Developing Small Business Networks in New Zealand

Policy, Organisation and Society

ISSN: 1034-9952 (Print) (Online) Journal homepage: http://www.tandfonline.com/loi/rpas19

Developing Small Business Networks in New Zealand Shaun Goldfinch & Martin Perry To cite this article: Shaun Goldfinch & Martin Perry (1996) Developing Small Business Networks in New Zealand, Policy, Organisation and Society, 12:1, 64-88, DOI: 10.1080/10349952.1996.11876651 To link to this article: http://dx.doi.org/10.1080/10349952.1996.11876651

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Date: 14 November 2017, At: 23:00

Developing Small Business Networks in New Zealand

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Shaun Goldfinch Martin Perry

Abstract

There is increasing interest in the role cooperative networks can play in small business development. Networking is an acknowledged characteristic of successful industrial districts and northeast Asian economies. However, in a number of countries public agencies and others have also attempted to promote small business networking. This paper examines a number of small business networking initiatives in New Zealand. Firstly, evidence from a survey of three network promoting small business associations based in three different cities is examined and a number of different ways the agencies could deliver their services are suggested. Secondly, two networking initiatives by the New Zealand Trade Development Board are considered. It is concluded that individual networking initiatives need to be developed and evaluated as part of a broad policy push to facilitate the development of an environment more conducive to small business cooperation.

Of the many variables that influence small business viability, the importance of cooperative networks has attracted considerable attention (B.I.E. 1995; Birley 1985; Aldrich and Zimmer 1986; McGee et al 1995; Tjosvold and Weicker 1993). Instead of viewing the small business as the atomised firm of neoclassical economic theory, the study of networking looks at how long term reciprocal arrangements with a firm's network contacts influences day to day business (B.I.E. 1995, ch. 3; Yeung 1994). Networks are often multi-faceted. They can include informal contacts with family, friends, business partners and associates; contacts with professional advisers including banks, accountants, lawyers and technology transfer specialists; and cooperative arrangements with other firms, including contractual agreements such as joint ventures. Relationships with other firms can be either horizontal or vertical: horizontal when they are with Policy, Organisari011 &: SociLry

Issue 12

Winter96

pp.64·88


competitors or quasi-competitors that produce complementary goods or services; vertical when the relationship is with a finn at another stage in the production chain (OECD 1993). Small business owners are continuously challenged by non-recurring and novel tasks for which they often have little training or experience. They also face changing and uncertain economic and demand conditions over which they have little control (Cromie and Birley 1992; OECD 1993). In such a setting, the ability to gather information about market conditions, to learn and develop new techniques and new products, and to seek out new markets and suppliers can be of critical importance to business survival and development (Jarillo 1989). However, the resources of small businesses are often limited, making the gathering of information and the development of new products, markets and techniques difficult. As such, support, friendly advice or direct assistance from network contacts can be vitally important (OECD 1993). Network building, that is, the development of these personal links, takes time however, as individuals must acquire interpersonal skills and expend energy on building trust with contacts (Cromie and Birley 1992, 240). This trust-building requires consistent policies, time to gather experiences and to test the consistency of each party's behaviour, and frequent contact to establish personal rapport (Lorenz 1992). Geographical proximity facilitiates the process but is not essential (Grotz and Braun 1993). Because of the difficulty in developing personalised contacts, networks are often small and each member of a small-business network often tends to be relied on for multiple purposes (OECD 1993). While a variety of network contacts are of continuing importance during a finn's life, informal contacts tend to be particularly so during the start-up phase. Others become more important as the business seeks external finance and markets beyond its home base (Birley 1985). For very small firms not experiencing significant growth, informal contacts will often continue to be more important (Sole Parellada and Valls 1991).

