Paper submitted to 9th Globelics International Conference                      15-17 November 2011, Buenos Aires, Argentin...
INTRODUCTION     It has been emphasized that innovation networks are embedded in certain contextof regional institutions (...
institutions on innovation networks and to generate policy implication for innovation.     This paper set out to fill up t...
THEORETICAL BACKGROUNDInnovation network---the institutional dimension     Institutions have been highlighted in innovatio...
literatures mainly studied InterIN instead of IntraIN or both.Innovation network---the organisational dimension     The or...
Innovation network---linking the institutions with the organisation     The network perspective offers a meso-level compro...
Regional                                         Firm’s                             Institution                 Impact    ...
domination and/or patterns of coalition-building in order to minimize sectionalismand rogue behavior. Fourth, there is the...
undirected whole networks      Actors of an intra-firm network were identified as different functionaldepartments or group...
3) Active participation in joint innovation projects.     The relational data of the ties were collected through a roster ...
METHODSDesign of case study        This research is a comparative case study with multi-case embedded design. Thereason wh...
Third, the cultural and social norms and conventions are very different. Sichuan is aplace traditionally restrained by its...
innovation (Audretsch and Acs, 1987. Cohen and Klepper, 1996; Rogers, 2004).Large firms and small firms behave differently...
by a firm on research and development to the firm sales                                                 s          The ove...
necessary information. I interviewed government officials, university researchers, andindustrial practitioners in other co...
routine work, such as production. It was also helpful for informants to avoid theconfusion between what had happened and w...
Table 4. Overview of institutional thickness in Sichuan and Great ZurichDeterminants                        Measures      ...
and Roche group in 1935 on the patent of Vitamine C which resulted in the rapidgrowth of Roche making this company the lea...
invested heavily but failed badly. The reason is that our company and university professors   had different goals and inte...
there are still a large space to improve. We are now confronting with two important issues.   The first is the weak awaren...
“quality strategy” in 2009. As one of the government official in Sichuan EconomicCommittee said:         The importance of...
Great Zurich            Figure 3. Comparison of density of InterINs in the thick regional institutions     Nevertheless, p...
Sichuan                                    Thick                          ThinFigure 4. Comparison of density of InterINs ...
moved all the heavy industry to inland provinces to avoid possible attack from theformer Soviet Union. Knowledge infrastru...
Great Zurich                                        Sichuan                                                               ...
capabilities in two different regions --. the Great Zurich area with thick institutions inSwitzerland and the Sichuan prov...
REFERENCE1.    Acs, Z.J. and Audretsch, D.B. (1987). Innovation, Market Structure, and Firm      Size, The Review of Econo...
and Innovation. Oxford: Oxford University Press17.   Crang, P. (1997) Cultural Turns and the (Re)constitution of Economic ...
Embededness of Local Inter-firm Networks: A Leverage for Business Creation,      Entrepreneurship and Regional Development...
54. Perry-Smith, J.E. (2003) The social side of Creatitiviy: a static and dynamic    social network perspective, The Acade...
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Where Can Public Policy Play a Role A Comparative Case Study of Regional Institutions and Their Impact on Firm’s Innovation Networks in China and Switzerland

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Where Can Public Policy Play a Role A Comparative Case Study of Regional Institutions and Their Impact on Firm’s Innovation Networks in China and Switzerland

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Where Can Public Policy Play a Role A Comparative Case Study of Regional Institutions and Their Impact on Firm’s Innovation Networks in China and Switzerland

  1. 1. Paper submitted to 9th Globelics International Conference 15-17 November 2011, Buenos Aires, Argentina Where Can Public Policy Play a Role? A Comparative Case Study of Regional Institutions and Their Impact on Firm’s Innovation Networks in China and Switzerland Ju LIU CIRCLE (Centre for Innovation, Research and Competence in the Learning Economy) Lund University, Lund, Sweden ju.liu@circle.lu.se School of Management and Economics University of Electronic Science and Technology of China, Chengdu, China liuju@uestc.edu.cnAbstractFirms’ innovation networks are embedded in regional institutions, yet the impact ofinstitutions on the innovation networks has not been clearly known. This paper investigatesthe structure of the intra-firm innovation networks (IntraIN) and the inter-organisationalinnovation networks (InterIN) of six manufacturing companies in the Great Zurich area ofSwitzerland and the Sichuan province of China. It takes institutional thickness as acomprehensive measure of institutions. It explores the institutional thickness of these tworegions and its impact on both the IntraINs and InterINs of the case companies. It finds thatinstitutional thickness has positive impact on the connectedness of alter InterIN while havingno apparent impact on both IntraIN and the direct connections between the focal firms andthe outside organisations in the InterINs. It is suggested that public policy should play a rolemainly to improve the institutional environment instead of directly bridging firms and theoutside organisations which the firms can do by themselves.Keywords: Innovation networks, Regional institutions, Institutional thickness,Intra-firm, Inter-organisational, China, Switzerland 1
