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Knowledge Sourcing by Small Firms The Internationalization of Networks

Nick Clifton and Robert Huggins

Cardiff School of Management

University of Wales Institute, Cardiff Colchester Avenue, CF23 9XR

Tel: +44 (0) 29 2041 7075 E-mail: nclifton@uwic.ac.uk

E-mail: rhuggins@uwic.ac.uk Abstract Knowledge sourcing from external sources has become increasingly important to small firms, which cannot generate internally all the knowledge necessary for new product and process development. Small firms are often more sensitive to the proximity of knowledge sources than larger firms. However, accessing knowledge sourcing from international sources has grown in importance to small firms. The aim of this paper is to establish a framework to understand how and why entrepreneurs engage in networks with international sources to access the knowledge they require to innovate. The framework is developed through an analysis of eleven case studies of small firms identified as having a high propensity for engagement in international knowledge sourcing activities. The case studies aim to highlight a range of practices concerning the sourcing of knowledge from overseas, as well as representing the diversity and variety of sourcing practices, covering different: types of knowledge sources, types of firms, and types of knowledge sourced. The framework we establish suggests that a range of core factors influences the propensity of small firms to engage, and the effectiveness of engagement, in international knowledge networks. We find that successful small firms recognise the value of developing symbiotic relationships that do not necessarily deliver ‘quick-wins’. Those relationships that support a two-way flow of knowledge, delivering benefits to both parties are often the most effective. Furthermore, there are multiple mechanisms for sourcing international knowledge, and often it is a combination of these that delivers the best results. Small firms use a range of channels to obtain overseas knowledge, providing a complementary mix that ensures that they keep abreast of latest industry trends, developments, problems and opportunities. This allows firms to respond to emerging trends and adapt to changes in the global market, in order to ensure they remain competitive. Finally, we find that effective absorption of knowledge is crucial.

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Introduction

Knowledge sourcing from external sources has become increasingly important to small firms, which

cannot generate internally all the knowledge necessary for new product and process development

(Teigland and Wasko, 2003; Faber and Hesen, 2004).

Within a small firm environment, the role of external networks and knowledge sources are

increasingly recognised as potentially important assets for creating and sustaining innovation and

competitiveness (Lechner and Dowling, 2003). There is growing evidence that network development

is related to the growth of small firms, particularly networks involving the flow of knowledge (Knoben

and Oerlemans, 2006). In order to compete successfully with large firms, small firms may need to

develop external networks to access resources they do not possess internally (Kingsley and Malecki,

2004). The networks of small firms are often considered to be particularly reliant on social networks

through connections with friends and family (Thorpe et al., 2005). Also, small firm networks are

considered to be generally localised in their organisational and spatial context (Johannisson et al.,

2002). However, as such contexts are necessarily specific, there are competing discourses on the

extent of small firm network development within local or regional boundaries (Lublinski, 2003).

There is strong evidence that proximity to external knowledge sources facilitates their use and

in turn improves the innovative performance of firms (Meagher and Rogers, 2004, Lichtenthaler,

2005; Chesbrough, 2003; Stuart, 2000; Ireland et al., 2002; Grant and Baden-Fuller, 2004). In this

sense, advantages are derived from locating within places characterised by the active transfer and

diffusion of technological and managerial expertise. This appears to place at a disadvantage firms,

particularly small firms, in less-favoured locations, and suggests wide variations among businesses in

their innovation behaviours and strategies including knowledge sourcing (Huggins and Izushi, 2007).

Many firms, however, do not acquire their knowledge from within geographically proximate areas,

particularly those firms based upon innovation-driven growth where knowledge is primarily sourced

internationally (Davenport, 2005). There is significant evidence of the internationalisation of small firm

networks (Keeble, et al., 1998; Saxenian, 2005; Wolfe and Gertler, 2004; Huggins and Izushi, 2007).

The aim of this paper is to establish a framework to understand how and why entrepreneurs

engage in networks with international sources to access the knowledge they require to innovate. The

framework is developed through an analysis of eleven case studies of small firms identified as having

a high propensity for engagement in international knowledge sourcing (IKS) activities. The case

studies aim to highlight a range of practices concerning the sourcing of knowledge from overseas, as

well as representing the diversity and variety of sourcing practices, covering different: types of

knowledge sources, types of firms, and types of knowledge sourced. The framework we establish

suggests that a range of core factors influences the propensity of small firms to engage, and the

effectiveness of engagement, in international knowledge networks. The remainder of the paper is

structured as follows: in the following to sections we review the key literature concerning knowledge

sourcing by small firms, and the accompanying role of geography. The methodology is followed by a

presentation of our framework and the key findings supporting its formulation. We concluding by

outlining some of key factors supporting international knowledge sourcing by small firms, and the

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means by which policymakers may best be able to support and enhance these activities and

processes.

Knowledge Sourcing and Small Firms In order to analyse in more detail the nature of knowledge sourcing practices, it is first important to

provide a general understanding of what we mean by the term ‘knowledge’ in this context. Drucker

(1989) provides us with a useful definition of knowledge, viewing it as information that changes

something or somebody, either by becoming grounds for action or by making an individual or an

institution capable of different or more effective action. Knowledge, unlike simple information, is about

action and is function of a particular stance (Nonaka and Takeuchi, 1995). Of course, knowledge

takes many different forms, with one of the most familiar typologies suggesting that knowledge is

either explicit/codified or tacit.

In general, explicit knowledge refers to information that can be easily communicated among

individuals encapsulated in formats such as, language, text, blueprints, operating manuals, codes or

guidelines, whereas tacit knowledge - such as skills, competence, and talents – are more difficult to

directly communicate to someone else in a verbal or other symbolic form. Codified knowledge is

usually considered to be relatively less sensitive to space than tacit knowledge, with tacit knowledge

flow bounded with specific spatial context (Bathelt et al., 2004). Moreover, reductions in transport

costs and improvements in communications have increased access to codified knowledge rendering it

less important as a source of competitive advantage. Tacit knowledge, on the other hand, is

considered not to travel well, making it a key source of ‘the geography of innovation’ (Asheim and

Gertler, 2005).

Returning to the matter of network building and knowledge sourcing, existing evidence

suggests that entrepreneurs and small business owner-managers build personal networks where

individual ties combine calculative and social aspects (Anderson et al., 2007). This to be expected,

since in small and new firms the network requirements of both the firm and the firm’s operator (i.e. the

entrepreneur) are likely to coincide, and encompass both his/her social and economic needs and

objectives (Jack, 2005). The different functions and objectives of a network can be defined as its

‘compositional quality’, reflecting the ability of differing network ties to provide needed resources (Hite

and Hesterly, 2001). In general, new and small firms are more likely to be dependent on the social

networks of the entrepreneurs or owners of the firm (e.g. the relatives and friends of the owners). As

firms grow, their dependency may shift towards strategic networks, as networks become more

calculative (e.g. suppliers, customers, collaborators and partners become more important) and less

reliant on the social networks of the owners (Almeida et al; 2003). Also, as firms evolve it can be

anticipated that their networks will evolve from more path-dependent social networks – which in the

first instance will be highly reliant on the pre-existing social networks of the entrepreneur(s) - to more

intentionally managed networks based on reputation and access to relevant resources and partners

(Hite and Hesterly, 2001).

The nature of knowledge networks may also be dependent upon the size and vintage of

network partners. Many small firms are often ‘forced to share their initial technology base with other

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and more powerful firms’ (Lechner and Dowling, 2003). One potential possibility in this case is

‘knowledge theft’ given that small are less likely have secured intellectual property rights, in the form

of patents, copyrights, licensing agreements or trade secrets, to protect ideas, processes, and product

and service specification (Huggins and Weir, 2007). However, these small firms may gain through

improved performance resulting from the credibility they achieve as a result of having prominent

strategic alliance partners (Stuart et al., 1999). In other words, small firms utilise these networks to

develop their reputation as a means of overcoming imperfections in the markets for knowledge

(Lichtenhaler and Ernst, 2007). There is evidence that knowledge acquisition for young knowledge-

based firms depends on repeated intense interaction, as well as the willingness of firms to share

information (Yli-Renko et al., 2001). The configuration of networks at start-up stage will influence firm

performance, which will be enhanced by developing networks that provide access to diverse

information and capabilities with minimum costs of redundancy, conflict and complexity (Baum et al,

2000).

Similarly, the external orientation of a firm’s management can affect knowledge sourcing. For

instance, small businesses, particularly those managed by owner-managers engaged in local market

and more traditional non-knowledge-intensive activities, are often reluctant to engage in network

building or the use of external knowledge sources. Holding responsibilities for many areas, managers

of small businesses often consider that they lack the time to build effective network strategies for

external knowledge sourcing (Huggins and Izushi, 2007). Whilst large firms may operate with special

departments to manage knowledge sourcing and innovation, small firms often lack these resources.

