The Entrepreneurial Network In Entrepreneurial Process Business Essay
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Published: Mon, 5 Dec 2016
With the deepening of globalization, many of the research show that network become an important element for the company which want to entry into new marketing, bring a great profit. Many kinds of network are found by the researchers. Explore network is a major work for the entrepreneurs. During the entrepreneurial process, networks could be change in the different process; entrepreneurs changed the network with aim of developing the company. Base on these 3 cases, in this thesis we focus on this main question:
How to change the role of entrepreneurial network during the different entrepreneurial processes and what kind of impacts will impact on the entrepreneurial process?
In the first chapter, we decide to introduce background about entrepreneurial network and talk about main idea of this topic. Then find some theories to support this topic, In searching the model of entrepreneurial network, we find out that a model made by Nancy J. Miller, Terry L. Besser and Sandra Sattler Weber (2010) is suitable for our analyze. After then, based on the three cases, give some opinions to analyses these cases, and put forward some discussion about what kind of entrepreneurial network during the different entrepreneurial process, and to explain why this phenomenon would be exist?
Finally, we can draw conclusion, different contexts of the entrepreneurial process, the company has to establish different networks.
In this part, we provide background information and which field is this paper study in. In addition, it concludes what we want to answer and which method we want to use.
By reading all three cases, there comes an essential idea to show that entrepreneurial network is helpful for an entrepreneur. It helps entrepreneur start them enterprise and help him to produce successful products. And entrepreneurial network is kind of special channels which new venture enterprises obtain information, resources and social support. Researcher shows that entrepreneurial network have influence the growth of the new enterprise, as well as found that is the causal relationships between entrepreneurial network and the phase of growing enterprise (Donckel &Lambrechet,1996). And also by this article mentioned that the products of the enterprise want to get considerable development and innovation, It must be focus on communicating with cooperation partners, customers and suppliers. Innovation network plays a positive role in the development of new enterprise (Duchesneau & Gartner, 1988).
Butler and Hansen (1991) have explained that a successful enterprise needs development the importance of networking in entrepreneurial process.
Accordingly, there is indeed our understanding as follow questions:
(1) What entrepreneurial network is and how they operate within process in the enterprise?
(2)What is the role of entrepreneurial network during the entrepreneurial process¼Ÿ
The first question seems important to three cases which the enterprise established an entrepreneurial network to help to creating new products and selling well in markets, and then growing his venture. Furthermore, our group is interested in this field of the entrepreneur use different networks in different ways. By focusing each case on both the start-up and the on-going this studies tries to give an overview about entrepreneurial networks in their different phase.
With the tendency of internationalization and globalization, to extend that the role of entrepreneurial network is also very significant in those develop of three firms. Those three entrepreneurs would not just only depend on themselves alone to achieve their goals. And then our group suggested that a successful entrepreneur, they need supports from external actor such as other similar functions’ firms, supporting institutions, and relatives and friends or colleagues. Before we further analyze the role of network within entrepreneurial process. In other words, how we needs entrepreneurial network in different operating process.
â…¡ THEORETICAL REVIEW
2.1 Entrepreneurial Network
Since the 1990s, with the rapid development of entrepreneurial research, as well as the degree of raising attention to network, entrepreneurial network has become an important role in the field of business. However¼Œthe researchers also admitted that theory of entrepreneurial network is still researching in this domain because it is lack of the core of the definition. Based on the existing research, follow this part with discussing different scholars from the different definition of entrepreneurial network, and then there will be a relatively systematic explanation about entrepreneurial network.
Szarka (1990) divided entrepreneurial networks into three components: transaction networks, communication networks and social networks. The transaction network is defined as commercial exchange trade between other company and other organizations, and it’s formed by the trading partners of the firm. The transaction network is interacts with the communication network and the social networks. The communication network (Szarka 1990) describe that is the the small firm need collection of those organizations and individuals to fill up the non-trading links which inform its business activities such as consultants and banks, the local and central government and its agents or distributor. Communication content (Aldrich and Whetten 1981) describe that can be formal or informal is the passing of information one person to another.Szarka (1990) intention the social network is formed by family, friends and acquaintances. Such contacts are important because they have an impact upon the development of their firm.
