Medi Tech

ENTREPRENEURSHIP & REGIONAL DEVELOPMENT, 17, JULY (2005), 267291
Linkage lock-in and regional economic development:

the case of the resund medi-tech plastics industry
HENRIK SORNN-FRIESEy and
JANNE SIMONI SRENSENz
yDepartment for Industrial Economics and Strategy, Copenhagen Business
School, Solbjergvej 3, DK-2000, Frederiksberg, Denmark;
e-mail: hsf.ivs@cbs.dk
zA/S Tetra Pak, Dampfrgevej 27-29, DK-2100, Copenhagen, Denmark;
e-mail: janne.sorensen@tetrapak.com
This paper examines the role of interrm linkages in inuencing the dynamics of regional
economic development. Developing a conceptual framework, we claim that switching
costs (real or perceived) can lock rms into existing linkages with the potential eect of impeding regional economic development. A main argument is that in dynamic and competitive
environments a class of switching costs, learning opportunity costs, might arise out of the relative
importance of learning and innovation. We apply our framework to understand what goes on in
the resund medi-tech plastics industry, taking as a starting point the lack of cross-border
linkage participation in this industry. Through a case study research design we obtain
evidence about the characteristics and dynamics of linkage lock-in and switching costs in this
particular context and explain that learning opportunity costs prevail and make increased
linkage participation across resund tardy. Promising future research arising from the present
study includes enquiry into dissimilar industries, the possible intermediating role of third parties
and the complementarities of the Danish and Swedish areas with a focus on the potential
of cross-border regional specialization. All this would potentially add to a more complete picture
of the notion of switching costs.
Keywords: regional economic development; cross-border integration; interrm linkages
and learning; knowledge transfer; lock-in and switching costs; medi-tech plastics industry.
1.
Introduction
Localized institutions that facilitate mutual learning among actors and lead to
unique regional capabilities are believed to be at the core of regional economic
development (Porter 1990, Florida 1995, Morgan 1997, Maskell et al. 1998,
Maskell and Malmberg 1999, Lorenzen 2001). Especially, regional networks of
rms and organizations co-evolve with embedded social capital particularly suited
for transferring tacit knowledge and hence for mutual learning to take place.1
Regional learning is thus an outcome of the localized learning of actors within
the region (Asheim and Cooke 1999) and collectively generated absorptive capacity
(Cohen and Levinthal 1990, Johannisson et al. 2002), characterizing the ability of
actors to generate and transfer knowledge and adapt to new conditions.
Entrepreneurship and Regional Development ISSN 08985626 print/ISSN 14645114 online
# 2005 Taylor & Francis Group Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/08985620500218695
268
H. SORNN-FRIESE AND J. S. SRENSEN
Inter-organizational linkages and their positive eects on regional economic

development have been treated as given and unproblematic in the literature on
regional issues, and their potential disadvantages left basically unexplored (however, see Dickson et al. 1991, Grabher 1993, Freel 2000, Maskell 2001b). One
reason may be that such disadvantages are seen as rm level concerns, and so
beyond the scope of research into regional issues. Recently, however, some economic geographers have begun to theorize on matters of the rm including its
external interaction with the purpose of advancing regional issues (Gertler 2001,
Maskell 2001a, Taylor and Asheim 2001). Gertler (2001), while accepting
institutional impediments to learning, advances the conception of the rm as the
main source of learning and hence of the proclaimed institutional convergence
of places. These are important endeavours if we are to avoid applying concepts
such as competitiveness and learning to aggregations such as the region (Lovering
2001). Individuals learn, not systems. Regarding the relational interaction of rms,
we need to better understand the limits and pitfalls of participation in linkages
such as, for example, precaution and distrust (Dickson et al. 1991) or lock-in
(Jackson 1985, Afuah 2000) and how these might work against successful regional development.
This paper takes an initial step in this direction and develops a conceptual
framework for studying what we refer to as linkage lock-in and its potential role
in impeding regional economic development. Accepting that interrm linkages are
part of the dynamics of regional development, a central thesis of the paper is that
dierent types of costs and their determinants can lock rms into existing linkages
and that this is a potential obstacle to successful regional development. Especially
in Schumpeterian business environments, or what Grant (1996) calls dynamicallycompetitive environments, the relative importance of learning might lead to a certain
class of costs, namely learning opportunity costs (i.e. the costs of missing some key
possibilities to learn).
To see if our framework can make intelligible what happens in a real-life context, the thesis is illustrated with a contemporary case study of a Swedish rm
operating in the resund medi-tech plastics industry. This is an industry comprising
rms in the Danish-Swedish cross-border area (the resund region), which make
plastics components for the pharmaceutical and medical device industries. In this
industry, which in terms of downstream activities is also part of the biomedical
system in Sweden (Stankiewicz 1997, Braunerhjelm et al. 2000) and Greater
Copenhagen (National Agency for Enterprise and Housing 2001), interrm cooperation is the norm rather than the exception (Hansen and Serin 1989).
resund is chosen because it, despite high initial expectations of integration and
the advance of a coherent learning region, still has not experienced an increase in
the kind of cross-border linkages held necessary for regional competitiveness.2
Danish rms keep linking up with Danish rms and Swedish rms tend to limit
the attention to Sweden (OECD 2003).
The fact that resund is a cross-border area provides a welcome opportunity
to examine the role of switching costs in regional development. The crossborder dimension is treated as a special case of regional economic development.
It is widely accepted that rms can acquire the knowledge necessary to operate
across national borders by forming linkages with agents already present in foreign
markets (Johanson and Vahlne 1990). However, institutional dierences might
increase switching costs and thus reduce the likelihood that such linkages are
LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT
269
being formed in the rst place, simply because potential cross-border partners may
have a hard time understanding each other properly.
The remainder of the paper is in ve parts. Section 2 briey reviews the diverse
literature on interrm linkages, lock-in and switching costs. In Section 3 we present
a conceptual framework focusing on learning opportunity costs and their determinants. In the fourth and fth sections, linkage lock-in and switching costs in
resund are illustrated through a case study of a Swedish medi-tech plastics company and its supplier linkages. The nal section presents some concluding remarks
and suggestions for further research.
2.
Lock-in and switching costs in interrm linkages
A fundamental argument in studies of regional economies has been that local

