The role of collaboration and external knowledge for innovation in small food firms

Traditionally, research on innovation and its determinants has focused on high-tech industries, and thus on firms that are well endowed with internal knowledge, such as high research intensity and highly skilled labor (Vrontis et al. 2017). But along with the awareness that innovation is critical for the competitiveness of firms in all sectors and in all sizes, there is increasing evidence that innovation in small and specialized firms in low-tech industries¹ is especially enabled by accessing external knowledge through collaborations and networking activities (Bresciani 2017; Galeti et al. 2016). Nijkamp et al. (2007) argue that the networking capabilities of firms, along with their learning capacities, are the main driver of innovation. External interactions can also be seen from a geographic perspective, where both local knowledge spillovers and networks reaching across space matter for innovation capacity (Baycan et al. 2017; Karlsson et al. 2014).

Some studies have focused on the food industry specifically and confirmed the relevance of collaboration and externally sourced knowledge for innovation. Karantininis et al. (2010) find that network links, measured as actual contracts with suppliers and customers, increase innovation in the Danish food industry. McAdam et al. (2014) explore the longitudinal development of horizontal innovation networks within the UK SME agri-food sector. Additionally, Maietta (2015) and Maietta et al. (2017) examine collaboration and innovation in the European and Italian food industry, respectively, although the focus of these studies is solely on collaboration with universities. In a qualitative study of the Swedish food industry, McKelvey and Ljungberg (2017) find that public policy that promotes firm and university research collaboration can stimulate product and process innovation.

Despite this progress, important gaps remain in our understanding. First, while extant research has helped deepen our knowledge of the innovation benefits of specific forms of external knowledge or interrelationships, we need a broader exploration of the innovation benefits associated with different types of external engagement. As summarized by Lefebvre et al. (2015) with specific reference to low-tech sectors, “few studies have investigated the diverse sources of knowledge that firms in such sectors rely upon” (p.412). Second, scholars have criticized the restrictive conceptualizations of innovation that fail to account for the types of knowledge-based innovation in low-tech sectors (Naldi et al. 2015), and others call for “more research on the relation between inter-organizational relationships and innovation types other than product and process innovations” (Lefebvre et al. 2015: 412). In specific reference to the agri-food industry, McAdam et al. (2014) promote a more inclusive approach that considers four main types of innovation: product, process, market, and organizational. Other scholars have suggested to also include new suppliers and new distribution methods (Naldi et al. 2015). This expansion of types of innovation is in line with Schumpeter (1934), who argued that innovation should be regarded in broad terms.

Against this background, the purpose of this study is to analyze the relationships between a wide range of external interactions and different types of innovation, based on unique survey data on small food firms in Sweden. In addition, the study takes a geographic perspective, where we test both intra- and extra-regional interactions of the firms. The paper commences with a review of the literature on external knowledge, collaboration, and innovation to identify relevant sources of external knowledge. Thereafter, we present our empirical study, which builds on the approach of Dahl Fitjar and Rodríguez-Pose (2013).

The results point in general to positive relationships between firm innovation and external interactions, be they collaborations, support from regional actors, or knowledge from intra- and extra-regional actors. Moreover, these relationships differ across the various dimensions of external interactions and innovation. The findings have two main implications for both policy and practice. First, our results support that the most effective place-based policies, especially for rural regions, involve promoting various types of collaborations. Second, we find that there is a need for innovation policies that allow for “tailor-made” solutions at the local level, considering the prerequisites of the local firms and their geography. This calls for local leadership with local knowledge. In several academic contributions (see Stough (2003), Stimson et al. (2005), Stimson et al. (2009) and Stough (2010)) Roger Stough, among others, argues that such leadership plays a key role in regional economic development and it need not necessarily be government-based.

The importance of external knowledge for firm survival and growth was acknowledged already by Marshall (1890), who argued that the co-location of firms creates external economies of scale due to pooling of skilled labor, supply-and-demand linkages, and knowledge spillovers. Duranton and Puga (2004) argue along these lines and identify matching, sharing, and learning as the micro-foundations for the so-called agglomeration economies. In their view, learning is achieved via the market effects resulting from the employment of skilled labor and linkages with suppliers and customers, and via non-market effects, such as the transfer and diffusion of knowledge and information through informal networks. In this way, both networks and collaborations with other firms along the supply chain, universities and research institutes, and development agencies provide external knowledge sources that firms can exploit in their innovation activities (Baycan et al. 2017).