In the widely studied successful regional economies known as industrial districts, small business networks are highly developed.' Important 1. Industrial districts can be seen as having the following characteristics: interfirm dependency; disaggregation of the production chain into specialised activities; shared norms, cultural and social factors that facilitate interfirm cooperation; region specific industrial knowledge and capacities for innovation and knowledge sharing; and a matrix of supporting institutions and business services for the small business (Amin 1994, 1324; Asheim 1993, 54-55; Lorenz 1992). Shaun Goldfincll & Manin Peny

6S


industrial districts include high-tech, R and D - intensive activities based in Silicon Valley, Baden-Wurrtemberg, Boston, Britain's M4 corridor and Grenoble, and the craft-based industries of the Third Italy (Cooke and Morgan 1993; Price et al 1994; Sabel 1992; Saxenian 1991; 1992). Networking is also an important characteristic of the successful Japanese and northeast Asian economies (Bell 1995; Kumon 1992). Commentators have noted the importance of culturally specific norms of reciprocity, historical development and serendipity in the development of industrial districts and small business networks. Some critics doubt whether networking can be successfully encouraged in areas where such factors do not exist (Amin 1994). Despite this, outside fully formed industrial districts, a number of public policy initiatives to facilitate small business networking have been undertaken in the European Community, North America and Scandinavia. These have included the subsidisation of joint research and information transfer, provision of training, subsidisation of joint marketing and promotion, and brokerage services to bring firms together in cooperative arrangements (see DTI 1994; Gelsing 1992; Nielsen 1992; OECD 1993, 73-75; Robertson 1995a; 1995b; Santana 1992). These initiatives have yielded enough positive results to suggest that small business networking can indeed be nurtured by public agency action (see, for example, Robertson 1995a; 1995b). Australia currently has around 300 network programs operated by state and federal governments and industry associations (B.I.E 1995, ch. 13, 291-229; Schacht 1995). The major federal government initiative, the Auslndustry Business Networks Program, uses accredited brokers to develop cooperative arrangements between three or more firms, and provides subsidies for network building and maintenance costs (B.I.E. 1995, 313-319). In New Zealand, despite the dominance of a decidedly market competitive model of industry policy since 1984 (see Galt 1989; Savage and Bollard 1990), policy makers and others have also began looking at the development of small business networks (see, for example, Benson-Rea and Wilson 1994; Crocombe et al1991; Harper 1993). The New Zealand Trade Development Board (which will be examined below) supports networking while the Ministry of Commerce, through its role in the Manufacturing Advisory Group, has claimed that networking and inter-firm cooperation contribute to 'best practice' in business management (AMC/MAG 1994). The Treasury, normally the unshakeable ally of the individual competitive model of industry, has supported research on industry cooperation in the fishing and wine sectors (Caughley O'Boyle 1993). 66

Developing Small Business NeiWotks in New Zuland


This paper analyses a number of networking initiatives in New Zealand, in particular business association network promotion. Here traditional or newly formed and publicly funded small business associations have attempted to facilitate the development of networks amongst their members (Field et al1994; Perry and Goldfinch 1996). Also analysed is the role of public agency network promotion in facilitating links between firms in related industrial fields (Perry 1995). While these initiatives promote different types of networking in a variety of ways, each works towards the common goal of encouraging cooperative behaviour by small businesses. It is suggested the network promotion role of three small business associations in three New Zealand cities (Wellington, Christchurch and Dunedin) be altered by targeting network promotion to the specific needs of different segments of their membership and by maintaining small meetings to assist with personal relationship development between members. Business association coordinators and public administrators also have a role in developing a greater understanding and appreciation of the benefits of cooperative behaviour, both by firms and in the wider community. Both the business association network promotion and the public agency network promotion require evaluation as parts of a broad program to encourage a variety of network links and an environment conducive to small business cooperation in general.

Network promotion by smaU business associations Study Design A characteristic of industrial districts has been the role of business associations and other organisations in promoting networks. These may take the form of technology transfer agencies, universities, chambers of commerce or business advisory services. This study looks at three small business associations promoting networking, located in the three regional cities of Wellington, Christchurch and Dunedin. Operating within the confines of the business association format each agency takes a slightly different approach to small business networking. The associations surveyed are: 1.

The Wellington Chamber of Commerce, a long established business association with a total membership of 900, around two-thirds of whom are from small or medium-sized enterprises; Shaun Goldfinch & Manin Perry

67


2.

The Canterbury Business Advisory Foundation (CBAF) based in Christchurch, a recently fonned group of over 200 members. Interestingly, for our purposes, the CBAF was established out of a belief that network assistance provided by the Canterbury Chamber of Commerce tended to exclude new entrants and less successful enterprises. The CBAF set out to fill that gap in small-business support, and;

3.

Small Business Incorporated, based in Dunedin and consisting of 40members.

