1 
 

   

 

The role of innovation-driven SMEs in upscaling niche 

innovations within a regional context: 

An investigation of SMEs developing new mobility solutions in Västra 

Götaland County 

A Master’s thesis at the Challenge Lab, Chalmers University of Technology 

HANI ELZOUMOR – Knowledge-Based Entrepreneurship  

SPIROS STRACHINIS – Quality and Operations Management 
 
Supervisors: 
Ethan Gifford, University of Gothenburg 
Hans Hellsmark, Chalmers University of Technology 
 
Department of Space, Earth & the Environment 
CHALMERS UNIVERSITY OF TECHNOLOGY 
Graduate School – School of Business, Economics and Law  
UNIVERSITY OF GOTHENBURG 
Gothenburg, Sweden 2019 
 



2 
 

 

 

 

 

 

The role of innovation-driven SMEs in upscaling niche innovations 

within a regional context 

An investigation of SMEs developing new mobility solutions in Västra 

Götaland County 

 

 

HANI ELZOUMOR & SPIROS STRACHINIS 

 

 

 
 
 
 
 
 
 
 

Department of Space, Earth & the Environment 
CHALMERS UNIVERSITY OF TECHNOLOGY 

 
Graduate School – School of Business, Economics and Law  

Institute of Innovation and Entrepreneurship 
UNIVERSITY OF GOTHENBURG 

Gothenburg, Sweden 2019 



3 
 

The role of innovation-driven SMEs in upscaling niche innovations within a regional 

context 

An investigation of SMEs developing new mobility solutions in Västra Götaland County 

HANI ELZOUMOR  

SPIROS STRACHINIS 

 © HANI ELZOUMOR, SPIROS STRACHINIS, 2019 

 

 

Supervisors: 

Ethan Gifford, University of Gothenburg 

Hans Hellsmark, Chalmers University of Technology 

 

Examiner:  

John Holmberg, Department of Space, Earth and Environment, Chalmers University of 

Technology 

 

Master’s Thesis 2019 

Department of Space, Earth and Environment  

Chalmers University of Technology  

SE-412 96 Göteborg  

Sweden  

Telephone + 46 (0)31-772 1000 

Graduate School, School of Business, Economics and Law 

University of Gothenburg,  

SE-405 30 Göteborg 

Sweden 

Telephone: +46 (0)31-786 4956 

 

 

 

© All rights reserved 

No part of this thesis may be reproduced without a written permission by the authors. 

 

 

 

 

Cover: [A dynamic illustration of “reconfiguration pathway” that represents transition for 

the current mobility system of Västra Götaland County; a detailed explanation of photo can 

be found in section 5.1.2. Photographer: Spiros Strachinis] 

Göteborg, Sweden 2019  



4 
 

 

 

Preface 

This master thesis is conducted in a sustainability-related theme at the Challenge Lab (C-

Lab), Chalmers University of Technology. The master thesis process in Challenge lab is 

divided in two phases, I and II. For phase I, the framework of back-casting methodology 

was followed; which includes four steps based on the back-casting theoretical framework 

(Holmberg 1998, Holmberg and Larsson 2018). This framework works as a foundation for 

a better match between a proposed research problem and question from an academic 

perspective and sustainability problems that need to be addressed from a practical 

perspective, in order to move towards the envisioned future. More information about phase 

I is available in appendix A. In phase II, this study authors departed from the research 

question, reached at the end of phase I, by identifying the appropriate foundation of 

theoretical and empirical literature, research methodology approach, data collection 

procedures, analysis and discussion of the study’s main findings. The following thesis 

structure is predominantly what have been implemented during phase II of the C-Lab.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



5 
 

The role of innovation-driven SMEs in upscaling niche innovations within a regional 

context 

An investigation of SMEs developing new mobility solutions in Västra Götaland County 

HANI ELZOUMOR and SPIROS STRACHINIS 

Department of Space, Earth & the Environment 

CHALMERS UNIVERSITY OF TECHNOLOGY 

Institute of Innovation and Entrepreneurship 

UNIVERSITY OF GOTHENBURG 

 

ABSTRACT 

The issue of sustainability transitions of socio-technical systems (STS), despite being 

thoroughly discussed in literature, still has a lot of work to be further investigated, 

specifically from multi-level actor-based perspective. This study has a general aim to 

empirically investigate sustainability transition of mobility system of Västra Götaland 

County, by adopting theory of system innovations, put by Frank W. Geels, and a co-

evolutionary approach of transition. As a system niche actor, Small and Medium Sized 

Enterprises (SMEs), that are innovation driven and developing new technological 

solutions, can be a source of disruptive and radical innovations, and hence a significant 

player in the process of sustainability transition in this regional context. In that regard, this 

thesis has the following overarching research question: what is the role of innovation-

driven SMEs developing new mobility solutions in upscaling niche innovations within a 

regional context? To answer this question, the role of innovation-driven SMEs, located in 

Västra Götaland County, is explored by identifying their “current” and “perceived” roles, 

respectively. This study follows a qualitative strategy in which a comparative design is 

adopted. In addition, primary and secondary sources have been accessed to collect relevant 

data. In order to collect primary data, we identified population of innovation-driven SMEs 

developing new mobility solutions in Västra Götaland County, and then selected a sample 

of 9 SMEs to conduct semi-structured interviews. Primary data from 6 industry experts and 

researchers in the region were collected as well through unstructured interviews. SMEs 

were classified, under the comparative design, on four technological trends that have the 

potential to disrupt mobility systems and they are (a) autonomous vehicles, (b) 

connectivity, (c) electrification and (d) shared mobility. Results of SMEs population 

showed the existence of other technological trends that are not high-tech but service-based 

and sustainability-oriented, and they were included in the analysis. A qualitative thematic 

analysis has been conducted to decide on major themes of SMEs current and perceived 

roles based on findings of selected sample and industry experts. Accordingly, this study 

has found that SMEs current role is significantly and positively contributing to the system’s 

transition towards sustainability. The latter role can be classified under three pillars; the 

creation and maintenance of specialized niches, forming symbiotic relationships with 

regime incumbents and undertaking active collaboration with various stakeholders on both 

regime and niche levels. However, current system bottlenecks represented into 

incumbents’ inertia, as well as SMEs shortcoming regarding absence of sustainability-

rooted strategies for scaling up their niche technologies, can put the whole transition 

process under risk of failure. That motivated SMEs perceived role based on their potential 



6 
 

of realizing disruptive effect of niche technologies. Again, by dividing such role into three 

interconnected sub-roles, SMEs have to adopt more co-innovation of their business models 

with relevant regime stakeholders, follow new forms of technology diffusion/scale-up 

rather than traditional business growth, and engage into more articulation of regime 

challenges and more direction of collaboration activities’ goals. Lastly, VGR has a decisive 

role to assist SMEs scaling up their innovations, besides its traditional function to provide 

financial and mentoring support, by exerting more pressuring on regime influential 

stakeholders to open-up for real collaboration, and by the implementation of bridging 

policies that aim for more integrative innovation strategies between SMEs and regime 

incumbents.  

Keywords: SMEs, Niche Innovations, Multiple-Level Perspective, Transition Pathway, 

Strategic Niche Management, Electrification, Autonomous Vehicles, Connectivity, Shared 

Mobility, Västra Götalandsregionen, Västra Götaland County, Sustainability. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



7 
 

Acknowledgment  

This thesis is an outcome of a long journey of ups and downs, ambitions and 

disappointments but with many inspiring “aha” moments!  

We would like to send a BIG “thank you” to; 

The C-Lab team: Linnea, Johan, John, Gavin and Andreas, for your continuous support 

and for the amazing environment you provided us over this long but rewarding journey. 

Finally, we are done!  

Our 2019 Batch: Annica, Viktor, Hanna, Ashwin, Abdul, Sourabha, Per, Nora, Usisipho 

and Vasilis, for your amazing company. We would always remember check-ins and outs 

funny moments and our nice chat during lunch and coffee breaks.  

All knowledgeable experts and ambitious entrepreneurs: for your active and helpful 

engagement in this project. Your thoughtful insights were the cornerstone for this thesis to 

have such real contribution.  

Our academic supervisors: Ethan and Hans, for your constructive feedback, suggestions 

and continuous encouragement. 

Our families and friends: you were the unknown soldier that backed us in our hard times.      

And finally, Johanneberg Science Park restaurant: for the delicious coffee and fruits. You 

cannot imagine how much that helped …a lot! 

