Frontiers of Entrepreneurship Research 1995

Frontiers of Entrepreneurship Research
1995 Edition

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    FRONTIERS OF ENTREPRENEURSHIP RESEARCH 1995.


    TECHNOLOGICAL RENEWAL IN SMALL FIRMS
    THE NATURE AND ROLE OF LINKAGES BETWEEN LARGE AND SMALL FIRMS*)

    Catherine Belotti, Swedish University of Agricultural Sciences

    ABSTRACT

    The paper focuses on the situations and contexts where linkages and interactions occur between small firms and large companies in connection with technological development. The question being addressed is how successful small firms may take advantage of these linkages for their technological renewal. Our discussion is empirically based on detailed case studies of three innovative small firms in the Swedish wood-working industry. We suggest that large firms may have an important role to play for the technical renewal of small firms in traditional manufacturing sectors, by transmitting strategic competence and prestige rather than by initiating direct technical or financial co-operation with small firms.

    INTRODUCTION

    Small and medium sized enterprises (SMEs) in today's markets are facing ever keener international competition and stronger customer demands for high quality products and services, fast response time, reliable deliveries and new product functions. A number of authors suggest that small firms can meet these exigencies both by adopting new technologies and competence and by developing new strategic relationships with other firms. Our research interest is to develop the understanding of how ordinary SMEs handle these processes. A recurrent theme in the literature, and even in industrial policies, concerns the complementary nature of small firms and large companies in technological development, and thus this paper will focus on situations and contexts where linkages occur between small firms and large companies in connection with technological development. The specific question being addressed is how successful small firms take advantage of these linkages for their technological renewal.

    We start with a brief comment of how organisation research views complementarity and relationships between large and small firms in connection with technological development. We argue that research in the area too often focuses on inter-firm co-operation in connection with product development or radical innovations and does not give much attention to the ongoing upgrading of process and product technology that occurs in most SMEs. We also argue that the concepts of inter-firm relationships or of strategic alliances between small and large companies most often embrace technical and economic dimensions while social, cultural and political dimensions are not further explored. In the second part of the paper we start from case study observations in small, technologically successful, firms that operate in a "traditional" industry - the wood-working industry. The case studies reveal that the small firms, in order to support their ongoing upgrading of technology, develop relationships with a large set of external actors, among whom a large company may play different kinds of roles. To interpret these different roles we analyse the processes of building and using relationships in cognitive as well as in social and political terms. In the last part of the paper we briefly discuss some research and policy implications of our observations and analysis.

    SMALL AND LARGE FIRMS IN TECHNOLOGICAL DEVELOPMENT

    It is a common view in the literature that small and large firms have a complementary role concerning technological development and innovation. Rothwell (1986) sums up this view by pointing out that the advantages of large firms in technological development are material while the advantages of small firms are mainly behaviourial. In other words, large firms have greater financial and technical resources and the ability to accommodate high risks. Leaders and employees show a high degree of motivation in small firms, they have a better survey of development projects and they maintain more informal communication along shorter lines with the environment and within the firm. Thus small and large firms are good at different things and in different ways regarding technological development (Nooteboom, 1991).

    Innovation research gives abundant empirical evidence about complementarity between large and small firms in technological development. Surveys as well as case studies describe joint-ventures or different kinds of co-operation projects associating large and small partners for technology and product innovation. In Sweden, we find many examples of how large companies co-operate with small firms that develop advanced products to be used in the large firm's R&D activity or to complement its product range (Olofsson & Wahlbin, 1993). Several studies give illustrations of small successful spin-off ventures initiated and/or supported in different ways by large companies. It appears that large companies often provide technology and skilled labour to new small technology-based firms (Utterbach, 1982; Lindquist, 1991; Klofsten, 1992). Such kinds of co-operation today are a favourite field of investigation in innovation research as the phenomenon has become common over quite a long time in European as well as in American industry (Rothwell, 1986).