collaborative linkages among rms (and other organizations) bring about learning
and innovation, which is key for regional economic development. Indeed, the
restructuring of interrm linkages and networks can be seen as one of the principal
phenomena in the dynamics of regions and industrial districts (Carbonara 2002).
In this section we discuss some of the benets and possible drawbacks of such
linkages. To make the term as neutral and dynamic as possible, we refer to interrm
linkages as (formal or informal) relations between two or more rms formed in order
to transfer, exchange, develop or produce assets, goods and services. By avoiding
the inference that partners are necessarily working towards mutually shared goals,
this denition might circumvent some of the embedded assumptions of labels such
as strategic alliances and interrm co-operation.
Interrm linkages may take a variety of forms and their nature, costs and
benets may dier widely. Horizontal linkages are relationships between rms at
the same stage in the value chain that produce substitute goods and services.
Vertical linkages are relationships between rms at dierent stages in the value
chain, holding complementary assets (Teece 1986). To keep it simple, our concern
is with the linkages between a rm and its suppliers. In principle, however, our
argument should apply to other types of stable interrm linkages as well (given the
presence of non-trivial interrm interdependency).
2.1.
Linkages and learning
As suggested in the diverse literature on interrm networks, linkages can be important sources of competitive advantage (Richardson 1972, Jarillo 1988, Hakansson
1993, Doz 1996).3 Through linkages a rm can access the complementary assets
required to compete in current and future markets (e.g. specic equipment or
knowledge about production, technology or markets), while remaining exible
(Jarillo 1988). Linkages can furthermore provide rms with the opportunity to
learn, either from each other or jointly (Hamel 1991, Doz 1996, Powell et al.
1996). Through close and repeated interaction, rms typically learn about how to
eciently exploit each others assets and create joint value (Hakansson 1993).
Especially in dynamically competitive industries, where the knowledge base is complex, dispersed and expanding innovative rms might form vertical linkages to
create and exploit learning opportunities and to share the costs of using and produ-
270
cing knowledge (Powell et al. 1996). Such business environments (which characterize, e.g. the computer, semiconductor, biotechnology and pharmaceutical industries)
dier from normal markets in the sense that not only product markets, but also
factor markets become increasingly uncertain, so that knowledge emerges as one of
the most signicant rm resources (Grant 1996).
Specialization is one of the main advantages of vertical interrm linkages, as all
activities cannot be integrated into one rm (Dickson et al. 1991). Complex
networks of co-operation emerge out of the need to co-ordinate closely complementary but dissimilar activities (Richardson 1972). Advantages centre on obtaining
scale economies, innovation and learning through interaction.
It has been observed that inter-organizational linkages tend to be localized.
Some economic geographers have explained this to be a consequence of inherent
diculties in sustaining relational content over large distance (Storper and Scott
1992). In much literature on regions, regionally focused linkages are believed to lead
to distinctive regional capabilities that may be a main source of competitive advantage. Linkages with auent social capital are believed to be well suited for
the exchange of tacit knowledge and as such make the kind of mutual learning,
which is the bedrock of distinctive regional capabilities, possible (Florida 1995,
Morgan 1997, Maskell et al. 1998). In the strongly co-operative form linkages are
an important part of so-called industrial clusters, typically dened as a critical mass
of rms in the same, closely related or complementary industries that depend
upon each other and mutually engage in various forms of exchange (Porter 1990,
1998, 2000), where they appear to be a distinct device for co-ordinating geographically bounded economic activities. Indeed, in order to create and nurture
local clusters, policy measures have been taken to support the formation of closer
and more long-term interrm linkages (Rosenfeld 1997).4
Despite these generally optimistic views on linkages there might also be downsides that are often overlooked in the literature. The behaviour of one party may
enhance the interests of the other, on the one hand creating a stronger linkage,
but also raising the potential costs of switching partners (Jackson 1985), thus creating lock-in through the weakness of strong ties (Granovetter 1973). Linkage participation does more than simply compensate for the lack of in-house competencies
and they involve more than a series of discrete transactions (Granovetter 1985,
Powell et al. 1996). To make a linkage ecient, the partners must adjust and
develop their capabilities and a supporting institutional framework in a way specic
to the linkage (Lundvall 1985, Hallen et al. 1991). This means that they must invest
in the linkage and this possibly creates limitations on the exibility of their future
actions. When terminating the linkage, these investments generally cannot be recaptured (Maskell 2001b). Linkage lock-in and switching costs are thus important to
consider for rms in industries, where continuous innovation is a dening characteristic of competition.
2.2.
Lock-in and switching costs
In a changing business environment, interrm linkages serve as a locus of product

and process innovation and are thus essential for a rm to be continuously competitive under such conditions. Still, as Afuah (2000) showed in his study of the
adoption of the reduced instruction set computer (RISC) technology a major
271
innovation in the computer industry strong linkages might lock a rm into existing
technologies, potentially disadvantaging it in such an environment. The damage
depends on the type of linkage as well as on whether the partner is a supplier,
customer or competitor (Afuah 2000).
If a rm has come to depend strongly on the assets of a supplier, external
economic or technological change that makes these obsolete can have dire results
for the rm, even if the change does not directly aect its own assets. Alternatively,
change that directly inuences the rms assets, but not those of its suppliers would
also be dangerous to a rm, subject to its dependency upon those suppliers. This
would leave it with the dicult choice of whether to stay with current suppliers or
switch to new ones. The choice is hard inasmuch as switching partners besides the
diculties in nding new partners implies having to build new linkages. Here,
the practices it has developed in prior linkages restrain the rm.
Somewhat analogous to what may occur in the wider economy, the rm risks
being locked-in to would-be inferior complementary assets (David 1985, Arthur
1989, Dosi and Kogut 1993). We call this linkage lock-in. The risk of such lockin suggests that in changing business environments rms should be weakly tied to
other rms.5 According to Dosi and Kogut (1993) lock-in can usually be explained
by (1) switching costs, (2) costs of not learning as fast as competitors (a time
compression diseconomy), and (3) the genuine uncertainty about the actual benets
of switching (what they describe as hysteresis).
Switching costs (i.e. the costs involved in terminating a linkage and forming a
new one) are closely connected to participation in interrm linkages. The existence
of linkage-specic competence that might result from durable investments in the
complementary assets of partners and the diculty of knowledge transfer in
general imply that it will be costly to switch to an alternative supplier. Thus,
switching costs measure the extent of one rms lock-in to its existing partners, and
they apply both ways in a linkage (Shapiro and Varian 1999).
Jackson (1985) applied the concept of switching costs to buyer-supplier linkages,
suggesting that they are the real and perceived costs a buyer faces in changing
suppliers. The amount paid for the products and services of an existing supplier,
relative to the amount spent with another are probably the only types of switching
costs that can be measured fairly objectively. They are also likely to be the least
important ones. Other types of investments may bring on more signicant switching
costs (e.g. investments in operating procedures could create structural inertia and
resistance to change). Time compression diseconomies and hysteresis are also hard
to measure, important as they may be to rational decision-making.
The advantages of interrm learning inuence on the concept of switching costs
as applied here. Although linkages might oer ongoing access to complementary
assets, and despite the fact that new knowledge is often created within linkages,
specialized rms might still need to switch suppliers to gain access to new assets
and to be innovative. To successfully adapt to a changing business environment,
rms must get timely access to complementary assets on competitive terms (Teece
1986). In other words, the kind of ecient linkage participation, seen as essential for
regional economic development, is dynamic. However, rms might be reluctant
to switch partners either because of short-term risks (i.e. that new suppliers cannot
live up to expected standards), or because of constraints imposed by credible
commitments. Fear of short-term risks can impede a rms ability to adapt to
changes or exploit opportunities and may allow competitors to make successful,
272
pre-emptive moves (Jackson 1985). Thus, long-term risks of not switching might far
exceed short-term risks.
2.3.
Classes of switching costs
From one perspective, switching costs in linkages are the incentive-related costs
associated with changing partners. When a contract between two rms is concluded,
durable linkage specic investments in human and physical assets will lock the rms
into a bilateral monopoly situation known as the fundamental transformation
(Williamson 1985). Terminating such a linkage would sacrice economic value.
Except when the investments are transferable to alternative uses (e.g. other linkages)
at low cost, the economic benets can be realized only by maintaining the linkage.
The costs that arise are incentive-related in the sense that linkage lock-in, combined with transaction costs more generally, increases the risk of opportunistic
behaviour on behalf of the partner rm, and therefore creates problems of
safeguarding. Eventually, linkage lock-in will replace ex-ante market exchange with
unied ownership (Williamson 1985).
Also dynamic transaction costs (i.e. the costs of having to reallocate or loosen certain
capabilities in existing linkages as a result of economic change) are important as
regards switching suppliers (Langlois 1992). Generally, such costs favour vertical
integration, since economic change raises the dynamic transaction costs of informing
and persuading new input holders with necessary capabilities (Langlois
and Robertson 1995: 3). However, external economies inuence such costs, as also
implied in studies on industrial districts. Whether the rm should obtain new
capabilities through the market, internally or through collaboration, depends both
on the present distribution of capabilities and on the nature of the economic change
involved. If the market cannot provide the assets, an ecient rm will, all else being
equal, integrate. It can be costlier to inform and persuade other rms with the
needed assets to engage in a linkage than to vertically integrate (Langlois 1992).
Opportunity costs are also important when considering switching partners. From
a strategic-options perspective, it is inecient for a rm to use its limited resources
to strongly commit to its current suppliers in order to get access to assets (or internalize these), which it could easily obtain from other sources in the future (Sanchez
1993). The implicit opportunity costs of either vertically integrating or staying with
current suppliers are the costs of forgoing options on future opportunities from
engaging early on with new suppliers. A strategic-options perspective emphasizes
such costs when a rm uses its resources to either stay with a current supplier or to
internalize assets now.
3.
Learning opportunity costs
This section presents a framework for studying linkage lock-in and its role in inuencing the dynamics of regional economic development. To take the analysis to a
deeper level, we claim that in dynamically competitive business environments it
is essential to nd out what are the costs of forgoing opportunities clearly related
to learning, what we call learning opportunity costs. With this notion, we stress that the
273
sources of lock-in (e.g. switching costs, learning costs and hysteresis) are intrinsically
related and intertwined.
Inspired by the notion of dynamic transaction costs, we argue that additional
opportunity costs can be found in the costs of losing opportunities to learn
when switching suppliers, costs that can apply to the situations of both terminating
and forming linkages. We furthermore argue that these costs are constituted by
information costs (i.e. latent costs arising from a lack of knowledge about potential
partners in other regions or industries) and by what Foss and Lorenzen (2002)
call cognitive costs (i.e. costs that arise from an inability of the interacting rms
to understand each other and the knowledge to be transferred when creating new
linkages).
As regards linkage termination learning opportunity costs arise from not exploiting further the experience benets that come from long-term commitment. They
are closely related to dynamic transaction costs in the sense that the enclosure of an
activity within a rm is inuenced by the learning opportunities associated with that
activity. To the degree that the benets of switching are truly unclear, learning
opportunity costs are likely to create linkage lock-in in much the same way
as hysteresis can create country-specic institutional lock-in to inferior organizing
principles (Dosi and Kogut 1993). With respect to initiating a new linkage, learning
opportunity costs potentially arise, as the rm might be unable to understand and
ably communicate with a new supplier. Learning opportunity costs, then, turn a
rm from switching partners.6 The risk that a rm is unable to eciently process
information or exploit knowledge in new linkages leads to cognitive costs, which
will temporarily inhibit learning in the new linkage and increase learning
opportunity costs.
3.1.
Determinants of learning opportunity costs
3.1.1. Information costs

