This study is grounded on the notion that cooperation between businesses in networks can be used as an alternative organizational configuration as a response to current business world dominated by economic & technological advancements. Particularly, this study examines the “Business cooperation networks” (BCNs) in terms of their hierarchical structures, risk involvement, and benefits.
Following this, several key activities are also suggested to make BCNs more effective. This study also demonstrates that with well-defined hierarchical structures, BCN can assist businesses achieve higher growth, competitive benefits, and continuously improve their processes and activities through improved cooperation and understanding of risks & benefits.
Table of Contents
Hierarchical structures in cooperation networks. 2
Risks involved with business cooperation networks. 4
Cost reduction. 6
Benefits of Business Cooperation Networks. 6
Evaluation of risks & benefits. 9
The global business environment has become quite unpredictable with increased level of risks and failure. Because of this reason, businesses are continually evolving themselves and new business forms are also outlined with each passing day (Kumar 2018).
It would not be any different in a society that is becoming more and more globalized and perpetually seeks to maximize the efficient use of both material & human resources. As an alternate strategy, businesses create cooperation networks to ensure their collective success for the activity to which they belong (Lemańska-Majdzik and Okręglicka 2019).
Organizations are however bound to struggle with a number of issues while utlising cooperation networks, ranging from having the right information to recruit members to managing the cooperation network in a way that generates competitive profits (D’Oliveira, Guedes and Pasqualetto 2017).
A large number of contemporary studies indicate that the process of ensuring the success of organization’s credibility is guided by establishing hierarchical structures for both the risks and the benefits. Knowing how to identify risks and maximizing the advantages of business cooperation network therefore, needs to be of common knowledge.
This study is therefore aiming to investigate business cooperation networks from the perspective of their hierarchical structures, evaluate their risks & benefits, and suggest appropriate improvement measures.
Hierarchical Structures in Cooperation Networks
A hierarchical structure as demonstrated below (figure 1) is proposed by José Roberto for both the risks and benefits of it, subjecting several unfolding levels comprising of different levels of goals and criteria.
Figure 1: Hierarchical structure analysis; Source: (Tálamo 2008)
This hierarchical structure is established by observing a number of key steps as discussed below:
- Identification of General Goals: In this scenario, the firms’ overarching objective is greater profitability, which prompted the network’s establishment. The hierarchy of costs & benefits will also have the same overarching objective.
- Identification of Secondary Objectives Using the General Goal: Secondary goals are set in accordance with the analysis & categorization of items, where there is some common interest. The hierarchy of risks & benefits is then applicable to these derived secondary objectives. It should be emphasised that the business statistics are divided into three key categories: including cost reduction, export & the growth of domestic commercial market (D’Oliveira et al. 2016).
- Establishing the Broad Standards That Must Satisfy the Secondary Aims of The General Goal: The primary criterion will be the information provided by business owners and used in the creation of secondary goals. The benefits identified as interesting to discuss in this situation will be included in the “hierarchy of benefits”. On the other hand, the risk hierarchy usually include items that noted no common interest.
- Identification of Secondary Criteria Under Each General Criterion: Secondary criterions are developed based on the risks & benefits that entrepreneurs have identified. In this manner, the secondary criteria for risks and benefits can be integrated into each other depending on how the primary criteria are evaluated.
- Evaluation of Tertiary Criteria: Evaluation of whether or not the tertiary criteria exist, which will be evident from the model analysis as a whole, even though entrepreneurs did not state it, as long as it is pertinent to the study. It is followed by the recognition of options or more suitable outcomes. The advantages of using the solution is then contrasted with the advantages of not employing the remedy if there exist yes/no decisions.
- Assigning Values to The Chosen Objectives, Goals and Criteria: Assigning numerical values is essential for the assessment of best cost-benefit choice out of available proposals.
Risks Involved with Business Cooperation Networks
Talamo (2008) suggested the application of following schematic diagram (figure 2) for evaluating and interpreting risks associated with a “Business Cooperation Network” (BCN).
