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The prime objective of this study is to observe the role of local resources and networking played in development of small enterprise. This study will be based on the case of Rum Story about how it proposes to build its channel through taking advantages of the local resources and networks. The relationship between and among small firms, local resources and networks would be explored with special emphasis on their interactive effects. The context of this case study is based on the UK environment, but the relevant experience in this area would be referenced from worldwide. Qualitative research method would be adopted in this study, through case study of Rum Story, the researcher will be able to gain further understanding of the background context and gather the primary and secondary data from this research process, which hopefully would be contribute to gain a deeper understanding of the role that local resources and networks played in the development of small businesses. It is also hoped that experience in mobilizing local resources could be generated from this research, which might be beneficial for small firms' further development.
TABLE OF CONTENTS
Over forty years ago, the research on small firms sector at that time was not as rich as nowadays, along with the boom of small business from then on, more and more researchers designed relevant research in order to know more about this sector, as well as the role of small business in an economic, social and political framework. The origins of contemporary small business research can be traced back to the 1970s, when the Bolton Report of 1971 was published (Goss, 1991). The Bolton Report provide a problem-oriented analysis of small business sector at the first time, focusing on the role of small firms in economic development, as a basis for policy recommendations. Since then, the influences of this report have been shown on government policies making and also small firms' development (Stanworth and Gray, 1991).
Throughout all the time, the research on the small business sector has developed and eventually leads to abundant literature and research that focus on different aspects of small firms, which include the branch on the role of local resources and network in the development of small firms. Since the existing literature revealed that small enterprises have their own limitation due to their inherent characteristics and the behaviours of the entrepreneur or owner-manager; and also they may be influenced by the inherent size and stage of development of the enterprise. Such limitations has been summarised by Carson in 1990 as: limited resources; lack of specialist expertise; and limited impact in the marketplace.
In tackle with these limitations, it has been claimed that local resources and network has a significant role in the development of small business (Gibb 1993; Duijnhouwer 1994; Hakansson and Johanson 1988), particularly, the networking plays a vital part in helping small firms to overcome the difficulty that lies on the way to obtain the resources that they require during development (Gibb 1993; Humphrey and Schmitz 1996). This is closely related with the main objective of this research. This study will focus on the factors about local resources and networking that attributing to the channel building of small enterprise. The main emphasis of this study is based on the case study of a small enterprise in spirits industry of UK, Rum Story, which is concerning how the local resources and network could be helpful during the process of its distribution channel strategy building.
This study would be organized in the following matter:
Chapter1: this part provides an introduction to the research background and the brief content mapping of this research study.
Chapter2: this section gives an overview of previous study in the relevant topic about small firms study and local business resources, as well as entrepreneur networking research, in order to gain some insights into the understanding of case study and dissertation research. Additionally, this part would particularly focus on the context which contains the discussion about the effects of local resources and networking have on small firms as well as local economy.
Chapter3: this chapter would illustrate the methodology for this research study, including the research approach and research methods that would be conducted in this research, as well as put forward the research questions and objectives for this study.
Chapter4: this section would first provide the background information of the rum case, following is the list of findings from this research, and then the analysis for each finding would be discussed, as well as explain or criticize with the relevant literatures in order to reach further understanding of these research findings.
Chapter5: this final part would conclude the whole research, as well as indicate the implication of this research, and then state the limitations of this study, following the recommendation for future research.
2. Literature Review
This chapter provides an overview of previous literatures and research in small firms sector which particularly focus on local business resources, as well as entrepreneur networking research. It is hoped that through this literature review, some insights into the understanding of case study and dissertation research could be found. Additionally, this part would particularly focus on the context which contains the discussion about the effects of local resources and networking have on small firms. First, the context of small firms would be introduced; following this, a review of literature about local region would be discussed; next, there will be contexts that concentrate on local resources, including the definition and classification; finally, the literature about network would be reviewed. Last but not the least, since this study is based on the UK context, there would be a preference of UK context when there is contradictory in choosing definition for terms.
2.1 Small-scale Enterprises
2.1.1 Definition of Small-scale Enterprises
According to the UK's Companies Act 2006, a small company is defined as one that does not have a turnover of more than £6.5million, a balance sheet total of more than £3.26 million and not more than 50 employees. However, after a review of the literature, it could be revealed that there is no universal definition of the term 'small firm' (Storey, 1994), and various meanings could be identified when it apply to different contexts in practice. This may partly due to the heterogeneity of the small firm sector, this makes the modification of the definition becomes necessary according to the particular environment. Under this circumstance, the study of small-scale enterprises could only be built on the 'grounded' definitions (Tonge, 2001). Therefore researchers who conducted research into this field tend to use the definition of small enterprises according to their own preference or if the definition is appropriate to the particular 'target' group that they want to examine (Storey, 1994).
Indeed, Curran et al. (1986:3) refer to the 'great deal of agonising' over the issue of definition by small business theorists and researchers, such as Bolton (1971); Binks and Coyne (1983); and Curran and Stanworth (1984) from which no satisfactory solutions have emerged.
The Bolton Report of 1971 on small business is one of the most influential literatures in this sector and it was widely quoted for the definitions of the small firm (Tonge, 2001). In terms of Bolton (1971), the definition of small firms should be understood in both 'economic' and 'statistical' ways. If they satisfied three criteria as below, the firm could be regarded as small in terms of economic definition:
â€¢ they had a relatively small share of their market place
â€¢ they were managed by owners or part-owners in a personalised way, and not through the medium of a formalised management structure
â€¢ they were independent, in the sense of not forming part of a larger enterprise.
