Industrial Ecosystems: Developing Sustainable Industrial Structures

By Nicholas Gertler

 

Chapter 6. Flexible Networks and Inter-Firm Collaboration: Applications to Industrial Ecosystem Development

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This chapter introduces the field of flexible networks and inter-firm collaboration, which offers a body of experience that is in many ways applicable to efforts to develop industrial ecosystems. The two areas of endeavor confront many of the same issues and barriers, although they have yet to be treated in the literature as meaningfully related. What follows is an attempt to bring the two fields together and to identify implications to IE. 

The concept 

A flexible manufacturing network (FMN), or the resulting Inter-firm Collaboration, as it is more recently being called, is an organizational phenomenon by which distinct firms interact in collaborative ways in order to solve problems or achieve results they could not do so acting individually. According to "A Short Guide To Inter-Firm Collaboration", a pamphlet from Regional Technology Associates, Inc, which has also compiled more lengthy guides on the subject, 

"Inter-firm collaboration (IFC) is the new frontier of competition -- a way for firms to develop joint solutions to common problems. IFC allows firms to combine resources to gain knowledge, achieve economies of scale, acquire technologies and resources, take advantage of their mutual capabilities and enter markets otherwise beyond their reach." 

This is a fairly open-ended definition, but it is narrower in its implementation. The focus of networking efforts has been small- and medium-sized business enterprises -- generally manufacturers. Based on the success of similar arrangements in some industrial areas (see below), several economic development-minded government agencies, as well as some NGOs in the US and elsewhere, have taken it upon themselves to cultivate such networks. The motivation is as follows. The globalization of markets has altered competitive conditions such that innovative strategies are needed if small to medium-sized manufacturers are to survive and prosper. Demanding customers are apparently scouring the globe for highly specialized products. Firms must specialize to be competitive, but to do so for a small firm means sacrificing flexibility and putting too many eggs in too few baskets. The answer seems to be that firms must specialize to some extent and learn to combine their core competencies with others. There is too much to do and learn to do so alone [ Regional Technology Strategies, Inc. "A Short Guide to Inter-firm Collaboration" Undated, unpublished document; Brian Bosworth, Personal Communication March, 1995.] . By collaborating, firms can achieve synergies in which the whole is greater than the sum of its parts. 

Inter-firm collaboration is a loosely delineated phenomenon, and exists over a broad range of levels of trust and interdependence. Four broad categories can be identified: 

• informal and unorganized cooperation among two or more firms around a very specific problem; 

• formal and organized cooperation among several firms within a membership-based organization, with very limited inter-dependence, and where the primary unifying factor may be geography, sector, or end markets; 

• formal and organized cooperation (but not necessarily 'legally defined') among a smaller set of firms, with some significant degree of interdependence, and with quite specific shared interests; and 

• value-adding partnerships between customers and groups of suppliers working on better meeting customer needs [ Bosworth, Brian "Thinking About Inter-Firm Cooperation: Where are the points of intervention?" Non-published, document from Regional Technology Strategies Inc. 1995.] . 

The third category, interdependent networks of firms, is worth further consideration. This category involves a discrete group of firms "who are willing to depend significantly on each other in order to achieve some benefit not available to them independently [ ibid.] ." Within this grouping, four more categories of interaction avail themselves: 

• co-production networks of where firms cooperate in manufacturing components, assemblies, or finished goods; 

• co-marketing networks of firms that jointly market their products in ways that give them access to and power in high value markets; 

• learning networks of firms who collectively seek to learn about and manage complex issues related to competitiveness; 

• resource networks of firms who pool or share resources in developing a joint solution to a common problem, such as waste management [ ibid. p.2.] . 

Why this is relevant 

There are three reasons: 

• As it turns out, there exists in Chattanooga, TN (home of a budding Eco-Industrial Park) something called the Environmental Network Project, which has a focus on environmental issues and innovative ways to utilize firms' waste products. 

• Industrial ecosystems, or rather industrial symbiosis, is a specific form of inter-firm cooperation, and as such forms a subset of that field of inquiry; albeit the motivation for IFC is competitiveness. The philosophical underpinnings of IE are different, but if the same end can be approached as a realization of disparate goals, all the better. 

• Efforts to create networks by way of third-party intervention offer somewhat of a parallel with efforts to establish industrial ecosystems. As detailed below, several public sector bodies have taken a number of different approaches world-wide to fostering inter-firm cooperation, based on the perceived success of such collaboration in a region of Italy. Lessons learned in bringing about manufacturing networks may well be relevant to efforts aimed at creating industrial ecosystems. 

The origins of inter-firm collaboration [ This section is based largely on Brian Bosworth and Stuart Rosenfeld, Significant others Exploring the Potential of Manufacturing Networks, The Aspen Institute, Aspen Colorado July 1-3 1992.]] 

Small and medium-sized manufacturers have received more and more attention over the past five to ten years, both in the United States and abroad. These firms have traditionally been very independent, but mounting pressures from globalizing markets and competition from newly industrializing nations have put many of them at risk. The search by experts and public sector agencies for ways to make these firms more competitive has come to rest in large part on the concept of firms working together to accomplish more than they could individually. 

