Business relationships between business partners Essay
Close-knit business relationships between business partners are gradually becoming the norm in today’s business environment (Holm, Eriksson and Johansson 1999). Having previously dealt with business contacts in a predominantly arms-length fashion firms nowadays have increasingly come to realise the value of creating close relationships with their business partners. Driven partly by rapid technological development as well as increasing internationalisation this has had a significant effect on the everyday running of businesses.
By creating inter-firm linkages of i. e. legal, administrative, information exchange and technological nature companies become more closely tied together and activities in the two partners may be synchronised in order to achieve synergy (Hi?? kansson and Johansson 2001). However, although focal relationships are of particular interest in this essay a closer examination of the network structure of which the focal business relationship is a part is needed in order to gain a better understanding of its impact on businesses.
In this PM inter-firm connections and coordination of these activities will be more closely studied. In particular it will be examined, according to existing theories, what possible effect activities in secondary relationships will have on the focal business relationship and vice versa. Networks and Dyadic Business Relationships Dyadic Relationships According to
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Such characteristics may vary over time, hence the business relationships between companies may also alter over time and become increasingly committal or wither, according to the currents needs of the parties. According to a survey carried out on the European International Marketing and Purchasing project (IMP) a small set of customers typically account for a large share of a firm’s revenue. Hence by creating closer ties with these few important customers a deeper level of cooperation, and in some cases, commitment will be achieved resulting in mutual benefits such as lowering of production costs and increased efficiency (Hi??
kansson and Johansson 2001). Networks As mentioned above, dyadic relationships exist in an interlinked network of numerous other business relationships. These external relationships may either support the focal relationship or have a detrimental effect on it. In addition, since the dyadic relationship is constantly evolving the nature of the effect, which the network has on it, will also vary (Anderson, Hi?? kansson and Johansson 1994). Network Connections
Research has identified five different kinds of network connections, namely; Competitive connections (C-connections, comprising competitors the supplier as well as the customer side), Value-Chain connections (V-connections, comprising supplier’s suppliers and customer’s customers), Internal Supplementary connections (I-connections, comprising additional relationships between the focal firms), External Supplementary connections (E-connections, on the customer side only) and Ancillary connections (A-connections, comprising connections with other, external players including non-commercial agencies, commercial banks and regulating agencies) see figure1. According to the Received Industrial Organisation Theory (Scherer, 1980) the corresponding C-connection relationships will almost always have a negative impact on the focal relationship. However, case studies in business markets have shown positive effects created by external competitive situations (Laage-Hellman, 1989). This view is partially supported by the research carried out by Anderson, Hi?? kansson and Johansson (1994). (Blankenburg Holm, D. , and Johansson, J.
1995) As mentioned above, relationships, including the focal one, may influence and affect one another in various ways, and may have positive as well as negative effects. Anderson, Hi?? kansson and Johansson (1994) discuss the concept of Network Identity, (defined by the authors as … “the perceived attractiveness of a firm as an exchange partner due to its unique set of connected relations with other firms, links to their activities and ties with their resources”) and suggest that this may be either constructively or deleteriously affected by the firm’s relationships. The Network Identity, in turn, will also influence the firm’s relationships.
Hence, the positive effects may include Anticipated Resource Transferability (the ability of transferring solutions and ideas inter-relationship), Anticipated Activity Complementarily (the effect of activities in one relationship will have a strengthening effect on other relationships). This is contrary to the view of Holm and Johansson (1995) who argue that a focal relationship will be of a stronger nature the less the two actors are otherwise embedded into the network structure. An additional positive effect is Anticipated Actor-relationship Generalisability (Relationship with i. e. a prestigious company will improve the company’s image in the eyes of a prospective business partner). Negative effects include Anticipated Resource Particularity (scarce resources are tied up in non-profitable relationships when they may be used elsewhere.
Hence, the firms might be perceived as less profitable), Anticipated Activity Irreconcilability (activities in the relationship may be difficult or impossible to integrate into the company’s general structure. They may even have a detrimental effect on the firm’s other relationships), Anticipated Actor-relationship Incompatibility (The business partner may be negatively perceived by other business relations, whom might become hesitant to continue their relationship with the company). Network Atmosphere According to Holm and Johansson (1995) every business relationship has a certain atmosphere, which is based on the characteristics of mutual understanding, trust and power dependence. However, although forming the basis of relationships there is no clear pattern as to how these attributes develop between business partners.
The degree to which these characteristics are present in the relationships will change over time and can do so very rapidly which will influence the current state of the relationships. Conclusion Business relationships are increasingly important in today’s business environment. By forming close relationships firms may benefit from synergistic effect such as lower productions costs and increased efficiency. However, such dyadic relationships are invariably part of a bigger network structure, which influences the nature of the individual relationships. In order to get a better understanding of focal relationships it is therefore necessary, not only to study these in isolation, but to examine the surrounding network of relationships.
Anderson, J., C., Hï¿½kansson, H. and Johansson, J. (1994) “Dyadic business relationships within a business network context”, Journal of Marketing, Vol. 58,
Holm, D., B., Eriksson, K. and Johansson, J. (1999) “Creating value through mutual commitment to business network relationships”, Strategic Management Journal, Vol.20
Blankenburg Holm, D., and Johansson, J. (1995) “Business network connections and the atmosphere of dyadic business relationships”, Working Paper 1995/8, Fï¿½retagsekonomiska Instutitionen, Uppsala Universitet
Hï¿½kansson, H. and Johansson, J. (2001) “Business network learning – basic considerations”, Business Network Learning