Spatial proximity and SME strategy in local networks

Abstract

PurposeLocal networks of small- and medium-sized enterprises (SMEs) are founded both on collaborative and competitive inter-organizational relationships within the same network characterised by spatial proximity between firms. This paper aims to propose an original analytical framework to understand how spatial proximity between firms within local networks influences strategy of SMEs.Design/methodology/approachTheories and the existing knowledge were used to develop a preliminary conceptual framework. This preliminary framework was then developed as data collection and analysis were carried out. That is, in the more advanced stages of the research, both the literature and data allowed the design of a more specific analytical framework with the development of theoretical propositions. The data supporting the findings was derived from extensive content analysis of secondary documents from manufacturers, channel agents, industry organisations, public agencies and statistical sources. These data were also used as background briefing for 52 in-depth interviews with 36 senior managers within the sector.FindingsAn extensive qualitative research carried out in two major local networks of footwear production in Portugal shows that spatial proximity influences the following major variables of SME strategy: offer specialization, market specialization, competitive behaviour and collaborative behaviour. This paper examines the strong subcontracting relationships among manufacturers within each local network, discusses the competitive and collaborative behaviour of firms within their local networks of subcontracting and explains the nature of interaction between them contributing for a better understanding on the impact of spatial proximity on strategy.Practical implicationsSome management implications can be drawn from this research at the level of the network and of the firm, although both levels are profoundly intertwined. The paper discusses both these implications.Originality/valueThis research clarifies the relationship between spatial proximity and strategy of SMEs immersed in local networks. In particular, the findings show that, in the context of local networks of footwear production, SME strategy is influenced by spatial proximity between firms in the following characteristics of strategy: offer specialization, market specialization, competitive behaviour and collaborative behaviour. As it was discussed and empirically supported, spatial proximity between firms favour resource mobility, firms' interaction and reduction of transaction costs, which, in turn, impact strategy.