Endogenous Regional Development in a Global Economy: The Roles of Technical Service Institutes and Co-operation Networks in Small Firm Economies

Transcription

1 International Conference on Endogenous Regional Development in a Global Economy: The Roles of Technical Service Institutes and Co-operation Networks in Small Firm Economies (Valencia f 17, 18 & 19 November 1992) Background paper No. 2 Strengthening small firms through co-operation and technical services: The roles of the Steinbeis Foundation and the Landesgewerbeamt in Baden-vVurttemberg by Frank Pyke Externa/ Adviser to the NIO Programme, IILS Organised by the International Institute for Labour Studies (IILS) of the International Labour Office (IL0). Geneva and the Institute for the Promotion of Small and Medium-Sized Enterprises (IMPIVA), Valencia 39158

2 Copyright (C) International Labour Organisation (International Institute for Labour Studies) 1992 Short excerpts from this publication may be reproduced without authorisation, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Editor, International Institute for Labour Studies, P.O. Box 6, CH-1211 Geneva 22 (Switzerland). The responsibility for opinions expressed in this paper rests solely with its author, and its publication does not constitute an endorsement by the International Institute for Labour Studies of the opinions expressed.

3 Preface This paper is the result of a short research visit the author made to Baden- Wurttemberg for five days in March The aim was to enquire into the institutional support that was being given to small and medium-sized firms, with a particular interest in the role of "service systems", and particular service institutions providing technical or "real services", such as technology transfer, quality and measurement testing, and information services; and the encouragement of inter-firm co-operation. Both the above elements - real service provision and inter-firm co-operation - have been identified by previous research at the International Labour Organisation as being potentially important to a strategy of regional development based on small firms. It has been of interest, then, to consider how such aspects have featured in a number of regions in Europe seeking to promote small and medium-sized firms, and how they might best be encouraged or implemented. Four regions have been investigated: Denmark, Valencia, Baden-Wiirttemberg and Emilia-Romagna. In all four, agencies for providing small firms with technical services and promoting higher technical standards, organisation, and innovation are well-developed; as are other agencies for encouraging inter-firm co-operation.

4 Contents Preface Map: Baden-Wurttemberg in Europe Page I. Introduction 1 1. Service systems 1 2. Inter-firm co-operation 2 3. Baden-Wurttemberg 3 II. Baden-Wurttemberg's institutional support for small firms 4 HI. The Steinbeis Foundation 6 1. Constitution 6 2. A decentralised organisation 7 3. An intermediary institution between education and industry Financing Perceived success and its bases Decentralisation and industry responsiveness 13 IV. Gosheim Steinbeis Quality Assurance Centre Financing Perceived aids to success 17 A. External pressure 17 B. Political and institutional mobilisation 17 C. People acting as brokers 18 D. Providing an impartial service 18 E. Having the active support of the Firms Association 18 F. Having the resource backup of the Steinbeis network 19 G. Effective communication with small firm entrepreneurs Future activities 20 V. The Landesgewerbeamt Promoting inter-firm co-operation The Landesgewerbeamt and co-operation networks Women's "Work Circles" 25 VI. Summary and conclusion The Steibeis Foundation Gosheim Steinbeis Centre The Landesgewerbeamt Broader factors 29 iii vi

5 VI Baden-Wurttemberg in Europe Baden- Wurttemberg GART

6 /. Introduction It has now become widely accepted that small firms play, and will continue to play, a vital role in economic development. An important question is how such firms can be helped to be efficient and competitive at the same time as providing the highest labour conditions and standards possible. This question has over the last few years become an increasing focus of research and discussion at the International Labour Office, resulting in a number of publications. 1 It has been concluded that industry should be encouraged to compete on a basis of constant improvement, innovation, upgrading, enhanced quality, productivity, and valueadded. Such an approach is seen as being necessary for real development and long-term sustainability. A helpful framework for achieving such objectives is to conceive of small firms as relating to one another and to institutions through networks, rather than through straightforward market relationships. The concept of networks conveys the idea of systematic interdependency and support, and of the well-being of thefirmbeing influenced by the status and standards of the firms and institutions with which it has regular transactions; this contrasts with an extreme view of the "lonely" small firm, an isolated competitive unit that is left to stand or fall entirely by its own efforts. In order to help small firms embedded in networks pursue a dynamic "high road" strategy of constant improvement, a number of areas have been identified as having possibly significant roles. This paper focuses on just two: the role of the real or technical service centre as part of a broader service system; and that of inter-firm co-operation. Other areas, such as the roles of government, legal regulations, fiscal and economic policies, employers' associations, trade unions, universities, training schools and colleges, design centres, and analysis groups, are not discussed, although their relevance and importance are acknowledged. 1. Service systems There are several basic ideas underlying the argument for a well developed service system supporting small firms. One is that small firms need to have access to a whole range of services and inputs which large firms might be able to call upon internally. These are services which small firms need but which for reasons of scale they are unable to satisfy by establishing their own facilities. Periodic use would not justify the creation of a fixed cost, for example, concerning a department of marketing, law, accountancy, design, or research; nor the purchase of expensive capital equipment for calculating, measuring, or testing. Thus, the provision of services by specialised agencies maximises scale by serving many small firms whilst at the same time satisfying a technical need. 1 See, for example, Pyke, F. 1992: Industrial development through small firm co-operation: Theory and practice, Geneva, International Labour Office; Sengenberger, W.; Loveman, G. (eds.) There-emergence of small enterprises: Industrial restructuring in industrialised countries, Geneva, International Institute for Labour Studies; Pyke, F.; Becattini, G.; Sengenberger, W. (eds.) Industrial districts and inter-firm cooperation in Italy, Geneva, International Institute for Labour Studies; Pyke, F.; Sengenberger, W. (eds.) Industrial districts and local economic regeneration, Geneva, International Institute for Labour Studies.

7 2 A second argument, particularly relevant to a decision to pursue a strategy of constant upgrading, innovation and organisational advancement, is that small firms can be helped by the institutionalisation of real or technical service centres or agencies that can engage on behalf of the small firm community in research and development, technology transfer, organisational upgrading and information services, each centre being both industry-responsive and leading and co-ordinating the upgrading process. The need for such a function is likely to be all the more acute the more the small firms under discussion are inter-related through customer/supplier and subcontracting links. It can be argued that, where an industrial sector functions in such a systematic way, it becomes to the general good that all parts of the system, all component firms in the system, are highly efficient, dynamic, innovative and, increasingly, flexible. Efficient firms allow other firms in the system to purchase inputs more cheaply; dynamic and innovative firms enable other firms to keep up with the latest technology and creative ideas; flexible firms providing quick response speed up the capabilities of all firms which have supplying or subcontracting relations. In order to ensure that the whole system or network of firms retains such collective capabilities, it becomes necessary to ensure a constant general trend of improvement. Special service centres, it is argued, can monitor, lead and co-ordinate this improvement. Thirdly, the demand for strong service systems relates to the view that the effective management and distribution of information has become a crucial factor of competitive advantage, that is to say: information on the latest organisational, technological and scientific techniques, markets, prices, sources of finance, regulations, fashions, designs, and capabilities. Service systems act as conduits for information and as means of acting on that information, as in the co-ordination of a research programme or a technology transfer programme. In particular, an adequate service system channels a vital ingredient of a development strategy aspiring to constant innovation, namely new ideas. 2. Inter-firm co-operation Co-operation between small firms, either directly or via the mediation of commonly owned or controlled institutions, is seen as an important way of increasing individual capabilities. A number of justifications can be put forward for co-operation. One is simply the advantage of achieving scale economies. In the same way that service centres can provide scale economies by permitting firms to share expensive capital equipment or human resources, the same principle can be employed by two or more firms wishing to share marketing facilities, research and development, or labour training; or simply wishing to ensure that each firm uses expensive capital equipment to the full by sharing orders. In other words, co-operation produces scale economies otherwise enjoyed by large firms by virtue of their larger size and capacity. A second argument for co-operation is that the sharing of information and ideas, and the combination of complementary skills and technologies, can lead to new innovative products and production processes. Thus, for example, new products could derive from the combination of traditional engineering skills in one firm and electronic expertise in another. Thirdly, passing on information about the latest techniques and technologies might, for small firms, be an essential mechanism for keeping firms up-to-date and competitive. Large firms can introduce new technologies by a "top-down" mechanism of control, coordination, and dissemination. In the case of small firms, service centres can play part of this