    Replaced in the context of the small firm's business development such linkages with large companies are commonly conceptualized in strategic terms. To create a "strategic alliance" or "strategic partnership" with large companies is seen as a decisive issue for an innovative small firm with limited resources to penetrate the market and to face competition. This view is grounded on the common assumption that the confrontation of different knowledge areas and the association of different core competencies and complementary assets give synergetic effects and competitive benefits (Nystršm, 1990; Ford, 1988). In this perspective, a usual issue for researchers is to focus on management factors that favour the initiation and explain the success or the failure of partnerships between small and large firms (see for example Norén, 1990; Hull & Slowinski, 1990; Slowinski, Farris & Jones, 1993). In fact, these strategic approaches do not really exploit the point with the specific advantages of small firms for technological development, compared with larger companies. They rather content themselves to apply strategic concepts and analyses that stem from studies of large firms (Fletcher, 1993).

    Besides situations of co-operation for technology innovation and product development, component and sub-assembly suppliers to large companies constitute another quite different empirical area where the technological renewal of small firms is associated with their linkages to large firms. In this area, many studies have focused on the large firms' increasing willingness to contract out crucial parts of their production to their small suppliers (outsourcing). An interpretation of this development is that the large firms strive to better combine the respective advantages of small and large firms along the transformation chain (Rothwell, 1986; Nooteboom, 1991). Several studies throw light upon the increasing information flows and formalized contracts that occur between large firms and small sub-suppliers, especially within the automobile industry. These studies also show a correlation between the adoption of new technology like CAD/CAM or NC-equipment by small suppliers and their closer interaction with the large end customers (see, for example Brandes et al., 1991; Esposito & lo Sorto, 1993; Helper, 1991). Of course, there is abundant literature on the process of outsourcing, yet mostly discussed from the large company's point of view and in terms of "make or buy" strategies. The Swedish network approach, as represented by HŒkansson et al. (1987) focuses, on its part, on this kind of long-term relationship between customers and suppliers, including the technological change that occurs within these relationships. It has also been used for discussing outsourcing and "make or buy" decisions (Dubois, Gadde & Mattson, 1990; Dubois, 1992). Yet the approach has usually been used for describing the schemes of technological development in a specific sector or across sectors. When looking at the relationships between a focal firm and its suppliers and customers the approach considers the development of technology to be the rather unproblematic result of mutual and stepwise adaptations between trustful and long-term partners.

    To sum up, the referred studies and theories still leave unexplored issues on the nature and the role of linkages between large and small firms in connection with technological development. Research giving importance to small-large firm linkages in studying technological development focuses on situations of radical innovation and product development. These situations concern almost exclusively new technology-based firms or "modern niche strategy" firms, acting in specific market segments with highly customized products (Rothwell, 1986). Besides this narrow group of very innovative small firms, and the large group of sub-suppliers, the technological development of which appears to be largely influenced by the large end customers, there is the wide population of ordinary SMEs acting in traditional industries such as wood-working, metal-working, plastics, textiles, and so on. These small firms do not attract extensive research about their technology development as they are not expected to decisively contribute to national rates of innovation. Their technological development is rather a matter of stepwise and incremental product and process upgrading, thus often requiring great efforts to mobilize necessary resources (Valentin, 1989). In terms of technology policies, these firms constitute the "problematic" group that is difficult to attain by the different technology transfer schemes that are developed to "assist" them. In fact these firms also have business relations with large companies or act in areas where they establish different kinds of linkages with large firms. In our opinion, the question of how these firms may take advantage of linkages with large firms for their technological development and of the role that complementarity between large and small firms may play in these sectors, should merit more attention.

    Secondly, we think that the referred approaches focus too much on the technical and economic dimensions of the relationships and rarely try to understand them in all their complexity. The creation of an alliance or a partnership with a large firm is mostly interpreted as a matter for the small firm to acquire lacking technical and financial resources, but the real motives and processes of shaping and developing these linkages is still poorly explored. In the same way, the long-term relationships between large customers and small suppliers is shown to provide space for a series of technical and organisational adaptations, the function of which is to allocate resources and activities between the actors in an effective way. The small firm's way of managing these adaptations is not well known. In fact, by focusing on technical and economic dimensions in the small firm's motives and ways of creating linkages with large firms, we underline the material advantages of large firms but do not explore what constitutes the behaviourial advantages of the small firms in technological development. These behaviourial advantages, as they are summed up by Rothwell (1986) or Nooteboom (1991), relate to the actors within and around the firm and their relationships.

