Creative industries and innovation the case of new media firms in cape town

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  • 1. Creative industries and innovation: the case of new media firms in Cape TownIrma Booyens, Neo Molotja and Madalitso Z. Phiri(Centre for Science, Technology and Innovation Indicators, Human Science Research Council, Plein ParkBuilding, 69-83 Plein Street, Cape Town, 8001, South Africa).AbstractCreative cities are increasingly attracting the interest of academics and policy makers around theworld, as is the relationship between creativity and innovation. Within creative industries, newmedia is considered an innovative, growth sector which holds potential for developing countries.This paper examines innovation in new media firms situated in Cape Town, South Africa.Theoretically, the dynamics of creativity, innovation and economic development in contemporaryurban contexts are considered; as are the interactions between creative cities and innovationsystems. This paper draws on purposive interviews with new media firms concerning their innovationactivities. This study found that the new media sector in Cape Town is a small, but an emergingcreative sector and that new media firms are dynamic in terms of technological innovation.However, for the most part their innovation activities tend to be incremental and localised.Furthermore, various barriers limit their innovation enhancement and growth prospects. These firmsneed to be nurtured and supported in order to grow, create more novel innovations and becomeinternationally competitive. The paper also provides policy implications for fostering innovation increative cities in developing countries, as well as local policy recommendations for the enhancementof creative industries.1. IntroductionIn post-industrial cities, cultural and media industries have become avenues towards providingemployment and stimulating urban and regional growth (Scott, 2006a; UNCTAD, 2008). Cities arefurthermore regarded as drivers of national systems of innovation. Skills and capabilities forinnovation tend to agglomerate in cities. Cities have also often been described as cradles ofcreativity. The concept of creative cities has developed in response to the economic decline ofindustrial cities in Europe, the United States and Australia (UNESCO, 2004). Trade in creative goodsand services have grown unprecedentedly in developed countries over the last decade, whencompared to traditional manufacturing and services. Creative industries typically contribute betweentwo and six per cent of the gross domestic product in such countries (UNCTAD, 2008). Even thoughcreative industries contribute much less to national economies in developing countries, they seem tohold potential for development. UNESCO (2004) indicates that developed and developing countries 1
  • 2. can harness the unexploited potential of creativity for the benefit or urban populations, as well associo-economic development. According to the UNCTAD (United Nations Conference on Trade andDevelopment), developing countries have rich cultural diversities and an abundance of creative talentwhich provide opportunities for gaining unique market niches. They can consequently establish newsources of economic expansion which are more inclusive and also sustainable. Moreover, ICTs(information and communication technologies) are increasingly linking countries and citiesworldwide which create further opportunities for developing countries and cities to access globalmarkets through digital channels.The classification of the creative industry subsectors vary in the literature, but generally include film,television and broadcasting; visual arts; performing arts; crafts, publishing and printed media;advertising; design; new media; music; designer fashion; and also cultural tourism (de Miranda et al.,2009; Rogerson 2006; UNCTAD, 2008). The activities of creative sectors tend to be crosscutting,overlapping and multidisciplinary in nature. Creative industries comprise of a cycle of creation,production and distribution of goods and services which use intellectual capital as their primary input(UNCTAD, 2008). Multimedia and telecommunications are at the forefront of production in thecreative economy with new media as a new creative sector (UNCTAD, 2008). Internationally, thenew media sector has responded to demand from global markets by increasing exports over the pastfew years. New media was born out of the internet and subsequent technologies. It is not so much themedia, but the vehicles of communication that are new. For example web applications; interactiveinterfaces; new e-mail technology; cell phone technologies; peer-to-peer networking; online games;content management systems; etc.Creative industries have received policy recognition at national level in South Africa, but limitedprogress has been made in terms of actual policy initiatives directly supporting creative industries(Rogerson, 2006). Furthermore, creative industry initiatives are small, seem to have little impact andlack integration. Cape Town is an example of where some progress has been made at localgovernment level – the cultural sector is regarded as a vehicle for local economic development andthe city is promoted as a creative city (CCT, 2010; Rogerson, 2006).Rogerson (2006) indicates that little systematic, published research on the organisation or workingsof creative industries in South Africa exists. Additionally, there is hardly any local research andliterature on innovation in creative industries or on the topic of new media which is identified by theUNCTAD as a growth sector for developing countries. 2
