Influence of Trust and Knowledge Sharing on e-Business Adoption:

A Field Study in Two Italian Footwear Districts

Abstract

Market globalization represents an ongoing challenge for firms operating in industrial districts. It poses a need for continuously innovating existing products and production processes and heavily relying on new technologies to reach target customers. While firms operating in advanced technological sectors may be prone to employ new technologies and e-business solutions, those operating in mature industrial sectors (e.g. footwear and agri-food) often experience difficulties in adopting these technologies and exploiting their potentiality. To understand which conditions facilitate e-business adoption by traditional district firms, we addressed two constructs that, to date, have received scarce attention in the field of district studies: trust and knowledge sharing. We carried out an empirical research aimed at examining the influence of such constructs on e-business adoption, that is the use of technologies in order to conduct business over Internet (Amit and Zott, 2001),by district firms. Specifically, we surveyed a sample of firms operating in two footwear districts located in the Apulia Region (Southern Italy). Results from a Structural Equation Modeling analysis indicate that knowledge sharing mediates the relation between a specific dimension of trust (i.e., “cognitive trust”) and peculiar aspects of e-business adoption concerning the technological and organizational contexts of the surveyed firms. Implications for practitioners and policy-makers interested in supporting mature industrial districts are discussed.

Keywords: Industrial districts, Trust, Knowledge sharing, e-Business adoption

Introduction

In the current economic scenario, characterized by declining prospects of economic growth (especially for developed countries), the revitalization of agglomerations of firms operating in a same productive sector – so-called industrial districts – is gaining momentum among national and international authorities as well as the academia. For several decades, industrial districts represented a crucial source of wealth for national economies and, due to their potentiality to generate new products and employment opportunities, they representeda possible solution to the drawbacks determined by the current economic crisis (Becattini, Bellandi and De Propris, 2009). To exploit such a potential, national governments in Europe and other developed Countries pursue the adoption of new technologies by district firms as a primary goal of their policies, to increase the firms’ capacity to face competition of emerging Countries. It is reputed that the adoption of e-business solutions and technology platforms may help district firms be more efficient in terms of communication, data exchange and sharing. At the same time, e-business solutions may improve the way these firms interact with partners and customers (Margherita and Petti, 2009; Passiante, Elia and Massari, 2000). Here we define e-business (solutions) adoptionas the use of Internet technologies able to improve, enhance, transform or invent a business process and/or system, in order to create a superior value for customers, suppliers, business partners, and employees, using at least one of the following: (a) e-commerce websites, (b) customer-service websites, (c) intranets and enterprise information portals, (d) extranets and supply chains, and (e) electronic data interchange” (Sawhney and Zabin, 2001; Wu, Mahajan and Balasubramanian, 2003). However, it is important here to note that, despite the deployment of appropriate measures to encourage the adoption of such technologies, several districts continue to experience managerial and organizational difficulties that hinder the introduction of these technologies, thus precluding them from exploiting new market opportunities (Wang, Heng and Chau, 2010).

Existing research (e.g., Becattini, 1979; Farrell and Knight, 2003) has emphasized a major strength of industrial districts, that is, the complex set of relationships that links together the firms located in these productive systems. The development of such relations is facilitated by the fact that these firms operate in the same geographical area (Ganesan, Malter and Rindfleisch, 2005). Besides geographical proximity, however, a crucial factor determining the establishment of these linkages in the district is the perception of a sense of trust in other firms’ capacities and strategic decisions. The more firms trust other firms located in the same district, the more they may be willing to cooperate with these firms. In turn, cooperation involves the exchange of knowledge flows and triggers learning processes that help district firms to adapt to changing market dynamics (Amighini and Rabellotti, 2006; Barabel, Huault and Meier, 2007; Morgan and Hunt, 1994; Niu, Miles and Lee, 2008). Knowledge sharing, in particular, may reduce firms' uncertainties about the effectiveness of new technologies and, by facilitating their adoption, is likely to increase firms’ competitive capacity (cf. Bell, Tracey and Heide, 2009; Randelli and Boschma, 2012; Schmitz and Nadvi, 1999).