Each association is located in a metropolitan economy which, partly through regional dominance and physical separation, has a strong sense of identity. However, this regional identity does not necessarily foster cooperative behaviour. Domination of the national economy by a small group of corporate businesses sees most small-business activity crowded into competitive local markets lacking traditions of cooperative interaction (Crocombe et al1992). Despite high unemployment and recession from the mid-1980s, there have been high rates of new business formation (Malcom 1993; Table 1). By the time these surveys were conducted in late 1994, economic conditions had improved, especially in Christchurch (National Bank 1994; Reserve Bank 1994). The survey of each agency examined both the overall network attributes of members - types, number, organisation and use of network relations - and the role played by the particular agency in supporting the member's networking activity. In the surveys, respondents were asked to consider networking as: the use of relationships with customers, suppliers, professional advisers, other firms - perhaps even competitors - as a way of strengthening business capacities. To be in business, all firms must make use of external relationships to obtain supplies, manage their accounts and make sales. Firms that engage in networking make those relationships work better for them and actively build new relationships with other firms, business people and organisations. This may result in: (i) joint solutions to common problems (for example, sharing marketing costs, equipment and facilities); (ii) complementary development and exploitation (for example, marketing alliances); (iii) subcontracting and purchasing links. 68

~veloping

Small Business Networks in New Zealand

Table 1 Change in Business Units and Employees by Unit Size for New Zealand, •

Canterbury, Wellington and Otago 1987- 1990


Number of business units(% change) New Zealand Canterburl

t

Wellington

Otago

Unit Size 0-5

6.5

4.9

32.9

-2.0

6-9

-1.8

-1.1

18.2

-6.0

10-49

0.1

-3.2

16.9

-6.8

50 or more

-5.5

-1.2

7.5

-8.8

Employment(% change) Unit Size

New Zealand

0-5

3.8

2.4

29.2

-2.0

6-9

-1.3

-0.7

18.7

-5.8

10-49

-1.3

-4.5

15.0

-8.0

50 or more

-12.8

-11.0

6.3

-21.4

Notes:

(1) (2)

Canterburl

Wellington

Otago

Department of Statistics, 1988; 1991 1987 figures adjusted to new regional boundary introduced 1989.

The survey instruments included common questions, but were customised according to the circumstances and research access allowed to members of each organisation. CBAF members were surveyed through face-to-face interviews, covering a sample of 71 proprietors (25% of the current membership), skewed to under-represent service-sector members and overselect manufacturers. Such bias was necessary given that many service sector members were small, often part time businesses, who saw the CBAF mainly as a sales outlet and were, as a result, less interesting for this study. Chamber of Commerce members were contacted through a mail survey of all 629 small-business members (defined as up to 80 employees). Fifteen members of Small Business Incorporated (SBI) attending a meeting were given a questionnaire which they filled out themselves. Caution is obviously required given the small size of the SBI sample.

Shaun Goldfinch&. Martin Perry

69

The samples indicate that the CBAF and the SBI serve smaller businesses, and that the CBAF membership includes a wider range of business activities than found in the Chamber of Commerce (Table 2 and 3). These differences, combined with geographical differences, constrain the comparisons to some extent. Table l Wellington Chamber of Commerce and CBAF: Industry Distribution; Membership and Sample Comparison CBAF


Chamber of Commerce

Membership %

Sample

40.1 19.7

15.7

8.5

21.8

17.9

21.8

18.3

Building, Construction Manufacturing

10.1 4.1 11.8

8.0 7.3

Agriculture, Fishing & Forestry Other

Membership*

Sample

%

%

Service

37.0

Other Service Wholesale and Retail

9.5

Trade

%

Financial, Insurance, Real Estate & Business

Transport and Communication

2.0

4.2

5.5

3.20 31.0

61.9

3.8

1.1

4.0

7

1.8

0.4

* Membership as at 21!3/92

Table 3 Wellington Chamber of Commerce and CBAF: Employment size Number of staff employed

