Networks

Author: Marius Kahlert, UTwente

Firms are not automous entities but are embedded in social, professional and exchange relationships with other actors within and across industry borders. In this regard it is comprehensible that networks significantly influence the firm performance and can even be a source of competitive advantage. Zaheer, Gözübüyük and Milanov (2010) discuss four theoretical mechanisms of networks:

(1) Networks as resource access: Networks allow organizations to access resources and capabilities, with information as primary resources.

(2) Networks as source of trust: Networks can encourage trust (e.g. through higher closure) and might therefore lower the transaction costs.

(3) Networks as source of power and control: Networks, its structures and resource dependencies allow certain parties to exercise power and control over others.

(4) Networks as signalling mechanisms: The appearance in certain networks might send signals to other parties in the marketplace.

The Network Success Hypothesis assumes that there is a positive relationship between the founder's network and the entrepreneurial success. This hypothesis is based on the assumption that the network allows the founder to obtain resources at a lower price compared to the market rate and the network guarantees the flow of rare resources. Research on this issue is diverse and often started at different points. Therefore, significant support was rarely found so far.

Sources: Witt, P. (2004).  Entrepreneurs' network and the success of start-ups.'' Entrepreneurship & Regional Development, 16, (5) 391-412.

Zaheer, A., Gözübüyük, R., & Milanov, H. (2010). It’s the Connections: The Network Perspective in Interorganisational Research. Academy of Management Perspectives, 62-77.

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