The advantages of formalizing networks: new evidence from Italian SMEs

Abstract

Using a large sample of Italian small and medium-sized enterprises (SMEs), we investigate the effect of business cooperation realized through a "network contract" on the economic performance of network members. We find that establishing a formal business network has a positive effect on a firm's gross margin ratio and exports, but not on profits. The advantages of this type of networking are stronger in the cases of: smaller firms; firms operating in traditional markets; firms operating in turbulent markets; firms located in less developed areas; and firms not part of an industrial district. The characteristics of a network (such as its size, geographical dispersion and the sectorial diversity of its members), also have an impact on firm performance.

Knowledge networks in joint research projects, innovation and economic growth across European regions

“…Overall, theoretical research argued that being a member of a network is an important source of competitive advantage because it gives access to knowledge and resources at lower costs and helps to benefit from economies of scale (Gulati and Higgins 2003;Zaheer and Bell 2005;Watson 2012). Empirical research mainly confirmed the positive effect of network participation on firms' performance (Cisi et al 2020;Schoonjans et al 2013;Park et al 2010;Lechner et al 2006;Havnes and Senneseth 2001).…”

Measuring the impact of organizational complexity, planning and control on strategic alliances’ performance

“…In some cases, some dimensions of network complexity, as number of partners and geographic distance, were negatively associated with alliances performance (Rubino and Vitolla, 2018). In other cases, research has shown contrary results (Cisi et al, 2018). At the same time, it should be noted that the choice of different performance measures could conducted to different results as also highlighted in further research on the topic (Rubino et al, 2019).…”

Contractual networks: an organizational model to reduce the competitive disadvantage of small and medium enterprises (SMEs) in Europe’s less developed regions. A survey in southern Italy

“…The analyses are mainly theoretical or based on case studies (Mancini and Piscitelli 2018). However, Cisi et al (2018) found a positive effect between participation in a business network and the gross margin ratios and exports of firms in a study of a large sample of Italian SMEs that signed business network contracts drawn up in accordance with Italian regulations. Nevertheless, no effects on profits were observed.…”

“…We analysed profitability using the Return on sales indicator (ROS, Ebit margin over Revenues) and the Return on equity (net income/equity). These measures of performance are accepted in the literature and used in the empirical studies on networking (Cisi et al 2018;Hill et al 1992;Goerzen and Beamish 2005;Goerzen 2007). As capital structure and liquidity indicators, Liquidity ratio ([total current assetsinventories]/ short term debt) and Leverage ratio (financial debts/equity) were considered (Gulati 1995;Beamish and Lupton 2009;Franco 2011; Kawai 2012; Cantele and Vernizzi 2015).…”

“…since the latter is influenced by other variables. These variables include the network's size, the geographical dispersion and/or sectorial diversity of its members (Schoonjans et al 2013;Cisi et al 2018), the goals to be pursued, and the reputation of its members (Brand et al 2018).…”