Network Transitions within the Life Cycles

One of the main characteristics of a BG found in the literature refers to the extensive use and the important role of networks in the development and internationalization process of BG firms. However, due to its magnitude, networks are characterized as a dynamic system in which constant changes are occurring at different levels (Slotte-Kock & Coviello, 2010), from idea creation to subsequent stages as a means to meet different business demands in order to sustain growth and internationalization.

Amongst the primary studies to recognize the network changes can be found in the work of Butler and Hansen (1991). The authors recognize three stages of company development and network dynamics: the entrepreneurial phase, the business startup phase, and the ongoing business phase. They propose that, as a company develops, the network simultaneously change from a social network (entrepreneurial phase) to a business focused network (startup phase) to a strategic network (ongoing business phase).

Lars and Starr (1993) and Hoang and Antoncic, (2003) conceptualizes entrepreneurial networking by saying that initially entrepreneurs usually turn to their effective ties and social relations for resource and economic purposes. They primarily rely on previous business contacts, family and friends for physical, information and social support to help establish a venture and start commercialization. Networks in this stage are characterized by the entrepreneur opportunistic intention since they evaluate the network feasibility in mobilizing the required sources. As the idea progresses into a venture creation, entrepreneurs analyze the network efficiency and if the network should be transformed, discontinued or be carried forward.

32 As for Hite and Hestley (2001) the pre-inception phase contains a high level of uncertainty regarding the lack of expertise, network, and capital. During this phase, the future venture make use of the identity-based (friends and family) networks to support insecurities. “An identity-based network suggests that the identity of the network ties which the ties matters more than the specific economic functions or resources that this tie can provide to a firm” (Hite & Hestley, 2001, p. 278). However, the identity-based network changes into a calculative network (suppliers and customers) when a firm is going from the emerging to subsequent stages. In other words, the network changes from being path-dependent to being intentionally managed.

Coviello and Cox (2006) argue that in the conception and developmental phase the future venture is more concerned in developing internal knowledge and structure. In this case, networks are pivotal in providing financial resources to generate organization capital. The initial network can be characterized as being based more on business than social relationships since ventures are often established by business associates. As the company progresses to the commercialization phase, networks are characterized by its flow through the mobilization and acquisition of human capital by sharing skills and knowledge.

Coviello (2006) argues that internationalized new ventures do not build relationships that are not strategically. The findings show that firms initially increase the diversity of their network, which consequently decreases their network density. As a result, the scholar suggests that this networking activity increases the early-stage of the venture’ social capital. Hence, the author argues that the BG network positioning occur in parallel with the BG growth, as long as the network provide access to new international growth opportunities. The scholar also finds that the commitment employed by the BGs in its networks is different to Larson and Starr’s (1993) which proposed that networks evolve in a conventional and stabilized manner. Instead, the study finds that BGs networks are volatile and commitment is limited to only a few strategically oriented relationships.

Gabrielsson et al. (2004) intensively analyzed the financial strategies of the BG development. Despite the fact that they did not analyze networks explicitly, they highlighted the importance of partnerships to sustain financially the BG progression.

Considering three phases of development, the authors argues that within the establishment phase, it usually consists of the founders own savings and governmental seed money. In addition, they may rely on the help of ‘informal’ financing characterized as angel

33 investors and other private venture financiers. As the venture goes international, BGs raise capital mainly through investors and domestic financial institutions. They could also look for foreign sourcing funds viewed as an excellent option to obtain administration skills by international representatives and foreign market knowledge. Furthermore, the partnership with customers, suppliers and other stakeholders are essential to provide a successful internationalization.

Gabrielsson et al. (2008) claim that there are three phases in which BGs develops.

Although they also did not directly refer to network development, the scholars identified different development phases, such as, introductory, growth and resource accumulation, and break-out to independent growth as a major player. In the introductory phase, the company concentrates on the search for partners, especially with MNEs. In the growth and accumulation phase, BGs participate in selected networks to acquire knowledge. In the break-out to independent growth as a major player phase, the venture achieves sufficient recognition within the network and has more control in choosing its position within its counterparts.

More recently, Laurell et al. (2017) analyzed the usage of networks during the:

pre-founding, start-up, establishment of production, commercialization, and sales of production phase. According to their findings, during the pre-founding phase existing direct ties and local networks are pivotal for product development. As the venture starts operating, existing local ties are important to attain financial capabilities. For the production phase the company relies on existing local ties and global networks to develop production and to obtain knowledge. For the commercialization phase, new direct ties and strategic global networks helps with sales capabilities, also indirect ties give financial support to foster sales. Overall, the authors emphasize that during the early growth of a venture, a varied mix of networking activities contributes to the creation of critical capacities that are beneficial throughout the life cycle stages of a venture.

Furthermore, since BGs are mainly known for developing technology-based outputs, and entrepreneurs need to be part of extended networks to succeed their business (Grandi & Grimaldi, 2003) to ongoing stages, BGs can follow different models of creation. BGs can be initially developed from local network ties established in nearby universities, innovation-oriented locations such as incubators, business clusters or being dissolved from an established company (corporate spin-off). Being near business and intensive knowledge environments helps them nurturing business ideas, get visibility, and fulfill their inexperience by linking them to other actors, including other firms with the

34 same technology base for knowledge transfer, business networks, and existing customers (Grimaldi, & Grandi, 2005; Teixeira & Coimbra, 2014).

Zahra (2005) stresses that corporate spin off inherits networks, established systems, and reputation from the parent company. Pettersen and Tobiassen (2012) also highlights that the parent institutions and its network play an important role both in the pre-inception and in the early growth period of the established firm. In the pre-inception period, as the technology is being developed, the spin-off depends on the social network structure of these organizations. However, since these ties are business related, they turn into calculative networks as the business grows (Hite & Hestley, 2001).