There might be certain information barriers when a rm seeks to nd and engage
in new linkages. A lack of information about potential partners from, say, other
regions might lead a rm to form linkages with rms from its own region; not
because they are the best or most well-suited partners, but simply because they
are the only ones the rm knows about. Hence, a lack of information is a hurdle
in terms of learning opportunity costs, as some (potentially benecial) linkages
might never be realized. In other words, information costs magnify the problem
of learning opportunity costs, as they might forgo learning opportunities. If a rm
does not learn from a current supplier, but lacks information about other suppliers,
it is inclined to stay with the current supplier and thus potentially miss out on key
learning opportunities.7
3.1.2. Cognitive costs
Much knowledge is rm-specic and idiosyncratic and dicult to trade on strategic
factor markets (Dosi et al. 1992). To the extent that rm-specic knowledge reects
the institutional specicities of the rms home region, it is likewise dicult to trade
knowledge with rms from other institutionally specic regions. Thus, interrm
knowledge transfer (and especially in cross-border settings) might suer from
cognitive costs (Jensen and Meckling 1996). These are the costs of not being able
274
to comprehend and eciently process information (Foss and Lorenzen 2002), that is,
the costs of not having sucient absorptive capacity (Cohen and Levinthal 1990).
Of course, a certain level of cognitive dierences might be necessary for learning
to occur in the rst place. If two rms in a linkage are similar, there is a limit to
how much they can contribute with new resources and capabilities (Richardson
1972). The key is therefore to nd a balance where linkage participation and
interrm learning are not impeded by cognitive costs, and where at the same
time the interacting parties can contribute signicantly with new resources and
capabilities.
The cognitive costs of transferring knowledge depend on factors such as the
nature of the knowledge, the knowledge communication channels, the sender
and the receiver of knowledge, and the external environment (Jensen and
Meckling 1996, Husman 2001). Below, we discuss each of these. Inspired by
North (1990), we distinguish between (1) the institutional framework of the linkage,
and (2) the broader institutional environment, as constituting analytically singular
aspects of the external environment.
(1) Nature of the knowledge: knowledge itself might generate cognitive costs, as
especially tacit knowledge is dicult to transfer. Moreover, the knowledge
sender and the receiver are likely to dier in terms of cultures and codebooks
(i.e. lingo and communicating patterns within a rm), contributing to an
increase in cognitive costs.
(2) Knowledge channel: the channel through which knowledge is exchanged might
be a source of costs. Cognitive costs arise if the sender or receiver does not fully
comprehend the sharing mechanisms used (i.e. memos and instructions vs.
face-to-face interaction). However, the cognitive costs associated with a sharing mechanism also depend on the nature of knowledge. Matching knowledge
and sharing mechanisms can conne cognitive costs (e.g. by using face-to-face
interaction for transferring tacit knowledge).
(3) Sender and receiver: organizational structure inuences a rms capacity to
absorb and communicate knowledge (e.g. cognitive costs arise if the relevant
knowledge has to pass many sub-units). Also, linkage routines and experience
aect knowledge transfer costs. Over time, repeated linkage participation
creates familiarity and some shared language and knowledge, decreasing cognitive costs. The collaborating rms might develop what has been
called relation-specic skills (Asanuma 1989), which are the skills required
for the parties to respond eciently to each others specic needs.
(4) Institutional framework: the more experienced the sender and receiver are with
mutual knowledge transfer the lower are also cognitive costs, as their knowledge transfer capabilities are to be expected to converge in key ways. Thus,
relation-specic skills might develop into an asset that characterize the
linkages as such and which is shared by the interacting parties, thus making
the linkage stronger and relatively more enduring.
3.1.3. The role of the institutional environment
Empirical ndings suggest that the broader institutional environment is important to
knowledge transfer and new technology adoption (Gertler 1995). At a basic level,
common cultures and shared language facilitate interrm transmission of encoded
information concerning user needs and characteristics of the assets oered.
275
Here, spatial proximity can importantly enhance interrm interaction, learning and
innovation being there is often vital for these processes (Gertler 1995). This is
especially so for small rms, since these probably lack the resources to overcome
the inuence of cultural distance.
Conversely, when interrm linkages are set in a cross-border context learning
opportunity costs might increase, because cognitive costs are likely to increase and
information costs might be higher. We understand the cross-border context as one
comprising dierent national innovation systems, each with distinctive institutional endowments shaping the background conditions upon which the social learning processes rest (Lundvall 1992, Gertler 2002). Here, institutional endowments
are dened broadly, embracing all the rules, routines, and norms associated with
its factor and product markets as well as its entrepreneurial spirit, moral beliefs,
political traditions, decision-making practices and other basic values (Maskell and
Malmberg 1999).
Institutional dierences might prevent rms from engaging in the kind of
linkages deemed to be important for successful cross-border regional development.
Thus, one can argue that the success of such development depends upon the
convergence of otherwise dierent institutional endowments. However, countryspecic institutions may themselves be locked-in (Dosi and Kogut 1993). Also,
even if institutional structures are similar across national borders, strong social
embeddedness of a localized nature might still adjourn cross-border linkage participation (Dodd and Patra 2002).
To the extent that common cultural background and shared language do not
fully exist, rms that want to participate in cross-border linkages might lack opportunities for engaging in interactive learning and knowledge sharing, facing high
learning opportunity costs (Gertler 1995, 2002). Owing to institutional dierences,
rms can have a hard time understanding each other properly across borders.
This might lead to lost learning opportunities ex post and thus potentially create
learning opportunity costs. Lacking information about the possibilities for participation in cross-border linkages increases information costs, with the result that rms
interact mainly with rms from their own innovation system. Therefore, linkage
lock-in and switching costs might inhibit regional development in a cross-border
context.
Figure 1 presents a simple summary of the conceptual framework laid out in this
section. The presence of switching costs in interrm linkages (real or perceived)
Information
costs
The broader (+)

