The use of networks in cross border competition

0024&6301/93

Long Range Planning, Vol. 26, No. 2, pp. 41 to 50, 1993 Printed in Great Britain

0 1993 Pergamon

The Use of Networks Border Competition

$6.00 + .OO Press Ltd

41

in Cross

C. R. Snodgrass

This paper examines the strategic networking activities of groups of Canadian and American firms to determine whether differences in networking patterns help or hinder cross-border activities under the Canada-U.S. Free Trade Agreement. The author provides examples of the use of networks and a framework for using strategic networks. Firms can be seen to use their networks to increase their efficiency through reducing their transaction costs and to increase their effectiveness through the acquisition of strategic information. There are important implications for companies operating in other free trade blocs.

One of the benefits which Canadian and American firms should receive under the FTA is ‘free’ access to one another’s markets. The research reported in this article studies Canadian and American firms in order to determine whether or not there are differences in how they do business which might hinder firms from taking advantage of the market opportunities presented under the FTA. The research examines one specific set of opportunities, those found in business-to-business markets, rather than consumer markets. The aim of the research is to develop entry strategies for Canadian and American firms wanting to do business across the border now that the FTA has opened up market access. The study explores the operation of commercial markets in terms of how firms interact, i.e., their strategic networking patterns. A firm often enters a commercial market by becoming a part of another firm’s network. Therefore understanding strategic networking patterns should indicate how firms might best break into a new market. If the networking patterns in both nations are the same, then taking advantage of the market opportunities offered under Free Trade would simply entail geographic expansion. However, even subtle differ-

Dr Coral R. Snodgrass is at the Department of Management, Wehle School of Business in Buffalo, New York. Funding for this research was provided by the Embassy of the Canadian Government in Washington, DC and by Canisius College, Buffalo, NY.

ences, may be enough to undermine the success of transborder activities. The results of this study suggest approaches to strategic networking and provide a framework for networking behaviour. The author first discusses the impact of the FTA, then describes the concept of strategic networking. The research study is discussed. Then the author describes the implications for Canadian and American firms and suggests strategies for entry into their networks. These results lead to the development of a framework and discussion of future directions.

The Impact of the FTA The FTA was designed to remove barriers to the flow of goods and services across the Canada-U.S. border. The agreement is being implemented over a lo-year period as the controls on specific goods and services are eliminated. Now that 3 years have passed since its inception, it is a good time to assess the FTA and to gauge whether or not it has made a difference and to explore ways of taking advantage of it. In Canada, the FTA has been correlated with and blamed for any number of ills. It is blamed for increased unemployment in Ontario and union busting in British Columbia. It has been called into centre stage as the culprit responsible for a loss of Canadian culture and identity. The FTA has been cited as the cause of the wreck of the Canadian national health care system and the demise of passenger rail train traffic. The FTA has supposedly single-handedly led to the loss of control over water and gas resources to the United States and the ruination of the Southern Ontario agribusiness sector as well as its retail sector. All of this has apparently been taking place while Canada has seen the creation of 193,000 jobs (the highest job creation rate of the OECD nations) and is predicted to enjoy a 2-6 per cent permanent price reduction. In the United States, the FTA has been correlated with sunnier outcomes. Examples include the increase in cross border shopping in border towns such as

