BUSINESS NETWORKS OUTSIDE AN INDUSTRIAL DISTRICT

222

BUSINESS NETWORKS LIISTRTCT

OUTSIDE AN INDUSTHAL

MARTIN PERRY Departmat of Geography, ,Vatzonal C'niverszty of Singapore, I0 Kent Ridge Crescent, Singapore I 1 9260

SI-LAUN GOLDFINCH

Centre for Public P o l i ~ , The C'nzversrty ofJ!felbourne, Parkvilb, Mctona 3052, .4ustmlza

Received September 1994; revised January 1995

ABSTRACT There is increasing interest in the role that business networking can play in regional and national economic development. While networking is an acknowledged characteristic of successful industrial districts, there is uncertainty as to

how networking can be stimulated effectively inless favoured regions. This article reports New Zealandevidence from a survey of small-fm network behaviour and the impact of an intermediary agency - the Canterbury Business Advi- sory Agency - in seeking to assist network development. Small businesses were found to engage in various types of networking including information sharing, resource sharing and subcontracting. Little evidence of deliberate strategy about networking was found, however, and most respondents relied on a narrow range of contacts. Network promotion is identified as a way of assisting small-firm development and several ways assistance can be delivered are identified.

Key words: Networks, New Zealand, case study, small business, policy, regions

The search for a geographical model of regional growth has increasingly focused on the example of the industrial district. Successful regional economies owr the last decade have emerged in a variety of regional and industrial contexts, but most are seen to share the characteristics of an industrial district. The well-known examples include ( i ) high-tech, R&D and innovation-intensive areas (for example Silicon Valley. Boston, Britain's M 4 corridor and Grenoble); (i i) industrial districts in both semi-rural regions (for example, the Third Italy) and inner cities (for example, film making in Los Angeies); (iii) subcontracting nodes form- ed around large manufacturing companies, such as Baden-Wurttemberg and Southern California) (Cooke & Morgan 1993; Longhi & Quere 1993; Sabel 1992; Storper 1992; Saxenian 1991). The defining characteristics of an industrial district include: interfirm dependency (measured by product specialisation and local division of labour) ; disaggregation of the value chain in to independent. specialised activities; shared norms and cultural and social factors that facilitate interfirm cooperation; region-specific industrial know-how

and capacity for innovation and information sharing; and a matrix of supporting institutions and business services that facilitate the integration of an extended division of labour within the district (‘bin 1994, pp. 13-24; Asheim 1993, pp. 5455; Lorenz 1992).

The building blocks of an industrial district - such as a craft tradition, small-firm clustering, subcontracting linkages, the decentralisation of production from large enterprises and a growth in small-business activity - are widely found. This has encouraged a view that industrial districts can be an alternative to regional policy based on branch plant attraction (Cooke & Morgan 1993). Alterna- tively, it has been argued that the similarities of so- called industrial districts are superficial (Amin 1994 ; .h in &Robins 1990). Closeexaminationre- veals that new growth centres have depended on a fortuitous bunchingofcircumstances, unrecognis- ed at the time and difficult to replicate. This is recognised by those researcherswho emphasise that historical, cultural social and political dimensions can be as important as economic forces in the formation of an industrial district (Illeris 1992).

$ d d i n j i L$oorEcoiiomtsche en Sonale Geograjie - 1996, \'ot 87, N o 3. pp 222-236

BUSINESS NETW0RK.S OUTSIDE ANL’WUSTRIAL DISTRICT 223

Whatever the extent of commonality between successful industrial regions, there is less dispute that networking is now an important ingredient of business and regional development (Morgan 1992). Network relations are distinguished by the extent to which longer-term, reciprocal obliga- tions and opportunities are allowed to influence immediate economic transactions. Instead of obtaining supplies through discrete one-offtransfers, for example, long term associations are built allow- ing the transfer of information and support beyond the individual transactions. This type of behaviour ultimately relies on the ability to build personal relations of loyalty and trust, which does not necessarily demand the specific industry structure or the spatial containment of an industrial district (Grotz & Braun 1993). Networking is, for example, equally a feature of ‘lean production’ systems, in which small firms can be locked into dedicated supply relationships, serving mass markets rather than the rapidly changing niche markets served by industrial districts (Applebaum & Batt 1994).

The purpose of this article is to examine: (i) the role of networks in small-firm development and their characteristics amongst small firms located outside an industrial district; and (ii) how network formation amongst small businesses can be assisted by an intermediary agenfy. Whereas a growing number of studies have drawn attention to the importance of networking in business survival and growth, little understanding has yet been developed to turn this insight into practical regional policy assistance. The analysis does not, therefore, seek to question the alleged attributes of an industrial district, although there may be grounds for doing so (Grotz & Braun 1993). Rather. the aim is to use the insights from small- firm behaviour in one type of environment to examine networking in another, arguably more typi- cal regional economy, to determine whether network assistance can be a lever for regional growth.