Table 1. Bolton Committee (1971) Definitions of a Small Firm
200 employees or less
25 employees or less
Mining and quarrying
25 employees or less
Turnover of £50,000 or less
Turnover of £50,000 or less
Turnover of £50,000 or less
Turnover of £100,000 or less
Turnover of £200,000 or less
Five vehicles or less
All excluding multiples and brewery-managed houses
Source: Bolton (1971)
2.1.2 Types of Small-scale Enterprises
Rainnie (1989:85ff) classified small firms into four categories: the first type is dependent small firms, which serves as complement of larger size company; next is the competitive independent small firms, as the name implies, refers to those companies independent and compete with larger companies; and then is the old independent small firms, namely the firms focus on a niches market that rarely attracting large firms; the last one is the new independent small firms, means small firms that operate in specialized market, which at the same time could be the potential market to capture the attention of large companies.
2.1.3 Status of Small-scale Enterprises
Small firms, however they are defined, constitute the bulk of enterprise in all economies in the world (Tonge, 2001). These firms also make a major contribution to private sector output and employment, a contribution which appears to be increasing over time (Storey, 1994). More than 95% of all firms in the economies of the European Community are classified as 'small' (Tonge, 2001).
In this regard, there is no difference for small firms' situation in the UK, even in the competitive business environment, small enterprises are still a vital part of the UK economy and contribute significantly to economic growth. According to BIS report (2011), the majority of new jobs created in the UK are created by small businesses. Large businesses contribute only 24% to new job creation, which is much less compared to 76% that created by small businesses. Of this, existing small businesses contribute 44% of new jobs created, whilst new businesses that still start-up contribute 33%. Even in the recession period, small business still created a lot of jobs which is disproportionately regarding its small size (Curran& Blackburn, 1992).
There is clearly evident that small enterprises remain the significant position in every free enterprise industrial society (Curran et al., 1986). In the UK, small-scale enterprises have remarkable place in almost every major sector of the economy, and continue to provide substantial employment not only in traditional established industries such as construction industry but also in the newer sectors such as services industry (Binks and Coyne, 1983). Besides, the small businesses play a particularly important role in areas such as the North West of England that have seen a decline in traditional heavy industry and a growth in the service industry (Tonge, 2001). Generally, there are more and more cases in practise proved that compared with larger business, small enterprises have their own advantages, especially when coping with difficult economic conditions.
2.1.4 Limitations of Small-scale Enterprises
Even though small businesses owns great expectations and remain economically important to society, they still have to face their own limitations when it comes to their own business developing, these limitations are probably come from the inherent characteristics and behaviours of the entrepreneur or owner-manager; and also they may be influenced by the size and particular stage of development of the enterprise. Such limitations has been summarised by Carson in 1990 as: limited resources, such as finance, time, and marketing knowledge; lack of specialist expertise, means the entrepreneurs are likely to be generalists rather than specialists in specific field; and limited impact in the marketplace, normally each small firm only take considerably small market share.
Additionally, Gilmore, Carson, and Grant (2001) point out that most of the marketing activities of small firms could be identified as coincidental and informal because of the way an owner manager does business; usually they make most decisions on their own, and they tend to respond to what happened in unstructured and coincidental way, which are definitely not specialist enough for making mature business decision. In order to find solutions for these problems, small businesses need to seek external resources, such as local resources and networking, and mobilizing them in order to find a way in dealing with the disadvantages brought by their own constraints.
2.2 Identify Local Resources and Relevant Items
2.2.1 Business Resources in General Meaning
Resources are critical and important for any kind of enterprise. According to the network model developed by Hakansson and Johanson (1988), firms need resources to perform. Since one actor does not have all the resources for his/her activities (Duijnhouwer 1994; Gibb 1993), actors exchange resources (Easton 1992; Hikansson & Johanson 1988) and gradually develop their own networks.
Premaratne's study (2001) identified two types of resources: namely, 'bought' and 'gratis' resources. A bought resource, as Falemo (1989, p. 169) defines it, is one for which 'there exists a form of economic agreement between' the firm and the external actors. On the other hand, gratis resources (services) are exchanged without economic agreements between the two parties. Mostly, the gratis resources are supporting services. These services are provided by the external actors for the purpose of supporting a particular firm. It is necessary for small business to take into consideration three kinds of gratis resources: money, information, and other non-material supports (Galaskiewicz and Marsden 1978).
2.2.2 Local Resources
In terms of TonË (2004), the phrase 'local resources' could refer to financial and non-financial contributions to community improvement projects from local sources, including individual citizens, local government, businesses, institutions or other actors. According to Lace (1982), the information sources that firms needed could come from internal and external, and for small firms, the internal information sources are largely neglected by most businessmen. The internal information that comes from the company's own records could be divided into two types: operational information and sales information. For small enterprises, it is very necessary for them to use these sources in an effective way, because they usually could not afford to other resources that charged due to their resource constraint in budget. As for the external information resource, this could come from government sources, such as the Business Monitor series from The Department of Trade of the UK, and institutions that provide business information, as well as other local commercial sources.
There is no standard definition for the term 'local' that works in the local resources framework in business activities. According to BIS report (2010), researchers discussed the phrase 'natural economic geographies' (also known as functional economic market areas (FEMAs)) and proved there is no universal approach to defining FEMAs, and the relevant factors will depend on the particular policies and markets that researchers want to examine. However, local business information including data about labour markets, housing markets, business linkages and supply chains, consumer markets and transport networks would be frequently used in order to better analyse the market. It is usually expected that in most cases local people and local businesses are the best placed to understand how the local economies work.
