457

There are two sides to every story:

Innovation and collaboration within
networks of large and small firms *
Helen Lawton

Smith

School of Geography, Oxford University,

Oxford, OXI 3TB, UK

Keith Dickson
Cemre /or Business and Management

Stephen

Studies, Brunei Unrversity,

Uxbridge,

LIB8 3PH,

UK

Lloyd Smith

School of Social Science, Kmgston

Polytechnic,

Kingston

Upon Thames,

Inter-firm collaboration
for innovation increasingly appears
as a industrial response to changing economic and technological conditions both in the UK and internationally.
This paper
examines
such responses,
particularly
at an informal
level
between small and large firms, in the light of recent arguments
about economic
and technological
imperatives,
disorganised
capitalism, control versus cooperation
and the growing debate
over the significance of networks. Using a case study approach,
the motives and problems of firms in such relationships
are
explored, with special reference to the UK context.

This paper looks at the cooperation

increasingly prevalent
between
innovating
firms. The
study, on which the paper is based, focusses on
research collaboration
between
small and large
firms, particularly
in the electronics
sector. The
discussion draws on recent arguments
about economic and technological
imperatives,
disorganised
capitalism,
control versus cooperation,
and the
significance
of networks for innovation.
The emerging organizational
practices
of innovative
firms are a response
to changing
industrial
structures
and technological
developments. At a more practical level, they involve the

* An earlier version of this paper was presented

at a conference on Growth and Development
of Small Hi-tech Businesses, April 1990, Cranfield Institute of Technology,
U.K.
The authors thank R. Walker for extensive editing of an
earlier draft.
Research Policy 20 (1991) 457-468
North-Holland
0048-7333/91/$03.50

0 1991 - Elsevier Science Publishers

KTI 2EE, UK

motives and problems

of both small and large
firms. We conclude
that the personal contact of
key actors are crucial to the creation of successful
networks of firms.

The context of collaboration

Inter-firm
collaboration
for innovation
is one
manifestation
of wider
changes
in industrial
organisation
resulting from the structural crises of
the 1970s and 1980s involving all sections of the
economy [12]. Parallel processes observed over the
same period include a global shift in production
amounting
to an internationalisation
of production and trade [S] and the globalisation
of research
and development
networks
[15]. Such emerging
patterns
have implications
for innovation
behaviour, including
the development
of new forms
of research cooperation
between firms, especially
small and large firms. We have found that these
new practices differ substantially
from previously
established
patterns
of industrial
activity, especially in the case of the United Kingdom.

The economic logic of collaboration

In an industrial
world where rapid technological change is prevalent, intensified
competition
at
a global level increases the pressure to innovate.

B.V. All rights reserved

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H. Lawton Smith et al. / Networks

Inter-firm collaboration for innovation is a common strategy adopted by firms to develop new
products and/or processes. This involves the interchange of technology developed jointly, and
hence the use of complementary assets [30, p.
2881. To take this point further, Camagni [3,p.17]
argues that the objective of technological alliances,
is not just the control over a given technology or
a given stock of complementary assets, but rather
the control over the optimal development trajectory of these assets or technologies. Hence cooperation is both market and technology driven.
However, additional considerations need to be
taken into account. As Cooke [4,p.10] suggests,
where firms are engaged in recurrent exchanges of
knowledge or where transaction costs make collaborative agreements cheaper than in-house research, firms form contracts which are not necessarily of a strictly market character. Our research
supports Cookes view, especially in the light of
the informal nature of many of the firms links.
Research collaboration is an applied activity,
usually directed at advancing technology, which
translates the combined research output into
marketable products. The essence of this kind of
collaboration between firms is that a symbiotic
relationship exists in which technology is developed that could not have been created independently because of resource constraints. The recognition that even large firms cannot go it alone,
as the pace of technological change increases and
as product life cycles shorten, provides in incentive to obtain economies of scope through the
sharing of technical know-how and working skills
[25]. In this way the specialised resources of other
firms are made accessible. Small specialised firms
fulfil a variety of functions, but in the context of
innovation, act as an extension of the first firms
resources as it external&es its technological and
production requirements
through collaborative
ventures. This is an important method of reducing
the risk of a single firms competitive edge being
blunted by increasing global competition.
Changes in both national and international
market structures have given rise to disorganised
capitalism according to Lash and Urry [17]. Such
macro-economic
changes contrast sharply with
observed changes at the micro level in the form of
increasing cooperation. We have argued elsewhere
[9,10] that increasing disorganisation at national
and international levels, characterised by loss of

