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Marina Dabić1
UNIVERSITIES AS PARTNERS FOR SMALL AND MEDIUM ENTERPRISES
"The small or newly-born firm is a primary source of new
products and innovations".
Mueller (1988)
1
Introduction
Many countries are now coming to realize that their future advantage will depend on academic
partnerships and heightened awareness of the business relevance of science and technology. There are lots
of examples, where new technologies are having revolutionary impact (e.g.: biotechnology, information
technology, advanced materials).
Process innovation can dramatically cut costs of production. Some new technologies are opening
entirely new areas of activity. The development priorities of developing countries include income growth,
raising investment and exports, creating more and better employment opportunities, and benefiting from
technological progress.
Governments are committed to achieving these in a sustainable manner, ensuring that resources
are available to future generations. Privatization, deregulation and liberalization create more space for
firms to pursue their corporate objectives.
The evolution towards a “knowledge - based economy” (Drucker, 1991) which promotes full
deployment of new, exiting and complementary knowledge has posed great challenges to the
management of the innovation system within an organization.
New forms of organizations are required to manage links that facilitate the transfer and exchange
of knowledge between internal and external sources.
Strategic alliances appear to be a central factor in the acquisition of external knowledge, especially in the
science based sectors.
The literature has identified industry motivations for engaging in an industry/university research
relationship. Academic research used the capacity of business to solve complex problem. Universities are
included or invited by industry in research projects that we have called “new science”.
We are not the first to propose that the collaboration is important, but we contribute to this idea
by showing a specific context how various types of interact and promote collaborations throughout the
society. However, we would suggest that activities in small and medium organizations as well as at
universities could set the stage for collaboration and have high impact on its ultimate success or failure.
Thus we would suggest that businessmen’s who wish to innovate should search broadly for opportunities
and understand the importance of relations with universities.
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Collaboration between university and SMS
Technology has always been important to economic well-being; the current technological
context makes it critical to development. Dosi ()was the first to articulate the concept of a technology
paradigm (Stoneman, 1983). This context, called a new “technological paradigm”, is rapidly transforming
all productive systems and facilitating globalization. In short, a technology paradigm is a device for
dealing with tyranny of combinatorial explosion.
With policy dichotomy in mind we can now propose a simple classification of technology policy
issues. We present this in terms of the general choices which policy makers face:
 choices to support the development of or the applications of technology (transfer technology),
 choices between knowledge, skills and artifacts as the primary targets of policy support,
 choices about supporting institutions which will be the channels to improve technology,
 choices to formulate policy in isolation or in joint action with other nations.
1
University of Osijek, Slavonski Brod, Croatia
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How the revolution of Information Society is affecting the innovation process in enterprises, and
which direction is needed for industrial R&D, is therefore a topic of great interest for a small country in
transition like Croatia.
In the theoretical part, we make use of the following definitions (EU guidelines; Stoneman,
1983; Tirole, 1989).
The European Union guidelines define small and medium-sized enterprises (SME) in the following
manner:
 micro enterprises: those with between 0 and 9 employees;
 small enterprises: those with between 10 and 99 employees, and
 medium enterprises: those with between 100 and 499 employees.
Innovation is viewed as a change in the information set of relationship between inputs and outputs.
Process innovations are said to take place when a given amount of output can be produced with less input.
Product innovations relate to possibilities found to produce new goods. From the definition it is clear that
product innovations in machinery in one firm will often constitute process innovations in another firm.
Innovation is different from invention, which is an idea or model for a new improved product or process.
In the economic sense this basic idea enters the phase of an innovation when the improved product or
process is first sold in the market.
A distinction is made between radical (or major) and incremental process innovation. If the cost
reductions made possible by an innovation are such that the innovating firm can se a monopoly price and
nevertheless take hold of the entire market share, then the innovation is called drastic. Remember that
monopoly prices are above competitive level. Otherwise innovations are said to be incremental.
