Our Research posts are about the latest academic research being done in the School of Economics. This week:
SPILLOVER EFFECTS ENHANCING SALES, PRODUCTION AND COMPETITIVENESS OF SOUTH AFRICAN MANUFACTURERS
By Ewert Kleynhans & Anseca Swart
With the surge of globalisation, economic systems became integrated across borders and it became easier for firms to share knowledge and improve their global competitiveness. The study therefore examined the connections between firms in the manufacturing industries with regard to knowledge and innovation spillover effects.
This study aimed to quantitatively and qualitatively analyse the effect of such spillovers on firm competitiveness and growth, as well as human capital improvement, which will translate into regional, national and international improvement of production processes and ultimately, economic growth and development.
Knowledge spillovers may have important effects on firm growth and competition. It is therefore important to identify the elements that affect the transferral of knowledge between firms such as clustering. This study focused on the knowledge spillover effects and competition in the manufacturing sector on regional, national and international level occurring as a result of increased market integration with the surge of globalisation.
Different types of spillover effects exist and the type most relevant to this study was Porter spillovers, which state that a country is able to create the necessary factor endowments, like skilled labour and a strong technology base. Previous research emphasises the importance of prior knowledge protection through patents as well as the importance of internal research and development efforts to encourage investment from multi-national corporations (MNEs), as well as Direct Foreign Investment (FDI). The importance of an educated human capital base was also researched in this study and found to be of utmost importance for industrial development. Joint knowledge creation efforts may also be undertaken to encourage industrial development.
The results showed a significant interconnectedness between firm growth and knowledge sharing on all levels. Using data from manufacturing firms in South Africa, this study also found a significant relationship between sales figures and expenses on communication, and the number of skilled workers and innovation, while the numbers of competitors and private ownership are detrimental to sales, emphasising the role of MNEs and FDI. These findings are in line with existing literature. This study revealed much about the interaction between spillovers and competitiveness, using sales as a proxy. It revealed much new information, but the determination of spillovers still remains a difficult task.
Policies that encourage cooperation between firms as well as cooperation with research institutions should be formulated to improve industrial development. Competition policy will have to address issues that limit internal research and development efforts. The role of the government, especially in developing countries, is important to protect key industries and stimulate knowledge creation and innovation efforts, as well as to stimulate investment from MNEs. This, however, necessitates a certain level of development, already emphasising the need for internal research and development. Education should be a primary goal to facilitate the knowledge creation and innovation process of a country, as this study also confirmed the importance of a productive human capital base.
Overall, the important role of knowledge spillovers to encourage industrial development and competition, which occur regionally, nationally and internationally, was emphasised in this study. More research studies in this field will, however, have to be undertaken to maximise policy priorities.
The complete article has recently been published in the African Journal of Business Management, 6(10): 3699-3705.