    In our opinion, we must attribute more attention to how actors in ordinary small firms shape and manage all their external relations in connection with their technological renewal and try to understand the specific importance of large companies in the context of the entire set of linkages. We should thus be able to also take into account the connections that may exist between relations and thus may play an important role (Laage-Hellman, 1989). Moreover, one should take into account the complete and complex nature of relationships in order to understand their importance. Here we refer to Mitchell's (1973) classical three ways of considering the content of a relation: The communication content (passing of information), the exchange content (goods and services flows) and the normative content, which concerns the judgments and expectations organisations have of one another. All three elements should be taken into account, and especially the normative one as theorists usually tend to concentrate more on communication and exchange (Aldrich & Whetten, 1981). Considering all these contents equally, we should thus be able to also identify and understand the social, cultural and political dimensions of the small firm's interaction with its environment in connection with technological development (Olofsson, 1979). This is this kind of approach that we applied in the empirical study referred to below.

    THE EMPIRICAL STUDY

    We will refer to three intensive case studies in small and technologically successful firms. The overall aim of these studies was to develop a better understanding of how and why small firms in practice develop, maintain and use linkages with environmental actors in connection with their technological development. After a brief presentation of the area and the methodology of investigation, we will sum up the result of the studies and our conclusions about how to understand the process of developing external relations in connection with technological development. On the basis of these conclusions we will then present and analyse the different kinds of small-large firm linkages that we identified in the study.

    The area of investigation

    We investigated firms that operate in the Swedish wood-working industry, a traditional sector that comprises sawmills and wood-working factories. This industry is mainly populated by small and medium-sized family-owned firms, most of them located in the countryside. Today, these firms have to deal with high exigencies about quality and delivery conditions from end customers facing keener international competition. The sawmill industry is a mature industry with low market growth. Firm development therefore often focuses on the reduction of production costs. Another priority is to get closer to customers. These two interests are leading to a restructuring of the wood-manufacturing industry, resulting in fewer firms and a stronger integration between the sawmills and a few competent subcontractors to the building sector and the furniture sector. Under these conditions, the capacity of the firms to acquire and exploit new technology and new competencies appears to be of prime importance for maintaining their competitiveness (Belotti, 1993).

    The cases discussed are a sawmill, a factory making furniture components and a factory making lift cages and wood interiors. The firms have between 60 and 100 employees. During the last ten years these three firms have been technologically very active, by introducing computer- based process technology and modern methods of production management and by stepwise grading up their products and services. They are very different in regard to their production process and to their market. The sawmill exports most of its products to European countries through wholesalers or directly to middle-sized wood-working firms supplying both the furniture and building sectors. The furniture factory is a sub-supplier of a large furniture retailer. The other factory sells lift cages to large and middle-sized lift manufacturers that supply large building companies.

    The methodology of investigation

    Our methodological issue was to define the set of interorganisational relationships that each firm uses to get critical resources for its technological development. We will call it the firm's technological relation set, a concept that is close Evans (1966) classical concept of "organisation set". Thus we want to underline that, as so defined, a firm's technological relation set has no empirical existence as a coordinating association but is purposely constructed for the analysis (Aldrich & Whetten, 1981). It is an evolutive construct as the firm may continually create and develop linkages with new organisations in developing its technology. Furthermore, our concept of critical resources, being consistent with our concept of inter-firm relations, refers to physical, financial and cognitive resources as well as socio-political ones, defined in terms of normative judgments.

    The method employed to construct each firm's technological set of relation was to make in-depth interviews of members of the firm, at different levels of the organisation. We also interviewed a few of the external actors, such as consultants or customers. As the studied firms improve their technology in a stepwise and incremental way, we found it necessary to consider the technological development of each firm during a longer period, about ten years for each one. We started interviewing the managing director in order to map the characteristics of the technological development of the firm and to identify critical projects and key actors involved in these projects. We then continued interviewing these key actors. With each interview we got a description of the different projects and of the external actors involved. We further investigated in which way each respondent interprets his and the firm's relations with these external actors.

    The firm's technological relation set

    The study showed that the three firms maintain a very wide set of relationships with their environment and refer to many different external actors being important for their technological development:

    * Customers set demands that are decisive to initiate development projects but they do not appear to play a co-operative role in some specific projects.