Furthermore, owner-managers of traditional firms often value their independence and are unwilling to

seek for knowledge from external partners, displaying what Curran and Blackburn (1994) call as a

‘fortress enterprise mentality’. Small business owners consider the independence and freedom from

control by others central to their entrepreneurship. Because of their motivational emphasis, they may

show a reluctance to engage in any behaviour that might lead to a dependence on others or even be

seen as showing a need for support. They militate against networking activities beyond a minimum

that they consider is clearly demanded by their business needs (Curran and Blackburn, 1994; Curran

et al., 2000; Huggins and Izushi, 2007).

As such a reluctance to engage in external knowledge sourcing may be engrained in the

culture of their firms, a well-designed strategy and management commitment is required to change it.

Indeed, the overriding strategy for these traditional sector firms is to make their activities more

knowledge-intensive and knowledge-absorptive, and to adopt to the knowledge network and network

building undertaken by more knowledge-based firms. It is precisely this lack of conversion that results

in regions with low competitiveness being unable to improve their position even if they possess a

number of star performers. Because of information gaps, small and medium-sized firms tend to

source knowledge from those well-worn contacts they come across in the course of ordinary business

activities (Glasmeier et al., 1998; Huggins and Izushi, 2007).

The important role of external knowledge sources has led to the innovation process being

conceived as a systemic process resulting from both formal and informal networking with other

knowledge actors such as universities, R&D labs and other firms (Brown and Duguid, 2001;

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Chesbrough, 2003; Cooke, et al., 2004; Cooke, 2004). A systems perspective enables us to embrace

this range of influences on innovation, and adopt a holistic view to the description and evaluation of

knowledge sourcing activities. This discourse is largely reliant on empirical work from exemplar

regions and firms, i.e. those regions which are among the most competitive in the world in terms of

economic growth rates and workforce qualifications and the number of large, international firms based

in ‘new’ or ‘high technology’ sectors (Saxenian, 1994; Owen-Smith and Powell, 2004; Gertler and

Wolfe, 2004; Lawton Smith, 2003; Garnsey and Heffernan, 2005; Huggins, 2008).

In general, the majority of small firms take a cautious approach in the uncharted territory of

knowledge sourcing, starting with a low-risk use approach. It is only when they get a grasp of how

knowledge sourcing operates with particular sources and network actors that they make full use of

them (Izushi, 2003; Huggins and Izushi, 2007). Firms need to build a portfolio of external sources of

knowledge on a continuous basis, and repeating the cycle of learning about new, unfamiliar sources

outside its own technological area. Leonard-Barton (1995) suggests that high performers keep up a

consistent, continuous relationship with knowledge sources of all types.

Knowledge Sourcing and Geography

Knowledge sourcing, and the networks through which this knowledge flows, are now recognised as a

crucial element underlying economic success and competitiveness of key locations around the globe

(Bathelt, et al., 2004; Cooke, et al., 2004; Rutten and Boekema, 2007). In particular, it is argued that

proximity to key knowledge sources is one of the key reasons why a number of the most successful

localities and regions throughout the world have become or remained more competitive than those

not adopting a networked approach (Storper, 1997; Lawson and Lorenz, 1999; Huggins, 2000;

Bathelt, et al., 2004; Knoben and Oerlemans, 2006). In general, the development of leading advanced

regional economies is considered to involve the percolation of knowledge through a highly networked

regional business culture rich in ‘untraded interdependencies’ (Castells and Hall, 1994, Storper, 1995;

Saxenian, 1994; Porter, 1998; Cooke, et al., 2004; Rutten and Boekema, 2007).

It is argued that networks within these leading regional economies are able to mobilise and

fully develop the human capital residing within firms, in particular small enterprises, through external

networks providing feedback loops, ensuring the continuation of high levels of innovation (Garnsey

and Lawton Smith, 1998; Bresnahan and Gambardella, 2004). When other things are equal, firms

may be more likely to externally source knowledge if the sources are located in close proximity. Small

firms specialising in variable, non-standardised inputs and outputs are more sensitive to the proximity

of sources than large corporations handling inputs and outputs in bulk (Scott, 1982). Although

negotiations can take place over the phone, by email, or over the Internet, face-to-face meetings are a

more satisfactory means to get to know each other and build trust, often an important ingredient for

successful transactions involving knowledge.

However, places also vary in the amount and quality of their knowledge sources. In general,

the least competitive and most peripheral regions are usually less well endowed with high quality

business service providers (Hitchens et al., 1996; Mahroum et al., 2008). If applicable knowledge is

available locally, firms and other institutions will attempt to source and acquire it, if not they will look

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elsewhere (Kingsley and Malecki, 2004). There is a growing school of thought that non-proximate

actors are often equally, if not better, able to transfer complex knowledge across such spatial

boundaries, providing a high performing network structure is in place (McEvily and Zaheer, 1999;

Dunning, 2000; Lissoni, 2001; Davenport, 2005; Zaheer and Bell, 2005; Palazzo, 2005; Huggins,

2008). Therefore, the constraining effect of distance on knowledge flow and transfer is gradually

diminishing (Tracey and Clark, 2003; Johnson et al., 2006). This knowledge is often necessarily

superior to that available locally, resulting in improved innovation performance. Simply being in the

same locality is often of little benefit for diffusing knowledge from creators to other actors in the

locality, with there being a need for networked interaction between these actors (Singh, 2005). In

general, there is increasing evidence of the heightened role being played by international knowledge

sourcing networks in many places across the globe (Athreye, 2004; Garnsey and Heffernan, 2005;

Doloreux, 2004; Saxenian ,2005).

External knowledge sourcing depends not solely on the availability of sources in close

proximity but also on factors internal to firms. The most frequently discussed of such internal factors is

the capability to assess and absorb knowledge (CEC, 1994). Cohen and Levinthal (1990) argue that

the ability of a business to recognise the value of new, external knowledge, assimilate it, and apply it

to commercial ends is critical to its innovation capabilities. This ability, which Cohen and Levinthal

(1990) call ‘absorptive capacity’, is history-dependent and reflects how much a business has invested

in the area of expertise it specialises in. Absorptive capacity largely depends upon a firm’s investment

in innovation efforts (Cohen and Levinthal, 1990; Zahra and George, 2002). Good in-house

capabilities in R&D, design, and engineering help to capture and appropriate knowledge, in both

codified and tacit forms, in the process of learning from external sources (Howells, 1996). The

outcome of knowledge sourcing in turn feeds back into future decision-making patterns. Unsuccessful

outcomes, combined with the ‘not-invented-here’ syndrome, suppress the firm’s propensity to source

knowledge externally. The mutual reinforcement of in-house commitment to innovation efforts and

complementary commitment to external knowledge sourcing is particularly evident in technology-

based sectors. In sectors such as biotechnology, successful businesses invest in their in-house

capabilities while ‘buying-in’ more knowledge from external sources at the same time (Arora and

Gambardella, 1990).

Whilst firms with low levels of absorptive capacity tend to network locally, those with higher

absorptive capacity are often more connected to global networks (Drejer and Lund Vinding, 2003).

This is perhaps to be expected, and illustrates the importance of internal knowledge absorption

capacity on external knowledge network development. It also helps explain why SMEs with relatively

low knowledge absorption capacities tend to be reliant on more localised networks. In general, only

those firms and organisations located in a contextual geographic environment rich in relevant

knowledge sources can take competitive advantage of the co-location of other knowledge actors. In

uncompetitive regions the propensity of firms to engage in knowledge sourcing networks is often

related to the characteristics of individual entrepreneurs, which will be shaped by the underlying social

and business culture in the region (Watts et al., 2003). Older industrial regions may suffer from lock-in

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or path dependency, i.e. a level of inertia among firms within the region that prevents changes in

practices occurring (Martin and Sunley, 2006).

The inability of firms to alter their practices may act as a barrier to seeking and absorbing new

knowledge that may be created outside the boundaries of their firm and become locked-in to an

existing low growth regime preventing the development of new knowledge networks (Asheim and

Isaksen, 2003). By necessity, leading firms in regionally sparse knowledge environments may be

required to make a number of non-local linkages (Mahroum et al, 2008). It is important to note that

innovation systems consist of interacting knowledge generation and exploitation sub-systems linked

to global, national and other regional systems, which stresses the importance of both regionally

internal and external linkages (Cooke, 2004). A recent study finds that the most frequently utilised

sources of knowledge for knowledge-based SMEs in the region are their customers and suppliers.

In summary, Figure 1 presents a conceptual framework outlining the key factors and choices

firms face when seeking to externally source knowledge. From the perspective of the firm, this raises

a key and fundamental question: what is the balance between sourcing high quality, but relatively

expensive, knowledge from overseas compared with lower quality, but relatively cheaper knowledge,

from more local sources. In this case, expensive or cheap refers not only to cost of purchasing

knowledge through a market-based interaction, but also the transaction costs associated with network

interactions.