  2. 2. INTRODUCTION It has been emphasized that innovation networks are embedded in certain contextof regional institutions (Asheim, 2005). Networking for innovation is both aneconomic process and a social-cultural-process which are shaped by economic, social,cultural, and political, or in short, institutional factors (Thrift and Olds, 1996; Crang,1997; Lundvall and Christensen, 2004). Regional institutions are central to theconstruction of the economy (Martin, 2000). It provides a “wider settings” (Lundvall,2007) for the interaction between actors in the innovation networks. For all thereasons, institution is firmly on the research agenda of studies on innovation network. Despite the increasing literatures and growing interest in this field, theunderstanding of institutions and its impact on innovation network remains ratherlimited. First, most of the researches just focus on one or two specific aspect ofregional institutions instead of taking institutions as a comprehensive whole. Onepossible reason is that institutions are a macrocosm with complicated structure so thatit is difficult to summarize and in particular to measure it as a whole. Nevertheless,the specialized approach to study regional institutions may lead to the problem oftaking a part for the whole. It is particularly improper for making generic publicpolicy. Second, it is known that institutions matter to innovation network but itremains unknown that to which part of the networks it matters or matters more, theintra-firm innovation networks (IntraINs), or the inter-organisational innovationnetworks (InterINs). The lack of research on the differences between the influence ofinstitutions on IntraINs and InterINs is because the innovation network research haslong been divided into two separate parts, namely the intra-organisational innovationnetwork research at individual level and the InterIN research at organisational level.One can hardly find literature having these two parts integrated together. Theseparation of research on internal and external innovation network may blur theboundary of effectiveness of public policy for innovation. In summary, it is necessaryto study the regional institutions as a whole and to integrate IntraINs and InterINstogether so as to better understand the mechanism of the impact of regional 2
  3. 3. institutions on innovation networks and to generate policy implication for innovation. This paper set out to fill up these research gaps by taking the institutions as awhole and combining the research on IntraIN and InterIN. It adopted institutionalthickness (Amin and Thrift, 1995) as a comprehensive measure of institutional factorsin the relevant region and introduced internal departments of the firms together withthe external organisations into the firms’ innovation networks. It is expected toexplore the differences between the impact of institutional thickness on IntraIN andon InterIN so as to better understand the role of institutions in the innovation networksand to understand what firms can do and can not do in terms of improving networkingfor innovation. Where the firms can do is the place that government should notinterfere. Where the firms can not do is the field that public policy should play a role. This paper is a comparative case study between the firms’ innovation networks inthe Great Zurich area in Switzerland and the Sichuan province in China. It addressesthe following questions: 1) How is the institutional thickness of the two regions? 2) What is the structure of the IntraINs and InterINs of the firms in these two regions? 3) What is the impact of the institutional thickness on the structure of theIntraINs and InterINs of the firms in these two regions? 4) What are the policy implications? The paper following is presented in four sections. The first is the theoreticalbackground in which the institutional and organisational dimension of innovationnetwork research are discussed. The second is the analytical framework includingtheoretical perspective and analytical tool, as well as the operational definition of theimportant variables and measures. The third is methods used in this research includingdesign of case study, selection of regions and firms, and collection of data. The fourthis case analysis and main findings. The fifth is discussions and conclusions. 3
  4. 4. THEORETICAL BACKGROUNDInnovation network---the institutional dimension Institutions have been highlighted in innovation network research by scholars inthe field of economic geography, business administration, and in particular theinterdisciplinary innovation studies with innovation system approach (Freeman, 1987;Cooke, 1992; Lundvall, 1992, Nelson, 1993; Malerba, 2002). The characteristic ofinnovation system approach is the acknowledgement that innovations are carried outthrough a network of various actors underpinned by an institutional framework(Asheim and Coenen, 2006). Institutions are defined as the “wider settings” (Lundvall,2007) in innovation system literature. It refers to education systems, labor markets,financial markets, intellectual property rights, competition in product markets andwelfare regimes. The wider settings shape people and the way how people relate toeach other within and across organisational borders. It appears that even though institutional thickness, a multifaceted concept to sumup the institutional factors in the relevant region, does not provide an automaticguarantee of economic dynamism, it does influence firm growth and regionaldevelopment in one way or the other (Bennett, 1997; Scott, 1998; Yeung, 2000). Theinstitutional thickness debate comes from the literature on socio-economic networksand territorial embeddedness. This strands of literature highly emphasis theinstitutional and social-cultural factors underpinning instances of sustained economicsuccess (Amin and Thrift, 1994a; 1995; Granovetter and Swedberg, 1992; Cooke andMorgan, 1993; MacLeod, 1997). Research on institutional thickness and its impact on innovation networking canbe seen on the horizon recently. Chaminade (2011) found that a set of institutionswhich is not too thick or too thin is the most favorable to boost global innovationnetwork. Todtling et al. (2011) found that the density, structure and size of theregional innovation system, which provides different institutional thickness, influencethe nature and geography of knowledge sourcing and the use of knowledge transfermechanisms in the innovation networks in ICT industry. Nevertheless, these 4
  5. 5. literatures mainly studied InterIN instead of IntraIN or both.Innovation network---the organisational dimension The organisational dimension of innovation network research experienced atransition from focusing on the user-producer linkage (Lundvall, 1985) to viewing thebigger picture with all the other organisations in the innovation system. This transitionechoes the evolution of innovation system approach from the technology system to amore comprehensive system combining economic, social, cultural, political incentives,determents, and organisations. As Lundvall (2007) suggested the core of aninnovation system is actually a network of actors including firms, organisations whointeract with firms (i.e. customers, suppliers, and competitors), and knowledgeinfrastructure (i.e. universities, research institutes). OECD (1999) identified fivegroups of actors in an innovation system. They are government (i.e. local, regional,national government, and international official organisations), intermediaries (i.e.service agencies, associations), firms and firm-financed research institutes,universities, and other public and private organisations (i.e. public laboratories,technology transfer organisations, patent offices, and training organisations). The analytical level of innovation network literature can be mainly summarizedinto two categories, the IntraIN research and the InterIN research. Researches onIntraIN usually take individual employees of the firm as the actors so as to see howthe organisational culture, atmosphere, and structure stimulate or inhibit individualemployees’ creativity and consequently influence the innovation outcome of the firm(Amabile, 1988; Ibarra, 1993; Perry-Smith, 2003). Researches on InterIN usuallyfocus on the role of InterIN shaping innovation (DeBresson and Arnesse, 2001,Freeman, 1991, Hagerdoorn, 1990, 1993, Nooteboom, 2004, Powell et al, 1996, Sohand Roberts, 2003) and innovation systems (Giuliani and Bell, 2005, Kastelle et al,2009). There is yet a limited amount of empirical studies on the role of intra-firmnetworks on innovation and organisational learning (Dantas, 2006, Jensen et al, 2007).But there is few research integrated both IntraIN and InterIN. 5