8 3 role; but the objective becomes much more difficult to achieve if firms do not co-operate and voluntarily pass on information in an informal manner. The spreading of information through co-operative informal channels is effective and cheap. A fourth point of relevance is that co-operation can result in a more rational and efficient distribution of activities amongst previously competing firms. For example, a number of firms all competing for the same customers could easily find that each one of them is unable to utilise to the full the same piece of expensive capital equipment that each needs to carry out certain operations required by their common customers. Possible co-operative solutions could include an agreement to share a common facility - the total number of firms collectively utilising the expensive equipment to the full, but each firm paying only for the proportion it uses; or, alternatively, the firms cpuld agree to specialise on different production activities, thereby avoiding duplication. Further, co-operation permits firms to offer a broader scope of capabilities. A group of firms could offer customers a co-ordinated range of products - for example furniture, or services, or repair of all types of electrical equipment. Customers can thus benefit from dealing with just one source. Also, inter-firm co-operation helps the creation of political cohesion amongst small firms, allowing them to press for the promotion of their specific interests, whether at regional or national level. Finally, co-operation can increase the size of productive capacities. Where large customers require big orders, co-operation amongst suppliers enables them to bid for and to meet those requirements. 3. Baden-Wurttemberg This paper focuses on Baden-Wurttemberg. As is the case in small and medium-sized firms elsewhere, those in Baden-Wurttemberg are apparently under pressure to improve their quality standards, products, production methods and organisation. This trend seems to be a response to a combination of increased demands being made by large firm customers (such as, in the case of Baden-Wurttemberg, a number of large automobile companies) and a growing globalisation of markets such that firms are increasingly having to compete on a larger market area, thereby bringing them into relation with new competitors and new standards. The challenge for Baden-Wurttemberg's policymakers is how to help raise standards in its small and medium-sized sector. The significant aspect of the Baden-Wurttemberg strategy from the point of view of what was said earlier is that significant roles are allocated to the provision of a highly developed service system; the creation of a specific "real service" type of institution - the Steinbeis Foundation - to provide technical services and encourage technological and organisational improvement of small and medium-sized firms; and the strengthening of small firms' competitiveness through co-operation, with the help of a leading government agency - the Landesgewerbeamt. This paper will therefore focus on the Steinbeis Foundation and the Landesgewerbeamt.

9 4 //. Baden-Wurttemberg's institutional support for small firms Baden-Wurttemberg, a regional state situated in south-west Germany, with a population of 9.3 million, is renowned for its strength in both the large firm and the small and medium-sized firm (SME) sectors. It is a state which is proud of its high-quality, highskill, innovatory image, and its very impressive system of training, research and educational establishments (including 9 universities, 11 Max Planck Institutes, 13 Fraunhofer Institutes, and many other technical, research and vocational training centres). Baden-Wurttemberg Industry "The region is dominated by engineering: mechanical engineering (especially automobiles), electronic engineering, machine tools, and, to some extent, textiles." "It is the combination of large firms such as Daimler-Benz, Porsche, Robert Bosch, Audi, IBM, Hewlett-Packard and Sony with the large and dynamic SME population that helps give Baden- Wurttemberg its edge in the contemporary economic order." Cooke and Morgan, 1991, p.26 "A particular characteristic of Baden-Wurttemberg's economy is the large number of small and medium-sized companies. These companies, and in particular the numerous handicrafts firms, are especially well-known for their flexibility and productivity... Half the state's total product is produced by small and medium-sized companies. 95 per cent of all commercial enterprises, every second job, and most trainee positions are provided by small and medium-sized companies." Information Brochure, Ministry of Economic Affairs and Technology, Baden-Wurttemberg, 1992, p.6 Baden-Wurttemberg is also notable for an unusually rich and complex set of other institutions, providing supportive services for industry, and particularly for SMEs. Some of these institutions making up Baden-Wurttemberg's small firm "service system" are common to all German states; some are peculiar to Baden-Wurttemberg. Many of them appear to overlap or duplicate the services they provide, perhaps encouraging a degree of interinstitutional competition and certainly offering small and medium-sized firms many options. A feature of these many institutions in Baden-Wurttemberg is said to be the high propensity for inter-institutional collaboration or networking. Amongst the particularly significant institutions for small firms are the Chambers of Commerce and Industry, membership of which is compulsory, offering SMEs services such as advice on new technology through eight Innovation Consulting Bureaux, market research, export, new kinds of work practices, and other matters; they also provide important educational and training courses.

10 5 "Overall, the [Stuttgart] Chamber [of Commerce] saw itself providing the resources (education, training, technology transfer, market intelligence) which enabled firms, especially SMEs, to help themselves. The perennial problem of the SME sector which was not so much being small, as being lonely was said to be not such a great problem in Baden-Wurttemberg because small and medium-sized firms were deeply embedded in the Chamber's business networks." Cooke and Morgan, 1990, p. 20 Other important institutions are what are called self-help organisations, that is institutions that have developed without any leading role being played by the state, but which are likely to have been instigated by collaboration between other agencies - such as Chambers of Commerce and Employers' Associations - and membership of which is voluntary. The self-help agency and the philosophy of self-help, and the propensity for firms to form associations, seems to be particularly widespread in Baden-Wurttemberg and is said to have a long tradition dating back to the last century. Self-help organisations of particular significance for small and medium-sized firms include: Employers' Organisations for wage bargaining and negotiating terms of employment with trade unions, and participating in co-determination; Sectoral Trade and Industry Associations providing wide-ranging services in matters like new technology, forecasts of market trends, legal advice, training, and research, testing and development laboratories; Credit Guarantee Banks, such as the Burgschaftsbank Baden-Wurttemberg, to help small firms by underwriting loans from commercial banks; and the Foundation for Foreign Trade, helping small and medium-sized firms in export matters. "Baden-Wurttemberg is a region within which the networking institutions display a significant degree of what Herrigel [1989] calls 'redundancy'. There is a multi-layered safety-net or support system cradling firms of all sizes but especially SMEs. Probably one or more layers could be removed, but the element of 'redundancy' is retained to ensure as few firms as possible slip through the net of best-practice. This is, of course, the key strength of the region enabling its firms, established in often traditional industries, to remain competitive by providing them with the capacity for permanent innovation." Cooke and Morgan, 1991, p.30 State, or state promoted, institutions of particular significance include the Steinbeis Foundation and thelandeskreditbank which provides subsidised cheap loans. These, together with a less significant institution the Society for International Economic Co-operation (which helps firms to engage in business abroad and find co-operation partners) have an annual budget to spend mainly on small firm promotion of DM350,000,000. But out of these, the Steinbeis Foundation, as will be explained below, is almost self-funding and in fact receives negligible funds from the state. As well as the technical services provided by the above and other institutions, small firms also benefit from access to a range of grants or subsidies for technological improvement, product innovation, and organisational upgrading available at state, federal, and EEC level.

11 6 ///. The Steinbeis Foundation The Steinbeis Foundation is a network of 129 Technology Transfer Centres (in Baden- Wurttemberg, and also a few now in other German states), co-ordinated by a headquarters in Stuttgart. The total staff employed numbered 2,595 in 1991, of which 41 were employed at the headquarters and the rest distributed throughout the system. The Foundation was founded by the State government in 1971, to operate as a private enterprise, subject to civil law. Its main aim is to upgrade industry and encourage innovation by providing a range of technical services, but in particular: consultancy services in respect of technology and management; and carrying out applied research and development projects on a company-by-company basis. The main clients are small and medium-sized firms. Technology and Marketing Consultancy: Research and Development: General Consultancy Services:* Information for Industry and Commerce: Evaluation and Advisory Services for Projects in Receipt of Financial Aid:** TOTAL PROJECTS: Steinbeis Projects: 1991 No. of projects * "General Consultancy Services" refer to first assessments of problems and needs, such as might be carried out at the Steinbeis Headquarters in Stuttgart, and general advice on technological possibilities and trends given to firms in outlying rural regions. ** The Foundation evaluates on behalf of funding agencies, including the state, projects seeking financial aid, and also gives advice to companies seeking sources of financial aid. Steinbeis Report, Constitution The Steinbeis Foundation has a Board of Trustees to which a twice-yearly report of activities and projected activities is made for approval. This Board numbers 22, including representatives from industry associations, Chambers of Commerce and Industry, Chambers of Crafts, universities, polytechnics, research institutes, representatives from four political parties, representatives from three government ministries, and a representative from the Landeskreditbonk. The Steinbeis Foundation has its own Board of Direction for running dayto-day affairs. Whilst the Steinbeis Foundation operates with some degree of autonomy and has an independent legal status, it also maintains strong connections with the state government through, in particular, the person of the Chairman of the organisation who is also the Government Commissioner for Technology Transfer. The Chairman helps the co-ordination of government and Steinbeis policy towards technology transfer and small firm upgrading.

