Knowledge circulation in vertically integrated production networks: cases of the Argentine automotive and iron and steel industries.

SUMMARY

The goal of this article is two-fold: on the one hand, we develop a methodology that is able to quantify the knowledge circulation inside a Vertically Integrated Production Network (PNW). On the other hand, we will apply such methodology to a set 150 Argentine firms supplying either the automotive or the iron and steel industries. Both industries are different in commercial results as well as in their participation in international markets. We investigate whether or not differences in networking are significant to the understanding of different performances. We find that the PNW organised by the steel firms allows for a better knowledge circulation. We also find that the Linkage Style within the PNW is significant for explaining techno-productive capabilities. Such relevance of the knowledge circuit and the way the PNW incentives it constitute an essential point that contributes with the comprehension of the different performances between both PNW.

KEYWORDS

production networks; knowledge; development; endogenous competencies; Latin America; Argentina

INTRODUCTION

In the history of economic thinking, the discussion about the nature of competitiveness of the firm is a classic and controversial topic. The center of the discussion has been the question of whether the dynamics of competitiveness is nurtured or not by systemic elements, which go beyond the individual behavior of the firm.

Meanwhile, firms have transformed and their organization has experienced notable changes stimulated and/or imposed by the adoption of new information and communication technologies. Facing this revolution, popularized as the emergence of a 'new economy', the controversy about the nature of competitiveness has lost its energy in so far as its own object of debate has put an end to it: the performance of the firm shows to be dependent on its inter-relationships not only with other firms but also with the environment in which it operates. This has originated a re-interpretation of micro and mesoeconomic aspects. The influence of the firm's business framework and the development of productive networks have been particularly revalued because of the growing importance of knowledge flows and of learning for the generation of the agents' competences. In this context, the formal and informal channels through which knowledge flows become of great interest. These channels are established by firms, not only between firms and organizations, but also between the firms and the institutional complex.

This phenomenon of great systemic significance is reflected in different types of literature, which emphasize different aspects of the firm's dependence on the environment. We can mention, among others, those approaches which concentrate on clusters (Nadvi 1999; Schmitz, 1995, 1999; Nadvi & Schmitz, 1994, 1999) on the global chains of value set by producers and customers (Humphrey & Schmitz, 2001; Gereffi, 2001) on the advanced outsourcing (Coriat, 1992) as well as the literature about innovation systems, whether national (Freeman, 1994, 1995; Metcalfe 1995) local (Scott, 1996; Camagni, 1991) or social (Amable, Barre & Boyer, 2001).

Each of these expressions represents different measurement units for the systemic behavior of the firm. However, such variety is a theoretical problem in itself: Which systemic aspect explains the behavior and the characteristics of the firm, and how is it formed? Our work studies the systemic relationship within a vertically integrated productive network (PNW). A PNW consists of a firm (a 'core') and a group of relationships established with the providing companies. As it will be exposed in the theoretical discussion, these linkages have been enriched before purchase or sale by organizational innovations which are associated to 'the new economy', and have become fundamental for the transmission of knowledge, the capability of the firm to differentiate its products and, as a result, its commercial performance (competitiveness). The 'core' firm of the PNW, then, articulates a group of companies in which knowledge generated and circulating in it will be essential for its individual performance.

In this scheme, the quality and the price of intermediate goods are not the only key variable between the producer of the final product and its suppliers. The type of linkage, the flow of information and the capability to generate and possess knowledge of the PNW gain growing importance.

If the limits of the firm become blurry, it is necessary to develop new techniques to account for its characteristics. This challenge poses the methodological problem that the relationships between firms increasingly involve intangible assets and, therefore, also involve a greater level of tacit elements, which are difficult to determine and quantify. Since methods to determine what is tacit are likely to be highly subjective, it is necessary to establish a systematic methodological framework. Such framework captures part of the tacit ingredients associated with the generation and circulation of knowledge within a network and allows evaluating whether they have been significant or not for any of the variables of the performance of the firm (in our case, we are particularly interested in the capability of innovation of the firm). Applying this methodology to two different Argentine industrial networks, not only in connection to their economic performance but also to their structure of linkages ('iron and steel' and 'automotive' networks) will enable us to explain part of these differences, thus proving the usefulness of the proposed methodology.

Therefore, this article seeks a double initial objective: on the one hand, we will develop a uniform methodology capturing part of the circulation of knowledge within a PNW. On the other hand, we will analyze two Argentine industrial sectors: the automotive and iron and steel industries, both with different international insertion and commercial results. We will also analyze whether the differences in the network configuration are useful to understand part of the differences in their results. As it will be explained later, the productive network formed by the iron and steel firms allows a greater circulation of knowledge where the density, frequency and stability of the association within the network become a main issue of its techno productive capability. The importance of the circuit and its being activated by the network is an essential difference, which contributes to the understanding of the different performances of the networks.

This article will be structured as follows: the first section will deal with the theoretical framework. In this section, the notion of vertically integrated productive network and the dimensions involved are discussed. We will define its ideal aspects (the productive and knowledge networks) as a 'benchmark' on which to base our evaluation of the configurations of real networks (in our case, the iron and steel and automotive networks) and we will provide an abridged version of the developed methodology and the indicators that evidence the creation and circulation of knowledge within the network. In the second section, we will introduce the networks under study; describing their composition and the main differences regarding their general performance, the origin of their capital and their commercial prospective. Following that, we will apply and describe the results of the methodology employed and we will investigate the degree of significance of the different aspects that define the productive network in regards to the innovation capability of the firms which constitute it. In the conclusions, the main results are summarized and interpreted according to their importance for policy making.

1. THEORETICAL-METHODOLOGICAL FRAME: CONCEPT OF PRODUCTIVE NETWORK AND KNOWLEDGE NETWORK

Theory

For the purpose of this article, a PNW will be considered as a particular form of articulation of firms constituted by an organizing firm (from now on 'core') and its suppliers, involving flows of goods and services in a stable and long-term relationship. The main potential advantage of a PNW configuration for the suppliers, the core and the network as a whole derives from the interchange and accumulation of knowledge, mainly tacit, which the components generate throughout a commercial relationship (Nonaka & Takeuchi, 1995; Amable et al., 1997; Ducatel, 1998; Rullani, 2000). According to this, within a PNW, knowledge (considering its creation, dissemination, appropriation and accumulation) constitutes a critical element for the competitive strategy of the core firm and for the survival of the rest of the firms in the network (i.e., Suppliers). However, the presence of knowledge can be significant or scarce. In the first case (significant presence of generation and circulation of knowledge) a special type of PNW is configured, which will be called 'Productive and Knowledge Network' (KPNW).