In this chapter a brief review of the IT industry networks is conducted followed by sections on a suite of novel research techniques that are introduced for analysing the networked market place. The techniques rely on identifying market place alliances, whether they are contractual or market development based. Ultimately they do rely on social network representations applied at the firm level and maximising Corporate Social Capital (SC) for market place actors. In this way they are very different, but complementary to traditional market research techniques. A set of research questions and hypotheses are developed around the concept of Corporate SC.
It Industry Networks
The IT industry sector (ITS) has been a rich field for identifying complementary value examples. IBM ceding the operating system software to Microsoft for its IBM PC launch is well documented. Intel profits when Microsoft develops more sophisticated software, requiring CPU upgrades. Management consulting firms profit when SAP introduces a new release of product. Many start-up IT firms have profited from associations with mainstream providers like IBM, Microsoft and Google by licensing specialised code segments into their mainstream products. Today the IT industry is a good example of the practice of “co-opetition”. The challenge now is to identify methods that can be used to analyse and research the market. Traditional market research techniques that concentrate on market share, unit sales and revenues become less informing when the market place becomes more interconnected. Like the “best of breed” trap, if one doesn’t know of the relationships between the market players, firms can run the risk of becoming “battlefield hosts”, rather than having the cooperative environment they were hoping for.
The ITS is distinguished by the relative ease with which firms can form and disband relationships and joint ventures (Knoke et al., 2002). Joint venture formation has been seen to have a positive impact on market valuations on announcement. Beyond announcement market valuations for joint ventures that strengthen a position in an existing market are positively affected, while those that assist in entering new unrelated product markets have no appreciable impact on market values (Koh & Venkatraman, 1991). These authors also found that joint ventures between large and small partners tended to favour the smaller partner in terms of increased market valuation as the smaller firm benefited from “reputation spill over” from the larger partner. This is consistent with the idea that small firms can improve their levels of SC via a successful joint venture and therefore endorsement with a well regarded partner (Das et al., 1998; Stuart, 2000).
Technology development is a fundamental characteristic of the IT industry (Ferrary, 2003; Nault & Vandenbosch, 2000). The potential for growth and wealth creation has encouraged governments to play an active part in brokering partnerships at least at the basic research stages of development. The Japanese IT market and the development of computer and electronic devices have been facilitated by the powerful Ministry of International Trade and Industry (MITI). MITI encouraged the collaboration of many large corporate research laboratories of companies like NEC, Hitachi, Fujitsu and Toshiba in developing VSLI, high speed computing and fifth generation computers. The impact of such schemes appears to have reduced the technological and market uncertainty in the IT market for Japanese firms. This is advantageous, though no correlations to market valuations over time have been conducted (Fransman, 1990).
Cunningham and Culligan (1988) used the IT sector to study factors affecting competitive advantage in dynamic markets. The authors identified that a firm’s ability to move between competitive groups may be more important than a static understanding of a market position in markets as dynamic as the IT market. The ability to move between groups is related to mobility barriers that may differ between entry and exit. The understanding and tracking of these movements over time was seen as critical to achieving a competitive advantage. The findings of Cunningham and Culligan (1988) are consistent with the view that the marketplace is a highly interconnected and dynamic structure, where a single snapshot of market structure is only of limited value as the IT markets rapidly change and adapt to complex competitive forces.
Knoke, Yang et al.(2002) investigated the dynamics of strategic alliance networks in the Global Information sector. In their study covering the period from 1989 to 2000, they found a general trend for accelerated rates of alliance formation. Of the 145 firms in the study, they found that a core of 30 firms were most active in the 1990s. Additionally, they found that organisations sought new connections with other organisations that have direct and indirect ties resembling their own alliance propensities. Another finding that was counter to the general globalisation trend was for the Japanese firms to retreat post-2000 to alliances concentrating on other Japanese firms.