  • 3. This paper firstly considers creativity, innovation and economic development in contemporary urbancontexts. The interactions between creative cities and innovation systems are also considered. This isfollowed by a discussion regarding regeneration and creativity in Cape Town. Evidence oftechnological innovation in new media firms situated in Cape Town is presented next. Lastly, policyimplications for developing countries and policy recommendations for the development of the newmedia sector within the wider creative industries are put forward.2. Review of literature2.1 Creativity, innovation and economic developmentKnowledge forms the basis of production in new economic growth theories. The creation of newknowledge, innovation and technological change drive progress in knowledge-based economies(OECD, 1996). Such knowledge-based economies tend to be more globally integrated, innovative,entrepreneurial, eclectic, and service orientated. Potts (2009) argues that the growth of creativeindustries is indicative of a market-based economic evolution in which all ideas are born into a socialcontext. Such industries are in turn part of the growth of the knowledge process that drives alleconomic progress. In so called new economies, value added is created through the application ofintellectual capital and new knowledge, through the process of innovation. Innovation has becomeintegral to the success and growth of small enterprises; to sustaining their competitive advantage andenhancing their ability to trade in a global environment (Longenecker et al., 2006). Creativity is alsocentral to growth since it can distribute knowledge and enable innovation (de Miranda et al., 2009).However, creativity and innovation are not synonymous. An idea is generated through creativity, butan idea only becomes an innovation when it is transformed into something meaningful in the form ofa product or service with market value (de Miranda et al., 2009). The creative class consisting ofscientists, engineers, artists, musicians, designers and knowledge-based professionals drive theprocess of innovation in creative economies (Florida, 2002). Their economic function is to createnew ideas, new technology, new creative content and new firms.Creativity is difficult to define and it does not lend itself to systematic study (Lewis & Donald,2009). On the other hand, innovation has been measured since the early 1990’s by the OECD(Organisation of Economic Cooperation and Development) and the field of innovation studiescontinues to grow (Fagerberg & Verspagen, 2009). Traditionally, innovation has been associatedwith science and technology. Technological innovation leads to change or increase in thetechnological variety of products and processes, while non-technological innovation includesincremental improvements on existing products and processes and changes in product design,marketing, business practices and workplace organisation (OECD, 2010). Product innovations 3
  • 4. include new or significantly improved goods or services with respect to its capabilities, userfriendliness, components or sub-systems (OECD, 2005). To be considered innovations, suchproducts or services need to be new to the enterprise, but they need not necessarily be new to themarket. Process innovation involves the implementation of a new or significantly improvedproduction or delivery method, including significant changes in techniques, equipment and/orsoftware (OECD, 2005). Innovation in service industries tend to be product innovations instead ofprocess innovations; incremental instead of radical (Hipp & Grupp, 2005). Moreover, innovation increative goods are often characterised by small innovations and marginal improvements (Scott,2006a).2.2 Creative cities, creative industries and innovation systemsHistorical evidence suggests that cities are engines of economic growth, knowledge production andinnovation. Agglomeration effects in larger cities lead to higher levels of productivity and innovation(Bettencourt et al., 2007). Thus, dynamic and productive cities are essential for innovation andnational economic growth (Johnson, 2008). Knowledge-intensive and service industries, central tonew economies, are almost exclusively city based (Florida, 2002). Cities are also regarded asbreeding places for creativity (Hospers, 2003). In creative city environments cultural, technologicaland organisational shifts leads to a ‘marriage of art and technology’ creating new economic activitiesand industries (Hall, 2000:647).Even though the majority of economic, institutional and technological change have occurred in urbanareas, it does not mean that all cities will turn into creative and/ innovative spaces (Hospers 2003,Johnson, 2008). The question of what makes cities creative and innovative thus arises. Severalscholars provide supply side arguments as answers. Johnson (2008:3) indicates that ‘there has to be acombination of specific factors at specific times for urban innovation to be strong’. For instance,conditions for production and factors such as skills; transport; infrastructure; agglomeration benefits;and access to markets and capital are better in cities than in less urbanised areas. Such urban factorsplay a critical role in sustaining commercially successful innovation (Athey et al., 2007). Whiletechnological developments are said to have done away with the importance of proximity,concentration which provides a critical mass required for human interaction remains an importantfactor for creativity and innovation in cities (Hospers, 2003; Wu, 2005). Relatively short distancesand dense communication systems of well-functioning cities thus support face-to-facecommunication which in turn fosters interactive learning and innovation (Johnson, 2008). Creativeindustries tend to cluster in cities that offer a variety of economic opportunities, an enablingenvironment and diversity (Wu, 2005). Thus, creative city environments tend to be open, tolerant 4