In this research we propose that both trust and knowledge sharing facilitate the adoption of e-business solutions by district firms. We also posit that e-business adoption is likely to positively affect the economic performance of district firms and, therefore, can be considered as a valid tool overwhelming the negative effects of international economic shocks. To appraise the validity of our argumentations, we carried out a field study in two footwear districts located in Southern Italy and sought to find empirical evidence for our conclusions.

The reminder of the study is organized as follows: in the next section we shall provide some insights on industrial districts. Then we shall introduce the mains constructs of this research (i.e., trust, knowledge sharing and e-business adoption) and its conceptual framework. Next, we shall present the research methodology and illustrate the results of the field studies. Finally, we shall discuss the theoretical and managerial implications results and provide some suggestions for future research.

The industrial district model: basic features and recent strategic orientations

The geographical concentration of firms involved in a peculiar economic sector is a relevant source of wealth for regional economies (Cortright, 2006). Firms’ tendency to co-locate in the same geographical area is basically determined by the possibility to benefit from labor market pooling, supplier specialization, and knowledge spillovers, that is exchanges of knowledge among organizations settled in close proximity to each other (Becattini, 1979; Breschi and Lissoni, 2001; Brusco, 1982; Piore and Sabel, 1984).

Existing research on industrial districts (e.g., Becattini, 1979; Carbonara, 2002; Guido, 1999; Molina-Morales, 2005; Piscitello and Sgobbi, 2004; Piore and Sabel, 1984; Rabellotti, 1995) identifies other relevant characteristics of these peculiar production systems, that is, the presence of: i) Small and Medium Enterprises (SMEs) specialized in peculiar production processes; ii) strong cooperative links based on reciprocal trust among firms; iii) relations with local institutions and firms located outside the district; iv) leading firms conferring an international outlook to the district; v) high labor mobility. Two further characteristicsare important for the development of an industrial district: knowledge flows among district firms, and innovation fostering. Mobility of human resources allows, in particular, the diffusion of tacit knowledge throughout the district and, hence, determines an ongoing collective learning process (cf. Passiante, Elia and Massari, 2000).

The model of economic development based on industrial districts is typical of the Italian economy as, in this Country, it found suitable conditions for its diffusion. For several decades, it has represented the prevailing organizational model that permitted the rise of the so-called Made-in-Italy industry – which mainly encompasses the Textile, Clothing and Footwear (TCF) sectors – and played a key-role in the development of the Italian economy. Till the end of the last century, this industry experienced a significant growth and positive results in terms of sales, exports, labor employment and competitiveness in general (Dei Ottati, 2003). The footwear sector, in particular – which developed in several Italian regions during the '60s – allowed Italy to become a leading exporter in Europe and the second largest footwear exporter in the world (Rabellotti, 1995). However, starting from the beginning of this century, both the globalization and the increasing competitive pressure from low-cost producers located both in Eastern Europe (e.g., Albania, Romania, Hungary) and Asia (e.g., Thailand, Malaysia, Bangladesh) determined an inversion of this tendency. Sales of footwear products manufactured in Italy decreased sharply and many producers had to revise their marketing approaches. Some of them moved from a low-cost strategy centered on price competitiveness to the targeting of new customer segments:they focused on product quality, design, and brand image, and pushed sales by means of thorough marketing actions. Some other footwear producers, instead, continued approaching the market through low-cost strategies and outsourced productive processes characterized by low added-value to Eastern European and Asian suppliers (Tattara, 2008). In the majority of cases, the former succeeded in positioning their products on the markets, and the latter firms went out of market (Mariotti, Mutinelli and Piscitello, 2008). This underlined the need for the deployment of alternative marketing approaches that, grounding on the exploitation of technology potential, may allow them to generate value and hence survive and prosper.

