The role of the agglomeration economy and innovation ecosystem in the process of competency development and growth of small and medium-sized enterprises

Peirone, Dario; Pereira, Dina; Leitão, João; Nezghoda, Olha Article The role of the agglomeration economy and innovation ecosystem in the process of competency development and growth of small and medium-sized enterprises Administrative Sciences Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Peirone, Dario; Pereira, Dina; Leitão, João; Nezghoda, Olha (2024) : The role of the agglomeration economy and innovation ecosystem in the process of competency development and growth of small and medium-sized enterprises, Administrative Sciences, ISSN 2076-3387, MDPI, Basel, Vol. 14, Iss. 9, pp. 1-21, https://doi.org/10.3390/admsci14090222 This Version is available at: https://hdl.handle.net/10419/321036 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Citation: Peirone, Dario, Dina Batista Pereira, João Leitão, and Olha Nezghoda. 2024. The Role of the Agglomeration Economy and Innovation Ecosystem in the Process of Competency Development and Growth of Small and Medium-Sized Enterprises. Administrative Sciences 14: 222. https://doi.org/10.3390/ admsci14090222 Received: 11 April 2024 Revised: 16 July 2024 Accepted: 22 July 2024 Published: 14 September 2024 Copyright: © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). administrative sciences Article The Role of the Agglomeration Economy and Innovation Ecosystem in the Process of Competency Development and Growth of Small and Medium-Sized Enterprises Dario Peirone 1, Dina Batista Pereira 2, João Leitão3and Olha Nezghoda 1,* 1Law Department, Universitàdi Torino, 10124 Torino, Italy; [email protected] 2Centre for Management Studies of IST, University of Lisbon, 1749-016 Lisbon, Portugal; [email protected] 3Department of Management and Economics, NECE, Research Centre for Business Sciences, University of Beira Interior, 6200-209 Covilhã, Portugal; [email protected] *Correspondence: [email protected] Abstract: In our paper, we examine the simultaneous impact of the agglomeration economy (AE) and the innovation ecosystem (IE) on the competency development of SMEs in the Piemonte region in three high-tech sectors: aerospace, mechatronics, and automotive. This study focuses on the critical challenge for SMEs: survival and market position expansion amidst rapidly changing external environments. We used the capability approach, which includes identifying and assessing a company’s competencies through the capability matrix, as a tool to analyse a company’s competitiveness in the industry based on structural changes; we determined the key insights from managerial practices of SMEs that help to comprehend the behaviour of high-performing, sustainable-performing, and low-performing companies in the development of competencies. The key finding is that SMEs’ sustainability in the context of structural changes in the external environment is primarily influenced by factors such as investment in the development of company competencies, industrial cooperation, strategic planning, cross-fertilisation, and the impact of company age and size on the availability of resources, along with the level of internationalisation. This study also identifies the main challenges these SMEs face, particularly the lack of highly skilled human resources to meet the sector’s specific needs, as well as the difficulties companies face in adapting to changes in consumer behaviour and forecasting future business strategies. In addition, this study introduces the AE and IE variables as strategic tools to enable company representatives to improve their development strategies. Keywords: agglomeration economy; innovation ecosystem; capability matrix; aerospace; high-tech sectors; competency; sustainable growth 1. Introduction Over the past two decades, rapidly changing environments have challenged small and medium-sized enterprises’ (SMEs) business models and led to a drastic, rapid crisis management response (Ritter and Pedersen 2020). According to a survey by the Organisation for Economic Co-operation and Development (OECD), around 50% of SMEs reported a decrease in turnover due to the pandemic, with small businesses in the hospitality and tourism sectors particularly hard hit (OECD 2021). However, some SMEs have been able to adapt and find new opportunities in response to the challenges, with some shifting their business models to offer online sales and delivery services. Based on the literature review (Dar 2019;Klein and Todesco 2021;Eggers 2020;Schepers et al. 2021;Hu and Kee 2022;OECD 2023) devoted to exploring SMEs’ reactions to global challenges (including the economic downturn, international financial crises, political instability, and, most recently, the COVID-19 pandemic and war in Ukraine), we decided to investigate the simultaneous effect of the agglomeration economy (AE) and innovation ecosystem (IE) on business activities in the context of structural changes. Adm. Sci. 2024,14, 222. https://doi.org/10.3390/admsci14090222 https://www.mdpi.com/journal/admsci Adm. Sci. 2024,14, 222 2 of 21 To adapt business processes to the current circumstances in the market in a resilient manner, we defined the AE and IE as essential constituents of innovative development, providing opportunities for knowledge spillovers that influence the business growth of SMEs and their competencies and capabilities. Over the last twenty years, interest from researchers in the impact of the AE and IE on SMEs (Boschma and Frenken 2011;Ferasso and Sztando 2022;Zhou and Dai 2023) has steadily increased. However, there is still a gap in the academic literature when it comes to studying the effect of both the AE and IE on SMEs. It is essential to fill this gap, as it can provide insights into how SMEs can leverage both the AE and IE to enhance their competitiveness and business growth. Focusing on a case study (based on dynamic capability) of Italian SMEs (Piemonte region) that are pursuing a strategy towards internationalisation and investment in innovation, we analyse which management practices are more effective and