External linkages and innovation in small and medium-sized enterprises

While small and medium-sized enterprises (SMEs) can enjoy a number of behavioural advantages over their larger counterparts in the innovation process (e.g. rapid response to external threats and opportunities; efficient internal communication; interactive management style), they can also suffer from a number of mainly material disadvantages (e.g. inability to spread risk over a portfolio of new products; difficulties in market start-up abroad; problems in funding longer-term R&D). One area in which SMEs can suffer a marked disadvantage is that of establishing the appropriate network of contacts with external sources of scientific and technological expertise and advice. This paper addresses the issue of SMEs’ external linkages and presents data from a number of studies showing the importance of in-house technical skills to linkage activity; the importance of complementary between in-house and external know-how accumulation; and the importance of technology strategy in guiding the accumulation process. SME-oriented public technology policies should be adapted to the specific needs of SMEs in that they should focus on facilitating vertical (supplier-manufacturercustomer) linkages and offer support throughout the innovation chain from pre- competitive research through to product development. Numerous studies testify to the importance of firms extensively ‘networking’ in order to improve innovation potential (for example, Mowery, 1988; Contractor and Lorange, 1988; CEST, 1990). The majority of these studies focus on formal technology agreements, such as R&D joint ventures,; tend to feature large firm collaboration rather than that undertaken by small and medium-sized enterprises (SMEs); and while they often refer to the management problems involved in collaboration, few examine their management in any depth. This paper will describe the extensive collaborations of innovative SMEs, and will emphasise how the employment of key personnel affects the range and scope of linkages. It will highlight the broad diversity of linkages used by SMEs for technological development. And, by means of a case study of a highly technologically advanced SME, it will examine some of the most important management problems facing the collaborative process.