12 2. A decentralised organisation 7 The Foundation operates on the basis of a decentralised network organisation. The headquarters is in Stuttgart which acts as a focal point and co-ordinator for the 129 Transfer Centres scattered throughout Baden-Wurttemberg and located mostly at, but independent from, institutions of higher education known as fachhochschulen (usually translated as "polytechnics"). Often there are several Transfer Centres in one town. Whilst Mossbach, for example, has only 1, Weingarten has 5, Ulm has 11, and Stuttgart has 17 (in addition to the headquarters) (see chart on page 8). Unlike some other service organisations geared towards technical and economic upgrading, there is no attempt to divide up the overall organisation on a broad basis into large divisions or departments serving specific industrial sectors, such as textiles, footwear, etc. On the other hand, each Transfer Centre does tend to specialise and these specialisms can relate to specific industries. For example, at Furtwangen there is a Transfer Centre specialising in Process Automation in the Paper and Film Industry; whilst at Karlsruhe another centre advertises itself as specialising in Robotics and Automation in the Construction Industry. Nevertheless, as can be seen from the table on page 9, which lists the first 46 specialisms quoted in the 1991 Steinbeis Brochure, most centres describe their specialisms in generic terms and the qualification of a particular industry is not usual. Thus, for example, a centre at Aalen specialises in Surface-mounting Technology and Component Characteristics; another at Karlsruhe offers Industrial Data Processing and Automation; another at Dresden specialises in Electronics and Telecommunications; whilst one at Gengenbach offers Business Information Technology. If there is a bias towards a particular industry it is engineering which, given the strong dominance in the state of the metalworking industries, is not surprising. In general, however, the Steinbeis Foundation could be described as predominantly, but not entirely, oriented to transferring technology and upgrading economic organisation on a generic crossindustry basis. What makes the Steinbeis system different from technology transfer schemes in other German states, and most places elsewhere, is the fact that the Steinbeis Transfer Centres are connected up into a network such that a whole range of specialised services or consultancy opportunities are offered to clients at one time. That is to say, clients approaching the Steinbeis Foundation for assistance are directed to the particular Transfer Centres that are most appropriate to their needs. Moreover, the fact that different specialisms are subsumed under the one institutional umbrella promotes an interdisciplinary approach, with the skills of the economist or the industrial relations expert or the marketing specialist combining with those of the engineer or technical specialist to offer a holistic approach to business problems. In this way, a whole range of expertise can be offered by the one organisation.

13 8 Locations of Steinbeis Transfer Centres in Baden-Württemberg J Mannheim tojl^ 7 «Mosbach 1 * Heilbronn y M Karlsruhe i y Pforzheim / STUTTGART W " Esslingen Nürtingen / Offenburg Tübingen»Reutlingen 1 1 Gengenbach Aalen S Schwab. Gmünd 1 Göppingen ^^ "V Heidenheim Geislingen c Ulm Y / St. Georgen # * Albstadt ff Gosheim * l fangen.. ^ Siomarjngen Biberach 1 / Freiburg 1 /^Vs ^ 1 À o*c ^. ^fes. Konstanz I Lörrach it^j \*&^ ^*^\\T^VtV Weingarten

14 9 Steinbeis specialisms as offered at 46 transfer centres Technology consultancy Business information technology Metal casting Flow engineering Ophthalmic optics Surface-mounting technology & component characteristics Applied computer science Textiles and clothing technology Environmental technology, process & power engineering Water-waste-soil Technology consultancy Microelectronics & systems engineering Drive engineering & robotics in engineering Electronics & telecommunications Industrial metrology Computer applications in SMEs Process automation in the paper and film industry Refrigeration & air conditioning Networked computer systems Industrial data processing & automation Robotics & automation in the construction industry Business information technology Building industry Business management Industrial metrology Communications technology Technology consultancy Information & communications management Computer applications in engineering Microelectronics & systems management Optoelectronics & sensors Technology consultancy Image processing, microelectronics & systems engineering Automation Flow engineering Dental technology Applied electronics Production & quality Industrial metrology Technology consultancy Industrial electronics Medical electronics Automated engineering Computer simulation Quality management Plastics technology Research and development, technology transfer and economic consultancy "Whilst the more basic research is done by institutions like Max Planck and the universities, we offer research and development special for each company - for example, the development of special products for the company, or helping them get computer aided technology into the company. In respect of computer technology we can offer special advice for a company; as for products... we can give an overview of the market and tell people what is best for them." "We provide all kinds of help that companies may need - not only technology help, but also how to come to the market, how to know a market, to find new products, new organisation; and this is done by different people in our network." Interview with a Manager, Steinbeis Foundation Headquarters.

15 3. An intermediary institution between education and industry 10 The Steinbeis Foundation can be seen as an intermediary institution connecting the world of advanced technological ideas being researched in Baden-Wurttemberg's higher educational institutions and other research and development organisations, and the industrial and commercial needs of small and medium-sized firms. Most Transfer Centres are run by fachhochschulen professors. Locating in these institutions is believed to promote a closeness to firms and awareness of their needs by virtue of the employment histories of the professors. These people, contrary to the situation in universities, must work for three to five years in companies before they can become professors; this is thought to be to the advantage of the Steinbeis Foundation because it raises their awareness of business needs as well as helping to build up contacts. Steinbeis Technology Centres and Technology Consultancy Centres The Steinbeis Foundation's technology transfer network is linked into two special schemes. One is the establishment by the government and other institutions of 10 (at 1991) special 'technology centres' located in towns close to higher educational institutions, which aim to promote new technologically-oriented innovatory firms. In these technology centres the government provides companies with rooms in special buildings and facilities which the companies share - secretaries, telephones, seminar rooms, etc., and there are financial aid programmes. In this form of centre the Steinbeis Foundation plays a consultancy and informational role, with the government and other institutions taking the lead in organisation and planning. There is a second form that Steinbeis is involved in, this time much more actively. On behalf of (and at the cost of) the regional government, Steinbeis is planning and establishing a series of support centres for small and medium-sized firms in rural regions where there is no higher educational infrastructure. The main idea in this case is to attract and keep both existing firms and new firms to the rural regions by providing access to Steinbeis' whole range of technological and business expertise together with subsidised infrastructural support and services similar to those of the technology centres. Location within a fachhochschule also guarantees the Transfer Centres a constant stream of skilled labour in the form of recently-qualified graduates, many of whom will have carried out student projects with, and have special knowledge about, the companies being served. The staff are normally hired on a contractual specific job-related basis, which is seen as being important for maintaining flexibility. The Centres thus act as a link between the world of education and the world of business, transferring the ideas of the first world, especially ideas on technology, to the second, and the needs of the second to the first. There is a kind of interactive process going on, with the Steinbeis Foundation both leading and being industry-responsive at the same time. 4. Financing There is a powerful ethos that the Foundation, and its individual Transfer Centres, should be self-funding, as far as possible. That is to say, costs should be covered by the sale of services. Some subsidy is received from the State government for opening new Transfer

16 11 Centres and buying initial equipment, 2 but at present the proportion of income received from government sources is very low, amounting to less than 2 per cent. The Steinbeis Foundation has an overall budget of DM80 million, of which over 95 per cent is earned by selling services. According to Cooke and Morgan [1990], 7 per cent of fees received by each Transfer Centre is paid to the Steinbeis Foundation to cover central administration costs, and the rest is retained. Out of this, the Transfer Centres pay the fachhochschulen rent for use of rooms, and if they use fachhochschulen equipment that is paid for as well. The professors who run the Transfer Centres allocate a certain amount of their time each week to this activity, for which the Transfer Centres pay their salaries. All other staff hired by the Transfer Centres are paid from the sale of services. While a basic creed of the Steinbeis Foundation is that its activities are sold on a market demand basis, it is recognised that in fact not all small firms have the resources to pay for the services they need. In such cases, the Foundation tries to help firms by seeking state and federal financial aid programmes. Self-financing and industry-driven "The professor has a contract with the government as a professor of the polytechnic [fachhochschulen) but he is allowed to have some hours to do other work; and he does it in a Steinbeis [Transfer] Centre, where he can also have some people to work with him. If he does interesting things, if he has good ideas, if he has good contacts with companies, he is able to pay a lot of people; he has a lot of work for them. But we do not have the structure of many institutions where basic payment is made in advance for research and development. Research and Development projects are done only if a company pays for it. Sometimes research is done which is paid for by the government for emergent technology, but this is only a small part. And it is done in order to have some research in advance before it is transferred to a specific application for companies." "It's totally different from many institutions which are mainly financed by some subsidy... Our main financing is really by projects and we believe that this is the reason for our success. We don't offer services where people don't have to buy. They have to buy. They have to think about whether it's necessary. So we never risk carrying out research and development in a direction in which there is no interest - which is not needed by companies." "These [Transfer) Centres are profit centres and they can only exist as long as they get their own money, and we only close down centres if there is no more income coming in for their work... [The Transfer Centre] has itself to look for projects. We give no payment in advance. So if its work is interesting for companies the Transfer Centre will exist for a long time." Interview with a Manager, Steinbeis Foundation Headquarters 2 Note that Cooke and Morgan reported in 1990 that the Steinbeis Foundation placed a limit of DM20,000 on its initial investment in a Transfer Centre.