prosperous under the influence of the AE and structural changes. In the case of companies with similar competencies, why do some demonstrate an increase in their competitiveness, remain stable in the face of change, and find opportunities for growth and development in times of crisis, while others are constrained? How can the AE and innovation ecosystems aid SMEs in developing their competencies and enhancing their innovation capabilities? The purpose of our research is to find responses to these research questions using a very specific sample of Italian SMEs (Piemonte region) and a completely original tool as a capability matrix. We chose Italy for this study for two reasons: Firstly, the Piemonte region is one of the most developed regions of Italy according to economic factors; secondly, Piemonte has an IE in which SMEs are strong actors, predominantly in high-tech production and international activities (OECD 2021). This paper is organised into three sections: Firstly, we begin with a review of the relevant literature, and the theoretical framework encompassing the AE, IE, and competencies are then described. Secondly, we examine the transformation of competencies in building dynamic capabilities and taking competitive advantage of the ecosystem. Based on the case study and semi-structured interviews (Appendix A) with TOP managers of Italian SMEs, we establish the significant effect of the AE and IE on the business development of SMEs, their capabilities, and their vulnerability to the challenging external environment. Therefore, using a capability approach, we show how the competencies of Italian SMEs in the Piemonte region in high-tech sectors have changed over the last five years in the face of structural changes. This study provides valuable insights into how SMEs can use the impact of the AE and innovation ecosystems to improve their competitiveness and contribute to the region’s economic growth. 2. Theoretical Framework Nowadays, the competitiveness of a territory depends less on its natural resources and mainly on businesses’ creative, international entrepreneurial orientation and innovative capacity to exploit the available potential to the maximum extent. Knowledge-intensive firms, networks of knowledge spillovers (Boschma and Frenken 2011;Soetanto and Demir 2023), R&D institutions (Bullinger et al. 2004;Capello and Nijkamp 2009;Amini Sedeh et al. 2022), and public policy (Smith 2000;Hernandez-de-Menendez et al. 2020) that promote innovation and entrepreneurship are critical determinants of regional competitiveness. Based on the literature (Knight and Cavusgil 2004;Patrucco 2011;Quatraro and Usai 2017;Teece 2018;Qiu et al. 2022) on knowledge spillover, building competencies, and dynamic capabilities, the evolving companies’ capabilities are critical for long-term success and growth. Companies must develop dynamic capabilities and a learning orientation to adapt to changes in the market, technologies, and customer needs. For that reason, the AE and IE facilitate the companies’ competencies, aid in the knowledge transfer process, and affect the performance of SMEs. Adm. Sci. 2024,14, 222 3 of 21 The AE and IE are two concepts closely related to each other and play a significant role in shaping the economic and technological landscape of regions and contributing to the increase in capabilities and competencies of companies. Many studies have already analysed the effects of the AE (Marshall 1890;Becattini et al. 2009;Cirera and Maloney 2017;Audretsch et al. 2019;Fu and Qian 2023) or IE that foster innovation and entrepreneurship (Adner and Zemsky 2006;Fu and Qian 2023). However, there is a gap in examining the joint effect of the AE and innovation ecosystems on SMEs. One reason that the AE and IE are not always studied together is that they have historically been viewed as separate phenomena. The AE was first identified in the late 19th century by Alfred Marshall, who argued that the spatial concentration of firms could lead to greater specialisation and efficiency (Marshall 1920). Since then, the AE has been extensively studied in economic geography and urban economics. According to Boschma and Wenting (2007), urbanisation economies are externalities available to local firms, irrespective of the industry they belong to. In comparison, localisation economies arise from a spatial clustering of economic activities in the same sector or related industries. When accounting for the AE, geography plays a key role in explaining the spatial evolution of industries. Despite these historical and conceptual differences, there is growing recognition that the AE and IEs are closely related and can reinforce each other over time. Feldman et al. (2022) and Fu and Qian (2023) highlighted that IEs can benefit from AE by leveraging local knowledge spillovers, specialised labour markets, and access to infrastructure and services. At the same time, the AE can benefit from IEs by attracting and retaining innovative firms and entrepreneurs and by promoting technological change and competitiveness. In our study, we consider these two phenomena together, aiming to gain a more comprehensive understanding of the sustainable growth process and innovative development of SMEs. Following the approaches made by Boschma and Frenken (2011), Isenberg (2011), and Autio and Thomas (2014), we explore the way in which the AE and IE simultaneously help SMEs develop. This research has shown that the AE can improve SMEs’ access to finance, human capital, and technology and enhance their innovation capabilities (Lenny Koh et al. 2007;Camacho et al. 2018). In the context of the effect of the AE on SMEs, the variables that play a significant role can be categorised as follows: proximity to customers, which provides supply chain efficiencies (Lenny Koh et al. 2007), affects the clustering of firms, and can lead to the development of specialised supplier networks (Gadde et al. 2010;Hickie and Hickie 2021), which can improve the quality and reliability of inputs; labour market pooling; infrastructure and public services can reduce the costs and risks of conducting business, as well as increase