Competition in business networks

Highlights

• Challenges competition as the main driver of company and network evolution.

• Emphasises the role of relationship development.

Abstract

Most of those who write about marketing or strategy appear to view competition as the overarching logic of business. Commentators have usually associated competition with improved economic efficiency and customer well-being: they have regarded it as “a good thing”, at least in the abstract or when it only affects others. In contrast to the widespread interest of other researchers and the preoccupations of managers with competition, researchers within the IMP tradition have devoted hardly any attention to the issue in over thirty years of research and the term occurs only infrequently in the IMP literature.

This paper seeks to contribute to our understanding of the connections between competition and cooperation in business networks. In doing so, the paper also aims to provide an explanation for the lack of attention to the concept of competition from IMP literature by examining the value of competition as an explanatory variable in the interacted business landscape which has been the focus of IMP research. The paper starts by looking briefly at the points of origin of the interactive interpretation of business within earlier marketing and channel research as well as in earlier IMP empirical research. This research then forms the base from which we develop an analytical discussion of the explanatory value of the concept of competition in business network settings.

Introduction

The word “competition” seems to occur constantly in the conversations of managers and in the pronouncements of politicians. Influential commentators on marketing or strategy appear to view competition as the overarching logic of business:

“The essence of strategy formulation is coping with competition”.

Porter (1979, 137)

Many of these commentators associate competition with improved economic efficiency and customer well-being and regard competition positively, at least in the abstract or when it affects others. However, as long ago as 1965, Wroe Alderson suggested that the conflictual aspects of the relationships between companies had received far more attention than the cooperative ones, both by researchers and practitioners. He considered this to be a major problem and commented:

“Sometimes the element of conflict is so pronounced that an efficient channel can scarcely be said to exist” (1965, 239).

As if to answer this concern, Axelrod and Hamilton (1981) examined the processes through which cooperation can develop between apparent rivals whilst others explored some of the connections between cooperation and competition between business companies (e.g. Bengtsson and Kock, 1999, Bengtsson and Kock, 2000, Wilkinson and Young, 2002). Dyer and Singh (1998) examined the connections between cooperative strategy and competitive advantage. More recently, academic research has explored some of the nuances and limitations of competitive activity (e.g. Anand et al., 2009, Hamburg et al., 2007, Heide and Wathne, 2006). In particular, research has suggested that the concept of “coopetition” involving a mix of simultaneous or sequential cooperation and competition could be a useful descriptor of the vertical relationships between business companies (for a review, see Lacoste, 2012). Other studies have tried to explain the dynamics of long-term business relationships which could lead to a change in orientation from a relational to a transactional orientation and to examine some aspects of competitive behaviour in business triads (Upson & Ranft, 2010). Despite these studies, we still lack a coherent conceptual explanation of the interplay between competition and cooperation in business networks.

The empirical research of the IMP Group which forms the basis of this special issue has devoted hardly any attention to competition and competitors over the past thirty years and the terms occur only infrequently in the IMP literature.¹ However, IMP empirical research has highlighted a number of other characteristics of the business landscape which are germane to an analysis of competition and cooperation. These characteristics can be outlined as follows:

Business companies operate within a network of interdependencies that stretch across the business landscape. These interdependencies simultaneously constrain the abilities of companies to develop and implement their own independent strategy and enable companies to develop and effectively exploit their own resources and those of others;

The predominant process within this network of interdependencies through which business activities, resources and companies adapt and evolve is that of interaction between active counterparts.

Business interaction takes place within continuing relationships between counterparts which are individually significant to each other and through which interdependencies develop. Interaction within relationships is likely to be a prime focus of managerial activity in business companies.

Business relationships are heterogeneous. This heterogeneity extends to the combinations of activities, resources and actors which develop within them and to the interactions through which they evolve.

Ford et al., 2011, Håkansson et al., 2009, Håkansson and Snehota, 1995

This paper seeks to address the absence of a coherent conceptualisation of the connections between competition and cooperation and to explain the apparent neglect of competition within IMP literature. We try to achieve this by analysing the value of competition as an explanatory concept in the interactive business landscape, which has been the focus of IMP research. The paper begins by examining some of the earlier marketing and channel research which provides useful insight into the characteristics of business in the interactive landscape. We build on this examination by providing a brief outline of the structure and process of the business landscape drawn from IMP research. We then use this conceptual structure to carry out a theoretical analysis of a simple business network to identify where and how the concept of competition may have explanatory value in that context. The aim of the paper is not to provide a comprehensive analysis of competition in all its forms. Instead, we seek to explain from an analytical point of view how the concepts of competition and cooperation are connected and how they relate to some of the empirical findings from IMP research.