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					 THE LIMITS OF COMPETITION &
 FRONTIERS OF COOPERATION:
Business Groups & Interfirm Networks

               Mark Fruin
       Organization & Management
        College of Business, SJSU
     Rock Center for Entrepreneurship,
                   HBS
       WHY THIS TOPIC?
 BECAUSE GEOFF JONES ASKED ME
 JAPANESE FIRMS ARE USUALLY TIED TO
  BUSINESS GROUPS & INTERFIRM
  NETWORKS IN ONE WAY OR ANOTHER
 COOPERATION IS UNDERSTUDIED IN
  BUSINESS & ECONOMICS
           DEFINITIONS

 BUSINESS GROUPS - INTRAGROUP
  TRANSACTIONS ARE LOW AND TIES OF
  LOCATION & OWNERSHIP ARE HIGH
 INTERFIRM NETWORKS - INTRAGROUP
  TRANSACTIONS ARE HIGH AND TIES OF
  OWNERSHIP AND LOCATION OFTEN ARE
  NOT
   WHERE INTRAGROUP
 TRANSACTIONS ARE HIGH

 ASSOCIATED WITH SIZE, SHAPE,
  DENSITY, COHESIVENESS OF
  NETWORK
 ECONOMIES OF SCALE & SCOPE
 COMPLEMENTARITIES IN RESOURCES
  & CAPABILITIES
 ENVIRONMENTAL & INSTITUTIONAL
  FACTORS
       HISTORICAL SHIFT?

 BUSINESS GROUPS WERE MORE COMMON
  BECAUSE OWNERSHIP & BUS ACTIVITIES
  WERE GENERALLY LOCALIZED
 INTERFIRM NETWORKS ASCENDANT:
  NEW TECHNOLOGIES, NEW MARKETS,
  NEW STRATEGIES & NEW NOTIONS OF
  CORPORATE GOVERNANCE
     INTERFIRM NETWORK
      More Formal Definition
 “NETWORK ORGANIZATIONS ARE
  COMPOSED OF SETS OF
  INDEPENDENT ACTORS WHO
  COOPERATE OFTEN FOR MUTUAL
  ADVANTAGE AND, IN THE PROCESS,
  CREATE COMMUNITIES OF PRACTICE,”
 Fruin, Network, Markets & the Pacific Rim, 4
            KEY WORDS
   SETS
   INDEPENDENT ACTORS
   COOPERATE OFTEN
   MUTUAL ADVANTAGE
   COMMUNITIES OF PRACTICE
       COMPETITION &
   COOPERATION IN BIOLOGY
 SINGLE-CELLED PROKARYOTES (no mem-
  brane around nucleus)ARE ORIGINS OF LIFE
  – COMPETE NON-INTERACTIVELY WITH OTHER
    PROKARYOTES FOR SURVIVAL
 MULTICELLED EUKARYOTES ARE
  SPECIALIZED INTERNALLY
  – SPECIALIZATION INCREASES
    FUNCTIONALITY, VARIETY AND
    VULNERABILITY
WHICH IS OLDER (BETTER)?

 PROKARYOTES APPEARED 3.75-4
  BILLION YEARS AGO
 EUKARYOTES APPEARED 2 BILLION
  YEARS AGO
 PROKARYOTES TWICE AS OLD
 BUT BOTH ARE TERRIBLY OLD AND
  USEFUL/FRUITFUL ADAPTATIONS ARE
  NOT DIRECTLY A FUNCTION OF TIME
 WHICH IS A BETTER MODEL
     OF EVOLUTION?
 CHARLES DARWIN - SURVIVAL OF THE
  FITTEST AT THE INDIVIDUAL LEVEL OF
  SELECTION
  – CLOSER TO PROKARYOTE, SINGLE-CELL,
    INDIVIDUAL UNIT OF SELECTION MODEL
 DARWIN DID NOT HAVE THE BENEFITS
  OF CELLULAR & MOLECULAR BIOLOGY,
  BIOCHEMISTRY, PHYSICAL CHEM
   ALTERNATIVE TO DARWIN

