University-Firm Linkages: The Problem of Independent SMEs

Martin Fransman

Professor of Economics and Founder-Director Institute for Japanese-European Technology Studies

University of Edinburgh

“The economic problem of society…is a problem of the utilization of knowledge which

is not given to anyone in its totality.”

Friedrich Hayek (1945) The Uses of Knowledge in Society, American Economic

Review, Vol. 35.

COMPANY-UNIVERSITY RELATIONS IN THEORY

KNOWLEDGE CREATOR

UNIVERSITY COMPANY

KNOWLEDGE USER

e.g. Professor Frederick Termin of Stanford University and his two students who began a start-up firm in the late 1930s,

Hewlett and Packard

PUZZLE…..

Why have Scottish universities not been important in facilitating growth of SIM small

and medium-sized firms?

Quotation from my earlier survey of SIM firms:

“One of the important characteristics … revealed in the present study of 15 sample mobile-related firms in Scotland is that universities have played a conspicuously unimportant role.”

SO…..

I put this question to a meeting of the MX Alliance (representing SIM small and medium firms) and

proposed a web-site to help cement links with Scottish universities.

But…. there was no support in the room.

WHY NOT?

Reasons for Scepticism Regarding University Links

REASON ARGUMENT

1

There are high costs in locating and contracting with university researchers.

2

Due to pressures and motivation, university staff often cannot satisfy SME needs within the required time.

3

Lack of confidence in ability of universities to add sufficient value to SMEs.

So I decided to investigate further…..

I simulated the process a SIM small and medium firm, wanting to explore the possibility of linking with a Scottish

university, would have to go through.

Two key questions had to be answered:

1. Who in Scottish universities has knowledge that could add value to my business?

2. Having located the best researcher, can we do a profitable deal?

A source at EU gave me a list of commercial liaison officers and I contacted all 13 Scottish universities.

WHAT DID I LEARN?

4 LESSONS

1. There is no database giving the answer (for mobile or any other commercial sector)

2. The liaison officer did not know the answer: (“You could try Professor X…”)

3. But Professor X usually didn’t know either: (“Its not really my field, but you could try…”)

4. Eventually I did locate a few relevant people but usually the person was either too busy or not particularly interested in working with independent SMEs.

HOWEVER I DISCOVERED THAT SCOTTISH UNIVERSITIES HAVE MANY MOBILE-RELATED

ACTIVITIES

Academic staff working in mobile and related areas

Spinout companies in mobile and related areas

Links with one or more large national or international mobile-related companies

8/13 6/13 5/13

SURPRISE…

Furthermore, many of the best-known global mobile companies have links with

Scottish Universities

In fact, these companies read like a Who’s Who in the Global Mobile Industry

Some Large Mobile-Related Companies Collaborating with Scottish Universities

•Fujitsu

• Hutchison 3G

• Lucent Technologies

• Motorola

• NEC

• Nokia

• Nortel Networks

• NTT

• Ntl

• 02

• Orange/France Telecom

• One2One/Deutsche Telekom

• Philips

• Samsung

• Siemens

• SK Telecom

• Sony

• Texas Instruments

• Toshiba

• Vodafone

IN ADDITION….

Scottish universities have the capability to spin-out university venture companies and there are several

success stories in the mobile-related area (e.g. Rhetorical Systems from Edinburgh University and the games

companies from Dundee)

HOWEVER….

There were hardly any INDEPENDENT MOBILE There were hardly any INDEPENDENT MOBILE SMEs who had developed profitable links with SMEs who had developed profitable links with

Scottish universitiesScottish universities

This begs the question: WHY?

MY EXPLANATION….

There are two general reasons why established SMEs have few links with

Scottish universities:

1. Information Costs: (i.e. the costs of locating the right people in universities)

2. Incentives: (i.e. the payoff to both established SMEs and university researchers from collaboration)

TO ELABORATE…

Information Costs

Incentives

Intermoco low high

Spinmoco low high

Indepmoco high low

 CONCLUSIONS

FINDING DETAILS

1 Necessary to distinguish 3 categories: 1) large national and international firms 2) university spinout SMEs 3) independent SMEs

2 Category 1 have little difficulty linking with Scottish universities

3 Most Scottish universities are able to spin-out Category 2 firms who link well with universities

4 Some Scottish universities sensitive to local industrial opportunities (e.g. games in Dundee)

5 Particular difficulties exist linking Category 3 firms with universities

WHAT CAN BE DONE? POLICY IMPLICATIONS

• Some market-based solutions (e.g. New Product Technologies Ltd)

• Government-subsidised information (e.g. Technology Ventures Scotland, Canadian road-shows)

• Re-alignment of university-based incentives (though more complicated)

FINAL CONCLUSION….

Significant problems may exist in linking independent SMEs and universities. Although

steps can be taken to reduce these problems and increase linkages, in some cases the costs

may outweigh the benefits. This may seriously limit the growth of some independent SMEs, the growth of overall employment, and the

effectiveness of the national innovation system.