Small Business & Entrepreneurship (MSc BA) Master
Thesis Research
University of Groningen
Structural and Strategic Characteristics of Small Firm Multilateral
Networks
Abstract
Small firm multilateral networking is defined as a collection of relationships that binds a group of at least three independent small firms together. Such networking is an effective way for small firms to improve their situation concerning their resource restraints and the increasing international competition. This research investigated small firm multilateral networking by the use of a systematic literature review in order to understand different findings in previous research. As existing research has often focused on just one network characteristic, this research gives a broad overview of small firm multilateral networking by looking at its structural and strategic characteristics. The two most often occurred characteristics include strategic emphasis and formality. On the basis of these two and on the characteristic network structure depending on decision rights and reciprocity, we distinguished six small firm multilateral network types: Business Club network, informal probing network, chain network, cover network, resource sharing network, and probing network.
Keywords: multilateral networks, small firms, strategic and structural characteristics
Name: CEA Hörmann Student ID: s2003651 Supervisor: dr. E.P.M. Croonen
2nd Supervisor: dr. C.H.M. Lutz
1. INTRODUCTION 4
2. METHODOLOGY 7
2.1 INTRODUCTION TO METHODOLOGY 7
2.2 DATA COLLECTION 7
2.3 DATA ANALYSIS 7
2.4 DATA SYNTHESIS 7
3. DATA COLLECTION 9
4. DATA ANALYSIS 12
4.1 DESCRIPTIVE ANALYSIS 12
4.1.1 RESEARCH AIMS 12
4.1.2 REGION 12
4.1.3 INDUSTRY 14
4.2 THEMATIC ANALYSIS 14
4.2.1 RESEARCH DESIGN 14
4.2.2 TYPE OF THEORY 14
4.2.3 FIRM SIZE FOCUS 14
4.2.4 NO. PARTICIPANTS 15
4.2.5 STRUCTURAL AND STRATEGIC CHARACTERISTICS 15
5. DATA SYNTHESIS 16
5.1 CHARACTERISTICS OF SMALL FIRM MULTILATERAL NETWORKING 16
5.1.1 STRUCTURAL CHARACTERISTICS OF SMALL FIRM MULTILATERAL NETWORKING 16
5.1.1.1 FORMALITY 16
5.1.1.1.1 FORMAL AND INFORMAL TIES 16
5.1.1.1.2 PRESENCE OR ABSENCE OF EQUITY SHARING 17
5.1.1.2 DIRECTION 17
5.1.1.3 PARTICIPANTS 18
5.1.1.4 DECISION RIGHTS 18
5.1.1.5 RECIPROCITY 18
5.1.1.6 GEOGRAPHICAL RANGE 19
5.1.2 STRATEGIC CHARACTERISTICS OF SMALL FIRM MULTILATERAL NETWORKING 19
5.1.2.1 STRATEGIC EMPHASIS 19
5.1.2.1.1 EXPLORATION, EXPLOITATION OR MIXED 19
5.1.2.1.1.1 EXPLORATION 20
5.1.2.1.1.2 EXPLOITATION 20
5.1.2.1.1.3 MIXED 21
5.1.2.1.2 COOPERATION, COMPETITION OR MIXED 21
5.1.2.2 PARTICIPANT’S GOALS 21
5.1.2.3 DURATION 22
5.2 LINKAGES OF CHARACTERISTICS 22
5.3 TREE DIAGRAM LEADING TO SIX DIFFERENT SMALL FIRM MULTILATERAL NETWORK TYPES 24
5.3.1 BUSINESS CLUB NETWORK 25
5.3.2 INFORMAL PROBING NETWORK 26
5.3.3 CHAIN NETWORK 26
5.3.4 COVER NETWORK 26
5.3.5 RESOURCE SHARING NETWORK 26
5.3.6 PROBING NETWORK 27
6.1 DISCUSSION 29
6.2 THEORETICAL AND MANAGERIAL IMPLICATIONS 30
6.3 LIMITATIONS AND FUTURE RESEARCH 30
7. REFERENCES 31
8. APPENDIX 35
APPENDIX 1. NUMBER OF ALL ARTICLES FOUND AND WITHIN THE TOP, VERY GOOD & GOOD JOURNALS 35
APPENDIX 2. LIST OF 25 ARTICLES INCLUDED IN THE REVIEW 36
APPENDIX 3. DETAILED LIST OF CHARACTERISTICS ON SMALL FIRM MULTILATERAL NETWORKS 37
APPENDIX 4. CLASSIFICATION OF SMALL FIRM MULTILATERAL NETWORK CHARACTERISTICS INCLUDING
REFERENCES 43
1. Introduction
The resource restraints of small firms together with the increasing international competition have forced small firms to search for new flexible and effective types of organisation (Holland and Locket, 1997; Williamson, 1991) such as multilateral networks. A small firm multilateral network is defined as a collection of relationships that binds a group of at least three independent small firms1 together (Das and Teng 2002; Gulati 1998a, 1995a). Such a
multilateral network can be a network where all participants have relations to each other, a ‘hub and spoke network’2 or a mix of the two.
Networking helps in overcoming the size disadvantage by providing small firms with the access to a broader pool of resources and knowledge (MacKinnon et al., 2004). Further advantages of multilateral networking might be cost saving, increased individual and organisational learning, risk sharing or even gaining competitive advantage over competitors outside the network (Varamaki and Vesalainen, 2003). Romero (2011) argued that a small and medium sized firm (SME) sector with a dense network of inter-firm cooperative links is expected to grow faster, is more innovative and has higher efficiencies. Lately economists and policy makers have increased their attention to the need of proactive policies in order to stimulate and establish multilateral networks (Fariselli et al., 1999). Thereby making the study of small firm multilateral networking an interesting topic to study.