Hani Elzoumor & Spiros Strachinis 

Gothenburg, December 2019 

 

 

 

 

 

 

 

 

 

 

 

 



8 
 

List of abbreviations  

Abbreviation  Meaning  

AI Artificial Intelligence  

AV Autonomous Vehicles  

B2B Business-to-Business 

B2C Business-to-Consumer  

BMfS Business Models for Sustainability  

BRG Business Region Gothenburg 

C-Lab The Challenge Lab 

CEO Chief Executive Officer 

CFO Chief Financial Officer  

CO2 Carbon dioxide  

EU The European Union  

EURO The European currency 

EV Electric Vehicle(s) 

FCV Fuel-Cell Vehicle(s) 

FEV Full-Electric Vehicle(s)  

HEV Hybrid Electric Vehicle(s)  

ICE Internal Combustion Engine  

IoT Internet of Things  

IT Information Technologies 

LSP Lindholmen Science Park 

M&A Merger & Acquisition(s)  

MLP Multiple-Level Perspective  

MVP Minimum Viable Product 

N/A Not available 

PHEV Plug-in Hybrid Electric Vehicle  

R&D Research and Development  

RIS Regional Innovation Scoreboard  

RISE Research Institute of Sweden  

SEK The Swedish Kronor  

SME(s) Small and Medium-sized Enterprise(s)  

SNI-code  Svensk näringsgrensindelning 

SNM Strategic Niche Management 

SOI(s) Sustainability Oriented Innovation(s) 

STS Socio-technical System(s) 

TaaS Transportation-as-a-Service 

TMS Transport Management System  

VGR Västra Götalandsregionen / Västra Götaland Regional Council 

VTI Vägtransportinsititutet 

WCED World Commission on Environmental Development  

 

 



9 
 

List of figures 

Figure 1: A dynamic illustration of multi-level perspective of system innovation by Geels 

(2005) ................................................................................................................................ 26 

Figure 2: A graphical illustration of the MLP four transition pathways as developed by 

Geels and Schot (2007) ..................................................................................................... 32 

Figure 3: Transition contexts based on level of coordination among, and availability of 

resources to, regime actors, as developed by Berkhout, Smith et al. (2004) .................... 35 

Figure 4: Co-evolution of sustainable new small firms and old incumbents towards 

sustainable transformation of industries as suggested by Hockerts and Wüstenhagen (2010)

........................................................................................................................................... 40 

Figure 5: List of connectivity enabled features/applications as developed by Kavanaugh 

(2018) ................................................................................................................................ 50 

Figure 6: Locational distribution of SMEs population within Västra Götaland County with 

respect to technological trends .......................................................................................... 57 

Figure 7: Distribution of SMEs in identified population according to technological trends

........................................................................................................................................... 67 

Figure 8: Distribution of SMEs in identified population according to number of employees

........................................................................................................................................... 68 

Figure 9: Distribution of SMEs in identified population according to year of establishment 

and technological trends ................................................................................................... 69 

Figure 10: Magnitude of SMEs accumulated turnover in identified population according to 

an enterprise’s year of establishment ................................................................................ 70 

Figure 11: Structure of presentated results for primary data collection from SMEs and 

expert interviews ............................................................................................................... 73 

Figure 12: Schematic illustration of the increasing gap between the verticals and 

component suppliers, as explained by A2 founder ........................................................... 75 

Figure 13: An illustrative figure of the three main strategy options for interviewed SMEs 

by their technological classifications ................................................................................ 88 

Figure 14: Depiction of an enterprise R&D spending as a share of its total spending in 

relation to its respective age  ............................................................................................. 96 

Figure 15: Relationship between level of technological complexity and market focus for 

SMEs niche solutions within the four technological trends.............................................. 97 

Figure 16: Mobility system of Västra Götaland County using system levels of Geels and 

Schot (2007) ...................................................................................................................... 99 

Figure 17: A dynamic illustration of “reconfiguration pathway” that represents transition 

for the current mobility system of Västra Götaland County ........................................... 103 

Figure 18: Ecosystem structure for SMEs operating within shared mobility technological 

niche ................................................................................................................................ 107 

 



10 
 

Figure A. 1: Manifestation of the challenge lab in the context of triple helix innovation 

system by Holmberg (2015)............................................................................................ 116 

Figure A. 2: Steps of back-casting methodology for sustainability transitions by Larsson 

and Holmberg (2018) ...................................................................................................... 116 

Figure A. 3: Sustainability lighthouse illustrating the four dimensions of sustainability as 

presented in Holmberg and Larsson (2018) .................................................................... 118 

Figure A. 4: How sustainability lighthouse can guide transitions in socio-technical systems 

as presented in Holmberg and Larsson (2018) ............................................................... 118 

Figure A. 5: Extrinsic motivation as a major source of human motivation and its four 

different forms/types as developed by Ryan and Deci (2000) ........................................ 120 

Figure A. 6: Structure and rotation mechanism for world cafes to form sustainability 

principles as developed by the C-Lab 2019, presentation on step 1 of back-casting 

methodology: formulate principles for sustainability ..................................................... 122 

Figure A. 7: Sustainability lighthouse created by the C-Lab student patch in 2019, with the 

suggested principles in each respective dimension ......................................................... 123 

Figure A. 8: A preliminary system map of mobility thematic area, as prepared by students 

of the Challenge Lab patch 2019 .................................................................................... 124 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



11 
 

List of tables  

Table 1: A detailed explanation for each level within the MLP of system innovation .... 25 

Table 2: List of meeting with industry experts in Västra Götaland County ..................... 52 

Table 3: Final population of innovation-driven SMEs within mobility system of Västra 

Götaland County ............................................................................................................... 56 

Table 4: List of selected SMEs sample for semi-structured interviews ............................ 60 

Table 5: Title of interviewee, interview type, date and length for each respective SME . 61 

Table 6: Distribution of SMEs identified population according to last available figure of 

turnover ............................................................................................................................. 69 

Table 7: Summery of main collaboration partners with interviewed SMEs ..................... 84 

Table 8: Challenging aspects of business model innovation for interviewed SMEs ........ 93 

Table B. 1: Main outcomes of experts’ unstructured interviews .................................... 128 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



12 
 

Table of Contents 

1.Introduction .............................................................................................................................. 16 

1.1 Background ........................................................................................................................ 16 

1.1.1 Theoretical point of departure .................................................................................. 16 

1.1.2 Empirical point of departure ..................................................................................... 17 

1.2 Scope/Aim of the study and research question ............................................................... 20 

2. Literature ................................................................................................................................. 23 

2.1 System innovation in the context of sustainability transitions ...................................... 23 

2.1.1 What is system innovation? ....................................................................................... 23 

2.1.2 Theories of system innovation and transitions of socio-technical systems (STS) . 25 

2.1.2.1 Multi-Level Perspective (MLP): regimes, landscape, and niches ................... 25 

2.1.2.2 The process of nice formation: Strategic Niche Management (SNM) ............ 28 

2.1.2.3. Criticism to MLP and niche-based theories of regime transitions and the 

development of transition pathways .............................................................................. 31 

2.2 Role of innovation-driven SMEs in upscaling niche innovations .................................. 36 

2.2.1 Rise of SMEs as a main actor in regional innovation systems ................................ 36 

2.2.2 Role of SMEs in regional innovation systems .......................................................... 37 

2.2.3 Sustainability aspects of SMEs innovations ............................................................. 39 

2.2.3.1 Interplay between SMEs and incumbent firms in creating and scaling up 

niche innovations towards sustainability transformation ............................................ 40 

2.2.3.2 Business model innovation at the core of scaling up niche innovation towards 

sustainability transformation ......................................................................................... 42 

2.3 Policy implications for regional public authorities in supporting sustainable 

transformation of STS and role of SMEs in upscaling niche innovations .......................... 43 

2.3.1 For supporting sustainable transformation of STS ................................................. 43 

2.3.2 For supporting SMEs in upscaling niche innovations ............................................. 44 

3. Methodology ............................................................................................................................. 46 

3.1 Research strategy .............................................................................................................. 46 

3.2 Research design ................................................................................................................. 47 

3.3 Data collection and analysis method ................................................................................ 49 

3.3.1 Framework for population identification ................................................................. 49 

3.3.1.1 Setting definitions for the study main concepts. ............................................... 49 

3.3.1.2 Meeting with industry experts in Västra Götaland County ............................ 52 

3.3.2 Population identification ............................................................................................ 54 

3.3.2.1 Data collection, filtering and population classifications ................................... 54 



13 
 

3.3.2.2 The final population ............................................................................................ 55 

3.3.3 Selection of SMEs sample .......................................................................................... 58 

3.3.3.1 Type of sampling.................................................................................................. 58 

3.3.3.2 Data collection method for the sample .............................................................. 59 

3.3.3.3 The final sample and interview settings ............................................................ 59 

3.3.4 Data transcription and approach for analysis ......................................................... 62 

3.4 Sources of misinformation and study limitation ............................................................. 64 

3.4.1 Physical, time and data limitation ............................................................................. 64 

3.4.2 Validity and reliability of the study main findings .................................................. 65 

4. Results....................................................................................................................................... 67 

4.1 Results of the final SMEs population ............................................................................... 67 

4.1.1 Characteristics of the entire population ................................................................... 67 

4.1.2 Findings for each technological trend ....................................................................... 71 

4.2 Results of the semi-structured interviews with selected SMEs sample ........................ 73 

4.2.1.1 Autonomous Vehicles .......................................................................................... 74 

4.2.1.2 Connectivity ......................................................................................................... 76 

4.2.1.3 Electrification ....................................................................................................... 76 

4.2.1.4 Shared Mobility ................................................................................................... 77 

4.2.1.5 Other ..................................................................................................................... 79 

4.2.2 Collaboration with the company’s main stakeholders ............................................ 79 

4.2.2.1 Autonomous Vehicles .......................................................................................... 80 

4.2.2.2 Connectivity ......................................................................................................... 81 

4.2.2.3 Electrification ....................................................................................................... 81 

4.2.2.4 Shared Mobility ................................................................................................... 82 

4.2.2.5 Other ..................................................................................................................... 83 

4.2.3 Company´s strategy .................................................................................................... 84 

4.2.3.1 Autonomous Vehicles .......................................................................................... 84 

4.2.3.2 Connectivity ......................................................................................................... 85 