  • 5. places where people of diverse cultures, beliefs and traditions want to live (Florida, 2002).Successful creative cities which thrive in today’s economy are havens for music and cauldrons forartists of all styles and persuasions (Ley, 2003). Instability and the reputation are also consideredingredients for creative cities. In terms of instability, creative cities tend to be uncomfortable,unstable and places of great social and intellectual turbulence (Hall, 2000). However, crises,confrontation and chaos in cities have historical lead to creativity (Hospers, 2003). In terms ofreputation, a positive image as a creative city will enhance a city’s reputation and credibility(Hospers, 2003). More recently, demand side arguments have been added to the debate. Johnson(2008:2) indicates that demand side arguments ‘centre on the presence of a diverse population thatincludes people with not only different occupations, competencies and social background but alsowith the higher wages and tastes that create a high and differentiated consumer demand’. Reasonswhy cities fail to develop and sustain innovation include failure to match technology withinstitutional arrangements and supply side factors with demand side factors (Johnson, 2008).Firms drive private sector innovation in urban areas (Athey et al., 2007). However, the externalenvironment for innovation (or a creative milieu) is at least as important as a focus on firms toexplain what drives innovation in cities (Wu, 2005). The notion of a creative milieu is similar to thatof an innovative milieu (Hall, 2000). Creative processes flourish in places where creativity issupported and channelled into innovation, new firm formation and ultimately economic growth.Cities have the facilities, institutions, embedded knowledge and practices to produce creative urbanmilieus. Regional innovation systems tend to develop in urban areas with well-established sectorsand clusters (Athey et al., 2007). Clusters are mostly found within related industries where a pool oftalents, skills and knowledge exist. Within large metropolitan cities, discrete creative sectors usuallycluster around specialised products and services (Scott, 2006a). Creative industries tend to functionas clusters, but they are not conventional business clusters. Furthermore, creative industries arecharacterised by collaborations; flexible and modular market structures; the prevalence ofentrepreneurial activity and the frequency of small and micro enterprises (Evans, 2009; Scott, 2006a;Wu, 2005). Creative industries are often concentrated in once declining central city, city fringe orformer industrial areas, occupied by the urban middle class, where gentrification is well-established(Evans, 2009; Ley, 2003).The innovation performance of an economy depends not only on individual firms or clusters, but alsohow they cope with change and interact with other actors in the financial and public sectors at city,regional and national levels (Johnson, 2008). Systems of innovation operate at several spatial levelsand can best be understood in a systematic, dynamic and complex network of agents, policies and 5
  • 6. institutions which support the process of technological advance across all industries (Johnson, 2008;Wu, 2005). A traditional sense of national innovation system focuses on the systemic relationshipsbetween firms, research organisations including universities and government. However, scholarshave suggested a broader definition of innovation and a broader sense of innovation systems toinvestigate innovation systems in developing world contexts. (Freeman 1987, and Freeman andLundvall, 1988 as referenced by Johnson et al., 2003). Innovation should accordingly be seen as acontinuous process which includes both radical and incremental innovation to give draw moreattention to non-technological kinds of innovation as in the case of creative industries. Furthermore,this approach focuses on capabilities and knowledge to drive development and build well performinginnovations systems.2.3 Cape Town, regeneration and creativityA research study conducted in 2009 found that there were approximately 1,000 creative entities incentral Cape Town (CCT, 2009). About half of these entities were design orientated and thusconcerned with architecture, fashion, furniture, advertising and ICT innovations. In addition, the filmand publishing industries also had a strong presence in central Cape Town.Clusters in industrial districts, adjacent to city centres, typically specialise in activities such asadvertising, graphic design, audiovisual services, publishing or fashion (Scott, 2006b). This trend isevident in Cape Town (CCT, 2010). The city centre and post-industrial fringe areas such as theWaterfront, Green Point, Woodstock and Observatory have experienced urban renewal over the pastfew years. Business parks, hotels and new accommodation complexes have risen in these areas, aswell as numerous film and photographic studios. In the Waterfront area, several publishing houses;advertising agencies and design studios have gone up in old warehouses and shipping facilities. InWoodstock, traditionally a meatpacking and textile district, there are various examples of industrialsites converted into creative spaces. Examples of these include the Old Biscuit Mill, the Old CastleBrewery, Buchanan Square and several art galleries. The area is furthermore evolving into the mediahub of Cape Town (Miller, 2010).Annually, Cape Town hosts a plethora of festivals, events and exhibitions related to the creativeindustries. Annually, Cape Town hosts a plethora of festivals and events. Those that are related to thecreative industries include the Cape Town International Jazz Festival, North Sea Jazz Festival, CapeTown International Opera Festival, Cape Town International Comedy Festival, Cape Town BookFair, Design Indaba, and Cape Town Fashion Week to name a few, as well as numerous filmfestivals, carnivals and art exhibitions. The Cape Town International Jazz Festival, just one of these 6