Since the 1990s the field of SME networking has been more intensively researched (Varamaki and Vesalainen, 2003), but most research was focused on dyadic or bilateral relationships between two partners in a vertical chain (Möller and Rajala, 2007). Furthermore, the focus of previous small firm multilateral network research was on the formation of networks, the choice of governance structure, the performance of networking, the effects on performance of firms entering networks and the evolution of networking (Varamaki and Vesalainen, 2003). However, a lot of research focused on a single network characteristic, such as formality (Das and Teng, 1996; Gulati, 1995b; Gulati and Singh, 1998b; Hinterhuber and Levin, 1994; Steensma et al., 2000) or strategic emphasis (Brunetto and Farr-Wharton, 2007; Goes and Park, 1997; Hoffmann, 2007; Lin et al., 2007). This research will have additional value as it will study all the different structural and strategic
1
A small firm is defined to have less than 50 employees and a turnover or a balance sheet total less than €10 million (EU, 2014). In order to broaden the research, also medium-sized (<250 employees & ≤ €50 million turnover or ≤ €43 million balance sheet total) and micro firms (<10 employees & ≤ €2 million turnover or ≤ €2 million balance sheet total) were included in this research (EU, 2014).
characteristics existent in the literature and combine them into a new classification in order to differentiate network types based on these structural and strategic characteristics.
It has been argued that the well-known inter-firm networking theories can be reduced to three main dimensions: structural, strategic and socio-psychological dimensions (Varamaki and Vesalainen, 2003). However, this research only includes the structural and strategic dimensions of networking. The socio-psychological dimension was not included in this research in order to make the analysis as clear-cut as possible. Furthermore it has been argued that factors such as trust and commitment are always required in networking (Varamaki and Vesalainen, 2003). Structure is defined in this research as the forms and ways of behaving within a network. Thus, it can be described by answering the question of how firms network. Strategy can be defined as “the determination of basic long-term goals and objectives of an enterprise, and adoption of courses of action and the allocation of resources necessary for carrying out these goals” (Chandler, 1980: 13). Therefore it can be described by answering the question of why firms participate in networking.
It is important to know what differences there are in classifications in order to understand different findings in previous research. For example, one study investigated factors that effect performance and focused only on a strategic characteristic (Lin et al., 2007). Or another study focused on the dynamics of networks and also only looked at a strategic characteristic (Hwang & Burgers, 1997). On the other hand, Inkpen and Tsang (2005) focused only on structural characteristics while investigating the knowledge transfer between network participants.
The main research question is: What is a valid typology of small firm multilateral network types?
Sub-questions are:
1) Which structural and strategic characteristics are used in existing literature for classifying network types?
2) How can these characteristics be used in order to make a valid typology of small firm multilateral network types?
2. Methodology
2.1 Introduction to Methodology
This systematic literature review on small firm multilateral network characteristics follows the approach of Crossan and Apaydin’s (2010) systematic literature review. A systematic literature review performs a search and critical appraisal of the literature and is characterised by using an explicit algorithm, opposed to a heuristic algorithm (Crossan and Apaydin, 2010). The use of an explicit algorithm improves the quality of the literature review process and outcome by employing a transparent and therefore reproducible procedure. The approach consists of three steps: data collection, data analysis and data synthesis. Each step is explained briefly below, a more detailed description follows in section 3, 4 and 5.
2.2 Data Collection
The section on data collection states the actions taken when colleting the articles. First it introduces a list of top, very good and good journals to which the sources were limited. Second, it states the predefined keywords and search terms that were used in order to find small firm multilateral network characterises that exist in the literature. The keywords that focused on the firm size and number of network participants have been abandoned for some of the searches in order to broaden the result and to verify that no important characteristics were missing. And third, all the steps that have been taken in order to decrease the number of references found through the database search are described.
2.3 Data analysis
After having selected the articles for a review, the following step is to analyse them. It has been argued that a systematic review needs to present both a descriptive and a thematic analysis (Tranfield et al., 2003). Tranfield et al. (2003) argued that a descriptive analysis consists of a simple set of categories such as authors, country, publication date and industry the research was made in. A thematic analysis can be combined with the descriptive analysis and consists of the approach used, what is known in the research and can also show to which extent consensus is shared (Tranfield et al., 2003). Therefore, the articles included in the review were analysed by a combined descriptive and thematic analysis, which included an enumeration of the characteristics mentioned in the articles on an abstract level.
2.4 Data synthesis
3. Data Collection
Before collecting the data the objectives of the research and the key data sources were defined. The focus was defined by a list of specific journals used by the SOM Research School that are considered to be the top, very good and good journals in three different fields: Entrepreneurship and Small Business Management, Management General and Organization Studies (Table 1). One database was used, ‘web of science’ (Social Sciences Citation Index (SSCI)). Especially with its unique feature of citation counts it allows a triage of the large pool of journal articles. The last twenty years (from 1994 to 2014) were used in order to focus on the more recent work due to time limitations.
