Needed: Networking partnership

by Jessica Lipnack and Jeffrey Stamps

Boston Globe, February 18, 1992
Reprinted with permission.

As we cast about for ideas on how to dig ourselves out of the economic pits, particularly low-cost ideas that yield big results, we may be looking in the wrong direction if we fixate only on Japan and the Pacific Rim. Quietly, in such unlikely venues as Denmark and Italy, new, profitable economic forces are at work that already have their parallels in the United States.

"Flexible manufacturing networks" is the term that has been coined to describe the banding together of small firms to achieve global competitiveness. Here, networking doesn't mean the much-maligned business card exchanges of the 1980's, where people sought contacts for jobs. Rather, it means the creation of jobs as coalitions of small firms develop the economic muscle to do the work of giants. Masssachusetts is ideally positioned to take advantage of this new low-cost approach to economic development.

In 1988 Denmark looked like Massachusetts today, even to having a similar population. There was high unemployment, mounting trade debt, low corporate investment and difficulty funding public services. It also faced the onslaught of the new European Community trade bloc.

"Size is the problem," McKinsey & Co., the consulting firm, said in a government-funded report. Denmark's manufacturing companies were too small, too independent and too diversified to compete in the global market. To compete McKinsey recommended mergers to create a few "industrial locomotives."

Instead, in 1989, Denmark embarked in a $25 million program to support its small and medium-sized firms by developing flexible manufacturing networks. Denmark's plan was inspired by the notable economic success of the industrial networks of northern Italy, a vibrant source of Italy's current economic renaissance. There, in the Emilia-Romagna region, the networking movement began in the then-depressed but now flourishing textile industry.

After only 18 months "more than 3,000 of Denmark's 77,300 manufacturing companies were actively involved in networks," according to Danish Technological Institute's Niels Christian Nielsen.

Encouragingly, flexible manufacturing networks have already come to America. They are now taking root and spreading rapidly in some key states, seeded and nurtured over the past three years by the Corporation of Enterprise Development, the Washington-based trade association of state economic development organizations. In the spring 1991 issue of its Entrepreneurial Economy Review, the Corporation for Enterprise Development estimates that in just a few years "at least 50 nascent networks of firms stimulated by public action" have appeared, operating in at least 14 states and involving "more than 1,500 small firms."

Some of the earliest experiments in networking took place here in Massachusetts as a result of the early-1980s recession. The Needle Trades Action Project was established by 40 Massachusetts companies in the apparel and sewn industry, and 150 metalworking firms combined to create the Machine Action Project. Both networks formed to develop markets, stimulate technology transfer and support training and apprenticeship programs.

By creating flexible networks of small and medium-sized firms, resources can be pooled to obtain the benefits of scale. By cooperating in a network, small firms can effectively play in the global market. Indeed, their flexibility and swift responsiveness to change may provide a global competitive advantage. Oregon, for instance, even passed a networking law in 1991, modeled after Denmark's

An economic networking strategy makes sense for Massachusetts. Increasingly, real wealth is based in people, skills and knowledge rather than raw materials, as the Japanese have so capably demonstrated. Networks are the organizational form of the Information Age. Massachusetts, which combines resources in knowledge and diversified industries with high population density and a relatively good infrastructure, can quickly become a leader in this new-age industrial movement.

Among its numerous advantages in the global business-networking game, Massachusetts has a unique competitive edge. It is the international center of computer networking technology.

At one extreme is the state's largest company, Digital Equipment Corp. in Maryland. Digital virtually invented the large-scale distributed network market in the early 1980s, remains a world leader in the market today and internally works on the world's largest private network.

Other smaller Massachusetts-based leaders of the networking industry include fast-growing Banyan Systems in Westborough, Wellfleet Communications in Bedford and Shiva of Cambridge.

There is a natural synergy between business networks and technology networks. In networks, people exchange information. The rapid communication of large amounts of complex information is greatly aided by new technologies ranging from the simple fax to far-flung computer networks. Through international data highways, Massachusetts can export its prodigious brainpower and skills without building three more Logan airports to accommodate the ceaseless travel of international expertise. Technology networks are driving the dynamics of global change.

Massachusetts needs its own public-private networking partnership. Though these programs, scare taxpayers dollars can be used in smaller amounts to leverage large private-sector results.