R egions are very different as they contain an amalgam of different resources shaped by a diversity of actors. In some extent, they are the result of interactions of different actors that can be located either inside or outside them. Firms are one of the actors that assume more relevance for the regional configuration. Indeed firms have a capacity to act beyond any regional boundaries and a successful firm can “infect” positively the regional dynamics. But the opposite influence is also true. The regional co nfiguration may have impact on the strategic action of firms. The interconnection between firms and territories is thus a key issue for the understanding of the development of both businesses and regions. However, the interactions between firms and regions have not been sufficiently explained. In this context, the purpose of this paper is to clarify the bidirectional influence between firms and regions . Taking advantage of the emerging literature of relational geography and industrial network appro ach, a model aimed at providing a better understanding of this mutual influence was developed. We find that the lack of relational compatibility can limit firms’ effects on the region. Similarly, the influence of the region on firms’ performance also depends on this compatibility and on the specific characteristics of the business actors.
Limitations associated to the traditional stand of economic geography and clusters’ theory, mainly focused on a conglomeration of firms within a close geographical space and based upon a list of material resources that should be made available to the regions, have provided ground for a new trend within geography that reinforces the interactive and relational component of regional development. This relational geography modifies the understanding of regional dynamism and puts the essence of regional economies within the dense interaction between diverse actors [
Under this perspective, a network point of view seems particularly appropriate for the understanding of the relational space because it allows us to pinpoint various interactions between actors located in diverse regions [
This new stream of research on relational geography has progressively put in evidence the role of firms for regional development. In fact, due to their interactions, firms can become one of the most relevant actors in the current regions’ configuration. They create regional characteristics in the way they train workers or in the way they insert know-how in the region where they are implanted, and while interacting, they manage to bring to close contact different regional contexts [
Despite the significant advances which challenging the traditional vision of the economic geography, the interactive process firms establish with regions is not satisfactory explained [
The industrial network approach developed by the IMP Group [
The purpose of this paper is to develop a conceptual model aimed at operationalizing the dynamics and interaction between firms and regions. We focus on the interconnections between firms’ pillars for interaction and the consequences they reflect on the regions’ structure while considering the regions particular features influence on the firms’ interaction. For that we take advantage of the complementary contributions coming from relational geography concepts and the industrial network approach of the IMP Group. They criticise the generic and mechanic vision implying that the development and regional dynamics depend on general factors of success replication. Indeed we go further with a conceptual discussion from which a number of propositions integrated into a proposed model result, thus trying to capture how firms’ strategic action is reflected upon the regional dynamics and structure and how such factors affect the firms’ strategic action.
The paper is structured as follows. Section 2 addresses regional studies under the perspective of the relational geography approach that challenges the traditional vision of the regional management and economic geography. The third section outlines the process of firms’ interactions from the perspective of the IMP Group. The recent industrial network approach contributions to the regional dynamics that reveal a strong affinity with the relational geography fundaments are also detailed in this section. In the fourth section, based on the previously mentioned theoretical approaches, we advance into a discussion based on three propositions, which deal with the reciprocal influence between firms and regional dynamics. These propositions are then translated into a theoretical model aimed at answering what has been detected as lacking and that can constitute a base to reinforce the knowledge on the relationship between firms and regions which remains relatively generic. The last section presents the conclusions as well as suggestions for further research.
The concept of region has evolved due to the inclusion of relational elements in its characterisation, and this has originated what is currently known as “relational geography” [
The relational approach is based upon the interactions occurring at a micro-level because of diverse regional processes. Space is analysed in a continuous relationship with economy and also in sharp contrast with previous positions that take it as a separate entity which is truly independent from economic actions [
There are three consequences of actions and economic interactions in relational conceptualisation [
Within the context of relational approaches, firms are noteworthy regional actors [
The relationships between firms and the region where they are located in are reciprocal [
However, the interactive relationship between firms and regions is not totally explained although the firm is pinpointed as the key element of the relational space [
Another structural characteristic of the relational geography approach is that it does not assume local, national or global spheres as different components from social action. Indeed, it promotes a relational understanding of each of those as a “nexus of multiple and asymmetric interdependencies among and between local and wider fields of action, organisation and influence ( [
Regions tend to progressively transform themselves and become part of a global network, thus witnessing connections and distant influences from multiple actors [
Both dynamics and interactions associated to a region are referred to by the relational approach as being essential for their development. They are “the tangible and intangible flows between the actors function as a blood circulation system in the region, enabling the system to meet the changing needs of the business environment” ( [
A region must be linked to the outside world in what Owen-Smith and Powell [
In all these perspectives it is obviously the highlighting of the interaction between various scales for the production of regional effects, which gives the network approach a crucial importance in relational geography. However, despite the excellent contributions of authors such as [
To overcome these limitations we need to connect all the significant contributions coming from relational geography and GPN with more knowledge about the firm, that recognizing it as a social and specific construct could also clarify the basis for it strategic action and interaction that are also in the basis for their network configuration involving these elements with regional structures and development.
