Journal of Workplace Learning

Emerald Article: Social networks as a source of competitive advantage for

the firm
Kristien Van Laere, Aime´ Heene

Article information:

To cite this document: Kristien Van Laere, Aime´ Heene, (2003),"Social networks as a source of competitive advantage for the
firm", Journal of Workplace Learning, Vol. 15 Iss: 6 pp. 248 - 258

Permanent link to this document:

http://dx.doi.org/10.1108/13665620310488548

Downloaded on: 31-08-2012

References: This document contains references to 72 other documents

Citations: This document has been cited by 10 other documents

To copy this document: [e-mail]

This document has been downloaded 1842 times since 2005. *

Users who downloaded this Article also downloaded: *

David C. Li, "Online social network acceptance: a social perspective", Internet Research, Vol. 21 Iss: 5 pp. 562 - 580

http://dx.doi.org/10.1108/10662241111176371

Hui Chen, Miguel Baptista Nunes, Lihong Zhou, Guo Chao Peng, (2011),"Expanding the concept of requirements traceability: The role
of electronic records management in gathering evidence of crucial communications and negotiations", Aslib Proceedings, Vol. 63
Iss: 2 pp. 168 - 187

http://dx.doi.org/10.1108/00012531111135646

François Des Rosiers, Jean Dubé, Marius Thériault, (2011),"Do peer effects shape property values?", Journal of Property
Investment & Finance, Vol. 29 Iss: 4 pp. 510 - 528

http://dx.doi.org/10.1108/14635781111150376

Access to this document was granted through an Emerald subscription provided by KATOLICKI UNIWERSYTET LUBELSKI JANA PAWLA II

For Authors:
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service.
Information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.com
With over forty years' experience, Emerald Group Publishing is a leading independent publisher of global research with impact in
business, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, as
well as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization is
a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.

*Related content and download information correct at time of download.

Social networks as a

source of competitive

advantage for the firm

Kristien Van Laere and

Aime Heene

Introduction

Over the past 20 years, strategies which focus
on the economic consequences of firms
participating in networks have been
increasingly researched. More recently,
research on strategic blocks (Garcia-Pont and
Nohria, 1998), strategic supplier networks
(Jarillo, 1988), learning in alliances (Prahalad
and Hamel, 1990), inter-firm trust (Gulati
1995; Zaheer and Venkatraman 1995), and
network resources (Gulati, 1999) has
examined inter-firm relationships from a
variety of theoretical perspectives, levels of
analysis and outcomes (Gulati et al., 2000).
This growing research tradition in the
strategic management field attests to the
importance of inter-actor relationships.

The sum of the external contacts of a firm is

its social or informal network (Gulati, 1999).
Such a network contains all relations with
other organisations ± customers, suppliers,
competitors and other entities ± of all possible
industries and countries. Social networks may
facilitate inter-firm exchange but they can also
involve certain disadvantages. Hence,
managers need to have a profound insight
into all the elements of social networks so that
they can take an active role in managing inter-
actor ties and developing collaborative
capabilities that recognize both opportunities
and costs in embedded relations (Uzzi, 1996).

Social embeddedness matters to

organisations, because it often appears that
firms do not have to own resources in order to
reap the benefits from exploiting them
(Pfeffer and Salancik, 1978; Sanchez et al.,
1996; Dierickx and Cool, 1989; Frooman
1999). Insights from structural sociology
(Granovetter, 1985; Uzzi, 1997; Burt, 1992)
suggest that access to competitively valuable
resources is a function of the social network in
which the firm operates. Social networks are
an important source of externally controlled
resources, especially when the required
resources are highly specialized and can
therefore not be obtained through the market
(Heugens and Zyglidopoulos, 2001).

Scholars have suggested that participation

in social networks can be influential in
providing actors with access to timely
information and referrals to other actors in
the network (Burt, 1992). Especially for small
and medium-sized firms (SMEs) with a
comparable small amount of resources and
competencies, social networks can offer

The authors

Kristien Van Laere is an Assistant and Aime Heene is a
Professor, both in the Department of Management and
Organisation, Faculty of Economics and Business
Administration, Ghent University, Ghent, Belgium.

Keywords

Social networks, Competitive advantage,
Strategic management, Small to medium-sized enterprises,
Competitive strategy, Network operating systems

Abstract

Globalisation is transforming the competitive environment
of small and medium-sized firms.Because these firms are
competing with their larger counterparts in an economy
where collaboration is increasingly central to
organisational effectiveness, one must pay more attention
to the social networks that organisations rely on.This
article focuses on the relational perspective and describes
the characteristics of embedded relationships that firms
have to pay attention to in order to survive.

Electronic access

The Emerald Research Register for this journal is
available at
http://www.emeraldinsight.com/researchregister

The current issue and full text archive of this journal is
available at
http://www.emeraldinsight.com/1366-5626.htm

248

Journal of Workplace Learning
Volume 15 . Number 6 . 2003 . pp.248-258
# MCB UP Limited . ISSN 1366-5626
DOI 10.1108/13665620310488548

strong opportunities for a balanced enterprise
development in a competitive environment
(Jarillo, 1988; Ring and Van de Ven, 1994;
Sanchez et al., 1996). The ability to be part of
a social network has often been cited as a
source of competitive advantage for people
and organisations alike.