institutional
environment (+)
(+)
(+)
Nature of
knowledge
Figure 1.
Cognitive
costs
Knowledge
channel
(+)
(+)
(+)
Sender and
receiver
Switching
Linkage
costs
(+) lock-in
Regional
economic
(-) development
(+)
Institutional
framework of
the linkage
Linkage lock-in and regional economic development in dynamically

competitive business environments.
276
creates linkage lock-in, which may have a negative impact on regional economic
development. Especially in dynamically competitive business environments the
potential sources of switching costs can be found in what we have referred to as
information and cognitive costs, both of which depend on characteristics of the
broader institutional environment dened here as the rules, routines, and norms
associated with the factor and product markets of a region as well as its entrepreneurial spirit, moral beliefs, political traditions, decision-making practices and other
basic values. Cognitive costs in interrm linkages furthermore depend on the particulars of the linkages and the factors aecting interrm knowledge transfer.
Given that we can observe, in a contemporary real-life context, diculties in
achieving an increase in the kind of interrm linkages believed necessary for regional
economic development, despite deliberate policy eort, can our conceptual framework be applied to explain potential causes at the level of the rm? This is the issue
that we turn to in the remainder of the paper.
4.
4.1.
A case study of linkage lock-in and regional economic

development
Methodology
In the following analysis, the proposed framework is used as a template to study

linkage lock-in in the resund medi-tech plastics industry. Following Yin (2003) the
framework serves as a chart for conducting the empirical analysis. In this respect,
applying the framework to the case helps to focus on the purpose of the study,
the range of topics to be included, and the level at which the analytic generalization
of the case study results can occur.
Through an embedded single case study (Yin 2003), and acknowledging the
limitations of such an approach, we consider the circumstances that prevent
a Swedish medi-tech plastics rm from switching suppliers, even if switching
seems a reasonable strategy. More specically, we study cognitive costs, information
costs and costs arising from cross-border institutional dierences as potential sources
of linkage lock-in in this case and argue that such lock-in is a factor behind observed
problems with developing the resund region.
The study relies mainly on qualitative evidence and uses a single case study
design to determine the level of linkage lock-in and switching costs in the industry
and its potential eect on cross-border regional development in the area. The case
is used narrowly for illustrative purposes, namely to evaluate the extent to which our
conceptual framework can be applied to make comprehensible what is going on in
the chosen industry and in the Swedish company representing this industry.
Evidence was collected in three steps in Spring 2001. First, we assembled general
knowledge on the plastics processing industry as a whole. The aim was to get an
overview of this complex industry and determine whether the medi-tech plastics
industry would prove useful for our present purposes. In Step 2 we selected and
investigated a specic company in the resund medi-tech plastics industry. The
aim was to nd out how it organized its supplier linkages and whether certain
switching costs could explain the pattern. In Step 3 we interviewed the companys
suppliers and customers in order (1) to verify ndings obtained in Step 2, and
(2) to get a more thorough understanding of the processes that could help to
277
explain switching costs. Ten open-ended, semi-structured interviews were conducted

with managers of the company, its customers, and its tool suppliers as well as
an additional eight interviews with industry experts. To validate the ndings,
early interpretations were distributed and discussed with the interviewed persons.
4.2.
Cross-border regional development in resund
The development of the resund area into a strong and coherent region
(the resund Region) has been a highly debated topic over the past decade or
so. The resund Bridge (completed and ocially inaugurated on 1 June 2000),
the largest infrastructure project in Europe since the Channel Tunnel, is the physical
manifestation of this vision (Sparrow 1998). The aim of connecting the two areas
has been to achieve economic growth and a strong business area, which in turn
would attract foreign investments and spur further growth and welfare in the
Danish-Swedish community.
Tremendous growth in the formation of interrm linkages across the resund
strait was anticipated as a result of the bridge (Maskell and Tornquist 1999).
In particular, cross-border cluster formation was expected to increase within the
internationally competitive sectors already strong in the area (the maritime sector,
the biotech-pharma sector, the IT and telecommunications sector, the environmental sector and the food industry). The biotech-pharma sector in resund also
known as Medicon Valley is probably the best known of these cluster initiatives.
It has articulated the ambition of becoming Europes most attractive bioregion
by 2005.
However, growth in cross-border linkage formation has not met expectations.
On a scale from 0100, where 100 is the level expected if no legal, social and
cultural barriers existed, cross-border linkage participation presently ranks at 74
(Copenhagen Economics and Inregia 2002).8 Compared to last year (when the
rank was 72), this represents only a small increase in cross-border linkage participation (see also table 1). Thus, despite further investments in infrastructure, creation
Table 1.
Development in cross-border linkage formation in the resund area.
Total number of respondents (rms) in survey

Swedish rms
Danish rms
2001
2002
2003
2004
124
174
110
115
98
109
117
101
Distant within-country linkages*

Swedish rms
Danish rms
57
51
Percentage of total number of rms

63
61
50
56
57
60
Cross-border local linkages

Swedish rms
Danish rms
47
33
Percentage of total number of rms

54
48
43
37
44
44
Overall assessment of cross-border linkage participation

All Swedish and Danish rms
73
Benchmark indicator
85
72
74
*For Swedish rms in the resund area distant within-country linkages include linkages with rms in Stockholm.
For Danish rms in the area they include linkages with rms in Jutland and Funen.
Source: Copenhagen Economics and Inregia (Appendix 2: 2001, 2002, 2003 and 2004).
278
of numerous representative cross-border network organizations (e.g. the resund

