SMEs and Competitive Advantage: A Mix of Innovation, Marketing and ICT—The Case of “Made in Italy”

Introduction

Global economy is transforming the sources of firms’ competitive advantages and especially for firms embedded in local manufacturing systems. As in the case of Italy, during the ‘80s and ‘90s small and medium enterprises (SMEs) localized in industrial districts and specializing in low or medium-tech industries have built their success on productive flexibility, quality certification and incremental innovation. Literature on industrial districts has provided evidence of the sources of competitiveness of local systems (Pyke et al., 1990). As opposed to the large multinational corporations, district SMEs emphasize an alternative model of economic organization (Piore & Sabel, 1984; Porter, 1998), in which external economies support distributed production processes within the local networks of firms. From this perspective, on the one hand, scholars focused on the advantages offered by proximity in terms of technology spillovers and economic externalities (i.e. Krugman, 1991) (collective goods). On the other hand, studies on the knowledge economy (i.e. Arora et al., 1998; Becattini & Rullani, 1996) consider industrial districts as knowledge management systems, where the local context is able to sustain and facilitate creation, exploration and exploitation of (mainly tacit) knowledge, rooted into social practices.

SMEs are now facing competitive forces that impact on the sustainability of their strategies in the next years. First, manufacturing internationalization pushes firms operating in local supply chains to extend their networks beyond local boundaries to catch the opportunities of global value chains (Gereffi et al., 2005). While, on the one hand, a growing part of local productive activities may be transferred internationally with cost advantages, on the other hand, those paths may reduce a small firm’s control over economic processes with negative influence on learning-by-doing innovation.

A second major challenge refers to the development and management of sales networks on a global basis, in a framework of stronger connections with the market. As many scholars have outlined, the interaction between customers and the firm through sales networks, as well as the web, is crucial in order to understand the market and anticipate demand trends. More important, building relationships with active customers (lead users and communities of customers) is part of a firm’s innovation strategy, to obtain profitable knowledge for product and brand management (i.e. Sawhney & Prandelli, 2000). From this perspective, SMEs have to improve their competencies in interaction with customers at the international level, overcoming local social and cultural boundaries as well as their traditional manufacturing approach. Such strategic options require more sophisticated marketing competencies, which are not usually available within SMEs operating in local productive systems.

Thirdly, the evolution of information and communication technologies (ICT) contributes to the debate about the transformation of the district firm model and the advantages of local embeddedness (i.e. Chiarvesio et al., 2004). Global supply chains and international commercial outlets ask the firm to increase control on processes at the organizational level and within the firm’s extended value system. From this perspective, network technologies can strengthen information sharing, process transparency and interaction among players in the value system (final customers included). Large multinational companies were able to fill the gap with the flexible SME model in the 1990s, thanks to network technologies. These tools supported distance cooperative work, also increasing process monitoring, knowledge management and communication within a renovated firm model (Scott Morton, 1991). In the present scenario, SMEs are asked to update their strategies benefiting from network technologies. SMEs have to overcome the local environment as the prime source of innovation - local tacit knowledge, mainly manufacturing-oriented and informally managed - by developing new capabilities to manage extended networks including research centers, designers, and customers (Biggiero, 2006; Corò & Grandinetti, 1999).