Table 1. List of top, very good & good Journals used
Field Quality Journals
Top Entrepreneurship Theory and Practice Journal of Business Venturing
Very good Journal of Small Business Management Small Business Economics
Entrepreneurship and Small Business Management
Good International Small Business Journal
International Entrepreneurship and Management Journal Strategic Entrepreneurship Journal
Entrepreneurship and Regional Development
Top Academy of Management Journal
Academy of Management Review Administrative Science Quarterly Journal of Management
Journal of Management Studies Management Science
Strategic Management Journal Management
General
Very good Academy of Management Annals
Academy of Management: Learning and Education Business Ethics Quarterly
California Management Review Harvard Business Review Journal of Business Research
Journal of Economics & Management Strategy Long Range Planning
MIT Sloan Management Review
Top Organization Science
Organization Studies Organization
Studies
Very good Organization
Organizational Dynamics
small businesses. Instead, the words ‘typology’, ‘classification’ and ‘types’ were added in the search (see Figure 1, TOPIC 6-10). Furthermore, as the focus is on multilateral networks, keywords such as ‘multilateral’, ‘multi-firm’, ‘multi-partner’, and ‘alliance constellation’ were used together with the terms ‘network’ and ‘alliance’ (see Figure 1, TOPIC13).
Figure 1. Selection Process systematic review
7386 references identified through database SCCI searching
searched in the period of February 2014 (TOPIC 1-5), & April-May 2014 (TOPIC 8-13) started searching from 1994 on, ‘*’ stands for derivatives!
- TOPIC 1: network* & SME* OR network* & small firms*, n= 979
- TOPIC 2: collaboration* & SME* OR collaboration* & small firms*, n= 245 - TOPIC 3: strategic nets* & SME* OR strategic nets* & small firms*, n= 1 - TOPIC 4: cooperation* & SME* OR cooperation* & small firms*, n= 279 - TOPIC 5: alliances* & SME* OR alliances* & small firms*, n= 285
- TOPIC 6: network* typology OR network* classification OR network* types, n= 2538
- TOPIC 7: collaboration* typology OR collaboration* classification OR collaboration* types, n= 559 - TOPIC 8: strategic nets* typology OR strategic nets* classification OR strategic nets* types, n= 8 - TOPIC 9: cooperation* typology OR cooperation * classification OR cooperation * types, n= 882 - TOPIC 10: alliances* typology OR alliances* classification OR alliances * types, n= 584 - TOPIC 11: network* & small business, n= 563
- TOPIC 12: small business AND collaboration* OR strategic nets* OR cooperation* OR alliances*, n= 276 - TOPIC 13: multilateral network* OR multilateralalliance* OR multi-firm network* OR multi-firm alliance* OR multi-partner network* OR multi-partner alliance* OR alliance constellation*, n= 187
!
5586removed which are not included in the list of top, very good & good journals (Table 1)
!!
1800 references within the list of top, very good & good journals (Table 1)
347 duplicates removed !!
519 references reviewed on title, abstract and quick scan of the article
2 additional articles included by reference check
496 references excluded due to not meeting the inclusion criterion of investigating at least one
structural or strategic network characteristic
!!
25 articles finally included in the review (Appendix 2)
934removed within the typology/classification search (TOPIC 6-10) which were cited less than 75 times, due to the high number of references
4. Data Analysis
This section provides the descriptive and thematic analysis (Tranfield et al., 2003) of the initial sample and includes an enumeration of the structural and strategic characteristics captured in the 25 articles on an abstract level.
4.1 Descriptive Analysis
4.1.1 Research aims
This section gives an overview of the most often occurred research aims within the 25 articles. Within the empirical set of articles this can also be referred to the dependent variable. The number of articles, which had explicitly a network classification as a research aim is limited to three (12%). Their research aim was a theoretical modelling of SME cooperation (Varamaki and Vesalainen, 2003), network/cluster identification (Pickernell et al., 2007) and a classification of different types of strategic nets (Möller et al., 2005). The research aim of three other articles (12%) was to find factors that affect the governance of networks (Das and Teng, 1996; Gulati, 1995b; Gulati and Singh, 1998b). Moreover the research aim of three other articles (12%) was to find factors that affect the dynamics of network interactions. It included the dynamics of interactions among firms (Hwang and Burgers, 1997; Jones et al., 1998), and network structural change (Lin and Zhang, 2005). Factors that affect the knowledge transfer within the network (Inkpen and Tsang, 2005), and the interorganisational learning (Larsson et al., 1998) was another research aim of two articles (8%). Two other articles (8%) had the research aim of finding factors of networking that affect the firm performance or firm success (Lin et al., 2007; Sorenson et al., 2008). The remaining 48% of the articles had different research aims, among other things to determine factors that define the strategy (Hoffmann, 2007), factors that relate to different network structures (Suarez-Villa, 1998), or factors that affect alliance constellations (Das and Teng, 2002).
4.1.2 Region
Table 2. Summary of research on small firm multilateral network dimensions of 25 articles (%) Region Industry Resear ch design Type of theory
Firm size focus
4.1.3 Industry
Most of the articles (40%) also used various industries (see Table 2), when not considering the 40% of conceptual articles. Various industries ranged from two up to nine different industries. Only five articles focused each on just one industry, which were manufacturing, AusIndustry (which was part of the Australian Department of Industry, Science, and Tourism), hospital services, secondary wood-products and publishing.
4.2 Thematic Analysis
4.2.1 Research Design
Four different research designs have been used (see Table 2). Most of the articles were conceptual (40%), 24% of the articles used a quantitative method, 20% a mixed method and only 16% a qualitative method.