The first aim of this article is to propose a

conceptual framework covering the core
issues in managing relationships of SMEs in
function of their survival. We started from the
proposition that small and medium-sized
firms need to cooperate in order to survive.
An organisation functions as a system of
interdependent actors who collectively share
some goals for creating and realizing value
through their interactions. As an open system,
the firm has to interact with the environment
in order to survive. To attract interested
actors to its activities, thereby assuring its
continued existence, an organisation must
pay attention to the relationships it has.

Second, the article focuses on a particular

way of thinking about the embedded
relationships of SMEs starting from a
relational perspective. Conclusions are drawn
about how suitable this way of analyzing
SMEs and their embedded relationships is for
further research.

Small and medium-sized firms

Competition today increasingly revolves
around globalisation. In the more segregated
competitive arenas of the past, managers of
smaller firms could remain local if they
wished, reasonably insulated from the forces
of international competition. If they chose to
expand into markets abroad, they could
acquire and internalise the resources needed
to do so incrementally over time. In the new,
intensified competitive environment, with
higher customer expectations, rapid
technological change and environmental
regulations, SMEs must define excessive and
different purposes to survive, whether or not
they actually compete globally. As a
consequence, it is increasingly difficult for
independent, small firms to survive and/or to
grow unless they are globally competitive.

Even if SMEs are faced with high

competition, current interest in small
manufacturing firms is still enormous because
they are an important source of job growth.
Small and medium-sized firms capture an

important place in the Belgian economy.
More than 97 per cent of all firms in Belgium
are small or medium-sized (Van Gils, 2000).
Moreover, SMEs are responsible for a large
percentage of the gross national product and
of national employment (Van Gils, 2000).

Among researchers in small business, small

firms are not considered simply to be ``smaller
copies of big ones'' and there is a recognized
need for concepts of strategic management
that address the special characteristics and
situations of small firms (Borch and Huse,
1993; Dandridge, 1979). SMEs are
characterized by diversity, small scale,
personality and independence (Nooteboom,
1994). According to Van Gils (2000), each of
these characteristics lies at the basis of
important strengths such as flexibility,
motivation, customisation and unique
competences, but also of some weaknesses,
like lack of functional expertise, diseconomies
of scale and little spread of risks.

Flexibility to adapt quickly to

environmental changes, for example, is cited
as an important advantage of smaller firms.
Many small firms, however, find themselves
in positions in which larger intermediary firms
are the only firms that come in direct contact
with end-user markets (Bonaccorsi, 1993). As
small firms lack contact with end-user
markets, good market information, necessary
for identifying future opportunities and for
the creation of competence, does not reach
them and puts larger firms in a powerful
position based on superior information and
expertise (French and Raven, 1959; Stern and
El-Ansary, 1992).

The perceived disadvantages of small firms

versus larger firms often seem to outweigh the
perceived advantages of small firms (Sanchez
et al., 1996). Limited possibilities of economies
of scale, for example, give small firms cost
disadvantages. Small firms also suffer from
limited management resources. Small, single
firms (within fragmented industries) will rarely
have an R&D department, a marketing
department for developing a national or
international profile, well controlled
distribution channels or the financial strength
to launch long-term programmes. Small firms
are often more affected by a wider range of
environmental factors and environmental
changes than larger firms.

To exploit the main strengths and to

overcome the weaknesses, SMEs typically
pursue an innovation or niche strategy. Many

249

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

small firms may maintain their positions in
specific market niches, when these markets are
unattractively small for bigger companies or
when competition in a niche does not depend
importantly on larger companies' sources of
competitive advantage (Grant, 1991).

Need to cooperate with others
Many SMEs try to address the increasing
pressure of globalisation and rising customer
requirements with cost cutting programmes
and concentration on core competencies
(Prahalad and Hamel, 1990). At the same
time, these enterprises are forced to protect
their long-term competitive capability, to find
new benefit potentials, and to get into
promising positions. Like their large
counterparts, SMEs need to concern
themselves with their market position, their
technological trajectories, their competence
building and their organisational processes.

Especially for SMEs with a comparably

small amount of resources and competencies,
cooperating with other firms is a very
promising strategy which can resolve the
apparent contradiction between ``shrinking to
fit'' and expanding into new markets (Hamel et
al., 1989; Kogut, 1988; Lorange and Roos,
1992). Through cooperation, a small or
medium-sized firm may have possibilities to
access necessary assets outside the firm, which
points to firm-addressable assets (Sanchez et
al., 1996). Cooperative relationships can help
SMEs gain new competences, conserve
resources and share risks, move more quickly
into new markets, and create attractive options
for future investments (Hamel et al., 1989;
Hennart, 1991; Ohmae, 1989; Doz, 1996;
Kogut, 1991).

Thus, it would be appropriate to state that

companies, and especially SMEs, increasingly
compete through cooperation; the familiar
model of the single, independent,
autonomous company is dying out. Strategic
alliances are becoming an essential feature of
companies' overall organisational structure,
and competitive advantage increasingly
depends not only on a company's internal
capabilities but also on the types of its
alliances and the scope of its relationships
with other companies. Being a good partner,
which depends on the duration and objectives
of the relationships, has become a key
corporate asset. Moreover, according to
Kanter (1994), a good partnership is a
collaborative advantage and a genuine ability

to establish and sustain fruitful collaboration
gives companies a significant competitive
advantage.

In order to survive

Many of a company's relationships are vital
for its continuing competitive survival, and
each relationship may involve a substantial
commitment of resources that cannot be
easily used elsewhere. A company's decisions
on what action to take in each relationship are
of great importance to the development of its
overall portfolio of relationships and its
competitive success.