Curran and Blackburn (1992) hold the point that there is no need to define or set very clear boundaries for the issue of relation between economic activities and locality, the interactive links among these actors should be kept afresh, and also should not be fixed by the 'theoretical burden of the history'. They understand the phrase 'local economic activities' as 'relations between business within specific geographical or administrative boundaries and the links between such activities and social, cultural and political activities in the same areas.'(pp. 163). Although the economic relations between small firms and other businesses in locality were common, Curran and Blackburn (1992) think that this business bond activities should be reconsidered regarding to different situation. They believe that there is no need to encourage all small firms to take active part in the relationship building with other businesses in the locality, especially for those firms that with high potential in development which were engaged in the activities expected to dominate the national economy in the future, as well as the growth firms which were the most detached from their localities and local business-to-business relationship.
2.3 Network and Its Functions for Small Business
2.3.1 Network and Its Structure
184.108.40.206 Define Network from Its Origin and Development
There are a variety of reasons could be found in the literature to explain why networks have developed. Black and Porter (2000) believes that the more complex and dynamic the environment, the more some form of structure needs to coordinate disparate groups. Christopher (1999) suggests that firms need to achieve greater agility with supply chain partners. Hodgson (1998), citing the earlier work of Coase (1937), suggests that there is a need to reduce the costs associated with the making and monitoring of transactions. Gilliland and Bello (1997) point to market volatility and technological uncertainty as a source of need for some form of controlling structure, while Tikkanen (1998) suggests a need to re-align organisational structure to market structure.
Reviewing the literature, there are many definitions of what constitutes a network. In terms of Yeung (1994, p. 476), the broad definition of network is
'An integrated and co-ordinated set of on-going economic and non-economic relations embedded within, among and outside business firms.'
According to Dean et al. (1997), the networking for business activities is about 'companies joining together with a common objective, working together, and cooperating' through the exchange and sharing of ideas, knowledge and technology. This kind of networking can be built through participant in trade events such as exhibitions, and personal contacts of entrepreneurs, as well as through interfaces with marketing intermediaries. In this regard, networking becomes part of the 'social endeavours' (Dean et al., 1997) for entrepreneurs of small firms.
Therefore a network could be understood as not only a framework but also objectify process between companies or organisations. These processes could be divided into formal economic processes and informal process (MacGregor, 2004); and this informal process may be cooperative relationships between organisations, through which the businessmen could share their experience in business and communicate about the market information. In addition, Dahlstrand (1999) indicates that informal links in networking may be conscious or unconscious mechanisms. According to Premaratne (2001), at an informal level businesses interact by sharing knowledge and expertise where the interaction is based on trust and reciprocity rather than on any form of governance. Informal interaction may involve not only the business partners such as customers and suppliers, but also involves personal contacts like family and friends (Drakopoulou-Dodd et al., 2002).
Malecki and Edward (1996) also add their opinion about the two types that contact networks, and they view it as a means of obtaining external information are a well-accepted aspect of firm behavior. For large firms, formal ties, such as strategic alliances and joint ventures, are common, but it means different for small firms: they are more flexible, and informal networks are more usual. In addition, the semi-formal connections are continuous evolving with the development of business environment (MacGregor, 2004).
220.127.116.11 Taxonomies of Networks
As with the discussion about definition of networks, there are a number of differing taxonomies of networks in the literature. These taxonomies are normally based on structure, process or power. It is appropriate to consider each of these styles of classification.
Varadarajan and Cunningham (1995) suggest that networks can be subdivided into four groups:
(1) Functional (linking functional aspects of organisations that result in joint manufacturing, marketing or product development). These networks tend to share knowledge, information and resources.
(2) Intra/inter-organisational (developing relationships either nationally or internationally). These networks share information.
(3) Intralinter-industry (building relationships through resource pooling). These networks share resources.
(4) Motivational (sharing of marketing and technological know-how). These networks tend only to share knowledge.
This is similar to the subdivisions suggested by O'Donnell et al. (2001) who termed their subdivisions as vertical, horizontal, industrial, and social.
While Varadarajan and Cunningham (1995) subdivided networks regarding to different structure, Johannisson et al. (2002) point out that networks can be classified into four groups in terms of process. The four groups are listed below:
(1) resource-based (each firm controls their own unique resources which are combined to strategic advantage);
(2) industrial organisation (firms as autonomous entities establishing their own unique market position);
(3) virtual organisation (independent yet interdependent organisations striving for joint variety using advanced technology);
(4) industrial district (small firms characterised by production type, organised for internal cooperation and external competition).
Achrol and Kotler (1999) also suggested that networks can be subdivided in terms of process. They provide four types:
(1) internal (designed to reduce hierarchy and open firms to the environment);
(2) vertical (networks that maximise the productivity of serially dependent functions by creating partnerships among independent skill-specialised firms);
(3) intermarket (networks that seek to leverage horizontal synergies across industries);
(4) opportunity (networks that are organised around customer needs and market opportunities and are designed to seek the best solutions to them).
Dennis (2000) suggests power to be the most important factor on which to classify networks. She provides two classifications:
(1) dominated networks (a group of smaller companies dominated by a single larger company);
(2) equal partner networks (where there is no governing partner and each relationship is based on reciprocal, preferential, mutually supportive actions).
At last but not the least, along with the different network taxonomies, there develops an obvious by-product of it, which is the analysis of organisations that constitute the various network types. In terms of Golden and Dollinger (1993, p. 52), these business relationships embedded in the network could be concluded as:
'Differences in strategic postures are associated with differences in the quality and type of intra-organisational relationships.'
MacGregor (2004) believes that this would be particularly apparent in terms of smaller organisations. Jarratt (1998) suggests that particular strategic postures lead organisations to adopt particular network alliance forms. She suggested that there were four distinct categories of 'strategic posture', termed:
(1) defender (more likely to select conjugate relationships);
(2) prospector (more likely to select confederate relationships);
(3) analyser (more likely to select agglomerate relationships);
(4) reactor (whose business relationships were unpredictable).