of large und small firms

control by a number of European countries over

domestic and foreign markets which they formerly
organised on behalf of domestic firms, might encourage greater organisation at the firm level as
a means of lessening the uncertainty that firms
face within a disorganised setting. Storper and
Walker [26,p.135] would regard this need for more
organisation as a form of intra-industry governance in which firms try to have some control
over their external environment by developing such
forms of interaction as sub-contracting, strategic
alliances, trade associations, or even informal relations of trust between firms. Whilst organisation
at the level of the firm may be achieved through
some form of control as described above, it may
be more effectively achieved for small firms
through personal trust and cooperation within
professional networks [27].
Thus, given changing economic circumstances
and technological risks, firms may have to learn
new rules of behaviour, if long-term collaboration
is on the agenda. They may have to learn to work
within a cooperative game paradigm, as articulated by Aoki [2]. According to Aoki, maximum
gains come from mutual trust and reciprocity and
not from a competitive two-player game which
characterises most commercial activity. Yet among
our case study firms, where the element of personal and professional trust was a key factor in
the conduct of relationships, the interface between
large and small firms was often constrained by the
traditional, competitive model of business interaction. This arises, we would argue, from the cultural and institutional rigidities inherent in large
firms.

Diversity in collaboration
Collaboration can be seen as a form of horizontal integration where companies operating in similar or related activities establish joint agreements
for technology and information exchange. Such
inter-firm collaboration may involve joint work at
one site or parallel research and development efforts, with ongoing transfer of results. In this way,
ideas generated outside an organization are incorporated into in-house effort. An important effect
of collaboration is increasing firm inter-dependency.

H. Lawton Smith et al. / Networks

The spectrum of inter-firm research collaboration ranges from pre-competitive research collaboration through to competitive R&D cooperation and includes activities which are coordinated
by formal structures and informal projects which
have not reached the stage of any legal or formal
agreement. We identify four types of cooperative
venture on the basis of the degree of planning
involved.
The first is long-term strategic alliances [14],
which are essentially a large firm phenomenon
involving a companys long-term strategic plan to
improve its competitive position or, in mature
industries, to challenge traditional monopolies.
Devlin and Bleakley [7] argue that, probably the
greatest stimulus to alliance formation has been
the emergence of global competitors and those
corporations wishing to become global. Strategic
alliances also incorporate a strong innovation dimension especially in technologically advanced
sectors. In biotechnology, for example, Strategic
alliances have become a crucial step in corporate
growth..... Enormous capital requirements, prolonged R&D cycles, conflicting regulatory issues,
developing scale up production processes and international marketing and distribution systems
make it impossible for most biotech firms to go it
alone. [18].
The second type of cooperative venture occurs
where there are short-term strategic reasons for
particular collaborations, which may only cover a
specific project. Nevertheless, a certain amount of
foresight, planning and commitment is deemed
necessary in order that the collaboration take place
at all. Such firms are likely to willingly accept
cooperative games rules for they have discerned
the advantages of collaboration.
The third type of venture is where collaboration
is largely unplanned, but occurs as a result of
opportunity presenting itself. The firms, or rather
individuals within firms, are sufficiently enterprising to take advantage of the opportunity. The
phenomenon of skunk work (individuals performing undeclared work, on company time) fits
nicely into this category, especially when it is
performed in collaboration with outsiders (only at
such time as its potential use to the company is
established is the effort declared). The opportunistic nature of the collaboration suggests that the
firms may suspend normal competitive rules only
for the duration.

of large and small firms

459

The final type of collaboration is where firms

enter relationships reluctantly as the only means
of overcoming long-standing problems, often as a
last resort. Such firms, we would suggest on the
basis of our findings, exhibit the worst forms of
institutional rigidities.
Although the basic motivations and disincentives for collaboration can be easily summarised,
the situation at the firm level is very complex.
Many decisions to collaborate are determined by
individuals - entrepreneurs in the smaller firms
and intrapreneurs in the larger - while others are
a result of formal deliberations at the top level of
the hierarchy of the company. These, and variations in between, determine the conduct and duration of the relationships, and ultimately the gains
and losses.
Collaboration

between small and large firms

Larger firms face a greater variety of options

than small firms, although their activities, too,
[23], are constrained by personal and institutional
factors Connell [3a, p. lo] identifies eight strategic
goals and weapons available to large firms to meet
the challenges of competing in changing global
markets. They can, for example, access technology
through in-house development, license or acquire
technology from other companies, universities or
government research establishments, or become
involved in some interactive or collaborative venture with another firm and/or a research centre
such as a university or a government research
establishment.
But, as Storper
and Walker
[16,p.135] point out, the growth of large firms in
the twentieth century has blinded researchers to
the potential of small firms and inter-firm relationships.
Innovative small firms are generally characterised as being flexible and able to respond
more quickly than large firms to changing needs.
Recent research by Pavitt et al. [21] has shown
that innovation intensity amongst very small firms
increased over the period 1945-1983, and declined
among medium-sized firms, but with considerable
variety among sectors, reflecting different technological opportunities. In electronics, instruments
and electricals, the three sectors studied in our
research, innovation is becoming more emphasised
at the two ends of the firm size spectrum.
The growing importance of small firms in net-