This conceptually new economic development strategy originated in the Italian region of Emilia-Romagna. The success of its small artisan-based industrial economy in the 1970's garnered international attention and gave credence to the idea of flexible specialization, cooperation, and networks. This form of organization was celebrated and revealed to the world at large in Michael Piore and Charles Sabel's The Second Industrial Divide. Similar collaboration among firms proved successful in Japan and southern Germany. 

Intrigued by this success, those concerned with development policy have begun to examine ways to transplant and emulate this organizational phenomenon to their own regions. An increasing number of jurisdictions in the United States and Europe have begun to experiment with policy interventions to encourage collaboration, ranging from an extensive national program in Denmark to foundation grants in some U.S. communities. State and regional efforts to develop networks within the U.S. have taken a variety of approaches, offering the opportunity for comparing their effectiveness. 

The parallel between manufacturing networks and industrial ecosystems 

The history of efforts to develop and foster inter-firm collaboration in the U.S. and abroad is only relevant to the development of industrial ecosystems if the two are indeed similar in meaningful respects. There is reason to believe that they are. The U.S. public-sector effort toward flexible manufacturing networks is an attempt by a third party to change the behavior of small and medium-sized firms in a manner that enhances both the good of the firms involved and the common good. It involves the application from the outside of a model of firm behavior and interaction. It involves a change in the way firms see themselves vis a vis other firms in their general vicinity. And it involves an attempt to overcome institutional and cultural barriers to such changes. The pathway of development is at issue, as is the manner of third-party intervention. All of these statements are applicable to attempts to develop industrial ecosystems, with the exception that these attempts tend to focus on larger firms, which is a meaningful difference. Both schools have a Mecca; of flexible manufacturing it is the Emilia-Romagna region of Italy, of industrial symbiosis, it is Kalundborg. 

Emilia-Romagna: The Kalundborg of manufacturing networks 

According to Bosworth and Rosenfeld [ Bosworth, Brian, and Rosenfeld, Stuart, Significant Others Exploring the Potential of Manufacturing Networks, The Aspen Institute, Aspen Colorado. 1992.] , the United States lacks a history of industrial policy toward small and medium-sized firms. Those interested have looked to Europe, where Northern Italy, as revealed to America by The Second Industrial Divide, has become the prototype for inter-firm industrial collaboration. Highly competitive small manufacturers can be found in other countries, but nowhere is inter-firm collaboration as advanced and dynamic as in the Emilia-Romagna region of Northern Italy. Visiting the region has become a pilgrimage for students of manufacturing networks just as visiting Kalundborg has for industrial ecologists. 

The interactions among the hundreds of very small, technologically advanced manufacturers in the region are hybrid results of evolution based on economic, cultural and historical conditions, and government intervention to catalyze collaboration. The institutional matrix in which collaboration takes place is comprised of the services of independent trade associations and government assisted, sector-specific service centers. The trade associations are self-sufficient, funded by membership fees, and provide services such as accounting, financing, and training. The 12 service centers, which were established in the late 1970's by regional governments, provide 'competitiveness' services, and presumably catalyze inter-firm collaboration. 

Emilia-Romagna has experienced a sharp loss of mass-production jobs since 1970, which has been paralleled by tremendous growth of small businesses. As of 1991, there were 325,000 registered firms in a region of 4 million people [ Richard Hatch, "The Ties That Bind" Entrepreneurial Economy Review Spring 1991] . According to Hatch, 

The key to this success in rebuilding the base economy on the limited capabilities of individual small firms has been the spread of manufacturing networks. Regional government, labor unions, and trade associations have learned how to foster cooperating systems of small and medium-sized firms, bringing them together around shared services (for example, quality assurance, market forecasting, or materials purchasing) until strong commercial ties can give these networks a life of their own. Today, large numbers of small firms in north-central Italy participate in various forms of network activity, not out of public spirit, but because networking contributes visibly and immediately to the bottom line, to profits [ ibid. p. 14] ." 

While Emilia-Romagna is widely held to be the ideal to which U.S. efforts aspire, there is some doubt as to whether the results of an evolutionary process that has its roots in specific regional conditions can serve as a valid model for such development elsewhere. This clearly parallels the Kalundborg / EIP question. Calling into question the direct applicability of the Italian model in the United States is a host of factors, including "the presence [in Emilia-Romagna] of very active trade associations, along with high concentrations of very small, locally owned artisan firms in the same or related sectors and tight family and community relationships [ Bosworth and Rosenfeld " Significant..."] ." Others have stressed the importance of shared values and face-to-face contacts among firm owners and workers, pointing out the importance of personal interaction in achieving the information flow that is essential for collaboration. This, too, is just like in Kalundborg. 

The Danish Network Experience 

In 1988, Denmark faced a growing trade deficit, high unemployment, and low corporate investment. In May of that year, a study for the Danish Ministry of Trade and Industry by McKinsey & Company concluded that the fundamental problem was that Danish companies were too small. The study indicated that changes in the business climate over the previous decade had favored the large-scale operations of multi-national corporations and that Danish firms lacked the 'critical mass' to take advantage of these trends [ Hatch, "The Ties..."] . The study recommended that Danish firms merge to achieve critical mass in key areas. But despite support from the government, the recommended mergers were not forth-coming, due in part to populist fears of concentrated power along with a long tradition of independent businesses. As a result, a different approach proved necessary. 