The industrial network approach, to be analysed next, does show a simultaneous notable adjustment and strong affinity with the characteristics conferred to the regions by relational geography, which has, for the past thirty years, focused on the study of the relations and interaction processes between firms. The interrelation between these theoretical orientations can make both gain momentum and more important than that, help to understand the interaction phenomena between firms and regions more effectively.
Indeed, the similarities in the guidelines of GPN and the positions associated to the industrial network approach are evident. This compatibility is even more relevant when these approaches were developed independently without any significant interaction between them. The approaches of industrial networks do not initially have any geographical claim, before focusing on the interaction process and relationship between companies. As a result of the accumulated knowledge in what the processes of interaction and relationship are concerned, the industrial networks approach explains the nature of relationships and the cognitive components associated with the business interaction. This approach has positioned itself as especially appropriate to clarify the strategic action of firms and illuminate the black box that still characterises them, thus supplementing the relational positions of geography and GPN.
The approach of markets as networks is based on organisational theories such as the studies undertaken by Cyert and March [
Although based on the studies addressed previously, the development of such approach owes much from the research efforts of IMP (Industrial Marketing and Purchasing) group authors on inter-organisational networks. This stream of research was created in the 1970s, and its seminal studies were developed especially at the Swedish universities of Stockholm and Uppsala. Its research techniques spread to other research centres mainly in European countries such as the universities of Lancaster, Manchester and Bath in the UK [
The industrial networking approach begun developing as “a tool to investigate relationships that connected dyadic counterparts not only to each other, but also to a larger structure” ( [
One of the most important research objects in industrial network research becomes the long-term relationship, its origins, characteristics and effects [
Relationships often involve multiple interactions, which emphasise the social component [
The choices of future relationships largely depend on their current relationships, which in turn have depended on past relationships and their resulting experiences [
Interaction is also one of the main ways used by actors to generate new knowledge [
A clear-cut rupture between the positions that defined borders between organisations and their environment is also a common characteristic for this approach. Due to the relationship’s links, the organisations do not adopt the environment in an unchanged manner, but as an element with which they interact in a specific way [
A firm alone cannot build up its strategy [
In such a perspective, strategy is defined by the way “in which a firm achieves exchange effectiveness in relation to other firms in the surrounding network that is, how a firm initiates and reacts to changes in the network in such a way that the firm keeps on being valuable to the network” ( [
We can identify three elements that structure the firms strategic action in a network perspective: network theories, their position in the network and their resources [
Firms do not prosper only by their individual effort, they also depend on the relationships maintained with others and of the direct and indirect relationships’ nature developed with them [
A firm network position can be understood as a resource, an intangible asset that influences its action’s capacity and simultaneously, as any resource, supports and restricts its strategic action [
The development of new relationships by the firm change the way its identity is perceptible in the network: i.e., its position. Due to relationships’ dynamic character, firms’ position is not definitive, and constantly changes with time [
According to Johanson and Mattsson [
Turnbull, Ford and Cunningham [
Due to the broad network magnitude, the actors have only a limited cognitive capacity of the networks they belong to. They are restricted to a horizon, which confines the reality they know. When the interacting firms have differentiated network horizons, the visualisation of new opportunities for interaction is vastly improved [
The network position also influences the network theory considering since this is largely based on information resulting from relationships between actors [
The concepts aimed to introduce theoretical formulations about actors’ subjective perceptions about the networks have been evolving, and new terminologies as ideas [
An extensive range of literature about firms’ resources emphasise the internal and homogeneous component of resources, understanding it as something that is mainly processed within the firm [
The industrial network approach is sceptical about the direct control over resources a firm can obtain since a substantial part of the resources available to the firm are under the direct control of other actors and can only be accessed by the interactions and relationships in the network [
Araújo, Dubois and Gadde ( [
This is how the IMP holds its position, thus considering relationships as resources: “relationships are not only tools to save resources or to create new roles to them, but are also important resources in themselves” ( [
The industrial network approach has broadened its initial focus on interaction processes of the firms, extending its field of analysis to the areas where this interaction process may have influence. Thus, being business actors a major player of the regional dynamics, the contributions of authors linked to the IMP arises naturally, framed in various geographical scales and generating a link between these studies and geography.
