SMEs AND TECHNOLOGY PARTNERSHIP FOR CAPACITY-BUILDING:
THE EXPERIENCE OF ITALY'S EMILIA ROMAGNA REGION

by

Paolo Bonaretti and Valeria Bandini
Emilia Romagna Technological Development Agency, Bologna

INTRODUCTION

Technological development based on partnership and cooperation, a key factor for know-how acquisition and capacity-building at local and regional levels, can be considered to be at the very heart of the Emilia Romagna success story. This is the result of an endogenous process based on inter-firm cooperation and networking, in which entrepreneurial associations' activities, local and regional government policies and technical centres' initiatives have played a crucial role.

The main factors in the Emilia Romagna experience may be summarized as follows:

 A very high level of education in technical schools and universities, and considerable efforts devoted to both technical and vocational training. The Emilia Romagna region has the highest per capita expenditure on training in Italy, and most training programmes are co-funded by the regional government.

 A widespread network of technical institutions belonging to the service centre category, which operate at both sectoral and cross-sectoral levels, and focus on dissemination of innovation and investigation of new solutions, mainly "incremental" innovation for small and medium-sized enterprises (SMEs).

Local and regional government policies aimed at building physical infrastructures as well as creating special cohesion facilities. If we consider only the "light" infrastructure for enterprises, we should mention industrial parks and "equipped areas" of SMEs (now more than 1,000 in the region), transportation and logistical systems, and social policies for workers (kindergarten, housing etc.).

 A very important role played by entrepreneurial associations, which are particularly active in representing SMEs' interests in negotiations with local authorities, and very strong in the provision of basic services for SMEs (accounting, payrolls, legal services, labour bargaining, export consortia etc.).

A network of private/public guarantee funds, financed partly by firms and partly by regional and local authorities committed to guaranteeing lower interest rates for the firms concerned.

The results achieved in Emilia Romagna have been achieved during a 20-25 year process of transition from a poor agricultural region to a rich industrial one (ranked tenth in Europe) with 4,000,000 inhabitants and more than 300,000 firms, 98 per cent of which employ under 50 people.

The cases described below show how single firms or groups of firms undertake, directly or indirectly, initiatives based on technology partnership, their goal being to expand their activity and internationalize their business. The firms are SMEs or medium-sized companies already exporting most of their production. The sectors involved Csmall tool machinery and automotive repair machinery Care not high-tech sectors; indeed, most European companies are not in the high-tech industry.

1. CASE NO. 1: SMALL TOOL MACHINERY

The firms involved in this first example are a group of SMEs under the leadership of a well-managed, medium-sized firm. The project in question was initiated three years ago to internationalize the firms in the Mediterranean area.

    A) First stage. This was a typical promotion stage characterized by market and need analysis, and missions and fairs for trade and machinery sales. Regional agencies and associations supported this stage with country and sectoral studies, providing selected directories of possible partners, and organizing and supporting workshops and missions.

    B) Second stage. This related to the machinery sector's need for services. The only possible solution was to organize basic, ongoing training courses for local technicians. The choice of Italy for the headquarters was due to the need for the best-quality courses, and to create the strongest possible links and permanent relations with developing countries' technicians. The Emilia Romagna Technological Development Agency (ASTER) and various other bodies helped to select people with counterparts in those countries, and organize financial support.

    C) Third stage. The firms involved have understood the potential development of technology partnership both in decentralizing production and in an appropriate and customized incremental innovation approach. International support schemes have been used in seeking solutions (joint ventures, other kinds of agreements, etc.). ASTER supports firms in carrying out this project in different phases (e.g. facilities 1 and 2 of the European Community Investment Partners (ECIP) schemes.

    D) Fourth stage. From the previous stage, the need to foster technology partnership by means of capacity-building in developing countries through the establishment of small technical centres became clear, as there was a lack of infrastructure. A project corresponding to this need was undertaken in collaboration with local training institutions. ASTER designed the project, seeking local institutions and financial support from international organizations' technical assistance programmes.

2. CASE NO. 2: AUTOMOTIVE REPAIR MACHINERY

The firms involved are small companies very active in a niche market. Four years ago, ASTER established a "desk" in India for SME promotion. India was chosen because its good cultural level and significant share of rich consumers provide very good conditions for SMEs. The desk is not sector-based.

    A) First stage. The desk carried out promotional activities for firms by traditional means: country missions, participation in international fairs and business contacts. ASTER supported firms in organizing and selecting events, providing directories of possible partners and organizing business contacts.

    B) Second stage. Because of the long distances involved, and difficulties in India, the desk supports firms in permanent contacts, in representing firms, and in seeking opportunities and partners. It also represents the Emilia Romagna economic system as a whole and proposes projects for SMEs and groups of SMEs, supported by international organizations and promoted by the Indian authorities.

    C) Third stage. During the first two or three years, the automotive repair firms were active only commercially. It was only after they had acquired a first-hand knowledge of the country, had met people and worked with them, and had had the opportunity to choose people whom they could trust that they decided to study technology partnership opportunities. The ECIP programme has proved very useful for many automotive enterprises. The desk supported and managed all activities.