Trust: its meaning and relevance for district firms

Collaboration among firms characterizes the majority of economic sectors (Grant and Baden-Fuller, 2004). It grounds on trust, which is considered one the most relevant preconditions for the establishment of both interpersonal and interorganizationalrelationships (Gargiulo and Ertug, 2006; Gulati, 1995). Scholarly research (McAllister, 1995) started analyzing trust in the organizational field and found that it can be considered as the synthesis of two dimensions: cognitive trust and affective trust. Cognitivetrust grounds on rational judgments and appreciation of technical competencies, whereas affectivetrust is based on emotional judgments and concerns the social side of a relationship among individuals, rather than the mere professional one. This second facet of trust is deemed to tighten up connections which are based only on knowledge and previous interaction experiences (Johnson and Grayson, 2005). Both forms of trust, however, have been found to foster interactions among individuals and firms and shape the willingness to engage in cooperative behaviors (Becerra, Lunnan and Huemer, 2008). In addition, high levels of trust are related to higher willingness to share knowledge and experiences,thus enhancing organizational learning process (Swift and Hwang, 2013).

Research on this topic (e.g., Welter, 2012) suggests that trust has a positive effect on alliance formation and boosts cooperation among firms (Welter and Smallbone, 2006). Indeed, firms prefer to collaborate with trusted partners and this is particularly true in the case of firms belonging to a same industrial district (Sengun, 2010). In reference to such productive systems, trustcan be defined as a firm’s belief that other partners will not engage in possible opportunistic behaviors (Gulati, 1995; Zaheer, McEvily, and Perrone, 1998). This belief develops over time and is generally enhanced by face-to-face interactions occurring in a context of spatial proximity. Spatial proximity fostersa sense of “familiarity” among firms located in the same geographical area and hence favors the establishment of trusting relationships (Ganzaroli, 2000). They are facilitated by the presence of the so-called “boundary spanners”, i.e., employees or managers capable of linking their firms to other institutions and playing a crucial role in engendering trust among different organizations (Gulati and Sytch, 2008). Existing studies (e.g., Passiante and Secundo, 2002) have also noticed that the pervasive diffusion of Information and Communication Technologies (ICTs) has significantly increased collaboration opportunities among firms which are not located in a same geographical area. This has favored the raise of the so-called virtual districts, which are productive systems consisting of organizations that, although dispersed in different places, interact and cooperate by means of an intensive use of ICT tools (from the Internet, to the internal organizational networks,such as Intranets, social media, etc.). These tools have deeply increased communication efficiency and favored the exchange of knowledge among firms. Details about the characteristics of knowledge exchange and its benefitsfor district firms are clarified in the following section.

Knowledge sharing in industrial districts

Interaction among different individuals as well organization generally involves an exchange of knowledge, which may be categorized as “explicit” or “tacit” knowledge (Polanyi 1966). Explicit knowledge can be codified into documents, datasets, or other sources of information by using words, numbers, codes, etc. (Nonaka, 1994). In contrast, tacit knowledge cannot be formalized and is embedded in individuals’ skills and expertise. It is highly subjective and is basically transferred through personal contacts with other people. As it cannot be easily articulated into words, people capture tacit knowledge by interacting with other persons or also by simply observing their behaviors (Haldin-Herrgard, 2000; Nonaka and Takeuchi, 1995). It has been also specified that tacit knowledge may be acquired through either formal interactions with other individuals (for example, by attending training programs or taking part to conferences) or informal interactions (for example, occasional meetings occurring in a given workplace) (Marquardt, 1996).

Knowledge sharing is considered as a crucial determinant of innovation and a factor capable of enhancing firms’ competitiveness (Porter, 2000). By exchanging knowledge, firms learn from each other and this facilitates the development of new products and production processes (Whittington, Owen-Smith, and Powell, 2009). This is because, by enabling the share of existing knowledge, collaborative relations simultaneously determine the creation of new knowledge (Hardy, Phillips and Lawrence, 2003). These processes of knowledge exchange and generation of new knowledge are an intrinsic characteristic of industrial districts. Indeed, due to their peculiar organizational structure (consisting of firms of different sizes specialized in specific production activities), industrial districts represent a suitable setting for the exchange of knowledge flows (Becattini and Rullani, 1993). However, the mechanisms through which the process of knowledge exchange occurs in a district may have different nature (Brusco 1990): they may range from the simple exchange of information among suppliers and customer firms to the exchanges of labor force among different organizations or the creation of new independent joint ventures by individuals working in a pre-existing organization (so-called spin offs). It should be also noted that firms located in industrial districts may share knowledge with other district firms as well as with firms located outside the district and that the latter situation is the one that increases the most likelihood of accessing new knowledge.

