Networking: a question of firm characteristics? The case of the Shannon region in Ireland

Abstract

A large body of the literature on networking has brought to the fore the advantages of proximity between actors in spatially confined enclaves such as industrial districts and local systems of innovation. Through transaction cost minimisation and knowledge exchange advantages, networking in these special enclaves leads to higher firm performance. Seen therefore as a core dynamic of the regional economic process, networking is an important tool of regional and industrial policy at both the EU and Irish levels. Globalisation, which reaches its paroxysm in the case of a small and open economy such as Ireland, raises the relevance of geographical proximity as an important element in networking. This article addresses this topical issue by using a descriptive analysis drawn from a survey of 126 firms from three industries carried out in 2005 in the Shannon region of Ireland. One key finding is that networking, defined as material linkages, is more likely to involve firms in the international market than firms at lower geographical levels. Also, networking is influenced by certain firm characteristics such as ownership, size and age.

Keywords:

• material networks
• non-material networks
• Shannon region
• Ireland
• cross-territoriality
• Industrial Policy

Acknowledgements

This paper was completed while Helena Lenihan was a Visiting Fellow at the Centre for Business Research (CBR) at Judge Business School, University of Cambridge and concurrently a Visiting Fellow at Wolfson College, University of Cambridge, UK. We would also like to acknowledge the help provided by Nicola Lynch and Orlaith McMahon, as well as the valuable comments proffered by the Editors and the anonymous referees. The usual disclaimer applies.

Notes

Notes

1. Indeed, in every day usage, the concept of network is understood to imply a web of relationships between agents. In the area of science (physics and computer science), simple networks are merely a connection between two points u and u’. Studying the case of transport networks in France, Lachene (1964) uses this definition of a simple network (as well as of more complex ones) to identify the relationship existing between networks, territory and economic growth. In our article, networks refer therefore to simple networks.

2. Network analysis, as pioneered by computer scientists, owes its roots to the Defence Advanced Research Projects Agency (DARPA). Note that the DARPA was founded in 1958 as a reaction to the Soviet launch of Sputnik, the first world artificial satellite.

3. The most well-known of these studies is the one by Giersch (1949–1950). See also Lachene 1964.

4. Note that space is a distinctive element between a network and a ‘system’.

5. For a literature review on the ‘keiretsu’ effect, see Lincoln et al. (1996), and for more on the pre-war cartels as an early form of business network, see Schweitzer (1946) who looks at the case of Germany.

6. The quality of establishments is defined in the Sjöholm study by skills and involvement in R&D.

7. In this study, success is measured by product development.

8. Formerly known as the Shannon Free Airport Development Company (SFADCo), established in 1959.

9. The starting point for the current study.

10. Interviews were requested with the Managing Directors of firms. However, in 32 cases the managing directors were not available and when this occurred, interviews were carried out with the General Manager (16); Financial Controller (8); Marketing Manager (5) and the Operations Manager (3).

11. For the following results, we aggregated the response across all levels (local to international) and averaged the result. The value 2.5 is used as the cut-off point for these results, with a response falling in the range 1–2.5 indicating that the company is involved in information and knowledge exchange.

12. Note that the EU definition also adds thresholds in terms of turnover, which we ignore here.

13. An alternative (and extreme) scenario is one where a firm, who does not engage continuously in the same network, ends up looking for new partners (that is sub suppliers, customers, and so forth) each time it performs a business operation. This strategy is likely to generate high transaction costs. However, the counter argument could also be made that engaging in the same networks all of the time may be limiting in terms of the interactive experience (human capital) and physical or monetary capital available within a particular network.

14. The idea of the 1985 NLP was to develop a stronger indigenous base of sub-supply firms with foreign companies operating on Irish soil, so as to increase their ‘embeddedness’. This programme has borne some fruits in so far as the percentage of inputs purchased internationally by foreign firms in Ireland has tended to decrease during the 1990s.