4.2.3.3 Electrification ....................................................................................................... 86 

4.2.3.4 Shared Mobility ................................................................................................... 87 

4.2.3.5 Other ..................................................................................................................... 87 

4.2.4 Main challenges facing the company ........................................................................ 88 

4.2.4.1 Autonomous Vehicles .......................................................................................... 89 



14 
 

4.2.4.2 Connectivity ......................................................................................................... 90 

4.2.4.3 Electrification ....................................................................................................... 90 

4.2.4.4 Shared Mobility ................................................................................................... 91 

4.2.4.5 Other ..................................................................................................................... 92 

5. Discussion ................................................................................................................................. 94 

5.1 Current role of innovation-driven SMEs ........................................................................ 94 

5.1.1 The creation and maintenance of specialized niches ............................................... 94 

5.1.2 Forming symbiotic relationship with current regime actors/stakeholders ........... 99 

5.1.3 Undertaking active collaboration with other regime and niche players.............. 104 

5.2 Perceived role of innovation-driven SMEs .................................................................... 108 

5.2.1 A system transition (i.e. regime/niche interactions) perspective .......................... 108 

5.2.2 A niche actor-based perspective .............................................................................. 111 

5.2.2.1 “A business model co-innovation” role ............................................................ 112 

5.2.2.2 “A new scaling-up” role .................................................................................... 112 

5.2.2.3 “An initiator of collaboration activities” role ................................................. 112 

6. Conclusion .............................................................................................................................. 113 

• Policy recommendation and suggestions for further research .................................. 114 

Appendix A: Phase I in the C-Lab ........................................................................................... 115 

A.1 Background ..................................................................................................................... 115 

• The Challenge Lab .................................................................................................... 115 

• Theory: Back-casting ................................................................................................ 116 

A.2 Methodology .................................................................................................................... 120 

• Values clarification ...................................................................................................... 120 

• Mission Statement ....................................................................................................... 121 

• Sustainable principles .................................................................................................. 121 

• Systems mapping and information gathering .............................................................. 123 

• Stakeholder dialogues .................................................................................................. 124 

• Leverage point identification ....................................................................................... 125 

A.3 Results and Research Question ..................................................................................... 127 

• Process of arriving at a research question: how did it go? .......................................... 127 

• Research Question ....................................................................................................... 127 

Appendix B: Unstructured interviews with industry experts in western Sweden ............... 128 

Appendix C: Semi-structured interview guide for participant SMEs .................................. 131 



15 
 

C.1 Development steps for SMEs semi-structured interview guide .................................. 131 

C.2 The final SMEs interview guide .................................................................................... 134 

Appendix D: List of terminologies ........................................................................................... 136 

List of References ...................................................................................................................... 138 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



16 
 

1.Introduction  

1.1 Background 

1.1.1 Theoretical point of departure  

The concept of sustainability transition/transformation has been heavily discussed under 

the realm of sustainability and sustainable development literature. In order to address what 

is meant by sustainability transition, it is of significant importance to start with the 

definition of “sustainability”.  Despite the various approaches and definitions put for the 

former concept, this thesis has adopted abroad definition formulated by the World 

Commission on Environmental Development (WCED) as; “development that meets the 

needs of the present without compromising the ability of future generations to meet their 

own needs” (WCED 1987). Later on, sustainability research has approached the concept 

from different perspectives; however, most cited definitions of sustainability are 

fundamentally based on three intersecting pillars or aspects (environmental, economic and 

social) that are fulfilling human needs and wellbeing. It is worth-mentioning that 

“sustainable development” as a process and “sustainability” as an outcome have been 

interchangeably used to reflect the same meaning (Schaltegger, Hansen et al. 2016).  

Sustainability transitions are defined as “transformative changes” in which fundamental 

and transformative actions have to be undertaken to realize changes on a wide scale such 

as systems or sectors that serve specific societal functions or on the whole societal level. 

These kinds of transitions are not aiming to create incremental or marginal changes, but 

they are targeting to support radical, disruptive or substantial change in societies. 

Therefore, sustainability transitions are complex processes in which configurations of 

unsustainable systems are dismissed and replaced by more sustainable ones. In fact, 

sustainability transition scholars such as Frank W. Geels have developed many conceptual 

and theoretical frameworks that investigate and explain such complex transformative 

processes. For instance, in order to conceptually investigate and understand sustainability 

transitions on systems level, the concept of “system innovation” has been developed in 

literature, and it is usually defined as sustainable transformation of one of societal functions 

that takes place on a wide scale such as mobility, communication, housing …etc. (Geels 

2005). A prominent theory of Multi-Level Perspective (MLP) of system innovation 

analyses how the structural formation of systems into three interlinked levels (landscape, 

regime, and niches) lead to a sustainability transformation process in which many actions 

and processes are taking place, co-evolving and reinforcing each other.  

In that regard, it was argued by Geels (2004), Geels (2005) and Geels and Schot (2007) 

that system niches are the seeds of change, as they are “the locus of radical innovation”. In 

fact, system niches are defined as protected spaces that are set up for the experimentation 

and development of new and radical technologies. It is argued by the last references, and 

adopted in this study, that such niches would lead to system innovation by utilizing 

windows of opportunity through scaling up innovations and linking with developments on 

higher system levels (i.e. regime and landscape).  Geels (2004) stressed that involvement 

of actors is essential to accelerate the diffusion of radical new technologies into system 

regimes; however, there is still a literature gap regarding actor-related activities on 



17 
 

niches of MPLs, and their effect to accelerate technological breakthroughs on higher 

system levels. Accordingly, more research is needed to reveal how niche actors navigate 

transitions, and to investigate actors-related patterns, including their modes and strategic 

interactions, in order to understand speed of diffusion and/or breakthroughs of new 

technological configurations that lead to system disruption and innovation.  

On another note, Small and Medium-sized Enterprises (SMEs) play an essential role in 

technological niches. Many writings have referred to the pivotal role that SMEs are playing 

nowadays in innovation systems, especially regional ones, due to many factors; and that 

have created promising niche opportunities for them to step in (Smallbone, North et al. 

2003). In addition, the last reference has classified SMEs according to their technological 

level and assumed that technology-driven SMEs would “create and maintain specialized 

niches” while they are developing their novelties and can be strong candidate to drive 

radical innovations especially in tech sectors and high-technology regions. Klewitz and 

Hansen (2014), in their systematic review of Sustainability-Oriented Innovation (SOIs) of 

SMEs, have argued that innovation-based and sustainability rooted strategies for SMEs 

would result into radical innovation, which have more influence to affect sustainability 

transformations on higher system levels. However, there is no enough literature that 

investigates the dynamics of SMEs role as niche-based actors into system innovation and 

sustainability transformations, specifically for scaling up sustainable radical technologies. 

Indeed, such dynamic role of SMEs has been reviewed from limited co-evolutionary 

perspectives such as interplay between SMEs and incumbent firms into creating and 

scaling up niche innovations, and from business model innovation perspective. However, 

more explorative research needs to be implemented from other theoretical co-evolutionary 

perspectives to understand dynamics of such SMEs role in scaling up niche innovations 

towards sustainability transformation of systems.   

1.1.2 Empirical point of departure  

This study has a general interest of sustainability transition within the regional context of 

western Sweden, and a specific interest of sustainability transition of “mobility system” 

inside Västra Götaland County1. On a national level, there is an ongoing comprehensive 

work for a fossil-free Sweden. The goal is to make Sweden as a fossil-free country before 

2045. On a regional level, Västra Götaland County is Sweden’s second largest region in 

terms of population and is the hub for the automotive industry in Scandinavian countries. 

Regional authorities, represented into VGR, have taken an active role to reach fossil 

independency by the year 2030. In “Klimat 2030” report, published by Länsstyrelsen 

Västra Götalands län, the strategy is presented and described. Out of the four focus themes, 

one is related to mobility under the name “Sustainable Transports”. The report proposes 

four different types of investments in this respective theme (VGR 2017); 

- Sustainable everyday travel, where more people choose biking and collective 

travels 

 
1 Note that a list of terminologies is provided in appendix D, in which we briefly present/define main 
public authorities, companies and collaboration arenas that are mentioned in this study.  



18 
 

- Accelerate transition for fossil free vehicles 

- Effective goods transportation 

- Climate-friendly smart meetings and vacations 

Västra Götaland Region has good prerequisites for the transformation. There exists 

dynamic private sector (i.e. innovative enterprises related to the transportation industry), 

strong knowledge centers, a dedicated public sector, and uprising collaboration platforms, 

that are committed to meet and solve society problems. The region has an ambition to 

become a role model for sustainable transformation, and this has been expressed through 

dialogs, meeting and reports from different actors inside the region. However, different 

stakeholders have different goals, interests and views towards achieving sustainable 

transport/mobility systems. For example, during an arranged meeting between this study 

authors and one of the actors in the public sector, economic sustainability was perceived 

as being used by incumbents to postpone the transformation for ecological sustainability. 

That was by arguing disruptiveness could make business models and products of 

incumbent firms obsolete, hence, many people would be unemployed, thus hurting 

economic sustainability.  

