Networking for marketing advantage

Networking for marketing advantage

Cheryl DennisSchool of Management and Business, University of Wales Aberystwyth, UK

Introduction

Networking theories have attracted

increasing attention during the 1990s

although the network concept is certainly not

new. Co-operation has occurred and been

utilised as a successful device for economic

evolution in many geographical locations

such as the computer industry in Silicone

Valley, California and the textile industry in

Prato, central Italy. It is this co-operative

behaviour and the relative advantages

derived from such arrangements which will

be the focus of this paper. The context in

which networking's value will be examined

is that of the slate industry in Wales ±

specifically, the decision by six long-

established slate quarries based in North

Wales to come together to market their

common product and promote Welsh slate at

a global level. The paper will aim to look at

the industry's past, present and future trends

and discover how this inter-firm

collaboration aims to turn upside down the

plight of industry as whole.

What is a network?

All companies are part of a network to a

greater or lesser extent. That is to say, all

companies form relationships with their

suppliers, buyers, competitors and allies

alike and as a consequence make a decision

on whether or not to strengthen or grow the

links which lead to the formalisation of a co-

operative structure. It is therefore only the

extent of the closeness, interdependency and

consciousness of these relationships that

determines whether they are truly called

`̀ networks''. This type of interactive

arrangement allows companies to realise

their goals by co-operating instead of

competing (Nalebuff and Brandenburg, 1996).

Viewed as `̀ self-designing'' partnerships

(Eccles and Crane, 1988), networks are

dynamic arrangement that are constantly

evolving and adjusting in order to

accommodate changes in the business

environment. Member companies have inter-

connected linkages that allow them to move

more efficiently towards set objectives than

those operating as a separate entity. These

members are referred to by Richardson (1972)

as `̀ islands of planned co-ordination in a sea

of market relations''.

Terminology in this specific area of

organisation theory is often used

interchangeably and varies in meaning and

interpretation. According to Child and

Faulkner (1998) the terms `̀ strategic

networks'' and `̀ strategic alliances'' are often

used interchangeably but have different

implications for structure. Whereas network

would infer a close yet non-exclusive

relationship with other members, an alliance

by its very nature is more likely to result in

the creation of a joint enterprise of limited

field.

Thorelli (1986) states that one of the most

central concepts of the network analysis is

that of the distribution of power which he

defines by `̀ the ability to influence the

decisions or actions of others''. The five

factors which he cites as potential sources of

power for members are economic base,

technologies, range of expertise, level of trust

and legitimacy.

In the discussion regarding organisational

structure, the network is located between the

market, on one hand, and the firm on the

other and can be classified on a spectrum

accordingly. Eccles says of networks, `̀ an

organisational form logically intermediate

between the pure market and vertically

integrated firm''.

The two main classifications of networks

are largely based on power and are called

`̀ dominated networks'' and `̀ equal-partner

networks'', with the latter being more closely

related to the market. Dominated networks

The current issue and full text archive of this journal is available at

http://www.emerald-library.com

[ 287 ]

Management Decision38/4 [2000] 287±292

# MCB University Press[ISSN 0025-1747]

KeywordsSmall and medium sized

enterprises, Marketing,

Co-operation, Partnering

AbstractStates that networking theories

have attracted increasing atten-

tion during the 1990s ± although

the network concept is certainly

not new. Looks at the computer

industry in Silicone Valley, Califor-

nia and the textile industry in

Prato, central Italy. Discusses co-

operative behaviour and the rela-

tive advantages derived from such

arrangements. Examines the slate

industry in North Wales and, spe-

cifically, the decision by six long-

established slate quarries to come

together to market their common

product and promote Welsh slate

at a global level. Aims to look at

the industry's past, present and

future trends discovering how this

inter-firm collaboration aims to

turn around the plight of industry.

are characterised, as the name suggests, by

one dominant company which then has

mutual links with others, frequently smaller

entities, within the network. An example of

such a network is the Japanese keiretsu

which is extensively used and has even been

cited as one of the explanations for Japanese

post-war success. The keiretsu is generally a

vertical grouping of small companies that is

dominated by a large firm at the top of the

industry. This dominant member is then able

to rely on regular suppliers at pre-arranged

prices.

The equal-partner networks work on the

premise that there is no single governing

partner. However, members may not

necessarily have a uniform amount of

influence on or power over the decision-

making process within the network system.

Often companies in this type of network

develop close relationships and engage in

(Powell, 1990) `̀ reciprocal, preferential,

mutually supportive actions''.

