Networks of Small Producers for Technological Innovation:

Some Models

Arashdeep Singh

CINE – 6th Feb 2008

The Author

Prof. Pankaj ChandraOperation and Technology Management and

Centre for Innovation, Incubation and Entrepreneurship (CIIE)

Indian Institute of Management, Ahmedabad

AbstractSmall producers face a variety of challenges - some related to markets and

others related to capabilities. Inability to develop technological capabilities has often restricted small firms from growing large.

In this paper, we present learning from three global networks , i.e., TAMA in Japan, Wenzhou in China and Rajkot in India, that have adopted a variety of mechanisms of coordination between small producers and has led to both capability enhancement and demand enhancement.

We argue that the capability enhancement effects play as significant a role as demand enhancement effects in the growth of small firms. Coordination that allows firms to improve their capabilities enhances both productivity as well as innovative capabilities to develop new products and processes. The paper, with the help of these three case studies, presents a generic model for SME development that is based on acquiring distinctive capabilities and linkages with other small producers or other members of the supply chain.

We propose distinctive determinants of a collaborative model for engaging SMEs in technological innovation over a period of time. These are : Focus of the Firm, Interactive Producers, Processing and Product Manufacturing, Innovation Investment, Markets, Market Makers (and market making processes), and Regulatory Support.

The TAMA Network, Japan Technology Advanced Metropolitan Area 3,000 sq km, 74 municipalities, home to over 10 million

people of which 4 million work in the TAMA network firms In 1998, the value of goods shipped from TAMA region was

$214 billion The total value-add per worker were $116,447 for TAMA (as

compared to $110,184 for all of Japan, $94,970 for USA and US$58,260 for Germany)

In the same year, TAMA had twice the shipment value of the Silicon Valley (TAMA Document, 2004)

Factors R & D Government Regulation Flexible Collaborations Entrepreneurial Nature Well fitting elements

Elements

• 300 firms• 34 universities• 78 banks / chambers of commerce• 20 city councils• 5/9 loaned entrepreneurs

Services Platform for financial support Prepares local talent New business and incubation support Information network services Technology exhibitions, disseminate research

findings and provide overseas market support Tech – Entre interaction using TAMA meetings

The Wenzhou Model, China 28,430 firms 202,458 household units 106.1 Billion Yuan Avg. GDP growth rate 20.3 % Rural Income per person: 1978 -165 yuan -> 1989 -924 yuan

Stages of growth Stage I (70s – 80s): Local markets for simple

imitative products for daily use. Low cost Low quality

Stage II (80s – early 90s): Specialized markets, Volume growth, National market reach, Inspection

Stage III (1990 onwards) : Quality systems, income growth, Low cost high volume, export led growth

Elements

• Large number of small producers• Specialized markets for products• Credit• Sales Network• Government as facilitator and coordinator

Elements Luishi – 10,000 people in 3000 firms. Avg

3.3 people per firm 10 Billion yuan annual trade Similar stories for Tiger Lighters, Plastic

cluster, Lock cluster etc

The Engineering Network, India Rajkot region known for its engineering network 1960 government subsidies for low speed diesel

engines. Reserved for SSI 1990s 8000 factories with 500,000 employees Annual sales turnover Rs 250 crores 60% of India’s production and 50% of the exports

Salient points Policy induced cluster Intense outsourcing

350- 400 parts Reservation for SSI

Technology and Productivity Inefficient products Declining market size Declining trust / cooperation Diversification

Lessons Focus of the firm Interactive producers Processing and product manufacturing Innovation Investment Markets Market makers

Lessons Regulatory Support

Incorporation and closure support Access to markets and market information Credit

Capability building support Development of skills Formation of linkages Continuous up gradation of tools of production

Conclusions