Collaboration between actors in academia, government and industry to reach the goals for 

“Klimat 2030” is in the core of sustainable mobility transformation processes taking place 

inside Västra Götaland County. One example of an entity that support collaboration in 

Västra Götaland County is Lindholmen Science Park (LSP). LPS is located in a favorable 

position in one of Gothenburg’s major business and academic areas, and it has worked, 

during the last 19 years, as a collaboration and network platform. At LSP, there exist 

several relevant initiatives and organizations for mobility transformation. The first one to 

mention is an incubator for startups that develop new mobility solutions; “MobilityXLab”. 

MobilityXLab collaborates with six corporations, Ericsson, CEVT, Volvo Cars, Veoneer, 

Volvo group and Zenuity. Currently, it has a portfolio with 17 startups; the majority use 

some of the Artificial Intelligence (AI) technologies. Furthermore, the office for the testing 

arena of autonomous vehicles “AstaZero” is located in LSP. AstaZero is a perfect example 

where all three societal dimensions collaborate (i.e. industry, academia and government). 

It is owned by Chalmers University of Technology and Research Institute of Sweden 

(RISE) and gets financing from the public sector (i.e. VGR, Borås stad and European 

Union). Moreover, it collaborates with several industrial partners such as AB Volvo, Volvo 

Car Corporation, Scania. Outside Gothenburg city, Innovatum Science Park is one of the 

most active science parks located in Västra Götaland County in Trollhättan, where more 

than 140 companies are located and working. The park aims to strengthen business 

community in western Sweden through providing a constellation of services, most 

importantly, being a science center, driving development projects and incubating startups. 

Indeed, the park’s incubator hosts startups developing innovative solutions related to food, 

mobility and energy.  

On another note, several mapping reports have been produced by Business Region 

Gothenburg (BRG) analyzing landscape in western Sweden regarding developments of 



19 
 

new technologies covering companies working in mobility sector. Specifically, BRG has 

conducted cluster analysis and mapping reports about vehicles, electrification, AI, Internet 

of Things, Augmented Reality & Virtual Reality etc., partly or completely related to 

transportation and mobility. In addition, several business/professional international reports 

around transformation of mobility systems are available. Four disruptive technologies 

have been introduced mainly by industry experts, consultancy firms and interest groups 

and they are; autonomous vehicles (AV), connectivity, electrification and shared mobility 

(Arbib and Seba 2017, MCFM 2019). It is predicted that those technologies will completely 

re-shape and disrupt the future of mobility. Some reports have argued for the need to new 

institutional settings in order to realize the potential, and accelerate the disruptive effect, 

of such technologies. 

Moreover, this thesis has a specific interest into the role played by SMEs located into 

Västra Götaland County towards its sustainability transition. In that regard, it is interesting 

to observe that VGR has taken an active role in supporting SMEs in several dimensions, 

with the purpose of creating a favorable SMEs environment towards the region’s 

sustainable development, as expressed in its action plan for SMEs over the period 2016-

2018 (VGR 2016). These dimensions are divided into two main aspects that include sub-

areas of focus. The two main aspects are “business climate” and “innovation and market 

development”, and in which sub areas include aspects such as funding, skills supply, 

procurement, knowledge transfer, and making new markets more available for SMEs. The 

second area for “innovation and market development” comprises knowledge transfer as a 

main sub-component. That is mainly to fill in the knowledge gap through networking 

platforms and closer collaborations between SMEs and knowledge centers such as 

academia, science parks, research institutes and industrial development centers. 

Knowledge transfer can be between SMEs and other companies in the same industry or 

other companies from the outside industry. In that regard, the region has a major role to 

facilitate knowledge transfer between both parties (i.e. SMEs and their knowledge 

providers).  

Moreover, Västra Götaland County has one of the highest R&D expenditures as a share of 

national GDP, which makes it an innovation leader and placed among the top EU 

innovative regions, as suggested by the Regional Innovation Scoreboard (RIS) developed 

by the European Commission (EU 2019). However, such R&D is dominated by a few 

global companies that represent the majority part of the region’s total R&D investments 

(VGR 2016). The latter reference assumes that such an unequal distribution of R&D 

business expenditures would make the region vulnerable when structural changes take 

place. Therefore, the region has identified a main goal to increase R&D investments in 

SMEs as well as to increase their ability to commercialize research and created knowledge. 

This is implemented, according to VGR, through providing innovative environments and 

meeting places for collaboration activities, such as science parks and testing arenas 

discussed above, which would enhance SMEs innovative capacity.   



20 
 

VGR also identified four major landscape/global trends that will continue to have a major 

impact on the entrepreneurship ecosystem in western Sweden. Two of them are 

digitalization and technical improvements which have increased the productivity in the 

manufacturing sector through automatization. This has fed into a major structural 

transformation; less labor is needed to conduct operations. Indeed, workers have gradually 

moved from the manufacturing industries to the service sector. According to VGR (2016), 

employment in the region’s manufacturing sector (with high productivity) has declined by 

7% over the period (1993 – 2011), while the variable has increased 70% during the same 

period in the private sector, albeit in service companies. Today, SMEs create 4 out of 5 

jobs in the region, making it the main source of equalizer during this transformation of 

occupation between sectors. To reduce economic and social unrest, policies aligned with 

the creation of new jobs are of importance for the region, thus giving their attention to 

SMEs. The two other landscape trends that disrupt the current system are globalization and 

climate transition. Again, the report assumes these two trends could make the established 

enterprises in the region vulnerable, however; the region also views this as an opportunity 

for innovation. Lastly, the report assumes that region’s strategy “Klimat 2030” can open 

the door for SMEs to capture new business opportunities for sustainability-oriented 

innovations, which would enhance their competitive advantage in the domestic and 

international markets. In fact, there are advantages of SMEs to be leaders for this change, 

mainly by introducing sustainable new innovations that will solve future challenges and 

satisfy demands, hence securing precious jobs. In other words, VGR aims for SMEs to 

take a significant role with the process of creating and managing upcoming sustainable 

innovations and help them grow within such process.  

In summary, Västra Götaland County is witnessing major transformative processes toward 

sustainability, with mobility in its core. However, such dynamic transformative processes 

include a lot of elements such as debates among stakeholders about regional sustainability 

strategies and optimal path of such sustainability transition, nature of interaction and 

collaboration among different types of stakeholders, the rise of collaboration 

arenas/platforms that aim to support new and radical innovations, in line with the suggested 

role that VGR has expected SMEs to play as a leader for introducing and managing 

sustainable innovations. All these elements provide an attractive leverage point for this 

study to do an in-depth investigation for the role of SMEs that are developing radical 

and sustainable new innovations aiming to transform mobility sector inside Västra 

Götaland County.     

1.2 Scope/Aim of the study and research question  

This study aims to shed light on one of the main actors for leading sustainability transitions 

in a regional context; Small and Medium-sized Enterprises (SMEs). Based on theoretical 

point of departure, specifically from system innovation within the context of sustainability 

transitions, niche innovations brought up by niche level actors, including SMEs as a main 

stakeholder, have the potential to disrupt and transform unsustainable systems towards a 

more sustainable path. However, there is still a theoretical gap regarding the role of SMEs, 

as a main actor/stakeholder, on the niche level, in the process of upscaling niche 



21 
 

innovations towards sustainable transformation of systems. Based on empirical point of 

departure, within the regional context of western Sweden, a pivotal role is expected by 

SMEs residing in this region to significantly contribute in its sustainable transition, 

specifically in the light of VGR strategy of sustainable transport system. Therefore, this 

study is interested into investigating the case of SMEs located in western Sweden that 

are innovation driven. Such investigation is specifically regarding what role such entities 

play in accelerating and scaling up innovations in the context of regional transition 

towards sustainable mobility system. It is worth mentioning that in order to identify what 

is meant by “scaling up niche innovations”, this study adopts Schaltegger, Hansen et al. 

(2016) co-evolutionary approach for scaling up niche business models towards sustainable 

transformations of markets. Accordingly, the concept “scaling up niche innovations” is 

defined by this study as the diffusion of sustainable innovative technologies by niche 

players (i.e. SMEs or other niche players) either through growth or other mechanisms such 

as replication or mimicry, in a co-evolutionary process that is characterized by high 

collaboration activities among niche actors as well as other stakeholders.  

Accordingly, this thesis has the following overarching research question:  

“What is the role of innovation-driven SMEs in upscaling/accelerating niche 

innovation within a regional context?” 

Under this question, two more-specific research questions can be introduced: 

• What is the current role played by innovation-driven SMEs in the mobility system 

within Västra Götaland County?  

• What is the perceived role to be played by innovation-driven SMEs in the mobility 

system within Västra Götaland County?  

Before proceeding, it is important to clarify why SMEs role is divided between “current” 

and “perceived” roles. As observed from theoretical and empirical points of departure, 

SMEs role is predominantly crucial to scale up niche innovations towards sustainable 

transformation of the region’s mobility system, as an ultimate goal. To achieve such goal, 

this study assumes a perceived (i.e. a distinguished) role that is expected to be played by 

such niche players towards an agreed-upon vision of the region’s transformation towards 

sustainability. Therefore, the latter role has not only to be perceived by SMEs entrepreneurs 

themselves but also other influential regional stakeholders such as VGR. Nevertheless, in 

order for this study to propose such role, it is crucial to understand, in the first place, what 

SMEs are currently doing within the region. That warrants the investigation of their 

“current role” in the mobility system of Västra Götaland County, as the first sub-question 

to be answered, under the current system’s preoccupations/arrangements. In line with this, 

the regional development strategy of VGR is under development right now, therefore; 

regional authorities would be interested into potential areas of intervention for solving 

bottlenecks facing SMEs in the region. Indeed, the identification of bottlenecks that face 

SMEs in accelerating/scaling up their innovations is based on investigating the gap 

between the current role that such entities are playing and the perceived role that they are 

expected to play in the upcoming period based on their potential. Hence a more directed 



22 
 

approach, while deciding on the research method and designing interview guide for SMEs, 

can be implemented. 