4.2.2 Type of Theory
Different theoretical perspectives have been used and most of the articles adopted multiple viewpoints. The type that was used most often was the resource dependency theory (15.1%) (see Table 2). Furthermore, the transaction cost theory (11.3%) and the strategic management theory (11.3%) were the second most frequent used approaches. In 7.6% of the articles organisational, economic and network types of theories and approaches have been adopted. Furthermore, in 5.7% of the articles social network theories have been used. 12 more theories have been used, each less than 5% and one article did not specify the types of theories used.
4.2.3 Firm size focus
4.2.4 No. Participants
Furthermore Table 2 shows how the 25 articles defined the number of participants. The majority (56%) defined the networks as multilateral, 16% as bi- and/or multilateral, and 28% did not define the number of participants at all.
4.2.5 Structural and Strategic Characteristics
5. Data Synthesis
This section of the systematic literature review is the step with additional value as it creates new knowledge. This new knowledge includes the structural and strategic characteristics by which small firm multilateral networks can be classified. First, these characteristics will be shortly explained. Second, linkages between the characteristics will be stated. And third, the tree diagram leading to six different small firm multilateral network types is illustrated.
5.1 Characteristics of Small Firm Multilateral Networking
There were six structural and three strategic characteristics found (see Table 3, for more information on the sources of the characteristics see Appendix 4). The structural characteristics consist of: formality, direction, participants, decision rights, reciprocity, and geographical range. The strategic characteristics consist of: strategic emphasis, participant’s goals, and duration.
Table 3. Classification of small firm multilateral network characteristics
5.1.1 Structural Characteristics of Small Firm Multilateral Networking
5.1.1.1 Formality
5.1.1.1.1 Formal and Informal Ties
The first structural characteristic is about the network’s formal contractual structure. Formality consists of two parts; first the formal or informal part and second the presence or absence of equity sharing. About the first part, the formality of a network can vary from informal to formal ties. Informal ties include informal personal bonds such as trust or some other form of bonding that creates a bonded network (Fulop, 2000). Formal ties include oral, written and corporative agreements (Varamaki and Vesalainen, 2003). Furthermore, networks that differ
Characteristic
Description
formal or informal
presence or absence of equity sharing
Direction
vertical, horizontal or mixed
Participants
numbers of participants
Decision rights
centralised or decentralised
Reciprocity
generalised, restricted or mixed
Geographical range local, regional, national or multinational
exploration, exploitation or mixed
cooperation, competition or mixed
Participant's goals
individual, collective or wider survival of the
economy/region
Duration
short term, medium term or long term
Formality
Structure
in their formality also rely on different safeguarding mechanisms. Formal types rely more heavily on formal contracts where informal types rely more on social mechanisms such as reputation, judgement and collective sanctions (Jones et al., 1998).
5.1.1.1.2 Presence or absence of equity sharing
Formality has also been researched in terms of the degree of the network’s hierarchical control and coordination features (Gulati, 1995a; Gulati and Singh, 1998b). The higher the network’s degree of the hierarchical control and coordination features, the more formal the network is, and the other way around (Gulati, 1995a; Gulati and Singh, 1998b). The difference in hierarchical control and coordination features is also shown through the presence or absence of equity sharing. Equity sharing networks are considered more hierarchical than non-equity sharing networks as they replicate hierarchical control features of organizations more closely, such as joint ventures (Gulati, 1995b; Gulati and Singh, 1998b). An equity sharing network has been defined in the literature as involving the creation or transfer of equity ownership (Das and Teng, 1996). A non-equity sharing network, such as an alliance, does not involve any equity creation or transfer and has few hierarchical controls build into them (Das and Teng, 1996; Gulati and Singh, 1998b). Thus, a non-equity or low equity sharing network is more informal than an equity sharing network. However, this concept is not clear-cut, as formal networks with low equity sharing exist as well. Gulati (1995b) researched differences between bilateral and multilateral alliances. He predicted that equity sharing is more likely in multilateral than in bilateral alliances.
5.1.1.2 Direction
The second characteristic, direction, includes vertical, horizontal and a mixture of both. Inkpen and Tsang (2005) define the vertical-horizontal characteristic as “the extent to which network members occupy different positions along the network’s value chain” (Inkpen and Tsang, 2005:147). Vertical networks include the exchange of material products through backward and forward linkages (Andreosso-O'Callaghan and Lenihan, 2008). The dominant goal of a vertical network is believed to be the increase of the network’s operational efficiency (Möller et al., 2005). Examples of vertical networks are: “supplier nets, channel and customer nets and vertically integrated value systems” (Möller et al., 2005: 1277).
5.1.1.3 Participants
The characteristic participants entails the number of participants and starts by three as this research focuses on multilateral networks. Human and Provan (2000) argued that in multilateral networks up to 20 participants or sometimes even more are included in one network.
5.1.1.4 Decision Rights
The decision rights refer to the use of power inside the network. In the literature there are three different styles of decision-making defined: hierarchic, democratic, and consensus-based (Parkhe, 1991; Lincoln et al., 1992; Varamaki and Vesalainen, 2003). A hierarchic decision-making style means that one firm has all the decision rights. Therefore, this single firm controls the hierarchic decision-making network, which leads to centralised decision rights. This controlling firm has obtained its power within the network either through critical resources or through a central position (Lincoln et al., 1992; Varamaki and Vesalainen, 2003). The second decision-making style is the democratic one. Democracy means that the majority has the power and not all decisions have to be necessarily accepted by everyone (Varamaki and Vesalainen, 2003). Therefore, decision-making in the democratic style is at least theoretically equal and decentralised and leaves every firm with the same decision rights (Varamaki and Vesalainen, 2003). But in practice, the firms within the minority decision have less or no decision rights. Depending on the number of participants, this can lead to either decentralised or centralised decision rights. Finally, the consensus-based decision-making style includes that none of the firm’s decision can be neglected. All firms need to make the important decisions together and all firms need to accept at least the broad lines (Pfeffer, 1993; Varamaki and Vesalainen, 2003). Therefore the consensus-based decision-making style leads to decentralised decision rights.