For a long time, firms seem to have expanded mainly by taking advantage of every opportunity
the market offered; some companies are now increasingly concerned with capitalizing on their
technological capabilities.
After the era of market-led strategies, some experts are announcing the coming of the era of
technology based strategies, even predicting that the latter are generally more successful than the former.
Networks help link between industry and University and they have become more important in
recent years.
Table 1. contains a few illustrative examples of technologies and their linkages to problems, science and
technique.
Problems to be solved
To produce energy while
reducing the dependence
on imported oil
To balance the brake
system according to the
grip of vehicle’s wheels
on the road
To obtain a photographic
print right after taking the
photograph, without
having the film processed
by laboratory
Scientific fields
 Nuclear
physics
 Science of
heart
 Fluid
mechanics
 Strength of
materials
Existing techniques
Transformation of thermal
energy into electrical energy
Technology
Nuclear electricity
Conventional
brake system
technique
Microprocessor data
analysis
Transmission of data
through sensors
ABS brake system
 Optics
 Chemistry
Polaroid process
Table 1.: Science, technology and industry: a few examples
(Dussauge et al., 1992, p. 14)
Government’s most important function in fostering a healthy climate for the rapid absorption and
diffusion of advanced technology lies in ensuring that “holes” in domestic innovation- network do not
threaten the economy’s long run potential for technological advancement (Dabic, 1998). The areas of
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greatest concern in this regard differ from one economy to the next; however, some areas stand out as
particularly sensitive (Ostry and Gestrin, 1993, p. 26).
For example, an emphasis in educational system upon basic scientific skills is of fundamental
importance. Related to this is need to encourage the development of transfer sciences (include
engineering, fields connected with micro-electronics, automation, robotics and computer sciences in
general, fields related to chemistry, and the areas of medicine, pharmaceuticals and agronomics) (OECD,
1992, p. 37), especially precision engineering, microtechnology and nanotechnology.
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Knowledge as a Source of Competitive Advantage
Developing the human resource base “is probably the most importance function of the state
related to long-run technological capabilities” (Ernst, O’Connor, 1989, p. 111; Harvey et al., 2001). R&D
activities lead to exploration and exploitation of knowledge. Knowledge is now recognized as the asset
that can determine the success or demise of a firm.
The evolution towards a “knowledge – based economy” which promotes full deployment of
new, existing and complementary knowledge has posed great challenges to the management of the
innovation system within an organization. A firm’s ability to become competitive in the global market is
determined by the incremental, continuous and integrated development and diffusion of new and existing
knowledge (Mangematin and Nesta, 1999).
As more multinational companies (MNC) evolve to a global strategic network orientation, and
expand into emerging markets, the integration and sharing of knowledge about unserved emerging
markets become essential (Harvey and Buckley, 1997). The success of global network organizations will
be predicated on its ability to develop an efficient global leadership capital across the network of effective
initiatives for local competitive positioning (e.g.: thinking globally and acting locally) (Keflas, 1998;
Woolcock, 1998; Amin and Cohendent, 1999).
Exhibit 1. bellow offers a schematic view of knowledge transfer process between MNC and
firms in transition Emerging Markets. It concentrates on the flows of knowledge that are potentially
taking place.
Knowledge source
Transferred kinds
of knowledge
MNC
Tacit-codified
Fundamental-Applied
Knowledge receivers
Firms in
Transition/Emerging
economies
Exhibit 1. Knowledge transfer process between MNC and firms in Transition/Emerging economies
R&D collaboration (between firms, between firms and universities, domestic and international)
is what differentiates the present R&D system from the one that prevailed during the first seventy-five
years of this century (Mowery and Rosemberg, 1989). Academic relations with industry became an
explicit mission an academic revolution as potentially far-reaching as the one that made research an
academic goal during the late nineteenth century (Etzkowitz, 1994, p. 140).