17 12 5. Perceived success and its bases The Steinbeis Foundation's technology transfer system is being increasingly admired, both within and outside Germany, and there is much interest in replicating its apparent success. As usual with this kind of activity, evaluating success is very difficult. Below a Steinbeis manager gives his view: F.P.: "It is your impression that you are successful?" Manager: "Yes, [our business] is increasing; we started with about 20 Transfer Centres in 1984 and now we have about 140 centres (including new centres outside Baden-Wurttemberg)." F.P.: "Do you have any other way of evaluating your success? Is there any idea of standards improving - an impression that firms are beginning to introduce more technology? Or is it too soon to tell?" Manager. "I think that is a bit difficult because you can't evaluate technology on a certain measure. You just see what we are asked for, and we believe that we would not be necessary if we were not demanded; and we believe, therefore, that this is a good sign by which you can measure our success." Of course, a good indicator that the services of the Steinbeis Foundation "are demanded" might be that it receives very little subsidy but is still able to achieve a considerable income through sales to small and medium-sized firms. On top of this are the more impressionistic views of observers in Baden-Wurttemberg which are that in the context of Baden-Wurttemberg's highly sophisticated educational and service infrastructure, the Steinbeis Foundation does appear to be achieving some success in bridging the gap between education and small and medium-scale industry. One criticism mentioned by a member of a Fraunhofer Institute (and also on another project mentioned by a representative of the Stuttgart Chamber of Commerce to Cooke and Morgan [1990]) is that the Steinbeis Transfer Centres are just one set of a whole range of institutions offering technology consultancy and research and development services, which include Chambers of Commerce, Fraunhofer Institutes, Max Planck Institutes, private consultancy, universities, trade association research and development institutes and others - but that these other institutions are excluded from the Steinbeis network. Consequently, it could be argued that in theory the potential small firm client is not getting adequate access to the full range of possibilities. Ideally, therefore, according to this argument, mere should be a central agency co-ordinating all the research and technology institutions in Baden- Wurttemberg. Against this it can be said that many of the excluded institutions - such as the Fraunhofer and Max Planck Institutes, and the universities - are strongly oriented to the large firm sector and are not, at least up to now, of great relevance to small firms. The number of institutions catering mainly for SMEs that are excluded is therefore much smaller. Moreover, it is not clear that the addition of further institutions in the Steinbeis network (or some other, greater network) would bring in net new services or specialisms, because in Baden-Wurttemberg there is already much duplication in many areas. Finally, it may be said that even an institution like the Stuttgart Chamber of Commerce, which might have most reason to complain about exclusion from the Steinbeis

18 13 network, was reported by Cooke and Morgan as concluding "that much Steinbeis work is good and it plays an important role, especially outside Stuttgart" [Cooke and Morgan, 1990, P- 24]. It is worthwhile, then, setting out the main reasons why people, particularly at Steinbeis, think there has been some success. These can be encapsulated by the phrase: Decentralisation and industry responsiveness. 6. Decentralisation and industry responsiveness The decentralised nature of the Steinbeis structure is seen as very important to its success. The Transfer Centres have a lot of autonomy from the Steinbeis headquarters, whilst the Steinbeis headquarters has a substantial degree of operating autonomy vis-a-vis government; it is believed this maximisesflexibility,cuts out bureaucratic monitoring and reporting, and reduces staffing needs. The administration component in the Steinbeis Foundation's organisation is very low. The attraction of decentralisation [The attraction of decentralisation] "is the reason why other countries generally try to copy this [the Steinbeis Network], but... it's not easy for other people to copy because it's an institution founded by the government, but it's independent of the government; and many times if governments found an institution they want to control it somehow; and this controlling gives a lot of reporting and it makes it inflexible and it involves much administration; and this does not work for good at the Steinbeis Foundation; we have low administration; we have not exact reporting; all the Transfer Centres may work as they like - if they get some money - they don't have to ask us if they can do this or do that. So we are rather flexible. And many governments who try to copy the Steinbeis Foundation neglect this point. They want to know what their money gets. They want to be well-informed about each step, and that's not a good idea." Interview with a Manager, Steinbeis Foundation Headquarters Such a structure is thought to maximise efficiency at the lowest level by operating each Transfer Centre as a profit centre - i.e. each transfer Centre covers its own costs, and depends on the sale of its services for its survival. This, further, is thought to encourage the Transfer Centres to be responsive to the needs of thefirms.it helps the Steinbeis Foundation to pursue an important objective of being "demand-driven". Being responsive to company needs is helped by close local contact with the small firm clientele; this is perceived as very important, both because it helps the Steinbeis Foundation to keep in touch with company developments and needs, and because many small companies like the close contact. As was found in the cases studied in Denmark and Valencia for this project, for service and technology transfer centres, dealing with small firms is very different from dealing with large organisations. Small firms, for example, are more likely to require a "doctor" approach, requiring close interaction between "patient" and "physician", with the Steinbeis consultants helping to define only vaguely understood problems prior to offering solutions.

19 14 Even though a local Steinbeis Transfer Centre might not have the necessary specialisation to be able to respond adequately itself to a client's requirements, the value of its availability at the local level is thought to lie in its status as a point of access to the whole network. Finally, a policy of decentralisation has been able to make use of the already existing state-wide network offachhochschulen, full of expertise, at which to locate the Transfer Centres. If physical decentralisation helps Steinbeis to keep in touch with its potential customers, this is further helped by making contact with firms through special journals, brochures, seminars, visits, talks, and special "technology days". These sorts of events not only enable Steinbeis staff to keep in touch with trends and needs amongst the firms, but also act as a way for Steinbeis to advertise the services it has on offer, and in making firms aware of latest technological and other developments. These kinds of information activities are pursued with particular vigour in outlying rural regions. This propaganda effort serves to remind that Steinbeis not only operates according to a philosophy of being industry-driven; it also aims to lead by making firms aware of possibilities and advantages of new technological and organisation techniques. IV. Gosheim Steinbeis Quality Assurance Centre? Located in the small town of Gosheim, one-and-a-half hour's drive south of Stuttgart and at a height of about 850 metres, is a special kind of Steinbeis Centre - indeed, as far as the Steinbeis Foundation is concerned, it is unique. What makes it different in the first instance is that this centre was formed on the initiative of local small and medium-sized firm entrepreneurs, rather than by a professor of a local fachnochschule, for example. Specifically founded to support the centre, and very closely involved in it, is a fast-growing, independent, Steinbeis Gosheim Centre Association of 154 small and medium-sized firms, mostly in metal working, but also in the electronics and plastics industries. The constitutional relationship between the Steinbeis Gosheim Centre management and the Steinbeis Gosheim Firms Association is very close, such that the Association is said to regard the Gosheim centre as 'its' centre. There is, then, a closer political and communal type of relationship linking the small firm entrepreneurs with the service centre than is to be found in the more market-oriented, one-to-one kind of connection typical for the rest of the Steinbeis network. 3 For more on the Gosheim Centre see Klaus Semlinger, 1991, Das Steinbeis-Zentrum fur Qualitatswesen in Gosheim: Eine kleinbetriebliche Kooperationsinitiative aufdem Weg vim Erfolg, Munich, ISF.

