036_LOCAL AND REGIONAL DEVELOPMENT_2017_665

SUSAN CHRISTOPHERSON

who have already developed markets. These $75,000 as compared with a little over
include BP and Shell Solar. $50,000 in Pennsylvania as a whole. The
county is 91 percent white. Lee County,
For state economic development policy- Iowa, where Siemans has located its plant, has
makers, the most prized green economy jobs a median household income of $43,000,
are in manufacturing plants such as that built slightly lower than that for Iowa as a whole
by Gamesa in Pennsylvania or Vestas in ($47,000) and is 9 percent white. One per-
Colorado.These plants, many of them branch cent of its citizens are foreign born. Weld
plants, will employ, however, only a fraction County Colorado, the location forVestas, has
of the workforce. A study by Good Jobs an average household income of $53,000,
First (Mattera, 2009) analyzing the subsidies higher than the U.S. average of $51,000 but
and job creation projections for 28 green lower than that estimated for Colorado as a
advanced manufacturing plants projected to whole ($59,000).The county is 97 percent of
be built in 14 U.S. states, indicates that the European extraction or Latino.
total investment across states is just under
$5 billion. Total jobs projected for all these In general, green economy manufacturers
28 plants is about 11,000 (ibid.: 13). Thus, choose green field sites and locations where
state investments in a very small number of they can pay relatively low wages while still
advanced manufacturing jobs are signifi- providing for high-quality homes and amen-
cantly greater than all federal investment in ities for their management.The concentrated
energy-efficiency programs that could create structure and location patterns of these green
many more jobs.These selective investments industries replicates that in other advanced
in advanced manufacturing firms are consist- manufacturing industries. In knowledge-
ent with contemporary U.S. economic based economies, these activities are ex-
development policy but raise questions about urban and free-standing rather than part of
how overall investment allocations will trans- an urban agglomeration economy. These,
late into the millions of jobs that are pro- typically transnational, firms rely heavily on
jected as possible by green economy internationally out-sourced inputs, limiting
advocates. the opportunity for the development of
supply chains. Because of their location pat-
Much of the enthusiasm for the advanced tern, green advanced manufacturing plants
manufacturing green jobs is based on the are likely to contribute to regional inequality
idea that they will replace old manufacturing rather than reduce it.
jobs that have been lost to trade liberalization.
The locational choices of large transnational In addition, while we know that the green
manufacturing firms producing for equip- economy offers many job opportunities at
ment for the emerging green economy the local level and in small firms that is not
suggests, however, that while traditional where public and private investment is likely
manufacturing states may be attracting invest- to occur. Research by Pinderhughes (2008)
ment, these firms are not locating in cities or in the San Francisco Bay area, for example,
in old industrial centers where job losses have finds that firms offering “green jobs” are
been significant. Instead, they are locating overwhelmingly small privately owned firms.
in the same types of ex-urban locations that Their average employment is 28 and many of
are attractive to all advanced manufacturing the firms have four to five employees.
firms. This tendency is demonstrated by an Without effective supportive from economic
examination of the recent location choices development policy, this small-scale, local
of transnational wind turbine plants in approach to job creation in the green econ-
U.S. states. The primary Gamesa plant in omy is likely to occur only in high-income
Pennsylvania, for example, is located in Bucks places where citizens can afford to support it
County, with a median family income of as a dimension of local amenities.

378

The green future is more about GREEN DREAMS IN A COLD LIGHT
politics than technology
Adger,W., Paavola, J., Mace, M. and Huq, S. (eds)
Those analysts close to the ground and attempt- (2006) Fairness in Adaptation to Climate Change,
ing to construct actual change in the relation- Cambridge MA: MIT Press.
ship between humans and the built as well as
natural environment recognize that change is Apollo Alliance (2008) Green-collar Jobs in America’s
more about politics than about new technolo- Cities: Building Pathways out of Poverty and
gies (Kelley, 2008). The kind of politics that Careers in the Clean Energy Economy. Retrieved
green environmental experts recognize, how- May 2, 2008: http://www.apolloalliance.org/
ever, is a micro-politics of land use and envi- downloads/greencollarjobs.pdf.
ronmental regulation.What has been missing is
a politics that addresses who will benefit and Apollo Alliance (2009) The Apollo Program: Clean
who will lose from policy decisions that deter- Energy, Good Jobs. Retrieved April 3, 2009:
mine how the green economy takes shape, http://apolloalliance.org/wp-content/
a politics that addresses the socio-economic uploads/2009/03/ fullreportfinal.pdf.
dimensions of going green or “sustainable”.
Austin Energy http://www.austinenergy.com/
In the United States, discussions about var- About%20Us/Environmental%20Initiatives/
ious courses of action are difficult because of index.htm.
a consensus-driven political culture. So, for
example, it is considered impolite or worse to Barbier, E. (2009) A Global Green New Deal.
open the question of winners and losers as a Report prepared for the Economics and Trade
consequence of taking one course of envi- Branch, Division of Technology, Industry and
ronmental action rather than another. Since Economics, United Nations Environment
losers are likely to be concentrated among Programme. Available at http://www.unep.
the already disenfranchised, this makes for a org/greeneconomy/docs/GGND_
strange environmental politics,one that speaks Executive_Summary.pdf.
of apocalypse but emphasizes the need for
consensus across classes of people who will Bezdek, R. (2007a) Economic and Jobs Impacts of the
experience change in very different ways.The Renewable Energy and Energy Efficiency Industries:
voices of the potentially disenfranchised (poor U.S. and Ohio, presented at American Solar
urbanites pushed to the periphery by green Energy Society.
cosmopolites, coal workers, rural residents)
are hushed, and made to seem unimportant in Bezdek, R. (2007b) Renewable Energy and Energy
the face of impending catastrophe. The Efficiency: Economic Drivers for the 21st Century,
absence of an open and encompassing politi- American Solar Energy Society.
cal debate over what green environmental
policy means for equity, however, comes with Center on Wisconsin Strategy (2007) Milwaukee
a cost. It enables the illusion that there is con- Retrofit: Capturing Home Energy Savings in
sensus over what to do and how to go for- Milwaukee. Retrieved May 2, 2008: http://
ward.And it fosters the kinds of solutions that w w w. c ow s . o r g / p d f / b p - m i lwa u ke e re t
will only modestly affect the status quo, either rofit_050807.pdf.
environmentally or socio-economically.
Christopherson, S. and M. Belzer (2009) “The
References next move: metro-regions and the transforma-
tion of the freight transport and distribution
Adam, D. (2008) “Britain’s worst polluters set for system”, in Nancy Pindus, Howard Wial and
windfall of millions”, Guardian, September 12. Harold Wolman (eds) Urban and Regional Policy
and Its Effects,Washington, D.C.:The Brookings
Institution.

Christopherson, S. and J. Clark (2007) Re-making
the Region: Power, Labor, and Firm Strategies,
London: Routledge.

Gibbs, D. (2002) Local Economic Development and
the Environment, London: Routledge.

Glasmeier, A., R. Feingold, A. Guers, G. Hay, T.
Lawler, A. Meyer, R. Sangpenchan, M. Stern,
W. Stroh, P. Tam, R. Torres, R. Truly and A.
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Gordon, K. and J. Hays (2008) Green-collar Jobs in
America’s Cities: Building Pathways out of Poverty
and Careers in the Clean Energy Economy,Apollo
Alliance and Green for All.

379

SUSAN CHRISTOPHERSON

International Energy Agency. World Energy www.unep.org/civil_society/Publications/
OutLook. Paris: IEA/OECD. index.asp.
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Kelley, I. (2008) Energy in America, A Tour of our tures/greenjobs.asp.
Fossil Fuel Culture and Beyond, Burlington: Sayer, S. (2008) Geography and Global Warming:
University of Vermont Press. Can Capitalism be Greened?, unpublished man-
uscript, Department of Sociology, Lancaster
Larsen, B. and A. Shah (2002) World Fossil Fuel University, UK.
Subsidies and Carbon Emissions, Working Paper Swyngedouw, E. (2006) “Impossible Sustainability
1002,Washington, D.C.:The World Bank. and the Post-Political Condition”, unpublished
MS. Available from author at: Department of
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Conversation on Climate Change, Privatisation Development, Manchester University, Oxford
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uk/pdf/document/carbonDDlow.pdf. of the World Commission on Environment and
Development: Our Common Future. Transmitted
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Kingdom – a geographical perspective”, document A/42/427, Development and
National Westminster Bank Quarterly Review: International Co-operation: Environment.
47–59.
Further reading
Mattera, P. (2009) Highroad or Low Road? Job
Quality in the New Green Economy.Washington: Barbier, E. (2009) A Global Green New Deal,
Good Jobs First. Available at: www.goodjobs- Report prepared for the Economics and
first.org. Trade Branch, Division of Technology,
Industry and Economics, United Nations
McCullough, R. (2009) The NewYork Independent Environment Programme Available at http://
System Operator’s Market – Clearing Price Auction w w w. u n e p. o r g / g re e n e c o n o my / d o c s /
Is Too Expensive for NewYork, Portland, Oregon: GGND_Executive_Summary.pdf.
McCullough Research.
Christopherson, S. and M. Belzer (2009) “The
Milner, M. (2008) ‘Carbon prices rise amid next move: metro-regions and the transforma-
tighter rules’, Guardian, March 4. tion of the freight transport and distribution
system,” in Nancy Pindus, Howard Wial
Personal Interview, February 15, 2009. and Harold Wolman (eds) Urban and Regional
Pinderhughes, R. (2007) Green Collar Jobs: An Policy and Its Effects, Washington, D.C.: The
Brookings Institution.
Analysis of the Capacity of Green Businesses to
Provide High Quality Jobs for Men and Women Gibbs. D. (2002) Local Economic Development and
with Barriers to Employment, Berkeley, CA: City the Environment, London: Routledge.
of Berkeley Office of Energy and Sustainable
Development. Renner, M., S. Sweeney and J. Kubit (2008) Green
Pollin, R. and J. Wicks-Lim (2008) Job Oppor- Jobs: Towards Decent Work in a Sustainable,
tunities for the Green Economy: A State by State Low Carbon World, New York: United Nations
Picture of Occupations That Gain From Green Environment Programme. Available at:
Investment, Amherst: Political Economy www.unep.org/civil_society/Publications/
Research Institute,University of Massachusetts, index.asp www.unep.org/labour_environment/
Amherst. features/greenjobs.asp.
Pollin, R., H. Garrett-Peltier, J. Heintz and
H. Sharber (2008) Green Recovery,A Program to See also: www.greenchoices.cornell.edu.
Create Good Jobs and Start Building a Low Carbon
Economy, Washington, D.C.: Center for
American Progress.
Renner, M., S. Sweeney and J. Kubit (2008) Green
Jobs: Towards Decent Work in a Sustainable,
Low Carbon World, New York: United Nations
Environment.Programme. Available at:

380

32

SMEs, entrepreneurialism and
local/regional development

Costis Hadjimichalis

Introduction some institutionalists and it turned to wide-
spread local development policies in the
In the 1970s and early 1980s, during the 1990s. It became also the cornerstone of the
Fordist crisis, researchers identified that some “New Regionalism” literature which has
regions in developed capitalist economies dominated Anglophone economic geogra-
grew faster, compared to established indus- phy and planning studies in the last 25 years.
trial cores. Regions such as Third Italy, the New Regionalism includes a whole series of
M4 axis in the UK, Southern Paris and analytical and policy-oriented concepts
Rhône-Alpes in France, Silicon Valley and inspired from SMEs such as the highly influ-
Boston in USA, Murcia andValencia in Spain ential “second industrial divide”,“networked,
and Baden-Württenburg in Germany were learning and innovative firms and regions”,
among those identified as successfully over- “the embedded firm” and “endogenous
coming the crisis, with Third Italy attracting local/regional development”, to mention but
most attention (Sabel, 1989; Benko and a few (Piore and Sabel, 1984; Scott, 1988;
Lipietz, 1992). A common characteristic of Morgan, 1977; Cooke, 1988).
these new dynamic spaces was the predomi-
nance of industrial micro, small and medium Individual states and supranational entities
enterprises (SMEs) in industrial districts such as the EU, IMF and the World Bank
(IDs) and a locally diffused entrepreneurial introduced programmes assisting flexible,
spirit, contradicting both dominant develop- innovative and networked SMEs and through
ment theories and policies of the time based these promoting local/regional development.
on large infrastructure projects and large There is an open discussion, however,
industrial investment with strong guidance/ whether regional policies based on SMEs
assistance from the state. Soon these regions, followed relevant concepts and theories, or
their small firms and local social structure vice versa (Hudson, 1999). In the EU, several
became symbols of success of small-scale policies and programs along those lines have
flexible capitalism, “from below”, with its been introduced, among which LEADER
highly individualistic, entrepreneurial and for rural areas and LEDA for urban centers.
competitive character. The new paradigm After the Lisbon Pact, in which development
became l’enfant gâté for neo-liberals and for in the EU has being associated with com-
petitiveness, innovation and entrepreneurship,

381

COSTIS HADJIMICHALIS The “discovery” of small
industrial firms as engines for
in 2008 a “Small Business Act” for Europe regional growth: the rise and
was launched by the European Commission crisis of a paradigm
(EC), in which we read:
Since the 1950s and until the crisis of
Our capacity to build on the growth Fordism, dominant models of regional devel-
and innovation potential of small and opment were based on industrialization via
medium-sized enterprises will there- capital incentives or large state projects in
fore be decisive for the future prosper- growth poles, provision of public infrastruc-
ity of the EU. In a globally changing tures and employment creation via inward
landscape characterized by continuous investments from other regions. It was the
structural changes and enhanced com- period of what we can call “welfare regional-
petitive pressures, the role of SMEs ism” largely based on social democratic polit-
in our society has become even more ical principles, predominant in Europe and
important as providers of employment beyond at that time (Pike et al., 2006). The
opportunities and key players for state in the capitalist West with its top-down
the wellbeing of local and regional policies took an active role for development
communities. in “lagging” regions, as part of welfare poli-
cies in Europe, and at a different scale, in
(Small Business Act for Europe, North America fostered also by the Cold
2008: 2) War competition between West and East.
The economic crisis of the 1970s was fol-
The above quote was written before the cur- lowed by a neo-liberal turn. Regional, top-
rent, major economic crisis of neo-liberalism. down, welfare planning was being hit from
In the middle of disarray for corporate giants all sides. From the left it was seen as main-
this communication by the EC was a prelude taining uneven regional development and
to the urgent assistance given today to SMEs from the neo-liberal right as a wasteful
by all governments and financial institutions luxury, pouring public money down the
acknowledging their basic function: to save plughole without efficient results. It was
employment and to safeguard local and in the early 1980s when the policy option
regional well-being.Although still within the “fostering dynamic regional growth” came
frame of the Lisbon Pact, this is a pragmatic to replace the old “reducing regional ine-
and low-profile approach which keeps a dis- quality”. From integrated, comprehensive
tance from the grandiose claims made two and nationally organized regional welfare
decades earlier about SMEs by proponents of planning,a transformation took place towards
New Regionalism. intensely competitive and geographically
fragmented processes, what we may call
In this chapter I discuss these and other “entrepreneurial regionalism”. The search
questions by focusing first on how SMEs for alternatives in successful regions on both
have been associated with local/regional sides of the Atlantic led to the “great discov-
development to become part of a major par- ery” of small dynamic, competitive and
adigm. Second, I will shift the emphasis from highly entrepreneurial industrial firms.
paradigmatic to what we may call “ordinary”
SMEs, arguing for the need to take them on As with other geographical discoveries,
board for a more nuanced and inclusive small firms and their embeddedness were
approach to local/regional development.And always there, unknown maybe to those who
third, I will try an alternative categorization “discover” them, but well known to local
of SMEs as a continuum ranging from “ordi-
nary”in all sectors to the celebrated,advanced
ones in IDs.