connectivity and access to markets, knowledge spillovers, and human capital. Similarly, innovation ecosystems have been found to promote SMEs’ innovation and growth by providing access to resources, networks, and knowledge (Tolstykh et al. 2020) (Figure 1). Bouncken and Kraus (2022) determined antecedents and potential new developments in the theory of the business enterprise’s organizational capabilities. The role of managers in the economic system is highlighted and discussed within the context of economic and organisational research. Suggestions for future developments of dynamic capability research involve the employment of evolutionary and behavioural theories in business strategy and economic performance (Augier and Teece 2009) and comparing different types of ecosystems. Our paper explores the process of building dynamic capabilities in the IE at the Piemonte level by analysing the competencies of the key actors in the regional ecosystem. We define an IE as “collaborative arrangements through which firms combine their offerings into a coherent, customer-facing solution. Enabled by information technologies that have drastically reduced coordination costs, innovation ecosystems have become a core element in firms’ growth strategies in a wide range of industries” (Adner and Zemsky 2006). Adm. Sci. 2024,14, 222 4 of 21 Adm. Sci. 2024, 14, x FOR PEER REVIEW 4 of 22 Figure 1. Comparing the effects of the AE and innovation ecosystems according to variables (source: authors’ compilation). Our paper explores the process of building dynamic capabilities in the IE at the Piemonte level by analysing the competencies of the key actors in the regional ecosystem. We define an IE as “collaborative arrangements through which firms combine their offerings into a coherent, customer-facing solution. Enabled by information technologies that have drastically reduced coordination costs, innovation ecosystems have become a core element in firms’ growth strategies in a wide range of industries” (Adner and Zemsky 2006). Among the factors that influence the innovation capacity of SMEs from the perspective of innovation, we determine internal factors (size, resources, skills, culture, and leadership); external factors (market conditions, regulatory environment, availability of funding and support programmes, and access to technology and knowledge); interactions with key actors of the innovation ecosystem in a certain industry (customers, suppliers, competitors, universities, research institutions, and government bodies); and regional factors (the strength of the local innovation networks and the level of government support). Figure 1 presents the impact of common factors of the external and internal environment (proximity (1), scale economies (2), specialisation (3), knowledge spillovers (4), labour market (5), infrastructure (6), and dynamic capability (7)), taking into consideration the peculiarities of the AE and IE on SMEs’ performance. Geographic proximity, facilitated by the AE, allows firms to cluster in specific geographic locations. This clustering leads to a concentration of firms that can benefit from close physical proximity. Companies operating within the same innovation ecosystem (IE) do not necessarily need geographic proximity to achieve effective collaboration and cooperation. An IE’s Figure 1. Comparing the effects of the AE and innovation ecosystems according to variables (source: authors’ compilation). Among the factors that influence the innovation capacity of SMEs from the perspective of innovation, we determine internal factors (size, resources, skills, culture, and leadership); external factors (market conditions, regulatory environment, availability of funding and support programmes, and access to technology and knowledge); interactions with key actors of the innovation ecosystem in a certain industry (customers, suppliers, competitors, universities, research institutions, and government bodies); and regional factors (the strength of the local innovation networks and the level of government support). Figure 1presents the impact of common factors of the external and internal environment (proximity (1), scale economies (2), specialisation (3), knowledge spillovers (4), labour market (5), infrastructure (6), and dynamic capability (7)), taking into consideration the peculiarities of the AE and IE on SMEs’ performance. Geographic proximity, facilitated by the AE, allows firms to cluster in specific geographic locations. This clustering leads to a concentration of firms that can benefit from close physical proximity. Companies operating within the same innovation ecosystem (IE) do not necessarily need geographic proximity to achieve effective collaboration and cooperation. An IE’s defining characteristic is the network of interactions between different actors, including firms, research institutions, and government agencies, that can transcend physical distances (Autio et al. 2018;Nambisan et al. 2019). The combined impact of geographical proximity in the AE and in IEs significantly enhances the performance of firms. This impact provides firms with access to a rich pool of knowledge, skills, and resources while reducing transaction costs and increasing their innovation capacity. The synergies between the AE and IEs lead to increased efficiency, adaptability, and innovation capacity. Adm. Sci. 2024,14, 222 5 of 21 In terms of specialisation, agglomeration economies allow the creation of areas with high concentrations of specialised industries. Such economies facilitate the clustering of firms within the same sector, leading to benefits such as specialised labour markets, supplier networks, and knowledge spillovers (Hervas-Oliver et al. 2012). At the same time, innovation ecosystems foster the development of new industries and niche markets by stimulating collaboration between different actors, including businesses, research institutions, and government agencies (Autio et al. 2018). The AE and IEs can combine to provide SMEs with access to specialised resources, participate in knowledge sharing, and boost their innovation capabilities. They enable companies