The Business of Networks

Inter-Firm Interaction, Institutional Policy and the TEC Experiment

Robert Huggins

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138716049
• eBook ISBN: 9781351769327
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This title was first published in 2000: The first book which brings together and interprets both the theoretical concepts associated with the study of networks in the business world, and the policy applications being applied to the practical building and development of such networks. It maps the changes in the culture of economic development policy that occurred in the UK during the 1990s, incorporating a detailed assessment of the contribution that the Training and Enterprise Councils made to business support policies. The book is published at a time when network and cluster building has risen to the top of economic development agendas not only in UK, but in many countries throughout the world. It offers the most detailed insight so far available into the structure, motivations and processes involved in developing business networks through institutional intervention. The book is relevant to anyone with an interest in business policy and theory.

1 Introduction

Business Networks in the UK

Network concepts have evolved into important instruments for theorising and describing contemporary organisational relationships, in particular the linkages, exchanges and interaction that take place between firms. These relationships are often termed inter-firm, or business, networks, and their study has been increasingly connected to explanations of industrial competitiveness and economic development. In particular, inter-firm networks have been studied specifically in the context of facilitating economic development and growth at local and regional levels. Subsequently, there has been growing public policy interest in stimulating inter-firm networks in a number of states and regions throughout the world.

In the United Kingdom (UK) context, most studies have focused on finding evidence and evaluating the prevalence of existing inter-firm networks within localities and regions. These studies have reported very mixed and differing results. For example, Sweeting’s (1995) study of manufacturing industry in the North West found that strong and effective networks were being developed by managers of regional firms; and Bryson et al.’s (1993) work found networks to be a vital and inherent part of the UK business services sector. In contrast Baker’s (1995) study of Hinckley and Penn’s (1992) work on the Rochdale economy both argued that they found little evidence of local inter-firm relations. Furthermore, Crewe’s (1996) findings of a critical mass of linked firms in the Nottingham Lace Market conflicts to an extent with Hardill et al.’s (1995) survey of the East Midlands, which argued that business linkages did not form an important part of the local socio-economic fabric. Garnsey and Cannon-Brookes’s (1993) study of the computing and software complex at Cambridge, which it is often argued is the UK’s best example of a local economy consisting of significant inter-firm networks, has also cast doubts on the extent to which local linkages exist. They argue that most companies in the area are more pre-disposed to network and nurture links with firms at the global rather than the local level (Garnsey and Cannon-Brookes, 1993).

These studies all have their merits, with the differing results often due to the range of definitions of networks or networking applied to empirical work. However, the overall situation in the UK, as recognised by Hirst and Zeitlin (1989), appears still to consist of a general absence of a supportive inter-firm culture. It has also been suggested that the common factor differentiating relatively innovative and entrepreneurial localities in the UK from those with low levels of innovation is the operation of relatively effective networks (Bennett and McCoshan, 1993). Bennett and McCoshan (1993) have further argued that there are limitations on the extent to which network capacity can, to any considerable degree, organically permeate the business community in the UK. Therefore, from the assumption that networks have the potential to contribute to economic growth, it can be suggested that public policy action is required.

Policy intervention in the UK has, so far, concentrated on extending the ‘interactivity’ of existing groups, as well as catalysing and forming new networks, primarily aimed at small and medium-sized enterprises (SMEs) at the local and regional level, via the facilitation of intermediary policy support organisations. This has been prompted by an increased awareness among policy-makers in the UK that competitiveness and innovation are connected to co-operative and long-term relationships between businesses, with a number of recent developments being promoted by organisations involved in policy intervention (Sako, 1992; Joyce et al. 1995). In particular, it is Training and Enterprise Councils (TECs) in England and Wales (Local Enterprise Companies in Scotland), operating as local public-private partnership organisations, that have taken an endogenous policy approach to the process of encouraging inter-firm network formation, as part of an overall strategy of attempting to become institutions that are increasingly referred to as ‘civic entrepreneurs’.

