Small businesses and entrepreneurs will always be under pressure to make the best possible use of their more limited resources, in comparison with their larger competitors, in order to achieve results. Building up networks between them to share information, ideas and experiences may just be the answer to generate what is now being called "social capital".
Cooperation within businesses is one of the most fundamental keys to success. However, cooperation between businesses is less prevalent. For smaller set-ups, this goes far beyond the mere sharing of information. By establishing actual relationships between small firms and entrepreneurs, each participant can take away key learnings based upon the experiences of fellow network members and apply them to the benefit of their own business. It is this combination of existing resources within a small firm and the potential future value of the resources derived from networks that has come to be labelled as "social capital".
Creating the conditions to succeed
It would be naïve to assume that such networks offer a guarantee of success. For starters, senior management need to buy into the concept and create opportunities for the networks to exist in the first place. They must also have the will to take part, the desire to create and then share knowledge, and a recognition of the potential benefits this alternative way of working could have in terms of company performance. There is also a very human element of trust and reciprocity on which the success of such networks often hinges. The more intense and frequent the professional connections between network participants, the greater the added value of the resources that will be exchanged.
The more, the merrier
Whilst small firms and entrepreneurs are the most likely beneficiaries of this network set-up, the sheer number of contacts that they have can only boost the chances of the network delivering the goods. Having participants who interact regularly in a climate of trust also helps a great deal, as does a diversity of profiles within the network and the number of different roles performed by its members. All of these factors can only serve to strengthen the exchanges made within and the good use that can be made of the knowledge shared further on down the line.
Same objective, different vision
The number of contacts and strength of relationships between network members are undeniably drivers for success. One need look no further than the example of Brazil to see how this phenomenon has taken off – it is estimated that between 800 and 1000 small-firm networks have been established over the past decade. Indeed, our own studies into this matter were based precisely on the Brazilian case and were initially tested by experts in the field and then applied to 2200 members of 75 small-firm networks from in and around the country. However, wherever in the world these networks may be, it should not be assumed that they will necessarily comprise members who are all entirely on the same wavelength. The objective of their participation in the network is the same – learn from others, take back new resources and knowledge to their own firm, apply, and hopefully boost performance. On the other hand, there is no guarantee within each participant's individual firm that the business goals, vision, culture, language or history will necessarily be the same. This "cognitive" dimension to the creation of social capital is therefore regarded and proven through research as being far weaker a success factor than the structure of and relations within a network.
A job for top brass
One variable which has a proven impact on social capital is the positioning of participants within the network. Quite logically, the higher-placed a participant is in the network, the more likely it is that they will find themselves at the sharp end of business matters and strategic decisions on a more frequent basis than more run-of-the-mill team members. They will consequently have early access to privileged information, obtaining advantages over the most peripheral participants.
A chance to expand horizons as well as profits
Creating social capital in order to boost performance is evidently the key goal of small-firm networks. That said, there are other benefits to be derived, not least learning from other industries and people with diverse profiles rather than staying strictly within one's own field. In the particular case of the more "lonesome" freelancer or entrepreneur, it represents a golden opportunity to find out how others are doing business outside of their individual bubble. For managers it is a chance to broaden ties, create information-sharing opportunities and expand knowledge. How each member of these networks then chooses to apply what they learn is when the even more serious work begins.....
This article draws inspiration from the paper Social capital in Brazilian small-firm networks: the influence on business performance, written by Clara Isabel Koetz, Douglas Wegner and Eduardo de Oliveira Wilk and published in Int. J. Entrepreneurship and Small Business – 2013 (volume 20, number 4).
Clara Isabel Koetz is Assistant Professor at ESC Rennes School of Business, France. Her research interests include consumer information processing, advertising signalling, online consumer behaviour and business networks.
Douglas Wegner is Professor at UNISINOS, Brazil. His areas for research are business networks, small-firm networks, inter-organisational relationships and competitiveness.
Eduardo de Oliveira Wilk is Assistant Professor at the Federal University of Pelotas, Brazil. His research areas are industrial clusters, strategy, resource-based view of firms, inter-organisational relationships and competitiveness.
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