For the purpose of this paper we claim that

a company develops its own relationships and
we see these relationships as tools used by the
company. This way of examining the interface
between the company and the relationships is
a typical managerial approach and it points to
the importance of a company's development
of its relationships (Sanchez et al., 1996).

The stakeholder management rationale

envisions organisations at the centre of a
network of stakeholders. A firm's stakeholders
are any group of individuals who can affect or
are affected by the firm (Freeman, 1994),
including its investors, suppliers, employees,
customers, competitors, local communities in
which it operates, regulatory agencies and so
on.

A common perspective found in the

stakeholder literature is that organisations are
vehicles for coordinating stakeholder interests
(Freeman, 1994). This perspective is based
on the notion that organisations are, by
nature, cooperative systems (Lando et al.,
1997; Barnard, 1938). As a result of their
cooperative nature, organisations are inclined
to form coalitions with stakeholders to
achieve common objectives (Axelrod et al.,
1995). These coalitions are variously referred
to as constellations and (strategic) networks
(Jarillo, 1988; Borgatti, 1997). These
cooperative relationships can be a powerful
mechanism for aligning stakeholder interests
and can also help a firm reduce environmental
uncertainty (Kraatz and Zajac, 1998). SMEs
have to pay attention to the relationships with
their stakeholders to safeguard their
continuity.

Strategic management and the ``circle of

continuity''
Strategic management theory, developed on
the base of classical economic theory, will

250

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

proclaim ``the maximization of shareholder
value'' as the firm's main objective.
Competence-based strategic management
theory complements this traditional view with
a holistic perspective and redefines the firm's
primary objective as ``mediating between the
multiple interests of the firm's stakeholders''
to guarantee the sustainability of the firm's
processes of value creation and distribution.

To answer the question what an

organisation needs to do in order to safeguard
its longevity, we propose the ``circle of
continuity'' (Figure 1):

.

Step 1: Competence leveraging[1]: form and
content of product design, product
development, production and product
offering in the market are the result of the
way a company uses its resources,
structures and processes. A company's
resources are ultimately considered the
``sources of products and services''.
Conversely, products are an ``external
translation'' of the resources a company
can put to use.

.

Step 2: Value creation: products or services
allow the organisation to serve the
customer's needs and preferences. It is
only when the customer perceives the
firm's offering as ``valuable'' that he will
be willing to use and to pay for the firm's
offerings.

.

Step 3: Value appropriation: the results of
value creation need to be appropriated by
the value creating firm. Appropriating is
the capacity of the firm to retain the
added value it creates for its own benefit.
Who benefits from the firm's success in
adding value depends partly on the
decisions of the firm, partly on the
structure of the markets and partly on the
sources of the added value (Kay, 1993).

Powerful clients, who confront the firm
with a list of demands and who have
furthermore a strong negotiating position,
could obstruct the supplier to appropriate
the rewards of his efforts for value
creation.

.

Step 4: Value distribution and
step 5: Competence building, allow the firm
to develop stakeholders and in that way
tap new resources or reorganise the
existing resources.

In most cases the distribution or

division of added value is a matter of
agreement or decision, not legislation.
According to Kay (1993) two factors are
critical in determining the way in which
added value is divided between various
stakeholders. One is the degree to which
any or all of them have contributed to the
achievement of the added value. The
other is their (negotiating) power.

Firm value distribution enables the

company to obtain new resources or to
qualitatively change existing resources.
These in turn are the source of new
products and services. Customer value
creation and sustaining competitive
advantage thus requires a balance
between building and leveraging
competences. For the first activity, we
argue that relationships with stakeholders
are the necessary condition to renew
resources, structures and processes. In
function of competence leveraging one
can argue that good relationships can
result in working together to create,
produce and deliver products and services
to customers.

The mission, vision and goals of a firm,
inspire all the decisions taken within the
framework of the circle of continuity. These
elements give direction to the way the
different components in the circle of
continuity have to be developed and
deployed.

Following the reasoning in the continuity

circle, the capacity to collaborate is becoming
a core competence of an organisation (Doz
and Hamel, 1998). SMEs have to develop
partnerships with those stakeholders who are
essential for their survival and, more
specifically, with those actors who possess
information and other resources they are not
able to get without them.

Figure 1 The circle of continuity

251

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

Despite their promise, partnerships fail to

meet expectations because little attention is
given to nurturing the close working
relationships and interpersonal connections
that unite the partnering organisations (Hutt
and Stafford, 2000). Economic theories of
exchange virtually ignore the role of people
and their importance in the management of
interorganisational relations (Weitz and Jap,
1995).

The goal for SMEs is clearly to achieve a

balance in which the firm maintains good
relations with its stakeholders, and yet
diversifies products and sales. This balance is
not easy to strike, considering the investment
in time, expertise and resources that goes into
good relations with stakeholders. Therefore,
we take into consideration in the following
section the relational perspective and draw
some conclusions for SMEs.

The relational perspective

The industry structure view, associated with
Porter (1980), suggests that supernormal
rents are primarily a function of a firm's
membership in an industry with favourable
structural characteristics (e.g. relative
bargaining power, barriers to entry and so
on). Consequently, many researchers have
focused on the industry as the relevant unit of
analysis. The resource-based view (RBV) of
the firm argues that differential firm
performance is fundamentally due to firm
heterogeneity rather than to industry
structure (Barney, 1991; Rumelt, 1984;
Wernerfelt, 1984).