20 15 Constitution Note that whilst constitutionally the Gosheim centre is part of the Steinbeis network, there is also a direct link between the centre and the firm association by way of a Supervisory Council which has a say in future activities. The members of the council include a representative of the Steinbeis Foundation, up to 3 representatives from the firms association, and up to 5 members who are nominated and elected by a membership meeting of the firms association (but which need not be members of the association). In practice the Council is composed of: the Chairman of the Steinbeis Foundation, the political representative of the county, the Mayor of Gosheim, the heads of two local trade associations, and the head of the Gosheim Centre Firms Association. There is the further difference in that the Gosheim Centre is seen more as a "generalist" institution; although it has a "specialism" of promoting quality standards in fact "improving quality" means that the range of activities which can thereby be pursued is quite broad. Not only does it imply the offer of a range of quality testing and measuring services but also initiatives to change the way industry is organised. Moreover, it seems that there is no reason why the activities of the centre should not broaden further, depending on the wishes of the small firms and the capabilities of the centre. Gosheim Gosheim is a small town, little more than a village, with a population of approximately 3,500. Companies in the area are small or medium sized, employing between 50 and 150 workers each. Two exceptions are one firm of clockmakers which employs about 1,000 people. The area has apparently developed quickly and the machinery in the small firms is modern. The people are described as very hard working. The town is rich: there was not always this wealth; it is said that 50 years ago the area was very poor. The majority of firms is now engaged in the metalworking sector, specialising in small parts production. This focus on small parts apparently follows from the area's isolation and very hilly roads (moving heavy equipment and parts might be slow), and a heritage of a local clockmaking industry. It is this clock industry which seems to have provided the initial skills basis for an area which later became particularly involved in supplying the large automobile manufacturers of Stuttgart and elsewhere. It is said that today there are several hundred small or medium-sized independent firms located within a radius of 100 kilometres of Gosheim. These characteristics of the Gosheim Centre suggest a similarity with the organisation and practices of the Valencian technology institutes and the real services centres of Emilia- Romagna.

21 16 "This [Steinbeis] Centre is different from the others because the others are in the main founded by one professor who said: 'I have knowledge in X and I will give this knowledge to firms'. Here it was the other way around. Companies said; 'We need a lot of things done; please do them for us'. And so we needed here an institution for all possibilities - but quality assurance is our main job. It's the main thing." Interview with a Manager from Gosheim Steinbeis Centre According to staff of the centre itself, many of the small firms in the area are component suppliers for the large car firms, particularly those located in Baden- Wurttemberg; these car firms, so the story goes, have been putting pressure on their suppliers to improve their quality control systems. The implication of a need to improve quality is a series of innovations: new working practices; new skills; new quality control checks; better machines and tools capable of meeting higher standards; computers and computerised equipment; and better measurement tools. Such innovations are expensive and thus, it is said, here lay the roots of a determination to find a collective solution. It was the need for one type of measuring machine in particular which firms commonly recognised they needed but which at DM300,000- DM500,000 was expensive (especially, we can speculate, if every firm was to get its own), which spurred inter-firm co-operation. A group of about 40 small and medium-sized firms got together and looked for a way they could afford this machine (and eventually others), but, because competitors were involved, the machines should not be under the control of any individual firm. The eventual solution was to establish a Steinbeis Quality Centre which would house expensive measuring equipment to which the firms could have access if and when needed, and which would provide expert help (drawing on the Steinbeis Network) in introducing new organisational methods. Need for new machinery and new organisation "All these companies [large firms in the automobile industry] are saying: 'You must have better organisation; you must have better people - skilled people.' It's very expensive. And in respect of all these things people [in small firms] thought... that what they needed was measurement tools only; and the other part, organisation, they thought was not so interesting." "I should say that all these small companies spend a lot of money to get better machines - better things but not better organisation; and so they had a lot to do to come to an acceptable standard." Interview with a Manager from Gosheim Steinbeis Centre Now the Centre houses eight staff and a range of machines to carry out measurements, check firms' own measuring equipment, provide information, and provide training courses to teach quality assurance techniques - all charged to customers as they use them (but with a discount for members of the Gosheim Association). The measuring machines are aimed at serving a number of industries, including, for example, metalworking and plastics but are not capable of coping with more specialised requirements. For these the Steinbeis Foundation network and, if necessary, other institutions, are called upon to provide specialist advice in specific areas.

22 1. Financing 17 The centre needed financial support to get established. The local Gosheim political authority paid for a building to be erected (costing DM1,7000,000) and then agreed to provide it rent-free to the Centre for five years. The firms themselves offered to contribute funds (and each member of the association now pays an annual subscription of DM500, whilst the associations also organise fund-raising events for the centre); and further financial start-up help came from other political authorities, including the state government, totalling about DM300,000. Further subsidies came from the suppliers of the measurement tools the Centre was to house. Apparently seeing the establishment of such a centre as an opportunity to advertise their wares, the suppliers provided equipment at considerable discounts. The Centre, just two-and-a-half years after opening, is now covering its running costs by selling services for about DM1,000,000 annually. 2. Perceived aids to success The Gosheim Centre has survived its initial years and is now set on expanding. A number of reasons were suggested by staff at the Centre for its initial success. A. External pressure The pressure from large customers to upgrade quality standards, already mentioned, was significant. Such pressure is also said to be significant in a very similar "spontaneous" self-help co-operative movement occurring in North Rhine Westphalia where, it is said, about 50 small and medium-sized firms are trying to organise their own quality service centre. In the case of the North Rhine Westphalia group, it is also possible that the example of Gosheim itself is exerting a kind of lateral competitive pressure, because many of the firms in the two cases are metalworking companies serving similar customers. The external push coming from customers, and maybe also increased competition from other firms within the EEC, was also mentioned in interviews carried out for this project as significant in mobilising small firms towards new co-operative responses in Denmark. B. Political and institutional mobilisation A political determination by individuals in authorities, organisations, and institutions to take action was also considered significant. It is said that at first there was some political opposition, or at least lack of enthusiasm for a Quality Service Centre, particularly from larger firms, but this changed when the Steinbeis Foundation became involved. In fact, a number of agencies took part in the establishment of the centre, including local and regional trade associations, the Chamber of Commerce, the local political authority, the TUV (an institution providing quality and safety testing and certification services) and others, engaging in an inter-institutional networking process. Different institutions could provide particular expertise or financial support, or both, and even when they could not there were others that could. That is to say, it was significant that when one avenue of support appeared to be blocked, others were still available and thus there was a variety of paths along which action could be mobilised.

23 C. People acting as brokers 18 Brokerage activities have helped to organise the small firms into a co-operative movement by arranging meetings, discussions and activities, to motivate people, focus on agreed objectives and make decisions. The staff of the Gosheim Steinbeis Centre, and especially the Director of the Centre, have done much work in this regard. Others have also helped, including in particular the head of the association of firms supporting the Centre. It is said that in the case of the North Rhine Westphalia group mentioned above, one of the major difficulties the firms there have to overcome is finding a qualified individual to engage in brokerage activities - arranging meetings, seminars, sending out invitations etc. - and so the firms are currently looking for someone to take on the role. D. Providing an impartial service Many of the firms supporting and using the Centre are in fact competitors and so it is important that there is a "neutral" institution, like the Quality Centre, to house leading edge equipment and to organise and pass on information - because apparently the firms, since they are competitors, are not likely to do it themselves. By such means firms are able to compete and co-operate at the same time. The centre as a neutral body F.P.: "Is there a problem that some of these small firms might be competitors?" Manager. "That's a big problem: they are competitors and nobody informs others in the right way. But this man, that's me, here in such an institute, from Steinbeis, now I have a reputation here, the people know me, and they accept me as a man who will not help one [rather than] the next." F.P.: "So you're a kind of middleman?" Manager. "Independent agent, to help them." Interview with a Manager from the Gosheim Steinbeis Centre E. Having the active support of the Firms Association The active support an influence of the Steinbeis Firms' Association apparently raises the status of the centre in the eyes of firms in the area. The Centre gets legitimacy from having a firms association "If I discuss with the owner of a company about 50 kilometres from here..[and] if I can say that we are an institution made from the first day by owners of companies, and specialists from these small companies, and that it [the Association] makes the targets for the centre, and... that until now these people [in the Association] have informed us and helped us to go the right way, it's very important." Interview with a Manager from Gosheim Steinbeis Centre

24 19 Whilst the centre is formally part of the Steinbeis Foundation, in practice there is very strong involvement by the Firms Association such that, it is said, people do in fact perceive the centre as belonging to the firms. The firms' centre Manager: We are Steinbeis. But with these companies here in their own association we work very closely, and you cannot see outside what it is. Is this now Steinbeis or is it the company association? You cannot see... And so the people say: 'That's our institution'. That's very important for us." Interview with a Manager from Gosheim Steinbeis Centre F. Having the resource backup of the Steinbeis network Having the Steinbeis backing gives the Centre both credibility and access to the same range of expertise available to the rest of the network. Access to Steinbeis resources and expertise "We can help these people in [matters of] organisation; we can help for new products; we can help for material checking... I can say: 'In the Steinbeis Foundation we have people in every part of industry or organisation - specialised - and we can help you'." "When I started three years ago and I went to see people in companies I could say that I was a member of Steinbeis: 'We are a big institution; we have about 2,000 specialists in every area'. That was good for me." Interview with a Manager from Gosheim Steinbeis Centre Whilst the Gosheim Quality Centre has a specific expertise in quality assurance, other centres in the Steinbeis network have specific expertise in other matters. One aspect in which the small and medium-sized firms apparently have an interest is in creating their own products, and getting away from a current high dependency on supplying parts to large firms (although whether or not this desire has recently increased as a consequence of the increased pressure for higher quality standards we cannot say). Not all the small firms are dependent on making parts to the design of bigger firms, but it was reported that most of them are. However, the Gosheim Quality Centre does not have the expertise to advise on the creation of new products and design matters. For this, firms are referred to the "New Products" Steinbeis Centre, located about 30 kilometres away. Thus, in this way, the Gosheim Centre acts as an information exchange and port of entry to the Steinbeis system as well as providing its own specific services. G. Effective communication with small firm entrepreneurs It is recognised by the staff at the Centre that relating to small firms is very different from relating to large organisations. In particular, the small firm entrepreneurs do not have the same levels of education as do technical specialists in large firms, and they have different backgrounds; a lot of work has to be done to gain employers' confidence.

