INTRODUCTION

This study focuses on the nature of the innovation process in the Canadian manufacturing sector. The innovation process is defined by the intensity and types of innovation, the types of inputs that produce the innovations, the effects of innovation, the importance of research and development, the use of intellectual property in protecting the investment in ideas needed to make innovation work, the financing process, the nature of externalities and networks that are used to diffuse innovations, and the types of skills required to allow innovative firms to succeed.

In this chapter, we begin the process of describing the Canadian innovation process by studying the intensity of different types of innovation. A study of a country's innovation system inevitably faces the questions: How important is innovation? How widespread is it? Therefore, this chapter reports the incidence of innovation, that is, the percentage of firms that introduced a product or process innovation in the three years preceding the survey.

At the foundation of this study is the recognition that the industrial population is heterogeneous and so, too, are the types of innovations being brought to market. Small and large firms may have differential innovation capabilities — with small firms more adept at product development in the early stages of a product life cycle and large firms more capable of the type of process improvements that are critical in the mature stage of the product life cycle (Rothwell and Zegveld, 1982; Acs and Audretsch, 1990).