Small Vs. Large: Which Farm-Size Is Better For Kenya?

The number of small farms in Kenya is increasing and contributing negatively to

economic growth and development. The logic is not a mystery but can be understood
by ordinary people.

It is obvious that both large and small farms have the same revenue per acre. What is
not obvious is that production cost per unit of maize decreases as farms get larger and
increases as the farms get smaller.

Economist have shown large farms are faced with dimishing production cost per unit
of maize

The logic is not a mystery but can be understood by ordinary people.

I hope I have helped to raise the profile of science and to show that physics is not a
mystery but can be understood by ordinary people.

The number of very small farms in Kenya is increasing and contributing negatively to
economic growth and development. Why?

Economist have shown that while large and small farms have the same revenue per
acre of maize, but;

1. as farms get larger, it’s easier to invest in labor-saving machinery, technology

and specialized management, and bring down the production cost per unit of
maize.

2. as farms get smaller, it’s difficult to invest in labor-saving machinery,

technology and specialized management. Hence, jobs are done in a way that is
time-consuming and labor-intensive, and production cost per unit of maize
goes up.

These explanations show why large farms are able to raise large amounts of food
efficiently and at a lower price than small farms. They also show why small farms
contribute negatively, and large farms positively, to economic growth and
development.

This shows that large farms are able to raise large amounts of food efficiently and at a
lower price, and contribute postively to economic growth and development, than
small farms.

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and small farms might have the same revenue per acre of maize, their production cost
per acre of maize will differ.

The article focuses on rural Kenya, in general, and Bungoma/Tranzoia counties, in particular, in an
attempt to formulate a blueprint for a national agenda on improving the state of rural Kenya.

The first part addresses the outlook for the Bungoma/Trans-nzoia counties’ economy.

The second part considers the topic, "Rural Mainstreet: A Kenyan Institution," providing evidence that
rural Kenya is not participating fully in the current national economic recovery; the rural population is
increasing, particularly, the proportion of unemployed youth; sub-division of agricultural land is
increasing the number of very small farms, rural income is sagging; and small communities are losing
their economic identity.

The third day's session discussed the role of rural economic development as the keystone to the
revitalization of rural Kenya and ideas for formulating rural development policies and strategies to
strengthen the rural economy.

Testimony includes statements from witnesses, prepared statements, letters, and supplemental materials
from almost 50 individuals representing manufacturers, local governments, United Sioux Tribes,
National Federation of Independent Business, and the Chamber of Commerce of the United States.
(NEC)

Economist argue that though large and small farms have the same production revenue
per acre of maize, their production cost per acre of maize is different. They say that;
Economist argue that though large and small farms have the same production revenue
per acre of maize, their production cost per acre of maize is different. They say that;
Though large and small farms have same revenue per acre of maize, their production
cost per acre of maize is different. This argument suggest that the increasing trend of
small farms in Kenya is not the best pattern on which to plan the future of our
agriculture.

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These are clearly not operations that support farmers, and perhaps not the best pattern
on which to plan the future of our agriculture.

yet the count of very small farms in Kenya is increasing.

Small and large farms will contribute to economic growth and development only
when both focus on efficiency and each on filling a different demand.

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have benefits with each kind filling a different demand. Whatever the size, each farm
should focus on efficiency.

Small and large farms have benefits, with each kind filling a different demand.
Whatever the size, each farm should focus on efficiency.

side focused on getting their own house in order? If you’re in the small camp, work
on efficiency.

Small and large farms both have benefits, with each kind filling a different demand.
What if advocates on each side focused on getting their own house in order? If you’re
in the small camp, work on efficiency.

Farm Size and the Organization of U.S. Crop Farming

James M. MacDonald, Penni Korb, and Robert A. Hoppe

Abstract

Cropland has been shifting to larger farms.

1. The dynamic – economy of scale – As farms get larger, it’s easier to invest in
labor-saving machinery, technology and specialized management, and
production cost per unit goes down.
2. Large industrial farms raise large amounts of food efficiently and affordably.
3. They grow primarily corn and soy, which consumers buy as meat and
processed foods.

While the count of very small farms increases. But why when;

1. The dynamic – lack economy of scale – As the farms get smaller, it’s difficult
to invest in labor-saving machinery, technology and specialized management.
Jobs are done in a way that is time-consuming and labor-intensive, and
production cost per unit goes up.
2. Small farms raise small amount of food inefficiently and unaffordably.
3. They grow primarily foods for farmer’s market but expensive (considered
organic and healthful or luxury foods?).
4. Farmers selling directly to their customers aren’t making a living. These are
clearly not operations that support farmers, and perhaps not the best pattern on
which to plan the future of our agriculture.

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 5. Small, diversified farms are less efficient than large ones, which means that
food grown on them is more expensive. Farmer’s market produce luxury
goods.
6. Small, diversified farms bring benefits to their communities. Local agriculture
contributes to a sense of community and keeps spaces open.
7. Local’s market share is small
8. Farmers selling directly to their customers aren’t making a living. These are
clearly not operations that support farmers, and perhaps not the best pattern on
which to plan the future of our agriculture.
9. A small farm means that jobs are done in a way that is time-consuming and
labor-intensive.

Small farms are inefficient but grow healthful foods and are environmentally friendly,
while large farms are environmentally unfriendly but raise large amounts of food
efficiently and affordably.

Larger crop farms realize better financial returns and are able to make more intensive
use of their labor and capital resources, indicating the trends are likely to continue.

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Driving forces, include technologies, farm organization and business relationships,
land attributes, and government policies.

Overview

The size of agricultural farm

Larger crop farms perform better financially, on average, than smaller farms because;

1. Why large farms realize lower costs per unit of production than small
farms?.and not higher revenue (grain farms realize the same value of
production per acre as smaller farms).

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 2. Larger farms realize more production per unit of labor and capital.

These financial advantages have persisted over time, which suggests that shifts of
production to larger crop farms will likely continue in the future.

Von Thunen’s Location Theory

He had two basic models:

1. The intensity of production of a particular crop declines with the distance from
the market. Intensity of production is a measure of the amount of inputs per
unit area of land; for example, the greater the amount of money, labour and
fertilisers, etc., that are used, the greater the intensity of agricultural
production.
2. The type of land use will vary with the distance from the market. The von
Thunen’s location theory or model states that if environmental variables are
held constant, then the farm product that achieves the highest profit will outbid
all other products in the competition for location.

Following von Thunen’s reasoning, the ranking of agricultural activities on the basis
of rent-paying ability in the decreasing order are as follows:
1. Truck farming (fruits and vegetables)
2. Dairying
3. Mixed crop and livestock farming (corn belt agriculture)

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 4. Wheat farming Ranching (yearlings often sold to feedlots of mixed crop and
livestock farming)
Improvements in transportation technology now permit a space-time convergence of
distant places, thereby expanding the scale of possible economic organisation.

The analysis of land use patterns has long been one of geography’s basic concerns. At
first, it might appear as if agricultural land use is little affected by relative location,
once the factor of a suitable market has been acknowledged. Indeed, the farmer does
adapt his land use to site conditions, climate, land forms, and soils.