382

SMEs, ENTREPRENEURIALISM AND LOCAL/REGIONAL DEVELOPMENT

communities and to local scientists. A cen- Storper paid particular attention to the
tury earlier, the anarchist geographer Peter “geography of flexible accumulation” via
Kropotkin in his Fields, Factories andWorkshops small high-tech firms in SiliconValley,Orange
with the interesting subtitle: Industry County and Los Angeles, as well as in Third
Combined with Agriculture and Brain Work with Italy and other “new industrial spaces”(Scott,
ManualWork (1898/1968), opened the debate 1988; Scott and Storper, 1988; Storper, 1997).
on small firms, indirectly criticizing Marx Their approach to the relations between
and the German social-democrats for the economy and territory was based on a novel
“iron law” of capital centralization. In this emphasis on transaction costs, vertical disin-
book, Kropotkin focuses on craft industries, tegration and agglomeration.
their social division of labour and their rela-
tion with agriculture in different parts of In Italy itself and during the late 1970s,
Europe,including Central Italy,Lyon,Bavaria, there was a vibrant debate on the role of
the Jura and Sheffield, as well as India and SMEs from three different standpoints. First,
Brazil. He noticed the division of work there was the famous book by Bagnasco, Tre
among small firms in small towns and villages Italie (1977, never translated into English),
and he pointed out that sectors like cotton making Third Italy famous,although Muscara,
mills “does not suffer at all from the division a geographer, and Paci, a sociologist, were
of production of one given sort of goods at first in identifying the patterns described by
its different stages between several separate Bagnasco. Other, similar research on the
factories” (1898/1968: 179) and for the social, cultural, economic and political foun-
German small firms a crucial factor for their dations of small firms (not only industrial)
success has been “the degree of association followed (Paci, 1972; Mingione,1988;Ardigò
amongst the producers” (1898/1968: 249). and Donati, 1976), but remaining unknown
outside Italy. Second, there was the reintro-
The work of Kropotkin and that of Alfred duction of Marshall’s concept of local exter-
Marshal on small industry’s agglomeration nal economies of scale by the Emilian school
characteristics as well as the work of David (Becattini, 1990; dei Ottati, 1994) and from a
Birch (1979, 1980) on how important small more critical perspective by Garofoli (1983).
firms were in the job generation process – These scholars used such concepts to explain
not to speak for research published in lan- the efficiency of small firms in some “neo-
guages other than English – was of secondary Marshallian” IDs focusing on the advantages
interest, compared to Piore and Sabel’s book of territorial concentration and sectoral spe-
The Second Industrial Divide (1984) which cialization. And third there was the “fabrica
marked the recent “discovery” of small firms difussa” approach (Frey, 1974; Magnaghi and
with a powerful critique of the “best is big” Perelli, 1978), which was highly critical of the
paradigm. Their book draws strongly on use of small firms as subcontractors (“putting-
Italian small firms in IDs to oppose the model out” and “splitting-in”) and as a means to
of flexible specialization to the Fordist model, undermine working conditions, unioniza-
by stressing the role of historical alternative tion and radical local political networks.
to mass production. Despite the many inad-
equacies of this book, it became a major By the mid-1980s, the new paradigm of
vehicle for the promotion and acceptance by flex-spec small industrial firms as major
the wider economic and planning commu- engines of local/regional development was
nity of the role of SMEs in local/regional successfully established and has opened
development. important windows for new research and
policies. We can identify several positive
Along similar lines but using also variants aspects of it. First, it has shifted the focus
of the French regulation theory, Scott and to firms and production processes, not

383

COSTIS HADJIMICHALIS

previously accepted as viable and profitable attention to the role of the state and to vari-
options for development. By the same token ous protectionist and assistance measures it
new regions and development paths became has introduced. From devaluation of national
known, away from the old repertoire of currency and labour legislation to particular
industrial heartlands of North-Western incentives for SMEs and international agree-
capitalism. Second, it has shown cases of ments (such as the Multi-Fibre agreement),
“spontaneous” growth, without direct wel- there was never such a thing as “without assist-
fare assistance from the central state, where ance from the central state” (Dunford, 2006;
small firms with strong entrepreneurial spirit Hadjimichalis, 2006a). Fourth, by looking
initiated a “bottom-up” growth.Third, it has only at success in the context of neo-liberalism,
successfully combined analyses on market there was interest in a few paradigmatic indus-
opportunities, on mobilization of existing trial sectors and on few advanced service pro-
resources (particularly knowledge and learn- viders only in a limited number of European
ing) and on new forms of production organ- and North American regions. Fifth, and as
ization, i.e. flexibility and networking. And result of the above,there has been a remarkable
fourth, it has highlighted the role of compe- neglect of other sectors such as tourism,
tition and cooperation at the local level with trade and agriculture, to areas beyond North
the assistance of strong local cultural tradi- America and Europe and to those millions of
tions, institutions and associations. “ordinary” small firms that form the majority
of SMEs everywhere, being the real support-
Soon, however, the new paradigm became ers of local employment and well-being
a new orthodoxy, collapsing “very diverse (Navdi and Schmitz, 1994).
processes and areas into one category and
then to treat this as a symbol of the new era of While such omissions would be expected
accumulation”, as Amin and Robins (1990) from a neo-liberal perspective, it is rather
argue. In the euphoria that followed the “dis- puzzling for me that some radical theorists
covery” of dynamic SMEs, several misread- and researchers succumb to the charms of
ings, omissions and problems occurred. First, grand narratives, even when they strongly
there was a simplistic binary opposition argue for the need to pay attention to dif-
between mass production and flex-spec ferences, to the ordinary, to both global
(Sayer, 1989), while Fordism was never hege- North and global South and to local
monic in the regions in which growth was processes. In the 1980s and 1990s, critical
directed by flexible small industrial produc- voices concerning the above issues from
tion ensembles. Second, in the relevant litera- Anglophone scholars and from Southern
ture, a very selective appropriation of the Europe and Latin America remained largely
complexity and richness of SMEs has taken peripheral. After 2000, however, on both
place, in which only certain general eco- sides of the Atlantic a major crisis-driven
nomic, organizational and institutional issues restructuring has taken place. Many SMEs
have been taken on board, while others such in several IDs in California, Third Italy,
as power and inequalities among small firms Valencia and Murcia, Baden-Württenburg,
and within industrial districts, the limitations Northern Portugal and Northern Greece,
of networking and learning, what coopera- due to major changes at the global and
tion, reciprocity and “social capital” really national scales, are engaged in three inter-
means for firms and labour, conditions of related restructuring processes:
work, the informal economy, gender and
ethnicity – to mention but a few – remain in i) Mergers and acquisitions and forma-
the dark (Hadjimichalis, 2006b; Mingione, tion of large, vertically integrated firms
1998; Smith, 1999). Third, there is a lack of and groups of firms, like Benetton,

384

SMEs, ENTREPRENEURIALISM AND LOCAL/REGIONAL DEVELOPMENT

Gucci, Prada, Zara and corporate “dis- From paradigmatic to ordinary
trict business groups”,which challenge SMEs and everyday
from within the celebrated superior- entrepreneurialism
ity of small-scale production (Bianchi
and Bellini, 1991; Dunford, 2006; Although in the literature of small firms and
Harrison, 1994). local/regional development there are refer-
ii) De-localization of part of production ences only to the paradigmatic SMEs dis-
or of all firms to low labour cost regions cussed above, the world of regions includes
and countries. From Southern Europe millions of other SMEs,less glossy and famous
they moved to Slovenia, the Balkans, but nevertheless important for the local well-
Tunisia, Morocco, India and Vietnam. being. Small firms are in fact the predomi-
From Central Europe they went to nant form of entrepreneurship worldwide.
Eastern Europe, Latin America and On average, 93 per cent of all enterprises in
Asia and from California to Mexico, the EU have fewer than ten employees, in
China and India (Hadjimichalis, USA 50 per cent and in OECD countries 95
2006b; Labrianidis and Kalogeressis, per cent. As large firms downsize and out-
2007; Rabelloti et al., 2009). source several functions previously done
iii) Extensive replacement of local labour inside, small firms’ role in the economy is
by medium and highly skilled immi- increasing. SMEs are defined as independent
grants,to compensate increasing labour firms with fewer than 250 employees, as in
cost and/or the lack of skilled native EU and other countries, while in USA and
labour.There are thousands of Chinese, Mexico they include firms with fewer than
Romanian, Filipinos and Moroccans 500 employees (see Table 32.1). Small firms
in Italian IDs. Latinos and Asians work are generally those below 50 employees and
in California’s SMEs and Moroccans, in the EU must have an annual turnover of
Pakistanis, Kurds, Albanians and those 40 million euro or less and/or a balance-sheet
from Africa are present in all Southern valuation not exceeding 27 million euro
European countries (Bialasiewicz, (OECD, 2006).Table 32.1 presents some data
2006; Ybarra et al., 2004; Mingione for selected countries, used later in the chap-
and Pugliese, 2002;Verducci, 2003). ter as examples, in which micro and small
enterprises form the majority of firms in all
These developments directly challenge gran- sectors. Employment in SMEs plays a crucial
diose claims about flex-spec small firms, in role as percentage of total, with Romania,
IDs as models for the future and about the Mexico and USA being less dependent on
social and cultural continuity of the para- small firms. Italy and Greece have the largest
digm based on trust, reciprocity and social figure of SMEs per 1000 people, while USA
capital.The power of Fordism has not disap- has the relative lowest figure.
peared, it has shifted to other regions; local
networks and local embeddedness was not From the literature of New Regionalism
enough to control de-localization, and immi- we learn mainly about innovative industrial
grants replacing native employees challenged firms and advanced service providers. The
the locally specific continuation of craft tra- majority of small firms, however, belong to
dition. However, this is not a crisis of SMEs all kinds of services, trade and tourism, which
per se as possible motors for local/regional account for two-thirds of economic activity
development, but a crisis of this particular and employment in OECD countries. SMEs
paradigm of SMEs promoted by entrepre- also account in communications, construc-
neurial regionalism. tions and business services. Despite this, the
neglect of agricultural, tourist, services and

385

COSTIS HADJIMICHALIS

Table 32.1 Micro, small and medium-sized enterprises: a collection of published data for selected
countries

Income Year Definition of SME: % SMEs in all SMEs per Employment
group data number sectors 1000 in SMEs as
of employees of the economy People % of total

Micro Small Medium Micro Small Medium

Brazil Lower 2001 0-9 10-49 50-249 92.9 6.2 0.9 27.1 56.5

middle 36.4 70.4
72.2 74.0
Germany High 2003 0-9 10-49 50-249 88.3 10.2 1.5 77.8 73
18.0 40.2
Greece High 2003 0-9 10-49 50-249 97.5 2.1 0.3
37.6 56.4
Italy High 2003 0-9 10-49 50-249 95.6 4.0 0.4 19.6 50.2
29.3 48.5
Romania Lower 2001 0-9 10-49 50-249 91.5 1.5 18.0

middle

UK High 2003 0-9 10-49 50-249 89.7 9.0 1.4

USA High 2002 0-9 10-99 100-499 79.3 19.9 0.8

Mexico Middle 2002 0-30 31-100 101-500 96.0 3.1 0.9

Source: Data from International Finance Corporation (2005)

trade sectors continues up until today.This is Southern European debates, has to do with
because in these sectors economists and plan- culturally embedded “ways of doing or per-
ners assume that SMEs are less dynamic than forming” the economic, with processes and
industry, entrepreneurship is weakly devel- practices which permeate the ensemble of
oped and it is perceived as a business with social relations and could contribute not only
low entry barriers, low-tech and labour to the simple survival of local areas but to
intensive (particularly feminized) and in their dynamic entrance into global competi-
some cases requires little capital. Above all, tion (Ardigò and Donati, 1976; Mingione,
economists and some economic geographers 1983).
do not take into account these sectors because
of the high importance of the informal sector, Many of the micro and small firms in the
a situation which was incomprehensible for informal sector are indeed backward, with a
many non-Southern scholars having experi- short-term planning horizon and a limited
ence from the development history of the knowledge of the business environment. At
Fordist factory, the mass worker and the wel- the same time, however, there are thousands
fare state.The “informal”, as it has been used more that are performing the economic in
since the 1980s in Southern Europe (and in innovative and novel ways as in the case of
our research; see Vaiou and Hadjimichalis, tourism in the Mediterranean, particularly in
1997; Hadjimichalis and Vaiou, 1990, 2004), disadvantaged regions which usually have a
is not identical with the “household econ- strong representation of micro tourism firms
omy”, “alternative market” or “non-market (Melissourgos, 2008). Shaw and Williams
transactions”. Nor is its use to be confused (1994) argue that small tourist firms hold the
with developing world formulations about key to strengthening and spreading the ben-
two separate economic sectors and with efits from tourism locally and regionally
approaches in Development Studies which because of the very nature of their family
often see small firms as welfare or safety-net structure, of their dependence on local mar-
measures for poor people.What I am talking kets and hence the development of stronger
about, and what has been at the core of backward and forward linkages, unlike larger
ones who often operate like enclaves. SMEs
386

SMEs, ENTREPRENEURIALISM AND LOCAL/REGIONAL DEVELOPMENT

in tourism have the ability to respond to knowledge-based competitiveness play a
dynamic changes in global markets (e.g. the major role. Not all of them, however, are
current economic decline), where the mar- innovative and networked as the ideal type
kets are seasonal and notoriously fickle, and depicted by New Regionalism, the so-called
even to create jobs at a time when major “high road”. Side by side with the modern,
operators are downsizing. They succeed flex-spec firm, where labour cost is com-
through multiple employment: part-time bined with better wages, there are thousands
agriculture, part-time industry, and part-time of small traditional firms and sweatshops at
tourism. the edge of survival along the so-called “low
road”, small dependent sub-suppliers and
For SMEs in the agricultural sector new subcontractors and thousands of women
opportunities have opened since the 1990s. homeworkers, operating in the informal
In Europe, North America and Japan, the sector. These firms attract no attention to
ecological/sustainable touristic trend across OECD official policy recommendations
lagging regions, often mountainous, has the which continue to focus on typical growth-
effect of revitalizing rural areas as cultural oriented strategies, via competitiveness (see
landscapes.This shift in meta-preferences has OECD, 2005, 2006, 2007).
given a second chance to marginal areas, now
as places for consumption and not for pro- The majority of dispersed and/or clusters
duction (Calafati, 2006). A second and more of SMEs in developing countries operate
important opportunity is organic farming. under informal conditions such as in the
According to a report for Latin America by shoe industry in the Sinos Valley, South Brazil
IFAD (2003), thousands of small family farm- and Guadalajara, Mexico and in India’s tex-
ers in Mexico producing organic products tile industry in Tiruppur, Delhi and Mumbai
like coffee in Chiapas and honey in Yucatan, (Navdi and Schmitz, 1998) and in the
cacao and bananas in Talamanca, Costa Rica, Bangalore technology district. Furthermore,
coffee in Guatemala, sugar cane in Argentina many paradigmatic industrial SMEs in Third
and fresh vegetables in El Salvador, were able Italy’s IDs operate also under informal con-
to create new jobs and opened new com- ditions, either avoiding taxes and local pay-
petitive advantages beyond their local region. ments under the local “tacit agreement”,
Since 1992, when the EU-Regulation “give nothing, but ask for nothing” (in
2092/91 about organic farming was imple- Veneto), or polluting the environment (the
mented, many SMEs in rural regions started leather districts of Arzignano and Chiampo),
to produce organic products, with Italy being or violating labour legislation and using eco-
at the forefront in Europe, followed by nomic migrants illegally (in Prato, Tuscany;
France, Austria and Germany. Because con- Carpi, Emilia Romagna and Macerata; the
sumers pay premium prices for organic prod- Marche) (Bialasiewicz, 2006; Rabelloti et al.,
ucts, small firms in this sector may obtain 2009).
higher prices and thus create new growth
potentials for lagging regions. To these small industrial firm variants we
have to add labour variants such as paid and
On the other hand, it is true that a high unpaid family labour, limited and unlimited
percentage of SMEs in many OECD coun- time contracts, stable and precarious work,
tries are in the industrial sector and provide formal and informal labour, women’s and
half of OECD industrial employment. Small children’s labour, immigrant labour, etc.
firms are increasingly present in technology- These forms of labour are present in the
intensive industries and in creative industries, majority of IDs, and they constituted a
particularly in large urban areas. They coherent and indispensable ensemble of eco-
predominate in strategic sectors, such as busi- nomic and social relations which made pos-
ness services, where human resources and sible, until the post-2000 crisis, high profits

387

COSTIS HADJIMICHALIS

for the few modern, paradigmatic small firms. subcontractors with homeworkers, horizon-
And apart from micro and small firms in the tal advanced network which also use home-
same sector, there are also medium and large workers) together with the nine basic stages
vertically integrated firms with brand names of production for a mink fur-coat. Each type
which compete with small ones. Many of has positive and negative characteristics, with
those, particularly in fashion and design sec- firm A controlling in-house the entire pro-
tors, are using similar flex-spec and just- duction apart from design; firm B controlling
in-time production methods and outsource quality-packing and commercialization-dis-
part of their production to dependent firms tribution; and firm C controlling in-house as
regionally and globally. in A plus matching small pieces.

