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THE IMP JOURNAL ISSN 0809-7259, VOLUME 3 Special issue 3:3 Interaction in Network Space Guest editors Andrea Furlan & Lars Huemer

CONTENTS ISSUE 3.3 Page 3-20

Andrea Furlan, Roberto Grandinetti and Diego Campagnolo Local networks in global networks: is it possible?

Page 21-34

Roberta Bocconcelli and Annalisa Tunisini The Italian Company Beyond the District: Supply Network Strategies

Page 35-52

Debbie Harrison and John Finch New Product Development When You Have To: Frames and Temporary Collaboration in Industrial Nets

Page 53-75

Lars Huemer, Håkan Håkansson and Frans Prenkert The Becoming of Cermaq: The interplay between network influences and firm level control ambitions

Produced in cooperation with Norwegian School of Management BI

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INTRODUCTION Special Issue: Interaction In Network Space IMP literature has emphasised that the interaction between business actors takes place within the context of Network Space and Time. Hence an understanding of any episode of business interaction can only be arrived at by examining its location in a space that is not only physical but which also includes the existing structure of relationships and interdependencies between and around the involved actors. Similarly business interaction at any point in time can only be understood as influenced by previous interactions and by actors’ interpretations of these together with their intentions and expectations of future interactions. This Special Issue edited by Andrea Furlan and Lars Huemer arises from a Seminar held at the University of Padova in April 2008 at which papers were presented that examined a variety of aspects of the connections between business interaction and Network Space. The first two papers are both concerned with the connections between physical space and the development of the individual firm. Furlan, Grandinetti and Campagnolo provide a quantitative and qualitative analysis of issues of physical space related to an industrial cluster. The study suggests that in the most internationalized local clusters, suppliers maintain partnerships only with local suppliers and not with their local customers. Moreover, only those local suppliers that are associated with important anticipated constructive effects; resource transferability, activity complementarity and actor generalizability are retained by highly internationalized firms. The paper pinpoints the role that geographical proximity plays in affecting the interdependence between local business networks and global business networks. The paper by Roberta Bocconcelli and Annalisa Tunisini is concerned with the relations between the physical aspects of network space, network evolution and the development of an individual actor. The paper examines the interconnections between the international development of a manufacturing company and the dynamics within its existing geographically specific relationships within a network of suppliers. The third paper by Harrison and Finch examines the idea of network space as a pre-existing structure of relationships and interdependencies and the embeddedness of individual actors within that structure. The paper is concerned with externally mandated network change and the interactive response of actors to that change. This response is manifested in the question of “with whom to innovate and how” and views the product development process as involving the differential exploitation of actors’ existing relationships. The paper relates closely to recent research into managerial cognition and actors’ network pictures as an ingredient in business interaction and the “identity” of the business actor.

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The fourth paper by Huemer, Hakanssson and Prenkert builds on this issue of “identity in networks”. The paper illustrates the tension between an actor’s control ambitions within the network and the influences from the relationships in which it is embedded. This description provides some clarification of how the development of identities in networks is related to the combining of an actor’s own features with the features of others, which in turn relates to the multidimensional “space” that exists between them. The term “identities in networks” as used here is different from the network identity concept in prior IMP studies, in that it combines external and internal identity influences. This view emphasises the interplay between knowledge and technology within and outside the company and the process of interaction involved in translating, adapting and exploiting. The paper reports on an extensive case study into the development of a multinational company. Such companies are inevitably embedded in different knowledge spaces comprised of different geographic, activity and resource space and face continuous tension between the desire to control (or coerce) the network and the pressure to concede to its influences. This issue completes the first three volumes of the IMP Journal. I committed myself to act as editor for this first stage in the journal’s development and I hope that the collection of articles have been of value to readers. I will now be handing over to Hakan Hakansson and I look forward to further development under his editorship. My thanks to all those of you who have supported or contributed to the Journal so far. Best wishes

David Ford

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Local networks in global networks: is it possible? Andrea Furlan a , Roberto Grandinetti b and Diego Campagnolo c a b c

Department of Economics, University of Padova, email: [email protected] Department of Economics, University of Padova, e-mail: [email protected] Department of Economics, University of Padova, e-mail: [email protected]

Abstract This paper is aimed at understanding if and how the local business relationships of a firm operating in a local cluster support its relationships with international customers. We address this research question applying a twofold methodology using both a quantitative approach - one-way analysis of variance (ANOVA) and the case study research method on a sample of firms operating in the Italian mechanical local cluster (MLC). We discover that partnerships with local suppliers enhance the internationalization of local cluster firms. Partnerships with local suppliers are associated with anticipated constructive effects that strengthen the flexibility of the firm and its ability to cope with an ever increasing complexity of the environment thus supporting its internationalization.

Keywords: Internationalization, SMEs, clusters, business networks

1. Introduction Literature on local clusters has long highlighted how geographical proximity and social embeddedness foster interaction and cooperation within business networks (Becattini, 1990; Maskell, 2001; Dahl and Pedersen, 2004; Camuffo and Grandinetti, 2005; Iammarino and McCann, 2006; Mota and de Castro, 2004; Malmberg and Power, 2005). Also Industrial Marketing and Purchasing (IMP) studies have addressed the issue of space in business networks (Håkansson and Waluszewski, 2002; Håkansson and Snehota, 1989; Ford, 1980; Baraldi, 2003). However, study of the interplay between local networks and international (or global) networks is still underdeveloped (Zucchella and

Servais, 2006). As Dicken and Malmberg (2001, p. 358) point out, the relationship between firms and territories is complex since firms are networks embedded in the broader networked structure of industrial systems (Johnston and Araujo, 2002). Along this vein, our focus is on the relationship between the local business network of a firm and its international business network. Literature has not provided sufficient insights on this relationship. On the one hand, literature on local clusters has not shed light on the relationship between local business networks and international business networks. On the other hand, literature on business networks has not delved into the geographical dimension of business networks. In particular, understanding if and how relationships with local

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suppliers and local customers support the relationships with international customers of a business firm remains an unanswered question. We address this research question on a sample of firms operating in business markets located in an Italian local cluster, the mechanical local cluster (MLC) of Pordenone, North-East Italy. We apply a twofold methodology using both the one-way analysis of variance (ANOVA) and the case study approach. We discover that partnerships with local suppliers enhance the internationalization of local cluster firms. We argue that partnerships with local suppliers are likely to be associated with anticipated constructive effects (Anderson, Håkansson and Johanson, 1994) that strengthen the flexibility of the firm and its ability to cope with an ever increasing complexity thus supporting its internationalization. The paper is organized as follows. The next two sections present the relevant literature concerning international relationships and local business networks. The fourth section gives an outline of the research context and the fifth section describes the methodology used. The sixth section shows the findings of the research presenting both the ANOVA results and the description of the case studies. The seventh section discusses the findings and the final section sums up the main results, highlights the limitations of the study and concludes the paper by providing directions for future research. 2. International relationships business networks

and

Over the last twenty years the network approach developed by the IMP Group has become one of the most prominent streams of literature in business relationships and networks (Håkansson, 1982; Håkansson and Snehota, 1995; Ford, 1980; Anderson et al., 1994). Based on the results of extensive international researches, the

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network approach maintains that firms operating in business markets are linked through long-lasting, highly committed relationships (Ford, 1980; Johanson and Mattson, 1988). Through social interaction the firms learn how to cooperate and coordinate their reciprocal activities thereby generating more value along the value chain “as compared with a chain in which the firms transact at arm’s length” (Blankenburg et al., 1996; p. 1037). A second assumption of the network approach is that each business relationship is directly and indirectly connected to other relationships of the business network in which it is embedded (Håkansson and Snehota, 1995). A business network is defined as a set of two or more connected business relationships, in which each relation is between business firms that are conceptualized as collective actors (Emerson, 1981). The coordination between a supplier firm and a customer firm takes place within a wider business network context and these two firms bring their connected networks of relationships to this relation. As Anderson et al. (1994) argue, a focal relationship, in addition to its direct outcomes within that relationship, can have both positive and negative connections with the focal firm’s network identity, i.e. “the perceived attractiveness/repulsiveness of a firm as an exchange partner due to its unique set of connected relations with other firms, links to their activities, and ties with their resources” (p. 4). The authors advance two constructs reflecting this influence: anticipated constructive effects and anticipated deleterious effects. The first construct (anticipated constructive effect) captures the extent to which “a focal firm perceives that engaging in exchange relation episodes with its partner firm has, in addition to effects on outcomes in the relation, a strengthening, supportive, or otherwise advantageous effect on its network identity” (Anderson et al., 1994; p. 7).

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The authors identify three constituent facets of this construct: Anticipated resources transferability: the extent to which knowledge and solutions are transportable between the relationships of the business network and the focal relationship; Anticipated activity complementarity: the extent to which there are positive volume or quality effects between the activities performed in the business network and the focal relationship; Anticipated actor relationship generalizability: the extent to which the cooperation with certain actors of the business network context can have a positive effect on the perception of other actors. The second construct (anticipated deleterious effect) reflects the extent to which the participation in a business relationship with a partner firm has negative, damaging or harmful effects on the network identity of the focal firm. It is composed of the following constituent facets: Anticipated resource particularity: the extent to which the resources for exchange devoted to the focal relationship have to be reallocated from other business relationships; Anticipated activity irreconcilability: the extent to which activities performed in business network relationships are difficult to integrate with the activities performed in the focal relationship; Anticipated actor relationship incompatibility: the extent to which engaging in the focal relationship can be perceived as a threat by other actors of the business network. It is implied in the network approach that both these effects are mostly produced by collaborative relationships or partnerships as only these relationships can affect the network identity of the focal firm. Several authors have applied the network approach to international business relations, i.e. business relationships involving a supplier from one country and a customer from another country. These authors study

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the internationalization of small-tomedium sized business firms whose primary foreign market entry mode is exporting through business-to-business relationships (Bradley et al., 2006). Exporting strategy is indeed particularly applicable to small and medium enterprises (SMEs) that often lack the resources, financial or otherwise, for foreign direct investments (Lu and Beamish, 2001). In the case of firms operating in business markets, exporting strategy obviously results in developing business relationships with foreign customers. Coherent with these theoretical underpinnings, Johanson and Mattson (1988) maintain that international business relationships do not occur in isolation, but need to be considered within a context of connected network relations. Blankenburg et al. (1996) provide evidence that international business network connection (defined as the degree to which a focal international relationship is affected by other relationships of the network) positively affects the commitment of the focal firm to that international relationship. Chetty and Blankenburg (2000) report several examples of firms that leverage on their existing domestic partnerships to strengthen their network identity which in turn allows them to develop new international business relationships or to foster existing ones. From the case studies reported by the authors, it emerges that domestic buyers and/or suppliers can be valuable sources of knowledge about foreign markets (e.g. the entrance in a new international business project or the contact with a new customer) and can provide useful resources and capabilities to penetrate networks abroad. Along this vein, Bradley et al. (2006) find that domestic business relationships provide small and medium suppliers with the know-how to access foreign markets thus enhancing their chances of survival and reducing the risk of concentrating their efforts only on domestic relationships.

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3. International relationships local business networks

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In this paper we study firms located in local clusters and operating in business markets (hereafter local cluster suppliers). In particular we focus on the effects of local business networks of these firms on their degree of internationalization. We define local business networks as the focal firm’s suppliers and customers located within the local cluster of the focal firm. A local cluster is a “geographic concentration of interconnected companies and institutions in a particular field” (Porter, 1998; p. 78; Beekman and Robinson, 2004; Street and Cameron, 2007). Building on the network approach depicted in the previous paragraph, we now refer to the features of local business networks that are likely to support the internationalization of small and medium local cluster suppliers. First of all, most of the interfirm relations embedded in local clusters are governed by relational, informal contracts (Baker, Gibbons and Murphy, 2002; Dahl and Pedersen, 2004). These partnerships, embedded in local contexts and social relationships, create norms of behaviour (e.g. trust, reciprocity, reputation, peer pressure and cooperation) and incentives to share information which reduce the threat of opportunism and induce risk sharing among nearby companies (Camuffo, Furlan and Rettore, 2007; Granovetter, 1985; Grabher, 1993). Sourcing within the cluster eases communication and can result in lower transaction costs than those associated with distant sourcing (Porter, 1998). Partnerships between firms within a local cluster are also one of the main mechanisms that allows knowledge transfer to foster productivity and innovation within the cluster (Maskell, 2001; Dahl and Pedersen, 2004; Iammarino and McCann, 2006; Camuffo and Grandinetti, 2005). This

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favourable relational context fosters anticipated constructive effects between local business networks and international business relationships of a local cluster supplier (Mota de Castro, 2004). On the one hand, through its local relationships, the exporting supplier can access non-tradable resources (e.g. information and knowledge) and use them to nurture its international business relationships. On the other hand, cooperation and flexibility characterizing local business relationships sustain responsiveness and the level of service of the supplier towards its foreign customers. A second important feature of local clusters is the peculiar division of labour among the cluster members. Production activities located in a local cluster are not the result of operations carried out by one or more vertically integrated firms, but is achieved by a group of relatively independent, local firms that are specialized in one or more segments of a supply chain (Sforzi, 2003; Saxenian, 1994; Maskell, 2001). Locating within a cluster provides superior access to specialized inputs such as components, machinery, business services and personnel as compared to alternatives (Porter, 1990). This increases the chances for a local cluster supplier to find external specialized resources located within its local business network in order to fulfil the needs of new foreign customers (Loasby, 1998). The presence of important and sophisticated buyers is a third feature making local clusters an elitist platform for the internationalization process of local cluster suppliers. The availability of information about current buyer needs is in fact an important benefit granted by local buyers. Particularly for small to medium-sized firms operating in business markets, having accurate and readily available information about customer needs is crucial in gaining competitive advantage (Jacob, 2006). Local cluster suppliers learn about new buyer trends and new technological

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opportunities faster than isolated competitors thanks to the relationships that they have with local cluster customers. Customer partnerships characterized by co-development, frequent face-to-face contacts and reciprocal information exchanges facilitate the learning by the focal firm of “evolving technology, component and machinery availability, service and marketing concepts and so on” (Porter, 1998; p. 83). These relationships and the resulted enhanced innovation capability of the supplier, strengthen the ability of the supplier to actively search for new foreign customers. 4. Research mechanical Pordenone

context: the local cluster of

Our study is based on the mechanical local cluster (MLC) of Pordenone (Italy). MLC represents an important local cluster in the North East of Italy with a concentration of 726 firms (487 private limited liability companies) within a radius of few kilometres. All the firms of this local cluster belong to mechanical industries involving a number of vertical chains of different industries (e.g. household appliances, automotive, construction, food, textiles and others) with firms that have a number of similarities such as similar inputs and technologies, overlapping sales channels or complementary products. We have chosen this cluster for two main reasons. First of all, it perfectly fits the typical situation of a local cluster1 depicted by Becattini (1990) and Porter (1998): a) a population of firms operating in a specific narrow territory 1 Local clusters have developed and become particularly widespread in Italy, where they represent a significant fraction of the industrial system (Garofoli, 2002). Italian local clusters have been extensively studied as ‘industrial districts’ (Becattini 1990, Becattini and Dei Ottati, 2006) and become world-famous as the clearest example of Piore and Sabel’s (1984) ‘flexible specialization’.

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and specialized in a particular field, b) the division of labour among firms, and c) the presence of government and other institutions (i.e. local business and trade associations and government agencies in charge of developing the cluster) providing training, education, technical support, information and research. Moreover, the MLC is the result of subsequent chains of spin-offs from a few large firms that acted as primary incubators (Camuffo and Grandinetti, 2005). Indeed, about 74% of the company founders of our sample were, before starting their own business, employees of firms located in the MLC. Second, the MLC has followed an evolutionary trajectory common to other local clusters. This trajectory has progressively moved the cluster from a relatively closed stage to a relatively open (international) stage due to the overwhelming pressure represented by economic globalization (Becattini and Rullani, 1996; Zeleny, 1999). In the former stage, out-of-thecluster (and international) relationships are developed only in order to buy raw materials and process technologies, and in order to sell final products (Figure 1). In the latter stage, many business firms have developed out-ofthe-cluster (mainly international) relationships both upstream and downstream. The local cluster is characterized by an ever increasing range of final products and degree of internationalization (Figure 2). 5. Methodology We applied a twofold methodology and used both quantitative and qualitative research methods (Dubois and Araujo, 2007). First, we used one-way analysis of variance (ANOVA) to

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Table 1 Distribution of upstream and downstream relationships of the suppliers

Location of customers and suppliers Mechanical Local Cluster (MLC) Domestic (out of MLC) International Total

Relationships with suppliers N 820

%

N 2,486

33.3 58.3 8.4 100.0

1,437 206 2,463

categorize the first-tier suppliers of the MLC based on their local partnerships and compared the resulting groups with the degree of internationalization of the constituent firms. We measured the degree of internationalization of local cluster suppliers, using three different measures. Our first measure is the ratio of export sales/total sales (ESTS). This measure has been frequently used for the degree of internationalization of SMEs (Lu and Beamish, 2001) since most SMEs do not have subsidiaries, foreign assets or even employees abroad (indeed out of the 62 firms of our sample only 2 have foreign

Relationships with customers

8,393 4,636 15,515

% 16.0 54.1 29.9 100.0

production plants covering a marginal part of their total production). The second measure is the geographical scope of foreign sales, i.e. the number of foreign markets (Foreign markets) the company is selling to (Brush et al., 2002). In this way we account for differences between firms with business customers in just a few foreign countries and firms with business customers in many foreign countries. The third measure is the number of foreign customer relationships (International customers). Business relationship is indeed the central unit of analysis of

Technology producers

Raw material suppliers

2nd tier suppliers

1st tier suppliers

LOCAL CLUSTER

Figure 1 First stage: the local cluster as a quasi-island

Final firms

Distribution channels

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External customers

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External customers

Technology producers Technology producers

Raw material suppliers (A)

2nd tier suppliers (A)

1st tier suppliers (A)

Final firms

Distribution channels

Service providers LOCAL CLUSTER

Raw material suppliers (B)

2nd tier suppliers (A)

1st tier suppliers (A)

2nd tier suppliers (B)

1st tier suppliers (B)

Service providers

A: traditional industrial district filière B: new productive filière

Figure 2 The local cluster in a global network our framework and is coherent with the peculiarity of the business-to-business markets as opposed to consumer markets since in business markets firms operate in environments which include only a limited number of identifiable actors (Håkansson and Snehota, 2006; p. 259). The ANOVA is based on a sample of 62 local first-tier suppliers that come from a database of 487 local private limited liability companies. We followed a two-step sampling procedure. First of all, we selected the sub-population of the firms operating as first-tier suppliers. Then, we used a random algorithm to sample 62 firms from this sub-population. Interviews have been personally conducted with the founder or the CEO of the firms. Each interview took approximately 1.5

hours. Anecdotal evidence coming from the interviews was used to triangulate the results of the quantitative analysis. Table 2 gives information about the size of the firms in the sample showing that most of the suppliers are small firms while only 14.5% of them can be considered medium sized firms2. Only one firm of the sample can be considered a large firm. Second, once we completed the ANOVA analysis we use the case study research method (Dubois and Araujo, 2007; Eisenhardt, 1989) to qualify the quantitative results. In particular, as we shall see in the next paragraph, ANOVA results suggested 2 The European Union defines medium-sized firms as those with a total turnover ranging from 10 million Euro to 50 million Euro and a total workforce ranging from 50 to 249 employees.

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Table 2 Distribution of the suppliers by size Employees range 1-9 10-19 20-49 50-99 100-249 250 or more

N 15 14 23 7 2 1

Total

62

% 24.2 22.6 37.1 11.3 3.2 1.6 100. 0

that only relationships with local suppliers (and not those with local customers) support the internationalization of the first-tier suppliers. We employed the qualitative methodology to inquire into the reasons explaining how local supplier relationships support the

internationalization of the first-tier suppliers. We conducted open-ended interviews with the founder or the CEO of two MLC first-tier suppliers. On the whole, we gathered 10 hours of interviews which have been recorded and transcribed for subsequent analysis.

Table 3 ANOVA results and Tukey differences (N=62) Foreig Internation n al N ESTS market customers s Group 1 18 21,00 6,16 43,50 Group 2 8 60,12 19,75 247,25 Group 3 19 27,68 7,42 30,84 Group 4 17 18,52 6,71 56,05 F=4,5 F=2,9 29 91 p=0,00 p=0,03 F=2,975 6 8 p=0,039

ESTS Foreign markets International customers

Tukey (p-value lower than 0,90) 1,2 (0,009); 2,3 (0,039); 2,4 (0.050) 1,2 (0,036); 2,3 (0,064); 2,4 (0,050) 1,2 (0,052); 2,3 (0,033); 2,4 (0,080)

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6. Findings ANOVA results We first identified 4 groups focusing on their partnerships3 with local suppliers and customers: group 1 – first-tier suppliers that do not have any local partnership (18 firms); group 2 - first-tier suppliers having partnerships only with local suppliers (8 firms); group 3 - first-tier suppliers having partnerships only with local customers (19 firms); group 4 - first-tier suppliers with partnerships with local suppliers and local customers (17 firms). Using one-way ANOVA, we compared these four groups with regard to the measures of the degree of internationalization (DOI), namely percentage of exports on total revenue, number of foreign markets, and number of international customers. Interestingly enough, we found that group 2 has the highest mean for all the measures of DOI (ANOVA results and Tukey differences are reported in Table 3). Those suppliers that have developed at least one partnership with a local supplier but do not have any partnership with local customers are the ones that perform better in terms of all our measures of internationalization. The following two case studies will help us to shed light into the reasons that explain this result. Case studies analysis Firm A Firm A is located in MLC and was established in 1978 to serve the local cluster demand for precision mechanical components using automatic lathes. The firm employs 80 people and focuses on high-precision, complex mechanical components. The 3 We define partnerships as close and collaborative relationships, characterized by frequently long-term and complex interactions with mutual orientated and committed partners.

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firm is a first-tier supplier for several industries, such as electric household appliances, medical and precision devices, hydraulics, optomechanics, automotive, telecommunications, textiles and aerospace. The firm’s customer portfolio is highly diversified with 60 local, domestic and international customers. None of the customers accounts for more than 7% on the company’s total revenue and the top 5 customers (located in Germany and Sweden) represent 25% of company’s turnover. Since the mid ‘80s the company has been striving to increase its international presence and currently exports up to 95% of its total production (2007 data). The company has close relationships both with customers and suppliers. In particular the company has followed customers’ business model evolution and adjusted its offer accordingly. It started working as a mere sub-contractor producing on customer’s specifications and design. Over time, customers of the firm have increasingly outsourced relevant activities of their value chain including manufacturing, testing and design. In the face of such challenges, firm A evolved its competences and design capabilities and managed to be involved in customers’ new product development process. Nowadays, firm A is asked to intervene in customer design and engineering assessment and to adopt a problem solving approach. Internationalization of firm A has also spurred the company to look for new suppliers beyond cluster or regional boundaries. Two factors have forged this sourcing strategy: Firstly, the shortage of local suppliers capable of providing satisfactory service levels in surface treatments such as galvanic, anodization and chromium-plating treatments; Secondly, an ever increasing pressure by foreign customers for low-price and high quality products.