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Buffalo and an influx of Canadian firms into the economically depressed regions of the United States.’ But the question remains as to whether or not the FTA has made the difference. Canadian firms may be streaming into the United States because of cheaper land, labour and taxes. Canadian shoppers report that they go to the United States because of lower prices, better service and wider selection. Trade between the two nations is up. They now do about U.S.$200bn in trade. They are each other’s largest trading partner. The two countries do have the largest bilateral trade relationship in the world. But 80 per cent of the trade was already ‘free’ before the FTA. Thus it is quite difficult to determine whether goods, services and people are flowing across the border because of the FTA or regardless of it. Maybe the FTA has not had so much impact on the flow of goods and services across the border but it has caused an awakening of interest among Canadian and American managers in the opportunities in each other’s markets. Certainly the United States’ market is an attractive market given its sheer size and vitality. The Canadian market, although small by comparison, is a substantial market of about 25 million people most ofwhom are located within 100 miles of the U.S. border. American business newspapers and magazines frequently report stories of American firms who were prompted by all the talk about the FTA to try entering the Canadian market and who failed miserably. This may be because many American managers really do not know much about the Canadian market. The FTA may get rid of the technical barriers but it cannot remove cultural barriers. These are barriers related to the values people have and their preferences concerning how to do business. American managers often assume ‘Canadians are just like us’ and that Canada is a homogeneous market. Both assumptions are incorrect. Canadian business values are different than American and the Canadian market has a number of segments based on variables such as size of company, industry sector and geography. Thus, just because economists have predicted that American firms would have great success in the machinery, chemicals, primary metals, paper and food products industries does not mean that these managers could just open an office in Toronto and start selling. The problem with firms trying to take advantage of free trade is that Canada and the United States are different markets and that business does proceed differently in each. Thus in order to develop strategies for penetrating the markets on either side of the border, Canadian and American managers need to understand how firms interact, i.e., they need to understand how managers develop and maintain their strategic networks.

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Strategic

Networks

As a term useful to the development of strategy, networks have been defined as two or more organizations involved in long-term relations.* A strategic network is one which is composed of those relationships which impact the strategy of the firm, supporting it and giving the firm a source of competitive strength and direction. The study presented in this paper examines the networking behaviour of groups of Canadian and American firms in terms of the structures of their networks. In this line of inquiry, the object is to understand four aspects: who is in the network? how stable are the relationships? how important they are to the firm? and how close are the partners? The potential networking partners are found in the environment of the firm. This includes groups such as suppliers, customers, competitors, regulators and consumer groups. The networking construct also includes other mediating agents such as trade associations and consultants. The stability of networking relationships is a predictor of change and provides likely points for strategic activity. Understanding the stability of a relationship must be enhanced with an understanding of the importance of it. Importance indicates the amount of firm energy which will be devoted to maintaining the relationship. The last dimension which completes the picture of the network is the degree of involvement of the partners. This measures the closeness of the external partner to the core strategic decision making of the firm. This indicates whether or not the relationship is likely to impact the future strategies of the firm. A map of a network is shown in Figure 1. The elements in Figure 1 were used as part of a research project designed to study strategic networks in Canada and the United States. The data were gathered in 43 field interviews in 20 firms in the Western New York area and in 23 Canadian firms in the Windsor-Toronto corridor in Southern Ontario. All the firms were involved in either the commercial manufacturing (e.g. auto parts or industrial blowers) or commercial services (e.g. accounting firms or banks). These firms were targeted because they would be likely partners in a commercial strategic network and they would be the types of firms likely to be trying to take advantage of Free Trade. The data were gathered by having a key executive from each firm complete the questionnaire with the interviewer. In most cases the respondent was the president, founder and, often, the owner of the firm. The length of the interviews varied between 1 and 4 hours.

Interpreting

the Results

The data on the structure

of the network

gathered

in

The Use of Networks

\

Q

Unions

\

\

\

in Cross Border Competition

43

\

trade associations

Size of letters indicates Length of line indicates involvement,

importance degree of strategic

short line = close involvement,

Solid lines indicate Dotted lines indicate

etc.

stable relationships changing

relationships

Figure 1. Mapping a firm’s networks the field interviews were analysed to make comparisons between the Canadian and American respondents. The results are shown in Appendices 1 and 2. There are not many statistically significant differences between the Canadians and the Americans. However, the patterns which emerge from the data provide some useful insights into the small differences between Canadians and Americans and suggest strategies for entering the various networks. Composite Restllts (Appendix 1) In the four comparisons shown, the results were wisdom’. Canada is contrary to ‘conventional usually described as a nation in which community and relationships are of great concern, whereas the United States is described as a nation of fiercely independent individuals. 3 From this it would be expected that Canadian firms would have better external relationships than Americans. This was not supported by the data. There was no difference in the number of external relationships.