Chamber of Commerce and Industry) and a harmonization of labour market and
tax policies, the present situation is characterized by a slow growth in crossborder interrm linkages (Maskell and Tornquist 1999, Frank 2002), and functional
integration across resund is still low (OECD 2003). As noted in a recent study
by the OECD (2001: 75), the various eorts of making resund a learning region
may not be sucient to break the path dependence of existing traded networks
of rms.
Based on the survey results from the resund Index, table 1 summarizes the
extent to which rms in the area have formed linkages (1) with rms on the
other side of the strait, and (2) with more distant rms within their own country.
Swedish rms are evidently generally more prone to form linkages with rms across
the strait than are Danish rms. The table also shows the benchmark level, ranking
cross-border co-operative linkages against distant within-country co-operative
linkages. The rank is the weighted average of linkage formation for Swedish and
Danish rms.
Also the resund medi-tech plastics industry experiences slow growth in crossborder linkage formation. In this industry, long-term linkages with suppliers
are important, as these are the main facilitators for the innovation necessary to
compete in a dynamic and increasingly competitive market (Parker 2001).9
We believe that this industry is a privileged case, since as stakeholder in one of
the greatest partnerships formed in the area, the Medicon Valley Academy (MVA;
SWEDEN
DENMARK
Elsinore
Helsingborg
Hillerd
GREATER
COPENHAGEN
Landskrona
Erslv
Lund
Copenhagen
Roskilde
Kge
Figure 2.
The
Malm
resund
Bridge
Medicon Valley.
SKNE
279
gure 2), it has received most attention and (nancial and political) support as to
cross-border integration.10 Furthermore, the EU directives for the medical device
industry (93/42/EEC), eective since January 1995, have aimed specically at easing EU cross-border trade of medical devices. Still, the majority of rms in the
industry continue to link up with existing suppliers, which are typically of their
own nationality. It thus provides a favourable case for studying cross-border linkage
lock-in and switching costs.
4.3.
The resund plastics processing industry
The plastic processing industry of which the chosen industry is part is an old,
diversied and fragmented industry dedicated to transforming plastics materials.
Its diversied structure is mainly a result of the varied nature of the markets served
and of previously low entry barriers owing to low capital formation requirements,
especially in injection moulding. Increasing competition among leading companies
in upstream and downstream industries, however, are now generating pressures
for plastic processing companies to become more competitive and innovative.
One result is that the industry is gradually reorganized into a more coherent and
structured system of rms, as scale economies become increasingly important
for protability and long-term survival. The continued participation of local
SMEs depends to a large extent on their ability to create new competencies, complying with the demands of leading rms in upstream and downstream industries.
Although the building of a supporting science and technology base (e.g. polymer
and organic chemistry and to some extent microbiology) has been important
for improvements in plastics (e.g. with basic research carried out in materials,
materials synthesis and processing, structure and composition, properties and
performance), the innovation process in most plastics processing companies is
incremental, demanding a complex match of development eorts of suppliers,
processing companies and end users (Hansen and Serin 1989, Braunerhjelm et al.
2000).
Toolmakers and suppliers of raw material play an important role in such
innovative activities. Close and enduring contacts to suppliers are important for
the processing rms to gain access to specialized knowledge concerning materials
and tools. Toolmakers and suppliers of raw materials are thus important constituents
for medi-tech plastics rms to consider in order to be innovative and to adapt to
market trends and customers specialized demands. This supports the argument that
technology acquisition generally depends on extensive interaction and communication between users and producers (Lundvall 1985).
Overall, the role of toolmakers and suppliers of raw materials can be dened
as facilitating knowledge about technology and materials used in the construction
of plastics components. Their task is to either provide the most favourable technology or material for a specic manufacturing process, or to point to the changes in
processes necessary for using existing materials for new applications (Hansen
and Serin 1989). High-quality tools, the development of which typically requires
the combination of diverse types of specialized knowledge concerning materials and
tool technology as well as specic features and applications of the plastic product to
be processed using the tool, can increase cycle time and processing eciency and
reduce costs. Therefore, close co-operation with materials and tool suppliers is also
280
crucial to the daily operations of processing rms, and not only in relation to
innovation.
Linkages and interrm learning enable the plastic processing companies and
their suppliers to specialize, develop customized products, focus on core competencies and obtain internal scale economies. However, although continuous innovation
and incremental learning is vital in the industry and favours close and enduring cooperative linkages, plastic processing companies occasionally also need to change
suppliers in order to gain access to new resources and capabilities. This leaves
them with the dicult choice of whether or not to switch suppliers. In such
instances, it becomes essential to determine the nature and signicance of lock-in
and switching costs.
4.4.
Presentation of the case company
The case company in this study is a small Swedish medi-tech plastics company
with about 40 employees, the subsidiary of a large Swedish producer of polymer
materials. It started out in the early 1980s as a company manufacturing medical
components. Nowadays, it has specialized in the development, manufacture,
and processing of complex injection-moulded plastics components for the pharmaceutical and medical device industries. The company is a well-known actor in the
resund area, and since it is known to be highly professional, exible and reliable it
benets from a good reputation among customers, suppliers and competitors.
It co-operates with dierent suppliers: machine suppliers, designers, suppliers
of raw material, master batch suppliers (who can add special features such as
colours and scratch-free surfaces to raw materials), and toolmakers (supplying the
form tools in which the raw material is injected to produce components). While
the company has some tool production in-house and has its own tool-making department, its most frequent and closest linkages are indeed with toolmakers. Keeping
some tool-making in-house can be a way for the company to build and maintain the
absorptive capacity necessary for successful interrm knowledge transfer.11 Since the
companys most frequent and closest linkages are with toolmakers, we have chosen
to study its linkages with two Swedish and one Danish toolmaker, all of which it has
co-operated with for about a decade.
The company participates on a regular basis in linkages with ten toolmakers,
and the linkages tend to be close and enduring. The linkage pattern is very stable
in the sense that once formed the benecial linkages become sustained over the long
run, and in the sense that the case company rarely links up with new suppliers.
As the product manager of the company says: On the tool market, as it is, we
have entrenched relationships to suppliers, so we dont go looking for new suppliers.
In addition, most of the companys tool suppliers are small Swedish rms in its
near surrounding area. This might be troublesome, since it appears that Swedish
toolmakers in the area have some problems in establishing themselves as a
competitive industry (Parker 2001).12 Furthermore, the company has only little
co-operation with Danish toolmakers, even though both the product manager and
the marketing manager believe that Danes provide higher-quality tools and possess
additional processing capabilities essential for their company to innovate and build
its competitive advantage.
281
This pattern is remarkable, since in this industry service quality is perceived