5.1.1.5 Reciprocity
back to A. The net based generalised reciprocity on the other hand works in a way that participants contribute to the group as a whole, and then also derive the benefits directly from the group. Therefore the two types differ between exchanging with one another (without receiving resources back from the same participant) and exchanging with the group as a whole.
Figure 2: Restricted and Generalised Reciprocity
5.1.1.6 Geographical range
The last structural characteristic is the geographical range. The geographical range of a network can either be local, regional, national or multinational (Andreosso-O'Callaghan and Lenihan, 2008; Suarez-Villa, 1998). Together with other characteristics, such as the number of participants, it can lead to very different network types (Suarez-Villa, 1998). However, the geographical range is more important to some network types than others. For instance, for franchising the geographical range is important. Usually exclusive territories are specified in franchise contracts which prevents participants from the same franchise network to set up a business close to another participants from the network (Nijmeijer et al., 2014).
5.1.2 Strategic Characteristics of Small Firm Multilateral Networking
5.1.2.1 Strategic Emphasis
5.1.2.1.1 Exploration, Exploitation or mixed
The first strategic characteristic is the strategic emphasis, which consists of two parts: exploration, exploitation and its mixture, and cooperation or competition. Exploitation and exploration has often been described in the literature as a network’s strategic goal or emphasis (Brunetto and Farr-Wharton, 2007; Hoffmann, 2007; Lin et al., 2007).
Generalised Reciprocity Restricted
Reciprocity Chain based Reciprocity Net based Reciprocity
Firm A Firm B Firm C Firm B Firm A Network
Firm A Firm B Firm C
5.1.2.1.1.1 Exploration
Exploration is exploring new opportunities (Hoffmann, 2007; Koza and Lewin, 1998). Therefore the exploration strategy is searching for new landscapes including innovation, invention, risk taking, basic research, entering new business lines, building new capabilities and investments in the firm’s absorptive capacity (Cohen and Levinthal, 1990; Lane and Lubatkin, 1998; Koza and Lewin, 1998).
The choice of the strategic emphasis depends among others on the expected returns (Koza and Lewin, 1998), the objectives, and the intensity of cooperation (Varamaki and Vesalainen, 2003). When the objectives become more challenging then the level of cooperation intensity increases as well (Varamaki and Vesalainen, 2003). Exploration objectives are more challenging than exploitation objectives. Varamaki and Vesalainen (2003) state that the intensity of cooperation is characterised by the type of joint resource allocations. There exist three types of joint resource allocations that network firms can use: operative, competitive and strategic (Varamaki and Vesalainen, 2003). The competitive and strategic resource allocations can be classified as an exploration emphasis. The competitive resource allocation tries to increase the competitiveness of the firm by involving inputs within the existing area (Varamaki and Vesalainen, 2003). This type is rather risky and the return of the positive cash flows will not be quick (Varamaki and Vesalainen, 2003). The strategic resource allocation searches for new areas through diversification (Ansoff et al., 1976; Varamaki and Vesalainen, 2003). An example for reaching the strategic level is when the participants are involved in a joint business (Fulk and Desanctis, 1995; Varamaki and Vesalainen, 2003). Therefore these two types of resource allocations have an exploration emphasis, as they are distant in time and highly variable (March, 1991, 1995; Levinthal and March, 1993).
5.1.2.1.1.2 Exploitation
5.1.2.1.1.3 Mixed
However, it is further argued that both, exploitation and exploration are needed for a firm’s survival (Koza and Lewin, 1998; Levinthal and March, 1993). It has also been stated in the literature that a mixed approach of exploitation and exploration is possible (Hoffmann, 2007; Lin et al., 2007). An example of a mixed strategic approach is to have a cost reduction purpose but also a knowledge based purpose (Pickernell et al., 2007). However it has been argued that such a mixed approach between exploration and exploitation might be more beneficial to large firms than to small firms (Lin et al., 2007). This is due to the fact that exploration and exploitation activities compete for scarce organisational resources (March, 1991). The resource constraints of small firms limit the substantial allocation of resources towards exploration and exploitation and therefore increase the possibility of being stuck in the middle (Lin et al., 2007).
5.1.2.1.2 Cooperation, Competition or mixed
The second part of the strategic emphasis is about cooperation and competition. Das and Teng (2000) define competition as firms pursuing their own interest at the expense of other firms. Cooperation on the other hand means firms pursuing the mutual interest and common benefits for all participants (Das and Teng, 2000). Das and Teng (2000) state that a balance between cooperation and competition is needed in order to decrease internal tensions. However, Sorenson et al. (2008) argue that one can have either a competition or a cooperation orientation. They define the competition orientation as the concern for oneself or one’s business success and a cooperation orientation includes the concern for others. Hwang and Burgers (1997) introduced a set of multilateral alliance game scenarios based on the cooperation vs. non-cooperation strategy. They argued that the alliance payoffs actually depend among others on the level of cooperation and non-cooperation. Yet another way to look at cooperation and competition is from the learning perspective. Larsson et al. (1998) stated five different learning strategies depending on the level of receptivity and transparency. The collaboration strategy, which can also be understood as cooperation strategy, includes high receptivity and high transparency. Where the competition strategy includes high receptivity but low transparency. Overall, Human and Provan (2000) note that cooperation is especially important to multilateral networks. Often competing firms are included in such networks due to the high number of participants. However, it has been stated that SME network participants are often reluctant to engage in cooperative but uncertain external commitments (Human and Provan, 2000).