He had two basic models:

1. The intensity of production of a particular crop declines with the distance from the
market. Intensity of production is a measure of the amount of inputs per unit area of
land; for example, the greater the amount of money, labour and fertilisers, etc., that
are used, the greater the intensity of agricultural production.
2. The type of land use will vary with the distance from the market.
The von Thunen’s location theory or model states that if environmental variables are
held constant, then the farm product that achieves the highest profit will outbid all
other products in the competition for location.

Agricultural production has shifted to larger farms, and farmers are relying more on
contracts—and less on spot markets—to buy inputs and and sell products.

Agricultural production has shifted to larger farms, and farmers are relying more on
contracts—and less on spot markets—to buy inputs and and sell products.

Even so, small farms are still important, and most transactions continue to be made
through spot markets where commodities are bought and sold in open market
transactions for immediate delivery.

Research on farm structure covers these elements, and also examines the ownership
and organization of farm businesses; the links among farms, farm households, buyers,
input providers, and contractors; and the mix of inputs and products on farms.

Nearly all industries exhibit geographic concentration. Most theories of the location of industry explain
the persistence of these production centers as the result of economic efficiency. This article argues
instead that heterogeneity in entrepreneurial opportunities, rather than differential performance,
maintains geographic concentration. Entrepreneurs need exposure to existing organizations in the
industry to acquire tacit knowledge, obtain important social ties, and build self ‐confidence. Thus, the
current geographic distribution of production places important constraints on entrepreneurial activity.
Due to these constraints, new foundings tend to reify the existing geographic distribution of production.
Empirical evidence from the shoe industry supports this thesis.

Entrepreneurs need exposure to existing organizations in the industry to acquire tacit knowledge, obtain
important social ties, and build self‐confidence.

A Garage and an Idea: What More Does an Entrepreneur Need?

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There exists a common belief that entrepreneurs commonly start businesses in garages (or basements or
dorm rooms or kitchens).

The garage entrepreneur is a highly popular contemporary legend, but not quite accurate.

An emergent notion in academic research is that entrepreneurs are often organizational products.

They typically acquire confidence, business knowledge, and social connections via prior experience at
existing organizations.

These psychological and social resources aid entrepreneurs in forming companies.

Although the belief of the garage entrepreneur contributes to the preservation of the American ideals of
opportunity and upward social mobility, it offers misleading insights to would-be entrepreneurs
because it suggests an under socialized view of the entrepreneurial process.

Individuals, companies, policy makers, and business schools will benefit from recasting the garage as a
contemporary legend and focusing instead on the lessons that can be derived from an understanding of
entrepreneurs as organizational products.(Publication Abstract)

Small Firms' Innovation: Why Regions Differ

summary:

Small firms are increasingly recognised as the engine of growth and employment. But
the great diversity of small-scale manufacture covers extremes of innovativeness and
of business conservatism. Moreover it is known that the contribution of small firms
varies considerably between countries. Knowledge of what circumstances foster new
products in small firms, and how those circumstances vary from place to place, could
help to shape constructive policies for small enterprise and for regional development.

Summary and Interpretation

The study set out to explain differences among small firms in their level of product
innovation, and to indicate how the regional location of firms might be involved in
these differences.

Product innovation was broadly defined to include incremental improvements in

products as well as wholly new products.

A survey of 98 firms, in the size range 11-99 employees, was carried out in the East
Midlands and North of Britain, within the mechanical engineering industry.

This was compared with a survey of 42 firms, in the size range 1-250 employees, in
two regions of the Federal German Republic (Nordrhein-Westfalia and Baden-
Wurttemberg).

In each country, the regions selected for study provided a contrast between economic
buoyancy and economic depression. The surveys were supplemented with more
intensive case studies in each country, and by analysis of published information and
statistics relating to the regional economic and industrial background.

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The main findings

The findings of the study are first of all presented in summary form. This summary
naturally omits many of the points of detail which are to be found in Chapters 2-6.
The findings are stated as simply as possible, and without any attempt at
interpretation, since this follows in the next section.

1 Widespread product innovation

The majority of firms in the British sample, and nearly all the firms in the German
sample, were engaged in product innovation. This finding applied not only to the
economically more successful regions (East Midlands, Baden-Wurttemberg) but also
to the relatively depressed regions (North, Nordrhein-Westfalia). There were many
innovators even among the smallest size group of British firms (11-20 employees).

2 Important differences in innovative intensity

Product innovation can be of various levels of intensity, and these can be

distinguished by the presence or absence of patenting, by movement into new
product-markets as opposed to incremental changes in existing products, and by the
use of microelectronics in new product designs. Using distinctions of these kinds, we
were able to show that although product innovation was widespread in the North, it
was less intensive than in the East Midlands. In particular, most of the developments
involving microelectronics were in the East Midlands part of the sample. Similarly,
developments with microelectronics were more prevalent in the Baden-Wurttemberg
part of the German sample.

3 Obstacles to product innovation are not financial

For those British firms not developing new products, lack of finance was hardly ever
the obstacle. The usual obstacle was lack of demand for new products on the part of
customers. However, lack of finance was the most common obstacle to process
innovation.

4 Process innovation is weakly linked to product innovation

In the British sample, product innovators were also more likely than the remainder to
be process innovators. However, the link was relatively weak: many firms were
innovating in one way but not in the other. In the German sample, most of the firms
were both product and process innovators.

5 CNC and computers support microelectronic-based products

Firms using microelectronics in their new products also had a strong tendency to
install computer numerically controlled (CNC) machine tools and computers. In the
German sample, use of microelectronics in new products led to both immediate and
continuing changes in process, and this led such firms to attach a high importance to
process flexibility. Such German firms appeared far advanced in the use of computer
integrated manufacturing (CIM) techniques.

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6 Use of computers predicts innovation One of the strongest links identified by the
survey was between product innovation and the use of computers.
7 Internal and external ideas for product innovation Ideas for product innovation arose
both inside the companies and from external contacts, especially customers. The East
Midlands firms used internal and external ideas in a 50-50 mix, while the Northern
firms were much more dependent on internal ideas (a 75-25 mix). Innovators using
microelectronics were much more likely than others to use external sources of ideas.
8 Diversity of originators inside the firm The creators of new ideas inside the British
firms were, in two thirds of cases, owners or directors. In the remaining one third of
cases, ideas came from a wide spread of managers and workers within the firm. The
qualifications of the originators were diverse, ranging from none (other than
experience) to technical degrees.
9 Small groups do R & D Half the British firms saw themselves as engaging in
research and development (R & D) activities, and this was very strongly related to
product innovation. (A few firms conducted R & D only for process development.)
In most cases, R & D was carried out as a part-time activity by small groups (typically
2-4 people) rather than being the responsibility of a single individual. Firms using
microelectronics in new products tended to have larger groups involved in R & D, and
to organize these as departments. The East Midlands firms were much more
committed to R & D activities than were those in the North. 10 Skill resources not
linked to innovation There were wide variations between firms in their complements
of engineers, technicians, and skilled manual workers. But these variations did not
consistently reflect differences in product innovation or in R & D activities. Also,
Northern firms had as many employees in these categories as did the firms in the East
Midlands. (However, the study did not attempt to measure differences in the
qualifications of firms’ work-forces.)
11 Microelectronics leads to high-level skill shortages Firms with new products
involving microelectronics were more likely to have experienced shortages of
technicians and engineers, than were the remaining firms with or without new
products. Skill shortages were more common for German than for British firms, and
German firms with microelectronics in new products were also particularly short of
technicians and engineers.
12 Shortage of skilled manual workers not linked to innovation Shortages of skilled
manual workers were the most widely experienced, but this did not appear to be
linked to innovation. Non-innovative firms most frequently reported this type of
shortage, and these rarely considered that such shortages had stopped them from
innovating.
13 Importance of external information Getting technical information from outside
sources was regarded as very important for product innovation, especially by firms
which had introduced new products. Four in 10 of firms with new products had been
helped by information and ideas from customers. Firms in the North considered
external information to be important, but were less successful than the East Midlands
firms in obtaining it. German firms appeared to have excellent access to external
information.
14 External collaboration usually successful About one third of the British sample had
made use of external collaborative relationships, and in most cases reported these to
have been successful. Product innovators, especially those using microelectronics,
were much more likely than other firms to have had external collaborators. This type
of relationship was also widely used among the German firms.

