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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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operation, replacing trust-based network relations by more formal co-operation. This reveals the true incentives for collaboration: economic calculus and pressure of larger firms that are in need of small subcontractors that are able to produce flexibly on the on hand, on the other hand are dependent on the large-scale corporation.1149 Some authors even claim that networks are nothing else than huge corporations „dressed in new costumes and armed with new technology―.1150 What is more, not specific persons, such as owners or managers, are partners within the networks, but firms, especially in strategic networks. So even if firms collaborate in networks, their success does not necessarily lie in the character of an entrepreneur.

Hence, even in established networks the reason to co-operate is not enthusiasm for the idea but more the pragmatism to solve a concrete problem more efficiently and cost reducing.1151 It is a difficult or even impossible task to construct ―trust-built‖ networks from scratch, without a local history of co-operation or a tradition of that kind, as ―civic traditions have remarkable staying power‖.1152 Even with massive support and subsidizing efforts from the German government and also from the level of the EU administration, designing ‗artificial‘ networks remains problematic.

Unlike the networks of the beginning of the capitalist age, the modern networks are not based on the family but were instrumentalized to serve economic functionality in building long-term connections to business partners. Still, the networks are more stabile when underpinned by shared cultural believes and traditions, common activities (sports etc) and if family relations exist. The existing successful regional clusters throughout Europe are associated with a certain tradition and culture and are ―small islands of prosperity in a sea of misery‖1153 where ―the cohesion of the industry rests on a more fundamental sense of community, of which the various institutional forms of cooperation are more the result than the cause….Among the ironies of the resurgence of craft production is that its deployment of modern technology depends on its reinvigoration of affiliations that are associated with the preindustrial past. […] Social norms that forestall opportunism are so deeply internalized that the issue of opportunism at the expense of the community obligation is said to arise less often here than in areas characterized by vertical and clientelistic networks‖.1154 Yet, these community based structures were strained by the demand of international proHirsch-Kreinsen, 2002, p. 113.

Harrison, 1994, p. 12.

Dörsam and Icks, 1997, 75ff., 116.

Dörsam and Icks, 1997, p. 44f., Putnam; Leonardi and Nanetti, 1993, p. 157.

Piore and Sabel, 1984, p. 6.

Piore and Sabel, 1984, p. 265, 275.

duction and needed to be complemented by more official structures such as associations.1155 Also, network structures, although flexible within, are often too rigid, resisting changes in the production and are hostile towards innovation which led to the break-down of many traditional clusters in Europe. Western networks are often seen as overrated in being able to be superior. ―While networks can and do promote innovation within an existing technological system, historical experience suggests that their fragmented…structure is subject to disorganization…during periods of major technological change‖.1156 However, all kinds of networks are long-term constructs with trust as an important component, but as typical for German (and Western societies) the networks found there are more system than personal trust-based and also more grounded on formal than on informal social capital, as can be seen from the importance of associations and political bodies for the networks.1157 Even if manifested in more formal structures, social capital still ―refers to features of social organization, such as trust, norms, and networks that can improve the efficiency of society by facilitating coordinated actions‖.1158 Thus, networks and SMEs still play a role in advanced industrial countries today, even if organized differently than for example in China. Hence, the argument that only a fully developed market economy is needed to overcome this organizational structure needs to be enlarged by the thought of complementarities and a coexistence of organizational structures. Nevertheless, European networks are mostly more formal and where they were not initialized by the state they needed a certain cultural tradition to thrive and often only those are also successful and sustainable in the longer run.

6.4.2. The Third Italy A special case of the European networks described in the last section is Italy, or more specifically, what in the literature is called ―the Third Italy‖ (terza Italia). This phenomenon was first described by Arnaldo Bagnasco in 19771159 and let to a wide discussion on the meaning of SMEs for the global economy in outcompeting large multinational companies with their system of flexible production (please see also chapter 3.2).1160 It is not the result of a political concerted action, but developed spontaneously, unexpected and unBerghoff, 2004, p. 177-179.

Glasmeier, 1991, p. 470.

Putnam, 2001, p. 25.

Putnam; Leonardi and Nanetti, 1993, p. 167.

Bagnasco, 1977.

Whitley, 1999, p. 4.

planned.1161 Besides from the arguments given above, Italy can be treated as a special case – and also as different from China.

The Third Italy refers to central and north-eastern regions around Bologna, Florence, Ancona and Venice. The other ―two Italies‖ are those ―of the northern triangle and the backward Mezzogiorno‖. Within the Third Italy, about fifty industrial districts near small urban areas are mainly specialized in textiles, clothing, footwear and furniture. They are technologically advanced, and highly productive.1162 Prato, for example, is famous for its textiles and Poggibonsi for furniture. As typical for industrial districts (see also chapter 3), they developed a high degree of division of labor. Some firms act as specialized subsuppliers and thus not all of the firms have direct contact to the market. These small firms are mostly family-owned and often still use artisans‘ methods for production and are thus in a way dependent on the Italian family structure. Kinship ties that were used to structure industrial production, family members who served as low paid labor force and merchant traditions that connected the districts with the global market contributed to the success of the districts.1163 Thus, cultural specifics and other factors joined for the innovative turning point that made the districts the ‗Third Italy‘. Besides those of the Italian family, the appreciation of craftsmen‘s and merchant‘s traditions and their connection to a global market, it was also the support of local parliaments and regional governments that provided the necessary infrastructure. The artisan traditions together with a specific form of rent, called mezzadria1164 advocated dexterity, skills, familial solidarity, a sense for business and an enterprising spirit. Elements of the traditional peasant society survived this transition and supported the social integration of the region during these dynamic changes.1165 Besides that, the development of the industrial districts was also a result of a recent economic and political development in Italy.1166 A significant role played the trend away from standard clothing towards fashion that caused the industry to restructure away from large-scale factories to small-scale, flexible production that could handle the rapid changes in demand and taste of clients. Each firm concentrates on a specific technology and stage of the production process.1167 They compete against each other, thereby creating a highly Walter, 2004, p. 16.