The implications for governments seeking to encourage more university - SME R&D networks are
the following:
 Given their overriding importance, addressing chance factors could be a very cost effective way
of encouraging R&D. For example, increasing the probability of “chance” encounters, by means
of encouraging networking, matchmaking etc., may be the most effective way of initiating SME
R&D.
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 Government pull factors tend to be of much more importance to medium-sized and larger firms,
but are not particularly important to small investors. Smaller investors are much less likely to be
able to use investment incentives and if these are to be effective, they must be designed in such
way as to make them accessible to small firms.
 Governments must adopt a more active stance if they want to take advantage of entrepreneurial
engine offered by SME investors.
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Type of networks
The strategic network approach argues that the network is a new form of organizations and
strategy. Freeman has demonstrated ”the importance of both formal and informal networks, even if the
expression network was less frequently used” (Freeman, 1990, p. 500). Multiple co-operative
relationships of a firm can be the source of its competitive strength.
The main missions of universities are now becoming deeply embedded in the core of academic
activities. Universities are no longer simply the providers of specialized knowledge through research and
education. Rather, they are becoming core components in complex knowledge networks.
There are five major areas of change that have had a deep influence on the reorganization of
academic research. These are: the growth in university system; the decline of the centralized laboratory,
the ascendance of small and medium sized enterprises in using advanced technologies, changing patterns
of government funding; and new and emerging academic research structures (Turpin, 1999, p. 235).
Within the framework of public support for collaborative, per-competitive R&D various types of projects
and networks structure can emerge (close collaboration, shared parallel work, loose collaboration, no real
collaboration).
Personal contact between researchers, both in academia and industry, is crucial in this context.
This was the impetus for the Commission’s ”Keep in Touch” initiative set up by Directorate General III
of the European Commission, which is responsible for industrial affairs. This initiative, which aims to
create a network of researches in the EU and developing countries, focuses on the need to invest in human
resources as well as in technology.
Launched in February 1994, the basic philosophy of this initiative is to encourage research in
developing countries and to maintain relationships between research teams in different parts of the world.
This part of joint co-operations can not only produced valuable results, but also discourage highly skilled
researches and technicians in developing countries from going overseas, particularly in the United States,
or from giving up their research altogether because of the financial constraints they face at home.
The high degree of flux means that a manufacturer cannot base a new product design upon an
existing one. The requires the manufacturer to experiment with and test new ideas and concepts by
experiential learning. The experiential learning philosophy requires an organization to be open to a
diversity options.
Basic characteristics of R&D management generations are illustrated in Table 2.
Generation
First
Basic Management Character
Incremental resource allocation and the
management of R&D as an entity
Specific Features
Science push strategy, mix project portfolio,
unlimited time horizons, ease in resource
allocation issues, and individual researches.
Second
Project management and project quality
Third
Business strategy links and research
planning as a corporate function
Fourth
External and internal knowledge
management, making research networks
and collaborations, strategic research
alliances,
and
linking
research
technology and innovation management.
Market pull strategy, project focused, better
project evaluation methods, project quality and
micro-management projects.
Strategically balanced project portfolio, links
with business strategy, partnerships, business
integration process and the strategic
management of R&D and business.
Strategic
management
of
knowledge,
knowledge
organizational
and
external
knowledge sources. Linking international and
external knowledge, managing information
flows,
communication
strategies
and
interactions among firms. Integration between
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research production, innovation systems and
universities.
Table 2.: Basic characteristics of R&D management generations
(Liyanage et al., 1999, p. 378)
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Importance of small firms
In recent years both policy makers and researcher have become interested in the importance of
small businesses. It has been widely recognized that start–ups an more established small business play an
important role for economic growth and job creation in countries. In the USA, SMEs employ 54% of the
private work force, and they account for 52% of all US sales (SBA, 1996). Similarly, a study by Piatier
(1984) found that SMEs provide from 40 to 70% of European jobs, depending on country and sector.
