Small business network

A general perspective is that more emphasis on network forms of business organization is both necessary and inevitable in the context of market and technological changes . An alternative view is that business networks are sustained in a variety of ways, each of which addresses particular business situations with different degrees of advantage over alternative modes of governance. This latter perspective implies that the advocacy of networks as a tool for local and national economic development needs to be based on specific analysis of the opportunities that exist rather than being derived from broad theories of economic change . This chapter is concerned with the generation of such evidence; in particular, it addresses approaches to the measurement of a firm\'s network and examines explanations for their origins and the business conditions that sustain network structures . This discussion precedes from the perspective that present understanding of the form that network relations take in any particular locality or industry has tended to encompass a narrow range of issues drawn from broad generalizations about changes in industrial organization .

Two main influences explain the gaps in the analysis that has typically dominated discussion of networks . First, the main field of study that has sought to explain differences in business organization is transaction cost economics, this work has tended to operated from universal assumptions about the influences affecting the use of networks . A second reason is that for many researchers the advantages of networking are so self-evident that detailed explanation of what sustains them has not seemed necessary beyond linkage to general perceived trends in industrial society.

The emphasis in this chapter is on forms of investigation that relate the origins and operation of networks to their specific environments . The complexity of such influences to be considered means that what can be offered tends to be more of a phenomenology of patterns and mechanisms rather than a complete theory .

At one level, networks are part of successful entrepreneurship in that the way a firm manages its business linkages can have a significant impact on its overall performance . At another level, the form that networks take is affected by the inherited business system shaping organizational relations and the economic opportunities existing in any locality or industry . The promotion of networking should therefore ideally be guided by two types of information : understanding of the existing use of network relations by individual firms and understanding of the environment in which those firms operate . Whereas the former information gives an insight into the need for network support, the latter provides guidance on the ability to promote models of industrial organization that rely on heightened degrees of business cooperation.

NETWORKS ? FROM THE BOTTOM UP

It has been noted that networks are not easily observed and consequently are rather difficult to analyze. Methods for describing networks differ according to whether their focus is on the individual firm and its paired relationships or the network as a whole, encompassing multiple linkages . This section looks at both these approaches and reviews alternative ways in which network relations and structures have been identified from the perspective of individual entrepreneurs .

FIRM-CENTRED ANALYSIS

Compulsory networks are those to which an organization must belong in order to survive and operate successfully, for example banks or accountants, while participation in a local chamber of commerce, rotary or country club is classified as voluntary networking. This distinction thus identifies discretionary activities that may represent deliberate network building to a greater extent than relationships which cannot be avoided . A problem arising is that firm managers may vary in what they see as a compulsory or voluntary activity. For example, membership of a chamber of commerce might variously be assessed as "a compulsory activity vital for the company\'s success or in public image" or as "a purely social activity of little or no benefit to the company". A related criticism is that whether relationship is voluntary or compulsory does not indicate its usefulness, either on everyday basis or during a critical incident. Thus, it may be that an infrequently used and voluntary association, such as that with a market researcher or management consultant, is more important to the survival of a company at a period of crisis than a frequently used but compulsory association, such as that with a bank .

A closely related distinction has been drawn between formal and informal networks . Formal networks include banks, accountants, lawyers and business associations, while informal networks include family, friends, previous colleagues and past employers . From investigations in United States of America, with, for example, family and friends used to assist in locating premises and employees. Formal sources came to the fore when the firm was running and the owner was seeking to raise, resulting in banks being cited most frequently as the most important contact at this stage in the business\'s development. Thus, it was concluded that successful firms could be recognized by their willingness and ability to diversify their network sources to include a proportion of formal contacts . In addition, it might be argued that informality within formal contacts is also a critical dimension of networking, a perspective that then creates difficulty in satisfactorily apportioning networks to either formal or informal categories .

Application of the distinction between compulsory and voluntary networks in a survey of small service firms in the United Kingdom found that typically neither network was extensive . The conclusion, reaffirmed in follow-up interviews, was that, while networks are certainly an aspect of being in business, their significance is much more limited and much less than notions such as "networks" and "networking" imply .