Abstract
Recent extensions to the knowledge spillover theory of entrepreneurship (KSTE) show that the successful commercialization of new knowledge by incumbents depends on their absorptive capacities. For policy-makers focusing on increasing incumbents’ innovative performance, the systematic reduction of knowledge filter through improved absorptive capacities thus becomes a crucial goal. While the general working mechanisms of knowledge filter have been analyzed within the KSTE framework, few institutional solutions to increase absorptive capacities have been put forth. This study provides an initial case study explaining a specific institutional framework fostering the systematic penetration of knowledge filters by incumbent firms in the case of German SMEs. Using a set of 177 in-depth interviews with firm representatives, the system of interrelated organizations, institutional arrangements, shared values, and economic incentives associated with the institutional structures for knowledge spillovers for German SMEs are described. I identify institutional characteristics connected to the dual system of vocational training, regulatory measures, and economic incentives mutually enforcing and fostering broad knowledge spillovers. This exploratory approach enables deriving hypotheses for the further study of knowledge filters as well as policy implications for the design of institutions increasing incumbents’ absorptive capacities.
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Notes
All numbers on the German craft sector and its economic relevance within the German economy can be obtained from the central craft organization ZDH, see: https://www.zdh.de/daten-fakten/kennzahlen-des-handwerks/.
The interviews were conducted in person by student assistants in March and April 2017 at ten different fairs in different locations in central Germany. Our student assistants have a high degree of knowledge on institutional economics and the economics of the German craft sector, being a research focus of our chair. Consequently, they were highly qualified to conduct the interviews and were qualified discussion partners with entrepreneurs.
An interviewee puts it such that: “Such a Meister, a crafts master, still has a vocational ethos. You can say so, for myself even less than for many of my colleagues. There really is a strong vocational ethos and you train apprentices not because, as many might think, they are cheap labor, but you really do train them to pass on your masterly skills, to hand them over to the next generation.”
“Would this decrease your willingness to conduct training? No. Not at all. (I): You would still do it. (R) In any case I would, sure. (I): So you would do it due to your understanding of your vocation, because you think it’s right? (R): Yes, of course. Because I see each day how much craft work is messed up if people have no proper qualification […].”
A typical answer similarly draws upon the professional understanding of the craft: “Well, it would lead to no more apprentices, it’s that simple! Because these things go hand in hand. Those people that really feel connected to their craft, they do their Meister degree, to achieve a certain level of qualification. They deeply care for the continuation of the craft. And that means of course caring for the training of new apprentices […].” Another respondent explains: “This is a complex mechanism, all that is connected to the Meister requirement, this is quite complex. If someone leads a firm with no quality aspirations, he will do fine with just simple untrained helping worker, and he might even get through with it. At the end, the customers are the ones that suffer.”
“[…] because an apprentice primarily costs money. You invest in a person, hoping that he will stay in your firm and carries on the quality and skills you taught him. But that doesn’t work anymore today, in the areas without the Meister requirement. Because there, you potentially train your future competitor.”
Says one interviewee from a deregulated domain: “You see, this idealism, no one can afford that anymore. That’s a clear and simple thing. I believe that the development in the crafts is getting increasingly harder. Competitive pressure is increasing, working time gets more expensive and also the equipment gets more expensive. Consequently, costs are getting ever higher and you can’t afford to just sit there for five minutes, saying, my lord, this is a beautiful piece of work. Vocational trainers and entrepreneurs can no longer afford that and this development, it is sad, but it is real.”
One interviewee comments: “So, in Meisterschool, you just learn that you have to continue learning etc. So we go to training courses three, four times each year, each time for several days. You just can’t afford not to stay on top of things. Who has never made his Meister and hasn’t been to school there hasn’t learned that this is really necessary.” Another entrepreneur, responding to the question as to whether quality has changed: “Definitely better. […] There is far more additional training than earlier on. There are more training classes and we have higher learning requirements.”
“[…] there are many carpenters from across the country, fairly big firms that build houses. And with those, there is a continuous further training. That means our Meisters meet within this association of carpenters and exchange their experiences and so improve in the domain of house building. How do new products work? There are always new products on the markets and you always have to figure out how to use them, how do they react, are they ecologically acceptable, how are the physical properties etc. etc.”
“Quality management to us is primarily a learning process. To always continue learning on the current state. For instance, we have a training academy within our firm, where each worker has the opportunity to learn new things in his special domain. There are various classes each year where each person can decide whether and where to participate. And I can tell you, 99.9 percent of these classes are attended by our employees!”