  6. 6. Innovation network---linking the institutions with the organisation The network perspective offers a meso-level compromise to link the institutionsat macro-level with the firms at micro level. (Araujo and Easton, 1996). It is difficultto provide a thorough understanding of the networking of individual firm (egocentricnetworking) without considering the overall networking (socio-centric networking) inthe context concern (Johannisson, 2002). It is important to study the impact ofinstitutions as a whole and it’s impact on firm’s innovation networks, in particular, theIntraINs and InterINs, in order to improve the effectiveness of public policy forinnovation. This paper links the institutional dimension with the organisationaldimension by exploring the structure of the innovation networks of firms (bothIntraIN and InterIN) and analyzing the influence of regional institutions onto thenetworks for innovation.ANALYTICAL FRAMEWORK The analytical framework of this paper (see Figure 1) is based on regional innovation system approach and social network analytical tool. Innovation system approach is the theoretical perspective of this paper. It provides the “tool of inquiry” (Nelson and Winter, 1982) to focus the research on the most important issue of innovation, namely the innovation networks and the institutions they are embedded in. The components of institutions and the actors in the innovation networks are identified based on the literature of innovation system. Social network analysis (SNA) is adopted to map the innovation networks of thecase companies and to measure the networks’ structural property. The structuralproperty of the innovation networks reflects the nature of the interaction among actorswhich is shaped by the institutions. Beside the regional institutions, other important influential factors of theinnovation networks, such as firm’s innovation capabilities, firm size, market structure,and technological regime are controlled in this paper. It will be explained later in thesection of methods. 6
  7. 7. Regional Firm’s Institution Impact Innovation network Institutional Thickness Network Structure • Organisational presence • Intra-firm network structure • Interaction among orgs • Inter-organisational network • Structures to regulate behavior structure • Mutual awareness and common agenda Innovation System Approach SNA Analytical Tool Figure 1. Analytical Framework The following section will explain the operational definition of the importantvariables in the paper and how they are measured and analyzed.Institutions and institutional thickness In this paper, institutions consist of two elements. One is the software, which isthe informal conventions, customs, norms, and social routines, as well as the formalrules, regulations, and laws (Johnson, 1992; Edquist, 2004). The other is the hardware,which are the organisations whose constitution and operation are governed by theformer elements (Neilson and Rosenberg, 1993). Institutional thickness is used as a multifaceted concept to sum up theinstitutional factors in the relevant region. Proposed by Amin and Thrift (1995),institutional thickness depends on four determinants. First, a strong organisationalpresence that is a plethora of organisations of various kinds including universities,research institutes, government agencies, innovation centers, consultant companies,development agencies, industrial associations, training agencies, etc. Second, thereis high levels of interaction among these organisations in the region including contact,exchange information, and cooperation. Third, there is development of structures of 7
  8. 8. domination and/or patterns of coalition-building in order to minimize sectionalismand rogue behavior. Fourth, there is the development of mutual awareness andcommon agenda. The concept of institutional thickness was developed 15 years agobut there has not been much further development since then. The reason is the lack ofsystematic observable or measurable indicators to demonstrate or to measure thethickness. To further develop these four determinants of institutional thickness intoobservable or measurable indicators, I adopted the six-element taxonomy of the“wider settings” of innovation system by Lundvall (2007). These six elements areeducation system, labor market, financial market, IPR regime, production marketcompetition, and social welfare system. In consideration of the structure of themarkets in which the case companies operate are all oligopoly, market competition isconsidered to be constant when comparing the different cases in the two regions. The determinants and indicators/measures of institutional thickness are shownin Table 1.Table 1 Determinants/ measures / indicators of institutional thicknessDeterminants Measures/indicatorsOrganisational presence Higher education system Number of universities per million population Number of students at tertiary level per million population Labor market Number of engineers and scientists per million population Financial market Number of employees of banks and investment institutes per 1000 population Social welfare system Social security expenditure per capita in USDInteraction among these Interaction between History of cooperationorganisations university and industry Exchange of personnel Mutual trustDevelopment of IPR regime Legal system constructionstructures to minimize Law enforcementsectionalism and roguebehaviorDevelopment of mutual Recognition of the importance of innovation in the societyawareness and common The history of regional innovation strategyagendaInnovation network, actors, ties, and connectedness Innovation network in this paper refers to a set of relationships in and of the casecompany aiming at technological innovation including both product and processinnovation. The case companies’ IntraINs and their InterINs are weighted and 8