2.3.2 Networks and Small Firms
18.104.22.168 Formal and Informal Approaches
Early studies of SME networks (Gibb, 1993; Ozcan, 1995) concentrated on formal networks; indeed, Golden and Dollinger (1993), in a study of small manufacturing firms, concluded that few small firms were able to function without some form of inter-organisational relationship having been established. They added that these inter-organisational relationships were associated with successful strategic adaptation by small businesses. Dean et al. (1997, p. 78) suggested that formal networks were used by SMEs to:
'... pool resources and talents together to reap results which would not be possible (due to cost constraints and economies of scale) if the enterprise operated in isolation. '
Schindehutte and Morris (2001) point out the importance of depend on formal network by discussing the adaptability of small firms, they believe that organisations, particularly small organisations, survive or fail as a function of their adaptability to the marketplace. Those organisations who can interpret patterns in the environment and adapt their structure and strategy to suit those changing patterns will survive. While adaptability may be a function of prior experience or business sector focus, in the smaller business adaptability often relies on partners within the formal network.
Semi-formal and Informal Network
In the 1990s many SME networks took a more "semi-formal" approach. Local or government agencies such as small business associations and chambers of commerce provided a formal umbrella in the form of advisory services that assisted in legal, financial, training or technical advice. Individual members operated formally with the umbrella organisation but could interact informally with fellow members.
While researchers, government agencies and practitioners have continued to examine and refine both formal and semi-formal networks, recent literature (Rosenfeld, 1996; Premaratne, 2001) suggests that informal or social linkages may provide a higher and more stable flow of information and resources in the small business environment. Tetteh and Burn (2001, p. 171) suggest that any form of networking engaged in by SMEs:
'... needs to adopt an entirely different approach to strategic planning and management which can enable it to deploy an extensive infrastructure based on shared resources with other firms. '
There are also some factors that would affecting network strategy adopted by SMEs: in a study of 591 SMEs Smith et al. (2002) found that size and culture appeared to affect the amount of strategic planning carried out by the organisation. Premaratne (2001) found that 'social and support networks' tended to be utilised for information and non-material support by SMEs. Donckels and Lambrecht (1997) found that factors such as business size, business sector, and number of years in business and level of education of the CEO were significantly related to both the choice of network and the type of network entered.
22.214.171.124 Functions of Network for Small Firms
In an exploration of relations between small firms and network, Sengenberger and Pyke (1992; pp. 4 and 11) indicates:
"A small firm in an industrial district does not stand alone; a condition of its success is the success of the whole network of firms of which it is a partâ€¦ The main problem for small firms is not being small but being lonely."
It is necessary for firms to maintain good relationships and networks to assure they could got the resources outside the company since it is extremely difficult for companies to acquire and manage all the resources they need (Araujo, Dubois and Gadde, 1999 p.499)
The existing literature suggests that the network system might be a major way for small firms to compensate for lacking resources.
According to Uzzi (1997), network ties link actors in multiple ways, as business partners, friends, agents, mentors, providing a means by which resources from one relationship can be engaged for another. It also works as a way of getting information (Brown and Butler 1993; Curran et al. 1993; Falemo 1989; Ostgaard and Birley 1996; Ozcan 1995). These networks increase an actor's capacity to access resources (Birley 1985; Butler and Hansen 1991; Greve 1995; Jarillo 1988; Ozcan 1995) because networking is a method that entrepreneurs use to get access to external resources (Galaskiewicz and Marsden 1978). It is clearly evident that an entrepreneurial network is a real source of such resources as information, money, and moral support provided by actors of the networks.
In terms of Premaratne (2001), there are three types of actors in the entrepreneurial networks: social, supporting, and inter-firm. Social networks consist of actors such as relatives, friends, and acquaintances. Supporting networks consist of supporting agencies such as banks, government agencies, and non-government organizations, while inter-firm networks include other enterprises both large and small. As actors of both the supporting networks and the inter-firm networks are basically organizations, this study identified both as "organizational networks."
The different kinds of networks serve different functions. The social network is like an 'opportunity set' (Brown and Butler 1993; Butler and Hansen 1991). Some researchers suggest that social networks provide information, other kinds of non-material support, and financial support for new entrepreneurs (Aldrich and Zimmer 1986; Birley 1985; Butler and Hansen 1991; Grabber 1993; Granovetter 1985; Oliver and Liebeskind 1998; Ozcan 1995; Uzzi 1996, 1999). New entrepreneurs are particularly dependent on their personal networks (Aldrich and Zimmer 1986; Birley and Cromie 1988; Johannisson 1986, 1988; Ozcan 1995).
Gilmore, Carson, and Grant (1992) categorize two kinds of networks that could be used by small firms, networking with competitors and networking with customers. They found that the networks with competitors for small firms are more frequently than reported because such collaboration was helpful to protect their local region market. And also, In other cases one company might engage in a joint arrangement with a competitor if a particular project is too large for either to complete on their own, or if one company requires new resources or skills.
In addition to providing much needed information, networks often provide legitimacy to their members. For businesses that provide a service and whose products are intangible, company image and reputation become crucial, since customers can rarely test or inspect the service before purchase. Cropper (1996) suggests that network membership very often supplies this image to potential customers.
Local business associations can represent the collective interests of the cluster. They can also provide a range of key services to local firms and undertake the function of regulating local competition and mobilizing cooperation. Brusco (1992) emphasized the importance of collective services provided by local business associations in the development of SME-dominated Italian industrial districts. Best (1990) also drew from the Italian experience to highlight the influence of associations such as the national confederation of artisans (CNA) in providing local producers with a wide range of managerial, financial, business and technical services.