  • 7. festivals, contributes significantly to the economy of the Western Cape. In 2009, this event generatedapproximately R158 million in visitor and organiser spending, as well as 1,059 jobs (Saayman &Rossouw, 2010). A new addition to the Cape Town events calendar is Creative Week Cape Townmodelled after the New York Creative Week; this event was initiated as a legacy event for CapeTown’s bid for World Design Capital in 2014.Recent local economic development initiatives in Cape Town vis-à-vis creative industries include theCentral City Development Strategy which aims to expand creative hubs in the central city and cityfringe areas; and repositioning the city as a leading centre for knowledge, innovation, creativity andculture in Africa (CTP, 2009). The Fringe is a specific initiative (funded by the provincialgovernment) to develop an innovation hub for design, media and ICT firms in the inner city (CCT,2010). The recent Creative Industry Study for Cape Town recommends a focus on design, media andtechnology, cultural tourism and community cultural development industries (CoCT, 2010).3. Methodology3.1 Definition of new mediaThe new media creative product is expressed in a digital form and used as a tool for the distributionof other creative products (UNCTAD, 2008). For the purposes of this study new media includes allforms of digital enhancement of conventional media, as well as a wide range of creative digitalisedproducts and services. Examples include software; interactive products such as electronic games;interactive interfaces; animation and special effects used in digital media; online publishing andeducational materials; online business aids; online advertising; web-related services andcomputerised approaches to graphic design (Scott, 1998; UNCTAD, 2008).3.2 Questionnaire designA semi-structured questionnaire was used to determine if there was evidence of product or processinnovation in new media firms and to examine barriers to innovation. The OECD definitions forproduct and process innovation were used. The National Innovation Survey uses Standard IndustrialClassification codes, provided by Statistics South Africa, for measuring innovation activities infirms. However, there are no SIC codes for new media activities and the National Innovation Surveywas therefore not suitable for measuring innovation in new media firms. The research team adaptedsome of the European Community Innovation Survey questions for inclusion in the questionnaire,along with the team’s own questions. 7
  • 8. 3.3 Sampling and data collectionThis study employed a non-probability sampling approach. Firm information was sourced fromonline business directories and other web searches. Firms situated in the broader Cape Town area,with an internet presence and which fit the new media definition was purposefully selected fromsuch sources. All identified firms were included in the initial sample.1 The sample was refined bycontacting identified firms telephonically, before the commencement of the fieldwork, to confirmwhether they considered new media as their core business or whether they had a dedicated newmedia division. Snowball sampling was also used to expand the sample i.e. respondents were askedfor referrals. All firms in the final sample were contacted for interviews. The persons responsible fornew media operations at firms were targeted as respondents. Twenty-two semi-structured, face-to-face or telephone interviews were conducted with firms willing to participate, in addition to twoqualitative interviews with identified role players. The fieldwork was conducted during November2010 and February 2011.The authors acknowledge that the sampling approach had its limitations. The research team relied oneasily identifiable and traceable firms identified through web searches and referrals by industryprofessionals. The exact number of new media firms in Cape Town is not known since there are noofficial lists or industry representative bodies for new media. Some firms will have been excluded bythe approach and by design. The sample was relatively small, because it was a focused study aimedat specifically measuring the extent of product and process innovation within a specific definition ofnew media. Nevertheless, the team is confident that they were as rigorous as possible in identifyingnew media firms as allowed by the resources available. The authors also argue that one can assumethat most new media firms will have a web presence due to the nature of their work.1. Multimedia firms were excluded if the majority of their business was not related to new media. Firms with thefollowing services were excluded since it did not fit the definition: online sales, e-commerce, business portals,webhosting, IT programming, film production, above and below the line advertising. 8
