resulted Stuttgart. Entrepreneurs mentioned it as a usefulresource

resulted from the shift of learning from customer firms towards a more sophisticatedapproach to machinery development and automation. Both public and privateenabling institutions encouraged this path, because customizing alone would havereached its limits as a strategy to avoid competition over prices. Some engineers inour interviews agreed that over engineering was a serious problem later, whileothers insisted on the fact that customers asked for this kind of development.Outsourcing was a limited strategy to improve the competitiveness of machine toolfirms in the 1980s. It had to be done for reasons of competence, but was regarded asinsecure. Flexibility resulted from in-house resources, and less from externalnetworks of small firms (Interview BW-F-03). When very complex parts had to beordered, they often had been manufactured by firms of the region, in order to securecommunication on orders and technical problems. Only the latter form of inter-firmrelationshipmay be described as a pure market transaction. To explain how LCCGshave been acquired by a market governance mode is not easy, because of thedepicted shift towards intensified cooperation. However, this kind of cooperationoften consisted of mutual counselling on the part of the innovation process, where afirm was able to construct a new product, but did not know how to apply thetechnology for market niches. The latter knowledge was part of an informal processof cooperation, but the actual exchange of competition goods, for instance thedevelopment of a new steering technology, had to be paid for. Either firms paidexternal organizations for their assistance or they bought each others competence fora new product. Thus, the examples mentioned can be classified as a form of marketgovernance; nevertheless, both sides provided additional support, since both had togain from the new development of machine lines and steering technology.Much support for the adaptation process towards the new challenges in themachinery industry came from public organizations. One of these which has beenlittle studied is the University of Stuttgart. Entrepreneurs mentioned it as a usefulresource for any cooperation requiring basic research. Heidenreich, Kerst andMunder (1996) deny that such cooperation could have a large influence on firms’innovation path. In their view universities basically serve as an organization for thetransfer of human resources, but our interviews confirmed that many entrepreneursturn to the university or a polytechnic for the solution of a specific innovationproblem. Students obtain their diplomas by working on such problems and are oftenemployed later by the firm concerned. But the influence of universities goes deeperthan this. The percentage of engineers of all employees in the German machinery