The coming of the European Common Market in 1992 added to the impetus for change. C. Richard Hatch, director of Manufacturing Network Projects of the Center for Manufacturing Systems at the New Jersey Institute of Technology, placed the focus on competence, not size, as he recounted in The Entrepreneurial Economy Review: 

At a seminar on "1992 and the Single Market," I made the case that if Denmark wished to be competitive after 1992, she would have to either build big firms - and do it quickly, before 1992 put the cost of gaining initial shares of new markets beyond reach, or make existing, mostly small, firms perform like the best big ones...Economic forces favored Denmark's existing smaller, flexible production units. To link them in a viable flexible network would require leadership, but networks held the country's greatest hope [ ibid . p.14-15.] . 

In the ensuing period, Hatch and colleagues lobbied the Danish Ministry of Trade and Industry, putting forth a general, multi-step plan for building networks in large numbers: providing information to firms about network concepts, offering limited financial assistance to support network experiments, and training network brokers to catalyze cooperative projects [ ibid.] . The idea caught on, garnering support from both government and industry, such that in March of 1989 the Danish Ministry of Trade and Industry announced a plan for establishing network collaboration among small and medium-sized enterprises. The program, presented as "Strategy '92," was presented by the ministry as a means to mobilize the country's small and medium-sized enterprises to strengthen its competitive power [ ibid.] . 

Denmark's "Strategy '92" 

Denmark's Ministry of Trade and Industry announced "Strategy '92" in March of 1989. Within 18 months, more than 3000 of Denmark's 7300 manufacturing companies were actively involved in networks. The program was intended to provide a workable context for inter-firm collaboration in areas such as marketing, joint use of advanced technology, organizational learning, studies of markets and rival industries, research and development, and quality control. Strategy '92 was based on a three-step approach to building networks in large numbers: providing information to firms about network models, offering grants to support network experiments, and training network brokers to catalyze collaboration. Provisions of the program included: 

• Participation in networks by companies on equal terms with firms of their choosing, assuming responsibility for all working relationships 

• Government financing of 100% of the cost of determining network feasibility, up to 75,000 kroner ($10,000) 

• Subsidies of up to 50% for network development 

• A national training program for network brokers 

The governmental body charged with administering the program used a variety of means to reach firms in every industry and every city in Denmark, including press releases, newspaper stories, television talk shows, presentations to trade associations, and direct mail advertising. The campaign was highly effective, and the network concept gained salience in Denmark within a few months. Results followed shortly there-after. 

Sources: Entrepreneurial Economy Review Spring 1991; Bosworth and Rosenfeld, Significant others Exploring the Potential of Manufacturing Networks 1992. 

The undertaking proved highly successful. Eighteen months after the announcement of Strategy '92, more than 3000 of the nation's 7,300 manufacturing companies were actively involved in networks [ ibid.] . Denmark followed the Italian example but did so by way of a very different path. The development of flexible networks in Emilia-Romagna was the result of a long, evolutionary process which was aided by government involvement at the regional level. In contrast, Denmark has become the most successful model of a purposefully created inter-woven economy [ Bosworth and Rosenfeld " Significant..."] . Two keys to the Danish approach are the training of network brokers and the provision of challenge grants. According to Brian Bosworth of Regional Technology Strategies, Inc., the Danish flexible manufacturing model is very much a brokered system [ Personal communication, 2/16/95] . The typical broker is a private consultant who "recognizes networks as a device for organizing small firms into larger groups that can afford to engage his or her consulting services [ Bosworth and Rosenfeld " Significant..." p.35.] . It is thus in the self-interest of brokers to organize networks, since while their training (for which they had to pay a fee) was organized as part of a government program, they do not appear to receive direct funding from the government. 

Government support was provided in the form of challenge grants available directly to groups of firms who submitted satisfactory proposals for network development. This source of funding had a significant positive effect on the level of network activity, according to a Danish government report [ Hatch, "The Ties..."] . 

While Strategy '92 was a very successful rapid intervention by the Danish government to foster cooperation among its manufacturing firms, the effort to link firms did not have to start from scratch. Denmark built its network program upon a solid technology assistance infrastructure, "including the Danish Technological Institute, 15 county-level Technology Information Centers, five research universities and intermediate applied research centers, numerous local technology centers, strong trade associations and unions, and industry consultants [ Bosworth and Rosenfeld " Significant..." p.26.] ." In addition, the initial export orientation of Danish firms may have rendered them more amenable to cooperation in the interest of global competitiveness. 

The picture that emerges is that the Danish network program took advantage of the existing institutional linkages among its firms and the wide-spread acceptance of the need for coordinated effort to enhance the competitiveness of the nation's industries. The rapid and extensive development of networks proves that Strategy '92 encompassed an approach that was appropriate for Denmark. The distinction has been made in the literature between the evolutionary development of networks in Italy and their rapidly crafted appearance in Denmark, but this distinction may be over-stated. It is clear that Danish industry was primed for such development, so that, while the network strategy was not without some opposition, it was not necessary to alter significantly the cultural underpinnings of business practice: "The Danish manufacturing economy has long been populated almost exclusively by small, export-oriented firms with a long history of associative organization through trade and industry groups [ ibid. p.25.] ." Strategy '92, with its challenge grants and network brokers, appears to have crystallized the latent collaborative potential of small and medium-sized Danish manufacturing firms. 

