Going Global, With A Little Help from Your Competitors

By joining geographically-based industry clusters, small and medium-sized firms can access the “people and pipelines” necessary for international trade

The Essentials

Entrepreneurial firms on a shoestring budget are at a distinct disadvantage when trying to innovate and scale their operations globally. By joining industry clusters, and then having those clusters align with others, these firms can access the interpersonal and intra-organizational networks so important for international trade. Anthony Goerzen, Donald R. Sobey Professor of International Business, has studied this phenomenon and discusses his research findings in conversation with Smith Business Insight. The following is an edited transcript of his remarks.

People and pipelines is a shorthand way of describing the ways in which firms make connections in the international market. You can think of pipelines as the internal means that organizations use, like subsidiaries, to move personnel, money, information, knowledge, and so on. People are the external social networks by which you do essentially the same thing.

Most of us usually focus on large companies because they’re visible. But small companies in Canada are extremely important. About half of Canadians work for small firms. Small and medium-sized firms (SMEs) are large employers and large exporters — perhaps a quarter of our GDP is exported by small companies. They are engines of innovation.

The concept of people and pipelines is something that highlights the ways in which firms make international connections. The challenge for small firms is that typically they don’t have people and they don’t have pipelines. In that context, what becomes an important question is how do small firms make these kinds of connections.

Distance Still Matters

It’s interesting that, in the age of globalization, there were people who believed that distance was dead. But it's a paradox that, as information becomes more easily and cheaply transferred, we’re finding that economic activity is becoming even more spiky, even more geographically concentrated.

One of the ways that scholars are interested in exploring this unevenness is through the concept of clusters, which are understood to be agglomerations of businesses that are connected through markets and technology. We see examples of clusters in Vancouver and in Toronto in entertainment, in Oshawa and Windsor in automotive. We also see an example in Waterloo where Blackberry is a large multinational technology firm and the mobile technology cluster is organized in concentric circles around them.

The challenge with cluster membership is that it has both costs and benefits. Small companies are drawn to clusters because they are deep pools of technical knowledge. It’s possible to observe customers closely, to have relationships with your competitors, and perhaps derive benefits from the kind of knowledge spillovers that occur. And in that agglomeration, investment in infrastructure becomes possible, whether internet or roads or bridges, depending on the nature of the cluster. So it becomes possible to create that milieu where certain kinds of businesses can operate effectively.

It's in that internal focus in which there are benefits. But that same inward focus creates challenges for all firms, and small firms in particular. The global economy is one where new markets, new technologies, new competitors, new suppliers, can emanate from virtually anywhere, so it becomes important for all firms to have a way of becoming aware of those external trends and opportunities that come from outside the cluster. Large firms have the wherewithal to be able to do that for themselves. Small firms, on the other hand, don’t have those people and pipelines. Finding out where these these new sources information, markets, or technologies are located becomes a really important problem for small firms to solve.

What Strong Clusters Do Well

We need to think clearly about the ways in which this connectivity happens. What we know is that there needs to be an understanding of common interests. The cluster needs to identify itself as being a cluster with certain interests to become aware of other markets, trends, suppliers, or customers.

Then there needs to be an assessment of the extent to which that cluster has the social or technical or commercial capital to be interesting to other clusters, whether it be Silicon Valley or Route 128 or whatever other cluster might be of interest to these groups of firms.

The third thing is that there needs to be a triggering entity — a person or a group that sees it as their job to create these kinds of connections.

Why SMEs Are Like Global Wallflowers

My research suggests that many small firms are relatively passive in this process of being introduced to other external customers, technologies, or trends. They’re like wallflowers waiting for someone to ask them to dance.

What we have found is that firms that are more proactive, that are ready and willing to take the bull by the horns and be strategically aggressive, are more capable of benefiting from these kinds of opportunities.

What we find when speaking to businesses inside clusters is that there is a real tension. On one hand, they are surrounded by their own competitors. On the other hand, they acknowledge that the world isn’t in their cluster, they are only a tiny part of it. So what becomes really important is to find ways to connect to the international market in collaboration with your competitors. There is a kind of a co-optation.

People are trying to find ways to cooperate as they compete because the entire game is not only in Waterloo for mobile technologies or it’s not only in Oshawa for automotive technologies. We find is that these inter-cluster alliances are one really important way for firms to connect with global trends in markets or in customers or suppliers.