To illustrate the above, I will use two The second example is from an ordinary
examples from my own work.The first con- urban municipality, Ilion, part of the
cerns SMEs in the fur industrial district of Athenian metropolitan area. Ilion is a work-
Kastoria, Northern Greece, one of the few ing- to low- middle- class area, in Western
Greek IDs which demonstrate analogous Athens (2001: 82,000 people).The structure
social, cultural and economic characteristics of local employment is divided between
with Italian IDs. Kastoria is a Byzantine town trade and services, industry and construc-
(2001: 36,000 people), known as the capital tion, with 56 per cent of employment pro-
of fur production and trade in Greece, able to vided within the boundaries of the
establish “Made in Kastoria” as an interna- municipality (see Figure 32.2). In a 2003
tional brand name. In the entire prefecture survey – after the 1999 major earthquake
there are more than 2500 micro, small and which hit Western Athens badly – 624 SMEs
medium firms and only five with more than have been located within the urban tissue
80 employees, providing employment for (in the ground floors of apartment buildings
about 18,000 people. From this remote place, and in few separate premises), in sectors such
12 per cent of global fur trade and 90 per as industry, producer services, local trade and
cent of global fur-coat production out of construction (see Figure 32.2). Other SMEs
small pieces (a historical local specialization) belonging to non-local trade, personal serv-
is controlled. The key role is played by ices, food, restaurants and drinks, education
dynamic SMEs producing for exports (today and health (total 2100) are also depicted but
mainly to the nouveaux riches of Russia) not shown in this map (for further informa-
which are organized along the flex-spec, net- tion see Hadjimichalis et al., 2003). With
worked and learning paradigm, with strong three exceptions (one export fashion leather
social, cultural and institutional support from shoe firm and two high-tech producer
the local community and local government. service firms), all others could be classified
There are, however, many other types of as “ordinary firms”: one to fifteen employ-
firms within the IDs, from “ordinary” home- ees with a substantial presence of self-
workers and sweatshops in the informal employment and immigrant labour, mainly
sector to advanced small independent design family owned, using low–medium techno-
studios and medium vertically integrated logy, not particularly innovative and the
firms. We cannot understand how Kastoria’s majority using some sort of informality.
local productive system operates, how it is so They are nevertheless embedded in local
successful even in periods of crisis and how it social and cultural relations, adequately
promotes local/regional development, until networked among themselves and enjoying
we take on board all firm types and all forms institutional support from a municipal
of work. In Figure 32.1, three types of firms agency, financed by the EU. No brand
are shown (vertically integrated, dependent names, no export figures, nothing special,

388

SMEs, ENTREPRENEURIALISM AND LOCAL/REGIONAL DEVELOPMENT

Types of A B C
Dependent Horizontal
Stages firms Vertically subcontractors network
integrated to lead firm of micro-firms

of production firm 2 23

1. Fashion 2 32
design
pattern

2. Cutting 5 32
the mink fur
into small
pieces

3. Selecting 2 11 11
and matching
small pieces

4. Sewing
small pieces

15 33 333 3 3 3 3 3

5. Forming 4 22 22
large pelt 332
2, 10x1,20
22
6. Cutting 8 4
from a pattern 4 4
assembling
the coat 4

7. Quality control
packing

8. Commercializa- 5 5 32
tion, distribution Exports Exports Exports

9. Export
agencies

Figure 32.1 Production of a mink fur-coat in the industrial district of Kastoria, Northern Greece.

Source: Hadjimichalis and Vaiou 1997
Note: Numbers in squares show workers at each stage and/or at each micro firm.

Grey areas show leading firms.

an ordinary socio-spatial structure similar to provide local employment, they serve the
many others in urban areas like Ilion. The needs of local people and local market
local economy and society, however, cannot within walking distance (particularly food
do without them: they are diffused within and personal services), and, finally, they are
the urban tissue keeping it alive, they have rooted in the local tradition of petty trade
local backward and forward linkages, they and self-employment.

389

COSTIS HADJIMICHALIS
Sectors: Industry, producer services, local trade, construction

Firms in operation at the time of survey 0 250 500
Firms closed at the time of survey

Figure 32.2 “Ordinary” SMEs in Ilion, Western Athens, 2003.
Source: Hadjimichalis et al. (2003)

Towards an alternative seems to be trapped in grandiose claims,
categorization: some concluding ill-founded theorizations and an overempha-
comments sis on a few paradigmatic sectors and regions,
ignoring the vast majority of ordinary
The focus on SMEs as dynamic agents for SMEs which play a much more important
local/regional development was (and remains) role in the development of ordinary places,
a welcome contribution and this applies also often “lagging” behind successful ones.
to the various concepts and formulations Looking at ordinary SMEs in ordinary places
associated with them. But in practice, it often we open a window to conceive development

390

SMEs, ENTREPRENEURIALISM AND LOCAL/REGIONAL DEVELOPMENT

more broadly than just economic growth to providers by their very operation give
incorporate sustainability, everyday life and birth to many small ones, e.g. large
well-being at the local level (see Pike et al., hotels and surrounding small restau-
2007). rants, cafés and souvenir shops, or large
manufacturers subcontracting part of
From a local/regional development per- their production to smaller producers,
spective, small producers and service provid- etc. In this type, we have both vertical
ers fall into many categories and many sectors and horizontal relations among firms
and several types of firms and forms of labour and contribution to development is
could be distinguished, as the previous analy- also a function of their forward/back-
sis has shown. The boundaries are unclear ward linkages. These clusters could
and I prefer to see them as a continuum be unplanned, derived from agglom-
between three main categories: eration economies, or planned as an
intervention from local or central state
i) Geographically and sectorally dis- for more efficient operation.
persed small producers and service iii) Geographical clusters of small firms in
providers. Most of rural and urban the same sector of the type of Italian
small industry, service provision, agri- industrial district.The main character-
cultural production and tourism fall istics in this case are: unplanned clus-
into this category. From the village tering within historical towns and/or
carpenter and small family hotel to planned relocation in designated dis-
urban small firms such as grocery trict zones, historical sectoral speciali-
shops, cafés, design studios, web zation, predominance of small and
designers and small manufacturing medium-sized firms, close inter-firm
diffused in the urban tissue – to men- collaboration and networking with
tion but a few examples – their growth mainly horizontal relations, a common
depends on demand mainly from local socio-cultural identity which facilitates
and national markets. The scope for trust, a particular local social division
division of labour and hence for econ- of labour which reproduces skills and
omies of scale is small. The impact, entrepreneurship, active local/regional
however, to local/regional economy institutions providing wide-ranging
could be notable, if (a) there is an assistance and supportive local gov-
important amount of small firms and ernment and nation state. In this case
(b) their forward and backward link- there is a capture of agglomeration
ages are highly localized/regionalized. economies by all firms in the district,
resulting in a collective efficiency and
ii) Geographical clusters of small firms local/regional development. In many
belonging to different or to similar IDs large firms and corporate business
sectors. In contrast to the previous networks could operate alongside
case, there is wide scope for division of small firms.
labour between firms and hence for
specialization and innovation, essential The above categorization is highly context
for competing beyond local markets. and path dependent: in an economically and
There is,however,an unknown thresh- technologically advanced region, the ability
old, after which that clustering opens to contribute to regional growth by a dis-
up efficiency gains beyond simply persed or networked small firm in an ID
agglomeration economies. Also this should be analysed with a different analytical
clustering is not necessarily incompat- framework from, say, a peripheral region in
ible with the presence of large firms.
In fact, large producers and service 391

COSTIS HADJIMICHALIS

the same country, or in a small village in Asia Birch, D.L. (1979) The Job Generation Process, MIT
or Latin America. We should also remember Program on Neighborhood and Regional
that SMEs belong to particular sectors and are Change, Cambridge, MA.
regulated by local, national and international
institutions and this is true for the few para- Birch, D. L. (1980) Job Creation in Cities, MIT
digmatic SMEs in IDs. And we should not Program on Neighborhood and Regional
forget that these are historical forms of capi- Change, Cambridge, MA.
talist organization competing under condi-
tions not of their choice in the uneven global Calafati, A. (2006) “‘Traditional knowledge’ and
landscape. Like all other forms of capitalist local development trajectories”, European
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tions are secured: (1) their social and spatial
division of labour remains globally competi- Cooke, P. (1988) “Flexible integration, scope econ-
tive vis-à-vis other similar SMEs, larger firms, omies and strategic alliances: social and spatial
sectors and regions, and (2) their internal mediation”, Society and Space, 6, 281–300.
system of economic and social reproduction
remains unchallenged. The analysis based on Dei Ottati, G. (1994) “Cooperation and competi-
the new orthodoxy of SMEs in IDs is unable tion in the Industrial District as an organiza-
to answer these questions and, after the reali- tion model”, European Planning Studies, 2, 4,
zation of the limits and dead-ends of entre- 463–483.
preneurial regionalism, a radical change is
needed to formulate more nuanced and inclu- Dunford, M. (2006) “Industrial districts, magic
sive policies for local/regional development cycles and the restructuring of the Italian tex-
taking into account all types of SMEs and tiles and clothing chain”, Economic Geography,
forms of labour, in all sectors and regions. 82, 1, 27–59.

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Ardigò, A. and Donati, P. (1976) Famiglia e Hadjimichalis, C. (2006a) “The end of Third Italy
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Further reading

Becattini, G., Bellandi, M., de Ottati G., and
Sforzi, F. (2003) From Industrial Districts to Local
Development, Edward Elgar, Cheltenham.

Bengo, G. and Lipietz, A. (eds) (1992) Les Régions
qui Gagnent, PUF, Paris.

Hudson, R. (2000) Production, Places and
Environment, Prentice Hall, Essex.

393

33

Transnational corporations and local
and regional development

Stuart Dawley

Introduction contradiction central to global economic
integration – between the promotion of a
The activities of Transnational Corporations space of flows and the continued significance
(TNCs), through Foreign Direct Investment of place (Phelps and Raines 2003; Jessop
(FDI) and processes of control and coordina- 1999). Examining the impact and possibilities
tion, continue to orchestrate the process of for economic growth as part of the “varie-
global economic integration. Put simply, gated landscape of relations between TNCs
TNCs are one of the primary movers and and territories” is of greatest interest to eco-
shapers of the contemporary global economy nomic geographers (Phelps and Waley 2004:
(Dicken 2007). Since the 1970s the impacts 192). On the other hand, contributions from
of the contemporary TNC have been scruti- economic geography, industrial geography
nised across a variety of academic disciplines and regional studies have more specifically
– inter alia economic geography, strategic focused upon “unpacking the relationships
management, economics and the interna- betweenTNC activity and urban and regional
tional business literature – analysing eco- development” (Yeung 2009: 198). Indeed,
nomic growth, technological change, trade, Yeung (2009: 199) goes on to suggest that a
market structures, finance and employment “geographical perspective argues strongly
(Yeung and Peck 2003; Dunning and Lundan that TNCs and their activity are undisputedly
2008). Perspectives developed within eco- one of the keys to understanding urban and
nomic geography continue to make impor- regional development in today’s globalizing
tant and distinctive contributions to this world economy”.
inter-disciplinary endeavour.
The current Global Production Network
On the one hand, economic geographers (GPN) approach (see Coe et al. 2008) offers
have led the move away from‘placeless’notions a valuable framework in bringing together
of global corporations to a more advanced these interrelated concerns – TNCs, territo-
appreciation of the geographical embedded- ries and local and regional development. At
ness of TNC activity (see, for example,Yeung one level, the approach situates the roles and
and Peck (2003) on Dicken’s work in this impacts of TNCs and territories as part of a
field).The character and behaviour of TNCs broader “globally organised nexus of inter-
both shape, and are shaped by, a geographical connected functions and operations by firms

