Interfirm networks

Essay by dawmi3University, Bachelor's August 2006

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1. Abstract

Interfirm networks have become of strategic important to many organizations since the 1990s. Discuss the advantages and potential pitfalls of interfirm networks, particularly in the form of strategic alliances and joint ventures.

2. The notion of small world ; Interfirm networks

A recent study (Baum, Shipilov and Rowley 2003, pg 697) has shown that "Interfirm networks often take on characteristics consistent with the notion of a small world which they are locally clustered into dense sub-networks or cliques." Also Baum, Shipilov and Rowley(2003) state they are sparsely connected by a small number of ties that cut across the cliques, linking network members through a relatively small number of intermediaries.

This report discusses the advantages and potential pitfalls of interfirm networks focusing on strategic alliance and joint ventures.

3.1 Definition of Interfirm networks.

Watts (1999) defines the networks as connected with each firm having ties relative to the number of firms in the industry and locally clustered in to cliques with partners.

This characteristic is consistent with the concept of a small world, which implies far more order and stability than is intuitive from this characteristic.

Therefore one can assume that according to Baum, Shipilov and Rowley (2003) interfirm network is a small world structures stems from their great efficiency in mobbing information, innovation, routines, experience and other resources that enable organizational learning, adaptation and competitive advantage.

Furthermore, research by Anderson, Butt, Gregory, Lang and Nicholls (1965) that in Australia, unfortunately there is very little evidence to suggest that interfirm networks are being used to companies' strategy. However, there has been a long history of collection of industrial information. The collection of such information has highlighted a great deal of variance in the operational efficiency of various member firms. This would tend to indicate...