  • 9. 4. Findings4.1 Characteristic of new media firmsThe new media sector in Cape Town appears to be quite small in relative terms. This is not unusual;Evans (2009) indicates that design and creative firms often show much faster growth than othersectors of the economy even though these sectors remain very small in absolute terms. The studyfound that new media firms were mainly clustered in the the inner city and the city fringe areas withsmaller concentrations in outlying areas. The establishment of creative industries in areas such asWoodstock and Observatory have been a growing trend since 2004 which emerged organically inline with international trends, as determined from the qualitative interviews. For the majority offirms, centrality and strategic clustering were the most important considerations in choosing theirlocations. Thus, closeness to the business centre of Cape Town and to similar firms or competitorswere essential.The vast majority of new media firms surveyed could be classified as small firms with less than ahundred employees. Only one firm could be classified as a medium firm with over a hundredemployees.2 The main income of the vast majority of new media firms surveyed was derived fromonline digital solutions. Other income activities included software development, the development ofsocial media and mobile applications, the use of animation for media distribution and thedevelopment of interactive devices and technologies. The largest portion of firms had been inoperation for 6-10 years, followed by firms in operation for 11-15 years. Thus, the new media firmssurveyed were generally well-established. The creative industry, most supported by the products andservices provided by the new media firm, was the film and television industry; followed by thetourism and publishing industries; and then the media; marketing; advertising and music industries.4.2 Innovation activitiesOf all the new media firms surveyed, 82% introduced new or significantly improved products and/processes over the last three years (Table 1). Of these innovative firms, 68% indicated that theyintroduced new products and/ processes, while 73% produced significantly improved products and/processes. Of the firms that innovated, 72% introduced innovations that were new to the market. Onthe other hand, 28% of firms that innovated introduced innovations that were new to their firms only.2. The classifications of small business by the number of full-time employees are as per the National Small BusinessAmendment Act 29 of 2004 (South Africa, 2004). 9
  • 10. Table 1: Innovation by new media firmsInnovation propensity % New to market or firm innovations %New products and/ processes 68 New to market 72Significantly improved products and/ processes 73 New to firm only 28Total innovative 82 Total 100An interesting finding of the study was that a clear distinction could not be made between productand process innovations of new media firms. Product and process innovation seemed to go hand-in-hand, and the one are often dependent on the other. For instance, new software developed to designnew channels for distribution can be regarded as process innovation. However, such software canalso be sold as a product. Also, the development of certain new products or services is preceded bythe development of new enabling processes. An analysis based on qualitative descriptions byrespondents as to the nature of their innovations is presented in Figure 1. The figure illustrates theoverlapping nature of product and process innovation as found in the case of new media firms inCape Town. A recent United States Business Research, Development and Innovation survey alsofound that product and process innovation overlap to some extent when all industry groupings aretaken together (BRDIS, 2010). However, for traditional industries such as manufacturing a clearerdistinction exists between product and process innovations. Mobile applications User experience improvement Operating Systems Online Reputation Management Platforms to communicate digital technology 3D/ interactive websites Animation/ Flash technologies/ interactivity Geo-spatial document tracking Virtual tourism websites Digital Asset Management Search Engine Optimisation Social media applications/ campaigns/ packages Integration of different products into one Content Management Systems Online page-flip magazine Online career guidance system Cloud Sourcing/ Computing Interactive display devicesFigure 1: Nature of innovation by new media firms in Cape Town 10
  • 11. The new media firms surveyed innovated on a regular basis; about a third introduced more than twoinnovations per year; while half had one to two innovations per year. Of innovating firms, about athird indicated that they cooperated with other firms or institutions during the last three years whencreating innovations (Figure 2). Innovative new media firms mostly cooperated with clients (61% ofnew media firms cooperated with such partners in South Africa, while 78% of firms cooperated withforeign partners). This was followed by cooperation with firms in their own enterprise group andwith suppliers of equipment, materials, components or software. Many of the firms interviewedbelonged to larger enterprise groups with offices in Johannesburg and also abroad, especially inEurope. This explains why new media firms rated their own enterprise group as importantcollaborative partners for innovation. Cooperation with higher education institutes and governmentwere relatively low as is case with small and medium enterprises in general (Booyens, 2011).Figure 2: Partners with which innovative new media firms cooperatedA lack of funding was of one of the most important barriers to the innovation activities of firms,followed by cost and the speed of technology (Table 2). Firms typically lacked capital for investmentin technology. Respondents indicated that the cost of hardware and software is very high. This isbecause firms have to import most of the technology. Moreover, firms indicated that cost of internetconnectivity i.e. broadband is not only very high in South Africa, but also very slow for the purposesof new media firms. For instance, firms often need to upload large digital files for overseas clientsand slow broadband is a barrier in this regard. Respondents also felt that existing governmentfunding mechanisms for innovation are not suited to the needs of new media firms. 11