to be more important to competitive advantage than cost eciency (Hansen and
Serin 1989), and since the presence of (perceived) alternatives should step up the
choice of switching partners.13 Our analysis suggests that the company should form
linkages with Danish toolmakers, since they may have better education, government support and more skilled people than their Swedish counterparts. The two
managers believe that some Danish toolmakers deliver products of a higher quality
than Swedish toolmakers, and that the choice not to switch to Danish toolmakers
can be myopic in the long run. When asked whether Swedish toolmakers possess
capabilities that Danish toolmakers do not, the product manager of the case company replied that Swedish toolmakers are no better than their Danish counterparts,
and that he could think of no comparable advantages of Swedish toolmakers.
Forming linkages with Danish toolmakers could in fact provide the company
competitive advantage.14
Applying our conceptual framework the next section seeks to clarify why the
rm does not switch from Swedish to Danish suppliers of tools. Especially, we
explore how the rm through its interactions with the three suppliers has
built up non-trivial interrm interdependencies and how this prevents the rm
from reconguring into an apparently more eective supplier set-up.
5.
Switching costs in the companys supplier linkages
To show how non-trivial interdependencies come into play in the linkages gure 3
illustrates short-term interaction between the company and its tool suppliers. This
interaction underscores the role of the knowledge being exchanged in the linkages,
Phases
1. Specifications
2. Supplier
proposal
1.
2.
3. Initial
ordering
4. Drawings
(CAD/CAM)
3.
4.
5. Potential
revisions
5.
Flows
Problem finding
&
Acquisition
Problem solving
Customer choice
Approval
Re-sales
Control
&
Evaluation
Figure 3.
Production
Short-term interaction.
282
the knowledge channels, the characteristics of the sender and receiver as well as the
external institutional environment of the linkages.
The early phases in interaction until the production of a tool, where immense
communication takes place, are all critical. Through the processes leading up to
the actual production of a tool the parties interact recurrently, exchanging knowledge and engaging in joint project development. These ows can perhaps best
be conceptualized as a mediating specication process, in which specication
is based on dialogue and is jointly shaped by the participants (Nellore and
Soderquist 2000). When the actual production of a tool starts, only few interactions
take place.
Long-term knowledge transfer has strengthened the linkages with the three
suppliers. For example, initial interaction becomes routine and more to the point.
Moreover, the company and the three suppliers have successively built up linkage
contact patterns and role relationships. Employees experience that these patterns
and relationships reduce uncertainty, create mutual trust, and reciprocally commit
the rms. The toolmakers adapt to the case company through customization
of components (involving qualities, material, and dierent aspects of the production process), information needs and delivery conditions. The case company adapts
production processes and procedures to the capabilities of toolmakers as these
sometimes request more time. In such instances, the case company must adapt its
planning and scheduling activities accordingly.
There are no signicant dierences in the ways the company interacts with
Danish and Swedish suppliers. Trust, shared codebooks (i.e. shared codes of communication), and knowledge channels have been established as a result of long-term
commitment and recurring interaction, resulting in knowledge transfer in the short
as well as long-term. Moreover, the rms are generally good at understanding the
knowledge being transferred and to present it in suciently codied form, enhancing information transfer and knowledge creation in the linkages.
5.1.
Cognitive costs
The knowledge to be transferred in the linkages is in some situations tacit and