394

TRA NSNAT IONAL CORPORAT IONS AN D LOC A L AN D R EGION AL D EV E LOPMEN T

and non-firm institutions through which then focuses upon the enduring importance
goods and services are produced and distrib- of national level institutions in shaping the
uted” (Coe et al. 2004: 471).At another level, interrelations between TNC investment
the notions of ‘strategic couplings’ and behaviour and host region economies.
‘regional assets’ connect investment strategies Withstanding the widespread acceptance of
of ‘focal firms’ with a ‘globalised’ understand- state ceding power to capital within the con-
ing of regional development. In so doing, the temporary neo-liberal context, the interrela-
GPN approach has created a productive and tions between TNCs and contexts of home
expansive dialogue between economic geog- and host nations continue to impact upon
raphy and local and regional development corporate strategies, and ultimately their rel-
studies, moving beyond the traditional focus ative power over institutions in host localities
on FDI and regional development in Europe and regions. Building on the preceding dis-
and the USA to encompass contributions cussion, the final section concludes by high-
from the global North and South (inter alia). lighting the changing roles, prospects and
challenges for regional-level institutions in
This chapter aims to contribute to the their ongoing relationships with TNCs –
recent reinvigoration of academic and policy offering a series of insights into the GPN’s
interest in the dynamic interrelations between notion of establishing ‘strategic couplings’.
TNCs and regional development.The GPN The chapter begins, however, by briefly
approach offers much utility as a heuristic revisiting the traditional literature on TNCs,
framework to explore and question the inter- FDI and local and regional development
play of global networks of firms, non-firm prominent in the 1980s and 1990s within
institutions and territories. However, in economic geography, industrial geography
developing such a holistic and inclusive and regional studies.
network approach the GPN framework
tends to underplay the tensions created by In its contribution to local and regional
the differential powers of key agents shaping development studies, the discussions devel-
and moulding the fortunes of regions and oped within this chapter illustrate the com-
their ability to attract and embed exogenous plex and fluctuating ways in which “TNCs
resources. As a result, this chapter seeks to organise their economic activities across
refocus attention on the particular and space in a variety of different ways, with
enduring roles of the TNC and the nation important implications for the places that
state in shaping host region development. ‘plug-in’ in to these corporate networks”
First, while according an active role to the (Coe et al. 2007: 225). For local and regional
socio-institutional and cultural regulation of development scholars and policy practition-
investment behaviour, this chapter restates ers alike, the analytical challenge remains one
the centrality, power and causal role of the in which “we generalize about the impact of
firm.The ‘black box’ of the TNC is explored, TNCs at our peril…what is true in one set of
focusing on emerging dynamics of time- circumstance may not be true in others…we
based competition and intensified intra- need to avoid ‘kneejerk’ reactions, whether
corporate competition and the role of TNC positive or negative” (Dicken 2007: 454).
merger and acquisitions in shaping (dis)
investment decisions within host regions. From branch plants to
The discussion reveals how the prospects for embedded plants and
local affiliates, host regions and communities back again?
are asymmetrically pitched within a diverse
array of fluctuating,competitive and geograph- Research into inward investment and peri-
ically selective processes of corporate restruc- pheral region development represents a long
turing and change. Second, the discussion
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STUART DAWLEY

tradition of inquiry (Firn 1975; Watts 1981; know-how or reinvestment of profits” (Amin
Pike 1997; Hudson 2000; Phelps et al. 2003). and Tomaney 1995: 202; Phelps 2009).
According toYeung (2009) a clear distinction Moreover, through the insertion into the
can be made between this strand of literature extremities of corporate hierarchies peri-
with its preoccupation with the impacts of pheral host economies, such as the North
FDI activity and that of the more contempo- East of England, were described as ‘global
rary concerns of the GPN literature which outposts’ (Hudson 1995) susceptible to the
affords more attention to unravelling the vagaries of external control,corporate ration-
‘black box’ of the TNC, its organisation, pro- alisation and capital flight as the cost/price
duction networks, multi-scalar institutional nature of locational behaviour fuelled capital
relations and influence on regional develop- mobility (Bluestone and Harrison 1982;
ment. However, I would argue that while Hudson 2000).
the GPN notions of strategic couplings, regional
assets and value are useful heuristic devices, With the failure of alternative forms of
the traditional literature continues to offer a endogenous growth strategies to adequately
detailed series of insights into how such cater for the huge employment demands
‘coupling’ processes are constrained, enabled within old industrial areas, the attraction of
and expressed in host regions. In particular, inward investment remained a key element
the analytical frameworks developed in of peripheral region development within
the traditional literature around ‘studying states within Western Europe during the
regions by studying firms’ still offer consider- 1980s and early 1990s (Amin and Tomaney
able utility in grounding the impacts and 1995). Indeed, the strategic direction of FDI-
interrelations between TNCs and regional led growth was given new impetus in the
development (Markusen 1995). early 1990s with the prospect that new pro-
cesses of corporate reorganisation, operating
The truncated experiences of inward with flatter and looser organisational struc-
investment industrialisation in peripheral tures, offered a qualitatively enhanced type of
regions during the 1960s and 1970s coa- inward investment project for host region
lesced with the development of the branch economies (see Table 33.1; Pike 1998;Young
plant economy tradition of conceptual and et al. 1994).
empirical inquiry.This work emphasised the
structures of external ownership and the Situated within a loosely defined context
control and creation of functional roles for of ‘flexible’ or ‘post-Fordist’ corporate reor-
regions within broader corporate and geo- ganisation, new ‘performance plant’ inward
graphical divisions of labour (Firn 1975; investment projects carried heightened levels
Dicken 1976; Hudson 2000). In short, peri- of autonomy, more complex functionality,
pheral regions became sites for the more specialised markets, heightened product and
routine capital-intensive and low-skilled ele- processes technologies and more qualified
ments of the production chain, while higher workforces (Amin et al. 1994; Phelps et al.
level command and conception activities 2003). Transnational corporate strategies
were located in more advanced regions. As were understood as increasingly responsive
such the original policy expectations that to geographical variations in markets and
inward investment would stimulate a ‘growth regulation, most notably at macro-regional
pole’ for peripheral regions received heavy levels. As a result production strategies became
criticism as the very nature of branch plant ‘regionalised’ or ‘glocalised’ (Hudson 2000)
investments offered host economies little as companies sought to gain competitiveness
in the way of “skill formation, technology through geographical proximity to markets
transfer, linkages opportunities, transmission and also localised production networks (for
of new managerial and entrepreneurial example, just-in-time supply chains). For host
economies, the local economic development
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Table 33.1 Dimensions of type of plant and local and regional development implications

‘Branch plant’ ‘Performance/networked branch plant’

Role and External ownership and control; structured External ownership and control but possible
autonomy position and constrained autonomy; truncated enhanced strategic and operating autonomy
and narrow functional structure involved in as well as responsibility for performance
Labour process part-process production and/or assembly; increased within a ‘flattened’ hierarchical
cloned capacity and vertically integrated with structure; wider functional structure involved
Labour– limited nodes capable of external local linkage in full process production tilted towards
management (e.g. suppliers, technology); state policy manufacturing rather than solely assembly;
relations subsidised establishment via automatic sole capacity with product (range), division
grants to broadly designated areas or market mandate at the expense of
Labour market rationalisation elsewhere; increased nodes
strategies Labour-intensive, semi- and unskilled work; capable of linkage (e.g. R&D with technology
‘routinised’ and specific tasks within refined support, human resources with training); state
Supplier technical division of labour; high-volume policy support for establishment on selective and
linkages production of low- to medium-technology regulated basis (e.g. job creation, local content)
products; standardised process technology;
short-term, task-specific,‘on-the-job’ training Capital and technology intensive, semi-
integrated with production and skilled work with increased need for
diagnostic and cognitive skills; recombined
Organised and unionised labour; job job tasks and individual/team responsibility
classifications, task assignments for performance; low- to high-technology and
and work/supervision rules linked to low- to high-volume production flexibility;
seniority-based pay scales; formalised and flexible and reprogrammable process
collective negotiation and bargaining tied to technology; longer term, coordinated with
employment contract; personnel management investment,‘on-’ and ‘off-the-job’ training
with administrative focus
Business unionism; reduction and
Employees considered interchangeable, streamlining of grading, job titles and
replaceable and in need of constant meritocratic salary structure; shift to
supervision; limited screening and high company-based non-(traditional) union
labour turnover and absenteeism; reliance arenas, individualised negotiation and
on external labour market bargaining tied to ‘enabling’ agreements;
human resource management
Limited since integration with broader techniques
corporate structures of production and
supply chains; intra-firm linkages substituted Rigorous scrutiny and increased selectivity
for local ties; limited in recruitment; employees as human
local supply chain knowledge and greater resources needing investment; teamworking
awareness of potential to reduce labour turnover and identify
suppliers in headquarters region employee with the goals of the company;
development of core internal labour market
and peripheral (part-time, temporary)
segments

Outsourcing increase with JIT and synchronous
suppliers; increased potential for local
procurement and supplier agglomeration;
first- and second-tier supply chain management;
increased global sourcing and partnership
relations; growth in dependence in the local
supply network; geographically distributed
production networks and JIT operated over
(inter-)national distances

(continued)

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STUART DAWLEY

Table 33.1 (Cont’d )

Local economic Externally owned and controlled plants New concepts of externally owned and
development with limited decision-making powers locally controlled plant with increased decision-making
implications (‘dependent development’,‘branch plant autonomy for strategic and operational issues,
economy’) vulnerable to closure or relocation more rooted and anchored in the local economy
(‘footloose’,‘runaway industries’,‘hyper-mobile (‘embedded firm’), higher levels of technology
capital’); limited growth rates in employment and skills, higher innovative potential, more local
and output; low technology and skills linkages and increased technology transfer
(‘screwdriver plants’); few local linkages through research and technological development
(‘enclave development’,‘dual economy’, functions; supplier links upgrading process
‘industrialisation without growth’,‘cathedrals technology improvement and partnership
in the desert’); diversified industries not development with suppliers; potential for the
building upon or modernising existing plant to be a ‘propulsive local growth pole’,
regional industrial strengths; limited ‘vehicle/catalyst for local economic development’
innovation potential and technology and capable of setting in train ‘sustainable
transfer from dedicated production development’
processes and suppliers

Source:Adapted from Pike (1998: 886–887)

implications of this purported shift focused trained workforces within peripheral regions,
upon the enhanced potential to increase the triggering both skills and occupational uplift
local ‘embeddedness’ of plants and invest- effects (Phelps and Fuller 2000; Raines
ment projects.The localisation of production 2003).
was seen to offer new forms of ‘development’
of local economies through the deeper sets Similarly in the United States in the 1980s
of backward and forward localised supplier and 1990s, examples of ‘performance plant’
linkages (Turok 1993; see Table 33.2) while, FDI emerged through a series of Japanese
the workforce requirements, a swathe of automotive ‘transplants’ – inter alia Honda,
Japanese and South Korean FDI projects Nissan and Toyota – creating a distinct break
within Wales, Scotland and the North East of with the geographies and production systems
England, were understood to be generating of the then traditional US automakers. In
more highly skilled and intensively trained geographical terms, “this ‘new’ automobile
workforces within peripheral regions, trig- industry had a very different geography from
gering both skills and occupational uplift that of the traditional one. With few excep-
effects (Phelps and Fuller 2000; Raines 2003). tions, the old established automobile indus-
Together, the qualitative shift in supplier try centres were not favoured” (Dicken 2007:
linkages and the increased requirement for 309). In particular, having first secured the
skilled and professional labour were per- key priority of establishing production in the
ceived to offer a ‘demonstration effect’ of increasingly protected US national market,
new industrial practices which would trigger the incoming Japanese investments targeted
the modernisation of peripheral region greenfield rural locations, initially clustered
economies (Cooke and Morgan 1998; Peck in a ‘Transplant Corridor’ in the American
and Stone 1993). Mid-West before being decentralised across
the Southern States (e.g. Mississippi – Nissan,
In terms of workforce requirements, a Toyota; Texas - Toyota; Kentucky – Toyota).
swathe of Japanese and South Korean FDI Key factors of location included local work-
projects withinWales,Scotland and the North force characteristics, low levels of unionised
East of England were understood to be gen- labour, transport infrastructures suitable
erating more highly skilled and intensively for ‘just-in-time’ supplier agglomerations,

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Table 33.2 Alternative linkage scenarios: a summary of the main tendencies

Developmental Dependent

Nature of local linkages Collaborative, mutual learning Unequal trading relationships;
based on technology and trust; conventional subcontracting;
Duration of linkages emphasis on added value emphasis on cost saving;
Meaning of ‘flexibility’ Long-term partnerships; short-term contracts;
high-level interaction to price-cutting and short-term
Inward investors’ ties to the accelerate product convenience for
locality development and increase multinationals
Benefits for local firms responsiveness to
volatile markets Weakly embedded;
Quality of jobs Deeply embedded; branch plants restricted to final
Prospects for the local high investment in decentralised, assembly operations
economy multi-functional operations Markets for local firms to make
Markets for local firms to develop and standard, low-tech components;
produce their own products; subcontracting means restricted
transfer of technology and expertise independent growth capacity;
strengthens local firms many low-skilled, low-paid,
Diverse including high skilled, temporary and casual;
high income Vulnerable to external forces and
Self-sustaining growth through corporate decisions
cumulative expansion of the
industrial cluster

Source:Adapted from Turok (1993: 402)

state-level grants and assistance and sites away every culture and distil that into a system that
from the competitive pressures of rival auto- really works effectively in every country
motive assemblers (Kenney and Florida where we do business – and the ability to
1992). Subsequently, new local and regional transplant that system throughout other
flexible production enclaves emerged within countries is the key to growing globally”
non-traditional heartlands such as Kentucky, (Toyota’s North American President cited in
whereToyota’s largest US plant (Georgetown) Schifferes 2007).Similar examples of Japanese
provides the focal point of a state-wide motor automotive transplants in the UK – Toyota,
vehicle industry involving 52,859 jobs and to Honda and Nissan – led to suggestions that
become ranked as the third largest car- FDI was stimulating a series of new growth
producing state, behind only the traditional trajectories around ‘flexible production
centres of Michigan and Ohio (Kentucky enclaves’ in old industrial regions – analo-
Cabinet for Economic Development 2007). gous to a variant of a post-Fordist ‘new
Beyond the local and regional impact, the industrial space’ (Bryson and Henry 2005).
purported demonstration effect of Japanese
transplants triggered a restructuring of pro- Since the early 1990s empirical inquiry
duction systems among US producers such has attempted to investigate and evaluate the
as Ford and GM, Toyota’s continued superi- notion of the locally embedded/perform-
ority supported the growth of a 42,000- ance plant within the UK, with a considera-
strong US workforce across over ten vehicle ble weight of evidence continuing to illustrate
and parts plants. For Toyota, its success was the limited contribution of exogenous invest-
attributed to a company culture which ment in stimulating regional transformation.
“thinks globally, but act(s) locally…we have a One of the most comprehensive analyses of
hybrid system where we take the best of any purported shift from branch plants to
embedded plants was provided by Phelps and

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STUART DAWLEY

Raines (2003: 28), which concluded that in and regional development (Pike et al. 2006,
the inward investment heartlands of Wales 2008).
and North East England there appeared
“little support for the idea of the locally Restating the significance
embedded plant”. Although many of the of the firm
overseas operations had developed enhanced
roles and were more advanced than tradi- With reductions in the growth of FDI flows
tional branch plant stereotypes, there in recent years, Phelps and Raines (2003)
remained low levels of local sourcing, col- have identified a new terrain of intensified
laborative R&D linkages remain limited in competition between territories for the
scope and there were few regional attractions attraction and retention of FDI and the
(e.g. suppliers, education and training) that mobile investment of TNCs. Central to these
were deemed important in attracting further competitive dynamics are new forms of
rounds of investment. In essence, the experi- time-based competition, intensified processes
ences of FDI in the UK regions were subse- of intra-corporate competition and increased
quently described as ‘extended enclaves’ merger and acquisition activity – all of which
(Phelps et al. 2003) whereby the integration are impacting upon host regions in selective
of an FDI project is extended beyond simply and geographically uneven ways. To better
direct employment to involve partial con- understand the corporate processes in which
nections with local bases of R&D, suppliers host regions are competitively pitched,
and education and training. In terms of con- research must look into the ‘black box’ of
tributing to the development of synergies or intra-corporate activity and redress fears that
agglomerations within host regions, then, recent economic geography research has
FDI spill-overs appear mostly associated with “sidestepped the issues of researching how
existing clusters of indigenous industry with business firms perform as the movers and
only reduced or even negative agglomera- shapers of the capitalist economy” (Yeung
tion effects in FDI-led clusters (De Propis 2006: 2; O’Neill 2003; Dawley 2007a). It is
and Driffield 2006; Phelps 2009). important, therefore, that economic and
political imperatives ofTNCs – or focal firms
At one level, this brief review of the tradi- – are not diluted within frameworks such as
tional literature indicates the many lines of the GPN approach. As a purely economic
analysis through which the precise local and agent, relative to other agents such as gov-
regional development impacts of TNC ernments, the firm continues to possess
investment or ‘strategic couplings’ can be structural power (Phelps and Waley 2004).
scrutinised. At another level, the limited evi- Moreover, constitutive of the institutional
dence of embeddedness and truncated con- contexts that they connect, firms increasingly
tributions to local and regional development exhibit political power, for example, using
serve to restate the political economy of FDI mobility to promote convergence across
and the regions during the 1980s and 1990s national regulatory environments (Phelps
(Hudson 2000). The extent to which the and Waley 2004). Here, Phelps and Wood
same structures shaping the degree of link- (2006: 497) draw on the work of Crotty et al.
ages, embeddedness, performance plants (2003) to make the distinction between
continue to shape the prospects of more the bargaining power that TNCs can gener-
contemporary concerns of FDI-led clusters ate through the “gross mobility of capital
remains a matter for further conceptual and (i.e. realized and non-realized threats of re-
empirical research. However, the following location of production) rather than just the
sections indicate the importance of connect- net mobility of capital that highlights the
ing and retaining a geographical political
economy perspective within studies of TNCs