However, the different identification was done by Birley (1985). He divides entrepreneurial networks into two form: formal and informal. Formal networks include relations to, for example, banks, accountants, etc. Informal network is relations with family members, friends, colleagues or employers and acquaintances or customers.
Bryson et al. (1993) divided entrepreneurial networks into three categories: demand-related networks, supply-related networks, and support network. Bryson et al. (1993) have emphasized informal support networks, but not social networks. According to Bryson et al. (1993), the demand-related network comprises ties closely with clients, which aim to obtaining new business with the maintenance or establishment of contacts with clients. The second type that is the supply-related network covers network ties associated with the cooperative supply of service or product. The third considers of support networks, their function such like banks, business advisers, family and friends.
Butler and Hansen (1991) identify three types of networks: social network, business focused network and inter-organizational strategic network. They suggest that at the entrepreneurial process of a business, the social network provide ideas for the entrepreneur. The business focused networks then develops gradually and is influenced by the nature of the entrepreneur’s social network. The final stage, that is the ongoing phase, inter-organizational strategic networks not only reduce the firm’s risk of failure but also provide advantages which are not obtainable as an isolated entity.
In this study, entrepreneurial networks are defined as personal relationships between an entrepreneur and his ‘external actors’ (Aldrich and Zimmer 1985, Birley 1985, Johannisson 1986).The external actors (outsiders) would conclude two parts, such as individuals or organizations. If entrepreneurs want to obtain necessary resources, they should build up such network relationships (contacts).
Above the scholars describe the analysis of the entrepreneurial network .We can concept that is affiliate of the multiple actors and connections superposed to become the integrity of the network in the development process of entrepreneurs or new innovation enterprise.
2.2 Different process in entrepreneurial networks
The role of entrepreneurial networks in relation to new business development is a dynamic process. Importantly, networks are not static: they are dynamic (Birley and Cromie 1988, Butler and Hansen 1991). That means the phases of a business venture needs enrich their network. So the network have to be developed in different types of process, which the firm needs expanding function support and strategic change. For example, social networks are very important in the beginning of the entrepreneurial process (Birley 1985, Butler and Hansen 1991), while business networks are important in the start-up phase of a firm (Chu 1996, Greve 1995). For an on-going business firm, links with other organizations, particularly links with other firms become important because inter-organizational networks that include supporting agencies (government institutions, banks ) and other firms(large or small firms) are a way to protect information and ensure resource about exploring markets and channels for entrepreneurs. This enhances their position and allows them to compete more effectively (Aldrich, Reese, and Dubini 1989, Aldrich and Zimmer 1986).
To understand networks requires an understanding of the dynamic pattern of networks.
Figure 2.1 illustrates the dynamic nature of the entrepreneurial networks.
However, Birley and Cromie (1988) analyze only social and professional networks during the early stages of a firm. Chu (1996) also found that by maintaining the existing networks and seeking new members, members appropriate for different phases join the network, improving the chances for the business to progress. Those three entrepreneurs in our three cases would not just only depend on themselves alone to achieve their goals. To do a successful entrepreneur, they need supports and resources from external network which could keep their companies produce the creative and attractive products, such as other similar functions’ firms, supporting institutions, and relatives and friends or colleagues.
As mentioned above, (Ostgaard and Birley1996) recently studied the effectiveness of personal networks in terms of firm performance and growth. The findings confirmed the importance of networks for firm performance and development. However, the supporting network is the most important for on-going firms. According to Curran et al. (1993) article, support networks provide advice, information, and capital to firms. However, these variables are important for researching entrepreneurial networks. Studies on Entrepreneurial network mainly based on connecting theory in network.
