Building and Managing Networks
Handbook topic · Building and Managing Networks — strategies for building and managing effective networks in global markets
A young international venture rarely owns all the information, skills and contacts it needs, so it borrows them through relationships. This week explains what networks and social capital are, how strong, weak and other ties carry different resources, and how the network theory of internationalisation treats relationships as bridges into foreign markets. You then diagnose and map your own network and turn it into a plan for managing and expanding a venture abroad.
The big question
How can a small, resource-poor venture use relationships to enter and grow in a foreign market — without getting trapped by them?
By the end of this week you can
- Explain what networks are and why network ties matter to an internationalising venture.
- Define social capital and tell apart its efficacy, serendipity and liability roles.
- Distinguish strong, weak, formal, informal and intermediary ties, and explain why weak ties bring new information.
- Apply the network theory of internationalisation to a venture’s entry into a named foreign market.
- Explain embeddedness and the risk of over-embeddedness in a firm’s network.
- Diagnose and map a personal or venture network, identify brokers, and plan how to build and manage it.
Networks and the network theory of internationalisation
A small venture going abroad cannot own every resource it needs. Networks are how it reaches the resources that other people and organisations hold.
A firm’s set of relationships, both vertical and horizontal, with other organisations and entities.
Vertical relationships run up and down the chain that brings a product to market — suppliers, distributors and customers. Horizontal relationships run sideways, to organisations and people who are not in that chain but can still help, such as other firms, associations, public bodies or peers.
The point of a network is access. Network relationships let a firm reach a variety of resources held by others — for example information, which enables opportunities to be identified and exploited (Zucchella, Hagen and Serapio, 2018).
This matters most for international new ventures. As Week 6 showed, they are new, small and foreign in the markets they enter, and own only a small share of the resources they need. Networks are one of the alternative ways they mobilise resources without owning them.
Why network ties matter to a business
- Information — including private information that is not available publicly.
- Opportunities that are not available outside the network (Granovetter, 1973).
- Knowledge and trust, which can be a competitive advantage in themselves (Coviello and Munro, 1995).
- A bridge to foreign markets — a contact who already operates there.
- Exchange of ideas between people with different experience.
- Resources the firm does not have, such as diverse skills.
The theory emphasises establishing and developing long-term relationships with participants in the foreign market. A firm’s position in that network, and the nature of its relationships, is a prerequisite for success abroad; ties between firms in different markets act as bridges into those markets (Johanson and Vahlne, 1990).
Relationships with buyers in the foreign market give demand, feedback and local knowledge.
Example — An early foreign customer who recommends the firm to others in their industry.
Local or international suppliers provide inputs and often know the market’s standards and practices.
Where the firm sits in the web of relationships and how strong and trusted those relationships are. The better its position, the easier it is to enter and grow in a foreign market.
Distributors and agents give access to channels and customers the firm could not reach alone.
Example — A distributor who introduces the firm to retailers in the new country.
Public bodies in the foreign environment regulate entry and can act as brokers or sources of support.
Johanson and Mattsson (1988) showed that firms use a variety of networks to support their internationalisation. Johanson and Vahlne (1990) highlighted the role of ties: relationships between firms in different markets serve as bridges that make foreign market entry easier.
The quantity and quality of a founder’s ties shape how resources flow to the venture. Entrepreneurs who already have network ties abroad when they found the business are more likely to internationalise (Zucchella, Hagen and Serapio, 2018).
When you explain how your Ashoka Fellow venture could enter a new market as an SME, do not just list partners. Name each partner type (for example a local NGO, distributor or government agency), say what resource it gives, and link it to the network theory of internationalisation (Johanson and Mattsson, 1988) and ties as bridges (Johanson and Vahlne, 1990).
Types of ties: strong, weak and beyond
Not every relationship does the same job. Close ties give trust and support; loose ties bring news from outside your circle.
Strong ties vs weak ties
- People you know very well and interact with regularly — a close friend since school, a trusted colleague, family.
- Based on trust, mutual respect and commitment (Kontinen and Ojala, 2011a).
- Usually few in number.