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true extent of regulatory arbitrage”. As such, life cycles necessitates a brief consideration
the structural power of the TNC continues of former approaches to the temporal and
to play a central role in determining the exe- spatial dynamics of TNC investment activity
cution of their strategies across and between and peripheral region development (Phelps
local affiliates, host region institutions and and Raines 2003; Schoenberger 1997). The
communities. The following discussion late 1970s and early 1980s reflected the hey-
focuses upon three competitive dynamics days of cyclical models of TNC industrial
currently shaping the uneven geography of location behaviour, built around the profit-
their corporate investment and restructuring cycle approach (Markusen 1994) and its
processes: time-based competition; intensified influential antecedent the product-cycle
intra-corporate competition; and TNC merger, model (Vernon 1966; Taylor 1986). Both
acquisitions and restructuring. approaches connected the cyclical evolution
of products and sectors to the geographical
Time-based competition dispersion and life course of TNC invest-
ments, with peripheral regions hosting the
Emerging from broader questions of the most labour-intensive, cost-sensitive and
heightened mobility and turnover of multi- consequently ephemeral operations.However,
national capital in time and space ( Jessop with the rise of structuralist realism within
1999), the development prospects for host economic geography in the mid-1980s,
region economies are increasingly moulded cyclical models of industrial change became
by the shortening life span of individual FDI discredited as essentialist, technologically
projects (Phelps and Raines 2003). Driven by deterministic and ultimately disembodied
the enhanced dynamism of ‘time-based’ from the concrete phenomena of industrial
competition (Schoenberger 1997;Van Egeraat behaviour (inter alia Sayer 1985;Walker 1985).
and Jacobson 2005), disruptive technological Nevertheless, elements of both approaches
change and market preferences, competitive connected with an emerging concern into
pressures are forcing TNCs to reduce the investment volatility within the classic
time-to-market of products and shorten product ‘branch plant’ critique of FDI that conceptu-
life cycles (Stalk and Hoult 1990;Yeung 2006). alised a geographical division between core
According to Phelps and Raines (2003: 3), and peripheral localities within corporate
these competitive pressures expose host spatial divisions of labour (Pike et al. 2006).
regions to the “heightened mobility of Here, cyclical notions of investment vulner-
productive investments as the ‘lives’ of indi- ability were replaced with a non-temporally
vidual production facilities dwindle, their determined exposure to corporate abandon-
future existence repeatedly and frequently ment through spatial structures of produc-
become subject to parent company review”. tion within broader social relations of
Compounding the existing vulnerabilities of production (Massey 1995; Yeung 2005).
host peripheral regions within TNC spatial Continued scepticism surrounding the nature
divisions of labour and accentuated by and scale of any qualitative transformation
the recent shift towards deregulated trade surrounding durability brought about by the
and investment policy regimes (Peck and ‘performance plant’ perspective were more
Yeung 2003), the emerging salience of time- recently reinforced by a series of ‘perform-
based competition and product life-cycle ance plant’ closures, rationalisations and post-
perspectives provide important insights into poned investments across the “periphery of
the economic geographies of transnational the neoliberal economic heartland” (Phelps
investment activity. The recent interest sur- and Raines 2003; Dawley 2007b;Van Egeraat
rounding time-based competition and product and Jacobson 2004). This was most vividly
demonstrated with the decimation of the

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STUART DAWLEY

UK’s high-technology semiconductor fabri- (Mytelka 2000) pitched between nations and
cation industry almost entirely dependent regions for the attraction of new greenfield
upon FDI projects. Between 1998 and 2002 inward investment projects. However, fol-
over 4,000 jobs were lost and a further 2,400 lowing an overall reduction in the growth of
new jobs postponed due to a flurry of FDI flows and greenfield investment in
plant closures and aborted investments, geo- recent years, Phelps and Fuller (2000) suggest
graphically concentrated in the North East competition for investment is now more
of England, Wales and Scotland’s much- focused upon capturing intra-corporate repeat
hyped ‘Silicon Glen’ electronic corridor. or reinvestment. More acutely, such intra-
Encompassing some of the largest FDI corporate competition can also be pitched in
projects within Europe, these flagship invest- a regressive battle to avoid disinvestment or
ments were emblematic of a ‘new dawn’ for closure (Pike 2005). But how can we better
the peripheral regions.The most acute exam- understand these new competitive contexts
ple being that of Siemens Semiconductors in within which local affiliates and regions
the North East of England, the German TNC compete against each other to attract or pre-
closed its £1.1 billion investment after just serve investment?
over one year of commercial production with
the loss of 1,200 high-skilled jobs (Dawley While much of the GPN work has thus
2007a). While the collapse of the memory far been preoccupied with inter- and extra-
chip market was felt across the whole Siemens firm institutional relations, more emphasis
Semiconductors Corporation, the selective needs to be placed on (focal) firm-level pro-
nature of rationalisation and closure exposes cesses to open up the black box of intra-
the weak position of the Siemens plant in the corporate activity during the geographical
North East of England within the broader uneven and selective (dis) investment epi-
corporate division of labour. From its incep- sodes. Even so, the GPN approach does offer
tion, the North East plant became locked into a framework within which the agency of the
extracting the diminishing returns from an corporation can be analysed as part of a more
outgoing segment of the market – and there- “pluralistic industrial geography”, according
fore unable to compete with other Siemens an active role to the socio-institutional and
plants, notably in Germany, in attracting and cultural regulation of investment behaviour
upgrading its product and process technolo- (Yeung 2001: 293). In this sense, while the
gies.The fragility of the plant’s path depend- capitalist ‘firm’ continues to respond to eco-
ency was subsequently exposed as the‘weakest nomic imperatives, the precise strategies and
link in the chain’ in the face of market col- actions of capitals evolve in response to spe-
lapse. In sum, the dynamics of intensified cific social, cultural, political contexts – both
time-based competition create new challenges internal and external to the corporation
for host regional economies as the volatility of (Schoenberger 2000; Yeung 2000). By con-
TNC investment increases and the life span of ceptualising the firm as a complex socio-
projects dwindles, accentuating further the spatial and territorial construction, the
vulnerabilities of peripheral host regions behaviour of corporate actors and strategists
within TNCs spatial divisions of labour. need not be confined to a singular logic of
profit maximisation, but instead reflect the
Intensified intra-corporate influence of competing discourses, cultures
competition and politics within the firm (Dicken and
Malmberg 2001;Yeung 2001; Schoenberger
Much academic and policy attention has 1997). In particular, three important dimen-
focused upon the ‘locational tournaments’ sions offer critical insights into the investment
strategies which shape the geographically
402 uneven nature of investment decisions within

TRA NSNAT IONAL CORPORAT IONS AN D LOC A L AN D R EGION AL D EV E LOPMEN T

and across TNC affiliates and regions. First, to Massey’s (1995) work, and while not situ-
in seeking to reconnect historical contexts ating plants within rigid spatial structures,
with economic-geographical analysis, invest- managerial hierarchies (including economic
ment decisions and corporate strategies are ownership) and technical divisions of labour
shaped by the evolution and path depend- continue to contribute to our understanding
ency of the institutional architecture of capi- of socio-spatial power relations within cor-
tal (Clark 1994). Path dependency can reflect porate and global production networks
the strategic disposition of corporate activi- (Phelps and Fuller 2000; Birkinshaw 1999).
ties together with territorial embeddedness For example,the work of Schoenberger (1997)
of firms and corporate cultures (Dicken and illustrates the variations in corporate sub-
Malmberg 2001). Second, the embeddedness cultures and knowledge transmission across
of a TNCs within its home nation has been TNC networks, while Birkinshaw and Hood
proven to play an important role in influenc- (1998) have focused upon the agency of
ing and enmeshing corporate strategies and entrepreneurial affiliates to alter their posi-
behaviours within territorially distinctive tion within corporate socio-spatial hierar-
assemblages of institutions and practices chies. For local and regional development,
(Dicken 2000). Insights are derived from the discussions surrounding enhanced
studies which reveal the distinctiveness of intra-corporate decision-making expose the
national business systems and varieties of complexities of the corporate decision-
capitalism that suggest “although firms do making process and the degree to which
respond and react to (or anticipate) changing the prospects of regions are based, but also
competitive conditions…the strategy they how they are very rarely purely financial
choose is most strongly shaped by the national decisions and instead are melded together
legacy of their home county” (Bathelt and under particular economic, political, institu-
Gertler 2005; Gertler 2001: 14).Through the tional and cultural contexts (Phelps and
processes of TNC-driven international eco- Waley 2004).
nomic integration, the roles of home and host
political, cultural and regulatory institutional TNC merger, acquisition
environments serve to embed the firm- and restructuring
territory nexus and contextualise intra-
corporate socio-spatial relations during (dis) To date the majority of literature focusing
investment episodes (Phelps and Fuller 2000). upon TNCs and local and regional develop-
ment has been preoccupied with the arrival
Third, evidence of time-based competi- and departure of greenfield investment
tion and the shortening life span of individ- projects (cf. Ashcroft and Love 1991, 1993).
ual FDI projects suggests elements of the However, less attention has focused upon the
product life-cycle approach still provide local and regional development impacts of
some practical bearing on the functional and in-situ corporate restructuring driven by
spatial organisation of affiliates within the TNC acquisition and merger activity.While
TNC networks (Phelps and Fuller 2000). In not exclusively so, this is especially the case in
this way, the status and roles of TNC affiliates traditional industries when firms with long
are connected to the life cycle of each plant’s regional histories become acquired and
product and process technologies. Intra- absorbed within broader TNC ownership
corporate spatial divisions of labour emerge structures.Put simply,we tend to look beyond
and are contested as TNC operations com- ‘the new in the old’ despite these corporate
pete for parent company investment to obtain dynamics representing some of the main FDI
first-mover advantages and avoid being locked flows into host regions. This has been most
into declining product markets (Birkinshaw starkly demonstrated through the pent-up
1999; Phelps and Fuller 2000). Connecting
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STUART DAWLEY

and belated globalisation of the steel industry. compounded in 2007 when Corus was
Driven by a complex combination of new acquired by Tata Steel, part of the Indian Tata
market conditions, technological change and industrial conglomerate.While Corus viewed
above all pressures to consolidate in the face the acquisition as essential in that it was
of persistent global overcapacity, the corpo- “no longer sufficient to be European…this is
rate anatomy of European steel production a global industry” ( Jim Leng, Deputy
has been rapidly restructured from a frag- Chairman of Tata Steel cited in BBC News
mented sector dominated by a large number 2007), it marked further uncertainty for the
of predominantly national, sometimes future of Teesside. In December 2009, Tata
nationalised, companies towards an increas- announced that the Teesside steel operation
ingly smaller number of integrated TNC was the source of its greatest losses within
producers (Fairbrother et al. 2004). Within Europe and will be ‘mothballed’ with the loss
the UK the vestiges of the formerly nation- of 1,500 jobs. While there is no counterfac-
alised British Steel Corporation merged with tual as to the direction the Teesside steel plant
the Dutch steel company Hoogervens in may have taken without being integrated
1999 to form Corus.The merger was driven within evermore transnational corporate
by the need to achieve scale, market access structures, it nevertheless mirrors similar
and a more diversified product base, but the processes that have occurred within the
burden of post-merger rationalisation was to Teesside petrochemicals industry (Sadler
be most harshly felt in the UK’s steel regions 1992; Chapman 2005).Together these proc-
with the loss of 13,000 jobs (Dawley et al. esses raise important challenges in broaden-
2008). Moreover, indicative of different ing and deepening our analysis of TNCs and
national traditions of corporate governance local and regional development. In particular,
rumours of “open warfare between the UK this story indicates how analytical and policy
and Dutch parts of Corus” (Financial Times attention must redress the tendency to over-
2003) hampered corporate decision-making, look the significant ways in which TNCs and
especially in terms of the location of further FDI can serve to reinvigorate or indeed
disinvestment and job loss. Less than five ‘hollow-out’ (Williams et al. 1990) long-
years after the Corus merger, a corporate serving and established regional industries.
decision was made to write the steel plant on
Teesside, North East England, out of the The state is dead…long live
company’s strategy reflecting its vulnerable the state
position in producing cost-price commodity
steel within an increasingly competitive Dicken’s (2007) commentary on the often
global market. Moreover, Teesside’s fate uneasy nexus between states and TNCs sug-
appeared pinned directly to the new corpo- gests that while historical variations have
rate pressures to deliver investment returns existed between states’ FDI policies, in the last
generated by a ‘financialised’ capitalism and two decades policies have tended to converge
search for ‘shareholder value’ within restruc- in the direction of liberalisation.At the broad-
turing plans (Pike 2006). Following merger, est level, historical variations existed between
Corus’ strategy sought “to selectively seek the more liberal approaches of developed
growth and shareholder value creation … countries than developing countries.But even
achieved through the development of those within the developed countries there were
businesses where we can achieve market- wide variations between, for example, the
leading positions” (Corus 2002). Although a UK’s ‘open door’ approach from the 1970s
spike in global steel demand sustained the onwards compared to that of France’s more
plant through a series of international supply restrictive – even protectionist – stance.
agreements, the fate of Teesside was further