    * Competitors or other SMEs in the same industry or in the local environment play an important role in the development of technological competencies. It is from this kind of actors that managing directors as well as employees get ideas and insights for choosing technology and practical advice before introducing new technology. It is also together with these "colleagues" that the small firms try to influence the public or private actors that are responsible for technological development.

    * The three studied firms also co-operated actively with technology suppliers when introducing new process technology. Such firms do not have the financial resources and the adapted conditions of production to invest in the market's standard packages that often are developed for larger companies. The success of their investments depends on their ability to build up systems that are adapted to their own production and financial resources. This requires special developments from suppliers, and often in co-operation with several of them. Technical consultants that operate in the industry play an important role in this process. They are associated to define the needs of the firms, to mediate the right technology suppliers and to set the demands and conditions of co-operation between the firms and these suppliers.

    * On several occasions the firms also participate in projects initiated by research or technological institutes.

    In each of these relation sets, the same large retailer, one of the dominant actors on the international furniture market, appears to play a role, although in different ways. Before we describe and analyse the different kinds of linkages that the firms form with this retailer, we will sum up our interpretation of why and how the firms develop and use all their set of relationships.

    The processes of developing and using external relationships

    The different relationships that appear to be important for the development of technology are mediated, developed and exploited by different persons in the firm, at different times and for different purposes. The manifest purpose of developing these relationships is to acquire knowledge to solve the technical and practical problems involved in the acquisition of new technology by the firms. But these relationships also play an important role in the complex social and political interplay that takes place between different actors within and around the firm in connection with technological development.

    To measure the importance of this role it is significant to note that the import of new technology and the management of technological change in the firms appears to be largely influenced by ideas and values that are dominant in the industry rather than by an extended analysis of the firm«s market and technological potentialities. When speaking about the long-term technological development of their firm, the different managers and key members account for the same visions and strategies: to make the right product, in the right quality, and at the right time. Thus, the studied firms do not appear to have many choices when defining a technological and market strategy nor to have many opportunities to use advanced knowledge for radical innovations. Instead, their success seems to depend largely on their ability to early and rapidly apply actual methods and technologies and, at the same time, convince their environment that they are able to do so in a competent way. In this situation, their ability to mobilize critical knowledge and financial resources and to acquire front competencies depends very much on their ability to make internal and external actors to feel involved and dependent on the success of their development projects.

    Thus, the firms acting in the same industry and in the local environment were found to play a role in strengthening the internal legitimacy of new technological developments and thus the involvement of employees. These actors mediate their own practical experiences and competencies about new technology but they also bring values that are legitimate for the members of the firm, coming from the same industry. The professional legitimacy of these external actors improve the legitimacy of the technology that they argue for and we observed several situations when they were consciously used by managing directors for this purpose. Consultants who have a deep knowledge of the industry, constitute another group of legitimate actors that in some situations may play a decisive role for interesting and mobilizing the internal members of the firm for a technical issue.

    On the other hand, by developing its technology and by developing it in a way that is legitimate or prestigious to the environment (importing an actual technique, applying an actual management strategy or being linked with a technologically advanced actor), the firm acquires a status in its environment that can be further used to strengthen existing relationships and attract new development or business partners. The ability to change and integrate new technology confers credibility in the firm among existing and potential partners. We found that credibility by partners is created through a continual political play between them - creating expectations, convincing and promising, as well as fulfilling expectations - where technological changes as well as linkages with the "right" actors play an important role.

    To sum up, we identified cognitive as well as social and political motives in the firms' processes of developing and managing external relationships (see, in this regard Olofsson, 1979). The tasks of solving technological problems when choosing and introducing new technology are embedded in specific social relationships which provide space for different kinds of political action. Creating linkages with different actors in connection with technology development is thus not only a matter of mobilizing material resources and knowledge. It is also a matter of creating positive judgments on the firm's development within and around the firm.