The application of this analysis to the field of industrial ecology is to place the rapid, seemingly externally-imposed system of inter-firm collaboration in Denmark into perspective. While the change was fast and wide-spread, its cultural and institutional underpinnings were already in place; it was a rapid change following and extending an evolutionary process. This should serve to dampen somewhat the apparent potency of external intervention, but the role of network brokers is intriguing in the Danish experience, and deserves serious consideration in the context of network development elsewhere, and more specifically in the context of the development of industrial ecosystems. 

Network development in the United States 

The concept of flexible networks was introduced in the United States in the mid-1980's, amid significant doubt as to its viability for transplantation from Europe. "It will never work here," was the response of the head of one the largest U.S. development associations: Firms were too independent and fear of antitrust prosecution too great. Networking was fundamentally at odds with the way firms did business here [ Friedman, Entrepreneurial Economy Review Spring 1991.] . That prediction proved to be incorrect, as by 1991, at least 50 nascent networks had been spurred into existence by public-sector initiatives, and by 1992 their numbers had swollen to almost 80 [ ibid; Bosworth and Rosenfeld " Significant..." ] . The latter survey, by the National Institute of Standards and Technology, found wide diversity and complexity among emerging networks. 

Merely introducing the network concept as a business strategy has been sufficient in some instances to motivate the formation of networks, while some came into being without reference to any outside model or ideal. In addition, a substantial number of networks have sprung from state initiatives which have taken a variety of forms. Despite initial fears to the contrary, 

Networks at a glance 

The following are a few examples of the networks that have taken shape in the United States over the past five years. 

The Environmental Network Project in Chattanooga, Tennessee, focuses on environmental issues, with particular emphasis on finding innovative ways to utilize firms' waste products. The network has also been involved in joint marketing, including participation in a number of international trade shows. While there is no formal membership, 15 to 20 firms are estimated to be active. The project is funded by a $100,000 grant from Regional Technology Strategies Inc. through the Sloan Foundation. Specific results of the project are at this time unknown. 

ACEnet is based in Athens, Ohio, serving eleven counties in the southeastern part of the state. ACEnet's focus is on joint production, worker training, telecommunications, access to capital, and improving community relations. There is no formal membership, but ACEnet coordinates a number of projects, including twelve firms which collaborate to build housing components for people with disabilities, and forty firms which work together to produce agricultural products and specialty items. ACEnet receives financial support from state and federal sources, as well as from fees charged to participants. 

Located in Portland, Oregon, the Alltech Manufacturing Network is comprised of three metalworking firms, an engineering firm, and a marketing / consulting firm. The network's focus is subcontracting metal parts and components, joint marketing, shared technologies and capital investment, and shifting from job shop orders to production orientation. The network received a $10,000 start-up ('challenge') grant from the state of Oregon's Flexible Network Initiative as well as a $10,000 grant from General Electric. 

The Oregon Publishers Expanded Network counts as its members 167 small book publishers and printers in Northwestern Oregon. Participants share equipment, technology, training, information, and cost-cutting procedures, as well as a publishing center geared specifically to the needs of the small publisher. Initial funding was in the form of a $10,000 challenge grant from the state of Oregon. 

The Technology Coast Manufacturing and Engineering Network (TeCMEN) is an Okaloosa County, Florida agglomeration of 31 firms which have been brought together through the efforts of a local economic development council. Founded in large part to help defense contractors shift to other markets, TeCMEN's focus is on joint marketing, joint purchasing, sub-contracting, and new product development in the electronics, metal-working, electro-mechanical, information services, chemical, civil, industrial and metal engineering industries. Funding comes from a variety of state, local, and foundation sources, as well as from member firms. 

Sources: Networks at a Glance, a publication of USNet; Firm Connections, Vol. 2 No. 4 1994. 

there is evidence that small U.S. firms are not averse to cooperation, although they often lack the means and venues [ Friedman, Entrepreneurial Economy ...; Bosworth, Personal communication.] The motivation, not surprisingly, is increased profitability and competitiveness. According to NIST's Gail Morse, individual firms will pursue a network only if they are able to see its potential to render a "tangible and fairly short-term impact on that bottom line [ qtd. in Bosworth and Rosenfeld " Significant..." ] ." 

The 50+ networks identified in 1991 operated in at least 14 states and involved more than 1500 small firms. According to Robert Friedman, chair of the board of the Center For Enterprise Development, these networks demonstrate some consistent patterns in their development: 

Thoughtful policy - Network initiatives have taken root in states with high concentrations of troubled manufacturing firms and innovative and thoughtful development policy makers. Some of the first experiments appeared in Massachusetts after the recession of the early 1980's, while the industrial Midwest also generated a great deal of early activity. The Southeast, with heavy reliance on mass production, followed soon after. More recently, the Northwest, facing serious challenges to its wood products industry and extensive competition from nations of the Pacific Rim, has taken up the cause of networks. 