Chamber of Commerce %

0-5 6- 10 11-20 21-50

49.3 20.8

50+

70

12.4 10.9 6.6


CBAF %

83.3 8.5 4.2 2.8


Wellington Chamber of Commerce

Chambers of commerce in New Zealand date from the last century. They existed primarily to lobby central and local government on behalf of their membership, most of whom were retailers and traders (Millar 1956). In the 1970s and 1980s they were amongst other business associations lobbying for less government regulation of markets and industry (Roper 1993). Having achieved their major objectives in this campaign, they have since put greater emphasis on service provision to attract members. The Wellington Chamber of Commerce, like others in the country, has identified network promotion as a key role, encouraged by surveys suggesting that this is the main reason business managers, particularly women, join.~ The Wellington Chamber focuses strongly on networking as a method of encouraging direct sales between members. It publishes a directory of goods and services supplied by members and encourages inter-member trade discounts. Informal contact between members is encouraged through 'people in business' functions and lunchtime and early morning meetings are organised with speakers on specialist management and political issues. Our survey suggests that the emphasis on sales fits the priority of smallbusiness members, with 90% of respondents identifying customers as their key network contact. Other types of contact utilised, both for everyday and serious business problems, included employees, business partners and, to a lesser extent, professional advisers. Most respondents believed their current networks were adequate to sustain their current activity but that further contacts were needed to support growth. Typically, businesses relied on fewer than five contacts for new ideas about markets, business opportunities and for assistance with 'serious' business problems. As most respondents were satisfied with the effectiveness of their existing networks, few barriers to network formation were identified. The most commonly cited constraint was time. Satisfaction with existing networks was not necessarily a measure of the Chamber's success in network promotion because only 20% of respondents indicated they had made useful contacts through the Chamber. Even fewer (17%) judged it more effective than other business associations. Those who most appreciated the 2. Women currently comprise 21 per cent of the membership and are the fastest growing se ment. Shaun Goldfinch & Monin Perry

71

Chamber's network assistance tended to fall into one of two groups: (i) new business entrants, without prior self employment or industry experience who had joined the Chamber within the last 2 years; (ii) older individuals, with long established businesses and at least 10 years self-employment experience. Possibly for new entrants any form of network support was welcome, while those with established networks valued the Chamber as a place to meet like-minded business people and to gain access to high-profile speakers.


Canterbury Business Advisory Foundation

The CBAF was established by the Christchurch City Council in 1992 to provide a range of small-business support and advisory services. At the time, there was thought to be a need for accountancy and related services at prices new business entrants could afford. Those other activities have since been reduced as alternative sources of business support are now seen to exist, and the focus of the organisation has increasingly shifted to network promotion. The CBAF has sought to differentiate itself from chambers of commerce by attempting to attract members it believed were deterred from joining the Canterbury Chamber of Commerce because of its image - denied by the Chamber itself - of being an association for the business elite. The CBAF has also offered lower membership fees than charged by the chamber. Network support is largely modelled on that offered by chambers of commerce with monthly evening meetings, structured around a guest speaker and presentations by members on their businesses. The small membership size and small attendance at the monthly meetings (typical evening meetings attract 40-60 people) often facilitates the development of personal contacts amongst members and between members and CBAF coordinators. The CBAF maintains a membership directory and provides a regular newsletter. The membership survey suggests the CBAF attracts a distinctive membership group. Most respondents indicated they had not considered joining the local chamber of commerce and that they regarded their own business as too modest to justify such membership. Frequently, the low membership fees and personal interest of the network coordinators in their specific business and problems were given as significant reasons for their favouring of the CBAF network. On the other hand, with respect to the network characteristics and priorities of members, the CBAF did not differ markedly from the Wellington Chamber. 72



Most respondents recognised the importance of networking even though, as in Wellington, they had a small number of contacts and relied on them for advice and support across a wide range of issues. Two thirds of the sample, for example, reported having five or less contacts with whom to discuss serious business problems. These typically were family, friends and customers, and to a lesser extent employees and accountants. The main difference between the two studies was the scarcity of contractual cooperation, such as subcontracting and joint ventures, that were discovered in the CBAF sample. By and large, networking was informal and limited to the sharing of information or help with temporary resource needs, such as bakers helping each other with flour supplies at times of sudden need. The difference in network development between the Chamber of Commerce and the CBAF did not appear to change the way network support was used. As with the Chamber of Commerce, few members set objectives in terms of the types of contact that most wished to make. Where an objective was expressed, this was usually to find new customers and sales opportunities. The proportion of respondents indicating they had made such contacts was low (13% ), suggesting marginally less success than in Wellington. Despite this, the overall satisfaction with the CBAF was high with the majority seeing the organisation as helpful. In addition, many members indicated that CBAF coordinators were now their main source of external support and guidance. To some extent, members' dependence on the coordinators has been at the expense of encouraging members to develop support amongst themselves. Our survey evidence suggests that the CBAF is achieving its goal of targeting small businesses that are unlikely to join a chamber of commerce, but that most obtain little direct network assistance from belonging to the organisation. While it appears that most members nevertheless value their membership, when compared with the diversity and density of small-firm networks in expanding regional economies such as parts of northern Italy (Cooke and Morgan 1993), it seems that there is scope for additional network development support. Small Business Incorporated The Dunedin-based initiative known as the Small Business Incorporated is a self-help network initiative established by several individuals who had recently started their own businesses. Their motivation was to provide a forum where a small group of people, at a similar stage in their selfShaun Goldfinch & Martin Perry