    Thus, the critical resources that the firms try to mobilize by developing relationships can be classified as physical and financial resources, competence and prestige. Here the concept of competence corresponds to Carlsson & Eliasson's (1994) definition of economic competence. It not only refers to technical knowledge; it also has a strategic dimension, concerning insights into which technological changes to operate and the specific advantages to be won on the firm's own market; an organisational dimension, concerning the integration of technology in the organisation; and a learning dimension, underlining the cumulative process of acquiring competence. The concept of prestige refers to the image of credibility that external partners construct about the firm. When defined in that way, competence and prestige are resources of another nature than physical and financial resources. They are the result of a cumulative process of interaction which implies the participation of several kinds of relationships. In other words, the small firms mobilize competence and prestige by playing with different actors at the same time and creating positive connections between the different relationships. Competence and prestige make it possible to successively tie customers and development partners and thereby to ensure the access to physical and financial resources.

    We will now describe the different scenarios by which the firms linked themselves to the large retailer and show that these linkages are mainly a matter of accumulating competence, foremost strategic competence, and/or prestige rather than getting direct technical and financial support.

    A small-large company linkage - scenario 1

    About ten years ago the sawmill established a short-term relationship for technological co-operation with the large retailing company, that had a long-term impact on the further development of the sawmill. At that time, the largest part of the sawmill's production was delivered in bulk to wholesalers, but a new managing director engaged the firm in a strategy of developing direct relationships with customers. His business idea was to reduce the customers' raw material costs by better adapting the sawed products to the customers' use of these products. Regarding these plans, the sawmill director considered the Swedish furniture market to be a traditional and sluggish market, populated by actors who were difficult to communicate with. He perceived the large retailing company as the only powerful actor capable of influencing the wood-working factories to make changes. At the same time, the large retailing company was engaged in a strategy of outsorting its suppliers on the basis of lower prices and better product quality. When opportunity arose at a professional meeting, the sawmill's director and one of the retailing company's managing directors engaged in a discussion on the Swedish furniture industry. During the discussion they noted that both of them had a similar definition of the problem of making the furniture transforming chain more effective, and the idea of a co-operation project emerged.

    To carry out the project the retailing company contacted one of its suppliers, a small furniture manufacturer, and financed a consultant. It is important to note that the sawmill had never previously done business with the manufacturer. The aim of the project was to test the production at the sawmill of a specific component, on the basis of proper specifications about aesthetic quality and technical characteristics defined in co-operation with the furniture manufacturer. In practice, there were many meetings between the employees of the two firms to develop these specifications and a close follow-up of the specific production process at the two firms. After one year of collaboration, the sawmill could deliver sawed material that substantially reduced the waste and the raw material costs of the furniture manufacturer (up to 20%). At this stage of the project the sawmill became interested in pursuing the technological co-operation for further working-up of the product. The manufacturer, having learnt how to specify its demands, wanted to develop the relation on a business basis and introduced its usual suppliers in the competition. However, the price conditions offered did not interest the sawmill. As the large retailing company, for its part, no longer had strong interests to "force" its supplier to continue the technological project, the relationship was discontinued.

    The sawmill did not receive any monetary gains from the project. But nonetheless, the sawmill director does not consider the project as unsuccessful. The project results confirmed the correctness of his strategy towards customers. Moreover, he acquired a lot of insights about technical and organisational problems in this kind of development, and knowledge about how to solve them. The experience improved the ability to choose subsequent partners for further customer co-operation and to adapt to customer demands. Moreover, the firm acquired the image of a competent and credible supplier on the Swedish furniture market, enabling it to develop relations with new customers in this part of its market.

    Ten years later the firm had developed a number of close relations with stable customers for different product groups. It was a conscious strategy to establish these links with small and middle-sized partners. The stepwise development of these relations, associated with a growing set of relationships and co-operation with suppliers, consultants and researchers, has been the condition and the result of a stepwise acquisition of new technologies and competence, improving the flexibility and productivity of the production process and the control of the whole material flow, from the forest to the packaged boards.

    A small-large company linkage - scenario 2

    For thirty years the furniture factory had been maintaining a business relationship with the large retailing company as a sub-supplier of furniture components. During all these years the factory used different product development strategies, including the use of licensing, for developing relationships with other customers and reducing its dependency on the retailer. At the same time, the retailer grew into a dominant actor on the world furniture market. However, with international competition becoming ever keener in the mid-80s, the retailing company began to sort out its Swedish sub-suppliers by pressing prices and setting rigorous demands on product quality control. The furniture factory, after an unsuccessful experience of developing its own product range by licensing, adopted an active sub-supplier strategy, modernising and flexibilizing its production technology in order to survive the selection process and maintain its status of sub-supplier. At the same time, the local authorities engaged in a discussion on how to support the local industry in remaining competitive and in developing local employment. The large retailer, being a dominant and influential actor in the regional wood-working industry, was also involved in the discussions. Eventually, the idea emerged of organising and supporting competence networks between SMEs in the region.

