The strategic relevance of business relationships: a preliminary assessment

The ubiquitous contention within the Industrial Networks literature - that business relationships are one of the firm´s most important resources - has not been, in our viewpoint, thoroughly explored. Hence we argue that the ‘Resource-based View of the Firm’ (‘RBV’) may complement the network-based reasoning on the strategic relevance of business relationships. A theoretical framework is proposed – a competence-based view of the firm – which solves RBV´s terminological and inconsistency problems and, more importantly, assures compatibility with the network perspective´s assumptions. The possibility of cross-fertilizing the Industrial Networks and RBV theories seems not only real, but also conceptually profitable for both theoretical fields.Business Relationships, Industrial Networks, Resource-Based View of the Firm, Competence-Based View of the Firm

How is the relationship significance brought about? A critical realist approach

The markets-as-networks theorists contend, at least tacitly, the significance of business relationships for the focal firm – that is, business relationships contribute somewhat to the focal firm’s survival and growth. We do not deny the existence of significant business relationships but sustain, in contrast to the consensus within the Markets-as-Networks Theory, that relationship significance should not be a self-evident assumption. Significance cannot be a taken-for-granted property of each and every one of the focal firm’s business relationships. We adopt explicitly a critical realist position in this conceptual paper and claim that the relationship significance is an event of the business world, whose causes remain yet largely unidentified. Where the powers and liabilities of business relationships (i.e., their functions and dysfunctions) are put to work, inevitably under certain contingencies (namely the surrounding networks and markets), effects result for the focal firm (often benefits in excess of sacrifices, i.e., relationship value) and as a result the relationship significance is likely to be brought about. In addition, the relationship significance can result from the dual influence that business relationships have on a great part of the structure and powers and liabilities of the focal firm, i.e., its nature and scope respectively.Markets-as-Networks Theory, relationship significance, business relationships, focal firm, resources, competences, activities

Trust in Transition: Cross-country and Firm Evidence

This paper uses data from a large survey of firms across 26 transition countries to examine the determinants of trust in the transition process. We first introduce a new measure of trust between firms: the level of prepayment demanded by suppliers from their customers in advance of delivery. Using this new measure, we confirm earlier findings that trust is higher where firms have confidence in third party enforcement through the legal system. However, the fairness and honesty of the courts are more important determinants of inter-firm trust than the courts’ efficiency or ability to enforce decisions. We then examine the role of business networks in building trust and find that networks based around personal ties – family and friends – and business associations actively promote the development of trust, while business networks based on enterprise insiders and government agencies do not. Finally, we find that country-level effects are significantly more important determinants of inter-firm trust than firm-level effects.transition, trust, prepayment, courts, business networks

Relationship significance: is it sufficiently explained?

The Industrial Networks Theory (cf. Axelsson and Easton, 1992, Hakansson and Snehota, 1995) sets out to describe and explain the business relationships and markets in which the focal firm is deeply embedded. One of its major propositions pertains to the (time-varying) significance of business relationships for the focal firm (Gadde et al., 2003), i.e., business relationships influence to some extent the focal firm’s survival. Such significance seems strongly related to the role played by business relationships and consequently the relationship outcomes accruing to the focal firm. The theoretical justification underlying this proposition is outwardly oriented, somewhat overlooking the inside of the focal firm - in particular the influence of business relationships on what the focal firm does competently within and across its boundaries. Arguably, the creation and appropriation of relationship value by the focal firm is a necessary but not sufficient condition for relationship significance. A supplementary (internal) explanation supported by Knowledge-based Theories of the Firm (e.g., see Kogut and Zander, 1992), we suggest, may be missing. Our aim here has been to intuitively pinpoint a theoretical flaw, further suggesting a feasible path for its solution.Industrial Networks Theory; relationship significance proposition; relationship functions, dysfunctions, benefits, sacrifices, and value

Business networks SMEs and inter-firm collaboration: a review of the research literature with implications for policy

This literature review, which was commissioned by the UK's Small Business Service is concerned with business networks, and their importance for the small business community. Business networks are sometimes defined as comprising only inter-firm relationships (e.g. those that exist between component supplier and a manufacturer). However, it soon becomes apparent that a broader perspective is required, if research findings are to contribute meaningful insights for policy and practice. We have therefore incorporated research evidence on personal networks, notably those associated with entrepreneurship, and on links between firms and supporting institutions, such as trade associations, government agencies and universities

Structure of Business Firm Networks and Scale-Free Models.

