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Business Strategy & Network Structure
Dr. Emanuela Todeva Director of Research Centre for Business Clusters, Networks and Economic Development
University of Surrey
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Examples of Business Networks Examples of Business Networks
• buyer-supplier networks, or vertical industrial networks within a value-chain;
• horizontal diversified industrial networks of the type of Keiretsu and Chaebol;
• networks of subsidiaries and subcontractors to multi-national corporations;
• family business networks; • entrepreneurial networks of autonomous small
businesses; • project network, including R&D alliance networks, and
counter trade networks; • utility networks.
• buyer-supplier networks, or vertical industrial networks within a value-chain;
• horizontal diversified industrial networks of the type of Keiretsu and Chaebol;
• networks of subsidiaries and subcontractors to multi-national corporations;
• family business networks; • entrepreneurial networks of autonomous small
businesses; • project network, including R&D alliance networks, and
counter trade networks; • utility networks.
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Types of Supply Chain Networks
• Ego-centred• Dispersed• Project based• Value-chain based• A combination of value-added
chains & strategic control networks
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Business networks are sets of repetitive transactions based on structural and relational formations with dynamic boundaries comprising interconnected elements (actors, resources and activities). Networks accommodate the contradictory aims pursued by each member, and facilitate joint activities and repetitive exchanges that have specific directionality and flow of information, commodities, heterogeneous resources, individual affection, commitment and trust between the network members. (E. Todeva, 2006).
Definition of Business Networks
http://www.surrey.ac.uk/BCNED/
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1124332
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RELATIONSHIPS
STRUCTUREACTORS
culturalapproach
relationalapproach
structuralapproach
The Network Diamond
Emanuela Todeva (2006) Business Networks: Strategy and Structure, New York: Taylor & Francis.
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The Behavioural System of Business Networks
Reactive & Strategic Behaviour in Networks
Firm’s conditions & attributes Business operations
Market conditions
Manageability/Control Legitimacy & Role
Relational framework/ context
Relational attributes
Industry conditions
Factor conditions
Mediating factors
Other connected activities
Decision making & goal settingNegotiating identities, interests & agreementsBargaining & negotiating contractsAscribing and accepting rolesStructuring information flowCoordinationMaximising profits, payoffs, benefitsMinimising costs / Sharing costsOptimising behaviour & maximising ‘expected utility’Manage the use of their assetsAccumulation of heterogeneous resourcesInvestment in assets capabilities & relations (incl. diversifying assets & capabilities)Building strategic capabilitiesSpecialisationInitiation of contacts and entrepreneurshipContracting resourcesDeveloping relationshipsExtending commitments to partners (buyers, suppliers)Acquiring & maintaining powerMonitoring & evaluation of partners, building expectationsExchange of incentivesStrategic positioningMimicry, conformity & complianceLegitimacy seekingForming coalitions and partnershipsCooperation for a final outcomeLearningKnowledge sharingManipulating external & internal environment
f a c t o r s © Todeva, 2006
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Relational Analysis
• What constitutes a business relationship (a question about the nature of inter-firm associations);
• Why actors connect to each other (a question about their motives and drivers);
• How actors connect to each other (a question about forms and types of network links, and business relationships);
• What takes place in a relationship (exploring the possible content of communications, exchanges, and transactions, their dynamics);
• What are the implications of being connected
© Todeva, 2005
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EGOALTER
Attributes /Affiliated members
and sub-units
Dyadic & Multilateral Relationships
E. Todeva, 2003
EGO
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Connected Relationships
Focalfirm
Directcounterpart of the focalfirm
Indirectcounterpart of the focalfirm
Indirectcounterpart of the focalfirm
Focal relationship
Connected relationships
Past relationship
Future relationship
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A-R-A modelAdapted from Hakansson, H. and Johanson, J. (1993) Actors / Resources /Activities Model (A-R-A model).
resource commitments by actor 1resource commitments by actor 2activity participationemerging interdependencies
Resource B2
Resource A2Resource A1
Resource B1
Actor 1 Actor 2
Activity A
Activity B
dyadic exchangerelationship
resource Interdependence
activityInterdependence
1 1
2 2
3 3
1. resource links2. commitment links3. participation links4. interdependence links
44
4
4 4
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Initiating a link(including learning about the other)
Establishing a relationship (including certain reciprocity)
Market transaction (including agreement)
Repetitive transactions (including a partnership agreement)
Mutual recognition between human actors, or interaction with objects
Single exchange of resourcesbetween human actors
Repetitive exchanges, employing an object into a process
Knowing someone or something
Relation / Association between subjects & objects ►
▼◄ ♦◘Co-presence in a field
Interconnected relationships (including transactions & resource flows)
Community exchanges& interconnected processes
POTENTIALRELATIONSHIP
LONG-TERM RELATIONSHIP
DYADIC MARKET RELATIONSHIP
INTERACTION / COMMUNICATION LINK
NETWORK RELATIONSHIP
PRE-RELATIONSHIP
Categories and Levels of Network Relationship
© Todeva, 2005
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Evolution of Relationships
pre-relationshipstage
exploratorystage
negotiationstage
developmentstage
stable executionstage
terminationstage
- relationship management- identifying needs- evaluation of potential partners
- designing transactions- agreements- framing
- selecting partners- initiate relationship- reciprocate partner’s efforts- framing
- individual commitment- learning- seeking complementarities & synergies- framing
-relationship assessment-decision-making-attempts for restoration-dyadic communication of termination -network communication of termination-disengagement-sense-making-aftermath