to benefit from proximity to other specialised enterprises, contributing to a dynamic exchange of ideas and technological advances (Balland et al. 2019). Measured through the lens of economies of scale, the AE enables larger companies to benefit from cost savings by sharing infrastructure and resources. Being part of the same ecosystem ensures that companies, regardless of size, have access to shared resources and services. This resource sharing leads to lower production costs and enhanced competitiveness in the long run (Delgado et al. 2014). Due to their proximity, the AE increases collaboration between firms and individuals, leading to intra-industry knowledge spillovers. Knowledge spillovers are facilitated by the focus of firms in a particular geographical area, which promotes frequent knowledge interaction and transfer. Recent studies have shown that knowledge spillovers are vital in driving innovation and economic growth (Kijek and Kijek 2019). Knowledge spillovers within IEs are characterised by collaboration and knowledge sharing between firms and individuals within the system. This environment of cooperation is essential for the diffusion of new knowledge, ideas, and technologies. Under the simultaneous influence of IEs and the AE, SMEs gain access to new knowledge, ideas, and technologies, significantly increasing their innovation capacity (Autio et al. 2018). Regarding the labour market, the AE contributes to accumulating skilled labour in one location, creating a pool of specialised workers. This concentration benefits companies, as it facilitates the employment of highly skilled employees and promotes a competitive labour market (Delgado et al. 2014). IEs, conversely, are the gateway to growth and development. They are characterised by their ability to provide access to skilled labour and educational institutions. Such ecosystems support continuous skill development and education, providing firms access to a well-educated and trained workforce, thereby opening up the market for skilled workers. Through the influence of the AE and IEs, firms gain access to skilled labour, increasing their innovation capacity and productivity. Such access is vital for sustaining a competitive advantage and establishing a culture of ongoing improvement and innovation. In the AE, dynamic capabilities (DCs) aim to increase firms’ functional capabilities. This leads to focusing on operational and technical capabilities, allowing companies to optimise their processes and improve efficiency. Fornahl and Hassink (2017) highlighted that companies in high-density industrial clusters benefit from shared resources and collaboration opportunities, strengthening their operational capabilities. In contrast, the development of DCs within IEs is based on assessing opportunities and customer needs that exist outside the company. This approach emphasises the firm’s responsiveness to market demands to increase value and continuously update its processes. Firms in innovation ecosystems thrive on integrating external knowledge and adapting to market changes, which is critical to maintaining competitive advantage (Autio et al. 2018). The joint impact of agglomeration economies and innovation ecosystems significantly influences the development of firms. This influence is particularly evident in the development of DCs, which foster growth in acquiring new knowledge and competencies. Thus, firms’ adaptability and growth potential are enhanced, enabling them to respond effectively to crises related to structural change and create adaptive strategies (Balland et al. 2019). It is important to note that the AE and IEs reinforce each other’s impact on SMEs’ performance in local and foreign markets. Adm. Sci. 2024,14, 222 6 of 21 3. Materials and Methods The data collected from the literature review, semi-structured interviews of Italian SMEs, and case study were analysed using qualitative and capability approaches. The data were organised and coded, and key points and patterns were identified. Then, the data were synthesised and aggregated to understand the dynamics of competency change in high-tech sectors (aerospace, mechatronics, and automotive) at international SMEs in the Piemonte region. We used a unique tool, the capability matrix (CM), to analyse the dynamic capabilities of SMEs under the impact of the AE and IE. In the academic literature (Augier and Teece 2009;Dar 2019), the CM is discussed in the context of dynamic capabilities, which refer to a firm’s ability to build, integrate, and reconfigure its resources in response to changing market conditions and customer demands. We consider the CM as a tool used to analyse a company’s competitiveness in the industry based on structural changes. The CM is the framework that can visually portray characteristics of firms’ capabilities and highlight a relatively overlooked factor in the global value chain approach: local firms’ endogenous learning efforts in a variety of relationships with lead firms (Mendes et al. 2023). However, we suggest using this tool in another sub-context. To set up our study, we used the capability approach, which includes identifying and assessing a company’s competencies through the CM and a capability audit. A capability audit determines the competencies critical to the company’s success and strengthens those competencies. To examine the dynamic capabilities in the Piemonte region, we studied the experiences of 768 companies in three sectors: aerospace (325 companies), automotive (95 companies), and mechatronics (348 companies). The first sample of 768 companies allowed us to form the dynamics of changes in the competencies of companies by industry and categorise companies into three areas of competency development: low-performing, high-performing, and sustainable-performing companies. To clarify the sampling methodology, our study was conducted over the past five years, focusing on developing competencies in high-tech industries. This led us to narrow down our sample from 768 to 66 companies across three sectors: mechatronics (24 companies), aerospace (21 companies), and automotive (21 companies). The final