There are five main traits linked with

networks. These are unity, altruism,

allegiance, trust and parity. The first of these

attributes, unity, is where the companies

within the network are bonded together

through shared experience. The mining

communities, such as the ones examined in

this case study, are excellent examples of this

trait. Another attribute stated is altruism;

this is the concern for the welfare of others as

a principle of action, without individual gain

being the motivating factor. Allegiance and

trust, two other characteristics, are largely

self explanatory but are essential if the

independent companies are to work closely

together. Trust is often based on past

situations but is a future-oriented notion.

The final trait mentioned is parity, meaning

that each individual entity should `̀ do as

would be done by'', meaning the mutual or co-

operative interchanges of favours or

privileges. However, a company's breach of

`̀ acceptable'' business practices may result in

ostracism by its counterparts.

Benefits of a network perspective

As mentioned, the study of the concept of

networks as an efficient and effective form of

organisation has enjoyed increased

popularity over the last few decades. This

interest, according to Nohria and Eccles

(1992), can be attributed to three main

reasons. The first of these is the competitive

rise over the last three decades of small

entrepreneurial firms which exhibit the

traits of `̀ new competition''. This assumes

that the old arrangement is the hierarchical

firm and that the new is a network with its

lateral and horizontal inter-linkages. It is the

relative competitive success of the new

competition that has led to popularity.

The second reason regards recent

technological advances which in turn

facilitate, according to Nohria and Eccles

(1992), a new set of `̀ more disaggregated,

distributed and flexible production

arrangements''. The final reason proposed for

the increased interest is the fact that

networks and their analysis have become an

academically rigorous discipline that has in

turn influenced viewpoints in organisation

theory.

Interest in network analysis may have

increased, but ultimately it is the advantages

they give to participating firms that are of

importance. Johnston and Lawrence (1988)

regard networks as value-adding

partnerships that facilitate the exchange of

experience and knowledge between member

companies. Although much of the discussion

regarding the existence of networks seems to

focus on the financial rewards that may be

gained, it is often the non-monetary

incentives (Kanter 1994) such as trust and

loyalty that add `̀ value''.

Achieving economies of scale through

networking allows companies to take

advantage of lower initial investment costs

and also lessens capital expenditure in the

future. The increased popularity of network

systems may also herald from the idea of

`̀ safety in numbers'', whereby associated

firms are able to reduce uncertainty.

A crucial constituent of defining networks

is the level of commitment involved and the

duration of the mutual co-operation. Thorelli

(1986) states that it involves `̀ two or more

organisations involved in long term

relationships''. Often such is the degree of co-

ordination and maintenance required in

networking, that they are inevitably

concerned with long-term economic

development rather than short-termism.

The relevance of networking forSMEs

Foy (1994) states that by taking advantage of

the co-ordination and economies of scale of

large, vertical organisations whilst

embracing the flexibility, creativity and

lower overheads of small firms, members of a

network are able to enjoy the best of both

worlds. For many SMEs the main advantage

of the networking system is that is allows

them the opportunity to be able to compete

effectively in divergent and often larger

markets. Competing on a national or

[ 288 ]

Cheryl DennisNetworking for marketingadvantage


international level is made possible through

the co-ordination of factors such as research

and development, information technology or

marketing. Without such alliances these

companies would be confined to their local

market.

A lack of substantial investment may leave

many small businesses with gaps in their

competency or resource portfolios; procuring

links with the companies owning

complementary expertise or assets could

allow these gaps to be bridged. Such

interaction allows members to access

resources and skills not owned by the

company itself, thus opening up

opportunities for mutual synergy and

learning. This is often known as resource-

dependency theory. In addition, a network

system may lead to companies gaining

product-specific knowledge as it encourages

firms to remain small and specialised. This is

because, as the companies grow, their

resources become increasingly spread out

thus making co-operation more difficult. By

remaining small, firms are able to continue

to be flexible and adaptable due to the very

few resources being stored internally. Often

they also have a heightened sense of focus

due to lean staffing and therefore few middle

managers.

The textile industry in central Italy is a

classic example of networking leading to

greater efficacy and productivity (Lorenzoni,

1982). During the early 1970s rising labour

costs, increasing foreign competition and a

trend to produce greater product variety

meant that with the current structure it was

impossible to innovate rapidly. The large,

vertically integrated mill was seen to be too

clumsy and slow moving and was

consequently broken down into eight

independent firms. Contracts are now

awarded to whichever firm can best deal with

it at the time, so each has an incentive to

keep its finger on the business pulse and be

internally innovative.