The introduction of TECs was to a large extent related to a recognition by the Conservative Government of the time that the most effective economic development policies, aimed specifically at the business community, are provided by institutions that themselves act like entrepreneurial businesses (Gibb and Manu, 1990; Gibb, 1993; Bennett, 1995a). Institutions acting in such a manner are said to be operating as ‘policy’ or ‘civic’ entrepreneurs, introducing policy change and innovation that are new to the locality or region adopting it (Mintrom, 1997). Clarke and Gaile (1997) label such a policy system as one of ‘entrepreneurial mercantilism’, based on aims for more diversified growth within new and expanded exogenous markets, through mobilising local initiatives and indigenous assets providing greater benefits for economic development. According to Harvey (1989) this ‘new entrepreneurialism’ has as its centrepiece the notion of public-private partnerships, in which ‘traditional local boosterism’ has become integrated into activities that are entrepreneurial precisely because they are speculative in execution and design. It is such a public-private partnership role that the previous Conservative Government attempted to vest in TECs. This book investigates how TECs in the UK have attempted to act as civic entrepreneurs in a bid to generate networks, particularly of an inter-firm form, within their localities, and to further analyse how the effectiveness of the instruments adopted have aided economic development.

Civic Entrepreneurship

It is in the United States (US) that civic entrepreneurship has received the most attention. According to Leicht and Jenkins (1994) entrepreneurial approaches have formed one of three main sub-national economic development strategies in the US; the other two concerning industrial recruitment and deregulation approaches. Leicht and Jenkins (1994) further argue that entrepreneurial policies are directed at qualitative growth, defined by the promotion of high value-added production, through processes that state governments can facilitate by assuming entrepreneurial functions. These functions include launching new enterprises, creating new technologies and products, and identifying new markets for these products, typically through public-private ventures. The first detailed academic discussion of entrepreneurial policies stemmed from the work of Eisinger (1988), which argued that traditional local supply-side incentives directed at the attraction of large industrial concerns during the 1970s and early 1980s merely served to move productive capital around the US. Eisinger (1988) suggested that during the mid 1980s a shift occurred whereby economic development grew from being a relatively marginal item on the political agendas of state and local officials to becoming a central and even pivotal issue among prevailing concerns, and that certain social development goals could be best achieved through the enhancement of local businesses, rather than in disbursing public resources in an effort to attract the rare mover.

This change was coupled with the rise of entrepreneurial bureaucrats in the US, who attempted to propel dynamic policy change by creating or exploiting new opportunities to push forward their ideas, often via targeted firms or sectors that they believed were best positioned to respond to market opportunities identified or legitimated by the state (Eisinger, 1988; Teske and Schneider, 1994). These approaches were further popularised in the work of national government policy advisers Osborne and Gaebler (1992), who conveyed a message that mayors and governors throughout the US were ‘re-inventing government’ by embracing public-private partnerships and developing alternative ways to deliver services through creation of catalytic governance that acted to ‘steer’ rather than ‘row’. One example of the creation of these ‘steering’ organisations cited by Osborne and Gaebler (1992) were the Private Industry Councils (PICs), set up under the federal Job Training Partnership Act to bring local public and private sector leaders together to manage job training activities within their region, and which were the original model upon which TECs were based.

Osborne and Gaebler (1992) have undoubtedly highlighted a trend in US policy-making, however they have been criticised as presenting a rather lop-sided view of such economic development approaches. For example, Kobrak (1996) has argued that although Osborne and Gaebler’s (1992) emphasis on the need to create a market-oriented system of governance implies the need for important public choice innovations, it says little, if anything, about the relation of risks to rewards. DeLeon (1996) has also argued that the primary reason behind many of these initiatives was the pressure to ‘do more with less’, resulting in the road to re-invention becoming ‘littered with bashed bureaucrats, dashed hopes, and political casualties’. Entrepreneurial approaches have been further criticised within the academic literature of the US for promoting economic development policies that are opposed to democratic accountability, participation, openness, and stewardship (Bellone and Goerl, 1992). Others have suggested that empirical analysis of entrepreneurial local economic development activity in the US does not actually reflect a clear shift to demand-side activities, directed at stimulating indigenous business and promoting economic base diversity (Reese and Maimer, 1994). Interestingly, Eisinger (1995) has more recently argued that the commitment to active economic intervention by sub-national government in the US, exemplified by the entrepreneurial programmes of the 1980s, is beginning to flag in the face of doubts about the efficacy and political viability of many initiatives.