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15 Innovators not dependent on local suppliers Availability of local suppliers did not
seem to affect chances of product innovation. The only exception to this was with
local supply of CNC machine tools for the small firms in the East Midlands.
However, when all kinds of supplies were considered together, the Northern firms
were more reliant on local sources than were the East Midlands firms. Also, most
microelectronic supplies came from outside the small firm’s region.
16 Innovators have widely dispersed customers Customers were mostly outside the
region of the small firm. The East Midlands firms were less reliant on local
customers than were the Northern firms, and the innovators than the non-innovators.
Firms using microelectronics in their new products tended to have sizable export
markets, but the remaining small firms in Britain were with few exceptions confined
to UK markets. German firms of all types had sizable export markets.
17 Innovators have large customers outside their region Large customers (those taking
10 per cent or more of a firm’s sales) took 25 per cent of all sales, on average, for the
British sample. The Northern firms, and non-innovators, mainly had their large
customers inside their region. The East Midland firms, and innovators, mainly had
their large customers outside their region.
18 Innovators have a wide spread of customer industries The major customer
industries (those taking 25 per cent or more of a firm’s sales) were usually outside the
region in the case of innovators but inside the region in the case of non-innovators.
Also, innovators were less likely to have such major customer industries, tending
instead to spread their sales over numerous industries. Within the German sample,
many firms in Nordrhein-Westfalia served the coal, iron and steel industries, and their
sales were chiefly local. 19 Local customer industries and innovation The mix of
customer industries was considerably different in the East Midlands and the North.
There was however no very clear link between type of customer industry and
innovation, within the British sample. A clear link appeared within the German
sample, where the use of microelectronics technology in new products was depressed
among the Nordrhein-Westfalia firms which served the coal, iron and steel sector.
20 Regional background may affect supply of entrepreneurs Several factors may lead
to a better supply of entrepreneurs in the East Midlands than in the North. These
include higher levels of qualifications and skill (fed by net inward migration and by
higher entry to further education); higher levels of home ownership, providing an
important source of start-up capital; and a higher proportion of small firms, affording
more opportunities to gain relevant business experience.

Interpreting the findings We now turn to a broader interpretation of the study, drawing
upon its findings as a whole.
Innovation not a good in itself Innovation is not a simple notion. It encompasses
many different kinds of activities, and is pursued for varied reasons. The study has,
we believe, contributed to a clearer understanding of what innovation means for small
firms. Distinctions between different levels or intensities of innovation were allowed
for in the design of the surveys. Such distinctions, our findings have shown, are of
crucial importance. One cannot sensibly describe small firm innovation, or make
comparisons between groups of firms, without making these distinctions. It was
important to distinguish intensities of innovation because, with innovation broadly
defined, it turned out to be more prevalent even among small firms than might be
expected. Innovation, broadly conceived, was too commonplace an activity in our
sample to serve as a way of separating winners from losers or thrusters from sleepers1

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was widespread among British firms, and it was universal in the German sample of
small-to-medium sized firms. The most effective distinction, we found, was between
firms using microelectronics in their new products, and the remainder. The firms
using microelectronics were putting more effort into innovation (both in terms of
internal resources and of searching externally for ideas) and they were also gaining on
other firms in terms of sales and of access to national and overseas markets. Our study
therefore tends to confirm that the use of microelectronics represents a watershed in
the development of new products, as we had assumed. To see why this is so, it is
necessary to turn to other research which has been concerned with the characteristics
of microelectronic technology and with the reasons for its adoption2. The features
alluded to in such research include the elimination of parts, especially mechanical
parts, leading to reduced production costs and improved reliability in service;
miniaturization and compactness, permitting radical changes in styling; and the
possibility of products with more complex functions (or of ‘systems’ rather than
conventional products). Although our surveys did not examine these aspects in detail,
our case studies illustrated some of the important advantages of microelectronics. It
seems reasonable to suppose that such fundamental advantages offer long-term
opportunities for product-market development to the firms which can successfully
adapt to them. While our study confirms microelectronics to be the ‘up side’ of
innovation, it also suggests that innovation can have a ‘down side’. Innovation,
broadly conceived, is not the sole preserve of successful, growing firms. Nor is it
necessarily good in itself. It can either open doors into new areas of the market-place
or help firms to lock themselves in. It can be linked with an outward-looking,
diversifying approach to market development, but it can also represent the struggles
of firms to keep alive an enclosed and shrinking market. In the latter case, it can be
argued that innovation merely stretches the period of decline and delays the market
adaptation which is required. The clearest example of this concerns the German firms
serving the coal, iron and steel industries of the Nordrhein-Westfalia region, industries
which have been in serious decline for many years. These firms were as much
involved in innovation as others in the German study, and in a sense it is impressive
that innovation can persist in such apparently unfavourable circumstances. But there
appeared to be two repercussions which exposed the weakness of this type of
innovation. One was the inward-looking marketing policy of these firms, for they
seemed to be much less able than other German firms to trade outside their region.
The other was their low use of microelectronics, relative to the other German firms,
and hence their lack of access to all the competitive advantages which
microelectronics can offer. By persisting in attaching themselves to a declining
industry, they appeared to reduce their contacts with the opportunities which might
lead into longer-term growth. Although the problem was not as sharply focused as in
the German case, many of the small firms in the North-East of England may have
been in a similar position. They too were relatively inward-looking, by comparison
with the East Midlands firms, being somewhat dominated by the heavy extractive and
process industries of their region. They too had relatively little involvement in
microelectronics. It is possible, then, that the prevalence of innovation (broadly
defined) in the North-East flattered the prospects of these small firms. What matters
is not so much innovation itself, as where it leads. Unless these small firms can
connect their innovative efforts to wider markets beyond their depressed region, or to
new technology, those efforts may lead nowhere.
Human resources: choices and constraints It is trivial to say that innovation depends
on the resources of skill and experience that are put into it. But is by no means