404

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Similarly, within the developing states, environments emphasising deregulation and
Singapore’s longer term ‘developmental’ labour market flexibility from taking advan-
open door policy to FDI contrasted sharply tage of low exit costs to close or rationalise
for many years with the latecomer liberalisa- operations within host regions (Mackinnon
tion of South Korea.However,moves towards and Phelps 2001a; Dawley 2007a). Thus,
greater harmonisation in neo-liberal policy Dicken (2000: 284) suggests that the inter-
approaches suggest that competition for firm, intra-firm, firm–place and place–place
investment is now more extensive and that connections developed through processes of
the bargaining power is ever-more loaded international economic integration are:
in the favour of business (Stopford and
Strange 1991). fundamentally embedded within
asymmetrical, multi-scalar power
However, this does not necessarily reduce structures.…Each of these sets of rela-
the significance of the state, nor variations tionships is embedded within and
between states, in understanding the dynamic across national/state political and reg-
relations and frequently “murky firm–state ulatory systems which helps to deter-
nexus” in regulating, shaping and moulding mine the parameters within which
patterns of investment or disinvestment firms and place interact.
(Phelps and Fuller 2000; Mackinnon and
Phelps 2001a). While much attention has Stark variations exist between national regu-
focused upon decentralisation of certain eco- latory structures and FDI models. On the
nomic development roles to local and one hand, the US has developed a highly
regional scales, these continue to be medi- deregulated approach to competition for, and
ated by national modes of regulations rang- incentives given to, overseas TNCs (Phelps
ing from policies on corporate governance and Raines 2003). Similarly, until recently
and trade to labour market regulation the UK’s approach was typified as a “low cost
(Macleod 2001). Recent case studies of to enter – low cost to exit” pro-business
attempts to stimulate FDI-led clusters and environment, which lacked a clear connec-
agglomerations in China (Yeung et al. 2006), tion to an industrial, or even regional, policy
South East Asia (Phelps 2008) and the UK (Mackinnon and Phelps 2001). Therefore,
(Phelps 2009) continue to reveal the integral Loewendahl (2001: 219 cited in Phelps 2008)
role of state-level institutions and strategies suggested that:
in orchestrating their successes and failures.
UK industrial policy is based upon the
Economic geography research has contin- ad hoc attraction of large-scale, job-
ued to explore the altered roles and capaci- creating inward investment to create
ties of nation-states in developing political short-term jobs in declining regions.
and policy structures to promote and regu- There is no coherent strategy integrat-
late the spatial strategies of TNCs’ investment ing sector targeting and economic
activities (Phelps and Waley 2004; Yeung development, at least at the central
1998). After all, it remains the “complex, level, and government policy, has arti-
dynamic interactions between states and ficially dispersed foreign companies,
firms” that creates the context for ‘regulatory missing out on any clustering benefits.
arbitrage’ within which TNCs play one state
(and communities within them) off against For many decades UK regional policy used
another (Dicken 1998: 10). However, while the dispersal of FDI as a vehicle to diversify
states engage in regulatory arbitrage in the the industrial profile of peripheral regions,
attraction of inward investment, they are at leading to few positive economic impacts
the same time relatively powerless to prevent
companies attracted by national regulatory 405

STUART DAWLEY

beyond direct employment (Phelps 2009). industrial clusters (see Phelps (2008) for a
Where FDI-based clustering – or sectoral review of South East Asian clusters).
grouping – did occur within the UK, for
example, the ‘Silicon Glenn’ electronics cor- Within Europe, the liberalisation of the
ridor in Scotland, linkages remained trun- Central and Eastern European (CEE) econo-
cated, few knowledge spill-overs were mies as part of the transition process (Bradshaw
generated and labour poaching reflected a and Swain 2004) led to striking rates of
lack of a coordinated approach (Turok 1997). growth in the receipt of FDI in the 1990s. By
Indeed, ultimately the fragility of the Silicon 1998, CEE economies received one-tenth of
Glenn cluster, based almost entirely depend- all European inward investment flows, grow-
ent on the FDI, was brutally exposed in the ing at a rate which outstripped FDI to the
early 2000s with a rapid and extensive spate developing world (Raines 2003; Helinska-
of closures. Hughes and Hughes 2003). Much of the
growth in FDI was concentrated in Poland,
On the other hand, elements of the devel- Czech Republic and Hungary and focused
opmental state model prosecuted in certain primarily on manufacturing investments,
East Asian nations, particularly Singapore, especially from the US and other EU states.
provide a significant counterpoint. In the Following an initial impetus by TNCs to
immediate aftermath of independence, ‘cherry pick’ as part of the privatisation proc-
Singapore followed a necessarily indiscrimi- ess, inward investment and FDI promotion
nate approach to attracting FDI, driven by has developed through a more sophisticated
the need to stimulate large-scale employ- set of national institutional structures. Each
ment. However, by the 1970s and 1980s the of the first wave transition states developing
city-state’s Economic Development Board – with EU PHARE support – inward invest-
pioneered the sectoral and functional target- ment promotion agencies (e.g. CzechInvest;
ing of FDI projects as part of an integrated PAIZ – Poland Inward Investment Agency)
industrial and cluster policy (Phelps 2009). and sophisticated portfolios of inward invest-
Singapore’s strength as a high-level business ment incentives. While many of the state-
service centre continued to attract head level incentives structures have been phased
office and R&D functions while low value- out as part of the harmonisation of accession
added functions were increasingly offshored, into the EU, within Poland, legacies of the
both organically and as part of a state-man- incentivised structures continue to be used
aged process to relocate TNC activities from across 15 Special Economic Zones (inter alia
the overheating economy. Initially, the tax exemptions, land and property assistance,
Singaporean and Indonesian government etc.).While Poland has attracted considerable
coordinated the industrial development of cost-sensitive manufacturing FDI, often relo-
the nearby Batam and Bintan islands to pro- cated from former inward investment heart-
vide a low-cost hinterland. Subsequently, the lands in the UK and Ireland, it has also
Singaporean government deployed its power become a location for product development
extraterritorially (i.e. beyond its sovereign and shared services centres, with FDI con-
territory) to establish and manage business centrating in regions with high levels of
parks in China, Vietnam and India – an human capital and technological infrastruc-
expansion equivalent to 20 per cent of the tures (Raines 2003; OECD 2008). Within
industrial land in Singapore. Despite the Krakow, for example, the Special Economic
gains from this programme being relatively Zone programme developed a series of
modest – anchoring corporate functions in Technology Parks which have attracted TNC
Singapore and internationalising domestic R&D investment from companies such as
firms – larger benefits have accrued from Motorola, IBM, Google and Delphi. In
attempts to embed FDI projects within the case of Motorola, its decision to locate a

406

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software development centre in Krakow in between TNCs and national institutional
1998 followed the instigation of a ‘locational contexts. Together, these perspectives illus-
tournament’ across Central and Eastern trate the importance of adopting a geograph-
Europe. Indicative of a qualitative shift in the ical political economy approach to TNCs
nature of FDI attracted to Poland, a key and regional development and as a result
driver for Motorola’s investment was the illustrate the importance of not losing sight
ready availability of human capital. Krakow of theoretical, empirical and policy lessons
offers the second largest concentration of developed within the traditional literature
university students within Poland and a long on TNCs, FDI and local and regional devel-
history of university-based R&D within opment – reviewed at the outset of this
computer sciences. In addition, the relative chapter. Drawing on the preceding discus-
wage levels within Poland coupled with the sions, this final section of the chapter con-
site and infrastructure support available cludes with an examination of the changing
within the Special Economic Zone pro- roles,prospects and challenges facing regional-
gramme also made Poland a low-cost, high- level institutions in their ongoing relations
quality location relative to other European with TNCs.
states (Motorola Plant Director, author’s
interview 2009). Yet the recent success of In an attempt to ‘globalise’ regional devel-
Krakow in attracting additional FDI in allied opment, Coe et al. (2004) restate the impor-
software development (e.g. Google, IBM, tance of local and regional institutional
etc.) has raised a number of issues as to the agency and capacity in promoting and nego-
sustainability of its low-cost profile as com- tiating issues of power and control with focal
petition for the recruitment and retention of firms in global production networks.Within
skills heightens. However, while the embed- a global context of geo-economic deregula-
dedness of Motorola’s investment remains tion and mobile capital,‘regional institutions’
limited to local training and education link- (including non-local institutions with
ages and market access, the US TNC has regional influence) have an important role to
instigated several rounds of reinvestment and play in promoting and coupling ‘regional
has expanded to employ over 600 staff across assets’ with the strategic needs of focal firms
two sites. within global production networks (ibid.
Amin and Thrift 1994). Again, considerable
Local and regional institutions attention has focused upon the roles and effi-
and TNCs cacy of local and regional institutions in both
seducing ‘flagship’ FDI projects and embed-
The themes developed within this chapter ding TNC investment within host econo-
have served to restate the relative and differ- mies within the existing research focused
ential powers of TNCs and nation-states in upon FDI and regional development
analysing the prospects for regions in attract- (Mackinnon and Phelps 2001a; Phelps and
ing and embedding exogenous resources. Fuller 2000; Amin et al. 1994). Important
The chapter has examined the power and insights for the GPN approach can be derived
causal role of the firm and explored a number from this literature, especially in terms of
of current corporate dynamics which shape developing proposals suitable for adoption
the uneven geographical expression of (dis) within the policy community.
investment. The chapter then examined the
ways in which the investment strategies of Within the UK, the neoliberal orthodoxy
corporation continue to be moulded and implemented during the 1980s and early
embedded by the enduring interrelations 1990s created a highly competitive and ulti-
mately wasteful environment within which
regional agencies effectively competed
against each other as ‘hostile brothers’ to

407

STUART DAWLEY

seduce mobile investment. Even so, regions state models, especially Singapore. However,
and nations such as the North East and Wales similar trends are occurring within regions
developed successful repertories of rapid of the UK. The North East of England has
‘one-stop shop’ multi-agency and multi- recently attempted to capture ‘first mover’
scalar institutional responses, referred to as advantage in the offshore wind turbine
Taskforces or coalitions, to delivering pack- power generation sector. Partially in the
ages of assistance on sites, infrastructures, wake of the collapse of the former FDI-
supply chain and labour market support for driven model of regional development pur-
large-scale FDI projects. Crucially, the sued in the North East, the Regional
regional initiatives were necessarily mobi- Development Agency adopted a more bal-
lised under the guidance and funding sup- anced approach which sought to foster R&D
port of the national agencies and government strengths in areas including renewable energy
bodies. Over time regions began to move – creating the UK’s largest R&D and testing
away from an indiscriminate attraction of facility for offshore wind turbines. FDI is
FDI to an approach which increasingly tar- now being targeted to supplement the R&D
geted key sectors and corporate functions activity but also to build outwards in the
and a more explicit attempt to embed value chain into the mass production of the
projects through ‘aftercare’ provision (Amin wind turbines – ironically reutilising the
and Tomaney 1995). In part, this was driven shipbuilding infrastructure that provides the
by the pragmatism of a need to stimulate regions industrial heritage. Built around a
reinvestment in the face of flows of green- series of ‘regional assets’ (R&D; infrastruc-
field inward investment projects from the ture; skills; market access) the North East’s
mid-1990s onwards. It also reflected attempts new targeted approach to FDI marks a stark
to mimic emerging best practice from insti- contrast to its formerly indiscriminative
tutions such as IDA Ireland with high-skilled approach built around low costs and institu-
FDI electronics investments driving the tional flexibility.
‘Celtic Tiger’ (Amin et al. 1994). In addition
to increasingly supporting the embedding of However, drawing on the geographical
FDI projects, Raines (2003) indentifies political economy approach adopted within
two further shifts in inward investment pro- this chapter, regions continue to be pitched
motion strategies around differentiation and into significant power asymmetries with
discrimination. In terms of differentiation, TNCs across episodes of investment and dis-
agencies have increasingly focused upon pro- investment. This can be reflected in what
moting the distinctive ‘regional assets’ (in Phelps (2008) terms the ‘corporate capture’
GPN parlance) such as sector, R&D or of land and infrastructure developments,
labour market strengths rather than more skills and training support and more gener-
generic advantages. Discrimination builds ally monopolise the efforts of regional insti-
upon the principles of differentiation, but tutions (Christopherson and Clark 2007;
emphasises the ways in which regions proac- Lovering 2003). The most acute example of
tively ‘target’ specific projects or functions capture occurs when FDI projects are short-
within sectors or sub-sectors to either lived. In the case of the volatile Siemens
upgrade or enhance existing strengths (see, Semiconductor investment in the North
for example, preferential rates in the UK East of England examples existed of both
former Regional Selective Assistance grants). labour and infrastructure capture. In terms of
Examples of differentiation and discrimina- labour, the rapid ‘ramp up’ into production
tion are clearly more readily applicable when led to the recruitment of an ‘off-the-shelf ’
part of a national sectoral and industrial skilled workforce, causing ‘backfill’ issues for
programme, for example, the development employers within and beyond the region –
with one in three high-skilled recruits drawn
408

TRA NSNAT IONAL CORPORAT IONS AN D LOC A L AN D R EGION AL D EV E LOPMEN T

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34

Innovation networks and local
and regional development policy

Mário Vale

Introduction may ask if non-geographically bounded
innovation networks imply different local
Localized innovation networks are related and regional policies.
to the advantages of geographical agglom-
eration, in which spatial proximity facilitates On the other hand, the absence of a clear
the generation of externalities and localized understanding of different types of know-
learning processes critical to local and ledge enrolled in the innovation process has
regional development. The role of agglom- been a constraint to design adequate innova-
eration in the innovation networks is epito- tion regional policies. According to Asheim
mized by notions of industrial district, cluster and Gertler (2005), certain types of know-
and milieu innovateur.These territorial inno- ledge travel more easily across space than
vation models highlight the particular terri- others. In fact, analytical knowledge type
torial conditions that promote localized (know why) is essential codified knowledge,
knowledge generation and diffusion through highly abstract and universal and to a certain
networks of innovative firms, universities and extent less sensitive to spatial context when
other institutions. compared with synthetic (know how) and
symbolic (know who) types that travel less
However, there are arguments concerning easily because tacit knowledge is more rele-
the effectiveness of distant networks in the vant (especially on the symbolic type) and as a
creation and diffusion of knowledge (Oinas, result both show certain levels of discrepancy
2000; Boschma, 2005;Torre and Rallet, 2005) between places. Considering that sectoral
as a result of the increasing use of ICT and differences are related with distinct know-
lower transport costs that enable the effective ledge types it is quite clear that policy response
operation of powerful communities of prac- needs to address these differences and respond
tice (e.g. engineers, entrepreneurs, computer effectively to firms and institution needs.
experts, etc.) across space. Distant network-
ing has been crucial for producing new Current perspectives on regional innovation
knowledge and innovation. Production net- systems (Cooke, 1992; Cooke and Morgan,
works are often multi-scalar, ranging from 1998) became the benchmark for innovation
local to global and the other way around policy at regional level in a way complemen-
(Dicken and Malmberg, 2001).Therefore, we tary to the cluster approach. Both perspec-
tives identify geographical proximity as a key