  9. 9. undirected whole networks Actors of an intra-firm network were identified as different functionaldepartments or groups who serve as function of marketing, financial, R&D, andhuman resources (HR) etc. within the firm. This taxonomy follows the value chainanalysis by Porter (1985). In the InterIN of this paper, the actors include the casecompany itself and other organisations outside the case company, such asuniversities, research institutes, investment institutions, customers, suppliers,competitors, government agencies and so on. This category follows the taxonomy ofOECD (1999) and Lundvall (2007) in which firms, universities and research institutes,government agencies, intermediaries, and other public and private organisations areidentified as the five groups of main actors in an innovation system. The names andabbreviations of the IntraIN actors and the InterIN actors are shown in Table 2.Table2. Name and abbreviation of actors of IntraINs and InterINs Intra-firm Actors Inter-firm Actors (excluding the case company)R&D R&D Department CST CustomersPRD Production Department SPL SuppliersHR Human Resource Department CPT CompetitorsMKT Marketing Department INV Investment institutionsFIN Financial Department IA Industrial AssociationsLOG Logistic Department GOV GovernmentIM Innovation Management Department UNI Universities RI Research Institutes CSL Consulting Companies The ties of the innovation network are both formal and informal relationships for 1) Access to openly available information without the need to pay for or withmarginal fee for the access, such as membership in trade associations, attendance atconferences, subscriptions of journals; 2) Acquisition of technology and knowledge without active cooperation with thesource, such as purchasing machinery, equipment, hiring people, or using contractresearch and consultant service; and 9
  10. 10. 3) Active participation in joint innovation projects. The relational data of the ties were collected through a roster recall method(Wasserman and Faust, 1994). Each case company was presented with a complete list(roster) of the actors in the network and was asked questions: Q1: Do the following actors contact each other for your company’s technological innovation activities? Q2: If do, how is the strength of these connections in terms of the intensity they contact each other, the frequency they contact each other, and the trust between each other? Please give a score to represent the strength of the connections. Strength Very strong Strong Normal Weak Very weak Score 5 4 3 2 1 The connectedness of the IntraIN and InterIN was measured by the networkdensity and actor’s Freeman degree. Network density is a measure of the connectedness of the network as a whole.The density of the IntraINs and InterINs were calculated and compared within andbetween the regional institutions of Great Zurich and Sichuan. Then one can see ifthere are differences within each region and between two regions. Specifically, thispaper takes off the case companies from the InterINs and analyzed the density of the“alter InterINs”, which refers to the set of nodes that has ties with the focal firm butnot including the focal firm itself. The purpose is to further explore the impact ofinstitutional thickness onto the direct connections between the case companies and theoutside organisations in their InterINs as well as the indirect connections amongoutside organisations (the alters) for the case company’s innovation. Freeman degree is a measure of the connectedness of a specific actor in a localenvironment. It measures the centrality of the node in the network and shows thepotential of the node’s positional power. It is used to identify who are the most wellconnected actors in the innovation networks. 10
  11. 11. METHODSDesign of case study This research is a comparative case study with multi-case embedded design. Thereason why I used multiple cases is that multiple case studies are likely to yield moreconvincing, robust, and tenable findings. Given limited theory about how institutionsinfluence the structure of IntraINs and InterINs, this research adopted a multiple-caseembedded design (Yin, 2003). The embedded design uses several units of analysis,such as connection with in firms, connection between firms and other organisations,as well as and regional institutional factors.Selection of regions Polar sampling approach was used to select the case regions in order to see howregional institutions influence the construction of IntraINs and InterINs. Polarsampling can make the constructs and theoretical relationships “transparentlyobservable” (Pettigrew, 1990). The two regions I compared in this paper are Sichuanin southwest China and the Great Zurich area including Glarus, Grisons, Schaffhausen,Schwyz, Solothurn, Zug and Zürich in Switzerland. It is expected that Sichuan and Great Zurich are significantly different in terms ofinstitutional thickness thanks to the economic, political, cultural, and socialdifferences between these two regions. First, the economic development level of thesetwo inland regions is obviously different. Sichuan is the one of the least developedregion in a developing country while the Great Zurich is the economic center andhome of a vast of multinational companies in one of the most developed countries.The GDP per capital of Sichuan in 2005 is 1,048USD ranking 27th among China’s 31provinces and municipalities directly under the central government1 while the numberof the Great Zurich in 2005 is 74,110 USD ranking 5th among the 25 cantons inSwitzerland. Second, the political systems of these two regions are totally different.Sichuan, as other 30 provinces and municipalities in China, is under strong statecontrol from the central government. Zurich, however, has high political autonomy.1 Sichuan Statistics 2006 11
  12. 12. Third, the cultural and social norms and conventions are very different. Sichuan is aplace traditionally restrained by its disadvantaged geography. Tibetan plateau in thewest and other huge range of mountains in other three directions isolate Sichuan fromthe outside world. Consequently, Sichuan people feel culturally and socially uneasy tocooperate with outsiders. Great Zurich is right in the center of Europe neighboringwith Germany, Austria, and close to France and Italy. The multi-language speakingpeople and permanent neutral political status make negotiation and cooperationcommon activities in the society. The institutional thickness of these two regions will be further analyzed in thesection of analysis and main findings.Selection of firms Theoretical sampling approach was adopted to select the case firms in order toinduce tenable findings from the cases. Six large high-and-medium-techmanufacturing companies with strong innovation capabilities were chosen as casecompanies. In Zurich, they are HVP, LED, and Emhart. In Sichuan they are Grace,DEC, and ERZ2. These six firms were selected by four criteria, namely firm’s innovationcapabilities, firm size, market structure in which the firm operates, and technologicalregime in which the firm is involved. These four selecting criteria were chosen fromthe perspective of firm, market, and technology which have fundamental influenceonto firm’s innovation process. Companies with strong innovation capabilities were selected in this paper. Thereason is that the innovation activities in these companies are more active than that ofcompanies with low innovation capabilities. It is easier to observe their innovationnetworking behaviour and to collect data. The technological innovation performancewhich is measured by the percentage of the sale of new products to total sale in thepast three years is used to estimate the innovation capabilities of the case companies. Large companies were selected in this paper. Firm size matters when it comes to2 The company HVP and LED requested anonymity. 12
