industry is analyzed. Before going into the
discussion of data and results, it is useful to review the Finnish P&P industry in more
detail. In the following section the significance of Finnish P&P industry in Finland is
discussed, as well as the currently market situation and the role of technological
change within the industry.
7
3. THE FINNISH PULP AND PAPER INDUSTRY
The P&P industry was the first pillar of the Finnish economy since the late nineteenth
century and its development highlights the progression of the Finnish economy from
the resource- and investment-driven stages, to the knowledge-driven stage.
1
The
current development in the industry started through a phase of technological and
productivity gains in the 1970s, which was investment driven that resulted in
massive capital investments to spur productivity in existing P&P segments and
directed the attention toward higher value-added products to gain new markets.

Currently the P&P industry is in the phase of consolidation and globalization which
are marked by rapid internationalization and globalization of production activities.
Nowadays the Finnish P&P industry is well developed and coherent industrial cluster
around the core product groups of high-grade pulp and paper products. The overall
contribution of the P&P industry to the Finnish economy has been and is still
significant. In the 1980’s the P&P industry accounted from around 30% of exports
from Finland, a level that was maintained until the mid 1990’s when the emerging
ICT sector in Finland started to grow. Today the P&P industry accounts to around
15% of exports.
The rapid internationalization and globalization has had, especially in the most
recent, a significant impact on the P&P industry globally. The newly industrialized
countries (such as China, India and Latin America) have entered the global
competition with new raw material qualities and cheaper production costs, which
coupled with the negative changes in demand structure in the current main markets,
pose challenges for the existing structure of the global P&P industry. Additional
challenges come from the increasing awareness of sustainability issues, the need for
environmental control in P&P production and closer integration with the EU, which
made some of the national policy instruments (e.g. devaluation of currency)
obsolete. The entry of new countries into the already intensive competition requires
the old established incumbents to development and produce of new specialty
products. This requires close collaboration with customers abroad and thus provides
additional challenges for the production activities in Finland. This is evident from the
recent investment activities as the Finnish P&P industry has invested recently mostly
in developing countries (e.g. China and Latin America) which are seen as major
emerging markets.
If the evolution of the Finnish P&P industry (or even the global P&P industry) is
compared to the different stages of industry life cycles, it is evident that the industry
is in a stabilization stage. There are few almost oligopolistic companies and while
there are changes in the market structure, the major actors have fairly strong
position. Although the market situation is somewhat stable, the emergence of new

competitors from new countries and the technological changes that are taking place
suggest that there is a real potential for a new industrial life cycle. This is true
especially in the current main markets where demand is declining is some of the core
P&P products.
The technological developments affecting the industry, through which productivity
gains and product diversification are hoped to emerge, are posing new challenges
and opportunities for the industry. The technological development in ICT,
1
A more detailed description of the history of the Finnish forest industry can be found in Paija &
Palmberg, 2006 (In Dahlman, Routti & Ylä-Anttila (Eds.), “Finland as a Knowledge Economy - Elements of
Success and Lessons Learned”, Ch. 6.)
8
biotechnology, nanotechnology and changes in environmental regulation are the
main areas that have an impact on the P&P industry. The R&D efforts have been
typically collaborative among main Finnish P&P conglomerates (i.e. Stora-Enso, UPM-
Kymmene, M-Real and Myllykoski), machinery and equipment suppliers, universities
and research institutes. This paper aims to understand how these larger
conglomerates in this industry cope with the changes in this fairly close-knit R&D
environment. Thus, in the following the innovative active of the Finnish P&P industry
is reviewed in greater detail.
3.1. Technological change in the paper and pulp industry
The core of the knowledge base and technologies employed in the Finnish P&P
industry are related to process engineering and mechanical engineering. Process
engineering plays a role in the pulp production and in paper coatings. Mechanical
engineering is important in the process of turning the pulp in to paper (and also
turning wood into pulp), but some of the development work related to paper
machines is conducted by suppliers. The in-house knowledge of the incumbents has
increased due to close co-operation with suppliers and thus the knowledge base is
very strong in these two areas. The relevant technologies have naturally evolved over
time, but this industry has escaped any competence destroying innovations for