Figure 1 About Here

Methodology

The findings presented in the following sections of this paper are based upon a series of 11 case

studies of small firms in the UK with a high propensity for engagement in international knowledge

sourcing activities. The cases were identified via the larger scale postal survey (see Huggins et al.,

2009 for further details). The case studies aim to highlight a broad range of practices concerning the

sourcing of knowledge from overseas, as well as representing the diversity and variety of sourcing

practices, covering: different types of knowledge sources, e.g. customers, suppliers, rival/competitor

firms, universities, public and private sector research organisations, etc.; different types of firms, e.g.

manufacturing sector firms, service sector firms, established firms, start-ups, etc.; firms in different

locations, e.g. a mix of more urban and rural locations; and different types of knowledge sourced, e.g.

scientific knowledge, technical knowledge, organisational knowledge, know-how, know-who, etc.

Our methodology can be broadly situated within the context of ‘critical incident’ techniques,

whereby we have sought to understand in-depth why and how the case study firms became engaged

in international knowledge sourcing practices. As Borch and Arthur (1995) argue, there is a need for a

more in-depth knowledge of the cultural contexts and socio-economic relations of actors within

networks, and suggest the applicability of the qualitative methodological tools associated with

disciplines more experienced with human interaction research, such as social anthropology. The

critical incidents' technique attempts to explain the motivation for individuals to act in a certain fashion

in light of some 'non-routine event' occurring (Curran et al. 1993, Ring and Van de Ven 1994). Curran

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and Blackburn (1994) and Joyce et al. (1995) both use a critical incidents approach to explore the

motivations of owner-managers of small firms to join networks due to occurrences that may potentially

destabilize their business. A criticism of this approach is that it appears to assume that decision-

making processes associated with network participation occur only during periods of crisis.

Nevertheless, the use of critical incidents and other qualitative methods are an important recognition

of the need to understand and interpret the characteristics and organization of networks.

In general, the case studies aim to capture the following core themes: the drivers of

international knowledge sourcing; the processes and channels through which international knowledge

is sourced; the innovation and competitiveness outcomes of internationally sourced knowledge; and

the barriers small firms are required to alleviate to facilitate international knowledge sourcing. The

methodology used to capture relevant data consisted of the following key activities: an initial review of

publicly available company-level documentation (e.g. website, company accounts, marketing and

promotional literature) to gain an overview of key activities and markets; a one-day visit to the firm to

interview key decision-makers and executives involved in the knowledge sourcing process; telephone

interviews and email exchanges with those overseas organisations and firms from which case-study

firms source their knowledge.

Also, for those case studies where sourcing is mediated through third parties and other

brokers, contact was undertaken with these actors. Follow-up telephone interviews with the firms to

investigate any information gaps or to clarify any outstanding issues were also undertaken. Following

the initial drafting of the case studies, each report was presented to the respective firm to ensure they

contain no points of conflict and that all the material is an accurate portrayal of the firms and their

activities. A summary of the case study firms are shown in Table 1.

Table 1 About Here

The IKS Framework

In this section we present the analytical framework that has emerged from the case study analysis. As

summarised by Figure, the core of this framework consists of the drivers, channels/processes,

applications and outcomes that underpin the knowledge sourcing activities undertaken by small firms.

In this section we review the empirical rationale upon which this framework is based. The following

sections then explore in more detail the case study data identifying the key data supporting and

validating the framework.

Figure 2 about here

Sourcing international knowledge and engaging in a process of continuous innovation enables small

firms to stay ahead of the competition. When local markets are in decline, expanding into overseas

markets and overcoming the barriers of relatively remote locations is possible if SMEs are proactive

and seek new avenues and sources of knowledge from outside their home region. This may not

always generate direct pecuniary benefits but it sustains innovation and enhances their reputation for

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being a leading company in their sector and therefore, indirectly secures work. For small firms

operating in a global market, collaborations with organisations that provide complementary knowledge

and expertise are essential. The extent to which industry sectors share knowledge internationally

may, however, be dependent on their structure. For example, the geology and the oil and gas industry

is a close-knit community, i.e. a global community of practice, which is very international and

arguably, more open to international knowledge sharing. For certain industry sectors, professional

membership organisations can provide a good starting point for accessing international knowledge.

Building networks and relationships is clearly key to sustaining pipeline access to international

knowledge, and the significance of informal networks should not be underestimated. The key success

factors for making relationships with overseas knowledge sources work are often strong personal

relationships and ensuring that the goals of all parties involved are aligned and complementary. As a

starting point, small firms can take the opportunity to initially provide – rather than receive -

knowledge, by, for example, presenting at international conferences, which raises profile and act as a

stimulus for developing more effective knowledge exchange.

Sustaining a relationship with an overseas organisation is often more complex than working

with a local organisation. However, overseas organisations can offer valuable and unique knowledge

and expertise that is not available locally. Allowing time to nurture and maintain relationships is

important. In light of this, face-to-face contact is often essential in order to build relationships that are

based on trust and understanding. Collaborative projects, in particular, are reliant on sharing

knowledge and information between the partners involved. Although in some cases, this can take

time, it is ultimately vital to successfully delivering appropriate and realistic outcomes.

As larger firms - many of which were previously among the most secretive in the world – have

themselves adopted open innovation regimes, the scope for small firms to increase engagement

through collaboration and cooperation has become significantly enhanced. Some industry sectors

have a relatively long history of international knowledge sharing, whereas other small firms will need

to invest more time in establishing new relationships and encouraging more open innovation.

One of the main difficulties associated with sourcing knowledge from overseas providers can

be language differences. However, identifying and appropriately responding to underlying cultural

differences can also be challenging. Successful small firms tend to utilise the services of international

knowledge brokers, in the shape of overseas agents and associates. Recognising and addressing

cultural differences is fundamental when working with international knowledge providers, and

overseas agents can be critical for sourcing international knowledge, particularly where there are

bureaucratic and cultural issues. Overseas associates can also be a valuable mechanism for

obtaining international knowledge and ensuring a presence in an international market.

Many small firms seeking to internationalise may understand their business inside out, but

they do not understand the markets they are trying to reach. In this case overseas-based agents and

associates often provide a vital link knowledge link between the firm and the market. Understanding

what customers are looking for, particularly in overseas markets – which involve different sets of

symbolic values deeply embedded in the culture – may be extremely difficult unless there is someone

to facilitate the process and who understands the tacit aspects of the knowledge needed to produce

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the product. The greater the cultural differences involved, the more important this role is, i.e. having

the right broker is vital.

The absorptive capacity of small firms, in the form of their pre-existing skills, knowledge and

experience, is also an important determining factor of the capability to generate effective international

networks through which knowledge can be sourced. Although open and user-led innovation practices

are growing, given the competitive nature of the industry, some international customers, for example,

are still likely to limit the knowledge that they are prepared to share, especially smaller firms.

Previous experience of working with similar customers, products or issues ensures that small firms

possess the requisite intelligence to extract the relevant knowledge required. For instance, knowledge

sourced from previous or existing customers can be applied in order to enable firms to better support

future customers. In other words, ‘real’ experience is the key to being able to absorb and apply

international knowledge. In order to apply international knowledge to improve process innovation, a

culture change among the workforce is often required. This can be challenging for more established

and older businesses.

A related issue highlighted by a number of small firms is that of knowledge storing. Although,

externally sourced knowledge may not be used immediately, it is often a case of storing knowledge

until there is a need to apply it in order to support a client or improve their business. Establishing a

knowledge repository is becoming increasingly important for smaller firms. Unlike large firms, small

firms are less likely to possess the type of knowledge management systems that act as a repository

for externally sourced knowledge. In small firms, knowledge is more likely to be held by individual

employees in a tacit and embodied form, which can easily leave the company if the employee moves

on. As the case studies indicate, the necessity for high levels of staff retention and loyalty within a

small firm environment, if externally sourced knowledge is to be effectively utilised and implemented.

IKS Drivers

Badley Geoscience Ltd always seeks to keep abreast of the latest research in the geological analysis

of faults and fault related processes. In particular, they endeavour to spot the latest academic

research that can be commercially applied to the oil and gas industry. This supports them in their

endeavour to continually develop new tools that can work alongside their current portfolio of software.

In addition, it enables them to stay ahead of competitors – "we have to keep thinking up new tricks to

stay ahead of our competitors”.

Biocatalysts needs to be able to work successfully as a co-development partner with the end

users of their products, as opposed to acting as a standalone enzyme developer who then seeks to

identify and access a market for their new products. This niche business model requires a highly

focused and effective knowledge-sourcing strategy; Biocatalysts uses a number of international

knowledge sources to achieve this, such as attending a wide range of international events, and

seeking to develop links with leading Universities in the field in the UK and around the world. The key

issue for Biocatalysts is the fact that they actually have access to a huge amount of knowledge- the

most challenging aspect being in the effective storage and retrieval. An open innovation culture within

the industry has grown in importance. Major customers - Nestle in particular - now realise they can

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much more effectively tap into the R&D efforts of small niche companies such as Biocatalysts by

providing quite detailed information regarding the technical specifications and requirements of their

existing products, and more to the point of those currently in development or anticipated for the future.