In 1991, Butler and Hansen also evaluate a model of entrepreneurial network. They make a use of their entrepreneurial network model to research the influence of entrepreneurial opportunities, to test and use of networks in the development of establishing businesses, and to explore the process in the role of inter-organizational network, especially the process of start-up firms and on-going firms. However, entrepreneurial networking is a dynamic process. The members in networks and their roles change over time.
Entrepreneurial network and behavior of Entrepreneur are the typical sides of contemporary entrepreneurship research. The behavior of entrepreneur always limit to the specific network scenarios. In one aspect, entrepreneurial network influence entrepreneur. Meantime, entrepreneurs are changing the structure, function and relationship of the network.
Although network researchers like Falemo (1989) found that developed networks are one important way for a manager to acquire resources to the firm, the question is how to develop such networks. Our group were interesting about the Larson &Starr’s Model to explain the degree of choosing network to obtain the entrepreneurial network.
Larson & Starr’s Model is the foundation model of entrepreneurial network. Larson and Starr’s (1993) stage network model of organization formation explains how exchange relationship transform from a set of relatively simple dyadic exchanges into a dense set of stable, multidimensional inter-oganizational relationships. Certain relationship are selected, added, dropped, or allowed to evolve while the entrepreneur culls and grows the range of possible critical resource providers for a new venture (Larson and Starr, 1993).
In searching the model of entrepreneurial network, we find out that a model made by Nancy J. Miller, Terry L. Besser and Sandra Sattler Weber (2010) is suitable for us to analysis the three cases in order to find out the answer of our questions. In this model, they combined both Larson & Starr’s Model and Sawhney and Zabin’s thoughts. Not only focused on transformation process which divided into three stages such as focusing on the essential dyads, converting dyadic ties to socio-economic, Layering the exchanges (Larson and Starr (1993)), but also focused on the relational organization during running a firm.( Sawhney & Zabin (2002)).
Figure 2.2 Model combining relational equity (Sawhney and Zabin, 2002) and organization formation(Larson and Starr, 1993* )
(Nancy J. Miller, Terry L. Besser, Sandra Sattler Weber, (2010))
P1. Firm owners recognize challenges (or opportunities) that transform their strategy from one of competition to cooperation with other similar businesses.
P2. Resource exchange relationships are vital for development/advancement of a network.
P3. Managing and maintaining a network as a viable organization requires varied and continuous member interactions and perceptions of direct business benefits derived from cooperation.(Nancy J. Miller, Terry L. Besser, Sandra Sattler Weber, (2010))
In this chapter we will conclude the research methods adapt to our study. We will provide explanation to our choices of the accepted research methods as we go along with describe as follow:
This article was conducted in three independent cases of small born global companies in terms of network. The case method facilitates a deeper understanding of the context (Yin, 2003). All three companies were established around 1980 in northern part of Sweden and acquired some financial aids from Swedish Government at the initial stage of the business. In all three cases the founders started their business on their own. They started companies on the basis of their family without external person. All of the entrepreneurs in those firms had a one man show and owner, CEO, responsible for production and development.
The principal data used in this article consisted of case and theory data. The case data includes the conduction of research in these areas namely internationalization, entrepreneurship, and strategy. The data was collected through snowball sampling. Potter (1996) explains the snowball method as one that begins with a purposive sample in which key informant that can provide important insights are selected. Snowball sampling can be placed within a wider set of link-tracing methodologies that seek to take advantage of the social networks of identified respondents and provide a researcher with an ever-expanding set of potential contacts (Spreen, 1992). Except the owner, managers, former employees, business partners, friends, family members, suppliers, and customers all made some contribution to the date gather.
The theory data were collected through internal reports, newspaper articles, annual reports, thesis, photograph, and articles on the internet. It’s a second hand data. It can enhance reliability and content validity. There are two fold of purpose for using this kind of data: firstly, to enrich the empirical case with multiple descriptions, which improve its trustworthiness and enhances content validity (Rouse and Daellenbach, 1999); secondly, to enhance reliability by triangulating the data method (Creswell, 1994).