The context for the study is a peripheral metropolitan economy (Christchurch, New Zealand) without existing concentrations of small-firm activity supporting an industrial district. The survey sample is drawn from the membership of a local business development agency - the Canterbury Business Advisory Foundation - sponsored by the local authority to provide business support services, including help in network development.

NETWORKING AND SMALLFIRM DEVELOPMENT

Out of the multitude of influences that determine the viability of small business, the importance of personal contact networks hasattracted increasing attention (Birley 1985; Aldrich & Zimmer 1986; Tjosvold & Weicker 1993). Small-business ow1ers are continuously challenged by non-recurring and novel tasks for which they have little training or experience, while their limited resources makes gathering information difficult (Cromie & Birley 1992; OECD 1993). In this context, support, friendly advice or direct assistance from personal contacts can be of critical importance to business survival. In this way, small-business performance cannot be separated from the quality of the social milieu in which it is located (Aldrich & Zimmer 1986). Entry to self-employment can similarly be conditioned by the nature of the individual’s personal network.

Networks have formal (banks, accountants, lawyers and other professional advisors) and informal components (family, friends, business partners). Both are of continuing importance, but informal contacts tend to be of particular importance immediately post startup, while formal contacts become more important as the business seeks external finance and markets beyond its home base (Birley 1985). Even when the business does not grow, networks are expected to become more interconnected and more effective over time. Net- work building is ‘action orientated’ requiring indi- viduals to expend energy and demonstrate inter- personal skills (Cromie & Birley 1992, p. 240). Trust-building between business managers requires consistent policies, time to gather experi- ences and to test the consistency of each party’s behaviour, and frequent contact to establish personal rapport (Lorenz 1992). This social interac- tion is facilitated by geographical proximity, but it is not essential (Grotz & Braun 1993). Typically wherever located, each member of a small-business network tends to be relied on for multiple purposes; for example, a family member may be a source of social support and a business advisor (OECD 1993).

In contrast to the alleged significance of small- business networking, some research has doubted its practiczl importance, even to assist problems potentially threatening business survival (Curran et al. 1993). The explanations offered for this con-

.MARTIN PERRY &? SHAUN GOLDFINCH 224

clusion were the well-known preference amongst ow-ner-managers for independence and the need to concentrate on immediate business demands (Curran et al. 1993). The study did, however, find that managers acknowledged time spent networking might ultimately help their business.

Two ways of measuring small-business networking have been emploped which may partly explain the different levels of networking found in pre- \ious studies. One approach examines the sources of assistance used to address ‘critical incidents’ in the development of the business (Curran et al. 1993; Tjosvold & Weicker 1993). The other a p proach seeks quantitative measures of networking. Cromie and Birley (1992). for example, measured network development in terms of: networking actz- vit?;, “the size of the network and the time the owner-manager spends developing and coordina- ting it”; the diversity of the network and its ability to contribute awide range of experience, informa- rion, and contacts; and the density of the network, which is reflected in “the interrelationships between people in the personal contact network” (Cromie & Birley 1992, p. 239). Mhereas the critical incidents method exposes the functional importance of networks, quantitative measures are helpful where the objective is to compare network dcvelopment between different groups of businesses.

The approach in this study is a compromise between the methods just described. Face-to-face interviews were conducted with 51 small-business proprietors selected from the membership of the Canterbur?.Busines~.4d~isor?:Fouiidation (CBAF) . These inteniews were based on a semi-structured questionnaire designed to establish the numbers and tvpe of contacts small business have, at the same time discussing how these contactswere actu- ally used and examining the extent to which the business has a strategy about networking. This a p proach was designed to provide some objective measures of network acthity alongside descrip tions of the use of networking to address specific business issues. To distinguish network relationships from other business linkages, respondents were asked to consider networking as:

The use of relationships with customers, suppliers, professional advisors, other firms - perhaps even competitors - as a way of strengthening businesscapacities. To be in business, all firms must make use of external relationships to obtain supplies, manage their accounts and

make sales. Firms that engage in networking make those relationships work better for them and actively build new relationshipswith other firms, business people and organisations. It may result in: (i) joint solutions to common problems (for example, sharing marketing costs, equipment and facilities) ; (ii) complementary development and exploitation (for example, marketing alliances) ; (iii) subcontracting and purchasing links.

NEW ZEALAND AND THE CANTERBURY REGIONAL ECONOMY

Over the last decade the structure and management of New Zealand’s economy has experienced profound change (Britton et al. 1992). A programme of market deregulation and macroeco- nomic disinflation has substantially reduced or removed extensive trade protection, ownership and foreign investment controls, industry licens- ing, state ownership of infrastructure and legis- lative controls on wage bargaining (Bollard & Buckle 1987; Easton 1989; Boston & Dalziel1992). These changes pushed the land-based economy in to an immediate recession followed by a contraction in manufacturing output (staying below 1987 levels of production until 1993). The finance and business service sector experienced a short-lived boom abruptly ended by the international share market collapse in 1987, which had particularly severe consequences for New Zealand (Perry 1991). In addition, thecommercialisation andsale of stateawned enterprises and subsequent redun- dancies, reductions in welfare provision and increased ‘user-pays’ charges for public services further depressed the economy. Resulting high unemployment is likely to have been a factor in the growth of selfemployment and increased rates of small-business formation and closure (Malcom 1993; tables 1 , 2). Optimism has grown following the conclusion of the Uruguay round of GATT in 1993, helped by a cyclical upswing in existing primary sector exports and the expansion of manufacturing sector exports. Most economic indicators now present a positive picture of the New Zealand economy (Reserve Bank 1994 Birch 1994), but from a low base of activity.