Crisis as incentive - Certain sectors dominated by small vulnerable firms seem to embrace the network concept most readily: wood products, metalworking, forging, and suppliers to large original equipment manufacturers that are demanding higher quality standards. 

Brokers and grants - Most network activity has been generated in the presence of public-sector support for brokers and challenge grants to business. 

Higher education partners - Network initiatives often ally with universities and build on established technology and modernization efforts. 

Quick payback - Networking often begins with marketing or subcontracting activities that produce quick, tangible results and build trust and commitment among participants first. 

The road to failure - Networks usually fail when the project's leadership is less than fully committed or less than credible with the affected firms. Lack of steady public or private support has also contributed to failures [ Entrepreneurial Economy Review Spring 1991 p.6] . 

The vast majority of public-sector interventions aimed at fostering network cooperation have taken place at the state level, while some are being carried out regionally. States have served as laboratories of cooperation, trying different approaches toward the same ends. Michigan drew on the resources of existing state programs to promote network development through its Manufacturing Modernization Service. The program combines research expertise to map business linkages and regional concentrations of firms with challenge grants of up to $20,000 per network initiative, and up to $70,000 to interested trade associations. Pennsylvania's Manufacturing Innovation Networks Program focused funds and efforts on a few sectors which expressed significant interest in networks. State assistance is predicated on the establishment of a private labor-industry steering committee, the completion of a strategic audit of industry firms, the implementation of specific collaborative projects, and on the availability of private-sector matching funds. 

The North Carolina Network Demonstration Program awards grants of up to $10,000 to assist network brokers in putting together collaborative efforts. The Southern Technology Council has sponsored broker training in Arkansas, raised $100,000 in challenge grants, and involved existing development groups in network initiatives. As of 1991, both Washington and Minnesota have commissioned studies of the potential of networks in key industries and developed statewide network strategies [ Friedman, Entrepreneurial Economy ...] . And in Oregon in 1991, the state legislature passed the most comprehensive networking program in the United States (see box). 

Methods of public-sector intervention  

In a 1993 article in Firm Connections, network guru Stuart Rosenfeld identifies four strategies that typify state efforts at fostering collaboration: offering financial incentives, recruiting and training network brokers, altering the 'institutional platform' used to helop launch networks, and building on existing network entrepreneurship. Each state networking program incorporates one or more of these approaches [ Stuart Rosenfeld, Firm Connections, Vol. 1 No. 3 p.1] . 

Offering financial incentives is the most common mechanism, generally in the form of state grants to support the formation of cooperative inter-firm activities that are likely to enhance market opportunities and competitiveness. According to Janet Jones, manager of the public-sector department overseeing Oregon's flexible networks program, such inducements reduce the risk of trying a new and perhaps foreign way of doing 

Oregon's Flexible Network Program 

Oregon's Flexible Network Initiative was introduced in April 1992 in an effort to shore up the competitiveness and long-term viability of sectors designated by the state as 'key industries.' This focus arises from the belief that the well-being of Oregon's economy in the global marketplace is directly related to the competitiveness of the state's key industries. Helping those industries achieve a global competitive edge is the role of the Oregon Economic Development Department, purveyor of the flexible network program. 

The network concept was championed in Oregon by a state legislator who led a study tour to the cradle of networking in Northern Italy and to the emergent networks of Denmark. Upon his return, he made policies to encourage flexible networks a part of key industries legislation. The Oregon Flexible Network Initiative has two principal elements: 

Challenge Grants - Phase I. challenge grants are awarded to industry groups and associations to encourage broad industry-wide discussion of flexible networks. Phase II. challenge grants of up to $10,000 are available to groups of at least three companies for the purpose of planning and implementing flexible networks. In the words of Janet Jones, manager of Key Industries Development for Oregon, these grants serve to reduce the risk of trying something new and bring people to the table to look at a new way of doing business. 

Broker training and availability - The other cornerstone of Oregon's Flexible Network Initiative is the training and cultivation of network brokers. Brokers are selected by the Key Industries Development program based on their established business reputations in one or more key industries. Oregon provides eight hours of free broker time to firms who are evaluating prospects for forming a network, after which brokers are paid by the firms if the network effort proceeds. Jones ascribes many roles to network brokers, including shepherd, organizer, CEO, psychiatrist, coach, cheerleader, and facilitator. 

The long-term goal of the Oregon program is to build a culture of cooperation among the state's industries. Pre-existing trade associations have laid the foundation for such collaboration, but little networking activity took place before government intervention. The Key Industries Program is seen as a catalyst, bringing firms together who, despite their best interest, would not normally meet. 

The results are encouraging: in little over a year, 31 flexible networks have been formed, comprised of over 250 companies. Virtually all of them were aided by a broker and assisted by challenge grants. Evidence of qualitative success is anecdotal, so it is difficult to evaluate the benefits of such networking. It is apparent, however, that the spirit of cooperation is catching on in Oregon. 

