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Managing Business Relationships

and Networks

Morten H. Abrahamsen, PhD


Associate Professor at BI
Associate Professor II at TØH
Overview of Module
• Introduction to Industrial Marketing
• Brief historical and economical background
• Business Network and Business
Relationships
• Some underlying theoretical assumptions
• Implications for strategy
Traditional market view

Sellers Buyers

- Transactions
are important
However, what do we find?
• Limited amount of sellers and buyers
• Market consentrations
• Repeated transactions – relationships over time
• Mutual adaptations
• Both parties are active
• Mutual interdependence
• Cooperation and conflict
Relationship Marketing
• A few number of customers represents the
majority of turnover (80 – 20)
• A whole range of contacts across the
organisations involved
• Purchases are few but substantial
• Handling of key relationships becomes main
factor for success
Typology of relationships
Transactions Repeated Long-term
(market) transactions relationships

Strat. Alliancer Network


Partnering
(joint ventures) organisations

Vertical
Integration
(hierarchy)
Agenda I
• What is a business relationship?
• What is a business network and what is it not?
• Industrial Network Approach to industrial
marketing
• Myths and paradoxes related to business
markets
Business Relationship
• Connects two organizations
– Economic dimension
– Technical dimension
– Social dimension
– Immaterial

– Interdependence!
What is a Business Network?
• Business network vs. Cluster
• Business network vs. Market
A Busines Network is not:
• …a “cluster”.
• ...a personal network.
• ...mainly something that is based on
• power/politics.
• ...something ”secret”.
What is a ”cluster”?
• A group of companies...
• In the same type of industry ?
• ...develops/uses closely
related technology?
• Located in the same region?
• Visible from ”outside”?
Business Networks:
Basic Assumptions
Perspective A Perspective B
• Designed • Emergent
• Formal • Informal
• Within a business sector • Across business sectors
• Relationships as • Relationships as
• ”chosen” • ”inevitable”
• Center/”locomotive” • No center
• Common Goal • No common goal
A network perspective

Network = Connected relationships


So, what is a Business Network?
• A business network consists of two ”building
blocks”:
– companies and business relationships.
• The companies and business relationships are
interconnected, and together form a complex,
web-like structure.
Traditional value chain

Raw materials

Horizontal
integration Producer
Vertical
integration

Wholesaler

Retailer
The network on the contrary has no centre,
no beginning and no end..

’No company is an island’


Industrial Network Approach
Industrial Network Approach
and the IMP Group
• Ever-changing number of researchers in
business markets, and is therefore a loosely
defined group of researchers
– (Ford, in Naude & Turnbull, 1998)
• IMP1 Research Project: Interaction Model
– Håkansson (ed., 1982)
• IMP2 Research Project: Industrial Networks
– http://www.impgroup.org/
Appliance of the
Industrial Network Approach
(Håkansson & Snehota, 2000)
• IMP = International/Industrial Marketing and
Purchasing.
– Industrial Marketing and Purchasing.
– Internationalization (’The Uppsala
Internationalization Model, Johanson & Vahlne,
1977)
– Technical development.
– Strategy development and organization.
The Norwegian story..
• We identified an segment in Japan with strong potential
• We started by making initial sales
• We positioned our farmed salmon as suitable for sushi
• We managed to convice the Japanese of our superiority
• Gradually export volumes increased and we extended our
operations
• Sales from Norway at first
• Then we set up our own sales office in Tokyoand
subsequently our own import company
• This strategy has made us the main supplier of fresh
salmon in Japan
The Japanese story..
• Fresh salmon first introduced by
Japanese chefs working in French
restaurants
• Kaiten belt made sushi affordable for
a larger public
• Price of salmon fell due to increased
production volumes
• Yen became stronger to the NOK
• “It was not our aim, but it happened”
Who is right?
• Is the success of salmon in Japan a
consequence of the Norwegians being good
sellers?
• Is the success of salmon in Japan a
consequence of the Japanese being good
buyers?
3 Myths in Business
1. The Myth of Action
2. The Myth of Independence
3. The Myth of Completeness
1. The Myth of Action
• The supplier acts and the
customer reacts

• The marketing actions of a


supplier and the purchasing
reactions of a customer can be
analyzed separately from each
other
Rather: Business Interaction
• Each business sale and
purchase is not an
isolated event, but part
of a continuing
relationship between a
supplier and a customer
2. The Myth of Independence
• ”A company is able to act independently. It can
carry out its own analysis of the environment
in which it operates, develop and implement
its own strategy based on its own resources,
taking into account its own competences and
shortcomings.”
Rather: Interdependence
• The management process in any company is
interactive, evolutionary and responsive -
management involves lots of reacting to the actions
of others
• Strategising is not simply concerned with
competition
• A company’s ”position” is based on its total set of
relationships
• A company’s network position changes and develops
through interaction with other companies
3. The Myth of Completeness
• Based on traditional ideas of strategy:
• A belief that a company is a complete
organisation able to operate on the basis of its
own abilities and resources
Traditional view on marketing strategy
•Corporate mission statement
Mission •Vision

•Internal (Strengths and Weaknesses)


SWOT anaysis •External (Opportunities and Threats)

•Clear, consise, measurable, etc.