The regional understanding resulting from these studies is similar to those coming from the relational geography approaches: greatly dynamic, interactive and relational. Apart from the attribution of a dynamic characteristic to the regions, these authors also recognize the relevance of history since they consider that regions should not be seen as individual entities merely linked at a distance with other geographical entities. Regions have different historical paths and dynamics which have diverse inflows and outflows that are capable of changing the relationships and dynamics within such areas [
Regional features are considered “as something that not only affects the individual firm, but also the way the individual company interacts with other companies” considering that “the companies’ interaction creates the place” ( [
Regional dynamics depend on a network of connections resulting from the structure of relationships between firms since they are all involved in networks that outflow the regional boundaries. Hence, the dissemination of knowledge and network learning derives from a relational pattern and not only from physical proximity between actors [
Regional interactions are based on the interaction between the various actors belonging to those regions. For this to happen, interaction needs some form of relationship which becomes an important bridge to overtake spatial distances as well as cultural and competence distances [
The main idea is that regions and firm resources mutually interact affecting each other [
The structural features resulting from the application of the concepts of the industrial networks approach were already present in the relational chain of geography. Although the approaches by relational geography and GPN are gaining importance within studies related to regional development, the specific features of firms and its strategic actions are not analysed in depth. Much of the understanding about firms is still based on generic concepts such as lead and supplier firms [
Although the potential for the interaction between space and companies explanation revealed by the industrial network approach, it is not yet sufficiently developed and focused on regions in a way that makes it possible to understand how that interaction occurs. There is no sufficient explanation on how changes resulting from the firms’ strategic action reflect on the dynamics and regional structure. This consequently gives origin to an opportunity: to conceptually relate the contributions of the industrial network approach to the structural principles of relational geography in order to clarify the interaction between firms’ action and regional dynamics. As a result of the literature review, we developed three propositions with that goal in mind. These propositions are integrated into a proposed model that attempts to deal with the mutual influence between firms and regions.
Proposition 1
Firms’ strategic position and actions affect the structure and dynamics of the regions where they are located.
Proposition 2
Industrial networks affect the structure and dynamics of the regions where their firms are located.
Proposition 3
The structure and dynamics of the regions affect the firms’ strategic position and actions as well as the industrial networks.
By recognizing the specificity of business actors [
The network theory, formed by a set of beliefs and perceptions of the actor “in relation to the structure, process and market performance, the impact of their strategic action and the performance of the others” Mattsson ( [
Depending on their relevance, their role in the network and the counterparty with whom they relate, the firms obtain a position in each of the inter-organisational networks they integrate [
abiltiy [
Since these factors are quite specific, firms will have theories and occupy different positions in the network, therefore becoming factors leading to specific and strategic measures. Moreover they decisively influence the choice of counterparties with whom they relate and the mode of this relationship. Since firms clearly reveal themselves as selective in their relationships, there is a need for principles of action compatible with local firms. If not mere neighbourhood, far from leading to interaction, may lead to distance between the business actors. Thus, geographical proximity has a rather limited contribution to explain interactions. Local relationships are clearly dependent on the prior existence of counterparts evidencing some sort of similarity among their operating principles.
Counterparties are searched for at multiple scales visibly going beyond the local level. Still the relationships that firms develop locally are interconnected with others in different regions. Due to this connectivity, events in regions diverse from the focal one have the potential to alter the configuration of the relationships in the firm. Regional dynamics resulting from multiple interactions developed at different scales [
Firms which present principles of action and differential ways of relating among themselves, interact with the actors in the region where they are installed and with other regions where they extend its activity to, thus evidencing all the regions’ particular characteristics. In fact, regions indexed to the location of the firms’ present contexts, histories, contingency factors and an input capacity of different knowledges related to the firms [
The firm’s presence in the region, through the activity it performs, the available resources and the created relationships, is in continuous interaction with these regional characteristics. Depending on the features of both parties involved in this process, the interaction will have a greater or lesser ability to boost the structure and dynamics of the region.
Due to the interaction process with the focal firm, local actors can perceive new possibilities of interaction or ways of acting in the market, develop new activities, find new ways to combine their resources, relate with other actors in the network of the focal firm and internally create new competences [
So, it can be stated that it is not enough to have a substantial number of local links to create regional dynamics. It is indeed essential that such links create competences that lead to the creation and rating of activities, which in turn originate new links and gather resources or contribute to a change in theories and a broader horizon for the interacting parts. Such effects depend, on a large scale, on the input capacity of each region. It is the interaction between the diverse organisational networks of the firms installed in a specific if region and the regional characteristics they possess that may create obstacles or advance the mentioned effects.