To an extent these arguments undermine the ethos of widespread successful civic entrepreneurship within the US. Nevertheless, the interpretation of academics in the UK has stuck very much to the literature acknowledging its success in the US, in the attempt to assess the replication in the UK which was undoubtedly a feature of Conservative Government policy - as Rhodes (1997) indicates, the Conservative Government often cited Osborne and Gaebler (1992) to justify its policies. It has been suggested that one of the problems in analysing policy replication imported from the US was the assumption that while the policy development situation in both countries seemed to be similar, they were in reality quite different. For instance, as Fasenfest (1993) argues, while the US administration attempted to remove federal government from maintaining an array of local programmes, the Thatcher Government in the UK sought to impose greater control over the day-to-day actions of local government.

The most detailed work on policy change in the UK is that of Rhodes (1997), which argues that there has been a shift from government to governance at a local level typified by there being no one policy centre; but multiple centres forming an amalgam of organisations drawn from the public, private and voluntary sector, involved in delivering local services and interacting within inter-organisational policy networks. Rhodes (1997) refers to this entrepreneurial governance as ‘new public management’, stressing the introduction of private management methods to the public sector, and highlighting TECs as the nodal points in local policy networks co-ordinating multiple stakeholders.

As both Rhodes (1997) and Axford and Pinch (1994) indicate, the introduction of TECs has given rise to a chorus of complaints about the loss of democratic accountability. TECs have further been seen as undermining the role of local government authorities, with the ‘hidden’ agenda consisting of public spending cost-cutting exercises through the tightening of local government expenditure (Rhodes, 1997). Hall and Hubbard (1996) argue that although the changes that have taken place in the UK have led many commentators to define the emergence of models of governance and economic development as entrepreneurial, it is nevertheless difficult to assess whether the shift to entrepreneurial modes is actually supplanting or merely supplementing traditional approaches. They further suggest that the reality has proved rather mundane, with the key change involving local business leaders being co-opted into local politics through the boards of new non-elected local agencies, particularly TECs (Hall and Hubbard, 1996). Indeed, with regard to mobilising small firms and developing networks between such companies in the UK, Gibb (1993) argues that many of the challenges facing the ‘new institutions’ will need to be faced through still better management of both the environment of support for the growth of firms and the institutional assistance environment as a whole.

The call for better management between and within these new institutions resonates with Bennett et al.’s (1994) concept of the ‘perverse policy syndrome’, which states that more resources alone will change nothing; and indeed more resources may make matters worse by strengthening the power of the institutions allocating those resources. Bennett et al. (1994) argue that the only way to break out of this syndrome is to radically move away from the institutional priorities and economic values of the past, and to develop new institutional goals and systems of economic support. The introduction of TECs was, as Bennett et al. (1994) further contend, a bid to contribute to this institutional break, meeting the challenges highlighted by Gibb (1993), through the facilitation of: (1) new leadership; (2) a focus on the performance of programmes; (3) emphasis on customers over producers; and (4) local flexibility. The following section considers in more detail the recent evolution of economic development policy in the UK leading towards a ‘network approach’ and the introduction of TECs.

The Evolution of Network Approaches to Economic Development

In the UK, recent economic development strategies directed at the indigenous business community have largely evolved from the Conservative Government’s policies on small firm development, predominantly designed during the 1979-1990 Thatcher administration. Of course, small business policy was not solely an invention of the Conservative Government at that time and its roots should properly be placed in the Bolton Committee of Inquiry on Small Firms, established by a Labour Government in 1969 and which reported in 1971 (Bolton, 1971). The major impact of the report concerned its finding that little was known at the time on the role that small firms played in the national economy, thus recommending the establishment of a small firms division within the Department of Trade and Industry (DTI) (Robertson, 1996a). The change of Government in 1979 quickly increased the policy momentum surrounding small firms by placing them near the head of the political agenda (Goss, 1991). The Government perceived the decline in the competitiveness of UK economy to be a direct result of a pervading ‘dependency’ culture, within which individuals were unwilling to take, and subsequently benefit from, commercial risk-taking (Storey and Strange, 1992). Therefore, policies were designed to create a shift to a more dynamic ‘enterprise culture’ through a wave of measures in the 1980s, aimed at directly and indirectly fostering the formation and growth of small business, within three broad categories: finance; legislation and administration; and information and advice (Goss, 1991). Burrows (1991) has suggested that this discourse of an ‘enterprise culture’ has been one of the major articulating principles of the recent age.