  13. 13. innovation (Audretsch and Acs, 1987. Cohen and Klepper, 1996; Rogers, 2004).Large firms and small firms behave differently when innovate. I chose largecompanies because their innovation networks are usually broader than smallcompanies. It is also easier to observe their innovation networking behaviour and tocollect data. The number of employees is used to measure the size of the casecompanies. Case companies all operate in oligopoly market. Market structure (Kamien andSchwartz, 1982) refers to the state and characteristics of a market with respect to thedegree or intensity of competition among buyers and among producers. Scholars withmarket structure perspective argued that competition urges innovation and monopolyprotect the profitability of innovation. Herfindahl-Hirschman-Index is used in thispaper to identify the structure of the market in which the case companies are operating.HHI is the measure of market concentration which is the most important indicator ofmarket structure. n HHI= Si i =1 S is the market share of firm i competing in the market. In this research only fourcompanies with biggest market share are considered. Technological regime of the case companies are all high-and-medium-tech based.Technological regime (Dosi, 1982; Nelson and Winter, 1982; Malerba and Orsenigo,1996) is characterized by the opportunity, appropriability, and cumulativeness. It isalso characterized by the complexity of knowledge base. Scholars with technologicalregime perspective argued that the specific features of technological regimes affectthe specific patterns of innovation process as well as the structure of innovationnetworks (Malerba and Orsenigo, 1996). In this research I used the R&D cycle, whichis related to the changing speed of technology, to indicate the opportunity,appropriability, and cumulativeness of the technology in which the firms are involved.It is measured by the average time period of developing a significant new product inthe industry. I also used R&D intensity to specify to which extent the technology ofthe firms is knowledge-based. R&D intensity is measured by the ratio of expenditures 13
  14. 14. by a firm on research and development to the firm sales s The overview of the firms in terms of firm’s innovation capabilities, firm size,market structure in which the firms operate, and technological regime in which thefirms are involved, can is shown in Table 3. It is clearly shown that these six casecompanies are all strong in terms of innovation capabilities. They are all largecompanies (number of employee > 1000). They all operate in oligopoly market (HHI> 0.10) where competition is concentrated among several big companies. They are allmedium-and-high-tech companies (R&D intensity between 4% and 9%).Table 3. Overview of the case companies Firm size Innovation performance Market structure Technological Percentage of the sale Market share of the regime of new products to total 4 biggest firms in the HHIRegion Firm Number of sale industry employees R&D Case Firm Firm Firm R&D 2007 2006 2005 cycle firm A B C intensity (months) HVP 33600 50% 50% 50% 20% 15% 15% 5% 0.109 36-60 6% - 8%Zurich LED 36000 40% 30% 25% 30% 30% 10% 10% 0.204 24-36 6% - 8% Emhart 1064 30% 30% 90% 45% 9% 7% 6% 0.219 18-24 7% - 8% Grace 12000 47.8% 45.8% 51% 29% 28% 13% 11% 0.192 12-24 6% - 9%Sichuan DEC 9000 60% 50% 55% 30% 30% 25% 5% 0.245 20-36 4%-5.5% ERZ 12650 72% 69% 67% 45% 25% n/a n/a 0.265 12-24 6% - 9% Data collection Data sources of this paper includes interviews, questionnaires, follow-up emailsand phone conversations, archives, websites, internal reports, internal documents andpress news. Multiple data sources provide more accurate information and improvesthe robustness of the results (Jick, 1979; Anand et al., 2007). One questionnaire wasdeveloped and administered to elicit responses from 15 senior managers in thesecompanies. In total, 51 interviews were conducted. I interviewed companies’ seniormanagers (most of them are CEOs and VPs of technology) to fill up the questionnaireand interviewed middle level managers (usually R&D managers, innovation managers)to clarify and verify the answers to the questionnaires, and to complement with 14
  15. 15. necessary information. I interviewed government officials, university researchers, andindustrial practitioners in other companies for better understanding of the institutionalcontext of these two regions. Each interview lasted from one to three hours. All theinterviews in Europe were recorded but some interviews in China were not, as ourChinese interviewees were reluctant to be recorded. The interviews in Sichuan, Chinawere done between 2007 and 2009 while the interviews in Great Zurich wereconducted in 2008. The interview started by asking informants background questions about theircompany and the industry, such as the history of the company, the organisationalstructure of the company, their strategy of innovation, the technology nature andcompetition in the industry, etc. Then the questions went to the relationship betweenthe inside functional departments or groups, the relationships between the insidefunctional departments/groups and the outside organisations, and the relationshipsbetween the outside organisations. The informants were reminded constantly that allthe relationships should be relevant to the technological innovation activities of thespecific company they work for. At the end of the interview, open-ended questionswere asked to identify the hindrances and facilitators in the region for the constructionand development of the firms’ innovation networks. Potential informant bias is addressed in four ways. First, I selected highknowledgeable informants from multiple hierarchical levels of the firms. Both topmanagement team members that are CEO or VP of technology, and middle levelmanagers such as R&D managers or innovation managers, were interviewed. TheCEOs or VPs of technology usually know the whole picture of the innovationactivities in the company but they may ignore some details of the innovation process.The R&D managers or innovation managers’ answers were used as complementarymaterial to improve the accuracy of the data collected from the CEOs or VPs oftechnology. Second, I used “courtroom questioning” technique to focus on factualaccounts (Lipton, 1977; Humber and Power, 1985). I asked the informants to specifywhat kind of activities have been carrying on in each specific relationship so as toensure that the informant did not mix the relationship for innovation with those for 15