decades. The inputs of production have not changed significantly, while the
incremental development has been more frequent in the machinery side. The
engineering knowledge in paper and pulp, related process engineering and
mechanical engineering has been and is among the best in the world in Finland, as
the core products in this industry have not changed dramatically. Hence the
knowledge base and technologies employed by the industry are highly focused in a
narrow range of areas.
The concentrated knowledge base potentially creates a problem, when the demand
for the existing products starts to diminish. With declining demand for existing
products companies usually try find new markets or to introducing new products to
the existing markets. In the latter case the change in product portfolio requires new
skills often outside the established companies. Thus if companies wish to enter new
product markets, they need to acquire or co-operate with partners who possess the
necessary skills for the development of the new products.
The actors in the Finnish paper and pulp industry related system of innovation can
be divided into four different groups: established conglomerates (incumbents),
suppliers (incumbents in chemistry and paper machine engineering), research
institutes and universities.
The incumbents in this industry are Stora-Enso, UPM-Kymmene, M-Real and
Myllykoski. All of them are either top ten companies in global P&P markets or have
significant market shares in certain submarkets. The other important industries for
the P&P industry are the suppliers of machinery and chemicals, which are one of the
traditional sources of innovation in P&P. Thus, when considering the innovative
active of the sector the role of suppliers should be taken into account. It should be
noted that much of the R&D stemming from the related industries is often
incremental by nature, but they also might provide a pathway for introduction of
more radical innovations.
Research institutes have a very important role in the innovation activities of the
Finnish P&P industry. There are two public and one private research institutes, which
9

have activities aimed towards P&P industry. Metla (Finnish Forest Research Institute)
conducts research on supply of forest related raw material and different uses of
forests. It is more orientated towards mechanical forestry; although many of the
aspects are related to the production of P&P. VTT (Technical Research Centre of
Finland) is the leading research institute in applied research in Finland. It operates in
a variety of technological fields and is very active in P&P related R&D. VTT’s P&P
related activities range from R&D on raw materials to end-products. KCL is a private
research institute owned by the Finnish P&P incumbents. KCL is the key operator in
P&P related R&D in Finland. Their activity is directed towards applied research, which
can be adapted quickly to commercial use. Their research programs cover the whole
papermaking value chain, including the use of printed and packaging products.
Due to the economic significance of the P&P industry in the Finnish economy most
universities are involved in P&P related R&D at least to some extend. Finnish
universities having more P&P related activities are Lappeenranta University of
Technology, Helsinki University of Technology, Åbo Akademi, University of Oulu,
University of Helsinki and University of Jyväskylä. Naturally the role of universities is
to conduct basic research thus advancing the scientific knowledge, but quite often
the research projects do have a partner from the industry. In Figure 1 the traditional
view of the P&P innovation network is presented to illustrate the different actors and
their significance in R&D collaboration.
Figure 1. Traditional innovative interactions in the Finnish paper and pulp industry
Innovation related networks and types of co-operation in the P&P industry vary
depending on the partner in question. The main partners in the traditional R&D
related networks are the suppliers (chemical and machinery industries), KCL (the
private research institute owned by the incumbents), public research institutes and
universities. The closest co-operation in R&D has been traditionally with KCL and the
suppliers. Although public research institutes and universities play a role in the R&D
efforts in the P&P industry, the incumbent owned research institute KCL can be seen
as a filtering much of the knowledge coming from public institutions. This network is
mostly national, although there are some connections to international partners