Also Canadians are often described as being more conservative in business practices than Americans. From this it would be expected that Canadians would have stable relationships while the Americans would change often. This was also not supported by the data. Both the size and the overall stability of the networks were not significantly different between Canada and the United States. It appears that Canadians and Americans have found similar levels of corporate resources for the support of external relationships (the limit being approximately 10 meaningful relationships). Since the networks are similarly stable, entering the networks in either nation should require similar levels of energy. In terms of importance and involvement, the American sample was more likely to see the external relationships as important and to be involved than was the Canadian sample. This indicates that the Americans value the networking relationships more than the Canadians. This could mean that the Americans see the network as a ‘strategic’ resource,

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i.e., one that is vital to the firm’s future and worth getting and staying involved. The closeness of the external partners may also indicate that the network is a source of strategic information and potential strategic change for the Americans. Overall, the profiles of Canadian and American firms do not fit the popular image. The Americans are more dependent on their external relationships than the Canadians who are more distanced from their networks. This may be related to the fact that many of the Canadian firms were small, independent firms being run by self-confident entrepreneurs while the American firms tended to be larger and older. Composition of Network (Appendix 2) The composition of the networks for the Canadians and for the Americans were also similar. However, the differences indicate some interesting conclusions. Canadians have more external legal and banking relationships. (This may be related to the fact that the Canadian firms were small, entrepreneurial ones and needed more external support for these activities.) The Canadians also showed slightly better relationships with suppliers. (This may indicate more need by the Canadians to seek outside resources from their suppliers.) Canadians also have higher numbers of relationships with accountants, insurance agents and trade associations. This could indicate the Canadian firms need to go outside for information and support services. The Americans stem to be mom self sufficient, which is to be expected in larger, older firms. The Canadians do not go outside for advertising and consulting support. In this case it may not be so much that these activities are handled in-house as they are not seen as important. They also have a higher percentage of regulation and unionization which might indicate less flexibility in doing business.

1993 Canadianjrms who see their customer base as the basis for competitive advantage in a volatile environment. This seems a fair interpretation when the high costs of doing business in Canada (in terms of such items as taxes, workmen’s compensation and land) are considered. In an environment in which costs are harder to contain, one other way to increase margins is to increase the size of the customer base. Distance (Appendix 2) On the distance dimension there are interesting differences. Canadians are more involved with their customers than the Americans. The Canadians seem to be using their customers as the basis of their competitive advantage. Also, the Canadians are less involved with their competition. This might indicate that they are seeking to develop niche strategies in which they can distance themselves from their competition. This interpretation also fits a profile of Canadian firms as trying different ways to develop a customer base which will give them the resources to survive.

Core Networks Since Canadian and American firms seem to approach networking from slightly different perspectives, those wanting to cross the border and enter into the other’s networks should be advised that entry strategies that work at home will not necessarily work in the other country. Thus different entry points and strategies must be developed. In order to do this, two dimensions of the network are examined together; stability and importance. The reasoning is based on two considerations: (1) If the relationship is stable, taking over that position in the network will be d&cult. However, if the relationship is changing, it may be possible to enter the network on the next change.

Stability (Appendix 2) In both countries the networks are fairly stable and there is little difference between them but the points of difference are quite important. In the customer base and the competitive environment, the Canadians report more change. This would indicate more aggressiveness on the part of the Canadians. They may be more willing to seek out new customers. As they do this, the competition naturally changes. Also there may be more volatility in the Canadian environment. Canadian firms may feel compelled to go out to find new business in order to survive in an increasingly hostile competitive environment.

However, if the relationship is not so important, they may take a chance on a new partner. Thus entry points to the networks will be likely to occur when the relationship is a changing, less important one. On the other hand, entry into the network at a point where it is stable and the relationships are important will be very resource consuming. These two dimensions of stability and importance define the ‘strategic core’ of the network.

Importance (Appendix 2, Column 3) There is only one relationship in which the Canadians and the Americans are different in the level of importance; this is in terms of the customer base. Canadians see the customer base as significantly more important than the Americans (although the Americans still see the customer base as very important). If this ,result is interpreted with the result on stability, there emerges a picture of

The stability and importance of the American firms are plotted in Figure 2. The quadrant marked by high stability and importance is the Strategic Core. For the American firms that core consists of the suppliers, customers, competition, regulators, unions and the law firm. This is the focal point of the energy and concern. A firm wanting to enter the network as a should assume that the customer or supplier, American firm would be interested but they would

(2) If the relationship is important, the firm is not likely to want to take on the risk of change.