sample demonstrated dynamic changes in their competencies for five years, and the representatives of our sample agreed to participate in our semi-structured interviews with a target to establish cause-and-effect relationships based on the results of developing competencies. We chose a qualitative, inductive research design (Gioia et al. 2013). We conducted semi-structured interviews with SMEs to create a database of capability matrices and understand how structural changes affect their performance over five years. We selected companies according to several criteria: SMEs according to EU Recommendation 2003/361/CE of 6 May 2003 (http://surl.li/kmrdch (accessed on 30 April 2023)), internationalisation features, and innovative activities. The sample’s SMEs are based in Piemonte and have been working in one ecosystem for the last five years. The data were obtained from interviews that represent companies’ competencies and determine their competitiveness in the market and their business sectors. Therefore, conducting a diagnostic using the companies’ capability matrix could help identify critical resources and competencies, which could be used by SMEs to create competitive advantages. For the aggregation procedure, we divided Italian SMEs of the Piemonte region according to the development of their competencies into three groups: sustainable-performing in relation to their competencies (companies with stable competency development), highperforming (SMEs that increased their competencies), and low-performing (companies that decreased their competencies over the last five years). Firstly, we selected 66 companies with dynamic changes in competencies over five years in three sectors to determine the extent of their competency transformation. Adm. Sci. 2024,14, 222 7 of 21 Secondly, we determined the increase in companies’ competencies over the five years (2018 is the base for the calculation), which allowed us to estimate the dynamics of companies’ competitiveness growth from 2018 to 2022 compared with the base period. Thirdly, we determined the extent of competency changes in sectors over the last five years and evaluated the average growth rate in the competitiveness of the sample companies in the overall sector, providing insights into the development of new services and products in the industry. Fourthly, we calculated the growth rate of company competencies for the sample in each sector. As a result, we grouped companies according to the dynamics of development or reduction in competencies in terms of industry performance in the Piemonte region. Finally, we interviewed representatives of companies that were more dynamic in developing their competencies than their competitors. We conducted semi-structured interviews with key executives of Italian SMEs to gain insights into the companies’ dynamic capabilities and management practices in the context of structural changes. The interviews were designed to be open-ended and flexible, allowing for follow-up questions and further exploration of crucial issues. They were recorded and transcribed for analysis. The questionnaire was characterised by open-ended questions and was developed directly for the interview with the SMEs’ representatives to understand the prerequisites (reasons) for developing or stagnating the company’s competencies. The survey questions were grouped according to the following criteria: the company’s internal environment; customer behaviour and market; the innovation policy of SMEs; and the impact of external factors (e.g., COVID-19, political uncertainty, and the energy crisis). The first section of the open-ended questions, “Internal environment of the company”, was designed to uncover circumstances that led to increased or decreased competencies, changes in management policies and business processes, and opportunities for diversification into other business areas. The questions in this section allow us to provide detailed descriptions and narratives about internal changes, offering rich qualitative data that can reveal underlying causes and specific examples of changes within the company (Saunders et al. 2019). Questions in the second section, ”Customer behaviour and market”, were designed to identify products or services in higher demand and changes in customer behaviour over the past five years. The “Innovation Policy for SMEs” section investigates the company’s innovation activities and financial strategies based on companies’ investment activities since COVID-19 and government programmes for competency development. The questions from the last section are crucial for understanding how external factors like COVID-19 and political uncertainty affect SMEs, allowing respondents to discuss specific impacts and adaptive strategies in detail (Camonita et al. 2022). The case study utilised various sources, including company documents, financial reports, and industry reports. The analysis was focused on company cases, competitive environments, and dynamic capabilities and identified the role of the AE and IE in companies’ performance. 4. Results and Discussion The Italian region of Piemonte is well known for its industrial achievements, especially in the aerospace, mechatronics, and automotive sectors. These industries are key to the region’s economic development, innovation potential, and international competitiveness. Piemonte’s aerospace industry is a keystone of the region’s industrial landscape, contributing significantly to economic growth and technological progress. (Giurco et al. 2019). Mechatronics combines mechanical, electronics, and computer science. The vital feature of mechatronics is versatility, which includes cross-disciplinary innovation and economic contribution (Matarazzo et al. 2021). The automotive industry has historically been the backbone of Piemonte’s industrial base. Its importance remains significant for several reasons: Piemonte is home to major automobile manufacturers such as Fiat, Lancia, Bertone, Iveco, Ghia, and Cisitalia, which shaped the region’s industrial identity. The Adm. Sci. 2024,14, 222 8 of 21 automotive sector continues to be a significant employer and contributor to the economy, driving regional GDP and creating numerous jobs (Volpato 2011;Calabrese 2020). 