    A formal competence network was very soon constituted from twenty wood-working SMEs. Half of them were sub-suppliers of the retailer, who actively encouraged them to become members. A consultant was engaged by the firms to animate the activities of the network. Through active propositions from the large retailer, the group started projects concerning the improvement of their product flow management and of quality control. For each project, the interested firms together discuss their problems and deficiencies, set aims for improvement and regularly meet to exchange experiences and evaluate their performance. Very early, the group of suppliers to the retailers took the role of a front group in the network as they were technologically more advanced than the other independent firms of the network and had common problems in relation to their dominant customer.

    From the factory's point of view the network has been the most important support for its technological development. During its membership the firm has introduced a new MPS system, an EDI system and a new lacquering process using water-based materials. The managing director underlines that the network gives him and the employees very important social contacts (the firm is localized in a very small village) as well as ideas and information. It appears that the firms today act in a more integrated way. Even if they act as competitors on many occasions, they also make tacit agreements to honour deliveries and other demands on many other occasions. The managing director points out that the firms together have developed an organisational adaptability that sometimes is more advanced that what the large company itself manages to attain with its large and sluggish organisation. By becoming more competent, the firms have been able to constitute a common force for negotiating some of the retailers exigencies. Finally, by working with the same projects and thereby applying the same management methods, the firms have developed conditions for co-operating on a business basis. Today, several firms in the network are discussing the idea of together producing a range of furniture that can be exported as a complete furniture programme.

    A small-large company linkage - scenario 3

    The lift cages manufacturer, as an independent member of the mentioned competence network, illustrates the importance of an indirect linkage with the large retailing company. The factory has a very old tradition of producing high-quality lift cages and luxurious wood interiors. The firm entered a period of active technological development about ten years ago when the present managing director assumed control of the firm. At that time the managing director maintained personal relationships with influential actors in the automobile industry. It gave him good insights in the ongoing technological and organisational changes that would progressively concern his own industry. Some customers' discontent about delivery times, workers' dissatisfaction about hard work tasks and several machine breakdowns were factors that made the adoption of new process technology actual. The decision to introduce a NC-equipment was a long process associated with high uncertainty and internal conflicts. In fact no existing solutions appeared to be adapted and profitable to the firm's type of production. In analysing the introduction process, we could note that contacts with other firms, the involvement of a technical consultant and, later, an intensive co-operation with technology suppliers, mediated knowledge and created involvement at different levels of the firm, thus mobilizing the firm's members for developing a firm specific solution and making it profitable.

    During the process the managing director was invited by the local authorities to become a member of the new competence network that was initiated in co-operation with the large retailer. He refused, as the internal processes of introducing NC-technology focused all his time and energy. But later, in the light of his experience, he understood that such a membership could provide him with a convenient support to achieve the technological and organisational changes he wanted to make. The firm thus became a member of the network, and during the following years the network was the major support of the firm to pursue changes in terms of more computer-based equipment and new production management methods. According to the managing director, the network is a major source of information about new advanced methods and technologies that are mediated by the retailer to its sub-suppliers. The firm also benefits from the early experiences of other firms having the same type of production and problems. Moreover, the manager uses the network as "a pedagogic tool" by initiating contacts between the employees of the different firms. According to the manager, this practice facilitates good communication at different levels in the firm and increases the legitimacy of different changes. However, the managing director is eager to underline that he has no business relations with the retailing company. He thinks that such a linkage would prejudice the exclusive market image of the lift cage factory.