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obvious what human resources are most important for innovation in small firms, or
how they are most effectively brought to bear. The present study has contributed
some insights into these questions. Innovation in small firms might be the work of
isolated individuals, but we found that usually it was not: it was the joint work of
small groups. There might be a key individual for development work (probably one
of the firm’s founders) but usually two or three others would provide support of
various kinds. The human resources put into innovation (by those who did it
successfully) were quite substantial relative to the size of firms in the British sample.
Innovation might be the result of unplanned efforts, of ideas coming up unexpectedly
and being responded to in an ad hoc manner. To some extent this did take place, as
some of the case studies illustrate, but it was not the whole story or even the most
important part of the story. The existence of definable groups of people involved in R
& D activities itself implied a degree of planned effort and organization. Moreover, a
minority of firms either had formal R & D departments or had staff working full-time
on R & D. In these cases, the effort of innovation was highly organized. It seems,
then, that many small firms acquire, commit and organize human resources for
product development, in much the same way as large firms do, only on a smaller
scale. But the shortcoming of explaining innovation in terms of human resources,
within our sample of small firms, was the lack of difference in those resources
between the innovators and non-innovators. When non-innovators have virtually the
same proportion of engineers, technicians and skilled manual workers as do
innovators, other factors than the sheer availability of human resources must be
involved. In essence, it seems that many of the innovative firms choose to deploy
human resources into product development work, while most of the non-innovators
choose not to do so. The questions this raises are as much to do with the non-
innovators as with the innovators. If the non-innovators tended to operate with low-
skilled work-forces, it could be understood that lack of human resources prevented
them from working on product development. But as they do not seem to be faced by
such a constraint, what stops them from trying to innovate? Or if they perceived no
need to innovate (and most of them in fact stated that their customers made no
demand for new products), then why did they need as high a complement of skills as
the innovators? To some extent, these questions may be misconceived, since they rest
on the assumption that there is a fixed relationship between human resources and
output. In reality, human resources are flexible, so that there may be scope for
innovative firms to stretch themselves in order to reach out for new products. We are
talking, in many cases, of the order of five per cent of a firm’s skills being deployed
into R & D, and this would perhaps be within the scope of flexibility of the firm, and
hence under the direct choice of its leadership. The other possibility is that innovators
pay a penalty somewhere else for what they put into R & D. As they meet that need,
they run into pressures elsewhere. This seems to fit in with the study’s observation
that it was the innovators with the most intensive innovation, who experienced the
greatest shortages of higher-skilled staff. Nor could this be attributed to lack of
qualified people in the labour market, because even more severe shortages were
experienced among the German firms, despite the high standards of vocational
education and training in that country3. There may come a point, as firms
progressively develop new technology, where resources are stretched to the utmost
and further development begins to suffer because of skill shortages. But it seems
unlikely that innovative firms run into skill constraints purely because of the need to
staff R & D activities. It is also likely that the expansion to which successful
innovation leads in its turn requires more human resources. Innovators tend to find

14
themselves running into labour constraints, because they make greater than average
demands upon the labour market. The picture with which we end, then, is of
differences in both choices and constraints between innovators and non-innovators
(or, more precisely, between firms innovating at various levels of intensity). The more
advanced innovators choose to stretch themselves and to put themselves in positions
where they run into staffing constraints, which they cannot satisfy wholly through the
job market. The firms operating in a more traditional mode avoid these problems by
avoiding the initial choice; they are never stretched. The fundamental question, then,
is why different firms make or avoid the choice to innovate. And if innovation varies
by region, then we must ask what it is about different regions which induces small
firms to stretch their resources to different degrees. Differences in the types of
entrepreneurs found in different businesses, and attracted to different regions, may be
part of the explanation, although we cannot examine that directly in our study.
Motivation to innovate at a high level could also be part of the explanation, and here
market relations could be important in providing (or not providing) the impetus.
Connecting with a wider market One of the crucial resources for innovation, we
assumed when designing the study, is information. Through links with the outside
world, and especially the market-place, small firms can increase their access to ideas,
technical data, and business opportunities, all of which will facilitate product
development. The findings of the study have confirmed this, to a degree which has
exceeded our expectations. And it has also indicated that, for small firms in these
regions, the most valuable connections are with widespread rather than local or
specialized markets. Relatively little needs to be said by way of explaining the
importance of external links. It is sufficient to suggest that success in the market-
place is more likely if the ideas have been originated and shaped through contact with
the market. But it is, perhaps, worth emphasizing that, according to our study, it was
precisely where innovation was more intensive and technologically more advanced
that the external contribution was most important for small firms. New products
involving microelectronics exemplified this. Not only did the great majority of such
developments draw upon ideas provided externally (for example, by customers), but
also it was far more common for these products to be developed through a
collaborative external relationship, than was the case with development of
conventional products. It is not difficult to suggest why this should be so. Small firms
cannot expect to have expertise spanning new fields of technology, especially in such
a diverse and rapidly changing field as microelectronics. Their best chance of
exploiting new opportunities from such a technology is by making use of outside
information, ideas, and collaborative arrangements, to complement their own special
skills. At the same time, it must be remembered that tapping into these external
resources itself requires a commitment of internal resources. Outward-looking
innovators in our study had more, not less, staff involved in R & D. The more
problematical aspect of our findings concerns the balance between local and
widespread market links in fostering or supporting small firms’ innovation. Much
that has been written about innovation in recent years suggests that a strong local
growth of mutually related industries plays an important part in sustaining a high level
of innovation. It should certainly be easier for small firms to find ideas and
collaborators when there is an abundance of relevant industrial R & D on their own
doorstep than when they have to look far from home. This has led to the notion of
‘science parks’, artificial conglomerations of high-technology research and industry,
which are being created in many parts of the world4. Yet our study found that the
innovators, to a greater extent than the non-innovators, tended to find both their

15
suppliers and their customers outside the region where they were located. Moreover,
those most closely tied to local customer industries, as in the case of certain firms
within the German sample, seemed to have difficulty in finding a place for
microelectronics technology in their products. The reasons why our findings do not fit
in with ‘local linkage’ models of innovation are both straightforward and important.
The industry we looked at, known as mechanical engineering in Britain and as
machine building in the FGR, is generally at a moderate rather than advanced level of
technological development. Moreover, the regions which we looked at, in both
countries, have large and mature manufacturing sectors, rather than being areas of
new industrial formation. These characteristics make them quite different from areas
such as Cambridge, or California’s silicon valley, which have served as leading
examples of self-contained local innovation. We suggest that small firms in long-
established industries, located in areas of mature manufacturing, may generally need
to look to remote and widespread markets for encouragement and opportunity to
innovate. In the mature industry and area, too large a proportion of resources are
already committed to maintaining the existing structure, to provide much support for
innovation5. There is not enough room in the local market (whether in terms of
physical or other resources) to accommodate new high-technology industries on the
scale necessary to create self-contained innovation. If the small firm adopts a local
outlook towards its product development and marketing, it may find that the outlets
for new products are too slight. However, firms can still innovate successfully by
developing widespread links with the market, so sidestepping the limitations of the
local industrial structure. The advantage of widespread markets in stimulating
innovation becomes still more apparent when the region in which the small firm is
operating is in depressed economic circumstances. Static or declining local industries
are particularly unlikely to have either the ideas to stimulate new products among
their suppliers, or the growth potential which would encourage suppliers to invest in
innovation. Stagnation and decline may also reflect, in some cases, attitudes which are
unreceptive to new products. For such reasons, firms locked into the local region are
likely to face difficulties in innovation. Developing markets away from the region,
and in industries other than those which are locally dominant, is likely to help small
firms to keep in touch with new opportunities not reflected in the local economy. To
summarize, we believe that in a wide range of commonly encountered circumstances,
small firms are more likely to innovate if they are outward-looking and have widely
spread markets. Of course, this is a generalization which goes beyond our immediate
findings, and will need testing through further research. It is also possible to think of
some important exceptions, apart from the case of new, highly-concentrated, high-
technology areas of development. In particular, if a small firm is serving a highly
innovative local customer, or one which takes pains to encourage its suppliers to
develop improved products, then it may find itself in a good position to innovate, even
if other local circumstances are unfavourable. It probably remains true, nevertheless,
that such customers are easier to find in an area of new industry than in the kind of
areas covered by our study.

