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    Knowledge creation on China, from proven China experts.

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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

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Friday, July 10, 2020

Innovation off the beaten track: How multinationals can work with smaller companies to make it happen

By Shameen Prashantham and Sumelika Bhattacharyya

While there is growing interest in the division of entrepreneurial labour between Multinational Enterprises (MNEs) and Small and Medium-sized Enterprises (SMEs), most prior work focuses on empirical settings based within reputed clusters of such organizations. However, little is known about the MNE–SME partnering process in peripheral subnational regions outside established clusters. Although the bulk of MNEs’ co-innovation with local actors may well occur within these clusters, it is worthwhile considering peripheral non-cluster contexts for at least two reasons.

First, the presence of MNEs in peripheral regions is directly tied to developmental goals, as policy-makers in such non-cluster regions seek to attract inward foreign direct investment (FDI). Second, historically operational subsidiaries that were located in such regions often seek to improve their performance by upgrading their capabilities from manufacturing to innovation, a prospect that local policy-makers also welcome. We therefore address the question: How is MNE– SME collaboration for innovation enabled in peripheral subnational regions?

Method and setting

Given the exploratory and processual nature of our research question, we decided to conduct an exploratory study using existing case studies. Specifically, our study focuses on regional policy initiatives impacting the IT industry – one in a peripheral region of the UK in Glasgow and another in a similar region of China in the port city of Ningbo. In the UK context, Glasgow in Scotland would be considered peripheral relative to a core region such as the Thames Valley area encompassing London, while, in the Chinese context, Ningbo in Zhejiang would be considered peripheral to Beijing’s Zhongguancun high-technology district. Advanced economic settings are institutionally more mature in terms of basic levels of technological and commercial competence, as well as supporting conditions such as the intellectual property regime.

The specific UK policy initiative we examined was the Scottish Technology and Collaboration (STAC) Programme, aimed at helping international companies in Scotland such as IBM collaborate on joint innovation projects with domestic SMEs.

Correspondingly, in recent years, the Ningbo’s municipal government has sought to improve its technology-based industries as China seeks to move beyond low-cost manufacturing to increase the level of its innovation output. Like Glasgow, a key challenge it has faced has been its peripheral low reputation location compared with high-tech clusters of China such as Beijing and Shanghai. As part of its efforts to attract FDI, the government has made use of the Ningbo Smart City Initiative, which seeks to utilise information technology to improve the efficacy of services in sectors such as education, healthcare, logistics, commerce and transportation.

Findings

We observed a common pattern in the policy interventions in the UK and China entailing three facets of boundary work: sensing work, interfacing work and co-creating work. Sensing work refers to the activity involved in initially identifying opportunities for partnering; interfacing work refers to establishing intermediating processes that enable partnering organisations to connect and collaborate; and co-creating work refers to joint mutually beneficial value creating activity undertaken by partners. However, there were significant differences in how these were undertaken.

The UK effort was proactive in terms of the intentionality with which a new policy measure, STAC, was introduced to enable already present MNE subsidiaries partner with domestic SMEs. It was innovative in the sense that it was a new measure at the time, relatively unutilised even in other regions of the UK. There was an element of risk in that this was not a tried and tested method, and, although the original impetus for this policy had come from the prospective partners (MNEs and SMEs) themselves, there was no guarantee that, once introduced, the policy would attract enthusiastic participation and generate tangible outcomes.

The China effort was proactive in terms of the deliberateness with which an existing policy instrument – the smart city programme – was utilised to bring about the desired outcome of attracting MNEs and having them work with local SMEs. It was innovative to the extent that the intent to promote MNE-SME co-innovation was being pursued covertly. There was also an element of risk. Specifically, there was no precedent at the time, and it was not clear that the plan would work in reality. As such, an important insight from the study is that policy-makers can exhibit entrepreneurial behaviour, and this appears particularly valuable in peripheral regions.

Implications for regional policy

This work has two key implications. First, there is value in adopting a more integrative perspective in dealing with FDI and innovation, as opposed to the more typical siloed approach to tackling these areas. In demonstrating the plausibility of enabling MNE-SME co-innovation in peripheral regions, our study also indicates that the two agendas of attracting (or keeping) FDI and promoting the innovation of local firms can be synergistic.

Second, our work (especially the China study), highlights possible scope to be innovative in leveraging non-obvious opportunities by ‘‘making do’’ with existing policy measures. That is, our study suggests that creatively using existing policy instruments (e.g. a smart city programme) can yield non-obvious opportunities for inter-organisational collaboration.

Concluding remarks

Our study highlights the role of non-market actors such as local government agencies in enabling MNE subsidiaries to tap the local entrepreneurial ecosystem in peripheral non-cluster locations. As such, innovative collaborative efforts outside of established clusters need not be viewed as being impossible as long as relevant actors adopt a creative and entrepreneurial stance towards partnering between non-traditional allies. For MNEs seeking to leverage their multiple locations for innovation, this study highlights the easily overlooked value that can be created and captured in peripheral subnational regions by leveraging opportunities arising through policymakers’ entrepreneurial boundary work.

This article is an abridged version of an academic paper available in full here. Shameen Prashantham is a Professor of International Business and Strategy at CEIBS. For more on his teaching and research interests, please visit his faculty profile here.