    D) Fourth stage. Training and continuous updating are a basic need for the people involved. Because of the distances and different sectors involved, only a small (but important) part of the training can be provided in Emilia Romagna. Most of the training and updating is done in India, supported by local institutions and supervised by the desk.

3. GUIDELINES AND RECOMMENDATIONS

i) The important role played by SMEs should be carefully considered. They should be regarded as privileged actors in partnership initiatives with developing countries, where SME development can provide the basis for sustainable economic growth. Inter-firm cooperation via technological partnership should therefore be treated carefully as a positive instrument for the balanced economic development of industrializing countries.

 ii) The behaviour of SMEs is different from that of larger firms as far as technology partnership is concerned. SMEs often act without a predefined strategy; for example, they seek a well-defined partner in a selected country according to a strategic approach based on real opportunities. The behaviour of SMEs is often not pragmatic; on the contrary, it is based on "occasional" inputs or externally gathered information which they cannot structure internally in a permanent and generalized manner. Consequently, SMEs need the support of appropriate permanent monitoring systems to select opportunities, countries, potential partners etc. Continuous monitoring of different factors, sectors and countries is thus required. This is very expensive and cannot be done by a single medium-sized firm.

 iii) A very important role could be played by intermediary organizations such as technical institutions and development agencies, which can help firms to obtain information, select opportunities and partners, familiarize themselves with local conditions and establish permanent relations with local institutions.

 iv) It is very difficult for SMEs to close a deal. The crucial factors are commercial implications and financial risks. These are closely related. On the one hand, the sale of machinery (for example) often reduces the risk involved in partnership; on the other hand, financial grants or guarantees can help to finalize the partnership.

v) Support schemes such as the European Commission's ECIP are very useful and could be improved. They are becoming increasingly effective in helping medium-sized companies seek opportunities and approach international partnerships with developing countries and countries in transition. In particular, the linkage between firms and agencies or business associations from the outset can stimulate both the approach to a local situation and the diffusion of opportunities to a large number of firms. A possible drawback is these schemes' focus on joint ventures, which excludes other kinds of cooperation and partnership that are often more interesting and feasible, particularly for SMEs.

vi) A drawback of the schemes supported by international and national bodies lies in the fragmentation of programmes, plans, regulations and goals. Firms, and often intermediaries too, are not able to manage all the opportunities, and success frequently depends only on the system of relationships. This implies an appreciable reduction in the number of opportunities and consequently the possibilities of choice.

vii) Since SMEs are looking for conditions as similar as possible to those in developed countries, a considerable effort has to be made to achieve decentralized cooperation. Above all, programmes for the development of local conditions or local cohesion, involving regional and local institutions, should be fostered. Moreover, a strong linkage between such programmes and technology partnership should be established.

 viii)The best way to improve technological capability in developed countries' SMEs is to improve human resource skills Cnot only technical skills but also understanding of the context and system in which technology could be used and its needs and results. Human resource development is crucial not only in terms of education and training, but also for a more global meaning of know-how, including the socioeconomic environment in which technology will be applied and the network of business relations, knowledge and management that support technologies. The needs of technologies' end users in terms of adaptation, services and quality standards are central to this kind of skill. Training in developed countries and periods spent in technology-producer firms and technology-user firms often yield more relevant results and more durable relationships than short-term initiatives in developing or transition countries.

ix)Local market development and small business development related to technology partnership initiatives in developing countries are very important for implementing the initiatives themselves and for capacity-building in the countries concerned. In particular, the presence of local agencies or technical centres Ccapable of serving as sources of reference and skills Cis necessary for the development of SMEs. In fact, the more SMEs seek services, monitoring and component suppliers, the better the chance of a technology partnership initiative, provided that the context Cand not the initiative itself Cfosters and permits two-way cooperation.

x) The most important condition for SMEs' participation in technology partnership programmes is the management of long-term programmes for groups of firms in a particular area, run in collaboration with developed and developing countries. Such programmes should be managed by institutions, which would monitor partnership and funding possibilities. Above all, they must guarantee and carry out medium- or long-term activities over a period of three to five years, providing firms with permanent contacts and permanent services, and developing within this framework specific short-term projects.

(xi) Finally, ASTER and other institutions, both in developed and developing countries, can play an important role. They can provide ideas, information, projects, contacts, analysis and institutional relations, but they are not entrepreneurs. The final choice is always made by firms, with the main role in the decision-making process being played by entrepreneurs. Institutions must not leave neglect entrepreneurs, but provide them with good quality and customized support. Highly sophisticated schemes and standards are often useful for global understanding, and perhaps for self-referred activities, but not for operating in a positive and truly effective manner.

4.  CONCLUSIONS
   
   ln conclusion, technology partnership and technology capacity-building projects can involve and can develop SME systems in both developed and developing countries, but they require the following:
   substantial emphasis on human resource development, including training activities and technical centre activities;
   strenuous efforts to improve local conditions, and implementation of medium-term programmes with the cooperation of technical institutions, agencies and entrepreneurial associations;
   international support balanced between financial incentives and specific (light) infrastructures or schemes for technology partnership;
    promotion of a capacity-building and decision-making role for developing countries, providing them with a full understanding of the role of technology and global business in technology partnership activities.