  16. 16. routine work, such as production. It was also helpful for informants to avoid theconfusion between what had happened and what should happen. Third, I gaveanonymity to the informants and their firms on request to encourage candor. Fourth, Ishowed the potential benefit of the research to the informants to increase their interestof participating. Strong interest of informants ensures the accuracy of their accounts(Miller et al., 1997). The informants were very motivated to give accurate informationbecause they knew that networking is critical to the companies’ innovation but did notknow the very precise picture of the IntraIN and InterIN of their companies.ANALYSIS AND MAIN FINDINGS Following the multiple case study procedure (Eisenhardt, 1989b; Yin, 2003), Iused within-case and cross-case analyses with propositions as follows Proposition 1: institutional thickness has no impact onto firms’ IntraINs. Proposition 2: in the thick regional institutions, firm’s InterINs are dense Proposition 3: in the thin regional institutions, firm’s InterINs are sparse Triangulating all of the data I collected, I began with studying each single caseby analyzing the region’s institutional thickness and explaining the influence of theinstitutional thickness and its impact on the construction of the case company’sIntraIN and InterIN. Then I conducted a cross-case analysis using replication logicacross the cases, treating each company as a case. Using replication logic, I developedpreliminary findings from some cases and then tested them on others to validate andrefine the prior findings (Eisenhardt, 1989b; Yin, 2003). Some propositions wereconfirmed and others were revised when they did not replicate across the cases. Thefindings of this multiple case study are as follows.The regional institutions of the Great Zurich area is thick while that of the Sichuanprovince is thin I evaluated the institutional thickness of Great Zurich and Sichuan. The resultsare shown in Table 4. 16
  17. 17. Table 4. Overview of institutional thickness in Sichuan and Great ZurichDeterminants Measures Sichuan Great Zurich3Organisational Number of universities per 0.87 20.54presence4 million population Number of students at tertiary level per million 10,556 29,718 population Number of engineers and scientists per million 1,583 13,180 population Number of employees of banks and investment 2 15 institutes per 1000 population Social security expenditure 50.3 20, 243 per capita in USDInteraction Interaction between Short history of cooperation Long history of cooperationamong university and industry Few personnel exchange Frequent personnelorganizations Lack of mutual trust exchange Generally trust each otherDevelopment IPR Legal system Patent law in 1984 Patent law in 1888of structures construction Legal system in shaping Legal system compatibleto minimize with European IPR systemsectionalism IPR Law enforcement Local protectionism in Strict enforcement of IPRand rogue enforcement of IPR law lawbehaviorDevelopment Recognition of the Low level of recognition High level of recognitionof mutual importance of innovation inawareness and the societycommon The history of regional Regional innovation strategy Regional innovation strategyagenda innovation strategy started in 2006 started in 1990s Great Zurich has strong organisational presence while Sichuan has a weak one.This can be seen from the statistics in four aspects, namely higher education system,labor market, financial market and social welfare system which are shown in Table 4. Great Zurich has more intensive interaction between different organisations inthe region than Sichuan. Taking university-industry interaction as an example, thedifference can be seen as follows. In Great Zurich, university and industry has a long history of cooperation. Onefamous case is the cooperation between Swiss Federal Institute of Technology, Zurich3 Note: the data of Switzerland is used to substitute for the data of the Great Zurich Area due to the unavailability of the later one. As Zurich is one of the economic, financial, and education center of Switzerland, one can expect the data of GREAT ZURICH should be higher than the average data of Switzerland.4 Source: Sichuan Statistics 2008 Sichuan Fiscal Report 2008 China Banking Regulatory Commission Yearbook 2008 Higher Education in Switzerland 2006 by State Secretariat for Education and Research SER and Federal Office for Professional Education and Technology OPET Statistical Yearbook 2011 (Switzerland) China Banking Regulatory Commission Yearbook 2008 17
  18. 18. and Roche group in 1935 on the patent of Vitamine C which resulted in the rapidgrowth of Roche making this company the leading pharmaceutical company in theworld since then. The applied science universities are the very special institutions inthe Swiss higher education system. The original intension of establishing appliedscience universities is to enhance the connection between university and industry.R&D in applied universities are all related to the demands in market instead of purebasic research. The establishment of applied science universities successfullyimproved innovation via cooperation between university and industry. Personnelexchange between universities and industry is very common in Switzerland. Half ofthe rectors of applied science universities are industrial practitioners. Many engineersand managers have formal position in universities. Talking about the relationshipbetween university and industry, a former applied science university rector said: Generally speaking, universities and industry trust each other. Switzerland is a small society. Everybody knows everybody. Not only people in the same field know each other, those from different fields know each other too. This can partially attribute to the Swiss compulsory military service system. If we don’t meet in the school or at work, we meet in the military. Once we set up personal relationship, it is much easier for further develop cooperation for innovation on the basis of mutual trust. In Sichuan, universities have been historically considered as ivory towers whichare to some extent isolated from the industry. Recently, four of the main universitiesin Sichuan province pledged to build themselves the (pure) research-baseduniversities. The evaluation criteria for professors are mainly the number ofpublications and patents. Not many researchers and professors in the universities arereally interested in developing products for the market. Personnel exchange,especially those from industry to universities, is very rare. Usually the high achievedengineers or managers can only be invited as part time guest lecturers. It is almostimpossible for them to have formal position in universities thanks to the bureaucraticregulation. The director of Department of Science and Technology in Grace said: We had tried very hard to cooperate with one of the university in our province. We 18
