Interfirm Alliances in the Small Business: The Role of Social Networks *

Article excerpt

In light of the increasing importance of strategic alliances in shaping competition, this study explored whether the social network of small firm executives can be leveraged to facilitate the establishment of interfirm alliances. Analyses are based on a mall survey of 149 small manufacturing firms in the northeast United States. Results indicate that the social networks of senior executives account for 11-22 percent of the variance in the degree to which firms engage in alliances, depending on the type of alliance. Results also show that the number of interfirm alliances is positively related to several networking properties (propensity to network, strength of ties, and network prestige). Findings are discussed in the context of network theory, social embeddedness, and the overall implications for management researchers and practitioners.

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Interfirm alliances are becoming an increasingly pervasive mode of conducting business. More and more firms engage in various forms of cooperative activities with other firms, recognizing the cost savings and the increasing flexibility associated with such arrangements (Ahuja 2000; Dyer and Singh 1998; Kale, Singh, and Perlmutter 2000): A growing body of literature on alliances focuses not only on the benefits to the firm but also on the implications of alliances and cooperation in terms of the competitive structure of markets (for example, see Gomes-Casseres 1996; Gulati, Nohria, and Zaheer 2000), suggesting that the new competitive arena consists of competitive constellations (networks) that are made up of firms linked by series of strategic alliances (Gomes-Casseres 1996).

To the extent that the new way of competing involves constellations of firms, the profitability and success of each firm is contingent on (1) the behavior of all firms that are part of the constellation and (2) the capability of each firm to successfully establish its position in the constellation. Thus, the ability to establish alliances becomes critical for competitive positioning. The benefits of being a partner in an alliance are especially relevant for small firms that have limited resources and limited market presence. Of particular importance for the small firm is being able to ensure that it has plenty of opportunities to partner in and establish cooperative arrangements.

This study focuses on one of the factors that may facilitate the establishment of interfirm alliances: the social networks of the firm's senior executive. Social networks lately have received much attention in management research and have been linked to various aspects of firm behavior and strategy (Larson 1991; Nelson 1989; Ostgaard and Birley 1994). Driving this stream of research is the realization that a manager's social networks constitute a resource for the firm and that the manager's personal network is often utilized to support business activities. Because the utility of the social network impacts the opportunities, costs, and activities the firm engages in, it is a potential source of competitive advantage. From a practical perspective, the question of interest is: what are the characteristics of a manager's network that are particularly supportive of creating interfirm alliances?

Background and Hypotheses

Theoretical Framework

Building upon social network theory, this study attempts to explain the relationship between the social networks of senior executives and interfirm cooperation. The study is couched in the theoretical framework of social embeddedness, which argues that economic activity cannot be analyzed without consideration of the social context in which it occurs (Granovetter 1985). Granovetter provided three reasons to support his argument for incorporating the social context into the study of economic activities. First, the pursuit of economic activities is confounded with the pursuit of noneconomic activities. …