The core business of Easylab is the design, development, manufacture and support of

scientific equipment that extends the current boundaries of experimental science into the extreme

condition of ultra-high pressures. The aim of Easylab is to be the de facto provider of instruments that

enable science under pressure. The core market for Easylab is thus users at the cutting-edge of

scientific research; as such the company typically does not face a dilemma that many other

technology-based SMEs do, i.e. whether to devote knowledge-sourcing resources to keeping up with

the science or conversely with attempting to understand the market direction of their end-users.

Easylab had an international outlook from its inception due to backgrounds of the two co-founders;

the partner above originating initially from Brazil, with the other undertaking a PhD in his native

France, followed by 4 years research at the University of Osaka in Japan before coming to the UK.

An important success factor for Easylab has been the career trajectory of the two co-founders. After

leaving academe both worked for Oxford Instruments - a large company in the scientific instruments

field - before setting up Easylab, as opposed to spinning out directly from a university into industry.

This experience has proved invaluable in terms of understanding the process of actually bringing a

scientific product to market, managing aspects of the business such as dealing with suppliers and the

like. Without this knowledge, many similar firms are unable to actually commercialise their technology

- “you just develop a series of prototypes”.

Ingenza is constantly looking to develop their processes in order to deliver new, cost-effective

solutions to their customers. This is becoming increasingly important in the pharmaceutical industry

whereby the development of drugs is becoming more complex as people want minimal dosage and

side effects but higher efficacy. The majority of Ingenza's research is undertaken through customer

projects but they also undertake their own research in-house to further develop some of their work.

These customers are typically international organisations and by working with these customers the

company undergoes a natural process of knowledge sourcing. The company sources knowledge in

order to keep abreast of the latest developments in their field: "you have to be careful that you don't

just stick to your own familiar ways of doing things". Ingenza is also involved in an EU Framework

Programme aims to strengthen the scientific and technological bases of industry and encourage its

international competitiveness while promoting research activities in support of other EU policies. One

of the research areas identified under Framework 6 was genomics and biotechnology for health. This

provided an opportunity for a consortium of partners to undertake research in this field.

The vast majority of Kinetic Cubed's clients are public sector, for example UK Trade &

Investment, Invest in France, Invest in Spain, regional development agencies and local authorities

looking to increase their economic impact. They also work for a number of high profile private sector

clients, such as The Royal Bank of Scotland. Kinetic Cubed is very much an international knowledge

provider; supporting clients through the application of its knowledge. However, knowledge transfer is

a two way process and Kinetic Cubed also endeavours to source knowledge internationally as a

means of better supporting their clients and fuelling business development. Most commonly, Kinetic

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Cubed seeks to source and apply knowledge to identify and assist customers in exploiting

opportunities overseas. This could involve, for example, identifying businesses interested in

international trading or international collaborations, organising events overseas or investigating

market demand. Kinetic Cubed provides a sustained market entry and market development support

service that helps European companies to access "black box" markets; defined as markets that offer

great potential, but are little understood, and therefore require sustained effort to realise opportunities.

The key markets include Brazil, Russia, India, China, Iran, Turkey, the Gulf and South Africa.

Whilst these Black Box markets may share some similarities, they also have significant individual

characteristics. Therefore, it was imperative for Kinetic Cubed to have local representation. The Mind

to Market conference was organised to showcase the UKs science-innovation industry and to allow

for the exchange of information and the exploration of opportunities for UK-India collaboration in

promoting innovation and wealth creation through science. Kinetic Cubed has conducted a range of

India related strategy, research and business development projects and the knowledge gained

through this conference would ensure that they are up to speed with the latest business

developments and opportunities in this specific area of interest.

Melin Tregwynt, along with a number of other mills in area, catered for tourist and local

markets alike during the 1960s and 1970s. However, the 1980s recession in combination with a

stagnating tourist market saw many of the Welsh Mills close; the industry at this time was essentially

characterised by a destructive ‘race to the bottom’, involving intensive local price competition around

more or less identical products. Around this time the present owner, Eifion Griffiths, returned to join

the family business and began to develop markets all over the world with new yarns and new designs.

Prosonix's work focuses on R&D that solves complex pharmaceutical problems, with their

remaining income being derived from proprietary intellectual property and patented bespoke

sonoprocessing equipment. Prosonix view themselves as a technology licensing business: they

develop solutions, including physical examples of the product, for customers and then provide the

customer with the licence to implement the solution. Prosonix is thus constantly exploring new and

innovative techniques that can support the pharmaceutical industry. However, in order to stay up-to-

speed with the trends, challenges, opportunities and latest technology in this global industry, there is

a need to continuously source knowledge.

Psynova Neurotech Ltd (Psynova) is a spin-out company established in 2005. The company

was set up in order to build on 12 years of ground-breaking research in identifying novel biomarkers

for neuropsychiatric illnesses undertaken by Dr Sabine Bahn of the Cambridge Centre for

Neuropsychiatric Research (CCNR), based at the University of Cambridge's Institute of Biotechnology

(IOB). For example, the current diagnosis of schizophrenia is highly subjective and time consuming,

due to the lack of objective biological tests specific for the disease. A test that would enable earlier

and more accurate diagnosis of the disease would not only deliver improve patient outcomes but also

greatly reduce the overall costs of schizophrenia to health services and society1. Psynova has already

conducted valuable research in this field but by combining this with knowledge from other

1 Extract from press release titled "EU Framework 7 grant awarded to Psynova Neurotech-led consortium to develop blood tests to aid the diagnosis and treatment of psychiatric disorders” (www.psynova-neurotech.com).

13

organisations, they will be able to further aid the diagnosis and treatment of psychiatric disorders.

There is a perception that when compared to the US, there is much less healthcare innovation in

Europe. In response to this, the EC set up a framework, also signed up to by six large

pharmaceutical companies, to stimulate greater healthcare innovation across Europe. The framework

allowed the EC and pharmaceutical companies to jointly agree an innovative research project to fund;

half of which would be funded by the EC and the other half of which would be funded by the

pharmaceutical companies. One of the key areas identified for more research and innovative

approaches was psychiatric disorders.

QCTR is a small company, which offers a highly specialised service to the pharmaceutical

industry. For example, its work seeks to improve the treatment of orphan diseases, which as they

only affect a very small proportion of the global population, require very specialist knowledge. QCTR

needs to ensure that they maintain abreast of the latest knowledge that relates to the diseases that

they work with, for example, Huntington's disease or multiple sclerosis. Alongside this, they also need

to have up-to-date knowledge of processes that will enable them to operate in a streamlined and

efficient manner and in compliance with the appropriate regulations, for example when managing

clinical trials. QCTR believes that a business model whereby they employ experts with the relevant

knowledge of the disease areas that they work in would not be viable; given the unique characteristics

of each of the diseases and the different requirements of the sponsors they work with, QCTR requires

a lot of highly specific knowledge, which can only be obtained from a large pool of different

individuals. As a result, it has established a network of individuals and organisations that allows it to

source this knowledge as and when it is required.

Sitekit has built substantial expertise in delivering high performance mission critical websites

across range of commercial and public sector clients. Key clients include the National Health Service,

including seventeen NHS Trusts. The company also has an international client base, including Tyco

and ADT (who are using Sitekit software in 22 countries), and the company has delivered training

across Europe, the Middle East and Africa. The wider vision for Sitekit is to establish Sitekit Labs – its

research arm - as a centre of excellence for web innovation, to spearhead next generation software

and technology products. The Lab aims to partner with academic researchers worldwide to help them

commercialise new technologies and rapidly take them to market. The Lab focuses on identifying

niche, web-based business applications that have global market potential for Sitekit's partners and

customers.

Sitekit Labs apply rapid commercialisation processes (RCP) to transform research lab

concepts into protectable IP for licensing and franchising for the benefit of the inventors, Sitekit

partners and their customers. RCP is applied to ideas with the potential for rapid and scalable user

adoption. Sitekit Labs quickly prototype and undertake formal market validation to prove the benefit

(or otherwise) of the concept to (real) customers. For Sitekit Labs’ research partners, this reduces

time-to-market and the risk of technical failure, while increasing the probability and scale of

commercial success. Highlands and Islands Enterprise (HIE) - the Scottish Government’s economic

and community development agency for the Highlands and Islands region – has played an important

role in developing the international knowledge sourcing activities of Sitekit. Along with a number of

14

other companies from the region, HIE facilitated a research visit to the Massachusetts Institute of

Technology’s (MIT) Media Lab in 2008. Interestingly, HIE are one of the first regional development

agencies to take up sponsorship of the MIT Media Lab (a requirement to ensure access), and now sit

alongside companies like Son, Bank of America and Toyota.

