Standards and Innovation in the Small Firm Sector

1
Standards and Innovation in the Small Firm
Sector
Stephen Drinkwater Hany El-Shamy Paul
Temple Department of Economics University of
Surrey
Business Entry and Exit Is There an Optimal Rate
of Churn? DTI/NIESR workshop 16 May 2006
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Innovation and Productivity Growth Among Small
Firms

• Active versus passive learning
• The growth and survival prospects of new firms
  will depend upon
• their ability to learn about their environment,
  and to link changes
• in their strategy choices to the changing
  configuration of that
• environment (Geroski 1995)
• Typically new entrants are smaller than more
  productive and
• more profitable incumbents. Successful entry may
  require innovation,
• growth in capacity and growth in productivity as
  joint outcomes
• The methodology behind of the Community
  Innovation Survey allows
• for an examination of active learning among
  small firms. Our research
• considers the relationship between learning,
  investment, and innovation
• focusing on the role of industrial standards

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Technology Spillovers

• Existing empirical research has mainly been
  concerned
• with within-industry spillover effects -
  agglomeration
• effects represent an important exception.
• Econometric analysis has demonstrated the
  importance
• of spillovers but has been less able to identify
  precise
• mechanisms through which they operate.
  Difficulties particularly acute
• where spillovers operate across existing
  industrial technologies.
• The next phase of research needs to consider
  both specific
• mechanisms and how cross-cutting technologies
  operate
• In this spirit our research focuses on the role
  played by industrial
• standards and the way in which standards
  institutions function
• In ways which cut across standard industrial
  classifications

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What do standards do?

• It is generally recognised that technical
  documents known
• as standards provide a number of key functions,
  providing
• network effects
• specifications for minimum quality
• technical information
• Empirical evidence collected over the last ten
  years suggests
• that standards provide an important support for
  the
• development of markets, e.g.
• Standards and intra-industry trade (Swann et al
  1996)
• Standards and productivity (DTI 2005)
• Standards and the measurement infrastructure
  (King et al 2005)

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Standards may be particularly important for small
firms where access to complementary assets via
markets is important
Production
Market Development
Minimum Quality standards
Compatibility standards
Entrepreneurial Activity
Process and Quality control standards
Standards for measuring characteristics
Infra- technologies
Industrial technologies
Science Base
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A more specific example (based upon King et al
2005) suggests Importance of standards for
product innovation
Production
Market development
Entrepreneurial Activity
Standards for measuring characteristics
Accredited Measurement and testing labs
Instruments
Government Labs
Metrology
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Cross-Cutting Standards in UK Manufacturing
Metal Manufacture
Chemicals 1457
Other Manufacture
Metal Products
Food, Drink, Tobacco 979
Mechanical Engineering 4919
Electrical and Instrument Engineering 5940
Textiles 1921
Paper Printing
Transport Equipment 2419
lt50
50-99
100-250
250
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The CIS is rich in observations on small
establishments......
.... Increasingly may be able to provide a panel
element
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In manufacturing, nearly half of small
establishments are committing resources to
innovation...
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Sources of information for the innovation active
firm principal findings from CIS3

• The use of any given source of information is
  less important for small firms
• Internal sources are less important for small
  firms than for other firms
• The most important external sources are located
  close to the market, and reflecting local
  knowledge bases
• For small firms, vertical linkages with
  equipment suppliers are rather more important
  than horizontal linkages with competitors
• Direct attachment to the science base is
  strictly limited and small firms
• in particular rely upon a variety of
  distribution mechanisms of which
• standards are particularly important. 40-50 of
  small firms regard standards
• (of various kinds) as being of at least some
  importance as a source of information. This is a
  similar to those who regard competitors s being
  important.

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Information and Innovation Outcomes

• Research looked at econometric models linking
  perceived importance of
• information sources as well as and controls for
  both cooperation and
• human capital with innovation outcomes
• Principal difference between small firms and
  other firms was that
• Information provided by equipment suppliers was
  important not just for
• process oriented outcomes but also for product
  oriented outcomes
• Human capital variables did not seem to provide
  an influence over and
• above the explanations offered by information
  sources
• Cooperation among firms more important for
  product oriented outcomes
• Standards appeared to be important in helping
  firms meet environmental
• and other regulations

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Conclusions

• The CIS provides strong evidence for the
  importance of
• active learning among small firms.
• The search for spillovers needs to consider
  the strength of
• linkages between industries and precise
  mechanisms through which
• they operate
• Standards making bodies are an important and to
  (some
• extent) quantifiable distribution mechanism
  linking the Science
• Base with firms and which is likley to be
  particularly relevant for small
• firms
• The analysis of standards points to key role of
  the
• Engineering sectors as a channel for spillovers
  and which are
• Particularly important for small firms.
• The vitality of standards making bodies an
  important
• Issue for policy (e.g. engagement of universities
  may be an issue)