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In 2004 firm A started an international purchasing office aimed at exploiting low-cost countries opportunities. This has required a 4 year period of exploration in diverse countries (Turkey, China, India) and those areas with a relevant presence of mechanical suppliers have been privileged. As concerns local suppliers, firm A adopts a selective approach to maintain those local partners that have been managing to assure good quality levels, high volume flexibility and valuable technological competences, not only in mechanical processes but also in complementary technologies. The 10 most important suppliers are located within the local cluster. These suppliers provide plastic and electronic components, elementary mechanical processes and heat and surface treatments outsourced by firm A for economic and technological reasons. According to the CEO, maintaining partnerships with geographically and culturally close suppliers has undisputable advantages in terms of transportation costs, just-in-time deliveries, common payment systems and smooth communications. Several examples reported by the CEO explain the role that local suppliers have played in supporting partnerships with international customers. One of these examples is now discussed. In 2004 firm A has codeveloped a pressure regulator for a new type of industrial printers for one of its customers located in Sweden (Figure 3). The relationship started in 1998 with firm A providing writer heads for the customer’s product. This customer had at first attempted to develop the pressure regulator on its own, but failed. Firm A was therefore involved in the product development and suggested some changes which reduced the regulator’s size and materials usage. Firm A relied on a few

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local and non-local suppliers for raw materials. All the components of the pressure regulator were internally developed, although an electronic micro-switch was originally supplied by a non-EU foreign supplier suggested by the customer. The geographical distance between the foreign supplier and firm A negatively affected the relationship between firm A and its customer due to delays in delivering, transportation costs, custom formalities and price. To overcome these drawbacks, firm A started searching for a new supplier, successfully found one in the MLC and eventually developed a new relationship with a local supplier of micro-switches. The link between firm A and the local supplier has been promoted by the fact that both firms were doing business with a common local customer. At the inception, the relationship between firm A and the local supplier was one of traditional subcontracting without any codevelopment. Over time, the relationship began to develop as the Swedish customer insisted that Firm A comply with new international standards requiring lead-free electronic devices. This prompted a closer relationship between firm A and the local supplier aimed at developing a new lead-free micro-switch. As a result of these efforts, firm A started providing lead-free components. According to the CEO, the geographical proximity between firm A and the local micro-switch supplier has cut down the time-to-market of the new component, since it permitted smooth communications and frequent meetings that would not have been possible with a non-local supplier. Geographical proximity has also contributed to reduce transportation costs and lead times, improving the alignment and responsiveness of the whole supply chain. The relationship with the

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Foreign microsw itch supplier

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• co-development of a new ink pressure regulator

Steel Supplier

French customer (industrial printer producer)

Aluminium Supplier

Swedish customer

Rubber supplier

(industrial printer producer)

Firm A Micro switch supplier

Foreign customer (new types of rubber)

Foreign customer (rubber vulcanization tecniques)

Foreign customer Local customer

(assembling line use)

Local cluster

• co-development of a plumb-free new micro-switch

Figure 3 The case of firm A co-development of the pressure regulator Swedish customer has grown and flourished over time (it was worth 30,000 Euro at the beginning and it is now 600,000 Euro) and has been nurtured by bi-directional investments such as dedicated functional-testing machines and assembly lines in a protected and aseptic environment (clean room). Firm A is now in charge of designing, manufacturing and testing activities, providing the customer with a turn-key solution. During the development of the relationship, the customer has been acquired by an American conglomerate. Firm A leveraged on the original relationship with the Swedish division to start a new relationship with the French division of the customer. The relationship with the Swedish customer has contributed to strengthen relationships with other foreign customers. Firstly, firm A has re-used the knowledge learned working with the Swedish customer concerning new types of rubber and techniques of rubber vulcanization. Secondly, firm A uses the clean room to assemble subsystems for other customers that were

previously assembled in different, lower performing, production lines. Firm B Firm B started in 1972 as an exclusive subcontractor of Zanussi (now Zanussi-Electrolux) and is now one of the largest in the MLC producing high-precision mechanical components for several sectors including automotive and household appliances4. Firm B employs more than six hundred people with production facilities in Italy (5), France and the Slovak Republic. Three of the five Italian facilities are located in the MLC as well as the R&D department. The turnover of the firm has grown over the last ten years from less than 20 million Euro in 1997 to 78 million Euro in 2007. Firm B’s customer portfolio is highly concentrated. The firm has 21 customers all located outside the local cluster: 15 business firms in the 4

At the outset, firm B was a first-tier supplier in the household appliance industry. When it started working in the automotive industry, firm B moved upstream, becoming a leading second-tier supplier for the most important first-tier suppliers of that industry.

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automotive industry producing subsystems and modules, 2 original equipment manufacturers in the household appliance industry and the rest in other industries including bikes and plastics. The three most relevant customers operate in the automotive industry and account for 70% of total revenues. Firm B’s products for the automotive industry include mechanical components for diesel injectors, air conditioning compressors, high pressure pumps, starters, steering groups and hydraulic tappets. All the customers of the firm are big multinationals. About 85% of production is shipped to foreign markets (German and French customers account for 40% and 20% respectively), while 15% of the production is delivered to Italian customer plants. Responsiveness, efficiency and alignment of the whole supply chain are critical success factors in the automotive industry. For this reason, firm B is highly involved in developing and maintaining partnerships both with customers and suppliers. Co-design and thorough information sharing have become usual managerial practices in customer relation management. In recent years, transacting with customers has become even tougher than before. In order to cope with new customer requirements, firm B has been forced to develop justin-time deliveries, boost its design and technological capabilities and streamline its supply chain. Firm B maintains long lasting relationships with all the customers that usually involve the firm from the new product development stage. Even if customers usually adopt a single sourcing strategy, they may easily switch to other suppliers if the original one repeatedly fails to meet the required standards. Firm B’s supply base includes raw materials (such as steel), heat and surface treatments, tools and equipments.

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All raw materials, tool and equipment suppliers are non local. As regards heat and surface treatment suppliers, firm B used to have all of them within the local cluster, but over time it has been forced to reduce them because of their inability to evolve their technological and organizational capabilities. Most of the local suppliers specialized in this particular activity are in fact small firms with informal organizations and unable to meet high technological standards. Nowadays, firm B has 5 heat and surface treatments suppliers; only one of them is located in the MLC, while the other four are located in Switzerland and Germany. Despite the scant presence of local suppliers, firm B is committed to further developing the partnership with the local supplier and wants it to become the sole supplier of heat treatments in a few years. Unlike most of the others, this local supplier is well organized, adopting a formalized organizational structure, good managerial practices (such as lean management techniques) and high quality standards. According to the CEO of firm B, the partnership with this supplier improves firm competitiveness in several ways. Firstly, geographical proximity reduces logistics costs, lead times and work-in-progress. It also positively affects quality and promotes better and in-depth communications. These advantages are particularly valuable when firm B is asked to develop new or radically improve existing processes. The characteristics of the local supplier and the nature of the partnership have also facilitated the approval of this supplier by firm B’s customers trying to avoid weak links in the whole supply chain (Figure 4). 7. Discussion This understanding networks of a international

paper is aimed at how local business supplier may affect its business networks.

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Heat Treatment Suppliers Customer

Steel supplier Local cluster

Heat treatments supplier

Firm B

Foreign customer

Second-tier customer (O.E.M. car maker)

Customer Tool supplier Customer

• in-depth and better communications when suggesting new solutions to customers • just-in-time delivery

• requires firm B suppliers homologation

• reduction of logistic costs and complaints • compatible organizational structures

Figure 4 The case of firm B partnerships with a local cluster supplier To address this question we study the MLC of Pordenone. This local cluster represents an ideal setting since it has been characterized by an evolutionary process that has progressively led local cluster firms to enlarge both their final markets and sourcing areas beyond the boundaries of the local cluster. Over the last few years, firms of the MLC have been developing a wide range of relationships both upstream and downstream with non-local firms (domestic or international firms) while at the same time have been maintaining some relationships with local suppliers and customers (Bortoluzzi, Furlan and Grandinetti, 2006). Using ANOVA on a sample of 62 local first-tier suppliers, we find evidence that suppliers with the highest degree of internationalization, on the one hand, do not have partnerships with local customers; and on the other, maintain partnerships with their local suppliers. The ANOVA results have required the evidence from case studies to be interpreted. We analyzed two first-tier suppliers located in the MLC (firm A and firm B). Both firm A and firm B present a high degree of

internationalization (export share on total revenue is 95% and 100% respectively) and they both maintain partnerships with local suppliers. The two case studies show that local cluster firms working with international customers have to cope with a higher market complexity than those that deal only with local or domestic customers. International customers are more likely to require higher standards than local ones, in terms of product specifications, process quality and relational practices to be adopted. Managing partnerships with international customers may require organizational and managerial adjustments, relevant design and supply management capabilities, the adoption of formalized contracts and communication techniques, and just-intime practices. Both the CEOs point outs that local customers are smallsized firms operating in product niches and requiring a highly customized output from their strategic local suppliers. Since the firms have limited managerial resources for exchanges investing in partnerships with local customers is likely to result in tying up resources away from use in

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international relationships. As one of the interviewee argues, any commercial or technical knowledge that the firm learns from a local customer could not be reused to develop or reinforce foreign relationships. Partnerships with local customers absorb lots of resources without producing any positive effects towards internationalization. On the other hand, the higher degree of codification and formalization that characterizes relationships with international customers, forces local cluster firms to adopt a selective approach with their suppliers. Our case studies demonstrate that local cluster firms select only those local suppliers that are able to transact on a formalized basis adopting standards and codified procedures. These local suppliers may trigger important constructive effects towards international relationships in terms of resource transferability, activity complementarity and actor generalizability (Anderson et al., 1994). These effects are also enhanced in the MLC due to the nature of inter-firm relationships within the local cluster. As the theory on local clusters points out these relationships are collaborative, trust-based and characterized by strong institutional and cultural mechanisms that foster the circulation and sharing of knowledge. Knowledge transfer among local cluster members is also facilitated because of the existence of effective transfer mechanisms within the cluster and a high absorptive capacity among the cluster members (Maskell, 2001; Camuffo and Grandinetti, 2005). The role of resource transferability, activity complementarity and actor generalizability clearly emerge in the case of firm A, in particular when developing the new pressure regulator for the Swedish customer. The knowledge jointly developed with the local supplier of micro-switches has supported the relationship with the customer and reinforced other relationships with foreign customers. In the case of firm B, the local heat

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treatments supplier confirms that internationalization leads the firm to select local suppliers which are well organized, adopt a formalized organizational structure and good managerial practices. These suppliers are in fact likely to improve firm international competitiveness. The case evidence shows that, despite the globalization and the digital revolution, geographical and cultural proximity with suppliers still matters since it grants two types of advantages. First of all, proximity allows smooth communications, reduced logistic costs and lead times. Second, proximity allows the firms to strengthen international relationships with customers via resource transferability, activity complementarity and actor generalizability. 8. Conclusions Our study suggests that the most internationalized local cluster suppliers maintain partnerships only with local suppliers (and not with local customers). Moreover, only those local suppliers that are associated with important anticipated constructive effects, i.e. resource transferability, activity complementarity and actor generalizability, are to be selected by highly internationalized firms. Our paper also highlights the importance of the interdependencies among relationships of a business network. Moreover, it pinpoints the role that geographical proximity plays in affecting the interdependence between local business networks and global business networks. The study suffers from two limitations that can provide avenues for future research. First of all, we focus our attention only on vertical business relationships. Future studies should consider other local relationships such as those with competing firms or public institutions. Moreover, comparisons between different local clusters are needed in order to back up our results.

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References Anderson, J. C., Hakansson, H. & Johanson, J. (1994) Dyadic business relationships within a business network context, Journal of Marketing. 58 (4), 115. Baker, G., Gibbons, R. & Murphy, K. J. (2002) Relational contracts and the theory of the firm, Quarterly Journal of Economics. 117, 3984. Baraldi, E. (2003) The places of IKEA: using space as a strategic weapon in handling resource networks, Paper presented at the 19th IMP-conference in Lugano, Switzerland. Becattini, G. & Dei Ottati, G. (2006) The performance of Italian industrial districts and large enterprise areas in the 1990s. European Planning Studies. 14, 1139– 1162. Becattini, G. & Rullani, E. (1996) Local systems and global connections: the role of knowledge. In Cossentino, F., Pyke, F. & Sengenberger, W. (Eds.). Local and Regional Response to Global Pressure. The Case of Italy and its Industrial Districts, Geneva: International Institute for Labour Studies. Becattini, G. (1990) The Marshallian industrial district as a socioeconomic notion. In Pyke, F., Becattini, G. & Sengerberger, W. (Eds.). Industrial Districts and Inter-Firm Cooperation in Italy, Geneva: International Institute of Labour Studies. Beekman. A. V. & Robinson, R. B. (2004) Supplier partnerships and the small, high-growth firm: selecting for success, Journal of Small Business Management. 42 (1), 59-77. Biggiero, L. (2002) The location of multinationals in industrial districts: knowledge transfer in biomedicals, Journal of

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Technology Transfer. 27 (1), 111-122. Blankenburg, D., Eriksson, K. & Johanson, J. (1996) Business networks and cooperation in international business relationships, Journal of International Business Studies. 27 (5), 1033-1053. Bocconcelli, R. & Tunisini, A. (2001) La costellazione del mobile nel pesarese. Un’analisi interpretativa, Piccola Impresa/Small Business. 14 (2), 83-112. Bortoluzzi, G., Furlan, A. & Grandinetti, R. (2006) Il distretto della componentistica e della meccanica in provincia di Pordenone. Relazioni locali e apertura internazionale. Milan: Franco Angeli. Bradley, F., Meyer, R. & Gao, Y. (2006) Use of supplier-customer relationships by SMEs to enter foreign markets, Industrial Marketing Management. 35 (6), 652-665. Brush, C., Edelman, L. & Manalova, T. (2002) The impact of resources on small firm internationalization, Journal of Small Business Strategy. 13, 117. Camuffo, A. & Grandinetti, R. (2005) I distretti industriali come economie della conoscenza, Argomenti Rivista di Economia, Cultura e Ricerca Sociale. 15, 5-36. Camuffo, A. (2003) Transforming industrial districts: large firms and small business networks in the Italian eyewear industry, Industry and Innovation. 10 (4), 377-401. Camuffo, A., Furlan, A. & Rettore, E. (2007) Risk sharing in supplier relations: an agency model for the Italian air conditioning industry, Strategic Management Journal. 28 (12), 1257-1266.

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Chetty, S. K. & Blankenburg, H. D. (2000) Internationalisation of small to medium-sized manufacturing firms: a network approach, International Business Review. 9, 77-93. Corò, G. & Grandinetti, R. (1999) Evolutionary patterns of Italian industrial districts, Human Systems Management. 18 (2), 117-129. Corò, G. & Grandinetti, R. (2001) Industrial districts responses to the network economy: vertical integration versus pluralist global exploration. Human Systems Management, 20 (3),189-199. Dahl, M. S. & Pedersen, C. O. R. (2004) Knowledge flows through information contracts in industrial districts: myth or reality?, Research Policy. 33, 1673-1686. Dicken, P. & Malmberg, A. (2001) Firms in territories: A relational perspective, Economic Geography. 77 (4), 345-363. Dubois, A. & Araujo, L. (2007) Case research in purchasing and supply management: opportunities and challenges, Journal of Purchasing and Supply Management. 13, 170181. Eisenhardt, K. M. (1989) Building theories from case study research, The Academy of Management Review. 14 (4), 532-550. Emerson, R. M. (1981) Social exchange theory, In Rosenberg, M. & Turner, R. (Eds.), Social Psychology: Sociological Perspectives, New York: Academic Press. Ford, D. (1980) The development of buyer-supplier relationships in industrial markets, European Journal of Marketing. 14 (5/6), 339-354. Furlan, A., Grandinetti, R. & Camuffo, A. (2007) How do

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subcontractors evolve?, International Journal of Operations & Production Management. 27 (1), 69-89. Furlan, A., Grandinetti, R. & Camuffo, A. (2009) Business relationship portfolios and subcontractors’ capabilities, Industrial Marketing Management. forthcoming Garofoli, G. (2002) Local development in Europe: theoretical models and international comparisons, European Urban and Regional Studies, 9, 225-239. Grabher, G. (1993) The weakness of strong ties: the lock-in of regional development in the Ruhr area, In Grabher, G. (Ed.), The Embedded Firm: on the Socioeconomics of Industrial Networks, London: Routledge. Granovetter, M. (1985) Economic action and social structure: the problem of embeddedness, The American Journal of Sociology. 91 (3), 481-510. Håkansson, H. (1982) International marketing and purchasing of industrial goods. An interactive approach, Chichester: John Wiley. Håkansson, H. & Snehota, I. (1989) No Business is an island: The network concept of business strategies, Scandinavian Journal of Management, 5 (3), 187-200. Håkansson, H. & Snehota, I. (Eds.). (1995) Developing relationships in business networks, London: Routledge. Håkansson, H. & Snehota, I. (2006) No Business is an island: The network concept of business strategies, Scandinavian Journal of Management, 22, 256-270. Håkansson, H. & Waluszewski, A. (Eds.) (2002) Managing Technological Development¸Oxford: Routledge. Hallen, L., Johanson, J. & SeyedMohamed, N. (1991) Interfirm adoption in business

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relationships, Journal of Marketing. 55 (April), 29-37. Iammarino, S. & McCann, P. (2006) The structure and evolution of industrial clusters: transactions. technology and knowledge spillovers, Research Policy. 35, 1018-1036. Jacob, F. (2006) Preparing industrial suppliers for customer integration, Industrial Marketing Management, 35 (1), 45-56. Johanson, J. U. & Mattsson, L. G. (1988) Internationalisation in industrial systems: a network approach, In Hood, N. & Vahlne, J.E. (Eds.). Strategies in Global Competition, New York: Croom Helm. Johnston, B. & Araujo, L. (2002) The effects of spatial proximity on inter-organizational relationships, Paper presented at the 18th IMP-conference in Dijon, France. Loasby, B. J. (1998) Industrial districts as knowledge communities, In Bellet, M. & L'Harmet C. (Eds.). Industry, Space and Competition. The Contribution of Economists of the Past, Cheltenham: Edward Elgar. Lu, J. W. &. Beamish, P. W. (2001) The internationalization and performance of SMEs, Strategic Management Journal. 22 (4), 565-582. Malmberg, A. & Power, D. (2005) (How) do (firms in) clusters create knowledge?, Industry and Innovation. 12 (4), 409-431. Maskell, P. (2001) Towards a knowledge-based theory of the geographical cluster, Industrial and Corporate Change. 10 (4), 921-943. Mota, J. & de Castro, L M. (2004) Industrial agglomerations as localised networks: the case of the Portuguese injection mould industry, Environment and Planning A. 36 (2), 263-278.

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Nassimbeni, G. (2003) Local manufacturing systems and global economy: are they compatible? The case of the Italian eyewear district, Journal of Operations Management. 21 (2), 151-171. Piore, M. J. & Sabel, C. F. (1984) The Second Industrial Divide: Possibilities for Prosperity, New York: Basic Books. Porter, M. E. (1985) Competitive Advantage, New York: The free Press. Porter, M. E. (1998) Clusters and the new economics of competition, Harvard Business Review. 76 (November-December), 77-90. Porter, M. E. (1990) The Competitive Advantage of Nations, New York: The Free Press. Saxenian, A. (1994) Regional Advantage. Culture and Competition in Silicon Valley and Route 128, Cambridge: Harvard University Press. Sforzi, F. (2003) Local development in the experience of Italian industrial districts, In Becattini, G., Bellandi, M., Dei Ottati, G. & Sforzi, F. (Eds.). From industrial districts to local development. An itinerary of research. Cheltenham: Edward Elgar. Stieglits, N. & Heine, K. (2007) Innovations and the role of complementarities in a strategic theory of the firm, Strategic Management Journal. 28 (2), 115. Street, C. T. & Cameron, A. (2007) External relationships and the small business: a review of small business alliance and network research, Journal of Small Business Management. 45 (2), 239-266. Zeleny, M. (1999) Industrial districts of Italy: local-network economies in a global-market web. Human Systems Management, 18 (2), 65-68.

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Zucchella, A. & Servais, P. (2006) Firm internationalisation and business to business relationships. The issue of local and international networking in a multiple embeddedness framework, Paper presented at the 22nd IMP-conference in Milan, Italy.

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The Italian Company Beyond the District: Supply Network Strategies Roberta Bocconcelli a and Annalisa Tunisini b a

Department of Business Studies, University of Urbino “Carlo Bo”, Via Saffi, 42 – Palazzo Battiferri, 61029 Urbino (PU)- ITALY, e-mail: [email protected] b

Department of Business Studies, University of Urbino “Carlo Bo”, Via Saffi, 42 – Palazzo Battiferri, 61029 Urbino (PU)ITALY, e-mail: [email protected]

Abstract This paper analyzes the changes affecting the supply network strategies of a mid-sized Italian company in the mechanical industry that had developed by leveraging on strong supply-network relationships with colocalized actors within its industrial district context. The work focuses on the interplay between the company’s development and the most significant changes in the structure and in the substance of its supply network relationships. We thus analyze its development from a local small/medium sized company to a medium/large international one with the aim of investigating the following: - the constraints and opportunities generated by the local supply network in relation to the company’s international development and vice versa; - the designing of a local/global supply network; - the reciprocal influences between local and international supply base. Key words: Supply Networks, supplier relationships, districts

1. Introduction It is well known that small and midsized companies (SMEs) have benefited of their geographical closeness to a many variety of suppliers and users that have improved their growth and economic success (Becattini 1990, 2003). Literature on industrial districts has acknowledged the advantages that relate to companies’ co-location, but it has also recently debated the problems that SMEs as well as district areas are facing in the context of increasing globalization (Furlan et al., 2007; Chiarvesio et al., 2006; Susman, 2007). As it is extensively written referring to large companies, also in the analysis of SMEs we observe a growing attention to the development of international networks of supplier relationships that support the company’s greater efficiency and product

development (Fung et al., 2008; Chetty, Blankenburg Holm, 2000). The paper analyses the changes affecting the supply network strategies and configurations of an Italian mid-sized company as the latter has started to expand internationally and looked for new supplier relationships beyond the initial and geographical set. In particular, by using a longitudinal case study approach, we analyze a mechanical company producing wood, glass and stone working machineries that was borne and largely developed in a district context in tight connection with many local suppliers and customers and has then become an international leader in its business segment. Referring to the history of this company we investigate the changes that have affected its supply network structure and processes during its development.

