1.7.

Current and Emerging Trends

1.7.1.Global Networks of Innovative firms – SMEs with larger firms

One of the outcomes of networking among firms in global communities of varying interest is the

distributed innovation process. If firms operate across borders directly or indirectly, and especially as

part of a cluster of firms with mixed forms organisation, then collective forms of learning enable firms

to manage the external relationships, albeit at various levels for different types of firms. In this

scenario the locus of control for innovation and internationalisation has shifted in part from the owner-

manager to outside the boundaries of the firm. This poses a difficult problem for the typical owner-

manager who is ‘naturally’ tuned into control structures that lend themselves to hierarchical

governance systems that follow the growth of firms.

In isolation, growth through internationalisation opens up opportunities for the control of intellectual

property rights, and the development of appropriate management systems to reduce transaction costs

emanating from co-ordination. This is also is a challenge for owner-managers of growing firms who

find it hard to relinquish control to managers.

The dependency on multiple levels of skills, knowledge and financial resources across geographical

space, coupled with the uncertainty surrounding the pace of change in product development or the

extension of the value chain for both products and services, call for a greater degree of reliance on the

socialisation process and the corollaries of sharing and trust building. This form of interactivity is

perhaps most evident in the global production networks found especially in South-East Asia as in the

Pearl River delta. These networks involve large multinationals working closely with large local

contractors who in turn engage significant numbers of small firms.

1.7.2.Local clusters and global production networks

Several studies on regional development (Coe, et al, 2008, Harrison, 2007; Pike; 2007; Yeung, 2005,

2010) have begun to analyse the intricate relationship between regional change and globalisation and

the particular arrangements created by global production networks (GPNs) emphasising the specific

and varied nature relationships between key actors that distinguish these GPNs.

What occurs is a form of “strategic coupling” of various economic actors, including small, medium

and large firms together with their lead firms which “orchestrate trans-regional networks on a global

scale” The firms (both regional and lead) and the institutions are part of the GPNs. In these networks

both firms and institutions play major roles. Firms are truly entrepreneurial in that they not only

produce new goods and provide new services, but more importantly, they actively shape the regional

economic landscape, enabling cluster formation, promoting inter-regional competition for investment

and technologies, and the creation of what McKendrick refers to as ‘economic space’

Figure 1.3 illustrates the structure of a GPN and the levels of inter-regional competition for

investments. Yang (2010), contrasting Taiwan and China, suggests the nature of the relationships in

this ‘coupling’ changes over time and are dependent on different geographical contexts. The difference

between strategic coupling of regional development in China and other East Asian regions is explained

by the fact that China lacks large local business firms, while in other parts of East Asia, such firms

actively co-operate with lead firms. The state and local initiatives also play a big role in China.

Various tiers of Taiwanese computer firms drive the strategic coupling of regional development in the

Pearl River and Yangste River deltas. More specifically he notes that the desk top cluster in Dongguan

has been driven by bottom-up dynamics of Taiwanese their-tier firms without the need for local

initiatives, while the notebook cluster in Suzhou has to a great extent been initiated by top-down local

government actions. In both scenarios we find a region evolving as an entrepreneurial entity based on

different forms of strategic coupling between global lead firms, regional large firms, local firms and