Managing the strengths of ties for internationalization: lessons from four rapidly internationalized Chinese SMEs.

• Author: Tang, Yee Kwan
• Position: Small and medium sized companies

ABSTRACT

This study aims at providing exploratory insights into the initiative and capabilities of Chinese SMEs to develop and utilize diverse networks to support internationalization. Such network development and utilization efforts are fundamental to the analysis and explanation of Chinese firms' internationalization patterns and outcomes. Extending from the existing network studies in the Chinese context that generally put emphasis on strong-tie and ethnic-oriented networks, this paper investigates and explains explicitly the use and effects of both strong- and weak-tie networks in the international development of Chinese SMEs. In-depth case studies on four rapidly internationalized Chinese SMEs are conducted. The case findings demonstrate that weak-tie networks are essential to the firms' business development in foreign markets; and were proactively developed and utilized in the course of the firms' development. The cases also provide alternative perspectives to the beliefs and values underpinning strong-tie networks presumed in existing literature. The findings draw attention to the changing business values and approaches of the Chinese firms aiming at developing internationally. Managerial implications concerning the significant influence of effective networking on internationalization are pinpointed.

Key Words: Networks, Internationalization, SMEs

INTRODUCTION

SMEs are often presumed in business studies to be a disadvantageous group of firms, whose development is hampered by their resource limitations. In the Chinese context, SMEs face particular hardships to survive and to grow because they have long been the unprivileged and unprotected group of firms that receive little institutional support. Research on the internationalization of Chinese firms has mostly placed focus on large state-owned enterprises because literally, SMEs are not expected to have the resources and strengths to pursue international development. In reality, many Chinese SMEs have accumulated international business knowledge and experience through establishing different forms of business relationships such as trading intermediaries, suppliers, distributors, and original equipment manufacturers (OEMs) with foreign multinationals. In Mainland China, for example, changes in the economic and business environment; and the changes in the mindset of the new generation entrepreneurs have driven the rapid development of SMEs not only domestically but also in the global marketplace. Large Chinese multinationals such as Haier and Legend were often started up and grown through these paths. Considering the fact that SMEs account for over 90% of the total firms and that they are engaging actively in international business, more research efforts on the barriers and capabilities of SMEs to internationalize is needed to understand the actual impetus to the Chinese business development in the global marketplace.

An important aspect in relation to the barriers and capabilities of SMEs in business development concerns networks. Extensive research has pinpointed networks to be a critical aspect in relation to the barriers and capabilities of SMEs in international expansion (Coviello and Munro 1995; Holmlund and Kock 1997; Jones 1999; Chetty and Holm 2000; Chen 2003). The network concept has particular explanatory power on the distinctive internationalization patterns such as Born Global and rapid internationalization (Oviatt and McDougall 1994; Andersson and Wictor 2003; Sharma and Blomstermo 2003).

Networks are essential means on which SMEs rely heavily to obtain the resources, legitimacy, and opportunities to pursue development. Social and personal networks are an individual Chinese businessman's most important social-business resources (Redding 1995; Tsang 1998); and the strategic exploitation of social networks and personal relationships for business purposes is an essential capability of Chinese entrepreneurs. The network development and utilization activities of Chinese SMEs are influential in their internationalization patterns and outcomes.

It is widely acknowledged that networks of different structural and relational characteristics have specific strengths, and hence a composition of network ties is required to support business development (Dubini and Aldrich, 1991; Gargiulo and Benassi 1999; Granovetter 1973; Johannisson 1988). Brass et al. (2004, p.809) therefore highlight that the shift of network research from simple considerations such as the existence or non-existence of a relationship, to consideration of the strength and content of the relationships is needed to distinguish theoretical predictions. The extensive body of network research in the Chinese business context however is dominated by studies of the interpersonal, strong-tie and ethnic-oriented networking, which signifies the distinctiveness of the Chinese network system (Hamilton, 1996). Nevertheless some researchers have begun to question the conventional Chinese networking practices to be an impediment to foreign business development. They have observed certain changes in value and orientation of networking activities of Chinese business practitioners (Guthrie 1998; Zapalska and Edwards 2001; Yan and Sorenson 2004). However, studies on the development and utilization of weak-tie networks by Chinese firms remain sparse and implicit.

