Small-Firm Success and Supplier Relations in the Australian Boat-Building Industry: A Contrast of Two Regions

This article tests the hypothesis that a clustered grouping of small firms situated in a region where the industry is expanding is more likely to have developed progressive relations with its suppliers than its counterparts situated in a region where the industry is declining. The Sydney and southeast Queensland boat building sectors in Australia are used for such a comparison. Best (1990) has argued that inter-firm co-operation is a condition of small-firm success. His contention is that the decline of the north London furniture manufacturing industry during the 1970s and 1980s can be ascribed to the individualistic mindset of entrepreneurs in the sector who lost out to imports from countries such as Italy and Germany where entrepreneurs possessed a far more collaborative mentality. This mentality nourished a range of specialist machinery makers and component suppliers which facilitated the flow of knowledge, the generation of ideas, and the solutions to problems - all necessary to product and process innovation. Thus, for instance, Italian manufacturers were (and are) able to offer a range of new designs beyond the capacity of UK manufacturers, and German kitchen manufacturers developed the ability to provide high quality cabinets with a range of accessories that could not be matched in the UK. Howard (1990) has argued in similar vein that the capacity to build strong production networks constitutes a new kind of competitive advantage, quoting examples from Japan, Europe's industrial districts, and California's Silicon Valley. These new business relationships do not develop automatically - they require managers willing to re-define their interactions with suppliers, customers, and competitors. This present study examines only one aspect of inter-firm co-operation, namely the relationship between groups of small manufacturing firms and their suppliers. The aim of the study is to discover whether there is a significant difference between the progressiveness of the manufacturer/supplier relations in declining as opposed to expanding manufacturing clusters situated in different regions of the same industry. Collaborative relationships with suppliers provide small businesses with one of their best opportunities for synergistic activity. A type of trusting co-operation (Pyke 1988) can be developed among organisations that relate to one another in a vertical stance, that is, as units in a production chain. Firms must position their manufacturing capability to maximize the benefits that can be derived from combining the strengths of their in-house skills and capabilities with the strengths of their suppliers (Lyons, Krachenberg, and Henke 1990). The advantages of progressive relationships with suppliers are now well documented (Han, Wilson, and Dant 1993). Advantages include sources of ideas, problem-solving, design refinement, product and process improvement, continuous [TABULAR DATA FOR TABLE 1 OMITTED] innovation, technology transfer, higher quality, lower costs, less waste, and so on. The characteristics of progressive supplier relationships have been synthesized from the burgeoning TQM literature (Deming 1982; Brocka and Brocka 1992) as well as the literature on flexible specialization, industrial districts, and consultative coordination (Piore and Sabel 1984; Hirst and Zeitlin 1991; Amin 1989). The contrast between the characteristics of progressive and traditional supplier relationships (Jones and Kustin 1995) is summarised in Table 1. Boat Building in Sydney and Southeast Queensland Boat building in Australia is an industry of contrasts. In 1989, total sales in establishments employing more than three persons were $330 million (ABS 1992), revealing scarcely any growth in real terms since the late 1960s. Builders in the two states of New South Wales (NSW) and Queensland accounted for approximately 70 percent of this total, up from 47 percent in 1975. However, these combined figures conceal the contrasting growth rates of the two states in the period since 1975. …