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H. Lawton Smith et al. / Networks

works and as leaders in technology

had had important implications
for industrial innovation.
The
recent DTI/PA
Report [ll,p.31] suggests that, in
particular
niches it is possible to be world-class
while
being
relatively
small.
Collaborative
arrangements
with suppliers and selected competitors, can achieve a large powerful network, albeit
of smaller companies.
Such networks
of large
and small firms together are becoming
a more
significant
force in many industries today.
However, the ability of small firms to compete
in global markets in constrained
by conditions
internal
and external
to the firm. Many small
firms experience problems of raising finance, findmanpower
reing premises, having insufficient
sources, market intelligence
and marketing ability
[29]. Taylor [28,p.314] describes the involvement
of such factors in his concept of thresholds
of
development
of individual
firms. Inter-firm
collaboration
for innovation
is a means by which
small firms can overcome some of these barriers.
Innovative
small companies
may need to gain
access to another
companys
technological
resources to ensure that any development
can be
exploited. A very small and very specialised firm
may need to work with another firm because it is
not large enough to employ people who can provide the necessary sales or technical expertise to
meet customer requirements
as well as infrastructural support
such as legal departments.
When
small firms offer specialist,
unique
skills, collaborative relationships
are more likely to be equal,
and such firms may be able to negotiate advantageous deals with larger firms. Such small firms are
predisposed
to operating in ways similar to larger
technologically
dynamic firms, which may in itself
assist any relationship
between them.
Collaboration

in the UK

Several studies suggest that large UK companies are not as good at building relationships
with
smaller companies
as those in other countries,
notably Japan 1241 but increasingly
those in continental
Europe 1191. Thirty years ago, Kindleberger [16] identified
why this was so. He suggested that British industry
was organised
into
separate firms dealing with each other at arms
length. We found instances where this legacy still
pervades British industry and constituted
a major
factor in inhibiting
successful
collaboration.
It

oflargeand small firms

would appear that attitudes are shifting, however.

Robinson
[22] suggests that the relationship
be;ween large UK corporations
and their smaller
suppliers is undergoing
a fundamental
transformation; indeed we would argue this phenomenon
has
begun to extend beyond supply relationships.
Not only are many larger UK corporations
unused to the idea of cooperation,
involving the
allocation
of their resources which may benefit
smaller
companies,
UK institutional/
political
frameworks are less supportive than in some other
countries. For example, because of the shortage of
DTI funds, more UK companies apply for ESPRIT
funds than any other country, yet overall only 1 in
20 applications
is successful. The lack of support
for innovation
in the UK encourages
firms to
apply for funding for collaborative
projects. These
are long-term
ventures, and companies
might be
better working independently
on short-term
projects. There is clearly a difference between the UK
and other countries in the amount of support for
both innovation
generally
and collaboration
in
particular. This affects the competitive situation in
which UK companies operate, and presents a further set of difficulties
and options for both small
and large firms.
The DTI/PA
Report, Manufacturing
in the
199Os, summarises
the threats and opportunities
for UK manufacturing
firms. These include increasing and less regulated trade with EEC members; slowing down in the rate of growth of exports to the US; fast growing markets and increasing competition
for high tech/high
vatue-added
goods; growing exports to the financial and banking sector; and increasing
competition
from the
NICs and Japan. The report goes on to argue that
the UK has a technology
gap in relations
to
European,
US and Japanese competitors
in some
areas of technology.
In an attempt to link these
two distinct points, the report concludes.
The
development
of strategic alliances
and partnerships, based on co-makership,
sharing of risk,
mutual strength, will become a key strategic issue
for the 1990s.
The research
The firms and their markets
Over the course of twelve months, 27 cases of
collaborative
partnerships
were investigated,
and

H. Lawton Smith et al. / Networks

all firms were interviewed.