Such examples are not restricted to Italy. For instance, Schmitz (1992) cites evidence of sectoral associations in the Baden Württemberg industrial district of Germany in delivering technical and legal advice as well as market intelligence to local SMEs. In addition, Albaladejo (1998) has outlined the positive role played by sector specific business and technical associations in the development of industrial clusters in the Spanish region of Valencia. In many of these cases support services developed by local business associations were developed in conjunction with local or regional government (Best, 1992; Schmitz and Musyck, 1993).
Curran& Blackburn (1992) believe that trade unions and small firms associations do not only represent members' interest but also act as necessary information gatherers and 'disseminators' as well as provide collective service such as export market research and bulk purchasing for members. Trade unions also help create a smoothly functioning labour market where the majority of employers are small, such as Wine& Spirits Education Trust, provide employee training. This kind of organization include trade union, Trade associations act as a means for the manager to become known to his peers within the industry. While occasions such as exhibitions or committee meetings ensure a certain degree of formality, they create the opportunity for more social encounters. In this regard, the European evidence has highlighted the importance of local collective institutions such as business associations and producer, or "real", services institutes.
As these studies have shown, business associations can have a positive impact on the development of industrial clusters. Doner and Schneider (1998) detail the various ways by which business associations can potentially contribute to economic performance, supporting members with a range of "market-complementing" and "market-enhancing" functions. These include: horizontal coordination amongst producers; vertical coordination of upstream and downstream linkages; the setting and enforcement of product standards; and the provision of information and technical training (Doner and Schneider, 1998, p. 11). They also underline the need to explore further the natu re of organization within business associations. In this regard, Moore and Hamalai (1993) call for caution. They claim that business associations, especially at the national level, can in fact generate political conflict and lead to a waste of resources as associations compete with each other, rather than stimulate private enterprise and firm cooperation.
On the whole, these linkages provide extra resources that affect business growth in several ways. For example, they help mobilize resources quickly. According to Cromie, Birley, and Callaghan (1994), the greater the number of contacts available to a small enterprise, the greater is the chances of acquiring the information and other resources needed at minimum cost. In general, the external resources are very helpful in developing products and expanding a firm's market (Falemo 1989). According to Brown and Butler (1993), the types of information provided by networks are necessary not only for identifying entrepreneurial opportunities that warrant founding a business, but also for ensuring the success of the business. It is argued that small enterprises can achieve the complementary skills and resources that are essential for competitiveness and survival in the market through entrepreneurial networks (Gibb 1993; Humphrey and Schmitz 1996).
3. Research Methodology
Research methodology is the strategy that is significant to determine the way through which research objectives could be accomplished effectively (Goddard & Melville, 2004). It is also a design that is developed to reach a conclusion to resolve the research problem (Ethridge, 2004). In this chapter, the research design and research methods that carried out for the dissertation would be illustrated in detail. First, a general introduction of how the research conducted would be given. And then, the main method that used in this research, case study, would be discussed, along with a brief introduction about how this method has been conducted in the rum case. Next part would states the methods that used in the research for data collection. Finally, the section following would outline the main ethical consideration along with this research.
3.2 Research Questions & Objectives
This paper was based on a research study which sought to understand how local resources and networking contributes to the development of small firms. This overall aim was broken down into several objectives and the objective on which this paper focused, and this is designed to gain an understanding of the nature of small firm, local resources and networking by examining the relationship among them.
3.2.1 Research Questions
This dissertation will focus on local entrepreneurial resources and networking for small business, addressing the following questions:
(1) What circumstances lead to small enterprises to seek help from local resources, such as networks / funding /information/ non-material support?
(2) In what forms do the local resources and networks exist?
(3) How small firms could be benefited by mobilizing local resources and networks?
(4) What is the effect of network for small businesses, how can small firms benefit from building network if they are lack of business resources?
3.2.2 Research Objectives
The main purpose of this study is to explore the role of local resources and networks in the development of small firms, It is presumed that enterprises with more network relations receive more supporting resources from outside actors and that these resources help improve these firms' performance. Therefore this study would examine the existing theory about the significant role of resources and network in businesses development. This research study aim at generate some experience on the better utilizing networking and local resources for small firms' development through comparing and contrasting relevant literatures with studying case of Rum Story based on the UK context.
It is also hoped that this research could provide new insights into the understanding the meaning of local resources and networking. As Curran and Blackburn (1992) stated that there should be no presupposition to scope the relation between economic activities and locality, which would keep this links afresh, free from the conceptual and theoretical burden of the history. Compared with the literatures which has fully researched the linkage between local resource and small firms or relevant areas, this study is expected to provide information more recently and focus a bit more on the local resources and networking within the UK context, which is more cope with the practice of Rum Story case.
3.2 Research Design
This research aimed at examine the existing theories of local resources and networking influences small enterprises, and also expected to provides a new understanding toward the relationship between small firms and the local resources, including how the networking played in the reactive relation, especially focus on how small firms can develop via mobilize their networking while they are facing resources constraints. This topic involves varying business environment which is relevant with different firms and resources, which makes it very flexible.
In addition, the relation and interaction between enterprises and local networking are also affected by a lot of factors (ldiaro, A. 2009), such as location, time, policy etc., which are changing into a more dynamic situation continuously. Therefore, a specific context would be needed as an example to consider the "temporal dimensions" (Halinen, and Tornroos, 2005) in order to better understand this dynamic relationship. So it is necessary to generate the meanings from the complex fact (ldiaro, A. 2009), which indicated that the this kind of research would be better conducted with the constructionist epistemological stance, which means the knowledge which comes from "our engagement with the realities in our world" should be defined as constructed instead of discovered by people. (ldiaro, A. 2009, quote Crotty 1998, p.8-9)
The research design is completely based on the availability of resources and also on the research aims and objectives. For this research, the study will be designed purely on the basis of qualitative nature. It is because all the information will be collected through the literature review and case study analysis only (Zikmund, 2008). It will be effective in increasing research credibility as it will include evidence from the study of previous researches and also from the real world companies.
