The growth of networks and networking in the past three decades across all business sectors has been unprecedented. Firms in almost every sector are thought to have some experience of networking at either an individual or inter-firm level (Leek et al. 2002;
Misner and Morgan 2000). Likewise, firms in many industries have entered into a variety
of co-operative inter-firm relationships to conduct business. These networks include strategic alliances, partnerships, coalitions, joint ventures, franchises and various forms of network organisations, both formal and informal. This involves collaboration in areas such as; research and development, production, marketing, training, exporting, financing and knowledge transfer (Araujo 2004; Snehota 2003).
Networks have emerged as the new response to competition, a way for firms to develop joint solutions to common problems (McLoughlin and Horan 2000). A key issue for small firms in particular is to ensure that board members have the relevant knowledge and access to critical resources (Machold et al. 2011). The importance and significance of networks in business is increasing as the nature of competition is changing. New competitive conditions are demanding new strategies. The growth of networks allows firms to combine resources to gain knowledge, achieve economies of scale, acquire technologies and resources and enter markets that would otherwise be beyond their reach.
Networks act as a source of competitive advantage, especially for small firms which helps them overcome the disadvantages of their size (Leek et al. 2002).
The benefits of networking are well documented by a number of authors including Birley (1985), Burg (1999), Chell (2000), Dennis (2000), Ford et a. (2002) and Gilmore et al.
(2001), summarised as follows:
• Economic benefits: Firms can increase sales and lower production costs by working together in collaborative networks.
• Psychological benefits: As firms eliminate their isolation, especially SMEs they learn that their problems are shared by others and can be resolved in the network.
• Shared knowledge: Firms can exchange knowledge that might otherwise be costly to acquire by collaborating on joint projects where shared expertise is available.
• Developmental benefits: By promoting interaction with other firms, networking increases learning and the ability to adapt to the changing economic environment.
2.8.1 Benefits for SMEs
Networks and networking are of particular benefit to small and medium sized enterprises (SMEs), where networks involving organised systems of relationships between small entrepreneurial firms involving advisers, suppliers and customers are particularly valuable to the small business sector (Chell 2000). The problems associated with small size can be offset by the supportive environment provided by resilient networks (Collinson and Shaw 2001). By engaging in alliances and other co-operative network arrangements, small firms can gain individual strength and a measure of both individual and collective independence. The reasons why SMEs co-operate can be due to the following: the advantage of achieving economies of scale; the sharing of information about the latest techniques and technologies might be an interesting mechanism for keeping small firms up to date and competitive, with rationalised and efficient distribution of activities benefiting from economies of scale (Collinson and Shaw 2001).
SMEs can be competitive if they can collectively ‘realise’ the advantages of economies of
‘specialisation’ that they do not possess individually because of their small size. Yet SMEs can also encounter barriers such as shortage of funds, lack of appropriate skills and incapacity to capture market needs (Wang and Costello 2009). Chell (2000) identified two parallel but contrasting phenomena: firstly, larger firms reorganised their own activities around networks of interconnected activities; and second, successful small firms aggregated networks, creating local networking clusters. Networks and inter-firm relationships present SMEs with a number of options to overcome a range of increasing disadvantages they are experiencing in trying to compete in the ever increasing globalisation in the marketplace (Gilmore et al. 2001; Wang et al. 2004). SMEs are being driven towards increasingly flexible specialisation, honing their efforts on a narrowing field of production and concentrating their actions on their core skills, to remain competitive. The intermediate market delivering goods and services from one industry to another has become a market of the same importance as the final consumer market. The measure of ‘value added’ in the supply chain, from raw material extraction to final consumption, has been split between larger numbers of enterprises (Ottesen et al. 2004).
2.8.2 Benefits for Marketing
Despite the evidence in the management and entrepreneurial literature, the marketing discipline has been accused of being slow to recognise the advantages of business networks and the benefits of networking, with Doyle (1995, p.38) saying “Marketing has tried to be too functionally autonomous, resulting in low value added line extensions and
failure in networking”. Achrol and Kotler (1999, p146) see marketing as being integral to the network economy, where marketing will adopt a variety of network forms and the role of marketing within the network environment is changing in profound ways.
Marketing is relational and the nature of business to business connections are seen as a critical enterprise for marketers – offering opportunities to explore how transactions develop towards long-term relationships, to intricate networks of connections (Iacabucci 1996). McLoughlin and Horan (2000, p.285) also see the benefits from the markets as networks approach for business marketing, describing the ideas as being attractive and engaging, with practitioners saying ‘this is exactly how it happens in my business”.
2.8.3. Benefits for Sales
The importance of relationships and interaction in the changing role of sales and marketing has been recognised for some time (Webster 1992). However, most research has continued to follow the separate conventions of sales account management, relationship marketing and networks (Håkansson and Snehota 1995; McDonald, Millman et al. 1997; Pardo 1997). Homburg, Workman JNR et al. (2002, p.39) support the notion of building a bridge between sales, in particular key account management (KAM), marketing and relationships in networks. Just as there are advantages in participating in networks for managers, SMEs and marketers, there are benefits for salespeople (McDonald et al. 1997).
Salespeople are encouraged to develop personal contact networks of prospects, customers and intermediaries, which may be product specifiers or suppliers and are essential in
developing relationships. However, salespeople often view sales networks only in terms of numbers of direct contacts and do not necessarily appreciate the importance of other influencers in the network. This is summarised by Üstüner and Gordes (2006, p.104) as someone who knows a lot of people don’t necessarily have an effective network, because networks often pay-off most handsomely through indirect contacts. However, Steward et al. (2010, p.563) found that formal networking systems were only used by salespeople after they had exhausted information or referrals from their own personal networks. Sales managers act as network engineers acting as a conduit for information flows between the customer and the supplier firm (Flaherty et al. 2012).