These relationships are necessarily connected, as part of various inter-organisational networks [
The interaction developed by business organisations is a major factor affecting the network theory, being the firms the result of their relationships [
Likewise, the level of regional influence on the strategic action of firms is clear, their specificity reveals a vital role, so that they react differently to diverse regional characteristics. The same regional characteristics will interact with firms that have different conditioning elements of strategic action provoking different effects on each one of them. Thus, some physical or material characteristics of the region may be interpreted as limiting by certain firm which will be negatively influenced by them, and could be taken into account as a factor in stimulating innovation by others in order to overcome this constraint.
This paper encompasses a conceptual research with both theoretical and policy making contributions.
The process of relationship between relational geography and the industrial networks approach has strengthened the knowledge about the reciprocity between firms and regions. The detail of the firms organisation managed by its focus on the determinants of corporate strategy and in the interaction process that they develop, will overcome one of the major criticisms pointed at relational geography resulting from the fact that firms are simultaneously identified as a key element in regional dynamics, and nevertheless remain characterised in a both generic and abstract way.
During this process, it is possible to understand the importance of subjective elements influencing the strategic performance of each firm’s structure and dynamics in the region where it is located and in the others where they have influenced. This depends on the connectivity of their relationships and it is clear that the firms’ connection to the region transcends material components, following from a meta-relational level that will determine the link between the various actors in the firm’s network.
Firms are fairly diverse. Even within the same economic sector their performance is different and such diversity is reflected upon the way their relationship network articulates in various regions. Furthermore, regions are also fairly heterogeneous and have specific development paths and contexts that condition the firms’ strategic action and relationships. Such specificity results in the fact that the same recipe cannot be used permanently to stimulate regional development. In this way, the relationship between firms and regions will always be specific and impossible to replicate. Therefore, there is no unique mechanism or generic law that explains the origin of a dynamic region. Such specificity renders the current literary trends which point to generic thesis of development based upon the combination of various material factors inside a geographically limited space as rather fragile.
The model developed based on relational geography trends and on the industrial network approach suggests that regional dynamics is mostly dependent on intangible factors and interaction processes at various scales. From a specific knowledge of a firm based on a specific relationship network, one can focus on the interaction of this network with the regional characteristics. Such an interaction can cause changes to the regional structure and dynamics. Besides, regions do not react in the same way to the firm’s presence and the opportunities for regional dynamics that come with them. The larger regional effects do not happen by the merely physical presence of the firm but by the interactions and activations of competences in other actors it presence creates. Simultaneously, regional context does not influence firms to the same extent. Its specificity makes them interpret regional features in different ways and this reflects on a differentiated strategic performance.
This discussion results in some recommendations concerning regional policies. The essential question to solve by regional management is not subject to physical boundaries since all relationship networks may be connected to diverse regions. So, regional managers must enhance the firms’ internal links as well as develop the links to external networks where they will garner several dynamic factors. In order to do so, they must create a great extent of knowledge about firms’ specific needs and strategies. Such knowledge will allow for the identification of firms, which may be attractive and strategically compatible with organisational networks already established in a region. The knowledge of entrepreneurial actors will allow for the development of efforts by regional administration in order to make the relational distance between firms closer and more present in the same space, causing an increase in the possibilities of interaction.
Only a broad regional management understood as an intervention of local governing bodies in various geographical scales going beyond the limitation of its administrative power can identify the complementarities between existing skills and resources in different regions and then encourage the emergence of regional links through the interaction of their organisations and firms. Regions should have the clear perception that they are only one knot in a wide network of business relationships which occur at various scales. This knot will only gain prominence for the firm if it is considered crucial to create a certain value by having features unobtainable in other locations. These characteristics are often intangible assets arising from the action of various regional actors.
Despite the increasing knowledge in the interaction between firms and regions resulting from the complementarity between the Relational Geography and the Industrial Networks Approach, this process should be only the starting point for future work, which by using this complementarity enables the clarification of other process domains of the mutual influence between firms in the regions. For instance, the processes of relocating firms and the effect in terms of regional dynamics can be analysed in the light of the knowledge now generated. It can also be interesting to detail the influence of specific regional events on the relationship between firms. Likewise it is possible to understand the business group performance strategy framing it in terms of a region, definitively relating the firms’ specificity to geographic processes.
Ricardo Correia,Carlos Brito, (2016) Operationalizing Interaction between Firms and Regions. Theoretical Economics Letters,06,690-706. doi: 10.4236/tel.2016.64074