The Network Position of Small Businesses: An Explanatory Model

TLDR: In this paper, the authors analyze the causal relationship between entrepreneur- and enterprise-related factors and networks, with the intention of contributing to the understanding of the factors that promote network formation.

Abstract: The economic arena is growing more and more complex by the day - competition is stiffening, market demand is changing constantly, and government intervention does not make things easier. Small businesses are constantly faced with this incontrovertible reality. No doubt new opportunities are created, but there are certainly risks involved too. Networking, with its emphasis on informality and opportunism, is seen as an ideal mechanism for thriving in these variable environmental conditions (Birley, Cromie, and Myers 1991). The popular image of the entrepreneur as an isolated figure who overcomes obstacles and fends off dangers alone is at best incomplete (Dollinger 1985). Networks, involving organized systems of relationships between entrepreneurs and the outside world, are particularly valuable to the small business sector. The fragility which accompanies small size can be offset by the supportive environment provided by resilient networks (Szarka 1990). The research literature covers a wide variety of theoretical perspectives on network activity. Although some empirical work on the potential of network analysis for organizational interventions by means of "blockmodelling" has been carried out (White, Boorman, and Breiger 1976; Nelson 1988), as yet little has been done to make network theory operational in a way practical enough to help organizations position themselves in networks or develop network strategies (Paasche, Pettersen, and Solem 1993; Lago 1995; Provan and Milward 1995). With this article, we try to fill the empirical gap by analyzing the causal relationship between entrepreneur- and enterprise-related factors and networks, with the intention of contributing to the understanding of the factors that promote network formation. An in-depth analysis of these explanatory factors is deemed to be necessary before there can be discussion of the transferability of attractive network models and of policy initiatives to that end (Szarka 1990). In this article, we will first present the conceptual model, which describes the important role of entrepreneur- and enterprise-related characteristics on the network scene and the choice of network variables. This is followed by a description of the hypotheses anti by the methodology. Then we analyze the empirical results of the impact of entrepreneur- and enterprise-related elements on network formation. Finally, the main research results and their policy implications for small business owners, supporting institutions, and researchers are discussed. Conceptual Model Although the literature describes anti explains networks in many different ways, there is agreement that networks consist of organized systems of relationships, and hence a network is generally defined as a specific type of relation linking a defined set of persons, objects, or events (Nelson 1988; Szarka 1990). In this article, we shall not concentrate on the reasons why small businesses develop and participate in networks (for example, transaction cost motives, resource dependence, trust, and strategic considerations), but instead on the possible influence of entrepreneur- and enterprise-related characteristics on networks. Entrepreneur-related factors are included because research suggests that the entrepreneurs, embedded in their businesses and in the external environment, are the actual composers of the network elements. Birley (1990) stresses the fact that every set of relationships is unique and is determined by the person creating the network. In addition, entrepreneurs do not readily delegate network activity to subordinates (Birley, Cromie, and Myers 1991). Other studies have shown that a number of features specific to the company, such as its financial situation, orientation towards growth, organization, and approach to the human factor, differ according to the size of the company and the industry sector (Donckels et al. 1987; Donckels and Hoebeke 1991a, 1991b; Gray 1993). …