Case 1. The project group of three industrial electrification companies

This unsuccessful net comprised three companies, which were of quite different size. The largest company B was in charge of the designing and manufacturing of equipment as well as of the installation of high tension equipment, the second largest company A manufactured low tension equipment, and the smallest one C planned computer programs for industrial electrification. The manufacturers of equipment had cooperated before in such a way that the smaller company had acted as a deliverer of equipment to the larger one for about two years. In 1992, a group which was also joined by a small software firm was formed with the assistance of an outside consultant with the aim of discussing different cooperative strategies. The net had an agreement on cooperation but the relationships were rather loose because the agreement provided a possibility for using other contractors outside the group as well. The net aimed to offer a complete package to export markets in such a way that the transmission of the planning documents to the customer will take place by using a special computer program. There was an attempt to organize the internal division of work between the deliverers of equipment in such a way that both of them would have manufactured different types of equipment. The smaller manufacturer feared all the time that the bigger one would exploit it by trying to expand its operation into area controlled by the smaller firm. Later this fear proved to be well-founded, and this brought about a 'snow-ball effect' in a negative sense. Another reason for continuing conflicts was the dominance of the largest company, i.e. hierarchical decision-making, which the company A had not ever accepted. This case proves that a competitive relationship between two partners can destroy the whole net. It is easy to understand why trust and commitment never developed in this net. The companies' investments through the joint venture had been of minor importance; only a common brochure had been compiled and also the time that had been used was very marginal. One reason for weak commitment was also poor outcomes; for two years the net had submitted quotations for various projects but no offers had been received. Thus, there also had to be something wrong with the business idea of the net but on the other hand, there was no real will to achieve results in this net, i.e., drive was missing. All in all, as a result of the above-mentioned factors it was only natural that in this net the development process led to the dissolution of cooperation in the spring of 1994.

Case 2. The project group of three electronic companies

This is a typical project group, which comprises three companies whose resources and skills are complementary. The companies represent software, hardware and manufacturing expertise in the electronic industry. The common objective of this group is to offer large-scale resources/complete packages in product development and manufacturing to the electronic industry. This net was also formed on the advice of an outside consultant in the spring of 1993, when the first meeting was held. In the beginning cooperation only involved the planning companies; the manufacturer did not join the net until 1995. The planning companies had not had any prior connections but the manufacturing which joined later company and the hardware company had had some subcontracting earlier. The group has a written agreement, which is a tighter one compared to that in Case 1, but there have been several discussions on whether a common joint venture should be established. The net would definitely need a joint venture to develop further but the board of directors of the hardware company is quite skeptical about very tight cooperation. This skeptical attitude is the only obstacle that should be overcome for the net to proceed freely. The decision-making style in this net is consensus-based, i.e., each partner has equal power. Until now the companies' investments throughout the cooperative venture have been quite small because there is no need to develop a new business; the internal division of work is so high that if joining together the partners' resources there arises a complete package that there will be a demand for in the market. Compared to net described above this one has invested time for cooperation totally differently the partners of this net are in contact with each other once or twice a week. Establishing a joint venture requires remarkable investments in the future and the other two companies are already committed to those inputs. In spite of the above-mentioned problem, this net can be evaluated as a 'more successful' one. Although the trust between partners has not increased too much, the functioning business idea is the element that keeps it alive. So far the group has made some important deals which prove that there is a demand for this kind of complete package, although the financial significance of these deals has not been very significant.

Case 3. The joint venture of seven engineering companies

This 'less successful' joint venture was established in 1992 on the initiative of one shareholder. Currently there are seven shareholders, whose own products are mainly subcontracts. Some shareholders had had subcontracting with each other to a lesser extent before joining this joint venture. The shareholders entered the joint venture with the aim of expanding their market areas at reasonable costs. Originally, the major idea of cooperation was to offer customers a wide range of skills and to strive for larger deliveries to satisfy the customers' requirements but these aims have not been realized. The internal division of work at group level is quite low due to the fact that too many partners have the same basic machines and thus no deals which would require more specific skills have been concluded. Because of overlapping resources there exists competition inside the net and this has brought about a poor atmosphere in the net. Shareholders' investments in share capital were not significant (altogether US $10,000) but, in addition, securities were given on behalf of the joint venture. The enthusiasm was highest in the very beginning when the expectations of cooperation were still high but after that the tendency has been only downward. The commitment had decreased radically due to poor results and weakening trust between partners, which in turn is due to the weak quality of some partners and to competitive atmosphere in the net. The turnover of the joint company amounts to US $200,000, which, however, is not enough to cover the expenses (a turnover of US $600,000 would be needed). The deals have not been divided equally either and in fact only one partner is fairly satisfied with the outcomes. Two shareholder companies have not yet made a single deal through the joint stock company and they would like to resign from the joint venture. The decision-making style of this net is democratic, but the problem is that the shareholders do not take part in the meetings where decisions should be made and where they could communicate. The partners have no interest in this joint venture any more and it seems impossible to get them to invest more in this cooperation.