73


employment career, could share experiences and resources. Membership has grown to around 40, of which 10-20 are regular participants. The organisation holds monthly meetings structured around an invited speaker, separate social evenings and publishes a newsletter. Networking and socialising are seen by the organisers as the primary aims of Small Business Incorporated, with both seen as 'major parts of learning'. Joint promotional activities have been organised, notably through a combined stand in a local shopping mall. The group is now looking at other ways to maintain 'member loyalty' within the group (including such things as developing a membership card). Judging from the members attending at one evening function, the initiative appears to have attracted the type of small businesses the CBAF was established to support. Member businesses all employ fewer than five people, with half having less than two years experience in their current business. For most respondents, business activity has been less than hoped for, although they believe their businesses will survive. Like the CBAF, existing networks are typically limited to one to five contacts, in this case drawn mainly from friends, family or business partners or associates. Small Business Incorporated appears, however, to have attracted a higher degree of support from its members than gained by the CBAF. Members appreciate the close contact with other members and say that trust develops because the group is limited to similar sorts of business people. Cooperation such as the sharing of freight space and joint trade promotions suggests a broader appreciation of networking than merely a focus on direct sales.

Improving the Services of the Chamber of Commerce and the CBAF At present, both the Wellington Chamber of Commerce and the CBAF have a diverse membership in terms of business size, experience, and stage of development and commitment to the network organisation. This diversity can frustrate network development because each type of business tends to have different networking priorities. For example, while the priority for new entrants may be information gathering, general business support and financial management guidance, experienced businesses are more likely to be looking for expansion opportunities. While the experienced business people may be potential mentors for newer entrepreneurs, people join to develop their own business rather than assist others. A reflection of this was the owner of a long-established business, affected by market changes 74

Developing SRLIII Business NeiWorks in New Zealand


and struggling to keep his staff in work, who noted that he had ceased attending CBAF functions because it did not 'cater for people like himself. Unless useful contacts can be made rapidly enthusiasm for the group tends to wane leading to a high turnover of members attending individual meetings. As noted, network development depends on a gradual growth of trust, built on regular interaction. The example of Small Business Incorporated leads to a general message for network intermediaries. To build the trust needed to sustain network contacts, smaller, more personal groupings may be more effective than large open forums. As well as enabling relationships to develop, targeted groups are more likely to bring together businesses at similar stages of development which share similar problems and priorities. This reduces access to expertise and successful businesses, compared with open network associations, but our evidence suggests the cohesion needed to promote networking depends on the sharing of common problems amongst like businesses. Another form of targeting is to take networking into specific communities. For some businesses, the key network to develop is in their immediate neighbourhood. There are wide differences between local areas in their receptiveness to networking. Neighbourhood attitudes to networking may be especially important for retailers where business success is influenced by the shared character of the location to which customers must be attracted. For example, one respondent commented on the anti-networking attitudes she had discovered when moving from a more prosperous neighbourhood to a less prosperous one. As mentioned by several retailers in the CBAF survey, network groups could identify such resistant neighbourhoods and promote cooperation within them.

Public Agency Network Promotion: The Trade Development Board, JAGs and Hard Networks Joint Action Groups

Parallel to the networking initiatives in the regions, other government agencies have also attempted to promote small business networks. The report of the Porter Project (Crocombe et al1991), which drew attention to the way business advantage can reside in clusters of related activity, encouraged the Trade Development Board (Tradenz) to extend its support for the formation of 'joint action groups' (JAGs). JAGs are promoted as 'a Sbaun Goldfinch &. Marlin Pmy

75

partnership between Tradenz and a group of companies that have a common exporting interest and are committed to enhancing their individual export performance through various joint planning and implementation activities' (NZTDB, 1992). A .number of common principles guide the operation of JAGs (Table 4), although in practice the form and activities of the groups vary according to whether they build on any existing industry association, the extent of sector support, and the type of industry pursued.


