Endogenous learning for innovation in knowledge-intensive SMEs

Endogenous learning for innovation in knowledge-intensive SMES José Jonathan Alonso,a Oscar F. Contrerasb and Alejandro Valenzuelac a Universidad Autónoma de Baja California, Mexico; b El Colegio de la Frontera Norte, Mexico; c Universidad de Sonora, Mexico. Email addresses: ; and , respectively. Date received: September 2, 2024. Date of acceptance: January 10, 2025. Abstract This article explores the learning mechanisms of knowledge-intensive small and medium-sized enterprises (SMEs) in contexts with a high density of multinational companies. Based on a sampling survey in the northern region of Mexico, two primary sources of learning for innovation are identified: relationships with customers and suppliers and endogenous learning actions, notably training of personnel, investment in R&D and the acquisition of advanced technology. Contrary to expectations, Regional Innovation Systems (RIS) make a marginal contribution to the innovative capacities of SMES, suggesting a deficit in industrial policy. Keywords: innovation; endogenous learning mechanisms; small and medium-sized enterprises (SMES); Regional Innovation Systems (RIS); Global Value Chains (GVC). 1. INTRODUCTION In Latin America, small and medium-sized enterprises (SMEs) face severe limitations when it comes to participating in Global Value Chains (GVCs) and are generally relegated to a marginal role in the globalized economy. However, some studies argue that SMEs can benefit from innovative environments and the knowledge transferred by multinational enterprises (MNEs), facilitating their incorporation into GVCs. Unlike those operating in low value-added niches, knowledge-intensive SMEs have greater opportunities in GVCs, but they remain the exception in Latin America. A crucial component in the accumulation of skills is technological and business learning, based on knowledge absorption and practices geared toward learning and innovation. The objective of this study is to identify the learning mechanisms that strengthen the innovation capabilities of SMEs, i.e., those processes through which local Mexican companies accumulate, assimilate, and appropriate the technological and knowledge spillovers that occur in the convergence spaces of the global economy with local environments, favoring their propensity to innovate. After a brief introduction, five sections of the paper are presented: the second proposes the theoretical convergence between VGC and Innovation Systems (IS) to address learning in knowledge-intensive SMEs; the third defines the relevant variables for analysis based on international literature, while the fourth presents the methodological strategy of the research. The fifth section presents the results of the study and the sixth section presents the conclusions. 2. LEARNING MECHANISMS IN SMEs The concept of "Global Value Chain" is appealing because of its simplicity and scope: it refers to the sequence of activities involved in the production of a specific good or service, including activities relating to extraction, manufacturing, transportation, marketing, distribution, after-sales service, etc. (Gereffi and Fernandez-Stark, 2011; Gereffi et al., 2005). This approach makes it possible to analyze the segmentation and international relocalization of production on a global scale, as well as the governance structures and opportunities for improvement of local companies in developing countries (Humphrey and Schmitz, 2000 and 2002). Two key concepts in this perspective are governance and upgrading. Governance is defined as the "relationships of power and authority that determine the allocation of resources and cooperation among firms along the chain" (Gereffi, 1994, p. 97). Meanwhile, upgrading has been at the center of the debate on GVCs in Latin America, a discussion that has sought to elucidate how local companies can participate in global markets to improve their productivity, wages and profits, while developing skills to produce higher quality and higher value-added goods and services. The IS approach is based on the premise that technological learning and innovation do not occur solely in market relationships, but rather in a network of interactive learning between various agents (Freeman, 1987; Lundvall, 1992; Nelson, 1993), including universities, research centers and public agencies (Lundvall, 2007). Innovation arises from a network of continuous interactions between companies and other agents, within a framework in which technological trajectories and institutional assets foster collective learning and innovation. Both approaches, CGV and IS, address business improvement processes. The IS approach focuses on building absorption capabilities to recognize, assimilate, and exploit knowledge (Cohen and Levinthal, 1990). Meanwhile, the GVC approach focuses on upgrading to more complex and higher value-added activities (Gereffi et al., 2005; Pietrobelli and Rabellotti, 2010 and 2011; Malerba and Nelson, 2011; Jurowetzki et al., 2018). Although the integration of GVC and IS has made little progress, four points of convergence have been identified: 1) user-producer learning processes in product innovations; 2) upgrading in processes and products; 3) technological and organizational absorption capacities; and 4) interactions with universities, research centers and science, technology and innovation institutions (Kashani et al., 2023; Lema et al., 2018; Cooke et al., 1997; Gereffi et al., 2005). The difficulties that hinder SMEs' participation in international markets and global supply chains include lack of capital, access to new technologies, skilled labor shortages, market access, adequate information, and business skills (Bair and Gereffi, 2001; Frederick and Gereffi, 2011; Nurfarida et al., 2022; Chandra et al., 2020). Despite this, some local SMEs manage to improve by linking up with institutional environments and MNEs, facilitating their entry into high valueadded segments of the GVC (Vera-Cruz and Dutrénit, 2004 and 2005; De Fuentes, 2010; Contreras et al., 2012a; Contreras and García, 2018). Dutrénit and De Fuentes (2009) identify three conditions for capturing spillovers from MNEs and strengthening SME capabilities: 1) the MNE's supply strategy; 2) the level of technological and organizational capabilities of the local company; and 3) a mature regional or local environment. Sampath et al. (2018) propose the coevolution of GVCs and IS, involving governance patterns and IS maturity, which defines the possibilities for local companies to generate innovation and learning capacities. Recent studies in Kenya and Pakistan show how national and local institutions can foster links between GVC and IS, facilitating the learning of local companies and enabling them to become suppliers to MNEs (Park and Gachukia, 2020; Naqvi et al., 2021). 3. LEARNING FOR INNOVATION: RELEVANT VARIABLES In the literature on GVC and IS, four groups of variables are identified as causal mechanisms that explain (...truncated)