 DR. LYNN MARGULIS ADVANCES THE
  ENDOSYMBIOTIC HYPOTHESIS IN 1981
  (Origin of Species, 1859)
 EUKAROYOTIC CELLS ORIGINATED AS
  PROKARYOTIC ELEMENTS THAT ENTERED
  HOST CELLS
 HOST CELLS & FOREIGN ELEMENTS DEVELOP
  MUTUAL & SYMBIOTIC RELATIONSHIPS
   ANOTHER EVOLUTIONARY
         PATHWAY
 “LIFE DID NOT TAKE OVER THE GLOBE BY
  COMBAT, BUT BY NETWORKING,”
  Symbiotic Planet, 1998.
 ENDOSYMBIOSIS --> MULTICELLULAR
  LIFE --> SYMBIOTIC VARIATION -->
  SOURCES OF EVOLUTIONARY NOVELTY
  DARWIN WAS HALF-RIGHT
 BUT DARWIN GOT THERE FIRST
 HIS COMPETITION & SURVIVAL OF THE
  FITTEST AT THE INDIVIDUAL LEVEL OF
  SELECTION MODEL --> CORNERSTONE OF
  NATURAL & SOCIAL SCIENCES
 IN ECONOMICS, MARKETS AND HIERARCHIES
  ARE COMPETITION-BASED MODELS OF
  ORGANIZATION
      COMPETITION, NOT
       COOPERATION
 COMPETITION AS THE MODEL OF
  SURVIVAL, GROWTH & EVOLUTION
 COOPERATION IS INFERIOR TO
  COMPETITION, ILL-LEGITIMATE, AND
  POSSIBLY ILLEGAL
 EXAMPLES OF COOPERATION IN
  BUSINESS ARE SUSPECT, OF LIMITED
  IMPORTANCE & IRREVEVANT
   MORE THAN A METAPHOR

 NETWORK ORGANIZATIONS ARE
  MODELS OF HOW THINGS WORK IN THE
  WORLD
 NETWORK ORGANIZATIONS EMBODY A
  THEORY OF LIFE : EVOLUTION MOVES BY
  SPECIALIZATION, VARIATION, SYMBIOTIC
  & STRUCTURED INTERACTIONS
     4 KINDS OF NETWORKS
 REGULAR - THE AVERAGE PATH LENGTH
  CONNECTING ALL NODES IS MORE OR LESS
  THE SAME
 SCALE-FREE (SMALL WORLD) - A FEW NODES
  ARE LINKED TO MANY BUT MOST NODES ARE
  LINKED TO JUST A FEW (HUB-BASED)
 HIERARCHICAL - SUB-SYSTEMS FUNCTION
  AUTONOMOUSLY & INTERACT SEQUENTIALLY
 CHAOTIC - VARIABILITY IN WHICH NODES ARE
  CONNECTED TO OTHERS & AVERAGE PATH
  LENGTHS; FINITE # OF STABLE
  ALTERNATIVES
    IMPORTANCE OF INITIAL
        CONDITIONS
 IN BIOLOGY AND SOCIAL SCIENCES,
  INITIAL CONDITIONS POWERFULLY
  AFFECT WHAT COMES AFTER
 HELP EXPLAIN WHY COOPERATION IS
  WIDESPREAD IN BIOLOGY BUT NOT SO
  WIDESPREAD OTHERWISE
 – IMPORTANCE OF LONG DURATIONS
 – REGULATORY EFFECTS
 – INSTITUTIONAL ISOMORPHISM (IRON CAGE)
 – PATH DEPENDENCY (NTWRK
   EXTERNALITIES)
 BUSINESS GROUPS & INTERFIRM
 NETWORKS IN TWO-DIMENSIONAL
           WORLD
 NETWORK ORGANIZATIONS SUPPLE-
  MENT & COMPLEMENT MKTS & HIER
 – THE TRANSNATIONAL FIRM
 NETWORK ORGANIZATIONS AS
  SUBSTITUTES WHEN MARKETS &
  HIERARCHIES FAIL
 – THE METANATIONAL FIRM (DOESN’T GO
   THIS FAR; SOMEWHERE IN-BETWEEN)
      B.G. & I.N. IN A THREE-
      DIMENSIONAL WORLD
 SIZE & STRUCTURE MATTER
  – ARROW, LIMITS OF ORGANIZATION (FIRM)
 CENTRALITY, POSITION, VERSATILITY, STRTRL
  EQVLNC, HETEROGENEITY, COMPLEXITY,
  DENSITY, DURATION, & INTENSITY MATTER IN
  TWO WAYS
  – FUNCTIONALITY
  – VARIATION -->NOVELTY -->EVOLUTION
 TOYOTA MOTOR COMPANY
 SUN MICROSYSTEMS
       IS THE FIRM DEAD?
 NO, BUT IT ISN’T VERY GOOD AT
  HANDLING LARGE, COMPLEX PROBLEMS
 IN NATURE & LIFE, LARGE, COMPLEX
  PROBLEMS BEST HNDLD COOPERATIVELY
 COOPERATION IN LARGE COMPLEX
  SYSTEMS WHERE FIRMS ARE NODES
  DIFFERS FROM
 FIRM-BASED, QUASI-NETWORK/NTWRK-
  LIKE LARGE ORGANIZATIONS
  COOPERATION AS LIFE (AND
      LIFE STRATEGY)
 COOPERATION AS STRUCTURED
  SYMBIOTIC INTERACTIONS IN NETWORKS
 GLOBALIZATION REQUIRES COOPERATION
 NEW TECHNOLOGIES ENABLE COOP
 BUSINESS GROUPS (?) & INTERFIRM
  NETWORKS --> MORE SIGNIFICANT &
  CENTRAL GOING FORWARD

				
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