Table 4 Summary of Jag Operating Practice The JAG is a partnership between Tradenz and a group of export companies. The industry participants must be representative of all companies in their sector of activity, although they need not comprise all the members of their particular industry. The activities of the JAG must be guided by a long-term strategic plan establishing export goals and specific market development opportunities. The plan must be developed jointly by Tradenz and the industry through an executive committee of the JAG. _ Industry participants must demonstrate commitment to common goals, such as the promotion of a specific product, development of a particular overseas market or commitment to specific organisational strategies for export growth (for example, total quality management). _ Activities approved by Tradenz usually attract 50% funding. Activities approved must demonstrate how they will generate export revenue, but the access to support may vary according to the priority of the export markets involved. Funding is reviewed annually, with a general expectation that the share of industry funding will grow over the agreed life of the initiative (usually 3-5 years). _ Tradenz officials expect to provide strategic input into the planning of activities and that their resources will be drawn, for example by using Tradenz overseas staff to source market information. A Tradenz industry manager is assigned to each JAG.

76



Out of JAGs established since 1991, 30 groups survive and are associated with almost 50% of national exports (NZTDB 1994; 1995). Most income is generated by experienced exporters. Group coordinators point to methods used by new and established exporters to gain advantage via JAG participation (Perry 1995). These include: 1

Linked marketing: most groups have developed some form of industry capability profile listing the activities and backgrounds of group members. As well as joint promotion, each member becomes more knowledgeable about their industry and benefits from being seen as part of a wider body of industry expertise.

2

Industry cohesion: collective promotions presenting the industry as a united, organised and committed sector, provide additional marketing impact on potential customers and a motivational stimulus to the exporters themselves.

3

Mutual support: a number of groups encourage mutual support and the transfer of experience and market information. This may involve group participation in trade shows and missions, jointly prepared market research reports and member seminars to share export knowledge.

4

Collective resource: by combining resources, the appointment of marketing agents to represent the group in priority overseas markets has been possible. Some groups also sponsor visits to New Zealand from overseas buyers and other individuals able to assist the industry's promotion, such as trade journalists. Most groups have now appointed an executive officer providing organisational ability, additional information gathering and capacity to build synergistic relations between individual members.

In addition, several JAG coordinators have noted a number of other benefits from JAGs, particularly in the case of new groups in sectors without a tradition of business interaction. The umbrella of the group acts to foster new business relations and encourage information sharing. Examples of this information sharing include discussions of current workloads, labour management and of upcoming market opportunities. Tradenz officials suggest JAG members also benefit from improved communication with government on export problems, such as the availability of trade credit. Shaun Goldfinch & Martin Perry

77


Cooperation of businesses in the JAG programme varies. In the apparel sector, Bendon supports the JAG programme due to perceiving its own viability as linked to a strong and supporting apparel industry. With this in mind, the company assists smaller firms develop export markets. In other JAGs, participation by some organisations has been viewed as a way of controlling the behaviour of new exporters. Established treated timber exporters, for example, saw a threat to their existing markets from the entry of new exporters made possible by the increase in timber availability. They saw the JAG initiative as a method of insuring new entrants adhered to established marketing standards and methods. Tradenz has also encountered difficulties in promoting groups across sectors. For example it failed to overcome the lack of cooperation between meat processors and tanners despite their common interest in improving the quality of hides and skins for processing. Several JAGs also failed to recruit key industry participants, some of which have sought to disrupt the group initiatives. Partly reflecting the hesitant acceptance of a cooperative ethos, most JAGs tend to concentrate around a narrower membership of like organisations. Whereas Tradenz had originally hoped to encourage group leadership among experienced exporters to act as mentors and guides for the less experienced, this has generally not occurred. Neither has groupbuilding through combining different specialisations been successful. Businesses have preferred to cooperate with like organisations, where there is confidence of equal commitment and ability and an equal distribution of rewards. Promoting Hard Networks