In order to answer this research question, the study follows a qualitative approach as its 

main strategy, in which a comparative design is adopted. In addition, it relies on primary 

and secondary sources to collect relevant data. The study has identified the population of 

innovation-driven SMEs developing new mobility solutions in Västra Götaland County. 

The criteria for identification and inclusion of “innovation-driven SMEs” in the population 

was theoretically based on the definition of “technology-driven SMEs” that Smallbone, 

North et al. (2003) has developed. The last reference has defined “technology-driven 

SMEs” as; the ones that keep updated with the latest technologies which would enable 

them to “create, maintain specialized niches” while they are developing their novelties; 

therefore, they can be strong candidates to drive radical technologies in high technology 

regions. In addition, the criteria for identification and inclusion of “innovation driven 

SMEs” into this study’s population have been empirically based on the four promising 

technological trends, introduced by consultancy firms and industry experts, that have the 

potential to disrupt mobility systems, and they are: a) autonomous vehicles, b) connectivity, 

c) electrification and d) shared mobility. Primary data from selected industry experts and 

researchers within western Sweden were collected, in the beginning and during formation 

of population, through unstructured interviews. Afterwards, a sample of 9 SMEs were 

selected for the aim of answering the research questions through conducting semi-

structured interviews. Therefore, it is crucial to mention that answering the overarching 

research question/two sub research questions has been implemented mainly from SMEs 

perspectives that have been involved in this study, in combination with some insights 

gained from the selected group of industry experts that have been strongly linked to the 

studied phenomenon. Qualitative analysis was undertaken later to decide on the major 

themes of the current and perceived role of SMEs. Based on such analysis, the study 

identifies bottlenecks facing SMEs while creating and accelerating/scaling up niche 

innovations. Reached conclusions are expected to have a contribution for VGR in terms of 

insights that regional authorities should consider in order to assist SMEs overcome barriers 

and scale up their innovations.  

 

 

 

 

 

 



23 
 

2. Literature 

2.1 System innovation in the context of sustainability transitions 

2.1.1 What is system innovation? 

Over the last few decades, these has been a lot of innovations that led to substantial 

improvement in environmental efficiency on different, albeit relatively smaller, scales. 

That has resulted into positive impact on sustainability; however, such innovations did not 

achieve its desirable impact on a larger scale (Elzen and Wieczorek 2005). Therefore, there 

has been an increasing interest in creating wide-scale environmental efficiency that would 

require innovation to take place on higher levels (i.e. system/regime level), which would 

enable structural transformation of such systems. That kind of innovation is called system 

innovation, and aims to achieve sustainability transition (Geels, Elzen et al. 2004). That is 

why scholars of system innovation have given a special focus to the environmental aspect 

of system/regime transformation. In that regard, Elzen and Wieczorek (2005) argued for 

the need to build a solid knowledge base for sustainable system transformation as academic 

research is facing two major challenges. One is to develop a better understanding of 

transitions dynamics, and the other is feeding insights from such dynamics into formulating 

and implementing policies that would stimulate desirable transition paths.  

In fact, the origins of system innovation go back to late 1970s when the definition of 

“technological regime” was developed by R. Nelson and G. Winter in 1977, as well as the 

concept of “technological paradigm” developed by G. Dosi in 1982 (Kemp, Schot et al. 

1998). However, more tendency was toward using “technological regimes” in transition 

literature as a better concept than “technological paradigms” because of the former 

reference to the rules that are socially embedded into systems; such rules are well 

established and are not easy to dissolve or change. Therefore, discussion in literature of 

regime transitions and change, at that time was about system optimization rather than 

system transformation. Such optimization is dependent on two factors; engineers’ beliefs 

and shared knowledge on one side, and beliefs of market needs/demand on another side. 

System optimization approach does not take into account the selection environments; or in 

other words, the institutional factors that rule economic and social environment. 

Geels (2005) has defined system innovation as “large-scale transformations in the way 

societal functions such as transportation, communication, housing, feeding, are fulfilled”. 

This study is concerned with sustainability transition of mobility systems/regimes, which 

is transition of one of societal functions as mentioned above (i.e. it is on a lower level than 

a transition for whole society and a higher level than transition on an organizational level 

such as firms) (Geels, Elzen et al. 2004). In system innovation literature, societal functions 

(including mobility systems) are also called socio-technical systems/regimes (STS), a 

concept that is raised by Geels (2004) by adding more actors and sets of rules to the 

“technological regime” concept developed by R. Nelson and G. Winter. Accordingly, 

system innovation is interchangeably called transition of STS (i.e. change from one social-

technical system to another). Scholars such as (Geels, Elzen et al. 2004), Geels (2005) have 

identified salient elements of STS that go through transition processes. They are 

technology, industry structure (i.e. markets, maintenance and supply networks), cultural 



24 
 

meanings and values, regulations, infrastructure. In other words, system innovation is not 

only concerned with introducing new technological innovations, but also it comprises the 

introduction of new markets, regulations, infrastructure (on the supply side), as well as 

attitudes, norms, new users and practices (on the demand side). Elements of STS are, albeit 

heterogenous, connected into dynamic networks that are continuously reformed on 

multiple dimensions by activities of relevant social groups.   

It has always been argued in sustainability literature that transitions always drive disruptive 

innovation (Hockerts and Wüstenhagen 2010). Therefore, system innovation causes 

disruption of prevailing technologies as well as their links to current markets/users, so it 

leads to structural/architectural changes of such systems. It is also characterized by multi-

actor processes, which means that change includes interaction between actors within 

specific societal group as well as among different societal groups (i.e. system innovation 

is not initiated by a mere actor or driver).  As this study is not only concerned with 

sustainable transition in automotive industry (as a single industry or sector), but also 

transition of mobility system as a societal function2, which warrants the theoretical 

approach of system innovation. To elaborate, this study does not just investigate a specific 

industry, sector or technological knowledge, but it tries to understand change from a wider 

perspective that is characterized by complexity and coevolution.  

System innovation has been approached from two distinct disciplines that provide a rich 

and more comprehensive view of such complex phenomenon. They are evolutionary 

economics and innovation studies in one hand, and cultural studies (i.e. sociology of 

technology) and history of technology on the other hand. Historical studies of system 

innovation indicate the gradual and long time span of such transformation, as it can take 

many decades of unfold desirable wide scale change (Geels, Elzen et al. 2004). That is 

because innovation systems are usually characterized by “stability”, “path dependency” 

and “lock-in”, which implies that new innovations are mostly incremental in nature (Geels 

2004). These incremental innovations maintain and improve existing technologies and 

retain existing users. Although one reason for stability of existing system can be high 

investments undertaken by producers and too large built-in capital to write-off (Elzen and 

Wieczorek 2005). Another significant reason is that current systems are deeply embedded 

into society; they are adopted to people’s lifestyles and prevailing institutional 

arrangements, which explains why new technologies may fail, in many cases, to achieve 

wide scale system transitions.  

Kemp, Schot et al. (1998) have identified a number of binding factors that hinder 

sustainable transformation of socio-technical regimes. These factors can be summarized as 

technological, government and regulatory policies, cultural and psychological, market 

demand, production/supply, infrastructure and maintenance, expected undesirable effects 

of new technologies, which comprises the same elements for STS discussed above. 

 
2 That include mobility of people, goods as well as digital forms of mobility as will be more elaborated in 

the methodology section.  



25 
 

Therefore, Kemp, Schot et al. (1998) have indicated that radical technologies, necessary to 

create system transformation, take long development time to make significant changes in 

such factors embedded in the selection environment. However, it should be highlighted 

that system innovation or sustainability transition of STS, that would allow “competence 

destroying breakthroughs” to cause wider changes, are not planned and/or designed in 

advance, but they evolve as different actors interact and certain processes evolve over time. 

Therefore, there is a lot to learn about it from exploratory research that investigates such 

phenomenon in order to understand it over certain systems, regions and time spans.   

2.1.2 Theories of system innovation and transitions of socio-technical systems (STS) 

There have been many theoretical approaches that explain system innovation from different 

perspectives, such as point-source approaches, replacement approaches and transformation 

approaches (Geels 2004). This section is dedicated to discussing two prominent theories of 

system transitions that have been widely accepted and thoroughly reviewed in literature; 

Multi-Level Perspective (MLP) of system innovation and Strategic Niche Management 

(SNM) as the niche-based models of sustainability transitions. The criticism of MLP and 

niche-based models of regime transitions is discussed afterwards, with the introduction of 

transition pathways of STS.   

2.1.2.1 Multi-Level Perspective (MLP): regimes, landscape, and niches  

The Multi-Level Perspective (MLP) of system innovation has been introduced in literature 

order to better understand the complex phenomenon of system innovation (Geels 2005).  

Basically, any innovation system is comprised of three interlinked and interdependent 

levels, in which many processes and actions take place, co-evolve and reinforce each other. 