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Particularly, we stress the role played by the interdependencies among different supplier relationships and especially among local and international supplier relationships in the process of reconfiguration of the company’s supply network. The topic is relevant because it involves a large number of Italian SMEs. Italian industry is mostly based on small and mid sized companies and many of them are geographically concentrated. The process of international development of many of these companies poses serious questions about the survival and development of many smaller district companies that are interconnected to the former. In fact the emerging leading companies look for international suppliers and de-localize production, hardly reducing business opportunities for the “historical” network of Italian suppliers (Bocconcelli, Tunisini, 2009). This process of internationalization also raises important questions about the future of the manufacturing base of the Country. The case thus offers interesting suggestions and points to critical variables emerging when a company looks for an increasing internationalization of its main set of supplier relationships. The literature on business marketing and industrial networks suggests a view of the supply side of a company as a web of varied and interconnected relationships (Gadde, Håkansson, 2001; Huemer, 2002; Axelsson et al., 2005). Connectedness impacts on the degree of freedom a company has in redefining its supply network (Blankeburg, Johanson, 1992). Following this approach we develop our case study examining: a) the constraints and opportunities generated by the company’s local supply network in relation to its strategy and vice-versa; b) the configuration of the local/international supply network; c) the reciprocal influences between local and international supplier relationships.

2.

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Theoretical background

As literature has stressed, supplier relationships cover a central role for company’s competitiveness (Spekman et al., 1994; Cox and Hines, 1997; Christopher, 1998; Gadde and Håkansson, 2001; Axelsson et al., 2005). It is well known and widely studied that a company acting in business-tobusiness markets does not have total and final control over all the processes that create value for customers: they operate in different supply networks. Any company depends on a set of differentiated relationships with suppliers and other market actors to create and deliver value to final customers (Cox and Lamming, 1997; Monczka and Morgan, 1997; Walters and Lancaster, 1999, 2000; Christopher and Payne, 2002; Ford et al., 2003; Christopher, 2005; Bocconcelli and Tunisini 2007). Network studies highlight that the supply networks in which the company plays its action are characterized by a substantial variety and dynamism in their structure and in their substance (Ford et al., 2003; Ford and Redwood, 2004). Tight relationships with co-localized suppliers have always been an important driver of development for the district companies acting as strategic centres (Lorenzoni and Baden-Fuller, 1995; Boari and Lipparini, 1999; Lorenzoni and Lipparini, 1999). In the meantime the latter’s growth has always represented a source of growth for the supplier’ themselves. Nowadays we observe dynamics that can generate important changes in the supply networks characterized by the co-location of their actors. We particularly refer to the development of international supply networks by leading companies that are more and more looking for “excellent” suppliers on an international scale, often linked to production decentralization strategies. We also refer to the parallel attempt of growth by their suppliers aimed at obtaining a more independent position in the market by means of the enlargement of their

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customers’ base and of the entrance in international supply networks (Hines, 1994; Trent and Monczka, 1999; Bocconcelli and Tunisini, 2006). Since the late nineties in the Italian management literature we observe more and more studies in that direction. Economists, organizational and business management researchers, institutions and associations (Corbetta 2000; Coltorti, 2004; Alzona and Iacobucci, 2005; Mediobanca and Unioncamere, 2008; Dalli and Tunisini, 2007) have developed analysis into the well known characteristics of the Italian industrial structure that is mostly based on small-mid sized companies that account for about the 95% of the total number of enterprises. They are responsible for 14% of the total Italian manufacturing that becomes 22% if we consider their connected suppliers. They also show an increase in added value of 44% against the 11% of the large Italian manufacturing companies (Mediobanca-Unioncamere, 2008) Among the studies that have emphasized the role and the peculiarities of mid-sized companies we find the researches conducted in respect to industrial districts. In particular, the interest in medium sized company is connected to the fact that in many cases it acts as strategic centre (Lazerson, Lorenzoni, 1999) or as leader of small-sized companies located in the same regional cluster (Varaldo, Ferrucci, 1996). The emergent role of these companies and their development has questioned the future role of the districts and of many of smaller suppliers (Chiarvesio et al., 2006). What these authors have observed is the “opening of the districts” and of many district companies to international sourcing (Fung et al., 2008), thus questioning many elements that have always been considered an advantage of the division of labour among local clusters of companies, first of all their physical closeness (Piore and Sabel, 1984; Becattini 1990, 2003; Porter 1990, 1998; Pyke et al., 1990). In this respect a question is debated among scholars on the role of the local network

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for the company’s international development and growth. Literature on industrial purchasing and supply networks recognizes a tight interplay between structures and processes affecting a company’s supply network and the direction of the supply network strategy (Håkansson and Snehota, 1989, 1995; Gadde and Håkansson, 2001; Huemer, 2002; Axelsson, et al., 2005). It is observed that a continuous change characterizes each single supplier relationship due to the actions and interactions of the parties involved, to resource combination and to activity links. Each company’s supplier relationships are embedded in a significant number of other supplier relationships in terms of shared resources and interconnected activities. This is a source of continuous change. The company implements strategies that have an impact on its relationships with suppliers; on the other side, however, interdependencies and interconnections among the company and its suppliers and among different supplier relationships significantly affect the directions of the company’ supply network. 3. The mechanical beyond the district 3.1.

company

Approach and methodology This paper originates from a research that we have conducted since the late‘90s on the “Pesaro furnishing district” in the middle-east of Italy. The main focus of the study is the understanding of the nature and the development of business networks in this “regional area” adopting alternatively the perspective of different actors in the market. The geographical area has an historical concentration of important Italian furniture companies that have developed in parallel with some important mechanical companies specialized in the production of wood-working machinery. In recent years our attention has been mainly addressed to the study of the role of some developing mid-sized mechanical companies in the

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district and of their development strategies in relation to their supplier relationships. In order to accomplish the object of this study we have adopted a single longitudinal case study approach and we have divided the process analysed into three main phases: - from a local small/medium sized company to a local medium/large company (par. 3.2.1); - from a local company to an international company with sophisticated commercial structures all over the world (par. 3.2.2); - The development of the production strategy and the new experience in India (par. 3.2.3). The first two phases of the company’s development have been mainly analyzed by the elaboration of data and information collected through in depth interviews developed in 10 years of continuous contacts and interactions with different managers of the company. The last phase is the most interesting one. It’s an ongoing phase and in this respect it represents both a point of arrival and departure for elaborating some final reflections (par. 4) in relation not only to the “future” of the development process of the company, but also for reading, in a more general perspective, the first two phases. For this last phase two specific indepth interviews have been conducted with three managers of the company: the Operations Manager, the Overseas Procurement Department Director and the Group Purchasing Manager. To complete the empirical frame for this last part, two interviews have been conducted with the managers/entrepreneurs of two of the company’s suppliers. 3.2. The case 3.2.1 From a local small/medium sized company to a local medium/large company The company was established in 1969 in the centre of Italy (Pesaro) and its founder was specialised in mechanical

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working processes. The original location of the company has a particular meaning. Historically, its geographical location was dominated by a large number of mechanical factories (about 15-20 SMEs) by large Italian Groups and therefore it has a long mechanical tradition. The founder of the company developed his own abilities in these groups. The company has considerably grown in the ‘80s thanks to the demand by the local furniture producers. The geographical area has in fact an historical concentration of important Italian furniture companies. The close connection between the furniture producers and the producers of wood-working equipment has given a great impulse to the development of both the kinds of companies. We may say that there was a fruitful combination between different resource elements that made that geographical area particularly rich in business development potential. In 1978 this equipment company introduced the first numerically controlled boring machine dealing with panel processing and rapidly became the worldwide leader in this business. It is still leader today in this business and it has also broadly enlarged its offering to other applications and processes. The innovation coming from the strict collaboration with the furniture producers in the district have constantly pushed the development process of the company in these years. The market that was mainly made by the local and some national furniture producers, was a very dynamic market characterized by rapid development both from a quantitative and qualitative point of view: the furniture companies were mainly asking for a huge automation of the “panel processing” that has been the predominant material (with linked technologies) in the district; in the same time new materials and linked production technologies were emerging in furniture’s manufacturing process such as stone, glass and metal. The company responded to this development with a rapid growth strategy that reached its maximum level in the 80’s, through an intensive merger and

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acquisition strategy, mainly finalized to the control of all the technologies involved in the furniture production processes (wood, stone, glass and metal working technologies). The goal was to ensure to customers a complete range of products for the automation of the production processes. The acquired companies were all Italian companies mainly localized in the same district. In a couple of years (1987/88) the company acquired three companies specialized in various phases of furniture production – panel processing – (assembling lines, panel sectioning, mechanical component). This strategy of growth continued intensively in the first ‘90s with the acquisition of other companies specialised in stone, glass and metal working technologies, mainly localized in the same area. In 1991 the company became a group based on numerous series of production units in the district. Due to this very fast process of development, the company has rapidly changed over time its supplier relationships often on bases that, as declared by people interviewed, were not always clear or correctly perceived by the management. At the beginning of its activity, the company had some close and stable relationships with very few small mechanical suppliers in the district that was characterized by excellent capacities in mechanical working processes. The fast process of growth led in a very short time to an increase in the supplier relationships for the company due both to the need for new capacities and resources not exploited by the company before, both to the acquisition strategy that caused a sum of a stratified net of relationships of the acquired companies in the present supply network of the company. In this phase of growth through acquisitions, the attention of the management has been focused on the “coupling” of the supply network of the acquired company (mainly located in the district) with the “previous” one. The main goal was the exploitation of the enormous potential mainly based on the local supply

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base, trying, in the same time, to minimize the inefficiencies stemming from a very large portfolio of relationships. 3.2.2

From a local company to an international company with sophisticated commercial structures all over the world The 90’s have been primarily characterized by the development of the company in the international markets with the opening of a series of commercial subsidiaries and the construction of a very large distribution structure. In the 1990’s the company started the process of internationalization with the opening of the first subsidiary in North America. In these years some changes have also affected the production process generating changes also in the in-sourcing and outsourcing strategies. The international market represented in the nineties a great opportunity for the company. The productive capacity and the technology developed in the local context had to be not just exported but exploited in diverse ways in different contexts. Placing commercial business units responsible for the image and the development of the company’s product in the different local markets was viewed as a basic strategy. These business units were (and are) mostly charged with the organization of local resellers and sales representatives developing a strong connection with local customers and local use culture. They combine the “made in Italy” image in the mechanical product with the country-specific uses of the products and expectations on its applications. In this respect, the company faced some problems. In Germany, for example, the “made in Italy” image is not always positive. As a consequence, business units responsible in Germany dealt with problems of changing the users’ approach towards a Made in Italy product. The result of the process of international development has been that at present about 75% of the company’s sales are outside Italy and 30 commercial units

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are located all over the world in the most important markets. The international expansion has been accompanied by a re-organization of the production process and of supply network strategies. The increasing attention to a variety of international customers with specific needs in different geographical and cultural contexts led the company gradually to in-source some activities and processes, mostly performed by local suppliers (i.e. the production of parts and components such as electro-mandrels, the subsystems of prototype development, the technical design of some external parts of the machinery), as considered strategic in the process of value creation for the customer and source of economies of scope. In particular, the company proceeded to an internal reorganization of its activities with the constitution of three main divisions (Wood Division, Glass and Stone Division and Mechatronic Division). The goals were the control of the central phase of the product development – numerical control, systems and engines (Mechatronic Division) – and to provide with Wood and Glass and Stone Divisions to the creation and diffusion of the value for the customer with a complete range of customized solutions focalized on services and problem solving capabilities. Up to the beginning of 2000s, the company searched for increased product customization and adaptation to different needs of different customers by leveraging on the capabilities of the acquired companies and of their networks of supplier relationships. But when, over time, the process of differentiation of the offering increasingly shifted to be connected not solely to the product in itself but, more to a set of multiple dimensions such as service, problem solving, time, assistance, training, the company moved towards a reconsideration of its supply network strategy. The network of supplier relationships (defined as “broad” and “far”) was considered in this phase a constraint to the growing process of the company, also considering the huge investments in

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the acquiring strategy that the company made in these years. The company selected local suppliers and considerably reduced their number as well as developing tight relationships with the selected ones. This has been mainly obtained through the elimination of multiple sourcing, the high specialization of the single supplier (just one for each type of component/process for one supplier), the purchasing of preassembled complex systems instead of single components by selected first-tier suppliers. The strategy of reducting suppliers from 700 to 400 was not easy, especially because many of these suppliers had grown considerably thanks to their connections with the company. Mutual dependence made it difficult both to cut some relationships and to address some others as the companies wanted. 3.2.3

Today and tomorrow: the development of the production strategy and the new experience in India After a significant crisis in 2001 due to a bad investment in the acquisition of an European company and to the significant reduction of the orders from the US market (because of the US dollar and Euro exchange), the company faces an important turnaround that can be considered a truly radical change of company’s business model aimed at maintaining and reinforcing its position on the international market. The managers interviewed declared that this is the most crucial period that the company has faced in its growing process. The internationalization is currently considered as a point of departure and of arrival of a more integrated strategy of growth that is based on the reviewing of the processes of: - Product Development; - Product Manufacturing; - Supplier Integration. As stressed by the management, the main objective of the changes in these

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processes is the re-discovery of the “core business” of the company on an international level: the company that, until two years ago, was very internationalized, but purely on the commercial side, decided both to rationalize the production activities performed internally through colocated suppliers and to start production activities in India. On the one side, the company is facing the urgency to evolve as a flexible organization capable of ensuring rapid response to the requests for customized offerings by customers in its traditional “mature” markets. On the other side it is pressed to rapidly occupy a relevant position in some new emerging markets with different needs expressed by local customers oriented to standardized working processes and thus asking for more standardized products. The Product Development and Product Manufacturing processes are reformulated in a logic of lean product development and lean manufacturing, thanks to the collaboration with Toyota System Production and Porsche Consulting (in the last year the production line in Pesaro has been totall renewed). The goal is to respond to different customer requests efficiently and effectively mainly through the use of modular strategies in design and production. This strategy has important impacts on the local network of supplier relationships. These impacts are coherent with the previous strategies in terms of suppliers’ portfolio rationalization and creation of stronger relationships with selected local suppliers. But when coming to the parallel strategy of setting up a new production site in Bangalore, things become much more complicated. The geographical area of Bangalore has been considered as a great opportunity to exploit the local Indian suppliers’ technical capabilities to produce some basic and standardized products for the local Asiatic emerging market. The main object that has been declared by the interviewed managers is “the construction of a local supply network that reproduces the way of functioning of the district of

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origin” with the productive site in India functioning as the coordinator between the supply base in Bangalore and the supply network in Italy just for very few strategic components and systems. This process is not as easy and unidirectional as described. In synthesis, we can observe a strong reciprocal influence between the changes affecting the traditional set of suppliers and the international supply base that could lead to a change of the whole supply network strategy of the company influencing its development processes. Even if the management recognized in the region of Bangalore some mechanisms of functioning similar to those of the Italian district that have allowed the company to exploit similar organizational competences and capabilities in relation to the coordination of Indian suppliers, they did not considered a major problem. The local Indian suppliers (100-120 at the moment) with some major technical capacities show a lack in their internal organizational skills that the company had thought much easier to fill. In this respect the company is now involved in training processes that are taking a longer time and much more resources than planned before. In this very delicate phase, the company is forced to balance this situation for an undefined length of time with a temporary reconsideration of its supply strategy in Italy in relation to some “minor suppliers”. This is mainly through an expanding (or in some cases new) demand for some smaller Italian suppliers that had been considered “marginal” in the perspective of the local production restructuring but that have now to be exploited again in relation to the international production started in India. The construction of the production site in Bangalore strongly influences and differently addresses the strategy of selection and integration of Italian major suppliers. The selection of Italian suppliers is now mainly influenced (given the difficulties experienced on the ground in India) by their willingness and ability to

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develop integration on an international level. In this respect we can find very different responses by the Italian suppliers in relation to their own market strategy and entrepreneurial attitude. This is the case with the two suppliers of the company we have interviewed that have respectively “accepted” and “not accepted” the possibility to implement a strategy of follow sourcing. These two suppliers have differently evaluated the risks and opportunities coming from a strict collaboration with the company in relation to their own strategy of growth more or less centred on the development of their existing network of relationships. These different behaviours seem today more and more dependent on access to financial resources. These different orientations of some “focal” Italian suppliers are thus shaping increasingly the form of the Indian net of suppliers and in the same time are addressing the modalities that the company is following for the designing of the local supply base in Italy. The internationalization of the production activities has also strongly influenced the relationships of the company with large internationalized suppliers and vice versa. These large suppliers (i.e. Siemens, Bosch) have until now been suppliers for “commodities” (standardized components and small sub-systems). The relationships have been always between the Group Purchasing Department and the Italian commercial subsidiaries of these large companies for the local production in Pesaro. These major suppliers have now proceeded to different commercial and productive strategies – with a connected supplying strategy mostly based on the acquisitions of some small local suppliers – in different countries with different “market proposals”. In particular, these multinationals have developed a their own production activity in Bangalore with autonomous commercial subsidiaries offering different and much more complete solutions for mainly standardized

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productions that can compete with some of the suppliers located in Italy. These differentiated offerings have now to be considered differently by the company under analysis in its purchasing process. In some cases it appears more convenient to start the relationships (thorough the Overseas Procurement Department) with the local subsidiaries of multinationals (for example, relating to Siemens’ Indian subsidiary). In other situations it is more convenient to centralize (through the Group Purchasing Department) the purchasing strategy in Italy relating to Italian subsidiaries of the multinationals (for example, relating to Siemens’ Italian subsidiary). In other cases it can be also that the supply relationships with the Indian subsidiaries of the multinationals are functional to the Italian production (for example, relating to Siemens’ Indian subsidiary both for the Indian and for the Italian factories). This range of different situations emerges, for example in relation to different price policies of these multinational companies (MNCs) in diverse countries for a same component or system. Table 1 below summarizes the phases of company’s development and the related relevant changes in the supply network that we examined above. 4. The development strategies

analysis: company’s and supply network

As we have stressed in the theoretical background, we observe dynamics that can generate important changes in the supply networks characterized by the co-location of their actors. The case under analysis shows that there is a significant interconnection between company’s development and local supplier relationships. This interconnection emerges progressively and it is tightly related to the changes in the company’s approach to diverse customers and markets. In particular we can observe that the company under study has progressively proceeded to an

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Table 1 Company’s development and changes in the supply network Aims

I phase Growth through acquisition strategy

To exploit the opportunitie s offered by the location of origin.

II phase Commercial internationaliz ation

To exploit the opportunity stemming by differentiati on of customers’ needs through a reorganizati on of the value creation activities.

Insourcing/outsourcing decisions Outsourcing strategy.

Number of suppliers

Relationship s substance

Suppliers’ network

Increasing (from few to a lot localized suppliersaround 700).

Transactional exchanges; some technical cooperation with some local suppliers

In-sourcing of strategic components and services to the customer.

Decreasing (process of reduction from 700 to 400 local suppliers).

Close relationships with selected co-located suppliers focused on operational and strategic integration.

Some large international suppliers (MNCs) for standardized components in large volumes; many local suppliers for specific components. Conflict among local suppliers for controlling some more value added phases. Emerging of first tier suppliers and growth of some of them from small to mid-sized companies.

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III phase Production internationaliz ation

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To exploit the opportunity stemming by emerging markets.

In-sourcing strategy in relation to product development and engineering activities. Out-sourcing strategy for the new production set in India; construction of a local supply network.

increasing integration with the customers characterized by a differentiation of the offerings through the adaptation to different needs expressed by different markets and by an increasing focus on service and problem solving abilities. The search for growing integration with the customers has been accompanied by a physical nearness to them: in the first phase of company’s development we have stressed the strong connection with some leading customers in the local district, in the second phase we have showed the internationalization on the commercial side and the creation of branches in different countries; in the third phase we have emphasized the company’s internationalization on the production side in one important country of destination of the products. These processes had been accomplished throughout a re-organization of the upstream activities, traditionally based on the closeness with co-localized suppliers. In particular, in the three phases we observe a continuous and interconnected change in the insourcing/out-sourcing decisions and in the

Increasing/D ecreasing? On-going process difficult to evaluate

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Tight relationships with some first tier Italian suppliers; Changes in the relationships with large internationaliz ed suppliers; Loose relationships with Indian new suppliers

Increasing cooperation between some first tier suppliers and sub-suppliers for internationaliz ation; Increased competition between the first tier suppliers and subsidiaries of MNCs; Uncertain future of the network of the smallest Italian subsuppliers and of some suppliers

structure and dynamics of the company’s supply network (number of suppliers, substance of the supplier relationships; cooperation and conflicts in the network) (see Table 1). In the first phase we see the company’s development mainly based on the exploitation of the opportunities offered by the local context. The company, mainly through a process of acquisition of some co-localized competitors, became the “centre” of a net of a large number of supplier relationships locally rooted and interconnected. Some relationships exist with multinationals as suppliers of large volumes of standardized components. In the second phase the company pursued an increasing internationalization of its commercial organization to exploit the opportunities of the international market and of a re-organization of its value creation activities. This strategy was based on the in-sourcing of the development and production of some strategic components and systems being them the core technology for the entire range of products. The connected process of reducing

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the number of Italian suppliers and the creation of closer relationships with selected ones was both supported and hindered by the previous network of relationships and by an increasing level of conflict among suppliers that were searching for an independent space of action in the national/local context. The company had the opportunity to base its process of growth on the competences, know how and capabilities co-developed with the network of localized suppliers, but in the same time it had to face the difficulties to concretize this opportunity because of the dynamics of the network itself. In this respect, in the third ongoing phase of development, the company is still trying to compose and combine these difficulties aiming to exploit the opportunity stemming by the emerging markets in an international context. The company is proceeding to a parallel reorganization of its Italian production process (with an increasing in-sourcing of some strategic processes) and to the internationalization of the production activities in India that implies a major change in its whole supply network that is increasingly affected by the reciprocal influences between the emerging supply base in India and the changing supply base in Italy. In particular, the new production set in India has opened unexpected opportunities and promoted some unexpected changes with different impacts on the company and its suppliers’ base. On the one side, this has created room for the increasing entrepreneurial independence of some Italian first tier suppliers aiming at occupying a more relevant position in the local supply network; the internationalization of production processes by the company under analysis has also given room to the internationalization of the Italian suppliers aiming to occupy a stronger position in the international supply network. On the other side, it has given the company the possibility to enlarge and also radically change its supply base. In India, in fact, the company may have access to local suppliers as well as to the

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branches of MNCs with which it already has relationships in Italy. Moreover, once the local Indian suppliers have acquired the needed competences and capabilities they could partly replace the old first tier Italian suppliers. Concerning the MNCs, different alternatives can be seen by the company: to relate to the Indian subsidiaries solely for the Indian production or to rely on the Indian subsidiaries also for the Italian production. At present it is difficult to preview the future especially because these possibilities were in great part unexpected and the company has to carefully analyze the possible consequences of different choices. If we now explicitly refer to the questions that we have addressed in the first section of the paper and we can suggest how the case gives us some important insights. In relation to the analysis of the constraints and opportunities generated by the company’s local supply network in relation to company’s strategy and viceversa, the case shows the influence of the local supply base when important strategic decisions have to be taken, specifically referring to the internationalization process, the production in India, the local supply base has played sometimes as a constraint, sometimes as an “engine” for the development. But the opposite is also true, i.e. the company’s strategy has addressed differently in the different phases the potential of development of the local supply base. The case thus teaches that whenever an internationalization strategy is to be implemented (as well as any strategy of development), the historical network of relationships is to be taken in serious consideration for the opportunities as well as the obstacles it can generate. In relation to the configuration that can be assumed by the local/international supply network, we can observe that it is not possible to plan it in advance: the interactions and the interdependences that are enacted by any company’s action make the supply network configuration extremely changing and unexpected.