in other situations explicit. However, a clear-cut distinction between the two is
dicult to make, since the activities around knowledge transfer and learning involve
complex organizational routines for interacting, dierent organizational cultures,
opinions, and capabilities. In fact, several of the phases in gure 3 involve activities
that require the co-ordination and integration of dierent types of knowledge to be
eective.
When exchanging information on certain specications in early phases (ow 1
and 2), or when commenting on CAD/CAM drawings (ow 4), the knowledge
to be exchanged is rather explicit in nature, as specications are often written
down and as comments on the toolmakers drawings are typically technical expressions that both parties can relate to. In these cases, cognitive costs are low in the
linkages. On other occasions, knowledge is tacit (e.g. when the company has to
explain certain routines in its own tool production) and thus hard to formalize
and communicate.
However, shared codebooks among the rms, established through years of interaction, to some extent oset cognitive costs. For example, both the key account
283
manager in the case company and the managing director of the Danish tool company believe language barriers have become less of a problem as they have come
to know each other over the years. This supports the argument that shared codebooks work to lower cognitive and information costs, and that such codebooks are
essential for successful knowledge transfer (Kogut and Zander 1992, Lorenzen 1998,
2002, Cowan et al. 2000). It also shows that interrm knowledge transfer
might depend as much on how the rms integrate knowledge into products and
co-ordinate the activities around diverse types of interactions as it does on the
nature of knowledge.
Telephone, e-mail and specications are the main knowledge channels in the
investigated linkages. However, also face-to-face meetings occur, especially during
the approval phase where the case company has to see the CAD/CAM drawings.
Such meetings are used when there is a chance that the knowledge transferred
could be misunderstood and misinterpreted. Personal meetings can reveal whether
or not knowledge has been suciently codied. Hence, there is a good match
between knowledge channels and the nature of knowledge in the linkages.
Personal sharing mechanisms are applied when knowledge is dicult to transfer,
while impersonal mechanisms are applied for explicit knowledge. So, the cognitive
costs of sharing knowledge are low in the linkages. The rms recognize when
knowledge is complex, and adjust routines for knowledge transfer accordingly
(e.g. by arranging face-to-face meetings).
The rms come from dierent organizations and dierent organizational
cultures. The Swedish suppliers are relatively small, whereas the Danish supplier
is large. The dierences in size should inuence cognitive costs, because knowledge
in large companies often has to pass many people or sub-units before the
actual transfer. However, this is not the case in the investigated linkages, as the
contact persons also are responsible for knowledge absorption and application in the
linkages.
Yet, the case company stated that it is generally dicult to communicate
with Danish toolmakers because of the often-hierarchical structure in Danish tool
companies, where they claimed a superior always has to approve all decisions.15
This makes the decision-making process slow and instigates inexibility and slow
response time to adapt to changes. According to the case company, problems
with internal communication in the Danish tool company have caused it to misinterpret certain important facts and knowledge. This is not the case with the
smaller Swedish toolmakers. Consequently, when interacting with the Danish toolmaker some cognitive costs concerning the knowledge senders and receivers
prevail, whereas no such costs are found in the interactions with the Swedish toolmakers. This nding may support the more general claim that perceived dierences
in business culture are one of the main reasons why Danish and Swedish
rms hesitate to form linkages and co-operate across the strait (Oxford Research
1998).
5.2.
Information costs and costs arising from cross-border dierences
At rst, none of the respondents directly expressed their lack of information about
potential new partners. They primarily nd partners via their personal networks,
284
and as they believe these to cover an unrestricted geographical area they do not
consider lacking important information potentially leading to information costs.
However, later in the interviews it became evident that the case company and its
Swedish toolmakers suer from a lack of information about potentially benecial
new constellations. Thus, the marketing manager notes that the company takes a
very long-term perspective when working together with tool suppliers. When asked
if they ever search the market for new suppliers he says: No, we wouldnt dare to
do that. We never know if new suppliers keep their promises, and therefore, when
we need new tools it is simply too risky to use a new supplier. So, we rely more
on long-term solutions and close cooperation. One tends to build on history and
experience, how did it turn out the last time.
The interviewed toolmakers lack sucient information concerning the possibilities of linking with other rms outside their personal, geographically bound
network, and particularly across the strait. As one of the Swedish suppliers explains:
I dont understand Danish very well. Therefore, I would need an interpreter if I
were to consider entering the Danish market. The other Swedish supplier explains
that he knows nothing about the opportunities for co-operating with rms on the
Danish side of the strait.
These ndings seem to apply to rms in the resund area more generally. Thus,
a study carried out by the resund Committee (Interreg IIIA 2001) found that,
apart from transportation costs and dierences in tax rules and labour relations,
linguistic and cultural dierences together with a lack of awareness concerning
linkage opportunities are the most prevalent barriers for increased cross-border cooperation and integration in the area. As a general rule, rms in the area know very
little about opportunities on the other side of the strait.
In conclusion, the fact that the interacting parties belong to dierent national
systems puts emphasis on the information costs identied above. New partners
are primarily reached through personal networks, and knowledge about potential
suppliers is nested in these networks. As a result, information and networks circulate
on each side of the strait and not across it, increasing overall switching costs and
leading to less cross-border economic and social integration.
5.3.
Learning opportunity costs and overall switching costs
The linkages are all characterized by modest perceived costs. Cognitive costs
can be inferred when transferring highly tacit knowledge, but mostly when interacting with the Danish toolmaker. They are reduced through the existence of shared
codebooks, information channels, and the development of common bodies of
knowledge. Information costs can be inferred in many, but not all interactions and are magnied by costs arising from perceived national institutional
dierences.
Learning opportunity costs and thus overall switching costs are high in the meditech plastics industry, as information transfer and knowledge creation are dicult in
new linkages, where shared codebooks and information channels have not yet been
established. These costs are furthermore amplied by information costs and costs
arising from cross-border dierences. The endeavour of avoiding such costs inhibits
switching and might work against the successful regional development of the
resund area.
6.
285
Conclusions
The paper has discussed the role of lock-in and switching costs in interrm linkages
in the context of regional economic development. We have argued that interrm linkage participation, which is usually seen foundational to the success of
regional economic development, could lead to switching costs and linkage
lock-in in changing business environments, and that such lock-in possibly impedes
regional economic development. We have thus taken a watchful stance to the
optimistic view of interrm linkages and their presumed benecial economic and
social implications.
We identied transaction costs, dynamic transaction costs and opportunity
costs as general conditions discouraging a rm from switching suppliers. We also
argued that in dynamically-competitive business environments, where learning and
innovation are strategically important, the costs of not being able to comprehend
and process information (cognitive costs), or of not possessing the information in
the rst place (information costs), might create learning opportunity costs (i.e. the
costs of missing key possibilities to learn in changing business environments), which
operate to deter the termination and formation of linkages. Finally, we argued
that when regional development is pursued in a cross-border area, cognitive and
information costs are likely to abound and by generating switching costs
discourage rms from conguring their linkages to other rms into new constellations, which would be essential to the success of regional development.
Others before us have discussed the costs of switching partners, and some
have even applied the general idea to the issue of regional development.
However, developing the notion of linkage lock-in, and adding to it the idea of
learning opportunity costs, is signicant in that it applies specically to business
environments that are dynamic and highly competitive. In this respect, our work
might serve as an early attempt to bridge research on regional economic issues and
the expanding literature on economic organization in the context of economic
change, learning and innovation.
The paper contributed empirically with explanations of the lack of increased
participation in cross-border interrm linkages in the resund medi-tech plastics
industry. We demonstrated that learning opportunity costs prevail in this context,
because learning here is essential to the competitiveness of rms. By switching
suppliers, cognitive costs are temporarily increased and this might lead to lost
opportunities for learning. Moreover, information costs about suppliers across the
strait, and costs accruing to dierences in innovation systems, amplify learning
opportunity costs. Consequently, the paper has tentatively explained that increased
participation in interrm linkages across resund is tardy in the case of the
medi-tech plastics industry, as there are learning opportunity costs associated
with switching suppliers in this industry.
The paper has also provided insights that can serve as a foundation for initiating
new policy measures aimed at decreasing switching costs and thus support participation in cross-border linkages in the resund area. As the current situation is
characterized by (perceived) high switching costs, the important aim is to reduce
these so that the advantages of initiating cross-border linkages will become greater
than the advantages of staying with current partners. In this respect, it would be
interesting to establish a possible role for third parties in overcoming switching costs.
As shown in other contexts, at least some (cognitive and information) costs may be
286
circumvented by the presence of informational brokers who can assist in transforming the expectations of dierent actors towards each other in a way that leads to
mutually benecial learning linkages (Lutz 1999).
A number of additional research issues might be addressed on the basis of our
analysis. First, it would be interesting to enquire into other industries that do
not resemble the medi-tech plastics industry. Dierent costs might appear with
dierent weight across industries. The structure of one industry and its business
environment might result in a disposition for high incentive-related costs, whereas
in other instances there might be a tendency to high learning opportunity costs,
owing to the economic importance in these situations of producing relative to using
knowledge. Determining the industry characteristics, under which the one or the
other situation will prevail, is a key future research area. It would enhance
our knowledge on switching costs in interrm linkages and their inuence on
regional development. Comparing dierent industries would serve to further elaborate on the concept, adding to our understanding of determinants of regional
development. This would be valuable for settling issues of linkage participation in
other regional, or cross-border settings.
Second, research into the complementarities of the two areas would be highly
relevant. The nature and dynamics of regional specialization, and the question
whether there is scope for relative specialization within a region important for
its overall competitiveness, constitute major research themes in this respect. For
example, within the biotech-pharma sector, Greater Copenhagen and Skane are
substituting rather than complementary, with the result that a lot of the research
carried out is redundant. Investigating whether plastic processing companies
substitute, rather than complement each other would be interesting, as this might
prove a useful starting point for attempts at reducing redundancy and increasing
the incentives to form linkages across resund. This would also add to a more
complete picture of the concepts of linkage lock-in and switching costs.
Acknowledgements
This paper was written within the framework of the research programme on
Management, Organization and Competence (LOK Research Centre), a programme with participants from Copenhagen Business School, Aalborg University,
University of Southern Denmark, and Aarhus Business School. We wish to thank
Mark Lorenzen and Henrich Dahlgren for their useful comments. The paper has
also beneted from comments received at an internal seminar at the Department
for Industrial Economics and Strategy at Copenhagen Business School. Professor
Bengt Johannisson and the two anonymous reviewers made numerous useful
suggestions for revising the paper for which we are grateful. We believe that the
paper has beneted greatly from these comments.
Notes
1. Consider the industrial districts of Japan and the Third Italy as well as in Silicon Valley, Boston, the
Valencia community in Spain, and the M4 corridor in the UK. In all of these cases, linkages between
rms and between rms and other organizations (local municipalities, universities and so on) have been
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
287
essential for achieving international competitive advantage and economic growth (Becattini 1978,
Lazerson 1988, Saxenian 1991, Storper and Scott 1992, Langlois and Robertson 1995, Carbonara
2002, Giner and Santa Mar a 2002).
Of course, there may be many reasons why the development of the resund region has not lived up
to expectations. Indeed, one may challenge the very realism of having it as a policy objective. For
example, the social institutions already in place within a region have fundamentally been formed over
an extensive length of time and are not easily changed. It could also be argued that to successfully create
learning regions, institutional change must conform to changing economic realities, which are of an
increasingly global character. Our understanding of how local and global issues interact and co-evolve
is still inadequate. More generally, there is interdependency between the institutional set-up and the
economic structure (e.g. the historical pattern of specialization or the scal system) of any particular
economy (Lundvall and Maskell 2000, Sornn-Friese 2000) about which we are only beginning to
develop theoretically and empirically founded insight.
Network approaches are indeed many and varied, see Oliver and Ebers (1998) for a review. Overall,
one may distinguish between an Anglo-American and a Swedish network approach, both of which seek
to systematically identify, categorize and hypothesize interrm linkages and networks and their
dynamics. While the Swedish approach deals with interdependency and aective dimensions
of exchange (Hakansson and Snehota 1995), the Anglo-American approach is more focused on how
linkages and networks create costs and benets to exchange.
Clusters have been dened and applied in many dierent ways. As such, it has been argued that
we need a stronger epistemology as a valid underpinning for policy-making and for empirical research
on clusters (Martin and Sunley 2003). In many cases, predetermined and idiosyncratic policy concerns
in addition to data constraints and patchy conceptual readings have determined the value and
character of cluster studies and applications. This may have led to a widespread confusion of what
they really are and how they dier from phenomena such as industrial districts, networks and so on
(Boekholt 1997).
Grabher (1993) argued that inter-organizational linkages could produce functional, cognitive and
political lock-in, impeding regional development. Functional lock-in, which initiates among
institutional actors (e.g. local municipalities, universities, etc.) with whom rms interact, is a form of
lock-in similar to the kind discussed here. It creates uniformity and can deter learning and innovation.
Cognitive lock-in, which may result from functional lock-in, takes place when shared knowledge,
codebooks and routines prevent learning, innovation and new policy measures necessary in changing
environments. With political lock-in, regional government institutions, instead of stimulating economic
development, support the reproduction of existing structures and dynamics, even if these are insucient
under changing conditions.
Our use of the term learning opportunity costs as applied to linkage formation is somewhat akin to the term
learning costs as used by Klemperer (1987) and extended by Nilssen (1991). We wish to reserve the noun
opportunity to the situation where (perceived) learning costs prevent a rm from switching suppliers.
However, information costs not only inuence learning opportunity costs but also other costs
(e.g. incentive-related costs). This is because a lack of information (or perhaps access to incomplete
or incorrect information) about new suppliers might lead a rm to distrust a potential new supplier.
However, a further description of how information costs might inuence other costs is beyond the scope
of this paper and will not be pursued further.
Since 2001 the resund Chamber of Commerce and Industry has published the resund-index annually. It is
based on surveys of rms in the area that are members of the Chamber. On the basis of their answers,
actual business activity across the strait is analysed in relation to benchmark activity, where the benchmark is based on the assumption that without barriers, cross-border activity would probably compare
to within-country activity. For Danish rms in the area, the benchmark represents the value of linkages
with rms in Jutland and Funen. For Swedish rms, the benchmark represents the value of linkages
with rms in Stockholm.
Plastics processing companies generally compete in a growing market. For the medi-tech plastics
industry, social factors inuence markets and increase competition. For example, owing to the ageing
of the population, health expenditures are increasing in the resund area. With this development,
drug delivery systems enabling self-treatment of patients become a basic area of application and
hence of innovation by rms in the industry. Also, competition from low-cost countries on more simple
and standardized medical devices is expected to increase.
Medicon Valley Academy is a joint non-prot-making organization for bio-medical rms in the
resund area. Its members have a combined turnover of SEK 32 billion and represent 60% of
Scandinavias output within the bio-medical sector. The objective of the Academy is to promote
the development of the sector by acting as a conduit for linkages between universities, rms, and
authorities (please visit www.mva.org).
This is an illustration of the more general claim that in dynamically competitive environments
companies must be expert at both in-house research and cooperative research (Powell et al. 1996: 119).
According to the Association of Danish Toolmakers (personal correspondence 2003), many Swedish
plastics-processing companies went abroad to buy tools in the 1980s and, as a result, some major
288
Swedish toolmakers had to close down. At the same time, a number of Danish toolmakers entered the
Swedish market and apparently gained market shares relatively easily.
13. In fact, the importance of factors such as timing and reliability underscores the complex pattern of
interrm linkages necessary for developing and manufacturing plastics components for the pharmaceutical and medical device industries. In the interviews, two customer rms stressed that timely
delivery of components is an important factor for an ecient production process in the buying
companies.
14. According to the Association of Danish Toolmakers (personal correspondence 2003) there is no hard
evidence supporting the claim that Danish toolmakers are better than their Swedish counterparts.
However, with regards to formal competence, training for tool making in Denmark is a traditional
crafts education with occupational tuition in Danish companies being an important part. The education in Sweden is more academic and does not include as much vocational training. See footnote 12 for
comparing the Danish and Swedish tool making industry.
15. The case company apparently infers from their experience with the particular Danish supplier that
Danish toolmakers are generally large and therefore hierarchical. However, this is not typically the case.
On the contrary, Danish toolmakers are generally found to be both small and exibly specialized
(Karne et al. 1999). That the case company ascribes the hierarchical structure and resultant delays
to the national origin of its supplier thus seems to conrm the general picture that Swedish rms know
only little about Danish rms and vice versa (Interreg IIIA 2001).
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ENTREPRENEURSHIP & REGIONAL DEVELOPMENT, 17, JULY (2005), 267291