- Good for trust, support and sharing sensitive information, but members tend to know the same things.
- Acquaintances you interact with only as much as you need to.
- Superficial, not yet based on strong trust; the parties do not know each other well (Söderqvist and Chetty, 2009).
- Usually far more numerous than strong ties.
- Bring new information, ideas, innovations and opportunities into the group (Granovetter, 1973).
Granovetter’s (1973) insight is that weak ties are not less valuable — they serve a different function. Because your close contacts mostly know each other, they tend to hold the same information. A ‘friend of a friend’ belongs to a different circle and can pass on information and opportunities that are only available outside your own network (Granovetter, 1973; Boissevain, 1974).
Weak ties therefore act as bridges to different sources of information and new ideas, especially when those sources sit outside the entrepreneur’s close network of strong ties (Granovetter, 1973; Burt, 2004). For a venture looking abroad, a weak tie to someone in the target market is often the first bridge in.
| Tie | Definition | Source | What it can look like for an internationalising SME |
|---|---|---|---|
| Strong tie | “Strong tie is defined as one which is close, and which is based on trust mutual respect, and commitment” | Kontinen and Ojala (2011a:136) | A long-standing co-founder or a family member who shares sensitive plans and commits resources. |
| Weak tie | “Weak tie is a superficial tie not yet based on strong trust and where the parties do not know each other well and are not emotionally close to each other” | Söderqvist and Chetty (2009:9) | A contact met once at a trade fair who works in the target market. |
| Equally strong and weak tie | A relationship that could be equally strong as weak, or a group of relationships that the lead entrepreneurs could not easily categorise according to strength | Söderqvist and Chetty (2013:542) | A long-term supplier you trust on quality but rarely speak to personally. |
| Formal tie | Interfirm relationships focused on business or market relationships | Coviello and Munro (1997) | A distribution agreement or licensing contract with a foreign firm. |
| Informal tie | Family and friends relationships | Coviello (2006) | A cousin working in the target country who shares local knowledge. |
| Intermediary tie | The lack of direct contact between sellers and buyers | Kontinen and Ojala (2011a) | Selling through an agent or distributor so the firm never deals directly with end customers. |
Definitions are taken from the Week 8 lecture slide “Notable Network Ties Definitions”. The right-hand column gives illustrations, not findings from those authors.
Strength (strong or weak) and type (formal, informal, intermediary) are different questions. A family member who becomes a firm’s foreign agent can be a strong, informal tie that later also becomes a formal one. Say which dimension you are classifying and why, using trust, closeness and formality as your evidence.
Network structure and embeddedness
The shape of a network matters as much as its size. A network that is one tight cluster keeps news inside; a network with bridges between clusters spreads it.
Most personal networks are highly clustered: your friends are likely to be friends with one another. Most company networks are made of several clusters with few links between them. Brokers are powerful because they connect separate clusters, which stimulates collaboration and lets ideas and information move between specialists who would otherwise stay apart (Uzzi and Dunlap, 2005).
When contacts all resemble each other and introduce their friends to one another, the same ideas bounce around the group. Uzzi and Dunlap (2005) call this an echo chamber: it feels comfortable and efficient, but it cuts you off from the discrepant information that creativity and problem-solving need.
The module slides do not give a one-line definition of embeddedness; this working definition is assembled from them. In plain terms, it is how deeply a firm’s activity sits inside its web of relationships. The resources of social capital are “embedded within” the network (Nahapiet and Ghoshal, 1998), and network relationships are governed by trust and moral obligation rather than formal contracts (Zucchella, Hagen and Serapio, 2018). Over-embeddedness — relying only on the firm’s own social network — limits access to new information and new ways of doing things and can reduce performance (Uzzi, 1997).
How embedded should a venture be?
- The firm relies on public information, which competitors also have.
- Private information does not flow, because its value depends on how much trust exists in the relationship (Uzzi and Dunlap, 2005).
- Partners are managed only through contracts.
- Trusted ties provide private information and commitment.
- Diverse contacts and brokers bring in new ideas and reach other clusters.
