Interorganizational networks

Relationship networks are ever-expanding transnational linkages between corporations, subsidiaries, suppliers and individuals. These networks may adopt very different structures on their own account because they operate in different local contexts within their own national environments.

Royal Philips Electronics of The Netherlands, one of the world's biggest electronics companies, has operating units in 60 countries, using a network structure. These units range from large subsidiaries, which might he among the largest companies in a country, to very small single-function operations, such as research and development or marketing divisions of one of Philips’ businesses. Some have centralized control at Philips' headquarters; others are quite autonomous.

Networks are important also for managers of small and medium-sized enterprises. In a paper presented at the APEC ASC Conference 2005, 'Learning communities and global SMEs’, Dennis McNamara of Georgetown University, USA, discussed the need to build an Asia-Pacific economic community.

He pointed out that investment abroad in production facilities deprives globalizing small and medium firms of home-country’ advantages. It does so without assurance of context- specific advantages, such as networks of specialized producers adept in local knowledge- sharing of technologies of machinery and organization, as well as local labor and state resources. He cited the cases of Korean and Japanese manufacturing firms in China and Thailand respectively that reveal strong home-country links but relatively weak ties to local host-country networks.

McNamara suggested one solution would be the creation of a 'learning environment' among SMEs in the region, driving a continual process of integrating local craft with global standards. The goal would be to establish ‘learning communities’ rather than simply ‘hubs’ or ‘clusters’ of relationships. Learning communities would develop foreign direct investment by fostering effective knowledge sharing among local and foreign small and medium firms in the cluster, and APEC could play a major role in mapping regional small business networks and identifying effective strategies of knowledge sharing.

He pointed out that economic geographers have identified an ‘intermediate space’ in which local systems exist, between the dimensions of national institutions and those of individual economic actors. In this space are found institutional relationships between business organizations, local institutions, trade associations and research institutes. Thus local systems are models of integration between contextual and general knowledge, linking transferable general knowledge to manufacturing while adapting such expertise to the local context. According to Dennis McNamara, there are four dimensions of such a milieu: territory, organization, dynamics of learning, and an industrial culture.

He made a distinction between 'relational networks’ and ‘modular production networks’. The former he took to refer, for example, lo German and ethnic Chinese networks in East Asia where social ties drive cooperation. In contrast to these relational networks based on tacit knowledge (i.e. high in awareness of context), modular networks, he argued, thrive on formal linkages between firms and suppliers that allow professional relationships without excessive mutual dependence.

Global SMEs can tap local resources of tacit and formal – codified – knowledge only through intensive ties to local industry: hence the critical role of industrial clusters where local engagement permits access to important resources and information.