The Network Contract and its Influence on Strategic Decision of Internationalization: Evidence from Italy

The Network Contract and its Influence on Strategic Decision of Internationalization: Evidence from Italy

S. Aureli (Department of Economics, Politics, Society, University of Urbino, Urbino, Italy) and M. Del Baldo (Department of Economics, Politics, Society, University of Urbino, Urbino, Italy)
Copyright: © 2013 |Pages: 18
DOI: 10.4018/ijabe.2013040102
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Abstract

This paper analyzes a new legislative instrument designed to support inter-firm cooperation (the “network contract” - a tool introduced by the Italian government to sustain corporate competitiveness in 2009) - to see whether this type of formal cooperation represents a relevant driver of change in a firm’s strategic orientation regarding internationalization. Results indicate that the network contract is a flexible instrument used by Italian SMEs to achieve different strategies of growth and long-term objectives. The authors found that internationalization does not represent the main goal of firms participating in network contracts, however there are a few firms that have increased their business activity abroad after joining the network. At the same time, firms with a previous history of internationalization do not seem to have changed their approach regarding the international dimension. Consequently, the network contract does not represent the most suitable tool for promoting internationalization among domestic firms, although internationalization may emerge as a by-product of inter-firm relationships.
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1. Introduction

Globalization, increasing competition, and the recent financial crisis have severely distressed European small and medium-size enterprises (SMEs). Consequently, today more than ever SMEs need to rethink their strategies and organizational structures in order to be competitive and survive in the long term. In this context and especially in Italy (Rapporto Unicredit, 2011), networking – the establishment of a set of two or more connected business relationships among firms that are conceptualized as collective actor – still appears to be the most viable way to fill SMEs’ shortage of capabilities and financial resources, to expand their product offer and market, and to face real challenges.

Networking represents a key element in facilitating international expansion, thus helping firms escape from domestic market constraints, search for new opportunities of growth and overcome the current saturation of the European market.

Past studies have already established the positive influence of network relationships (latu sensu) in the internationalisation process of smaller firms while also reviewing the traditional step-stage development models of small firm internationalisation and including the network perspective (Welch, 1992; McDougall et al., 1994; Bell, 1995; Jones, 2001). Some authors, however, have argued that formal and informal inter-organizational relationships that construct a network do not always have a positive impact (Coviello & Munro, 1997; Ritter & Gemünden, 2003).

Among different forms of network that companies can establish, we decided to focus our research on formal networks, namely the “network contract”: a new legislative tool introduced in 2009 by the Italian government to support company innovation and competitiveness.

We believe that firms’ commitment to the network (somehow implied by the creation of a common entity and a mutual fund as required by the law) and related formal links may have greater influence on firms’ decisions than loose relationships characterizing other types of organizational networks or even industrial districts (Kontinen & Ojala, 2011). Then, we choose this instrument because national data indicate that it is widespread among SMEs (Rapporto Unicredit, 2011) although not being prohibited to large corporations. 75% of firms involved have less than 50 employees.

Moreover, we decided to focus on the network contract since in our previous research (Aureli et al., 2011) we found that it is a flexible and dynamic instrument, open to new and diverse developments at the organizational and strategic levels, which can be used to undertake a plurality of strategic objectives such as international expansion. The increase in contracts between SMEs in all sectors as well as the plurality of planned objectives and programmes is testament to this.

Consequently, this paper aims to analyze whether and how the internationalization process of single nodes is affected by network relationships. Our research question is: does formal cooperation and related inter-firm relationships change a firm’s strategic decisions regarding internationalization?

Our approach is both deductive and inductive. Firstly, we reviewed national and international literature on SME networking and international strategy. Secondly, we examined formal objectives associated with existing network contracts. Then we shifted our basic unit of analysis from networks to single nodes by submitting a semi- structured questionnaire to 231 Italian firms (which correspond to the first 39 formal networks) in order to empirically verify and compare the relevance of internationalization motives for formal cooperation with respect to other ones. Data obtained from respondents were used to evaluate the effectiveness (and the limitations) of this new tool in starting or improving small business internationalization.

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