WHS Tools found that if buyers from international customers saw labour intensive work being

conducted in the UK, they would immediately assume that they could access the product cheaper

from low cost countries in Eastern Europe. In light of this, there was a need for WHS Tools to

innovate its businesses tools and processes in order to increase automation and decrease labour

requirements.

IKS Processes/ Channels

Badley Geoscience Ltd and FAG maintain regular contact, through a mixture of face-to-face,

telephone and online means, in order to maintain and further develop the software. Biocatalysts uses

a number of third party sources of international knowledge, including Los Angeles based Norse

Associates for information regarding the US market, and Leatherhead Food International, based near

London. This organisation delivers international research, scientific consultancy and regulatory

guidance and interpretation. Trade fairs, for example the Food Ingredients Europe, the Institute of

Food Technology Show in the USA, also play a useful role, “as does membership of the industry trade

association” the Association of Manufacturers and Formulators of Enzyme Products (AMFEP), based

in Brussels and particularly important for keeping up with European legislation and the like. However,

the most significant single international knowledge source for Biocatalysts is Nerac, a research and

advisory firm for companies developing innovative products and technologies. To this end they supply

customers with targeted market and technology reports. Nerac is based in Tolland, Connecticut, USA.

Nerac’s analysts aim to help their clients uncover the key business questions they should be asking,

and then to help them find the appropriate answers. In doing this, they partner with clients to serve as

advisors and deliver custom research, analysis and advisory services, driving product innovation

through timely assessments of product and technology development opportunities, competitive

analysis, identification of emerging technologies and opportunities, intellectual property strategies,

compliance requirements and the like.

Biocatalysts essentially use the expertise of Nerac in two distinct ways: for customer-specific

projects which involve a technical background and IP search around the questions of ‘has it been

done before? who is doing it? what’s out there? is it covered by IP?’ which typically generates a raft of

abstracts from academic papers, and secondly, for more general technology alerts for the areas they

are working in.

Developments in the technology that Easylab uses are taking place in many locations around

the world, and it is vital that Easylab stays in touch with these. Being close to academic users, ‘open

innovation’ is an important source of knowledge; there are only around 5 or 6 key academic journals

in the field (an example being Review of Scientific Instruments), and so keeping up with these on a

monthly basis is an activity that the key Easylab scientific staff can fit around the other demands on

their time. Similarly, browsing specialist online technical forums can also be dealt with in this way. Key

15

articles are downloaded and stored in-house. There is also scope for staff to explore sources outside

this core area, which may potentially lead to new applications of Easylab technology in the future.

The key issue here again is striking the right balance - Easylab is a small company with

limited internal resources to divert away from core value-adding activities. Trade shows and

conferences are another important knowledge source for Easylab, in terms of meeting customers,

suppliers, and to keep up with the science itself. An important aspect of these events is being able to

see what other firms are actually doing, which may differ from the ‘public face’ they present on their

websites or similar. This is not necessarily about finding ways to beat the competition, but rather

exploring potential synergies, i.e. combining equipment in a package which is more attractive for the

customer.

Easylab attends the American Physical Society meeting on an annual basis, the last held in

2009 in Pittsburgh. The company also recently attended the International Conference on High

Pressure Science and Technology held in Tokyo, and the International Conference on Magnetism

(ICM) in Karlsruhe, Germany, during July 2009. In the early days of the company, there were

constraints on undertaking these activities - financial, but also in terms of capacity “if one guy goes

abroad to a conference, that’s half the company”. With regard to support policy in this area, Easylab

has derived some benefit from the ‘Passport to Export’ programme from UKTI, which offers free

capability assessments, support in visiting potential markets, and mentoring export professionals. This

latter aspect of the programme was most useful in assisting with the actual practicalities of exporting -

different payment procedures, using letters of credit and so on.

Members of Ingenza endeavour to attend a number of symposia each year that are delivered

all over the world, many of which are specifically tailored to enzyme systems for chemical

applications. These events encourage discussions and knowledge exchange and also provide an

opportunity to network with other individuals operating in industrial biotechnology. It is through such

an event that Ingenza met an independent professor from Italy, who now regularly provides feedback

on their work and keeps them up-to-date with the latest knowledge on industrial processes: "it's like

having an encyclopaedia of industrial processes". Ingenza believes that having a short technical

presentation that can be delivered at trade shows or symposia is the best way to stimulate

networking, which in turn supports knowledge exchange. The company also believes that face to

face contact is absolutely critical: "you have to get out there – you can't sit here and phone people up

because no-one will want to know".

Although it is not always necessary for Kinetic Cubed to have a direct presence in the

countries which they are working in, having someone based within the area, who can provide local

knowledge as and when appropriate is viewed as being important. In recognition of this, Kinetic

Cubed works closely with a range of associates. In some cases, these associates are actually based

overseas but in other instances they are based in the UK, but with the knowledge and expertise of

particular countries that is required by Kinetic Cubed. Until sufficient networks have been built, finding

associates with the appropriate skills and knowledge can be challenging. A key trend to emerge is

the company's emphasis on informal networks and contacts as a means of accessing international

knowledge, whether this is through previous clients, associates, friends or professional networks. In

16

light of the importance of informal contacts, Kinetic Cubed endeavours to build strong relationships

with individuals from which it sources knowledge.

As a relationship is developing, face-to-face meetings are considered to be crucial,

particularly when cultural differences, for example language and behaviour, come into play. However,

the global nature of Kinetic Cubed's work does place certain constraints on this. Whilst it is important

to maintain face-to-face contact, once a relationship is more established and there is a degree of trust

and understanding, telephone or email contact has a much greater role. Moreover, the relatively

recent introduction of low cost communication vehicles such as Skype further facilitates

communication. Kinetic Cubed also maximises opportunities at international conferences, for example

the annual innovation conference organised by the Paris Development Agency and a conference

organised by the Common Wealth Secretariat and the Malaysian Professional Services Development

Corporation (PSDC) are useful events for generating new knowledge. Kinetic Cubed considers itself

to have the capacity to take risks, for example attending an event where the potential knowledge that

could be acquired, and the benefits of such knowledge, is unknown. However, as long as the

information that is being absorbed has a potential buyer, individuals consulted with believe it can

generate an economic return.

Attending trade shows in the early to mid 1980s began to expose Melin Tregwynt to the

demands of a wider customer base. These trade shows were initially domestic ‘craft’ shows i.e. firstly

within Wales and then at the UK level (e.g. at the NEC, Birmingham), but can be seen as facilitating

the process of gaining the knowledge required to produce new products and access new markets -

ultimately internationally. Moreover, they also helped to expose Melin Tregwynt’s designs to media

coverage in design magazines and lifestyle supplements. There were some international buyers

present even at the events in Wales, typically from America where there has been a long-standing

niche market for products identifiably from the ‘Celtic fringe’, but was essentially very much for the

Welsh market. During this period most of what Melin Tregwynt learnt about their market came from

such shows. Being located in West Wales the market was not immediately proximate to the company,

and the actual visitors who came to the onsite mill shop did not necessarily represent the type of

market that Melin Tregwynt was seeking to develop.

The nature of how Melin Tregwynt initially came into contact and began to work with an agent

in Japan was actually quite serendipitous; Akira Irie of Homestead Ltd, Tokyo, had been working for

some time with Corgi Hosiery of Ammanford, West Wales. Therefore, when he noticed a traditional

Welsh blanket in an interior design magazine he asked Corgi if they knew of any companies who

could supply such an item internationally; Corgi had known Melin Tregwynt for some time and so put

him in touch with them. Homestead Ltd deal with the wholesale and distribution of garments and

accessories in Japan, working with products from the UK but also from other countries such as

France, India and the USA. The key point here is that Akira did not have any knowledge about how

the blanket was made or the history that surrounded it, but when he visited the mill in Pembrokeshire

he recognised that he could sell such an ‘historic’ and ‘authentic’ item – as he himself puts it

“authentic products are always accepted into the Japanese market, because we Japanese essentially

respect history and authenticity.”

17

Prosonix sources valuable knowledge from its customers many of whom are overseas. For

example, by helping a customer address a specific problem, they learn more about the products they

are working with, the problems they are facing, the way the products interact with the body, the

therapeutic benefits etc. Many customers, however, "stage release information". In some instances,

it is not until Prosonix has started to solve the problem that other knowledge/issues emerge. Prosonix

endeavours to attend at least three large trade-shows or conferences a year. As an example, they

attend CPhI in Europe, which provides an opportunity for pharmaceutical professionals from over 125

countries to discuss the industry's most important trends, developments and innovations.

They also attend Informex in America, which provides an opportunity to showcase, as well as

learn about the capabilities of high-value, high-quality fine, speciality and custom chemical

manufacturers. In addition, they attend an event organised by the Respiratory Drug Delivery (RDD)

sub-group of the Association of Pharmaceutical Scientists which is designed for academic and

industrial scientists involved in the development, investigation, preparation and delivery of old and

new therapeutic entities by aerosol systems. Agency representation is an important way of sourcing

knowledge from overseas. This is particularly the case in countries such as Japan where there may

be cultural barriers.