- Uzzi and Dunlap (2005) sum it up: build networks with trust, diversity and brokerage.
- The firm leans on a small, closed circle of similar contacts — an echo chamber.
- Access to new information and new ways of working shrinks (Uzzi, 1997).
- Losing one core network player can turn social capital into a liability (Uzzi, 1997).
Choosing contacts to maximise trust can quietly undercut the diversity of your network — that is what limited William Dawes (Uzzi and Dunlap, 2005). In a report, do not describe a network as strong simply because it is close-knit; show that it also reaches beyond your own circle.
The brief names Embeddedness. Show where your venture will be embedded in the target market (which trusted relationships give it private information and legitimacy), then show how you will avoid over-embeddedness: add weak ties and brokers outside that circle, and avoid depending on one distributor or one partner whose loss would turn your social capital into a liability (Uzzi, 1997).
Building and managing your network
Uzzi and Dunlap (2005) show how to diagnose the network you have, build a more powerful one and actively manage it.
A well-built network gives three advantages: private information, access to diverse skill sets, and power. They can conflict — maximising trust can reduce diversity.
Information from personal contacts that is not in the public domain. Public information is easy to find, so it gives much less competitive advantage than it used to; private information gives an edge, but it is usually unverified, so its value depends on trust.
Example — ‘Lisa Bristol’ (a pseudonym), president of a mortgage-lending firm, built trust with potential partners through trade shows and informal shared activities. Private information began to flow both ways, and she learnt early that value-added services, not price, were becoming the industry’s competitive driver.
Expertise has become more specialised while business problems have become more interdisciplinary. Diverse ties let you go beyond your own skills and form more complete, creative and unbiased views.
Example — Linus Pauling, who won Nobel Prizes in two different fields, credited his diverse contacts rather than brainpower or luck.
In flatter organisations, power sits with information brokers who link specialists through trusted, informative ties — not necessarily people at the top of the hierarchy.
Example — As Bristol widened her network, she was invited to speak at industry events and went on to lead an advisory group of senior financial executives.
Three principles that shape who you meet
- We choose contacts who resemble us in experience, training and worldview.
- Easy trust and fast communication, but diminishing — even negative — returns.
- In a 2002 Columbia study reported by Uzzi and Dunlap, executives at a mixer aimed to meet many different people, yet talked mostly to people like themselves; the most successful networker was the bartender.
- We fill our networks with the people we spend most time with, such as colleagues in our department.
- Because similar people cluster together, this also produces echo chambers.
- Strong, diverse ties form through relatively high-stakes activities that connect you with different people — sports teams, community ventures, cross-functional teams, boards, charitable foundations.
- The most potent activities evoke passion, need interdependence and have something at stake.
- It gives the benefits of self-similarity and proximity without their downside.
Shared activities work because they let people see each other’s unscripted reactions to unexpected events, which feel like genuine character rather than rehearsed business behaviour. Celebration and commiseration build loyalty. That is why running alone helps your network far less than joining a running club and training with its members for a race (Uzzi and Dunlap, 2005).
A three-column worksheet that reveals what kind of network you have, who your brokers are and how you broker for others.
- 11. List your key contacts
In the left-hand column, write the most important people you rely on for private information, specialised expertise, advice and creative inspiration. Note what you exchange with each and how strong the tie is.
- 22. Who introduced you?
In the centre column, write who introduced you to each contact. If you met them yourself, write “me”. This column reveals your brokers.
- 33. Whom did you introduce them to?
In the right-hand column, write someone you introduced to that contact. This shows how you act as a broker for others.
- 44. Count the “me”s
If you introduced yourself to your key contacts more than 65% of the time, you are probably building your network through self-similarity and it may be too inbred.
- 55. Find your brokers
Names that recur in the centre column are your brokers or superconnectors. Ask which activities brought you into contact with them and how you can develop those ties.
- 66. Act on it
Join shared activities that reach beyond your cluster, re-engage neglected brokers, and consider telling brokers that you value their help — gratitude and sincerity deepen the relationship.