Christchurch is the largest city in South Island New Zealand (population 307,179, a third of the South Island total), the dominant urban centre of the Canterbury region and the third largest city in

B U S N S S hETWORKS OVTSIDE ANIADUSTHAL DISTHCT 225

Table 1. Percentage change i n number of business units and employees by unit size, 1987-1 991, 199@1993 ( N m Zealand (NZ) and Canterbury (C’bury)).

No. of business units (% change)

1987-1990’ 1990-1993*

Unit size NZ C’bury3 NZ C’bury

0-5 6.5 4.9 6-9 -1.8 -1.1 10.49 0.1 -3.2 50 or more -5.5 -1.2

18.2 -0.4 -5.1 -8.8

20.0 5.6 1.6

-9.4 ~ ~~

Employment (% change)

1987-19901 1990-19932

Unit size NZ C’bu$ NZ C’bury ~ ~~~

0-5 3.8 2.4 6-9 -1.3 -0.7 10.49 -1.3 -4.5 50 or more -12.8 -11.0

11.1 13.0 -0.2 6.0 -5.0 2.2 -10.5 -8.1

Department of Statistics 1988, 1991 Department of Statistics 1991, 1994 1987 figures adjusted to new regional boundary introduced 1989 ’

Table 2. New Zealand and the Canterbu? regaonal economy compared (%).

New Zealand Canterbury

Unemploymen t l

1987 1992 1994 Selfemployment’ 1986 1991 Small business activity4 1987 Activity units5 Employees6 1993 Activity units5 Employees6

4.1 11.1 9.5

17.2 19.3

87.1 34.8

89.8 36.8

3.52 8.8 8.3

15.8 17.5

86.6 36.2

89.2 35.6

Household labour force survey, March quarters figure for Christchurch only 1986, 1991 Census data, Department of Statistics 1992, 1993. Percentage of total employed. 0-9 employees, Department of Statistics 1988, 1994. percentage of total activity units percentage of total employed

226 AL4RTIN PERRY €3 SHA UV GOLDFINCH

New Zealand. Compared with other metropolitan centres, the population is ethnically homogenous being almost 90% New Zealand-born and ethnically European (Department of Statistics 1992; 1993). The Canterbury region has a history of dominance by gentry elites, and social divisions in Canterbury and Christchurch reflect this todav (Eldrich-Grigg 1980). However, the region’sdomi- nance of the South Island population and i t s phy- sicalisolation encourage a strong sense of regional identity.

High unemployment and a contraction of the productive sector have been experienced as part of the national recession (table 2 ) . The Canter- bury region lost almost 10,000 full-time equivalent jobs (6.3% of total regional employment) although post-1989 losses slowed down, and in most years since March 1987 Canterbury performed above the national average. Indeed business service and social and community senices sectors experienced uninterrupted growth and now collectively comprise 20% of regional employment. Manufacturing in contrast, lost about a quarter of its employment 1987-1993 and now accounts for only 18% of regional employment. The meat pro- cessing and textile, apparel and footwear industries - the largest manufacturing employers in 1987 - remain the dominant industries, but on a significantly reduced scale. A net regional employment gain of 1,500 1992-1993 reflecting three sources of growth - exports of manufactured goods, tourism and local consumer confidence - combined with the improved national economy has increased economic optimism. In the quarter to March 1994, close to the time of the survey reported in the article, Canterbuv had the second strongest regional growth rate after Auckland (Na- tional Bank 1994).

It is difficult to detect a structure equivalent to an industrial district in the Canterbuq region. Some small pockets of specialisation do exist, including a small software and electronics industry centred around theLINCdevelopment centre and Canterbury Technology Park (Ansley 1992). Can- terbury businesses as a whole, however, are dis- persed across a wide range of industries, similar to other metropolitan economies (Canterbury Deve- lopment Corporation 1993, p. 35). More distinc- tive is rhe extent of local authority support for business development. The Canterbuv Develop- ment Corporation was established in 1984 to promote business development, resulting in several

innovative business assistance programmes. Those programmes include various forms of network promonon: a regional database of products and services, designed to encourage local businessinte- gration; a directory of investment opportunities; support for ‘preliminary exporter groups’ comprising small firms seeking to expand exports through interfirm cooperation.

