A Review of Interfirm Networks: A Deeper Understanding of the Relationships Paradigm

By Fowler, Jie G.; Reisenwitz, Timothy H. | Journal of Business Strategies, Spring 2013 | Go to article overview

A Review of Interfirm Networks: A Deeper Understanding of the Relationships Paradigm


Fowler, Jie G., Reisenwitz, Timothy H., Journal of Business Strategies


Abstract

Interfirm relationships or networks take a variety of forms and can potentially provide significant synergy for the participants. Yet, most of research studies, to date, have primarily analyzed interfirm networks based upon one paradigm/ perspective. This review aims to examine a complete theoretical basis of network research and looks for research gaps and practical implications for both researchers and practitioners. Specifically, it summarizes six conceptual perspectives regarding interfirm networks: motivational, relational, structural, evolutionary, interactional, and governance, in order to address similarities and differences among different perspectives. With this purpose in mind, the relevant literature is reviewed and, at the conclusion of each conceptual perspective, areas of research that require more development and investigation are identified. Finally, suggestions for managers contemplating or engaged in interfirm networks are presented.

Introduction

The network paradigm originally built upon the notion that economic actions are embedded in a social network of relationships. In essence, organizations can be interconnected with other organizations through a wide array of social networks in order to improve effectiveness and efficiency. For instance, through examining a variety of forms of collaboration, ranging from consortia to joint venture, to franchising, to dealership, Fabrizio (2011) found collaboration among firms of different sizes helps to overcome weaknesses without increasing transitional costs. Other scholars found that firms organized in networks have higher survival chances and that prestigious partners help firms to go to IPO faster (Gulati, Dialdin & Wang, 2002). In addition, networks may also enable firms to gain access to capital in order to sustain operations and investment, while lower the transitional costs (Khanna & Rivkin, 2001). For instance, research findings show that network members in China reported higher financial performance and productivity (Keister, 1998). Further, networks may reduce consumer uncertainty attitudes towards the brand. For instance, Ingram and Baum's (1997) study of chain affiliation of Manhattan hotels suggests that a hotel that joins a high status hotel chain signals its high status. Recent literature on networks attempted to examine the knowledge transfer among connected firms. For instance, the vertical networks between Toyota and its suppliers and among suppliers themselves facilitate knowledge learning and provide members learning and productivity advantages over non-members (Dyer & Nobeoka, 2000).

Traditional economic literature identified that a firm has at least three alternatives in order to maintain its strategies, such as searching for suppliers and new markets (Mariti & Smiley, 1983): the firms have options to develop a cooperative agreement with other firms, firms may make resources available to individual market transactions, and firms may organize themselves internationally. The last two alternatives can illustrated by the technological approach based upon economies and diseconomies of scale and Adam Smith's principle of division of labor--refined and elaborated by Stigler (1951), Coase (1937), and Williamson (1975). However, recent empirical evidence shows that the maxim of "networks matter" may contradict the traditional economics of scope/scale and successful exploitation of personal or organizational relationships is essential for firms to gain and maintain competitive advantages (Khoja, 2010). As such, practitioners should be vigilant to develop relationships in networks.

By definition, a network describes a collection of actors (e.g., persons, divisions, firms, countries) and their connections (lacobucci, 1996; Thorelli, 1986). Brass, Galaskeiwica, Greve, and Tsai (2004) define a network as "a set of nodes and the set of ties representing some relationships, or lack of relationships, between the nodes" (p. …

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