Although these two perspectives have

contributed greatly to our understanding of
how firms achieve above-normal returns, they
overlook the important fact that the
(dis)advantages of an individual firm are often
linked to the (dis)advantages of the network
of relationships in which the firm is
embedded. Proponents of the RBV have
emphasized that competitive advantage
results from those resources and capabilities
that are owned and controlled by a single
firm. Consequently, the search for
competitive advantage has focused on those
resources that are housed within the firm.

Recently, however, an alternative

perspective has become available ± one that
holds that the search for value-creating
resources and capabilities should be extended

beyond the boundaries of the firm (Dyer and
Singh, 1998; Gulati, 1999; Gulati et al., 2000;
Sanchez et al., 1996). Heugens and
Zyglidopoulos (2001) labelled this
perspective, which traces the sources of
competitive advantage to the network of a
firm's relationships, the relational
competence perspective.

The importance of a firm's internal

resources is widely accepted in the strategy
literature in general (Barney, 1991; Manoney
and Pandian, 1992) and the competitive
dynamics literature in particular (Smith and
Grimm, 2000). According to Gnyawali and
Madhavan (2001) we consolidate four sets of
arguments to establish that resources also
reside in the firm's social network and are
important to a firm. First, relationships in a
network are potential conduits to internal
resources held by connected actors (Nohria,
1992). Second, external economies ± that is,
``capabilities created within a network of
competing and cooperating firms'' ± often
complement firms' internal resources
(Langlois, 1992). Third, the rate of return on
internal resources is determined by how well
structured the firm's network is (Burt, 1992).
And fourth, a firm's position in a network
contributes to its acquisition of new
competitive capabilities (McEvily and Zaheer,
1999), which, in turn, enhances its ability to
attract new ties (Powell et al., 1996).

Gulati (1999) refers to the sources of value-

creating resources and capabilities that extend
beyond the boundaries of the firm, as
``network resources''. Thus, from the novel
perspective on the RBV, an important source
for the creation of inimitable value-generating
resources lies in a firm's network of
relationships. And any evaluation of the
relational perspective necessarily starts with
the recognition of embedded relationships as
an important locus of competitive advantage
(Dyer and Singh, 1998; Zajac and Olsen,
1993).

Embedded relationships

Based on the transaction cost economy
(Williamson, 1985), Uzzi (1997) argued that
the relationships that a firm has with its
surrounding organisations could be
summarised in two categories: ``market
relationships'' and ``close, special or
embedded relationships''. Market
relationships, or ``arm's-length ties'', are
characterized by a lack of reciprocity, a lack of

252

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

social content, the non-repeated nature of the
interaction and a narrow focus on economic
matters. The vast majority of any
organisational field's activities involve arm's-
length ties. But market transactions may fail
and that's why embedded relationships can be
so important. Much of embeddedness
research seeks to demonstrate that market
exchange is embedded in, and defined by,
larger and more complex social processes
(Granovetter, 1985; Zukin and DiMaggio,
1990; Portes and Sensenbrenner, 1993).
Mintzberg (1979) has demonstrated that even
the most formal organisations have an
``informal'' nature based on friendship,
personal ties, and strategically negotiated
inter-firm coalitions and ties.

While scholars developing the resource-

based perspective have highlighted the
importance of social factors, no attention has
been given to network resources that emerge
from firms' participation in the network of
embedded relationships.

From a relational perspective, it is precisely

the ``special or embedded relationships''
between firms that are of interest, because
even though they are fewer in number, they
usually characterize the critical exchange
relationships of the firm (Uzzi, 1997). Uzzi
(1997) showed further that embedded
relationships have three main components or
characteristics that regulate the expectations
and behaviours of exchange partners, notably
trust, fine-grained information transfer and
joint problem-solving arrangements.

According to Heugens and Zyglidopoulos

(2001) we add durability and collaboration
under the broader notion of incorporate joint
problem-solving arrangements.

SMEs have to pay attention to their

embedded relationships in order to survive.
Following what is explained in the circle of
continuity, we argue that a firm's
relationships with stakeholders are the
necessary condition to renew resources,
structures and processes. The manager-owner
of a firm has to analyze the firm's position in
terms of its specific relationships and its own
and other's resources, rather than in terms of
a set of products, markets and competitors.
Personal relationships provide an alternative
route for resolving conflicts and form the basis
of an informal understanding that clarifies the
commitments made by the parties (Hutt and
Stafford, 2000).

Embedded relationships between SMEs

and their counterparts
Embedded relationships must develop and
supplement formal relationships. Frequent
and more personal interactions with large
firms, who are often the top-customers of
SMEs, can resolve conflict, build trust, speed
decision-making and uncover new
possibilities for the partnership.

Taking the difficult position of SMEs in the

intensified competitive environment into
account, one can argue that these firms have
to pay special attention to their critical
exchange relationships with other firms.
Many of a company's customer or supplier
relationships are vital for its continuing
competitive survival and each may involve a
substantial commitment of resources that
cannot be easily used elsewhere. Taking the
characteristics of embedded relationships,
which regulate the expectations and
behaviour of exchange partners, into account,
we present the relationships between SMEs
and their large counterparts.
Trust
Actors in a network gradually build
dependency on resources controlled by others
in the network and position themselves to
make future use of these resources (Johanson
and Mattsson, 1987). An increased mutual
dependency and adaptation is heavily
dependent on the parallel creation of trust
between the firms: ``Single exchanges are in
this case integral parts of a process in which
the parties gradually build up a mutual trust
in each other. In supplier-customer
relationships for instance, business exchange
is an important aspect of this social exchange
process'' (Johanson and Mattsson, 1987).