They are the micro level or “niches”, the macro level or “socio-technical landscape” and 

the meso level or “regime” in between. MLP have stressed on the importance of interplay 

between the three levels to adopt wider institutional changes accompanied by the new 

technological discontinuities. Moreover, the three levels are positioned in a nested 

hierarchy (Geels 2004); that means niches are embedded into regimes which are, in turn, 

positioned inside landscapes. The following table no. 1 provides a detailed explanation for 

each level as suggested by Geels (2005) and Geels (2012).  

Table 1: A detailed explanation for each level within the MLP of system innovation  

The macro or 

landscape 

level 

It includes all mega trends that function as 

background/external/exogenous variables such as macroeconomy, 

demographic changes, labor market conditions, natural environment, 

worldwide views, political culture and norms…etc. It also contains 

unexpected shocks such as wars, environmental disasters, acute 

changes in oil prices ..etc. It was argued that these variables could have 

a significant effect on channeling system transitions on the other two 

levels (regime and niche). 

The meso or 

regime level 

It includes the set of rules embedded in the current institutional 

arrangement of socio-technical systems. They can be summarized into 

seven dimensions: technology, user practices and application domains, 



26 
 

symbolic meaning of technology, infrastructure, industry structure, 

policy and knowledge. 

The micro or 

niche level 

Protected spaces/incubation rooms that are prepared for 

experimentation and development of new technologies as “the locus of 

radical innovations”. Niches have two fundamental aims.: (1) learning 

about desirability of the new technologies. (2) enhancing further 

development and accelerating the rate of application of such 

technologies (i.e. building social networks that enhance their 

development). 

 

Figure 1: A dynamic illustration of multi-level perspective of system innovation by Geels 

(2005) 
 

Figure no. 1 illustrates the dynamic process of system innovation from a MLP, as 

developed by the last two references. Geels (2004) assumes that system innovation is 

predominantly initiated at the niche level. As shown in figure no. 1 above, new technical 

configurations that are successfully incubated on a niche level find their trajectory path by 

linking up to the meso and macro levels. Along the way, linking up new configurations 

with the different aspects on regime level would result into larger changes on the higher 

system levels. Although a lot of highly potential configurations are incubated in protected 

niche spaces, very few ones succeed to achieve regime transformation on a wider scale 

later. In fact, Berkhout, Smith et al. (2004) has mentioned a number of growth determinants 

for new technical configurations, that include: degree of effectiveness of protection and 

nurture within niches, scope of application for niche technologies in new setting (i.e. to 

what extent the new configuration solves a bottleneck in the incumbent regime), and 



27 
 

compatibility of new configurations with current technological regimes. The last 

determinant has raised many questions regarding the relative degree of change that can be 

considered as transformational when the degree of compatibility is very high.  

Geels (2005) and Geels (2004) have discussed patterns of new configurations 

breakthroughs from niches to regime level in an MLP. The former reference assumes that 

success of wider diffusion depends on linking developments in niche level with ongoing 

processes on regime and landscape level (i.e. external circumstances that provide windows 

of opportunity for radical novelties). There are also internal drivers that function as 

windows of opportunity for niche innovations such as technical improvements and 

increasing returns of adoption. Although improvement in price/performance ratio (i.e. 

internal drivers) is one important factor, other socio-technical and social external factors 

still play crucial role, albeit not comprehensively discussed in innovation literature (Geels 

2005). The former reference has indicated three distinguished patterns of technological 

breakthrough from niches to regime and landscape levels.  

First, radical innovations are accumulated at the niche level; they do not happen suddenly 

or at once. They are gradual and follow subsequent steps. In that regard, learning processes 

at niche level include, at its core, testing novel configurations with users, and by building 

that experience, new technical forms and functionalities of such novelties are explored and 

validated. This process would lead, at the end, to the stabilization of rules, which means 

the creation of new dominant design and articulation of new users’ preferences.  

Second, innovations at niches follow co-evolutionary pattern by linking to other 

technologies. Interlocking, interrelatedness, and co-development of multiple technologies 

become recently a main theme in technology diffusion research. In this regard, there are 

four ways in which emerging niche technologies co-evolution can take place. A new 

technology can: 

(1) Be a complementary to existing technologies, especially when the former one faces 

a lot of constraints in its functionality. 

(2) Be a technical addition or hybridization, as new and old technologies can create a 

kind of symbiosis link. 

(3) Follow sequential accumulation; when a technology catalyzes an existing regime 

to open up and hence provides an opportunity to an upcoming technology to link 

up on a later stage. 

(4) Exchange some elements from other competing technologies.  

Third, involvement of actors is an essential pre-requisite to stimulate and accelerate 

diffusion of new technologies on higher levels of MLP systems. Indeed, active involvement 

and support from related actors can help newly emerging technologies to link up and 

reinforce each other. That would enhance the creation of new opportunities that would lead 

to regime change. It is important to mention that actors’ involvement is a non-linear process 

which includes both accelerations and slowing down. That process affects strategic 

interactions between actors as well. Scholars have been able to study actors-related 



28 
 

activities in case studies by investigating micro activities of actors’ practices on a local 

level (Geels 2005). On a later study, Geels and Schot (2007) have defended MLP model 

from critics and indicated that although it is a global model, which describes and analyses 

transition process from a macro/holistic perspective (i.e. outside-in approach), MLP is also 

designed to allow analysis from an actor/local based perspective (i.e. inside-out approach). 

However, the focus on actors related activities can be more elaborated by single case 

studies. That warrants aim of the study, its research question and its exploratory nature of 

investigating the role played by an essential actor in technological niches “SMEs” by 

upscaling such technological breakthroughs that have the potential to transform mobility 

system in western Sweden.  

2.1.2.2 The process of nice formation: Strategic Niche Management (SNM) 

Background and definition of SNM: Kemp, Schot et al. (1998) have introduced the 

concept of Strategic Niche Management (SNM) in the regime transition literature. The 

concept comprises the creation and management of niche spaces for highly potential 

technologies. The importance of SNM relies on the famous assumption of system 

innovation literature: transformational changes in innovation systems can be initiated from 

niche level because they are the rooms for radical novelties (Geels 2004). Practices 

developed by niche players/managers, when adopted on a larger scale, would have a more 

amplified effect that could lead technological regimes to transform. Accordingly, 

transitions of socio-technical regimes suggest a crucial role to be played by niches and 

entrepreneurs/system builders in such complex process. In strategic niche management or 

“niche-based model” of regime transformation, niche actors who are transition managers 

protect what they believe as desired technological configurations, so that such 

configurations have the opportunity to develop and prosper on a later stage. Then they can 

replace and/or transform current environmentally unsustainable regimes.  

Specifically, niches are important to prove the technical viability of, secure financial 

assistance for, and form “constituency” around the new-born technologies. In other words, 

niches provide space for learning processes, and institutional connection and adaptation 

that are crucial for accelerating such novel technologies. Accordingly, regime transitions 

require niche proliferation as a core element in such process, hence, Kemp, Schot et al. 

(1998) has introduced the concept of SNM as “the creation, development and controlled 

phase-out of protected spaces for the development and use of promising technologies by 

means of experimentation, with the aim of (1) learning about the desirability of the new 

technology and (2) enhancing the further development and the rate of application of the 

new technology”. Geels (2004) has indicated that experimentation processes in protected 

niches are precarious (i.e. reconfiguration processes of new technologies on niches are, to 

a great extent, unorganized and coincidental; they can go in many directions and lose 

momentum). That would require more work from niche actors to support it as well as 

articulating its rules.  

Steps and processes of SMN and formation: Kemp, Schot et al. (1998) and Kemp, Rip 

et al. (2001) explained in detail the five steps of SMN. These steps should not be seen as 



29 
 

sequential; but overlapping, interconnected and feeding into each other. They can be 

presented as follows, 

The choice of technology: a technology that could be supported by a SNM process is one 

from outside the current technical regime and has a high potential to solve a persistent 

problem at an acceptable cost level. 

The selection of an experiment: it is the selection of an appropriate setting for developing 

and testing the new technology. In other words, it is the selection of the most appropriate 

space, such as a specific geographical location or a business application, in which the 

technology advantages are maximized, while its disadvantages and disruptions are 

minimized. 

The setup of experiment: it is the most difficult step as it includes choosing the right policy 

mix that maintain the balance between the protection and selection pressure on the new 

technology. Indeed, high focus on protection and low focus on selection can lead to reverse 

results in terms of very expensive failures. On the opposite side, high selection pressure 

with little protection can lead to undesirable path dependencies for the new technology. 

The scale up of experiment: it is related to the choice of the right policy mix to promote the 

scale up of successful experimentation of a new technology. 

The breakdown of protection: this is done when protection is no longer needed as the 

technology does not show desirable results. It is also needed when niche manager wants to 

fully consider selection pressure. However, this step should be done in a controlled manner 

in order not to negatively affect involved companies and developers. 

In addition, Kemp, Schot et al. (1998) have highlighted three processes that constitute niche 

formation. First, coupling of expectation; which is the process of translating expectations 

and promises of the developed technologies to other actors by engaging into collaboration 

activities that substantiate such expectations primarily to market users/adopters. That is 

because actors vary according to their interests, capabilities, believes/values as well as 

expectations. In that regard, regulators as well as public authorities can have a crucial role 

in supporting (or impeding) niche technologies if they are (or aren’t) successfully engaged 

into this process (Elzen and Wieczorek 2005). Second, articulation process; specifically, 

the articulation of the above-mentioned barriers for regime transitions, as well as 

possibilities to overcome them (i.e. articulation of technology design specifications, its side 

effects, and users’ needs/requirements). Articulation is undertaken through 

experimentation as presented in the steps of SNM. Third, network formation; and that is 

for new actors developing the disruptive technologies. In this regard, government can step 

and assist in forming such networks as other prevailing actors would not be interested into 

taking the initiative and spreading respective technologies that may threaten existing ones. 