A case example

BackgroundThe slate industry has had a profound effect

on both the landscape and the communities

of the slate villages in North Wales, just as

the coal mines and pits did in the South of the

country. Although on a smaller scale, the

slate industry has proved to be, and still is,

an important part of the economy of the

region.

During the nineteenth century, the slate

industry experienced rapid growth. This

extra demand was created by the

mushrooming of towns and cities throughout

the UK in the wake of the industrial

revolution. At this time, slate was a widely

used and popular material, and as a result the

slate industry in North Wales grew at a

tremendous rate.

During the 1960s and 1970s, the industry

went into recession and sales of Welsh slate

declined as a result. In 1939, the slate

industry employed 7,539 men. By the end of

World War II, however, this figure had

almost halved to 3,520, and by 1972 the figure

had further decreased to under 1,000 men.

This decline was partly attributed to trends

in the building and planning industries, with

architects opting for cheaper alternatives, as

demands for materials changed. In an

attempt to compensate for the slump in sales,

the government commissioned the

Trawsfynnydd Nuclear Power Station to be

built in the slate mining region. The idea

behind the decision was to try to secure

employment in the area and safeguard the

economy. However, it now seems that the

slate industry will outlive the power station

that is already being decommissioned.

The general perception is that the industry

is still in the grips of that decline today. The

reality, however, is that the slate industry

has been one of the most notable examples of

growth within the economy in Gwynedd

between 1975 and 1995. Indeed, the slate

mines are still the main industrial employer

in the Ffestiniog region, with the number of

people employed by the quarries increasing

by 85 per cent in the period between 1980 and

1995. In 1994, there were 506 people directly

employed within the slate industry. This

figure excludes the number of jobs which

benefit indirectly from the industry's

existence, such as those employed in the

tourist industry, for example, estimated to be

around 3,000.

Welsh Slate Ltd: a separate,co-ordinating entity

Welsh Slate Ltd was established on 28

February 1996 and was intended to facilitate

an innovative joint marketing venture to

promote Welsh Slate on a national and global

level. This joint venture structure led to the

formation of a company limited by guarantee

which has its headquarters in London. There

are four main member companies of Welsh

Slate: Alfred McAlpine Slate Products Ltd,

Graves Welsh Slate Co., Wincilate Ltd, and

Ffestiniog Slate Quarry Ltd. However, under

the name Ffestiniog Slate Quarry, there are a

further two companies, namely Cwt-y-Bugail

and Gloddfa Ganol.

[ 289 ]



After years of rivalry between the

companies, they decided to put aside their

differences and join forces in order to secure

future markets and developments. The

companies involved in the collaboration still

compete for contracts against each other.

However, they are now committed to

working together to sell the idea of Welsh

slate and to promote their product as that of

the highest quality on the market.

One disadvantage of networking is that

members may not be very accountable and

can be undemocratic, depending on the

balance of power within the alliance. The

quarries have tried to overcome this obstacle

by founding Welsh Slate Ltd as a separate

entity from the individual companies. The co-

operation amongst the companies has given

the industry in North Wales a focal point. All

information about Welsh Slate and its

promotion is now dealt with via this entity.

Joining forces has resulted in the members

benefiting from strategic interdependence

whilst still maintaining financial

independence.

Where is the strategic focus?

When the decision on which objectives to

adopt was undertaken, it was necessary to

ensure that the objectives covered issues that

were common to all participants.

Research was first commissioned in order

to find out about:. trends in the building industry;. current attitudes towards the slate

industry, and Welsh slate especially;. the current effectiveness of the slate

quarries;. the potential for branding of Welsh slate.

The study concluded that if the companies

were prepared to work together, there was

substantial scope for marketing Welsh slate.

It also stated that current levels of awareness

and knowledge of slate were low and that any

entity formed as a result should emphasise

the versatility and quality of the product.

The main aim of Welsh Slate Ltd has,

therefore, been to publicise the potential uses

of Welsh slate as a modern versatile material

with limitless applications in a wide variety

of markets. These may range from roofing

and the supply of bases for snooker tables to

the production of home furniture and

decorations, including tables, fireplaces and

floor tiles.

Following the research conclusions,

objectives were drawn. The three main

objectives can be summarised as follows:

1 To show the limitless potential of Welsh

slate.