The Use of Networks

in Cross

Border

Competition

45

American network partners

4.8 4.6 4.4 -

2.8 2.6 2.42.2 2.0 0.8

I

I

1.0

1.2

1.4

1.6

Stability

1.8

2.0

2.2

(I-2)

Key: a b c d e f g h i j k I m n o p

Figure

2. Stability

= law firm = bank = accounting firm = insurance company = investment bank = advertising agency = consultants = government regulators = labour unions = customers = suppliers = competitors = joint venture partners = consumer groups = trade associations = government contractors

and importance

for American

firms

expect to be able to build a relationship over time--for example, through repeat business and information sharing. It wouldprobably be very di$icult to convince an American_firm to change law_firms. Given the importance and the stability of this relationship, American firms will not be likely to take the risk of change. A slightly more likely entry point would be in the quadrants adjacent to the Strategic Core such as the banking and accounting relationships. Although they are close to the Strategic Core, there is some indication of flexibility at these points. The easiest points of entry are those in the quadrant marked by low stability and importance. It would be easiest to enter an American firm’s network as a joint venture partner, an insurance agent, an advertising agent, a

consultant or an investment banker. These are relationships on which American firms seem most likely to be willing to take the risk of a new relationship. These are also usually episodic relationships, especially in the case of consultants, investment bankers and joint venture partners. In these cases, the American firm may be willing to take a chance on a new partner because the downside risk can be controlled. Thus for Canadian firms offering these services, taking advantage of these opportunities under the FTA should be fairly easy. Once Canadian firms have acquired the technical skills to perform these services in the United States, the barriers to entry should not be too high-at least in terms of American firms being willing to work with them.

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Canadian accounting firms will have more problems entering American networks, even if the regulations concerning practicing and the required technical knowledge were not barriers enough. Banks, on the other hand, have clearer access to American firms. Given that American firms are likely to consider changing banks, Canadian banks may be able to market their services in the United States. Since the banking relationship is important to Americans, this strategy should be built on tailoring the support package to the particular client and not just on low cost. The Canadian Strategic Core can 3. The core consists of suppliers, petition, unions and the bank. This of their energy and concern. A

be seen in Figure customers, comis the focal point firm wanting to

1993 enter the network as a supplier or customer should also find the Canadians very willing to work with them. But the expectation here also would be that the relationship would be a strong one. This may be even more the case for the Canadians than for the Americans. Thus an American firm wanting to be either a supplier or a customer to a Canadian firm may find the Canadian firm moving a bit more cautiously than the ‘typical’ American firm would. An American bank wanting to enter a Canadian network shouldj&d this very dtijicult. A Canadianjrm depends on its bank, especially for the line of credit. Once this relationship has been established and the firm has an on-going, flexible, supportive relationship with a bank, they may be quite loathe to change it. An American

advertising

agency

may have

Canadian network partners 5.0 4.5 1 4.0 F 5

3.5 -

z EJ 3.0t: z S 2.52.0 -

I

I

I

I

I

1.4

1.6

1.8

2.0

2.2

Stability Key: a = law firm bank b= c = accounting firm insurance company d= e = investment bank f = advertising agency consultants 9= regulators h = government i = labour unions j = customers k = suppliers I = competitors m= joint venture partners n = consumer groups 0 = trade associations government contractors P=

Figure

3. Stability

and importance

for Canadian

firms

(l-2)

more

The USC of Networks success in entering the Canadian network since there is some indicated flexibility in that quadrant. Although the Canadian firm might be willing to change law firms, the legal and technical barriers to this may be quite difficult to overcome. The same is true for the American accounting firm. The easiest entry points are again in the more episodic relationships as consulting, investment banking, insurance and in joint ventures. In these cases Canadian firms may be likely to enter into new relationships. As long as the American firm has the required technical skills, they could likely enter the Canadian markets at these points.