especially on the supplier side.
10
3.2. Nanotechnology and pulp and paper industry
In addition to the broader perspective of the R&D activities in the P&P industry, this
study aims to analyze how the incumbents cope with the emergence of a new
science-based technology – nanotechnology. Nanotechnology as a newly emerged
science-based technology poses some new challenges for large incumbents which
might benefit for the technological and scientific advances. One of the key
challenges is the multidisciplinary nature of nanotechnology and nano-related
sciences (Shea 2005; Palmberg and Nikulainen 2006). Nanotechnology and
nanosciences draw upon a variety of different disciplines. It is related to both organic
and inorganic disciplines, such as physics, chemistry, biology and biosciences.
Therefore for an incumbent to scan and be able to utilize all the relevant sources of
knowledge poses new challenges.
The current developments in nanotechnology can be divided into two different
approaches: more incremental top-down approach and more radical bottom-up
approach. The top-down approach aims at miniaturisation of current technological
solutions. Thus the majority of contemporary applied R&D in top-down
nanotechnology builds on prior knowledge and is thus more incremental by nature
(Igami and Okazaki 2007; Youtie et al. 2007). The radical nature of nanotechnology
is most likely linked to the emergence of in-novations that build on bottom-up
approaches, where the innovations rely on molecular level manipulation rather than
the current advances in miniaturisation. The R&D efforts related to bottom-up
approaches are still mostly basic research orientated, while more applied research is
predicted to emerge in the mid- to long-term (Hullman 2006).
In this paper the focus is not on the general development of nanotechnology but
rather focus on single industry and to see what kind of new challenges emerge in the
adoption of nanotechnologies. This paper will only analyze activities in
nanotechnology at a general level and keeping the technological aspects outside the
scope of this paper. Broadly speaking the nano-related activities in Finland that

might have technological potential in the Finnish paper and pulp industry are:
functional paper, smart paper, printability, and in the physical properties of paper
through advances in instrumentation (for more technology related discussion see
Reitzer 2007).
There is patent analysis based evidence of potential nanotechnological linkages in
the Finnish economy (Nikulainen 2007). These potential technological linkages based
on similarity in patenting activity between smaller nano-dedicated companies and
larger incumbents in various industries. In Table 1 the distribution of the identified
industries is illustrated.
11
Table 1. Industries potentially linked to nanotechnology in Finland
Industry
# of
companies
%
Electronics 3 6
Foodstuff 4 8
Energy 1 2
Chemicals and
pharmaceuticals
9 18
Metal engineering 12 24
Paper and forest 5 10
Miscellaneous 6 12
Packing 1 2
Construction 4 8
Textiles 1 2
Wholesale 2 4
Services 2 4
Total 50 100

Source: Nikulainen (2007)
It is clear that nanotechnology is potentially linked to a variety of different industries
representing both high-tech and low-tech industries. With respect to this paper the
most interesting finding is the number of paper and forest related companies. While
in the other industries the market structure is usually less concentrated, the paper
and forest industry (including P&P industry) is quite consolidated in Finland. When
looking more in-depth at the actual incumbent companies, they are in fact the
largest P&P companies in Finland (i.e. Stora-Enso, UPM-Kymmene and M-Real). In
addition many of the traditional sources of innovation (i.e. suppliers) are also
potentially linked to nanotechnology.
As nanotechnology is currently an incremental enabling technology, the incumbents
in the P&P industry might have a very important role in adapting nanotechnology to a
wider use. The incumbent companies can act as industrialists in the
commercialisation of innovation introduced by the smaller science-based companies
(Carlsson and Eliasson 2003; Luukkonen and Palmberg 2007). By incorporating the
novel technologies to the existing products and processes, incumbents gain
competitive advantages and at the same time provide commercialization paths to
smaller nanotechnology orientated companies, research institutes and academia. In
the analysis presented in the next section this paper focuses on the challenges in
nanotechnology transfer from academia to P&P industry.
12
4. DATA AND RESULTS
This paper uses several different types of data to analyze the proposed research
questions. First, patent data is used to illustrate the changes in the internal
knowledge bases of the Finnish P&P industry. Second, Community Innovation Survey
(CIS) data is used to analyze the innovative activities of P&P industry with emphasis
on external sources of knowledge. Third, a researcher level survey data is used to
specify aspects related to nanotechnology transfer from academia to industry in
research areas where forest industry is seen as one potential application area.
Finally, interviews with industry, research institute and academia representatives are