We study the structure of business firm networks in the Life Sciences (LS) and the Information and Communication Technology (ICT) sectors. We analyze business firm networks and scale-free models with degree distribution P(q) proportional to (q + c)^-λ using the method of k-shell decomposition. We find that the LS network consists of three components: a "nucleus", which is a small well connected subgraph, "tendrils", which are small subgraphs consisting of small degree nodes connected exclusively to the nucleus, and a "bulk body" which consists of the majority of nodes. At the same time we do not observe the above structure in the ICT network. Our results suggest that the sizes of the nucleus and the tendrils decrease as λ increases and disappear for λ greater or equal to 3. We compare the k-shell structure of random scale-free model networks with the real world business firm networks. The observed behavior of the k-shell structure in the two industries is consistent with a recently proposed growth model that assumes the coexistence of both preferential and random regimes in the evolution of industry networks.

Business Networks and Performance: A Spatial Approach

Business networks are associated to increased business performance and are regarded as a major factor influencing the development of rural and lagging areas. It is assumed that businesses access many networks in order to pursue their short and long term entrepreneurial objectives. The most important spatial features of this business-network relationship are firstly the spatial coverage of the network and secondly the location of the business in relation to its markets. As concerns the spatial coverage of the networks we distinguish between vertical and horizontal business networks. Vertical networks allow local enterprises to forge alliances with externally located consumers, suppliers, distributors, retailers and institutions, while horizontal networks provide relationships with locally based producers, institutions, and consumers. As concerns the location of the business in relation to its markets we distinguish between firms located in accessible locations and firms located in less accessible and peripheral locations in relation to their output markets. A survey of 160 businesses in the manufacturing and services sectors in two areas of Greece (one remote and one more accessible) is used to test empirically the effects of the spatial features of the business-network relationship on firm performance. Business performance is approximated through a series of measures capturing conventional firm growth and other less conventional managerial objectives. The analysis demonstrates that a significantly high proportion of successful businesses located in the remote area simultaneously access vertical and horizontal networks while in the less remote area successful businesses access mainly vertical networks. It is argued that policy initiatives towards the support of business networks as a tool of regional development policies should have a strong territorial and spatial perspective.

Regional small businesses’ personal and inter-firm networks

© 2020, Emerald Publishing Limited. Purpose: The purpose of this paper is to examine the role of personal and inter-firm networks and the elements that contribute to the formation and management of these networks for regional small businesses. Design/methodology/approach: Semi-structured interviews were conducted with 20 small business owners located in regional areas. Findings: The findings highlight key characteristics of regional small business owners’ networks. Findings indicated that participants relied strongly on their personal networks for business purposes. This study shows that while personal networks adapted and changed into informal inter-firm networks, weak-tie relations within inter-firm networks were unlikely to develop into close personal networks. Novel findings also include a preference for “regional interactions” and included regular collaboration with local business competitors. Although the participants used social media to manage their business through personal networks, results confirmed there was a lack of awareness of the benefits of inter-firm networks with businesses outside the local region. Originality/value: While it is acknowledged small business owners use personal and inter-firm connections to maintain and grow their business, there is a lack of research examining both of these networks in the same study. This research addresses this gap and presents five propositions as a useful direction for future research. This paper adds to the evolution of existing knowledge by expanding understanding of the formation of business networks and conditions of business trust relations within a regional context

Space and social capital : The degree of locality in entrepreneurs' contacts and its consequences for firm success

Social capital is valuable for entrepreneurs starting a business. Although many small businesses are located at the entrepreneurs’ dwelling, little is known about entrepreneurs’ local ties and their relevance for firm success. Distinguishing between local and non-local social capital, this contribution looks at the following: (1) The availability of local social capital (2) The relation between social capital and local social capital, and characteristics of firms and entrepreneurs (3) The relation between social capital and local social capital and firm performance. Analysing data from the Survey of the Social Networks of Entrepreneurs, which contains information on entrepreneurs and their networks in 141 Dutch neighbourhoods, this study finds a positive relation between social capital and firm performance.

Structure of Business Firm Networks and Scale-Free Models

We study the structure of business firm networks and scale-free models with degree distribution $P(q) \propto (q+c)^{-\lambda}$ using the method of $k$-shell decomposition.We find that the Life Sciences industry network consist of three components: a ``nucleus,'' which is a small well connected subgraph, ``tendrils,'' which are small subgraphs consisting of small degree nodes connected exclusively to the nucleus, and a ``bulk body'' which consists of the majority of nodes. At the same time we do not observe the above structure in the Information and Communication Technology sector of industry. We also conduct a systematic study of these three components in random scale-free networks. Our results suggest that the sizes of the nucleus and the tendrils decrease as $\lambda$ increases and disappear for $\lambda \geq 3$. We compare the $k$-shell structure of random scale-free model networks with two real world business firm networks in the Life Sciences and in the Information and Communication Technology sectors. Our results suggest that the observed behavior of the $k$-shell structure in the two industries is consistent with a recently proposed growth model that assumes the coexistence of both preferential and random agreements in the evolution of industrial networks