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In conclusion, we can observe how the reciprocal influences between local and international supplier relationships in most of the cases they can be considered the main driver of a company’s choices, thus directing the supply network configuration. 5.

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changes affecting the network of interconnected relationships the actors are involved in. Considering these aspects we think that the IMP approach can play a valuable support to catch the dynamics of Italian developing companies and of Italian districts today.

Concluding remarks References

The company we have analyzed suggests a viewpoint on the complexity and uncertainty of the development of Italian companies, acting as strategic centres in geographical industrial areas and of their future role in the global market being they influenced and constrained between local roots and international vocation. In order to really understand the difficulties and the opportunities for these companies, it is necessary to enlarge the study to numerous Italian companies acting in different districts, dealing with different business and relating to different international markets. The research should be addressed to the investigation of different strategies of internationalization in different countries (i.e. delocalization of production activities Vs parallel production activities in different foreign markets) and to the study of the interrelated changes in the supply networks of the companies. Our case stresses the growing importance of some first-tier suppliers in the internationalization process and their emerging role in the development of the district with respect to smallest subsuppliers. In this perspective we also think that is important to focalize on these actors rather than solely on the traditional strategic centres. From the theoretical point of view, the case illustrates how the insourcing/outsourcing decisions, the configuration of the network of relationships and the substance of the relationships the company is involved in are constantly changing. These changes are contemporarily due to the strategy performed by the company itself and by its counterparts, to the intrinsic dynamism of the supplier relationships and to the

Alzona, G. & Iacobucci, D. (2005) Le medie imprese tra controllo famigliare e network globali. L’industria, 2, April-June. Axelsson, B., Rozemeijer, F., & Wynstra, F. (2005) Developing Sourcing Capabilities. Chichester: Wiley. Becattini, G. (1990) The Marshallian Industrial District as a Socioeconomic Notion. In Pyke, F., Becattini, G. & Sengenberger, W. (Eds.). Industrial Districts and Inter-Firm Cooperation in Italy. International Institute for Labour Studies, Geneva. Becattini, G. (2003) From the industrial district to the district districtualization of production activity: some considerations. In Belussi, F., Gottardi, G. & Rullani, E. (Eds.). The technological Evolution of Industrial Districts. Boston: Kluwer. Blankeburg, D. & Johanson, J. (1992) Managing Network Connections in International Business. Scandinavian International Business Review, 1 (1), 5-19. Boari, C. & Lipparini, A. (1999) Networks within Industrial Districts: Organising knowledge Creation and Transfer by means of Moderate Hierarchies. Journal of Management and Governance, 3 (4). Bocconcelli, R. & Tunisini, A. (2006) Cambiamenti nel comportamento d’acquisto delle medie imprese industriali: un’indagine sul settore meccanico. Sinergie, 70. Bocconcelli, R. & Tunisini, A. (2007) Creazione del valore per il cliente

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finale e Supply Chain Management. In R. Fiocca (Ed.), Rileggere l’impresa. Relazioni, risorse e reti: un nuovo modello di management, Etas, Milano, 25979. Bocconcelli, R. & Tunisini, A. (2009) Chetty, S., and Blankenburg Holm, D. (2000). Internationalisation of small to medium-sized manufacturing firms: a network approach. International Business Review, 9 (1), 77–93. Chiarvesio, M., Di Maria, E. & Micelli, S. (2006) Global value chains and open networks: the case of Italian industrial districts. Paper presented at the SASE Conference, Trier, 1st July. Christopher, M. (1998) Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service. London: Financial Times Prentice Hall. Christopher, M. (Ed.). (2005) Logistics and Supply Chain Management. Creating Value adding-Networks, Edition. Prentice-Hall, 3rd Financial Time series. Christopher, M. & Payne, A. (2002) Integrating Customer Relationship Management and Supply Chain Management. In M. Baker (Ed.). The Marketing Book, Edition. Butterworth 5th Heinmann. Coltorti, F. (2004) Le medie imprese industriali italiane. Aspetti economici e finanziari. Economia e politica industriale. 21, 5-25. Corbetta, G. (2000) Le medie imprese. Alla ricerca della loro identità. EGEA, Milano. Cox, A. W. & Hines, P. (Eds.). (1997) Advanced Supply Management: The Best Practice Debate. Boston (UK): Erlsgate Press. Cox, A. W. & Lamming, R. (1997) Managing Supply in the Firm of the Future. European Journal of Purchasing and Supply Management, 3 (2), 53-62. Dalli, D. & Tunisini, A. (2007) Processi e

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competenze di marketing delle medie imprese italiane: opportunità e limiti per la crescita. Mercati & Competitività, 2. Ford, D. & Redwood, M. (2004) Network Dynamics. An Historic Perspective. The Case of the Leather Industry. Annual IMP Conference, Copenhagen. Ford, D., Gadde, L-E., Håkansson, H. & Snehota, I. (2003) Managing Business Relationships, 2nd edition. London: Wiley. Fung, V. K., Fung, W. K. & Wind, Y. (2008) Competing in a flat world: building enterprises for a borderless world. Pearson Education, Wharton School Publishing. Furlan, A., Grandinetti, R. & Camuffo, A. (2007) Business Relationships and Sub-Contractors Capabilities: A Portfolio Approach. 23rd Annual IMP Conference, Manchester. Gadde, L-E. & Håkansson, H. (2001) Supply Network Strategies. London: Wiley. Håkansson H. & Snehota, I. (1989) No Business is an Island: the Network Concept of Business Strategy. Scandinavian Journal of Management, 5 (3), 187-200. Håkansson, H. & Snehota, I. (Eds). (1995) Developing Relationships in business networks. London: Routledge. Hines, P. (1994) Creating World Class Suppliers. London: Pitman Publishing. Huemer, L. (2002) Value Creation Strategies in Supply Networks: the Case of Logistics Service Providers. 18th Annual IMP Conference, Dijon. Lazerson, M. H. & Lorenzoni, G. (1999) The Firms that Feed Industrial Districts: A Return to the Italian Source. Industrial and Corporate Change, 8 (2), 36-47. Lorenzoni, G. & Baden-Fuller, C. (1995) Creating a strategic centre to manage a web of partners.

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California Management Review, 37 (3), 146–163. Lorenzoni, G. & Lipparini, A. (1999) The leveraging of inter-firm relationships as a distinctive organizational capability: a longitudinal study. Strategic Management Journal, 20 (4), 317-338. Mediobanca-Unioncamere (2008) Indagine sulle medie imprese industriali italiane. Ufficio Studi Mediobanca e Centro Studi Unioncamere. Monczka, R. M. & Morgan, J. (1997) What’s Wrong With Supply Chain Management. Purchasing, 122 (1), 69-73. Piore, M. J. & Sabel, C. F. (1984) The Second Industrial Divide. Possibilities for Prosperity. New York: Basic Books. Porter, M. E. (1990) The competitive advantage of nations. London: MacMillan. Porter, M. E. (1998) Clusters and the new economics of competition. Harvard Business Review, November–December, 77–90. Pyke, F., Becattini, G. & Sengenberger, W. (Eds.). (1990) Industrial Districts and Inter-Firm

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New Product Development When You Have To: Frames and Temporary Collaboration in Industrial Nets1 Debbie Harrison a and John Finch b a

Department of Strategy and Logistics, BI Norwegian School of Management, Nydalsveien 37, 0484 Oslo, Norway Tel: +47 46410471, email: [email protected] b

Department of Marketing, University of Strathclyde Business School, Stenhouse Building, 137 Cathedral Street, Glasgow G4 0RQ, Scotland, UK Tel: +44 141 548 5899, email: [email protected]

Acknowledgements We would like to thank two anonymous reviewers for their encouraging comments on earlier versions of the paper and Professor Geoff Easton (Lancaster, UK) who participated in some of the data collection efforts reported in the research design section.

Abstract In this paper we draw upon research in industrial marketing regarding materiality and cognition as actors engage in product development interactively. Our case features three companies that develop a net in the context of a mature industry, industrial refrigeration. Rather than focussing on a (expansive) network and its horizons, the actors combine their activities around the critical question of interpreting changing environmental policy, so we turn to the actors’ frames and their framing activities. The cognitive and material dimensions of frames blur as actors instigate entrepreneurial business plans, which require the movement of materials and personnel to a warehouse in order to develop and install a refrigeration system. We show how processes of localizing, which focus on actors’ interactive development of resources, carry with them actors’ particular anticipations of globalizing. The localized warehouse is in part a demonstration project for all three actors. The actors’ localizing paths to the project are interactive and clear, contingent upon their framing activities. The actors also continually represent their plans as they develop and globalize their project. But the globalizing paths are speculative, diffused and uncertain, radically so for one of the three actors. Key words: Framing, product development, interaction, environmental policy, network dynamics.

1. Introduction Time, space and place are integral to studying business networks (Håkansson and Snehota, 1995; Håkansson and Waluszewski, 2002; Håkansson, Ford, Gadde, Snehota and Waluszewski, 2009). With interaction in relationships and networks as the central concept, many studies have at least implicitly considered time, from the studies reported in Håkansson’s (1982) influential collection onwards. Indeed, the dynamics of relationships and networks has always been a central issue in business to business research. Economic

geographers have begun appraising new models of networks and networking by questioning ‘nodes and links’ and investigating instead the processes and consequences of embeddedness (Hess, 2004; Peck, 2005; Grabher, 2006). Our task in this paper is to make clear the consequences for space, place and time of actors’ frames and their interactions in formulating and pursuing business plans. We take as our starting point an extant literature about space and place in industrial marketing (e.g. Håkansson, Tunisini and Waluszewski, 2002; Håkansson and Waluszewski, 2002; Baraldi, 2003; Gressetvold and Stromsten,

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2005; Brito and Correia, 2006). We present and analyse as a case study an episode of product development in which three companies interacted intensively and adapted their relationships in order to introduce a new version of industrial equipment in accordance with a major change in environmental legislation. We find that the established sociological concepts of frames and framing (Goffman 1974, 1981) are a significant if somewhat neglected subject in organisational and innovation research as actors provide reasons for themselves and their collaborators to act intelligently in the face of uncertainty (Loasby, 2002). Furthermore, we show that frames can be shared and that framing is interactive, for instance by negotiation, among actors and among materials and objects. We present and analyse a case in which three companies involved in using and supplying chemical coolants and industrial refrigeration systems developed new products once the 1987 Montreal Protocol for the Depletion of the Ozone Layer established the principle that CFCs were to be phased out. The Protocol provided a clear interpretation of scientists’ understandings but left companies with at least two uncertainties: in estimating when CFCs would be phased out; and in second-guessing one another’s responses to the Protocol. We examine the interactions among Cadbury (confectionary company), ICI (chemicals producer) and Carrier (supplier of industrial refrigeration systems), as they collaborated to develop a refrigeration system using a new chemical refrigerant free of chlorine. Crucially, these companies’ interactions were partly cognitive, in adapting to and sharing projections and anticipations; and partly material in developing resources especially in establishing a new and temporary space for undertaking product development. The episode took place between 1991 and 1993 and we present the analysis with the benefit of hindsight, focusing on the implications of shared framing, collaborative planning and interaction, and the discontinuous nature of innovation spaces.

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In Section Two we explain in detail how cognitive frames and innovative spaces can become enmeshed by means of entrepreneurial and experimental action. We present our case of new product development in Section Three. In Section Four, we present our analysis and discussion of our case, arguing that actors’ practical theorizing is immediately material as they interact in forming resources as preludes to instigating business plans. Section Five concludes. 2. Frames, Framing and Spaces for Product Development In this section we review research which emphasizes spaces, places, time and cognition, the common denominator being interaction. We develop the cognitive part of our review further by investigating frames and framing, which we argue are necessarily interactive, to do with how actors embark upon formulating and acting upon their entrepreneurial business plans, especially as these involve shaping resources. We then investigate the implications for space, place and time, focusing in particular on how actors develop resources such as prototypes, experiments and business plans, which are manifestations of a frame and part of the process of framing. 2.1. Interaction and Cognition The questions of “with whom to innovate and how” has become popular in research on product development (Emden, et al., 2006). If we understood companies to be alone, distinguishing themselves from their environment, many changes could be cast as being external and would suggest radical adjustments, such as product development, in any individual company’s working practices, scope of activities and the nature of trading exchanges. If by contrast we understand companies to be always in and among relationships pertaining to exchanges, collaborative activities within product development should occur, often incrementally, as companies’ actions overlap, intertwine and clash. Given networks, the question of “with whom to innovate and how” implies that actors

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undertake framing activities through transforming existing relationships. Product development is a question of drawing upon existing relationships in a different way, which can perhaps be considered as a form of innovation net (Ford et al 2003). In order to undertake product development, user and producer firms require others with complementary representations or business plans in order for their interactions and some combined action to be possible. Business network researchers have accumulated a wealth of mostly case study evidence of organisations’ mutual exchanges, relations and dependencies (Håkansson, 1982, 1987; Axelsson and Easton, 1992; Håkansson and Snehota, 1995; Håkansson et al, 2009). The business network context features resources and activities, so betraying a heritage in the organising economics of Penrose (1959) and Richardson (1972). The main challenge for actors is to secure and combine what they deem to be resources where a significant proportion of these are associated with other actors. Companies combine and so configure resources by forming and reforming relationships, which may themselves acquire the status of resources, and can be supported, configured, refined but not determined through means of contracts (Harrison, 2004). Producer-user settings can develop through repeated exchanges, which tend to stabilize actors’ interactions. As a result, the customer’s problems can become matched to the supplier’s offerings (Ford, Gadde, Håkansson and Snehota, 2003). Actors often pursue product development in nets shaped strongly by existing relationships (e.g. Biemans, 1992; Gressetvold, 2004; Håkansson, 1987; Harrison and Waluszewski, 2008; Ritter and Gemunden, 2003; Håkansson and Waluszewski, 2002, 2007; Johnson and Ford, 2007). Indeed, one way in which companies cope with the uncertainty pertaining to product development is by maintaining some stability through retaining existing business relationships (Gadde and Håkansson, 1992). If repetition and stability in the connections of actor, resource and activity are

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commercially viable and unchallenged, there would be little impetus for change. Nevertheless, the potential among companies for product development, interpreting and addressing problems jointly, and developing capabilities remains in a network (Ford et al., 2003). Product development requires of its promoters the configuration and reconfiguration of resources. In the next section of the paper we discuss how frames and framing are central in interactive product development. This links to the long standing ‘cognitive dimension’ within IMP research, which has its beginnings with a perspective on network theory (Johansen and Mattson, 1992) and includes the recent concepts of ‘image layer’ (Håkansson and Waluszewski, 2002), ‘network horizon’ (Holmen and Pedersen, 2003), ‘network pictures’ (Ford, Gadde, Håkansson and Snehota, 2003; Henneberg and Naudé, 2003; Henneberg et al., 2006; Ford and Redwood, 2006; Hennberg, Naudé and Mouzas, 2009) and ‘network insight’ (Mouzas, et al., 2008). Holmen and Pedersen (2003) refer to Anderson et al. (1994) and Salmi et al. (2001) in developing the concept of network horizon and pose the managerial question of how broad or narrow a firm’s network horizon should be. Holmen et al. (2003) is unusual in introduce framing explicitly. Taken together, the cognitive initiatives feature the possibility of actors representing their business networks visually, which can be shared and debated through strategizing workshops (Harrison and Prenkert, 2009). 2.2 Frames Following Goffman (1981, p. 63), a frame contains “its own logic, its own set of motives, its own meanings, and its own activities”, but is not an entity belonging to an individual. There are normal ways of doing things and individuals need to engage with these in order to participate with others collaboratively. Hence, framing is a process “inhering in the organization of events and cognition” (ibid., p. 64). There exists considerable scope for drawing upon frames in order to develop the established interacting and

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networking perspectives reviewed in the previous subsection. . Actors’ roles, identities, relationships and contracts influence how they understand what could otherwise be confusing and unsettling events, and their interpretations can in principle feed back and reshape these roles, identities and relationships. Given networks and networking, actors require at least two others with whom they frame problems and events. For instance, framing allows actors to plan and co-ordinate overlapping sequences of actions in processes of product development over time and between spaces. Frames are conjectures, prospectings, imaginings of and ways in which, through interactive processes of framing and re-framing, to organise and re-organise activities over several physical spaces. Frames are also instances of actors’ situated cognition, combining concepts, theories and expectations with material objects located in space and time in which they co-ordinate their plans and investments (Suchman, 1987). Frames exhibit a form of path dependence, in which actors’ intelligent plans made in the face of uncertainty provide a basis for reevaluating those resources which they currently have to hand. Moreover, frames help actors envisage futures and so provide some basis for committing resources in particular formulations to both enable actions and make provisions for these futures. Actors use frames to collaborate in articulating and taking into account a set of plans and contingencies for some future, and so exclude other feasible futures (Callon, 1998). Actors develop frames as guides to actions. As such, frames are cognitive ways by which actors cope with the complexities and uncertainties of acting, and of the contingencies of communicating, discussing, planning and anticipating their actions (Kaplan and Tripsas, 2008). The coping is not so much an act of simplifying the complex, but of focusing on a locus of events, at least some of which are anticipated or predicted, and by implication ignoring other entities (Harhoff, et al., 2003). In referring to cognition, we recognize that

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actors undertake considerable work in articulating their frames. Goffman (1981) saw that action was necessarily interaction so that frames tended towards being shared, overlapping, or could achieve some mutual complementing and stability. In other words, frames are not individual, personal or mentalist, but social, and framing is necessarily social, interactive and communicative. Framing opens up the possibility (beyond Goffman’s assertions of tacitness) that actors can articulate their frames and become aware of their own and others’ frames becoming enmeshed in a stable sense, materially. The spaces of our paper’s case (see below) are produced through actors’ framing activities, which we understand as an enmeshing and adjusting by means of cognition and materiality. Framing implies that some actors work together by combining and coordinating their materials, actions, plans and expectations of how things could turn out and of how they can influence how things could turn out. One strand of the limited existing literature considers the process of framing and re-framing as being integral to organisations’ processes of technological development, being a device around which to understand persisting conflict (Orlikowski and Gash 1994, Kaplan 2008). For Orlikowski and Gash (1994), technological frames are interpretations of technology by users. Widely diverging frames therefore impact on the development, change and use of technology within firms. A company’s personnel mediate, assess and discuss their conflicts and collaborations with reference to technological frames. For Ivory and Vaughan (2008) framing is a process involving ‘clashes of frames’ and eventual re-framing. Ivory and Vaughan’s research includes the many organizations involved in what was a customer-led development of the Pendolino tilting train for Virgin Trains’ West Coast Main Line in the UK. The project’s managers drew upon multiple frames as tools in discussing conflict and interacting across corporate boundaries. Here, frames have organizing manifestations, such as in projects. A lack

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of agreement across frames can be resolved by the dominant frame from one group overriding disagreement from others. Furthermore, Ivory and Vaughan show how the project’s actors achieve action with a sufficient degree of alignment. Perfectly overlapping frames are unnecessary. 2.3 Space, Place and Time Researchers who have addressed product development and business marketing have commented only infrequently on the spatial implications of actors’ interactions in business contexts, subject to business horizons. Recently, economic geographers have interpreted space in terms of embeddedness, action nets and actor networks rather than the more established arguments of industrial districts and clusters, and representations of these as patterns of nodes and links (Peck, 2005; Fulconbridge, 2006; Grabher, 2004, 2006). These are diverse contributions, centring on the spatial implications of embeddedness. Two contributions are especially applicable to studies of fine-grained interactions in nets: Callon and Law’s (2004) discussion of how actors make phenomena local; and Czarniawska’s (2004) distinction of kairotic time, distinct from chronological time. Callon and Law (2004) argue that size, for instance as tendencies towards being global, are matters of connection and of what circulates in making these connections. Similarly, localizing is a matter of disconnecting. Hence, one may choose to be local, or be localized by other entities. Further, they argue that globalizing requires intermediaries in order that entities may circulate. But a major argument, which Callon and Law draw upon, and one which is reflected in Law’s (2004) comparison of romantic and baroque versions of complexity, is that localizing can be part of forming a different pattern of connections, of actors anticipating a new version of global or a new way of globalizing. Hence, localizing and globalizing can occur simultaneously. Hence, “The local is never local. A site is a place where something happens and actions unfold because it mobilises distant actants that are both present and absent”

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(Callon and Law, 2004, p. 8) 2 . Finally, Callon and Law remove location from structure, such that it becomes a means of resolving the problem of co-ordination for actors, in which actors can consider ‘encountering and anticipation’. In other words, actors can ‘move’ a site in accordance with their changing requirements of co-ordination, and especially with respect to how they understand co-ordination as encountering, itself in anticipation of some anticipated future or futures. Co-ordination, encounter and anticipation are clearly not local. Czarniawska (2004) contrasts chronological and kairotic time as different aids to actors as they go about organizing events (history), current actions and futures, to the extent that ‘Events must be made important or unimportant’ (ibid., p. 776), and that ‘chronology organizes the present (extended into the immediate future). The past and the distant future are governed by kairotic time’ (ibid.). Events make sense if ordered, for instance through narratives, biographies, minutes, reports and agenda and the parallel of past and distant future should centre on how actors make events important. The present and immediate future is the domain of chronology as actors have no time to propose discretionary orderings, to make their cases that there are events, and that some events are more or less important. 3. Research Design A single case study was used as it allowed us to obtain an in-depth account of how processes of product development occurred within and across companies over time. Different authors provide suggestions for carrying out case research, including some philosophical bases of case studies (Abbott, 1992; Easton, 1995, 1998; Eisenhardt and Graebner 2007; Dubois and Araujo, 2007). Researchers who conduct case studies pay particular attention to understanding an object along with actors’ interactions in their context, allowing depth, detail, and richness in collecting and analysing data. Cases are longitudinal and processual by

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default (Easton, 1995, 1998; Halinen and Tornroos, 2005; Langley, 1999, 2007). The case presented here was part of a larger research study into interorganisational responses to environmental events (Harrison, 1999). ICI were one of the first organisations to participate in the larger study. The larger study involved interviewing managers from the two CFC producers in the UK and individuals from two organisations in each of the four key user industries of, aerosols, foams, solvents, and refrigeration and air conditioning. In total, 30 interviews were conducted. Managers from ICI’s fluorocarbon division provided introductions to their counterparts at Carrier and Cadbury. Through initial interviews and the collection of secondary material, it became clear that Cadbury had acted very early in terms of phasing out CFCs from existing systems, and lead an innovation project regarding the use of CFC alternatives at a new warehouse. Managers from all three organisations gave their consent for a retrospective study, which we report here, in order to represent it as a process, with access to relevant individuals and associated secondary materials. Eight face-to-face and two telephone interviews were conducted over a period of six months in 1998 with informants who were selected as closely as possible as one another’s counterparts in Cadbury, ICI and Carrier. The Sales Directors and Managers at ICI and Carrier, the Technical Managers at Cadbury, ICI and Carrier, and the Regulatory Affairs Manager at ICI were interviewed. Extensive secondary material was utilised to complement the primary data, including industry journal articles, governmental reports and minutes from internal company meetings. Through the secondary materials and the ongoing larger study, insights were gained into the regulation and phasing out of CFCs, overall patterns as to how producers and user sectors had responded, as well as background details into individual company actions. In terms of data analysis we combined the multiple data sources to generate a timeline of the process of