Ways to network effectively (tutorial summary)
- 1Diagnose your network
Ask what kind of network you have and whether it is too inbred.
- 2Map your network
Use the three-column worksheet: contact, who introduced you, whom you introduced them to.
- 3Go beyond your cluster
Develop social networks outside your circle of friends or people with a similar background.
- 4Use powerful brokers
Identify the brokers in column 2 of your map and invest in those relationships.
- 5Engage in shared activities
Sports clubs, charity foundations, interdepartmental activities — anything with passion, interdependence and stakes.
Using networks to manage and expand abroad
The Individual Report asks how you will manage and expand your business in the chosen market, whether you will use networks and why, and how you will compete based on them. Here is how to answer with module theory.
Building the ‘networks’ section of your business plan
- 1Start from what the founders already have
Summarise the founders’ existing ties that relate to the target market and classify them (strong/weak, formal/informal). Ties abroad at founding make internationalisation more likely (Zucchella, Hagen and Serapio, 2018).
- 2Map the network you need in the target market
Name the customers, suppliers, distributors and government bodies you must build relationships with, and what each provides (Johanson and Mattsson, 1988).
- 3Identify bridges and brokers
Say who can connect you to those actors — trade bodies, agencies, existing partners, investors — and how weak ties act as bridges into new clusters (Granovetter, 1973; Johanson and Vahlne, 1990).
- 4Plan how you will build the ties
Choose shared activities in the target market, such as trade shows, industry associations or community projects, rather than relying on cold contact (Uzzi and Dunlap, 2005).
- 5Use social capital deliberately
Explain how the network supports your entry mode and how you would adapt the mode as relationships develop (efficacy role, Chetty and Agndal, 2007).
- 6Stay open to the unplanned
Show how visibility and reputation could attract unsolicited partners or introductions (serendipity role).
- 7Manage the risks
Set how you will monitor partner performance, avoid depending on a single core partner and avoid over-embeddedness (liability role; Uzzi, 1997).
- 8Show how networks help you compete
Name your main competitors and state which private information, diverse skills and influence your network gives you that they lack; knowledge and trust can themselves be a competitive advantage (Coviello and Munro, 1995).
| Report question | What to show | Theory to cite |
|---|---|---|
| Will you use networks and why? | The specific actors in the target market and the resource each gives (information, access, trust). | Gulati, Nohria and Zaheer (2000); Johanson and Mattsson (1988); Nahapiet and Ghoshal (1998) |
| How will you manage and expand? | Ties as bridges into the market; how the network supports and adapts your entry mode over time. | Johanson and Vahlne (1990); Chetty and Agndal (2007) |
| How will you build and maintain the network? | A mix of strong and weak ties, named brokers, chosen shared activities, and partner monitoring. | Granovetter (1973); Uzzi and Dunlap (2005); Chetty and Agndal (2007) |
| How will you compete based on your networks? | Private information, diverse skills and influence that competitors lack; trust as an advantage. | Uzzi and Dunlap (2005); Coviello and Munro (1995) |
| Embeddedness | Where the venture will be embedded, and how it avoids over-embeddedness and dependence on one player. | Nahapiet and Ghoshal (1998); Uzzi (1997) |
| Reflection (Gibbs) | What your own network map revealed (for example, how often you wrote “me”) and what you will change. | Uzzi and Dunlap (2005) |
Most Week 8 theories reach you through the lecture’s textbook source. Cite them as secondary sources, for example “Granovetter (1973, cited in Zucchella, Hagen and Serapio, 2018)”, and put Zucchella, Hagen and Serapio (2018) in your Harvard reference list. The HBR reading is a direct source: Uzzi and Dunlap (2005).
“We will network with local businesses” earns little credit. “We will join the national industry association in the target country and exhibit at its annual trade fair to build weak ties with distributors, one of whom can act as a broker to retailers” shows the marker you can apply the theory — then justify each choice with a citation.
Tutorial activities
Why are network ties important to a business?
The tutorial opens with a discussion before the lecturer’s answer is revealed. Brainstorm the reasons in your group, then compare them with the list from the slides.