Recognizing this gap in the network research in the Chinese business context, this paper aims to shed light on the use and effects of different network ties in the international development of Chinese SMEs; based on which their initiative and capabilities to develop and to utilize diverse networks to support business development are also explored. The main questions to be addressed are as follows:

1. What are the roles and effects of strong- and weak-tie networks on the internationalization of Chinese SMEs?

2. To what extent is tie strength a factor influencing network development and utilization in the internationalization of Chinese SMEs?

The structure of the paper is as follows. Section Two reviews general network studies in relation to the internationalization of SMEs. Section Three synthesizes the literature on Chinese network system widely studied. Specific focus is placed on discussing the networking logic and orientation commonly recognized, and on evaluating the effects on the business development of Chinese SMEs. Section Four describes the research methodology. Section Five discusses the findings drawn from four in-depth case studies. The paper ends with conclusions, and theoretical and managerial implications.

NETWORKS AND THE INTERNATIONALIZATION OF SMES

The network perspective in business activities is found to be highly relevant to explaining the internationalization of SMEs, particularly those that internationalize rapidly (Andersson and Wictor 2003; Coviello and Munro 1995; Madsen and Servais 1997; Oviatt and McDougall 1994; Sharma and Blomstermo 2003). Numerous studies have discussed the effects of networks on driving and facilitating the international development of SMEs, including access to external resources, transfer of information and knowledge, provision of moral supports, establishment of legitimacy, and creation of opportunities (Bell 1995; Chen, 2003; Chetty and Holm, 2000; Coviello and Munro 1995; Fuller-Love and Thomas 2004; Holmlund and Kock 1997; Meyer and Skak 2002; Sharma and Blomstermo 2003).

Hite (2005, p.113) comments that an emerging firm's network ties can facilitate successful firm emergence, growth and performance. But the characteristics of these network ties can influence the extent to which opportunities and resources can be identified, accessed, mobilized and exploited. The influence of network's structural attributes on the strengths and functions of networks has raised widespread research attention since Granovetter's (1973) differentiation of the strengths of strong- and weak-tie networks (Adler and Kwon 2002; Coleman 1988; Burt 1992; Gargiulo and Benassi, 2000; Nahapiet and Ghoshal 1998).

The strength of ties is defined as 'a (probably linear) combination of the amount of time, the emotional intensity, the intimacy (mutual confiding), and the reciprocal services which characterize the tie' (Granovetter 1973, p.1361). Granovetter (1973) proposes that while strong ties provide actors with reliable resources in routine and stable environment, weak ties are more effective in channelling and diffusing novel ideas, information and knowledge to make mobility opportunity possible. The proposition is further expanded and developed by other researchers. Coleman's network closure perspective (1988) stresses the positive effects of cohesive social ties (network closure) on facilitating trustworthy and cooperative network exchanges. Burt's structural hole theory (1992) stresses the diversity of information and brokerage opportunities made available by disconnected network segments. Napapiet and Ghoshal (1998) amplify the elements contributing to tie strength and the interactions of these elements to network value creation by distinguishing three dimensions--the structural, the relational, and the cognitive--of social capital (the relational resources). The categorization of bonding, bridging and linking social capital is also based on the level of homogeneity and connectedness of relational ties (Woodcock 2001).

Dubini and Aldrich (1991, p.308) emphasize the significance of network diversity on foreign business development as follows:

'Information about new business locations, potential markets for goods and services, sources of capital or potential investors, and innovations is likely to spread among individuals ... someone with a small set of overlapping ties is at a disadvantage when competing for information with someone with a large set of divergent ties'.

Because of the contingent effects of tie strength on the functions of networks, an appropriate mix of networks combining both strong and weak...