A separate network initiative has developed from a small-business assistance scheme called Buszness Grow. Under this programme, consultants visit smal1 businesses to review their current performance and to iden ti@ sources of business assistance that may help the business to grow. A separate agency - the Canterbury Business Advisory Foundation (CBAF) - was established to receive referrals from Business Grow. Businesses accepting this referral, as well as other businesses indepen- dentlv looking for advice, become members of the CBAF, on payment of a modest membership fee. As part of their activities, the CBAF runs monthly network meetings to encourage business interac- tion.

The survey sample for this study was selected from the CBAF membership directory. At the time of the survey (April-May 1994), there were 307 members, accumulated since 1992, of which almost a quarter were covered in the survey. The sample was skewed to under-represent service- sector members and over-select manufacturers. (A pilot survey had revealed that many service businesses belonging to the CBAF were small scale, often part-time ventures, or only interested in the CBAF network as a marketing outlet.) The source of the sample might question its representative- ness of the regional economy, however, the depth of recession at the time of the CBAF’s establish- ment encouraged a wide membership in terms of previous business success and type of activity. Moreover, as the focus of the study is to determine how an intermediary agency might promote networking, arguably it is relevant to collect information from businesses that have accepted public agency support. Researchers undertaking similar studies in other regional economies should note, however, the modest scale of enterprise covered in the survey and typically existing in New Zealand.

Of the 71 businesses in the survey sample, 30% had no employees beyond the owner-operators. Of those with employees, only five businesses had more than ten employees while over half had no more than five employees. Most businesses had

BUSINESS NETWORKS OUTSIDE AN INDLJSTRIAL DISTRICT 227

been started by their present owner and were less than six years old, although almost half the respondents had more than ten years’ total selfemployment experience. Reflecting the design of the sample, two-thirds involved some form of manufacturing or primary sector activity. Most businesses served a purely local market, although a fifth exported beyond the region including a few technology-based enterprises with growing overseas markets. The effects of recession were evident with 40% of respondents reporting past growth targets had not be achieved or only partially met, although most expressed optimism for the future. Overall, therefore, the sample captures a range of small-business experience, which is probably typi- cal of the wider population of small business, as tended to be confirmed in a later survey based in another metropolitan economy Wellington (Field et al. 1994).

NETWORK CHARACTERISTICS

This study found many examples to illustrate the importance of networking, ranging from social benefits to subcontracting and other formal cooperative arrangements. The networking identified is mainly of three types: ( i ) information gathering from social and other contacts; (ii) short- term and intermittent resource sharing between firms; and (iii) subcontracting and other interfirm cooperation on a longer term, contractual or

quasiiontractual basis (table 3 ) . For many small firms the most important types of contacts are based on gathering information or getting advice on their business from the social milieu, whether this is from business and social contacts, business professionals or business associations such as the CBAF. Interfirm resource sharing was also found to be important including, for example, temporary labour assistance to cover for workers on leave or to help cope with variations in demand and loans of equipment and raw material needed in an emergency. Ongoing interfrm cooperation such as subcontracting orjoint marketing was less common than other types of networking, although a number of examples were discovered, especially in the clothing industry. While the various forms of cooperation discovered were generally modest in scope they are important to the businesses involved and collectively demonstrate the importance to most businesses of a minimum supporting network.

The importance of these different types of networking, and ability to pursue them is influenced by a complex range of influences. From the survey itis possible to identlfyfive factors conditioningan individual proprietor’s network characteristics: (i) local geography; (ii) industry and market structures; (iii) the proprietor’s entry point into self- employment; (iv) personal inclination; and (v) business development objectives.

Table 3. Netwwk relations.

Type of network activity Explanation Example

Information gathering Informal, intermittent from social contacts.

An engineering firm gave advice to a neighbour on pricing his product. A manufacturer obtained a variety of advice from family members who were

information gathering from family, friends and business contacts. also in business.

Resource sharing Resource sharing on a non- conrractual, ‘as needs’ basis based on reciprocal trust and cooperation.

A bakery contacts other bakeries if relief staff are needed or when the bakery needs extra flour at short notice. Overflows from other bakeries handled at a ‘special price’. A joinery firm sends ‘overflow’ to other joiners.

Subcontracting and other cooperative arrangements.

Ongoing business relations established through formal agreement, possibly contractual.

A clothing manufacturer produced for his own label which was marketed and sold by others on a non-contractual basis, designed for other labels on a contractual basis, and provided consultancy services. Another clothing manufacturer manufactured and designed school uniforms in close consultation with school uniform committees.

M4RTIN PERRY & SHA U N GOLBFNCH

Local geography - The social, economic and physi- cal character of the immediate neighbourhood in which the business is located affects networking behailour in several ways. One respondent, a re- tailer, had moved from a prosperous to a less prosperous inner city location. The respondent explained that in her new location it was harder to develop a similar network amongst local retailers: there were no local business associations, other shopkeepers were suspicious and nervous about sharing information, and property landlords took little interest in the well-being of tenant businesses. Consequently her attempts to promote a number of network initiatives had been unsuccess- ful. Local geography is important to retailers as their business success is influenced by the shared character of the location to which customers must be attracted. However, it was also notable how manufacturing proprietors located in small-business enclaves commented that they would talk to their neighbours about their businesses and business problems.

