Balance of embeddedness and independency

As stated, interdependencies between the actors enable firms to develop and exploit their own resources and those of others effectively (e.g. Donaldson and O’Toole, 2007). On the other hand, interdependencies also constrain the abilities of firms to develop and implement their own independent strategies (Ford and Håkansson, 2013). Thus, firms should not be too entangled in restrictive relationships, but to maintain a certain level of freedom to maneuver, bargain and even attack in order to secure their own interests. In other words, firms should be at the same time embedded in cooperative interactions but independent enough to wield their power to their own advantage (De Wit and Meyer, 2010; Staber, 2005). The factors that cause interdependencies between actors are discussed in the next subsections.

3.1.1 Resource-dependency

The resources an actor uses and has access to, as well as influences and controls, constitute the resource portfolio, or resource profile (e.g. Chetty and Wilson, 2003) of the actor. Basically, resources can be characterized as tangible or intangible, i.e. physical and non-physical resources (De Wit and Meyer, 2010; Johnson et al., 2006). Johnson et al. (2006) consider resources under four broad categories: physical resources, financial resources, human resources and intellectual capital. Moreover, resources can be divided into threshold resources, which are essential to a firm to be able to compete in a given market in general, and unique resources that critically underpin competitive advantage. As we have moved into a knowledge-based economy,

knowledge in its many forms has replaced traditional tangible assets as the primary source of competitive advantage (Birchall and Tovstiga, 2005).

The efficiency and effectiveness of resources depends on not just their existence, but on how they are managed. Thus, in order to use their resources effectively, firms need competences or capabilities, i.e. activities and processes through which they deploy their resources (e.g. Johnson et al., 2006; Grant, 2010). For long-term success, firms need to upgrade their resource and capability bases continuously (Grant, 2010).

As firms are rarely able to perform all their activities in-house, they rely increasingly on external knowledge to foster innovation and enhance their performance (Lichtenthaler, 2009). In any relationship, resource ties and interfaces will create interdependencies between the actors, as well as between relationships (Munksgaard, 2010). As stated above, networks are a means for overcoming resource constraints, and an essential component in benefiting from external relationships is how well the participants can utilize each other’s resources and capabilities (Chetty and Wilson, 2003; Rajala and Westerlund, 2008). According to resource-dependence theorists, firms must acquire control over critical resources in order to decrease their dependence on other firms and, on the other hand, acquire control over resources that increase the dependence of other firms on them (Barringer and Harrison, 2000). Thus, inter-firm relationships can also be considered as strategic resources in themselves (Ivens et al., 2009).

However, even if networking is often seen to increase the competitive advantage of firms (e.g.

Doz, 1996; Fuller-Love and Thomas, 2004), this does not mean that the actors should share everything with each other –firms have certain unique resources and core competences which should be protected from others (Johnson et al., 2006). What then is the “suitable” level of resource-exchange? This is discussed next in connection with the actors’ associability, as well as the power relations and trust between the actors.

3.1.2 Associability

Social exchange is a necessity for valuable relationships (Westerlund and Svahn, 2008). Several studies suggest that social relationships and personal ties play a crucial role in developing business networks (see e.g. Hite and Hesterly, 2001; Vanhaverbeke, 2001; Pikka, 2007), and thus building social relationships with surrounding parties is a vital networking capability for firms.

However, a social network cannot be built by itself, it requires that the actors in the network enhance the network’s social capital collectively (Leana and Van Buren, 1999).

Social capital is the resource which reflects the character of the social relationships of a firm (Leana and Van Buren, 1999), i.e. the sum of actual and potential resources that are embedded in, available through, and derived from the network by its actors (Nahapiet & Ghoshal, 1998;

Leana & Pil, 2006). No network can exist without some flow of social capital between its actors.

However, the level and nature of this flow may vary remarkably, because the actors may balance the aims for private and public goods (see e.g. Leana and Van Buren, 1999; Burt, 1997) differently and thus have different levels of associability (Van Buren, 2008; Wagner, 1995).

Associability has two components: the affective component, which means willingness to subordinate individual goals to collective goals, and the skill-based component, which refers to the ability to coordinate activities according to set goals (Van Buren, 2008). It thus requires more than just interdependence between the actors, because it demands the ability to interact socially with each other and also willingness to subordinate individual desires to group objectives (Leana and Van Buren 1999; Wagner, 1995). According to Leana and Van Buren (1999) and Pearse (2009), the outcome of any opportunity to engage in social ties is mediated by associability and trust. Every partnership and network is thus always to some degree dependent on the social assets of its participants.

3.1.3 The impact of power and trust

Not all firms have the same ability to appropriate value from partnerships, as the appropriation capacity depends on the firm's relative bargaining power, which is again a result of their resource basis (Lavie 2007). Since the conditions of the actors are rarely equal, the outcome of any particular exchange depends upon the relative power of the partners involved - the partner who has less power is more dependent on the more powerful one. Studied from various theoretical viewpoints, power can have its source in tangible or intangible assets as well as different positions in networks, groups or markets (Belaya and Hanf, 2009; De Wit and Meyer, 2010;

Meehan and Wright, 2012). It is agreed upon that the partner who has more power has access to more resources (Davern, 1997; Belaya and Hanf, 2009).

For some authors, power is one of the greatest deterrents to trust (Mukherjee et al., 2013). Trust is often seen as a prerequisite for successful cooperation (e.g. Elmuti and Kathawala, 2001).

According to Elmuti and Kathawala (ibid.), building trust is the most important and also the most difficult aspect of a successful partnership. Partnerships between actors should be formed to enhance trust between individuals, because only people can trust each other, not firms.

Moreover, trust generates social capital between the partners and enables them to solve mutual problems and conflicts that arise during the partnership (Mukherjee et al., 2013). However, e.g.

Staber (2011) argues that some partnerships may be intense but short-term, based on complementarity rather than redundancy, and oriented more to ”knowing-whom” than to building trust. Thus, not all partnerships require a complete level of trust between the partners, but the actors should find a balance between protecting their assets and establishing trust with their partners (Hagedoorn, 2002).