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MÁRIO VALE

element on the innovation process at regional process in the sense that it relates to capital,
level. The regional innovation system (RIS) labour and the state, whose actors’ interac-
perspective has been very influential in the tions are precisely the basis of geographical
policy design of important organizations such inequality (MacKinnon et al., 2009). Therefore,
as the OECD and the European Commission. innovation isn’t immune to capital accumu-
lation dynamics, labour relations and institu-
The EU innovation policy is based on the tions. Knowledge is a fundamental input to
RIS and therefore addresses the knowledge innovation and regional economic growth.
transfer university-firm, IPR, training, local Knowledge and innovation have a determi-
and regional partnerships and alliances, as well nant role on the introduction of new prod-
as traditional mechanisms centred on incen- ucts to the market, new production processes
tives systems,venture capital,etc.Nevertheless, and organizational practices that are critical
we argue that local and regional policy has to the competitive advantage of firms and
to focus on local-distant networking and regions (Feldman and Stewart, 2006).
encompass different actions on knowledge However, the innovation network is perhaps
‘pipelines’ (Bathelt et al., 2004), knowledge the most relevant element to understand the
mobility and anchoring, and institutional innovation dynamics in a region:
development, which have to be coherent
with the dominant knowledge types of each innovation is an emergent process
innovation network. based on gradually introduction inter-
actions that link agents, knowledge,
This chapter discusses precisely the ade- and goods that were previously uncon-
quacy of local and regional development nected, and that are slowly put in a
policies to support innovation networks at relationship of interdependence: the
regional level considering the globalizing network, in its formal dimension, is
economic world and the easier access to cer- a powerful tool for making these
tain knowledge types, questioning the cluster- connections.
type policy orientation and the limitations
of Regional Innovation Systems policy (Amin and Cohendet, 2004: 153)
instruments. First, we review theoretical
debate about the role of space in knowledge Hence, the localized innovation systems
creation and why and how firms combine have captured the attention of economists,
local and distant knowledge sources consid- geographers and regional scientists where
ering the implications of the global economy proximity and relatedness of agents have
and the knowledge creation processes to been considered essential to understand their
localized innovation networks. Second, we success. The industrial district (Bagnasco,
examine the local and regional policy-relevant 1977; Becattini, 1987), clusters (Porter, 1990,
literature concerning knowledge and inno- 1998) and milieu innovateur (Aydalot, 1986;
vation in the region emphasizing the cluster Camagni, 1991) approaches illustrate the role
and RIS policy orientations. Finally, we point of the industrial agglomeration and the inno-
out new directions to regional knowledge vation networks in localized systems. These
dynamics and innovation in multi-scalar spaces theoretical underpinnings highlight the par-
of innovation networks. ticular territorial conditions that promote
localized knowledge generation and diffu-
Space, knowledge sion through networks of innovative firms,
and innovation networks universities and other institutions (Antonelli,
1999; Cooke, 1996; Peck, 2003; Moulaert
Innovation is a key element on the regional and Sekia, 2003;Amin and Cohendet, 2004).
economic development. It is also a social Although there are relevant differences among

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INNOVAT ION NET WORKS AND L O C A L AN D R EGION AL D EV E LOPMEN T POLIC Y

these theories of localized innovation, one Social capital, trust and local actors’ networks
can identify a common claim of prominence are the foundations of the industrial district,
of tacit knowledge and localized learning.This where untraded knowledge flows stimulate
particular type of knowledge and the intense collective learning processes.The benefits for
local learning process cannot exist beyond the local producers arise from the localized
the agglomeration of economic activities and externalities which constitute a common
institutions even in a globalized era: good to entrepreneurs, like the existence of
local labour market skills and competences
What is not eroded, however, is the that evolved largely based on localized learn-
non-tradable/non-codified result of ing processes. The collaboration and coop-
knowledge creation – the embedded eration among local actors is another specific
tacit knowledge – that at a given time element of the industrial district organiza-
can only be produced and reproduced tion, as well as the relative high number of
in practice.The fundamental exchange spin-offs that consolidate the local innovative
inability of tacit knowledge increases agglomeration capabilities.
its importance as the globalization of
business markets proceeds. […] the More important than innovative isolated
more easily codified (tradable) know- firms is the local network of actors and insti-
ledge is accessed by everyone, the more tutions to support knowledge creation and
crucial does tacit knowledge become use and localized learning processes that are
in sustaining or enhancing the com- critical to the agglomeration as a whole.This
petitive position of the firm. is quite evident on the GREMI’s innovative
milieu perspective where firms benefit from
(Maskell and Malmberg, 1999: 16) strong institutions’ interaction to provide the
right infrastructure and especially the adequate
Precisely, the cluster approach illustrates the environment to sustain collective learning
relevance of spatial proximity to firms’ com- processes and the reduction of firms’ risk and
petitiveness, as well as the organizational and uncertainty (always inherent to an innova-
productive structures that are essential to the tion process) (Camagni, 1991).The geograph-
cluster performance (Porter, 1998).Although ical outcome is a mosaic of competing and
social relations do not appear to be relevant differentiated innovative regions with poor
in the theory, the innovation processes show inter-regional mobility of knowledge since
intense local networking at least in the cases its generation and use is context specific and
of high technology clusters, like Route developed through localized social interac-
128 and Silicon Valley (Saxenian, 1991), tions (Crevoisier and Jeannerat, 2009).
involving suppliers and customers, all playing
a crucial role in new ideas and technology Recently, the spatial proximity role on the
development. Furthermore, highly special- knowledge and dynamics innovation has
ized workers pool and local institutions been contested by several authors that claim
favour knowledge generation and innovation substantial changes occurred on the process
dynamics in the cluster (Glasmeier, 1988). of how firms and regions develop their
knowledge and innovation strategies. Hence,
The Marshallian industrial district gener- arguments concerning the effectiveness of
ates localized knowledge that relies on the distant networks in the creation and diffusion
social relations, local labour market mobility of knowledge have been put forward (Amin
and the local and regional institutions and, in and Cohendet, 2004; Boschma, 2005; Torre
this sense, the innovative agglomeration is a and Rallet, 2005). There are three reasons
socio-territorial entity which is composed commonly stated to sustain the claim. The
by a community of individuals and a set of first one refers to the increasing use of ICT
firms both interrelated (Becattini, 1987). and lower transport costs that allow for the

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increasing mobility of capital and people as strategic partnerships, communities of
and the effective operation of powerful com- practice, projects, temporary clusters, etc.
munities of practice (e.g. engineers, entre- Examples of multi-local innovation systems
preneurs, computer experts, etc.) across space. range from more traditional industries – see
Second, the growing importance of know- Uzzi (1996) about the New York garment
ledge in the creation of economic value industry or Vale and Caldeira (2007 and
compels firms and institutions to seek outside 2008) on the footwear-fashion innovation
their limits relevant knowledge to generate networks – to creative industries (Scott,
innovation and strengthen competitive 2002; Grabher, 2002) and high technologies
advantage in the international and national (Owen-Smith and Powell, 2004; Fontes,
markets, especially because innovation proc- 2005). These local-distant networks are not
esses are increasingly more complex (Feldman confined only to Europe or North-America.
and Stewart, 2006). Third, socio-cultural In fact, North-South evidences on automo-
dynamics become more central in innova- bile industry related with flex-fuel technolo-
tion and therefore interactions between firms gies indicate knowledge networks irradiate
and customers are more important (Grabher from São Paulo (Brazil) and involve large
et al., 2008) and consequently symbolic system producers like Robert Bosch,Magneti
knowledge is required to produce and sell new Marelli and Delphi which develop further
products and services in several industries networks with OEMs, bio fuel producers,
(and not only consumer-end industries). suppliers and research institutes (Van Winden
et al., forthcoming). On a different angle,
These changes are not a clear sign of the Coe et al. (2003) refer to the transnational
dismissal of proximity learning processes, elite professionals from South-East Asia
however. According to Morgan (2004), moving repeatedly around the globe through
three reasons can be put forward against the the East Asia–Vancouver/San Francisco cor-
dichotomy proximity vs. distant learning. ridor, thus articulating “South” and “North”.
First, the organizational and social learning
has always been related with geographical To a certain extent, distant networking
proximity, since the latter operates through does not go up against local relations; on
the former type of proximity. Second, distant the contrary it complements firms’ local
networking hardly replaces trust, stability and networks with distant relations, particularly
richness of close relations – like face-to-face in the initial stages of cluster formation,
contacts. Third, the benefits of local buzz although distant networking may avoid
cannot be fully replaced by the professional lock-in effects on later stages (Bathelt et al.,
communities of practice; otherwise the geog- 2004). As Mackinnon and Cumbers (2007)
raphy of innovation would be less spatially suggest, local buzz and global pipelines reflect
concentrated. the complementary rather than contradic-
tory nature of localization and globalization
Although spatial proximity is extremely processes. Therefore the argument illustrates
important to innovation networks, distant a rather peculiar combination of local and
networking aiming at the production of new non-local learning processes underlying both
knowledge and innovation is emerging and geographical and organizational proximities in
allegedly “successful clusters are the ones that the learning processes of cluster-based firms
are able to build and maintain a variety of and institutions (Amin and Cohendet, 2004).
channels for low cost exchange of know-
ledge within relevant hot-spots around the Thus the question is to know if distant
globe” (Bathelt et al., 2004: 33). The cluster networking may replace co-location, local
external communication channels are called buzz and tacitness of certain types of know-
‘pipelines’ and can take the form of different ledge in the clusters (Storper and Venables,
sorts of organizational arrangements, such 2004). In other words, are the agglomeration

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INNOVAT ION NET WORKS AND L O C A L AN D R EGION AL D EV E LOPMEN T POLIC Y

advantages to local firms less relevant in a clean technology (Cooke, 2008) – illustrates
globalized and highly integrated economic the increasing significance of combinatorial
world? Do vibrant local agglomeration with knowledge which tends to merge analytical,
a proliferation of activities and events rele- synthetic and symbolic knowledge and thus
vant to learning processes of actors in the goes beyond the classical sectoral cumulative
cluster get replaced by more efficient distant knowledge nature.
networking to access new knowledge and
increase firms competitiveness? Asheim and To a certain extent it seems evident that
Gertler (2005) shed some light on these proximity and distant networking are not
complex and rather arguable claims. Accor- opposing categories, as it is evident that
ding to the authors, the answer may be found the type of knowledge being mobilized affects
on the type of knowledge that firms are gen- the geographical spread of the firms and
erating and using to develop new products institutions networks.As innovation is a social
and services or to achieve innovative organi- process, learning is based on interaction of
zational processes. Therefore the adequate myriad actors, often in the same geographical
questioning is under what circumstances bounded space (the cluster, the industrial
distant networking is likely to be more effec- district, the innovative milieu). However,
tive on firms’ learning processes or on the production networks – and we may add
contrary what may prevent these forms of knowledge networks – are often multi-scalar,
distant learning? ranging from local to global and the other
way around (Dicken and Malmberg, 2001;
According to Asheim and Gertler (2005), Coe et al., 2004; Yeung, 2009), especially
the three primary types of knowledge are if different types of knowledge are being
analytical knowledge (know why), synthetic used to produce a new product or deliver a
knowledge (know how) and symbolic new service, allegedly giving rise to a multi-
knowledge (know who).The first one travels local production system through the articu-
across space more easily than other types of lation of different local production systems
knowledge since it is highly codified through (Figure 34.1) (Crevoisier and Jeanneret, 2009).
IPR, published papers, etc. and it is relatively
universal and available across regions and Innovation and territorial
cities. Synthetic knowledge is about solving development policies
problems and is interactive learning oriented.
Both codified and tacit knowledge are rele- In 2000, the Lisbon agenda aimed at a growth
vant to the firms and therefore it is more sen- improvement through innovation, employ-
sitive to space.The symbolic knowledge type ment and social integration in the EU.
is clearly an outcome of creative processes Innovation policies were initially influenced
and for that reason it is very much place by the linear innovation model principles
specific due to cultural and social-specific but moved slowly to a more integrated
context that affects this type of knowledge approach. Accordingly, in the early 1990s
creation. Hence, the types of knowledge may the innovation policy stressed the RTD
be related with sectoral knowledge bases, for investment and expenditure, while currently
instance, pharmaceuticals industry and ana- it embraces start-up support, venture capital,
lytical knowledge, mechanical engineering technology transfer, etc.
and synthetic knowledge and design and cul-
tural production and symbolic knowledge. At the same time, the territorial dimen-
Precisely, Gertler (2008) shows that synthetic sion of innovation policy has emerged in
and symbolic forms of knowledge are less association with the regionalization process
amenable to distant learning. Currently, the in Europe (Seravalli, 2009). The regional
platform nature of new technologies – like innovation system approach highlights the

417

MÁRIO VALE

Multi-local
production

system

Firms/suppliers/clients
Universities
Local institutions
Cluster
Interrelations

Figure 34.1 Emerging multi-local production systems.
Source: Based on Bathelt et al. (2004) and Crevoisier and Jeanneret (2009)

territorial innovation networks, in which argues that collective learning is critical to
firms’ innovations depend on the “quality stimulate innovation in the region, since it is
of ‘home-base’ institutions that act as a col- an interactive and cumulative process in
lective resource for both technological and which firms play a central role in the system,
non-technological innovation and learning” though they depend on other regional insti-
(Amin and Cohendet, 2004: 87).Accordingly tutions to exchange and exploit different
institutional capacity of regions plays a kinds of knowledge (basic/applied, generic/
central role in the innovation process, of specific, tacit/codified) (Tödtling and
which science and technology institutions, Kaufmann, 1999). Furthermore, knowledge
education and training organizations, entre- dynamics and collective learning are path
preneurial associations, and financial organ- dependent, reflecting the past options and
izations (like venture capital) have been technological trajectories of regional agents to
considered extremely relevant to regional the present and future innovation outcomes
innovation performance. The RIS approach (Krugman, 1991).

418

INNOVAT ION NET WORKS AND L O C A L AN D R EGION AL D EV E LOPMEN T POLIC Y

Among several RIS in Europe (Braczyk and specialized inputs and their potential to
et al., 1998), the Welsh pioneer case stands as generate dynamic learning effects through
a good example in the EU.The restructuring knowledge spill-overs, spin-offs, and higher
process of Welsh economy was supported by rates of firm formation which have obvious
the EU through the RITTS (Regional benefits for the regional economies (Tödtling,
Innovation and Technology Transfer Strategy 1999; Burfitt and Macneill, 2008). However,
for the South Wales) and RTP (Regional cluster policies have been in many ways
Technology Plan) (Morgan, 1997). However, vague and did not generate real positive
some criticisms of RIS can be found in the effects in the regional economy. One of
literature of regional development. In gen- the reasons for this outcome results from a
eral, authors point out the limits of localized certain conceptual misunderstanding related
learning to the regional development process to types, processes and spatial scale (Martin
(Hudson, 1999), the tendency to give ex- and Sunley, 2003). Moreover, the conceptual
post rationality to the regional innovation issues obstruct clear and realistic cluster
system policies (Lovering, 1999) and the policies and strategies formulation. In fact,
bounded region concept which does not this imprecision “generates arbitrary out-
encapsulate the multi-local nature of know- comes as policymakers struggle with impre-
ledge dynamics. cision and ambiguity at various stages of
cluster policy development” (Burfitt and
Besides the RIS approach, cluster theory Macneill, 2008: 495).
is another dominant policy framework
on innovation and regional development. Difficulties start early on with cluster
Actually, it has become a central component selection and delimitation.As a matter of fact
of regional development strategy in several there is no metrics or rigorous NACE code-
EU countries, reflecting endogenous devel- based analysis to identify a cluster (Martin
opment aims in combination with innova- and Sunley, 2003). Complications continue
tive activities, often centred on high and with the actors and organizations identifica-
medium-high technology firms and support tion and/or new institutions formation that
institutions (Burfitt and Macneill, 2008). operate as active changing agents in the clus-
Cluster policy has been a major policy frame- ter and may design and implement new pol-
work to promote innovation in the regions icies at cluster level (Cumbers and Mackinnon,
(Martin and Sunley, 2003) and eventually 2004). Often an existing cluster’s actors tend
became a dominant paradigm to which to be supported leaving behind emergent
regional authorities cannot escape since actors in the cluster.
Porter’s (1990) seminal work. Although it is
not a straightforward concept, the cluster Although cluster policies may be positive
stresses the role of firms networking to gener- in specific cases, there is a risk of considering
ate and disseminate innovation in the regions the approach as a solution for regional eco-
and therefore “cluster policy emerged as a nomic development.The lack of firm coop-
prominent economic development approach eration, the dominance of certain actors or
in numerous regions in Europe and beyond” firms, the limited institutional autonomy are
(Burfitt and Macneill, 2008: 493). constraints to cluster policy implementation
which are not always considered by unwary
Clusters include clients, suppliers, support policymakers (Burfitt and Macneill, 2008).
industries, associated institutions and also Moreover, cluster policy strengthens local
competitors in a particular economic activity. relations among the cluster actors which have
These spatial agglomerations of related indus- been considered fundamental to promote
tries have been considered central to improve innovation in the regional economy and quite
competitiveness of firms, regions and even often doesn’t address properly the distant
nations due to transaction cost advantages relations and global economic integration.