Indust? and market stmctul-ex - Over a quarter of businesses mentioned competitive business attitudes as a barrier to networking. This constraint was voiced mainly by business managers in industries dominated by cost-compeutive subcontracting, such as clothing. One owner-operator of a successful clothing manufacturing firm, for example, described that he had almost no contacts in the clothing industry which he characterised as dominated by “intenselycompetitive people who could not be trusted to work together cooperatively”.

Similarly competitive constraints affected attitudes amongst some suppliers of local services. For example, a gateaux manufacturer suggested that it was impossible to establish long-term relations with buyers (mainly local hotels and restaurants) because there were so many other suppliers in the city competing for the same business. The same person also explained that if he needed extra s u p plies of flour at short notice he had arrangements with a baker rather than another gateaux maker.

Ently point - The ‘traditional’ route into self- employment is based on prior association with the activity, either through family connections or paid employment. Intuitively this should provide the new proprietor with a better developed network and a greater capacity to augment it than available to a new entrant to self-employment in an unfamiliar activity. A quarter of the survey sample had followed a non-traditional route into self employment. However, reflecting the many other influences on networking activity, a significant differ- ence in network activity or network sufficiencywas not immediately evident between those entering self-employment via a ‘traditional’ or ‘non-traditional’ route (table 4). Nonetheless, some examples of isolated new entrants having difficulty e s tablishing networks were found. For example, a person attempting to establish a computer-based marketing business, from a background in farm- ing, had advertised for marketing agents and relied exclusively on them for adlice about his business.

Table 4 E n t q point of popneto7 tnto selJmplqmmt adequaq of network to akuelqt bustness at start of fin. ~

Entrv point Perception of network adequacy when business established/purchased

None Less than Satisfactory Welldeveloped Other Total existent preferred

N o background in industry 8 6 3 2 - 19 (27.1) Prior work in industry 7 15 10 4 - 36 (51.4) Work in related industry 6 3 - - 1 10 (14.3) Other 3 - 1 - 1 5 (7.1)

Total 24 (34.3) 24 (34.3) 14 (20.0) 6 (8.6) 2 (2.9) 70 (100.0) ~~

.Vole

1 missing observation

BUSINESS IETWORKS OUTSIDE ANLWUSTRIAL DISTRICT 229

Personal characteristics - Networking relies on personal rapport so that confidence and sociability are important to network development. Not all business proprietors naturally have these attributes and many acknowledged it as a barrier, comment- ing that they were ‘not the sort of people’ to go out and make contacts and attempt to sell their businesses. On the other hand, gregarious persons who are confident in business may involve themselves in networking for both business and social rewards. Similarly, proprietors content to stay within their present levels of activity may put comparatively little effort into networking, while those proprietors concerned to have security against a loss of existing customers may be more motivated to invest time into networking. But even when a need is perceived, time constraints can be an important barrier to networking, especially for owner-operators who also have family responsibili- ties.

Business development objectives - Network priorities and constraints vary according to the particular development issues currently faced (table 5 ) . The new entrant, especially one starting without a background in the industry, faces immediate needs to gain business skills, acquire familiarity with the market and develop contacts with suppliers and customers. Established businessesrequired to tum- around their performance because of changes in competition or market opportunities are required to build new networks and learn new skills to adapt to changes. This can pose particular difficul- ties for established businesses especially where they must move from a previously independent outlook to one where advice is needed from others. Satisfied firms - not seeking to grow - may see little need to engage in networking because customer relations are well established. Larger mature businesses tend to place an ongoing value in maintaining connections with business professionals and with other small businesses to provide an independent eye on their business, as well as to express their support for small business. A h e l o p - mental firm aggressively seeking to grow and develop new markets requires specialised forms of technical and marketing assistance. A key barrier can be the difficulty of identifymg the most appro- priate source of expertise and the contacts that will lead them into the most helpful networks. Market integration firms seek to secure medium to long-term cooperative arrangements with other

firms, either suppliers or end buyers, as a way of securing market stability or sharing development costs. Further survey evidence is required to verify the importance ofthese categories, but meanwhile the general point emerges that different small firms have contrasting needs and priorities.

NETWORK SIZE AND ADEQUACY

The above discussion has shown that there is a wide variety of circumstances in which networking is important and that businesses have different needs and different opportunities to engage in networking activity. This section provides a sum- mary of thevariation in the network characteristics of individual firms, as measured by the number and types of contacts, the frequency they are used and perceptions about the adequacy of network development.

When asked how many contacts they could rely on for information on new market opportunities, almost onequarter of the sample (one-third of those that could give an answer) said they had one to five contacts, while a further 45% (one-third of those that could give an answer) had six or more contacts. For some respondents, many of these contacts are customers which the respondent be- lieves (or hopes) will refer further customers to their business. In respect of serious business problems, the number of contacts was less: two-thirds of the sample reported one to five contacts, while three businesses said none. In terms of the type of contact business issues are discussed with, family members were relied on most heavilywith friends, customers, accountants and employees also cited comparatively frequently (table 6). Over half the sample belonged to at least one other trade or business associations but for various reasons these were not used to make business contacts.