Figure 2: Risk hierarchy; Source: (Talamo 2008)
For businesses and its network as a whole, medium-and long-term integrated planning should include risks processes like quantifiable values. Every organisation and enterprise is exposed to risks, and these risks are required to be determined in advance on the basis of their occurrence likelihood, as well as the day and time when it is most likely to occur and the kind of impact it can have (Balland, Belso-Martínez and Morrison 2016).
All of it forms a part of the strategic management, connected to the ultimate goal of each organisation i.e. to increase profitability. ‘Internal Trade Growth’ is highly desired among businesses in cooperation network, however this endeavour may encounter certain obstacles, including the risk of not pooling and sharing consumers, inadequate technological skills of the employees, which can hinder the expansion of commercial space occupancy and utilisation in the market (Galvão et al. 2021).
Regarding the process of deployment & maintenance for export trade services to different countries, one can pinpoint exporter’s culture, knowledge and understanding of customers, and understanding of quality standards it demands etc. as the key risks prevailing in an inter-organizational business environment on the cooperation network (D’Oliveira et al. 2016). The lack of or minimal participation in trade fairs may demonstrate a disrespect for international trade, posing a serious risk to commercial events.
Participating in such events usually strengthens a company’s network, improves sociability standards, and contributes information about the products, procedures, quality, etc. (Faems et al. 2020). This type of involvement also promotes the networks or company’s own brand for a similar-minded audience. Due to the competition between networks within a grouping of affiliates, attending trade shows or other similar activities becomes much more fun and interesting.
Cost reduction is also a key objective for companies in a cooperation network. However, numerous risk factors impair the structure of work processes with “Cost Reduction” as their primary goal. These elements can happen at random in any business or group of connected businesses, preventing a more favourable atmosphere for rapid expansion. Stopping benchmarking and failing to exchange information together is another risk which can cause related firms to miss opportunities, delayed growth and development.
Technical dependency of firms on one another in this network is also a key risk to businesses particularly in terms of cost and time in a highly competitive market (Beltrame and Diniz Pereira 2018). Low production capabilities, trouble getting raw materials, and a lack of operating capital are all concerns that unquestionably increase the risks of acquiring a weaker business structure.
Benefits of Business Cooperation Networks
Companies in cooperation networks today have more chances than ever before to join in and be successful in new markets. As demonstrated in figure 2, there is far greater growth and business opportunities for companies since corporate associations and networks bring them with the state-of-art innovation, technologies and tools that would otherwise have drawn huge costs and limitations. A major benefit of BCN is for smaller companies that do not have the technical or financial muscle to develop or own new technologies (Kesting, Muros and Vogt 2018).
They can still get access to such technologies and tools through inter-organisational innovation and cooperation networks. In other words, it creates a greater level of collaboration between companies that allows for high-level benchmarking in a cooperation network. Thereby, BCN improve the conditions for true commercial growth (Elghaish, Abrishami and Hosseini 2020). Additionally, the abundance of knowledge and resources also improves the pragmatic conditions of businesses for discernment, allowing them to achieve significant levels of improvement in their process and production and thus, apart from efficiency companies are also benefitted in terms of substantial cost savings.
Figure 2: Benefits of BCN; Source: (Talamo 2008)
In addition to data and technology exchange, BCN can also prove helpful to companies involved in the export of good and services. They may utilise this network to negotiate with stakeholders, engage with facilitators to conduct foreign trade, increase market share etc. (Senarak 2020). Besides, international quality standards are frequently more stringent, so businesses within a cooperation network can build expertise that will undoubtedly create a new productive culture, changing their production process and, as a result, their quality and capacity.
In a limited context, they may also work together as a lobby group to advance the foreign trade policies with the goal of establishing external agreements that will promote the export of its goods. Here, the term “limited context” is used because lobby groups are legal and illegal in different countries so does its benefits. Despite having close cooperation between companies, the close proximity of businesses will also cause a notable rise in their competitiveness. This in turn, will open new paradigm of improvement and success in the form of product variety, quality, technical expertise, staff responsiveness, organisational flexibility etc. which will benefit the organisational in numerous ways (Jesus and Franco 2016). Another key benefit of BCN is that organisations in a cooperation network may also serve as coaches or trainers for each other and by utilising unique expertise and methodologies; they may enhance network members’ performance on a personal as well as professional level.
