The Social Dimension of Network Ties between Entrepreneurial Firms: Implications for Information Acquisition

Executive Summary Current research on interorganizational network ties has not explicitly addressed the social elements (business, personal and brokerage) of network ties. We suggest that each element adds to the strength of a given tie and brings unique information benefits. The business element brings relevance; the personal element brings reliability; and the brokerage (or third party) element brings access to non-redundant, timely information. The layering of elements moves a tie from simplex to duplex to multiplex. Because of the costs associated with creating and maintaining ties, not all ties should be multiplex ties. This model helps entrepreneurial firms determine which type(s) of ties they need to create and maintain. Consider the experience of Mr. Lim, a typical Indonesian entrepreneur of Chinese origin: owns and manages a factory making plastic household goods. This relies on machinery transferred to second generation use after its first six years of life in a Hong Kong factory owned by a cousin. He purchases raw materials from a major multinational chemical company, in which two of his nephews are employed, one of them in the pricing department, the other in sales. He sells to three wholesalers in different parts of Java, two of them Hokkienese and one Cantonese by origin. His banker is a large Indonesian bank owned by an Indonesian Chinese of Hokkien extraction, and which employs one of his nephews and two nieces... He meets regularly with other members of the Chinese community socially: firstly, as a board member of a local hospital funded largely by Chinese business support; secondly, through the church which has a large Chinese membership; thirdly, with a group of close friends, all businessmen, who play mahjong together weekly; fourthly, at a series of social occasions such as weddings, dinners for new-born sons... (Redding, 1990: 17-18) Redding (1990) has described how a Chinese-Indonesian entrepreneur runs an international business primarily based on his social network. The entrepreneur's strong network with his business partners is created through a combination of different social elements: personal relationships, business interactions, and brokerage (or third party) relationships. Ties that are introduced and endorsed by individual or organizational brokers bring in new contacts, new opportunities, and ensure the honoring of partners' obligations. Business interactions between him and his partners help them understand each other's needs and capabilities. However, his networks would not be reliable without a strong sense of interpersonal bonding between the parties that serve as a source of identity, support and loyalty. This combination of business relationships, personal bonding and brokerage provides opportunity and creates a high level of trust, allowing the entrepreneur to use such networks to cope with high levels of environmental uncertainty (Redding, 1990). One could argue that the personal nature of the entrepreneur's networks in Redding's (1990) story stems from the social and institutional characteristics of traditional Chinese society. However, it should not be surprising that entrepreneurs employ personal relationships in developing networks in many different contexts (Powell, 1990; Granovetter, 1973; 1985; Burt, 1992; Coleman, 1988; Uzzi, 1997; Larson, 1992). What is striking from the story, however, is the notion that the strength of an interorganizational network tie stems not only from the frequency of interactions between the parties, but, more importantly, from its social elements. Yet these social elements of network ties have not been adequately accounted for in current studies. This raises the research question for this article: how do the three social elements (personal, business, brokerage) strengthen network ties and piovide information benefits to entrepreneurial firms? We define network ties as those ties embedded in on-going relationships (Granovetter, 1985). …

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