In addition, two other
firms explained why they had considered
the option of collaboration,
but had chosen not to take
this route to innovation.
All of the small firms in
this study employed fewer than 120 people. Five
of the collaborations
were between
such small
firms, another
16 collaborations
were between
small and large firms, and the remaining five were
between large firms. Seven of the large firms were
owned and controlled outside the UK, three from
the USA, and one each from Canada, the Netherlands, France and Japan. The location of control
was a key factor in the incentive
to collaborate
and an important
issue in the conduct
of the
relationship.
The firms were grouped in three industrial
sectors, which we expected to reflect different
approaches to collaboration:
biotechnology,
where
collaboration
was a planned,
strategic
activity;
electronics, where collaboration
of different levels
was fairly commonplace;
and electro-mechanical
engineering,
where collaboration
was infrequent.
The large-firm partnerships
in the electro-mechanical engineering
sector are not discussed here.
Almost all the firms operated within specialised
niches within these sectors. This would suggest
that in some technologies,
specialisation
and performance,
and the requirements
of the domestic
market, reduce the extent of international
competition.
Only four of the firms employing
fewer than
200 people have international
competitors,
and all
of these were in the electronics sector. Small company descriptions
of their market position
included such comments as:
- leading edge of new technology - niche markets;
- diverse
product
range,
customised
support,
niche markets;
_ competition
based on total package to industry
~ providing back-up;
- still small, lack penetration
to major markets;
- few competitors
with the same combination
of
skills;
_ strong position of UK but not in Europe, competition from US, Israel and Australia;
_ small proportion
of UK market.
The larger firms all compete in fiercely competitive markets dominated
by other large firms.
Typical comments
from these larger firms about
their markets included;
_ we have major international
competitors;

of large and small firms

461

~ we are the biggest in the business but face stiff

competition;
- [we] Compete with other major pharmaceutical
companies in many different fields;
~ There are ten major players - we are the third
largest in the world.
The contrast between small firm and large firm
competitive
situations
caused us to consider the
issue of relationships
between
firms. Although
larger firms may set the operational
environment
for small firms, in so much as the latter are
already dependent
on strategies adopted by large
firms and the rules of conduct (such as delivery
times) dictated
by the large firm, collaboration
can reduce inequalities
as a result of the complementary
nature of the relationship.
Reliance on
the technical
resources
of small firms further
changes market structures as small firms are effectively competing
in large firm sectors through
their relationships
with larger partners.
Technological expertise, coupled with increased resources
through collaboration,
also allows smaller firms to
compete directly with larger firms. A consequence
of inter-firm
collaboration
is, therefore, that competition
is taking on a more organised
pattern
between
firms of different
sizes integrated
into
coherent networks.
Thus, in biotechnology,
the most active of our
sectors in collaboration,
small firms provide essential inputs of technology,
which the large firms,
for all their resources, have not found cost effective to develop independently.
As one biotechnology firm said, To potential
collaborators,
our
company brings technical expertise and intellectual property or patenting
rights.

Advantages

of collaboration

We summarise
our research findings
on the
motives for small/large
firm collaboration
in table
1. We found that the initiative to collaborate
had
been shared almost equally between the large and
the small firms. In both the biotechnology
collaborations,
however, the larger firms approached
the smaller firms. This suggests that large firms
are aware of the opportunities
presented by smaller
firms, and that technologically
active small firms
recognise the need for external inputs. Many collaborations
are short or medium term, lasting the

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H. Lawton Smith et al. / Networks

life of only one product development. Strategic

collaborations involve a commitment of the firms
to a series of cooperative projects over a longer
term. Hence the difference between a collaboration and a strategic partnership is the length of
partnership and allocation of resources. In very
few of the firms was there a collective philosophy
of collaboration as opposed to operational necessity in specific circumstances. This signals the importance of personal factors, an issue we discuss
later.
Inter-firm
collaboration
for innovation
is
motivated by gain. This gain is often technological, for small as well as large firms. Of particular
importance in the need to work on the next gener-

Table 1
Advantages

of inter-firm

collaboration

ation of technology, where future success depends

on technological leadership. While there are advantages common to firms of all sizes, there are
also significant differences in the reasons for collaboration. Small firms are faced with a different
set of operational constraints to larger firms, although they very often do not realise the scope of
choice open to them.
The financial constraint of raising capital and
generating cash flow is chiefly a small firm problem. Collaboration can be a strategic ploy designed to build the resource base of the small company. As the table illustrates, small firms recognise the potential gains from a relationship where
the larger partner pays for the work to be under-

by size and sector

Small firms

Large firms

Small- large firm collaboration:

To exploit new technology
Build company

of large und small firms

Large-small

Electronics

resources

firm collaboration:

Access to people
new products

with right

Open new markets

Product development

Increase

range, provide

Potential

Strategic decision
needed specialised

Electronics

combination

of skills to develop

Access to expert user

Access

sales to partner

Gains

to EC funding

Management
strategy,
leaders in technology

company

Approached
by larger
DTI recommendation

company

evolving

Extend

followers

to develop

prototype

customers

with better service

in a key technology.
of smaller company

Exploitation

and equipment

to
to smaller

firms

expertise

for product

development

after
Provided
customers

joint

to invest
resources

early look at technology

Access
needed

Solve partners technical problems through

_ and acquire new product as a result

Extend client base

Gain major overseas

from

company

solution to technical
- hence an improved

problem
- better service
competitive position

for

development
Entry

to UK market

Access to expertise
New products

at pre-competitive

research

stage

principal

range of company

and increase

distribution

network

Access to technology
development

which

would

facilitate

in-house

project

Gain better access to partners technical needs

Develop new products with user and sell to partner
Approached
by major company to jointly develop product
Small-large firm collaboration: Biotechnology
Objective
of becoming
major pharmaceutical
company
collaboration
finances
company
development
and provides
access to partners resources, e.g. as clinical trials, marketing
etc.

Lurge small firm collaboration: Biotechnology

Develop major new product range
Access to expertise to jointly
maintain market share

develop

products

in order

to

H. Lawton Smith et al. / Networks

taken in conjunction with its own operations. Here

the smaller firm trades its scientific/engineering
expertise against financial gain. Both small biotechnology firms and small electronics firms were
motivated to collaborate as a means of building
up the companys resources in order to have more
control over future projects, even though, in the
biotechnology cases, the preferred option is not to
collaborate. Collaboration is a particularly evident
in the pharmaceutical industry. For major pharmaceutical companies, collaboration with smaller
biotechnology companies is essential in order to
be able to develop new product ranges which
provide entry to major markets. Small biotechnology companies collaborate as a means of gaining
financial security and in order to finance the
growth of the company. One such company said:
Our partners have fully funded this project, and
therefore added to our own research effect. Outside the field of cancer, we can develop our own
products, and therefore applications outside cancer
come free.
Collaboration
can be a means of obtaining
grants to support innovation. It is often easier for
a small firm to obtain grants through such schemes
as Eureka and ESPRIT if it has a much larger
partner on which it can piggy-back. It is very
often the case that ESPRIT and other EC schemes
long-term commitments, and small firms need to
be able to have the resources of the larger firm
devoted to preparing the groundwork for the collaboration instead of their own. Although some
collaborations involve large firms engaged in precompetitive research, in others small firms form
an essential element in innovation. However, in
our sample, only two collaborations were under
EC schemes and one under Alvey.
Small companies, where they retain the intellectual property rights to a jointly developed product or process, can be guaranteed future sales to
the larger company. By careful research, smaller
companies can therefore target and anticipate
larger companies future needs. By retaining rights
to the new products, the initiating company can
also sell to other customers.
An example of this occurred where the managing director of a small electronics company identified and approached a key individual, a project
manager, in a research centre of one the UKs
largest electronics firms. His homework had shown
him that a piece of equipment developed by his

of large and small firms

463

company could lead to a process improvement for

the larger company, when it was added to the
in-house system. His approach led to an informal
arrangement - or skunk work, whereby the
collaboration involved joint development of the
product. For the larger firm the incentive to collaborate was to solve an internal problem. However, the process could be applied to other areas,
increasing production efficiency.
The relationships, unusually in our sample, was
one of user-supplier.
In this example, it was
standard practice for informal arrangements to be
made until it was appropriate for the project
managers boss to learn of the development because it had reached a point where it could be
incorporated into mainstream development and
was technologically proven. Personal and professional trust were essential elements in this relationship, which had no formal identity.
User expertise can be an important griving
force for collaboration.
In one particular collaboration the advantage for the small company
came from interacting with a major electronics
companys research division, in order to gain user
expertise on site, while the large firm sought first
use of new technology. In this example, a small
electronic instrument manufacturer in the semiconductor industry knew on the basis of past
collaborations that the research establishment of a
larger company would be good to work with, and
would be prepared to commit resources to the
project. By testing and evaluating the process, and
feeding back information,
the larger company
would effectively be involved in the development
of a new technique. Both sides recognised the
advantages of complementary association.
Large research organisations, by definition, do
not have the resources to take an invention through
to commercialisation.
Hence collaboration, often
with small firms, is essential to take a prototype
through production stages to the market. The research organisation can provide the expert science
while the company provides the applied expertise
and market knowledge required to produce a commercially successful product.

