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fewer than 500 employees, Luria (1996) found that even though, on average, the total volume of company sales had risen in the early 1990s, most had also experienced significant, occasional downturns in demand during the same period. As large customers streamlined production, they sought to decrease the number of vendors. At the same time, they solicited from a larger pool of potential suppliers in pursuit of the lowest quotes and the highest quality. Indeed, Luria (1996) dis- covered that competition for each contract appeared to be increasing—smaller suppliers were quoting each job against a larger number of competitors than in previous years.

Small firms have pursued various strategies to adjust to this increased competition and uncer- tainty. A subset of small manufacturers has made efforts to redefine critical production tasks (e.g., through the use of numerically controlled machine tools) and restructure relations with their own suppliers (e.g., just-in-time production). These firms, which many authors have dubbed “high road” or “high performance” (Appelbaum, Bailey, Berg, & Kalleberg, 2000; Appelbaum & Batt, 1994; Brown & Reich, 1997; Gittleman, Horrigan, & Joyce, 1998; Osterman, 1999), have man- aged to supplement price/cost-based competitive strategies with quality-based ones.1 High perfor- mance strategies allow firms to compete on the basis of continual innovation, customer service, and product quality. Rather than skimp on capital investment, high performance companies invest in new equipment and the training necessary to achieve productivity gains from it.

Because high performance plants have the capacity to improve productivity and quality while lowering costs, their flexible work practices can lead to mutual gains for employers and employees (Harrison, 1994; Kochan & Osterman, 1994). Many have adopted new systems of work organiza- tion to operate self-contained stations or cells where workers are responsible for a variety of tasks, including quality control and machine setup. Such multiskilling practices, including work teams, quality control circles, and job rotation within a few broad classifications, require investments in training and workforce development. Studies have found that these innovations offer workers greater wages, autonomy, input into decision making, and employment security (Appelbaum et al., 2000; Osterman, 1999).

Evidence suggests that larger firms have greater scope to manage changing customer demands in a quality-oriented way and are increasingly turning to high performance work systems to improve competitiveness (Brown & Reich, 1997).2 But how widespread are these high-road prac- tices among smaller manufacturers? These practices appear to be penetrating the small-firm sector as well although at a much slower pace (Kelley, 1996). Luria (1996) found that compared to previ- ous years, some smaller shops were spending more time and money on technical training and investing in new computer-controlled technologies that automated scheduling, manufacturing, and quality assurance. These firms typically had higher capital-to-worker ratios and paid higher wages across their workforces (see also Jenkins & Florida, 1999). Among the 1,000 small shops he stud- ied, Luria (1996) found that 15% to 20% of these establishments were becoming more productive, and in these shops, wages were also rising.

Although some small and medium-sized manufacturers have been able to adopt high-perfor- mance practices, the transition is neither complete nor painless. Most small manufacturers remain entrenched in low-road practices, competing for market share and pursuing flexibility primarily by lowering costs, often by withholding investment in new equipment or workforce upgrading. In these firms, uncertainty about future sales disables their budgeting and planning processes and dis- courages investment. They are reluctant to upgrade technology and use advanced telecommunica- tions and production technologies. Luria (1996) noted that these companies

keep as much as possible of their cost structure variable (i.e., composed of unskilled labor and materials and other factors of production that can be added or shed as needed rather than becoming permanent features of the business). That means minimizing capital investment; otherwise, expensive machinery would sit idle whenever orders fell, driving costs per unit through the roof. (p. 12)

Although some small and medium-sized manufacturers have been able to adopt high- performance practices, the transition is neither complete nor painless. Most small manufacturers remain entrenched in low-road practices . . .

Falling average wages in small manufacturers “make clear that high-roaders are a declining pro- portion of the small manufacturer population” (p. 16).3

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