  • 12. This was attributed to a lack of understanding of what digital technological and communicationinnovation entails. Respondents also indicated that tax relief for small businesses and tax incentivesfor firms that innovate will help them grow their businesses.Another major barrier to innovation was a lack of skilled human resources. Since firms struggle tosecure adequate funding for innovation, they also struggle to employ the appropriately experiencedand qualified staff to drive innovation. Firms typically lacked staff with adequate technical skills,specifically IT (information technology) programming skills. Sourcing staff from the small existingpool of skilled persons in South Africa comes at a high cost.Respondents also indicated that time constraints and a perceived lack of readiness to acceptinnovations (by clients and the general public) were factors hampering innovation. For instance,when developing new customised products or services for clients, clients often resist taking risks andembracing innovations. They usually do not understand new technologies and that their budgetsallow limited, if any, funds for innovations. The majority of budgets are allocated for traditionalabove-the-line development.Respondents also considered the regulatory environment to be a barrier to their innovation activities.Concerns in the regard included high income tax and technology import tax; challenges in registeringtrademarks and protecting intellectual property, as well as difficulties in exporting new innovations.Table 2: Main barriers to innovationMain factors hampering innovation activities %Lack of funding 27Cost and speed of technology i.e. internet connectivity 18Human resource and skills shortages 18Time constraints 14Lack of readiness for innovation 14Regulatory environment 9 12
  • 13. 5. Discussion5.1 Innovation in creative cities: policy implications for developing countriesThe notion of innovation systems is useful in terms of understanding city dynamics and promotingthe sustainable development of cities by designing policies to strengthen the relationships betweenfirms, research organisations and government (Johnson, 2008). Cities thus need to build institutionaland political mechanisms to nurture creativity and channel innovation. The appropriate policyresponses can greatly improve the performance of creative industries (Scott, 2006a). Such policiescan be city based, but linkages between cities and national role players should also be fostered sincecities often lack political power to inform the required policies.Policy makers can promote creative cities by creating framework conditions for creativity andinnovation (Hospers, 2003). Such conditions include well develop transport and communicationinfrastructure (Athey et al., 2007). Wu (2005) also indicate that the provision of basic governmentservice such as planning, permitting and public service will impact on whether a city is attractive tocreative firms. This is particularly important for developing countries. In South Africa like in manyother developing countries, the delivery of government services is a notorious problem in urbanareas. This is specifically the case in impoverished areas. Creative industries thrive in post-industrialand urban-fringe areas as confirmed by this research. Urban degeneration, poor services and poorinfrastructure are prevailing in such areas. Urban policy makers and planners can make a differenceand enhance creative industries in such areas by ensuring services, improving the infrastructure andthe built environment to improve the quality and sense of place.In order for enterprises to be innovative and competitive at a global level, a high degree of humancapital and a skilled labour force are required (Audretsch, 2003). Many developing economies,African economies in particular, are still largely characterised by low-wage; low-skill patterns ofproduction; low levels of technological readiness and trade in non-value added natural resources(Wolf, 2006). To build knowledge and creative economies in such countries the technologicalcapacities of firms need to be enhanced; technological collaboration with developed countries needto be fostered; and investment both in human resources and infrastructure are required (Archibugi &Pietrobelli, 2002; Wu, 2005). The multimedia sector appears to flourish where an existing and well-developed traditional skills base is in place (Wu, 2005). Cities with strong contemporary art, fashion,craft, music and design schools are most likely to flourish (UNESCO, 2004). City policy makers cannurse interactive learning opportunities to enhance creativity and innovation (Johnson, 2008). 13