The main database we use is the google scholar. We try to find the theory and models about network. After reading the data, we find out a question we want to focus on. Next we select the model and use the model to analysis the three cases. Then we analysis and discuss the cases, we get our own conclusion and set up our own model in the ending.
4.1 Polaris Group
Staffan Preutz, the owner of Polaris, set up his networks which help him a lot in his business when he is young. Also he tries anyway he can do to establish the network.
Polaris group is privately-owned niche company that manufactures and sells rimless eyewear. From 1979 to 2007, this company has a well development. The total sales and foreign sales were increased stably. And the number of employees increased rapidly in the first 6 years, then went down, and increased again. In these years, Palaris is designing, forming, developing, and selling a wide range of rimless eyewear. It’s main market is Japan and United Kingdom. In the process of establishing and developing the company, the owner of this company–Staffan Preutz’s network really help it.
When Preutz was 15 years old, he worked in his father’s shop. At the same time, his hometown was invaded by people from “outer space”. These were young boys around 20-25 years old from different parts of Europe, which were hitch hiking to North Cape in Norway. When the young Preutz was bicycling to and from his father’s shop he used to meet these hitchhikers sitting beside the roads and waiting for cars to give them a ride. Usually he stopped and tries talking to them for a while. Outside Boden, the family had an old little barn which was previously used to store food in. Preutz cleaned the both floors of this barn, furnished it with some old beds and started a youth hostel for the hitchhikers. He continued this “business” for five summers until he was 20 years old. During these years, he established many connections, which he still has today.
In 1963, when Staffan Preutz is 22, he found an exhibition catalog with the name and addresses to ten eyewear manufacturers in Europe. His aim was to be able to learn from the manufacturers and at the same time visit his friends (from the youth hostel) in Europe. During these years, Staffan worked as an optician in his father’s shop.
As one of the five members of the “product council” of Synsam, Staffan was responsible for negotiation and purchasing of new joint collections for the chain. In several occasions he also suggested outlines for collections exclusively made only for the Synsam chains. Consequently, he got the opportunity to travel for shorter periods to different parts of Europe. All the traveling made him able to develop a network with important players in the industry.
In Staffan’s opinion, one of the main reasons to internationalize his business was to travel and meet new people. With visiting foreign friends, his network starts to work in the international market. Although his aim was never been solely to “make money”, the staff need to follow his heart and try to have fun with themselves because of the high stress. So many partners decided to leave the company.
Also, Staffan has done another something which is helped to his network. He had written a letter to the Swedish King and Queen explaining that he own a small company in North and he is aware that there is an honor and great benefit if they wearing his glasses when they are going to visit the Olympics in the United States. The King and Queen thought he had nice glasses and he wanted Staffan to go to Stockholm. So, Staffan travels down to Stockholm, and together with the king and queen he designs a set of eyewear for each, which later was marketed as Royal Polaris. This behavior helps the company to enter into the international market.
With the network, Staffan had run a great business. But in these years, he met a problem that together with himself, also his personal networks are getting older and older. The only country, which he feels that he still can maintain and develop his networks within, is in Japan where high age brings more respect.
4.2 Index Braille
Björn Löfstedt , the runner of a high quality and technically Printer company, is differ from ordinary people when he is young. He starts his company in order to help the people like his mother.
Index Braille AB is a privately-owned company which manufactures and sells high quality and technically advanced Braille printers. The company was set up in 1982 by Björn Löfstedt. From 1982 to 2007, the company has become well established. The sales have increased fastly from 1995. And the number of employee changed from 2 to 13.
When Björn Löfstedt’s childhood friends describe him as a man who didn’t care what the others thought, but did go his own ways. He learned technology because his interest. After he graduated from university, he continued to work at the expanding university as a research assistant. As his mother was blind and used to work as administrative assistant, it is not easy for her to use the normal typewriter. In order to make it easier for her, Björn started to think about how to make a braillewriter. While working as research assistant at the university, he saw the chance to make the idea come true.
