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Companies trigger regional prosperity

"Companies create successful regions, whereas regions do not create successful companies." That is the claim of Steven Klepper, Professor of Economics and Social Science at Carnegie Mellon University, who is making fleeting visit to Linkoping.

Steven Klepper

Steven Klepper’s lecture is not very encouraging for the twin cities of Linköping and Norrköping and its aspirations for development. So that a region can emerge, grow and prosper, at least one good technological company is required, however that company should be led by weak or poor management! More on that later.

We also need skilled workers, entrepreneurs who will not hesitate to resign from high paying jobs, give one hundred per cent and start their own business. Besides that, plenty of opportunity for the development of new businesses.

“The best educators are not universities, but businesses, however they rarely want to play that role”, claims Steven Klepper
He clarifies:
“It isn’t regions that build profitable companies, on the contrary, it’s companies that build prosperous regions.

Of course he can present a shining example: There is a region, or rather a country, which from humble beginnings, managed to create a large, vibrant and growing industry.
This will be revealed later.

Professor Steven Klepper is none other than the seventeenth recipient of the Swedish Global Award for Entrepreneurship Research, a prestigious research prize instituted by the Swedish Agency for Economic and Regional Growth (Tillväxtverket), the Swedish Entrepreneurship Forum (Entreprenörskapsforum) and the Research Institute of Industrial Economics (IFN). Returning from the awards ceremony, he is now on a quick visit to Linköping and is taking the opportunity to speak before a packed auditorium.

He describes how he studied in detail (dissected) four strong clusters and it is from these studies that he draws his conclusions. Of course the Silicon Valley is among them.

Approximately 300 000 people lived in the region of Santa Clara during the early 1950s. The company Fairchild was situated here, which until the 1980s, would spin off more than a hundred, so called, Fair Children. These spin-off companies, which attracted new competencies, hired the best in the business, which in turn, competed with the parent company and led to further spin-off companies.

In terms of the Fairchild case, it is the first and second generation of companies such as Sun, Intel, Motorola, Google, National, AMD and many more. In 1980, just over 1.3 million people lived in Santa Clara. Today, 20 % of all US venture capital ends up in Silicon Valley.

Steven Klepper can see a similar development in the early 1900s when a booming automotive industry emerged, that included the Olds Motor Company in Detroit and a tire industry from Goodrich, in Acron, Ohio. Spinning off from the Olds Motor Company were companies such as Ford, Cadillac and GM and from Goodrich came Firestone and Goodyear.

He identifies a company that should have created a vibrant cluster, Texas Instruments in Dallas, Texas. It is large and vigorous, but probably too well run to instigate that skilled employees resign in frustration and start new businesses in the same industry.

“It's probably advantageous for the company, but not for society”, quips Steven Klepper. “The key word here is Mobility. Companies that tie their employees to themselves are not good, not good at all.

So to the last example. The country that created a booming industry from a single seed. How could this work? It's about Bangladesh and the cotton industry.

In 1971 the country was annexed from Pakistan and became independent. Bangladesh was then one of the world's poorest countries suffering from corruption, low education and stricken with natural disasters. Industry was non-existent during 1978.

However the South Korean company Daewoo selected 125 people in Bangladesh and taught them to run a cotton mill. Daewoo, via the company Desh, did everything, except produce the cotton. Due to political instability in South Korea Daewoo were eventually forced let go of Desh, and the 125 employees started their own business. Today there are more than 4500 companies in Bangladesh and exports have increased by about five % per year since the 1980s.

Can we learn from something from this when Linkoping and Norrkoping forge closer ties?

"No, but it is interesting that Steven Klepper identifies a clear link to the research we conduct at the KITE Research Group, here at LiU, says Fredrik Tell, professor at the Department of Management and Engineering Business Administration who took the opportunity to invite Steven Klepper to LiU.

KITE stands for Knowledge Integration and Innovation in Transnational Enterprise, and researches how new ideas are created in mature industries with operations in many countries, and even how to transfer new knowledge to companies.

"Even our research shows how important it is that new and old knowledge can be integrated to and between companies to create innovation and growth", says Fredrik Tell.

Monica Westman Svenselius

Monica Westman Svenselius 2011-06-28

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Last updated: 2015-11-25