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1. The role of business networks in regional
economic development
Mike Danson
Professor of Scottish and Regional Economics
University of the West of Scotland
+ 44 (0)141 848 3936; michael.danson@uws.ac.uk
“Entrepreneurial Networking and Learning within
Regional Economies”
Centre for Enterprise Development & Regional Economy
(CEDRE)
Waterford Institute of Technology, Ireland
7th & 8th December 2011

2. Presentation structure
 Introduction – research background
 Learning, regions and institutions
 Importance of SMEs
 Clusters, networks and partnerships
 Agencies and support
 Some research findings
 Discussion
 Conclusions

3. Research and knowledge
• Expect focus should be on business networks
• Much of academic literature is theoretical or rarefied
• A few case studies – but mostly in high tech, media or
sectors dominated by MNEs
• But texts and policy approaches stress networking
• Strong research and policy lead from Nordic countries,
and latterly certain Asian economies
• Lot of articles, policies and prescriptions about
institutions, especially around 2000
• Fashions and models
• Similar to employer engagement?

4. Learning, regions and institutions
 Learning organisation : learning region
 Performance, Best Practice, Best Value ~
benchmarking
 Institutional thickness and capacity
 Catalyst and cooperation
 Networking ~ 1980s, external, passive
 Partnership ~ 1990s, internal, active
engagement, formalised, routinised

5. Importance of SMEs in economy
• Jobs, enterprise, dynamism, innovation, ...
• Excluded from many oligopolies, large capital
sectors
• e.g. Scotland: electronics, whisky, petrochemicals,
oil & gas. Local firms on the periphery of these
sectors, low value added, low wage, low skill, ...
But may be better than rest of local economy.
• In this periphery of these sectors and in wider
economy: benefits of cooperation, networking,
industrial district or cluster

6. Externalities and SMEs
• Competitive external economies = internal
economies
• Exogenous external economies = agglomeration
economies
• Cooperative external economies = benefits of
belonging to a network, industrial district,
industrial cluster.
• Trust and cooperation = essential => belonging
• Promotion of networks, networking, devt of
trust and cooperation.
• Across agencies in Scotland = very successful.
• SMEs?

7. Networking and the small firm
• Industrial ]
• Support ] dyadic focus ignores the social
• Personal ]
• Important role in formation, growth & development
• But requires lot of effort; maintenance and devt
require considerable investment
• => market failure? => interventions to encourage and
support
• Improve with age
• Membership, linkages, transactions, function,
morphology, geographical .... Significant in success

8. Agencies and strategic support
• Much of official support and some textbooks
focus on development agencies ...
• And networking between them, and between
them and the firms
• Also encouragement of networking with
consultancies, business angels, chambers of
commerce, ...
• Most SMEs rely on accountants, banks,
solicitors, ... Low Pay Unit, TUs, etc

9. Experience of networks and networking
• Third Italy
• Marshallian industrial districts
• Clusters (Porter)
• Scotland: large sectors – poor
understanding and support
• Small sectors – not a happy history e.g.
textiles
• Experiments with clusters
• Learning process through 1990s and 2000s

10. 1990s : clusters and policies

11. Scotland’s cluster development
approach (SE, 1998)

12. Scotland’s Food & Upgrading &
Innovative Research Institutes No presence
Drink Cluster Institutions e.g SABRIs
Universities Training Providers
Weak
Medium
1999 Imported Commodities/
Raw Materials
Colleges Strong
Key driver
Fish Rendering/
Farming Basic By Products
Processing Customers
Food
Value Added Brokers
Fishing Fish Processing Multiple
Industry Markets Fish
Retailers
Prepared
Meats & Fish
Breeding Ready
Co’s Poultry Meals Discounters
Gourmet End Users
Foods
Auction Red Independent/
Farmers Abattoirs Meat Speciality
Marts Snacks Consumers
Wholesalers Retailers
Bakery & Distributors
Confectionary
Dairy Food
Feed Service
Non-Alcoholic
Drinks
Further
Specialist Vegetables Processing
Beer Outwith
Growers
In Mkt Scotland
Whisky Agents/
Distrib’s
Cereals Overseas
Critical linkage - strong Value Added Markets
Critical linkage - medium Ingredients
Critical linkage - weak Infrastructure/services
Equipment Packaging Transport and Legislation Marketing/ Market Industry Specialist
Suppliers Distribution Design Intelligence Bodies Consultants

13. 2000s and 2010s: modified and
key sectors

14. • Scottish Enterprise – Quick Links
Start your business Fund your business
Enterprise Fellowships Innovation and R&D grants
High Growth Start Up Grants for investment projects
Proof of Concept Programme Scottish Investment Bank
Sector funding
Investment opportunities Other funding
Invest in early-stage
technology Grow your business
Invest in growing businesses Find new markets
Commercialisation Operations
opportunities Leadership
Other investment Innovation
opportunities Enabling technologies

15. Textiles strategy
'Textiles Scotland' industry strategy 2011-2015 ... vision to create 'a
flexible, innovative and efficient industry, characterised by world class
reputational excellence and a collaborative approach to new products and
processes' sets out clear objectives and actions.
Under the 'Textiles Scotland' name the entire industry in Scotland comes
together to focus on promoting the very best design, innovation and
quality. Working with partners such as Higher Education, Sector Skills
Council and Highlands and Islands Enterprise, the industry will focus on:
Profile
Building the 'Textiles Scotland' profile in key markets
Skills
Strengthening the world class workforce
Internationalisation
Developing globally competitive businesses