5.1.2.2 Participant’s goals
Pickernell et al., 2007). These goals can be linked with the strategic emphasis. Competition could be understood as the individual survival and cooperation as either the collective or wider survival.
5.1.2.3 Duration
The last strategic characteristic is about the expected temporal duration of the network (Das and Teng, 2002), which is divided into three terms: short term, medium term and long term. Having a different temporal duration focus changes the management style. Pickernell et al. (2007) states three different management styles that depend on the temporal duration: start, survive, sustain. In the short term one can only start and create the network. This type of network can also be called a dynamic network3. In the medium term one can connect the
network further, but only over the long term the network can be developed to sustain. There are more factors that can be influenced by the temporal duration. For instance the need for social sanctions and a cooperative macroculture increases with a longer temporal duration (Das and Teng, 2002). Overall it should be noted that having only a short term or long term orientation could lead to internal tensions (Das and Teng, 2000).
5.2 Linkages of Characteristics
This section presents the linkage of the structural characteristics decision rights and reciprocity. Combining these two characteristics leads to a typology of five different network structures (see Figure 3). These five different structures can be divided into two parts: three basic and two hybrid network structures (Suarez-Villa, 1998). The basic types consist of two circuit structures and one branch structure. The hybrid structures on the other hand are a mix of or with some basic structures.
3
A dynamic network consists of participants that are coupled contractually for maybe just a single product or project (Lin and Zhang, 2005). After this project or product is completed, the participants leave the network and look for a new network to enter (Lin and Zhang, 2005).
Figure 3: Basic and hybrid network structures Source: Suarez-Villa (1998)
Both basic circuit structures are characterised by decentralised decision rights and generalised reciprocity (see Table 4). The first basic structure, the circuit non-nodal structure, is characterised by a circuit in which most firms are interconnected with each other and all firms still have external links to others. There is no central (nodal) firm therefore the decision rights are decentralised. Reciprocity is generalised, as the participants are not exchanging resources on a one-to-one basis. Suarez-Villa (1998) argues that this network type often occurs among independent SMEs.
The third basic structure is the branch structure which is characterised by centralised decision rights and restricted reciprocity (see Table 4). The branch structure consists of a central (nodal) firm, often a larger firm, which is connected to others, the SMEs (Suarez-Villa, 1998). Therefore the decision rights can be classified as centralised. The participants that are linked to the central firm are not interconnected with each other, but all have their own connections to other firms. Thus, the reciprocity can be classified as restricted as the firms all exchange on a one-to-one basis. This type of network structure can also be called a hub and spoke network (Nooteboom, 1999).
The fourth and fifth structures are hybrids, which are characterised by centralised decision rights and mixed reciprocity (see Table 4). The hybrids structures are both controlled by one or few major (nodal) firms. The fourth type, the hybrid circuit-barrier structure shields or segments parts of the network to impede or resist the flow from one circuit part to another (Suarez-Villa, 1998; Suarez-Villa et al., 1992). These barriers might be needed for instance to impede the non-nodal structures of gaining a strategic or broad understanding of the network’s final product before the tests and the production is completed (Suarez-Villa, 1998). Therefore the one or few major (nodal) firms are using their control power more than in the other three network structures mentioned above which leads to centralised decision rights. The reciprocity is mixed, as there is generalised reciprocity between the circuit participants but one-to-one reciprocity between the participants and the one or few major firms. Coming to the last network structure, the hybrid circuit-branch structure. It consists of one mayor (nodal) firm that is connected to a circuit and also to other network participants that are connected to other participants themselves (branch). The decision rights are centralised due to the major firm and the reciprocity is mixed as well due to the generalised reciprocity in the circuit and the restricted reciprocity in the branch.
Table 4. Network Structures depending on Decision Rights and Reciprocity
Generalised Reciprocity Restricted Reciprocity Mixed Reciprocity Decentralised Decision Rights Circuit structures - - Centralised
Decision Rights - Branch structure Hybrid structures
As visible in Table 4, not all possible combinations of the decision rights and reciprocity are found back in real life network structures.
5.3 Tree Diagram leading to six different small firm multilateral network types
fact that the choice of the network formality and the strategic emphasis are very basic questions one should consider when engaging in networking. Furthermore decisions about formality and strategic emphasis have crucial implications on practically every element of a network (Das and Teng, 1996). Moreover, the network structure depending on the decision rights and reciprocity (see section 5.2.) has been included in the tree diagram. The three different kinds of network structures (circuit, branch and hybrid) sum up the decision rights and reciprocity. Thus, the three kinds of structures give a lot of information about the structure used and has therefore been added to the tree diagram.
First, the tree starts with formality, which was split into informal and formal (see Figure 4). The second layer is the strategic emphasis that was split into exploitation and exploration. The third and fourth layer are the network structure, which was illustrated using its two underlying dimensions: decision rights and reciprocity. The decision rights were split into centralised and decentralised decision rights and reciprocity into generalised, restricted and mixed reciprocity. However, as already mentioned above, not all combinations can be found back in the tree diagram. For instance, there exists only one structure with decentralised decision rights: the circuit structure (see Table 4). There exist two structures for centralised decision rights, but one with restricted reciprocity (branch structure) and the other with mixed reciprocity (hybrid structure). Therefore, there is no restricted and mixed reciprocity branch after the branch from decentralised decision rights. On the other hand, generalised reciprocity is not possible for centralised decision rights. Thus, there are two branches from centralised decision rights: restricted and mixed reciprocity. Furthermore, not all the final braches could be found back in the literature. There seem to be no informal networks with centralised decision rights, which seems logically. Moreover, only one branch (formal, exploiting networks) included centralised decision rights. Considering this, the final branches show the six network types that could be identified in the literature and occur in real life. The last layer represents an example for each type.