  • 14. However, improving learning and innovation capabilities in developing countries is not only aquestion of more resources for education. Institutional and social reform is also required to supportinteractive learning and innovation broadly in many parts of society (Johnson et al., 2003)In order for cities to promote innovation, strong local links are required (Athey et al., 2007; Wu,2005). Strong links are required to ensure dense networks (needed to get innovations to the market),diverse supply chains and cooperation with institutions like universities and other developmentalagents. These links are required to strengthen innovation hubs and clusters which consist ofindividual firms. Regional policies should be responsive to small firm needs (Cooke, 2001). Suchpolicies can support the establishment of urban hubs where firms and markets are brought together(Athey et al., 2007). Public policy can also play an important role in protecting and supportingclusters. An example would be London’s Soho film and media district (Evans et al., 2005). Typicalpublic policy support in this regard included specialised business support; infrastructure developmentfor cultural consumption; finance to small and micro creative enterprises; investment in educationand training; and regulation. Policy makers can also help young entrepreneurs to develop businessplans, seek finance and start up businesses (Wu, 2005).The sustainability of creative industries for local economic development is questioned by someauthors. Thriving creative industries can contribute further to existing inequalities in cities sincecreative industries are usually associated with highly qualified individuals (Scott, 2006a). Creativeindustries which thrive in inner city or post-industrial areas could lead to the marginalisation of poorinhabitants. Also, creative city policies generally do not directly benefit the less-affluentcommunities in urban environments (Ponzini and Rossi, 2010). Policymakers need to be aware ofthese issues when designing local economic development and urban regeneration strategies.Strategies to enhance knowledge-based economies are long term approaches and developingcountries cannot grow their creative economies unless the required determinants are in place, despiteovert enthusiasm regarding the potential of creative industries as expressed by the UNCTAD andUNESCO. Broader policy responses are required to enhance the economy, create jobs and alleviatepoverty in developing countries. Specific public support is required to ensure the survival ofindustries and the realisation of social benefits (Evans, 2009).An important area of future research, within developing world contexts, is to understand how thepromotion of creative industries can be integrated with wider social development. This is required toensure that development through the enhancement of creative industries is equitable and sustainable.Also, the authors acknowledge that not all creative firms are technological innovators, but this does 14
  • 15. not mean that they are not innovative. Thus, the nature of innovation in creative industries needs tobe explored further to better understand what innovation comprises of in creative industries.5.2 Creative industries in Cape TownThe authors suggest that creative industries hold potential for local economic development in a citylike Cape Town. The core ingredients for the growth of creative industries seem to be in place. Thereare various established creative industries (such as film and television, publishing, media and designand performing arts); creative industries have played an important role in urban regeneration; andlocal government recognises the potential of creative industries. There is also evidence of creativeclustering and innovation as found in the case of the new media sector. Potts (2009) hypothesisesthat the existence of creative industries may in fact be a precondition for economic development.However, broader support factors also need to be in place to grow creative industries. The promotionof creative industries should be part of broader local economic development strategies and beintegrated with wider city planning, regeneration and quality of life objectives (LDA, 2005).Furthermore, within an increasingly knowledge-intensive and innovation-driven economy, regionaleconomic is not only dependent on the concentration of creative occupations, but also on thedevelopment of a highly networked regional innovation system (Kratke, 2010). In Cape Town,however the innovation capacity of firms is generally quite low and disconnected from the regionalkey value chains (OECD, 2008). Technology transfer; industry, university and government linkages;and access to venture capital also remain weak as indicated in the qualitative interviews. Weakindustry-university linkages contribute to skills shortages experienced by the industry. Concertedattempts to foster coordination between the main stakeholders are required in order to promoteinnovation in the region (OECD, 2008). Furthermore, local creative industries need representation atinternational markets to showcase talent and to create awareness regarding the quality of their work.This is required for firms to be incorporated into global value chains; and to access internationaldevelopment, funding and collaboration opportunities. Local creative industries thus need to bemarketed better. This is critical for their growth and to enhance the image of Cape Town as acreative city internationally. It should also be realised that creative industry development cannormally only be sustained where there is a growing economy and market, as well as affluence anddemand for creative products (LDA, 2005). The socio-economic conditions in the Cape Town cityregion have become more favourable over the last 15 years with dynamic, emerging and growingclusters in the creative and knowledge-intensive industries (OECD, 2008). Furthermore, thereappears to be a strong and growing market for the design and advertising sectors in Cape Town, asindicated in the qualitative interviews. 15
