SUPPORTING SMEs IN A TIME OF CRISIS: HOW

TO CHOOSE THE RIGHT ACTIONS:

A Capacity Building Seminar for Policy Makers and Local

Development Practitioners

12-15 October 2009, Trento, Italy

Inter-firm networks and cluster development,

by Luciano Consolati,

Technical Committee, Federation of Italian Districts, Italy

• An organisational inter-firm network is defined by

the relations between a defined set of distinct organisations

(the network structure);

and their interactions (the network process);

The linkages are based on a different types of exchange (e.g.

• economic goods, money, information or knowledge).

• The network has a boundary to its environment

• and pursues a common goal,

• at the same time, the participants have different, specific

• goals.

• The network consists of relationships characterized by mutual

• investments or interdependencies (no simple transactional linkages

A working definition:

Vast variety of network types

• Networks are an organisational form between markets and hierarchies.

• Compared to markets, a network has more structure, produces more interaction among the network organisations, provides 'thicker‘ information channels, demands more loyalty, exhi-bits more trust, prefers voice to exit, and puts less emphasis on prices.

• If compared to hierarchies, a network is somewhat underorganised, due to the loose coupling of the network organisations and due to the open boundaries of the network itself."

Business networks definition 1

From Markets to Hierarchy

Characteristics of business networks

• Which relations are between which actors

in specific single networks (the structure)?

• How do the actors interact under the

structure within the single networks (the

process)?

Questions arise:

Relations in the Networks

The reasons of networking

• " ...four reasons for the dissolution of

networks:

• (a) excessive legal structuring and monitoring of

the relationship,

• (b) conflicts between role and interpersonal

behaviors of organisational parties,

• (c) conditions for violations of trust, and

• (d) escalating commitments to failing

transactions.

Development path and dissolution

Clusters usually involve networking;

Specialised networks of firms may evolve

into clusters;

Clusters are the “natural habitat” of

networks

The Controversy: NETWORKS vs. CLUSTERS-I.D.

Clusters/Industrial Districts Model

Dott

. L

uci

an

o C

on

sola

ti

Industrial districts in Italy

• 199 recognised industrial districts

• 239.305 production units (40% of the total)

• 2.172.491 employees (45%)

• geographical bias (5 regions have 77% districts and

88% employees):specialisation on traditional and

mature industries:

Industry # dist. employees

Textile and apparel 67 698.705

Mechanical 32 584.112

Furniture 37 376.495

Leather, footwear 28 210.605

Food 17 109.416

Region # distr. employees

Lombardia 42 781.903

Veneto 34 469.275

Emilia Romagna 24 299.890

Toscana 19 203.537

Marche 34 165.900

A wider classification

• Areas of production specialisation

concentration of companies within the

same industry in a local area

• Local production systems

concentration of companies within the

same industry in a local system, with

intensive intercompany cooperation

and exchanges

• System-areas

local concentration of small production

units from different industries relateb by

intensive relationships and exchanges

The model of industrial districts

Four groups of key factors for local networks

• locational and spatial

• social and cultural

• economic and organisational

• institutional

Locational and spatial factors

• geographical proximity and sectoral specialisation

• small urban dimensions

reduction of transportation and transaction

costs

circulation of information and knowledge

lower labour and land costs, social cohesion

Social and cultural factors

• central role of the family and job sharing among the

family members heritated from the rural society;

• common social background and values;

• high social mobility and entrepreneurship attitude

trust as a the key issue in business relationships

Economic and organisational factors

• Possibility of extreme specialisation

• Balance between cooperation and competition

• Specialisation of the workforce as “public good” (repository of

common knowledge)

joint scale and scope economies

collective learning (learning by localizing, learning by

specializing, learning by interacting

partnershipping (stability, long-termism, know-how exchange)

Institutional and policy factors

• Marginal role in establishing competitive local

systems, but key role in supporting their growth and

innovation

• Interventions mainly at local or regional level

(both public and private actors)

regional agencies, business service centres,

entrepreneurs’ and artisan associations, consortia of

firms

The Networks of

industrial districts

Raw materials

Machinery

Semi-finished

SUPPLIERS

Trust

Job market

SOCIAL CAPITAL

Attitude

Value

Accessibility

Transports

Water purifying

Building land

INFRASTRUCTURE

CAPITAL

Banks

Designers

Transports

Agents

PRIVATE SERVICE

TYPICAL ACTIVITIES

Sub contractors

CUSTOMERS

Markets

Schools

Trade associations

SOCIAL SERVICES

Services centres

Consortiums

Research

Marketing

ProductionSub contractors

Sub contractors

Pro

du

ctio

n R

ati

on

ali

zati

on

In

terv

enti

on

s

Low Medium High

Lo

w

M

ediu

m

Hig

h

a

b

c

Market Strategies

a

b

cMedium large enterprises central to the local producing system

Semi-finished products and high precision toolingsuppliers

Satellite phases sub-contractors andphases sub-contractors

Strategic map of District

Relationship models

TRADITIONAL SUPPLIERNETWORK

Leader

Leader C.

S S S

S S S

S

S

S

S

S

S

Supplier

CustomerSupplier

Customer

SS SS SS

SS SS SS

SS

SS

SS

SS

SS

SS

PS

PSPS

PS

INNOVATIVE LOCAL SUPPLIER

NETWORK

Primary Supplier(Comaker)

Secondary Supplier Customer

Relationship models

Challenges and responses

• Re-configurations of supply chains on a global basis

• Increasing cost competition from NICs

• Need for strategic flexibility and proactiveness beyond

more short-term responsiveness

• Development of Innovation capabilities to differentiate

• Managerial capabilities to stay competitive within global

supply chains

Customer

Customer

S S S

S S S

S

S

S

S

S

S

Supplier

Leader Co.

SS SS SS

SS SS SS

SS

SS

SS

SS

SS

SS

PS

PSPS

PS

Primary Supplier(Comaker)

Secondary Supplier Leader

INNOVATIVE GLOBAL SUPPLIER

NETWORK

Relationship models

From Local Districts to Global Virtual Enterprises

In

dep

en

den

t R

eg

ion

al N

etw

orks

Use of Virtual Enterprise concept for business development:

Intensive use of modern communication technologies

Global Business Integration

Virtual Enterprises

Glo

bal V

irtu

al

En

terp

ris

es

Critical success factors in cluster development

0 10 20 30 40 50 60 70 80

Networking partnership

Innovative Technology

Human capital

Access to finance

Presence of large firms

Enterprise entrepreneurialism

Physical infrastructure

Specialist services

Access to markets

Access to business support

services

Competition

Access to information

Communications

Leadership

Virtual aspects/ICT

External economic impacts

Su

ccess C

rite

ria

The Demand of the clusters:internationalisation strategies of

networks

Main barriers between networks

Policy suggestions to createenvironments conducive to Networks

actions for promoting networks of SMEs and for setting up collective service activities for the networks;

actions for connecting local enterprises to university and research centres and for transferring the results of scientific and experimental research;

actions for promoting international cooperation between institutions and for creating institutional networks at the international level, in order to exchange experiences and to create regional networks

3 LEVELS OF ACTION

- promote the networking of all relevant actors at the local level to avoid dispersion of resources and increase the effectiveness of interventions and the integration of different components of the local economy within the system

- generating local leading institutions, which act as "catalysers", able to develop strategic development guidelines for the cluster by involving and coordinating different local actors in policy initiatives to fulfil common objectives;

- Public Policies as support to development and cooperation among local energies and competencies and not as substitute

Final Suggestions