Hazards of collaboration
Where we found projects had been delayed, it
was due to resistance of management for operat-

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H. Lawion Smith ef al. / Networks

ing counter
to prevailing
management
style or
because of the not invented here syndrome.
In
the latter case, collaboration
(and its success)
meant
that other technical
people within
the
principal company,
who had not achieved effective results (hence the collaboration),
were not
willing to accept an imposed innovation.
For example, a small software company had been called
into a major telecommunications
company to help
develop a product which would integrate a computer graphics package and database
capability
into the existing in-house system. The collaboration included a few senior technical people in the
large company,
but excluded
the development
team who had spent two years on the project. The
outcome was that successful technical collaboration was throttled
because of major problems
within the host organisation.
The software company gained little in financial
reward, and the
project
was eventually
dropped.
Collaboration
therefore needs careful internal management
and
good relations within the company.
Some small companies
have had experiences
which make them reluctant
to enter into further
cooperative
arrangements.
Such reluctance
was
based on a number of circumstances,
such as loss
of control over the direction of a project. We were
told on a number of occasions that certain large
firms have a reputation
of behaving in a predatory
manner towards small firms. In one case, a small
leading
edge electronics
company,
employing
about 90 people, had committed
resources to a
collaboration
with a research centre of a UKowned multinational.
The smaller company deals
with most electronics companies in the world, and
has a feel for the direction in which technology is
developing.
The company
sees collaboration
as
part of its competitive
strategy. Six months down
the line, the larger company pulled the plug on
the operation, refusing to supply the promised test
wafers and generally behaving in a high-handed
manner. For small companies,
therefore, risk and
uncertainty
are increased by poor corporate
behaviour. This would appear to be the legacy of
behaviour
patterns in UK industry,
as identified
by Kindleberger
(1964).
Differing
priorities
are a problem
in formal
relationships
between small and large firms. In
one example, the large company did not deploy
sufficient resources to develop the new product,
which the smaller company
regarded as poten-

of large and small firms

tially important.
The product was to be developed
to solve an internal problem for the biotechnology
research unit of a multinational
chemical company. The smaller company
was invited to help
develop the product,
an automatic
blotting
machine, on the basis of previous interaction.
Problems arose when a short-term
solution was found
which did not involve the full development
of the
new instrument,
and for which the smaller needed
the larger companys
knowledge of the processes
involved.
Eventually
the project was completed,
but the smaller company had lost time in getting
the instrument
to market.
We found instances where a collaboration
failed
because the products were not developed as both
sides anticipated,
with the result that they did not
fulfil their commercial
function. This could be put
down to a failure of management
to agree on goals
at the outset, a lack of monitoring,
or as result of
size disparity.
In this case the larger company
imposed standards
on the instrument
which the
technical staff in the smaller company knew would
make it too complex to operate. Those involved in
the technical collaboration
were unable to withstand the pressure to make the instrument
overly
sophisticated
and the market
for the product
turned out to be smaller than expected. Indeed,
the amount of time and money invested by both
sides has not been rewarded by adequate financial
return.
Although
collaboration
can bring major rewards, initiating
ventures can be dangerous,
particularly for small firms. For example, companies
have lost valuable technical advantages to competitors through intentional
and unintentional
revelation of commercial
secrets. A common problem
small companies face is that they do not have the
experience
or resources to safeguard
their intellectual property.
Failure to establish intellectual
property rights at the outset has meant that companies have lost out on a share of ownership, and
have devoted resources
to project only to find
themselves in dispute later.
The process of developing
the right basis for a
collaborative
relationship
can also mean that developments
are delayed, manpower
and resources
have been tied up, and a technical lead is lost.
This is a particularly
critical problem for a small
company. In one example, it took two years for a
formal agreement to be drawn up, far longer than
was anticipated.