4.1. Dynamic Capabilities in Aerospace The AE provides different evolutionary explanations for the spatial pattern of an industry; the aerospace sector is no exception. Aerospace is widely represented and fully developed in the Piemonte region. This region hosts the largest aerospace cluster in Europe, with over 15,000 employees working for 400 different companies with an annual turnover of around EUR 6.6 billion (Report of Piemonte Aerospace Cluster 2021). This is hardly surprising considering that the industrial area surrounding Turin hosts a range of leading players in the space and aerostructures segments. Vital regional actors in the aerospace sector are Leonardo Aircraft, Avio Aero, Collins Aerospace, Thales Alenia Space, and ALTEC (Piemonte Agency 2022). Big companies play a crucial role in IEs, as they have the financial resources, infrastructure, and expertise to develop and commercialise new technologies. The aerospace sector requires a broad range of technical and entrepreneurial competencies to succeed. The general technical competencies include a deep understanding of aerodynamics, materials science, avionics, propulsion, and systems engineering (Hadley and Wilson 2003). Our sample of aerospace SMEs consists of 21 companies that actively participate in the economic development of Piemonte. Based on the competency approach using a capability matrix of companies, we determined that the aerospace capabilities matrix includes 51 technical competencies, 45% of which are found in our sample of SMEs. According to the analysis of the capability matrices, we determined that in the first case (the aerospace sector), the number of SMEs’ competencies increased for most companies (Figure 2). Only three companies out of 21 demonstrated a reduction in their competencies. Adm. Sci. 2024, 14, x FOR PEER REVIEW 9 of 22 Figure 2. The growth rate of competencies in the aerospace sector over five years (2018-2022)) (source: authors’ compilation, based on data from CEIP). Piemonte possesses a complete aerospace supply chain compared with the other Italian aerospace clusters, with a more vital segment specialisation. The collaboration between IE participants develops innovative applied technologies in the aerospace sector, centred around digitalisation and sustainability, corporate restructuring, and the “Space Economy” (Nijkamp 2021). The synergetic effect between IE participants leads to the creation of innovation and the development of SME competencies (Figure 3). Figure 3. Competency changes in the aerospace sector of the Piemonte region (source: authors’ compilation based on data from CEIP). Commencing in 2019, the SMEs in our study argue that, taking into account customer preferences, they have focused on gaining competencies in aircraft systems, propulsion systems (especially accessories, sub-ASSY), space systems, ground facilities and ground support equipment GSEs, modelling simulation, machining (cutting), and NonDestructive Testing (NDT). Figure 2. The growth rate of competencies in the aerospace sector over five years (2018–2022) (source: authors’ compilation, based on data from CEIP). According to the above-established variables (Figure 1), the impact of the AE and IEs on the aerospace sector is characterised by the following results: The Italian regions have a strong aerospace heritage and a comprehensive supply chain. For example, the Italian National Aerospace Technology Cluster (CTNA) comprises industry districts in 11 regions of Italy and the Piedmont Aerospace Cluster (DAP). Piemonte possesses a complete aerospace supply chain compared with the other Italian aerospace clusters, with a more vital segment specialisation. The collaboration between IE participants develops innovative applied technologies in the aerospace sector, centred Adm. Sci. 2024,14, 222 15 of 21 registered in Italy in 2021 compared to 537,071 units for FCA and PSA in 2020 (or 38.88% of the market) (Stellantis 2021). The regional automotive supply chain is characterised by high levels of innovation activity. As the respondents noted, as the demand for vehicle electrification increases, so does the demand for printed circuit boards, leading to the need to search for materials and suppliers accordingly. Influenced by innovative developments in related industries, customers are turning to model/development services and integrating digital twins into the platform. This technology enables companies to test and validate a product before it even appears in the real world. By creating a copy of the planned production process, the digital twin allows engineers to identify defects before the product goes into production. In the automotive industry, in particular, when processes are relatively similar, firms tend to focus on innovative capabilities to enhance processes and offer unique product features to customers to differentiate their products and eventually achieve a competitive advantage. The electrification of the automotive industry has increased customer demands, driven by the formation of new market requirements. Influenced by the IEs and AE, the big industry players are creating a technological push with regard to the innovative development of the industry, leading to the fact that SMEs are also obliged to improve their competitiveness through competency development. Based on semi-structured interviews with SMEs in the automotive industry, the three interviewees identified that they invested in manufacturing, business expansion, R&D, and knowledge and paid particular attention to industrial partnerships to overcome the rapid changes in the external environment. Despite the size of the company, some of the respondents can expand their business through the acquisition of new companies. For that reason, small companies invest in business growth and gain new competencies in order to satisfy customers’ needs. The dynamics of SME competencies in the automotive industry support the statement (Slater et al. 2014) that with a high level of dynamic capabilities, companies can outpace changes in the environment and reduce the risks associated with these rapidly occurring changes. In the past year, war and the closure of some markets have created long-term problems. Strategically, the company has begun to think about industrial partnerships with larger groups to be more resilient in the market. However, respondents identified that among the most important barriers to innovative development and gaining new competencies are high costs, the high cost of raw materials for new technologies caused by changes in logistics, and difficulties in relations with industrial companies and their suppliers. Added to this is an uncertain external environment and unstable demand for innovative products and services, as well as a shortage of skilled workers. 