Uzzi (1997) found that trust is the most

important feature of embedded ties. Trust in
interorganisational relationships is generated
by the reciprocation of special efforts on
behalf of both parties ± in other words, by the
exchange of favours. Trust acts like a heuristic
device enabling firm members to make quick
decisions and process more complex
information than would be possible without
trust (Uzzi, 1997). Both the enhanced speed
of decision-making and the improved ability
to handle complex information are posited to
have a significant positive impact on the
development of competitively valuable
competences.

253

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

The partners within a network must rely on

each other to share unforeseen benefits and
costs of the exchange. Such mutual trust can
be achieved through the extension of
exchange relations to incorporate deeper
personal commitments among the
participants. Shared values, norms,
interpersonal affiliation and respect, that have
been found important to help the single firm
cope with increased complexity and
uncertainty, need now to be extended to
inter-firm contractual relations (Macneil,
1980). Relation-based coordination can
reduce uncertainty, and thereby the
transaction costs associated with inter-firm
exchange (Jarillo, 1988; Williamson, 1986).
This is of special importance when it comes to
high investments in one specific relation. In a
competitive environment a firm needs to
beware of opportunistic action from its
exchange partner: it may be impossible to
predict all the conditions under which a
contract will have to be carried out, or to
know precisely all the specifications a piece of
equipment will have to meet (Borch and
Arthur, 1995).

Because of complexity and turbulence, the

formalized, legal contract is not sufficient to
coordinate and control such transactions.
Within transaction-cost economics,
ownership and internal control are
recommended as a solution to the uncertainty
and opportunism problems (Williamson,
1985). Smaller business firms lack market
power for negotiation, and formal hierarchy
may be antagonistic towards the advantages
of a simple, organisational structure such as
flexibility and short communication lines.
Informal networks may be particularly suited
to these kinds of firms by creating a
transaction-cost efficient and supportive
environment (Borch and Huse, 1993; Golden
and Dollinger, 1993).

Smaller firms have relatively simple organic

structures, and an oral, direct management
style anchored in the behavior of the leader
(Dandridge, 1979; Mintzberg, 1983).
Because of these characteristics, high-trust
person-centered governance structures may
be more important in small firms than in
larger corporations (Dubini and Aldrich,
1991) and may be similarly emphasized in
small firms' external relations.

Durability
Because trust between SMEs and their larger
counterparts cannot be generated
immediately, a certain degree of durability in
the relationship between the two parties is
required. Therefore, one of the characteristics
of embedded relationships between firms, in
contrast to market relationships, is that they
tend to be of much longer duration (Heugens
and Zyglidopoulos, 2001). In combination
with trust, durability enhances the relational
evolution of competences because it promotes
the willingness of managers to make
relationship-specific investments that are
necessary to build competitively valuable
competences (Dyer, 1997). When a durable
relation is established, predictability will be
enhanced and the uncertainty about
commitment of the other actors will decrease
(Dubini and Aldrich, 1991).

Many small or medium-sized firms'

customer or supplier relationships are vital for
their continuing competitive survival, and
each may involve a substantial commitment
of resources that cannot be easily used
elsewhere.

Because SMEs often produce special

products, do custom work, respond to
changing specifications, make complex
negotiation orders, and fill orders on short
notice, this business, more than others, lies
under competition. SMEs have to supply
special rather than standard products and do
custom work; in the mean time they have to
maintain good and enduring relations with
their top large-firm customers. Achieving a
balance between those two tasks is an
important subject for SMEs and a continued
investment in good relationships is of high
importance.

It takes some time before a sequence of

interactions can be labelled as an effective and
durable personal relationship. Because of the
great importance to the development of their
overall portfolio of relationships and its
competitive success, SMEs have to think
twice on what decisions they will take in each
relationship.

Besides, SMEs have to consider the concept

durability in terms of their strategy. Often
SMEs have only a short time perspective and
are in general just concentrated on
performing everyday operations (Bennis,
2001; Van Gils, 2000). Because of a lack of
vision for the long run, they need to be

254

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

conscientious about the durability of the
relationships they have.
Fine-grained information transfer
Duration of relationships, in combination
with trust, reflects the strength of using
learning effects and built-in skills for mutual
benefits. Trust is developed over time and
there must be a certain level of trust before
any deeper learning can take place. Herewith
we arrive at explaining the third characteristic
of embedded relationships, more specific fine-
grained information transfer (Uzzi, 1997).
Fine-grained information transfers benefits
between networked firms by allowing learning
from one another and allows them to
communicate and interpret tacit information
in a relatively holistic way (Uzzi, 1997;
Larson, 1992).

According to Heugens and Zyglidopoulos

(2001) this kind of fine-grained information
transfer impacts the relational evolution of
competences in at least two ways. First, it
sheds benefits on the firm by increasing its
behavioural options and its predictive
capacity (Uzzi, 1997). Secondly, since
competences are characterized by a large tacit
component (Sanchez et al., 1996), fine-
grained information transfer facilitates the
interorganisational learning, which is essential
for competence evolution to occur (Hamel
et al., 1989).