used to verify some of the quantitative findings providing insights to the activities
related R&D collaboration and to the absorptive capacity of the P&P industry with
respect to nanotechnology.
2
4.1. Technology life cycles
To assess the technology life cycles this paper uses EPO (European Patent Office)
patent applications from 1979 to 2006 (based on the priority year), which are
assigned to the Finnish P&P industry incumbents. As presented earlier the innovative
activity in the industry has focused on two major technological areas - process
engineering and mechanical engineering (see Table 2).
Table 2. Patenting activity in the Finnish P&P industry (1979-2006)
# of EPO
patent
applications
Electrical engineering 10
Instruments 14
Chemicals and pharmaceuticals 14
Process engineering 212
Mechanical engineering 87
Consumer goods and civil engineering 9
Total 346
Source: Delphion-online
The patents indicate that the incumbents have been active only few technological
areas. If these areas are viewed in greater detail, it is evident that the technological
expertise is concentrated in fields of thermal processes, materials processing and
handling (see Appendix I). Although these results provide insights to the related
technologies, the technology life cycles develop over time. To analyze the
2
These interviews were conducted between Sep 2006 and Dec 2007. In total six interviews were
conducted (three from industry, two from research institutes and one from academia). While the number

of interviews is fairly low it should noted that there are four established large companies in Finnish P&P
industry (and the interviews represent three of the companies).
13
technological life cycles the technological development can be observed by viewing
the changes in patenting over time (Figure 2).
0
5
10
15
20
25
30
35
1979
1980
1981
1982
1983
1984
1985
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
# of patent applications
Electrical engineering Instruments Chemicals and pharma
Process engineering Mechanical engineering Cons. goods and civil eng.
Note: Last years of the data set are affected by the application process lags in the EPO.
Figure 2. Timeline of patenting activity in the Finnish P&P industry (1979-2006)
The patent application timeline shows there are two technological life cycles. The
first one is related to the existing core technologies (i.e. process engineering and
mechanical engineering) in pulp and paper produc-tion. This technology life cycle
seems to be in its mature phase. The other technology life cycle is the new emerging
technologies represented here by the increase of electrical engineering patenting
(i.e. applications related to ICT) in the last years of the time series. This technology
life cycle is in its R&D phase where heavy investments are made to explore the
different emerging technologies. These two technology life cycles currently co-exist
without affecting greatly each other, but in due course this co-existence can change.
This appearance of a new technology life cycle can also have an impact on the R&D
collaboration networks of the P&P industry.
4.2. R&D collaboration
The changes in R&D related collaborative networks are addressed in this paper by
using the Community Innovation Survey data. Overall this survey includes measures
of innovation related expenditure, rates of innovation, and assessment of factors

encouraging or hindering innovation. The most interesting data, with respect to this
paper, is related to co-operation and sources of new knowledge. To illustrate the
14
differences of the Finnish P&P companies
3
are compared to all other Finnish
manufacturing companies. In Figure 3 the results of innovative co-operation for the
P&P companies are compared to the average of all the respondents from
manufacturing industries in Finland.
Innovation co-operation during 2002-2004
0% 10% 20% 30% 40% 50% 60% 70%
Within company
Suppliers
Clients or customers
Competitors
Private R&D institutes
Universities
Public research institutes
Pulp and paper (50+ empl.) All manufacturing industry
Source: Statistics Finland
Figure 3. Innovation co-operation during 2002-2004
The differences between the two groups are evident. The Finnish P&P industry co-
operates more within the company (i.e. conglomerate), suppliers, customers, and
private R&D institutions (i.e. KCL). On the other hand there is less the co-operation
with competitors and public research institutes (e.g. VTT). Universities seem to be
collaborative partners for both the P&P industry as well as for the all manufacturing
companies.
While above the partners of R&D related co-operation were discussed, the
importance of each source is also relevant to understand the depth of the
interaction. Based on the CIS data the importance of these sources of information are