25 20 A considerable amount of discussion has taken place between staff from the Centre and local entrepreneurs, involving many visits to firms and meetings. It was thought important that the Director of the Centre had the work experience (in both big and small firms) and manner to be able to get on with small firm entrepreneurs - to be able to "speak the same language" and to gain their confidence. Moreover, it was important that the Centre was perceived as being responsive to the demands of the small firms; that in effect it was perceived as "their centre". Dealing with small firms "We had to do a lot in the last three years, visiting companies. We discussed with the people; we created all things together with these people so that they could relate to us; they could trust us. You have to do a lot to teach these people to think: that's the right man for me', or 'That's the right institution'." "In a big company, there is a structure... and you have a partner in a meeting who can discuss with you in the same way - with nearly the same information and the same education, and so on. In smaller companies, you have other people. These people are very good - because they have built these companies; they are involved every day; and they earn money; and they are good people. But with education it's another thing. And you have to discuss with these people in the same language; and you have to think what kind of information they can have. You cannot discuss with these people the same way as with a professor. These people will relate to you and so you have to say: 'I will [work] with you, do the best for you, and I'm nearly the same as you; I'm not better'." "These owners said what they needed - and not anything that is made by eggheads in Stuttgart. I think that's the most important thing." Interview with a Manager from Gosheim Steinbeis Centre 3. Future activities Now that firms have begun to co-operate over the issue of raising quality standards, there is every prospect that co-operation will extend to other matters. For example, there are movements for a group of 20 to 30 firms supplying to bigger companies towards combining to strengthen their bargaining position, on the one hand against their customers - who, it is said, have not contributed to the increased costs of raising standards - and, on the other hand, against their own suppliers (such as steelworks). Whilst this initiative has come from the companies themselves, the Quality Centre is expected to become involved in its organisation. V. The Landesgewerbeamt 1. Promoting inter-firm co-operation The high propensity of firms in Baden-Wurttemberg to engage in large-scale collaborative "self-help" associations, such as the many sectoral trade associations that provide services to members, is clear. This self-provision of collective services by groups

26 21 of small firms which cannot afford to provide them on an individual basis is a significant form of inter-firm co-operation. Time did not permit an investigation of the full range of activities carried out by trade associations on behalf of their members, but amongst the aspects said by local observers to be important were market analysis, special trade association training institutions and courses specific to particular industries, the organisation of representation at trade fairs, and the creation of industry-specific research and development laboratories (with the emphasis apparently on "development'' and activities like design (sometimes) and materials testing rather than research). It is said that there are many other activities. However, the extent to which, at the micro level, smaller groups of firms engage in closer, lateral, co-operative activities such as the dividing up of production, engaging in collecting marketing other than simply organising joint exhibitions or attending fairs, and working together on research and development is uncertain [see, for example, Schmitz, 1992]. The impression (based on what is commonly agreed to be very little empirical research) is that co-operation between complementary producers can occur but at the micro level co-operation between direct competitors does not occur spontaneously very often, and even when encouraged by brokers it can be a difficult process. "The VDMA (the German Machinery and Plant Manufacturers' Association) had been seeking to encourage more co-operation between SME members, especially to engage in joint overseas marketing. While there had been some success in furthering co-operation between machinery firms with complementary products such as producers of textile machinery, machine tools and roller bearings, it had so far proved impossible to get the specialist machine tool SMEs to cooperate. This was because such firms are fierce competitors with each other, and the Trade Association could not persuade them to engage in even joint marketing exercises aimed at penetrating, for example, the Japanese market." [p. 7]. "The VDMA had tried to encourage collaborative research and marketing because firms were too small to do these things themselves. However, despite numerous efforts, the firms had resisted because they are competitors of each other. Firms will only countenance co-operation with non-competitor firms. Despite this, it is the VDMA's belief that more co-operation will have to develop as markets become more competitive and as large firms like Daimler-Benz place more orders with smaller suppliers (e.g. in precision tools)." [p. 18] Cooke and Morgan, 1990 However, vertical inter-firm co-operation is, according to Schmitz [1992] apparently common practice, and research for this paper also found that local experts were reporting that in Germany co-operation between large firms and suppliers in respect of research and development and, some say, laterally between small firms as well, is increasing (but again on the basis of very little empirical research).

27 22 F.P.: "Do Baden-Wurttemberg's SMEs tend to improve themselves? Is there a philosophy or dynamism in the state?" Expert: "Yes, there is... There is a need for SMEs to improve... And this networking, or the making of R&D co-operation - not only with the [Trade Associations'] R&D laboratories, the fachhochschulen, and the universities, but also with other firms - is growing from year to year - between SMEs, and between SMEs and bigger firms, and between SMEs and institutions like fachhochschulen, universities, and so on. It is growing and growing. The problem is that there is nearly no work done about this, monitoring over the years the R&D co-operation behaviour of SMEs; there is no work done on it empirical studies... Everybody knows that it is growing and if you go to the firms they tell you: 'Well, 20 years ago I didn't do anything in this field but nowadays I have to do it; I must do it'." Interview with Fraunhofer expert on Technology Transfer, Karlsruhe Whatever the current extent of SME inter-firm co-operation at the micro-level, attempts are being made to increase it, with some success. The Baden-Wurttemberg government institution, the Landesgewerbeamt 4 (Office for the Promotion of Trade and Industry), an agency of the Ministry of Economics, with an annual budget of DM140,000,000 is actively involved in promoting group activities specifically for small and medium-sized firms. Indeed, when the Landesgewerbeamt subsidises the activities of small firms, it is an operational principle guiding that financial assistance that it is not generally given to individual firms; rather it is given to groups of businesses. The adherence to this group principle was described by informants as a "Baden-Wurttemberg speciality". As one manager put it: "Whenever somebody is coming and he wants something from us and he comes alone, we say 'No'. We demand that he forms a group." The areas in which the Landesgewerbeamt specialise include: helping small firms to attend and to organise exhibitions; helping the formation of local business groups to promote the industry of a locality - organising speakers, acting as pressure groups, organising exhibitions, etc.; promoting, along with the Ministry of Education, vocational education and training; promoting design; providing information for small and medium-sized firms; and promoting co-operation networks. 2. The Landesgewerbeamt and co-operation networks The activities of the Landesgewerbeamt in the field of promoting co-operation networks for small and medium-sized firms is particularly interesting, and it is an approach which looks like increasing. The Landesgewerbeamt involves itself both in respect of providing subsidies (up to a maximum of 50 per cent of the cost of an event, such as organising a meeting) and, increasingly, in providing a brokerage service to advise firms on the benefits of co-operation and how to organise themselves. This brokerage aspect is apparently necessary; entrepreneurs need to be informed of the benefits of co-operation. It is also apparently increasing judging by the fact that the Landesgewerbeamt is about to take on, it is hoped, its first full-time 4 The Landesgewerbeamt was established in the last century specifically to help small firms; that remains its purpose today; it is located on two sites: in Stuttgart and Karlsruhe.