Objectives

•Segmentation, Targeting and Positioning


Strategy •4 P s

Implemen- •Excecution of market plan (who, what


tation where, when and how)
Rather: Interconnectedness
• A large part of what a company sells is made
up of what it buys
• Companies are becoming less complete
• Core competencies are based in the network
• Technologies are developed interactively
The network on the contrary has no centre,
no beginning and no end..

’No company is an island’


An empirical example from my research
The Norwegian story..
• We identified an segment in Japan with strong potential
• We started by making initial sales
• We positioned our farmed salmon as suitable for sushi
• We managed to convice the Japanese of our superiority
• Gradually export volumes increased and we extended our
operations
• Sales from Norway at first
• Then we set up our own sales office in Tokyoand subsequently
our own import company
• This strategy has made us the main supplier of fresh salmon in
Japan
The Japanese story..
• Fresh salmon first introduced by
Japanese chefs working in French
restaurants
• Japanese chefs approached their
existing suppliers of seafood
• Existing suppliers contacted their
Norwegian suppliers
• Norwegian exporters developed
farming facilities
• Kaiten belt made sushi affordable for
a larger public
• Price of salmon fell due to increased
production volumes
• Yen became stronger to the NOK
• “It was not our aim, but it happened”
Implications for marketing
strategy
• The key issue is to handle a complex set of
relationships to your benefit
• Value creation through co-operation and
competition with key partners (”co-
opetition”)
• Segmentation in terms of partners or
other actors
• Targeting and positioning in terms of
value co-creation and mutual dependence
Oppgave 1:
• Diskuter de tre ”mytene” om
markedsføring. Hvor representative er
disse for måten dere tenker på?
• Gi konkrete eksempler.
Network Paradoxes
(Håkansson & Ford, 2000)

1. Opportunities - Limitations
2. Influencing - Being influenced
3. Controlling - Being out of control
The First Network Paradox
• Both opportunities and constraints
• The diversity of the network gives every decision-
maker myriad opportunities to act
• Can not think of its own interests in isolation
– Many network designers, even though companies often
see themselves as the ”sun in the universe”
– Change can only be achieved through the network
– Any change in a network involves costs, both for those
involved in the change and perhaps for others elsewhere
in the network
The Second Network Paradox
• Influence or being influenced
• ’The chicken and egg dilemma’:
– A company’s relationships are the outcomes of its own
decisions and actions
– A company is the outcome of those relationships and of
what has happened in them
• Meaningless to determine what came first
– Both situations exist simultaneously and both premises are
equally valid
The Second Network Paradox
• Strategy is inter-active. Not just a question of
generating a plan internally, but to generate plans
with others
• Both parties necessary for relationship development
– least committed company restricts development
– most committed company drives development
• Nodes and threads are interdependent
The Third Network Paradox
• Control and letting go of control
• Companies try to manage their relationships and
control the network that surrounds them to achieve
their own aims
• The more a company achieves this ambition of
control, the less effective and innovative will the
network be – and ultimately the less successful they
will be
Implications for marketing strategy
• The key issue is to handle a complex set of
relationships to your benefit
• Value creation through co-operation and
competition with key partners (”co-opetition”)
• Segmentation in terms of partners or other actors
• Targeting and positioning in terms of value co-
creation and mutual dependence:
Industrial Marketing is not a new thing:
The Stavanger Canning industry
• 14 canneries in Stavanger in 1900
• 36 in 1915, equaling 350 million cans
• 72 in 1922
• Exports to almost every corner of the world. Labels were
found in French, German, Spanish, Finnish, Icelandic, Chinese,
Thai, Arabic and Hebrew, besides English for the markets in
the US, England, Australia, New Zealand and South Africa!
• The following quantities of items would be required
for the production year 1915:
– 4.000 -5.000 brisling (fish),
– 350 million rubber rings,
– 350 million lids and cans,
– 350 million labels,
– 3.500.000 wooden boxes and
– 10 million liters of olive oil.
• Along the development of
the canning production,
Stavanger saw the growth of
– a large printing industry (for can labels),
– a rubber industry (for rubber sealing
between can and lid),
– a packaging industry (for lids, cans and
keys) ‘
– a range of other industries such as
machines, rods, frames, threading
tables, and advertising material
New innovations needed
• The rapid development of the industry was aided by a number
of product innovations, most notably the Reinert and Opsal
seeming machines
• Before the invention of these machines, lids had to be
manually welded onto the cans
• A welded could manage between 600 and 700 lids per day.
The new machine increased this number by a tenfold
• Price of cans was halved in 1912
End of the industry in the 1960s…
And then..

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