In late 1994, Tradenz launched a policy programme designed to encourage businesses to form 'hard networks' (Ffowcs Williams 1994; 1995). Hard networks are contractual cooperative groupings of between four and six small or medium firms within a region, which share resources and work together for mutual advantage, especially it is hoped, in export development. Brokers work to bring firms together, and are involved in developing feasibility studies and business plans and in implementing the cooperative agreement. The hard network concept was borrowed by Tradenz from Denmark, where it is argued it has transformed industrial organisation, and where it has since been discontinued due to overwhelming success in meeting projected network development targets (DTI 1994; Pyke 1992, 51-52; Robertson 1995b). In Tradenz terminology, JAGs are now referred to as examples of 'soft' networks meaning that they do not involve 78



formal contractual links between participants as intended in the new programme. Whereas JAGs focussed on established exporters, hard networks are intended to help smaller firms with little or no export experience develop export potential through cooperation with similar firms. However this distinction is not always clear cut, as some JAGs (such as in computer software) also sought to assist small firm moves into exporting. Hard networks demand a greater commitment of time from business managers as in the early stages of establishing a hard network, managers can meet 3~4 times a month, compared to ~6 times a year for JAG participants (Ffowcs Williams 1995). The latest Tradenz initiative is not specific about the expected direction of networking, although the emphasis would seem to be horizontal. Direct financial assistance to network members is limited to the grants available under existing Ministry of Commerce incentives: the Expert Assistance Grant Scheme (EAGS) and the Enterprise Growth Development Scheme (EGOS). Under the EAGS, businesses may receive up to $8,000 to employ a broker to conduct an appraisal of the potential for joint involvement in a network group, while under the EGOS 50% of the costs of market research and development, R and D protection and quality assurance audits can be recovered up to a maximum of $20,000. Individual companies, not the proposed network entity, continue to apply for these subsidies. The program was limited initially to the Canterbury and Aorangi Business Development Board regions. These regions were selected partly because of the number of existing business development agencies that Tradenz believed would act as so~lled multipliers. These included the local authority~supported Canterbury Development Corporation, private business associations (The Canterbury Employers Chamber of Commerce, Manufacturers' Association and the Canterbury Tourism Council) as well as the two Business Development Boards. In addition, Tradenz has promoted the initiative to local banks, hoping that they would perceive business benefits from encouraging their customers into networks. A Tradenz profile of the Canterbury economy identified 20 clusters of business activity in which networks might emerge (Table 5). To act as brokers, 10 individuals were appointed and trained in a program designed by the Danish Technological Institute.

Shaun Goldfinch & Martin Perry

79

Table 5 Canterbury eoonomy business clusters identified by Tradenz


Ouster

Number of business units with over 6 employees

Clothing and headwear Industrial machinery and equipment Wooden furniture and upholstery Bakery products Hospitals Secondary education Tourism Metal joinery oomponents Sheet metal roofmg Sawmills Consulting engineers Livestock slaughtering Agricultural machinery and equipment Fish and shellfish processing Services to printing Metal furniture and fixtures Software development Structural steel fabrication Knitting mills Shipbuilding and repairs

57 53

52 47 44 43 30

28 21 19 19 18 17

15 13 13 12 11 11

11

Comparing the JAG and Hard Network Initiative Tradenz points to several existing hard networks as evidence of their ability to strengthen business performance. These include Fumex, a group of 13 Auckland-based furniture and interior product manufacturers that share warehousing facilities and a common marketing identity in Australia. A second example involves three Canterbury-based timber processors, backed by the Timber Industry Federation, that have formed a company, called Lifestyle Lumber, to market decking and garden furniture products in the UK. Both the examples, however, are connected to Tradenz-supported JAGs, although only Fumex has had significant financial support from this existing programme. This suggests the organisational form preferred by JAG members is close to the hard network structure now being encouraged. To this extent, the new initiative might be seen either as a way of strengthening existing achievements or as an unnecessary duplication. 80



Overlap certainly exists with an existing Canterbury Development Corporation attempt to build 'preliminary exporter groups' (PEGs). These groups were envisaged as a way to assist companies too small to benefit from JAG membership to realise their export potential. Two sectors were identified where opportunities to form a PEG appeared possible and after around 12 months the PEG was working on a marketing brochure. However, direct benefits had not eventuated due to the time required to build cooperation between previously unfamiliar organisations.