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product development, using the logic of longitudinal process research (Huber and Van de Ven, 1995; Langley, 2007). There are various approaches as to how a case can be embedded in time (Norclife and Bartschat, 1994). We draw upon the main events which all interviewees mentioned, in constructing the account presented below. The data collected from the various interviews and secondary sources were categorized into the distinct perspectives of representatives from each of the three companies. Overall, the basis of generalisation from a single case study is theoretical (Bonoma, 1985; Mitchell, 1983). Hence, our aim is to make analytical or theoretical generalisations to the existing body of research concerned with how companies develop new products in network contexts. 4. Case Study Our case combines three accounts of the emergence of a new industrial refrigeration system at Cadbury’s production site in the UK. Managers and engineers at Cadbury, ICI and Carrier developed a system that used a chemical refrigerant based on hydroflourocarbons (HFCs), which would eliminate the use of chlorine-based compounds altogether at Cadbury’s site 3 . Managers at Cadbury took a different view to that emerging across many users of industrial refrigeration with regard to the phasing out of CFCs. The dominant response was to adopt the incremental solution of HCFCs (still containing some chlorine compounds), while waiting for or actively pursuing other solutions. 4.1. Cadbury’s Internal Audit In the late 1980s, Cadbury’s Technical Director reported to the Board of Directors that environmental questions were being recognized by scientists, pressure groups and politicians. He characterized this as a commercial risk and during 1990 led a number of internal environmental audits. These covered energy use, air emissions, effluent production and refrigeration (cooling and air conditioning in manufacturing and

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storage). 4 Cadbury used CFCs and HCFCs extensively 5 . By 1991 the Technical Director perceived a pressure to act well ahead of any initial timeframe for the phasing out of CFCs contained within the later 1995 Montreal Protocol agreement. Cadbury framed the emerging trends affecting their use of CFCs as two central questions. First, if Cadbury could retrofit their established systems with new alternatives, which refrigerants could replace the CFCs and HCFCs used in its existing refrigeration systems? Secondly, if retro-fitting proved to be infeasible, what were the alternatives for new equipment? By 1991, the Technical Director was considering the characteristics of a chemical refrigerant that did not yet exist at a commercial scale and additionally that may require a new refrigeration system. Cadbury’s Technical Director invited managers from the fluorocarbon division at ICI6 to Cadbury to explore their understanding of the future for CFCs and their plans for developing alternatives. ICI was Cadbury’s main fluorocarbon supplier, although the suppliers of industrial refrigeration systems purchased these chemical refrigerants on behalf of Cadbury. Cadbury also initiated similar discussions with two other fluorocarbon suppliers. None could offer ‘meaningful alternatives’ because the potential replacements for CFCs were at an experimental stage. ICI began production of CFCs in the late 1950s, manufacturing a range of CFCs at several dedicated production facilities. ICI also had a business in producing and distributing HCFC-22 (a low-temperature refrigerant). Following the discovery of the ozone hole in 1985, ICI adopted a proactive and cautious stance to this potential business opportunity. Managers initiated searches for users in sectors where there was little clarity about alternatives to CFCs, such as “refrigeration where they are totally at a loss as to what they are going to use”. 7 ICI’s R&D teams had undertaken the experimental development of alternatives to CFCs in the 1970s and two chemical solutions were formulated at the ‘test-tube stage’. One of these was HFC-134a,

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which was potentially a replacement for CFC-12. Between 1988 and 1993 ICI developed HFC-134a to commercial manufacturing with the first dedicated plant being located in the UK, the second in the US and the third in Japan. At the meeting with Cadbury’s Technical Director, the representatives from ICI’s fluorocarbon division suggested that the then prototype solution of HFC134a (this was in 1991) could replace CFC-12, which Cadbury used. ICI’s representatives described the potential replacements for another CFC (CFC-11) and for HCFC-22 as being ‘on the drawing board’. The outcome of their investigations among chemicals and OEM companies was that Cadbury’s managers faced three significant problems. First, the chemicals companies were not producing HFCs at a commercial scale. Second, the OEM companies that supplied and maintained refrigeration systems were resistant to proposals for fitting their systems with untried HFC chemicals. The established activities in supplying industrial refrigeration equipment and services were co-ordinated vertically by means of contractual norms by which the OEMs assembled refrigeration systems and were responsible for their maintenance. Third, Cadbury could not instigate technical changes of a radical nature in chemistry and in refrigeration equipment for its own use. Rather, Cadbury needed to present its plans as a commercial prospect to chemicals and OEM companies as being of wider application among other users of industrial refrigeration. 4.2. Early Trials at Cadbury with Established Refrigeration Systems Cadbury’s Technical Director instigated a trial of HFC-134a using a small refrigeration system with two compressors. ICI supplied HFC-134a from its test production plant. The initial experiment revealed problems with the performance of the lubricants to be used with the new HFC. Cadbury undertook a second trial for a longer period of twelve months with a larger refrigeration system. Around this time Cadbury’s Technical Director consulted representatives of the

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OEMs, all of whom were described as being “nervous of the unknown”. Managers consulted the OEMs regularly during the second trial but the latter were reticent to state, “this is the answer, [as] they didn’t know”. For Cadbury’s Technical Director there was an “an element of testing or risk in all of this”, but a perception that there was little choice but to act in some way. As evidence accumulated from the tests, the Technical Director’s confidence increased with a belief forming that “this stuff appears to be working”. As a consequence, Cadbury made two significant decisions. First, Cadbury instigated a new policy in early 1992 that all new refrigeration equipment should use HFC-134a, even though ICI had not yet produced HFC-134a at a commercial scale. Secondly, Cadbury’s Technical Director instigated a major programme of retrofitting refrigeration equipment at all its sites in the UK, requiring a changeover to HFCs over a number of years. 4.3. The New Warehouse With the HFC-134a development underway in the late 1980s, ICI’s Fluorocarbons Board took a decision not to invest in developing any new HCFCs. This was despite other chemical producers and users viewing HCFCs as a hybrid solution and an incremental innovation that could be used in industrial refrigeration. Hence, ICI decided to expand by developing alternatives to HCFC-22: “We would have to make blends ... in order to meet that [hybrid] need”. Even though ICI’s fluorocarbons division had no experience of producing blends, it built the world’s first HFC-32 plant in the UK during 1992 (HFC-32 was an important part of the new blends). The plant was to produce Klea 66, ICI’s trade name for their planned replacement for HCFC-22. ICI announced the opening of its HFC-32 plant in July 1992. Cadbury’s Technical Director considered it to be of “great interest to us”. At the same time, regulators announced that they were permitting the use of HCFCs for at least another ten years. Cadbury’s managers had assessed what they saw as the trend

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in regulating CFCs and formed the view that HCFCs would also be phased out more rapidly than the ten year period that the regulators announced. By contrast, many other OEMs settled upon HCFCs for their industrial refrigeration systems as a viable alternative to CFCs, which was incremental product development and of lower risk, because they assumed that a complete phasing out was not imminent. Cadbury was beginning the construction of a large warehouse in Birmingham, UK, with an important motive being to reduce its transportation costs. The original plans for the warehouse specified that HFC-134a would be used for the refrigeration system. The specification caused ‘total panic’ amongst the OEMs because HFC-134a was from their perspectives an ‘untried refrigerant’. The OEMs preferred to use HCFC-22 as a replacement to CFCs, and this was emerging as the standard solution among other participants in the industry. Technical managers at Carrier Air Conditioning (Carrier) – a large OEM contractor in the UK – tendered for Cadbury’s business at the new warehouse alongside other OEMs. Carrier commented that Cadbury’s initial decision to use HFC-134a was “was very early on”. Carrier realized very quickly that a system using compressors that were compatible with HFC-134a would be much larger and therefore less energy efficient when compared with CFCs. Cadbury’s Technical Director contacted his counterpart at ICI to discuss Klea 66, which was potentially more efficient because it required smaller compressors. Cadbury and ICI agreed to conduct another trial and a test rig was built at Cadbury with a small compressor. ICI supplied the blend, which was “the first they made”. During September 1992 a retrofit took place on this test rig. ICI’s sales managers contacted Cadbury’s Technical Director to ask, “is it working, not how well is it working”. Cadbury’s managers also held discussions with technical staff at Carrier as to whether the specification for the new warehouse could be changed from HFC134a to Klea 66. “They made the decision, based on discussions with ICI ...

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of course it didn’t exist in the market place”. At the relevant meetings, Carrier staff described Cadbury’s representatives as being very optimistic in terms of the established specification for HFC-134a. They had hoped that the specification would change to HCFC-22 rather than the new Klea 66. One of those involved remarked, “Have you come to your senses?” Cadbury and Carrier reached an agreement that the compressors to be used in the new warehouse would be designed with Klea 66 as the refrigerant. However, the tender was open for HFC134a along with HCFC-22 to be used “… should insurmountable problems arise”. Carrier’s technical representatives had actually accepted the contract by the time that Cadbury’s technical staff wished to switch from HFC-134a to Klea 66. A Carrier representative commented, “Having got that far we didn’t want to let it go … although the engineers wanted to back out at one stage ... [but] after all, we had the only large test facility in Europe”. Carrier had developed working practices for adapting and re-designing machinery, especially compressors: “We thought we were going to be able to modify our standard chillers. But what Cadbury’s wanted actually didn’t allow us to do that. In terms of testing…within the time scale, that was another problem”. There was “almost a complete re-design of the machine, we moved on from where we intended”. Carrier’s position of being the market leader drove its managers to believe that it should be involved in the project that Cadbury and ICI had already initiated: “If we can’t make them, nobody will”. Some optimistic perceptions of the risks involved by some of Carrier’s managers also played a role: “[at the time] I probably underestimated the risks”. Once Carrier and Cadbury had made their commitments, they began a programme of testing and experimenting on-site at Cadbury. During December 1992, Cadbury began a six-month testing process with Klea 66 on its existing production lines. Cadbury’s Technical Director recognised that the transition to testing on-line was ‘a bit of a chance’, but was also aware that he could revert to HCFC-22 if necessary. A decision as to

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whether or not to ‘put the new blend in’ to the new warehouse could be delayed until the results from this trial were ready. That is, the testing activities continued so that when Cadbury’s new warehouse was due to be commissioned, “‘we should have enough proof that this would work or not”. Carrier undertook the testing of its equipment and system as live at Cadbury’s site, performing troubleshooting adjustments as required. The refrigeration system did not work effectively when it was installed and Carrier’s managers suggested that the unusually short time scale involved hindered them. “It was unusual for us, normally when we put a machine on the market we have done months of testing … here we hadn’t done that”. Cadbury and Carrier maintained the broad norms of contracting between the OEMs and users of industrial refrigeration during this period. Carrier’s offering included the usual guarantees of performance even though Klea 66 was a new blend. “It was very risky … but the biggest risk of all is to take no risk at all. If we hadn’t have done it then one of our competitors would have picked it up … good experience to work on a live project”. However, Carrier did not complete the project at Cadbury profitably and it has not sold the compressor type outside of the Cadbury project. Cadbury’s new warehouse was commissioned in June 1993. Carrier installed a refrigeration system comprising six compressors in Cadbury’s new warehouse between 1992 and 1993. The time span of twelve months from experiment to operation was very short. Cadbury’s Technical Director explained the speed of Cadbury’s response as an enactment of its values. ‘We wanted to act in a manner consistent with what consumers would expect us to be doing … the right things … part of the heritage’. In a similar time period, Cadbury began the process of replacing HCFC-22 in its existing 65 compressors at other sites. In 1993 the new warehouse was a ‘shock’ to the other OEMs and to other users of industrial refrigeration. It was an example of an HFC blend in use and the use was at an unprecedented scale. Cadbury’s Technical Director argued that the new

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warehouse lent ICI’s Klea 66 ‘credibility’ with the rest of the industry and that Cadbury was ‘standard setting’. 5. Stretching Established Connections through Framing Unlike some of their contemporaries, Cadbury, ICI and Carrier each evaluated the legislative change as an entrepreneurial opportunity that required some experimentation and so, by implication, some unsettling of established business practices. The managers’ converging frames provided a clear and partial focus on their complex and uncertain situations and allowed them to intensify their relations. Their frames did not determine a solution in the form of a particular new product. Rather, it was the managers’ abilities to articulate and coordinate frames over time that allowed them as a triad of companies to transform their established relations from routine exchanges to an episode of product development. Cadbury’s managers developed a clear interpretation of the future use of refrigerants, and then sought to reconfigure established relationships with their counterparts at ICI and Carrier. Given Cadbury’s interpretation, it had to recruit others with different capabilities in order for its production and storage sites to become free of CFCs. Each of the three companies required of its others sufficiently overlapping frames, indexed upon of the change event of intergovernmental environmental policy, in order that each could act on its plans. The three companies’ processes in developing products overlapped and clashed at different times (see Table One). Cadbury, ICI and Carrier managers each exhibited a pattern of recognising and internal framing followed by the coordination of internal frames, but over different periods of time. ICI had a 20year history to its process before Cadbury instigated its audit. As Cadbury proceeded with its audit and consulted with ICI, so it began focusing on using HFCs. In pursuing a strategy of producing refrigerants comprising HFCs, ICI needed to devote resources internally in scaling-up

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what had been an experiment and externally in establishing a new market position. Cadbury’s request was something of a surprise for ICI, yet there was an overlap between ICI’s HCF strategy and Cadbury’s emerging business plan. The conversations between Cadbury and ICI managers marked the critical point in developing refrigerants using HFCs by combining two processes in product development. The consistency in the framings of Cadbury and ICI managers was underpinned by the strength of ICI’s belief in HFCs and the fact that the two organisations had an existing relationship, albeit in weak form and moderated by Carrier and other OEMs in the supply and use refrigerants that used CFCs. Later, Cadbury and ICI required others in order to progress with their activities. Cadbury led this search, which marked a transition from dyadic interaction into networking. The three companies re-negotiated their existing relationships by framing their understandings of the Montreal Protocol, and their understandings of others’ understandings, subjectively and then inter-subjectively. Our case shows how overlaps in the ways in which interacting companies frame an issue does not need to be absolute or mutually consistent. That two companies within one relationship share and reinforce one another’s framing can be enough, as long as the incentives (or means of persuading) for the other actor(s) to participate are substantial enough to override ongoing concerns. Mutual adaptations among all three companies during the processes of NPD activities underpinned the process, rather than their existing large R&D budgets and labs. Further, the frame was not shared or pursued with comparable conviction by all of the actors involved and yet each still undertook NPD activities that were coordinated and consistent with one another. The frames of Cadbury, ICI and Carrier exhibited limited overlaps given the prospect of developing an industrial refrigerant based on HFCs. Moreover, the framing of the events surrounding the banning of CFCs was not a one-off occurrence, followed by action. There was

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Table One Framing activities within the three organisations Actor / activity

Cadbury

ICI

Carrier

Recognising & internal frames

devising Dyadic frames are interacted Internal & co-ordinated Co-ordinated improvisation with and initial experimentation experimentation matched & mismatched frames in the triad 1990 review of ‘green Invite new and current 2 small compressor trial and Warehouse construction begins position’ suppliers to discuss possible a longer-term trial with HFC-134a specified. alternatives for established “HCFCs will be phased out in the Perceive pressure for the refrigeration system Decision that all new medium term” phasing of out CFCs via equipment must use HFC- Trial development project with a the Montreal Protocol 134a. Begin long-term test rig on-site agreement retrofit Testing on-site, with and without Carrier Enacting values: speed Experimental internal Experimentation with HFC Supply HFC-134a for trial HFC-32 plant opened: “Klea 66 is a development of CFC blends. HFC-134a not yet from UK pilot plant. 22 replacement” alternatives in the 1970s commercially available. Start to build HFC-32 plant Supply first blend for trial 1988-1993 HFC-134a development project development. HFC only strategy User resource articulation Tender for the project, and would impact on equipment agreement to become part of the development: “nervous” project without sharing the view though consulted around HFCs Norms of fitting equipment to Too uncertain to ‘fix’ on one standard industry solutions. Lack of articulation in-house testing Under estimation of risk and credibility are combined in a need to improvise

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interplay across the NPD process, as various individual actions (such as ICI’s new HFC blends plant and the construction of the storage warehouse) impacted on the understanding in the initial frame. Lastly, the act of framing events fuses the NPD trajectories of multiple actors, even if only temporarily. These themes are developed further in the three sub-sections below. 5.1 Frames Allow Interacting and Reframing The case illustrates how innovation is shaped strongly by existing relationships among small groups of companies. This maintenance of stability is a way for managers to cope with uncertainty. Nevertheless, the relationships shifted from one form of organising to another. Cadbury created a space for developing and testing new products, both chemicals and refrigeration equipment. The space existed for a defined period of time before Cadbury opened its new warehouse and completed its substitution of new refrigerants elsewhere. Indeed, Cadbury, ICI and Carrier elaborated and combined their frames with technological artefacts. The warehouse become important in defining the space’s duration and encouraged a speeding up of development especially for Carrier. Our case is comparable with Ivory and Vaughan’s (2008) research. In their study, the project was a framing object and the companies managed to coordinate their activities as they went along by signalling some episodes of re-framing. Reframing allowed disagreements to take place. We saw this too as the relationship between Carrier and Cadbury developed from ‘business as usual’ to the retrofitting of a new refrigerant, to developing new refrigeration equipment that could withstand that new refrigerant chemical. Furthermore, in the case product development at least in part was achieved because individuals undertook occasional episodes of re-framing, especially as ICI managed to refine its chemistry in producing refrigerants comprising HFCs. The leap required of other companies involved in using and producing industrial refrigeration to adopt HFC chemistry was

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too great. The re-framing was successful in the dyad of ICI and Cadbury, continuing (with much greater stress) to include Carrier, but did not extend to other companies. The problems of re-framing, of forging series of small links of elaborations and commitments to adjust ideas and investments, presented a major contradiction of Cadbury and ICI’s early framing assumption. The new chemistry, free of chlorine, required a demonstration project to draw in other users (OEMs and their customers) in order that chemistry companies and OEM companies could benefit from production at a large scale. This is a clear example of Callon and Law’s (2004) point about achieving a place by means of localizing. Each company had global ambitions, such that ICI wanted to establish a new business for HFCs, Carrier wanted to demonstrate its industry leadership in developing and maintaining refrigeration services for its clients, and Cadbury wanted both anticipate environmental regulation for all its plants and to demonstrate its corporate social responsibility to its stakeholders. The warehouse was the local. Cadbury made the question of regulating and phasing out CFCs immediate, even though other companies made sense of the same question by referring to incremental developments in chemical refrigerants. 5.2 Co-ordinating Processes in Developing Products All three actors co-ordinated their activities, which often occurred in dyads and at different time periods. Cadbury’s Technical Director underpinned these activities by assuming an organising role, in part because Cadbury commissioned and ran the experiments at its site. The three companies had in common in their presentations to one another being experimenters, capable of combining chemistry and technology, and having facilities to support their experimenting and testing. As the experiments proceeded, each company adapted to the other two, in shifting from their “usual” internal testing or experimenting activity and its boundaries, and working at a different speed. For example, Carrier’s

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engineers had to test while installing, qualifying the usefulness of their extensive test facilities, and increasing reliance upon testing aptitude. Managers at the three companies had to get into the habit of exchanging knowledge and experience while developing the new products. Even though the commercial imperative was apparent, each company experienced considerable uncertainty as to its costs and pay-offs, especially when compared with their long-established patterns of exchanges. The costs were local, centring on Cadbury’s warehouse, which had in different ways become a test site for all three companies, and then a demonstration site. The quality of demonstrating indicates that to different extents each company anticipated benefits by projecting beyond the local. The object of their interactions had changed, from a sequential process in which they exchanged well-established products and services to developing new products iteratively and working creatively and interactively with one another (first between ICI and Carrier, and then Carrier and Cadbury). Cadbury, ICI and Carrier each had a unique perspective in scaling-up HFCs beyond that necessary for the particular development and installation at Cadbury’s new warehouse, but were aided by positive feedback as they worked within the construction schedule for Cadbury’s new warehouse. This reinforced the overlaps in the understandings between Cadbury and ICI, as they first selected HFCs and later the Klea 66 blend as suitable for the warehouse. Cadbury and ICI became a joined actor as they committed themselves progressively to HFCs. Carrier and other OEMs provided feedback especially as they referred to their routine ways of working, which included the adjunct service of guaranteeing the performance and maintenance of a refrigeration system. Nevertheless, Cadbury’s Technical Director recruited Carrier’s engineers to the process of developing a new product and system.