The use offamily and friendship support is not surprising, particularly as some family members are partners or workers in the business or both. All businesses require the services of an accountant and so it is to be expected that they also figure prominently in business networks. Similarly, all businesses must have customers and it would be expected they would take some note of feedback from them. Perhaps more surprising is the number of businesses indicating that employees are also important sources of support. For some, employees could be the only contact with other persons in the industry apart from customers. Forvery

230 M.4 RTZN PERRY 6' SHA Uh' GOLDFINCH

Table 5 . Network priorities and barriers & current business objective.

Stage of business Network priorities Motive Barriers Key network development contacts

-

.Val entrant: recent entrant to self- emplovment, attempting to establish business viabilitj

Turn around: established husi- ness needing to adapt activities and business

D m e h p m t a l : growing small business pursuing new markets

Satzsfedr established small business without further growth activity desired

.Wature: successful and/or growing business who see the continuing talue of network- 1ng

.&larkt integration: firm having medium to long- term cooperative arrangement with other firms

.4dvice and personal support: help in gaining basic business skills and market understanding; market development

.4ssistance to develop new markets; support to imple- ment change

Specific market development contacts; professional advice and technical support; business alliances; resource sharing

Maintain existing contacts

Professional advice to give independent eye on business; maintain contact with business world

Subcontracting, cooperative production

Lack of experience: Small size; need to Family; friends; overcome isolation; devote time to main- business advisors; reduce anxieties raining business, network organisa-

lack of resources; tions not taken seriously

Loss of viability unfamiliarity with new markets and new business environment

Business expansion; need to expand contacts in new, unfamiliar market

Unwillingness to Family; friends; scart again; difficulty business advisors; of finding business network organisa- 'friends' with same tions; employees experience

Identify key contacts Other businesses; in new markets; business profes- competitive business sionals attitudes

M'ish to retain Market instability; Customers control and wlnerability to loss independence; of key contacts maintain present activity

Avoid complacency; Competitive business Professional support small attitudes; lack of advisors, business

associations business interests business friends

Secure new market; Absence of long- Other businesses assistance in tech- term subcontracting nological develop opportunities ment; ability to pro- duce high value- added products; flexibility

small firms, the relationship between owner- operator and employee or employees could be veIy close. Bank managers and other professional advisors were not well represented in the networks, even in relation to serious business problems. The high cost of professional services was given as a reason for avoiding professional advice,

as well as a lack of trust. Banks in particular were often seen as unsupportive of small business, with some respondents expressing hostility to bank managers and a fear of the consequences of draw- ing their attention to any problems being experienced.

Despite evidence of limited network develop-

BUSYNESS h!ETWORIcs OUTSIDE ANLWUSTRIAL DISTRTCT 231

Table 6. Frequency that issues are discussed with selected contacts.

Issues discussed Contact type

Family & friends’

Rare19 Frequently

Day-to-day business 42.2 57.7 problems Ideas about new 36.6 63.4 markets or customers Different ways of 50.1 49.3 running business Serious business 51.1 48.9 problems

Customer/client’ Accountant’ Employee’

Rarely2 Frequently Rarely2 Frequently Rarely’ Frequen tly3

63.4 36.6 56.5 43.5 32.1 67.9

45.7 54.3 66.7 33.3 42.1 58.0

71.4 28.5 63.7 36.1 53.4 46.5

91.3 8.7 46.2 53.7 62.5 37.5

percentage of respondents rarely = never and rarely frequently = sometimes, frequently, and very frequently ’

ment, 60% of respondents thought their present network was sufficient to maintain the business at its present level of activity (table 7). The gaps identified mainly related to help with marketing the business and strengthening relations with customers (mentioned by almost 70% of those perceiving a shortfall in their present network). A lack of mentors and ‘business friends’ was noted by around a fifth of those identifylng gaps in their present network. But while most businesses express satisfaction with their current network, this often reflects their limited business aspirations. The usefulness of some network relationships may be questioned. Family may offer important emo- tional support and always be available to listen to problems but may have little business experience and knowledge to draw on. While some respondents do consult their customers (one respondent designed their product in cooperation with them, while another conducted customer surveys) and do have an ongoing relationship with them, for

others the relationship may be very limited, largely a case of selling to the customer and hoping that he or she will be satisfied enough to come again or refer other customers. Similarly the reliance on accountants partly reflects how some proprietors try and squeeze whatever advice they can get from the one source of professional support that must be used.

Acknowledging such limitations in their present network, 70% of respondents stated that their current network was inadequate to support business growth. Most respondents were taking steps to strengthen their network. Once again the great- est effort was devoted to improving relations with existing customers and marketing the business to potential customers. Contacts with professionals and businesseswith complementary interests were of some priority, compared with the limited effort devoted to developing contacts with businesses in the same industry and with businesses in general (Table 8).