These networks should represent potential users/adopters of new ideas as they are the main 

receivers of development outcome and primary source of feedback over the SNM process.  



30 
 

Characteristics of SNM and formation: It is crucial to mention that SNM is undertaken 

by more than one actor who can perform as “niche managers” such as governmental 

agencies, local municipalities/authorities, non-governmental organizations, private 

companies, interest groups and/or independent individuals. The number and collection of 

involved actors differs from once case to another, albeit it is a collective action process 

than a single-actor one, and it is not implemented in a systematic or coordinated manner. 

Kemp, Schot et al. (1998) and Kemp, Rip et al. (2001) have highlighted the role of 

government in SNM as an enabler, facilitator and process manager of niche formation, 

rather than a regulator of it. Elzen and Wieczorek (2005) indicated that this facilitating role 

is concerned, in the first place, with fostering knowledge transfer and affecting patterns of 

collaborative relationship among involved actors. Different government levels can have 

different roles in SNM. For instance, a local government can facilitate networking activities 

and information exchange (i.e. be a network manager), while a regional or state 

government can co-sponsor projects that need to scale up and formulate supportive macro-

policies. 

SNM has to be perceived as facilitating, rather than a modeling, factor of regime 

transitions, yet it is a steppingstone in this process. Moreover, government’s policies are 

one component among many other factors that form its multi-actors’ perspective. The 

success of strategic niche formation and management is dependent on the status of current 

regime (i.e. its structural problems and changes) as well as on the processes within the 

niche itself. Both factors are determining the patterns and path dependences of niches 

development. Therefore, success of SNM is not granted; because of the unexpected factors 

from the selection environment that can alter the attractiveness of a new technology. That 

is why it is key to support technologies that have high improvement potentials, several 

applications, as well as ample cost reductions. 

Accordingly, Kemp, Rip et al. (2001) consented with the above-mentioned literature of 

sustainability transition of STS that niche managers cannot completely predict transition 

paths of regimes in a certain desirable direction as SNM is coevolutionary in nature; there 

is no linear causality between its processes and their expected outcomes, and there is no 

clear cut distinction between its public and private spheres. However, SNM is not 

completely unpredictable as it comprises guidance for paving transition paths in order to 

increase the probability of their desirable direction. That’s why sustainability transition 

cannot be fully controlled but it can be affected and direct its developments over adequate, 

and relatively longer time periods (Brown, Vergragt et al. 2004). Lastly, to create a 

desirable transition, a critical mass should be created; experiments should have adequate 

size and time span in order to achieve learning economies and intended institutional 

change. Kemp, Schot et al. (1998) have noticed that experiments for new technologies in 

transportation sector are implemented on a small scale and on a short time period, therefore, 

a significant risk was demonstrated for losing all created knowledge from such experiments 

when they are done. 



31 
 

2.1.2.3. Criticism to MLP and niche-based theories of regime transitions and the 

development of transition pathways  

Berkhout, Smith et al. (2004) have argued that existing theoretical explanation of system 

transformation, especially MLP approach, is predominantly niche-based, as they place too 

much emphasis on niches to create regime transitions. In other words, theoretical 

foundation of regime change has focused on linking activities on the niche level and finding 

trajectories to direct new technological configurations towards executing deliberate 

transitions. Particularly, Berkhout, Smith et al. (2004) have criticized F. W. Geels’s MLP 

theory of system innovation as it does not provide a solid explanation of how new 

configuration on the niche level would “link up” to the incumbent regime level in the 

process of creating wider regime transformation, as F. W. Geels explained it as “haphazard 

and co-incidental” process.  

Geels (2004) explained that changes in the landscape such as economic fluctuations and 

demographic megatrends can perform as a source of tensions in socio-technical regimes, 

but with no further explanation of how such tensions arise and create windows of 

opportunities to “link up” with niche radical novelties. In fact, it was argued by Berkhout, 

Smith et al. (2004) that some observations and historical examples of regime transitions 

have indicated to the top-down direction of initiating change. Macro-level processes can 

put regimes under selection pressure that would stimulate change. Therefore, transitions 

are not only taking place through the bottom-up niche-regime technological breakthroughs 

with the aim of creating a new, or upgrading an existing, social function. For instance, new 

institutional, economic, political, social and cultural settings on the landscape can stimulate 

innovation on the micro-niche level, hence drive larger transformation on the meso-regime 

level. And that would have a crucial factor of creating bottom up opportunities from niche 

level for linking up to higher levels. So, the question arises: how can the top-down 

processes would create bottom-up opportunities for radical innovations to link up?    

In response to criticism on MLP framework, Geels and Schot (2007) have developed a 

typology of four transition pathways based on alignment of developments within and 

between the multiple levels. Nevertheless, the four pathways are highly differentiated with 

respect to timing and nature of multi-level interactions. Regarding timing, it is the time 

when landscape pressure takes place on the regime level. This pressure can happen while 

niche innovations are or are not fully developed and ready to break out to regime; and that 

would result into different transition pathways. In fact, Geels and Schot (2007) have 

mentioned four indicators for stabilization of niche innovations and their readiness to scale 

up on regime level. They are: (1) the establishment of a dominant design as a result of 

cumulative and continuous learning processes. (2) the establishment of support network by 

powerful related actors. (3) significant techno-economic improvements (i.e. price 

performance ratio) with expectations for further improvements. (4) the spread of 

technology in a market niche that can count to 5% of market share.  

Regarding nature of interaction, landscape pressure as well as niche innovations can have 

either reinforcing or disruptive relationships with regimes. Landscape reinforcing 



32 
 

relationship with regimes would not lead to regime transition, while a disruptive 

relationship might create necessary pressure for regime change. Niche innovations, in 

many times, have a “competitive” relationship with existing regimes, and in such cases, 

the former aims to replace the later. In some other instances, niche innovations can form 

symbiotic relationship with regimes, and in this case, the former would be adopted by the 

later as “add-on competence enhancing” technologies that aim to improve regime’s 

performance and solve its problems.  

 

Figure 2: A graphical illustration of the MLP four transition pathways as developed by 

Geels and Schot (2007) 
 

Accordingly, the four transition pathways can be presented as follows:  

a) Transformation pathway: moderate landscape developments exercise pressure on 

regimes, and that happens in early phases of disruptive changes taking place in the 

landscape level. Regime actors, in turn, re-orient/ modify the direction of their 

innovation activities, while niche innovations cannot take advantages of such 

developments because they are not sufficiently developed. In this path, outsiders such 



33 
 

as pressure groups and movements, entrepreneurs, activists, exert pressure on regime 

insiders. The later tends to neglect negative externalities and problems that the regime 

faces. When pressure happens, regime actors re-adopt innovation paths and their 

development trajectories in a gradual magnitude. In addition, niche innovations would 

function as symbiotic add-ons to existing regimes without any restructuring/disruptive 

effects. 

 

b) De-alignment and re-alignment pathway: landscape would exert large, sudden and 

frequent pressures on regime that suffers from persistent structural problems. That 

cause regime actors to lose trust in the prevailing regime’s developmental path, and 

that can be seen in declining R&D investments in sustaining innovations. That will also 

cause the de-alignment of prevailing regime and creation of a gap and an opportunity 

for radical novelties to fill in. On the niche level, radical innovations may not be ready 

to penetrate regimes; as they are not fully developed. So, they enter a co-evolution 

process in which multiple niches compete to evolve and gain resources in conditions 

characterized by high uncertainty and experimentation. Eventually, one niche 

innovation manages to gain momentum and be the dominant design, break out and 

create the re-alignment path of regime.  

 

c) Technological substitution pathway: in this path, there is much pressure from landscape 

developments. At the same time, sufficiently-developed radical innovations are located 

in, and ready to break out of, the niche level. Accordingly, such radical innovations 

would replace the existing regime when landscape pressures on regime are enough to 

initiate transition. Interestingly enough, regime level can be relatively stable, but facing 

small problems, however; regime actors think that such problems can be solved by 

sustaining innovations. Therefore, regime actors do not pay much attention to radical 

innovations happening on the niche level. When landscape shock takes place and 

initiates transition, niche innovations diffuse to bigger markets through more niche 

accumulations. This path is characterized by sever competition between incumbent 

regime firms and new actors; as they both enter a power struggle. In this struggle, 

incumbent firms would try to defend themselves by improving existing technologies 

(i.e. the sailing ship effect) but they usually fail at the end. This path is also 

characterized by “technology push” as new innovations replace/substitute old 

technologies, leading to the downfall of traditional regime incumbents, wider regime 

changes, and the emergence of new STS.  