There has also been an increasing interest of the role and contribution of SMEs for the development and
sustainability of the knowledge-based economy. Jewkes (1969) was among the first to produce systematic
data on the role of SMEs in creating inventions. The role of SMEs in economic development has been the
topic of government committees as well as several research initiatives (Bolton, 1971; Winter, 1984; Pavitt
et al., 1987; Pavitt, 1998; Mueller, 1988)
The external knowledge sources and linkages were the principal forms for the acquisition of
technological know-how and industrial technology development efforts of SMEs. These were achieved
through the development of networks and collaborations with a national researches institute, university,
public research institute, other research organizational or individual researchers working in those
organizations. There are no comprehensive statistics on the trend of growth in the number of R&D
collaborations between university and industry.
Small and medium-sized enterprises (SMEs) are an integral part of all economies. SMEs are
described as critical to the economic development of industrial nations. Similarly, innovation has also
been described as a driving force behind economic development. The contribution of SMEs to total
innovation output has been highlighted in several studies (Bolton, 1971; Pavitt et al., 1987; Acs and
Audretsch, 1991). A recent study by Riemenschneider and Mykytyn (2000) suggests that the problems,
solutions and benefits of the use of information technology (IT) for larger firms may not necessarily be
applicable to SMEs. Furthermore, it is also evident from the existing research that the understanding to
date of technological innovations in products, processes and knowledge of SMEs is limited (Cragg and
King, 1993; Levy et al., 1999; Riemenschneider and Mykytyn, 2000).
 Although SME R&D is not large at present, the potential is there for it to increase quite
significantly, in both absolute and relative terms. This could make an important contribution to
economic growth, especially an “entrepreneurial engine” of fast growing firms.
 Some developing economies face a structural imbalance in terms of both the distribution and the
economic role of enterprises by size. Their SME sectors are underdeveloped, the impairing the
longer- term sustainability of their economic growth and international competitiveness. These
economies need to ensure that their SME sector develop apace, and do not get left behind. R&D
in SMEs, and by SMEs, and the cross-border production activities associated with it, could offer
an attractive means of achieving this.
For developing countries to take advantage of potential of SMEs, and of SME R&D to contribute to
economic development, it is necessary to understand the relationship between SMEs and development as
well as the role of, and factors influencing some R&D in developing countries.
Some countries have developed policy initiatives specifically intended to link SMEs to science and
technology capabilities. In Sweden, since the erly1990, these public uinitiatives have also been
increasingly designed to promote the construction of different kinds of knowledge networks (Belotti and
Tunalv, 1999). In Australia there was a dramatic rise through the 1980s in the number of research centers
in the university system. In Australia almost half of industrial R&D active enterprises are investing R&D
funds with external organizations. In the US the research center has been described recently as the fastest
growing academic unit in American universities (Turpin, Garett - Jones, 1997). This has had enormous
implications for university research system because in many countries the “outsource” research is now
carried out in applied research laboratories. Carrying out applied research activities on a commercial basis
for industrial clients have became a key activity of universities around the world (Turpin, 1999, p. 236).
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Small firms, therefore, may learn more effectively because of the very fact that they consist of small
numbers of individuals. As Rothwell and Dodson (1991) state ”the innovatory advantages of small firms
are mainly behavioral rather than material as in large firms.”
All the evidence suggests that small and medium sized enterprises will not, in aggregate, be the major
suppliers and transferees of technology in the world economy, but they can fill crucial niche roles. The
success of these niche roles will be partly determined by the key relationship between firm size and
industry size and by small and medium sized enterprises being able to ride the dynamic of the industry
(Buckley, 1997).
SMEs in particular must play a significant role in incremental innovations whereas large corporation
must dominate in the development of some critical technologies. It is no longer a question of whether
Croatia will join the information network society. The information society is happening all around
already. Our goal should be to make sure that its benefits are spread throughout society.