In addition, business development in Japan is typically a much longer process than in the UK

so having someone based within the country that can share knowledge and forge important links over

time is very valuable. Government sources can help Prosonix identify an appropriate agency. An

alternative means of sourcing knowledge from countries such as Japan is to work with a partner

based in that country; Prosonix's professional links enable these collaborations to happen, for

example their Chairman is also the CEO of another company which is already working with a

Japanese partner.

Psynova works with a range of collaborators, many of whom are overseas, to undertake research with

the overall aim of improving diagnostic tests and supporting the development of more effective drugs

to treat severe mental illnesses, such as schizophrenia and bipolar disorder.

The most prevalent mechanism by which QCTR sources international knowledge is through a

network of contacts that they have established over time. For QCTR, "it is a constant process of

updating knowledge" in order to keep abreast of changes in the industry, whether technological,

process-driven or regulatory, and as a result it is continually seeking to build its networks of

knowledge and contacts. In sourcing international knowledge, QCTR highlighted that the first

challenge is "finding out what you don't know – you really need to be very open-minded and very

aware of what you don't know. As soon as you've got into that mindset, you can then set to task and

find the knowledge to fill the gaps".

QCTR has joined a number of professional membership organisations, such as the Institute of

Clinical Research, the BioIndustry Association (BIA) and the Drug Information Association (DIA).

Many of these organisations span countries globally, for example the Institute of Clinical Research is

18

"the largest professional clinical research body in Europe and India"2. QCTR makes a conscious

effort to attend events delivered by these organisations which provide an opportunity to share

knowledge. They also use members as a "sounding board", for example this has been particularly

useful for interpreting regulations in different countries: "reading regulations is easy but interpreting

them can be very difficult".

IKS Applications

The Fault Analysis Group (FAG) at the University College Dublin carries out basic scientific research

on all aspects of faults and other types of facture and applies the results to practical problems,

principally in the fields of hydrocarbon and minerals exploration and production. The group was

founded in 1985 at the University of Liverpool and relocated to Dublin in 2000. The group at FAG had

conducted research into the properties of faults in the UK coalfields and had started to establish

physical rules about how faults behave. Badleys’ Managing Director attended a presentation carried

out by a representative from FAG about their software for measuring faults. He realised that FAG's

work had a lot of relevance for the oil industry. Badleys therefore wanted to work closely with FAG to

develop a commercially viable product. FAG provided the basic idea, underlying research and

prototype, and Badleys developed ways that it could be applied to and used by oil companies.

The relationship between Badley Geoscience Ltd and FAG has worked particularly well, most

notably due to its symbiotic nature and the understanding between the core individuals involved in the

relationship: "Badley Geoscience Ltd understands our agenda and we understand their agenda”.

Importantly, there is no competition between the two parties as FAG is not interested in writing

commercial software or doing bespoke consultancy work. The key challenge of working with

universities, however, is filtering through the plethora of information available to identify something

that could be of commercial interest to oil companies. In addition, putting appropriate IPR and

licensing agreements in place can be a challenge for businesses and universities working together.

The food sector is Biocatalysts area of business, working with blue chip companies such as

Nestle. As an example, one of the company’s most successful products is the enzyme LipomodTM

699L, which acts to improve emulsification of egg yolk. Unlike producers of standard volume

commodity enzymes, Biocatalysts philosophy is to work alongside customers to solve their specific

process problems and to produce custom-made product tailored to customers’ specific requirements.

Biocatalysts R&D programme is focused on the development of new enzymes and enzyme

complexes identified to them by customers. They have many allegiances with leading British

Universities (for example Swansea, Bath, Nottingham at present) where most of the basic research

into new enzymes is carried out. This allows in-house scientists to focus on the needs of their

customers, whilst keeping up to date with the latest developments in bioresearch.

As Easylab’s customers are typically research institutes at the cutting edge of their particular

field, the company is in a good position to learn from these relationships, in terms of potential new

applications, improving existing products or developing new ones. An example of this is the work

Easylab recently undertook for the National Institute of Standards and Technology (NIST). Founded in

2 www.icr-global.org

19

1901, NIST is a non-regulatory federal agency within the US Department of Commerce, its mission

being to promote US innovation and industrial competitiveness by advancing measurement science,

standards, and technology.3 NIST had a need for a particular piece of instrumentation, but wanted an

external expert to actually manufacture and supply this technology. Engineers from Easylab and NIST

collaborated to produce an optimised design. This collaboration was undertaken entirely via video-

conferencing, email exchange of CAD drawings and so on (similarly, Easylab works with its own

suppliers of issues of manufacturability).

The resulting development is now a product that Easylab will be able to offer to potential new

customers in the near future. Clearly, Easylab learns from interactions such as this, but due to the

resource requirements involved the company is also aware of the need to strike the right balance in

terms of supplying products which require a degree of co-development and those which are more ‘off

the shelf’ in nature. Typically Easylab does not need to understand the actual science that the

customer will be using their product in conjunction with (which they might in any case not be willing to

disclose), and so this is not usually a barrier in terms of developing new products for customers.

Ingenza seeks to apply knowledge that it has learnt from its technology development.

Following work undertaken for a customer, the customer has exclusive use of the technology for their

specific application. However, Ingenza owns the general technology and process that can then be

used to benefit other customers. As an example, one customer asked Ingenza to develop a method

whereby they could determine how efficiently an enzyme was being produced in their system.

Ingenza is linked into a wide range of different organisations, for example a Director at Ingenza has a

Visiting Fellowship at Edinburgh University, the company is affiliated to the Applied Biocatalysis

Research Centre in Austria and the Centre of Excellence for Biocatalysis, Biotransformations and

Biocatalytic Manufacture at the University of Manchester, and is linked into the UK's Technology

Strategy Board (TSB).

This ensures that Ingenza remains up to date with the latest events and opportunities. "We

are well networked into everything related to bioprocesses in the UK…UK based networks help us to

identify overseas contacts". Ingenza’s involvement in the European Framework 6 datagenom project

secured a total of �1,500,000 over three years (2003-2006). The overall aim of the project was to

exploit the recent growth of genomic data that has been made available from massive DNA

sequencing programmes. The project focussed on the enzymatic production of chiral pharmaceutical

intermediates, which could then serve as building blocks for drug making.

Having secured work for UK Trade & Investment, Kinetic Cubed were required to undertake

market research on the ASEAN markets of Singapore, Indonesia, Malaysia, Thailand and Vietnam

and provide practical recommendations and support to help companies in the East Midlands enhance

their business in these markets. In order to effectively undertake this work, Kinetic Cubed worked with

a freelance management consultant based in Hong Kong, who has particular expertise in the areas of

strategy, organisation and business processes in the Asia Pacific region. Kinetic Cubed met this

freelance consultant via an individual known to the company through the Lancaster University

Management School (LUMS) MBA Alumni network. She provided expertise to enable sector specific

3 www.nist.gov

20

market research to be undertaken in Singapore and Indonesia and was responsible for identifying

emerging business opportunities, highlighting latest market and sector developments, and developing

recommendations to help companies in the East Midlands enhance their business across five key

sectors in target ASEAN markets.

Whilst the internet has facilitated desktop research regardless of location, local knowledge

and expertise on the Asian markets and sectors that the work was focusing on was critical. As stated

by the freelance management consultant: "Local expertise of the countries and industries is absolutely

necessary when it comes to analysing overseas markets and information. It provides context to the

business environment, as well as helps provide critical intelligence that is not always well documented

in articles and research materials. For instance, there are common stereotypes and overly

positive/negative perceptions of overseas markets and being able to see the gap between these

perceptions and the reality of the business market enables opportunities and risks to be appropriately

developed". Her professional network also enabled her to add value to the study by being able to

interview industry experts in order to capture their valuable insights into the target market sectors:

"this critical intelligence enabled our client to make informed decisions on global markets and

partners”.

R&D constitutes nearly three quarters of Prosonix's work, and of this 80% is undertaken with

international customers. Prosonix endeavours to support customers in addressing problems they

may be facing by undertaking collaborative R&D projects with them. Prosonix actively approaches

potential customers. Their small business development team are responsible for identifying potential

customers through mechanisms such as web searches, web alerts, conference attendee lists, press

releases, publicly available company annual reports etc. Some customers will also approach

Prosonix directly.

Psynova and CCNR have identified a panel of approximately 50 proteins that change in

response to the presence of schizophrenia. Their in-house technology has allowed them to run tests

at the discovery stage of the research but they do not have the high throughput capability required to

effectively test all 50 proteins at once. Through one of their EU Framework 7 collaborators, Psynova

became aware of Rules-Based Medicine (RBM), which is a US based, biomarker testing laboratory.