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5.3 A Confined Change with a Local Solution After the innovative activity had occurred, the actors returned to their stable modes of producing, exchanging and using, now incorporating Klea 66 and Carrier’s customized refrigeration system. In particular from the perspective of Cadbury’s representatives, problem solving had taken place successfully, and a situation of ‘business as usual’ returned, reflecting chronological rather than kairotic time (Czarniawsk, 2004). Cadbury, ICI and Carrier managed to transform their relationships and exchanges across three different regimes; the stable net of established connections and routine exchanges, NPD lead by Cadbury, and a return to a stable net arranged around the new refrigerant and refrigeration system. We assert that the stable triad ‘survived in storage’ because only the products, the refrigerant and the refrigeration system, changed. Cadbury performed a variety of functions as a user. First and foremost, it was influential in its framing and reframing activities and in articulating its frame, drawing on both self-image and a desired reputation. Cadbury co-ordinated and mobilized the net of actors, more used to having their relations mediated by contracts (Weick et al., 2005). Cadbury perceived a need for HFC refrigerants ahead of other users and producers of industrial refrigeration services, initiated a new idea as to how HFCs could be used, and organized the testing and development for a new application for HFCs at its site. Cadbury changed its role as a buyer and user for refrigeration services by searching for and helping to form what can be termed ‘lead suppliers’ (von Hippel, 1976, 1986, 1988, 2005). Cadbury’s requirement of using HFCs disconnected and localized it from other users in the industrial refrigeration network. Indeed, the three actors excluded others from the NPD process through their commitment to science, technology and experiment centred on HFCs. The case shows how a net form of organizing can lead to a buffering from other, competing customersupplier frames that were formed through

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others’ interactions within the wider network. ICI’s and Carrier’s NDP efforts, undertaken in collaboration with Cadbury, were not re-sold to other users of industrial refrigeration, and did not directly aid the market-making efforts of the two suppliers. Cadbury achieved many of the nonlocalized benefits that it had anticipated. ICI developed markets for its HFCs (including Klea 66) in other user industries. Carrier did not sell the refrigeration systems developed for Cadbury to others. For Carrier, it is difficult to account for its other anticipated non-localized benefits, of being an industry leader by demonstrating a capacity to solve local problems, to other new or retained business relationships. In other words, a potential downside of undertaking product development in a net is that the product of an intense innovation episode can be disconnected from other actors. A very space-bounded innovation results when the involved suppliers are unable to scaleup an application into a saleable product solution. In this way a tightly defined innovation space can result in confined rather than a connected change in that it does not go further in the network (Halinen, et al. 1999). 6. Conclusion Our analysis of the case of product development in industrial refrigeration involving Cadbury, ICI and Carrier suggests three general conclusions as we relate our findings to the established literature. First, the recent cognitive turn by researchers interested in network maps, pictures and insights would benefit additionally by considering how actors make events and make anticipated futures. Of course, actors are reflective and develop, discuss, and produce visual representations of their practical theories, but these crucially can be in the midst of action or more precisely interaction (or encounters). The minutiae of how each of the main actors made an episode of product development local are instructive. Each company restricted what was a network in a fairly mundane and mature industrial setting, in which commercial

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contracts provided mediations of business relationships, into an intensive and experimental net of three main actors. Cadbury took the Montreal Protocol into account in planning its new warehouse, in refitting its other warehouses, and in taking a lead in responding to the accumulations of scientific research and policy. It localised to such a degree that it sought a product that did not exist, isolating itself from other users of refrigeration services as well as suppliers. ICI had previously developed a new chemical coolant as a prospect of a prototype, isolated again for want of applications and users. Cadbury admitted ICI’s pre-prototype by bypassing its previously mediated relationship as Cadbury initiated informal conversations with ICI and other chemistry companies. ICI acquired a presence at Cadbury’s local site of the new warehouse because Cadbury installed a test refrigeration system, allowing ICI to have a use and application for its now prototype coolant. Carrier was admitted to Cadbury’s new warehouse (and re-admitted to other sites) by means of a commercial tender, even though the details of this tender changed as ICI further modified its offer a another version of an HFC coolant. The cognitive turn in business marketing research by means of network pictures, maps and insight is welcome, but our case highlights the benefits of considering how actors transform by acting their sets of business relationships. Our case is consistent with Czaniawska’s (2004) discussion of action nets. Second, frames (as partly articulated objects of cognition) and framing (as actor’s activities in envisaging possible futures) deserves wider recognition in business marketing research. In particular frames are partly manifest as ideas, subjects of conversations, drawings, plans, maps and calculations, and partly as translations and commitments to articulate the frames materially. The three main actors in our case made manifest their frames and the partial consistency of these frames provided a basis for their collaboration and their forming of an action/innovation net as another frame emerging from the actors’

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interacting and mutual framing and reframing activities. The frames changed on account of the actors’ framing and reframing activities, all of which can be captured by Callon and Law’s (2004) discussion of co-ordinating by means of anticipating and encountering. Each companies’ frames affected their localizing, transforming their networks into a net. But globalizing remained by means of taking into account future encounters, for instance as Cadbury admitted ICI into the new warehouse by installing a small experimental refrigeration system and admitted Carrier by means of commercial tender. Cadbury’s decision to seek a product that did not exist, in advance of the projected trend for environmental legislation, provided to be very significant in also framing the episode of product development among all three main actors. And all three had their own versions of anticipating the future in connection with their participation in the episode of product development: Cadbury in acting both in a calculating way in acquiring a system in advance of what its projection of legislation that could be used across its sites, and in sustaining its values of being socially responsible; ICI in acquiring a test site with sufficient profile to help in its scaling-up and commercializing of HFC coolants globally; and Carrier, in demonstrating what it understood to be its technological edge over other suppliers of industrial refrigeration systems, including the prospect of selling similar systems and services to other users. Third, and with reference to our first conclusion, actors’ anticipations and encounters are vital dimensions of nets, which could be pictured or mapped. Further, anticipation and encounter are consistent with Czarniawska’s (2004) discussion of actors making kairotic time and being able to subdue to some extent to present pressure of chronological time. So pictures and maps should take into account that framing is mainly within the realm of kairotic time, of making the time right to act. In general, we have illustrated how actors’ frames, which are projections including their material manifestations, are vital in helping researchers and practitioners understand how actors can

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simultaneously and distinctly make local and global their activities. Overall, the lesson we draw from this case in terms of future research is to investigate how actors change their networks. The techniques of ethnography, interviewing, documenting and presenting cases as processes seem vital to such research, taking into account that many (but not all) interesting events have probably already taken place, or are taking place in another locality. References Abbott, A. (1992) What do cases do? Some notes on activity in sociological analysis. In Ragin, C. C. & Becker, H. S. (Eds.). What is a Case? Exploring the Foundations of Social Inquiry, Cambridge: University of Cambridge Press. 5382. Biemans, W. G. (1992) Managing Innovation, Wit Bonoma, T. V. (1985) Case research in marketing: Opportunities, problems and a process, Journal of Marketing Research. 22, 199-208. Brito, C. & Correia, R. (2006) A model for understanding the dynamics of territorial networks: The case of tourism in the Duoro valley, 22nd IMP conference, Milan, Italy. Callon, M. (1998) An essay on framing and overflowing: Economic externalities revisited by sociology. In Callon, M. (Ed.). The Laws of the Markets. Oxford: Blackwell. 244269. Callon, M. & Law, J. (2004) Guest editorial, Environment and Planning D: Space and Society, 22, 3-11. Czarniawska, B. (2004) On time, space and action nets, Organization, 11 (6), 773-791. Dubois, A. & Araujo, L. (2007) Case research in purchasing and supply management: Opportunities and challenges, Journal of Purchasing and Supply Management, 13 (3), 170-181. Easton, G. (1995) Methodology in industrial networks. In Moller, K. &

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Wilson, D. T. (Eds.). Business Marketing: an Interaction and Network Perspective, Norwell MA: Kluwer. 411-492. Easton, G. (1998) Case research as a methodology for industrial networks: A realist apologia. In Naude, P. & Turnbull P. (Eds.). Network Dynamics in International Marketing. Oxford: Pergamon. 7387. Eisenhardt, K. M. & Graebner, M. E. (2007) Theory building from cases: Opportunities and challenges, Academy of Management Journal. 50 (1), 25-32. Ford, D., Gadde, L-E., Håkansson, H. & Snehota, I. (2003) Managing Business Relationships (2nd Ed.), Chichester: Wiley. Ford, D. & Redwood, M. (2005) Making sense of network dynamics through network pictures: A longitudinal case study, Industrial Marketing Management., 34, 648-657. Fulconbridge, J. R. (2006) Stretching tacit knowledge beyond a local fix? Global spaces of learning in advertising professional service firms, Journal of Economic Geography. 6, 517-540. Gadde, L-E. & Mattson, L-G. (1987) Stability and change in network relationships, International Journal of Research in Marketing. 4 (1), 2941. Goffman, E. (1974) Frame Analysis: An Essay on the Organization of Experience, Harper and Row, New York. Goffman, E. (1981) Forms of Talk. Philadelphia PA: University of Philadelphia Press. Grabher, G. (2004) Temporary architectures of learning: Knowledge governance in project ecologies, Organization Studies. 25 (9), 1491-1514. Grabher, G. (2006) Trading routes, bypasses and risky intersections: mapping the travels of ‘networks’ between economic sociology and economic geography, Progress in Human Geography. 30 (2), 1-27.

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Gressetvold, E. (2004) Product Development: Effects on a Company’s Network of Relationships, Doctoral thesis, Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology, Trondheim. Gressetvold, E. & Stromsten, T. (2005) Managing product development – challenges related to embeddedness in time and space, 21st IMP conference, Rotterdam. Halinen, A. & Tornroos, J-A. (2005) Using case methods in the study of contemporary business networks, Journal of Business Research. 58, 1285-1297. Halinen, A., Salmi, A. & Havila, V. (1999) From dyadic change to changing business networks: An analytical framework, Journal of Management Studies. 36 (6), 779-794. Harhoff, D., Henkel, J. & von Hippel, E. (2003) Profiting from voluntary information spillovers: how users benefit by freely revealing their innovations, Research Policy 32, 1753-1769. Harrison, D. (1999) Strategic Responses to Predicted Events: The Case of the Banning of CFCs, Unpublished Doctoral Dissertation, University of Lancaster, UK. Henneberg, S. C., Mouzas, S. & Naudé, P. (2006) Network pictures: Concepts and representations, European Journal of Marketing. 40 (3/4), 408429. Henneberg, S., Naudé, P. & Mouzas, S. (2009) Sense-making and management in business networks – some observations, considerations, and a research agenda, Industrial Marketing Management, In press. Hess, M. (2004) ‘Spatial’ relationships? Towards a reconceptualization of embeddedness, Progress in Human Geography. 28 (2), 165186. Holmen, E. & Pedersen, A-C. (2003) Strategising through analysing and influencing the network horizon,

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Industrial Marketing Management. 32, 409-418. Holmen, E., Håkansson, H. & Pedersen, A-C. (2003) Framing as a means to manage a supply network, Journal of Customer Behavior. 2 (3), 385408. Huber, G. P. & Van de Ven, A. H. (1995) Longitudinal Field Research Methods. Thousand Oaks CA: Sage. Håkansson, H. & Snehota, I. (1995) Developing Relationships in Business Networks. London: Routledge. Håkansson, H., Tunisini, A. & Waluszewski, A. (2002) Place as a resource in business networks, 18th IMP conference, Dijon, France. Håkansson, H. & Waluszewski, A. (2002) Managing Technological Development. London: Routledge. Håkansson, H. & Waluszewski, A. (Eds.). (2007) Knowledge and Innovation in Business and Industry: The Iimportance of Using Others, Oxford: Routledge. Håkansson, H., Ford, D., Gadde, L.-E., Snehota, I. & Waluszewski, A. (2009) Business in Networks. Chichester: Wiley. Ivory, C. & Vaughan, R. (2008) The role of framing in complex transitional projects, Long Range Planning. 41, 93-106. Johnsen, T. E. & Ford, D. (2007) Customer approaches to product development with suppliers, Industrial Marketing Management,.36 (3), 300-308. Kaplan, S. & Tripsas, M. (2008) Thinking about technology: Applying a cognitive lens to technical change, Research Policy. 37, 790-805. Langley, A. (1999) Strategies for theorizing from process data, Academy of Management Review. 24 (4), 691-710. Langley, A. (2007) Process thinking in strategic organization, Strategic Organization. 5, 271 - 282. Law, J. (2004) And if the global were small and noncoherent? Method, complexity, and the baroque,

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Environment and Planning D: Space and Society. 22 (1), 13-26. Loasby, B. J. (2002) The evolution of knowledge: beyond the biological model, Research Policy. 37, 12271239. Mitchell, J. C. (1983) Case and situation analysis, Sociological Review. 31, 187-211. Mouzas, S., Henneberg, S. C. & Naudé, P. (2008) Developing Network Insight, Industrial Marketing Management. 37, 167-180. Norcliffe, C. & Bartschat, T. Z. (1994) Locational avoidance by non metropolitan industry, Environment and Planning. 26 (7), 1123-1145. Orlikowski, W. J. & Gash, D. C. (1994) Technological frames: Making sense of information technology in organizations, ACM Transactions on Information Systems. 12 (2), 174-207. Peck, J. (2005) Economic sociologies in space, Economic Geography. 81 (2), 129-175. Ritter, T. & Gemunden, H-G. (2003) Network competence and its impact on innovation success and its antecedents, Journal of Business Research. 56 (9), 745755. Suchman, L. (1987) Plans and Situated Actions: The Problem of HumanMachine Communication, Cambridge: Cambridge University Press. von Hippel, E. (1976) The dominant role of users in the scientific instrument innovation Process, Research Policy. 5, 212-239. von Hippel, E. (1986) Lead users: A source of novel product concepts, Management Science. 32 (7), 791804. von Hippel, E. (1988) The Sources of Innovation, Oxford: Oxford University Press. von Hippel, E. (2005) Democratizing Innovation. Cambridge MA: MIT Press. Weick, K. E., Sutcliffe, K. M. & Obstfeld, D. (2005) Organizing and the process of sensemaking, Organization Science, 16 (4), 409-421.

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3.

We presented an earlier version of this paper at an IMP Market Studies workshop at the University of Strathclyde, April 2007 ’Actant’ has proven a slippery idea to define, but for our purposes is a proto-actor, seeking to acquire the capacity to act, to make a difference, but being able to do this in collaboration with others. Cadbury used CFCs 11 and 12, R502 (a blend of CFC and HCFC that was classified as a CFC) and HCFC 22.

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Cadbury used HCFCs in low temperature applications. The initial Montreal Protocol agreements and phase out

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Interview with ICI Regulatory Affairs Manager

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Interview with Sales Manager, ICI

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schedules related to CFCs only.

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The Becoming of Cermaq: The interplay between network influences and firm level control ambitions Lars Huemer a , Håkan Håkansson b and Frans Prenkert c

a b c

BI Norwegian School of Management, Oslo, Norway, email: [email protected] BI Norwegian School of Management, Oslo, Norway, email: [email protected] BI Norwegian School of Management, Oslo, Norway, email: [email protected]

Abstract In this paper, we study the birth and development of an international company, Cermaq. International business, by definition, deals with space, and some business activities are performed across national boundaries. For instance, it can be a company situated in one country but buying from suppliers situated in other countries, selling to customers in other countries or making investments in production or R&D in other countries. Here, we focus on the interrelatedness between the focal firm’s HQ’s ambition to be in control of its own development, and the influence that it experiences from its evolving network. The interplay and possible tension between firm-level control and network influence is used further to understand the construction of identities in networks. We suggest that identities develop as a result of internal features and successful control; the internal features of others and their successful influence; and new demands created by either new positions in old networks or entering into entirely ‘new’ networks. Both space and time emerge as central in the development of firms and networks, where the overall business logic only can be understood in hindsight. Keywords: Identities in networks, network paradoxes, space, aquaculture

1. Introduction Over a period of 12 years, our case firm developed from being a state-owned monopoly in the agriculture industry to the second-largest multinational corporation (MNC) in the salmon farming industry, foremost owned by private investors. Such a dramatic development can be explained by two different types of factors. One type is related to the company itself. It is to start in the company and use what can be depicted as an inward-out-based explanation (e.g. Porter, 1998). The development is, from this perspective, attributed mainly to internal features of the firm, such as competence, capabilities and conscious decision-making – ‘the excellence of the firm’. The other type uses an outward-in-based explanation where the main reasons for the development are looked after in the environment of the company. It is due to

external processes involving customers, suppliers, owners and other network actors that, in this case, may explain the development (Håkansson et al., 2009). These can be seen as alternative explanations but an interesting tension is identified if they are both assumed to be important at the same time. This is the approach we choose in this study when analysing the above-mentioned transformation. By doing so, we can focus on the interplay between what the focal firm HQ itself was trying to manage in its transformation, and the extent to which it was the network of relationships that influenced its development. The paper builds on a design that deals explicitly with this duality. It is a combination of two different empirical investigations, where the first has a single firm and its development in focus, whereas the second centres on the evolution of the network, in which the single and, in this paper, focal

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firm, takes part. Throughout the paper, we will build on these two different but related investigations in order to highlight some of the central opportunities and limitations in terms of tensions that emerge when the development of a single firm is analysed both from its own point of view as well as from a network perspective. The coincidental tension between firm-level control ambitions and influences from its network of relationships is at the heart of this article. Our case describes the internationalization process of the secondlargest salmon farmer in the world, Norway’s Cermaq. The case illustrates a firm that, arguably, is in control of its own development to a significant degree, yet it is also part of a global network with both general features and interesting geographical variation. Thus, the more that the firm tries to change and develop its specific network position, the more it becomes influenced by other actors. The single company can, in this way, be seen as trapped between two types of ‘influencing’ factors: its own ambitions to build up and control its development; and how all related actors in its network try to influence and use the focal company in their development. This paper offers two types of contributions. One is to illustrate empirically the coincidental tension between firm-level control ambitions and influences from its network of relationships. Secondly, making such a description will force us to clarify how the development of identities in networks is related to combining own features with the features of others, which in turn must be related to the multidimensional “space” existing in-between them. The label ‘identities in networks’ is, therefore, different from the network identity concept in prior IMP studies, in that it combines external and internal identity influences. The paper is structured in the following way. Next, we describe our conceptual platform, followed by the methodological approach and design of the study. Thereafter, we identify a number of significant steps in the evolution of our focal firm and its network, which are used further to discuss our focal themes:

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firm-level control; network influences; and the development of identities in networks. In the discussion, we highlight central space dimensions with respect to our inquiry. 2. Space dimensions and the interplay between corporate control and network influence MNCs are interesting units of analysis regarding space, including the interplay between control and influence. In particular, how do networks influence focal firm control strategies and identity development? International aspects, including the existence, role and structure of MNCs, have been studied extensively (e.g. Forsgren and Johanson, 1992; Araujo and Rezende, 2003; Buckley, 2007). Larger one-off investments, as well as smaller investments in businesses, have been analysed systematically in relation to the geographical space dimension. Drawing on the main idea of Granovetter (1985), this means that a company is always embedded into a certain space as the company interacts with its counterparts in the network. This means that any company is embedded into its geographical context and that MNCs are embedded into many geographical contexts simultaneously depending on their level of internationalization and global presence. However, a company is also embedded into its context in another way. A modern company performs a number of knowledge-related activities that are directly related to its knowledge context or technological context (Thompson, 1967; Rosenberg, 1982, 1994; Loasby 1999, 2001). This means that a company can get access to knowledge and technology via its network connections and that technological solutions and knowledge can be translated and adapted through interaction with others in the network (Håkansson, 1987, 1989; Lundgren, 1994; Håkansson and Waluszewski, 2007). This is of importance as it means that any company is embedded into a knowledge space and that this space dimension may

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differ for a company having several different products or business lines. Thus, the development of a company may be seen as being related to the company’s embeddedness in its context in at least two dimensions: the geographical embeddedness and the knowledge embeddedness. However, these two dimensions are not independent of each other – they are in turn embedded into each other. This has been recognised in studies of the internationalization process of companies (e.g. Johanson and Vahlne, 1977; 2003; 2006; Johanson and Mattsson, 1991), where one key dimension that has been used in the analysis is knowledge. Knowledge about foreign markets (Johanson and Vahlne, 1977) or of specific counterparts (Johanson and Mattsson, 1991) has been used as an explanatory variable. However, knowledge can be related to the geographical space in a much more direct way. A modern company performs a number of knowledge-related activities that have interesting and direct connections to the geographical dimension. One example is when the company bases several of its activities on specific knowledge, where the space dimension - i.e. where knowledge is embedded into geographically based activities/resources - has been argued as being important. There are three different arguments for the space connection. The first – and the most general – argument is that knowledge as such cannot be separated easily from the context in which it has been generated. It is dependent on, and interwoven with, the artefacts that have produced it, such as machines and tools, and with the processes through which it has been produced. Furthermore, it is not easily separated from the context in which it is currently used, where it is interwoven with other processes and artefacts, such as research techniques or routines (Galison, 1997; Latour, 1993). Another partly overlapping argument is that information, thereby making knowledge “sticky” and therefore, cannot be separated easily from the actor and the context where it was created (von Hippel, 1994, 1998). A third reason is that some important business knowledge exists and

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is created through joint activities. Thus, it is bound to, or only useful through, the interaction between specific companies (e.g., Håkansson and Waluszewski, 2007). It means that interaction between companies creates business knowledge that is useful given the involved companies and their resources. Knowledge has, according to these arguments, an important space connection. One consequence is that changes in the geographical dimension that were initiated due to other reasons might have unexpected knowledge consequences. The opposite might also be the case, that is, changes in the knowledge dimension of some specific reasons might have unexpected geographical consequences. If knowledge is bound to specific places, then any development in the knowledge dimension might be described and analysed in geographical terms. The ‘space complexity’ facing MNCs is thereby significant in shaping the balancing act of corporate control (of knowledge and identity development) and influences from the network(s) in which the focal unit takes part. From a network perspective, control has been discussed as being both important and dangerous (Håkansson and Ford, 2002). A company’s ambition to try to modify its own network position and to influence what happens in its own and others’ relationships is an important network development force. However, if this aim for control is successful – if it acquires some ‘final’ control over the surrounding network – then this network force is destroyed: the network becomes more of a hierarchy. Management’s task is, therefore, to encourage and help others to clarify their understanding of the network continuously in order to continue investment in the network. It is their actions based on their perspectives, in interaction and interlaced with other actors’ actions that provide the dynamics of a network. This implies that relationships provide an opportunity for a company to influence others, but at the same time are forces that also influence a company. Such influence may be essential, in that relationships become

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potential sources of others’ wisdom (Håkansson and Ford, 2002; Håkansson and Waluszewski, 2007). Consequently, Gadde, Huemer and Håkansson (2003) argue that a network view transforms the definition of an actor from an inside perspective (the actor) to an outside view (the network), actors being defined in terms of the resources they have been able to mobilize and the activities in which they are involved. A consequence is that there exists an important tension between the single firm and the network. From a single-firm perspective, there exist a number of inward–out issues that the company has to handle actively and develop. However, through this process, it may become trapped into a development trajectory where managers fail to take into account existing and potential relationships and the developments taking place in the network. In the extreme case, the single organization is perceived as a selfsufficient entity whereby its managers believe, and/or act as if they are in sole control of relationships and their organization’s identity. Correspondingly and complementarily, managers will also have a number of outward–in types of issues in which they have to be highly involved. But here, they may also become trapped into a process where they are too influenced by their relationships to others, thereby running the risk of not having any control of their own organization’s development (Huemer, 2004). 3. Methodology and approach of the study In studying both firm-level control ambitions and influences from its internationally expanding network, we chose an intensive qualitative case study approach. Intensive longitudinal case studies have been called for in studying the development of business firm embeddedness in relation to acquisitions in the internationalization process (Andersson, Johansson and Vahlne, 1997). We therefore adopted a case study design (e.g. Araujo and Dubois, 2004), to follow the development of Statkorn/Cermaq over time and to uncover

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developments in its network position and identity. We believe it to be a methodological strength that the paper is a combination of two different empirical investigations. The first one has a single firm and its development in focus, while the second centres on the evolution of the network in which the single, and in this paper focal firm, takes part. This design makes it possible for us to discuss both inward-out control aspects as well as outward-in network influences. Interviews were the primary data collection tool but secondary data were also used. We used this design because it allowed us to explore contextual conditions and because we wanted to understand the developments that had unfolded over time. Primary data from the case study firm stem from interviews and discussions with a number of people in different business units in the Cermaq group and in the salmon production network in Chile. One of the authors also served as a visiting scholar for two years in Chile. Interviews were conducted in Norway and Chile with people at the Cermaq Corporate head quarters, its subsidiaries and a number of additional actors. Altogether, 66 interviews were conducted between 2003 and 2008 - 46 of which were conducted in Chile and 20 in Norway (see Appendix A); all were recorded and transcribed. Press articles as well as company documents were also used in addition to these semi-structured, face-to-face indepth interviews with corporate HQ, subsidiary managers, competitors and suppliers. These interviews were also complemented by an intense period of fieldwork - called a ‘flying squad’ - in January 2006. The aim of this fieldwork was to acquire a network view of the aquaculture business, not least in Chile. The flying squad included the collaboration among six scholars and was performed on location in Chile. Interviews were conducted with the major key actors in the feed and farming sector (See Appendix B for a list of the interviews in the flying squad). These interviews were transcribed and added to the database constituting the foundation of our empirical source

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together with the other 66 interviews as well as some secondary data. Altogether, the combination of a prolonged presence in the sector, as well as an intense flying squad, provided ample opportunity to identify key actors and important events and issues of relevance to our inquiry. The study’s validity, or credibility, has been addressed in a number of ways. The interpretation of the data and the development of the case were made in cooperation among the three authors providing an inter-subjective ‘arena’ for discussion and shaping of understandings. Eventually, a common mutually negotiated view of the case and the development of Statkorn/Cermaq emerged, based on our various readings and understandings of the data and the specifics of the situational context of the company and its networks (Ragin, 1992). Focusing on the specifics and the unique situation that the development of Statkorn/Cermaq offers, our analysis serves as a basis for theoretical generalization and theory development, and we claim no validity as to any statistical inference. The focal firm, Statkorn/Cermaq, was used to bind the data (Miles and Huberman, 1994) and to provide guidance to the drawing of boundaries around the case, making it coherent and systemic with a certain

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sequence of unfolding of events (Stake, 2003). Data were collected by many members of a research team and interviews were cross-checked by the team members to ensure the quality and completeness of the data. Informal feedback sessions and discussions have been made possible further by interviewing key managers two-to-three times. 4. Statkorn becoming Cermaq The main events in this history of Statkorn/Cermaq span a time period from 1995 to late 2007. During this time, the company went from corn to fish – from land to sea – from Norway out in the world – and back to Norway again. The main events give one picture of the major steps taken by the company. Table 1 summarizes the major developments of Statkorn’s transformation from a national agriculture company to an international aquaculture firm (Cermaq). The events include the major investments in terms of acquisitions of companies, but also divestments in order to free capital. This capital is subsequently used by the company to purchase other business units in order to enhance its overall strategy of entering into the aquaculture sector.