 

d) Reconfiguration pathway: in its first phase, this path resembles transformation pathway 

as niche innovations form symbiotic relationship with regime that adopt such 

technologies to solve its local problems. That process is usually driven by economic 

considerations such as increasing performance efficiency. However, on a later stage, 

the adopted innovations would lead to more adjustments on the regime level, as 

supported by new waves of pressure from landscape developments. Regime actors 

learn more about niche innovations and they “explore new combinations” between old 



34 
 

and new technologies’ elements. That in turn would open new windows of 

opportunities for more adaptation of niche innovations, which would result in more 

changes and reconfigurations on the regime level. It is important to highlight that this 

pathway is different from transition pathway as a reconfiguration path would imply 

fundamental changes in the regime basic architecture. In addition, transition is initiated 

because of the interaction among multiple technological configurations (i.e. component 

innovations), and not a single technology, that are developed and distributed among 

many STS. Lastly, regime actors would survive in such transition path, while niche 

innovations would compete and serve as “component suppliers” to regime actors.  

Figure no. 2 above shows a graphical illustration of MLP four possible transition pathways. 

Moreover, Geels and Schot (2007) argued that, in a dynamic presentation of transition 

pathways, when landscape pressures continue in the form of disruptive change, transition 

can take a particular sequence. It would start from transformation then to reconfiguration, 

and at this stage, regime actors would continue to exist, while niche players would be 

complementary add-on suppliers to existing regime actors. Transition can turn to be 

substitution or de-alignment and re-alignment if landscape pressures become more 

disruptive, and regime changes seem to be insufficient to solve its challenges. In such case, 

regime incumbents lose faith in existing technologies and eventually collapse. The 

breakthrough of new niche players would determine the resulting pathway (either 

substitution or de-alignment and re-alignment) according to its development status (either 

sufficiently developed or not).  

Alternatively, Berkhout, Smith et al. (2004) have suggested another projection for 

transition contexts as presented in figure no. 3 below. As shown from the figure, transition 

contexts are depicted on two dimensions; one is the level of coordination among regime 

actors (i.e. either transformation is highly organized/coordinated/intended on the regime 

level or it is based on unintended outcomes of actors’ interactions). The second dimension 

is the availability of resources such as capabilities, knowledge ..etc. (i.e. either 

transformation is dependent on internal regime resources or external resources that are not 

within regime outreach). It was assumed by Berkhout, Smith et al. (2004) that availability 

of internal resources would cause change to be incremental/gradual in nature. While if 

change is characterized by lack of internal resources and adaptation of external resources, 

then transition would experience more disruptive and major structural changes.  



35 
 

  

Figure 3: Transition contexts based on level of coordination among, and availability of 

resources to, regime actors, as developed by Berkhout, Smith et al. (2004) 

 

As presented in figure no. 3, the four transition contexts can be summarized as follows; (1) 

endogenous renewal: regime actors are executing deliberate regime transformation, as a 

result of outside pressure using its own resources. That would result into incremental 

innovation that is shaped by regime actors and accumulated over time. (2) reorientation of 

trajectories: unexpected shock originated either from inside or outside regime would push 

regime actors to respond and initiate change in a very uncoordinated manner by using its 

own resources. (3) emergent transformation: it is initiated by outside uncoordinated 

pressures on regime level, in which outside actors from other industries such as small firms 

and university research facilities step in and develop unconventional solutions. These 

solutions can be disruptive in nature and would initiate major changes later. In fact, 

Berkhout, Smith et al. (2004) argued that Information Technologies (IT) are an excellent 

example of disruptive technologies that can function in different technological regimes and 

cause emergent transformation. (4) purposive transition: which is highly coordinated and 

deliberately executed, however; it reflects a set of interests from outside regime boundaries.  

In many cases, purposive transition represents the broad spectrum of societal expectations 

and interests. Berkhout, Smith et al. (2004) indicated that the last form of transformation 

(i.e. the purposive transition) is the most likely one to create a successful transition 

management because it would imply a successful negotiation process among different 

societal actors, inside and outside regime, on the agreed-upon vision that is deliberately 

executed and guided by them.  



36 
 

2.2 Role of innovation-driven SMEs in upscaling niche innovations 

This second part of literature is reviewing innovation-driven SMEs, as the focus actor of 

this study for scaling up niche innovations to achieve sustainability transitions. It is crucial 

to highlight that there is no adequate literature tackling role of SMEs in scaling up niche 

innovations. However, many scholars have been investigating the uprising role of SMEs 

in regional innovation systems, various types of SMEs innovation activities, sustainability  

dimensions/aspects of SMEs innovations, relationship between SMEs and other niche 

players that introduce radical innovations, and accordingly, the role of business model 

innovation in the core process of upscaling niche innovations towards achieving 

sustainability transformation, which will be reviewed in this section.  

2.2.1 Rise of SMEs as a main actor in regional innovation systems   

Nowadays, SMEs are playing a pivotal role for promoting economic growth and innovation 

in many regions worldwide, especially within the European economies. In fact, SMEs have 

formed 99% of all businesses inside the European Union (EU), provided over 85% of 

newly created jobs, and constituted two thirds of total private sector employment over the 

last five years (EU 2019). Smallbone, North et al. (2003) have discussed the increasing 

importance of SMEs inside EU different regions since the beginning of 1980s, from an 

economic perspective, both on the supply and demand sides. On the supply side, many 

factors have contributed to this phenomenon, most importantly; new technological 

changes, development of knowledge-based activities, a reduction in the minimum optimal 

scale of production, tendency of larger firms to undertake cost reduction strategies, 

increased outsourcing and contracting out to smaller firms, and the structural shifts between 

manufacturing and service sectors. According to the previous reference, all these factors 

have created promising niche opportunities for SMEs to step in. In fact, many of these 

factors have changed the nature of relationship between different firm sizes in which 

smaller firms pursued to act as suppliers for fewer larger firms, the final producers, in many 

industrial clusters. Smallbone, North et al. (2003) claimed that such new structures have 

enhanced regional competitiveness and innovation capacities in many EU regions.  

Due to big discrepancies among SMEs regarding technological level, they have different 

roles in relation to innovation. Accordingly, Smallbone, North et al. (2003) mentioned that 

some references had made classification of SMEs based on their technological level; (a) 

technology-driven SMEs, that keep updated with latest technologies, (b) technology-

following SMEs, in which technology is important but it does not have to be updated to 

the frontier, and (c) technology-indifferent SMEs; that have very low investment levels in 

technological equipment. Moreover, as creating competitive advantage is the core of 

innovation activity, Smallbone, North et al. (2003) has argued that technology-driven SMEs 

developing proprietary novelties would seek to “create and maintain specialized niches” 

as they create their own competitive advantage. However, such innovation process requires 

substantial resource commitment that can be quite challenging for new companies, 

therefore a significant financial and external technical support is needed in such cases to 

maintain the firm’s own resource base. 



37 
 

2.2.2 Role of SMEs in regional innovation systems 

In general, there is unclear and undecisive conclusions for role of SMEs in innovation 

systems, specifically regarding nature of their innovation activities, types of available 

resources to them, their engagement within innovation networks. In fact, Klewitz and 

Hansen (2014) pointed out that innovation in SMEs can takes place in many degrees, due 

to the different levels of innovation capacity within SMEs. That is why, Tödtling and 

Kaufmann (2001) have investigated, in a prominent study, the role of SMEs in regional 

innovation systems, as part of a large European research project “SMEPOL survey”, in 

which they have concluded SMEs to play an essential role in such systems. The former 

reference has reviewed SMEs innovation activities by investigating nature/type of 

innovation (incremental/disruptive, product/process/organizational), dedicated resources 

of SMEs innovation activities and external networking activities of SMEs. Before first 

reviewing Tödtling and Kaufmann (2001) findings for types of innovation undertaken by 

SMEs, it is important to highlight the difference between product, process and 

organizational innovation, as defined by Klewitz and Hansen (2014). The three types of 

innovations can be interlinked and conducted simultaneously especially by technology-

driven SMEs; 

- Product innovation: it is directly linked to modifying/improving specifications of the 

firm’s offering or changing the bundle of its products/services by introducing new 

offerings through the adoption/development of new technology(ies). 

- Process innovation: it is directly related to improving quality, and increasing 

efficiency, of production and delivery of firm’s current offering such as cost 

reductions and introduction of cleaner production methods through the 

adoption/development of new technology(ies).  

- Organizational innovation: it is directly related to the introduction of new managerial 

formats and reorganizing the prevailing managerial structures that address people and 

work routines within the firm.  

Regarding nature of innovation, Tödtling and Kaufmann (2001) have pointed to the debate 

in literature whether SMEs innovation is incremental or radical in nature. In fact, empirical 

findings show that SMEs play a bigger role in incremental innovation; however, in high-

tech sectors and technology regions, SMEs can be a strong candidate to drive radical 

innovation (Smallbone, North et al. 2003), if some preconditions are fulfilled. These 

conditions are: availability of strong R&D institutions, venture capital firms, spin-off 

companies and technology networks.  Kaufmann and Tödtling (2003) has highlighted two 

innovation strategies by SMEs; defensive and offensive innovation strategies. SMEs are 

predominantly following defensive innovation strategies such as focusing on niches, cost 

cutting, increasing the quality and redesign of traditional products, other than offensive 

strategies such as expanding to new mainstream markets. However, more offensive 

strategies are found in R&D intensive SMEs.     

Regarding available resources to SMEs, Tödtling and Kaufmann (2001) have argued that 

SMEs have fewer endowments of internal and external financial resources as well as 



38 
 

compatible human resources (with technical and managerial skills, and/or time); which 

lead to crucial consequences. On one note, limited resources would affect SMEs abilities 

to “scan, identify and respond to opportunities and threats” surrounding them