Source: Oregon Economic Development Department, Key Industries Development 

business, and appeal to the direct financial interest of would-be collaborators [ Janet Jones, Personal communication.] . Of the eleven networks described as part of USNet, a fifteen state consortium administered by Regional Technology Strategies, nine have received public-sector funding, while the remaining two are supported through membership fees and commissions. 

The recruitment and training of network brokers is the other cornerstone of network development efforts. According to Rosenfeld, "brokers are the often indispensable individuals who catalyze and facilitate networks by providing ongoing liaison, trouble-shooting and strategic planning services to the participating firms [ Rosenfeld, ibid, p. 4.] ." Denmark's program established the model for broker-catalyzed networking, having selected and trained forty brokers who carried the torch of networking throughout the country. To complement the brokers, the Danish program also identified "scouts" such as bankers, accountants, and engineering extension agents, all of whom had a financial interest in fostering networks, to help identify opportunities for collaboration. Brokers play an important role in the programs of a number of states, including Oregon, where they are seen as "an invaluable asset" and "crucial to the success of this initiative." 

The third approach to fostering networks is finding the best institutional platform, or charging an economic development agency with encouraging and promoting networks. Such efforts have also been undertaken by a few trade associations, including the Chemical Coaters' International, the Tri-State Manufacturers' Association in Minnesota, the Oregon Software Association, and National Tooling and Machining Association, which use their contacts with firms to encourage networks. 

Lastly, states are piggybacking on network entrepreneurship by building on existing collaborative efforts and attempting to create multipliers. In states such as Florida and Kentucky, the success of a few locally grown networks is being publicized and serves as an inspiration and testimonial to the network concept. 

A number of states are moving beyond the above strategies to integrating networks into their economic development and modernization programs. These initiatives are ultimately aimed at changing businesses culture to produce more collaboration. Experience with state networking programs indicates that widespread implementation of a new practice requires a critical mass of resources before it becomes part of business culture. Patient and methodical state programs are gradually assembling critical mass, although these undertakings are still in or near their nascency [ Rosenfeld, Stuart "Jump-Starting Networks" Firm Connections Vol 1. No. 3. July/August 1993.] . Given the relatively low level of inter-firm collaboration in the U.S. and the absence of strong trade and industry associations, a group of networking professionals meeting at the Aspen Institute in the summer of 1992 concluded that financial incentives and network brokers will play a key role for the foreseeable future [ Bosworth and Rosenfeld " Significant..." ] . 

Factors influencing network development and an alternate view 

Network initiatives are interventions into the environment in which small and medium-sized enterprises operate. Several elements of this environment affect the success or failure of these efforts. The group of Aspen participants reflected on the U.S. networking experience to identify conditions that appear to generate or influence inter-firm collaboration. 

• Common crisis - A perceived crisis often precedes action. In the U.S. where the business culture is relatively unfamiliar with collaborative behavior, the recognition of a serious threat will tend to encourage a group response. 

• Common benefit - Firms also frequently need to perceive a clear and immediate common benefit. Managers are reluctant to invest the time required to investigate inter-firm cooperation without clear potential for rapid payoff. 

• Personal contact - Opportunities for face-to-face contact among firm owners and managers seem very important, especially among small firms. Many are convinced that trust and communication are the essential starting points for effective inter-firm collaboration. Personal relationships can facilitate problem solving and accelerate the information flows that lead to higher levels of innovation. [ ibid,] 

• Geographic concentration - Geographic concentration is a prevailing but not essential characteristic of most successful inter-firm cooperation [ ibid.] . 

Yet barriers exist to collaboration, and Brian Bosworth and Stuart Rosenfeld of Regional Technology Strategies, Inc. have identified a number of them: 

• Lack of familiarity with the concept of inter-firm collaboration While network ideas are spreading, many small firms are inexperienced with this sort of collaboration. Introducing this new concept takes time and requires careful explanation and lots of examples. 

• Lack of adequate knowledge about other firms - Small firms tend to work in isolation from each other. Networking requires an understanding of the capabilities and whereabouts of potential collaborators. 

• Lack of institutional linkages - The development of collaborative arrangements requires a venue for social interaction among the potential participants. Yet, "small firms lack well-developed institutional mechanisms for getting to know other firms in their region and their sector, or institutions that promote collective learning. They seldom collaborate with other firms outside of the context of very specific and, usually, very immediate problems. They lack an adequate vocabulary to talk about collaboration as a business strategy [ Bosworth and Rosenfeld " Significant..." p. 23.] . 

• Lack of recognition of the opportunities and need for inter-firm collaboration - Most small firms look to see what they can do with what they have without looking for or realizing opportunities that require cooperation with others in joining core competencies. 

• Lack of trust - Owners and managers who don't know and trust each other are usually unwilling to put their business at risk by depending on each other or by sharing knowledge or resources they may regard as proprietary. The culture of manufacturing is individualistic; developing trust is difficult. 

• Lack of time and resources - Inter-firm collaboration requires both, while firms may have them in short supply. 

Networking is not without its (potential) disadvantages, since participants must cede some control of their operation to an outsider in the case of a brokered network, and in general inter-link their success with the success or failure of others. To this extent, cooperation creates interdependence. Thus it should not be a foregone conclusion that networking is preferable to a lone-star existence. 