3.3 Data Collection & Data Anlysis
3.3.1 Data Collection
126.96.36.199 Primary Data Collection - Case Study of Rum Story
(ç¬¬ä¸€æ®µç…§æ¬ä»Žproposalï¼Œéœ€è°ƒ)This dissertation will root in the case study of Rum Story. Case studies are 'an exploration of a "bounded system" of a case or multiple cases over time through detail, in depth data collection involving multiple sources of information rich in context' (Creswell, 1998, p. 61). In terms of Robson (1993: 40), case study is the 'development of detailed, intensive knowledge about a single "case", or a small number of related "case",' Morris and Wood (1991) believes that case study would be particularly suit for researchers who achieve to gain a deep understanding of the context of the research, as well as the process being enacted. Stake (1995) explains that case studies are investigated because we are interested in them for both their uniqueness and commonality.
Robson (1993: 44) also suggests that case-study approach would be a remarkable research method to generate answers to three types of research questions: 'Why?', 'What?' and 'How?' And there are various data collection methods could be employed in case-study approach, which may include interviews, observation, as well as documentary analysis and questionnaires.
Case study has been presumed as a suitable method when conducting the contemporary business networks research, as Halinen, and Tornroos has stated like this in their paper in 2005. The reason for this may lies in the nature of its research subject, as Easton has pointed out in 2010 that this kind of research usually involves actors like organizations and relationships, which makes it more complicated to gain any research findings by access or compare them, under such circumstance, even a case study which contains information of small samples could provide a lot of qualitative data for researchers to gain some insights into the certain area and achieve more in their research. Based on this, it is expected that some general experience could be generated from the case study even though it is based on a specific context.
Strengths and Argument of Case-Study Approach
Eisenhardt summarised the strengths for building theory from case study; first, it is more likely to discover new thoughts while generating from case, as Cameron & Quinn (1988) stated that it is more likely to find novel theory from the "juxtaposition of contradictory or paradoxical evidence"(Eisenhardt, 1989. P546). Secondly, the measurement for the emerging theory would be comparable easier to conduct for it has already been tested while building the theory. The third strength of case study is "the resultant theory is likely to be empirically valid." (Eisenhardt, 1989. P547) for the novel theory are usually extremely close related with the "evidence that it is very likely that the resultant theory will be consistent with empirical observation" (Eisenhardt, 1989. P547).
Following this, Eisenhardt also pointed out the two weakness of building theory by case study, one of them is too much evidences may lead to a likelihood to make the theory complicated which is not perfectly match with the principle that an excellent theory should be "parsimony" (Eisenhardt, 1989. P547); the other one of the weaknesses is the theory building from case may be very specific and only suited in particular situations, which circumstance would possibly happen when the case is based on some specific situation.
However, case study method is also doubted by researchers that the case study research may make people feel 'unscientific', it could be argued that a case study can be quite suitable for research that exploring existing theory. In addition, the existing theory could be challenged by a well-structured case study, and it also can provide 'a source of new hypotheses' (Saunders, Lewis and Thornhill, 1997).
Case-study Approach in This Research
Yin (2003) summarised four types of case study designs: single-holistic, single case-embeded, mulitple case-holistic and multiple case-embeded. In this study, the research would mainly be conducted as a single case holistic, due to the generality of this current case, which is about how a small firm, namely Rum Story within Whitehaven Harbour Commissioners, which located in Whitehaven of Cumbria in the UK, plan to expand its distribution channels for its dark rum brand Jeffersons Rum through mobilizing the local resources and networking with relevant enterprises while carrying its inherent shortages, such as its poor location in terms of business and resources constraints in budget, human resources and time.
The illustrative case about Jeffersons Rum was written based on different kinds of data that were collected while conducting the company project for Rum Story, the data included records provided by Rum Story, the notes taken from interview and meeting with employees from this company, specialist in spirit industry and relevant customers of Rum Story, as well as the industrial archives searched from library and through internet database. More about this would be mainly illustrated in the finding part of this dissertation.
Case study method is not only served as the main research method in this research but also is the only way to gain the primary data for this study. The reason that choose case study method would be suitable for researching business network and industrial marketing has been illustrated earlier, in addition, Järvensivu and Törnroos point out (2010) that this method has been presumed by many researchers that it would specifically suit for business-to-business relationships and networks, because it could "capture the dynamics of the studied phenomenon and provide a multidimensional view of the situation in a specific context for it" (Järvensivu and Törnroos,2010. quoted Easton, 1995; Eisenhardt, 1989; Halinen & Törnroos, 2005; Borch & Arthur, 1995). And also, the case study approach is suitable for examining how networks work in different settings and contexts (see e.g. Ford, 2002; Dubois & Gadde, 2002; Halinen & Törnroos, 2005; Easton, 1995).
188.8.131.52 Secondary Data Collection
Along with the case study, a wide range of literature research including documentation, archival records etc. via searching for data from library, published by government as well as database on internet. According to Saunders, Lewis and Thornhill (1997), the uses of secondary data could provide a background and preparation for research, and also serve as a complementary for comparison and validation of the primary data collected, what is more, the secondary data can also provide a re-analysis of data.
Through using secondary data, Saunders, Lewis and Thornhill (1997) summaries six advantages of this data collection methods: fewer resource requirements, unobtrusive, longitudinal studies may be feasible, provision of comparative and contextual data, unforeseen discoveries may occur, generally permanent and available. Besides, they also suggest the disadvantages of using secondary data: purpose of data collection may not match the research needs, access may be difficult or costly, aggregations and definitions may be unsuitable, no real control over data quality, initial purpose may affect data presentation.