indicated in Figure 4.
3
Here defined to be NACE 21 with 50+ employees. NACE 21 is defined to be ‘Manufacture of pulp, paper
and paper products’. Due to confidentiality reasons data solely for large companies (250+ employees) was
not available.
15
Highly important source of information for innovation during 2002-2004
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Within company
Suppliers
Clients or customers
Competitors
Private R&D institutes
Universities
Public research institutes
Conferences
Journals and publications
Associations
Pulp and paper (50+ empl.) All manufacturing industry
Source: Statistics Finland
Figure 4. Highly important sources of information for innovation during 2002-2004
It is clear that the P&P industry views all of the sources more important compared to
the overall manufactur-ing companies, but few differences can be observed. The role
of suppliers stands out as does the competitors. It is also interesting to see that
again the universities and public research institutes are not very important sources
of information for most of the incumbents in the industry. This might suggest that
not all of the in-cumbents are exploring new technologies but rather they aim to
develop the existing technologies with the suppliers and customers.
The CIS data provides a picture of an industry that is operates in very supplier
dominated innovative environment. Unfortunately the CIS data does not provide

comparable time series to observe changes over time and thus the interviews from
the industry provide interesting insights. The companies reported that there has
been a shift in the last years from supplier dominated innovation towards more
science-based innovation system, where universities and public research institutes
are becoming more important. In Figure 5 both R&D related networks are illustrated.
16
Traditional innovation system
(Existing products)
Science-based innovation system
(New products)
Figure 5. The two R&D related collaborative networks in the pulp and paper industry
The new collaboration network is labelled as science-based innovation system, where
the role of suppliers has reduced. While the new R&D network is related to exploring
potential technologies and applications, the more traditional R&D collaboration
network is used in more exploitative manner. While the science-based innovation
system can be new to the P&P industry, some observations can be highlighted based
on the industry interviews. First, the traditional system of innovation co-exists with
the newer science-based innovation system. The traditional system is related to the
existing products and processes, while the new R&D network draws upon the
advances in basic and applied sciences. Second, the emergence of science-based
innovation system has not occurred for all of the P&P companies. Some of the
established companies are more focused on the traditional innovation system and
thus relying on niche markets of their existing products and processes to keep up
with the changes in the markets. Third, based on industry interviews the science-
based innovation system is more international when compared to the traditional
innovation system.
In the following this paper turns the attention to more specific context to analyze the
challenges in technol-ogy transfer related to nanotechnology and the efforts P&P
companies are making through their absorptive capacity.
4.3. Challenges in adopting nanotechnology

Earlier in this paper the role of nanotechnology for the P&P industry in industrial
renewal was discussed. It is clear that nanotechnology is a very most potential
source of new products for the industry. Nanotechnology was also potentially
technologically linked to P&P industry. Therefore in the following analysis the focus
is on how does the scientific knowledge and possible associated technologies
transfer to the industry. By comparing views of nanotechnology researchers whom
see the P&P industry as potential application area for their current research to other
science-based researchers, the challenges in the technology transfer can assessed.
The analysis is based on a survey data collected in fall 2006, which focused
17
technology transfer related aspects. The data and more general results are
summarized in an earlier study (Palmberg et al. 2007).
There are empirical results, using the same data as in this paper, which show the
university researchers view the challenges very differently to the companies
(Palmberg 2007). In the current paper the focus will be solely on the P&P industry as
only the respondents whom viewed forest industry (including the P&P industry) as a
potential application area for their current research are included. The responses of
the academic researchers are compared to the other respondents that do not view
the industry as a potential application area. In Figure 6 the results from this
approach are shown.
Universities
1 2 3 4
Firms’ lack of interest
Lack of production technologies
Insufficient know ledge of business
Ownership issues
Communication problems
Challenges of commercial applications
Basic research orientation
Passive researchers

Forest (n=75) Other (n=322)
Companies
1 2 3 4
Lack production technologies
Researchers’ insuf f. bus. skills
Ownership issues
Communication problems
Challenges of commercial applications
Basic research orientation
Passive researchers
Forest (n=16) Other (n=63)
Figure 6. Differences in challenges in technology transfer - the forest industry
There are clear differences in the results between university researchers with respect
to their potential application area. It seems that university researchers with forest-
related research activities are more likely to view challenges in areas related to more
applied research (e.g. insufficient business knowledge and lack of production
technologies). The researchers with no forest-related application in mind perceive
more basic research related challenges (e.g. basic research orientation and firm’s
lack of interest). For the company researchers the differences are some what similar
as the forest-related researchers seem to have fewer challenges related to applied
research (e.g. challenges of commercial applications and insufficient business
knowledge). Overall the researchers related to forest industry perceive fewer
challenges in the technology transfer than the other company researchers. This
could indicate that the company researchers are able to take advantage of the
academic research activities and thus potentially enhancing the absorptive capacity
of their company.
This leads us to more detailed discussion of absorptive capacity of the P&P
incumbents with respect to nanotechnology. Absorptive capacity is hard to measure
as it comprises of identifying and utilizing external sources of knowledge. Some
1