5.3.1 Business Club Network
development circle where entrepreneurs meet in order to help each other with building their own firms (Varamaki and Vesalainen, 2003).
5.3.2 Informal probing network
The second network type is informal, exploring and has a circuit structure (Suarez-Villa, 1998). The informality refers here to no equity sharing, however some contracts do exist within the informal probing network. The informal probing network differs from the business club by the strategic emphasis. Participants from the informal probing network want to explore new opportunities jointly with others while maintaining their independence (Koza and Lewin, 1998). Examples are a learning alliance without any equity sharing, a learning relationship, a cooperative learning network (Koza and Lewin, 1998) or a learning network (Varamaki and Vesalainen, 2003).
5.3.3 Chain network
The third network type is formal, exploiting and has a branch structure (Suarez-Villa, 1998). The so-called chain network is characterised by its centralised decision rights and restricted reciprocity which leads to the branch structure (Suarez-Villa, 1998). A common example for a branch structure is the supply chain. Supply chains include vertical, horizontal and mixed directions. In the literature the vertical supply chain is seen as the traditional supply chain and is also referred to as industrial complex (Pickernell et al., 2007). Horizontal supply chains on the other hand have been referred to satellite industrial platforms (Pickernell et al., 2007).
5.3.4 Cover network
The fourth network type is formal, exploiting and has a hybrid structure (Suarez-Villa, 1998). The most important feature of the so-called cover network is that the participants remain as legal entities but that they join together under a cover (e.g. a brand such as McDonalds). This joining together is specified by contracts; therefore this type can be classified as formal. The strategic emphasis is exploitation as the major goal is to replicate the already existing business format. This type is characterised further by a central firm that has the most decision rights. The reciprocity is mixed as there is restricted reciprocity between the central firm and the non-central firms and generalised reciprocity between the non-central firms. An example of such a network type is franchising (Nijmeijer et al., 2014).
5.3.5 Resource sharing network
participants share a common resource, for example common premises, production or transport equipment or a common export manager (Varamaki and Vesalainen, 2003). As these common resources are also acquired jointly contractual agreements are needed, thus this network type can be classified as formal. Furthermore the circuit structure (Suarez-Villa, 1998) of this network implies that the decision rights are decentralised and the reciprocity generalised. An example of this network type is an export circle (Möller et al., 2005; Varamaki and Vesalainen, 2003).
5.3.6 Probing network
6. Discussion and Conclusion
6.1 Discussion
The objective of this study was to provide a classification of structural and strategic small firm multilateral network characteristics on the basis of a systematic literature review. This was achieved by bringing together the different typologies or classifications of small firm multilateral networks that have been distinguished in the literature. The first sub-question asked which structural and strategic characteristics are used in existing literature for classifying small firm multilateral network types. A list of these structural and strategic characteristics has been developed which includes formality, direction, participants, decision rights, reciprocity, geographical range, strategic emphasis, participants’ goals, and duration. Out of five structural characteristics formality is the most important one as it occurred most often. It includes the formal or informal contractual network structure. Further structural characteristics are the direction of the network (vertical, horizontal or mixed), the number of participants, which can vary from three up to 20 and sometimes even more and the geographical range (local, regional, national or multinational). The two structural characteristics decision rights and reciprocity have been combined into three different kinds of network structures (circuit, branch and hybrid). The circuit structure consists of decentralised decision rights and generalised reciprocity, the branch structure of centralised decision rights and restricted reciprocity, and the hybrid structure of centralised decision rights and mixed reciprocity.
Strategic emphasis is the most important out of the three strategic characteristics as it occurred most often. It includes exploring an existing capability (exploitation), exploring for new opportunities (exploration) or a mix of the two. Furthermore the strategic emphasis can also be defined as a cooperation orientation, a competition orientation or a mix of the two. In addition the participants’ goal (individual, collective or wider survival of the economy/region), and the duration (short term, medium term, or long term) are more strategic characteristics stated in the literature.
6.2 Theoretical and Managerial Implications
The literature on small firm multilateral networking is rather limited and articles focus often on very specific elements. For instance articles focused on just one characteristic such as the structural characteristic formality, the strategic emphasis or on the success factors such as trust. This study adds to our knowledge by focusing on both structural and strategic characteristics and combines them into a broad overview of small firm multilateral network characteristics. This broad overview and the differentiated types help in understanding networking better and furthermore helps policy with developing and maintaining networks. Furthermore it shows which of those characteristics seem very important due to the higher number of occurrence in the 25 studied articles. Managers that want to or already are involved in small firm multilateral networking should consider the nine characteristics stated in this article and be able to refer them to their own network. The different outcomes of the characteristics such as exploitation or exploration for the strategic emphasis is very important to know as they lead to very different managerial approaches needed. Furthermore, decisions about the formality should be made very carefully as they have crucial implications on practically every element of a network (Das and Teng, 1996).