Simultaneously, there will also be the room for expanding the distribution network of companies because with enhanced agility, organised supply chain, and improved productivity and efficiency, it will be possible for them to cater the demands of a large customer base in an effective manner. Profit is another key social function for businesses which is positively influenced by cooperation networks. Each organisation and its management strive for achieving higher profitability to strengthen their position in the market. And as a part of the cooperation network, they get supported in the form of market intelligence, business data, business process efficiency and enhanced product and service quality which improves their operations, performance and position in the market (Lorentz et al. 2020).
Cost reduction is another key benefit that also comes with it. In the words of Chin, Tat and Sulaiman (2015) ccompanies in a cooperation network gets several advantages in the form of getting their raw products less expensively from the market. For an instance, several businesses can jointly import their raw materials directly from the producer and it will help them substantially cut their expenses. Besides, they can also create shared advertisement and promotional campaigns at relatively lower prices hence, raising consumer awareness for their products & boosting their brands, which serve as quality indicators. Another important aspect to consider is that cooperation networks bring organisations and their employees closer where they can easily engage with each other and learn from each other’s experiences. In this way, employees will be able to learn and improve their skill-sets and contribute to the organisational success in a proactive manner.
Evaluation of Risks & Benefits
From the above discussion, it has become evident that knowledge and resources within a cooperation network flows through both informal and formal processes. Business Corporation Networks tend to help businesses with increased knowledge, scale, shared resources, and cost reduction with a more formalised and structured business processes and operations. This in turn has a huge significance on performance and profitability of organisations. These things indicate that building networks that are more structured and cooperative must be a top focus for businesses. These networks must be based on standards and principles that foster trust and support the performance of business operations.
As discussed earlier, there exist a number of risks that businesses are exposed to in a BCN. However, the benefits are so obvious and essential particularly in the present-day scenario that the opportunities completely outweigh the risks and challenges brought by it. Besides, another concern is that businesses without having certain degree coordination between them cannot be even termed as BCN and thus, realising above discussed benefits may not actually be accessible to businesses.
The presence of collaboration projects is therefore necessary for overcoming this state. The establishment and upkeep of formal organisations with a higher level of interaction, or institutional thickness, can play this function. They are expected to help businesses in a variety of ways, as well as social groups that encourage close-knit informal cooperation among members of businesses and organisations.
They are crucial for the development and effectiveness of BCNs since they foster their potential for innovation and productivity. Therefore, to minimise impediments that might affect BCNs’ performance degrading, BCN-focused research and policies should encourage a continual innovation & development process. The ideal scenario is therefore to emphasise on continual performance enhancement & what sets apart a BCN from bringing a continuous evolution of behaviours.
Besides, more efforts are needed to address the risks that come with a BCN. Among other crucial challenges, a deeper understanding of the kinds of cooperation requirement is needed, as well as guidance on how to assist small businesses to make the maximum utilisation of such networks. It demonstrates how crucial purposeful activities are in achieving collective efficiency in addition to the relevance of external economies.
It can therefore be asserted that these formal & social institutions, which have a management structure based on networks, are the key to guiding business toward continuous performance improvement and innovation, thereby lowering the probability of decline caused by a rigid and inflexible structure for changes & innovation.
Profitability is the key reason for why businesses operate and exists. Business Cooperation Networks (BCNs) is one such model which is developed to aid businesses to make things easier for them so that they can achieve greater success, and growth. This model help organisations exchange their knowledge, resources and technologies among many other things to expand their business and better capitalise the opportunities available in market. However, this study also finds that several grave risks are also associated with this model and it may hamper organisations from leverage opportunities available in the market.
Although, risks are inherent in all kinds of activities so does BCNs, but the key thing is that they must be monitored and relevant curative measures should be initiated to mitigate their impacts on businesses forming a part of the BCN. Even if such risks materialise, the duties of the firms will cover them in equal measure. Altogether, benefits from collaboration between businesses are always anticipated, and they should be increased with on-going management & network performance improvements.
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