Björn started to work this project, and also managed to involve his colleague Torvald Lundqvist in. In 1980, he managed to persuade one governmental agency and the university board to borrow some money for this project. After four years hard work, in 1983, the first product started to be finalized. At this time, the two partners had different opinions. Torvald thought it’s time to earn some money, but Björn thought there were still a lot of improvements. How since they need additional money, Björn asked Rolf österberg to join the company.
In 1984, once the product was finished and the agreement with the Norwegians was terminated, Björn started to look at opportunities for selling products abroad. He started his longest foreign trip ever by travelling around to different countries and demonstrating the product for these distributors. Then, Index started to get more and more orders, so Björn asked his closest friend, Staffan Syk to help him.
After a few golden years, Index started to have major external and internal problems. Between 1984 and 1988 the firm grows from 2 persons to 12 persons, consisting of friends, wives, other family members and acquaintances. This had eventually led to the fact that Index had lost its main focus. All respondents mention these years as total chaos and anarchy. Everybody was doing what he or she believed in and there was no common focus for Index. Then in 1988, Index was divided into two different firms, Index Braille Printer Company and Polar Print AB. Staffan and his wife started Polar Print AB as an independent Swedish distributor. At the same time, Björn still want to sell his products aboard.
After overcome the financial challenging, Björn started to enter world market again. This time, he already had a functioning network, so he is more specific in choosing the markets and distributors he want to deal with. This help Björn in expand company as he met other challenges. Also, his choice of focusing on the quality of the products first not the money helps the company development. In 1995, the company started to increase very fast. 7 years later, the sales reached 35000 SEK. Finally, as a result, he is succeeded in internationalization.
4.3 Liko AB
The present owners of Liko AB( the company is still privately owned by the Liljedahl family),Gunnar and Brabro Liljedahl were founded the company in 1979. The company’s name an abbreviation of Liljedahl Konstruktion AB. Liko mainly focus on development ,manufacturing, and marketing of patient lifts, but do also produce stationary lifting, mobile lifting, horizontal lifting, slings, leg extenders and other accessories for heavy lifting. Liko holds about 60 percent on the Swedish market,45 percent on the Scandinavian market. Liko is ranked the third largest company within this segment having about 20 percent of the world market share.
Before he have the ability of decision maker, he spent the 13 years as an employed inventor at the regional health council, travelling with occupational therapists and physiotherapists to construct individual aids for the handicapped.
Gunnar had already established a company in 1970 once he left ASEA. The reason why he had established this firm ,Liljedahl Konstruktion ,was because Gunnar had at several times continued to help ASEA with single projects as a constructor .However, in 1977 once Gunnar decided to start selling the inventions of his own. Between 1977 and 1978 the turnover of the firm increased from 0 to15000SEK.
In 1977,Gunnar start to realize the large potentials in the firm and therefore he borrowed money to start the new firm Liko which is a limited firm origination from the previous firm, Liljedahl Konstruktion.It is no easy task for Gunnar to establish and develop Liko. He invested by loan on his parents’ house and land in a small industry building and just himself employee to produces the furniture leg extenders as well as selling very well. Thought the shed of building came to be rebuilt and extended .As Gunnar was solving disabler’s problems; he also got the possibility to get familiar with existing products in health care. So his new products invented for lifting the patient which make more and more people and organizations interesting through spread in the country .From now on Liko’s growth was tremendous. To be able to have high product quality and low sound level, Gunnar had to buy the best engines available.
As he said: “Competitors didn’t realize the importance of having engines that are more safe, durable and silent than the ones used so far .I wanted the best which was the Swiss made engines. However ,I only needed 100 for fulfilling the order ,but I realized that I would get much better price if I bought more and therefore I gambled by buying 1000 engines from the firm which imported the engines to Sweden. I remember that the sellers at the firm I bought the engines from thought I was a crazy Norrlander since they had never sold so many at one time. I took a great risk and tied-up lots of money in these engines, but I was sure that these were the right engines to use in a sickroom at a hospital.”