Why regions differ

The aim of our study was to shed light on the reasons for differences in product
innovation between regions.

16
The main contribution of the study has been in showing that innovation differs by
region because of different characteristics and practices of the firms in those regions,
and in identifying which characteristics and practices are most important.

To show how those different characteristics and practices of the firms may be
influenced by differences in the regions where they are located, is a much more
difficult task.

However, we believe that we have made some progress in that respect also.

The most important differences, by region, in the characteristics and practices of small
firms, have already been highlighted in this chapter.

We will briefly note the main points again.

1. Innovation depended crucially upon a commitment of staff resources to R & D
activities; and the East Midlands firms were more likely to make such a
commitment than those in the North.
2. Innovation with microelectronics tended to be supported by investment in
flexible manufacturing with CNC machines and computers; and this complex
of developments was more prevalent in the East Midlands than the North.
3. Innovation was strongly linked with the use of external ideas, and external
collaboration; here again, the East Midlands were in practice more outward
looking than the North.
4. Innovators tended to have widespread markets, and to avoid being dependent
upon local major customers or local industries; this pattern was more
characteristic of the East Midlands firms than those in the North.

These differences in the practices of firms might result from differences in the
resources available to them, and the availability of resources could differ between
regions.

That would constitute a straightforward explanation of why regions differ in

innovation.

But in several respects, the evidence of the study showed that regional differences in
resources were unlikely to provide the answer we are seeking.

The East Midlands firms devoted more staff resources to R & D, but they did not have
higher proportions of engineers, technicians, or skilled manual workers.

Microelectronics components chiefly came from outside the region of the small firm
using them, so there was no special advantage for firms in the East Midlands in this
respect.

The most important external sources of ideas were customers, and East Midlands
firms did not draw upon local customers to a greater extent than the firms in the
North.

17
Indeed, if local markets can be thought of as a resource, then it was the Northern firms
which had more resources in this respect; but it seems likely that in this case they
were a hindrance to innovation rather than an advantage.

But the more buoyant economic environment of the East Midlands, compared with
that of the North, might feed through in other ways than a superiority of resources.

Part of the explanation we seek may lie in the effects of the regional economic
environment on the initial formation of small businesses and on the quality of local
entrepreneurship, each of which eventually contributes to innovation in small firms.

We assembled published evidence to show that the North had been experiencing
outward migration and a net decrease in the numbers of businesses (with deaths of
firms outstripping births).

This probably means that the supply of actual and potential entrepreneurs has been
decreasing. Not only would this reduce the flow of new ideas coming into the
market-place, but in addition it could lessen the competitive pressures upon existing
small businesses.

Those that have survived may have relatively little incentive to innovate, or to find
markets outside the locality, because of the lack of new small firms coming through to
compete with them.

In the East Midlands, on the other hand, there has been net inward migration and a net
increase in the number of businesses.

Moreover, the East Midlands has a distinct advantage in its high level of house
ownership, which provides an important source of start-up capital.

We are suggesting, therefore, that regional differences in the practices of the small
firms may partly be shaped by the general entrepreneurial climate of the region.

We are also suggesting that the rate of new firm formation is important for
establishing the climate.

We would expect a region with a high rate of new business formation to foster an
outward-looking, competitive kind of small business, while a region which has been
experiencing business contraction will tend to foster an inward-looking, defensive
approach to business.

These ideas are speculative and will need to be tested by further research. Of more
importance in shaping the practices and outlook of small business entrepreneurs,
however, is the experience that they have previously gained.

Most small businesses are set up in the home area of the founder; subsequently there
may be relocation to a different region, but this rarely takes place until the business
has matured.

18
Hence the background of the people running small businesses is likely to be in the
local industry, and it is from there that they will have learned many of their business
practices.

The history and structure of local industry are likely to be reflected, to some extent, in
the small businesses which have grown out of that background.

It might seem reasonable to expect small businesses in economically declining areas

to be more, rather than less, outward looking than elsewhere, since the local markets
will offer them relatively poor chances for the future.

But this may be unlikely to happen in practice, if the owners have previously worked
in inward-looking local industries and acquired their approach to business from that
experience.

To try to explain why industries in one region, such as those of the North, might be
expected to be more inward-looking than those of another region, such as those of the
East Midlands, lies outside the scope of our study.

But it is not at all implausible that regions of economic decline should have different
entrepreneurial and managerial practices than regions of economic resilience.
It is also quite plausible that the practices of the declining region should be less
adapted to change than those of the growing region.

Our study has shown that, more than anything else, small firms in regions of
economic decline need to look outward, to break away from dependence on local
markets, and to connect with wider market and technological opportunities.

This is easier said than done, because they have already been shaped by the
constricting problems of local industry, from which they should be breaking free.

But there is no need for pessimism, unless instant solutions are expected.

The firms which we studied, including those in the economically depressed regions,
certainly did not lack the capacity to innovate.

Moreover, even in the North of England, or among the firms of Nordrhein-Westfalia

which served the coal, iron and steel industries, there were still substantial
connections with wider markets.

These connections may grow with time, and a more complete adaptation to the
possibilities of modern technology and markets will follow.

Small-firm innovation and public policy

Finally, we consider what bearing our findings about small-firm innovation may have
for public policy.

There are several ways of approaching this.

19
One can ask what kinds of policies might be pursued to encourage innovation in small
firms (and also, perhaps, what kinds of customary policies seem likely to be
ineffectual, in the light of our evidence).

Or one can ask whether policies towards small firms and entrepreneurship could
usefully be reviewed from the particular standpoint of innovation.

To put it bluntly, should small firm policy give priority to the innovators?

Returning to the regional standpoint of the study, one should also consider how far
regional or local development policies can accommodate or nurture small-firm
innovation.

Our discussion of these questions will be at a rather general level. That is to say, we
will not consider current detailed provision (which, in any case, experience shows to
be somewhat ephemeral).

Nor will we propose specific policies.

Instead, we will consider in a broad way what the role of various types of policy
might be.
Regarding policy to encourage innovation in small firms, the evidence of this study
has been rather negative.