3.3.2 Data Analysis
Data analysis of the empirical evidence gathered during conducting project for Rum Story by investigatory and explanation building approaches. The primary data would be analyzed jointly as well as the literature using in the conceptual framework of this study. While conducting an explanation approach, Yin (2003) point out the achievement should be "analyze the case study data by building an explanation about the case" through a process of "iterations" (p.120).
4. Findings and Discussions
In this section, the findings from the case story of channel building strategy for Jeffersons Rum would be illustrated; starting with an introduction of the case background about Rum Story, and following the main findings would be listed and described one by one during the story of how the company try to build the distribution channels via mobilizing local resources and networking with local bonds while at the same time bear in mind its resources constraints.
4.1 Case Background: Whitehaven Harbour Commissioners - Rum Story
Whitehaven Harbour Commissioners established in 1708, primarily a Harbour Trust, the Board of Commissioners are responsible to the Ports Division of the Dept. of Transport, though it is classed as private sector. It is a none for profit organisation, does not receive public subsidies but operates as a business to create surplus's after maintaining the assets, which can be reinvested for the benefit of the stakeholders, who at the widest sense are the public.
The Rum Story is part of the Whitehaven Harbour Commissioners. It is a small size company with 20 employees and annual turnover around 60 thousand pounds on Rum selling sector. The award winning rum was re-launched in late 1999 to coincide with the opening of the Millennium Grant funded attraction based in the original premises of the importers, R & H Jefferson. The Jefferson's were purported to be the first importers of rum in to the UK in circa 1780's and first suppliers of rum to the UK navy. The current rum won a bronze award at the 2000 International Wine and Spirits competition.
The main retail outlet is through the Rum Story and via mail order. It is also sold wholesale via Rum Story and Lanchester Wine Cellars, in the UK and latterly sold small quantity to France. On average there is one bottling run per year producing about 2,500/ 3,000 75cl bottles and this has barely altered in the last ten years. Miniature 5cl bottles are also available with presentation tubes. Managers in Rum Story believe that there should be capacity to increase the sales of this unique quality product.
However, even though Rum Story owns a quality product and it is expected to achieve higher sales by marketing this product in an appropriate way, currently they have to face a serious problem of its development that they are constrained by the resource constraints as most small firms are. According to the records from this company, the Jeffersons Rum of 75cl bottle are selling at the price of £18.95 from the museum, considering its producing about 2,500-3,000 75cl bottles per year, it is not difficult to estimate how low revenue this company could gain by selling products in the current way. This fact reveals that Rum Story could not afford to any channel building plan that would cost too much, for they are currently in a situation lack of resources, particularly low budget can be spent.
Thus in this research, an appropriate channel building strategy for Jeffersons Rum need to be created while bearing this resources characteristics in mind. In terms of Rum Story, they expect the strategy and plan will be designed to substantially increase sales and profits for the brand thereby generating much needed cash to support the Rum Story and the wider Harbour business. Under this circumstance, the most suitable solution for Rum Story would be seek local resources and networking to build its distribution channels in local area.
4.2 Findings and Discussions
There are the main findings of this research, which would be illustrated in detail with the case study and literature in the following section:
The normal situation for small businesses: lack of resources
Local resources and networks are existing in multiple forms
Local produce priority and detachment trend
Networking could serve as compensation when small firms have poor resources
The flexible understanding of 'local' scope
4.2.1 The Normal Situation for Small Business: Lack of Resources
It has been believed by many researchers (Hakansson and Johanson, 1988; Duijnhouwer 1994; Gibb 1993) that resources are vital and critical for all kinds of companies. However, one general truth about the current situation of small firms lies in its weaknesses in obtain the resources they required, it could be shown up in many ways of small firms' operation, which including running blind due to lack of market knowledge and information, as well as conservative in investment for short of necessary business resources such as financial support, human resources and time; or in some other cases, the company located in a place where lack of necessary business support or passing trade.
In this regard, this point is perfectly demonstrated by this rum case:
First, managers in this company are not specialist enough in marketing knowledge and also terribly lack of market information about spirits or rum industry. According to the interview during the first company visit, the managers in Rum Story expressed their concern of marketing knowledge and admit that their information of the market is basically 'zero':
'We may know something about spirits and rum, know how the dark rum was produced, but none of us have the expertise in terms of marketing. And we have no information about this market in the UK; basically, our information about this is "zero"â€¦'
---- Celia, Executive Manager of Rum Story
The research following prove that this is basic truth, for instance, they have no clear information about the market share in dark rum sector, and neither did they know about the influential exhibition in their industry.
Second, Rum Story made little attempt to increase its rum sales due to its poor finance resource; in addition, the low sales which maintain for a long time also restrict its income in the other way around, which lead to a vicious circle. For instance, according to the interview of managers of Rum Story, the current sales basically are all brought by accidental, such as purchase during the visiting to the Rum Story museum in Whitehaven. And this is also true according to the interview of one customer, Anna, the owner of Grapes Liverpool, she describe the first time she learn about Jeffersons Rum like this:
'We went to Whitehaven on a tall ship, The Zebu for centenary celebrations 3 years ago and thought 'The Rum Story' seemed like an appropriate thing to look at, it was fascinating and the rum was delicious.'
---- Anna, owner of The Grapes Liverpool
After this visiting, Anna become a loyalty customer of Jeffersons Rum, she keep purchasing this product for her bar for three years and hold a highly expectation for Jeffersons Rum, but none of this would happen if there is no the accidental visit to the Rum Story museum.