Entry

Strategies

Entry Strategies for American Firms: The entry strategies for American firms going into Canada will have to take into account the important differences in networking. As an example, Canadian firms indicate they are willing to build strong relationships with customers. However, it has also been reported elsewhere that Canadian decision makers tend to be more conservative and risk averse than are Americans. Thus developing a relationship in Canada building

may require more time, patience, and trust than in America. Tactics such as cold calls

which arc effective in the United States are likely to be less so in Canada. American firms need to go in with the willingness to put the time and effort into establishing an on going relationship. Once the relationship is established, there is reason to believe the Canadian partner will work to maintain it. This can lead to the development of very close cooperative tics such as computer links. The entry strategy should build on existing relationships such as those with trade associations, banks and accountingjrms.

Joint ventures, especially with a Canadian supplier or customer, could be direct routes into the Canadian market. Canadian firms are subject to high costs and, until recently, had little incentive for research and development expenditures. Thus the keys to attracting Canadian partners are cost control and technology.” Canadian firms are at a disadvantage vis Li vis American firms because of the high costs of labour, taxes, health care and land. In addition, because of these high costs and unfavourable tax laws, Canadianjrms have not been able to put resources into R G D. Thus they need both cost control and technology. Offering either or both of these will be

attractive.

American firms entering the Canadian market should also take into account the diversity there. Although the Canadian economy is dominated by a few large, resource-based MNC’s, the small- and medium-sized firms are quite vital5 Many of these firms are family-owned businesses run by first or second generation immigrant families. Their wealth, energy and expertise make them fierce competitors and attractive partners. In addition,

in Cross Border Competition

Quebec has an expanding entrepreneurial which offers important opportunities. Entry Strategies

for

Canadian

47 sector

Firms

Canadian firms entering the American market can build on their unique strengths to establish American partnerships. Of course, it has already been noted that Canadian firms find it attractive to move to the United States because of decreased costs and proximity to markets. However, Canadian firms can build relationships with American partners which will allow them to take advantage of the market opportunities without the inconvenience of leaving Canada. The keys to market entry into the United States are stability and quality. As an example, one of the problems American firms have is in finding co-operative, supportive suppliers. American managers complain of suppliers who will not give them a steady supply of quality products in a timely fashion. This is a niche Canadian firms seem well qualified to fill. Their value for stable relationships makes them attractive. In addition, the small entrepreneurial firms in Canada often possess expertise and skills which give them a good reputation for quality work. Entry into the American market can be more direct than that into the Canadian one. Trade shows are an important mechanism through which to display the quality of the product. An active sales force making customer visits is also appropriate. Such direct marketing efforts may require somewhat more risk taking than Canadian firms are naturally used to. In addition, Canadian firms can use the strength of their network partners in Canada to help them. As an example, Canadian banks are now making strong inroads into the American market. Canadian firms can call on their Canadian banks to help them develop relationships in the bank’s new American markets. The advantage Canadian firms have is that as any member of their network moves into a new market, the other partners can build on this to move in also. Overall, except for the banking relationship for the Canadian $rms and the legal relationship for the American$rms, the strategic networks of the Canadians and Americans seem permeable. Certainly there are still

some barriers, not the least of which is gaining specific technical knowledge for the other market. But that is required in any marketing effort. On balance, the barriers to entry into the Canadian and American markets may be more imaginary than real. Both Canadians and Americans want to maintain good relationships with their customers and suppliers and they are willing to put the resources into supporting these relationships. Both also seem willing to allow some changes in the firms they do business with, especially if the risk of those changes can be minimized by doing business on a project by project basis. The opportunities do seem to be there for those who want to take advantage of them.

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for Using Networks

The results of this research indicate that jirms are motivated to use a network for two reasons; eficiency and efictiveness.h Efficiency may be enhanced because the use of the network can minimize transaction costs. As an example, a small firm may not have sufficient capital to undertake needed research and development. If they are able to enter into a strategic alliance with a larger, wealthier firm (as a captive sub-contractor, for example), they may gain access to the technological know-how without the research and development costs. Another reason to use strategic networking arrangements is in order to increase effectiveness. This same small firm can also achieve their goals (i.e., be more effective) by using the technological know-how gained from the larger firm.