At this time, Gunnar had started to travel around Sweden and participate in different domestic trade fairs to promote this product.
“When you are in a small niche market as we are ,then the market is very limited in terms of turnover ,and therefore, if you want to grow ,there is no other option than starting to export. I had the philosophy that every sale outside the province in North of Sweden was exporting since you couldn’t take care of everything yourself and must rely on others .For me the Nordic countries were like a home market. It didn’t matter if I was exporting to Stockholm or Norway, the distance was the same and both dialects sounded strange .Also, the intensive competition in Sweden due to the number of domestic manufacturers within this segment forced me to look at opportunities abroad.”
In 1986, Gunner’s brother as his assistance in exporting the international markets. Already the next year, the company entered the German, American, and Canadian markets .Excluding Germany, this entrance was in opposite to what the traditional stage models propose .The “normal” path would have been to continue the market entry to other countries in Europe before entering markets outside Europe. Interestingly, the company did enter the US market before the non-Nordic countries .A time after closing the US sales office, Liko found a well-established US distributor to promote Liko’s product in North America.
Followed the case description, we can conclude that the network is in focuses. Every phase of entrepreneurial process, the network play an important role to develop a firm. The entrepreneurial network is the best way to unify the variety types of network and specifically analysis the entrepreneur decision what the enterprise should do in different phase of process. Consequently, we can summarize that the Liko’s core competence is the dynamic entrepreneurial network.
On account of all three cases, continued-changing network is the key point. In the start-up of the firm, family network is the core network between relatives, friends and acquaintances; during the entrepreneurial process, the network sustaining expand, concluding social network and business network. Entrepreneurs obtain the chance to cooperate with some other companies or agencies, thus, richer network is accumulated so that more and more opportunities will be found. Entrepreneurial network is the holistic network consists of entrepreneurs or start-up enterprise affiliate of multiple subjects, multiple relationship super positions during the entrepreneurial process. The research about the form of entrepreneurial network includes two aspects, the organization network (official network) and entrepreneur’s personal network (informal network). Entrepreneurs with relatives, friends and individual establish network relationship is called the informal network; and financial institutions, suppliers, customers, competitors formed networks is called the official network. In the initial stage of the entrepreneurial process, the entrepreneurs have to find opportunity and network from existing resources because of the lack of relation network, and then expand it step by step.
5.1 Startup network construction
When the early network has been established, the Polaris entrepreneur was just a 15-year-old juvenile. He started a youth hostel for the hitchhikers and support map, food, bed for free to meet and talk to them and get many different cultures. Through such experiences, he established many connections, which he still has today. The previous social network has been established. Ozcan (1995) Further found that family is not only a source of employment, partnership. And the initial capital, but also affects the entrepreneurs choose the business. The social network can be divided into two parts including personal network and organizational work. As the figure 5.1 shows, in the start-up network, individual relationships are primarily concerned with business, and the blend point is less. In this stage, social network is more used than professional network. What is the most important thing is that he learned about different cultures, customs and traditions and how to deal with different nationalities. In 1968, at the age of 27, he managed to persuade five opticians to start a new organization called the Synsam chain, and it is the largest optician chain in the Nordic countries with over 300 boutiques associated to it. The initial stage of entrepreneurial process is the most difficult because of the lack of relations, capital and resources. How can he gathered initial five opticians and had chance to develop the firm to the big one? Because he had worked as an optician in his father’s shop, so he had the chance to contact with some other opticians. This experience helps him a lot, for not only accumulated experience, also accumulated contacts. It is the social network, and contact networks are based on inter-personal relations. Without his father’s shop, there was impossible for him to organize a firm so effective and fast. The family network plays vital role in all phases whether it is in relation to the phases or in overall, and is the foundation among the other networks. The higher significance of family network cannot be easily explained only on the basis of economic factors. After being responsible for the chain, the entrepreneur would like to travel to different part of Europe to develop a network with important players in the industry. During his travelling, he tried his best to contact with customers and manufacturers,
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