- 1.Why are network ties important to a business?
- 2.Which of these benefits matters most for a small firm entering a foreign market, and why?
Case study: Bill Gates’s network
Read the Bill Gates case (summarised from Uzzi and Dunlap, 2005) and analyse how a single relationship outside Microsoft helped it reach IBM.
- 1.What role did networks play for Bill Gates?
- 2.What type of tie or ties are presented in the case study for the individuals mentioned?
- 3.Which role of social capital does the case illustrate best, and why?
Diagnose and map your network — and your venture’s
Use the Network Mapping worksheet (three columns: name of your contact; who introduced you to the contact; to whom you introduced the contact). The template’s example rows show the idea: a head of accounting at KPMG introduced by ‘Mark (power broker)’, and a university head of department also introduced by Mark — Mark appears twice in column 2, so he is a broker. Complete it twice: once for yourself, once for the venture in your Individual Report.
- 1.List your key contacts — the people you rely on for private information, expertise, advice or inspiration. Who introduced you to each, and whom have you introduced to them?
- 2.What share of the centre column says “me”? Is your network at risk of being inbred (more than 65%)?
- 3.Who are your brokers (names that recur in the centre column), and what activity brought you into contact with them?
- 4.Now map your venture: which founder ties relate to the target market, and are they strong, weak, formal, informal or intermediary?
- 5.Which actors in the target market (customers, suppliers, distributors, government) are missing from the venture’s map, and who could broker an introduction?
- 6.Which shared activities in the target market would build the missing ties?
Network mapping: challenges and how to overcome them
Share your network map with your group, then report back to the class on the difficulties of building networks.
- 1.Discuss your network map with your group members. What patterns do you notice across the group?
- 2.What are some of the challenges of building networks?
- 3.What are the ways to overcome the challenges you identified?
Videos: why networking matters and how to expand your network
Watch the two short videos linked in the tutorial: “Why is networking so important?” (Alux) and “How to Network” (Brian Tracy), shown in class as “Expanding your network”.
- 1.What reasons for networking do the videos give, and which match the benefits of networks in this week’s slides?
- 2.The second video advises focusing on people who can help you and joining associations and voluntary activities. How does this compare with Uzzi and Dunlap’s self-similarity and shared activities principles?
Cases
Key terms
- Network
- A firm’s set of vertical and horizontal relationships with other organisations and entities (Gulati, Nohria and Zaheer, 2000).
- Network theory of internationalisation
- The view that firms internationalise by building long-term relationships with customers, suppliers, distributors and governments in foreign markets (Johanson and Mattsson, 1988).
- Social capital
- The actual and potential resources embedded within, available through and derived from a network of relationships; both the network and the assets mobilised through it (Nahapiet and Ghoshal, 1998).
- Strong tie
- A close tie based on trust, mutual respect and commitment (Kontinen and Ojala, 2011a).
- Weak tie
- A superficial tie not yet based on strong trust, where the parties do not know each other well (Söderqvist and Chetty, 2009); a source of new information and opportunities (Granovetter, 1973).
- Formal and informal ties
- Formal ties are interfirm business or market relationships (Coviello and Munro, 1997); informal ties are family and friends relationships (Coviello, 2006).
- Intermediary tie
- A tie in which sellers and buyers have no direct contact, such as selling through an agent (Kontinen and Ojala, 2011a).
- Efficacy role
- When a firm actively and proactively exploits its social capital to internationalise, supporting market entry and mode adaptation (Chetty and Agndal, 2007).
- Serendipity role
- Unexpected events arising from a firm’s social capital that trigger an entry mode change the firm did not initiate (Chetty and Agndal, 2007).
- Liability role
- A change triggered by the high cost and time of sustaining poorly performing partnerships; social capital becoming a burden (Chetty and Agndal, 2007).
- Embeddedness
- Working definition assembled from the module slides (which do not define the term directly): how deeply a firm’s activity sits inside its trust-based web of relationships; over-embeddedness limits access to new information and can reduce performance (Uzzi, 1997).