We finally observe that, within a district, new knowledge may be acquired by means of exploitation and exploration processes (Gustafsson and Autio, 2011). Knowledge exploitation concerns a set of activities by which firms employ existing knowledge to create economic value (March, 1991). They basically regard the expansion and reinforcement of existing relations among firms located in the district. In the majority of cases, firms adopt such an approach to cope with market uncertainty and reduce their productive risks. Knowledge exploration, instead, refers to those activities which are aimed at increasing firms’ stock of knowledge (March, 1991). Such activities may involve the establishment of new relations and alliances, especially with firms located outside the district. However, due to the uncertainty connected with the establishment of new relations, it is reputed that knowledge exploration processes are more rarely deployed (Baum, et al., 2005).

E-Business adoption in industrial districts

In the last decades, the efficacious management of value creating processes has become a key challenge for firms, especially for those operating in mature economic sectors, such as Textile-Clothing-Footwear (Amit and Zott, 2001; Kim, Nam and Stimpert, 2004; Porter, 2001). ICT diffusion has determined profound changes in the ways firms interact with suppliers, competitors and customers and has created new opportunities to generate economic value (Guido et al., in press). The adoption of e-business solutions, which regard the use of Internet technologies(such as e-Supply Chain Management Systems, Web-services, etc.), has radically altered firms’ value propositions and has favored the development of new business models (Rao, Metts and Monge, 2003). In many cases, the adoption of e-business solutions has allowed firms to deliver value to customer in a more effective way than in the past, thus improving their competitive positioning (Liao, 2003). Indeed, e-business solutions yield both organizational and economic advantages for firms:on the one hand, they permit to reduce transaction costs and speed up communication processes;on the other hand, they reduce operational costs, thus increasing the added value generated by production processes. It is commonly argued that their usage may turn to be beneficial especially for SMEs, as they may help them close the gap with respect to larger competitor firms.

Despite the advantages connected with their employment, e-business solutions are diffused only to a limited extent among SMEs, especially those operating in footwear sector (Guido, 2001ab, 2002, 2003). It has been found, in particular, that larger firms have a higher proneness to adopt e-business solutions than SMEs (Burke, 2005; Charles, Icis and Leduc, 2002; Davis and Vladica, 2006). One of the reasons underlying the scarce adoption of e-business solutions by SMEs is the lack of technical and business skills, which prevents these firms from adopting these solutions and fully exploiting their potentialities (Gottardi, 2003; Guido, Marcati and Peluso, 2011; Marcati, Guido and Peluso, 2008; Piscitello and Sgobbi, 2004). However, research on this topic is far from being conclusive as a multiplicity of factors may negatively – or, conversely, positively – affect firms’ intention to adopt e-business solutions.

In this study, we tried to investigate the conditions that favor the adoption of e-business solutions by firms operating in footwear districts. We addressed e-business adoption by referring to the so-called Technology-Organization-Environment (TOE) framework. This framework was developed by Tornatzky and Fleischer (1990), who established that e-business adoption stems from the interplay of factors relating to the technological, organizational, and environmental contexts wherein individuals operate. According to this framework, two specific factors relate to the “technological context”, namely, technology readiness – regarding the technological infrastructure individuals have at their disposal as well as their technological competences – and technology integration, intended as the adoption of analogous technological tools and applications by different individuals. Factors relative to the “organizational context”concern the perceived benefits and perceived obstacles connected with the adoption of e-business solutions. Factors relative to the “environmental context” refers to the level of Internet penetration in a given place as well as the diffusion of Internet-based technologies among individuals living in the place at issue. We hypothesized that e-business adoption is affected by interpersonal trust and knowledge sharing and, to appraise the validity of such argumentation, an empirical research was carried out. Its objectives are clarified in the following section.