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Department of State and Regional Development
The business landscape is becoming more complex for small businesses as the challenges of a global marketplace, swiftly changing technology, aggregated purchasing and competitive pressures increase.
A growing number of businesses are negotiating this complexity by joining or forming networks to tackle the scale and capability limits inherent in operating a small business. Network goals are as varied as increasing market share, reducing costs through bulk purchasing, sharing staff and winning larger contracts than would have been possible by working alone.
Networks are largely an underdeveloped resource in the business world and a strategy choice when businesses face complex issues in the domestic, interstate and international marketplace. The logic is compelling - building on the strengths of others while nurturing one's own business strengths will develop competitive advantage. Networking is a proven process in many parts of the world.
This information is designed to help small business owners and operators understand what business networks are, their variety and their potential advantages for business development and growth. You will be introduced to some of the dynamics of successful networks, as well as how they can be created and sustained.
The Brief on Business Networks includes snapshots of several established networks and background on the program of assistance available from the NSW Department of State and Regional Development (DSRD) to assist business networks to form and develop.
What is a Business Network:
"Networking" is a term that is familiar to most of us and one with many meanings and applications, ranging from getting to know those who might be of use to us, to creating linked computers to improve office communication. In this Brief we are addressing its meaning in the commercial sense - the business network.
One helpful definition of a business network is a group of firms using their combined talents and resources to co-operate for joint functions. Another excellent definition of a business network is the "infrastructure of collaboration", described as "pathways by which people and organisations come together to exchange ideas, solve problems or form partnerships". (Rosabeth Moss Kanter, 1996)
There are many different types of networks and each is shaped by its objectives and membership. Existing networks in NSW encompass a wide variety of activities, including the following:
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A broad, non-industry specific network of companies or businesses that co-operate to varying degrees on issues of concern in their locality.
A broad, non-industry specific network of companies or businesses that co-operate to varying degrees on issues of concern in their locality.
A "cluster" of companies or businesses in the same or complementary industries which co-operate in a more defined manner. More formal "strategic alliances" that focus on commercial outcomes and which may incorporate one or more joint ventures on an ongoing or ad hoc basis.
Supply chain initiatives/lead firm networks that are built around a dominant company in an industry or region wanting to build more efficient supply capabilities.
Business communication networks that focus mainly on providing education and business development opportunities for members. The unifying theme is businesses co-operating and sharing knowledge or resources to increase their competitiveness. Businesses seek benefits from participating in networks to achieve outcomes beyond their individual business capabilities.
The key driver and asset in any successful business network is people. Most recent studies into this form of relationship have found that the ultimate success of any network will depend on its internal cohesion and strengths and this returns to the nature of its constituent parts - not organisations but individuals within them working together for mutually beneficial outcomes.
The following details five steps to a better understanding of business networks: Why network; Which network; Starting a network; Managing a network; Supporting a network.
Why Network :
In most cases, the decision to get involved in a network is driven by the need to solve a problem that may not be possible by going it alone; to combat a threat; or to take on a major opportunity that is beyond the resources of a single firm. A network eventuates when several businesses in a particular geographic or virtual community come to a similar conclusion.
The business operator who considers joining a network will have judged that the benefits outweigh any perceived associated costs or risks. In many cases, there may be an initial inherent reluctance to associate too closely with other businesses in the same industry or to provide too much sensitive information. These concerns should be addressed in the early stages so that the network can develop from a firm base. The reason for joining or creating a network can stem from individual, communal, regional or even global needs, including those listed below.
Solving a Problem or Crisis:
Networks commonly result from the limited choices individual businesses face when presented with a challenge or an opportunity. This need or catalyst will vary from region to region and from industry to industry, but the forming of the network can be a first step towards finding a solution to a problem.
Advancing a Common Viewpoint:
Networks provide an excellent platform for businesses to project their viewpoints in a collective manner to policy makers in public and private enterprises.
Growing the Business:
Expanding or diversifying a business is often an expensive option and difficult for small business to sustain, particularly when specialist staff and/or equipment are required. Network members can use each other's strengths and resources to expand their own businesses, create production flexibility, enter new markets, delve into research and develop or launch new products.
Building Scale to Win Bigger Projects:
A small group of businesses may band together to bid for a large contract not accessible to the businesses individually.
Enhancing Resources:
Joining a network provides the opportunity for individual businesses to pool, exchange, share and integrate specific business resources and costs for mutual gain. Joining together in a supply chain to a larger company can result in sharing production costs with nearby businesses.
Improving the Image of the Region:
In regional areas a strong incentive for joining or starting a network is the marketing advantage to be gained from developing and leveraging the image of the region as an area specialising in a particular skill, product range or service capability.
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