Third, the company site of Rum Story locates in west end of Cumbria, a small town in the border and there is no similar enterprise around in the same area, which could be identified as poor location for spirits trading business. Here the map below shows its location:
Graph1: The Location of Rum Story
Source: Visit Cumbria, 2012
These facts keep consistence with the existing findings from researches before, Carson (1990) point out that small enterprises always face their own limitations during its development due to their inherent characteristics or their owners' professional level. Carson also summarise these limitations into three types: limited resources such as limit budget, labor and market information could be owned by small firms; owners or the managers are usually not expertise enough in the specific industry (Gilmore, Carson, and Grant, 2001); and the limited impact that small firms could have in the marketplace. Under this circumstance, it is extremely necessary for small business to find and take advantages of local resources, as well as mobilizing these relationships and networking in order to overcome the shortages brought by their own constraints.
4.2.2 Local Resources and Networks are Existing in Multiple Forms
According to Lace (1982), the information sources that firms needed could come from internal and external, the internal information that comes from the company's own records could be divided into two types: operational information and sales information. As for the external information resource, this could come from government sources, such as the Business Monitor series from The Department of Trade of the UK, and institutions that provide business information, as well as other local commercial sources.
184.108.40.206 Internal Sources
During conducting this research, Rum Story provides the researcher with access to their internal data, including the financial record, contacts of customers and sales records. From which the researcher could gain the insights about their operation and find contacts for further interview. It cannot be denied that this project could not be carried out without the basic information comes from Rum Story. For instance, when the researcher ask for contacts of key customers to conduct interview with during the second visit, three contacts have been given and suggested by managers of Rum Story, they are:
Rum Bar: The Grapes Liverpool
Wholesaler: Lanchester Wine Cellar
English Lakes Ice Cream Company
In fact, one of the most valuable data in this project, an interview to the owner of The Grapes Liverpool, comes from the contacts of customers given by Rum Story. There are a lot of insights are based on data comes from this interview, but Rum Story never try to access to these customers in order to gain more market information about their product, even though these customers' contacts are in their hand.
This seems reinforced the research of Lace (1982), he indicates that the businessmen in small firms tend to ignore the internal information sources, which is very unwise because for small enterprises who are worry about their limited resources, the internal source comes from their own company is exactly the free and local resources they should use effectively because they usually could not spend too much for some expensive external resources. In addition, for the small companies who have no budget or time to conduct a large-scale market research, interview their current customers and the sales people would be the most cost-saving method to access to valuable and fresh market information, however, there are few businessmen are actually take the small step (Lace, 1982).
220.127.116.11 External Sources
According to the data from interview, Jeffersons Rum could be identified as a quality product and it has good reputation among its customers, but the brand's growth has been constrained by limited resources and modest marketing. The major issue at present is to build the distribution channel for this product. During the process of searching for the resources could be used by Rum Story to build its distribution channels, there are a lot of external resources were found within local area, and these resources are existing in different forms such as business institutes, small firms association, trade unions, local government, and even individual local citizens (TonË, 2004). Considering the resources constraints that discussed earlier, in order to achieve sales growth, it is necessary for Rum Story to focus on the potential market via building relationships with on and off-premises channels and distributors.
The challenge is how to reach potential customers in order to increase sales with little investment. The recommendations are:
1) Focus on the doorstep market: supply hospitality in the Lake District via supply the main distributor of Lake District, and also contact independent off-licenses in Cumbria.
2) Take advantages of local roots: supply local chain supermarket Booths and join Made in Cumbria, an organization who contribute to support local products.
3) Supply Rum bars in major Cities, based on the successful experience of The Grapes Liverpool.
4) Focused marketing. Contact the appropriate specialist press and consider participate the influential industrial exhibition.
While searching for the information about this channel building strategy, it is very important to find help from external sources, for the external resources are very helpful in developing products and expanding a firm's market (Falemo 1989). And it is notable that whether search for the local business support, or local market information or potential retailers, there would be relevant organizations or sources which provide products or services to satisfy different needs. Here below listed several examples found during this research:
Made in Cumbria
Made in Cumbria is a local small firms association, claim itself as 'celebration of all that is best about the region and a shop window for its members to promote an extensive range of gifts, crafts and specialty foods' (Made in Cumbria, 2012). It provides online and retail outlet channels to sell the members' products. The entry standard is the products must be either wholly produced or substantially manufactured and finished in Cumbria. By join Made in Cumbria, it would not only helpful for promoting products but also building local networking.
Cumbria Tourism undertakes a wide range of surveys and data collection activities across the county. Its research department delivers core research activity to provide tourism organisations, businesses, and other partners with vital market intelligence and up-to-date analysis of business performance and economic impact. Considering Cumbria is a county far more dependent on tourism than most other parts of the UK, which has a wide range of accommodation providers, visitor attractions, heritage sites and outdoor activities. Therefore its research would be of value for people conducting research or business in this area. During an average year they provide information and advice to more than 500 tourism businesses, consultants, local partners, and students.
Regular research undertaken by its research team includes:
â€¢ Monthly occupancy surveys
â€¢ County wide visitor surveys
â€¢ Individual town benchmark surveys
â€¢ Data collection from TIC's and visitor attractions
â€¢ Annual tourism economic impact assessment
â€¢ Regular analysis of accommodation stock composition
Source: Cumbria Tourism, 2012
Rum Experience/ UK RUMFEST
Rum Experience is an organization which takes a modern and young approach to rum tasting with tutored events on how to taste, rum games for parties, food pairing dinners, rum battles. The Rum Experience also is the main organizer of the UK RUMFEST, which is one of the most influential festival and exhibition of Rum in the world. It is annual exhibition hold in London and there are around 63 rum brands attend this exhibition this year. By contacting Rum Experience and participating in UK RUMFEST exhibition, Rum Story may not only make new contra