The role of external engagement for innovation is commonly discussed under the framework of regional innovation systems (RIS) (see Asheim et al. (2011) for an overview). This framework builds on the ideas of Marshall and follows the literature on national innovation systems (Lundvall, 1992). It is also closely related to the literature on clusters (Porter 1990) and so-called open innovation (Chesbrough, 2003). Several studies provide empirical support that external interactions enhance firm innovation, for example Feldman (1994) and Caloghirou et al. (2004). Both the RIS and the open innovation framework involve a variety of (external) actors across the public and private sectors, including other firms, research institutes and universities, organizations for skills competence and business development, as well as regional governments. Baycan and Stough (2013) highlight the increased importance of universities in fostering innovation processes, but acknowledge differences in values, interests, and culture between academic and commercial organizations.

Previous empirical studies typically focus on just one or a few types of external engagement. An exception is Jensen et al. (2007), who distinguish between the Science, Technology and Innovation (STI) mode, and the Doing, Using and Interacting (DUI) mode. STI focuses on the use of codified scientific knowledge for learning and innovation, including R&D laboratories, universities, and research centers, while DUI refers to informal or tacit knowledge gained through experiences and learning-by-doing.² Using Danish data, Jensen et al. (2007) show that employing either of the modes increases the likelihood that a firm is innovative. Dahl Fitjar and Rodríguez-Pose (2013) also classify collaborations with universities, research institutes, and consultancies as STI modes of interaction, while collaborations with suppliers, customers, and competitors are classified as DUI modes. Using data for Norway, Dahl Fitjar and Rodríguez-Pose (2013) find that collaboration with universities and research institutes, as well as suppliers, increases the likelihood of both product and process innovation, whereas collaboration with customers is positively related to product innovation only.

Collaboration with external actors is shown to be particularly important for small- and medium-sized firms (SMEs) (Rothwell 1991; Edwards et al. 2005; Spithoven et al. 2013). Access to external knowledge through collaborations should thus be an important factor that influences the survival and growth of local food producers, as they tend to be small and specialized. Cooke and Morgan (1998) argue along these lines and maintain that the potential of SMEs to innovate is related to their engagement in learning networks. Freel (2000) identifies four barriers to innovation for small firms: i) limited access to finance; ii) poor management and marketing skills; iii) lack of skilled labor; and iv) costly and/or misdirected information search activities. Smallbone et al. (2003) point to additional challenges for SMEs due to their distinctive organizational cultures usually resulting from a combination of ownership and management as well as family ties, along with having less influence over their external environment than larger firms. Hence, SMEs commonly lack the necessary internal financial resources for R&D and highly skilled labor, both of which are important capabilities for innovation. Additionally, food firms operate in low-technology, often rural, settings, which further hampers their ability to employ highly educated and productive workers due to sectoral and spatial sorting (Edwards et al. 2009; Andersson et al. 2014). The implication is that networks and cooperation between firms, as well as between firms and other actors in the private and public sector, offer greater potential to provide the necessary support systems for these firms to engage in innovation activities.

The importance of external relations for innovation in SMEs is confirmed by several empirical studies (see Cumbers et al. (2003), de Jong and Vermeulen (2006), Lee et al. (2010), Zeng et al. (2010)). Based on the previous literature and empirical results for European regions, Tödtling and Kaufmann (2001) find that collaborations with customers and suppliers, that is, DUI partners, are of particular importance for innovation in SMEs. This is likely explained by weak links and cultural barriers between SMEs and research institutes and universities. Maietta (2015) find that small firms in remote locations especially face difficulties in finding public R&D partners. Additionally, Maietta et al. (2017) find that the presence of large research organizations may harm collaboration and innovation in the food industry. Further empirical studies confirm the importance of supplier and customer collaborations for innovation in SMEs in general (Nieto and Santamaría 2010) and in the agri-food sector in particular (Stewart-Knox and Mitchell 2003; Gellynck and Kühne 2008; Capitanio et al. 2009; Karantininis et al. 2010).