6.3 Limitations and Future Research
This study has limitations such as the limited amount of articles included in the review. Moreover some articles did not focus on small firms or SMEs and different small firm and SME definitions have been used, which limit this study. Furthermore, some articles included did not define the number of participants. Additionally, the small number of articles with the research aim of a classification limits this study. The low number of these articles might be due to the time restriction of articles from 1994-2014. Thus, for future research it might be useful to search in a wider time frame. However, as multilateral networking increased over the last decades, earlier articles might not share the same definition of networking. Looking more into the development of multilateral networks over the last decades might be an interesting topic to study. Furthermore the tree diagram includes due to time limitations only four characteristics. Therefore it might be an interesting future research aim to build a typology of different network types on more than just three strategic and structural characteristics.
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8. Appendix
Appendix 1. Number of all articles found and within the top, very good & good journals
Topic Keywords no of all references no of references within the top, very good & good journals (Table 1)
1 network* & SME* OR network* & small firms* 979 264
2 collaboration* & SME* OR collaboration* & small firms* 245 50
3 strategic nets* & SME* OR strategic nets* & small firms* 1 1
4 cooperation* & SME* OR cooperation* & small firms* 279 71
5 alliances* & SME* OR alliances* & small firms* 285 95
6 network* typology OR network* classification OR network* types 2538 451
7 collaboration* & typology OR collaboration* classification OR collaboration* types 559 152 8 strategic nets* & typology OR strategic nets* classification OR strategic nets* types 8 4 9 cooperation* & typology OR cooperation* classification OR cooperation* types 882 224 10 alliances* & typology OR alliances* classification OR alliances* types 584 225
11 network* & small business 563 175
12 small business AND collaboration* OR strategic nets* OR cooperation* OR alliances* 276 72 13
multilateral network* OR multilateral network* OR multilateral alliance* OR multi-firm network* OR multi-firm alliance* OR multi-partner network* OR multi-partner alliance*
OR alliance constellation* 187 16
7386 1800
Appendix 2. List of 25 articles included in the review
Author(s) & Year Title Journal citations
Andreosso-O'Callaghan & Lenihan, 2008
Networking: a question of firm characteristics? The case of the Shannon region in Ireland
ENTREPRENEURSHIP AND
REGIONAL DEVELOPMENT 2 Brunetto &
Farr-Wharton, 2007
The moderating role of trust in SME owner/managers' decision-making about collaboration
JOURNAL OF SMALL BUSINESS
MANAGEMENT 16
Das & Teng, 2002 Alliance constellations: A social exchange perspective
ACADEMY OF MANAGEMENT
REVIEW 111
Das & Teng, 2000
Instabilities of strategic alliances. An internal tensions
perspective ORGANIZATION SCIENCE 232
Das & Teng, 1996 Risk types and inter-firm alliance structures
JOURNAL OF MANAGEMENT
STUDIES 132
Fulk & Desanctis, 1995
Electronic communication and changing organizational
forms ORGANIZATION SCIENCE 164
Fulop, 2000
A study of government-funded small business networks in Australia
JOURNAL OF SMALL BUSINESS
MANAGEMENT 8
Goes & Park, 1997
Interorganizational links and innovation: The case of hospital services
ACADEMY OF MANAGEMENT
JOURNAL 131
Gulati, 1995b
Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances
ACADEMY OF MANAGEMENT
JOURNAL 1325
Gulati & Singh, 1998b
The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances
ADMINISTRATIVE SCIENCE
QUARTERLY 572
Hinterhuber & Levin,
1994 Strategic Networks - The Organization of the Future LONG RANGE PLANNING 73 Hoffmann, 2007 Strategies for managing a portfolio of alliances
STRATEGIC MANAGEMENT
JOURNAL 86
Human & Provan, 2000
Legitimacy building in the evolution of small-firm multilateral networks: A comparative study of success and demise
ADMINISTRATIVE SCIENCE
QUARTERLY 154
Hwang & Burgers, 1997
The many faces of multi-firm alliances: Lessons for managers
CALIFORNIA MANAGEMENT
REVIEW 14
Inkpen & Tsang,
2005 Social capital, networks, and knowledge transfer
ACADEMY OF MANAGEMENT
REVIEW 503
Jones et al., 1998
Professional service constellations: How strategies and capabilities influence collaborative stability and
change ORGANIZATION SCIENCE 51
Larsson et al., 1998
The interorganizational learning dilemma: Collective
knowledge development in strategic alliances ORGANIZATION SCIENCE 271 Lin & Zhang, 2005
Changing structures of SME networks: Lessons from
the publishing industry in Taiwan LONG RANGE PLANNING 9
Lin et al., 2007
The performance consequences of ambidexterity in strategic alliance formations: Empirical investigation
and computational theorizing MANAGEMENT SCIENCE 49 Möller et al., 2005 Strategic business nets - their type and management
JOURNAL OF BUSINESS
RESEARCH 82
Pickernell et al., 2007
Developing a framework for network and cluster identification for use in economic development policy-making
ENTREPRENEURSHIP AND
REGIONAL DEVELOPMENT 11 Sorenson et al., 2008
The collaborative network orientation: Achieving business success through collaborative relationships
ENTREPRENEURSHIP THEORY
AND PRACTICE 16
Steensma et al., 2000
The influence of national culture on the formation of technology alliances by entrepreneurial firms
ACADEMY OF MANAGEMENT
JOURNAL 118
Suarez-Villa, 1998
The structures of cooperation: Downscaling,
outsourcing and the networked alliance SMALL BUSINESS ECONOMICS 21 Varamaki &
Vesalainen, 2003
Modelling different types of multilateral co-operation between SMEs
ENTREPRENEURSHIP AND