Putnam; Leonardi and Nanetti, 1993, p. 159f.

Piore and Sabel, 1984, p. 252, Walter, 2004, p. 56.

The tenant was able to bargain the quota of the harvest that had to be delivered which is argued to have fostered the negotiation skills necessary for being an entrepreneur. Walter, 2004, p. 155.

Walter, 2004, p. 56, 146f.

Piore and Sabel, 1983, p. 394f. For details of the historical development, please refer to Piore and Sabel, 1984, esp p. 245f., Hamilton and Chang, 2003, p. 182.

Piore and Sabel, 1984, p. 238.

innovative environment as they have to keep up with new technologies and designs. However, despite the competition, technological innovations are quickly shared within the district.1168 Thus, they also have to co-operate within network structures to be successful, even if that seems contradictory. Firms collaborate to subcontract to each other if an order or a product is too large-scaled or complicated for one company alone. This requires a high level of trust within the whole sector as investments are often based on the faith that other firms will pass along orders for certain products the other firm is specialized in. If the district expands, firms grow more and more dependent on each other as specialization and the need to innovate increases. Also, often administrative facilities are shared, as are raw materials purchases, accounting, marketing or technical services.1169 In that way, low vertical and high horizontal integration are incorporated.

This is supported by the vital role of business associations and the local state. They provide administrative services, financial aid and social infrastructure, such as professional training, market related information and fashion trends.1170 This created an innovative environment that encouraged collaboration.1171 Firms are connected over horizontal networks, which also means that the internal division of labor is extremely flexible but often excludes unskilled labor. Still, ―the cohesion of the industry rests on a more fundamental sense of community, of which the various institutional forms of cooperation are more the result than the cause….Among the ironies of the resurgence of craft production is that its deployment of modern technology depends on its reinvigoration of affiliations that are associated with the preindustrial past. […] [N]orms of reciprocity and networks of civic engagement […] that forestall opportunism are so deeply internalized that the issue of opportunism at the expense of the community obligation is said to arise less often here than in areas characterized by vertical and clientelistic networks‖. The firms within these districts exhibit a high level of mutual trust and social cooperation.1172 They have a collective advantage by co-operating, but at the same time act as competitors within an atmosphere of ―professional solidarity‖.1173 A case study of three industrial districts in Venetia by Sieglinde A. Walter strikingly reveals how the inner dynamics of the districts work.1174 Segusino, a typical example of an industrial district in Venetia, produces glasses, and one out of five citizens are entrepreTrigilia, 1992.p. 33ff.

Piore and Sabel, 1983, p. 400f.

Putnam; Leonardi and Nanetti, 1993, p. 159f.

Lazerson, 1988, p. 331.

Piore and Sabel, 1984, p. 265, 275.

Piore and Sabel, 1983, p. 401f.

Walter, 2004.

neurs who operate businesses from one-man operation to several of companies with dozens of employees. They are either themselves official owners of these businesses, or their wives or children. Often, entrepreneurs own several firms (within the same sector) that provide family members the opportunity to gain experience and probably inherit the enterprise in the future.1175 Overall, the family is an essential factor for production.

All entrepreneurs know each other well, on a business as well as on a private level, sharing knowledge on technology, procedures, orders and clients, combining their core competence and being connected over a dynamic, innovative network to achieve success as a district. It is important to note, though, that they are neither trusts nor have mafia-like structures. Also, all prices are known and if it happens that one entrepreneur sells over the common standard, it is assumed that he is struggling with bankruptcy. If there is a technological innovation, entrepreneurs will inform each other about it, machinery and raw materials are frequently borrowed, information on employees is widely shared. It is also possible to acquire information about clients and if an order is too big for one company, it will subcontract to the competition on the bases of informal non-written contracts. As long as the order does stay within the district and is not transferred to the competition in China, entrepreneurs co-operate freely. If business is low, an entrepreneur will work as subsupplier, as terzista, working for a third party. The entrepreneurs have a strong work ethic, work a lot and hardly have any vacation. There is a strong community in the village but entrepreneurs are merely passive members of sport clubs or act as sponsors, as they have no time to be more active but still want to support the community.1176 Also, business associations or trade chambers and local politics play only a marginal role as entrepreneurs rather stay autonomous and solve problems on their own and are not interested in having political influence.1177 In sum, co-operation between companies within these Italian districts is not fixed in written contracts, but merely in oral agreements between ‗gentlemen‘ which needs a high level of trust, loyalty and reputation.1178 As co-operation often also includes shared research and development departments, those small enterprises are the driving force of innovation as they have a highly specialized know-how that again fosters collective learning processes. Innovativeness and creativity are key to survive the competitive pressure within Walter, 2004, p. 181f.

Walter, 2004, p. 10ff., 210f.

Walter, 2004, p. 205ff.

Walter, 2004, p. 194f.

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