RBM provides pre-clinical and clinical researchers, for example from pharmaceutical companies,

biotechnology firms and research organisations, with reproducible, quantifiable, multiplexed

immunoassay data for hundreds of proteins. As stated by Psynova, "given the complexity of the

panels of proteins we were looking to measure, this was an obvious fit". Psynova was part of a

collaboration comprising 22 partners that submitted a successful proposal to undertake research into

psychiatric disorders. The pharmaceutical drug discovery process requires drugs to be tested on

animals prior to humans. However, finding appropriate animal models to conduct early testing of

schizophrenia drugs is a major challenge for pharmaceutical companies. This three year project aims

to try and find better, more relevant animal models for testing such drugs. For example, one of the

approaches being taken is to use the protein biomarkers that are known to change in humans with

schizophrenia to test whether new animal models for the disorder are relevant to the human condition.

21

Sitekit are extremely impressed with the open culture – show and tell - at MIT’s Media Lab,

which they have not experienced when engaging with institutions in the UK. The Media Lab

encourages the vital interactions between the researchers responsible for technology and those with

the expertise to generate commercial applications: “MIT is unique in bringing industry and academia

together like that”. As well as MIT’s Media Lab, HIE also have a relationship with the Sloan School of

Management at MIT, facilitating Scottish companies to undertake entrepreneurship development and

business leadership executive education provided by the School. In total, four Sitekit directors have

undertaken such education, with courses covering sales, global marketing, customer service and

finance investment. According to Sitekit’s MD: “the people from Sloan were I think of a different level

to what you could get in Scotland….American companies don’t think of the local market, they tend to

think immediately the world market. And that’s something we’re not very good at. So that type of

attitude must rub off.”

Through their experience of working directly with Toyota, WHS Tools sought to innovate their

products and processes in order to meet customer requirements. They met with individuals from

Toyota in the UK, Brussels and Japan who introduced them to new technologies. Five years ago,

they started to apply this knowledge by introducing robotics to the end of the cell for producing gear

knobs. They have continued to innovate their processes over the past few years, which has led to a

unique process which brings the leather and plastic moulding machines together, thus allowing the

plastic to be injected straight onto the leather.

IKS Outcomes

Badleys took the software developed by FAG, which was scientifically very robust but difficult to apply

in a commercial setting, and developed a more commercially friendly tool called TrapTester.

TrapTester is a unique piece of software that allows oil companies to assess the physical properties

of the fault zones, which are the most influential factor in the prediction of cumulative oil production. It

can therefore reduce costs for the oil company significantly. Importantly, the software is easy-to-use,

quick and scientifically robust. Without the input from FAG, Badley Geoscience Ltd would have been

unable to develop this software module. The latest version of the TrapTester software was released in

2009. This release included the new TransGen module developed jointly with FAG. The recent

release date means that the monetary benefits are yet to emerge. However, an indirect, but

important, benefit is that it demonstrates that Badley Geoscience Ltd is "ahead of the game and is

working on software that is technologically new and fresh”.

For the University College Dublin, working with Badley Geoscience Ltd removes the financial

risk associated with developing their software commercially. They also have access to the latest

software to enable them to conduct relevant, high quality research. In addition, they have gained

credit for working with commercialised products, placing them in a better position for future research

funding. Through a licensing agreement, the software will also generate revenue for the University

College Dublin. Through their overseas agencies, Badley Geoscience Ltd is able to keep up-to-date

with the latest developments across the globe, whilst ensuring that they have a stronger presence in

overseas locations.

22

Ginkgo ENP GNG helps Badley Geoscience Ltd to develop their software by providing

feedback on what is needed, helps to promote the software through combined academic publications

and "provides an ear to the ground" to keep Badley Geoscience abreast of relevant developments

and/or opportunities in Australia. Importantly, the collaboration with Ginkgo ENP GNG is mutually

beneficial and allows both parties to develop new ideas. In addition, Ginkgo ENP GNG benefits from

having access to the latest commercial tools for conducting fault analysis. Without these overseas

agents, it would be very difficult for Badley Geoscience Ltd to tap into other countries. For example,

due to bureaucracy and cultural differences, "Indonesia would be absolutely impossible; on my own, I

wouldn't get past the airport!”.

Biocatalysts has been able to maintain its position as wholly independent co-developer and

manufacturer of enzymes for improving product quality and process efficiency within the food industry

through the effective use of international knowledge sourcing. Working with appropriate partners,

most notably Nerac in the USA - a specialist supplier of targeted market and technology reports has

been vital. In an environment in which information overload is often a problem, the key contribution of

this knowledge has been in aiding the understanding of current and future technological trends within

the industry, and thus the more effective anticipation of customer demands, rather than boosting the

actual in-house technical capabilities of Biocatalysts itself. The main advantages gained from the

international knowledge sourcing undertaken by Biocatalysts are those focused around understanding

the directions in which the market for the company’s products is going, and acting in a timely way

upon this information, rather than via the direct enhancement of the company’s technological capacity

and innovation performance per se.

As such Biocatalysts is able to work successfully as a co-development partner with end users,

rather than as a company which essentially works on developing new enzymes in isolation, and then

attempts to identify and access a market for these products. A good example of this kind of market

knowledge leading to new business opportunities was initiated by informal contact with Kraft Foods.

Kraft were focusing their development efforts on improving food flavours, in contrast to present

industry trends centred around emphasising the health aspects of particular foods. Through this

contact Biocatalysts became aware of a particular enzyme they had not previously encountered; a

subsequent Nerac search revealed one of their existing customers had been working with the enzyme

and so Biocatalysts were able to become involved in usage development at an early stage.

Realising actual savings from potential synergies requires Easylab to keep abreast with the

activities of other equipment manufacturers on a global basis. The successful exploitation of

synergies between Easylab and a supplier of a spectrometer has meant that the end customer of the

device will directly save in the region of £50,000 over the course of the next 6 months,

notwithstanding the intangible savings in hassle costs. The alternative scenario for the customer in

such cases is that they purchase two essentially standalone pieces of equipment from different

suppliers, and then engineer a solution for them to operate in tandem. This may involve realising

suboptimal performance from the devices in question, and/or the purchase of additional equipment to

actually make the combined operation possible in the first place.

23

Overall, Easylab is a young SME developing a growing niche within the global scientific

equipment and instrumentation market. The prior industrial experience of the two Easylab co-founders

has been an important factor in the growth of the company - bringing products to market rather than

merely developing ‘a series of prototypes’. As both a source of knowledge and as end-users of their

instruments, maintaining effective links with the global academic community continues to be a crucial

part of Easylab’s success. Although much of this knowledge is in principle ‘open innovation’ - i.e. in

the public domain - in the long run a more effective strategy is generally to involve academic scientists

directly in projects that utilise their work. Fundamental to this is an understanding of individuals’

motivations and expectations from the collaborative relationship. Moreover, Easylab has been able to

maintain an effective balance - external vs. internal, core science vs. the exploration of synergies and

new areas - in its knowledge-sourcing strategy.

Sourcing knowledge from its customers, attending symposia, conferences and trade shows,

enables Ingenza to think about how its tools and processes can be applied to different challenges.

Alongside this, "you build up a picture of who is doing what, what customers are looking for, what their

problems are, and what scale they are doing things at". As an example, one of its customers was

only producing proteins that were present at 0.2% of the stream; through a project delivered with this

customer, Ingenza learnt that if it could achieve a 10% concentration the customer then had the

technology to effectively extract the proteins. This knowledge then enabled Ingenza to support other

customers more effectively. As a result of the knowledge and experience gained through work with its

customers, Ingenza is able to further develop and expand its enabling technology; "our enabling

technology is like a tool box. We are just broadening our tool box. Our whole company is based on

the quality of our tool box".

Moreover, knowledge sourced from other customers, enables Ingenza to respond to

customers' problems quicker and have a better chance of success; "it gives us a head start with new

customers….You [the customer] benefit from every other project we've done with everyone else and

you in turn help us to serve other companies that will never compete with you. An outcome of the

European Framework 6 contract (above) was a better fermentation process, which improved

Ingenza's competitiveness by reducing the cost of an enzyme. Ingenza, however, is endeavouring to

improve its cost-efficiency further by achieving an additional ten-fold reduction. In order to support

this ambition, Ingenza is sourcing international knowledge from the Applied Biocatalysis Research

Centre in Graz.

The final output of Kinetic Cubed's ASEAN study was a report that provided market insight

across five key sectors in target markets, plus a set of practical recommendations to help the East

Midlands region and its companies to enhance their business with these markets. Through Kinetic

Cubed's engagement with this freelance consultant, they have helped to develop a strong platform for

future co-operation and enhanced their ASEAN region credentials. The collaboration also provided

an opportunity for the consultant to expand her own professional network globally and to deepen her

knowledge of the sectors and countries that the study focussed on. With their local knowledge, the

partners in the Black Box markets are able to investigate and develop the market on the company's

behalf, help to develop an understanding of the potential for the company's products/services in the

24

market, identify and approach suitable supply chain partners and will support the company in

identifying a clear view as to how to proceed following the pre-determined representation period.