It is difficult to prejudge the likely impact of the bard network program. Of fundamental importance will be the quality of the brokers employed. Where similar network brokerage schemes have been successful, considerable effort was made in selecting and training potential brokers. In Denmark this included accepting only one third of applicants for the ninemonth training program. Applicants were also required to contribute financially to the program (Pyke 1992, 51-52). Such a level of training and selection is well above that currently employed in the hard network program in Canterbury. Much then will depend on the commitment of the brokers, their ability to spot and develop network opportunities, and how well established their contacts are within the local business community. The rather cumbersome procedure for obtaining financial subsidies may also be a barrier to participation. Whilst Tradenz sees the comparative buoyancy of the regional economy as favourable to the scheme, this might actually be a disadvantage. As found in the JAG initiative, domestic recession was an important factor bringing groups together while subsequent recovery is reducing interest in some JAGs (Perry 1995). By mid-1995, only one hard network had reached the implementation stage, while 15 were still in feasibility study and business planning stages (Ffowcs Williams 1995). Despite this limited early success, the hard network program will be extended to other regions during 1996 (NZTDB 1995). The success of the venture should not be measured solely in terms of the number of so-called hard networks that result. If the regional networks of Third Italy or Baden-Wurrtemberg are taken as an exemplar, then a broader view of networking may be more appropriate. In these regional networks, interfirm arrangements are only one part of a complex web of support given by local government, trade unions, technology transfer agencies, and business associations (Cooke and Morgan 1993). The Tradenz initiative then should be seen as only one part of a broad strategy to promote small business networks; also important is the social milieu in which firms are located. Shaun Goldfinch & Martin Petry

81


Conclusion Reflecting a widely held belief that networking is a vital part of small business success, public policy makers and small business associations have attempted to facilitate the development of small firm networks in New Zealand. Firstly, this paper looked at business association network promotion where the Wellington Chamber of Commerce, the Canterbury Business Advisory Foundation and the Dunedin based Small Business Incorporated attempted to facilitate networking amongst their members. Small businesses were found to have a small number of contacts upon which they relied for a variety of purposes, and networks were often not highly developed. Secondly, public agency network promotion was examined where the Trade Development Board provided financial assistance to encourage cooperation by firms in similar industry fields who are interested in exporting. Thirty of these 'joint action groups' currently exist, accounting for 50% of exports. Attempts to develop contractual cooperative arrangements between firms known as 'hard networks' are also underway. A number of conclusions can be drawn from the study of these networking initiatives. The local dimension is important to networking development. For some very small businesses, the local environment and neighbourhood may include their most important networks. Community attitudes to cooperative behaviour, such as the support of community banks, those providing training facilities, and the attitudes of local government, can be either barriers or facilitators of networking. The public official may have an important role in promoting the value of networking to the local community and in facilitating the support for networks on a local basis. Educating the small firm to the value of networking may also be an important role for the public official. This research shows a limited understanding of networking by many small businesses. They tend to view it mainly as a method of generating direct sales or of controlling potential competitors, rather than a method of establishing broader cooperative links. The importance of building trust through repeated interaction in networking relationships has highlighted the importance of network gatherings targeted to the specific needs of particular types of small 82

Developing Smoll Buoiness Networks in New Zealond


businesses. For very small businesses, small informal gatherings might be most appropriate. For larger firms interested in exporting, measures that bring together similar firms, whether locally or nationally (or even internationally) may be more suitable. Most importantly, individual network promotion initiatives should not be seen or evaluated in isolation. Instead, they should be considered as only one part of a broad programme to encourage networking through a variety of measures. Measures that focus on only one aspect of networking- say, for example, bringing frrms together - and ignores all others, run the risk of being less effective. Accordingly, public policy makers should be aware of the potential benefits to be obtained by developing and coordinating a broad variety of networking initiatives. This will include measures to bring firms together on a local, national or international basis. Also important however, are the host of network contacts that can be developed by the small business with suppliers and customers, banks, technology transfer agencies, professional advisers and trade unions. Only by taking this broad approach to network building can an environment conducive to networking be created and the full benefits of network development to small business viability and growth be realised.

Acknowledgments: Cooperation from the Canterbury Business Advisory Foundation, the Wellington Chamber of Commerce, and Small Business Incorporated, and their respective members, and financial support from the Foundation for Research, Science and Technology made this study possible. Thanks also to Adrian Field who assisted in some of the initial research, and to Brian Galligan, Anne Ellison, Ian Harrison, Hans Lofgren, Dennis Muller, Ananda Rubens and Simon Busch for their helpful comments. Opinions and any errors remain the responsibility of the authors.

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