8
suggest that through a proxy such as R&D intensity can be used to measure
absorptive capacity (e.g. Cohen and Levinthal 1989), but this type of crude measure
only provides hint of internal absorptive capacity and only in a context where e.g.
several industries are compared to each other. Therefore it is reasonable to rely on
different type of data to analyze this aspect, especially when the focus is on a single
technology.
The P&P industry views nanotechnology as a very potential new source of innovations
and are taking steps to assess its usefulness. Based on the industry interviews it is
clear that some of the P&P companies are responding to technological changes by
increasing their overall internal R&D investments. This increase is aimed at the
existing technologies, but also towards more explorative areas such as
biotechnology and nanotechnology. Some of the companies are heavily trying to
recruit new research engineers and have corporate venture functions within the
company that are assessing the potential of different nanotechnology applications.
These corporate venture business units are still fairly small scale but are enhancing
the absorptive capacity through more efficient scanning of external sources of
knowledge, project screening, and use of IPR’s to generate additional revenue. If
compared to the definition of open innovation, it is evident that some of the
companies are embracing the concept in all its dimensions.
Although it seems that nanotechnology could bring provide new products and
processes for the incumbents, there are few alarming aspects that are worth
mentioning. First generally speaking, it should be noted that not all of the
companies are involved in active open innovation type activities. Instead these
companies rely on niche markets and are making limited investments in R&D. While
this might work for now, it is evident that eventually there will be a technological
change that will cannibalize the market. The disruptive innovation might come from
application of ICT or nanotechnology as they might change the demand for paper
products. Biotechnology and bio-fuels can be seen as an opportunity to expand the
current product line, but it should not have impact on the current main products of

the P&P companies. Also alarming is the finding that incumbent companies are only
interested in innovations that might create businesses worth minimum 100-150
million euros. Having such a high demands for the new innovation is potentially
harmful to the incumbents if they lack the ability to take advantage of the smaller
business ideas and the innovation behind them. In addition, the requirement of new
engineers (and even more nano-specialists) is difficult as the P&P industry is viewed
old-fashioned, conservative and less innovative than other industries. Finally the
industry interviewees reported that nanotechnology is still quite basic science and
has mostly provided solutions on the instrumentation side which has provided tools
for further understanding of small-scale properties of e.g. fibres. Nanotechnology
was seen as very potential future technology, but it has a long way to go before
playing a major role in the P&P industry.
19
5. CONCLUSIONS
This paper aims to bring more insight of the role of R&D collaboration in the low-
tech sectors by using the Finnish pulp and paper industry as an example. This scale-
intensive industry has a strong technological knowledge base in its existing products
but the ongoing changes in the market and in the emerging technologies are posing
new challenges. One of such a new emerging technology is nanotechnology. By using
several different data sources this paper focuses on the P&P industry and answers
questions about R&D collaboration, different modes of collaboration when facing
market and technological changes, and different types of industry responses to these
challenges by using nanotechnology as an example.
The analysis brings forth interesting findings. The industry is experiencing two
different technology life cycles. The technologies supporting the existing product
lines are still developing and advancing in more incremental manner. The
technologies for new products are often based on emerging technologies in the
beginning of their technology life cycle (e.g. ICT, bio- and nanotechnology). These
new technologies are often science-based and the incumbents have to develop new
in-house competences to be able take advantage of the developments in creating