Because SMEs are characterized by the use

of tacit knowledge, they have to take care in
their relationships with others, to interchange
exact and clear information in order to get the
partner in an enduring relation. An overly
restrictive information policy will damage
trust, hamper learning and impede the
development of interpersonal relationships
across organisations. Frequent interactions
and the timely exchange of information across
organisations resolve conflict, build trust,
speed decision-making and uncover new
possibilities for the partnership (Hutt et al.,
2000).
Collaboration
Following what Heugens and Zyglidopoulos
(2001) have proposed, we discuss the last
characteristic of special or embedded
relationships: the extensive inter-firm
collaboration (Gray, 1989). Uzzi (1997)
found that embedded ties accommodate
actors with problem-solving mechanisms that
enable them to coordinate interactions and
work out problems. These arrangements

typically consist of routines of negotiation and
mutual adjustment that flexibly resolve
problems. Joint problem-solving
arrangements are mechanisms of voice (Uzzi,
1997). One can argue that people are more
likely to use voice rather than exit in response
to problems.

In that sense it is very important for SMEs

to make their complaints known and to
negotiate over them, rather than withhold
them. They have to search within their
relationship to find a solution. But also the
other way around is very important: SMEs
have to accommodate their embedded
relationships with possibilities of problem-
solving. They have to replace the simplistic
exit-or-stay response of the market and enrich
the network, because working through
problems promotes learning and innovation
(Uzzi, 1997). Collaboration between firms
often leads to exciting and rewarding results
which none of the participants could achieve
on their own.

Being a good partner in embedded

relationships has become a key corporate
asset. We can call it a company's collaborative
advantage. And as we move further into an
economy where collaboration is increasingly
central to organisational effectiveness, we
must pay more attention to the sets of
relationships that organisations rely on.

Conclusion

Globalisation creates imperatives for firms to
consider participating in networks and to
reflect upon the strategic importance of social
networks for the firm. Networks have become
crucial to the competitive success of SMEs in
the fast-changing and highly competitive
global markets. The ability of SMEs to own or
control assets or resources is normally more
restricted than for large firms. More than
ever, many of the skills and resources essential
to SMEs' prosperity lie outside the firm's
boundaries. That is why the capacity to
collaborate is becoming a core competence of
an organisation. SMEs have to develop
embedded relationships with these
stakeholders who are essential for their
survival.

We began this article developing a

contextual framework to explain the
importance of cooperation for the survival of
small and medium-sized firms. Then starting

255

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

from a relational perspective we described the
characteristics of embedded relationships
which SMEs have to be aware of while
interacting with their stakeholders.

The most interesting finding was a

considerable and growing research tradition
in the strategic management literature that
focuses on inter-firm networks. This attests to
the importance of inter-actor relationships
generally within the conversation of strategic
management, and highlights the need for
coalescing and focusing the research in this
area.

Further research that explores the

characteristics of the embedded relationships
between firms and their stakeholders is
necessary to propose rules to firms on how to
behave in their relationships with their
stakeholders. Relatively little theory has been
advanced in the empirical realm which relates
to how managers actually deal with the
relationships with their stakeholders. We
suggest that an extensive research should be
undertaken to study how firms should react
on and manage the expectations and
behaviours of exchange partners. What is the
interplay between trust and durability on the
one hand and joint problem-solving on the
other hand within relationships? How
extended must the interchange of information
be? Or when do firms have a collaborative
advantage through cooperation?

Embedded networks offer competitive

advantages for SMEs. This implies that future
research also might examine how markets
function and competitive dynamics unfold
when organisations compete on the basis of
their ability to access and reconfigure an
external pool of resources and partners rather
than firm-based competences.

Note

1 The circle of continuity is a ``closed'' circle, in which

every element is at the same time cause and effect.

There is no starting or ending point.``Step 1'' means

in this context that we will start with this step for

pedagogical reasons, but it is by no means meant to

represent a hierarchy.

References

Axelrod, R., Mitchell, W., Thomas, R.E., Bennett, D.S. and

Bruderer, E.(1995), ``Coalition formation in

standard-setting alliances'',

Management Science,

Vol.41, pp.1493-513.

Barnard, C.(1938),

The Functions of the Executive,

Harvard University Press, Cambridge, MA.

Barney, J.B. (1991), ``Firm resources and sustained

competitive advantage'',

Journal of Management,

Vol.17, pp.99-120.

Bennis, W.(2001), ``Big or small?'',

Executive Excellence,

Vol.18 No.6, pp.7-10.

Bonaccorsi, A.(1993), ``What do we know about

exporting by small Italian manufacturing firms'',

Journal of International Marketing, Vol.1 No.3,

pp.49-75.

Borch, O.J. and Arthur, M.B. (1995), ``Strategic networks

among small firms: implications for strategy

research methodology'',

Journal of Management

Studies, Vol.32 No.4, pp.419-42.

Borch, O.J. and Huse, M. (1993), ``Informal strategic

networks and the board of directors'',

Entrepreneurship.Theory & Practice, Vol.18,

pp.23-36.

Borgatti, S.P. (1997), ``Clique centrality'', working paper,

Boston College, Chestnut Hill, MA.

Burt, R.S. (1992),

Structural Holes: The Social Structure of

Competition, Harvard University Press, Cambridge,

MA.

Dandridge, T.C. (1979), ``Children are not little grown-ups.

Small business needs its own organizational

theory'',

Journal of Small Business Management,

Vol.2.

Dierickx, I.and Cool, K.(1989), ``Asset stock accumulation

and sustainibility of competitive advantage'',

Management Science, Vol.12.

Doz, Y.(1996), ``The evolution of cooperation in strategic

alliances: initial conditions or learning processes'',

Strategic Management Journal, Vol.17, pp.55-83.

