The different model of firm aggregation

1. 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

2. A working definition:
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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

3. Vast variety of network types

4. Business networks definition 1
• 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."

5. From Markets to Hierarchy

6. Characteristics of business networks

7. Questions arise:
• 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)?

8. Relations in the Networks

9. The reasons of networking

10. Development path and dissolution
• " ...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.

11. The Controversy: NETWORKS vs. CLUSTERS-I.D.
Clusters usually involve networking;
Specialised networks of firms may evolve
into clusters;
Clusters are the “natural habitat” of
networks

12. Clusters/Industrial Districts Model

13. Dott. Luciano Consolati

14. 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:
Region
# distr.
employees
Industry
# dist.
employees
Lombardia
42
781.903
Textile and apparel
67
698.705
Veneto
34
469.275
Mechanical
32
584.112
Emilia Romagna
24
299.890
Furniture
37
376.495
Toscana
19
203.537
Leather, footwear
28
210.605
Marche
34
165.900
Food
17
109.416

15. 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

16. The model of industrial districts
Four groups of key factors for local networks
• locational and spatial
• social and cultural
• economic and organisational
• institutional

17. 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

18. 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

19. 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)

20. 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

21. INFRASTRUCTURE
CAPITAL
Accessibility
Transports
The Networks of
industrial districts
Building land
SOCIAL CAPITAL
Job market
Value
Attitude
Water purifying
Trust
TYPICAL ACTIVITIES
Sub contractors
Semi-finished
Production
Sub contractors
Raw materials
Research
Sub contractors
SUPPLIERS
Marketing
CUSTOMERS
Markets
Machinery
SOCIAL SERVICES
Schools
PRIVATE SERVICE
Banks
Trade associations
Transports
Services centres
Agents
Consortiums
Designers

22. High
c
Medium
Low
Production Rationalization Interventions
Strategic map of District
Low
a
Medium large enterprises
central to the local
producing system
Semi-finished products
b and high precision tooling
suppliers
Satellite phases sub-contractors and
phases sub-contractors
Medium
High
Market Strategies

23. Relationship models
S
S
S
S
S
TRADITIONAL
SUPPLIER
NETWORK
S
Leader C.
S
S
S
S
S
S
Supplier
Leader

24. Relationship models
SS
SS
PS
SS
SS
SS
INNOVATIVE
LOCAL SUPPLIER
NETWORK
PS
SS
Customer
SS
PS
SS
PS
SS
Primary Supplier
(Comaker)
SS
SS
SS
Secondary Supplier
Supplier
Customer
Customer

25. 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

26. Relationship models
SS
S
SS
S
PS
SS
S
SS
S
SS
S
INNOVATIVE
GLOBAL SUPPLIER
NETWORK
PS
SS
S
Leader Co.
Customer
SS
S
PS
SS
S
PS
SS
S
Primary Supplier
(Comaker)
SS
S
SS
S
SS
S
Secondary Supplier
Supplier
Customer
Leader

27. Virtual Enterprises
Use of Virtual
Enterprise concept
for business
development:
Intensive use of
modern
communication
technologies
Global Business
Integration
Global Virtual Enterprises
Independent Regional Networks
From Local Districts to
Global Virtual Enterprises

28. Success Criteria
Critical success factors in
cluster development
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
0
10
20
30
40
50
60
70
80

29. The Demand of the
clusters:internationalisation strategies of
networks

30. Main barriers between networks

31. Policy suggestions to create
environments conducive to Networks
3 LEVELS OF ACTION
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

32. Final Suggestions
- 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