Regarding the geographic dimension of external engagements, results from several European projects show that while national and international networks are important for large firms, the most relevant space for interactions for SMEs is usually their region (Tödtling and Kaufmann 2001). This is consistent with the STI/DUI framework and the empirical results, showing that DUI partners are particularly important for SMEs. As mentioned above, DUI learning is based on tacit knowledge, while STI learning is based on codified knowledge. This supports the notion that that geographic proximity is likely to be more relevant for DUI interactions. Still, Dahl Fitjar and Rodríguez-Pose (2013) find that it is non-regional supply chain interactions that enhance both product and process innovation. Similar results for Swedish firms are found by Bjerke and Johansson (2015). Small local food producers are commonly located in sparsely populated rural regions, which are characterized by lower access to market potential as well as knowledge resources, such as highly educated employees and research centers, compared to urban regions (Tödtling and Tripp, 2005; Foray 2016). It may thus be expected that extra-regional knowledge resources are of importance for these firms.

Given this literature review, it is clear that several types of external interactions are critical for innovation in small firms in low-tech industries. The types of interactions can be sorted under the DUI mode, which includes collaborations along the firm’s supply chain (supplier, customers, distributors, etc.), and the STI mode, which broadly covers support from other actors (universities and research institutes, business associations and competence centers, regional boards, etc.). In addition, there is a geographic aspect, where the actor providing the external knowledge (firm, competence center, university, etc.) may be located within or beyond the regional borders.

The ability of firms to renew themselves is becoming increasingly important from the perspective of firm survival and growth (Audretsch and Mahmood 1995; Cefis and Marsili 2005). Renewal and technological change are also particularly important for firms that operate in the food industry. The competition for product differentiation, the increasingly global character of food markets, higher requirements on food safety, and advances in biotechnology have all made innovation a necessity rather than an option for the survival and growth of small food firms (Triguero et al. 2013).

In this paper, we have disentangled innovation in small and specialized food firms by distinguishing between various types of innovation beyond the usual classification of new products. We argue that this is necessary to capture the full innovation potential of firms with low capital intensity and low orientation toward research and development, which is the case for many small and specialized producers in the low-tech food industry, especially those located in rural regions. Since small- and medium-sized firms commonly have limited internal knowledge and financial resources, the focus of the paper is on the relationship between external interaction and firm innovation. External interaction is measured in terms of either collaboration with other firms in the region, support from regional actors in the development of the firm, or the application of intra- and extra-regional external knowledge in innovation activities.

From the results, we can conclude that there is a positive relationship between firm innovation and external interaction for small food producers in Sweden. In particular, collaboration regarding transports and sales enhances most types of innovation. However, our results also show that the relationship differs across the various dimensions of external interaction and innovation. More conventional forms of firm innovation, new goods and services, benefit from external knowledge from extra-regional firms as well as regional support from the largest firm. Other types of innovation, such as selling into new markets, use of new suppliers, new ways of organization, and new distribution channels, increase mostly from support from regional and municipality boards. On the other hand, we find little support for a positive relationship between firm innovation and links to universities and/or research institutes. Such links are probably rare for the food firms in our sample, as they tend to be both small and remotely located and operate in a low-tech sector.

It has become almost a mantra that collaboration is a key factor for successful innovation activities. Our study strengthens this thesis and suggests that local and regional policy makers can influence firm innovation by promoting collaboration and knowledge networks between firms, in particular, by providing support to small firms that operate in low-tech sectors and are located in rural regions, as these firms often lack skilled labor and financial resources. Additionally, this study shows the importance of extra-regional connections for innovation in the food industry. Our findings indicate that small and rural firms can compensate for lower accessibility and other disadvantages that firms located outside metropolitan regions face by having specialized links to selected extra-regional partners. These links probably have higher establishment and maintenance costs than corresponding partner links in metropolitan regions, providing a strong argument for supporting this kind of network building for small, rural firms.

From a more general view, the fact that different factors seem to have impacts on the various types of innovation calls for innovation policies and strategies flexible enough to enable “tailor-made” solutions at the local level. Firm management, policy makers, and practitioners need to consider the local context, regarding the prerequisites of local firms and the conditions offered by the local economic milieu. To conclude the paper, we refer to Roger Stough (2010), who argued that (local) leadership, with local knowledge, is one of the key elements to achieve regional economic development. Our results support using this type of leadership to promote collaboration and knowledge networks of small firms in low-technology and/or rural settings.