4.4. Dynamic Capabilities in Cross-Functional Cooperation in High-Tech Sectors In view of the originality of our sample, which included SMEs in high-tech sectors and their responses during interviews, we would like to pay particular attention to the impact of the AE and IE on the development of multi-industry competencies. Some respondents indicated that they are running businesses in several sectors simultaneously. For that reason, companies demonstrate their dynamic capability to establish new ways of collaborating with complementary companies, suppliers, and customers, creating new competencies (see Figure 9). Figure 9illustrates the distribution of companies in three industrial sectors: Aerospace, Automotive, and Mechatronics. The numbers within the sectors indicate the total number of companies in each sector; specifically, Aerospace includes 325 companies, Automotive— 95 companies, and Mechatronics—348 companies. Overlapping areas of circles represent the number of companies active in more than one sector simultaneously. Intersections with white circles show the number of companies active in two sectors. 61 companies Adm. Sci. 2024,14, 222 16 of 21 operate simultaneously in the aerospace and automotive sectors, another 61 companies in the aerospace and mechatronics sectors, and 62 companies in the automotive and mechatronics sectors. Aerospace, mechatronics, and automotive are technology-related industries, and the well-established management of SMEs in these sectors helps make SMEs more successful in expanding their cross-functional cooperation, developing their competencies, and finding creative solutions for these companies. Adm. Sci. 2024, 14, x FOR PEER REVIEW 16 of 22 Based on semi-structured interviews with SMEs in the automotive industry, the three interviewees identified that they invested in manufacturing, business expansion, R&D, and knowledge and paid particular attention to industrial partnerships to overcome the rapid changes in the external environment. Despite the size of the company, some of the respondents can expand their business through the acquisition of new companies. For that reason, small companies invest in business growth and gain new competencies in order to satisfy customers’ needs. The dynamics of SME competencies in the automotive industry support the statement (Slater et al. 2014) that with a high level of dynamic capabilities, companies can outpace changes in the environment and reduce the risks associated with these rapidly occurring changes. In the past year, war and the closure of some markets have created long-term problems. Strategically, the company has begun to think about industrial partnerships with larger groups to be more resilient in the market. However, respondents identified that among the most important barriers to innovative development and gaining new competencies are high costs, the high cost of raw materials for new technologies caused by changes in logistics, and difficulties in relations with industrial companies and their suppliers. Added to this is an uncertain external environment and unstable demand for innovative products and services, as well as a shortage of skilled workers. 4.4. Dynamic Capabilities in Cross-Functional Cooperation in High-Tech Sectors In view of the originality of our sample, which included SMEs in high-tech sectors and their responses during interviews, we would like to pay particular attention to the impact of the AE and IE on the development of multi-industry competencies. Some respondents indicated that they are running businesses in several sectors simultaneously. For that reason, companies demonstrate their dynamic capability to establish new ways of collaborating with complementary companies, suppliers, and customers, creating new competencies (see Figure 9). Figure 9. The number of companies with multisector competencies, 2022 (source: authors’ compilation based on data from CEIP). Figure 9 illustrates the distribution of companies in three industrial sectors: Aerospace, Automotive, and Mechatronics. The numbers within the sectors indicate the total number of companies in each sector; specifically, Aerospace includes 325 companies, Automotive—95 companies, and Mechatronics—348 companies. Overlapping areas of circles represent the number of companies active in more than one sector simultaneously. Intersections with white circles show the number of companies active in two sectors. 61 Figure 9. The number of companies with multisector competencies, 2022 (source: authors’ compilation based on data from CEIP). The capability matrix analysis of 768 Piemonte companies illustrated that 37 companies (the central yellow circle) are represented in three sectors simultaneously. The outcome is that SMEs are trying to diversify their production, distributing risks, and thereby gaining more competencies, which leads to increasing competitiveness in the market and sustainable development of the company. The automotive industry has undergone significant changes in the last 20 years, leading to changes in the competencies required to be successful in this field. Some fundamental changes include advancements in connectivity and autonomous driving, an increased focus on electrification, and changes in consumer preferences. As explained by the interview respondents, in comparison with the aeronautics industry, the automotive industry