419

MÁRIO VALE

Hence, we discuss in the next section some especially in the cases of least developed
critical policy orientations to promote inno- regions where innovation and learning
vation networks and regional development. may benefit from the adoption of techno-
logies from elsewhere (Lagendijk, 1999).
Local and distant innovation Nevertheless, economic growth increasingly
networks and regional depends on the region innovation networks
development policies and its ability to reach distant innovative
places and establish durable relations with
In this section we point out some new direc- other actors. The distant relations may sup-
tions to regional development policies in port knowledge inflow in the region but in
multi-scalar and multi-local spaces of inno- order to generate collective benefits it is
vation networks.Innovation systems approach necessary to anchor new knowledge in the
has encapsulated a large part of the concepts region (Tödtling, 1999). Anchoring entails
discussed above. However, we claim that the local contextualization of new know-
changing economic environment, producer– ledge and learning through the local inter-
consumer relations and local and distant dependencies of firms and institutions
interrelations demand new policy orienta- (Crevoisier and Jeannerat, 2009). Put simply,
tions.The types of knowledge and its genera- knowledge base, firms’ networks and institu-
tion and use are much differentiated among tions are the starting point to design an ade-
regions and sectors. Knowledge dynamics quate and consistent regional innovation
have become more and more dependent on strategy and policy.
actors’ interactions, whether they are firms,
enabling organizations, clients or suppliers, Copying ‘best practices’ and successful
and consequently knowledge networks have models from elsewhere has often limited
evolved at an extraordinary rate, changing outcomes and too often drains important
the regional innovation models and entailing public resources, as can be illustrated by many
new policy orientations. science and technology parks or elusive
cluster-building strategies, particularly in
Recently, in the context of the Barca peripheral regions. Moreover, most succes-
Report (2009), Farole et al. (2009) distin- sful examples are based on localized non-
guish region competences at European level transferable regional assets that simply cannot
and point out some directions to different be dislocated, as it is the example of localized
region types.According to the authors, inno- untraded interdependencies (Storper, 1995).
vation policies via the Lisbon agenda are better On the contrary, regional policy based on
suited to core regions and regions adjacent to related variety may be more effective in
the European core that are on or near the developing innovative activities related to
technology frontier and where agglomera- existing sectors, encouraging knowledge
tion forces make a difference. However, the spill-overs (Asheim et al., 2007). Hence, inno-
‘picking winners’ policy risks forgetting vation networks may well combine local
other regions and hampering their participa- and non-local knowledge to reinforce inno-
tion in the knowledge economy (Asheim vation dynamics via increasing variety (even
et al., 2007).These regions also have available if some less competitive firms are destroyed
resources that may be useful to economic throughout the process) (Boschma and
development through adequate policy action. Frenken, 2006).
The different regional capabilities ask for
specific innovation policies although this The authors infer that spin-offs may be
doesn’t imply necessarily ‘uniqueness’ policies, more enduring than other new entrants in
the regional economy since this type of
innovative firm will build upon existing

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INNOVAT ION NET WORKS AND L O C A L AN D R EGION AL D EV E LOPMEN T POLIC Y

regional knowledge and therefore may well the combinatorial and complementary
foster the regional innovation networks. knowledge (keeping in mind the differenti-
Labour mobility across sectors and firms in ated spatial friction upon the mobility of
the regions is another crucial area of regional different knowledge types).
policy, because knowledge circulation and
collective learning depend heavily on skills Typically, the platform policy approach is
transfer between sectors and firms (Antonelli, not immune to risks and even failure. The
1999). Although regional assets are a basis to regional knowledge anchoring capacity is
design an adequate regional development essential to avoid the hollowing out of local-
policy, a solely regionally bounded perspec- ized knowledge systems. Obviously we refer
tive has limitations (Pike, 2007). As men- to the process of local and regional compe-
tioned above, knowledge circulation through tences and skills draining by the “pipeline”
distant innovation networks has strong ben- due to the usually strong attraction of exter-
efits for the regional economy when there is nal innovative agglomerations or as the result
a regional anchoring capacity to absorb and of uneven relations between local and exter-
use collectively new knowledge acquired nal actors, although we cannot ignore power
elsewhere.The related variety policy approach relations in inter-firm interdependencies
has necessarily to encompass this type of even at regional level (Christopherson and
concern and avoid innovation policies based Clark, 2007). Innovation’s goal is to promote
exclusively on the region itself. local and regional economic development;
consequently knowledge connections require
Cooke (2008) has suggested that a policy an integrated public policy because innova-
platform approach might overcome tradi- tion networks are about both flows and
tional limitations of sectoral and cluster inno- agglomerations, meaning that both accessing
vation policies and include the related variety and anchoring knowledge processes are crit-
and long distant innovation networks con- ical to the regions’ innovation dynamics.
cerns. According to Asheim et al. (2007: Regional success is closely related to local
24–25), the platform approach “represents a institutions’ ability to articulate capital, labour
strategy based on related variety, which and state interrelations within a local-distant
is defined on the basis of shared and comple- interplay, but also with their capacity to dis-
mentary knowledge bases and competences”. seminate knowledge in the region and ensure
Policy response should promote those activi- that benefits from knowledge inflow dissem-
ties that may benefit from the local and inate among actors to achieve collective gains
regional skills and competences where cog- at regional level.
nitive proximity between existing and
emerging activities may benefit the region’s Acknowledgements
economic development. External knowledge
sources connections, particularly specific The author wishes to acknowledge the sup-
knowledge sources, may be positive for local port of the Integrated Project EURODITE –
firms and the region may even benefit from Regional Trajectories to the Knowledge
knowledge spill-overs and thus reinforce Economy: A Dynamic Model, FP6 Contract
innovation networks in the region.As Asheim No. 006187 (CIT3), sponsored by the
et al. (2007) mentioned in a recent paper, European Union, as well as project members
“constructing regional advantage” requires a for their valuable contributions. The author
new perspective on regional policy in which is grateful to the editors of this book for the
regional actors should build external net- helpful comments on the original draft.
works to access new critical knowledge to Nonetheless, the usual disclaimers apply.
foster a region’s related variety and increase

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—— (2008) “Fashion and the governance of pipelines and the process of knowledge crea-
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the footwear sectoral innovation system in the 31–56. (Concerns the issue of localized and
northern region of Portugal”, Economics of distant learning processes and questions the
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Gertler, M. (2008) “Buzz without being there?
Further reading Communities of practice in context”, in Amin,
A. and Roberts, J. (eds) Community, Economic
Asheim, B., Boschma, R. and Cooke, P. (2007) Creativity and Organization, Oxford: Oxford
“Constructing regional advantage: platform University Press. (Concerns the role of com-
policies based on related variety and differenti- munities of practice and the innovation proc-
ated knowledge bases”, Papers in Evolutionary esses as well as the role of geographical
Economic Geography, 0709, University of proximity and relational proximity.)
Utrecht. (Explores new avenues on regional Morgan, K. (2004) “The exaggerated death of
development policies in the construction of geography: learning, proximity and territorial
regional advantage supported by the idea of innovation systems”, Journal of Economic
platform policies based on related variety and Geography, 4: 3–21. (On the limits of distant
knowledge bases.) learning and why geographical proximity still
matters to innovation systems.)
Bathelt, H., Malmberg, A. and Maskell, P. (2004)
“Clusters and knowledge: local buzz, global

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35

Universities and regional development

John Goddard and Paul Vallance

Introduction brief background identifies the major con-
textual factors that enable and constrain the
An interest in the potential contribution of relationship between universities and their
universities to regional development has cor- regions. Second, the main body of the review
responded with a wider shift in economic focuses on the contribution of universities to
geography towards modes of discourse and innovation and technology-based develop-
analysis in which knowledge and innovation ment in their regional economies.Third, we
are core concepts.The new knowledge pro- argue that a broader interpretation of univer-
duced through advanced scientific research sities in regional development should be
in universities is a potentially vital input to taken, beyond simply their role within the
innovation in technology-based industries “knowledge economy”.
that are seen by many academics and policy-
makers alike as key to regional competi- Background: higher education
tiveness in the post-industrial economy. and regional development
Numerous studies have emphasised that local drivers
knowledge spill-overs from strong research
universities were central to the formation of Previous international studies comparing the
world-leading industrial clusters in sectors involvement of universities in the develop-
such as information technology and biotech- ment of different regions have demonstrated
nology. Conceptually, the recent prominence that this varies significantly depending on a
of institutional frameworks in economic number of national and regional features. A
geography, such as learning regions and large-scale OECD (2007) review, encom-
national or regional innovation systems, has passing 14 countries in five continents, found
created a space for universities to be included that the conjoint development trajectories of
in analyses, as part of the non-firm institu- universities and regions are shaped by a com-
tional structure of a territory that supports bination of factors, including the historically
economic development. This chapter will formed industrial characteristics of the
reflect on this dominant viewpoint of the region, the extent to which higher education
role universities play in regional develop- is incorporated into regional development
ment across three further sections. First, a
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J O H N G O D DA R D A ND PAUL VAL L ANCE

policies, and the institutional make-up of the technology and innovation policies (see
national higher education system. From the Lundvall and Borrás, 2005), and greater inter-
findings of another study, of 14 regions in dependencies between universities, industry
seven European countries, Boucher et al. and government in what Etzkowitz and
(2003) emphasise that the level of competi- Leydesdorff (2000) call “triple helix” rela-
tion between higher education institutions tions. This has moved science policy into a
within a region is another crucial factor, with realm where it also becomes the concern of
the highest overall levels of engagement from sub-national economic governance actors,
individual institutions tending to be exhib- with the effect of introducing a regional
ited when there is a single large university in dimension to this in many countries where it
a ‘peripheral’ economic region. In past work has hitherto been controlled overwhelmingly
we have analysed the interplay of these at the national level (Perry and May, 2007).
factors in an analytical framework bringing Individual universities are responding to this
together drivers and constraints on regional rescaling in their environments by incorpo-
engagement from both economic develop- rating an explicit commitment to local and
ment and higher education policy and gov- regional engagement into their mission state-
ernance spheres (see Goddard and Puukka, ments alongside core teaching and research
2008). The articulation of these two sides activities, entering into strategic partnership
can be seen in a series of recent transfor- relations with key local public and pri-
mations that have taken place, to greater or vate organisations, and establishing dedicated
lesser degrees, in the external environments regional development offices (Charles, 2003).
of universities across a range of countries
(OECD, 2007). Changes in the governance of higher edu-
cation, mainly at the national level, are of
On the regional development side, univer- equal importance in explaining why univer-
sities are being attributed a changing role in sities now interact more extensively with
public policy, where they are increasingly external partners, although in general less
positioned as central to the building of attention has been paid to these in the
‘knowledge economies’ at regional or urban regional development literature. Here, even
as well as national scales (Harloe and Perry, with trends towards globalisation, such as
2004; May and Perry, 2006).This can be seen greater international movements of students
as part of a more general shift in regional and global connectivity of research links
policy thinking towards measures that con- between universities (see e.g. Robins and
centrate on building and mobilising the Webster, 2002), national systems of higher
varied institutional capacity of a region to education retain their importance and dis-
support bottom-up, endogenous develop- tinctiveness. In comparing higher education
ment (Amin, 1999). In Europe, despite public policy trajectories in the US, UK, Australia
expenditure on research as a whole falling and Canada, Slaughter and Leslie (1997)
significantly during the 1990s, this decrease found that despite some convergence towards
was concentrated mainly in the funding of more market-orientated systems in the face
large-scale defence programmes and not of reduced public funding bases, the precise
higher education, meaning that the relative content of these policies and the political
importance of universities within national conditions from which they arose still showed
and sub-national innovation systems has, in considerable differences between these coun-
fact, generally risen (Larédo and Mustar, tries. Marginson (2002) argues that the tra-
2004). The recognition that academic and ditional ‘nation-building’ role of higher
other publicly funded research may has sig- education has not become redundant, but
nificant economic returns has led to national that globalisation has forced governments
science policy increasingly overlapping with to adapt their national systems to maintain

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UNIVERSITIES AND REGIONAL DEVELOPMENT

success in a more internationally competitive of which the paradigmatic modern example
environment.The provision of research funds is probably biotechnology (Cooke, 2002).
by government has also been pushed in a
more market-orientated direction, becoming Empirical support for this has been
diverted away from basic research in tradi- provided by an economics literature on
tional academic disciplines and weighted ‘knowledge spill-overs’. Studies have gener-
towards supporting interdisciplinary fields ally shown,for certain knowledge-dependent
(i.e. ‘technoscience’) that align with national industries, the existence of local (e.g. US
economic priorities (Slaughter and Leslie, state level) academic spill-overs in the form
1997).These more applied forms of research of a positive correlation between university
decentre the locus of knowledge produc- research intensity and corporate innovation
tion from its traditional home within uni- level, even after allowing for the effect of
versities, and direct academics to work in internal company R&D (e.g. Jaffe, 1989;
collaboration with a range of other types of Anselin et al., 1997).This statistical analysis is
private and public institutions within society used to explain the geographical concentra-
(Gibbons et al., 1994). These developments tion of production in these industries on the
have coincided with the expansion of higher assumption that firms will locate close to
education sectors in many developed coun- strong research universities to access their
tries to accommodate mass student access, knowledge externalities (Audretsch et al.,
and correspondingly falling levels of public 2005). However, work using this methodol-
expenditure per student on higher educa- ogy is normally more concerned with find-
tion. This has forced universities to become ing empirical evidence for the presence of
more ‘entrepreneurial’ in seeking to max- local spill-overs than with explaining how or
imise potential revenue from external sources why they occur: knowledge is treated largely
through, for example, commercialising as a ‘public good’, without interrogating
research or procuring funding from a broader the challenges involved in translating it from
base of government and industry bodies an academic research to applied industrial
(Clark, 1998; Etzkowitz, 2004). context, and often without discriminating
between the various formal and informal
Universities, knowledge mechanisms through which ‘spill-overs’ may
and regional development occur (Davies, 2008).

This main review section will consider the Work in economic geography, by contrast,
contribution of the regional development has tended to explore the role of universities
literature to understanding the role of uni- in local technology-based growth through
versities in local knowledge-based economic case study accounts of certain regions. Of
development. Reflecting the dominant these the leading examples are probably the
recent understanding in economic geogra- high technology districts in Silicon Valley
phy more widely, links with industry and and Cambridge (UK). In Silicon Valley,
government arising from the drivers covered companies that were formed by alumni of
in the previous section have normally been Stanford University’s electrical engineering
considered strongest in supporting innova- programme, notably Hewlett Packard, are
tion at local scales. In particular, the input seen as critical to the emergence of the
that strong research universities can make to region as a technology centre in the post-war
the science base of a region has been identi- period (Castells and Hall, 1994; Saxenian,
fied as a key factor in the formation of clus- 1994; Cohen and Fields, 2000; Leslie,
ters in certain technology-based industries, 2000). In Saxenian’s (1994) study comparing
Silicon Valley with its main US competitor
region, New England’s Route 128, relations
between universities and firms reflect the

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