new product lines.
The first finding is affecting the R&D related collaborative networks. For the existing
product lines the role of suppliers (i.e. mechanical engineering and chemical) is still
important, while in the new emerging technologies the networks are more directed
towards universities, research institutes and technology dedicated smaller
companies. In addition the networks associated with these newer technologies are
more international than in the existing product lines. It should be noted that this
study is mostly national as much of the R&D related to the Finnish P&P industry is
conducted in Finland. There are ongoing international and national level
programmes directed towards the industry (such as EU’s European Forest-Based
Sector Technology Platform (FTP) and Strategic centres for science, technology and
innovation (SHOK)). As these programmes have been launched very recently, this
paper will limits its scope to comparing the situation from last few decades to
current situation and leaves the future developments for later research.
In addition to changes in the R&D collaboration networks, there are clear differences
in the results between university researchers with respect to their potential
application area. It seems that university researchers with forest-related research
activities are more likely to view challenges in areas related to more applied research
(e.g. insufficient business knowledge and lack of production technologies) and
perceive less basic research related challenges (e.g. basic research orientation and
firm’s lack of interest). For the company researchers in research areas related forest
industry these are fewer challenges related to applied research (e.g. challenges of
commercial applications and insufficient business knowledge). Overall the
researchers related to forest industry perceive fewer challenges in the technology
transfer than the other researchers, which might be an indication that developments
in nanotechnology could be more easily adapted to the P&P industry.
The final question in this paper is related to the ability of the P&P incumbents to take
advantage of these R&D related networks. As an example this paper used
nanotechnology to discuss the absorptive capacity of P&P companies. The P&P
industry views nanotechnology as a very potential new source of innovations. Based

on the industry interviews it is clear that some of the P&P companies are responding
to technological changes by increasing R&D investments. This increase is aimed at
20
the existing technologies, but also towards more explorative areas such as
biotechnology and nanotechnology. Some of the companies are actively recruiting
new researchers and have set up corporate venture functions to assess the potential
of different nanotechnology applications. Based on the overall R&D related activity
emerging among the P&P incumbents, it is evident that some of the companies are
actively involved in open innovation in all its dimensions.
While the analysis discussed the efforts of the larger companies to respond to the
different changes, few findings indicate that the process is less smooth than it
appears. Only some of the companies are involved in active open innovation type
activities as other companies focus on niche markets and make limited investments
into R&D. This short-term strategy might work in short-term basis, but eventually
there will be a disruptive technological change that will cannibalize the market and
leave the companies is difficult situation. In addition the incumbent companies seem
to be only interested in businesses ideas worth minimum 100-150 million euros,
which suggest that many potentially profitable innovations might fail to enter
markets due to high expectations. The P&P industry is also viewed old-fashioned,
conservative and less innovative than other industries, which makes recruitment of
top researchers difficult. Finally, nanotechnology is still viewed quite basic science by
the industry and is seen to provide viable solutions in long-term rather than in short-
or medium-term.
The main conclusion of the analysis is that many of the Finnish P&P companies are
embracing the open innovation paradigm by actively collaborating with external
partners in R&D. The reasons for this change from the old more closed business
model are the challenges posed by market and technological changes. These
challenges require new forms of R&D collaboration especially in new emerging
technologies such as nanotechnology. Taking advantage of the advances in these
new technologies requires adjustments in the R&D activities of the incumbents; not

only in their internal R&D efforts but also in the way the companies collaborate with
new R&D partners whom often have limited knowledge of the potential applications
of their research and innovations in the P&P industry. This paper is an attempt to
understand the role of open innovation in the Finnish P&P industry and how the
companies in the industry are reacting to new potential technologies. Many
questions remain unanswered by this research such as the optimal modes and
methods of using new technologies either to support existing products or to create
new business. The focus in this paper was on the changes in collaborative R&D
networks, and the ability of incumbents to scan their external technological
environment and adopt relevant knowledge
21
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APPENDIX I – Detailed technology classifications
tech30 Freq.
Audio visual technology 3
Telecommunications 2
Information technology 5
Optics 4

Control and measurement technology 9
Medical technology 1
Organic chemistry 2
Macromolecular chemistry and polymers 7
Materials and metallurgy 3
Food and agriculture 2
Chemical engineering 7
Surfaces 3
Materials processing 29
Thermal processes 172
Environmental technology 1
Machines and tools 12
Mechanical elements 2
Handling 68
Food processing 3
Transport 2
Consumer goods 4
Civil engineering 5
Total 346