Table 1 Summary of main events in Cermaq 1995 - 2007 Event no. & date 1. January 1995

2. May 1995 3. May 1995 4. May 1996 5. Aug 1997 6. June 1998

Event description Statkorn Holding ASA (hereafter denoted “Statkorn”) is established when the Department for Agriculture of the Norwegian government commercializes its grain operations Statkorn AS is established as a wholly owned subsidiary specializing in grain trading Statkorn purchases 49% of Fiskå Mølle AS, a live stock feed company NorAqua, specializing in fish feed, is established with Statkorn as minority stakeholder (41%) NorAqua decides to merge with Felleskjøpet Fiskefor AS, Statkorn’s share is thereby reduced to 34% Statkorn increases its share in NorAqua to 38% during the company’s stock emission

1999 7. June 1999 Norwegian government clears a reduction in ownership to a 49% stake 8. September Statkorn becomes majority owner of NorAqua (57%) by acquiring

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1999 9. Fall 1999

Felleskjøpene’s 19% share Statkorn Holding ASA sells a 50% share of the grain trading company Statkorn to Felleskjøpene, which renames the company Unikorn AS December Norwegian government sells 20% of the shares in the company

10. 1999 2000 11. March 2000

Statkorn acquires EWOS with operations in Norway, UK, Chile and Canada from Danisco 12. Fall 2000 Norwegian government pulls out even more as Stortinget clears a possible reduction in ownership to a 34% stake 13. December NorAqua is merged with EWOS 2000 14. Nov. 2000 Statkorn acquires six fish farming companies in Canada, Chile (the “original” Mainstream) and Scotland and they are consolidated under the Statkorn Holding ASA umbrella 2001 15. February 2001 The company Statkorn Holding ASA is renamed Cermaq ASA 16. March 2001 The 50% stake of Unicorn AS sold to Felleskjøpene in 1999 is bought back giving Cermaq control over the company 17. October 2001 Cermaq splits its operations into two divisions focusing on agriculture and aquaculture respectively 2002 18. January 2002 Cermaq sells 34% of the shares in Unikorn to Bygdemøllenes Investeringsselskap AS for NOK 29 m 2003 19. Spring 2003 Cermaq sells the remaining 66% of Unicorn to one of its subsidiaries Cernova AS, which, later in September, sells off a smaller part of the company (16.2%) to Bygdemøllenes Investeringsselskap AS 20. May 2003 Cermaq consolidates all its farming operation under one common umbrella, naming it Mainstream 21. Fall 2003 Cermaq sells its 49% share in Fiskå Mølle for NOK 29m to Brødrene Nordbø AS. The capital freed is to be used to enhance the company’s focus on aquaculture 2004 22. April 2004 Through a restructuring of the company, Cermaq acquires 34% stake in Follalaks AS 23. July 2004 Cermaq buys Salmones Andes in Chile for USD 23m, which was financed within Cermaq’s current ready assets and capital available in existing financing structures. Already before the purchase, Cermaq owned a 30% stake from the restructuring and refinancing of the company in 2002 when Salmones Andes and Salmones Chillehue was merged with Marine Farms. The company is fully integrated and merged into Mainstream Chile 2005 24. March 2005 Fjord Seafood buys a 12.9% stake in Cermaq ASA. The Cermaq board declares a merger is not feasible 25. July 2005 Cermaq buys the Canadian salmon farming company Heritage with a capacity of 15,000 tons p.a. for CAD 32m financed from existing financial assets 26. August 2005 Cermaq increases its stake in Follalaks AS in Norway to 85% as it acquires the stake sold by DnBNOR 27. Fall 2005 Trade with stocks in Cermaq ASA is noted on the Oslo Stock Exchange

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through the completion of a successful IPO, collecting an additional NOK 220m from shareholders through an issue of stock. Norwegian government sells stock for NOK 1.100 m. Cermaq stocks was traded at NOK 44 per share 2006 28. October 2006 29. Fall 2006

30. Late 2006 2007 31. June 2007 32. August 2007

Cermaq acquires Langfjordlaks in Finnmark, Norway A restructuring plan is initiated in EWOS to cut costs and to revamp the company during the first months of 2007 to a cost of NOK 20 m. but with a yearly saving of NOK15m after that Cermaq is in the process of acquiring Polarlaks AS and Hammerfest Lakseslakteri AS Cermaq invests NOK 565m in a programme to renew the production lines, port facilities and warehousing in EWOS Norway’s unit in Florø The organizational structure of the main Cermaq group has been unchanged since its start in 2003. Cermaq splits its farming operations into two divisions: Mainstream Europe and Mainstream Americas

In order to analyse this process, we have identified five different steps, each constituting a major change for the firm in terms of its network position, influenced by changes in actor bonds, resource ties and activity links. This includes new bonds, ties and links and/or significant developments in already existing dimensions. We argue that all steps have been central to the internationalization process of Statkorn/Cermaq. That is, all steps are characterized by the HQ’s ambition to control its development, while it simultaneously experiences influence from the transforming network. However, in the discussion that follows, we pay particular attention to the content and scope of steps two to five, which were central to our empirical inquiry. 5. HQ and the network: Tensions between control and influence Of particular relevance for our analysis is the fact that, in 1998, a formal strategic decision was taken by the Statkorn board that future growth would take place in aquaculture. At this moment in time, aquaculture is regarded to be the same as feed production. There is no explicitly stated view of farming yet, besides the fact that farmers now represented important future customers. This explains our research question and the relevance of the setting: In what way was HQ itself managing its transformation,

and to what extent was the network of relationships influencing its future development? The five major steps identified in the internationalization process of Cermaq/Statkorn were taken from 1995 to 2007. We use the perspective of the corporate HQ from the beginning and ‘surprises’ or ‘unexpected consequences’ as a way of identifying the main effects of the network. Step 1 (event 3) - From grain to feed: The purchase of 49% of Fiskå Mølle by Statkorn in 1995 involves a change in product focus, new production facilities and new domestic customer relationships. Consequently, in this step, the firm its development from being a grain-trading company to becoming involved in livestock feed production. This step maintains the presence in agriculture, i.e. the overall industry remains the same but there are some major changes in its network of business relationships. Step 2 (events 4-6 and 8) - From agriculture feed to aquaculture feed: Event 4 continues the focus on feed production, but is also the first development from agriculture towards aquaculture. Consequently, the second step develops new bonds, ties and links on an industrial level of analysis. The focus is on fish feed, remaining a national actor. The entire time span for steps 1 and 2 is four years; it took

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one year to go from agriculture feed to fish feed. Step 3 (events 11 and 13)- From national aquaculture feed to global feed: This step continues the recently established focus on fish feed. The major change involved in this step is the global dimension following on EWOS’ presence in the four main salmon countries, i.e. Norway, Chile, Canada and Scotland. Thus, the company is now in a global network of business relationships. Step 4 (event 14) - From feed to farming: This step manifests the geographical presence in three of the four main production countries. Significant change occurs in terms of moving a step downstream in the salmon value system, and from feed to include farming in all main markets but the domestic one, i.e. Norway. This means that the network position differs when compared with the situation earlier. In 2001, Statkorn is renamed Cermaq. Step 5 (event 22 and 26) - Becoming truly global in farming by domestic acquisitions: Here Cermaq ‘returns to home’ with respect to farming by acquisitions of Norwegian fish farmer, Follalaks AS. This affects the structure of the internal network of production and development activities to a significant degree. Focusing on feed (Steps 1-3): The growing focus on aquaculture feed presents Statkorn with challenges that follow from being an international organization in an industry in which they have limited experience. The acquisitions of both NorAqua and EWOS illustrate, in different ways, how the firm’s network position has changed and how different management cultures are combined in new ways. In the process, some aspects of the acquired firms are maintained, whereas others are changed. NorAqua AS was a result of several mergers involving fish feed activities in four independent co-operating farmers’ co-ops (Felleskjøpet) and Statkorn, owned by the Norwegian government. The owners had previously

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run the fish feed business as an integrated part of their agriculture business. The mergers were performed in several steps over a period of two years. Statkorn’s first step from agriculture towards aquaculture took place when it became a main stakeholder in NorAqua in 1996. In 1999, Statkorn becomes majority owner of NorAqua, based on a deal with Felleskjøpet where Statkorn’s subsidiary Stormøllen was traded for a majority share in NorAqua, in addition to cash. A bid on EWOS in 1999, which initially failed, marks the beginning of a planning process for how to build up the firm’s presence country by country in an organic way, side by side with actors already present in the industry. The acquisition of EWOS in March 2000 with operations and important business relationships in Norway, UK, Chile and Canada follows only a year after becoming majority owner in NorAqua. At the time of the acquisition, EWOS was managed from Scotland, and the managerial approach was significantly different from the smaller, less hierarchical and, according to the present management, more entrepreneurial culture characterizing NorAqua. An unexpected influence, therefore, was that the management team from the much smaller and internationally less-experienced subsidiary took over management of the global feed production, under the EWOS label. EWOS is, at that time, competing with Nutreco for world leadership in the salmon feed industry. Statkorn, recently a state-owned agriculture monopoly, now finds itself in an international aquaculture setting with significant cultural differences between the business networks in Chile, Canada, and Scotland, with their traditions in doing business, and overall, the more articulated financial focus present in EWOS. The influence originating from EWOS is, to a large extent, based on the subsidiary’s characteristics, which in turn are explained by the competencies embedded in its previous owners and their business networks. EWOS has, over the years, been owned by a number of multinationals and therefore experienced

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quite different networks, including Astra, Alfa Laval, Cultor and Danisco. Astra brought EWOS into an R&D culture and network and so to an academic way of thinking. The heritage from Astra has been particularly important for EWOS Innovation, the R&D unit that is among the two largest in the world concerning salmon feed and farming issues. Arguably, this was known and expected when Cermaq decided to invest in EWOS. However, a number of issues generated by the existing network were more unexpected. On the positive side, there is the ‘seriousness’ (the academic network) that one of the world’s most influential R&D units has on the entire Cermaq group’s desire to be viewed as ‘sustainable’. EWOS Innovation is a ‘tool’ to expand the horizon both upstream and downstream in the salmon chain, which places farming activities at the centre, not from an activity in itself, but from an R&D perspective. That is, EWOS Innovation can promote the farming business and talk in their favour. The R&D unit is also valuable in relation to external stakeholders such as the media. For instance, a few years back, there was a strong attack on the industry in the journal Science. Journalists from The Economist called EWOS Innovation and asked for comments, and the firm was, within a short time span, able to provide valid counter-argument to the negative information. The firm becomes, therefore, a representative of the industry in the public space. Alfa Laval provided an international network setting and whenever a new EWOS plant was to be established somewhere in the world, Alfa Laval already had a presence in the country network, which benefitted the start-up. Danisco’s purchase of Cultor proved to be important for Statkorn/Cermaq since feed production was not a core focus for Danisco. This explains why EWOS was sold to Cermaq after only one year. To illustrate a part of the actor bonds that followed the acquisition of EWOS, Figure 1 below provides a simplified illustration of the Chilean network that became a ‘visible’ success for Cermaq. Arguably, a deeper understanding of the content of such

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bonds remains unknown until first-hand experience had been developed. This is not peculiar to this case as such, but provides an illustration of the complexity following from international acquisitions of network positions. This network diagram shows the embeddedness of EWOS in the Chilean network context. It is thus a result of many previous developments and has been shaped over a considerable period of time since the beginning of salmon production in Chile in the early 1980s. Reading Figure 1 from top to bottom, we find actors such as BASF, which is a technology provider of animal health and part of the German chemicals MNC with the same name; and DSM, a provider of nutrition and vitamins and Lota Protein, which is the main supplier of protein owned by the Norwegian MNC Koppernæs. Skretting, BioMar, Alitec and Salmon Food are other feed producers much like EWOS, while Aqua Chile and Marine Harvest are the other two major farmers/producers besides Mainstream, which is part of the Cermaq MNC and thus a sister company to EWOS. Indura is a specialized company supplying industrial gas technology used to oxygenate the water at the farm sites. It has been involved in some projects with Marine Harvest and Aqua Chile to improve the efficiency of the sites by adding oxygen to the water in various ways. These projects were facilitated by the Chilean industry organization Intersal, who functioned initially as a liaison between the companies. Novartis Animal Health is part of the MNC Novartis and specialize in supplying vaccines to the farmers. A similar actor is the Norwegian company Pharmaq, who supply this type of specialized service to Mainstream. SAAM is a logistics company providing cages and solutions for storage and transportation. Not depicted in the diagram in Figure 1, but worth mentioning, is the information bureau Salmon Chile1, whose main mission is to provide information about the Chilean aquaculture salmon farming industry, primarily to the North American market. 1

http://www.sea-world.com/salmonchile/. Accessed 200904-02.

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Legend: Lota Protein

DSM

BASF Intersal

Pigment Supplier

Skretting

Chilean Industry Organization

Feed Producers Salmon Food

Alitec BioMar

Ewos Chile

Novartis Animal Health

SAAM Logistics

Indura Gas

Farmers / Processors

Mainstream Chile

Intersal Aqua Chile

Marine Harvest

Special Technology / Knowledge Providers

Pharmaq Chile

Distribution Channel / Retail

Japanese Agent

Japanese Agent

U.S. Distributor

U.S. Distributor

Japanese Retail

Japanese Retail

Sam’s Club

WalMart

Logistics Logistics Japanese End-cust.

Logistics Logistics Japanese End-cust

Logistics Logistics U.S. Endcust

Logistics Logistics U.S. Endcust

Figure 1 A network diagram of the Chilean salmon farming industry Towards farming (Step 4): EWOS had advanced plans of forward integration towards farming already when it was bought by Cermaq. Moving into farming is also a desire that Statkorn/Cermaq develops at this stage, an ambition that can be explained by influence from, and adaptation to, new network positions. Statkorn/Cermaq quickly acknowledges EWOS’ forward integration plans and that its management is keen on such a move. However, EWOS’ previous owners had not been interested in this. For Statkorn/Cermaq, forward integration is now regarded as important and during one of the first meetings, the result is to go for the plans towards farming laid out by EWOS. The focus on salmon farming does not change the geographical space of Statkorn/Cermaq in terms of production

activities, but new customer relationships appear throughout the world, particularly in North America, Japan and Europe. In addition, new supplier relationships and a different competitive landscape emerge, besides a set of new production facilities and new managerial/organizational challenges. Farming requires a more hands-on and local presence than the process-based manufacturing characterizing feed production; farming is also more exposed to attention from NGOs and the media. Event 17 in Table 1 is a manifestation of the steps taken so far, when the organization is split into two divisions, one focusing on agriculture and the other on aquaculture. The acquisition of Mainstream and the entrance into farming result in the insight that farming is significantly different from feed production. As expressed by

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Cermaq HQ: “even if it is your customers you are talking about, you do not really know what farming is about”. Cermaq had expected that farming would be different, but it was unexpected that it was so different. This is something that is learnt as a number of farming acquisitions take place during 2000-2001. It is possible to use board of directors’ general competence, but no competence regarding actual farming operations exists in-house. Up to this time, Cermaq has perceived itself as a portfolio investor in aquaculture, rather than a corporate HQ. Cermaq’s strategy is, at this time, to buy a number of small firms in order to build up one large farming unit, although the firm experiences management problems quickly when trying to execute this plan. In brief, it was expected that the acquisitions in Canada and Scotland included firms that had certain problems, but the degree of operational shortcomings, certain environmental challenges, as well as the demands on local management, were largely unexpected. The HQ stresses that, in terms of management capacity, they are very clear on the need of good management in the companies that are acquired: “when we do turnaround operations from long distance we do not wish to make great changes, that is difficult”. However, this was exactly what was needed in Canada and Scotland. It was not expected that Canada and Scotland would turn out to become pure turnaround cases. The acquisition in Chile of Mainstream is another story, where it was known that the company delivered good results and was well managed. It was expected, therefore, that it would perform well. However, it was unexpected that Mainstream Chile would become the global platform and centre of competence for the entire farming division. Mainstream performs an active subsidiary role and Cermaq acknowledges that Mainstream’s capabilities are important sources of value creation that are disseminated to other parts of the MNC, which makes the subsidiary a centre of excellence. Mainstream’s articulated ‘business mindedness’ and its focus on low costs

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influence the groups further development significantly. In addition, the Chilean salmon network has some very special characteristics compared with the situations in the other producing countries that have effects on Cermaq. First, in all farming, the feed is the main cost – around 60%, which means that the relationships between the farmers and the feed producers are always important. In Chile, contrary to the other producing countries, the farmers are much bigger, and consequently, the power position in the salmon network differs. In Chile, the farmers have, traditionally, been fewer, larger and more industrialized than in the other producing countries. For example, in Norway, the feed companies have, traditionally, held a stronger position as the farmers are much smaller on average. This results in a number of unexpected situations regarding supplier-customer interactions. Returning to the bottom of Figure 1, we have the main output areas of Chilean farmed salmon –Japan and the US – and the associated distribution structures, which differ from each other. In Japan, the traditional structure with the trade houses is still present, although also this old structure is challenged by newer, more integrated distribution and marketing structures (Abrahamsen and Engelseth, 2007). In the US, the salmon reaches the major retail chains via domestic distributors, and most of the producers have their own presence in the continental US through sales and marketing offices. With regard to customer relationships, the effects of successive investments in the network have created some strong connections among the producers in Chile and the destinations for the salmon in countries such as Japan and the US. Indeed, the very fast development of the Chilean salmon production network can be said to have been driven by investments from the large retail and distribution networks in Japan and the US looking for a way to source salmon in a low-cost way. A significant driver of the salmon production in Chile is, consequently, the demand among end consumers for salmon in countries such as

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the Japan and the US. In other words, Norwegian investments in Chile are also explained by developments in Japan and North America. This is even more concretized when considering Mainstream Chile’s successive investments in relation to its customers. Mainstream has invested much in its customer relationships over the years. For example, they have close cooperation with Wal-Mart, one of their main customers. Mainstream sell to WalMart via a large US distributor, which is its formal customer. The three function as an integrated chain with open relationships, meaning, for example, that margins in each section are known to all involved. This integrated chain has required substantial successive investments in terms of adaptation and coordination over the years and also involves investments in building trust and confidence. The model of using a distributor in US to access US retail networks is the standard approach, and Mainstream also sells to Sam’s Club and to other smaller retailers in the same way. The company have in total approximately 200 active customers in the US, mainly via distributors, and it sells only Atlantic salmon, most of which is frozen. This means that the successive investments made by Mainstream in some of these relationships are absolutely necessary in order to create integration and smooth flows. On the other hand, Mainstream does not require a market and sales organization in the US. The picture is much the same when it comes to the distribution in Japan, where Mainstream has about 100 active customers. The main difference, compared with the US, is that the distributors or trade houses – keiretsu – are even stronger here and the products are frozen Coho salmon, also known as Pacific salmon and trout. These are used in the sushi culture in Japan. The distribution to Japan requires constant successive investments in the relationships with these distributors, as the Japanese trust more with their eyes than figures in reports, hence relying on on-site visual inspections of the fish. Such hosting is common and recurs annually, and

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constitutes one type of successive investment necessary to maintain efficient integration, coordination and trust with the customers. Becoming global in farming (Step 5): The fifth step makes Cermaq a truly global actor by being present in two stages of the value system (feed and farming) in all four major production countries (Figure 2). A further manifestation of this step is event 32 (Table 1), when, in 2007, the group splits its farming operations into two divisions: Mainstream Europe and Mainstream Americas. In the view of Cermaq, both feed and farming represent a business that is international in character, and actors that want to be leaders need to be present in all four main production countries. However, for quite some time, the Norwegian salmon giant is without farming operations in its home country. Entering Norway is a key part of Cermaq’s strategy for a few years, and finally in August 2005, it purchases a majority stake in Follalaks AS; the remaining stake is purchased in October 2005. Due to its performance, Mainstream Chile has not only been named as the group’s entire farming operations but also responsible for its redesign and operational improvement. Follalaks AS is, however, a well-managed firm with good performance. The Norwegian operations are, nevertheless, named as Mainstream Norway, and placed under Chilean management. This is an expected outcome for Cermaq. However, it is unexpected that this global structure will change already in 2007, when the farming division is divided into Mainstream Americas (Chile and Canada) and Mainstream Europe (Norway and Scotland). Americas is managed from Chile (old Mainstream Chile), and Europe from Norway (by former Follalaks AS). Interestingly, the initiative for this reorganization does not come from the Cermaq HQ but from Mainstream Chile. Mainstream’s basic principles include strong focus on cost efficiency, a focus on the fish, and local prescence. The geographical space makes it impossible for the Chilean managers to be as close