The Canadian profile which emerges from this research is of firms which use external relationships with law firms and banks as they need them but which do not see external relationships as the basis of strategic advantage. Their energy is concentrated in supporting the customer base and carving out a competitive niche. As an example, one of the Canadian firms, a small tool and die maker, is a subcontractor to one of the Big Three auto makers. Although the firm has a very competent engineering staff, they do not have the resources to maintain a position at the cutting edge of technological change in the highly competitive automotive industry. In order to get access to the technology, they have ‘locked’ themselves to their customer through their computer systems. By doing this, the small firm benefits from the increased technology without the cost of developing it inhouse. The large firm benefits from the talents of the engineering staff without the costs of hiring them.

Two of the characteristics used to understand organizational behaviour are size and core expertise. Size relates to a firm’s abilities to control needed resources (efficiency). Core expertise relates to the firm’s abilities to perform needed activities (effectiveness). Potential networking behaviour can be illustrated through a discussion of Figure 4. In Figure 4, the two dimensions being measured are firm size, which varies from small to large, and firm core expertise, which varies from technical to administrative. The firms in quadrant one are small, technologically sophisticated firms. Such a firm may be thought to have sufficient technical skills to perform a specific task, but they might not have sufficient skill to gain access to capital for growth. Such a firm would be motivated to develop strong networking relationships with external partners who could provide such expertise, a bank or venture capitalist, for example. The firms in quadrant 2 are small, competently organized firms who are well equipped to carry out specific ventures, but who do not have sufficient innovation for growth. Such a firm is likely to network with a larger firm which could provide them with the needed new technological ability. This might take the form of a captive relationship

The American profile is different. American firms are more willing to contract-out risk and, responsibility to their networks. They may also be more willing to draw information and direction from them. Although customers and competition are important, Americans may not feel the same pressures as Canadians, because they do have stronger networks on which to rely. As an example, one of the American firms found that they were losing their competitive edge because the structures and systems which had been in place for decades had ossified to the point that the firm was not able to react quickly to changing market conditions and they were not being proactive at all. They entered into a long-term relationship with a consultant who was able to break down many of the internal structures and ‘breathe some life’ (flexibility) into the organization. This has enabled the firm to become more competitively proactive.

Administrative Access to

Access to

innovation

technological resources 2

3

1

4

Firm expertise Access to markets

Access to administrative resources Technological

Large

Small Firm size

Figure

4. Framework

for networking

activity

The Use of Networks with a customer, a joint venture with a competitor or joining a consortium to bid on a government contract. The firms in quadrant 3 are large firms with welldeveloped administrative systems. Such firms have all the systems in place to produce, market and distribute new goods and services. What they lack is innovation. These firms would be motivated to network with firms who could provide such innovation, a small, entrepreneurial firm, for example. The firms in quadrant 4 are large, high technology firms. They are very skilled at developing new products. They may not be very good at bringing those products to market. They may be motivated to network with partners who might provide access to new markets, foreign competitors or foreign governments, for example. There were few differences between the Canadian and American firms in this research, and the differences in networking behaviour may be related to differences in the structural variables of organizational size and core technology. However, there were some indicators that there may be cultural differences. The Canadians did not seem to be willing to rely on their networks for strategic information as much as the Americans. This might be related to the noted Canadian conservatism. But on balance, there were not sufficiently strong indications of difference to predict major challenges to firms wanting to form strategic alliances across the border. It is not appropriate to assume that such attempts to make borders ‘invisible’ as in the FTA bode well for future trade agreements where cultural differences are stronger. The framework presented indicates one possible model of the use of network.’ This should be tested to determine whether other, less culturally homogeneous countries (e.g., France and Germany or Canada and Mexico) could have the same success at making their borders disappear.