It is difficult to see how government policy could play anything more than a minor
role in direct support of these small firms’ innovative activities.

Direct financial assistance for product development appears to be irrelevant, since

hardly any firms were prevented from innovating by lack of finance.

Under these circumstances, financial support schemes for innovation may only serve
to distort commercial decisions and divert energies from their most productive paths.

Nor does there seem to be much of a role for government agencies in providing
technical support, advice, or information.

The innovative firms were already getting information and ideas from customers,
suppliers and technical collaborators - sources which are likely to be the best
guarantee of commercial relevance.

Improving the supply of engineers and technicians is one way in which a positive
contribution could apparently be made by government policy.

This would particularly help small engineering firms developing the use of
microelectronics in their products.

But of far greater importance for innovation is the way in which the small firms
deploy their existing resources of skill, and especially whether or not they use them to
establish an organized R & D activity.

20
Non-innovators in the British survey often had staff resources on a par with
innovators, but chose not to use them for product development.

It is hard to see how government policy can influence such choices within small
firms; by far the greatest influence is likely to be the market opportunities for new
products, together with entrepreneurs’ own outlook.

This brings us again to market relationships, which have emerged from the survey as
probably the most important influences upon product innovation.

Government services and support certainly can play a role here, but it is a minor
supporting role.

Small firms, our evidence has indicated, need to develop widespread, outward-
looking relations with customers and markets, and there is a variety of ways in which
they can be helped to do so.

Support for trade fairs, exhibitions and other kinds of technical and commercial
gatherings is well established and, our evidence would suggest, is likely to be money
well spent, helping small firms to make contacts and find new markets.
Market information services, financial aid to make use of marketing consultants or
export agents, and organization of inter-firm technical exchange networks, are all
ideas which have been used in various countries.

These are mentioned only as examples, rather than as specific recommendations.

The general point is that government services can and do act within the market and
can help to widen the market relations of small firms.

Such government services seem in principle to be worthwhile aids to innovation and

deserving of further attention.

None the less, all these forms of market support are likely to be ineffective in the case
of firms which depend on highly local markets and lack motivation to diversify.

The primary requirements appear to be entrepreneurial activity on the part of small

firms together with market structures which are conducive to finding and developing
widespread customer networks.

Approaching policy from a different angle, we suggest that the question ‘Do these
measures help to foster innovative small firms?’ will often be a useful one.

Innovative small firms are likely to be one of the springs of future economic vitality,
and that is one reason why it is worth giving them special consideration when
evaluating policy.

It can also sharpen thinking about policy to stress the distinction between innovative
and non-innovative small firms.

21
The present study has indicated that, in many respects, a policy to help small firms in
general may not be suitable to foster innovative small firms in particular, especially if
one focuses sharply on product innovation.

We have seen how great and systematic are the differences between the innovators
and the non-innovators: what is good for one is not certain to be good for the other.
Indeed, certain policies which may seem to benefit small firms in general may, in
reality, be of greater relevance to non-innovative small firms and so may work to the
relative disadvantage of innovation.

Two examples from this study illustrate the point. Consider financial aid for small
firms. As already noted, financial aid is largely irrelevant for product development,
because finance is not a constraint.

But financial aid could be relevant for a number of other purposes: investment in
production equipment, loans to finance expanded order-books, and so on.

Since these forms of financial aid (if provided) would be equally open to innovators
and non-innovators, it seems possible that they would tend to reduce the relative
advantage of product innovation.
However, whether or not this happens in practice would depend upon the tendencies
of innovators and non-innovators to take advantage of the various kinds of financial
aid.

Innovators might tend to be more aware of the possibilities of using financial aid,
even though such aid would be of greater potential benefit to non-innovators.

Detailed knowledge of the behaviour of small firms of various kinds seems essential
to devise a financial aid policy which does not act to the competitive disadvantage of
innovators.

An even clearer example concerns skill supply. The small firms engaged in new
products involving microelectronics were often constrained by shortages of engineers
and technicians.

A better supply of skilled people in this group would help them to maintain the
momentum of their innovation.

But, among small firms as a whole, shortages of skilled manual production workers
were much more common.

In the British sample, it was the non-innovators which particularly experienced

shortages of this group of workers.

What, then, should the policy be on skill supply?

At the least, it seems clear that policy cannot afford to ignore differences in needs
between the advanced innovators and other small firms.

We return, in conclusion, to the regional dimension of policy.

22
A highly localised approach to economic development, and to the encouragement of
small firms, is currently fashionable in Europe, but it appears to offer little
encouragement for innovation in our small firms.

A local economic viewpoint is too narrow to encourage the widespread markets and
outward-looking entrepreneurism which innovation seems to require.

Bringing in large firms to provide custom for local small firms may merely prolong
the dependence which has previously weakened their capacity to innovate, and deter
them from exploring the possibilities of more distant markets which would bring them
into contact with fresh demands and ideas.

For the same reasons, policies of fostering development which dovetails with the
existing local industrial structure and skill base may be mistaken from the particular
viewpoint of innovation.

If local or regional economic development fails to focus upon the specific need to
foster innovative small firms, the chances for long-term regeneration may be seriously
reduced. In short, the starting point for policy, whether national or regional, must be to
understand the specific characteristics of innovative small firms.

Increasingly, it seems, these small firms use advanced technology in both products
and processes, operate with organized R & D activities, participate in joint technical
ventures, have diversified product ranges, and sell their products and services in
widespread and distant markets.

Innovative small firms are thinking big, and that is the basis for their innovation.

23
With these aims in mind, researchers at the Policy Studies Institute in Britain and
Bielefeld in West Germany collaborated in a comparative study of small firms and
their new product development.

This book, which incorporates survey and case-study material from both countries,
strikingly reveals the extent of small firms' achievements and the external difficulties
they face.

Acknowledgements

The research reported here was made possible by the financial support of the Anglo-
German Foundation for the Study of Industrial Society.

The content and conclusions presented are, however, entirely the responsibility of the
authors. We would like to express our thanks to the individuals and firms which gave
their time and help to take part in the study, both in Britain and the Federal German
Republic. Many other individuals, too numerous to mention, have helped with the
research at various stages, both in our own institutions and from outside. We are
grateful to all of them.

Approaching the main questions

The relationships between innovation, small firms, and regional imbalances.

The main influences upon innovation in small firms are:

1. Resources of value for innovation. These include:

a) Human skill and talent. To the extent that small-firm innovation depends
upon individual entrepreneurs, the availability of such entrepreneurs will
be important for regional success in innovation.
b) Finance. since research and development activities cost money and there is
likely to be a time-lag before a payoff is obtained. If internal funds are
more important, then is the firm depending upon its finance and whether it
has adequate financial strength.

24
 c) Plant and equipment available to the small firm. New products have to be
designed, developed and produced. Up-to-date plant and equipment make
both development and production more effective.

2. The relations between a small firm and its customers or potential customers.
a.) Information about the market-place and about technological developments.
b) identify the kinds of ‘linkages’ which small firms have. A strong and
interconnected local industry provide rich sources of information and ideas for
new products. But conversely, if small firms are tied to local industries in an
economically declining region, their chances for innovation may be more
limited than those of firms with national or international markets.