One typical answer reads: “Well, our craft, particularly chimney sweepers, are required to do periodical mandatory training courses. Myself as the manager and my staff, we regularly have to go to classes. That’s required by the law […].”
“(I): So, what would happen if the Meisterpflicht would be abolished? (R): That’s a good question. I don’t think much would change, since we already have very high mandatory standards due to EU certification. (I): So you could say that this EU certificate in a way has higher than standards than the Meisterpflicht and is more demanding and that all would have to get a high standard of knowledge anyways? Yes, a high standard, yes.” Another respondent adds: “Quality has absolutely improved, because there are so many more legal requirements, they have been adapted by the EU. The technology has a key role, that’s coming more and more. […] (I): So how can people keep track of these changes, the firms, with these difficult technologies? (R): Difficult. You have to continuously keep training. Further education and never stop, always continue.”
A respondent answered the question of whether quality has improved as follows: “Yes, constantly. All the time, continually. Through the current quality controls and through our construction management, the customers demand and of course through the fivefold TÜV audits, we not only have a monitoring of quality, but also an increase in quality. You can’t go there and, I’m exaggerating, build some mess, because this TÜV-audit, checks all this. So this means you cannot hide anything there. And each craftsman knows this at this moment. He knows, someone will come there. And if my works isn’t fine, I’ll have to do it all again. So this wouldn’t make any sense. And so the craftsmen are willing to work accordingly.”
A typical answer to the question of whether higher prices can be charged reads: “Well, I’d say that this is also necessary. I mean, they have invested in their training and can therefore provide a higher quality product and another quality standard. Sure.”
“(I): So you said that quality has generally decreased on your market? (R): Yes. (I) What reasons does this have? Well, I’d say that this has to do with competition, the price pressure. For a certain price, you cannot make an offer with a reasonable quality. The qualification and time is always a big issue here.”
Responding to the question whether customers understand quality differences, an entrepreneur replies “That’s difficult. Very difficult for customers. Customers don’t even understand our overall offers and the service we provide. Only if something doesn’t work afterwards, i.e. once there is a damage, then there is a lot of crying around. Then they actually understand quality differences. But otherwise, no, that’s hardly possible in advance. Only if the customers is helped by an expert consultant.”
“Customers in general want high quality. But since they aren’t able to tell the difference, there is a lot of fraud going on. […] Sometimes the firms have no idea of the technology. And they are cheap due to that and sell themselves cheaply. And that does a lot of damage to the crafts in general.”
One interviewee explains: “The customer simply demands more, yes. The whole market has become so much more complex. So consulting is more intensive, requirements for obtaining public support has increased, so yes. […] (I): So the whole craft has become more complex? (R): Yes, definitely. You don’t practice what you’ve learned once. There are some many new things, experience and what you learn from further training etc. You have to do that every day.”
A typical answer reads: “Well, I would say that the average quality has increased in the past years, because our customers’ demands keep increasing!”.
An interviewee explains: “There are firms that continue to look very closely at high quality, particularly firms that are only active regionally that want to provide high quality, because they are available for customers at all times. […] Well it’s my conviction that that these firms are really committed to providing high quality. Because, you see, if I do bad work in my hometown of about 3,500 inhabitants and I mess up at only one customer, he will tell everybody. People do talk about this. So I have to, if I want to or not, deliver a good quality. Because I live off of word-to-mouth advertisement.”
One respondent explains (responding to the question regarding quality development): “We are far more qualified. About fifteen years ago, many of the technologies were developed and they overstrained many firms. Today, a craftsman needs a broad combination of fields. […] He’s confronted with technologies he might not have seen in his daily life, so he just has to acquire the qualifications, heat pumps, complex installations, solar technology and so on. So the knowledge that craftsmen need to have nowadays is really much higher than in the past fifteen years. (I): What is the reason for this? […] (R): It’s because of more informed customers!”
“(R): Quality has improved. (I): Could you explain the reasons? (R): I would say it’s because of the further qualification by craftsmen. (I): Okay, so there are more courses offered? (R): No, because everything becomes more complex, more complicated and you are simply forced to implement it!”
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Proeger, T. Knowledge Spillovers and Absorptive Capacity—Institutional Evidence from the “German Mittelstand”. J Knowl Econ 11, 211–238 (2020). https://doi.org/10.1007/s13132-018-0539-8
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DOI: https://doi.org/10.1007/s13132-018-0539-8
Keywords
- Entrepreneurship
- Knowledge filter
- Knowledge spillover theory of entrepreneurship
- Networks
- Small and medium enterprises