  19. 19. invested heavily but failed badly. The reason is that our company and university professors had different goals and interests. We wanted new product which is profitable in the market. They wanted papers and patents. We tried several other universities, but few were successful. Usually the professors together with their students came to pay a two-day visit. Then they took the project back and worked in their laboratory. Three months later they came back with blueprints and technical drawings which usually ended up on the shelf. Great Zurich has stronger legal system to minimize infringing and roguebehavior in innovation than Sichuan. Taking IPR regime as an example one can seethe apparent difference between these two regions. In Switzerland the first patent law was issued in 1888 and the Federal IPRAssociation was established in the same year. After a hundred years of development,the importance of IPR has been aware by companies, universities, and individuals.Switzerland is the member of the European IPR system. The Swiss patents andEuropean patents are mutually recognized. The recent revise of IPR law furtherenhanced the right of inventors and improved the financial incentives for universityresearchers. As the VP of technology of HVP said: Usually at the beginning of the cooperation, we made an agreement on IPR issue. There is actually a regulation on IPR for the cooperation between companies and universities in Zurich. Once we reach the agreement, everybody abide it. The IPR law here is very strict and mature. You can hardly find loopholes to manipulate. We try our best not to infringe other’s IPR by accident. We definitely will not infringe on purpose. There is no space for the pirates in the Swiss society. In China, the first patent law was issued in 1984. The importance of IPR and theawareness of IPR protection have not been widely recognized. The legal system isstill in transition . Local protectionism remains serious problem when enforcing theIPR law. To some extent it costs relatively less to break the IPR law than to abide by it.The director of Sichuan Patent Office said: Things have been improved a lot since the Patent Law was put into practice in the 1980s, 19
  20. 20. there are still a large space to improve. We are now confronting with two important issues. The first is the weak awareness of IPR among the entrepreneurs, individual customers, even the government officials. The second is the serious problems in terms of enforcement of the IPR law. The Central government has kept emphasizing the importance of IPR law, but when it comes to enforcement, there is still a long way to go. Great Zurich developed more mutual awareness and common agenda oninnovation than Sichuan. Looking into the history of the initiation and implementationof regional innovation strategy, one can tell the difference between these two regions. Great Zurich started the region’s innovation strategy in the 1990s. The thenmayor of Zurich said: Zurich’s innovation strategy started in the 1990s when Sulzter (one of three biggest Swiss companies) closed their factory. The picture of the smokeless chimney of Sulzter’s factory and the empty workshops on the newspaper was totally astonishing to all the citizens in Zurich. It was at that moment when people started to realize the importance of innovation to revive the economy and to strengthen the competence of our companies. New strategies, tools, ideas and ventures have been formulated and put into practice with the focus on transferring research into market success. Since then the industry of Zurich has been upgraded from mass manufacturing to knowledge-based high-value-added industries. Now many citizens, including the municipal government, are keenly aware that they will have to continue and boost innovation activities because the innovation capabilities are more critical these days when global competition is much more intensive than in the 1990s. Sichuan just introduced the concept of innovation very recently. 2006 is the yearwhen the word “innovation” began to be frequently seen in public media in Sichuanand the rest of China. In that year the central government issued a 15-year-long planfor science and technology development. The president of China made an importantspeech calling for building an innovation-oriented country. But till now “innovation”has never become the key word neither in the regional strategic planning nor in thegovernment annual report. Instead, there were “ecology strategy” in 2005,“industrialization strategy” in 2006, “brand strategy” in 2007, and recently the 20
  21. 21. “quality strategy” in 2009. As one of the government official in Sichuan EconomicCommittee said: The importance of innovation has been recognized more and more widely in our province. But not many people understand it deeply, say nothing to implement. It is still a political slogan than an economical and societal practice. We need to do more to educate people to realize that innovation is the only way to make economic growth sustainable. Strategies and polices should also put innovation in the center.In both thick and thin regional institutions firms’ IntraINs are similarly dense No significant difference is found on the density of IntraINs within and betweenthe thick institutions of Great Zurich and the thin institutions of Sichuan. The densityof all the six case companies’ IntraINs are similar (see Figure 2). This means all thedifferent functional departments or groups closely work together for the innovationactivities in each case company. Proposition 1, institutional thickness has no impact onto the firm’s IntraINs, isthen validated. Great Zurich Sichuan Figure 2. Comparison of density of IntraINs in thick and thin regional institutionsIn a thick regional institutions the firm’s InterINs are dense As seen in Figure 3, the densities of case companies’ InterIN in the thick regionalinstitutions of Great Zurich are all high. It means in the thick institutions firm andoutside organisations closely work with each other for the innovation of the firm inquestion. Proposition 2, in a thick regional institutions the firm’s InterINs are dense, isvalidated. 21