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Figure 2 The global salmon network to the growing European operations as they wish to be. At the same time, the managerial knowledge/approach that has worked well during turnaround operations is not necessarily the best way of running sound-working operations over time. Simultaneously, Mainstream Chile faces significant challenges in its domestic operations regarding health and biological issues of the fish. 6. Discussion: Organization becoming as an interplay between firm control and network influence The Statkorn/Cermaq transformation is as such reasonably radical, going from a national state-owned agriculture firm to a largely private stock market company in the international

aquaculture sector. It is noteworthy that all steps have some kind of pre-history. The reason behind certain steps in some situations is an “opportunity” – something is on sale, as was the case when EWOS was bought. However, in order to see this as an opportunity, there must be some preparedness in the buying company. This can appear both from earlier negative or positive events. It can be an increase in financial capital, change of managerial team, or change in external pressure from stakeholders. What we see is a constant confrontation between ‘firm excellence’ aiming for control and influence from the network. To illustrate control, for the five steps in the case, we can summarize the situation before each step in the following way. Step 1 followed, not least on a belief

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in the management team, that there was a significant need for change in the present industry. It had been protected for many years, and showed slow technological development. It was a good time ‘to do something’. Step 1 was not demanding in terms of resources, although the following steps would be significantly more demanding. In addition to this, the management team successively felt that they had a good base in NorAqua, had accumulated competence in fish meal production, they had available management capacity and they had freed capital for investment from the sale of Stormøllen. Finally, the board had agreed on reinvestments. With regard to network influence, step 2 and onwards builds on the fact that in, 1999, the oil-giant Norsk Hydro, in which the Norwegian government had a large share, sold its seafood business Hydro Seafood to the Dutch food corporation Nutreco for NOK 3,500m (Dagens Næringsliv, [DN], 08.11.2001). This meant that the ownership of what once was the world’s largest seafood business was transferred away from Norway. Some voices in the Cabinet as well as in the Stortinget, the Norwegian Parliament, raised the concern that many large companies in the marine sector went into the hands of foreign ownership. The Stortinget’s Committee on Business and Commerce Policy (Næringskomiteen) shared this concern, as one of its members earlier had authored a report pointing out the maritime sector as one in which Norway could be strong and dominant internationally. Eventually, Statkorn is allowed the extra capital funding after a number of political rounds in both the Cabinet and Stortinget. This

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implies that, in the autumn of 2000, Statkorn gets the funding needed for additional acquisitions in the global salmon industry in countries such as Canada, Chile and Scotland. Having an 80% majority stake in the company requires the Norwegian government to contribute with roughly NOK 1,200m. A continuous presence of both firm-level control and network influence is also visible in the decision to include farming into the business. Farming experiences a different volatility in risk and costs, which gives reasons for an integration of the two operations in the network. There is an economic “fit” between feed and farming in many dimensions. First, they both form close and complementary parts in a resource transformation process. Second, they complement each other in that they secure and insure each others’ successive investments that reside in the operations of feed and salmon production respectively. However, the fragmentation of the farming business in Norway, Scotland and Canada had been an important argument against it. Balancing control and influence: Any large step brought forward by internal ambitions is likely to bring some surprises in terms of unexpected network reactions or that the company will experience some hidden features in the network. In this case, each step is related to larger investments, which makes it more or less challenging for a focal firm to try to control the consequences, and correspondingly, to predict how it will become influenced by the evolving network. This also occurs in the five steps in the case study, as illustrated in Table 2 below:

Table 2 The simultaneous presence of firm control ambitions and network influences Corporate HQ’s control ambitions Network influence Steps 1 & 2 – From grain to feed to aquaculture feed A planned and conscious decision resulting The steps imply a dramatic change in the in increased capabilities regarding feed and network context for the focal firm. feed production. This experience will NorAqua will become a central force in become central for the acquisition of the shaping the future management style of the global fish feed producer EWOS in 2000. entire feed division, i.e. it will influence the

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Control is expressed by a growing readiness entire EWOS group when it becomes in the management team to become an acquired. international actor in the feed industry. This requires presence in the four main markets, i.e. Norway, Chile, Canada and Scotland. Step 3 – From national aquaculture feed to global feed Statkorn/Cermaq decides to become a EWOS’ management style becomes global player in the fish feed industry. influenced by NorAqua. EWOS influences The acquisition of EWOS is core in this significantly in terms of scientific knowledge process. and organizational/structural capabilities. The advanced plans present in EWOS regarding forward integration in the network is another important influence. EWOS Innovation’s ‘academic seriousness’ affects Cermaq in several ways:

• •

an increased/facilitated focus on sustainability; and the emergence of EWOS Innovation Chile, which is the first Chilean R&D unit in the industry and a result of specific Chilean conditions.

Step 4 – From feed to farming The board decides to enter farming, with the The differences between feed production aim of becoming one of the global leaders. and farming successively become apparent. Mainstream Chile becomes the central influence in dealing with farming, including turnaround operations of other farming units in Canada and Scotland. Step 5 – Becoming truly global in farming by domestic acquisitions: The firm HQs follows its previous plan to Mainstream Chile continues to influence by enter the Norwegian production market, taking a lead in the entire groups thereby becoming ‘truly global’ also in reorganization into two farming divisions; salmon farming. Americas and Europe, due to the major Cermaq decides that Mainstream Chile will differences in the functioning of the different continue to be the global salmon platform, networks. and Mainstream Norway (Follalaks AS) is Mainstream Norway presents itself as the just another unit under the Mainstream label. first real ‘challenger’ to Mainstream Chile in terms of performance. Mainstream Norway begins to influence the previous centre of excellence regarding operational techniques and managerial styles. The development of Cermaq is very much based on the development and influence of its subsidiaries, and their identities can in turn be traced to developments in their previous networks. These developments make it necessary for the focal company to combine its own possibilities in controlling its destiny, and in acknowledging the influences coming from its new

relationships. This is also exemplified in the case, for instance, in letting Mainstream Chile be in charge of turnaround operations in Canada and Chile, and in readjusting Mainstream Chile’s position, despite previous good results, when reorganizing the farming division in Europe and Americas. The reason for doing this is also due to

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network influences, such as escalating biological problems in Chile. The process of combining control and influence also create different interdependences over time. Control is present during one period in some kind of preparation for a later development, and influence from the network during one period might lead to some investments later. The logic in terms of the identification of “steps” and how they follow on each other can, in other words, be connected in different ways – and the logic might change over time. In the case study, steps 1-2 may, in hindsight, be seen as preparatory steps. Step 4 is a consequence of step 3, although has not been a given outcome. The experiences in Chile, where farming controls the value system (in contrast to Norway), may have speeded up this development. Between steps 4 and 5, it can be claimed that the acquisition of Follalaks AS is a needed step but this logic is just one of many, and it is formed along the process. The internal ambitions are changed due to the experiences over time. The development could have been very different but it would still be possible to identify ‘a logic’ – but another one. The confrontation between

Fiskå Mølle

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own ambitions and the complex reaction pattern from the network gives so many different opportunities at the same time that any major investments locks the company into a much narrower development path. Such an investment excludes a large number of possibilities at the same time that it opens up for some other. One such example is when Cermaq acquires EWOS. This acquisition carries along a whole set of important possibilities but also restrictions. It puts Cermaq in a very specific position in the global network and it very much influences the development thereafter. The knowledge of EWOS and its experience significantly influences the following steps. In this case, as well as in the acquisition of Mainstream Chile, we see the essential role of the acquired companies in shaping the agenda. Identities in networks: The five steps represent continuous developments in the identity of the focal business unit: Statkorn/Cermaq HQs. These steps are parts of the becoming of Cermaq, as an actor in the evolving network. This is illustrated in Figure 3.

Ewos Follalaks

Step 3, Mar 2000– Dec 2000

Step 1, May 1995

Step 5, Apr 2005– Aug 2005

Statkorn/ Cermaq Mainstream Alfa Nor Laval Aqua FollaAstra laks Ewos

Statkorn Step 4, Nov 2000

Step 2, May 1996– Sep 1999

Mainstream NorAqua

1995

1996

1997

1998

1999

2000

2001

2002

Figure 3 The identity process of Statkorn/Cermaq 1995-2005

2003

2004

2005

2006

2007

2008

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What started out as a national monopoly focusing mainly on corn trade started to change when Fiskå Mølle is acquired in May 1995 (step 1). This brings with it a change in identity from a corn trader to a feed producer, which resulted in new activity and resource structures. A year later, Statkorn’s engagement in feed becomes emphasized even more as Statkorn buys a stake in Nor Aqua and eventually becomes the major owner of the firm (step 2).The identity, however, also changes somewhat, as this entails the first step from land towards sea, changing Statkorn from having been a business focusing solely on agriculture to becoming a business with interests also in aquaculture. Statkorn is now no longer a purely agricultural business, but has become an amalgamation of agriculture and aquaculture operations. In March 2000, with the acquisition of the feed producer EWOS, Statkorn’s identity becomes reshaped as the company becomes a major player in the aquaculture sector (step 3), while NorAqua and EWOS are merged. The impact of EWOS on Cermaq’s identity traits include a knowledge focus and an academic approach to problem-solving, in turn explained by the subsidiary’s previous relationships to Astra and Alfa Laval. The acquisition of EWOS was immediately followed by the purchase of salmon farming business Mainstream, with relationships with Europe and North and South America (step 4). At this stage, the identity process is articulated further by changing name from Statkorn to Cermaq. The name change is a symbolic manifestation of this reshaping of the identity of the firm. The acquisition of Mainstream continues to shape the identity of Cermaq. As we saw earlier, the footprint of Mainstream on Cermaq is considerable, particularly regarding its business mindedness and focus on low cost operations. Cermaq is now a business-minded company with a clear R&D orientation drawing on the resources brought by EWOS, very different from the originating Statkorn. As Follalaks AS becomes integrated (step 5) the farming

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activities becomes ‘global’, consisting of all four main markets. 7. Conclusions In our case, we have intended to illustrate how Cermaq’s development is about how it tries to control its destiny while being influenced continuously by its changing network. Thus, one possible explanation for the development of Cermaq is that the firm has succeeded in maintaining a balance between being in control while also becoming influenced by others. This process is, arguably, dynamic where the focal firm may be more or less ‘in control’ during certain steps, while becoming more influenced in other steps. The focal firm’s strategies and intentions are adapted continuously to, and aligned with, reactions and desires from its ‘significant others’. Arguably, there is a close connection between the dynamic interplay and possible tension between control and influence, and the development of identities in networks. Our reasoning suggests that ‘the self’ must be treated as a construction that proceeds from the outside in as well as from the inside-out (cf. Bruner, 1990). This implies that the identity of an organization is also to be found in its relationships with the community in which it exists (see Czarniawska, 2000). In such a community, or network in our terminology, change is continuous and pervasive, always challenging present identities, creating pressures for development. The identity of Cermaq displays a composition of many traits and characters, reflecting its development. This identity is a manifestation of the business units’ roles and positions in the networks, their history and paths of development. The process of identity creation is both interactive and bilateral. Traditional IMP terminology uses the notion of ‘network identity’ which is the identity a firm acquires through the relationships with other actors in the network. The identity of a firm is determined by its position in the structure of actors, resources and activities in the network.

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This view on network identity contrasts with the more common firm-centred notion of identity creation and management (e.g. Pratt and Foreman, 2000), in which the firm is seen as in control of its becoming. This paper’s notion of ‘identities in networks’ builds on the arguments that identities emerge and are constructed through an interplay between internal features and successful control, and the internal features of others and their successful influence; and new demands created either by new positions in old networks or entering in to entirely ‘new’ networks. MNCs focusing too much on control may ignore the different geographical contexts and the specific knowledge developments taking place in various locations. This may restrain their identity development. On the other hand, MNCs also face the risk of becoming overwhelmed by the endless stimulus of the emerging networks they exist in, getting not only ‘lost in space’ but also failing to shape organizational identities from within. Consequently, both space and time dimensions are central in this process. Our focal firm experiences continuous tensions that exist in the space between different network positions. The different steps identified portray different network positions that are neither given nor obvious. The firm’s success, we argue, can be explained by its productive way of dealing with these tensions, rather than trying to avoid them. When Cermaq acquires EWOS, it is the subsidiary, so to speak, which ‘takes Cermaq to the world’. Then, when Cermaq acquires Mainstream, it is the corporate headquarters that ‘takes the farming subsidiary to the world’, by letting it become, at least temporarily, the global knowledge base for farming. The geographical space/coverage changes dramatically for Mainstream, but the subsidiary builds up its knowledge base gradually. Space and time are intertwined in the process of the gradual shift from being a domestic actor to becoming international and increasingly global in the industry. The relevant network context changes from Norway to Chile, to become expressed in

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a division between Europe and Americas. Simultaneously, the development from corn to feed, to aquaculture feed, salmon farming means that ‘full’ integration takes place. These incremental developments, on a subsidiary level of analysis, create particular challenges on the corporate level of analysis. Each subsidiary brings with it such a level of complexity and embeddedness (expressed in network influence) that it is impossible to evaluate/consider this ex ante the acquisition. This leads to unexpected issues creating possible tensions between control and influence, both in terms of the internationalization process and in terms of knowledge development. For instance, knowledge seeking foreign direct investments (FDI) (Makino and Inkpen, 2005) is usually presented as a targeted, planned process. The basic idea underlying knowledge seeking FDI is that critical resources and capabilities sought by firms are more often spatially determined than simply existing within any single firm (Enright, 1998). Such resources and capabilities are often located in interfirm networks, in particular geographical locations, referred to as network resources (Gulati, 1999). They are often immobile across borders because they are embedded in social relations among network members that operate in nearby locations. Our study shows the complexity and, at best, only limited possibilities in planning and targeting foreign direct investments. References Abrahamsen, M. H., & Engelseth, P. (2007) The Demise of Traditional Fish Distribution Structures in Japan? A case study of fish supply chains from Norway to Japan. Paper presented at the 23rd Annual Industrial Marketing and Purchasing (IMP) Conference, Manchester, UK, August 30 – September 1. Andersson, U., Johanson, J. & Vahlne, J.E. (1997) Organic Acquisitions in the Internationalization Process of the Business Firms. Management International Review. 37 (2), 67-84.

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Araujo, L., & Dubois, A. (2004) Research Methods in Industrial Marketing Research. In Håkansson, H., Harrison, D. & Waluszewski, A. (Eds.). Rethinking Marketing: Developing a New Understanding of Markets. Chichester: John Wiley & Sons. 207-227. Araujo, L. & Rezende, S. (2003) Path Dependence, MNCs and the Internationalization Process: A Relational Approach. International Business Review. 12 (6), 719-737. Bruner, J. (1990) Acts of Meaning. Cambridge, MA: Harvard University Press. Buckley, P. (2007) The Strategy of Multinational Enterprises in the Light of the Rise of China. Scandinavian Journal of Managemen., 23 (2), 107126. Czarniawska, B. (2000) Identity Lost or Identity Found? Celebration and Lamentation Over the Postmodern View of Identity in Social Science and Fiction. In Schultz, M., Hatch, M. J. & Larsen, M. H. (Eds.). The Expressive Organization: Linking Identity, Reputation and the Corporate Brand. Oxford, UK: Oxford University Press. 271-283. Dagens Næringsliv, [DN], 08.11.2001. Enright, M. J. (1998) Regional Clusters and Firm Strategy. In Chandler, Jr., A. D., Hagstrom, P. & Solvell, O. (Eds.). The Dynamic Firm: The Role of Technology, Strategy, Organization, and Regions. Oxford and New York: Oxford University Press. 315-342. Forsgren, M. & Johanson, J. (Eds.). (1992) Managing Networks in International Business. Amsterdam: Gordon and Breach. Gadde, L.-E., Huemer, L. & Håkansson, H. (2003) Strategizing in Industrial Networks. Industrial Marketing Management. 32 (5), 357-364. Galison, P. (1997) Three Laboratories. Social Research. 64, (3), 1127-1155. Granovetter, M. (1985) Economic Action and Social Structure: The Problem of Embeddedness. American Journal of Sociology. 91, 481-510.

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Gulati, R. (1999) Network Location and Learning: The Influence of Network Resources and Firm Capabilities on Alliance Formation. Strategic Management Journal, 20, 397. Håkansson, H. (Ed.). (1987). Industrial Technological Development. A Network Approach. London: Croom Helm. Håkansson, H. (1989) Corporate Technological Behavior. Cooperation and Networks. London: Routledge. Håkansson, H. & Ford, D. (2002) How Should Companies Interact in Business Networks? Journal of Business Research. 55 (2), 133-139. Håkansson, H., Ford, D., Gadde, L-E., Snehota, I. & Waluszewski, A. (2009) Business in Networks. London and New York: Wiley. Håkansson, H. & Waluszewski, A. (Eds.). (2007) Knowledge and Innovation in Business and Industry: The Importance of Using Others. London and New York: Routledge. Huemer, L. (2004) Balancing Between Stability and Variety: Identity and Trust Trade-offs in Networks. Industrial Marketing Management. 33 (3), 251-259. Johanson, J. & Mattsson, L.-G. (1991) Strategic Adaptation of Firms to the European Single Market - A Network Approach. In Mattsson, L-G. & Stymne, B. (Eds.). Corporate and Industry Strategies for Europe. Amsterdam: Elsevier Science Publishers. 263-281. Johanson, J. & Vahlne, J.-E. (1977) The Internationalization Process of the Firm - A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies. 8 (1), 23-32. Johanson, J. & Vahlne, J.-E. (2003) Business Relationship Commitment and Learning in the Internationalization Process. Journal of International Entrepreneurship. 1 (1), 83-101. Johanson, J. & Vahlne, J.-E. (2006). Commitment and Opportunity Development in the

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Internationalization Process: A Note on the Uppsala Internationalization Process Model. Management International Review. 46 (2), 165178. Latour, B. (1993) We Have Never Been Modern. New York: Harvester Wheatsheaf. Loasby, B., J. (1999) Knowledge, Institutions and Evolution in Economics. London: Routledge. Loasby, B. J. (2001) Time, Knowledge and Evolutionary Dynamics: Why Connections Matter. Journal of Evolutionary Economics. 11 (4), 393. Lundgren, A. (1994) Technological Innovation and Network Evolution. London: Routledge. Makino, S. & Inkpen, A. C. (2003) Knowledge Seeking FDI and Learning across Borders. In Easterby-Smith, M. & Lyles, M. (Eds.). Blackwell Handbook of Organizational Learning & Knowledge Management. Malden, MA: Blackwell. 233-252. Miles, M. B. & Huberman, A. M. (1994) Qualitative Data Analysis. An Expanded Sourcebook (2nd ed.). Thousand Oaks, CA.: Sage. Porter, M. (1998) Clusters and the New Economics of Competition. Harvard Business Review. (November/December), 77-90. Pratt, M. G. & Foreman, P. O. (2000) Classifying Managerial Responses to

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Multiple Organizational Identities. Academy of Management Review. 25 (1), 18-42. Ragin, C. C. (1992) 'Casing' and the Process of Social Inquiry. In C. Ragin & H. S. Becker (Eds.), What is a Case: Exploring the Foundations of Social Inquiry. Cambridge, UK: Cambridge University Press. 217226. Rosenberg, N. (Ed.). (1982) Inside the Black Box: Technology and Economics. Cambridge, UK: Cambridge University Press. Rosenberg, N. (1994) Exploring the Black Box: Technology, Economics, and History. Cambridge, UK: Cambridge University Press. Stake, R. E. (2003) Case Studies. In N. K. Denzin & Y. S. Lincoln (Eds.), Strategies of Qualitative Inquiry. Thousand Oaks, CA: Sage. 2ed., 134-164. Thompson, J. D. (1967) Organizations in Action. New York: McGraw-Hill. von Hippel, E. (1994) ‘Sticky Information’ and the Locus of Problem Solving: Implications for Innovation. Management Science. 40 (4), 429439. von Hippel, E. (1998) Economics of Product Development by Users: The Impact of ‘Sticky’ Local Information. Management Science. 44 (5), 629644.

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Appendix A List of interviews in the Cermaq-network Cermaq HQ Norway 2003 • Project Manager Norway 2004 • Project Manager • Finance and currency security • Deputy CEO • Deputy Director General and Legal Adviser, from the Ministry of Trade and Industry, Department of Ownership. Both individuals representing the Norwegian state, main owner of Cermaq. Norway 2005 • Deputy CEO • CEO Norway 2007 • CEO Mainstream Chile 2005 • CEO • CEO Mainstream Scotland • CEO Mainstream Chile: Two interviews • Sales & Market Manager Mainstream Chile • Production Manager Mainstream Chile • Fresh Water Manager • Process Plant Manager • Process Plant Manager • Administration and Finance Manager Mainstream Chile • CEO Mainstream Canada Chile 2006 • CEO Competitors Competitor 1 • CEO, conducted in Chile 2005 Competitor 2 • Strategy and Business Development, conducted in Norway 2005 • CEO Chile, conducted in Chile 2005 • CEO, conducted in Chile 2005

HR Manager, conducted in Chile 2006 • Union leader, conducted in Chile 2006 Competitor 3 • President, conducted in Chile 2005 • Innovation and development, conducted in Chile 2006 • Project Manager, conducted in Chile 2006 Competitor 4 • President, conducted in Chile 2005 •

EWOS • International Coordinator, conducted in Norway 2003 Norway 2004 • CEO • CEO Norway • Plant Manager • Production and Logistics Manager • International Coordinator • R&D Manager • Project Manager R&D Chile 2004 • CEO Chile: Two interviews • Plant Manager Chile • Financial Controller • International Coordinator Chile 2005 • R&D Manager Chile: Two interviews • Sales Manager Chile • Technical Manager Chile Supplier 1 • CEO, conducted in Norway in 2005 Chile 2005 • CEO Chile: Two interviews • Technical Manager Chile; interviews • Manager’s Assistant

two

Chile 2006 • CEO Chile • Technical Manager Chile • Administration and Finance Chile

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Chile 2008 • •

CEO Chile Market Manager Norway

Supplier 2 • CEO Chile, conducted in Norway 2005 • Veterinary, conducted in Norway 2005 Chile 2005 • Technical Director & Legal Representative Chile, conducted in Chile 2005 Other • Salmon Chile (industry organization), CEO, conducted in Chile 2006 • Industry pioneer, former aquaculture CEO, conducted in Chile 2005 • ‘Lonko’ indigenous people’s chief, conducted in Chile 2005 • Workers’ rights lawyer, conducted in Chile 2005 • Community activist, conducted in Chile 2005

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Appendix B List of interviews in the flying squad, Chile January 2006. • • • • • • • •

•

• •

• • • • • • •

Aislapol Aqua Tech (formerly Aquatic Health Chile) o Managing Director AquaChile o CFO Delfish o Sales Manager DSM EWOS o Technical Manager Granja Marina Tornagaleones o General manager Lota Proteina o Plant Manager o Technical Manager o Purchasing Manager Mainstream o CEO o plus two more managers Marine Harvest, Chamiza Processing Plant o Processing Manager Marine Harvest, Chinquihue Processing Plant o Commercial Manager o Technical Manager MultiExport o Sales Manager Novartis o Managing veterinarian Pesquera Pacific Star Pharmaq SAAM Salmon Chile Trusal

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