Small Manufacturing Firms and Regional Business Networks

Abstract

Current interest in small manufacturing firms is great because they are an important source of job growth. Consequently, many planners and policy makers have tried to strengthen the small manufacturing sector, hoping that this will bolster their regional economy as a whole. This piecemeal approach is risky, because small firms are embedded in an intricate business network Small firms sell to, buy from, and subcontract with other manufacturing firms, both large and small, in the region. Founders of these small firms learned their business while working at other regional firms, and many of their contacts evolved there from. For over half of the small firms in our studies their most important customer is some large firm in the region. Thus, though small manufacturing firms may indeed be important for job growth, because of interdependence, large and small firms share a common fate: if employment declines, it likely declines for all.