  • 16. 5.3 Promoting innovation in new media firmsThe study found that new media firms had a strong tendency for technological innovation. In otherwords, there was evidence of product, as well as process innovation in new media firms. Such firmsintroduced innovations on a regular basis. Also, a large proportion of firms were first to introduceinnovations to their market. However, this does not mean that firms necessarily introducedinnovations to international markets and were therefore not a measure of internationalcompetitiveness. It is more likely, that firms were simply introducing new products or services tomarkets in South Africa. It should also be pointed out that significantly improved products and/processes are also regarded as innovation. Of innovative new media firms in Cape Town mostintroduced significantly improved products and/ processes rather than new products and/ processesas found by this study. Such firms would typically adapt existing technologies or make marginalimprovements for their purposes rather than actually developing new technologies. As indicated bythe firms interviewed, the technologies they need were mainly imported. The authors suggest thatsuch firms need to be nurtured and supported in order to grow, create more novel innovations andbecome internationally competitive.Despite the tendency of new media firms to innovate, various barriers to innovation exist. Therespondents cited access to funding, costs of technology and a lack of technical skills as the mainbarriers to innovation and business growth. The authors argue that even though the new media sectorin Cape Town appears to be small in absolute terms, it is emerging creative industry with seeminglya large scope for innovation. However, if new media firms are to be sustainable they need to buildcompetitive advantage based on niche market product offerings. The sector needs to be nurtured andsupported in order for it to grow, create more novel innovation and become internationallycompetitive instead of largely adapting technologies from abroad. The authors recognise thatinnovation is largely private sector driven. However, government can play a supporting role in termsof creating an environment which supports creativity, innovation and growth. Government also needsto promote the development of sustainable creative industries. Currently, there is no national or localpolicy focus to expand new media specifically in South Africa. Specific policy recommendations topromote innovation in the new media sector are provided below.New media firms need improved access to new business development funding and governmentprogrammes supporting innovation in small and medium enterprises. Existing government fundingprogrammes that support innovation such as the Support Program for Industrial Innovation,Technology and Human Resources for Industry Programme, and Innovation Fund should beimproved and expanded to meet the needs of innovative, high-technology small and medium 16
  • 17. enterprises (Booyens, 2011). Based on the findings of this study, new media firms can be regarded asinnovative, high-technology small and medium enterprises. Concerted efforts should thus be madeby the policy-makers and the designers of such programmes to understand the needs of new mediafirms. This required to ensure that such firms have access to existing public innovation funding.Alternatively, new funding instruments need to be created if necessary.This study identified a need for improved design education with greater focus on technical skills tosupport digital technological innovation. Respondents felt that Higher Education Institutes do notunderstand the nature of their work and skills required by new media firms. Therefore, there needs tobe closer cooperation between industry and Higher Education Institutions. Government can furtherplay a role in promoting the sector in schools and Higher Education Institutions. Some respondentssuggested that the instatement of internships and scholarships for the new media and design sectorswill be advantageous.This study also identified a need for a dedicated a digital media forum for networking purposes. Justover half of the new media firms surveyed (56%), indicated that their firm was part of a networkconsisting of other firms or public institutions. Forums for networking are essential for strongercollaboration, knowledge sharing, accessing funding opportunities and creating an environmentwhich encourage innovation and entrepreneurship. A digital media forum can function both at a localand national level. Government support of such an initiative can help grow the new media sector andfoster innovation in the sector.AcknowledgementsThe authors would like to thank the Human Science Research Council (HSRC) for the baselinefunding allocation that made this study possible. They would like to acknowledge DemetreLabadarios, Moses Sithole, Nazeem Mustapha and Derek Davids at the HSRC for their respectiveinputs. Aeysha Semaar are also thanked for her assistance with the fieldwork, as are all therespondents who were willing to participate in this study. A special word of thanks to Zayd Mintyfrom Creative Cape Town for the information he provided, as well as for his insights regardingcreative industries in Cape Town. 17
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