H. Lawton Smith et al. / Networks of large and small firms

Our case study of a UK/France

partnership
illustrates
how collaboration
can be a means of
overcoming the problem of lack of marketing and
distribution
resources, but may also lead to unexpected problem. Effectively, technical abilities can
be traded to gain access to another companys
markets, distribution
networks and personal contacts. Small companies can provide the outlet for a
foreign firm, allowing entry to UK markets. In
our example the UK entrepreneur
sought out a
sound overseas principal
in order to gain a contract to import equipment.
The criteria for selection were that the company should have a good
track record, and be fairly close - the French are
leaders in the field in which this firm operates.
The timing was spot on, as the initiative coincided
with a French firm looking for a UK distributor.
The arrangement
between these two companies
involved a collaboration
at a technical
level, in
order for products
to meet UK standards
and
customer requirements.
It required the technical
interchange
of both companies
to meet the demand. It will eventually
lead to a new type of
product being developed
and the UK company
will gain from the distributorship
and the added
value of the products.
However, our small UK
firm was faced with the belated realisation
that
the basic product
did not meet international
standards for equipment,
and modifying it meant
considerable
effort. The French company had oriented its products
to narrow
internal
French
markets where they could get away with not conforming to standards. The small firm was surprised
that, Even big companies
could be shysters on
standards,
as one manager observed.
Collaboration
with major companies
can lead
to technical, professional
and commercial
visibility, particularly
valuable to small firms. Publicity
hand-outs,
publication
of joint papers, conference
presentations,
and articles in the press can lead to
the enhancement
of a firms profile important
in
establishing
a firms commercial
credibility.
In
addition,
the ability to attract and retain well
qualified staff is a critical factor in company competitiveness especially on the basis of leading technology. The kudos derived from collaboration
with
a prestigious firm may be important
in attracting
the calibre of staff essential in maintaining
the
expertise level within the company,
This is particularly true of biotechnology
where competition
for the brightest people puts smaller firms at a

465

disadvantage
unless the challenges
offered outweight the benefits of working for a large firm.
Nonetheless,
the UK experience in this respect
has not always been happy. A small electronics
company
built a prototype
production
machine
for a UK aerospace company. It worked well, and
a preferred
contractor
order was placed, worth
&300,000.

We built this production

machine
for them,
[which is used in production.
[It] makes ring
laser gyros for fighter aircraft. Could we produce this brochure,
could we photograph
it,
could we put a note in the FT, could we advertise, could we solicit new business? When we
get people from Japan, America, Canada coming, can we take them to see this facility at the
aerospace company?
a No! No publicity!
See,
we dont have a freedom of information
act, do
we? Thats the problem.
We made this, we
designed this, sure you paid us. But we said its
our product, its our design. Whose proprietary
rights?!.

In another case, a large European

electronics
firm had been working on a data station for use in
laboratories.
The project needed software inputs
which were too sophisticated
for in-house capacity. For three years, a company
in the US had
been contracted
to undertake
the development
work. It was eventually realised that the American
company was unable to provide a solution to the
problem. This left the company with a major gap
in their product
range, and a need to find a
company which could quickly develop a package.
It was decided it would have to be a UK company
so that communication
and monitoring
would be
easier. The small company chosen was assessed by
in-house people who were impressed by their technical competence.
However, problems arose out of
the initial advantage
the smaller company
had
seized when a partner heard how desperate
the
larger one was for a signed formal agreement.
With this knowledge, the smaller firm was able to
impose terms on the larger. However, this was at
the expense of a lack of trust in the longer term.
Instead of future collaborations,
the larger company has sought alternative
partners.

466

The importance
laboration

H. Lawton Smith et al. / Networks

of personal

relationships

in col-

Relationships
are one of the most valuable
resources
that
a company
possesses,
notes
Hakansson
[13,p.10]. He argues that relationships
fulfil three main functions:
to increase productivity or technical efficiency, to serve as information
channels, and to increase control (power). These
comments echo earlier work of de Solla Price [6]
on invisible colleges and Allen and Cohen [l] on
technological
gatekeepers,
all of whom emphasize
the roles played by information
exchange
and
dissemination
by key people. Personal
relationships are not only an outcome of collaboration,
but also a key element in its success. Collaboration
creates
indebtedness
and
reciprocity
whereby a relationship
is established
which may
be called upon when the need arises in the future.
Collaboration
itself may he an outcome of the
personal
and professional
trust which exists at
many layers within companies.
Collaboration
may arise where a supplier relationship has existed and personal respect has developed. For example in the case of a small scientific instruments
company (Browns)
and a research institute. The director of the institute had
for some time bought equipment
from Browns
and had been impressed by the quality of their
back-up service; he was able to go into a partnership with Browns to develop a novel piece of
equipment
which had considerable
market potential, but which needed the technical expertise on
both sides. However, the opportunity
for Browns
only came after larger firms which had been approached by the director had rejected the project
as having insufficient
potential. The smaller company in this case has committed
itself to a longterm development
project requiring
considerable
investment
of resources, and will be operating in a
small way for some time to come. It was not worth
larger companies while to be involved in a market
of this nature.
In this relationship
the risk is
shared by the institute; if the company is sold on,
the research institute could lose control over the
project they currently enjoy on the basis of existing personal relationships.
Personal commitment
can be the critical determinant
in whether a collaboration
between a
small, relatively unknown
firm and a more tested
company
can proceed.
Individuals
who act as