2 To broaden customers' understanding and

appreciation of Welsh slate's many

applications in architecture, interior

design and landscaping.

3 To expand Welsh slates' share of the

global market for high quality slate.

A large part of the marketing strategy is

dedicated to persuading architects, roofing

contractors and planning authorities to turn

to Welsh slate. In order to gain their approval

and confidence, it is necessary to emphasise,

as mentioned above, the adaptability of the

product, and also the quality. Prior research

has shown that architects perceive the

industry and the product to be both old

fashioned and unimaginative. However, the

recent trend of home decorating and

gardening among the British public could

mean the accessing of an entirely new

market.

The emphasis on the quality aspect of the

marketing strategy is particularly important

in relation to foreign competition. Imports

from countries such as Spain, France,

Canada, China and Brazil are able to compete

fiercely by price cutting. These imports

account for up to 60 per cent of all slate sold

in Britain. The sheer amount of slate

imported, coupled with free market laws

within the European Union, have meant that

Welsh Slate can no longer afford to ignore or

shut out foreign competition. The situation

in Wales was not helped when the planning

rules of the Snowdonia National Park

authorities, requiring the use of home-

produced slate on building sites, were

recently relaxed. However, this, together

with the intense competition in the market,

has only served to emphasise the importance

on working together towards a set aim. If the

Welsh slate industry is to compete effectively

against these countries for a share of the

global market then it must differentiate itself

and its product from its competitors.

Creating a strong brand name and image for

the product is one way of achieving this.

Inter-linkages between these six companies

not only helps focus the promotional

activities but allows them to share their

experience and aid industry learning. These

capabilities which aid flexibility and

innovation are essential if North Wales slate

is to compete on a global playing field.

New importers and producers may be able

to compete on price but, more often than not,

they do not have the experience and

established brand name that Welsh slate

possesses. This one area where Welsh Slate is

able to take advantage. It is in the areas such

as reputation and brand name that

substantial competitive advantage is built.

[ 290 ]



Price differences may lead to a temporary

advantage over rival firms, but this is easily

replicated and achieved by others. A good

reputation, however, is more elusive and

difficult to achieve and thus is more likely to

give a sustainable competitive advantage. It

is precisely because of this that Welsh Slate

Ltd has decided to focus and emphasise the

quality and standard of the slate in its

marketing strategies.

Once the ground rules were set for the joint

venture and the companies had agreed on the

terms of their relationship, an application

was made for Westminster's Strategic

Development Scheme funding. Financial help

was needed to set up the company and also to

facilitate the networking process, and Welsh

Slate Ltd was eventually awarded

government grants. The funds meant

security for 200 existing jobs and the creation

of an additional 60.

The present situation

Three years have passed since the initial

meetings, with the quarries involved

transcending from competitive rivalry to

collaboration for mutual gain. As a result of

the collaboration, the companies have been

able to fight back against increased

competition in a much more effective

manner than if they were each acting

individually. One such example of this is the

production of a quality guide designed for

roofing contractors, architects and planning

authorities

Welsh Slate Ltd also has a permanent

exhibition stand at the Business Design

Centre in Islington, London where creative

and innovative uses of slate can be seen. This

exhibition is designed to help change

perceptions and raise awareness. It has also

been instrumental in providing the material

with an image that is both contemporary and

modern. According to Owen Luder, President

of the Royal Institute of British Architecture,

`̀ . . . the showroom will quickly become a

mecca for the aspiring architect who wishes

to optimise design expression''. The company

has also appointed a chief executive

dedicated to fostering growth of Welsh slate.

Bringing experience and quality tonew markets

Until now, the initial focus of Welsh Slate Ltd

has been on the domestic market. However,

its future aspirations and sights are firmly

set on venturing into new markets that will

in turn create greater opportunities. It is

hoped that export markets such as Japan, the

Middle East and the rest of Europe will all be

in Welsh Slate's reach within the next few

years.

Welsh Slate is also looking to work closely

with the Liguria region of Northern Italy and

the Loire Valley in France, both of which are

important centres for the production of slate.

The idea is to be able to promote the cultural

tourism connected with the industry. All

three hope to establish and expand tourist

attractions based on their history and

culture.

Conclusions

This paper has explored the Welsh slate

industry and examined how the collaborative

behaviour between the quarries has led to

the establishment of Welsh Slate Ltd. The

company was created on behalf of the

quarries and has thus far been successful in

providing a focal point for target markets. It

has also been significant in recognising the

needs and problems of the industry as a

whole and designing objectives and

marketing strategies that complement them.