  22. 22. Great Zurich Figure 3. Comparison of density of InterINs in the thick regional institutions Nevertheless, proposition 3, in a thin regional institutions the firm’s InterINs aresparse is not validated. As what can be seen in Figure 4 that the density of ERZ’s InterIN is high whilethose of DEC and Grace are both low. The invalidation of proposition 3 provided a chance to further explore the reasonbehind the uneven distribution of density among the three case companies’ InterINs inthe region of Sichuan. Further analysis on the regional institutional thickness shedlight on the reason. The paper comes up with the following findings .In a region characterized by transitional economy, institutional thickness is in changeand is unevenly distributed to different firms. For the firm in the thick part of theregional institutions, its InterIN is dense. For those in the thin part of the regionalinstitutions, their InterINs are sparse. It is found that the strong presence of knowledge-based organisations in thespecific technology field of ERZ in Sichuan, together with the similar governmentbackground of several key actors in the InterIN of ERZ increased the institutionalthickness for this company in the region. However such condition does not exist in thecase of DEC and Grace. As shown in Figure 4, the left part of the backgroundrepresents the thick part of the regional institutions for ERZ while the right partrepresents the thin part of the regional institutions for DEC and Grace. 22
  23. 23. Sichuan Thick ThinFigure 4. Comparison of density of InterINs in transitional regional institutions of Sichuan (left part becomes thick and right part is still thin) Analyzing freeman degree of the actors in the InterINs of these three casecompanies in the region of Sichuan (see Figure 5), I found that in the case of ERZthere are two groups of outside organisations whose Freeman degree are much higherthan that of DEC and Grace. Figure 5. Freeman degree of actors in the InterINs of three case companies in Sichuan5 One group of actors is the knowledge-based organisations, namely universities,research institutes and consultant companies. I found that in the case of ERZ, there isa university and several research institutes in the region that have strong R&Dcompetence in machinery and material science for ERZ’s innovation. They also havegood relationship with ERZ. The strong presence of knowledge-based organisations inthe machinery industry in Sichuan is because this region had been the target area ofThree-tier-construction (San-xian-jian-she) Project since the 1950s when China5 Note: in the graph, CASE means the case company, namely DEC, ERZ, and Grace 23
  24. 24. moved all the heavy industry to inland provinces to avoid possible attack from theformer Soviet Union. Knowledge infrastructure in the industry of ERZ has becomestrong since then. But in the case of DEC and Grace, they are not as lucky as ERZ asthe knowledge infrastructure in their technology field is still weak in Sichuan. In short,the strong organisational presence in the technology field of ERZ increased theinstitutional thickness only for ERZ. The other group of actors is government-based organisations, namely investmentinstitute, industrial association, government agency. ERZ is a state-owned companywhich is recognized by the central government as an enterprise with “significantimportance to national economy and people’s livelihood”. The investment institute inthe case of ERZ is actually the government. The industrial association is also anorganisation with strong government background. In this sense, all of them aregovernment agencies in different forms. The similar governmental background ofthese three organisations naturally provides a structure where sectionalism and roguebehavior is constrained, mutual awareness and common agenda is encouraged andinteraction between each other is increased. But the institutional thickness increasedonly in the case of ERZ. It did not happen in the case of DEC and GraceThe impact of institutional thickness on the InterINs is mainly through the impact onthe connection among the outside organisations instead of the direct connectionbetween the focal firm and the outside organisations Comparing the focal firm degree of all the six case companies within andbetween these two regions, no apparent differences are found (see Figure 6). Ifdichotomize the weighted InterINs, the density of all the case companies’ degree inthe InterINs are quite similar. ERZ and Grace have connection with all the 9 outsideorganisations while Emhart, HVP, LED, and DEC have 8 connections instead. 24
  25. 25. Great Zurich Sichuan Thick Thin Figure 6. Comparison of focal firm degree in the two regions Comparing the density of the alter-InterIN (the network with only outsiderorganisations) (see Figure 7), I found that there is a similar distribution pattern ofdensity as that of the density of InterINs (see Figure 3 and Figure 4). Great Zurich Sichuan Thick Thin Figure 7. Comparison of the density of alter InterINs in the two regions This finding suggests that institutional thickness influence InterIN’s densitythrough the influence on the connection among outside organisations instead of directconnection between focal firm and outside organisations.DISCUSSIONS AND CONCLUSIONS This paper is a comparative case study which explored the impact of institutionalthickness on the structure of firms’ IntraINs and InterINs. The case companies are sixlarge high-and-medium-tech manufacturing companies with strong innovation 25
  26. 26. capabilities in two different regions --. the Great Zurich area with thick institutions inSwitzerland and the Sichuan province with thin institutions in China. The evidence uncovered through the case studies shows that institutionalthickness has positive impact on the density of the alter-InterINs which is the networkof outside organisations that have connection with the case companies for theinnovation activities in these case companies. It is also found that institutionalthickness has no apparent impact either on the density of IntraINs or theconnectedness between the focal firms and the outside organisations. The explanation for such a finding is as follows. A firm is an entity with highextent of autonomy within the organisational boundary as well as some extent ofinitiative outside of it. The characteristic of firm is more relevant to the constructionof the IntraIN because the constructing of IntraIN mainly depends on the firm’sinternal capabilities of networking. All the case companies are stand-alone companieswith strong innovation capabilities. They have strong capabilities to mobilize theresources inside and outside the company. This is the reason why all the six casecompanies, no matter whether they are in thick or thin regional institutions, they allhave strong connectedness of IntraIN and strong connection with outsideorganisations. But what the firms cannot control and interfere is the connection amongoutside organisations. The connectedness among the outside organisations actuallyreflects the institutional thickness of the region. In this part, public policy may play arole. I strongly believe that public policy should be designed to improve theinstitutional thickness by enhancing the education system, labor market, IPR regime,financial market, and social welfare system, instead of directly bridging firms withoutside organisations which the firms can do by themselves. 26
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