- Information broker (superconnector)
- A person who connects otherwise separate clusters of people, giving them access to information and power (Uzzi and Dunlap, 2005).
- Self-similarity principle
- The tendency to choose contacts who resemble us, which produces an inbred network and an echo chamber (Uzzi and Dunlap, 2005).
- Shared activities principle
- Building diverse, trusted ties through high-stakes joint activities that involve passion, interdependence and something at stake (Uzzi and Dunlap, 2005).
Check your understanding
According to Nahapiet and Ghoshal (1998), social capital comprises…
Flashcards
References and sources
As cited in the module materials. Check each against the original before using it in an assignment.
- Zucchella, A., Hagen, B. and Serapio, M.G. (2018) International entrepreneurship. Cheltenham: Edward Elgar.
- Uzzi, B. and Dunlap, S. (2005) ‘How to build your network’, Harvard Business Review, December.
- Coviello, N. and Munro, H. (1997) ‘Network relationships and the internationalisation process of small software firms’, International Business Review, 6(4), pp. 361–386.
- Coviello (2006), cited in the Week 8 lecture slides.
- Boissevain (1974), cited in Zucchella, Hagen and Serapio (2018).
- Burt (2004), cited in Zucchella, Hagen and Serapio (2018).
- Chetty and Agndal (2007), cited in Zucchella, Hagen and Serapio (2018).
- Coviello and Munro (1995), cited in the Week 8 tutorial slides.
- Granovetter (1973), cited in Zucchella, Hagen and Serapio (2018).
- Gulati, Nohria and Zaheer (2000), cited in Zucchella, Hagen and Serapio (2018).
- Johanson and Mattsson (1988), cited in Zucchella, Hagen and Serapio (2018).
- Johanson and Vahlne (1990), cited in Zucchella, Hagen and Serapio (2018).
- Kontinen and Ojala (2011a), cited in the Week 8 lecture slides.
- Nahapiet and Ghoshal (1998), cited in Zucchella, Hagen and Serapio (2018).
- Söderqvist and Chetty (2009; 2013), cited in the Week 8 lecture slides.
- Uzzi (1997), cited in Zucchella, Hagen and Serapio (2018).
Written from these course files
External pages used
Social capital and its three roles
Social capital is what your network is worth to you. It can speed up entry into a market, produce lucky breaks — or become a costly burden.
In plain terms, social capital has two parts: the network itself and the assets you can mobilise through it. It helps a firm reach both tangible and intangible resources held by other firms — for example, information on foreign markets.
Social capital is not automatically good. Chetty and Agndal (2007) describe three roles it plays in internationalisation, and each one is defined by how it affects the firm’s entry mode.
Social capital — the network plus the assets that can be mobilised through it — plays three roles in internationalisation: it can be used deliberately (efficacy), produce unplanned opportunities (serendipity) or become a burden (liability).
The actual and potential resources embedded within, available through and derived from a network of relationships. It gives access to tangible and intangible resources, such as information on foreign markets.
The firm actively draws on and proactively exploits its social capital to internationalise. This role helps with market entry and with adapting the entry mode.
Example — A founder deliberately asks a former colleague abroad to introduce the firm to distributors.
“The unexpected events arising from a firm’s social capital that trigger a mode change” (Chetty and Agndal, 2007:11). The change is not initiated by the firm. A wider network creates more chances for such events.
Example — A government agency, customer or distributor unexpectedly introduces the firm to a new partner.
The trigger for change caused by the high cost and time needed to monitor and sustain social capital in poorly performing partnerships that do not achieve the expected sales (Chetty and Agndal, 2007:12). Over-embeddedness can also reduce performance (Uzzi, 1997).
Example — A foreign agent who takes a lot of management time but delivers few sales.
What the serendipity role looks like in practice
What the liability role looks like in practice
Chetty and Agndal (2007) frame all three roles around entry mode and change. Efficacy is a deliberate choice or adaptation of mode; serendipity is a mode change that an outside event triggers; liability is a trigger for change caused by the cost of sustaining a poorly performing partnership. This makes the roles a natural bridge between this week and the Week 7 entry modes.