The conclusion of RTS's Brian Bosworth is therefore not surprising: 

"We have learned that it is usually very hard, time-consuming and costly for 'outsiders' to broker...networks of co-production and co-marketing relationships among firms. Especially if they have not previously developed trust relationships through cooperation in 'softer' networks of membership-based associations, these firms are understandably resistant to putting their business strategies at mutual risk. In fact, we suspect that many of the hard co-production and co-marketing networks we have identified had their origins in less ambitious mutual help collaboratives where they developed mutual trust [ Bosworth, "Thinking About..." p. 3-4.] . 

By now the story should be starting to sound familiar, as the conclusion reached above parallels the development of networks in Emilia-Romagna in Northern Italy, as well as the development of industrial symbiosis in Kalundborg. Janet Jones of Oregon's Key Industries Development program echoes the sentiment that trust is key among all participants [ Personal communication] . 

But what of the success of the near-spontaneous, brokered Danish network initiative? There is reason to believe that brokers can bring firms together successfully if they are credible within their industry segment. The predominant conceptual model of networks in the U.S. does assign the catalysis role to a broker. Yet there is a body of experience supported by observations such as the above that delineates a different model of network development. 

According to an apparently authorless article in (yet another) issue of Firm Connections, many networks in the United States 

"emerge as a consequence or byproduct of a membership organization coalesced to foster or create relationships among firms...what often appears at first glance to be a local trade association or business center is a de facto network that offers members collective services, supports their pursuit of common goals, and encourages, much as a broker, increasingly specific forms of inter-firm collaboration...The concept of a network hub, [as such organizations may be viewed] is rapidly gaining credence because it simultaneously affords a locus of activity and convenient meeting place for small- and medium-sized manufacturing enterprises...and enables service > 

Transfer interrupted!

At the risk of being redundant, it is such a social fabric that augments the economic functioning of firms in Emilia-Romagna and Kalundborg. 

The cultivation of network hubs is an idea that represents a different ordering of the cart and the horse from the more common incentive/broker approach. In the latter, the focus of intervention is on creating the artifacts of a network culture. Three or more firms are brought together by a broker or challenge grant to form a network as a sort of demonstration project whose success, it is hoped, will result in an incremental legitimation of networking and thereby nudge business culture toward collaboration. In contrast, the focus of a hub-based policy is on creating a network culture (not its artifact networks) by providing a venue for gaining familiarity, building trust, and exploring opportunities for collaboration. It represents a more evolutionary approach, where the focus of intervention is not the end-point of interest, but the set of conditions which are conducive to achieving that end-point. "Brokers and incentives attempt to establish a practice that becomes part of a culture; hubs attempt to establish a culture that will generate inter-firm networking practices [ Firm Connections Vol.2 No.2 p.1 e.i.o.] ." 

The celebrated Northern Italian region of Emilia-Romagna boasts several hubs of collective activity, namely the National Confederation of Artisans (a trade association), sector-based centers organized to provide services to industries under ERVET, the region's economic development agency, and numerous civic and business associations [ There is, however, a fly in the ointment, as most of the ERVET centers were closed in the latter half of 1992 when government support was withdrawn and industrial support was too low - this according to Significant others p. 38. The extent to which these developments affect the above line of discourse is unknown. ] . Direct financial incentives are apparently unnecessary in this environment. Brokers are de facto providers of needed services. The Prato impannatori, the entrepreneurs who find markets for textiles and then organize networks for production, are an example [ Firm Connections Vol.2 No.2 p.4.] . 

In the United States, hubs can arise from the top down, in the form of institutions such as community colleges or manufacturing technology centers, which delivers services to build relationships among firms rather than addressing their needs individually. The bottom-up approach has manufacturers coming together to shape an organization that serves their needs. Trade and industry associations at large are potential hubs in the sense that they represent latent relationships among firms [ ibid. p. 4.] . 

In conclusion, the article acknowledges a need for both the hub-based and the incentive/broker approaches to network development. "For inter-firm collaboration to become accepted business practice, a locus of interaction is needed; hubs can fill that gap. But to nudge firms ahead into uncharted territory of best practice will require, at least for a time, brokers and incentives in some form [ ibid. p. 4] ." But ultimately, the success of networking as a self-sufficient phenomenon seems very much dependent on the establishment of a social fabric through which firms can interact. In addition to their expertise in and attention to networking issues, brokers represent a surrogate for that fabric, creating linkages and piercing the veil of corporate isolation. 

Implications for the development of industrial ecosystems 

The study, encouragement, and creation of networks embodying inter-firm collaboration as detailed above offers a body of experience which is informative to efforts to develop industrial ecosystems. Industrial ecology is a new and emerging field, with an as-of-yet limited body of scholarship. While there is currently a good deal of interest in the kinds of integrated manufacturing complexes entailed by the concept of an industrial ecosystem, very little practical experience in the field is available for reference, and the bulk of that which is available, namely Kalundborg, describes a different path of development from what is currently being attempted. 

Attempts by third parties to introduce and encourage inter-firm collaboration are institutional interventions aimed at altering the way firms do business and see themselves vis a vis other firms. They are attempts to induce firms to interact in new ways that expand the scope of their relationships and, ultimately, changes business culture toward one of greater collaboration. All this is also true of on-going initiatives to develop industrial ecosystems, so that lessons learned from networking programs are at least somewhat transferable. 