Conclusions This research was undertaken to explore the differences between Canadian and American firms in terms of how they interact with other firms and organizations. We aimed to find ways in which Canadian and American firms could gain access to each other’s commercial markets. As might be expected, few differences emerged. Canadian and American firms are very similar but some important differences did emerge. Americans seem to use their networks more than the Canadians. Canadians seem to feel the pressure to compete more aggressively than the Americans. Canadian law firms probably would not be successful in entering the American market except through joint ventures with successful American firms. American banks will have a hard time entering the Canadian market and not just because Canadian banks have the strength of

in Cross Border Competition

49

national resources while American banks are regional. Apart from these few situations, both markets appear to be open to entry. However, crossborder operations will still require work. Technical differences will have to be researched but if Canadian and American firms have a similar understanding of the market, they will not face an impenetrable network. In a sense, the only thing that would prevent either Canadian or American firms from taking advantage of the FTA would be a lack of willingness to try.

References (1) For an extended discussion of the impacts of the FTA on Canada and the United States, the reader is referred to two excellent discussions: M. A. Cohen and S. Blank (eds) (1991). The challenge of the Canada-United States Free Trade Agreement, The American Review of Canadian Studies, special issue, 21 (2/3); and E. H. Fryand L. H. Radebaugh (eds),/nvestmentin the North American Free Trade Area, Brigham Young University (1991).

(2) The discussion of networks draws on a number of sources including: H. E. Aldrich and D. A. Whetton, Organization-sets, action-sets, and networks: Making the most of simplicity, in P. C. Nystrom and W. H. Starbuck (Eds), Handbook of Organizational Design, pp. 285-408, Oxford University Press, London (1981); K. S. Cook, Exchange and power in networks of interorganizational relations, Sociological Quarter/y, 18 (I), 62-82 (1977); M. Granovetter, Economic action and social structure: The problem of embeddedness, American Journal of Sociology, 91, 481-510 (1985); J. C. Jarillo, On strategic networks, Strategic Management Journal, 9 (l), 3142 (1988); H. B. Thorelli, Networks: Between markets and hierarchies, Strategic Management Journal, 7 (I), 37-51 (1986). (3) Two excellent discussions of the differences and similarities between Canadians and Americans are: S. M. Lipset, Continental Divide, Routledge, New York (1990); and A. H. Malcolm, The Canadians, St Martin’s Press, New York (1985). (4) The issue of Canadian competitiveness is one of great importance in Canada today. Two enlightening discussions are: Business in the Contemporary World, special issue on Canadian Affairs, 3 (I), Autumn (1990); and M. Porter, Canada at the Crossroads: the Reality of the New Competitive Environment (the Monitor Group) (1991). The first is somewhat more optimistic than the second. (5) Canadian Multinational Enterprises have received quite a bit of attention for their potential in sustaining the Canadian economy. See, for example, A. M. Rugman and J. D’Cruz, Canadian strategies for international competitiveness, Business in the Contemporary World, 3 (1). 93-l 00 (1990); and A. M. Rugman and A. Verbeke, Trade barriers and corporate strategy in international companies-the Canadian experience, Long Range Plannino, 24 (3). 66-72 (1991). The small, entrepreneurial. family-owned businesses also have great potential, as noted in several other articles in the previously mentioned Special issue of Business in the Contemporary World. (6) The discussion of how firms may use networks is based on a number of sources. The international aspects of networking are discussed in: C. A. Bartlett and S. Ghoshal, Organizing for worldwide effectiveness: The transnational solution, California Management Review, 31 (I), 54-74 (1988); S. Ghoshal and C. A. Bartlett, The multinational corporation as an interorganizational network, Academy of Management Review, 15 (4). 603-625 (1990); and U. Sekaran and C. R. Snodarass. Understanding the dynamics of culture in networking, Advances in International Comparative Management, 5, 91-I 15 (1990). A discussion of growth through networking is found in R. C. Hoffman and J: F. Preble, Franchising: selecting a strategy for rapid growth, Lona Ranae Plannina. 24 (4). 74-85 (1991). A discussion of using networks for innovation is found in J. G. Wissema and L. Euser, Successful innovation through intercompany networks, Long Range Planning, 24 (6). 33-39 (1991). All of these discussions address issues of external networking for strategic advantage. However, the reader should recognize that

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networks may also be used internally for strategic gain. See, for example, R. Charan, How networks reshape organizations-for results, Harvard Business Review, 104-l 15, September-October (1991).

