Promoting inter-firm co-operation

In promoting inter-firm cooperation, it is important to distinguish two consecutive steps. The first step is to get firms involved in a cooperation effort, i.e. to overcome their hostility against any sharing of information and experiences. The second step is to mount a sustained exercise of interaction and collective learning.

Starting with the first step, one should not

• assume that there exists firms’ demand for support, based on common understanding or surveys. A survey may find that lack of cooperation is one of the main reasons for low competitiveness. However, firms will often have a profoundly different perception.
• take the analysis of key problems provided by the firms themselves too serious. Firms will often see problems everywhere except internally.
• overestimate the willingness of businessowners to start a joint learning effort with other businessowners, particularly of the same branch.

Accordingly, the traditional approach – prepare an analysis of firms' problems and start to offer them certain services – is inadequate. Moreover, starting an effort that has stimulating inter-firm cooperation as its aim does not make much sense. Inter-firm cooperation is a means of enhancing competitiveness, not an aim in its own right. Rather, the first step should be to define, in an exercise that involves businesspeople and support agencies (which need not be government agencies!), the key bottlenecks that firms are facing, and to identify those bottlenecks that can be remedied in the short term. This process should aim at mobilizing the knowledge of all the firms involved, i.e. stimulate inter-firm cooperation as a side effect. Promising areas are, for instance, environmental issues like wastewater treatment and treatment of waste, or training issues. These areas do not touch directly on what firms perceive as there core competence so that there will be less fear of giving away industrial secrets and more willingness to cooperate.

Regarding the second step, the crucial issue is to find a way of transforming the local business culture on a sustained basis. Business associations may play a key role here as they are by definition the place where cooperation between firms should take place. In the past, however, they were often merely vehicles for policy entrepreneurs or social clubs rather than effective entities. Technical assistance to promote inter-firm cooperation should therefore target business associations. The aim should be to encourage and accompany organizational development processes in these organizations. In fact, the conditions to do this may not be bad in those locations where firms are under an increasing competitive pressure. In some places, associations have entered into a virtuous circle: By offering assistance to struggling firms, they have created an incentive for voluntary, paying membership, thus increasing their funding base. This in turn made it possible to widen the scope for assistance to firms, again widening the funding base, and so on.

Such initiatives are most likely to succeed which meet four criteria:

• they address immediate problems of firms,
• they do not touch what firms perceive as their core activities,
• they open little or no latitude for predatory behavior,
• they offer the potential of savings through economies of scale.

Let me explain these criteria by briefly outlining typical activities which do not meet them and usually fail. First, there is technological co-operation, such as the joint development of a new production process. In such a case, participating firms fear that other firms get to know pieces of information which they perceive as essential to their competitiveness. Accordingly, they put pressure on their technicians not to unveil any possibly critical information, what in effect means that it is unlikely that the co-operation project gets anywhere. Firms may also choose their less competent technicians to take part in the project, something that also does not enhance the probability of success. Second, when one mentions the option of co-operation, businesspeople in a non-cooperative cluster typical come up first of all with ideas which effectively are anti-competitive, such as forming a purchasing co-operative. However, if firms do not trust each other, a supplier who is the target of the co-operative will easily break it by offering preferential purchasing conditions to one or some of the participating firms.

What then are activities which meet the four criteria? Research in clusters in the state of Santa Catarina, Brazil (Meyer-Stamer 1998) found three types of activities:

• Training. Even though surprisingly many firms opted for in-house training (even when it came to basic education for semi-literate employees), there were numerous examples of joint training activities. The economies of scale are obvious, the benefits as well, there is little option for predatory behavior, and the training is limited to areas which do not touch upon the core activities.
• Environment-related activities. In this area co-operation between firms involved a level of exchange of information between firms which was unthinkable in areas such as quality management or technological development. Apart from being due to the fact that firms, initially mostly sticking to end-of-pipe-solutions, perceived environmental protection literally as a peripheral activity, the fact that there was the government environmental agency as an external enemy also created an incentive to stick together.
• Basic testing activities. In the textiles industry this refers to testing cotton fibers and chemical inputs, in the ceramic tile industry to testing the clay. In fact, in the ceramic tile cluster around Criciúma, which is the leading cluster in the industry in Latin America, it was after a major crisis in the early 1990s that firms lobbied their business association and state government to create a technology center which had testing as one of its main activities. The crisis forced firms to look out for potentials to save costs. Before that, each firm had its own laboratory.

Looking at the evolution of the clusters in Santa Catarina, it is possible to perceive that initiatives like those just mentioned may pave the way for more ambitious co-operation activities. As firms see that co-operation creates advantages, they may develop a certain degree of trust which permits other, more ambitious and risky co-operation activities, such as exchange of technological information. However, there is by no means a clear trajectory in this respect. The experience of the tile cluster in Criciúma is somewhat sobering: After a massive joint effort to deal with the crisis achieved most of its declared goals by the mid-1990s, the degree of co-operation has been decreasing again. Whereas four years ago several of the local actors saw their cluster on track to emulate the experience of Italian industrial districts, today one can sense a certain frustration which may be due to the fact that maintaining co-operation is quite an effort.

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