Industrial Innovation, Networks, and Economic Development

Anant Kamath

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317598886
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This book offers an innovative examination of how 'low–technology' industries operate. Based on extensive fieldwork in India, the book fuses economic and sociological perspectives on information sharing by means of informal interaction in a low-technology cluster in a developing country. In doing so, the book sheds new light on settings where economic relations arise as emergent properties of social relations.

This book examines industrial innovation and microeconomic network behaviour among producers and clusters, perceiving knowledge diffusion to be a socially-spatial, as much as a geographically spatial, phenomenon. This is achieved by employing two methods – simulation modelling, and (quantitative, qualitative, and historical) social network analysis. The simulation model, based on its findings, motivates two empirical studies – one descriptive case and one network study – of low-tech rural and semi-urban traditional technology clusters in Kerala state in southern India. These cases demonstrate two contrasting stories of how social cohesion either supports or thwarts informal information sharing and learning.

This book pushes towards an economic-sociology approach to understanding knowledge diffusion and technological learning, which perceives innovation and learning as being more social processes than the mainstream view perceives them to be. In doing so, it makes a significant contribution to the literature on defensive innovation and the role of networks in technological innovation and knowledge diffusion, as well as to policy studies of Indian small firm and traditional technology clusters.

1 Introduction and conceptual outline

The diffusion of new information and knowledge is accelerated by the exchange of knowledge and experiences between the actors within the system. Thereby knowledge is accumulated and capabilities are broadened, which, if economically useful, might lead to more innovation.

(Cantner and Graf, 2008, p. 1)

This book is a study on the nature and characteristics of information sharing by means of informal interaction among small low-technology¹ producers located in clusters. The aims of this study are: (1) to understand intra-cluster interaction channels and dynamics of information sharing among producers in low-tech clusters surviving on defensive innovation, and (2) to study this information sharing in settings where economic relations arise as emergent properties of social relations. These aims are fulfilled by means of employing one simulation model and two empirical studies. The book begins with the simulation model, which motivates the two empirical studies out of its findings – a descriptive case study and a network study of low-tech rural and semi-urban clusters in traditional technology industries in Kerala state in southern India.

The aims and contributions of this book assume significance for several reasons. In a developing country like India, small-unit clusters constitute a large population of industrial clusters which, nevertheless, bring out a range of product and process innovations; however, as these small units do not have the means to conduct formal research and development (R&D), information exchanges and technological learning in these settings often occur in environments where social networks serve as valuable channels of information exchange, providing both opportunities and constraints (Gulati, 1998; Das, 2005; Mani, 2011, 2013). Most studies in Indian academia, when dealing with technological progress and modernisation among small producers or clusters, or even studies on traditional industries, enquire only occasionally into the mechanisms and dynamics of learning through informal interaction among producers, and into the policy and institutional environment conducive to this sort of learning and information sharing. A superficial treatment of these themes in the Indian literature exists despite the ubiquity of this behaviour among industrial and artisan clusters in India, and awareness of the dominant position of low-technology actors in India’s economy.² In clusters of tiny low-tech producers within traditional industry sectors, the systematic supply of codified technological know-how is minimal, and necessary updates on new techniques are sourced mainly through informal interactive channels (Bala Subrahmanya et al., 2002; UNIDO, n.d.). Since such producers have little or no external linkages with technology leaders locally or extra-locally, they rely on close contacts, family, kinship ties, and buyers and suppliers to gain new knowledge (Utterback, 1994; von Hippel and Tyre, 1995; Howells, 2002). Stunted information gathering and information sharing, low cooperative behaviour among tiny low-tech producers, or a faulty institutional and policy foundation, can contribute significantly towards technological backwardness. Subdued informal information sharing among producers can threaten to trap them in their obsolete practices, hindering them from sourcing new information and moving towards the technology frontier in the industry at which their peers may be competing. There has been adequate attention paid in the literature outside of India to information sharing by means of interactions through social networks. However, in India this is still only superficial.

This book hence brings this analysis to India where its appreciation is still only superficial. The analysis in the book also delves into studying this informal information sharing in scenarios where social relations drive economic relations among agents. These are the chief motivations and contributions of this book.

One may attribute innovation and learning to only high-tech producers, but this endeavour is, as the literature has demonstrated, very much the prerogative of low-and medium-tech producers too – even of household units in traditional industries in rural India. The perceived role of these small producers has dramatically changed over the past few decades, from merely infinitesimal parts of production chains, to innovators in their own right (see Rothwell and Zegveld, 1982; Rothwell, 1989). Especially in India, broad changes brought about in the early 1990s as a response to the economic crises at the time shifted the focus of industrial policy from a system of planning and protection to one that encouraged entrepreneurial potential among individuals and small producers. The opening up of vast opportunities was intended by the new regime, through enabling the prospects of exploiting one’s comparative advantage, freely locating, innovating, tapping local and global information flows, and, above all, participating in a system that rewards adaptation to change and penalises rigidity and isolation. Small producers, whether individual household units or small agglomerations of employees under one roof, were now to control their own innovation and learning processes rather than being simply recipients of new technologies. But this new freedom necessitated new varieties of efforts such as constantly being on the lookout for what’s new at the technology horizon and to frantically gather new information. The need for proximity or clustering among small producers became important not only to exploit economies of scale and economies of scope but also for learning, since it was increasingly recognised that information can and should be sourced not only from abroad, or from technologically advanced domestic firms, but also from fellow small producers in the vicinity. In other words, small producers, especially low-tech small producers, swiftly recognised the importance of keeping a steadfast lookout for technological developments among their close allies and competitors, especially since they were too insignificant to work in isolation and could not undertake R&D on a large scale or in the formal, conventional sense. It remains important, if small producers wish to be technologically proximate (i.e. similar to peers in terms of technological capability and information stock), that they keep abreast in terms of the velocity of technical change in their immediate vicinity.