Table 7 . Adequacy of cun-ent network to maintain present activity 4 growth o f business in preceeding two years.

Adequacy of current network

Growth in preceeding two years

Over target Target met Target partially met Target not met Other Total

Sufficient 13 11 7 3 9 43 (60.6) Inadequate 2 3 7 11 4 27 (38.0) Other 1 - - 1 (1.4)

Total 15 (21.1) 14 (19.7) 15 (21.1) 14 (19.7) 13 (18.3) 71 (100.0)

- -

232 MARTIAi PERRY €9 SHA UV GOLDFINCH

Table 8. A'etzumfc investmen2 by type of network contact. I

Level of effort (% respondents)

Tvpe of contact None Minimal Moderate Large

Businesses in same activity Complementary businesses Technical advice Professional advisors Others help locate new marketsicustom Existing customers Potential customers Businesses in general -

30.0

16.9 11.3 23.9 4.3

12.9 18.6

8.5

M'hile most businesses operated within limited horizons, several examples of highly developed networkingstrategieswerefound. For example, an export flower grower had perhaps the most sophisticated network in the sample comprising: relations with up to fifty other flower growers who could be called on to supply peak orders, with re- cords kept of each grower's performance; family and business ties to their main overseas buyer, pro- viding a long-term cooperative market; ongoing advice on a formal and casual basis from a retired grower, and good relations with freight forwarders and airlines to secure 'priority' treatment. None of these relationships had been pre-planned and partly arose from the way the success of the business had made suppliers and freight forwarders keen to work with them, sometimes after initial hostility to their enterprise. Interestingly, as well, many components of the network were located outside the region, including their main business adlisor. Rather than strategy guiding network development, in most businesses contacts were gath- ered over time through friendships, family ties and by serendipity.

THE CBAF AND SMALLBUSINESS NETWORKING

A number of examples were discovered where business contacts had developed between members o€ the CBAF who had met through the network meetings, but these were generally of a modest nature. Two firms with complementary products used by recreational hunters had shared a stand at a rural show. One member mentioned that he had found the designer of his letterhead logo through the network and had subsequently

22.9 25.4 36.6 29.6 31.0 15.7 14.3 37.1

25.7 47.9 35.2 49.3 33.8 41.4 50.0 42.9

21.4 18.3 11.3 9.9

11.3 38.6 22.9

1.4

used that person for other marketing assistance. A number of respondents reported finding professional advice, particularly accountants through the CBAF, but this was part of the agency's referral senice rather than a consequence of the network meetings.

While interfirm networking may not have been directly encouraged by the network meetings, the CBAF coordinators were used for business advice with some businesses claiming that they were their most important contacts, for day-to-dayencourage- ment and development guidance. Two respondents suggested, for example, that help from the coordinators had been the only reason they had sunived a recent crisis in their business. The survey suggests therefore that while some businesses are prepared to use the CBAF for advice, it has been less effective in helping businesses build their own networks. The reasons for this can be related to three types of barriers: - Barriers in the membership: only a quarter of

respondents joined the CBAF for its networking functions, and amongst those that did, only a minority set themselves specific network objectives (of these only 13% suggested that they had made the contacts searched for). While few members articulhte specific objectives, the survey suggests that significant differ- ences exist in the network needs and priorities of businesses. For example, while new entrants may have most need of assistance with information gathering, general business support and help in obtaining finance, larger and more experienced firms are more likely to be looking for more sophisticated types of interfirm networking. Amongst a mixed membership, specific needs of members may go unsa-

BUSINESS NETWORKS OUTSDE AN17vDUSTRIAL DISTRICT 233

tisfied, either because of the absence of other members with similar priorities or the difficulty of locating like businesses.

- Barriers in the organisation: trust and confidence, needed to maintain and develop network contacts, take time to develop. In comparison, the CBAF is still a young organisation, with only a small core of dedicated members. The type of network assistance currently provided by the CBAF network is perhaps most closely aimed at persons lacking in confidence and experience to make contacts on their own. Meetings however are typically attended by over 50 persons which some members claim are too large and intimidating. Some respondents are reluctant to engage in such meetings even though they recognised a need to make more business contacts. Other members suggest their participation is discouraged by par- ticipants who attend solely to sell, such as car dealers, and that it was hard to establish the credibility of other members at the meetings. Barriers in the region: Canterbury does not provide the historical, institutional and cultural cohesion of an industrial district. It is unrealistic to expect Canterbury businesses to exhibit the same degree of cooperative behaviour without this framework or that such a framework could be easily imported. There is also an absence of clusters of related activity and industry specialisation, limiting the perception of shared needs that might otherwise encourage interfirm cooperation. In the CBAF network, businesses vary widely in terms of size, financial success and activity.