Appendix

1. Composite

For some related ideas about market entry across borders, see: J. F. Mahon and S. Vachani, Establishing a beachhead in international markets-a direct or indirect approach, Long Range Planning, 25 (3). 60-69 (1992).

analysis

Number of cases

Mean

Network size United States Canada

20 23

9.9000 9.9130

2.864 2,334

0,355

Network stability United States Canada

20 23

II.8000 11.6522

3.708 3.185

0.490

Network importance United States Canada

20 23

34.8500 32.9130

12.424 7.897

0.043

Network distance United States Canada

20 23

29.6000 27.4348

11.677 7,856

0.076

Variable

Appendix

2. Analysis

Variable

of individual Number U.S.: N=20(%) C: N=23(%)

Law firm

18 22 16 23 17 20 15 19 4 4 12 6 11 6 13 18 4 11 20 23 17 21 20 23 3 3 4 2 16 20 8 7

Bank Accounting Insurance

firm firm

Investment

bank

Advertising

agency

Consultants Regulatory

agency

Union Customers Suppliers Competitors Joint ventures Consumer

groups

Trade associations Government ‘P
(7)

contracts

*P-co.10

3P
(90%) (96%)’ (80%) (100%) (85%) (87%) (75%) (83%) (20%) (17%) (60%) (26%) (55%) (26%) (65%) (78%) (20%) (48%) (100%) (100%) (85%) (91%)4 (100%) (100%) (15%) (13%)

network

(20%)3

1.25

(9%) (80%) (87%) (40%) (30%)

I.50 1 .oo 1 .oo 1 ,I 3 1 .oo

4P
Probability level

partners

Stability l-2 Mean (s.d.) I.06 1.09 1.31 1 .I 7 1 ,I 8 I.30 I.40 1.37 2.00 1.75 1 ,42 1 ,I 7 I.55 I.83 1 .oo 1.06 1 ,oo 1 .oo I.05 1 .I 7 1 .I 8 1 .I 4 1 ,05 1.09 1.33 I.33

Standard deviation

(0.236) (0.294) (0.479) (0,388) (0.393) (0.470) (0,507) (0.496) (0.000) (0.500) (0,515) (0.408) (0.522) (0.408) (0~000) (0.236) (0~000) (0.000) (0.224) (0.388)’ (0.393) (0.359) (0.224) (0.288)4 (0,577) (0.577) (0.500) (0.707) (0~000) (0.000) (0,354) (0.000)

Importance l-5 Mean (sd.) 3.50 2.86 3.69 3.57 3.29 3.10 2.87 2.05 3.25 3.75 2.67 2.50 2.81 2.50 3.46 3.22 4.25 3.54 4.80 4.96 4.00 3.71 4.00 3.74 3.00 3.33 3.25 1.50 3.25 2.90 2.50 2.87

(0.985) (0.990) (1.07) (0,992) (1.26) (1.25) (1 .I 8) (1.31) (0.500) (0,957) (1.23) (0,837) (1.47) (1.76) (1.56) (1 ,47) (1.50) (1 ,I 2) (0.894) (0,209)’ (1.36) (1 ,34) (1 .I 7) (1 ,I 3) (1 .OO) (1 ,15) (1.25) (0.707) (0,931) (1.11) (1 ,51) (1.21)

Distance l-5 Mean (s.d.) 2.56 2.00 2.75 2.52 2.65 2.65 2.07 1.37 2.75 2.25 2.50 2.33 2.64 2.33 3.31 2.94 3.75 2.27 4.65 4.87 3.59 3.33 3.35 3.27 2.67 2.67 3.00 I.50 2.56 2.50 2.00 2.43

(1 .29) (1.15) (1.52) (1.23) (1.27) (1.56) (1.03)’ (0,684) (2.06) (1 .89) (1.31) (0.816) (1.56) (1 .75) (1.37) (1 .47) (1.25) (1 ,42) (0.745) (0,344)’ (1.54) (1.46) (1.46) (1 .09)3 (1 ,52) (1.15) (1.63) (0,707) (1 .I 5) (1.14) (1.41) (1.39)