There are two strategies to achieve this outcome. One is to ensure geographical proximity to one’s peers. Another is to dedicate efforts specifically towards efficient networking, as this is of utmost importance in an environment of continuous innovation, constant learning and a relentless flow of new knowledge. There are few streams of research in innovation studies, and probably in the economics and management literature at large, that have not subscribed to the fact that effective networking remains a most essential activity for economic agents, large or small, high-tech or low-tech; and that economic agents’ behaviour and performance may only be understood fully by examining their social, technological and exchange relationships with other agents (Vonortas, 2009).

Following this, it therefore becomes an objective, during the course of investigation into innovation and learning behaviour among low-tech producers, to discover network paths and information transmission channels among even seemingly heterogeneous (or even rival) individuals. This is given the high possibility that these paths – especially short paths that facilitate rapid information transfer between agents – actually exist and can be unearthed (Cowan, 2004; Vega-Redondo, 2007).

But learning and innovation among low-tech producers involves tactics of which geographic proximity and networking are only two out of a distinctive set of strategies that come under the umbrella of defensive innovation, which is essentially the spectrum of overlapping possibilities that include being offensive, defensive, imitative, dependent, traditional or opportunist (Freeman and Soete, 1997). Defensive innovation and learning may, or may not, be influenced by social relations among units within the agglomeration. On the one hand, seamless information sharing may occur in a socioeconomically homogeneous or heterogeneous agglomeration with little influence from social demarcations. On the other hand, information sharing may be heavily influenced, for better or for worse, by social demarcations in a heterogeneous environment.

This is what brings us to the objectives of this book espoused at the beginning of this chapter: to understand collective learning and defensive innovation, and to investigate their paths in environments where economic relations are embedded in social relations. This work seeks to provide an understanding of this genre of innovative and learning behaviour – defensive innovation – when it is witnessed in low-technology clusters that experience social embeddedness of information exchange relations.

These explorations commence with a discussion and review of the broad conceptual themes that form the foundations of this book. These include collective invention and defensive innovation, clusters and learning regions, the role of proximity, the role of networks, and themes from economic sociology such as social capital, embeddedness and homophily, most of which are conceptually intertwined with one another. The conceptual discussion and literature review in this chapter are placed under two broad themes: (1) defensive innovation in clusters and the role of networks in informal information sharing, and (2) economic relations within social relations. These are evidently concurrent to the two objectives of this book outlined earlier.

Defensive innovation in clusters, and the role of networks in informal information sharing

Collective invention, defensive innovation and the significance of ’low-tech’

Allen (1983) described a rather strange activity among iron manufacturers in the mid-1800s in the Cleveland region in Britain – producers were sharing new information on the latest and best production practices and technologies, on a continuous basis, free of charge, even to their rivals. In fact, this behaviour was not unique to Cleveland, as similar activities of uninhibited information sharing, even among competitors, were thriving among paper manufacturers in the early 1800s in Berkshire, New England (McGaw, 1987; Cowan and Jonard, 2003). Gault and von Hippel (2009) list a host of studies describing this ‘voluntary and intentional spillover’ also occurring in the early history of mine-pumping engines, in medical equipment, semiconductor process equipment, library information systems and sporting equipment. This behaviour, considered initially as ‘an undesired “leakage” that reduces the incentives to invent’ (Allen, 1983, p. 21), is actually neither undesired nor a leakage, and certainly did not reduce the incentive to invent. It was, in fact, as Allen (1983) argued, a proactively pursued collective invention practised in the form of freely releasing information, since it was almost impossible and often expensive to keep the new information a secret. In addition, it was often conscious and strategic to actually release the information in the form of a broadcast to other producers in the region through local publications, presentations at meetings, social circles, and through informal channels of word-of-mouth information exchanges (Allen et al., 1983; Cowan, 2004). Individual producers were known to have devoted little time and effort to discovering new information all on their own, relying more on these frequent information releases and the ‘buzz’ of new ideas and techniques among local groups of producers (Allen, 1983).

As mentioned at the beginning of this chapter, many low-tech and small producers often do not have internal resources dedicated to generating ideas, and are dependent on others for information on new technologies (Allen et al., 1983). They do not favour investing in R&D as much as they favour satisficing, i.e. undertaking a conscious local search among their co-located and connected peers for incremental improvements to their present technologies and production practices, especially when they find themselves performing below par compared to peers whom they can easily observe (Nelson and Winter, 1982; Sheffrin, 1996; Romijn, 1999).³ Learning thus becomes an organisational response rather than a continuing policy commitment and the search for new information becomes conscious, concentrating around one’s vicinity in geographical and technological space (Nelson and Winter, 1982). The new knowledge and subsequent technologies that arise due to this collective invention and satisficing behaviour are, like the behaviour itself, imitative (Kauffman and Tödtling, 2003). This brings us to Foray’s (2010) recommendation that we should understand innovation itself, in a broader sense, as taking place over an entire spectrum of economic activity and sectors, not just high-tech sectors and those practising formal R&D. This is because innovation in most developing economies is mostly ‘incremental, cumulative and mostly informal (without R&D), mainly in “traditional” sectors or in services that do not qualify as “high technology”’, generating local spillovers that ultimately affect the productivity of several sectors in the local economy (Foray, 2010, p. 96). In the Indian scenario too, informal R&D of this sort is the preference of the majority of small producers, with suppliers, consultants and friends assuming a principal role in their exploration of new information (Bala Subrahmanya et al., 2002).

Studies by Peter Maskell (see, for example, Maskell, 2001a, 2001...