External networking and innovation in small and medium-sized manufacturing firms in Europe

Abstract

A long-standing debate in industrial economics revolves around the relative roles played by large and small firms in industrial innovation. One area in which small and medium-sized firms (SMFs) can be disadvantaged in comparison with their larger counterparts is in establishing communication with external sources of scientific and technological expertise. SMFs' disadvantages relate to their relatively low levels of inhouse employment of technical specialists and to the managerial opportunity costs associated with seeking out appropriate external sources of technical advice. SMFs' external technological needs vary from sector to sector and even within sectors, depending on the nature of the innovations under development. Data from the U.K. show that, in general, innovative SMFs have dense external networks involving other firms (mainly SMFs) in a variety of technical, marketing and manufacturing relationships and involving infrastructural institutions such as universities and private sector research institutes. A growing pattern of relationships between small and large firms offers mutual benefits in enabling both to overcome their relative innovatory disadvantages.