16. Textiles
•Overview Strategy How we can help Networking
•Find companies Partners and investors News Contact us
Find partners and investors
The Scottish Textile Industry Association (STIA)
STIA assists Scotland‟s textile design and manufacturing sector to build on its
strengths in a rapidly changing global industry. The STIA benefits members
through interaction and collaboration with industry partners and colleagues, provide
access to information and assistance, and promotes Scottish textile products and
companies to buyers, suppliers and interested parties.
Textiles Scotland brings together industry members to focus on promoting the
very best design, innovation and quality. Scottish Enterprise works with the
textiles industry to encourage innovation, optimise the workforce and enhance its
global profile.
Find investment partners
The Scottish Investment Bank can help Scottish companies with the ambition and
ability to grow to find funding through private sector investors

17. Networking opportunities
The textile industry advisory group invites any textile-related
organisation to meet and discuss the future of the textiles
industry in Scotland and the activities that will support its
growth. The advisory group informs the National Textiles
Forum, a group that includes members from the Scottish
Government, Scottish Textile Industry Association, Scottish
Trade Union, Higher Education and Scottish Enterprise.
The textile industry advisory group discusses topics such as;
international markets, skills development, innovation and
workforce development. It is through these discussions that
we build a strategy to support the sector.
If you would like to attend any future textile industry
advisory group meetings then please contact the Scottish
Textiles team

18. Collaborate for success
lack some of the critical skills or capacity. formal collaboration ~ in research,
marketing, production or procurement.
Benefits from joint marketing/ selling, collective purchasing, sharing premises or
other resources. outside the UK.
Finding a partner
strong business case that relies on seeking a partner, SE networks work on behalf.
Enterprise Europe Scotland can:
work with you to define what type of partner you need
carry out a search
help you assess potential partners
facilitate negotiations with a likely match.
Partners already identified?
Collaborate to achieve scale (eg joint selling/ buying, sharing premises etc), and
have already identified partners, a consortium co-operative structure may provide
the perfect platform. This low risk, non beurocratic approach preserves the
independence of members, and decisions are make on an equal basis.
Co-operative Development Scotland offers support and advice to help establish a
consortium co-operative

19. Co-operative business models
Four co-operative models :
Consortium co-operatives - collaborating with other businesses
run on a shared and equal basis by, and for the benefit of, members.
Members may be businesses, partnerships or individuals. The co-operative
may be for buying, selling, marketing, sharing facilities or joint bidding for
contracts.
Employee ownership - transferring part or whole ownership to employees
the employees hold the majority of the shares either directly or through an
employee benefit trust. Employee buy-outs are customised to the needs of
the vendor and the employees.
Community co-operatives - sharing ownership of a community service
provide for shared ownership and control of services or assets, such as
shops or utilities. This can be vital in areas where external investment is not
readily available.
Mutualisation
owned and controlled by their members, who may be employees, users or
other stakeholders. The opportunity to boost productivity, together with
the pressures on government budgets, is fuelling interest in mutualisation.

20. Internationalisation of SMEs in
Scotland
• Importance of Global Companies
• Contribute disproportionately to the
Scottish Economy:
High value added employment
High levels of innovation
Operate in networks
Provide a magnet for foreign
investment into Scotland

21. Power in clusters/industries
• Economic power determines strength of advantages and
spillover effects in regional economies
• Weak Chamber of Commerce system /dual economy excludes
most indigenous entrepreneurs from decision making within
trade and employer associations => interests of the mass of
locally owned concerns are muted in local clusters and industry
networks.
• Without strong local presence among the commanding heights
of the economy and in the leading sectors especially, efforts to
promote improved networking and clustering have not been very
successful.
• Geographically distant from the core of the cluster
=>practically insurmountable obstacles to effective involvement
• i.e. geography matters and the neglected backwash effects of
Myrdal‟s thesis dominate.

22. Clusters and cluster strategies for
regional development
• Focus on the potential advantages of agglomeration
economies to regions and for their central places
• Relatively limited attention given to the implications
for areas outwith the core: for rural and peripheral
economies
• Barriers to involvement by firms and other actors in
areas which are geographically peripheral
• Aspatial policies and strategies
• Territories attempted to adopt networking and
cluster building as a defensive strategy

23. Core – periphery wider issues
• Costs of capital may be lower in larger economies though rural
enterprises do not report finance access problems as such
• Transport costs lower
• but labour costs generally lower in rural and smaller communities,
though complex forces here
• Continuing concentrations of population and labour in “megalopoles”
strongly suggest that the agglomeration economies dominate higher
labour and land costs
• In-migrants to core of Europe and metropolitan areas based on
capital cities - consequent expansionary economic effect
• Spirals of out-migration from distressed peripheral regions,
feedback for public service costs and provision, scarcity of labour
and skills, haemorrhaging of talent and enterprise – all raising social
and private costs further

24. SMEs and competitiveness
in the periphery
• Competitiveness agenda dominates
• Flexibility and downgrading of EU funds
• Competition for finance capital, HQs, arts &
cultural – cumulative causation
• Focus on Paris, London, Dublin, Helsinki ....
• Creation of “shadow towns”: towns in „the
shadow of a cluster‟ or at „the tail end of a
cluster‟ . . . (where there are) „incomplete‟,
„thin‟ or „damaged networks‟

25. E-business to business
• Fillip to literature and prognosis in 2000s
from e-business revolution
• Same basic relations but some nuances
• Markets wider – global?
• Trust and cooperation still important but
more problematic?
• Agencies able to support?
• Broadband accentuate peripherality

26. Summary
• SMEs important
• Overcome some of disadvantages through
networking, cooperation and partnerships
• Trust and cooperation critical
• Coordination and strategic planning ~ project
and policy levels
• Knowledge – learning
• Strong centripetal forces in industries,
geographies, technologies, occupations
• Need for countervailing powers
• Networks not enough but have role
• B2B key to acceptance of change