Joint solutions to common problems have

been devised and it has shown how

networking between small firms can bring

about real benefits. Not only have these firms

improved their product image, but they are

now in a much better position to take

advantage of new business opportunities,

such as exporting to markets throughout the

world. Networks allow small and medium

sized enterprises to compete in larger

markets by increasing the scale of their

combined operations. Common goals are

shared by network members and are often

viewed as a means of reaching mutually

beneficial goals, usually economic in nature.

Nevertheless, other non-monetary incentives

may occur from such collaborative

behaviour, for example information sharing

and the establishment of best practice

techniques.

However, it is important to remember that

these advantages are dependent on members

being able to work voluntarily together so as

to co-ordinate the network activities. It is

here that the creation of a separate or,

occasionally, dominant entity is most valued

since they may act as a peace-keeping forces.

Although there are many benefits to be

gained by co-operating, the interaction

between members may result in as much

potential antagonism as agreement. Care

must be undertaken to ensure that a feeling

of parity is maintained through the

promotion of unity and altruism.

[ 291 ]



The formation of business networks may

be viewed as a reactionary device to ensure

that organisations are able to be as flexible as

possible in today's dynamic business

environment. With constantly advancing

technology and increasingly fragmented

markets, members are looking to ensure that

they can adapt to changes more rapidly and

efficiently than competitors. The initial

generation of a network, however, is only the

start of the organisational learning process,

the real challenge is maintaining and

developing these relationships to ensure the

success of long-term objectives.

ReferencesChild, J. and Faulkner, D. (1998), Strategies of

Co-operation, Managing Alliances, Networks

and Joint Ventures, Oxford University Press,

Oxford.

Foy, N. (1994), Empowering People at Work, Gower,

Chichester.

Johnston, R. and Lawrence, P. (1988), `̀ Beyond

vertical integration'', Harvard Business

Review, July, pp. 481-510.

Kanter, R.M. (1994), `̀ Collaborative advantage'',

Harvard Business Review, July-August,

pp. 96-112.

Lorenzoni (1982), `̀ From vertical integration to

vertical disintegration'', paper presented at

the Strategic Management Society

Conference, Montreal, September.

Nalebuff, B.J. and Brandenburg, A.M. (1996),

Co-operation, Harper Collins Business,

Philadelphia, PA.

Nohria, N. and Eccles, R.G. (Ed.) (1992), Networks

and Organisations: Structure, Form and

Action, Harvard Business School Press,

Boston, MA.

Powell, W.W. (1990), `̀ Neither market nor

hierarchy: network forms of organisation'',

Research in Organisation Behaviour, Vol. 12,

pp. 295-336.

Richardson (1972), `̀ The organisation of

industry'', Economic Journal, Vol. 82,

September, pp. 883-96.

Thorelli, H.B. (1986), `̀ Networks: between markets

and hierarchies'', Strategic Management

Journal, Vol. 7, pp. 37-51.

Further readingCoyne, K.P. and Dye, R. (1998), `̀ The competitive

dynamics of network-based businesses'',

Harvard Business Review, January/February,

pp. 99-111.

Ford, D. (Ed.) (1990), Understanding Business

Markets; Interaction, Relationships and

Networks, Academic Press, London.

Grandoni, A. and Soda, G. (1995), `̀ Inter-firm

networks: antecedents, mechanisms and

forms'', Organisational Studies, Vol. 16 No. 2,

pp. 183-214.

Holmlund, M. and Tornroos, J. (1997), `̀ What are

relationships in business networks?'',

Management Decision, Vol. 35 No. 4.

Iacobucci, D. (Ed.) (1996), Networks in Marketing,

Sage Publication, Thousand Oaks, CA.

Lindsay, J. (1974), A History of the North Wales

Slate Industry, David & Charles, Newton

Abbot.

Richards, A.J. (1995), Slate Quarrying in Wales,

Gwasg Carreg Gwalch.

Williamson, O.E. (1975), Markets and Hierarchies:

Analysis and Antitrust Implications, Free

Press Macmillan, New York, NY.

Application questions

1 Are there any other reasons to become a

networking organisation aside from to

reap financial rewards?

2 Summarise in 100 words or less what the

main features and potential competitive

advantage of networking are.

3 `̀ When markets and bureaucracy fail,

organisations turn to networks''.

Discuss.

[ 292 ]



Documents

Networking for marketing advantage