-

CONCLUSIONS

While the CBAF appears to have had only a limited impact on network formation, on the whole members express a high level of support for the organisation. Amongst members that have not attended network meetings, there is often a regret that they have not participated and a suggestion that in the future they will. This support reflects a perception of the CBAF as an important advocate for small business in the region and a recognition that network building is an important part of being in business. The networking observed amongst CBAF members rarelyattains the extent ofsubcon- tracting and joint working depicted in an industrial district, but even the more modest forms of

information and resource sharing identified are important to those involved. In addition, there is a general acknowledgement amongst most small- firm proprietors that the growth of their business will require existing networks to be expanded. Pro- prietors were inclined to suggest that time was the major constraint on building their network, but few have a deliberate strategy for developing their network and rely mainly on deepening relations with their existing customers. Similarly, while the benefits of increased interfirm cooperation were recognised, there was little vision as to what form of cooperation should exist or how it might be attained.

The gap between the present development of networks and the recognition that networks are a vital component of business development, suggests the ongoing importance of an agency like CBAF. To date the organisation has not been effective in directly assisting network formation. Its role is nonetheless potentiallyimportant in aregion without a tradition of cooperative business integration and where other intermediary institutions, such as banks and the local chamber of commerce, seem unlikely to promote alternative forms of business organisation. From the survey evidence and the example of network initiatives developed in other regions, it is possible to suggest a number of ways to increase the effectiveness of network assistance. - Targeting network support: networking in-

cludes a broad range of activities such as social contact, information gathering, resource sharing, subcontracting and market integration. Individual proprietors vary in terms of the networking they wish to undertake, partly according to their current business objectives and character of their industry. For example, while new entrants may have most need of assistance with information gathering, general business support and help in obtaining finance, larger and more experienced firms are more likely to be looking for more sophisticated types of interfirm networking. Organisations like the CBAF may achieve more impact by targeting assistance to specific subgroups sharing common needs and objectives. Education about networking: the study found that many businesses, as well as the CBAF coordinators, tend to see networking mainly as a form of direct marketing. Education to encourage broader network development could be carried out by organisations such as the

-

234 M4RTLVPERFZY & SHAUN GOLLlFINCH

CBAF. This could extend to researching sectors of the local economy where opportunities to develop cooperative small-business networks may exist and identifylng ways of overcoming existing barriers. Community attitudes to networking: respondents commented on the unsupportive atti- tude of banks and other institutions. As well as assisting individual businesses, network organisations such as the CBAF need to address community and institutional attitudes to networking and small business. This might involve bringing the needs of small business to the attention of local institutions (especially banks), training facilities and local government with the aim of encouraging an environment more conducive to networking and small business. Small business and networking suc- cesses could be brought to the attention of the media and other interested parties. Networking in the community: for some businesses, the key network to develop is the network of businesses in their immediate neighbourhood. Respondents in the survey identified how localities within the city vary in their propensity to support active networks. This suggests a role for a city-based agency in identi- &ing network-resistant neighbourhoods and promoting ways of encouraging cooperation within them. Network brokerage: a number of brokerage schemes based on an independent intermediary proactively searching for cooperative business opportunities exist in Europe (Gelsing 1992; Santana 1992). A similar local initiative is supported by the Canterbury Development Corporation, in this case building small-firm export groups amongst businesses with little prior export experience. Overseas evaluation of such initiatives suggests that successful b r e kerage schemes require a considerable invest-

.I cknowledgemm ts.

Cooperation from the Canterbury Business .4dvisory Foundation and its members and financial supportfrom the Foundation for Research, Science and Technology

ment of resources, including trained person- nel, supported by a broader context of govern- mental and institutional support for interfirm networking, possibly including financial assistance (Gelsing 1992). Some support for a brokerage scheme was voiced in the survey, although the concept is perhaps more relevant to the scale of enterprise being assisted by the Canterbury Development Corporation initiative. Business development and expansion aspirations amongst many CBAF members are limited. However, correspondingly modest forms of network brokerage may have their role, such as assisting businesses to share stands at trade shows or jointly collect market research information.

Meanwhile, this study has drawn attention to the importance of networking in local economic performance. Even though most small businesses have limited networks and operate with a high degree of self-reliance, network characteristics continue to influence business performance. This study has suggested a range of influences that shape the development of small-business networks -local geography, industry and market structures, proprietor background, personal characteristics and business development objectives. Further research toverify the significance of these influences in other regional contexts is needed. This would broaden understanding of the ways that public agencies can most effectively strengthen business performance through network assistance. Starting from the model of the industrial district may provide an unrealistic target but this should not divert attention from the importance of assisting business to build cooperation. This cooperation can take a variety of forms and may involve intra firm cooperation between managers and workers as interfrm coIlaboration, it may also involve relations extending beyond the region.

made this study possible; Adrian Field and Seema Baldly assisted respectively in the field research and manuscript preparation.

BUSINESS h!ETWORKS OUTSDE AN LWUSTFXAL DISTRICT 235

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Documents

BUSINESS NETWORKS OUTSIDE AN INDUSTRIAL DISTRICT