Doz, Y.L. and Hamel, G. (1998),

Alliance Advantage,

Harvard Business School Press, Boston, MA.

Dubini, P.and Aldrich, H.(1991), ``Personal and extended

networks are central to the entrepreneurial

process'',

Journal of Business Venturing, Vol.6,

pp.305-13.

Dyer, J.H. (1997), ``Effective interfirm collaboration: how

firms minimize transaction costs and maximize

transaction value'',

Strategic Management Journal,

Vol.18, pp.535-56.

Dyer, J.H. and Singh, H. (1998), ``The relational view:

cooperative strategy and sources of

interorganizational competitive advantage'',

Academy

of Management Review, Vol.23, pp.660-79.

Freeman, R.E. (1994),

Ethical Theory and Business,

Prentice-Hall, Englewood Cliffs, NJ.

French, J.R.P. and Raven, B. (1959), ``The basis for social

power'', in Sanchez, R., Heene, A. and Thomas, H.

(Eds),

Dynamics of Competence-based Competition,

Elsevier Science Ltd, Oxford.

Frooman, J.(1999), ``Stakeholder influence strategies'',

Academy of Management Review, Vol.24 No.2,

pp.191-206.

Garcia-Pont, C.and Nohria, N.(1998), ``Local versus

global: the dynamics of alliance formation in the

automobile industry'',

Strategic Management

Journal.

Gnyawali, D.R. and Madhavan, R. (2001), ``Cooperative

networks and competitive dynamics: a structural

256

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

embeddedness perspective'',

Academy of

Management Review, Vol.26 No.3, pp.431-46.

Golden, P.A. and Dollinger, M. (1993), ``Cooperative

alliances and competitive strategies in small

manufacturing firms'',

Entrepreneurship; Theory &

Practice, Vol.17 No.4, pp.43-57.

Granovetter, M.(1985), ``Economic action and social

structure: the problem of embeddedness'',

American

Journal of Sociology, Vol.91, pp.481-510.

Grant, R.B. (1991), ``The resource-based theory of

competitive advantage: implications for strategy

formulation'', in Sanchez, R.and Heene, A.and

Thomas, H.(Eds.),

Dynamics of Competence-based

Competition, Vol.3, Elsevier Science Ltd, Oxford.

Gray, B.(1989),

Collaborating: Finding Common Ground

for Multiparty Problems, Jossey-Bass,

San Francisco, CA.

Gulati, N.(1999), ``Network location and learning: the

influence of network resources and firm capabilities

on alliance formation'',

Strategic Management

Journal, pp.397-420.

Gulati, N.and Zaheer, A.(2000), ``Strategic networks'',

Strategic Management Journal, pp.203-15.

Gulati, R.(1995), ``Does familiarity breed trust? The

implications of repeated ties for contractual choice

in alliances'',

Academy of Management Journal,

Vol.38, pp.85-112.

Hamel, G., Doz, Y. and Prahalad, C.K. (1989), ``Collaborate

with your competitors and win'',

Harvard Business

Review, Vol.89 No.1, pp.133-9.

Hennart, J.(1991), ``The transaction costs theory of joint

ventures: an empirical study of Japanese

subsidiaries in the United States'',

Management

Science, Vol.37, pp.483-97.

Heugens, P.and Zyglidopoulos, S.C.(2001),

Embedded

Competences? The Value-added of a Relational

Resource-based Perspective.

Hutt, M.D. and Stafford, E.R. (2000), ``Defining the social

network of a strategic alliance'',

Sloan Management

Review, Vol.41 No.2, pp.51-63.

Hutt, S., Walker and Reingen (2000), ``Defining the social

network of a strategic alliance'',

MIT Sloan

Management Review, pp.51-62.

Jarillo, J.C. (1988), ``On strategic networks'',

Strategic

Management Journal, Vol.9, pp.31-41.

Johanson, J.and Mattsson, L.G.(1987),

``Interorganizational relations in industrial systems:

a networks approach compared with the

transaction-cost approach'',

International Studies of

Management & Organization, Vol.17, pp.34-48.

Jones, T.M., Hesterly, W.S. and Borgatti, S.P. (1997), ``A

general theory of network governance: exchange

conditions and social mechanisms'',

Academy of

Management Review, Vol.22, pp.911-45.

Kay, J.(1993),

Foundations of Corporate Success: How

Business Strategies Add Value, Oxford University

Press, Oxford.

Kogut, B.(1988), ``Joint ventures: theoretical and

empirical perspectives'',

Strategic Management

Journal, Vol.9, pp.310-32.

Kogut, B.(1991), ``Joint ventures and the option to

expand and acquire'',

Management Science, Vol.37,

pp.19-23.

Kraatz, M.S. and Zajac, E.J. (1998), ``How organizational

resources affect strategic change and performance

in turbulent environments: theory and evidence'',

working paper, J.L. Kellogg Graduate School,

Evanston, IL.

Lando, A.A., Boyd, N.G. and Hanlon, S.C. (1997),

``Competition, cooperation and the search for

economic rents: a syncretic model'',

Academy of

Management Review, Vol.22, pp.110-41.

Langlois, R.N. (1992), ``External economics and economic

progress: the case of the microcomputer industry'',

Business History Review, Vol.66 No.1, pp.31-41.

Larson, A.(1992), ``Network dyads in entrepreneurial

settings: a study of the governance of exchange

relationships'',

Administrative Science Quarterly,

Vol.37, pp.76-104.