These are the explanations of small-firm innovation which we attempt to assess in this
book, and through them we seek to examine regional differences. It might be objected
that by concentrating upon resources, we have neglected motivation or incentive to
innovate.

This is not a serious limitation. It is reasonable to assume that small firms have similar
motives in innovating, whatever region they are located in, so this aspect cannot enter
into regional differences. The most important incentive for small firms is the
opportunity to find sales outlets for new products.

Our preferred assumption would be that, even when all inputs have been specified
(and in practice, we will always be far from achieving such a complete specification),
the outcomes will still not be fully determined, because individual ideas and choices
may intervene significantly.

Thinking about innovation in terms of resources is a convenient way of organizing

our investigation, but it is not exhaustive. One of the interesting questions is how
much variation in innovation remains to be explained, after we have examined the
role of the more obvious influences such as human resources.

The research

To develop these general questions and ideas into a research study, we had to make
decisions or choices of four main kinds. First, we had to decide what kinds of
‘innovation’ we were going to cover. Then, we had to decide what range of small
businesses to study. Similarly, we had to select the regions to be compared. Finally,
we had to make choices of method: how to collect information about the small firms
and about the regional environment.

Innovation

Innovation relates to products and processes.

We focus on products innovation because they are important for economic growth and
competition.

25
Product innovation is ‘the development of new products, changes in design of
established products, or use of new materials or components in the manufacture of
established products’. In short, new or altered products.

Industry and regions’ practical considerations guide the choice of industry and regions
to study.

The difficulties of defining what constitutes innovation in the service industries

steered us towards manufacturing.

Within manufacturing, we wanted to choose an industry which was important in both

the FGR and the UK, and one where we could expect to find many small enterprises
and much product innovation.

The industry which meets all these requirements is called mechanical engineering in
the UK and the machine building industry in the FGR.

The British name is rather broader, but the German name is a more concrete
description of the kind of firms we actually studied: in fact, most of these were either
making machines, or assemblies or parts for machines. In both the FGR and the UK,
it is important to note, the industry definition excludes firms primarily engaged in
electrical engineering or electronics.

The industry is one of the largest in both countries, and important for exports, but in
the FGR it has been rather successful, while in the UK it suffered a severe shake-out
and contraction in the late 1970s and early 1980s.

A further reason for selecting this industry is the great influence it has on other
industries: new machines mean higher productivity for those who install them, so that
the effectiveness of the machine building industry affects all others.

Resources available for the research limited us to two regions in each country. Our
choice of these regions was partly shaped by our choice of industry, partly by the
desire to achieve a reasonable degree of comparability between the FGR and UK
studies.
Most important was to select regions, within each country, which contrasted in their
recent economic performance: a struggling region and a strong one.

In Britain, we selected the East Midlands and the North as our regions. (‘North’ is the
official title of the region which is known in common parlance as the North-East; we
will often refer to it by the latter name.) The North-East has throughout the post-war
period been regarded as a region of relative decline, and it has suffered particularly
severe decline in manufacturing employment during the recession of the early 1980s.
Most of the firms in our sample came from the Tyne and Wear and Teesside areas
which have high industrial concentration. These are areas of traditional heavy industry
and of more modern process industries; there is a substantial proportion of mechanical
engineering firms. It was tempting to select an area of ‘high-technology’ growth
within the South or South-West to contrast with the North-East, but we decided
against this because the mix of industries and occupations would have been so
different.

26
The East Midlands like the North-East has high levels of manufacturing employment,
most of which is concentrated around Nottingham and Leicester, and includes
traditional industries such as textiles. It also has a particularly high proportion of
mechanical engineering firms. However, compared with the North-East it has ridden
the economic storms of the past decade relatively well, and its rate of unemployment
has been close to the national average despite its dependence on manufacturing.

Hence the contrast presented by the two British regions is not one of extremes. We
expect that product innovation will be at a higher level in the East Midlands, but we
would not expect the nature of innovation to be entirely different in the two areas.
And because both are established manufacturing areas, it becomes particularly
interesting to ask why one should have adapted better than the other to changing
conditions.

In the FGR, the contrast between the two areas selected for study was perhaps greater
than in the case of Britain, but a similarity remains, in that both are areas of high
concentration of manufacturing.

Within the Land (region) of Nordrhein-Westfalia (NRW) the study concentrated on

the eastern Ruhr district, and specifically the chamber districts of Bochum and
Dortmund.

This whole area has long-established and still important, but contracting, industries of
coal, iron and steel.

The decline of these industries has contributed to the exceptionally high rate of
unemployment there in recent years. The contrasting region is the Land of Baden-
Wurttemberg, and within it the Middle Neckar district was chosen as the focus for
study, with the chamber districts of Esslingen and Goppingen.

The dominant industries of the region are vehicles and machinery, and its buoyant
economy is reflected in not only a particularly low rate of unemployment but also the
highest rate of employment for any area of comparable size throughout the FGR. The
Middle Neckar is itself a traditional centre of machine-building.
The method

A combination of three methods was used to carry out the research: survey, case
study, and collection of background regional data.

We first describe the UK part of the study.

Here we began by obtaining a sample frame of small mechanical engineering

establishments for each region, provided by Market Location Limited.

The sample frame was designed to give coverage in the size range of firms with 11-99
employees.

27
The survey of small firms was carried out through telephone interviews with the most
senior person responsible for products and product development. In most cases, this
was either the owner or a director of the firm.

Piloting of our questionnaire made it clear that, within the resources available for the
survey, we would not be able to achieve a high response rate. This was because of the
difficulty of contacting busy entrepreneurs and persuading them to take part in a
lengthy interview.

We could probably have increased response by considerably shortening the interview,

but it was more important to obtain full information than to increase the
representativeness of the survey.

Accordingly, a quota sampling procedure was used, with interviewing continuing until
a target of approximately 100 interviews was reached. After discarding some
interviews because they either fell outside the size limits or the industry definition for
the survey, we eventually obtained 98 interviews, representing a net response rate of
52 per cent. We obtained a larger sample in the East Midlands (55 firms) than in the
North East (43 firms), not because of difference in response rate, but largely because
of a greater availability of the smallest firms within our sample list for the East
Midlands. The size breakdown of the achieved sample reflects this:

Following the telephone survey, a set of six case studies was completed in the UK,
three from each region. The case studies were selected from those taking part in the
survey, and were intended to illustrate a wide range of approaches to innovation on
the part of small firms.

They therefore included, not only examples of ambitious new products, but also of
incremental developments, and even of reliance on process rather than product
innovation.

The case studies took the form of visits to the firms by one of the research team, with
lengthy tape-recorded interviews with the chief executive and/or the senior executive
responsible for product development.

The interviews traced the development of the firm up to the present, and explored the
firms’s innovative activities, production processes, marketing, finances, and use of
human resources.

This also gave the opportunity to examine the production facility and the products at
first hand.

The third method of research used was to study existing published material to provide
a background picture of the economic position in each region and of the factors likely
to influence the growth of entrepreneurship, small businesses, and innovation.

This information is chiefly reported in Chapter 6.