is much quicker at implementing new technologies, particularly when these are able to cut costs and reduce time-to-market. Influenced by the AE and IE on cross-functional cooperation in the region’s hightech sectors, the Piemonte Aerospace District fosters a network of companies and researchers working on advanced technologies such as advanced materials, propulsion systems, and avionics. The Piemonte mechatronics cluster focuses on developing new technologies such as automation, robotics, and advanced sensors. The IE in Piemonte boosts innovation in aerospace, mechatronics, and automotive engineering. The AE and IEs have a beneficial effect on SMEs through opportunities for business growth and an increase in companies’ competitiveness. However, using the capability approach, it was found that due to structural changes and challenges faced by SMEs, the reactions of companies in the high-tech sector are different. In terms of building competencies, aerospace and mechatronics are heavily reliant on highly skilled engineers and technicians. These sectors require individuals with strong technical skills in design, materials science, electronics, and computer programming. Adm. Sci. 2024,14, 222 17 of 21 On the one hand, the AE and IE should provide highly skilled workers, but as it turned out, respondents identified the availability of skilled workers as one of the industry’s problems. On the other hand, such a result can be explained by the rapidly changing industry due to the emergence of new technologies and the innovative development of sectors, leading to the fact that educational institutions do not have enough time to prepare specialists. In addition, the new challenges lead to companies collaborating and creating innovative products through teamwork. 5. Conclusions Based on the results of this study and the interviews with SMEs, we drew the following conclusions: for the aerospace sector as well as the mechatronics and automotive industries, the geographical proximity of companies provides an opportunity to reduce production costs, facilitates the involvement of SMEs by large companies, the sharing of resources, and knowledge spillovers. Considering the development of SMEs in the Piemonte region, it can be concluded that the AE and IEs, in synergy, have different effects on the high-tech sectors. Taking into account the management practices and the results of the work of SMEs in the face of structural changes, it was found that the reasons for the resilience of companies to rapid changes in the external environment are the investment in the development of the company’s competencies, industrial cooperation, the existence of a company development strategy, cross-fertilisation, the age of the company, and company size, which affects SMEs’ resource availability, as well as internationalisation. Among the main problems was the lack of highly qualified personnel corresponding to the industry market, which indicates the IE’s low efficiency in terms of creating an effective labour market. Some companies also fail to adequately assess changes in consumer behaviour and predict further business development. The findings of the semi-structured interviews demonstrate how Italian SMEs reacted to structural changes and challenges and how their management practices influence business resilience. Based on our research outcomes, we propose variables of the AE and IE that impact SMEs; the representatives of companies can consider these factors when devising their development strategies. Second, we used the capability matrix to estimate the company’s dynamic capabilities and competitiveness. Finally, we determined what fosters SMEs’ growth and resilience in an uncertain international market. While these are valuable findings, they are limited by only including Piemonte’s SMEs, which are represented in only three sectors: aerospace, mechatronics, and automotive. Another limitation was related to statistical and data limitations. As we analysed the development of competencies over five years, it was complicated to provide the same data for all companies in our sample. This led to a narrowing of the sample and the inability to conduct a deeper statistical analysis due to the small sample. Additionally, statistical limitations also influenced the study’s design, which may have led to an inconsistent interpretation of the study results. Further research could be devoted to the empirical analysis of how dynamic capabilities and competencies affect a company’s financial performance and internationalisation process in SMEs. Author Contributions: Conceptualization, D.P., D.B.P., J.L. and O.N.; Methodology, D.P.; Formal analysis, D.P. and O.N.; Investigation, D.P. and O.N.; Writing—original draft, D.P. and O.N.; Writing— review and editing, D.B.P. and J.L.; Visualization, O.N. All authors have read and agreed to the published version of the manuscript. Funding: The Portuguese Foundation for Science and Technology (Grants and NECEUIDB/04,630/ 2020) provided financial support for this study. Recipient of the grant: João Leitão ([email protected]). Adm. Sci. 2024,14, 222 18 of 21 Institutional Review Board Statement: Not applicable. Informed Consent Statement: Informed consent was obtained from all subjects involved in this study. Data Availability Statement: The data are available from the corresponding author upon request. Conflicts of Interest: The authors declare no conflict of interest. Appendix A. Questionnaire Company name Business sector Job position of interviewee Internal environment What main circumstances led to an increase/decrease in competencies (the main activities and their costs in %)? Have you had any changes in management policy and business processes? Did you consider the opportunity to diversify into another business area (if yes →what kind of business)? Customer behaviour and market What kinds of products or services are in more demand among your clients? (The task: to understand the correlation between competencies and price for product/service; the number of competencies is not proportional to revenue.) 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