Like the pursuit of industrial ecosystems, inter-firm collaboration has a model, in the Emilia-Romagna of Northern Italy. Here a mix of economic, cultural, and historical conditions has combined with government intervention to bring about the most celebrated networking culture in the world. Students of networking liked the results, and have attempted to transplant the process to their own regions. It should be heartening to industrial ecologists that these attempts have met with a reasonable amount of success, since what has been transplanted has been the end result, not the cultural evolution that has brought about that result. Inter-firm collaboration has been replicated elsewhere in a manner that has essentially by-passed the slow, evolutionary development of the model. The prime example of this pathway is in Denmark, where networking became wide-spread in a few years as a result of a governmental initiative. The results are less impressive in the United States, but are none-the-less noteworthy. This experience points to the prospect of being able to induce artifacts of a business culture in the absence of, or at least preceding the establishment of, the culture itself. Still, a cat that barks is not a dog, and there is some question whether networking initiatives in the U.S. are sufficiently ingrained as to continue beyond the initial period of public-sector support. 

The network experience echoes the lessons of Kalundborg in pointing out the importance of the institutional context and social fabric within which cooperation takes place. In Emilia-Romagna, independent trade associations and government-assisted, sector specific service centers are augmented by face-to-face contact, shared values, and even family connections among firm owners. It is such an environment that has fostered the culture of cooperation, as it has in Kalundborg. The Danish network initiative, on the other hand, has created the artifacts of networking without the full cultural underpinnings of its Italian model (although a solid technology assistance infrastructure was already in place). Network brokers are one of the two key aspects of the Danish program for overcoming the reticence of potential network participants, and they may well have a significant role to play in the development of industrial ecosystems. 

Where normal business practice does not foster interpersonal relationships among owners and managers of various firms, network brokers have been effective in many cases in bridging the gap. Brokers can fill the institutional void between firms and create linkages by championing a result that can only be obtained by collaboration among firms. As such, the broker is meta to the system, a quality which creates a conceptual niche for him in optimizing (or at least improving) the overall performance of a set of enterprises in which other decision-makers operate at the level of system components. More immediately, the broker can overcome the barrier caused by the lack institutional linkages that has been reported in the U.S. and elsewhere. As implicit in Oregon's flexible network program. it is critical for the broker to have credibility in the eyes of potential participants in order to be trusted and for the undertaking to be viable. Thus brokers do not bypass the need for trust and personal contact among participants to any sort of collaboration; instead they act as catalysts around whom such personal interaction can crystallize. Their credibility is necessary for the legitimacy of the undertaking, and acts as a seed for building trust relationships. 

There is nothing in the role of the broker with regard to inter-firm collaboration that could not or should not be transplanted to efforts toward the development of industrial ecosystems, and this conceptual and practical niche for brokers in the development of industrial ecosystems is addressed in a later section. 

In the United States, network brokers and challenge grants have been the two key elements of state networking initiatives. Linking up with partners in higher education has also been a successful ingredient, and the involvement of Cornell University with the Baltimore Eco-Industrial Park Project is an application of the concept in the realm of industrial ecology. Financial incentives in the form of challenge grants have been widely used, but there is some doubt as to their necessity in developing industrial ecosystems. The justifications given for challenge grants to encourage networking are that they reduce the risk to small businesses of 'trying something new' and woo SMEs with the prospect of free money. Since participants in industrial ecosystems can be assumed to be larger firms, and since the benefits of the exchange and reuse of energy and industrial byproducts are reasonably predictable, such financial incentives do not seem necessary nor appropriate in the realm of industrial ecology. 

Charging an economic development agency with encouraging and promoting networks is another strategy for network development and this approach could find ready application to industrial symbiosis. The IE analogue is an agency, likely at the state level, that encourages and assists byproduct reuse and other IE practices. The TNRC, Texas' state EPA, is doing just that by operating a waste exchange and by participating in the Brownsville-Matamoros Eco-Industrial Park project. Some trade associations have also played successful roles in catalyzing network development, and trade associations offer a promising springboard for disseminating IE practices. 

The networking experience repeatedly highlights the importance of personal contact for inter-firm collaboration, and this result is readily supported by the Kalundborg case study. As noted earlier, "many are convinced that trust and communication are the essential starting points for effective inter-firm collaboration. Personal relationships can facilitate problem solving and accelerate the information flows that lead to higher levels of innovation [ Bosworth and Rosenfeld " Significant..." p. 23. emphasis added.] ." It is therefore no surprise that lack of institutional linkages has been identified as a significant barrier to collaboration. Thus, those who wish to develop industrial ecosystems should endeavor to create venues in which participants can develop and foster personal relationships. 

The implications for industrial ecosystems drawn from the experience with flexible networks and inter-firm collaboration are by nature speculative, but such speculation is justified by the apparent parallels. While there are note-worthy differences, the two fields confront many of the same issues in bringing firms together to achieve results they could not do so acting alone. As a result, both fields of endeavor could benefit from cross-talk between them, a result that embodies the philosophy of both. 

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