External Linkages and Innovation in Small and Medium-Sized Enterprises

Abstract

Collaborative linkages between companies are an important means of improving innovation potential. This study describes the extensive collaborations of innovative SMEs (small and medium-sized enterprises) in the UK, and stresses the role of key personnel in the range and scope of linkages. It highlights the diversity of linkages used by SMEs for technological development, and examines some management problems facing the collaborative process. The study distinguishes between large firms' material advantages in innovation and small firms' behavioral advantages. One area of a marked disadvantage to SMEs is that of establishing the appropriate network of contacts with external sources of scientific and technological expertise and advice. Large/small interactions can help combine these advantages and overcome disadvantages. The analysis presents data from a number of studies showing the role of in-house technical skills to linkage activity; the significance of complementary between in-house and external know-how accumulation; and the importance of technology strategy in guiding the accumulation process. The study also offers a case study of strategic management of collaboration using the example of Celltech, a ten-year-old, fast growing, 450 employee biotechnology company. Two aspects of the company's extensive collaborations are highlighted here: with companies in R&D projects, and with collaborations with the science base. The case study revealed the value of a strategic approach to collaboration. The study concludes that external collaboration provides a means for innovative SMEs to complement their own in-house efforts. However, few innovative SMEs form linkages with large firms, the main reason for which is the size of the management problems involved for SMEs; the management and other resources available to a large firm by far exceed those available to SMEs. The study shows that one of the prime factors encouraging collaboration with large firms is the employment of in-house qualified scientists and engineers, which impacts the quality of the management in SMEs, particularly their receptivity to external ideas. Since 1990 UK policies allow only ‘far-from-market' collaboration, the implications of the study are that government policies towards SMEs should be adjusted to recognize vertical linkages and to reflect the fact that most interactions will be ‘near-to' rather than ‘far-from' the marketplace. (AT)

Keywords: Access to information, Firm management, Social networks, Strategic alliances, Institutional alliances, Technology innovation, Resource acquisition, Access to technology, Cooperation management