Business Partnership Networks

On November 24, 2015, Prof. Nicholas Vonortas from the George Washington University (USA) and HSE ISSEK gave the lecture on an important phenomenon in modern business world — business partnership networks — to the second year master’s students of “Governance of Science, Technology and Innovation” programme. He considered many issues, such as short history, advantages, disadvantages of business partnerships, and knowledge hubs, etc.

What is a business partnership (BP)?

Industrial networks and clusters have proven to be fueling businesses with innovations which advanced research and accelerated the entry of products and services into the market. The most important successful factors for their development are intensive collaboration spread at global level and sustainable innovation¹. In the past few decades, business partnerships played a considerable role in the international business and gained popularity since 1970s; this trend can particularly be seen in high tech industries. Indeed, a business partnership or collaboration is not a new phenomenon. But it seems that the nature of collaboration has altered shifting from peripheral interests to the core functions of firms' corporation and from equity to non-equity forms of collaboration. More importantly, cooperation, which increasingly focuses on the generation, exchange, and/or adaptation of new technologies, has risen at very fast rates².

In the modern business, world business partnership becomes an important success factor being described as an agreement whereby two or more independent firms share the commitment to reach a common goal by pulling their resources together and coordinating their activities³. Prof. Vonortas expanded this definition by giving various examples of the forms that alliances could take; for instance, these are IT outsource in case of Xerox and EDS, franchise in case of Mariott hotels network, oil refinery in case of Pertole de France and Tierra del Fuego, etc. Giving the audience examples of alliances, the lecturer pointed out that at present, almost everything is produced in alliances. Apple, Inc. could be a great example . It does not produce any type of its electronics by itself while having hundreds of supplier companies and secondary producers. The role of Apple in the alliance is based on its ‘core competence’ – design and promotion.

Why business partnerships?

Prof. Vonortas mentioned that partnerships’ features, such as flexibility, speed of operation, informality, and economy, have become very important in the present fast-changing environment and gave rise to a broad range of reasons which motivated firms to create alliances. In particular, among them are accessing product and financial markets, sharing R&D costs and risks, decreasing uncertainties, attaining political and legal advantages of host countries, gaining complementary resources and skills of partner companies, etc.

The lecturer also showed how business alliances prevail. One great example is the phenomenon of Japanese companies which  have showed a fast growth since the second part of the 20th century. Coordination, trust and close relationship between the decision-making organizations and huge number of surrounding suppliers gave the Japanese alliances strong competitive advantages as a fast reaction to changing conditions and high technological level on each production stage. This made the companies leaders in automotive industry and electronics.

Networks Matter for Policy Decision-Making

As Prof. Vonortas pointed out, much attention of researchers was attracted to the structure and performance of various networks. He highlighted that, unfortunately, at present, in the most microeconomic handbooks, firms are treated and studied as single entities which make decisions independently. However, in reality, companies do not work alone; they are embedded in various relationship with other market players. Current networks and blurring the boundaries between companies are also a matter for policy-making; understanding a networks’ operation implies understanding the processes of knowledge flows between home and foreign agents which has become an important issue in knowledge-based economies.

Strategic networks potentially provide firms with information, resources, markets, and technologies; advantages from learning, scale, and scope economies. In addition, they allow firms to achieve strategic objectives, such as sharing risks and outsourcing value-chain stages and organizational functions.

The relevant data for strategic alliance can be achieved through patent analysis, patent citation, and patents assignment. After this, companies can collaborate with other potential partners. This partnership allows them to gain strong position in certain business areas; and it generates knowledge hubs. At the same time, these companies can gain monopoly power in a certain region by blocking the others entering this business realms. Blocking can be achieved by heavy patenting of certain research area; therefore, this makes it hard for others to penetrate this area.

In addition, Prof. Vonortas focused on two types of incentives which motivate companies to cooperate. One could be the purpose of increasing productivity and speeding-up production process, the other one is power gain through the monopoly of the field when organizations are looking for partners and willing to obtain all range of patents or other forms of intellectual property rights in order to ‘cover’ this field.

Knowledge Hub

Knowledge hubs were also discussed at the lecture; knowledge hub is defined as a specific network if it has many links or connects the unconnected nodes. Prof. Vonortas showed that for the purposes of research, alliances are usually represented as graphs where the nodes correspond to companies, edges – to patent citations or assignments. Although there are many kinds of knowledge hubs, their effectiveness can be measured by looking at some similar features: the content of knowledge sharing (mainly patents) and cross-road information flows (knowledge diffusion through networks).

With the help of this graph analysis, a lot of information about the network, i.e. center nodes, degrees of closeness, density, number of agents, could be extracted. However, the general analysis of alliances through this patent network is not a trivial task due to incompleteness of patent information.

Thus, during the lecture of Prof. Vonortas, the concept of “alliances” was presented from both the theoretical and the practical sides. Various examples of well-known international companies for each of these sub-topics illustrated the features of alliances as well as logic and background of companies’ decisions to create or break up partnership.

 

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1Negruşa, A. L., Rus, R. V., & Sofică, A. (2014). Innovative Tools Used by Business Networks and Clusters in Communication. Procedia-Social and Behavioral Sciences, 148, 588-595

2Vonortas, N., Caloghiorou, Y., & Ioadbides, S. (2003). Research joint ventures: A critical survey of theoretical and empirical literature. Journal of Economics Surveys, 17, 541.

3Williams, T., Vonortas, N. S. (2015). Strategic Alliances / Knowledge-Intensive Partnerships. In Innovation Policy (pp. 47-63). Springer New York.

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Prepared by: 
Tuohetijiang Baiheti and Alina Kadyrova

 

Students' feedback on the lecture

Alina Kadyrova:

"Quantitative methods explained by Mr. Vorontas contributed to the audience’s understanding of the research coverage and existing bottlenecks. The interactive format of Nicholas’ presentation, his responsiveness and openness to the audience resulted in better understanding of strategic alliances and encouraged deepening knowledge in the field".

Tuohetijiang Baiheti:

"I am not only impressed with the advantages (capital, flexibility, shared response, decision making) of business partnerships but am now also well informed about the potential issues (disagreements, liability, taxation, profit sharing) on the business partnerships. If those issues are not handled effectively, partnerships no longer provide the firm with competitive advantages and put the partners into trouble; thus, business partnerships should be conducted with great care".

Kirill Dzyuba:

"I could say that I liked the lecture from this great speaker. To be partners is a common tool for a company to share risk, cost and investments. A network is the set of alliance, it is a very diverse system. The topic which describes how and why firms take certain decisions together is very interesting; and Prof. Vonortas fully covered it. From my point of view, this lecture is very important and could be taught as a separate course".

Ekaterina Tertyshnaya:

"The lecture was essential for all of us because it helped to answer many questions, deepen our knowledge and participate in discussions. We listened to Prof. Vonortas who is a specialist in the field of science and technology policy. Thanks to our Master’s Programme for such a great experience".