The main advantages of establishing links with SME which notes Jones and Tang (1999, p. 823)
were: flexible and rapid responses to communications; simple product ranges and focus on a small
number of key objectives; good access to decision –maker(s); close personal contacts between University
staff and the firm; strong commitment to technology development; close to market and customers;
locally-based involvement. The main disadvantages for University attempting to create links with SMEs
which notes Jones and Tang (1999, p. 823) were: lack of financial muscle; narrow range of expertise; lack
of managerial skills; focus on day to day “fire-fighting” activities; unfamiliarity with academies and
higher education institutions; limited technical skills.
Networks are recognized as an essential feature of successful economies as demonstrated by the
extensive inter-firm linkages in Japan (Keiretsu) Japan has more small business owners per capita than
any other big industrial economy (Economist, 1993). More recent statistics obtained by the author from
the Ministry of International Trade and Industry indicate that there are over six million small business in
Japan, representing 99 percent of all firms in the country and employing 75 percent of the working
population. Since the 1980s most Japanese investment small and medium sized firms abroad have
undertaken projects (Dana, 1998, p. 73). More recently, the strategic management of technology has been
discussed in many books, but is still lacks a framework to link business strategy to technology strategy
(good example for this linkage are Austria and USA ).
Case of Croatia
How the revolution of Information Society and new technologies are affecting the innovation
process in enterprises, and which direction is needed for R&D in small and medium enterprises, is topic
of great interest for Croatia.
We are faced not only with the problem of re-defining the relations between industry and
R&D/university sector (who pays for what) but with the problem of preserving existing R&D and
educational potentials what could be devastated in the knowledge- based economy. To bridge this gap is
the most important job in many firms from Croatia. The problems of Croatian economy in transition are
the following: transition to market economy conditions, in general, handling war destruction,
liberalization of prices, privatization, dealing with ecological and environmental problems, human capital
and managerial skills, restructuring, renewal, capabilities for technological advance, the need for proper
institutions and the choice of a development path suited for faster growth. The following can be
considered as driving forces for technology transfer:
 societal conditions
 strong external agency support from sources such as Government, Universities, and local R&D
establishments
 support of large corporations, suppliers of technology and training institutions,
 empowered, knowledgeable and conscientious workforce
 company culture that encourages to develop new products in the technology supply chain
 learning organization culture to expedite technological learning.
Catching-up is not an easy and costless process because new technology is not equally and freely
available to all the countries. The key elements in the catching–up process are technologies, innovations
and privatization instead of public education and public funding. Unfortunately, Croatia, as well as other
economies in transition suffer from the weak technology sector and insufficiently developed industry to
understand the significance of R&D and education in global movements.
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Conclusion
A nation’s intellect is surely the product of as many internal and outside pressures as we have
seen to be the case with the interface between development and technology. Obviously is that is the
increasing role that universities play in world in supporting the technological infrastructure. Universities
have educational mission of creating and distributing knowledge. Now, universities have historically
mission to evaluate the scholarly merits of each faculty member. Not all components of performance
evaluation of university R&D involve economic impacts.
The characteristics of technological innovation are increasingly forcing to access external
sources of knowledge and information, such as “centers of excellence” in knowledge production, key
customers, suppliers and competitors. Therefore, firms increasingly become part of networks, in which
resources, knowledge and information circulate at low cost, and strongly rely on collaborations and
partnership.
Knowledge, especially scientific knowledge, can also show to have a relationship with the level
of a country’s development. It may even be a causative factor in the survival or extinction of an entire
culture. We can be sure, however, that the process of education obtaining in a particular society is
indicative of the level of development towards which the society is moving.
Networks are essential if the universities are to fully exploit their commitment to research and if
SMEs are to use technology as a source of competitive advantage.
Process innovation can dramatically cut costs of production. Some new technologies are opening
entirely new areas of activity.
The development priorities of developing countries include income growth, raising investment and
exports, creating more and better employment opportunities, and benefiting from technological progress.
Governments are committed to achieving these in a sustainable manner, ensuring that resources
are available to future generations.