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Interorganisational Relations Interorganisational Relations
• joint ventures; • equity investments; • co-operatives; • R&D consortia; • strategic co-operative agreements; • cartels; • franchising; • licensing; • subcontractor networks; • industry standards groups; • action sets• market relations• hierarchical relations
• joint ventures; • equity investments; • co-operatives; • R&D consortia; • strategic co-operative agreements; • cartels; • franchising; • licensing; • subcontractor networks; • industry standards groups; • action sets• market relations• hierarchical relations
Todeva & Knoke, 2002
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REPRESENTATIVE & MARKET RELATIONSHIP – Exporting, Equity investmentHIERARCHICAL RELATIONSHIP - Wholly Owned Subsidiary, Franchising, SubcontractingAUTONOMOUS PARTNERSHIP RELATIONSHIP - Contractual & Equity Joint VenturesINTER-DEPENDENT PARTNERSHIP RELATIONSHIP – R&D Consortia, Industrial Co-operation Agreement, Management Contracts, Turnkey Contracts
© Todeva, 2005
Subcontractors, Franchisees, Suppliers, Business customers
Outsourcing / Subcontracting relationship
A
B
C D
Production / implementation network in hosteconomy
A2
Partners by contractual agreementEquity control & resource sharing agreementsTransfer of operational control
C
A, A2
B
Subsidiary, Franchisor, Local distributor
Main relationship
Sharing agreements, Equity control
Competitive relationship
E
E Exporter, Licensee, Portfolio investment
Subsidiary, Joint Venture
D Headquarters
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hegu, hui, guanxi, kongsi
Chinese Family & Community Business Networks
© Todeva, 2005
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Structural Analysis
• What constitutes a business network structure (a question about the nature of inter-firm associations);
• Why some structures survive over time (a question about their motives and drivers);
• How network structures facilitate actors’ behaviour (a question about forms and types of network links, and business relationships);
• What interactions take place in a different structural configurations (exploring the possible content of communications, exchanges, and transactions, their dynamics);
• What dynamics take place in different structural formations
© Todeva, 2005
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Types of Structural Configurations
hierarchical organisation(Weber, 1947)
trans-national (Bartlett & Ghoshal, 1989)
multidivisional organisation(Simon, 1962; Chandler, 1962; Williamson, 1975)
matrix organisation
functional organisation
horizontal organisation / value-chain, supply chain - through vertical integration of activities (Porter, 1986)
hegemonic / Ego-centred
clustered / dispersed / distributed
circular / regular / small-world
universal / core-periphery / scale-free
heterarchy (Hedlund, 1986)
community / dispersed / distributed
hybrid organisation(Miles & Snow, 1986, Powell, 1987) broker
producerdesigner
distributorsupplier
▼◄♦◘▼ ▼ ▼
industry groups (Porter, 1980)
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Hegemonic Tree Circular Regular Universal Value Chain
Clustered Core/Periphery (Scale-free) Small world
Types of Network StructuresTypes of Network Structures
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Network Based Businesses
© Todeva, 2005
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Distributed Supplier Networks and Commodity Chains
BUYERPRODUCER
MANUFACTURERBANK
TRADINGCOMPANY
SUBCONTRACTORDISTRIBUTOR
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Sogo Shoshatradingcompany
Foreign partners
BANK
Keiretsunetwork
Firms
Japanese Sogo Shosha Networks
© Todeva, 2005
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HEADQUARTERS
LICENSEE
JOINT VENTURE SUBSIDIARIESEMBEDDED INLOCAL CLUSTERS
REPRESENTATIVE INFOREIGN COUNTRY
INDUSTRIALCO-OPERATIONAGREEMENT
TURN-KEY CONTRACT
FRANCHISEES
MNC Networks
© Todeva, 2005
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Competing products
Scientific and knowledge fields
Research laboratory
Research laboratory
Governmentinnovation policyagencies
MNC MNC
InternationalStandardisationagency
Scientific Association
Competing technologies
subcontractor
Governmentstandardisation agency
RESEARCHCONSORTIUM
R&D Alliance Networks
© Todeva, 2005
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Computer systems sPublishing
Telecom operations
Electronic hardware
Motion picture
Business services
Publishing
© E. Todeva (2004)
The Global Information Sector, 2002
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Electrical Equipment and Component Manufacturing Cluster in Zhe Jiang Province in China: Chint (led by Mr Nan) and Delixi
(led by Mr Hu)
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Qiujing Swith Plant, 2005
Networks with Banks (1)
and Others (2)
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Networks with Clients (1)
and Suppliers (2)
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Regional Inter-University Alliances & Partnerships
Bio-Medical & Health, Greater South East,
2008
Database Research Projects‘Regional University Collaborations’ Greater South East, UK
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Location of Capabilities
Bio-Medical & Health, Greater South East,
2008
Database Firms ‘Regional Concentrations of Capabilities Measured with a Two-mode Graph of Relationships Between Regions and Clusters’ Greater South East, UK
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Cluster Value Chain: SURGICAL & MEDICAL INSTRUMENTS MANUFACTURING(198 firms, ties between firms based on 5 or more shared industry codes)
(87% of firms have the core industry codes: 334510 Electro-medical and Electrotherapeutic Apparatus Manufacturing; 334517 Irradiation Apparatus Manufacturing; 39112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing)
© Todeva (2007)
Holding companies
All other personal care stores
Wholesale
Misc. metal products
Electro-medical, electro-therapeutic, irradiation apparatus; surgical & medical instruments;
surgical supplies manufacturing
R&DPlastic
products
198 firms87% in 4 coreindustries
Misc electrical equip & component
manuf.
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Conclusions• Acknowledge the presence of relational aspects and
long-term commitments between business partners and the role of content, context and relational dynamics
• Relational and structural properties of business networks do affect performance and the effectiveness of international partnership agreements
• Heterogeneity of actors in business networks has an impact on coordination and management of partnerships
• Different dimensions of business networks do require distinctive research methodologies
© Todeva, 2005