of large and small firms

product
champions,
are faced with overcoming
problems associated with corporate cultures even
more so when they are working within the UK
company
of a foreign-owned
multinational.
The
Not Invented Here syndrome seems to be particularly rife in American companies,
and restricts
the development
and absorption
of technologies
from offshore,
particularly
when they involve
long-term
commitment
and substantial
investment. In general, the people in the UK understand
the US better than those in the US understand
the
UK. As one the product champion
said, In the
US there are two kinds of people, internationalists
and domestics - 99% are domestics - for them the
world ends at the coast. Eventually the collaboration took place and the small UK biotechnology
firm has benefitted
substantially
from the collaboration
with the US pharmaceutical
company.
The large firm, although it has not yet achieved a
positive bank balance on the deal, has secured
new products which it could not have developed
independently.
The person who was the driving
force behind the collaboration
has developed intrapreneurial
skills, as well as political
skills
which can be described positively as the ability to
negotiate and use contacts, or less complementarily as deviousness.
The downside of the key role which personal
relationships
play in collaborative
ventures
is
over-dependence
on certain individuals.
This can
arise when the collaborative
venture is not sufficiently key to the companys operations that it can
withstand
the removal of the key individual.
The
down side of professional
trust, therefore, is the
reliance on the product
champion
remaining
in
position. In our example, in spite of the technical
success of the prototype x-ray machine,

The company failed to continue to invest, they

didnt think we were a proper champion
(Id
seconded my man by the way for 2 years). It
was bought out by an American company. The
American
company fired that managing
director and they gave him an hour to leave his
office. So he had gone. Our contact had gone.
They didnt want the technology, they sat on it.
The royalty income was piddling and that was
two years ago. Only last week the company
formally wrote to us and said, by the way we
are no longer interested in your product.

H. Lawton Smith et al. / Networks

Conclusions
Inter-firm collaborative networks serve to externalise the innovation function through the
transfer of technology between firms and this is
always a two-way process. Collaboration also extends firm networks through linkages into those of
the partner, linking individuals, firms and sectors.
Although it is possible to identify particular
rewards and hazards resulting from inter-firm collaboration, what is clear is that each collaborator
was confronted by a more or less novel set of
circumstances in terms of size, product markets
and organisational idiosyncrasies, of which size
disparity between large and small firms was only
one dimension.
Changing technological and commercial imperatives mean that new rules have to be learnt. The
very newness of this active form of inter-dependence conflicts with traditional ingrained attitudes
towards smaller companies. When collaborative
projects occur between firms where one has not
learned co-operative game rules, it leads to precarious relationships. Corporate cultures within
large firms, especially with those where control is
located outside the UK, create operational problems for individuals who recognise the opportunities arising from accessing complementary assets.
In our study we found that the existence of
informal, personal networks among the scientific
and engineering elite was the key factor in the
establishment of collaborative links. In many cases,
these links were based on professional, scientific
trust at the early research stages, which was later
formalised when commercial/production
possibilities arose. Pre-existing networks are often the
basis of collaboration, as personal contacts are
used to target key people in potential partner
firms, and provide the basis of professional trust
on which successful technical collaboration depends.
Formalisation legitimises what has occurred informally. However, formalisation can also be a
significant barrier to successful collaboration, with
small firms particularly vulnerable to adverse decisions made by people in authority above the level
of the technical collaborators.
The coming of the single European market in
1992, undoubtedly presents export opportunities
for UK firms. Indeed there is some evidence that
the number of partnerships between UK and con-

of large and small firms

461

tinental Europe is increasing [20]. Equally this is

true for continental firms seeking to expand their
markets by penetrating what may be seen as passive local markets enjoyed by small firms. The
fortunes of smaller firms supplying larger firms
will also be affected as major corporations face
changes in their competitive
situations. The
suggestion has also been made that the disorganised nature of UK capitalism creates an uncertain environment in which innovating small
firms have to survive.
The changes occurring at national and international levels make it increasingly necessary for
firms to collaborate in order to gain a competitive edge. But one major question needs to be
asked; whether inter-firm collaboration is an appropriate vehicle for small firm growth in long
term. Whilst the direct, short-term benefits are
clear, the inherent complications, and the consequential management intensity, of longer collaborative ventures may be too great a hump for
small firms to climb in their efforts to reach the
top of higher peaks.

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