Privatization, deregulation and liberalization create more space for firms to pursue their
corporate objectives.
Networking can greatly facilitate and leverage information resources. A person’s value in an
enterprise is not only in “what they know”, but “whom they know”. The paradigm, then is that R&D with
university must “either network or not work.”
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UNIVERZE KOT PARTNERJI ZA MALA IN SREDNJA PODJETJA
UNIVERSITIES AS PARTNERS FOR SMALL AND MEDIUM ENTERPRISES
Ključne besede: mala in srednja podjetja, tehnologija, sodelovanje, univerze, mreže, znanje,
konkurenčna prednost.
Povzetek:
Prispevek temelji na dveh pomembnih spoznanjih o sodobnem gospodarskem delovanju. Tako lahko
ugotovimo, da se povečujeta vloga in pomen univerz pri podpori tehnološki infrstrukturi v svetu. Prav
tako pa je mogoče ugotovimo, da proizvodno usmerjena mala in srednja podjetja generirajo ekonomsko
rast in to ne samo v razvitih, ampak tudi v tranzijskih državah. Izhodišče za obravnavo izbranih spoznanj
predstavlja opredelitev koncepta partnerskega sodelovanja med univerzami in malimi in srednjimi
podjetji. Pri opredelitvi se srečamo s številnimi vprašanji, kot so npr.: kaj so mala in srednja podjetja,
vloga univerze pri razvoju malih in srednjih podjetij, kakšna je vloga malih in srednjih podjetij pri
izgradnji ekonomije na temelju znanja in kakšne modele sodelovanja je mogoče in primerno uporabiti za
povezovanje univerz in podjetij v različnih državah. Sodelovanje je postalo ključna beseda in tema
različnih političnih, socialnih, okoljskih in ekonomskih trendov, ki poskušajo predstaviti globalne
spremembe človeškega delovanja in bivanja. V tem okviru podrobneje predstavljamo pomen znanja in
zasnove mrež za njegovo distribucijo. Managerji malih in srednjih podjetjih so namreč pred nalogo, kako
zagotoviti potrebno celovito znanje za delovanja podjetij. Managerji za delovanje v sodobnih
gospodarskih razmerah potrebujejo nove nove spretnosti in znanja, ki jih pridobijo s sintezo spoznanj
akademskega in profesionalnega delovanja in zasnovo učinkovite uporabe njihovih spretnosti. Preskrbo
potrebnega znanja predstavljamo z obravnavo R&D v podjetjih malih odprtih ekonomij, kot je Hrvaška.
Na osnovi spoznanj o njihovem delovanju nato opredelimo tudi osnovne značilnosti globalnih
ekonomskih vplivov na tranzicijske ekonomije.
Two important trends motivate this paper. One is the increasing role that universities play in world in
supporting the technological infrastructure, and the other is that it’s now possible to think that productive
part of SME generating economic growth not only in developed countries but also in countries in
transition. Before discussing these trends, basic concept must be defined, so as to determine the scope of
this paper: What is SME? What is the role of University? What is the role of SMEs in building
knowledge-based economies? What models of collaborations are used by different countries to develop
knowledge-based economies? Collaboration has become a catchword for a number of political, social,
environmental and economic trends that are supposed to present challenges on a world - wide scale. This
renewed recognition of the importance of “ knowledge and network” as we argue in section 2. In the
context of the small enterprise, the managers needs to not only learn new skills and knowledge but also to
synthesize the academic, professional knowledge and adapt their behavior in order to effectively apply
these skills. In next section we turn to some economic facts by analyzing R&D in small open economy
such as the Croatia. And we try to answer the questions: What are economic impacts on transitions
economies? We end with some concluding remarks.
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Knowledge source
Transferred kinds
of knowledge
MNC
Tacit-codified
Fundamental-Applied
Knowledge receivers
Firms in
Transition/Emerging
economies
Exhibit 1. Knowledge transfer process between MNC and firms in Transition/Emerging economies
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