Linkage lock-in and regional economic development:

H. SORNN-FRIESE AND J. S. SRENSEN

Inter-organizational linkages and their positive eects on regional economic

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

Lock-in and switching costs in interrm linkages

A fundamental argument in studies of regional economies has been that local

Linkages and learning

H. SORNN-FRIESE AND J. S. SRENSEN

Lock-in and switching costs

In a changing business environment, interrm linkages serve as a locus of product

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

H. SORNN-FRIESE AND J. S. SRENSEN

Classes of switching costs

Learning opportunity costs

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

Determinants of learning opportunity costs

3.1.1. Information costs

H. SORNN-FRIESE AND J. S. SRENSEN

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

The broader (+)

Linkage lock-in and regional economic development in dynamically

H. SORNN-FRIESE AND J. S. SRENSEN

A case study of linkage lock-in and regional economic

In the following analysis, the proposed framework is used as a template to study

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

explain switching costs. Ten open-ended, semi-structured interviews were conducted

Cross-border regional development in resund

Development in cross-border linkage formation in the resund area.

Total number of respondents (rms) in survey

Distant within-country linkages*

Percentage of total number of rms

Cross-border local linkages

Percentage of total number of rms

Overall assessment of cross-border linkage participation

H. SORNN-FRIESE AND J. S. SRENSEN

of numerous representative cross-border network organizations (e.g. the resund

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

The resund plastics processing industry

H. SORNN-FRIESE AND J. S. SRENSEN

Presentation of the case company

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

This pattern is remarkable, since in this industry service quality is perceived

Switching costs in the companys supplier linkages

H. SORNN-FRIESE AND J. S. SRENSEN

The knowledge to be transferred in the linkages is in some situations tacit and

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

Information costs and costs arising from cross-border dierences

H. SORNN-FRIESE AND J. S. SRENSEN

Learning opportunity costs and overall switching costs

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

H. SORNN-FRIESE AND J. S. SRENSEN

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

H. SORNN-FRIESE AND J. S. SRENSEN

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

H. SORNN-FRIESE AND J. S. SRENSEN

LINKAGE LOCK-IN AND REGIONAL ECONOMIC DEVELOPMENT

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