The emergence of network approaches to business support policies can be traced to ‘softer’ measures concerning the provision of information and advice services to SMEs. Initiated by already existing bodies such as the Small Firms Service (established in 1973), these services increasingly acted in a ‘referral’ and ‘signposting’ capacity to other agencies, rather than being directly involved in business support. By 1992, the Government had explicitly identified networks and the interaction between small firms, and their intermediaries, as being an area of particular importance in any new small firm policy measures (DoE, 1992). This growth of public policy interest in small firms, and of their inter-relationships and interdependence in the business community, was coupled with an increasing fascination for local approaches towards increasing competitiveness and promoting economic regeneration (Curran and Blackburn, 1993). An increased awareness in the 1980s that the predominant markets for a large proportion of businesses were locally-based led to public intervention being increasingly channelled towards locally delivered initiatives (Storey, 1994). Also, specific small business policy in the 1980s, administered through the DTI’s Enterprise Initiative (EI), was delivered more and more by organisations such as local enterprise agencies. Keeble and Bryson (1996) show that it is the peripheral regions of the UK that made the most use of the EI, with approximately 50 per cent more firms in these regions, as compared to areas such as the South East of England, using the services offered through EI; while nearly four times as many periphery-based firms reported approaching and receiving advice from enterprise agencies. This was undoubtedly partly due to peripheral regions receiving a greater endowment of Government resources for the development of such support services.

The introduction of local TECs between 1990 and 1991 (and subsequently Business Links) was an attempt to make such support more systematic, by levelling the playing field between core and peripheral areas, with regard to the availability of services, and co-ordinating other local actors and support users through partnerships and networks. A marked shift in approach also appeared to be emerging whereby intervention that initially had been put in place purely for small firms was extended to the wider community of SMEs, particularly those that were considered to have ‘growth potential’ (Curran and Blackburn, 1991 Chittenden et al., 1995). At the same time the economic development agenda of the Government gave great emphasis to achieving ‘competitiveness’, with ‘human resource development’ becoming a recurring and key component of this theme (GHK, 1995). This led to small business policies in the UK becoming gradually subsumed in wider economic development strategies, advocating a broader support framework through public and private sector partnerships and networks. For instance, development and enterprise agencies are increasingly focusing on promoting ‘soft support’ and company ‘aftercare’ initiatives, via networked approaches of sustained and consistent interaction involving multiple parties (Bennett, 1995a).

The evolution from a specific small business policy to more diffuse economic development, based on an implicit networked support approach, is best manifested by the role envisaged for TECs. TECs were implicitly developed to act as brokers and intermediate nodes of information and expertise, serving an enterprise culture which itself became a pervasive social phenomenon going beyond its link with small business activity Ploszajska, 1994). One implication of this approach is the emergence of a culture whereby public sector intervention consists of intermediary agencies that seek to bring together companies seeking mutually beneficial support through collaboration – in other words, the formation of inter-firm networks. These policies were most coherently set-out in the Conservative Government’s ‘Competitiveness White Papers’ (HM Government, 1994b; 1995). The ‘White Papers’ advocate economic development strategies, many of which were initially ‘piloted’ in peripheral areas, based on catalysing local networks that encourage partnerships between and among local firms and institutions. Within this framework, TECs have become the key policy agent for intervention that has attempted to implant a culture of competitiveness through co-operation.

The Labour Government has indicated, within its own ‘Competitiveness White Paper’ (HM Government, 1998), that it wishes to continue and strengthen this agenda. In particular, its policy focus consists of the development of localised networks of sector-related companies or ‘clusters’. This agenda is to be carried forward in the future by the Small Business Service and the new Learning and Skills Councils and Regional Development Agencies (RDAs) in England, and the Community Consortia for Education and Training (CCET) and Business Connect in Wales (with Scotland most probably retaining its Local Enterprise Companies). By 2001 the Small Business Service and the Learning and Skills Councils (CCETs in Wales) will replace TECs, although the reality is that they will share many features with their predecessors. The most important difference being that Learning and Skills Councils an...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• 1 Introduction
• 2 The Socio-Economics of Networks
• 3 Space, Place and Policy Intervention
• 4 TECs and their Network Policies - The Early Years
• 5 Business Co-operation and TECs - Developing Networks
• 6 The Evolution of TECs and Networked Economic Development
• 7 Evaluating Network Policies
• 8 The Success and Failure of Implanted Networks
• 9 Conclusions
• References
• Index