28 23 worker for the job; he or she will be known as a Foundation Adviser; up to now staff have had to perform this function concurrently with other duties. One example of the institution's involvement in promoting co-operative networks is that of a group of fitness centres formed about nine months ago. This co-operative network was formed by established small independent businesses in direct response to a perceived threat posed by incoming large foreign organisations which, it was felt, might start undercutting prices. An initial indigenous fitness centre proprietor, concerned by the new competitive threat, was advised by the Landesgewerbeamt to find other similar small businesses in Baden-Wurttemberg which would be prepared to co-operate, but which should be located far enough apart not to perceive themselves as potential competitors. The proprietor did as was requested, and the result is that there is now a co-operating network of 10 small, independent fitness centres spread throughout Baden-Wurttemberg. The philosophy of promoting small firm co-operation "I say that a small business has advantages and disadvantages... They are flexible and very fast in making decisions... The disadvantage of a small business is simply the fact that it is small; he has to do everything; he has to be the guy who makes the product; he has to do his financing; he has to do everything. Because he has to do everything, he cannot do it at the quality level that is done in big companies... If you take a painter, he has to do all the painting, know everything about the material - which is not easy; and in addition he has to know how to run a business; he has to know how to get his money; he has to know how not to pay too much tax. Because he has to know everything, he usually doesn't have the quality of knowledge that big companies have. I say that if we form groups of people, it's possible to lift that knowledge and experience which is not so highly developed by the smaller firms - if they work together it's possible to get the same knowledge as is present in big companies. So the disadvantages of the small companies can be compensated by co-operation." Interview with a Manager from the Landesgewerbeamt The co-operative network of small fitness centres is only in its infancy but already it is fighting back. In the first instance, it is focusing on raising quality standards. In particular, it is stressing the need to operate with fully-trained and qualified personnel. For example, massages are only to be given by qualified people. The network has also taken an interest in the Japanese practice whereby firms encourage their employees to take regular breaks to attend fitness centres. Consequently, the companies in Baden-Wurttemberg have joined together to finance sending a representative to Japan to study how firms there organise their services, with the aim of introducing a similar quality service for companies in Germany. A second example concerns a village in the Black Forest which historically has manufactured wooden barrels and pots but which, since the war, has had to change its products in response to changing consumer preference. Two co-operative groups have been formed. In one case, the Landesgewerbeamt helped 25 or so producers to co-operate, encouraging them to constantly discuss how they can adapt and arrange to specialise in the manufacture of particular wood products; now, for example, one specialises in picture frames, another in skirting boards, another in wooden toys, another in wooden fountain pens, and another in wooden ball point pens. This group advertises itself, as a group, to companies

29 24 needing wooden products - distributing its own common leaflet - and the firms attend exhibitions together; it has monthly meetings, exchanges information and experience and the firms help each other to constantly update and upgrade. These firms do not compete (because each specialises) but they do co-operate. If, for example, one firm gets an order that it cannot complete on its own, it can expect other firms "to help out", because whilst each specialises, nevertheless the fact that they all work in wood means that there are certain things they can all do. A second group in the same village has also been helped by the Landesgewerbeamt. This is a group of wood carvers which also specialises: one makes wooden madonnas, another wooden birds, and so on. As with the other group, the wood carvers present themselves as a group, with a certain range, and advertise themselves in their own leaflet. A third example relates to the metalworking industry. The quotation in the following box, from a spokesman of the Landesgewerbeamt, describes an impressive case of how an initial group of 12 very small engineering firms has grown, under the influence of cooperative activities, into an association of 25 important medium-sized suppliers in the automobile sector. Again, these firms are not direct competitors, and indeed it was felt by an informant from the Landesgewerbeamt that encouraging direct competitors to co-operate was fraught with difficulties and should therefore be avoided. "About 20 years ago, there was a small businessperson - a craftsperson - employing about 10 people, who came to this office and said: 'I want to go to exhibitions but I am too small. What can I do?'. Then we looked at what he was doing and we saw that he was a craftsperson but that he also had a little series production of small things which he delivered to an automobile company. So he was not only a craftsperson; he also had a little industrial division. And he said: 'I have very good things and I would be able to sell them in France or I would be able to sell them in North Germany, but I can't go to the Hannover fair. It costs me too much money and anyway they wouldn't take me because I am too small. It's an industrial fair and I am too small'." "Then we said: 'OK, we want to help you but please go home and look for others who have the same problem. Look for [people] who, if possible, are not doing exactly the same as you, because if you all do the same you get into competition'. So we told him that he should look for guys who were not doing exactly the same as him. They should all be in metal he was in metal and so the others should also be in metal - but they should not make exactly the same thing; so if they make in metal but each one makes different things, it's easier to form a group... And then they came again and we formed [a group] of 12 business people, all in metal but each one manufacturing a different part so that they could offer themselves as a group - from which Daimler-Benz, or whatever big company, can order different parts. So if they don't do the same, it doesn't cause quarrels and they can offer themselves as a group of people in the field of metal delivering to big companies." "At the beginning, it was a very small group employing approximately 10 people per business; today it consists of 25 businesses and the average number of people employed per business is about 200 to 250. And they went together to fairs; they meet at least once a month; they get speakers from outside to talk about technical problems - they are all in metal and so they can get in an engineer from an institute of research to talk to them about new materials, or they can get in a professor from, say, a management school to tell them about new approaches in managing business. That group of 25 businesses is one of the best examples of what you can do if you get small businesses together and try to help them by forming a group." Spokesman of the Landesgewerbeamt

30 25 A feature of the nature of the co-operation between these metalworking firms, which is borne out by experiences elsewhere on this research project, is that co-operation tends to develop over time, that once a group is formed then progressively new co-operative projects are likely to be initiated. Presenting themselves jointly at exhibitions was the original idea for the metalworking firms to co-operate; then they developed more the area of exchanging experience and information about technologies, techniques, and best practice. For example, a few years ago, all 25 companies realised that they needed new computerised systems for administrative purposes and so they approached the problem jointly and taught each other about what worked and what did not; now they are discussing ways of producing a joint product, such as an axle for a motor car, with each of the firms contributing components. Producing a product together "[For the group of 25 co-operating metalworking businesses] it would be possible for them not to just build small parts with which they have to compete all over the world; they should be able, for example, to manufacture an axle for a car; and if they were to manufacture an axle for a car they would be one; and there's no other group doing that and so they would get better prices. And so we are just right now in the stage of giving an order to a research institute for what kind of legal form such a company should have." Interview with a Manager from the Landesgewerbeamt 3. Women's "Work Circles" Co-operating to pass on information in the manner of the metalworking firms described above is of great importance in a small firm economy that needs to constantly upgrade itself. However, the above firms are not competitors and it is commonly mentioned that individualistic small firms who are competitors are not inclined to share information (see, for example, what was said in the case of the Steinbeis Gosheim Centre above). In view of this, it is of considerable interest that the Landesgewerbeamt have found that if some businessmen are not inclined to co-operate, their wives may very well be - even the wives of men who are ostensibly strong competitors. Thus, there is co-operation through what are called "Work Circles" to share information, to spread ideas about new technology and best practice in those areas for which the wives of the men involved in running small firms are typically responsible, i.e. mainly in office administration, personnel, financial and tax records, etc. Promoting "Work Circles" for businessmen's wives "One of the most important people in a small business is the wife of the business owner... she is doing the administration of the small business: book-keeping, financing, invoices. All over the world it works in that way. So we founded here in Karlsruhe 16 years ago the first Work Circle for Women in Small Business. We said 'Get together and form a group and call it a Work Circle of Women in Small Business and meet once a month; make a definition of what your upgrading needs are and then organise it for yourselves; we will help you by giving subsidies'. Today in Baden-Wurttemberg we have 48 such Work Circles of Women in Small Business who are doing their own updating and upgrading, and exchange of experience it's very important. So there are 48 groups in Baden-Wurttemberg with about 3,500 women. Meanwhile, the idea has spread all over Germany. We have 108 Work Circles for Women in Small Business all over Germany, including 14 in the former GDR; and the number of Work Circles is going up very fast." Interview with a Manager from the Landesgewerbeamt