For Kinetic Cubed, the Mind to Market conference provided an opportunity to absorb

knowledge relating to science and innovation in India and to identify any potential collaborators or

partners that could provide valuable knowledge to support any future work in India. This knowledge

enabled them to effectively provide more customised business development solutions for European

companies and investment promotion agencies looking to enter the Indian market, and for Indian

companies looking to enter the European market place.

The key outcome for Melin Tregwynt is that they have been able to come through a period of

severe restructuring within their industry and successfully diversify away from declining local and low

value markets into new areas, both in terms of geography (North America, Europe, Scandinavia and

Japan) but also with regard to products i.e. interior design but also use of the fabric for shoes,

clothing, bags, hats and purses etc. The company now exports around 30% of its production. The

recent weakness of the pound has given further impetus to the development of these opportunities.

There are two main outcomes of Prosonix's international knowledge sourcing. Firstly, it

enables them to keep up-to-date with latest developments in the pharmaceutical industry, thus

highlighting opportunities for potential work. Secondly, it helps them understand more about their

technology, for example its capabilities, limitations and opportunities, and enables them to further

develop their processes.

The knowledge that QCTR sources ultimately supports the development of better treatments

for people - an objective that all individuals and organisations that it works with also aspire to.

However, its international knowledge sourcing does not necessarily have an immediate impact on

their bottom line. For example, QCTR identified that "it's hard to demonstrate the benefits of attending

events and conferences as they do not necessarily have a direct impact on the bottom line but we see

it as immensely important for longer term benefits and for building our networks". In particular, they

identified that international knowledge sourcing supports a "gradual building up of our profile and

credibility as well as our links and knowledge and potential partners and customers". By building a

network of international knowledge sources, QCTR is able to readily acquire new knowledge as and

when required, which in turn can lead to new business. Emphasising the importance of this, they

stated that "we would struggle to differentiate ourselves without these experts and networks" and "in

terms of the wider knowledge base, there is no greater insight than the opinion of someone that you

trust and know".

Sitekit Labs have engaged a number of distinguished academic and industrial Fellows, who

have agreed to contribute their expertise to the research work being carried out at the Lab. As well as

UK-based researchers, other fellows include researchers at Harvard Medical School, Brandeis

University in Boston, and at the MIT Sloan School of Management. The appointment of these highly

commended individuals from prestigious national and international institutions provides Sitekit Labs

with valuable links to world-class universities and industrial markets. Having both Academic and

Industrial Fellows ensures the research into new technologies is well directed towards addressing

large scale problems that have potentially viable commercial solutions.

25

As a result of working with Toyota and endeavouring to meet their requirements, WHS Tools

has developed a niche product which differentiates the business from its low cost competitors. The

increased automation has also resulted in reduced labour requirements; ten years ago, WHS Tools

required 30 people to produce 12,000 gear knobs per week, in 2008 this had fallen to eight people

and over the next few years it will be reduced to three. As a result, it is the sole supplier of Toyota's

gear shift components in Europe, generating £3m of work a year. In addition, WHS Tools is a first tier

supplier to a range of other automotive customers such as Nissan, BMW, Toyota, Land Rover, Aston

Martin and Bentley. WHS Tools is one of the few companies in the UK that has continued to invest in

tool making. They have continued to purchase the latest equipment and through improved

processes, have reduced the man hours per tool by around 60%. Currently, as a result of the

exchange rate in China and the lead time to get tools from China to the UK, some customers are now

reverting back to UK based tool makers.

Conclusions and Policy Recommendations

The small firms analysed in this paper all recognise the value of developing symbiotic relationships

that do not necessarily deliver quick-wins. These relationships that support a two-way flow of

knowledge, delivering benefits to both parties are often the most effective. In these cases,

relationships often function better and deliver greater benefits. The economic benefits of international

knowledge sourcing can take time to emerge and small firms have to be prepared to take short-term

risks for long-term gains. Successful relationships for sourcing international knowledge take time to

develop. Small firms need to ensure that they continually invest in maintaining relationships; even in

cases where there is not an immediate or obvious need for sourcing knowledge at that time. Regular

and sustained communication makes it much easier to source knowledge when it is required.

There are multiple mechanisms for sourcing international knowledge, and often it is a

combination of these that delivers the best results. Complementary knowledge networks enable small

firms to appropriately apply and subsequently provide innovative goods and services. Small firms

often use a range of channels to obtain overseas knowledge, providing a complementary mix that

ensures that they keep abreast of latest industry trends, developments, problems and opportunities.

For instance, through strong, long-term relationships with academia both at home and overseas,

Small firms are able to engage in a continual process of innovation that maintains their position at the

forefront of their industry.

The importance of informal links and networking should not be underestimated: they are

fundamental mechanisms for building links and identifying suitable organisations from which to source

international knowledge. Informal networks and contacts are extremely valuable and leading

international sourcing Small firms continually invest time and resources into generating and

maintaining relationships with key individuals. Interestingly, the case studies indicate that many highly

innovative and progressive Small firms, at least in the UK, do not necessarily need to be located

proximately to its major customers, in technology clusters or hotspots, either domestically or

internationally.

26

Small firms seeking to operate in a global market must have a good knowledge of

international competitors and customers. Importantly, it allows firms to respond to emerging trends

and adapt to changes in the global market, in order to ensure they remain competitive. International

knowledge sourcing often enables small firms to adapt and augment a product for new and especially

international markets. More generally, knowledge of the future direction of their key markets is critical

to SME success. The role played by the international sourcing of knowledge often has a more

significant impact on small firms via an enhanced understanding of customer demands and market

trends, as well as more ‘conventional’ channels such as raising technological capacity and innovation

performance. Deploying international knowledge brokers, particularly where there are cultural

differences that need to be overcome, is often advisable. They enable small firms to have a greater

international knowledge reach and enabling overseas knowledge sources be more effectively

accessed.

Also, effective absorption of this knowledge is crucial, allowing firms to innovate technology

and stay ahead of competitors. In the first instance, recognising knowledge gaps is the initial

challenge that many small firms need to overcome. Once these gaps have been identified, the

process of acquiring knowledge becomes much more focused.

From a public policy perspective, our key recommendations for consideration by policymakers

consists of providing small firms with appropriate support to establish a high performing network

structure that allows them access to the knowledge they require. Policy should help identify and map

key global communities of practice, and then make small firms better aware of these communities.

International network development can also be supported by developing new modes of overseas

missions which provide finance assistance to fund international customers, suppliers, collaborators

and associates to undertake visits to the home nations (as well as the finance made available to allow

home firms to make visits overseas). Help should also be made available to small firms that allows

them to identify and use international agents to access overseas from overseas sources.

High performing networks require management. Public policy in many countries already

provides significant management development and leadership expertise to small firms, Little of this

support, however it likely to be specifically to how knowledge, and the networks through which it is

flows, is management. More emphasis, therefore, is required to educate firms in the art of network

management. There is a growing applied and professional discipline related to the management of

networks and knowledge flows, which should be supported through public policy.

Finally, there is need to build upon existing policy strengths. European Commission initiatives

and projects, for example, represent an opportunity for small firms to source international knowledge

and participate in international knowledge networks. More generally, policymaking should further take

into account the need for knowledge sourcing and networking to be equally set in both a regional and

global dimension and context. For small firms, which it is argued are one of the primary sources of

national and regional competitiveness, the core of such developments is two-fold. First, to increase

the involvement of small firms in the type of enduring knowledge networks required for effective

collaborative innovation to be achieved; and second, to enable small firms to source the most relevant

and up-to-date knowledge by ensuring that their networks contain the requisite level of dynamism.

27

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Table 1: Summary of the Case-Study Firms

Badley Geoscience Structural geology company that specialises in providing high end, technically specialist work for the international oil and gas industry.

Biocatalysts Wholly independent manufacturer of enzymes used primarily for improving product quality and process efficiency within the food industry.

Easylab Company involved in the design, development, manufacture and support of scientific equipment related to the extreme conditions of ultra-high pressures.

Ingenza Industrial biotechnology company that provides practical industrial scale methods to manufacture chemicals and biopharmaceuticals.

Kinetic Cubed Specialist provider of international business solutions to international economic development, trade and investment promotion agencies.

Melin Tregwynt Designer and weaver of traditionally woollen fabrics.

Prosonix Specialist in the commercialisation of proprietary pharmaceutical ultrasonic particle engineering technologies.

Psynova Neurotech Developer of diagnostic products to aid the diagnosis and treatment of psychiatric disorders.

QCTR Niche Contract Research Organisation (CRO) specialising in clinical trial management.

Sitekit Company involved in the development of web content management systems.

WHS Tools Family-owned, manufacturing business specialising in injection moulding.

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Figure 1: Knowledge Sourcing – A Conceptual Framework

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Figure 2: The International Knowledge Sourcing (IKS) Framework