    The importance of a market dominant actor

    To sum up, in two cases the large retailing company plays an important role in the technological development of the firms, although neither of the firms supplies anything to the company. In the sawmill case, the short-term linkage played not only an important role in producing knowledge about how to render the whole processing chain more effective, but also gave prestige to the sawmill and transmitted norms and values about production and organisation that influenced the further long-term orientation of the firm«s development. In the other case, the knowledge network in which the lift cage factory participates, channels knowledge and technological norms formulated by the retailer and transmits them to firms such as the lift cage factory, that do not have any exchange or direct communication with the large company.

    This illustrates that relationships do not need to be long-term and neither do they need to have a direct commercial and communication content in order to play an influential role for the technological development of a firm. The linkages that the studied firms have to the demanding and dominating retailing company have almost a long-term normative content, which is very important for the firms. Through short-term collaboration with the retailer, or through collaboration with the retailer's suppliers, the firms gain prestige and are perceived as credible in the long-term. Moreover, as the retailing company has very advanced demands on technology and competence, the firms gain an insight in forthcoming industry developments as well as early access to strategic knowledge.

    In the third case, where the small firm has a long-term sub-supplier relationship with the large company, the large company does not show any significant technical or financial involvement in the firm's technological development. The factory's ability to develop it's technology and competence and remain competitive as a sub-supplier is largely dependent on the collaboration that is established with other local firms and competitors in the frame of the local competence network. The involvement of the large company concerns the initiation and the political support of the network in collaboration with the local authorities. By supporting the creation of the network, the large retailer acquires a positive image at the regional level as well as it creates, without taking any risks, the conditions for the sub-suppliers to effectively fulfill its demands in terms of effectivity, flexibility, product quality, etc.

    CONCLUSIONS

    One point with these explorative cases studies is to show that the upgrading of product and process technology in order to remain competitive is a process that requires great efforts by this kind of small firms to mobilize necessary resources. In these efforts, the shaping and maintaining of many different kinds of linkages, creating many opportunities of getting ideas and support, appear to play an important role. Another point is that these firms are linked to a large and technologically advanced company that plays a role for their technological development, even if it is not within the framework of a joint-venture or some direct technical collaboration. These links have a clear strategic character: The small firms link themselves to the large company in order to gain prestige and/or to acquire advanced competence that can give them advantages in the long-term in their own markets. This suggests that strategic linkages with large companies may occur not only to develop specific products and commercial relationships, but also where there are mutual interests to develop competence in a market. Linkages that are based on such mutual interests are shown to have a good long-term spin-off effect for technological development in a firm or among firms in a local industry.

    Thus, policy-makers, taking into account the different kinds of interests and motives of small firms' linkages with other actors and among them large companies, may be able to better identify target policies to support technological renewal in small firms. Our study reveals several aspects that may be useful to consider: Firstly, there are reasons to suppose that if large firms acting in traditional manufacturing sectors do not have manifest interests to engage financial or personal resources for product and service upgrading by their numerous suppliers, they may be interested in encouraging different forms of developing competence that can activate this upgrading and even favour innovation (and at the same time perhaps also give them a positive image by local or technological institutions). Secondly, it is important to remember that other small firms, in the local industry or among customers, may frequently be perceived as privileged partners by the studied small firms when developing competence.

    Finally, an interesting aspect in this study is that the competence network co-initiated by the large company, and in which two of the studied firms participate, shows the sub-suppliers of the large company in a role of competence mediators and technology diffusers. Through the network, the sub-suppliers can mediate to other small firms a valuable linkage to the large and technologically advanced company. They are themselves SME and, as such, they develop experiences and transmit advice that are adapted to technical and cultural situations prevailing among other small firms; and finally they are themselves motivated to increase their interactions with other firms in order to diminish their dependency on the powerful customer. This role of technology diffusers between small firms and large companies has already been identified in Italian studies of sub-supplying chains (Esposito & lo Sorto, 1993). These observations suggest that further investigations of the linkages established by sub-suppliers of large companies should be conducted. If the findings were shown to hold in general, then suppliers to large companies should receive special consideration from policy-makers.

    In general, our observations confirm the need to dedicate more attention to the interests and motives of small firms for developing relationships with other firms and to better understand - and thereby encourage - the kind of complementarity that may exist between large and small firms in traditional manufacturing sectors. (Fletcher, 1993).

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    *) This research has been supported by a grants from Tore Browaldhs Stiftelse, Sweden. I would like to thank my advisor Christer Olofsson for his help.


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