Lorange, P.and Roos, J.(1992),

Strategic Alliance:

Formation, Implementation and Evolution,

Blackwell, Oxford.

McEvily, B.and Zaheer (1999), ``Bridging ties: a source of

firm heterogeneity in competitive capabilities'',

Strategic Management Journal, Vol.20 No.12,

pp.1133-57.

Macneil, I.R. (1980),

The New Social Contract: An Inquiry

into Modern Contractual Relations, Yale University

Press, New Haven, CT, and London.

Manoney, J.T. and Pandian (1992), ``The resource based

view within the conversation of strategic

management'',

Strategic Management Journal,

Vol.13, pp.363-80.

Mintzberg, H.(1979),

The Structuring of Organizations,

Prentice-Hall, Englewood Cliffs, NJ.

Mintzberg, H.(1983),

Structure in Fives: Designing

Effective Organizations, Prentice-Hall, Englewood

Cliffs, NJ.

Nohria, N.(1992), ``Is a networks perspective a useful way

of studying organizations?'', in Nohria, N.and

Eccles, R.G. (Eds),

Networks and Organizations:

Structure, Form and Action, Harvard Business

School Press, Boston, MA.

Nooteboom (1994), ``Innovation and diffusion in small

firms: theory and evidence'', in Van Gils, A.E.J. (Ed.),

Cooperative Behavior in Small and Medium-sized

Enterprises: The Role of Strategic Alliances.

Ohmae, K.(1989), ``The global logic of strategic

alliances'',

Harvard Business Review, Vol.67,

pp.143-54.

Pfeffer, J.and Salancik, G.(1978),

The External Control of

Organizations: A Resource Dependence Perspective,

Harper & Row, New York, NY.

Porter, M.E. (1980),

Competitive Strategy: Techniques for

Analyzing Industries and Competitors, Free Press,

New York, NY.

Portes, A.and Sensenbrenner, J.(1993), ``Embeddedness

and immigration: notes on the social determinants

of economic action'',

American Journal of Sociology,

Vol.98, pp.1320-50.

Powell, W.W., Koput, K.W. and Smith-Doerr, L. (1996),

``Interorganizational collaboration and the locus of

innovation: networks of learning in biotechnology'',

Administrative Science Quarterly, Vol.41, pp.116-45.

Prahalad, C.K. and Hamel, G. (1990), ``The core

competence of the corporation'',

Harvard Business

Review, Vol.68, pp.79-91.

Ring, P.S. and Van de Ven, A.H. (1994), ``Developmental

processes of cooperative interorganizational

relationships'',

Academy of Management Review,

Vol.19, pp.90-118.

257

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258

Rumelt, R.P. (1984), ``Towards a strategic theory of the

firm'', in Lamb, R.B. (Ed.),

Competitive Strategic

Management, Prentice Hall, Englewood Cliffs, NJ,

pp.556-71.

Sanchez, R., Heene, A.and Thomas, H.(1996),

Dynamics

of Competence-based Competition: Theory and

Practice in the New Strategic Management, Elsevier

Science Ltd, Oxford.

Smith, Y.G. and Grimm, K.G. (2000), ``Multimarket contact

and resource dissimilarity: a competitive dynamics

perspective'',

Journal of Management, Vol.26 No.6,

pp.1217-37.

Stern, L.W. and El-Ansary (1992), ``Marketing channels'',

in Sanchez, R., Heene, A. and Thomas, R.E. (Eds),

Dynamics of Competence-based Competition,

Elsevier Science Ltd, Oxford.

Uzzi, B.(1996), ``The sources and consequences of

embeddedness for the economic performance of

organizations: the network effect'',

American

Sociological Review, Vol.61, pp.674-98.

Uzzi, B.(1997), ``Social structure and competition in

interfirm networks: the paradox of embeddedness'',

Administrative Science Quarterly, Vol.42 No.1,

pp.35-67.

Van Gils, A.E.J. (2000),

Cooperative Behavior in Small and

Medium-sized Enterprises: The Role of Strategic

Alliances, Rijksuniversiteit, University

Press, Groningen.

Weitz, B.A. and Jap, S.D. (1995), ``Relationship marketing

and distribution channels'', in Hutt, M.D. and

Stafford, E.R. (Eds),

Defining the Social Network of

a Strategic Alliance, Sloan Management Review,

Vol.41.

Wernerfelt, B.(1984), ``A resource-based view of the

firm'',

Strategic Management Journal, Vol.5,

pp.171-80.

Williamson, O.(1985), ``The economic institutions of

capitalism'', unpublished manuscript, New York,

NY.

Williamson, O.(1986),

Economic Organization.Firms,

Markets, and Policy Control, New York University

Press, New York, NY.

Zaheer, A.and Venkatraman, N.(1995), ``Relational

governance as an interorganizational strategy: an

empirical test of the role of trust in economic

exchange'',

Strategic Management Journal, Vol.16,

pp.373-92.

Zajac, E.J. and Olsen, C.P. (1993), ``From transactional cost

to transactional value analysis: implications

for the study of interorganizational strategies'',

Journal of Management Studies, Vol.30,

pp.131-45.

Zukin, S.and DiMaggio, P.(1990),

Structures of Capital:

The Social Organization of the Economy, Cambridge

University Press, Cambridge, MA.

258

Social networks as a source of competitive advantage for the firm

Kristien Van Laere and Aime Heene

Journal of Workplace Learning

Volume 15 . Number 6 . 2003 . 248-258