Case 4. The joint venture of five furniture manufacturers

This joint venture was established in 1993 and comprises five furniture manufacturers aiming at designing and marketing a common collection (product line) for export markets. Thus the objective is more strategic by nature compared with other nets. The entrepreneurs themselves have formed this net. The partners have been selected very carefully and every partner knows extremely well the conditions of the other partners, because all the entrepreneurs had had intensive subcontracting with each other for several years. In this net the partners are friends with each other and thus trust is of the highest level. The amount of share capital is US $55,000, each shareholder having contributed US $11,000. In addition to that share capital the members have invested tens of thousands of dollars and other resources each in this cooperation. For instance, the partners communicate daily with each other; the decision-making is consensus-based. Investments in this net are considerable compared to previous cases and that is the reason why partners have set up a separate company for cooperation; they did not establish a separate company only because of custom as in the previous case. Resources and skills only overlap to very small extent in this net, and the companies aim at greater specialization and at sharing the work all the time. So far single companies have already invested in special machines, i.e., they have made adaptations for the benefit of cooperation. Because of considerable investments, all the partners of this net have been highly committed to cooperation all the time. All prerequisites for successful cooperation can be found in this net (for details, see Murto-Koivisto & Vesalainen, 1995). The image that the joint venture has succeeded in creating has been very positive and this venture also comes up to very great expectations from outside the group, e.g. from public financiers who have invested about US $500,000 in this cooperation. The turnover is about US $2 million per year at present.

The cases have been summarized in Table 1 in terms of those three dimensions and the variables of them that were presented in connection with the research setting. Moreover, it has been marked in this table whether the nets have undergone any development in regard to those variables. This is because in the empirical part the aim was to clarify what kind of role these different dimensions and variables play in the development process of interfirm cooperation. As can be noticed, the table contains quite many minus marks. This means that intensifying cooperation in regard to the above-mentioned dimensions and variables is extremely difficult after cooperation has been started. Based on this study it can be stated that the development process of interfirm cooperation can also proceed in the "wrong" direction, because it surprisingly often proceeds in the opposite direction compared to what is generally assumed.

TABLE 1 (Not Available)

Summary of the cases

It is also conspicuous that all cases, both 'less' and 'more' successful nets, developed in regard to formality. Even in the first case where almost everything went in the wrong direction, the development was towards greater formality. The other variable of the network management dimension, decision-making, was not decisive either. All three decision-making styles can follow successful and unsuccessful development paths although consensus-based style is naturally an indication of a tight group. Thus, the network management dimension does not play such an important role in regard to whether the development follows either a successful or an unsuccessful path (cf. Ring and Van de Ven, 1994). The variables of that dimension are consequences of other factors rather than initiators of the process. The socio-psychological dimension seems to play a very important role in the development process. The aspects of this dimension are usually the initiators of the development process [either successful or unsuccessful]. Trust, commitment and group dynamics are extremely significant in the development process, and these variables, correspondingly, usually originate from prior relationships between partners. Good past experiences or friendship between partners probably leads to a successful development path, while unfamiliarity or possible conflicts in prior relationships probably lead to unsuccessful development path. Besides the socio-psychological dimension, the strategic dimension also has its own important role in the development process. As can be seen from Table 1, the partners in those more successful nets had mainly complementary resources, and not overlapping ones, which confirms Pettersen's (1993) research finding. Moreover, in both unsuccessful nets the original intensity of the cooperative efforts did not continue, but remained lower than expected. The reason why the original objectives were not realized was that the resources were not so complementary that they would have formed a uniform product or service meeting a demand in the markets.

Top of Page
Previous Page | Main Menu | Next Page
Return to 1996 Topical Index

1997 Babson College All Rights Reserved
Last Updated 5/1/97 by Jo Ann Mathieu

To sign-up for the Center for Entrepreneurial Studies' publication lists,
please register with the
Entrepreneurship WebTeam.