31 26 The size of Germany's Women's Work Circles varies. Ideally, it is said that members is good because that facilitates social cohesion and exchange of ideas. But in practice the groups can grow much larger, with the largest reaching over 100 members. Now Work Circles are seen as a quick and cheap way to teach Western market practices to people with small firms in the states of the former GDR. Work Circles in the former East are partnering others in the former West - collaborating, exchanging information and experience, and visiting one another. By such means the people involved, for example, in small bakers' or brewers' businesses in the former East are learning from people in similar businesses in the former West at a relatively cheap cost to the state. The Landesgewerbeamt may contribute a percentage (less than 50 per cent) of the costs of holding initial Work Circle meetings and some other events. Now it is said that many Circles are forming without any financial involvement at all. F.P.: "Could the Women's Work Circles include people from firms who are competitors?" Manager. "Yes. In these cases, yes... because they don't go to joint exhibitions, for example. The problems these women have are all the same: each woman has the problem with the tax office; each woman has the problem of calculating the rises - they're in different fields but the problems they have are all the same; they all have the same problems with social insurance; they all have the same problems with business administration, computers and programmes, book-keeping." F.P.: "But even if they are competitors they are prepared to share information?" Manager. "Yes". Interview with a Manager from the Landesgewerbeamt VI. Summary and conclusion The general impression of Baden-Wurttemberg is that it is an economy with both strong large firms and strong small and medium-sized firms. The consensus of opinion seems to be that the two sectors tend to have a symbiotic relationship of interdependency, with the small firm sector being as important for large firms as quality suppliers, as much as large firms are for the small companies as major customers. The general picture people have is not one of a unilinear dependency relationship; rather, subcontracting small firms are perceived as having many customers, and possibly having their own products to sell on a large market. However, it is also generally felt that nobody is quite sure of this and that there is a dearth of empirical research. Nevertheless, whether or not the small and medium-sized firms are truly free from the shadow of the large firms like Daimler-Benz and others, it is clearly the case that both sectors - those of large firms and those of small firms - receive a lot of attention and support, and that both have a plethora of institutions to serve them. If the large firms are served by institutions like the universities, the Fraunhofer and the Max Planck Institutes, the small firms can choose from institutions like the fachhochschulen, the Steinbeis Foundation, the

32 27 Landeskreditbank and the Landesgewerbeamt. And, of course there are institutions serving both sectors. As far as the small and medium-sized sector is concerned, then, there is a highly developed service system providing an important supportive structure. Within this system, the experiences of Steinbeis and the Landesgewerbeamt provide valuable clues for implementing a development policy based on upgrading and strengthening inter-firm cooperation. 1. The Steinbeis Foundation The Steinbeis Foundation is notable for the way a network approach has been harnessed to greatly increase the range of services that can be offered. Other German states have fachhochschulen offering technology consultancy services to small and medium-sized firms but the difference is that in these cases, because there is no linking network between differentfachhochschulen, people seeking advice are likely to be offered a much more limited choice. Not only does the Steinbeis network system provide access to a whole range of specialisms, located at various centres, but it also opens up the opportuity for a concerted approach to a problem by different specialists. Thus, for example, economists and technologists might both be available to tackle a problem according to the Steinbeis principle of a holistic perspective. Another feature is the strongly decentralised, industry-driven approach, reputedly giving individual centres greater sensitivity to local small firm needs and flexibility in operation. The adequacy of this sensitivity is measured in terms of client use and their inclination to pay for this use. Indeed, the almost total tying of the incomes of individual centres to their ability to sell services tofirmsis thought of as being another way of ensuring that activities are client-led. The great success in selling services, and the negligible amount of state subsidy, means that Steinbeis can claim that they are offering a very cost-effective means of upgrading the small and medium-sized sector. Indeed, concerning the question of whether the introduction of the Steinbeis Foundation has meant additional cost to the state, the answer seems to be "hardly anything". 2. Gosheim Steinbeis Centre The case of the Gosheim centre was described because it contained a number of principles not present in other centres in the Steinbeis system, but which are very reminiscent of service organisations created elsewhere, such as in Emilia-Romagna and Valencia. The most interesting aspect is that, in the Gosheim case, the initiative for a centre has come from small firms, and these small firms retain both formally, and apparently in reality, a real influence on the direction the centre will take, through the constitutional arrangement of a Service Centre Firm Association. Both the Steinbeis Network and the Gosheim Centre are trying to be both industryresponsive ("industry-led") and to lead firms along an upgrading route. To do this, close relations and contact between service centres and small firms are needed. In the case of the Gosheim Centre, there are three main ways in which the industry needs are made known:

33 28 through market demand (and discipline); through individual visits by service centre staff to firms and small meetings; and through the demands of the Firm Association. The rest of the Steinbeis network receives signals through the first two means but not the third. It could be argued, therefore, that a service centre association adds an extra degree of pressure on service centres to be industry-responsive. As well as helping the service centre to be industry-responsive through a bottom-up degree of influence, a service centre firm association can help the centre carry out its leadership and organising functions. A firm association facilitates the spread of information on the latest technology and organisational techniques; it also aids the initiation of action which in some way requires a collective or co-operative solution. Large groups of small firms can be encouraged by a service centre to identify communal shortages of particular services or productive processes; or come together to arrange collective marketing or purchasing, using a service centre as consultants, organisers, or brokers. As well as highlighting the value of a centre firms' association, the case of Gosheim also emphasised the importance for success of a number of other features, including the motivating force of external pressure to raise standards; the need for impartial brokerage to bring firms together and mediate between potential competitors; the importance of a decentralised approach (of being close to the firms and not appearing to be seen to be imposing things "from the top"); recognising that small firms are different from large firms and acting accordingly; and the advantages of being tied into the resource base of the Steinbeis Network. 3. The Landesgewerbeamt The activities of the Landesgewerbeamt also provided lessons. One of these was, as found elsewhere, that small firms will collaborate, particularly if they are not direct competitors, but there is normally a need for some kind of brokerage intervention - to organise, motivate, and inform of possible advantages and strategies. The fact that the wives of small firm businessmen exhibit a strong propensity to cooperate with wives of other men, passing on information and ideas of best practice, even between wives of men who are direct competitors, is of particular interest. One of the problems of a strategy aimed at upgrading whole sectors of small firms is how to raise standards everywhere in a situation where there are many points of independent authority. There cannot be a top-down approach, such as might be taken in one large integrated firm. For small firms, a potential problem is a refusal by entrepreneurs, especially entrepreneurs who are strong competitors, to pass on information. Where there is co-operation, however, the process of diffusing best practice is made much easier, and much cheaper. The propensity of businessmen's wives to co-operate with one another draws attention to the fact mat inter-firm collaboration can take place at different points of the company's organisation. This fact was reinforced in the research on Denmark for this project, where it was stated by a respondent in a small firm that she believed Danish small and medium-sized engineering firms like her own kept up with the latest ideas on technology thanks to, she said, widespread co-operation amongst production managers. This co-operation, she said, even took place between strong competitors because at the forefront of a production manager's mind was not competition with other firms, but rather doing a good technical job of production; and that required knowing about the latest technology and techniques.

34 4. Broader factors 29 A full explanation for the success or failure of institutions like the Steinbeis Foundation, the Gosheim Centre, and thelandesgewerbeamt in their attempts to upgrade and strengthen small and medium-sized enterprises in Baden-Wurttemberg would need to take into account a large number of what might be called environmental or contextual circumstances. There is the fact, for example, that Baden-Wurttemberg is linked into much broader structures going beyond the regional state. Institutions and regulations which impinge upon Baden-Wurttemberg's small and medium-sized sector come not only from the state level but also from national or federal and even EEC levels. Thus, there are national laws, economic policies, and national institutions which have general, supra-state jurisdiction, and in the case of institutions there are nationwide institutions with state-level branches. To understand a little of the reality that Baden-Wurttemberg is no "island" one has only to consider the pressure that that state, and others in Germany, are experiencing because of the diversion of large sums of money to finance German unification. Public spending is being seriously affected and one correspondent for this project pointed out that this could, apart from anything else, reduce the amount of money available in government schemes to help small firms pay for technological assistance or investment. Another factor should be mentioned. Within Baden-Wurttemberg, the apparent consensus by all political groups and institutions to proceed along a path of constant upgrading is significant. Some of this perspective seems to have long historical roots when it was decided very early on that the state must compensate for its lack of natural resources by focusing on upgrading human resources and improving organisation. Other, contemporary, influences might lie in the forcing character of increased international competition and the effects of trade union and other institutional pressure to block off other routes - or "low road" routes - to competitiveness. And then, of course, there are the enabling institutions which help a dynamic innovatory approach, not least among which might number the large educational and scientific research complex, the famous system of dual training, and, as previously mentioned, the array of service institutions providing small and medium-sized firms with a supportive "service system". Here lies a caveat for other countries thinking that, for example, the Steinbeis Foundation network is a model that can be easily replicated at no cost. What the Steinbeis Foundation seems to have done is make more efficient and clever use of resources that already existed, resources that ultimately have been created at a cost. Steinbeis has made use of a tremendously rich resource base of human knowledge and skill and made this available, or transferred it, to industry. This foundation of knowledge resides not only in the heads of the professors of thefachhocfischulen but also throughout the whole complex of specialised and not-so-specialised institutions. The development of such a resource base requires investment in time and money. Finally, we might mention that a market demand for the main industrial products is also important. Much discussion is taking place in Baden-Wurttemberg about whether the state should try to diversify further away from what some see as an over-influence of the car industry; whilst at this moment crisis discussions are taking place on a European-wide basis to relieve pressures on the machine-tool industry - an industry particularly significant for small firms in Baden-Wurttemberg.