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Business relationships and networks: consequences for economic policy.

Article Excerpt
Today's companies are living in quite another world compared with 100 years ago, which was the basis for the theme of the American Antitrust Institute's recent Roundtable on Complexity, Networks, and the Modernization of Antitrust. There are important changes in dimensions like internationalization, existence of developed and mixed technologies, dynamism, and diversity in consumer cultures. At the same time there are major changes in how companies organize internally and, possibly even more, how they relate to their environment. The latter is manifested in the direct interaction with customers, suppliers, competitors, authorities, and other relevant actors. Classically the interaction has been described and conceptualized in terms of market exchange, where the assumption is that free and independent companies buy and sell choosing the counterpart that is best for the moment. The market mechanism is based on an assumption of a very "thin" (price mechanism) interaction within an atomistic structure. (1) Today, we are to an increasing degree using other concepts such as those addressed in the title for the Roundtable. One of these--networks--indicates the existence of threads, which in turn signals a much "thicker" interaction among the single companies (nodes). This indicates two major issues both for economic researchers and for policymakers. The first is whether there is such a basic change in how the business world is functioning that we need a new way (such as network) to conceptualize the interplay between the company and its environment. If so, the second challenge will be to identify important features related to this new concept and to relate these to how such a structure will function in terms of creating wealth for different involved parties.

This article will make a first modest attempt to discuss these two issues. The ambition is to use existing research to identify some first tentative answers. I will start with a discussion of emergent new dimensions in the general development of the industrial structure. I will then use a specific product case to identify some important micro-processes related to these new dimensions. Next I will try to pinpoint some specific aspects and try to picture these based on conducted research. The ambition is to identify the key features that a new model should capture. Finally, I return to what it means for economic research and policymaking.

I. EMERGING BUSINESS NETWORKS

It is impossible to give a true and final scientific picture of the economic world. At the same time, however, there are obvious ways to identify concrete empirical phenomena that those involved agree upon. Here, we will use two different types of indicators as arguments for the development of some new dimensions in the industrial structure. One is observations and results made in a number of research studies and the other is the development and use of some specific managerial techniques.

There are a large number of research studies where the existence of a "thicker" interaction than strict market exchange has been an important observation. These studies have mainly focused on the interaction between companies (business-to-business), and they have covered all major economic zones of the world (the U.S., Europe, Asia, and Australia). (2) Different technologies have been covered. Some examples are high tech areas such as the biotechnology industry (3) and electronic industry. (4) However, there are also examples of more production-oriented industries such as the automotive industry. (5) Furthermore, raw material based technologies, such as the forest industry (6) or food industry, (7) but also more service oriented industries, such as retailing (8) and financial industries, (9) have also been described and characterized using network concepts. The same is the case for alliances. (10)

One large, web-based research group, IMP Group, has this topic as its basic theme and its webpage cites about 1,000 papers and 20 books, many of which include empirical observations of business relationships and other elements indicating network structures. Summarizing the research, there seems to be quite an extensive empirical base indicating that the business world, at least in part, should be described, characterized, and analyzed using relationship (thick interaction) and network concepts.

Another indicator of a change in the business world is the use of new managerial tools or sets of advice. There are a number of such tools having network attributes. There are general methods such as JIT (just-in-time) where companies are advised, through closer relationships, to take out costly time in production chains and TBM (time-based management) where not just production but also development schedules involving several companies should be adapted. In addition, there is TQC (total quality control) where the issue is to increase the total quality by applying the same standard in all production stages, again involving several companies producing a product. There is also the development of much more specific managerial tools, especially within marketing and purchasing, including customer relationship management, supply chain models and key account management, which all are examples of new and closer ways (thicker interaction) to relate to counterparts.

In summary these two indicators give much the same picture of an important change in the way companies relate to each other, i.e., there seems to be a need for new ways to describe companies' inter-organizational behavior. In the research studies there is no general consensus about which are the main drivers behind this development. There are some suggestions pointing to very specific reasons, such as the development of more advanced information technologies or general globalization. (11) There are others giving more "complex" explanations, where changes in the use of technologies are related to an increased specialization involving an increased resource utilization and internationalization of companies (32)

However, it is possible to identify two different but related types of change patterns within the total development. One has been the development of more extensive business relationships between companies buying and selling to or from each other or cooperating in any other way. This kind of development relationship has probably always existed, but it has become more accentuated in recent decades. (13) These relationships are either initiated by sellers' wanting to create more value for customers and/or more loyal customers (14) or by buyers' wanting to create efficient and innovative supply chains. (15) This development has appeared between producing units as well as between producers and service providers or distributors.

The other major change pattern, which is almost the opposite, is a breaking up of hierarchically controlled large companies into constellations of much more independent units that are supposed to find efficient ways to...

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