Final Activity Report Summary - INCDCUI (Interfirm Networks and Cluster Development: An Empirical Cross Comparison of UK and Italy)
The European Commission indicated clusters as a powerful tool to achieve the Lisbon Summit goal in making Europe the most competitive and dynamic knowledge-based economy in the world by 2010. As it was recently pointed out during the European Seminar on clusters policy, that took place on 10 June 2003 in Copenhagen and was organised by the Enterprise Directorate-General of the European Commission: "clusters are important tools to achieve economic and social growth".
One of the dominant themes within the debate on geographical clusters and regional success is the role of inter-firm networks as key drivers of the local competitive advantage. It is no exaggeration to state that theory and practice almost unanimously converge in affirming that "the most crucial aspect of geographical clusters is networks". Yet, there is no proposition so universally agreed upon and so little studied. Why is this? Firstly, the methods for systematic study of social networks are of very recent origin; secondly, social network analysis has mainly been the province of sociologists, but only since the 1980s have sociologists become interested in industrial organisation.
As a result, despite the great emphasis on inter-organisational networks that characterises the literature on geographical clusters and localised industries in general, only sporadic attempts have been made to move beyond an empirically vague appreciation of the performance implications and magnitude of the network effect on geographical clusters. In particular, if we exclude few isolated cases, virtually no work has endeavoured to introduce a network analytic approach within the boundaries of a locally concentrated industry and use such lenses to investigate the performance of the firms located within the cluster.
The present research sought to fill these shortcomings through the application of social network analysis and techniques for the analysis of longitudinal data on a sample of small companies located in a geographical cluster in Northern Italy. Results from data analysis provided mixed support for the role of inter-organisational ties as enablers of growth, suggesting that the network effect was highly contingent on the richness of the pre-existing knowledge structure of the companies located within the cluster. Based on our evidence we contended that the widely accepted assumption that cluster-located firms may grow by establishing rich local networks required review and should be approached with caution. In fact, we demonstrated that firms enriching their relational spectrum without the appropriate knowledge could actually incur unwanted negative effects.
Based on this evidence we concluded that the informational advantage which was typically associated with network ties in geographical clusters got somewhat 'diluted' or even distorted within the clusters. Due to the fact that the firms were already immersed in a context rich in spillovers and informal flows of knowledge, they were unlikely to tap extra informational benefits by increasing their local connectivity. Thus, the costs of maintaining these unproductive connections more than offset the, poor, informational advantages that the firm could accrue from them, resulting in detrimental implications for its performance. This trend was reversed for those firms that exhibited sufficiently developed knowledge structure to sift and assimilate the information that they gained exposure to through their presence within the cluster. Building ties was a demanding task whose benefits were not automatic. It was one thing to be exposed to multiple avenues for information and opportunities, but quite another to be able to evaluate, assess and reflectively appreciate the value that was embodied in these flows. Consistent with this argument, our results suggested that the characteristics of the firms' internal knowledge structure could impose radical limitations on the degree of connectedness that each cluster firm should strive for.
These findings, together with a rich description of the empirical setting, methodologies as well as implications for policy making were discussed in the following papers:
1. Ferriani, S and MacMillan, I. (2005) "Firm performance gains and losses from network structuring in cluster located firms: A media cluster study in Northern Italy", revised and resubmitted to Organisation Science.
2. "Network interorganizzativi, clusterizzazione geografica e performance d' impresa: Una analisi empirica del cluster multimediale di Bologna", in A. Bruzzo e S. Ocelli (a cura di), Le relazioni tra conoscenza ed innovazione nello sviluppo dei territori, Franco Angeli.
3. Ferriani, S., I. MacMillan, C. Boschetti (2005) "Multiple networks structures and firm performance in a geographical cluster: A longitudinal study", in preparation for submission to Research Policy.
A copy of these studies was provided as an attachment to the project final activity report.
One of the dominant themes within the debate on geographical clusters and regional success is the role of inter-firm networks as key drivers of the local competitive advantage. It is no exaggeration to state that theory and practice almost unanimously converge in affirming that "the most crucial aspect of geographical clusters is networks". Yet, there is no proposition so universally agreed upon and so little studied. Why is this? Firstly, the methods for systematic study of social networks are of very recent origin; secondly, social network analysis has mainly been the province of sociologists, but only since the 1980s have sociologists become interested in industrial organisation.
As a result, despite the great emphasis on inter-organisational networks that characterises the literature on geographical clusters and localised industries in general, only sporadic attempts have been made to move beyond an empirically vague appreciation of the performance implications and magnitude of the network effect on geographical clusters. In particular, if we exclude few isolated cases, virtually no work has endeavoured to introduce a network analytic approach within the boundaries of a locally concentrated industry and use such lenses to investigate the performance of the firms located within the cluster.
The present research sought to fill these shortcomings through the application of social network analysis and techniques for the analysis of longitudinal data on a sample of small companies located in a geographical cluster in Northern Italy. Results from data analysis provided mixed support for the role of inter-organisational ties as enablers of growth, suggesting that the network effect was highly contingent on the richness of the pre-existing knowledge structure of the companies located within the cluster. Based on our evidence we contended that the widely accepted assumption that cluster-located firms may grow by establishing rich local networks required review and should be approached with caution. In fact, we demonstrated that firms enriching their relational spectrum without the appropriate knowledge could actually incur unwanted negative effects.
Based on this evidence we concluded that the informational advantage which was typically associated with network ties in geographical clusters got somewhat 'diluted' or even distorted within the clusters. Due to the fact that the firms were already immersed in a context rich in spillovers and informal flows of knowledge, they were unlikely to tap extra informational benefits by increasing their local connectivity. Thus, the costs of maintaining these unproductive connections more than offset the, poor, informational advantages that the firm could accrue from them, resulting in detrimental implications for its performance. This trend was reversed for those firms that exhibited sufficiently developed knowledge structure to sift and assimilate the information that they gained exposure to through their presence within the cluster. Building ties was a demanding task whose benefits were not automatic. It was one thing to be exposed to multiple avenues for information and opportunities, but quite another to be able to evaluate, assess and reflectively appreciate the value that was embodied in these flows. Consistent with this argument, our results suggested that the characteristics of the firms' internal knowledge structure could impose radical limitations on the degree of connectedness that each cluster firm should strive for.
These findings, together with a rich description of the empirical setting, methodologies as well as implications for policy making were discussed in the following papers:
1. Ferriani, S and MacMillan, I. (2005) "Firm performance gains and losses from network structuring in cluster located firms: A media cluster study in Northern Italy", revised and resubmitted to Organisation Science.
2. "Network interorganizzativi, clusterizzazione geografica e performance d' impresa: Una analisi empirica del cluster multimediale di Bologna", in A. Bruzzo e S. Ocelli (a cura di), Le relazioni tra conoscenza ed innovazione nello sviluppo dei territori, Franco Angeli.
3. Ferriani, S., I. MacMillan, C. Boschetti (2005) "Multiple networks structures and firm performance in a geographical cluster: A longitudinal study", in preparation for submission to Research Policy.
A copy of these studies was provided as an attachment to the project final activity report.