Business social network

Active membership in business social networks drives successful business alliances

The entrepreneur’s participation in social and business networks is another factor which affects the propensity to collaborate.  “Economic action, like any other form of social action, does not take place in a barren social context but, rather, is embedded in social networks of relationships” (Powell and Smith-Doerr 1994).

According to Gulati (1998) social networks of prior ties not only influence the creation of new ties but also affect their design, their evolutionary path, and their ultimate success. In a study of social structure and alliance formation patterns Gulati (1996) identifies two components of social structure: a ‘relational component’ (direct relationships with other firms) and a ‘structural component’ (the overall social network within which firms interact). The author suggests that the relational component provides direct experience-based knowledge about alliance partners while the structural component provides knowledge about potential partners based on the experience of third parties.

Gulati also found that the higher the number of past business alliances between two firms, the more likely they are to form alliances with each other. However, the author points out that this only applies to a certain extent, since, as time goes by, the number of possible alliances with the same firm becomes limited and hence the chances of further alliances diminish. Gulati further suggests that even if two firms have no direct prior ties, the larger their common third-party ties, the more likely they are to form alliances with each other, especially if they also have strategic interdependence.

The importance of prior relationships with prospective partners is also highlighted by Varamaki (1996) who suggests that good past experiences or friendship between partners is likely to lead to a successful alliance development path. Conversely, partners who are unfamiliar with each other or who have experienced conflicts in prior relationships are more susceptible to partnership failure. According to Varamaki, successful inter-firm cooperation can be reached not only through the strategic dimension but also through the socio-psychological dimension. In this model an alliance is formed between firms which have cooperated earlier at some level and whose owner-managers knew each other well beforehand. This point of departure gives the relationship a headstart since trust and commitment are very high right from the beginning.

This view is also held by Ring and Van De Ven (1994) who maintain that previously established relationships require less time to negotiate future collaborations. Membership in business social networks is therefore key to successful business alliance formation.