28
In the FGR, the research was of the same broad form, but with some differences of
scope or emphasis.

One important difference was in the size range to be covered. The German machine
building industry contains fewer very small establishments and more in the small-to-
medium size range, so a size distribution similar to that in the British sample would
not have been so useful.

Instead, the survey was divided equally between establishments with less than 100
employees and those with 100-250 employees, overlapping but not coinciding with
the British sample.

It was also felt that the telephone survey method was less well established in the FGR
and hence less familiar to businesses. So it was decided to use a postal survey in
which the respondents completed the questionnaire themselves.

The case studies were carried out before the postal survey, rather than afterwards, so
as to gain insight into the firms’ approaches to product development, which could be
incorporated into the wording of the questionnaire. The research in the FGR collected
information from 42 firms through the questionnaire method, a smaller number than
in the case of the British survey, together with six case studies.

Further details of the sampling and response will be found in the separate report
published on the German study.

The surveys do not purport to be representative of small firms in a descriptive sense.

In particular, we are not in a position to make generalizations about the proportions of
small firms who do or do not innovate, because it is inherently likely that firms not
innovating would be less interested in taking part in research on that subject.

Hence there could be some tendency for the surveys to be biased towards innovative
small firms. However, as the following chapters will show, the surveys succeeded in
covering quite a wide range of small firms.

We are therefore in a position to compare small firms of different types: for example,
those using microelectronics components and those not doing so.
It is around such comparisons that the study mainly revolves. In addition, the surveys
succeeded in collecting information about the innovative activities, human resources,
and market relationships of small firms, which to the best of our knowledge is
substantially new.

These topics form the main subject-matter of Chapters 2-5.

Although the study is not based on large samples, its design is particularly suitable for
making internal comparisons. Because the samples are gathered from particular areas
(all of which have high concentrations of manufacturing industry), from a single
industry, and from small or small-to-medium firms only, the variation between firms
is much reduced relative to a national survey covering all types and sizes of firms.

29
This means that variation due to the factors or influences which we are particularly
interested in can be measured more sensitively.

In short, our aim is not to provide descriptive statistics on how much innovation of
various types is taking place (that would require a larger and more representative
survey).

Rather, it is to assess and interpret the importance of various possible influences upon
innovation, and among these, the influence of specifically regional circumstances.

Strictly speaking, the influences identified apply only to the sample covered by the
study, and cannot be widely generalized. Further research will be needed to test the
findings with other samples, and so establish their scope.

Presenting the findings

This book is intended primarily for the British reader.

Its aim, however, is not merely to present the findings of the British part of the study,
but to deepen and illuminate understanding of small-firm innovation in Britain with
the aid of the comparative material from the FGR.

Despite great differences in the industries of the two countries, some remarkable
similarities emerge as the process of comparison is developed.

In our judgement, these similarities may point to some of the most important
characteristics of innovation in small engineering firms. However, the reader must
not expect to find a simple, statistical, side-by-side comparison of the studies.

Apart from other considerations, the differences in sample coverage and size for the
two parts of the study (described in the preceding section of this chapter) would
prevent such a direct comparison from being effective. In fact, it could only be
misleading.

Our approach is to conduct comparisons at the stage of interpreting the findings,

rather than at the level of the data.
Our practice, therefore, is to present the British findings first, within each of the main
chapters relating to the survey.

After identifying the chief points, we then turn to the German evidence to identify
similarities and differences of importance for a final interpretation, which covers both
countries.

As a result of this approach, the actual data from the German part of the study are
used more selectively than is the case with the British data.

However, the interested reader can obtain a more complete account of the German
data elsewhere, since the findings of the German part of the study have already been
published (see reference 5).

30
The book includes material from the case studies in the form of excerpts, rather than
as continuous narratives.

Groups of excerpts will be found in inserts, with a contrasting format, at various

points of the text. Our aim in presenting the excerpts is a simple one.

They are intended to illustrate some of the main points which we identify in the
survey findings. For example, while the survey evidence indicates the general
importance of organized R & D activities to these small firms, the case-study excerpts
suggest the variety of ways in which small firms strive to put resources into R & D.
We hope that these examples will bring to life the statistical material from the surveys.

A concise summary of the findings from the research will be found at the beginning of
the final chapter. This summary is followed by a more extensive discussion, which
takes account of the findings from both the British and German parts of the research.

0722626518 Allan Omolo

54160129117

Murunga Natembea

31
Product innovation

d.ajakucgiar.org

Product innovation is the development of new products, changes in design of

established products, or use of new materials or components in the manufacture of
established products.

Advantages of product innovation include: Growth, expansion and gaining a

competitive advantage.

Process manufacturing
Process manufacturing is associated with formulas and manufacturing recipes

NATURE OF THE FARM

Factory-style production process – different components are first designed, then

fabricated and lastly, assembled into a product. Machine production and factory-lines
are symbols associated with free-market innovations.

The processes done prior to bulk production are pre-production processes. From
sample development, approvals, research and development work for orders, testing of
raw material to pre-production meeting are pre-production processes. Pre-production
processes are important for efficient production.

Pre-production processes:
1.
2. Meeting with buyers. The designer shows creations to buyers.
3. Development of initial samples for the buyer.
4. Development of sample, mode of production and artwork
5. Costing Production planning, Material planning and line planning packing
materials

HE NATURE OF THE FARM*DOUGLAS W. ALLEN and DEAN LUECK

Simon Fraser Montana State University University

Abstract

Nature’s seasonality and randomness limit farm productivity and output, but when
mitigated, tends to allow them gravitate towards factory processes.

Introduction

32
Features of nature that directly influence the incentives inherent in agricultural
production. To uncover these features, we model seasonality as a collection of
parameters:
1. the number of times per year the entire production cycle can be completed;
2. the number of stages in the process;
3. the total number of tasks in a given stage;
4. the length of a stage

Plantation agriculture thrive because plantations use a ‘‘one-crop system permitting

the routinizing of operations’’; because the crops required ‘‘year round employment of
labor’’; and because the crops required ‘‘a large amount of labor on a small amount of
land, thus simplifying the problem of supervision.’’

Plantations have a smaller number of stages with long gestation period. Cotton, corn
and wheat, on the other hand, have a higher number of stages with short gestation
period.

Compared with grain crops like corn and wheat, plantation crops had a small number
of stages that lasted over long periods, allowing great gains from specialization and
low cost monitoring. For example, cotton was continually cultivated by hand with
hoes, and because the bolls ripened so unevenly cotton picking lasted for months
(prediction 3).

Industry family firms tend to transit to large factory-style corporations but agricultural
family farms rarely do. Why?

Farm ownership and control over successive stages of production. Farms are
organized around a set of production stages (seasonality, crop cycles, task
specialization, and random events). Nature affects output and frequency of crop
cycles. Nature impacts randomly through shocks to farm output and frequency of
cycles.

Technological advancements in the production of cattle, hogs, and poultry has made it
possible to transit livestock production from natural to a controlled environment.
Technological advancements help standardize production and allow large scale
operation.

33
Nature’s seasonality or biological process, and as a consequence, lack of continuous
operations, distinguishes farm organization from industrial organization. Almost every
line of endeavor on the farm depends either upon seasons or biological process.

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